Annual Financial Report
3 November 2015
EDINBURGH DRAGON TRUST plc
ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2015
Edinburgh Dragon Trust`s objective is long-term capital growth through investment in the Asia Pacific region (with the exception of Japan and Australasia). Investments are made mainly in stock markets in the region, principally in large companies. When appropriate the Company will utilise gearing to maximise long term returns.
The Company`s benchmark is the MSC All Country Asia (ex Japan) Index
- For the year to 31 August 2015 ,the Company`s net asset value fell 12.4% on a total return basis compared to a fall of 9.1%, in sterling terms, in the MSCI All Country Asia (ex Japan) index. While performance was disappointing it is important to place the underperformance in some context. Policy easing by central banks accelerated in response to tepid growth and this resulted in markets being more liquidity driven and volatile. The most dramatic volatility experienced was the sharp run-up and subsequent collapse of Chinese markets. This had an indiscriminate "contagion" effect on all markets but particularly those in the Asia Pacific region.
- Your Manager`s focus on quality lends itself to an innately defensive portfolio which tends to outperform in times of market weakness. However, the scale of volatility during the year saw large swings in share prices and sector performance, and the Manager`s conservative style has not yet had the positive impact that it usually provides in times of volatility. Chinese policy makers are learning some painful lessons as they transition from an export and investment led economy to one more reliant on domestic consumption. However, this will lead to a more sustainable and higher quality growth in the longer term.
- More than half of the world`s population lives in Asia. Its middle class continues to grow quickly, and it has a high propensity to spend. The region is likely to reap its favourable demographic dividends for many years to come.
- The immense promise of Asia remains despite current challenging conditions. Your Manager has the experience and continuity of investing successfully in Asia through many periods of volatility. Quality forms the bedrock of its investment philosophy, which has served your Company well in the past and should continue to do so in the years ahead, despite current travails.
For further information please contact:-
Adrian Lim, Senior Investment Manager,
Aberdeen Asset Management Asia 0065 6395 2700
Kenny Harper, Manager - Investment Trust Investor Relations, 0131 528 4000
Aberdeen Asset Management
STRATEGIC REPORT
OVERVIEW OF STRATEGY
Business Model
The business model of the Company is to operate as an investment trust for UK capital gains tax purposes in line with its investment objective. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2015 so as to enable it to comply with the relevant eligibility conditions for investment trust status as defined by Section 1158 of the Corporation Tax Act 2010.
Investment Policy
The Company's assets are invested in a diversified portfolio of securities in quoted companies spread across a range of industries and economies in the Asia Pacific region, excluding Japan and Australasia. The shares that make up the portfolio are selected from companies that have proven management and whose shares are considered to be attractively priced. The Company invests in a diversified range of sectors and countries. Investments are not limited as to market capitalisation, sector or country weightings within the region.
The Company's policy is to invest no more than 15% of gross assets in other listed investment companies (including listed investment trusts).
The Company complies with Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 and does not invest more than 15% of its assets in the shares of any one company.
When appropriate the Company will utilise gearing to maximise long-term returns, subject to a maximum gearing level of 20% imposed by the Board.
The Company does not currently utilise derivatives but keeps this under review.
Achieving the Investment Policy and Objective
The Directors are responsible for determining the investment policy and the investment objective of the Company. Day-to-day management of the Company's assets has been delegated to the Investment Manager who invests in a diversified range of companies throughout the Asia Pacific investment region in accordance with the investment policy. The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct contact by its fund managers. Stock selection is the major source of added value. No stock is bought without the Investment Manager having first met management. The Investment Manager evaluates a company's worth in two stages; quality then price. Quality is defined by reference to management, business focus, the balance sheet and corporate governance. Price is calculated by reference to key financial ratios, the market, the peer group and business prospects. Stock selection is key in constructing a diversified portfolio of companies. Top-down investment approach and benchmark weightings are secondary factors. The Investment Manager is authorised to invest up to 15% of the Company's gross assets in any single stock, calculated at the time an investment is made.
A detailed description of the investment process and risk controls employed by the Investment Manager is disclosed on page 52 of the published 2015 annual report.
A comprehensive analysis of the Company's portfolio by country and by sector is disclosed on pages 14 to 18 of the published 2015 annual report, including a description of the ten largest investments, the full investment portfolio by value, sector/geographical analysis and currency/market performance. At 31 August 2015, the Company's portfolio consisted of 59 holdings.
Gearing is used to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. At 31 August 2015, the Company's net gearing was 9.4%.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial position, performance and prospects. The Board have identified the principal risks and uncertainties facing the Company in the table below and the appropriate mitigating action. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. Further details on internal control environment can be found in the Statement of Corporate Governance.
