Annual Financial Report
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 2019
COMPANY OVERVIEW
Aberdeen Diversified Income and Growth Trust plc (the "Company") is an investment trust, targeting a total portfolio return (net of fees) of LIBOR (London Interbank Offered Rate) plus 5.5% per annum over rolling five-year periods. In addition to the performance objective, the Company is characterised by:
· a genuinely diversified portfolio with access to alternative asset classes;
· an attractive income with the potential to grow;
· volatility around half that of equities; and
· the broad expertise of Aberdeen Standard Investments.
FINANCIAL HIGHLIGHTS
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Net asset value total return{AB} |
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Share price total return{A} |
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2019 |
+1.1% |
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2019 |
-9.0% |
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2018 |
+2.5% |
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2018 |
+7.9%
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Revenue return per share |
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Dividend per share |
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2019 |
5.68p |
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2019 |
5.36p |
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2018 |
6.15p |
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2018 |
5.24p
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Ongoing charges{A} |
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(Discount)/premium to net asset value (capital basis){AB} |
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2019 |
0.84% |
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2019 |
(7.6%) |
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2018 |
0.88% |
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2018 |
3.2% |
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{A} Considered to be an Alternative Performance Measure. |
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{B} Debt at fair value. |
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CHAIRMAN'S STATEMENT
Performance
Over the year ended 30 September 2019, the Company's net asset value ("NAV") per share, with debt at fair value, rose by 1.1% on a total return basis. Reflecting this performance against a backdrop of rising equity and bond markets, the Company's shares moved from a premium to NAV (with debt at fair value) of 3.2% to a discount of 7.6% which saw the Company's share price end the year at 108.00 pence, compared to 124.50 pence at 30 September 2018, resulting in a disappointing total return to shareholders over the year of -9.0%.
It has been a frustrating period for performance. The portfolio has delivered a high level of income in line with the Board's expectations but the capital value has been impacted by our exposure to insurance linked securities and to a lesser extent the recent short selling attack on Burford Capital. Further information on these results and portfolio strategy may be found in the Investment Manager's report which follows.
I am conscious that this reporting period marks the end of the first half of the initial five year period against which our investment objective will be measured. For the period starting from our adoption of the new investment objective, that is from 31 March 2017, to 30 September 2019, the Company's share price total return was 5.0% and net asset value total return (calculated with debt at fair value) was 8.5% whilst LIBOR plus 5.5% per annum was 16.3%.
Portfolio
As I relayed in my Chairman's Statement twelve months ago, the Board believes that your Company offers shareholders an attractive longer term investment proposition through its investment in a broad range of asset classes, both listed and unlisted. This is especially so in the continuing investment climate of low bond yields and volatile global equity markets.
It is worth highlighting, therefore, the progress made by the Investment Manager towards achieving the target asset allocation, in particular the increase in longer term private market investments. The portfolio now includes 16 such investments, equivalent to 40% of net assets, the majority of which are opportunities not otherwise open to many investors.
The losses incurred by insurance linked securities due to storms and wildfires in California were disappointing but it is pleasing to see valuation uplifts for other investments and asset classes including, as examples, Truenoord (aircraft leasing) and the Harbourvest and Mesirow private equity funds. The portfolio consists of a diverse range of assets which should, over the medium term, deliver more consistent returns whilst supporting income and the quarterly dividends which are paid.
Earnings and Dividends
The Company's revenue return for the year ended 30 September 2019 was 5.68 pence per share, compared to 6.15 pence per share for the prior year.
Three interim dividends of 1.34 pence per share were paid to shareholders on 29 March 2019, 5 July 2019 and 11 October 2019, respectively. The Board is declaring a fourth interim dividend of 1.34 pence per share to be paid on 24 January 2020 to shareholders on the register on 27 December 2019. The ex-dividend date is 24 December 2019. Total dividends for the year are 5.36 pence per share, 2.3% higher than the 5.24 pence per share paid in the prior year.
For the year to 30 September 2020, the Board currently intends to declare four quarterly dividends of 1.36 pence per share or 5.44 pence per share in total. This would represent an increase of 1.5% which is equivalent to consumer prices inflation over the year ended 30 September 2019. The Company's policy, as stated in its March 2017 prospectus, is to "pay an attractive dividend consistent with the underlying portfolio yield". The Board believes this to be the case with a current dividend yield of 5.0% based on the year end share price of 108.0 pence and substantial revenue reserves held by the Company to smooth payments in future years, if required, which should give shareholders a level of comfort regarding regular income payments.
As in previous years, the Board intends to put to shareholders at the next Annual General Meeting ("AGM") on 26 February 2020 a resolution in respect of its current policy to declare four interim dividends each year.
Policy on Discount Management and Issuance of Shares or Sale of Shares from Treasury
As a result of changing market demand, the Company's shares moved from a premium of 3.2% at 30 September 2018 to a discount of 7.6% at 30 September 2019 (all figures calculated with debt at fair value and excluding income).
Despite issuing 2.2 million shares with a value of £2.7 million from treasury over the year ended 30 September 2018 and further issuance into November 2018, a total of 7.9 million shares were repurchased for a value of £8.5 million over the last four months of the year ended 30 September 2019. This is in line with the Board's discount management policy which is to seek to maintain the Company's share price discount to net asset value (ex income, with debt at fair value) at less than 5%, subject to normal market conditions, the prevailing gearing level and the composition of the Company's portfolio.
Since the year end, an additional 2.1 million shares have been bought back into treasury at a cost of £2.2 million. The Board, alongside the Investment Manager, is frustrated by the de-rating of the Company's shares. Recent meetings held by the Investment Manager with institutional shareholders, who invest on behalf of their clients, suggest that, despite challenging performance for one or two of our holdings as highlighted in the Investment Manager's report, shareholders are supportive of the mandate which gives access to a wide selection of alternative asset classes and understand the time that it can take for commitments to be made and returns to be achieved.
The Board continues to monitor closely the Company's discount or premium and will seek to buy back shares in line with this policy, or indeed issue shares, if this is in shareholders' best interests.
Gearing
The Company has in place a legacy from its British Assets Trust days in the form of a £60m Bond which carries a coupon of 6.25% and does not mature until 2031. When valuing the bond at market value, net gearing, after taking account of cash balances held, increased to 12.5% at 30 September 2019, from 10.3% at 30 September 2018.
Board Composition
In line with the Board succession plan, set out in the 2018 Annual Report, Ian Russell, Paul Yates and Kevin Ingram all left the Board during the period and the other Directors and I thank them for their collective service and considerable individual contributions to the Company. Davina Walter was appointed a Director on 1 February 2019, bringing to the Board strong investment trust board leadership and investment management skills. Davina succeeded Kevin Ingram as Senior Independent Director.
Anna Troup and Trevor Bradley were appointed directors on 1 August 2019 following a formal search undertaken by an independent search consultancy. Anna qualified as a lawyer with Slaughter and May and has been employed in the financial services industry since 1997, having spent over 10 years at Goldman Sachs and more than 12 years as an investment management professional. Trevor Bradley was a partner and member of the Management Board at Ruffer LLP, responsible for growing and leading the firm's institutional investment business and managing multi-asset portfolios for pension funds, charities and other institutions. The Board is pleased to have attracted Directors of the calibre of Anna and Trevor who will bring relevant experience to the Company and help oversee its development.
Jim Grover retired from the Board on 6 September 2019 after serving since 2013. Jim leaves the Board with its thanks for the strategic focus which he brought to its deliberations and his pursuit of clarity in the Company's shareholder communications.
The AGM on 26 February 2020 will mark my own retirement and I shall be succeeded as Chairman by Davina Walter. Julian Sinclair will succeed Davina as Senior Independent Director. I know that I leave the Company and its future in good hands.
Aberdeen Standard Investments Plans
Since April 2017 it has been possible to acquire shares in the Company via Aberdeen Standard Investments' Plan for Children, Investment Trust Share Plan and Investment Trust ISA. Further details on these plans may be found on the Company's website at: aberdeendiversified.co.uk.
AGM and Continuation
This year's AGM, which will be held at the Manager's offices at Bow Bells House, 1 Bread Street, London EC4M 9HH from 12.30pm on Wednesday 26 February 2020, will provide shareholders with an opportunity to receive a presentation from the Investment Manager and to ask any questions that they may have. The formal Notice of AGM, which may be found in the published Annual Report, includes Resolution 12 relating to the continuation of the Company. As the portfolio takes shape and the attractive investment opportunities that it offers start to deliver increased value, the Board encourages shareholders to vote in favour of the Company's continuation such that the Investment Manager's wide range of resources may be brought to bear in the delivery of the investment objective. I look forward to meeting shareholders and Aberdeen Standard Investments Planholders at the AGM.
Action to be Taken
Shareholders will find enclosed with this Annual Report a Form of Proxy for use in relation to the AGM. Whether or not you propose to attend the AGM, you are encouraged to complete the Form of Proxy in accordance with the instructions printed on it and return it in the prepaid envelope as soon as possible but in any event so that it might be received no later than 12.30pm on 24 February 2020. Completion of a Form of Proxy does not prevent you from attending and voting in person at the AGM if you wish to do so.
If you hold your shares in the Company via a share plan or a platform and would like to attend and/or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors that hold their shares in the Company via the Aberdeen Standard Investments' Plan for Children, the Aberdeen Standard Investments' Share Plan and/or the Aberdeen Standard Investment Trust ISA will find a Letter of Direction enclosed. Shareholders are encouraged to complete and return the Letter of Direction in accordance with the instructions printed thereon.
Further details on how to attend and vote at Company Meetings for holders of shares via share plans and platforms can be found in the published Annual Report and at www.theaic.co.uk/aic/shareholder-voting-consumer-platforms.
Replacement for LIBOR
As mentioned last year, the Company's investment objective contains a reference to LIBOR, the London Interbank Offered Rate. The FCA announced that LIBOR will be phased out in 2021 and the Manager continues to engage with relevant market participants whilst seeking to identify an alternative measure. As market practice continues to develop, the Board will approach shareholders to seek approval of a resulting change to the investment objective.
Conclusion
The Board remains supportive of the Investment Manager's long-term strategy of developing a diversified portfolio of assets, each with differing return drivers and risk characteristics, offering a sound proposition for investors against an often volatile global equities backdrop. The Board recognises that carefully building such a diverse portfolio of assets takes time but should see fruitful results in the medium and longer term, rather than the short term, as many of the unlisted investments mature and start to return cash. The key to creating demand for the Company's shares ultimately lies in sustained investment performance over varying cycles and the Board continues to believe that the Investment Manager is pursuing the correct strategy to unlock the portfolio's long-term potential whilst also providing investors with an ever important and appealing yield in this low interest rate environment.
James M Long
Chairman
12 December 2019
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Investment Proposition
The Company is an investment trust governed by a board of directors with its Ordinary shares listed on the premium segment of the London Stock Exchange. It outsources its investment management and administration to an investment management group, Standard Life Aberdeen plc, and other third party providers. The Company does not have a fixed life but a resolution on whether the Company should continue will be put to shareholders at each Annual General Meeting, starting in February 2020.
The Company invests globally using a flexible multi-asset approach via quoted and unlisted investments providing shareholders with access to the kind of diversified portfolio held by large, sophisticated global investors
It offers an attractive investment proposition characterised by:
- a genuinely diversified portfolio with access to a wide selection of alternative asset classes
- an attractive income with the potential to grow
- volatility around half that of equities; and
- the Board expertise of Aberdeen Standard Investments
An appropriate spread of risk is sought by investing in a diversified portfolio of securities and other assets with no set maximum or minimum exposures to any geographical regions or sectors. This includes, but is not limited to:
- 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 leverages off the spread of capabilities and experience within Aberdeen Standard Investments and may invest in funds managed by the Manager where such allocation can offer requisite exposure to certain alternative asset classes in a cost effective manner.
Investment Objective
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.
Investment Policy
The Company has the following investment restrictions, at the time of investment, which the Manager must adhere to:
- 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 unlisted 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. 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 in funds managed by the Manager.
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.
Management and Delivery of 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 Standard Fund Managers Limited ("ASFML", the "AIFM" or the "Manager"). In turn, the investment management of the Company has been delegated by ASFML to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are subsidiaries of Standard Life Aberdeen plc.
Investment Process
The Investment Manager believes that many investors could materially 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 and may include equity-focused 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 unlisted 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 Research Institute. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis. A schematic of the investment process is included in the 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.
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KPI |
Description |
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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 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 chosen peer group.
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 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.
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 seek to maintain the Company's share price discount to net asset value per share (calculated ex income with debt at fair value) at less than 5%, by repurchasing Ordinary shares in the market.
In addition, the Company has adopted a formal policy for the issuance of new shares and/or the sale of shares from treasury to meet demand for shares in the market where the Company's share price is trading at a minimum premium to its net asset value per share (calculated including income, with debt at fair value).
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Ongoing charges
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The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. 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 Results.
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Principal Risks and Uncertainties
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 Depositary (The 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 2019.
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. The following is a summary of the principal risks and uncertainties faced by the Company in relation to its day-to-day operations.
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Risk |
Mitigating Action |
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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 lower premium or higher discount. The Company may invest in unlisted alternative investments (such as litigation finance, healthcare, insurance linked securities, 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 the Board with 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 needs to consider the interaction of asset classes and how these might correlate, or offset each other, under various scenarios. |
The Board employs several strategies to monitor and assess that portfolio risk is appropriate. These include regular analysis of various risk metrics including asset class risk attribution, asset class returns and contributions to performance, particularly in periods of equity market stress, and how the current portfolio would perform in various forward-looking and historical scenarios.
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Gearing risk The Company has the authority to borrow money or increase levels of market exposure through the use of derivatives 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%. |
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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. 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.
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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. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company.
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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 The Bank of New York Mellon (International) 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 are regularly tested and monitored throughout the year which is evidenced through their industry-standard controls 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.
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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, asset allocation, stock selection, unlisted 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. |
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Financial risks The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk.
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Further details are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks.
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Gearing
The Company has in place structural gearing in the form of a £60m 6.25% Bond 2031. 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. Additional gearing may be used to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate. The Board monitors the gearing position regularly and considers alternative financing options.
Board Diversity
The Board 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. The Board initiated independent searches for new Directors following which Davina Walter was appointed a Director with effect from 1 February 2019 while Trevor Bradley and Anna Troup were appointed as Directors on 1 August 2019.
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 Aberdeen Standard Investments on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by Aberdeen Standard Investments. Aberdeen Standard Investments regularly reports to the Board giving analysis of the Programme as well as updates on the shareholder register and any changes in the composition of that register. In addition, the Board has approved additional bespoke promotional activities by the Manager focusing on specific initiatives.
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 Standard Investments' investor relations programme which involves regional roadshows, promotional and public relations campaigns.
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 review the Manager's policy that encourages 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 should 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 FRC's Stewardship Code may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being an investment 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 addition, 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. However, at the portfolio level, the Manager engages on environmental issues with underlying investments as part of its ESG policy.
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 2025, being a five year period from the date of shareholders' approval of this Report. 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, net of fees, of LIBOR plus 5.5% per 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;
- a material proportion 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 during the year;
- the annual continuation vote to be put to shareholders at the AGM on 26 February 2020; and
- 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.
Considering the liquidity of the portfolio and the largely fixed overheads which comprise a 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
12 December 2019
STRATEGIC REPORT - RESULTS
FINANCIAL HIGHLIGHTS
|
|
2019 |
2018 |
% change |
|
Total assets less current liabilities (before deducting prior charges) |
£473,182,000 |
£487,608,000 |
-3.0 |
|
Equity shareholders' funds (Net Assets) |
£413,679,000 |
£428,129,000 |
-3.4 |
|
Market capitalisation |
£348,820,000 |
£409,047,000 |
-14.7 |
|
Ordinary share price (mid market) |
108.00p |
124.50p |
-13.3 |
|
Net asset value per Ordinary share (debt at fair value)(capital basis){A} |
116.85p |
120.64p |
-3.1 |
|
(Discount)/premium to net asset value on Ordinary shares (debt at fair value)(capital basis){A} |
(7.57%) |
3.20% |
|
|
|
|
|
|
|
Gearing (ratio of borrowings less cash to shareholders' funds) |
|
|
|
|
Net gearing{A} |
12.5% |
10.6% |
|
|
|
|
|
|
|
Dividends and earnings per Ordinary share |
|
|
|
|
Revenue return per share |
5.68p |
6.15p |
-7.6 |
|
Dividends per share{B} |
5.36p |
5.24p |
+2.3 |
|
Dividend cover (including proposed fourth interim dividend){A} |
1.06 |
1.17 |
|
|
Revenue reserves{C} |
£41,633,000 |
£40,410,000 |
+3.0 |
|
|
|
|
|
|
Ongoing charges{A} |
0.84% |
0.88% |
|
|
|
|||
|
{A} Considered to be an Alternative Performance Measure. Details of the calculation can be found below. |
|||
|
{B} The figure for dividends per share reflects the years to which their declaration relates (see note 8 in the Financial Statements). |
|||
|
{C} The revenue reserve figure does not take account of the third and fourth interim dividends amounting to £4,340,000 and £4,301,000 respectively (2018 - £4,304,000 and £4,332,000). |
|||
|
PERFORMANCE - TOTAL RETURN{A} |
|||||
|
|
|
|
|
|
|
|
|
31 March 2017{B} - |
|
|
|
|
|
|
30 September 2019 |
1 year |
3 years |
5 years |
|
|
|
% return |
% return |
% return |
% return |
|
|
Net asset value - debt at par{A} |
+8.3 |
+2.6 |
+10.9 |
+9.0 |
|
|
Net asset value - debt at fair value{A} |
+8.5 |
+1.1 |
+11.4 |
+6.3 |
|
|
LIBOR +5.5% |
+16.3 |
+6.4 |
+19.7 |
+34.9 |
|
|
Share price{A} |
+5.0 |
-9.0 |
+12.5 |
+3.4 |
|
|
|
|||||
|
{A} Considered to be an Alternative Performance Measure. Total return represents the capital return plus dividends reinvested. Further details can be found below. |
|||||
|
{B} Change of Investment Objective and Investment Policy on 31 March 2017. |
|||||
|
Source: Aberdeen Standard Investments, Morningstar and Lipper. |
|||||
TEN YEAR FINANCIAL RECORD
|
Year to 30 September |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
|
Total revenue (£'000) |
17,156 |
19,166 |
21,887 |
22,382 |
23,608 |
23,120 |
23,265 |
17,961 |
23,262 |
22,106 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Per Ordinary share (p) |
|
|
|
|
|
|
|
|
|
|
|
Net revenue return |
5.0 |
5.7 |
6.6 |
6.6 |
7.0 |
7.1 |
7.6 |
5.3 |
6.2 |
5.7 |
|
Total return |
14.0 |
(5.8) |
19.6 |
19.3 |
9.3 |
(4.5) |
1.3 |
8.0 |
2.8 |
2.6 |
|
Net dividends payable |
6.112 |
6.112 |
6.112 |
6.252 |
6.44 |
6.54 |
6.54 |
5.89 |
5.24 |
5.36 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Net asset value per Ordinary share (p) |
|
|
|
|
|
|
|
|
|
|
|
Debt at par value |
129.8 |
117.9 |
131.4 |
144.5 |
147.5 |
136.6 |
131.6 |
132.7 |
130.3 |
128.1 |
|
Debt at fair value |
127.0 |
114.8 |
125.1 |
139.3 |
143.3 |
131.0 |
123.6 |
126.4 |
124.2 |
119.9 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Equity shareholders' funds (£'000) |
377,793 |
343,293 |
382,535 |
418,345 |
426,865 |
374,832 |
351,521 |
436,767 |
428,129 |
413,679 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
DIVIDENDS
|
|
Rate |
xd date |
Record date |
Payment date |
|
First interim 2019 |
1.34p |
7 March 2019 |
8 March 2019 |
29 March 2019 |
|
Second interim 2019 |
1.34p |
13 June 2019 |
14 June 2019 |
5 July 2019 |
|
Third interim 2019 |
1.34p |
19 September 2019 |
20 September 2019 |
11 October 2019 |
|
Fourth interim 2019 |
1.34p |
24 December 2019 |
27 December 2019 |
24 January 2020 |
|
|
_____ |
|
|
|
|
2019 |
5.36p |
|
|
|
|
|
_____ |
|
|
|
|
First interim 2018 |
1.31p |
15 March 2018 |
16 March 2018 |
29 March 2018 |
|
Second interim 2018 |
1.31p |
28 June 2018 |
29 June 2018 |
27 July 2018 |
|
Third interim 2018 |
1.31p |
20 September 2018 |
21 September 2018 |
12 October 2018 |
|
Fourth interim 2018 |
1.31p |
27 December 2018 |
28 December 2018 |
25 January 2019 |
|
|
_____ |
|
|
|
|
2018 |
5.24p |
|
|
|
|
|
_____ |
|
|
|
STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT
Portfolio strategy
- Exposure to litigation finance, healthcare royalties and Latin American infrastructure was added to the portfolio via longer term, private market style investments which target highly attractive returns, including a high level of income, and have significant diversification benefits
- Traditional asset classes such as listed equities and developed market government bonds have performed well over recent years and are generally trading on high valuations. As a consequence, our preference is for alternative asset classes which enhance portfolio returns and diversification
We are conscious that this reporting period marks the end of the first half of the initial five year period against which our investment performance is being measured. The forthcoming general meeting also allows shareholders to vote on the continuation of the company. In recent weeks, we have met a number of our larger, institutional shareholders - those who invest their clients' savings in the Company in order to gain unique access to the longer term investments that we have identified. All of them have been pleased with the alternative asset classes that the Company provides access to and the developing shape of the portfolio. As a measure of the progress we have made, the table overleaf splits the portfolio into broader asset groupings - equity, physical assets, fixed income & credit, and other - and also shows our exposure to unlisted investments. The table also shows the target allocation on full deployment of our long term fund investments which underpin our expectation of an attractive return (including a high level of income) from the portfolio.
The investment background over the year to 30 September 2019 can be best characterised by a combination of weak global economic growth, unruly political discourse and accommodative monetary policy. The investment performance of the mainstream asset classes was driven, to a large extent, by the interaction of these parameters. Government bonds were viewed as a safe haven amid a worsening growth outlook and the period ended with UK 10 year gilt yields at less than 0.5%, close to a record low. This level of "risk-free" interest rates fed through to increased demand for investment grade corporate bonds and some longer term assets such as physical infrastructure. Further up the risk curve, emerging market bonds also fared well. Global equities, on the other hand, made very little progress. Equity indices fell sharply at the end of 2018 - ostensibly in response to a weakening corporate earnings outlook and also to rising trade tensions between the US, China and Europe - before embarking on a steady recovery as policy makers signalled clearly that they were no longer looking to raise interest rates. Indeed, by the end of our reporting period, the US Federal Reserve had eased monetary policy twice.
Our portfolio allocation approach is underpinned by the medium term return prospects for each asset class. The factors highlighted above are typical of the main drivers of short term returns, but, over a more sensible time frame, valuation - the price paid for an asset - plays an important role in determining the future return on an investment. In our view, mainstream assets - such as developed market government bonds, corporate credit and listed equities - appear fully valued and do not currently have attractive medium term return prospects. As at September 2019, the Manager's published five year forecasts for sterling investors for these three asset classes were +0.2%, +0.6% and +3.5% p.a. respectively. This underpins our preference for alternative asset classes: we hold no developed market government bonds or investment grade credit and our listed equity allocation remains low compared to other multi-asset funds.
As we have noted in previous reports, the Company's multi-asset approach, combined with its flexible investment policy, allows it to invest in the widest range of alternative asset classes. This enables the Company's shareholders to access funds and managers that are not otherwise open to individuals or, indeed, UCITS-regulated funds. During the year, we identified four new, longer term investments and made initial allocations to three of these - in litigation finance, healthcare royalties and Andean social infrastructure. Including this additional £78m, our commitment to sixteen longer term investments now totals just over 40% of net assets. As the managers of these investments identify assets that meet their investment criteria, they request capital from us (up to the limit of our commitment) which we fund by selling other assets or from cash. Each long term investment has a pre-defined period during which the manager can acquire new assets and then a subsequent period to develop and sell these assets. This type of structure enables our chosen managers to invest over periods of several years which, in most cases, allows them to target double digit percentage annual returns over the life of the investment.
Outside of the natural evolution of the portfolio, dictated by the continued progression of our longer term investments, we made only a small number of changes to the portfolio structure over the year. Our allocation to infrastructure and also to special opportunities - which comprises smaller asset classes such as litigation finance and healthcare royalties - has increased as a result of our new deployments. Our allocation to emerging market bonds has risen as a result of the strong performance of our sub-portfolio of bonds. Very disappointingly, our exposure to insurance linked securities has reduced because of losses caused by storm and fire events since 2017. We report on these developments below.
Performance
- The portfolio delivered an NAV total return (with debt at fair value) of +1.1% over the year ended 30 September 2019
- Emerging market bonds and infrastructure contributed strong gains but these were largely offset by losses from insurance linked securities and, to a lesser extent, listed equities
The share price total return of -9.0% was adversely impacted by a lower rating for the Company's shares, resulting in a premium of 3.2% at 30 September 2018 turning to a discount of 7.6% at 30 September 2019.
The period under review began with a sharp fall in risk assets in the final quarter of 2018 - the MSCI World Index hedged to GBP fell by 17.5% and the FTSE All Share Index by 12.2% - as global investors reacted to the uncertain outlook for economic growth and corporate profits as well as a breakdown in US - Sino trade relations. In 2019, as policymakers signalled a willingness to adopt a supportive stance on monetary policy, asset prices began a gradual recovery. By the end of the reporting period, the US Federal Funds rate had been reduced by 0.5% which prolonged the rally and enabled global and UK equities to deliver returns of 1.3% and 2.6% respectively on the above indices over the year to 30 September 2019. Developed market bonds performed especially well - for example, the FTA Conventional Gilts All Stocks Index returned +13.4% - but were trumped by emerging market bonds where the JPMorgan GBI-EM local currency index returned +16.6% in sterling terms over the reporting period.
Allocation across Asset Categories and Classes
|
Asset Category |
Asset Class |
Allocation on full deployment of existing commitments (excluding ILS) % |
%age of Net Assets |
|||||
|
30 Sept. 2019 |
31 Mar. 2019 |
30 Sept. 2018 |
31 Mar. 2018 |
30 Sept. 2017 |
31 Mar. 2017 |
|||
|
Equity |
Listed equity |
20.0 |
20.3 |
21.4 |
22.0 |
20.2 |
26.0 |
50.5 |
|
|
Private equity |
6.0 |
4.3 |
4.1 |
3.8 |
2.7 |
2.8 |
1.3 |
|
Physical assets |
Property/Infrastructure/ Transport/Agriculture /Gold |
31.0 |
27.3 |
22.4 |
20.9 |
18.3 |
13.1 |
11.0 |
|
Fixed Income & credit |
Emerging market bonds/Asset-backed securities/Loans/High Yield/Developed Government bonds |
42.5 |
48.3 |
48.6 |
46.9 |
52.5 |
52.5 |
33.8 |
|
Other assets |
Insurance-linked/Litigation finance/Healthcare royalties/Direct lending/Absolute return |
11.5 |
10.6 |
13.9 |
16.8 |
15.7 |
14.8 |
7.1 |
|
|
|
|
|
|
|
|
|
|
|
Total investments |
111.0 |
110.8 |
110.4 |
110.4 |
109.4 |
109.2 |
103.7 |
|
|
Net borrowings |
(11.0) |
(10.8) |
(10.4) |
(10.4) |
(9.4) |
(9.2) |
(3.7) |
|
|
Net Assets |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Unlisted investments |
42.5 |
26.3 |
18.3 |
19.2 |
14.0 |
6.3 |
5.2 |
|
Source: Aberdeen Standard Investments
Your portfolio's return of +1.1% in terms of NAV total return was broadly in line with the return from equities during this period. The benefit of holding a diverse range of assets was reflected in the maximum NAV decline of -6.2% which was less than half of the worst fall in global equities. The portfolio return included a very strong contribution from our high weighting in emerging market bonds (+4.4%) and a notable contribution from infrastructure (+1.8%). Other asset classes which contributed positively included asset backed securities, global loans and private equity. The main detractors from performance were insurance linked securities (-3.9%) and listed equities (-1.1%) with special opportunities, absolute return and property also contributing negatively. We will comment on these asset classes in later sections of this report. As we noted in the Interim Report to shareholders, the NAV performance figures reported above included an uplift of around +0.6% arising from the recognition of a deferred tax asset. This followed a review of the Company's projections for future income. The Company's investment policy generates income from a diverse range of sources and there is now reasonable certainty that future profits will include taxable elements which will enable offset of thus far unutilised management expenses. It is also worth highlighting that share issuance and repurchase activity carried out throughout the year in accordance with the Board's policy on discount control had a small positive impact on NAV per share.
Over the period since the change in investment policy on 31 March 2017, the portfolio has delivered a NAV total return of +8.5% (with debt measured at fair value). The portfolio has delivered a high level of income in line with the Board's expectations but the capital value has been reduced by around 5% as a result of the losses in insurance linked securities. This means that the portfolio is lagging behind the Company's investment objective, net of fees, of LIBOR plus 5.5% per annum measured over rolling five year periods. In addition, the recent weakness of the share price has further restricted the total return to shareholders since 31 March 2017 to +5.0%.
At the shareholder meetings referred to in the previous section, frustration was expressed at the recent de-rating of your Company's shares. As the Chairman has commented, as shareholders ourselves, we and the Directors fully share that sentiment. Ultimately, it is investment performance that drives demand for the shares of all investment trusts. All of us are working hard to deliver on the potential that we can see within the portfolio and, via marketing and other efforts, ensure that this can attract new shareholders to invest in your Company.
Listed equity
% of Net Assets reduced from 22.0% to 20.3%
We expect listed equity returns to be lower than their long-term average. This is partly a function of subdued long-term economic growth expectations, but also due to cyclically-stretched profit margins, especially in the US. However, we do have some concerns about the outlook for the business cycle. While our base case is for the continuation of sluggish economic growth, there is a relatively high downside risk of a global recession. Our forecasts are averages across scenarios so this downside risk skews our outlook over shorter term periods. Overall, we forecast an average return of 3.5% per annum for sterling investors over the next five years and, during the period, we made a modest reduction in our exposure to equities.
For the first eight months of 2019, the background of sluggish economic growth and low / falling interest rates and bond yields was reflected in a sharp re-rating of "growth" equities. Time will tell if the failed IPO of the short term office company, WeWork, has marked "peak growth" in the current market cycle. With the valuation disparity between growth and value styles close to record levels, the recent rotation back in favour of value has benefitted the Smart Beta Low Volatility Global Equity Income Fund, which predominantly focusses on high quality, good value businesses. Nevertheless, its underperformance during the growth-driven market of 2019 has been a noticeable drag on portfolio returns. The fund's largest holdings and sector / regional positions are noted below.
Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund
|
Top 5 positions |
Country |
Sector |
% of Net Assets as at 30 September 2019 |
|
Allergan |
United States |
Healthcare |
0.3% |
|
Astellas Pharma |
Japan |
Healthcare |
0.3% |
|
Consolidated Edison |
United States |
Utilities |
0.3% |
|
Dominion Energy |
United States |
Utilities |
0.3% |
|
Itochu Corporation |
Japan |
Industrials |
0.3% |
|
|
|
|
|
|
Top 5 sectors |
% of Net Assets as at 30 September 2019 |
Top 5 countries |
% of Net Assets as at 30 September 2019 |
|
Utilities |
3.0% |
United States |
6.7% |
|
Healthcare |
2.5% |
Japan |
4.3% |
|
Consumer Staples |
2.0% |
UK |
0.9% |
|
Financials |
1.9% |
Australia |
0.7% |
|
Information Technology |
1.8% |
South Korea |
0.7% |
Alternative asset classes (private equity)
% of Net Assets broadly unchanged at 4.3%
Our private equity holdings performed well during the period. The Harbourvest and Mesirow private equity funds, which are selling down their remaining assets, benefitted from the buoyant market conditions. In March 2018, we invested £6.3m to acquire stakes in these funds. By the end of September 2019, we had received distributions of £2.6m and our remaining stakes had increased in value to £6.5m. ASI's Private Equity team, who identified this profitable opportunity for us, have recently launched a new fund, Aberdeen Standard Secondary Opportunities Fund IV (SOF IV), which allows us to access this strategy in a more diversified format as our existing exposures wind down. The Board has approved a commitment of £20m to SOF IV. In line with the policy on ASI funds of this type, there will be no additional fee charged on this investment.
TrueNoord, the aircraft leasing business in which we own an equity stake, alongside the management team and other financial backers, continues to develop in line with our expectations. We made a small incremental investment during the period and, in addition, the company raised equity capital from new investors and negotiated a new five year debt facility in order to fund its fleet expansion plans. In early October, TrueNoord acquired six additional aircraft, leased to Republic Airways, its first deal in the United States. This expands its fleet to 41 regional aircraft, leased to 14 airlines. At the end of September, we had invested US$5.4m in TrueNoord and the carrying value of our investment, which takes account of the ongoing development of the company and the recent third party fundraising, was US$9.1m.
Physical assets (property, infrastructure and real assets)
% of Net Assets increased from 20.9% to 27.3%
We made good progress in adding to the physical assets segment of the portfolio, achieved by investing into funds with underlying exposure to infrastructure, property, transport and farmland.
SL Capital Infrastructure II, an economic infrastructure fund which is targeting a net of fee return of 8 - 10% per annum, acquired stakes in two district heating systems in Finland and a liquid fuel storage business in Germany and Belgium. After the period end, it acquired a solar energy portfolio in Poland and made an investment in railway rolling stock in the UK. Including these last two investments, we have now invested around €25m from our commitment of €28.5m. Andean Social Infrastructure I, where we have a commitment of $25m, has yet to make its first investment but it is making good progress with a very strong pipeline of opportunities. One of these, a South American roads project, has recently been signed but the deal will not reach its formal close until early in 2020. Others are at the final stages of negotiation. We have made an initial investment to cover establishment costs of the fund which is targeting a net of fee return of well over 10% per annum. Thirdly, we took advantage of a placing of new shares from the listed fund, Tufton Oceanic Assets, which now owns a fleet of 17 commercial sea-going vessels. Against a depressed shipping market background, Tufton is currently able to acquire vessels at a sizeable discount to their depreciated replacement cost, and, as a result, is targeting a medium term return of 12% per annum with an initial dividend yield of 7%.
The positive performance contribution from our infrastructure holdings partly reflected investor demand for assets which are perceived to exhibit a low correlation to risk assets. Among our listed investments, we took advantage of this demand to recycle capital from holdings which we felt were fully valued into those offering more attractive returns including Greencoat UK Wind and Sequoia Economic Infrastructure.
We also made two incremental investments in the unlisted fund, Aberdeen Global Infrastructure Partners II (AGIP II) to finance two of its infrastructure developments which are nearing completion. The manager also has a pipeline of new opportunities. To date, we have invested a total of A$10.3m in AGIP II and our carrying value is A$13.4m (in addition, we have received A$0.5m of income). The increase in value takes into account the recent sale by AGIP II's joint venture partner of their stake in the fund's first completed asset, Perth Stadium.
In property, we made further deployments to our long term investments in Aberdeen European Residential Opportunities Fund, which now has thirteen residential property developments spread across Europe, and Cheyne Social Property Impact Fund. The returns from these investments are expected to be achieved when the underlying properties are sold and so, at the moment, the carrying values are close to our cost of investment. Similarly, most of the eleven assets at our agriculture investment, Agricultural Capital Management II, are held at around book cost as developments progress. During the year, the Fund acquired a citrus farm in Australia and an olive property in California.
Finally, Aberdeen Property Secondary Partners II has had a busy and profitable year. New holdings were acquired in funds focussing on Indian offices, Spanish residential, Australian residential and European logistics while existing investments were realised and capital returned to us in the last two of these sub-asset classes. At the end of our reporting period, our net investment of €13.9m (after distributions of €10.8m) had a carrying value of €16.5m.
Fixed Income & Credit
% of Net Assets increased from 46.9% to 48.3%
Emerging market government bonds are a relatively attractive asset class - particularly the local currency variety. Yields are high (typically 6% or more in the countries we find most attractive), especially relative to developed market bonds, offering strong income returns. With one or two exceptions, the emerging market economies covered by standard local currency bond indices are in good shape with solid growth, controlled inflation and low government debt levels. Currencies are on average near fair value which reduces currency risk. We also reduce currency risk further by funding our exposure using a basket of globally sensitive currencies including the Australian dollar and Norwegian krone, as we have discussed in previous reports.
During the period under review, emerging market bonds performed well and the asset class was a strong contributor to portfolio performance. The table below lists our major country exposures at 30 September 2019 in our sub-portfolio which is actively managed on our behalf by the ASI specialist team. We took advantage of strong performance to lock in profits in a number of positions in order to fund investments elsewhere in the portfolio but, overall, are happy to maintain a high level of exposure to this asset class.
|
Country |
% of Net Assets |
|
Indonesia |
3.4 |
|
Mexico |
3.2 |
|
Brazil |
3.2 |
|
Frontiers Markets |
2.9 |
|
Russia |
2.4 |
|
South Africa |
2.2 |
|
Colombia |
1.7 |
|
India |
1.7 |
|
Poland |
1.5 |
|
Turkey |
1.5 |
|
Malaysia |
1.2 |
|
Peru |
1.0 |
|
Other (4 countries) |
2.4 |
Source: Aberdeen Standard Investments
In corporate credit, our preference is for less familiar forms of credit which we expect will deliver higher risk-adjusted returns than investment grade corporate bonds. For any given credit rating, asset backed securities (ABS) typically offer a higher risk premium of 2% or more than conventional credit investments. There is a similar story for direct corporate lending, real estate lending and other forms of private credit. Our credit-related investments - in funds investing in ABS and global loans - delivered attractive income returns over the period. We made no changes to our largest exposure, TwentyFour Asset Backed Opportunities Fund, which has a portfolio of European mortgage and loan-related investments. However, we did reduce our holding in the Aberdeen Global Loans fund, which offers exposure to a diversified portfolio of corporate loans, in order to fund other investments
Finally, as we have noted in previous reports, our hedging policies help minimise the impact on net asset value per share that would be caused by fluctuations in developed market exchange rates and also in the value of the Company's 2031 debenture. This means that we did not materially benefit from an increase in the value of our overseas assets as sterling weakened whenever a "no deal" Brexit seemed likely at various times during the period. Conversely, the portfolio value was insulated from the negative impact of the rally in sterling after the reporting period ended when a Brexit deal was agreed in principle. Similarly, the increase in the value of the debenture (in response to the reduction in long term interest rates referred to earlier) had a limited impact on NAV per share.
Other asset classes
% of Net Assets increased from 16.8% to 10.6%
The reduction in our exposure to other asset classes reflects, in large part, losses associated with our insurance linked securities (ILS) which were severely impacted by provisions for insurance claims linked to three major storms (in the Gulf of Mexico and Japan) and two devastating wildfires in California during the autumn of 2018. Our holdings in this asset class are via funds which offer catastrophe cover to re-insurance companies. As we highlighted in the Interim Report to shareholders which was published in June, the managers of CATCo Reinsurance Opportunities Fund announced that they were putting the fund into run-off and, shortly afterwards, a similar announcement was made on behalf of Markel CATCo 2018 and Blue Capital Reinsurance Holdings. All of our ILS holdings have begun to return capital to us as claims associated with 2017 and 2018 events begin to be finalised. This allows capital which is held in the funds to cover any potential, unexpected increase in claims to be distributed to investors.
Looking ahead, our exposure to new insurance claim events will cease at the end of 2019 when our existing ILS funds' annual contracts with their clients expire. In the meantime, the managers are still working through the claims process for recent events - Typhoons Faxai and Hagibis in Japan, Hurricane Dorian, which impacted the Bahamas, and the wildfires in California. At the time of writing, Markel CATCo has made a small provision for Faxai and Dorian. Early in 2020, capital which is "on-risk" for 2019 (which amounted to around £10m at the end of September 2019) will be returned to us after provisions for new claims (if any) have been deducted. The remaining capital will be returned to us over the next 2-3 years as all claims are finalised. We have reviewed a number of opportunities which might have enabled us to rebuild our exposure to ILS but none appears to offer a satisfactory risk-return combination. Our investment thesis - that the loss events of 2017 and 2018 would prompt sharp increases in catastrophe premiums in impacted segments of the market - has largely played out as we expected. However, the unprecedented combination of several mid-sized events which took place in 2018, has caused losses that have been well in excess of those predicted by industry risk models when we increased our exposure to the asset class at the end of 2017. Clearly, this has been hugely disappointing to us, both as managers of your Company, and shareholders in it.
At the end of 2018, we introduced litigation finance into the portfolio via a $25m commitment to the Burford Opportunity Fund (BOF). This $300m fund, which has a three year initial investment period and a 5 - 7 year fund life, provides financing to carefully selected commercial litigation cases, typically in return for a percentage of the awards paid to successful claimants. As at September 2019, the manager, Burford Capital, had identified 28 suitable cases / portfolios of cases, requiring us to make an investment of around $8.5m in BOF. At the latest report (to 30 June 2019), BOF announced that it had already achieved positive results from within two of its investments, recovering $4.1m from an initial investment of $2.3m. We invested a further $1.8m in BOF after the period end. In addition to the commitment to BOF, we also acquired a holding in Burford Capital, which listed on the AIM market of the London Stock Exchange in 2009. Towards the end of the reporting year, the Burford Capital share price fell sharply following the publication of a critical research report by the high profile "short seller", Muddy Waters. The Burford management team have responded in detail to the allegations contained in the report, highlighting material errors and inaccuracies. We revisited our own analysis of the issues raised and also held a number of discussions with the Burford management team, the Chairman and independent analysts. Our analysis has reinforced our positive fundamental investment view of Burford Capital. Nevertheless, the Muddy Waters episode, aspects of which are being investigated by the UK financial services regulator, has had an impact the rating of the shares. At the time of writing, the share price had recovered a portion of August's losses.
Elsewhere, we sold out of our absolute return investments during the period, taking the view that the return drivers from other elements of the portfolio were sufficiently diverse to obviate the need for investments of this type. Both of our direct lending vehicles adopted new names during the year. Funding Circle SME Income announced that it would return capital to shareholders as its loans mature and it became SME Credit Realisation. P2P Global Investments adopted the name Pollen Street Secured Lending to reflect its new manager and focus on direct lending.
Finally, we also made an initial investment of around $0.7m into Healthcare Royalty Partners IV (HCR IV) as part of a commitment of $25m to this fund which has an investment life of around 12 years. It is targeting an income-focused return of over 10% per annum by purchasing the rights to royalties on licensed pharmaceutical products due to their patent holders (typically biotechnology companies or universities). So far, it has made three investments, of which two are loan arrangements backed by royalties to NASDAQ quoted companies. HCR IV and BOF are good examples of the types of investments which underpin our approach: targeting attractive returns, including a high level of income, with distinct drivers of risk and return.