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Description |
Mitigating Action/Internal Control |
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· Concentration risk Trading volumes in certain securities of emerging markets can be low. The Investment Manager may accumulate investment positions across all its managed funds that represent a significant multiple of the normal trading volumes of an investment which may result in lack of liquidity and price volatility. Accordingly, the Company will not necessarily be able to realise, within a short period of time, an illiquid investment and any such realisation that may be achieved may be at considerably lower prices than the Company's valuation of that investment for the purpose of calculating the NAV per Ordinary Share. |
The Board monitors, on a regular basis, Aberdeen's total holdings for each stock within Dragon's portfolio and the liquidity of these stocks. |
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· Resource risk The Company is an investment trust and has no employees. The responsibility for the provision of investment management, marketing and administration services for the Company has been delegated to Aberdeen Fund Managers Limited ('AFML') under the management agreement. The terms of the management agreement cover the necessary duties and conditions expected of the Manager. As a result, the Company is dependent on the performance of the AFML. |
The Board reviews the performance of the Manager on a regular basis and their compliance with the management contract formally on an annual basis. As part of that review, the Board assesses the Manager's succession plans, risk management framework and marketing activities. In addition, the Board visits the Manager's Singapore office, where the day-to-day investment management is undertaken, when they are in the region. |
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· Investment and market risk The Company is exposed to the effect of variations in share prices due to the nature of its business. Investment in Asian equities involves a greater degree of risk than that usually associated with investment in the major securities markets, including the risk of social, political and economic instability including changes in government which may restrict investment opportunities and have an adverse effect on economic reform. Changes in legal, regulatory and accounting policies, currency fluctuations and high interest rates may affect the value of the Company's investments and the income derived therefrom. |
The Board continually monitors the investment policy of the Company, taking account of stockmarket factors, and reviews the Company's performance compared to its benchmark index and peer group. Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 18 to the financial statements.
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· Gearing risk As at 31 August 2015 the Company had £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS). Gearing has the effect of exacerbating market falls and gains.
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In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20% and receives regular updates on the actual gearing levels the Company has reached from the Investment Manager together with the assets and liabilities of the Company and reviews these at each Board meeting. |
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· Regulatory risk The Company operates in a complex regulatory environment and faces a number of regulatory risks. Serious breaches of regulations, such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage |
The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.
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· Discount volatility The Company's share price can trade at a discount to its underlying net asset value. |
The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits. |
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· Reliance on Third Party Service Providers The Company has entered into a number of contracts with third party providers including share registrar and depositary services. Failure by any service provider to carry out its contractual obligations could have a detrimental impact on the Company operations. |
The performance of third party providers is reviewed on an annual basis.
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Performance
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators (KPIs) are established industry measures, and are as follows:
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KPI |
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Net asset value and share price (total return) |
The Board monitors the NAV and share price performance of the Company over different time periods. Performance figures for one, three and five years are provided in the Results section. |
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Performance against benchmark |
Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index. The Board also considers peer group comparative performance over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies. |
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Discount/Premium to net asset value |
The discount/premium relative to the net asset value per share represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions. A graph showing the share price premium/(discount) relative to the NAV is also shown on page 13 of the published 2015 annual report. |
Further analysis of the above KPIs are provided in the Chairman's Statement.
Promoting the Company
The Board recognises the importance of promoting the Company and believes an effective way to achieve this is through subscription to, and participation in, the promotional and investor relations programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. 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. The Company's financial contribution to the programme is matched by the Aberdeen Group and regular reports are provided to the Board on promotional activities as well as an analysis of the shareholder register.
Board Diversity
The Board's statement on diversity is set out in the Statement of Corporate Governance. At 31 August 2015 there were four male Directors and one female Director.
Environmental, Social and Human Rights Issues
The Company has no employees and therefore no disclosures are required to be made in respect of employees.
The Company has no greenhouse gas emissions to report nor does it have responsibility for any other emissions producing sources. More information on socially responsible investment is is set out in the Statement of Corporate Governance.
Allan McKenzie
Chairman
2 November 2015
CHAIRMAN'S STATEMENT
Performance
During the year to 31 August 2015, Asian equity markets had to face fierce headwinds against a background of tepid global growth. Commodity prices crumbled, particularly those of oil, leaving a swathe of depreciating emerging-market currencies in their wake. Anxiety persisted over the impact of a long-awaited US interest rate rise on developing economies, while Greece continued to provoke market uncertainty. More significantly, China's slowing economy and an unexpected devaluation of the yuan caused great consternation in all markets. These all contributed to foreign capital being withdrawn from Asia.