Mike Brooks
Tony Foster
Aberdeen Asset Managers Limited
Investment Manager
12 December 2019
|
TEN LARGEST INVESTMENTS |
|
|
|
|
At |
At |
|
|
30 September |
30 September |
|
|
2019 |
2018 |
|
|
% of Net Assets |
% of Net Assets
|
|
Smart Beta Low Volatility Global Equity Income Fund{A} |
20.3 |
22.0 |
|
Diversified equity fund |
|
|
|
TwentyFour Asset Backed Opportunities Fund |
14.2 |
13. |
|
Investments in mortgages, SME loans etc originated in Europe |
|
|
|
SL Capital Infrastructure II {A,B} |
4.6 |
- |
|
European economic infrastructure |
|
|
|
Aberdeen Property Secondaries Partners II {A,B} |
3.5 |
1.8 |
|
Realisation of value from property funds which are in run-off |
|
|
|
Aberdeen Standard SICAV I - Frontier Markets Bond Fund {A} |
2.9 |
2.3 |
|
Diverse portfolio of bonds issued by governments or other bodies in frontier market countries |
|
|
|
Aberdeen Standard Alpha - Global Loans Fund {A} |
2.7 |
5.9 |
|
Portfolio of senior secured loans and corporate bonds |
|
|
|
BlackRock Infrastructure Renewable Income Fund {B} |
2.2 |
2.0 |
|
Renewable infrastructure fund - UK wind and solar |
|
|
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 Liq {B} |
2.1 |
- |
|
Investments linked to catastrophe reinsurance risks |
|
|
|
Blackstone/GSO Loan Financing |
2.1 |
2.4 |
|
Diversifed exposure to senior secured loans via CLO securities |
|
|
|
Aberdeen European Residential Opportunities Fund {A,B} |
2.0 |
1.6 |
|
Conversion of commercial property into residential |
|
|
|
|
|
|
|
{A} Denotes Standard Life Aberdeen managed products. {B} Unlisted holdings. |
|
|
|
INVESTMENT PORTFOLIO - EQUITY AND ALTERNATIVE INVESTMENTS |
|||
|
As at 30 September 2019 |
|
|
|
|
|
|
|
|
|
|
Valuation |
Net assets |
Valuation |
|
|
2019 |
2019 |
2018 |
|
Company |
£'000 |
% |
£'000 |
|
Low Volatility Income Strategy Equities |
|
|
|
|
Smart Beta Low Volatility Global Equity Income Fund{A} |
84,133 |
20.3 |
94,151 |
|
|
________ |
________ |
|
|
Total Low Volatility Income Strategy Equities |
84,133 |
20.3 |
|
|
|
________ |
________ |
|
|
Private Equity |
|
|
|
|
Truenoord Co-Investment |
7,416 |
1.8 |
4,888 |
|
HarbourVest International Private Equity VI |
3,055 |
0.7 |
3,114 |
|
Maj Equity Fund 4 |
2,576 |
0.6 |
2,970 |
|
Mesirow Financial Private Equity IV |
1,806 |
0.4 |
2,038 |
|
Maj Equity Fund 5 |
1,020 |
0.3 |
719 |
|
HarbourVest VIII Buyout Fund |
703 |
0.2 |
847 |
|
Mesirow Financial Private Equity III |
473 |
0.1 |
594 |
|
Dover Street VII |
405 |
0.1 |
629 |
|
HarbourVest VIII Venture Fund |
236 |
0.1 |
249 |
|
HarbourVest International Private Equity V |
51 |
- |
66 |
|
|
________ |
________ |
|
|
Total Private Equity |
17,741 |
4.3 |
|
|
|
________ |
________ |
|
|
Property |
|
|
|
|
Aberdeen Property Secondaries Partners II{A} |
14,664 |
3.5 |
7,566 |
|
Aberdeen European Residential Opportunities Fund{A} |
8,241 |
2.0 |
6,730 |
|
PRS REIT |
3,783 |
1.0 |
4,436 |
|
Cheyne Social Property |
3,771 |
0.9 |
1,439 |
|
Triple Point Social Housing |
3,674 |
0.9 |
3,143 |
|
Residential Secure Income |
3,428 |
0.8 |
3,514 |
|
|
________ |
________ |
|
|
Total Property |
37,561 |
9.1 |
|
|
|
________ |
________ |
|
|
Infrastructure |
|
|
|
|
SL Capital Infrastructure II{A} |
18,946 |
4.6 |
- |
|
BlackRock Infrastructure Renewable Income Fund |
9,107 |
2.2 |
8,738 |
|
Greencoat UK Wind |
7,271 |
1.8 |
- |
|
HICL Infrastructure |
7,052 |
1.7 |
6,505 |
|
John Laing Group |
7,011 |
1.7 |
5,968 |
|
International Public Partnerships |
6,054 |
1.5 |
5,816 |
|
Aberdeen Global Infrastructure Partners II (AUD){A} |
4,085 |
1.0 |
3,159 |
|
Aberdeen Global Infrastructure Partners II (USD){A} |
3,489 |
0.8 |
2,411 |
|
Sequoia Economic Infrastructure Income |
1,441 |
0.3 |
- |
|
The Renewables Infrastructure Group |
1,143 |
0.3 |
5,600 |
|
Greencoat Renewables |
167 |
- |
1,194 |
|
Andean Social Infrastructure Fund I{A} |
17 |
- |
- |
|
|
________ |
________ |
|
|
Total Infrastructure |
65,783 |
15.9 |
|
|
|
________ |
________ |
|
|
Loans |
|
|
|
|
Aberdeen Standard Alpha - Global Loans Fund{A} |
11,078 |
2.7 |
25,094 |
|
|
________ |
________ |
|
|
Total Loans |
11,078 |
2.7 |
|
|
|
________ |
________ |
|
|
Asset Backed Securities |
|
|
|
|
TwentyFour Asset Backed Opportunities Fund |
58,719 |
14.2 |
59,614 |
|
Blackstone/GSO Loan Financing |
8,819 |
2.1 |
10,327 |
|
Marble Point Loan Financing |
3,165 |
0.8 |
3,873 |
|
Fair Oaks Income Fund |
2,418 |
0.6 |
2,810 |
|
|
________ |
________ |
|
|
Total Asset Backed Securities |
73,121 |
17.7 |
|
|
|
________ |
________ |
|
|
Insurance-Linked Securities |
|
|
|
|
Markel CATco Reinsurance Fund Ltd - LDAF |
- |
- |
28,068 |
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 Liq |
8,871 |
2.1 |
- |
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI |
6,676 |
1.6 |
- |
|
Blue Capital Alternative Income |
1,504 |
0.4 |
5,060 |
|
CATCo Reinsurance Opportunities Fund |
1,301 |
0.3 |
5,048 |
|
Blue Capital Reinsurance Holdings |
586 |
0.2 |
767 |
|
|
________ |
________ |
|
|
Total Insurance-Linked Securities |
18,938 |
4.6 |
|
|
|
________ |
________ |
|
|
Special Opportunities |
|
|
|
|
Pollen Street Secured Lending (previously known as P2P Global Investments) |
7,266 |
1.7 |
6,997 |
|
Burford Opportunity Fund |
6,660 |
1.6 |
- |
|
BioPharma Credit |
4,804 |
1.2 |
4,786 |
|
Doric Nimrod Air Two |
4,117 |
1.0 |
4,968 |
|
Burford Capital |
3,733 |
0.9 |
- |
|
SME Credit Realisation Fund (previously known as Funding Circle SME Income Fund) |
1,859 |
0.4 |
4,979 |
|
Tufton Oceanic Assets |
1,692 |
0.4 |
- |
|
Healthcare Royalty Partners IV |
683 |
0.2 |
- |
|
|
________ |
________ |
|
|
Total Special Opportunities |
30,814 |
7.4 |
|
|
|
________ |
________ |
|
|
Real Assets |
|
|
|
|
Agriculture Capital Management Fund II |
3,783 |
0.9 |
2,770 |
|
|
________ |
________ |
|
|
Total Real Assets |
3,783 |
0.9 |
|
|
|
________ |
________ |
|
|
Total Alternatives |
258,819 |
62.6 |
|
|
|
________ |
________ |
|
|
{A} Denotes Standard Life Aberdeen managed products. |
|
|
|
|
INVESTMENT PORTFOLIO - FIXED INCOME |
|
|
|
|
As at 30 September 2019 |
|
|
|
|
|
|
|
Valuation |
|
|
Valuation |
Net assets |
at 30 September |
|
|
2019 |
2019 |
2018 |
|
Company |
£'000 |
% |
£'000 |
|
Emerging Market Bonds |
|
|
|
|
Aberdeen Standard SICAV I - Frontier Markets Bond Fund{A} |
11,944 |
2.9 |
10,047 |
|
Aberdeen Standard SICAV I - Indian Bond Fund{A} |
7,144 |
1.7 |
9,345 |
|
Poland (Rep of) 1.5% 25/04/20 |
5,862 |
1.5 |
6,950 |
|
Brazil (Fed Rep of) 10% 01/01/25 |
5,131 |
1.2 |
4,000 |
|
Russian Federation 6.9% 23/05/29 |
4,995 |
1.2 |
- |
|
Brazil (Fed Rep of) 10% 01/01/21 |
4,399 |
1.1 |
2,984 |
|
Mexico Bonos Desarr Fix Rt 8.5% 18/11/38 |
3,927 |
0.9 |
- |
|
Colombia (Rep of) 10% 24/07/24 |
3,791 |
0.9 |
- |
|
Brazil (Fed Rep of) 10% 01/01/27 |
3,615 |
0.9 |
1,517 |
|
Indonesia (Rep of) 9% 15/03/29 |
3,297 |
0.8 |
4,369 |
|
Top ten investments |
54,105 |
13.1 |
|
|
South Africa (Rep of) 8.75% 31/01/44 |
3,245 |
0.8 |
2,076 |
|
Mexico (United Mexican States) 6.5% 09/06/22 |
3,231 |
0.8 |
4,969 |
|
Indonesia (Rep of) 8.375% 15/03/34 |
3,156 |
0.8 |
1,584 |
|
Mexico Bonos Desarr Fix Rt 10% 05/12/24 |
3,136 |
0.8 |
2,656 |
|
Indonesia (Rep of) 7% 15/05/22 |
3,055 |
0.7 |
498 |
|
Russian Federation 6.4% 27/05/20 |
2,522 |
0.6 |
1,719 |
|
Russian Federation 7.7% 23/03/33 |
2,299 |
0.6 |
- |
|
Thailand (King of) 3.775% 25/06/32 |
2,275 |
0.5 |
- |
|
Malaysia (Govt of) 4.048% 30/09/21 |
2,198 |
0.5 |
3,354 |
|
Peru (Rep of) 6.95% 12/08/31 |
2,185 |
0.5 |
2,116 |
|
Top twenty investments |
81,407 |
19.7 |
|
|
Turkey (Rep of) 10.4% 20/03/24 |
2,158 |
0.5 |
- |
|
Peru (Rep of) 5.7% 12/08/24 |
1,973 |
0.5 |
- |
|
Indonesia (Rep of) 6.125% 15/05/28 |
1,959 |
0.5 |
79 |
|
South Africa (Rep of) 10.5% 21/12/26 |
1,927 |
0.5 |
4,443 |
|
Turkey (Rep of) 10.7% 17/08/22 |
1,808 |
0.4 |
685 |
|
Malaysia (Govt of) 4.498% 15/04/30 |
1,739 |
0.4 |
1,507 |
|
Mexico (United Mexican States) 7.75% 13/11/42 |
1,694 |
0.4 |
1,549 |
|
Uruguay (Rep of) 4.375% 15/12/28 |
1,678 |
0.4 |
651 |
|
Philippines (Rep of) 5.75% 12/04/25 |
1,651 |
0.4 |
- |
|
Colombia (Rep of) 7% 30/06/32 |
1,450 |
0.3 |
3,820 |
|
Top thirty investments |
99,444 |
24.0 |
|
|
Colombia (Rep of) 6% 28/04/28 |
1,448 |
0.4 |
- |
|
Thailand (King of) 3.625% 16/06/23 |
1,405 |
0.3 |
1,168 |
|
Czech (Rep of) 2% 13/10/33 |
1,373 |
0.3 |
- |
|
South Africa (Rep of) 8% 31/01/30 |
1,344 |
0.3 |
783 |
|
South Africa (Rep of) 6.25% 31/03/36 |
1,300 |
0.3 |
1,303 |
|
South Africa (Rep of) 8.25% 31/03/32 |
1,116 |
0.3 |
- |
|
Turkey (Rep of) 10.7% 17/02/21 |
1,021 |
0.3 |
1,500 |
|
Indonesia (Rep of) 8.375% 15/04/39 |
1,004 |
0.3 |
- |
|
Indonesia (Rep of) 5.625% 15/05/23 |
998 |
0.2 |
840 |
|
Colombia (Rep of) 7.5% 26/08/26 |
945 |
0.2 |
- |
|
Top forty investments |
111,398 |
26.9 |
|
|
Mexico Bonos Desarr Fix Rt 8% 11/06/20 |
928 |
0.2 |
1,660 |
|
Malaysia (Govt of) 3.844% 15/04/33 |
890 |
0.2 |
- |
|
Turkey (Rep of) 10.6% 11/02/26 |
685 |
0.2 |
879 |
|
Czech (Rep of) 4.2% 04/12/36 |
579 |
0.1 |
- |
|
Uruguay (Rep of) 9.875% 20/06/22 |
416 |
0.1 |
305 |
|
Turkey (Rep of) 12.2% 18/01/23 |
405 |
0.1 |
- |
|
Petroleos Mexicanos 7.19% 12/09/24 |
269 |
0.1 |
265 |
|
Total Emerging Market Bonds |
115,570 |
27.9 |
|
|
{A} Denotes Standard Life Aberdeen managed products. |
|
|
|
|
NET ASSETS SUMMARY |
|
|
|
|
|
As at 30 September 2019 |
|
|
|
|
|
|
Valuation |
Net assets |
Valuation |
Net assets |
|
|
2019 |
2019 |
2018 |
2018 |
|
|
£'000 |
% |
£'000 |
% |
|
Total investments |
458,522 |
110.8 |
472,496 |
110.4 |
|
|
________ |
________ |
________ |
________ |
|
Cash and cash equivalents |
7,852 |
1.9 |
14,883 |
3.5 |
|
Forward contracts |
3,195 |
0.8 |
140 |
- |
|
6.25% Bonds 2031 |
(59,503) |
(14.4) |
(59,479) |
(13.9) |
|
Other net assets |
3,613 |
0.9 |
89 |
- |
|
|
________ |
________ |
________ |
________ |
|
Net assets |
413,679 |
100.0 |
428,129 |
100.0 |
|
|
________ |
________ |
________ |
________ |
DIRECTORS' REPORT
The Directors present their report and the audited financial statements for the year ended 30 September 2019.
Results and Dividends
The financial statements for the year ended 30 September 2019 may be found below. The Company's revenue return for the year ended 30 September 2019 was 5.68p per share compared to 6.15p per share in the previous year.
First, second and third interim dividends, each of 1.34p per Ordinary share, were paid on 29 March 2019, 5 July 2019 and 11 October 2019 respectively.
The Directors are declaring a fourth interim dividend of 1.34p per Ordinary share payable on 24 January 2020 to shareholders on the register on 27 December 2019. The ex-dividend date is 24 December 2019. 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 2019 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 2019 consisted of 322,981,705 Ordinary shares (2018 - 328,551,705) with voting rights and 42,429,169 Ordinary shares (2018 - 36,859,169) held in treasury. A total of 7,720,000 Ordinary shares were bought back into treasury during the year ended 30 September 2019. A total of 2,045,467 Ordinary shares were bought back into treasury between 1 October 2019 and the date of approval of this Annual Report resulting in 320,936,238 Ordinary shares in issue, with voting rights, and 44,474,636 Ordinary shares in treasury.
Each Ordinary share (excluding treasury shares) holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML"), a wholly-owned subsidiary of Standard Life Aberdeen plc, as its alternative investment fund manager.
ASFML has been appointed to provide investment management, risk management, administration and company secretarial services 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 ASFML and AAML. In addition, ASFML 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 has in place a six months' notice period. 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.
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors' Report, may be found in the published Annual Report.
Directors
As at 30 September 2019, the Board comprised six non-executive Directors. Davina Walter was appointed a Director on 1 February 2019 while Trevor Bradley and Anna Troup were both appointed Directors on 1 August 2019.
Ian Russell and Paul Yates retired as Directors on 31 October 2018 while Kevin Ingram and Jim Grover retired from the Board on 27 February 2019 and 6 September 2019, respectively. James Long will retire from the Board at the AGM on 26 February 2020 (the "AGM") and be succeeded as Chairman by Davina Walter, who had been Senior Independent Director following Kevin Ingram's retirement on 27 February 2019. Julian Sinclair will be appointed Senior Independent Director, in succession to Davina Walter, at the AGM.
The Directors attended scheduled meetings of the Board, Audit Committee and Nomination Committee during the year ended 30 September 2019 as follows (with their eligibility to attend the relevant meetings in brackets):
|
Director
|
Scheduled Board |
Audit |
Management Engagement Committee |
Nomination |
|
James Long A |
4 (4) |
- |
1 (1) |
0 (1) |
|
Davina Walter B |
3 (3) |
2 (2) |
0 (0) |
1 (1) |
|
Tom Challenor |
4 (4) |
5 (5) |
1 (1) |
1 (1) |
|
Julian Sinclair |
4 (4) |
3 (4) |
1 (1) |
1 (1) |
|
Trevor Bradley C |
1 (1) |
1 (1) |
0 (0) |
0 (0) |
|
Anna Troup C |
1 (1) |
1 (1) |
0 (0) |
0 (0) |
|
Kevin Ingram D |
2 (2) |
2 (2) |
1 (1) |
0 (0) |
|
Ian Russell E |
0 (0) |
0 (0) |
0 (0) |
0 (0) |
|
Paul Yates E |
0 (0) |
0 (0) |
0 (0) |
0 (0) |
|
Jim Grover F |
4 (4) |
4 (5) |
1 (1) |
0 (1) |
Notes:
A James Long, as Chairman of the Board, is not a member of the Audit Committee
B Appointed a Director on 1 February 2019
C Appointed a Director on 1 August 2019
D Resigned as a Director on 27 February 2019
E Resigned as a Director on 31 October 2018
F Resigned as a Director on 6 September 2019
The Directors meet more regularly when business needs require.
The names and biographies of each of the current Directors are shown in the published Annual Report and on the website 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.
In line with best practice in corporate governance, all Directors, other than James Long, offer themselves for election or re-election at the AGM. Accordingly, Anna Troup and Trevor Bradley offer themselves for individual election as Directors while Davina Walter, Tom Challenor and Julian Sinclair retire and, being eligible, each submit themselves for re-election at the AGM. The Board believes that all current Directors remain, and all Directors during the year ended 30 September 2019 were, 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 each Director demonstrates commitment to the role and their performance remains effective.
The Board therefore recommends to shareholders the individual elections of each of Anna Troup and Trevor Bradley as Directors and the re-elections of Davina Walter, Tom Challenor and Julian Sinclair as Directors at the AGM.
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 published 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 Standard Life 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, by undertaking peer comparisons and reviewing reports from the Manager on the Depositary, BNP Paribas Securities Services, London Branch. The Management Engagement Committee fulfilled its duties, in relation to the year ended 30 September 2019, at a meeting in October 2019.
The Board conducts a formal evaluation of the performance of, and contractual relationship with, the Manager and those third parties appointed by the Manager on an annual basis. The evaluation includes consideration of the investment strategy and process of the Manager, noting performance against the benchmark over the long term and the quality of the support that the Company receives from the Manager. As a result of the evaluation process, the Board confirms that it is satisfied 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 in the published Annual Report, the full Board determines the level of Directors' fees and there is no separate Remuneration Committee.
With the assistance of an independent search firm, the Board was substantially refreshed through the appointment of three directors during the year ended 30 September 2019. Through this process the Board was able to evaluate whether it had in place the appropriate balance of skills, experience, length of service and knowledge of the Company and at the same time ensure it had in place the appropriate level of diversity. Accordingly, the Directors have opted to delay the formal evaluation of the Board until 2020, which will include an externally-facilitated evaluation, last undertaken in 2016.
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. The Chairman absented himself from the decision-making process involved in selecting his successor.
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 within the Viability Statement in the Strategic Report.
Criminal Finances Act 2017
The Criminal Finances Act 2017 has introduced a new corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.
Substantial Interests
As at 30 September 2019, the following interests over 3% 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:
|
|
30 Sept. 2019 |
|
|
Shareholder |
Number of shares held |
% held |
|
Aberdeen Asset Managers Limited Retail Plans A |
32,810,208 |
10.1 |
|
Schroders plc |
29,344,281 |
9.0 |
|
Aberdeen Standard Investments |
26,252,781 |
8.1 |
|
Alliance Trust Savings/Interactive Investor |
18,129,250 |
5.6 |
|
Hargreaves Lansdown A |
17,249,577 |
5.3 |
|
Investec Wealth & Investment |
10,485,333 |
3.2 |
|
Smith & Williamson |
10,173,741 |
3.1 |
A Non-beneficial interest
B Based on 322,981,705 Ordinary shares in issue (excluding treasury shares) as at 30 September 2019
The above holdings were unchanged at the date of approval of this Report other than a notification to the Company by Schroders plc on 10 December 2019 of a holding of 35,737,753 shares, equivalent to 11.1% of the Company's issued share capital at that date.
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.
Accountability and Audit
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.
Annual General Meeting
The Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on Wednesday 26 February 2020 at 12.30pm. The Notice of the Meeting is included in the published Annual Report. Resolutions including the following business will be proposed:
Directors' Remuneration Policy
The Directors' Remuneration Policy is subject to a Shareholder approval vote not less than every three years and was last approved at the Company's annual general meeting held on 30 March 2017. Accordingly, the Directors' Remuneration Policy will be submitted for approval at the upcoming Annual General Meeting as ordinary resolution 3. There are no proposed changes to the Remuneration Policy which is set out in the published Annual Report.
Continuance of the Company
In accordance with Article 178 of the Articles of Association of the Company adopted by shareholders on 30 March 2017, the Directors are required to propose an ordinary resolution at the AGM in 2020, and annually thereafter, that the Company continue as an investment trust. Accordingly, the Directors are proposing, as ordinary resolution 12, that the Company continues as an investment trust and recommend that shareholders support the continuance of the Company.
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 £8.0m 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 2021 (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 10% 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 £8.0m 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 2021 (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 48.1 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 2021 (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 14 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 453,146 Ordinary shares, representing 0.1% of the issued share capital.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
1 George Street
Edinburgh EH2 2LL
12 December 2019
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 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
Chairman
12 December 2019
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 30 September 2019 |
Year ended 30 September 2018 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Losses on investments |
10 |
- |
(353) |
(353) |
- |
(8) |
(8) |
|
Realised foreign exchange losses |
|
- |
(413) |
(413) |
- |
(68) |
(68) |
|
Unrealised foreign exchange gains |
|
- |
196 |
196 |
- |
148 |
148 |
|
Realised (losses)/gains on forward contracts |
|
- |
(11,661) |
(11,661) |
- |
5,617 |
5,617 |
|
Unrealised gains/(losses) on forward contracts |
|
- |
3,055 |
3,055 |
- |
(13,291) |
(13,291) |
|
Income |
3 |
22,106 |
- |
22,106 |
23,262 |
- |
23,262 |
|
Investment management fees |
4 |
(613) |
(919) |
(1,532) |
(578) |
(1,074) |
(1,652) |
|
Administrative expenses |
5 |
(927) |
(8) |
(935) |
(867) |
(5) |
(872) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
20,566 |
(10,103) |
10,463 |
21,817 |
(8,681) |
13,136 |
|
|
|
|
|
|
|
|
|
|
Finance costs |
6 |
(1,512) |
(2,268) |
(3,780) |
(1,259) |
(2,339) |
(3,598) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Net return before taxation |
|
19,054 |
(12,371) |
6,683 |
20,558 |
(11,020) |
9,538 |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(348) |
2,353 |
2,005 |
(343) |
- |
(343) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return attributable to equity shareholders |
|
18,706 |
(10,018) |
8,688 |
20,215 |
(11,020) |
9,195 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per Ordinary share (pence) |
9 |
5.68 |
(3.04) |
2.64 |
6.15 |
(3.35) |
2.80 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
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 2019 |
30 September 2018 |
|
|
Note |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
10 |
458,522 |
472,496 |
|
Deferred taxation asset |
7 |
2,373 |
- |
|
|
|
_________ |
_________ |
|
|
|
460,895 |
472,496 |
|
Current assets |
|
|
|
|
Debtors |
11 |
2,039 |
3,220 |
|
Derivative financial instruments |
|
3,282 |
1,344 |
|
Cash and cash equivalents |
|
7,809 |
14,687 |
|
|
|
_________ |
_________ |
|
|
|
13,130 |
19,251 |
|
|
|
_________ |
_________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Derivative financial instruments |
|
(87) |
(1,204) |
|
Other creditors |
12 |
(756) |
(2,935) |
|
|
|
_________ |
_________ |
|
|
|
(843) |
(4,139) |
|
|
|
_________ |
_________ |
|
Net current assets |
|
12,287 |
15,112 |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
473,182 |
487,608 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
6.25% Bonds 2031 |
13 |
(59,503) |
(59,479) |
|
|
|
_________ |
_________ |
|
Net assets |
|
413,679 |
428,129 |
|
|
|
_________ |
_________ |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
14 |
91,352 |
91,352 |
|
Share premium account |
|
116,556 |
116,556 |
|
Capital redemption reserve |
|
26,629 |
26,629 |
|
Capital reserve |
15 |
137,509 |
153,182 |
|
Revenue reserve |
|
41,633 |
40,410 |
|
|
|
_________ |
_________ |
|
Equity shareholders' funds |
|
413,679 |
428,129 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
16 |
|
|
|
Bonds at par value |
|
128.08 |
130.31 |
|
|
|
_________ |
_________ |
|
Bonds at fair value |
|
119.90 |
124.17 |
|
|
|
_________ |
_________ |
STATEMENT OF CHANGES IN EQUITY
|
For the year ended 30 September 2019 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 October 2018 |
|
91,352 |
116,556 |
26,629 |
153,182 |
40,410 |
428,129 |
|
Return after taxation |
|
- |
- |
- |
(10,018) |
18,706 |
8,688 |
|
Ordinary shares issued from treasury |
15 |
- |
- |
- |
2,662 |
- |
2,662 |
|
Ordinary shares purchased for treasury |
15 |
- |
- |
- |
(8,317) |
- |
(8,317) |
|
Dividends paid |
8 |
- |
- |
- |
- |
(17,483) |
(17,483) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 30 September 2019 |
|
91,352 |
116,556 |
26,629 |
137,509 |
41,633 |
413,679 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 30 September 2018 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 October 2017 |
|
91,352 |
116,556 |
26,629 |
164,806 |
37,424 |
436,767 |
|
Return after taxation |
|
- |
- |
- |
(11,020) |
20,215 |
9,195 |
|
Ordinary shares purchased for treasury |
15 |
- |
- |
- |
(604) |
- |
(604) |
|
Dividends paid |
8 |
- |
- |
- |
- |
(17,229) |
(17,229) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 30 September 2018 |
|
91,352 |
116,556 |
26,629 |
153,182 |
40,410 |
428,129 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
STATEMENT OF CASH FLOWS
|
|
|
Year ended |
Year ended |
|
|
|
|
30 September 2019 |
30 September 2018 |
|
|
|
Note |
£'000 |
£'000 |
|
|
Operating activities |
|
|
|
|
|
Net return before finance costs and taxation |
|
10,463 |
13,136 |
|
|
Adjustments for: |
|
|
|
|
|
Dividend income |
|
(12,561) |
(14,094) |
|
|
Fixed interest income |
|
(9,402) |
(9,155) |
|
|
Interest income |
|
13 |
7 |
|
|
Treasury bill income |
|
130 |
- |
|
|
Treasury bill income received |
|
(130) |
- |
|
|
Other income |
|
- |
(6) |
|
|
Other income received |
|
- |
6 |
|
|
Dividends received |
|
9,844 |
12,016 |
|
|
Fixed interest income received |
|
8,898 |
9,393 |
|
|
Interest received |
|
(13) |
(7) |
|
|
Unrealised (gain)/losses on forward contracts |
|
(3,055) |
13,291 |
|
|
Foreign exchange losses |
|
(196) |
(148) |
|
|
Losses on investments |
|
353 |
8 |
|
|
Decrease/(increase) in other debtors |
|
18 |
(4) |
|
|
(Decrease)/increase in accruals |
|
(29) |
261 |
|
|
Corporation tax paid |
|
(205) |
- |
|
|
Taxation withheld |
|
(205) |
(53) |
|
|
|
|
________ |
________ |
|
|
Net cash flow from operating activities |
|
3,923 |
24,651 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Purchases of investments |
|
(124,840) |
(258,384) |
|
|
Sales of investments |
|
140,737 |
266,229 |
|
|
|
|
________ |
________ |
|
|
Net cash flow from investing activities |
|
15,897 |
7,845 |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Purchase of own shares to treasury |
|
(8,317) |
(604) |
|
|
Issue of own shares from treasury |
|
2,662 |
- |
|
|
Interest paid |
|
(3,756) |
(3,751) |
|
|
Equity dividends paid |
8 |
(17,483) |
(17,229) |
|
|
|
|
________ |
________ |
|
|
Net cash flow used in financing activities |
|
(26,894) |
(21,584) |
|
|
|
|
________ |
________ |
|
|
(Decrease)/increase in cash and cash equivalents |
|
(7,074) |
10,912 |
|
|
|
|
________ |
________ |
|
|
|
|
|
|
|
|
Analysis of changes in cash and cash equivalents during the year |
|
|
||
|
Opening balance |
|
14,687 |
3,627 |
|
|
Foreign exchange |
|
196 |
148 |
|
|
(Decrease)/increase in cash and cash equivalents as above |
(7,074) |
10,912 |
||
|
|
|
________ |
________ |
|
|
Closing balance |
|
7,809 |
14,687 |
|
|
|
|
________ |
________ |
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2019
|
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 Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the "SORP") issued in November 2014 and updated in February 2018 with consequential amendments (applicable for accounting periods commencing on 1 January 2019 but adopted early). 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 at least the next twelve months. 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 (rounded to the nearst £'000), 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. |
|
|
|
|
|
|
|
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 judgements, estimates and assumptions have the most significant effect on the amounts recognised in the financial statements is the determination of the fair value of unlisted investments, as disclosed in note 2(e) and the recognition of a deferred tax asset, details of which can be found in note 7(c). |
|
|
|
|
|
|
(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 instruments are recognised using the time apportioned accruals basis. Interest income is accounted for on an accruals basis. Underwriting commission is recognised when the issue underwritten closes. |
|
|
|
|
|
|
(c) |
Expenses |
|
|
|
All expenses are recognised 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 charged, during the year under review, 60% of investment management fees and finance costs to capital, in accordance with the Board's view at that time of the expected long term return in the form of capital gains and income respectively from the investment portfolio of the Company. Prior to 1 October 2018, the allocation was 65% to capital and 35% to revenue. |
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
|
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 SORP recommends that the benefit of that tax relief should be allocated to capital and a corresponding charge made to revenue. The Company does not apply the marginal method of allocation of tax relief as any allocation of tax relief between capital and revenue would have no impact on shareholders' funds. Had this allocation been made, the charge to revenue and corresponding credit to capital for the year ended 30 September 2019 would have been £1,894,000 (2018 - £1,892,000). |