Against this backdrop, your Company's net asset value fell by 12.4% on a total return basis. It is disappointing to note that this is an underperformance versus the benchmark's 9.1% decline. The share price fell by 12.8% to 235.8p, as the discount widened marginally, from 11.3% at the start of the period to 11.8% at 31 August 2015.
While performance was disappointing it is important to place the underperformance in some context. In response to slowing global growth, policy easing by central banks accelerated resulting in equity markets becoming more liquidity driven and more volatile. While your Manager's focus on quality lends itself to an innately defensive portfolio which tends to outperform in times of market weakness, the scale of such volatility during the year saw large swings in share prices and sector performance, and the Manager's conservative style, with its emphasis on long term investment, has not yet had the positive impact that it usually provides in times of volatility.
Such volatility was exemplified by the sharp run-up and subsequent collapse of Chinese markets, laying bare their casino-like nature. This, along with a slowing mainland economy, had a huge bearing on sentiment both across the rest of Asia, and also upon broader emerging markets. I shall elaborate on this later.
Your Company's under exposure to China was among the biggest detractors from performance, given that the indiscriminate investing environment - built on speculative fervour - does not favour the Manager's stock-picking approach. The market outperformed other regional markets with initial gains exceeding the losses from the late sell-off. Although not in the benchmark, domestic A-shares, in particular, rose by more than 50% in sterling terms over the period. Your Manager has been selective about investing in China because of a dearth of quality companies. In addition, the Manager believes that heavy state intervention not only increases moral hazard but also distorts market pricing; these distortions were very evident during the review period.
While there were a few notable examples of poor stock specific performance, overall, these were not the major cause of underperformance. This does provide some comfort that the investment process remains valid despite these trying times. Standard Chartered was the most notable underperformer, given its emerging-market exposure. As profits came under pressure, it undertook a major restructuring that included senior-level management changes. This was viewed favourably by investors, but the recovery in the share price was insufficient to offset earlier losses. Your Manager remains confident of Standard Chartered's prospects, given its almost unique footprint and expertise in the developing world.
A more detailed analysis of your Company's performance is contained in the Manager's Review.
Background/Overview
In reflecting on the year past, as I have mentioned above, China makes a good starting point. When the year began in late 2014, few could have envisioned the irrational exuberance in the market run-up in mainland China or the harrowing sell-off that followed.
Initially, Chinese markets began rising rapidly, hitting their peak in April and lifting stocks across the rest of the region. Government support for a slowing economy led in turn to the rampant speculation by domestic investors who, sensing Beijing's vested interest in maintaining stability, threw caution to the wind. Almost as rapidly as they had risen, share prices then reversed direction with a vengeance, bereft of fundamental support. As panic selling accelerated, Beijing's desperate efforts to staunch market losses also gathered speed, finally restoring a degree of calm although market sentiment remains very fragile.
Towards the period-end, however, Chinese policymakers unexpectedly devalued the yuan. This destabilised commodity and currency markets already smarting from an OPEC-induced collapse in oil prices that had engulfed the Russian rouble. It also ignited fears of contagion stemming from emerging markets. In Asia, the Malaysian ringgit and Indonesian rupiah felt the brunt of the currency rout. In sterling terms both markets dropped sharply, falling by 31.1% and 23.9% respectively.
Tumbling oil prices were a mixed blessing. Net oil exporter Malaysia was hurt by the prospect of falling government revenues. In contrast, cheaper crude allowed key energy importers, such as India and Indonesia, to remove fuel subsidies, diverting more cash towards pressing infrastructure needs. It was also effectively a tax break for both consumers and companies.
Receding inflation, as a result of lower energy costs, allowed most central banks across Asia to cut interest rates. Both Japan and Europe turned to quantitative easing to stave off deflation. In contrast, the US Federal Reserve signalled that it was moving closer towards policy tightening, underpinning US dollar strength, as their recovery gained traction. For Asian markets, the lingering uncertainty over a US interest rate hike was a recurring concern through the period leading to yet further turbulence in markets.
Asian economies were not left unscathed by China's deepening downturn. Exports, industrial activity and economic growth waned, with Korea and Taiwan suffering the most. Aside from policy easing, countries like Indonesia and Thailand also announced additional stimulus packages.
On the political front, investors become much more circumspect about the progress of new leaders Narendra Modi and Joko Widodo, in India and Indonesia respectively, while the political situation became tenuous in Malaysia because of allegations related to a state-owned investment vehicle.
With all this uncertainty and volatility your Manager's philosophy of investing in quality companies with proven track records and good governance provides an element of security that would have been lacking if they had reacted to the rampant speculation referred to above.