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
|
Unlisted investments, including those in Limited Partnerships ("LPs") are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines - Edition 2015. |
|
|
|
|
|
|
|
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 have been charged 40% to revenue and 60% to capital in the Statement of Comprehensive Income up to 30 September 2019 to reflect the Company's investment policy and prospective income and capital growth. Prior to 1 October 2018, the allocation was 65% to capital and 35% to revenue. |
|
|
|
|
|
|
(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 the capital reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and any resulting surplus on the transaction is transferred to the share premium account and any resulting deficit 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. |
|
|
|
2019 |
2018 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK listed dividends |
2,206 |
2,088 |
|
|
Overseas listed dividends |
7,459 |
9,406 |
|
|
Stock dividends |
2,896 |
2,600 |
|
|
Fixed interest income |
9,402 |
9,155 |
|
|
Treasury bill income |
130 |
- |
|
|
|
________ |
________ |
|
|
|
22,093 |
23,249 |
|
|
|
________ |
________ |
|
|
Other income |
|
|
|
|
Interest |
13 |
7 |
|
|
Other income |
- |
6 |
|
|
|
________ |
________ |
|
|
|
13 |
13 |
|
|
|
________ |
________ |
|
|
Total income |
22,106 |
23,262 |
|
|
|
________ |
________ |
|
|
|
2019 |
2018 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Investment management fees |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Investment management fee |
613 |
919 |
1,532 |
578 |
1,074 |
1,652 |
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
Following their appointment as Alternative Investment Fund Manager on 11 February 2017 through until 6 October 2017, being the date six months subsequent to the Company's merger with Aberdeen UK Tracker Trust plc, ASFML agreed to waive any entitlement to management fees. |
||||||
|
|
|
||||||
|
|
Following completion of the waiver period, the investment management fee has been levied by ASFML 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 also receives rebates in respect of underlying investments in other funds managed by the Group (where an investment management fee is charged by the Group on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Group which themselves invest directly into alternative investments including, but not limited to, infrastructure and property are charged at the Group's lowest institutional fee rate. To avoid double charging, such investments are excluded from the overall management fee calculation. |
||||||
|
|
|
||||||
|
|
At the year end, an amount of £241,000 (2018 - £138,000) was outstanding in respect of management fees. |
||||||
|
|
|
2019 |
2018 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
5. |
Administrative expenses |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Directors' remuneration |
169 |
- |
169 |
197 |
- |
197 |
|
|
|
Custody fees |
102 |
- |
102 |
88 |
- |
88 |
|
|
|
Depositary fees |
51 |
- |
51 |
52 |
- |
52 |
|
|
|
Shareholders' services{A} |
203 |
- |
203 |
153 |
- |
153 |
|
|
|
Registrar's fees |
61 |
- |
61 |
56 |
- |
56 |
|
|
|
Transaction costs |
- |
8 |
8 |
- |
5 |
5 |
|
|
|
Auditor's remuneration: |
|
|
|
|
|
|
|
|
|
- statutory audit |
29 |
- |
29 |
30 |
- |
30 |
|
|
|
- other non-audit services |
|
|
|
|
|
|
|
|
|
|
- review of Bond compliance certificate |
1 |
- |
1 |
1 |
- |
1 |
|
|
|
- review of transition |
- |
- |
- |
6 |
- |
6 |
|
|
|
- review of Half-yearly Report |
6 |
- |
6 |
7 |
- |
7 |
|
|
Other expenses |
305 |
- |
305 |
277 |
- |
277 |
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
927 |
8 |
935 |
867 |
5 |
872 |
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
{A} Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £200,000 (2018 - £150,000 ) was payable to ASFML to cover promotional activities during the year. There was £50,000 (2018 - £150,000) due to ASFML in respect of these promotional activities at the year end. |
|||||||
|
|
|
2019 |
2018 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
6. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
6.25% Bonds 2031 |
1,510 |
2,264 |
3,774 |
1,259 |
2,338 |
3,597 |
|
|
Overdraft interest |
2 |
4 |
6 |
- |
1 |
1 |
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
1,512 |
2,268 |
3,780 |
1,259 |
2,339 |
3,598 |
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
2019 |
2018 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
Current UK tax |
338 |
- |
338 |
289 |
- |
289 |
|
|
|
Double taxation relief |
(129) |
- |
(129) |
(122) |
- |
(122) |
|
|
|
Corporation tax prior year adjustment |
(61) |
- |
(61) |
- |
- |
- |
|
|
|
Overseas tax suffered |
200 |
20 |
220 |
196 |
- |
196 |
|
|
|
Overseas tax reclaimable |
- |
- |
- |
(20) |
- |
(20) |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
Current tax charge for the year |
348 |
20 |
368 |
343 |
- |
343 |
|
|
|
Deferred tax |
- |
(2,373) |
(2,373) |
- |
- |
- |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
Total tax charge for the year |
348 |
(2,353) |
(2,005) |
343 |
- |
343 |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
(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 19.0% (2018 - effective rate of 19.0%). The differences are explained as follows: |
||||||
|
|
|
|
||||||
|
|
|
|
2019 |
2018 |
||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Net return before taxation |
19,054 |
(12,371) |
6,683 |
20,558 |
(11,020) |
9,538 |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
Net return before taxation multiplied by the standard rate of corporation tax of 19.0% (2018 -same) |
3,620 |
(2,351) |
1,269 |
3,906 |
(2,094) |
1,812 |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
Non taxable (gains)/losses on investments held at fair value through profit or loss |
- |
(513) |
(513) |
- |
3,215 |
3,215 |
|
|
|
Exchange gain/(loss) not taxable |
- |
2,257 |
2,257 |
- |
(1,082) |
(1,082) |
|
|
|
Non taxable UK dividend income |
(139) |
- |
(139) |
(86) |
- |
(86) |
|
|
|
Non taxable overseas dividend income |
(1,249) |
- |
(1,249) |
(1,655) |
- |
(1,655) |
|
|
|
Disallowable expenses |
|
- |
- |
16 |
1 |
17 |
|
|
|
Overseas tax suffered |
200 |
20 |
220 |
196 |
- |
196 |
|
|
|
Overseas tax recovered |
- |
- |
- |
(20) |
- |
(20) |
|
|
|
Double taxation relief |
(129) |
- |
(129) |
(122) |
- |
(122) |
|
|
|
Corporation tax prior year adjustment |
(61) |
- |
(61) |
- |
- |
- |
|
|
|
Utilisation of excess management expenses brought forward |
- |
(1,287) |
(1,287) |
- |
(1,932) |
(1,932) |
|
|
|
Effect of not applying the marginal method of allocation of tax relief |
(1,894) |
1,894 |
- |
(1,892) |
1,892 |
- |
|
|
|
Deferred tax asset recognised |
- |
(2,373) |
(2,373) |
- |
- |
- |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
|
348 |
(2,353) |
(2,005) |
343 |
- |
343 |
|
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Factors that may affect future tax charges |
||||||
|
|
|
During the year, the Company has recognised a deferred tax asset of £2,373,000 (2018 - £Nil) as it is considered likely that accumulated unrelieved management expenses and loan relationship deficits will be extinguished in future years. In arriving at the amount recognised, the Company has estimated the future levels of taxable income forecast to be generated and the utilisation of management expenses. |
||||||
|
|
|
2019 |
2018 |
|
8. |
Ordinary dividends on equity shares |
£'000 |
£'000 |
|
|
Third interim dividend for 2018 - 1.31p (2017 - 1.31p) |
4,304 |
4,317 |
|
|
Fourth interim dividend for 2018 - 1.31p (2017 - 1.31p) |
4,332 |
4,304 |
|
|
First interim dividend for 2019 - 1.34p (2018 - 1.31p) |
4,431 |
4,304 |
|
|
Second interim dividend for 2019 - 1.34p (2018 - 1.31p) |
4,416 |
4,304 |
|
|
|
______ |
______ |
|
|
|
17,483 |
17,229 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
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 £18,706,000 (2018 - £20,215,000). |
||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
|
£'000 |
£'000 |
|
|
First interim dividend for 2019 - 1.34p (2018 - 1.31p) |
4,431 |
4,304 |
|
|
Second interim dividend for 2019 - 1.34p (2018 - 1.31p) |
4,416 |
4,304 |
|
|
Third interim dividend for 2019 - 1.34p (2018 - 1.31p) |
4,340 |
4,304 |
|
|
Fourth interim dividend for 2019 - 1.34p{A} (2018 - 1.31p) |
4,301 |
4,332 |
|
|
|
17,488 |
17,244 |
|
|
{A} The amount reflected above for the cost of the fourth interim dividend for 2019 is based on 320,936,238 Ordinary shares, being the number of Ordinary shares in issue, excluding shares held in treasury, at the date of this Report. |
||
|
|
|
2019 |
2018 |
|
9. |
Return per Ordinary share |
p |
p |
|
|
Revenue return |
5.68 |
6.15 |
|
|
Capital return |
(3.04) |
(3.35) |
|
|
Total return |
2.64 |
2.80 |
|
|
|
|
|
|
|
The figures above are based on the following: |
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
|
£'000 |
£'000 |
|
|
Revenue return |
18,706 |
20,215 |
|
|
Capital return |
(10,018) |
(11,020) |
|
|
Total return |
8,688 |
9,195 |
|
|
|
|
|
|
|
Weighted average number of shares in issue{A} |
329,526,431 |
328,613,280 |
|
|
{A} Calculated excluding shares held in treasury. |
|
|
|
|
|
2019 |
2018 |
|
10. |
Investments |
£'000 |
£'000 |
|
|
Held at fair value through profit or loss: |
|
|
|
|
Opening valuation |
472,496 |
477,150 |
|
|
Opening investment holdings losses/(gains) |
8,014 |
5,069 |
|
|
|
______ |
______ |
|
|
Opening book cost |
480,510 |
482,219 |
|
|
Movements during the year: |
|
|
|
|
Purchases at cost |
125,649 |
263,070 |
|
|
Sales - proceeds |
(139,412) |
(267,555) |
|
|
Sales - gains |
1,835 |
2,937 |
|
|
Amortisation/(accretion) of fixed income book cost |
142 |
(161) |
|
|
|
______ |
______ |
|
|
Closing book cost |
468,724 |
480,510 |
|
|
Closing investment holdings losses |
(10,202) |
(8,014) |
|
|
|
______ |
______ |
|
|
Closing valuation of investments |
458,522 |
472,496 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
The portfolio valuation |
£'000 |
£'000 |
|
|
UK equities |
135,016 |
138,589 |
|
|
Overseas equities |
88,620 |
127,772 |
|
|
Fixed interest |
115,570 |
98,986 |
|
|
Loan investments |
11,078 |
25,094 |
|
|
Unlisted holdings |
108,238 |
82,055 |
|
|
|
______ |
______ |
|
|
|
458,522 |
472,496 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
(Losses)/gains on investments |
£'000 |
£'000 |
|
|
Realised gains |
1,835 |
2,937 |
|
|
Net movement in investment holdings losses |
(2,188) |
(2,945) |
|
|
|
______ |
______ |
|
|
|
(353) |
(8) |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
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 (losses)/gains on investments in the Statement of Comprehensive Income. The total costs were as follows: |
||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
|
£'000 |
£'000 |
|
|
Purchases |
22 |
24 |
|
|
Sales |
65 |
17 |
|
|
|
______ |
______ |
|
|
|
87 |
41 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. |
||
|
|
|
||
|
|
Substantial holdings |
||
|
|
At the year end the Company held more than 3% of a share class in the following investees; |
||
|
|
|
|
|
|
|
|
|
% of |
|
|
Investee |
Class |
Class |
|
|
Smart Beta Low Volatility Global Equity Income Fund{A} |
Z Q1 |
100 |
|
|
Aberdeen Global Infrastructure Partners II |
AUD |
11 |
|
|
Aberdeen Global Infrastructure Partners II |
USD |
11 |
|
|
Aberdeen Standard Alpha - Global Loans Fund{A} |
Z1 |
43 |
|
|
Aberdeen Standard SICAV I - Indian Bond Fund |
Z M1 |
69 |
|
|
Aberdeen Standard SICAV I - Frontier Markets Bond Fund |
1 M1 |
32 |
|
|
Aberdeen European Residential Opportunities Fund |
B |
100 |
|
|
Aberdeen Property Secondaries Partners II |
A-1 |
12 |
|
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI |
B |
13 |
|
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 Liq{B} |
B |
73 |
|
|
TwentyFour Asset Backed Opportunities Fund{C} |
I-1 |
51 |
|
|
The registered adresses for investment holdings where the Company holds greater than 20% of their net assets attributable are as follows; |
||
|
|
{A} 35a Avenue John F Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg |
||
|
|
{B} 10th Floor, 141 Front Street, Hamilton HM19 Bermuda |
||
|
|
{C} PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL |
||
|
|
|
2019 |
2018 |
|
11. |
Debtors |
£'000 |
£'000 |
|
|
Amounts due from brokers |
43 |
1,367 |
|
|
Prepayments and accrued income |
1,932 |
1,740 |
|
|
Taxation recoverable |
64 |
113 |
|
|
|
______ |
______ |
|
|
|
2,039 |
3,220 |
|
|
|
______ |
______ |
|
|
|
2019 |
2018 |
|
12. |
Creditors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Amounts due to brokers |
- |
2,086 |
|
|
Interest on 6.25% Bonds 2031 |
208 |
208 |
|
|
Corporation tax payable |
106 |
167 |
|
|
Other creditors |
442 |
474 |
|
|
|
______ |
______ |
|
|
|
756 |
2,935 |
|
|
|
______ |
______ |
|
|
|
2019 |
2018 |
|
13. |
Creditors: amounts falling due after more than one year |
£'000 |
£'000 |
|
|
6.25% Bonds 2031{A} |
|
|
|
|
Balance at beginning of year |
59,479 |
59,632 |
|
|
Amortisation of discount and issue expenses |
24 |
(153) |
|
|
|
______ |
______ |
|
|
Balance at end of year |
59,503 |
59,479 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
{A} The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 30 September 2019 was 143.21p, a total of £85,926,000 (2018 - 132.75p, total of £79,648,000). |
||
|
|
|
||
|
|
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 2018 |
328,551,705 |
36,859,169 |
365,410,874 |
91,352 |
|
|
Shares issued from treasury |
2,150,000 |
(2,150,000) |
- |
- |
|
|
Shares purchased for treasury |
(7,720,000) |
7,720,000 |
- |
- |
|
|
|
______ |
______ |
______ |
______ |
|
|
At 30 September 2019 |
322,981,705 |
42,429,169 |
365,410,874 |
91,352 |
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
During the year 7,720,000 (2018 - 515,000) Ordinary shares of 25p each were purchased to be held in treasury at a cost of £8,317,000 (2018 - £604,000) and 2,150,000 (2018: nil) Ordinary shares of 25p each were issued from treasury for consideration of £2,662,000. |
||||
|
|
|
||||
|
|
Since the year end 1,870,467 Ordinary shares of 25p each have been purchased to be held in treasury by the Company for a total cost of £2,211,000. |
||||
|
|
|
2019 |
2018 |
|
15. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 October |
153,182 |
164,806 |
|
|
Movement in investment holding gains |
(2,188) |
(2,945) |
|
|
Gains on realisation of investments at fair value |
1,835 |
2,937 |
|
|
Realised foreign exchange losses |
(413) |
(68) |
|
|
Unrealised foreign exchange gains |
196 |
148 |
|
|
Realised (losses)/gains on forward currency contracts |
(11,661) |
5,617 |
|
|
Unrealised gains/(losses) on forward currency contracts |
3,055 |
(13,291) |
|
|
Transaction and other costs |
(8) |
(5) |
|
|
Finance costs |
(2,268) |
(2,339) |
|
|
Issue of own shares from treasury |
2,662 |
- |
|
|
Purchase of own shares to treasury |
(8,317) |
(604) |
|
|
Investment management fees |
(919) |
(1,074) |
|
|
Overseas tax suffered |
(20) |
- |
|
|
Deferred tax |
2,373 |
- |
|
|
|
______ |
______ |
|
|
At 30 September |
137,509 |
153,182 |
|
|
|
______ |
______ |
|
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 |
2019 |
2018 |
|
|
Net asset value attributable (£'000) |
413,679 |
428,129 |
|
|
Number of Ordinary shares in issue excluding treasury (note 14) |
322,981,705 |
328,551,705 |
|
|
Net asset value per share (p) |
128.08 |
130.31 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
Debt at fair value |
£'000 |
£'000 |
|
|
Net asset value attributable |
413,679 |
428,129 |
|
|
Add: Amortised cost of 6.25% Bonds 2031 |
59,503 |
59,479 |
|
|
Less: Market value of 6.25% Bonds 2031 |
(85,926) |
(79,648) |
|
|
|
______ |
______ |
|
|
|
387,256 |
407,960 |
|
|
|
______ |
______ |
|
|
Number of Ordinary shares in issue excluding treasury (note 14) |
322,981,705 |
328,551,705 |
|
|
Net asset value per share (p) |
119.90 |
124.17 |
|
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 2019 there were 24 open positions in derivatives transactions (2018 - 24). |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
Risk management framework |
|
|||||||||||||||
|
|
The directors of Aberdeen Standard Fund Managers Limited ("ASFML") collectively assume responsibility for ASFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
ASFML is a fully integrated member of the Standard Life Aberdeen plc (the "Group"), which provides a variety of services and support to ASFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. ASFML 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). ASFML has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's 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 CEO 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 ("SHIELD"). |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of ASFML, 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 12.5% of net assets as at 30 September 2019 (2018 - 10.6%). 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. An analysis of the portfolio by asset class may be found in the Investment Manager's Report. |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
Interest rate risk |
|
|||||||||||||||
|
|
Interest rate movements may affect: |
|
|||||||||||||||
|
|
- the level of income receivable on cash deposits; 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: |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
|
2019 |
2018 |
||||||||||||||
|
|
|
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 |
9,312 |
87,170 |
96,482 |
3,234 |
73,982 |
77,216 |
||||||||||
|
|
Exposure to floating interest rates |
|
|
|
|
|
|
||||||||||
|
|
Fixed interest investments{A} |
- |
19,088 |
19,088 |
- |
21,770 |
21,770 |
||||||||||
|
|
Loan investments{A} |
- |
11,078 |
11,078 |
- |
25,094 |
25,094 |
||||||||||
|
|
Cash & cash equivalents |
7,809 |
- |
7,809 |
14,687 |
- |
14,687 |
||||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
||||||||||
|
|
|
17,121 |
117,336 |
134,457 |
17,921 |
120,846 |
138,767 |
||||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
||||||||||
|
|
|
|
|
|
|
|
|
||||||||||
|
|
{A} Variable distributions received from investment holdings, which have an underlying portfolio of fixed interest securities. |
||||||||||||||||
|
|
|
||||||||||||||||
|
|
Financial liabilities |
||||||||||||||||
|
|
The Company has borrowings by way of a bond issue, held at amortised cost of £59,503,000 (2018 - £59,479,000) details of which are in note 13. The fair value of this loan has been calculated at £85,926,000 as at 30 September 2019 (2018 - £79,648,000). |
||||||||||||||||
|
|
|
|
|||||||||||||||
|
|
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 Statement of Financial Position 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 2019 would increase/decrease by £39,000 (2018 - increase/decrease £73,000). This is attributable to the Company's exposure to interest rates on its floating rate cash balances at 30 September 2019. |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
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 financial assets and floating rate financial assets, which have an exposure to fixed interest securities, at the year ended 30 September 2019 of £126,648,000 (2018 - £124,080,000) would result in a decrease of £1,659,000 (2018 - £1,563,000). 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 2019 would result in an increase of £1,735,000 (2018 - £1,625,000). |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
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. The Company has entered into derivative transactions, in the form of forward exchange contracts, to ensure that exposure to foreign denominated investments and cashflows is appropriately hedged. |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
Foreign currency risk exposure by currency of denomination excluding other debtors and receivables and other payables falling due within one year: |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
|
30 September 2019 |
30 September 2018 |
|
|||||||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
|
|||||||||
|
|
|
|
monetary |
currency |
|
monetary |
currency |
|
|||||||||
|
|
|
Investments |
items |
exposure |
Investments |
items |
exposure |
|
|||||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|||||||||
|
|
US Dollar |
170,986 |
741 |
171,727 |
219,760 |
485 |
220,245 |
|
|||||||||
|
|
Euro |
53,943 |
1,626 |
55,569 |
28,997 |
54 |
29,051 |
|
|||||||||
|
|
Other |
104,164 |
4,083 |
108,247 |
86,442 |
897 |
87,339 |
|
|||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|||||||||
|
|
|
329,093 |
6,450 |
335,543 |
335,199 |
1,436 |
336,635 |
|
|||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
_____ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
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. This sensitivity excludes forward currency contracts entered into for hedging short term cash flows. |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||
|
|
|
2019 |
2018 |
|
|||||||||||||
|
|
|
£'000 |
£'000 |
|
|||||||||||||
|
|
US Dollar |
17,172 |
22,024 |
|
|||||||||||||
|
|
Euro |
5,557 |
2,905 |
|
|||||||||||||
|
|
Other |
10,825 |
8,734 |
|
|||||||||||||
|
|
|
______ |
______ |
|
|||||||||||||
|
|
|
33,554 |
33,663 |
|
|||||||||||||
|
|
|
______ |
______ |
|
|||||||||||||
|
|
|
|
|||||||||||||||
|
|
Foreign exchange contracts |
|
|||||||||||||||
|
|
The following forward contracts were outstanding at the Statement of Financial Position date: |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
Unrealised |
|
|||||||||
|
|
|
|
|
|
|
|
gain/(loss) |
|
|||||||||
|
|
|
|
|
|
|
|
30 September |
|
|||||||||
|
|
|
Buy |
Sell |
Settlement |
Amount |
Contracted |
2019 |
|
|||||||||
|
|
Date of contract |
Currency |
Currency |
date |
'000 |
rate |
£'000 |
|
|||||||||
|
|
6 September 2019 |
GBP |
AUD |
12 December 2019 |
29,804 |
1.8282 |
412 |
|
|||||||||
|
|
6 September 2019 |
GBP |
CAD |
12 December 2019 |
25,415 |
1.6345 |
89 |
|
|||||||||
|
|
6 September 2019 |
GBP |
EUR |
12 December 2019 |
64,344 |
1.1274 |
971 |
|
|||||||||
|
|
6 September 2019 |
GBP |
JPY |
12 December 2019 |
20,544 |
132.8838 |
268 |
|
|||||||||
|
|
6 September 2019 |
GBP |
NOK |
12 December 2019 |
24,214 |
11.2167 |
269 |
|
|||||||||
|
|
6 September 2019 |
GBP |
NZD |
12 December 2019 |
24,031 |
1.9677 |
559 |
|
|||||||||
|
|
6 September 2019 |
GBP |
SEK |
12 December 2019 |
24,443 |
12.0925 |
452 |
|
|||||||||
|
|
6 September 2019 |
GBP |
USD |
12 December 2019 |
47,971 |
1.2359 |
60 |
|
|||||||||
|
|
6 September 2019 |
GBP |
USD |
12 December 2019 |
47,971 |
1.2359 |
60 |
|
|||||||||
|
|
9 September 2019 |
GBP |
EUR |
12 December 2019 |
6,365 |
1.1274 |
73 |
|
|||||||||
|
|
12 September 2019 |
USD |
GBP |
12 December 2019 |
232 |
1.2359 |
- |
|
|||||||||
|
|
18 September 2019 |
GBP |
EUR |
12 December 2019 |
1,390 |
1.1274 |
3 |
|
|||||||||
|
|
18 September 2019 |
USD |
GBP |
12 December 2019 |
1,494 |
1.2359 |
17 |
|
|||||||||
|
|
20 September 2019 |
USD |
GBP |
12 December 2019 |
2,352 |
1.2359 |
39 |
|
|||||||||
|
|
25 September 2019 |
USD |
GBP |
12 December 2019 |
1,923 |
1.2359 |
10 |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
3,282 |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
9 September 2019 |
EUR |
GBP |
12 December 2019 |
4,074 |
1.1274 |
(43) |
|
|||||||||
|
|
10 September 2019 |
GBP |
USD |
12 December 2019 |
3,626 |
1.2359 |
(14) |
|
|||||||||
|
|
12 September 2019 |
USD |
GBP |
12 December 2019 |
2,108 |
1.2359 |
(4) |
|
|||||||||
|
|
16 September 2019 |
EUR |
GBP |
12 December 2019 |
243 |
1.1274 |
(1) |
|
|||||||||
|
|
17 September 2019 |
EUR |
GBP |
12 December 2019 |
192 |
1.1274 |
(1) |
|
|||||||||
|
|
17 September 2019 |
GBP |
USD |
12 December 2019 |
1,102 |
1.2359 |
(7) |
|
|||||||||
|
|
18 September 2019 |
GBP |
USD |
12 December 2019 |
827 |
1.2359 |
(10) |
|
|||||||||
|
|
20 September 2019 |
GBP |
USD |
12 December 2019 |
420 |
1.2359 |
(7) |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
(87) |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
Unrealised |
|
|||||||||
|
|
|
|
|
|
|
|
gain/(loss) |
|
|||||||||
|
|
|
|
|
|
|
|
30 September |
|
|||||||||
|
|
|
Buy |
Sell |
Settlement |
Amount |
Contracted |
2018 |
|
|||||||||
|
|
Date of contract |
Currency |
Currency |
date |
'000 |
rate |
£'000 |
|
|||||||||
|
|
31 August 2018 |
GBP |
AUD |
7 December 2018 |
22,198 |
1.8070 |
20 |
|
|||||||||
|
|
31 August 2018 |
GBP |
EUR |
7 December 2018 |
38,405 |
1.1200 |
275 |
|
|||||||||
|
|
31 August 2018 |
GBP |
JPY |
7 December 2018 |
15,448 |
147.8170 |
438 |
|
|||||||||
|
|
31 August 2018 |
GBP |
NZD |
7 December 2018 |
18,437 |
1.9724 |
59 |
|
|||||||||
|
|
31 August 2018 |
GBP |
USD |
7 December 2018 |
78,669 |
1.3081 |
256 |
|
|||||||||
|
|
31 August 2018 |
GBP |
USD |
7 December 2018 |
78,668 |
1.3081 |
256 |
|
|||||||||
|
|
11 September 2018 |
GBP |
EUR |
7 December 2018 |
1,163 |
1.1200 |
2 |
|
|||||||||
|
|
11 September 2018 |
GBP |
EUR |
7 December 2018 |
1,120 |
1.1200 |
1 |
|
|||||||||
|
|
11 September 2018 |
GBP |
JPY |
7 December 2018 |
676 |
147.8170 |
15 |
|
|||||||||
|
|
27 September 2018 |
USD |
GBP |
7 December 2018 |
3,055 |
1.3081 |
22 |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
1,344 |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
31 August 2018 |
GBP |
CAD |
7 December 2018 |
18,706 |
1.6885 |
(109) |
|
|||||||||
|
|
31 August 2018 |
GBP |
NOK |
7 December 2018 |
18,948 |
10.6226 |
(384) |
|
|||||||||
|
|
31 August 2018 |
GBP |
SEK |
7 December 2018 |
18,357 |
11.5673 |
(381) |
|
|||||||||
|
|
5 September 2018 |
USD |
GBP |
7 December 2018 |
447 |
1.3081 |
(7) |
|
|||||||||
|
|
11 September 2018 |
GBP |
AUD |
7 December 2018 |
3,457 |
1.8070 |
(61) |
|
|||||||||
|
|
11 September 2018 |
GBP |
CAD |
7 December 2018 |
2,802 |
1.6885 |
(40) |
|
|||||||||
|
|
11 September 2018 |
GBP |
NOK |
7 December 2018 |
2,473 |
10.6226 |
(56) |
|
|||||||||
|
|
11 September 2018 |
GBP |
NZD |
7 December 2018 |
3,116 |
1.9724 |
(52) |
|
|||||||||
|
|
11 September 2018 |
GBP |
SEK |
7 December 2018 |
2,805 |
11.5673 |
(42) |
|
|||||||||
|
|
11 September 2018 |
USD |
GBP |
7 December 2018 |
22,448 |
1.3081 |
(56) |
|
|||||||||
|
|
11 September 2018 |
USD |
GBP |
7 December 2018 |
218 |
1.3081 |
(1) |
|
|||||||||
|
|
19 September 2018 |
GBP |
USD |
7 December 2018 |
586 |
1.3081 |
(6) |
|
|||||||||
|
|
26 September 2018 |
GBP |
USD |
7 December 2018 |
505 |
1.3081 |
(5) |
|
|||||||||
|
|
27 September 2018 |
GBP |
JPY |
7 December 2018 |
1,559 |
147.8170 |
(4) |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
(1,204) |
|
|||||||||
|
|
|
|
|
|
|
|
______ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
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 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 2019 would have increased/decreased by £33,188,000 (2018 - £34,842,000). |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
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 |
26,250 |
45,000 |
|
||||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
|
||||||||||
|
|
|
3,750 |
7,500 |
7,500 |
86,250 |
105,000 |
|
||||||||||
|
|
|
______ |
______ |
______ |
______ |
_____ |
|
||||||||||
|
|
|
|
|||||||||||||||
|
|
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 2019 was as follows: |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
|
2019 |
2018 |
|
|||||||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|
|||||||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|
|||||||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|||||||||||
|
|
Non-current assets |
|
|
|
|
|
|||||||||||
|
|
Securities at fair value through profit or loss |
458,522 |
126,649 |
472,496 |
124,080 |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
|
Current assets |
|
|
|
|
|
|||||||||||
|
|
Other debtors |
92 |
29 |
160 |
47 |
|
|||||||||||
|
|
Amounts due from brokers |
43 |
43 |
1,367 |
1,367 |
|
|||||||||||
|
|
Accrued income |
1,904 |
1,904 |
1,693 |
1,693 |
|
|||||||||||
|
|
Derivatives |
3,282 |
3,282 |
1,344 |
1,344 |
|
|||||||||||
|
|
Cash and short term deposits |
7,809 |
7,809 |
14,687 |
14,687 |
|
|||||||||||
|
|
|
______ |
______ |
______ |
______ |
|
|||||||||||
|
|
|
471,652 |
139,716 |
491,747 |
143,218 |
|
|||||||||||
|
|
|
______ |
______ |
______ |
______ |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
|
None of the Company's financial assets are secured by collateral or other credit enhancements and none of the Company's financial assets are past due or impaired (2018 - £nil). |
|
|||||||||||||||
|
|
|
|
|||||||||||||||
|
|
Credit ratings |
|
|||||||||||||||
|
|
The following table provides a credit rating profile using Standard and Poor's credit ratings for the bond portfolio at 30 September 2019 and 30 September 2018: |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||
|
|
|
2019 |
2018 |
|
|||||||||||||
|
|
|
£'000 |
£'000 |
|
|||||||||||||
|
|
A |
5,862 |
- |
|
|||||||||||||
|
|
A- |
18,748 |
21,333 |
|
|||||||||||||
|
|
BB+ |
8,932 |
8,875 |
|
|||||||||||||
|
|
BB- |
13,145 |
9,397 |
|
|||||||||||||
|
|
BBB |
10,384 |
11,237 |
|
|||||||||||||
|
|
Non-rated |
58,499 |
48,144 |
|
|||||||||||||
|
|
|
______ |
______ |
|
|||||||||||||
|
|
|
115,570 |
98,986 |
|
|||||||||||||
|
|
|
______ |
______ |
|
|||||||||||||
|
|
|
|
|||||||||||||||
|
|
Whilst a substantial proportion of the fixed interest portfolio does not have a rating provided by a recognised credit ratings agency, the Manager undertakes an ongoing review of their suitability for inclusion within the portfolio. |
|
|||||||||||||||
|
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: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. |
|||||
|
|
Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (ie as prices) or indirectly (ie derived from prices). |
|||||
|
|
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. |
|||||
|
|
|
|||||
|
|