Gearing
The Company has no bank borrowings but, at the year end, had £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS) in issue, representing actual gearing of 9.4%. The CULS provides the Company with long-term structural gearing at an acceptable cost, which is in line with the Manager's long-term investment philosophy.
Revenue Account and Dividend
I am pleased to report that the Company's revenue return per share increased to 4.1p for the year to 31 August 2004 (2014 - 3.4p). It remains the Board's policy to pay a final dividend marginally in excess of the minimum required to maintain investment trust status, which may, of course, lead to some volatility in the level of dividend paid. The Board, therefore, recommends the payment of a final dividend of 3.0p per Ordinary share (2014 - 2.2p) which, if approved by shareholders at the Annual General Meeting, will be paid on 18 December 2015.
Discounts and Share Buybacks
The Board monitors closely the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares at certain levels. Over the course of the financial year, the average discount has widened and has traded at times in excess of 10%. While the Company was not alone in this phenomenon, as discounts across the sector also widened, the Board believed that it was appropriate for the Company to undertake share buybacks where to do so would be in the interests of shareholders. The Board remains committed to this approach.
During the year ended 31 August 2015, 352,000 shares were bought back for cancellation at a cost of £1.0 million. In order to give more flexibility for the future, the Board decided that shares bought back should be held in treasury and a further 1.94 million shares were bought back into treasury at a cost of £5.4 million.
Since the period end, a further 571,500 shares have been bought back into treasury at a cost of £1.3 million.
Shareholder authority will again be sought at the Annual General Meeting to purchase the Company's shares to provide the Company with the flexibility to hold any shares that have been repurchased in treasury before either cancelling those shares or selling them back to the market at a later date. Repurchased shares would only be resold at a price above the NAV at the relevant date. The share buyback authority would only be exercised if to do so would increase the net asset value per Ordinary share for the remaining shareholders and would be in the best interests of shareholders generally.
The Board
Tony Lowrie, who has been a Director of the Company since 2004 and is currently Senior Independent Director, will step down at the AGM after many years of valuable service to the Board. The Board joins me in thanking Tony for his enormous contribution to the Company and wish him all the very best for the future. Iain McLaren will assume the role of Senior Independent Director in December. The Board is currently undertaking a search for an additional Director.
Continuation Vote
The three-yearly resolution for the continuation of the Company as an investment trust will be proposed at the Annual General Meeting. Edinburgh Dragon is the largest investment trust specialising in the Asian (ex Japan) sector and, as explained in the Outlook below, the Board believes that the long term prospects for Asian markets remain positive despite more recent challenges . It also believes that the Company provides a broad and marketable exposure to Asian companies for those investors seeking long-term investment opportunities in the region.
The Board strongly recommends that shareholders vote in favour of the resolution.
Annual General Meeting
The Annual General Meeting will be held at the Manager's Edinburgh office on Tuesday 15 December 2015 at 12.00 noon, followed by a lunch for shareholders. This will give shareholders the opportunity to meet the Directors and Manager after the formal AGM business has concluded and we welcome all shareholders to attend. The AGM will continue to be alternated between Edinburgh and London.
Outlook
The US decision to hold off from raising interest rates underscores concerns over the fragile economies and volatile markets in developing countries. For some, it strengthens the case against investing in emerging markets, which have lagged their developed peers for the past four years. They point to a potential hard landing in China and risks of further sell-offs in emerging markets. In contrast, recovery appears to be picking up in the UK, US and parts of the Eurozone. US dollar strength is translating into relative weakness in currencies across the emerging market spectrum, suggesting that investing in developed markets therefore makes sense, from a risk and reward perspective. Massive capital outflows from Asia suggest that this view has gained traction.
I would propose a closer look at some of the concerns. China's "bubble trouble" is a sobering reminder that despite extraordinary policy support, when a market has little fundamental basis for going up, it has to fall at some point. Policymakers are learning some painful lessons. On a more positive note, the deliberate transitioning of the economy, from an export- and investment-driven growth model to one powered by domestic demand, will lead to a more sustainable and higher-quality growth in the longer term. This bodes well for China in the longer term, which will also be assisted by efforts towards liberalising capital markets and the yuan.
Asian currencies have weakened, as the strong US dollar has been supported by domestic recovery prospects and expectations of Federal Reserve policy normalisation. It is worth noting that domestic uncertainties played a bigger role for some currencies, such as the Malaysian ringgit. Over the longer term, however, Asian currencies are underpinned by the structural strengths of economies across Asia. Most countries have sizeable current account surpluses and foreign exchange reserves as well as low debt levels. Central banks have grown in credibility and independence.