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 2019 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets/(liabilities) at fair value through profit or loss |
|
|
|
|
|
|
|
Equity investments |
80,784 |
142,852 |
108,238 |
331,874 |
|
|
|
Loan investments |
- |
11,078 |
- |
11,078 |
|
|
|
Fixed interest instruments |
- |
115,570 |
- |
115,570 |
|
|
|
Forward currency contracts - financial assets |
- |
3,282 |
- |
3,282 |
|
|
|
Forward currency contracts - financial liabilities |
- |
(87) |
- |
(87) |
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
Net fair value |
80,784 |
272,695 |
108,238 |
461,717 |
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
As at 30 September 2018 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets/(liabilities) at fair value through profit or loss |
|
|
|
|
|
|
|
Equity investments |
96,311 |
170,050 |
82,055 |
348,416 |
|
|
|
Loan investments |
- |
25,094 |
- |
25,094 |
|
|
|
Fixed interest instruments |
- |
98,986 |
- |
98,986 |
|
|
|
Forward currency contracts - financial assets |
- |
1,344 |
- |
1,344 |
|
|
|
Forward currency contracts - financial liabilities |
- |
(1,204) |
- |
(1,204) |
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
Net fair value |
96,311 |
294,270 |
82,055 |
472,636 |
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|||
|
|
|
As at |
As at |
|||
|
|
|
30 September 2019 |
30 September 2018 |
|||
|
|
Level 3 Financial assets at fair value through profit or loss |
£'000 |
£'000 |
|||
|
|
Opening fair value |
82,055 |
13,666 |
|||
|
|
Purchases including calls (at cost) |
48,170 |
54,978 |
|||
|
|
Disposals and return of capital |
(14,348) |
(15,624) |
|||
|
|
Transfers from level 1 |
- |
6,348 |
|||
|
|
Transfers from level 2 |
- |
14,275 |
|||
|
|
Total gains or losses included in (losses)/gains on investments in the Statement of Comprehensive Income: |
|
|
|||
|
|
- assets disposed of during the year |
2,908 |
2,715 |
|||
|
|
- assets held at the end of the year |
(10,547) |
5,697 |
|||
|
|
|
______ |
______ |
|||
|
|
Closing balance |
108,238 |
82,055 |
|||
|
|
|
______ |
______ |
|||
|
|
|
|||||
|
|
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; |
|||||
|
|
|
|||||
|
|
|
As at |
As at |
|||
|
|
|
30 September 2019 |
30 September 2018 |
|||
|
|
|
£'000 |
£'000 |
|||
|
|
Aberdeen European Residential Opportunities Fund |
8,241 |
6,730 |
|||
|
|
Aberdeen Global Infrastructure Partners II (AUD) |
4,085 |
3,159 |
|||
|
|
Aberdeen Global Infrastructure Partners II (USD) |
3,489 |
2,411 |
|||
|
|
Aberdeen Property Secondaries Partners II |
14,664 |
7,566 |
|||
|
|
Agriculture Capital Management Fund II |
3,783 |
2,770 |
|||
|
|
Andean Social Infrastructure Fund I |
17 |
- |
|||
|
|
BlackRock Infrastructure Renewable Income Fund |
9,107 |
8,738 |
|||
|
|
Blue Capital Alternative Income |
1,504 |
5,060 |
|||
|
|
Burford Opportunity Fund |
6,660 |
- |
|||
|
|
Cheyne Social Property |
3,771 |
1,439 |
|||
|
|
Dover Street VII |
405 |
629 |
|||
|
|
HarbourVest International Private Equity V |
51 |
66 |
|||
|
|
HarbourVest International Private Equity VI |
3,055 |
3,114 |
|||
|
|
HarbourVest VIII Buyout Fund |
703 |
847 |
|||
|
|
HarbourVest VIII Venture Fund |
236 |
249 |
|||
|
|
Healthcare Royalty Partners IV |
683 |
- |
|||
|
|
Maj Equity Fund 4 |
2,576 |
2,970 |
|||
|
|
Maj Equity Fund 5 |
1,020 |
719 |
|||
|
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI |
6,676 |
- |
|||
|
|
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 Liq |
8,871 |
28,068 |
|||
|
|
Mesirow Financial Private Equity III |
473 |
2,038 |
|||
|
|
Mesirow Financial Private Equity IV |
1,806 |
594 |
|||
|
|
SL Capital Infrastructure II |
18,946 |
- |
|||
|
|
Truenoord Co-Investment |
7,416 |
4,888 |
|||
|
|
|
______ |
______ |
|||
|
|
|
108,238 |
82,055 |
|||
|
|
|
______ |
______ |
|||
|
|
|
|
|
|||
|
|
During the year, investments valued at £Nil (2018 - £6,348,000) were transferred from Level 1 to Level 3 and investments valued at £Nil (2018 - £14,275,000) 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 2019 and 30 September 2018. |
|||||
|
|
|
|||||
|
|
For all other assets and liabilities (i.e. those not included in the hierarchy table) carrying value approximates to fair value with the exception of the 6.25% Bonds 2031. The basis of their fair value is detailed in note 13 . |
|||||
|
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 £15,000 (2018 - £16,000). |
|
|
|
|
|
|
|
Transactions with the Manager
|
|
|
|
The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of management services. The investment management fee is levied by ASFML 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). |
|
|
|
Details of transactions during the year and balances outstanding at the year end are disclosed in note 4. |
|
|
|
|
|
|
|
The Company also receives rebates in respect of underlying investments in other funds managed by the Group (where an investment management fee is charged by the Group on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Group which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at the Group'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 2019 that were managed by the Group. For the period to 30 September 2019 no fees were levied in respect of these funds. |
|
|
|
|
|
|
|
|
30 September 2019 |
|
|
|
£'000 |
|
|
Smart Beta Low Volatility Global Equity Income Fund |
84,133 |
|
|
SL Capital Infrastructure II |
18,946 |
|
|
Aberdeen Property Secondaries Partners II |
14,664 |
|
|
Aberdeen Standard SICAV I - Frontier Markets Bond Fund |
11,944 |
|
|
Aberdeen Standard Alpha - Global Loans Fund |
11,078 |
|
|
Aberdeen European Residential Opportunities Fund |
8,241 |
|
|
Aberdeen Standard SICAV I - Indian Bond Fund |
7,144 |
|
|
Aberdeen Global Infrastructure Partners II (AUD) |
4,085 |
|
|
Aberdeen Global Infrastructure Partners II (USD) |
3,489 |
|
|
Andean Social Infrastructure Fund I |
17 |
|
|
|
______ |
|
|
|
163,741 |
|
|
|
______ |
|
|
|
|
|
|
The Company also has an agreement with ASFML for the provision of secretarial, accounting and administration services and promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in note 5. |
|
|
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 (net gearing at the reporting period end is disclosed above and the calculation basis is set out in the Alternative Performance Measures); |
|
|
- the level of equity shares in issue; |
|
|
- the revenue account, shareholder distributions and the extent to which the balance is either accretive or dilutive of the revenue reserves. |
|
|
|
|
|
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. 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 2019 the Company had commitments of £233,673,000 of which £104,897,000 remained outstanding (2018 - £70,274,000). Further details are given below. There were no contingent liabilities as at 30 September 2019 (2018 - £nil). |
|
|
|
|
|
|
|
|
Undrawn commitments |
|
|
|
30 September 2019 |
|
|
|
£'000 |
|
|
Secondary Opportunities Fund IV |
20,287 |
|
|
Andean Social Infrastructure Fund I |
19,992 |
|
|
Healthcare Royalty Partners IV |
19,590 |
|
|
Burford Opportunity Fund |
13,431 |
|
|
Aberdeen Global Infrastructure Partners II (AUD) |
8,250 |
|
|
SL Capital Infrastructure II |
6,550 |
|
|
Cheyne Social Property |
4,881 |
|
|
Aberdeen European Residential Opportunities Fund |
4,560 |
|
|
Aberdeen Property Secondaries Partners II |
2,496 |
|
|
Maj Investment Funds 5 |
1,597 |
|
|
Agriculture Capital Management Fund II |
1,483 |
|
|
Maj Equity Fund 4 |
547 |
|
|
Truenoord Co-Investment |
488 |
|
|
Mesirow Financial Private Equity IV |
183 |
|
|
Dover Street VII |
179 |
|
|
HarbourVest International Private Equity VI |
126 |
|
|
HarbourVest VIII Buyout Fund |
106 |
|
|
Mesirow Financial Private Equity III |
102 |
|
|
Aberdeen Global Infrastructure Partners II (USD) |
25 |
|
|
HarbourVest International Private Equity V |
16 |
|
|
HarbourVest VIII Venture Fund |
8 |
|
|
|
______ |
|
|
|
104,897 |
|
|
|
______ |
|
|
|
|
|
|
|
Undrawn commitments |
|
|
|
30 September 2018 |
|
|
|
£'000 |
|
|
SL Capital Infrastructure II |
25,385 |
|
|
Aberdeen Property Secondaries Partners II |
13,509 |
|
|
Aberdeen Global Infrastructure Partners II (AUD) |
8,963 |
|
|
Cheyne Social Property |
7,155 |
|
|
Aberdeen European Residential Opportunities Fund |
6,097 |
|
|
Maj Equity Fund 4 |
963 |
|
|
Agriculture Capital Management Fund II |
2,394 |
|
|
Aberdeen Global Infrastructure Partners II (USD){A} |
2,086 |
|
|
Maj Investment Funds 5 |
2,076 |
|
|
Truenoord Co-Investment |
764 |
|
|
HarbourVest International Private Equity VI |
254 |
|
|
Mesirow Financial Private Equity IV |
211 |
|
|
Dover Street VII |
169 |
|
|
HarbourVest VIII Buyout Fund |
100 |
|
|
Mesirow Financial Private Equity III |
97 |
|
|
HarbourVest International Private Equity V |
43 |
|
|
HarbourVest VIII Venture Fund |
8 |
|
|
|
______ |
|
|
|
70,274 |
|
|
|
______ |
|
ALTERNATIVE PERFORMANCE MEASURES |
|||||||
|
Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes IFRS and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. |
|
||||||
|
|
|
||||||
|
Total return |
|
||||||
|
Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend. |
|
||||||
|
|
|
||||||
|
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the years ended 30 September 2019 and 30 September 2018 and total returns. |
|
||||||
|
|
|
|
|
|
|
||
|
|
Dividend |
NAV |
NAV |
Share |
|
||
|
2019 |
rate |
(debt at par) |
(debt at fair value) |
price |
|
||
|
30 September 2018 |
N/A |
130.31p |
124.17p |
124.50p |
|
||
|
27 December 2018 |
1.31p |
120.75p |
114.29p |
112.00p |
|
||
|
7 March 2019 |
1.34p |
123.24p |
116.78p |
117.50p |
|
||
|
13 June 2019 |
1.34p |
123.46p |
116.31p |
112.00p |
|
||
|
19 September 2019 |
1.34p |
126.23p |
118.41p |
104.50p |
|
||
|
30 September 2019 |
N/A |
128.08p |
119.90p |
108.00p |
|
||
|
|
|
______ |
______ |
______ |
|
||
|
Total return |
|
+2.6% |
+1.1% |
-9.0% |
|
||
|
|
|
______ |
______ |
______ |
|
||
|
|
|
|
|
|
|
||
|
|
Dividend |
NAV |
NAV |
Share |
|
||
|
2018 |
rate |
(debt at par) |
(debt at fair value) |
price |
|
||
|
30 September 2017 |
N/A |
132.73p |
126.44p |
120.50p |
|
||
|
28 December 2017 |
1.31p |
132.26p |
125.69p |
123.00p |
|
||
|
15 March 2018 |
1.31p |
130.05p |
123.80p |
119.00p |
|
||
|
28 June 2018 |
1.31p |
128.10p |
121.50p |
120.50p |
|
||
|
20 September 2018 |
1.31p |
127.65p |
121.57p |
122.50p |
|
||
|
30 September 2018 |
N/A |
130.31p |
124.17p |
124.50p |
|
||
|
|
|
______ |
______ |
______ |
|
||
|
Total return |
|
+2.2% |
+2.5% |
+7.9% |
|
||
|
|
|
______ |
______ |
______ |
|
||
|
|
|
|
|
|
|
||
|
Net asset value per Ordinary share - debt at fair value (capital basis) |
|
||||||
|
|
|
||||||
|
|
As at |
As at |
|
||||
|
|
30 September 2019 |
30 September 2018 |
|
||||
|
|
£'000 |
£'000 |
|
||||
|
Net asset value attributable |
413,679 |
428,129 |
|
||||
|
Add: Amortised cost of 6.25% Bonds 2031 |
59,503 |
59,479 |
|
||||
|
Less: Market value of 6.25% Bonds 2031 |
(85,926) |
(79,648) |
|
||||
|
Less: Revenue return for the period |
(18,706) |
(20,215) |
|
||||
|
Add: Interim dividends paid |
8,847 |
8,608 |
|
||||
|
|
______ |
______ |
|
||||
|
|
377,397 |
396,353 |
|
||||
|
|
______ |
______ |
|
||||
|
Number of Ordinary shares in issue excluding treasury shares |
322,981,705 |
328,551,705 |
|
||||
|
|
______ |
______ |
|
||||
|
Net asset value per share (p) |
116.85 |
120.64 |
|
||||
|
|
______ |
______ |
|
||||
|
|
|
|
|
||||
|
(Discount)/premium to net asset value per Ordinary share - debt at fair value (capital basis) |
|
||||||
|
The (discount)/premium is the amount by which the Ordinary share price of 108.00p (2018 - 124.50p) is (lower)/higher than the net asset value per Ordinary share - debt at fair value (capital basis) of 116.85p (2018 - 120.64p), expressed as a percentage of the net asset value - debt at fair value (capital basis). The Board considers this to be the most appropriate measure of the Company's (discount)/premium. |
|
||||||
|
|
|
||||||
|
Dividend cover |
|
||||||
|
Earnings per share of 5.68p (2018 - 6.15p) divided by dividends per share of 5.36p (2018 - 5.24p) expressed as a ratio. |
|
||||||
|
|
|
||||||
|
Net gearing |
|
||||||
|
Net gearing measures the total borrowings of £59,503,000 (2018 - £59,479,000) less cash and cash equivalents of £7,852,000 (2018 - £13,968,000) divided by shareholders' funds of £413,679,000 (2018 - £428,129,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due from and to brokers at the period end of £43,000 (2018 - £(719,000)), in addition to cash and short term deposits per the Statement of Financial Position of £7,809,000 (2018 - £14,687,000). |
|
||||||
|
|
|
||||||
|
Ongoing charges |
|
||||||
|
Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. |
|
||||||
|
|
|
|
|
||||
|
|
2019 |
2018 |
|
||||
|
|
£ |
£ |
|
||||
|
Investment management fees |
1,532,000 |
1,652,000 |
|
||||
|
Administrative expenses |
935,000 |
872,000 |
|
||||
|
Less: non-recurring charges{A} |
(50,000) |
- |
|
||||
|
|
______ |
______ |
|
||||
|
Ongoing charges |
2,417,000 |
2,524,000 |
|
||||
|
|
______ |
______ |
|
||||
|
Average net assets with debt at fair value |
390,389,000 |
409,180,000 |
|
||||
|
|
______ |
______ |
|
||||
|
Ongoing charges ratio (excluding look-through costs) |
0.62% |
0.62% |
|
||||
|
|
______ |
______ |
|
||||
|
Look-through costs{B} |
0.22% |
0.26% |
|
||||
|
|
______ |
______ |
|
||||
|
Ongoing charges ratio (including look-through costs) |
0.84% |
0.88% |
|
||||
|
|
______ |
______ |
|
||||
|
|
|
|
|
||||
|
{A} Professional services considered unlikely to recur. |
|
||||||
|
{B} Costs associated with holdings in collective investment schemes as defined by the Committee of European Securities Regulators' guidelines on the methodology for the calculation of the ongoing charges figure, issued on 1 July 2010. |
|
||||||
|
|
|
||||||
|
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes financing and transaction costs. This can be found within the literature library section of the Company's website: aberdeendiversified.co.uk. |
|
||||||
Additional Notes to the Annual Financial Report
The Annual General Meeting will be held at 12.30pm on 26 February 2020 at Aberdeen Standard Investments, Bow Bell House, 1 Bread Street, London EC4M 9HH.
The Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2019 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2018 and 2019 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 2018 is derived from the statutory accounts for the year ended 30 September 2018 which have been delivered to the Registrar of Companies. The accounts for the year ended 30 September 2019 will be filed with the Registrar of Companies in due course.
The Annual Report will be posted to shareholders in January 2020 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
12 December 2019
* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
END
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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