On a broader level, more than half of the world's population lives in Asia. Its middle class continues to grow quickly, and it has a high propensity to spend. Workers are increasingly more educated and more skilled. The region is likely to reap its favourable demographic dividends for many years to come. At the government level, we see an emerging trend of forward-looking leaders focusing on structural reforms, including much-needed investments in infrastructure that will benefit consumers and businesses. Progress is likely to unfold at a slow and steady pace. Corporate earnings appear to be stabilising among non-commodity companies, which are doing sensible things, such as cutting costs to protect margins and restructuring to streamline operations.
Asia remains of immense promise despite the current challenging conditions. Reassuringly, your Manager has had the experience and continuity of investing in Asia through many cycles. In times of market volatility, it sees opportunities to add to its holdings when prices have fallen too low and to take some profits from its holdings when prices have risen too fast.
Your Manager continues to remain true to its singular focus: finding well-run companies with solid financials and strong competitive advantage, investing in them at reasonable valuations and holding them for the long term. This conviction in terms of quality forms the bedrock of its investment philosophy, which has served your Company well in the past and should continue to do so in the years ahead, despite current travails.
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
2 November 2015
MANAGER'S REVIEW
Background/Portfolio review
These are unsettling times for Asian equity markets. Many markets have ended with double-digit losses over the period under review, and currencies have lost substantial value against the US dollar. Regional trade has slowed sharply from a year ago, while household debt is on the rise. With growth across the region in the doldrums and capital leaving for higher yielding assets elsewhere, Asia appears to be out of favour with investors.
For much of the year under review, Asia and the broader emerging markets have been weighed down by two main worries: the prospect of a rise in US interest rates, and the state of China's economy. Although a wave of global monetary policy easing around the turn of the year provided a brief respite, subsequent turmoil in China's stockmarkets undermined risk appetite, while mixed US economic data kept the world guessing about the Federal Reserve's next move. Beijing's unexpected devaluation of the yuan towards the period-end amplified the concerns, and further roiled global markets. The effects reverberated beyond stockmarkets. Commodities and currencies, which had been languishing all year, fell even lower. Resource exporters, such as Malaysia and Indonesia, were among the worst-hit. Malaysia was further hampered by the domestic political drama, while reform optimism faded in Indonesia. Growth concerns hindered Korea and Singapore. In Thailand, stocks fell as the initial momentum sparked by hopes of renewed political stability that followed the coup waned considerably. The bomb blast in August threatens to hit tourism, the one bright spot in the stuttering economy, and hobble GDP growth.
Against this environment, the Trust's net asset value (NAV) fell by 12.4% in sterling terms over the period, with the share price declining 12.8%, compared to the benchmark index's total return of -9.1%. The Trust did better over the three year period, with the NAV rising by 3.2%, but that still lagged the benchmark index's return of 13.3%.
Clearly, the underperformance is disappointing. But we have a very clearly defined investment process of focusing on quality first and foremost, and then trying to find the best value, irrespective of indices. This means that at times our performance will diverge significantly from the benchmark. In momentum-driven markets, we are likely to underperform and that has been particularly true over the review period, with China having had a good run.
Indeed, the mainland's surge in recent years has hurt performance, given the Trust's limited exposure there. Chinese stocks had initially been buoyed by the leadership change in 2013 and pledges by the new government then to restructure the economy. Monetary policy also remained supportive to boost the cooling economy. However, we hold the view that there has been a growing disconnect between economic reality and stock market performance, with the recent rally driven by liquidity, rather than any improvement in the fundamentals. Encouragingly, the last three months of the review period saw our scepticism on the quality and price of the Chinese market justified. Mainland equities have stumbled since peaking in June, following a clampdown on margin financing and perceptions that valuations were stretched. This helped recoup some of the underperformance over the previous months.
Elsewhere in China, not holding internet company Tencent and several Chinese banks that led the rally also detracted. What holds us back from Tencent, apart from valuations and opaque corporate structure, is the company's transition from a PC-based business to a mobile one, where competition is more intense. For mainland-listed banks, our lack of exposure is due to concerns over the sector's ability to operate commercially in a heavily-regulated environment; many lenders are also starting to wrestle with weakening asset quality and falling provision coverage for loans. We have indirect exposure to China via insurer AIA Group, which has delivered margin improvement since its listing. China now accounts for 13% of the total value of new business for AIA. We also hold China Resources Enterprise (CRE), another solid performer. We were pleased with the outcome of our engagement with the CRE board. Our opinion was that the initial takeover offer by CRE's parent substantially undervalued the company's non-beer assets and businesses. The parent subsequently announced a revised offer for the proposed acquisition of CRE's non-beer operations. The stock has done very well over the year.
Other than the limited exposure to China weighing on the Trust's performance, several of our holdings in Hong Kong came under pressure. Standard Chartered (Stanchart) was the notable laggard. The stock has been in a rut in recent years owing to its focus on lacklustre emerging markets, where it derives the bulk of its earnings. Its share price was battered further when the bank reported its first fall in profits in over a decade in 2013 and issued several profit warnings thereafter. It gradually recovered in early 2015 as investors viewed the changes in top management positively, in particular the appointment of Bill Winters as chief executive. However, the rebound was not sufficient to make up for earlier losses. We continue to like Stanchart's solid emerging-markets franchise and feel that restructuring and cost-cutting efforts should position it well for future growth.
Jardine Strategic was another detractor. The conglomerate's retail business Dairy Farm de-rated on the back of higher operating costs and slower top-line growth, while Astra International, one of Jardine's core businesses, continued to face a difficult macroeconomic environment in Indonesia and increased competition in the auto distribution segment. Returns in sterling terms were further compounded by the weak rupiah. While we are aware of the short-term challenges, Indonesia remains attractive and Astra appears well-placed to tap this potential. With its exposure to diverse sectors such as the local auto market, financial services, infrastructure and commodities (through palm oil and mining services), it is an excellent proxy for domestic growth. The well-managed company has a dominant market share in the auto sector and a sound financial position. As such, we took the opportunity provided by market weakness to establish a position in Astra in the second-half of the review period, as its valuation had come down to an attractive level.
Also costing performance was Hong Kong real estate developer Hang Lung Group, which has a growing portfolio of shopping malls in key cities across China. Weakening luxury spending amid Beijing's anti-corruption campaign has hurt business on the mainland, which accounts for more than half its rental income. Although immediate prospects look challenging, the mainland's mid- to high-end consumer market has ample growth potential in the long run. The company has a robust balance sheet and is well positioned to capture any rebound.
In Singapore, the Trust's heavy exposure to the market hampered performance. Long seen as bastion of stability for foreign investment in a region grappling with growing instability, growth in the city state seems to have stagnated. Manufacturing, which accounts for a fifth of GDP, has contracted. Other broader factors were at play, too. China's unexpected devaluation of the yuan sparked concerns over financial institutions with mainland exposure. Consequently, the share prices of UOB and OCBC fell, as investors fretted over deterioration of asset quality on the back of China's faltering economy amid a broader regional slowdown. From our perspective, Singapore banks' mainland exposure has been relatively contained by the scaling back of trade financing in China. We expect asset quality risks to be mitigated by the quality of the two lenders. Both are well-run and well-capitalised. They have also lent prudently. Separately, cheaper crude prices and the ensuing reduction in capital expenditure in the energy sector hurt Keppel Corp. While the company has entered a cyclical downturn, it is still a global leader in the rig-building segment and its robust balance sheet will help it weather the downturn.
On a brighter note, India proved to be rewarding, with both the heavy exposure and our holdings contributing positively. Indian equities and the rupee held up better in the recent sell-off than countries that have staked their growth on supplying China with commodities. This resilience was partly due to its improving fundamentals. The economy appears more robust than it was a year ago; the worldwide slump in oil prices have helped narrow the current account deficit and inflation receded substantially, which provided scope for the central bank to cut interest rates. The country benefits from falling commodity prices because it is a large importer of oil and other resources. At the stock level, Indian holdings also held up well: IT services provider Infosys surprised with a better-than-expected revenue growth on deal wins; and mortgage lender HDFC continued to enjoy healthy loan and margin growth while maintaining decent asset quality.
Further boosting return was the limited exposure to Korea. Share prices there have corrected amid concerns over the Chinese market, its largest trading partner. In addition, the outbreak of MERS has had a negative impact on domestic consumer and business sentiment. To help the economy cope with the fallout of the outbreak, its government rolled out expansionary monetary and fiscal policies, but the won remained on the back foot against the US dollar.
Portfolio activity
Over the course of the year, we introduced several new holdings to the portfolio. Two of those bought in the first half - China Resources Enterprises and MTR Corp - have been highlighted in the interim report. Other more recent additions included those in India, such as Piramal Enterprises, with interests in consumer finance and pharmaceutical services. The Piramal family and its patriarch Ajay are savvy acquirers and builders of businesses in India. We also initiated a position in Singapore-listed Yoma Strategic, which has its principal business in Myanmar. The company is predominantly in real estate, but also has exposure to other sectors within the fast-developing domestic market. Both Yoma and Piramal trade at notable discounts to their net asset values. The other addition was Astra International, which was already mentioned earlier.
Elsewhere, we continued to build on positions with good long-term prospects, as valuations fell to attractive levels after the share price correction. Notably, they included Oriental Holdings, Batu Kawan, China Conch Venture, BAT, CIMB Group, and ITC. We also took profits from several holdings after strong share price rises, including HDFC, AIA, China Mobile, Samsung Electronics, Venture Corp, Ayala Land and Ultratech.
Outlook
Asia still presents compelling opportunities for investors despite the downturn. True, with all the volatility in the stock and commodity prices, risks persist. But each market has its own structural growth story, which could help override some of the cyclical volatility. The region is also in a better shape today than in previous crises. Many countries have accumulated healthy foreign exchange reserves; their financial systems more robust than before, and currencies are no longer pegged to the dollar but float relatively freely. Meanwhile, cost cuts are progressing, and companies outside the commodity sector enjoying margin expansion; a potential pick-up in top-line earnings may not be too far off.
While these fundamentals should help support stockmarkets, headwinds prevail. Chief among these are how emerging markets will cope with an eventual US rate hike, and whether China is heading for an even sharper slowdown. Exports are falling, the level of debt is increasing and manufacturing is flagging. Chinese authorities' mishandling of the recent stockmarket turmoil has dented confidence in their ability to manage a broader economic downturn. Despite all these difficulties China's growth rate is still well ahead of most developed economies. Although our holdings will not be immune from the market noise, they have weathered similar challenges before. Many are market leaders, backed by solid foundations of strong balance sheets and proven business models, which should continue to underpin their resilience in the year ahead.
Aberdeen Asset Management Asia Limited*
2 November 2015
* on behalf of Aberdeen Fund Managers Limited
Both companies are subsidiaries of Aberdeen Asset Management PLC.
FINANCIAL HIGHLIGHTS AND RESULTS
|
|
31 August 2015 |
31 August 2014 |
% |
|
|
Performance |
|
|
|
|
|
Equity shareholders' funds (£'000) |
518,635 |
603,077 |
-14.0 |
|
|
Net asset value per share (including net revenue) (p) |
267.22 |
307.10 |
-13.0 |
|
|
Share price (p) |
235.75 |
272.50 |
-13.5 |
|
|
Market capitalisation (£'000) |
457,554 |
535,127 |
-14.5 |
|
|
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis) |
577.97 |
677.25 |
-14.7 |
|
|
Revenue return per share (p) |
4.13 |
3.43 |
|
|
|
Total return per share (p) |
-37.68 |
29.04 |
|
|
|
|
|
|
|
|
|
Gearing |
|
|
|
|
|
Net gearing (%){A} |
9.4 |
7.3 |
|
|
|
|
|
|
|
|
|
Discount |
|
|
|
|
|
Level of discount at which the shares traded (%) |
11.8 |
11.3 |
|
|
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
|
Ongoing charges ratio{B} |
1.15 |
1.23 |
|
|
|
|
|
|
||
|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
||||
|
{B} Ongoing charges ratio is calculated in accordance with guidance issued by the AIC as the total of the investment management fee and ongoing administrative expenses divided by the average undiluted net asset value in the year. |
||||
|
PERFORMANCE (TOTAL RETURN) |
|
|
|
|
|
|
|
|
|
|
1 year return |
3 year return |
5 year return |
|
|
% |
% |
% |
|
Share price |
-12.8 |
+1.9 |
+12.8 |
|
Net asset value |
-12.4 |
+3.3 |
+16.2 |
|
MSCI AC Asia (ex Japan) Index (in sterling terms) |
-9.1 |
+13.3 |
+17.1 |
|
{A} Capital return plus dividends reinvested. |
|
|
|
CHANGES IN ASSET DISTRIBUTION
YEAR ENDED 31 AUGUST 2015
|
|
Value at |
|
|
|
Value at |
|
|
31 August 2014 |
|
Sales |
Gains/ |
31 August 2015 |
|
Country |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
China |
49,090 |
8,828 |
10,808 |
(4,922) |
42,188 |
|
Hong Kong |
169,226 |
13,574 |
9,616 |
(30,446) |
142,738 |
|
India |
90,103 |
17,714 |
19,254 |
5,406 |
93,969 |
|
Indonesia |
4,510 |
7,200 |
- |
(1,361) |
10,349 |
|
Malaysia |
23,630 |
8,050 |
63 |
(9,227) |
22,390 |
|
Philippines |
27,389 |
- |
5,271 |
792 |
22,910 |
|
Singapore |
137,957 |
8,374 |
9,014 |
(21,113) |
116,204 |
|
South Korea |
54,067 |
3,053 |
4,461 |
(9,479) |
43,180 |
|
Sri Lanka |
19,616 |
- |
- |
(1,739) |
17,877 |
|
Taiwan |
40,252 |
601 |
6,545 |
1,311 |
35,619 |
|
Thailand |
30,832 |
- |
7,054 |
(4,768) |
19,010 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total investments |
646,672 |
73,641 |
72,086 |
(81,793) |
566,434 |
|
Net current assets |
14,019 |
- |
- |
(3,568) |
10,451 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total assets less current liabilities |
660,691 |
73,641 |
72,086 |
(85,361) |
576,885 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
INVESTMENT PORTFOLIO
|
As at 31 August 2015 |
|
|
|
|
|
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2015 |
assets |
2014 |
|
Company |
Industry |
Country |
£'000 |
% |
£'000 |
|
Oversea-Chinese Banking Corporation A leading, well-run Singaporean banking group with assets and operations in South East Asia and China. |
Banks |
Singapore |
27,584 |
4.8 |
32,182 |
|
|
|
|
|
|
|
|
Samsung Electronics Pref A leading semiconductor company which is also a major player in mobile phones and consumer electronics. |
Technology Hardware, Storage & Peripherals |
South Korea |
26,274 |
4.6 |
34,442 |
|
|
|
|
|
|
|
|
Jardine Strategic Holdings A Singapore-listed conglomerate with interests across the region spanning property, hotels and consumer-related businesses. |
Industrial Conglomerates |
Hong Kong |
25,032 |
4.3 |
27,204 |
|
|
|
|
|
|
|
|
Housing Development Finance Corp Leading domestic mortgage provider with a leading distribution network, cost structure and balance sheet quality. |
Thrifts & Mortgage Finance |
India |
22,834 |
4.0 |
25,746 |
|
|
|
|
|
|
|
|
Taiwan Semiconductor Manufacturing Company The leading semiconductor foundry in Taiwan. |
Semiconductors & Semiconductor Equipment |
Taiwan |
22,535 |
3.9 |
28,016 |
|
|
|
|
|
|
|
|
HSBC Holdings HSBC group is one of the world's largest banking and financial services institutions. |
Banks |
Hong Kong |
20,858 |
3.6 |
23,789 |
|
|
|
|
|
|
|
|
AIA Group The Group offers life insurance, accident insurance, health insurance and wealth management solutions to individuals and businesses in the Asia Pacific region. |
Insurance |
Hong Kong |
20,647 |
3.6 |
24,509 |
|
|
|
|
|
|
|
|
China Mobile The number one mobile operator in China. |
Wireless Telecommunication Services |
China |
20,275 |
3.5 |
24,962 |
|
|
|
|
|
|
|
|
United Overseas Bank Singapore's second largest bank, primarily focused on SMEs and consumers, with its core market in Singapore and the balance predominantly in southeast Asia. |
Banks |
Singapore |
18,721 |
3.2 |
23,183 |
|
|
|
|
|
|
|
|
Standard Chartered{A}An international banking group operating principally in Asia, Africa and the Middle East offering products and services in the personal, consumer, corporate, institutional and treasury areas. |
Banks |
United Kingdom |
17,982 |
3.1 |
21,488 |
|
Top Ten Investments |
|
|
222,742 |
38.6 |
|
|
INVESTMENT PORTFOLIO - OTHER INVESTMENTS |
|||||
|
|
|||||
|
As at 31 August 2015 |
|||||
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2015 |
assets |
2014 |
|
Company |
Sector |
Country |
£'000 |
% |
£'000 |
|
Swire Pacific 'B' |
Real Estate Management & Development |
Hong Kong |
17,855 |
3.1 |
20,320 |
|
Singapore Telecommunications |
Diversified Telecommunication Services |
Singapore |
17,636 |
3.1 |
19,198 |
|
Infosys Ltd |
IT Services |
India |
17,387 |
3.0 |
22,634 |
|
City Developments |
Real Estate Management & Development |
Singapore |
17,285 |
3.0 |
18,013 |
|
Siam Cement (Alien) |
Construction Materials |
Thailand |
16,422 |
2.8 |
19,858 |
|
Singapore Technologies Engineering |
Aerospace & Defence |
Singapore |
14,367 |
2.5 |
18,163 |
|
Grasim Industries |
Construction Materials |
India |
13,114 |
2.3 |
13,118 |
|
Taiwan Mobile |
Wireless Telecommunication Services |
Taiwan |
13,083 |
2.3 |
12,236 |
|
John Keells Holdings{B} |
Industrial Conglomerates |
Sri Lanka |
12,719 |
2.2 |
14,808 |
|
Ayala Land |
Real Estate Management & Development |
Philippines |
12,235 |
2.1 |
15,461 |
|
Top twenty investments |
|
|
374,845 |
65.0 |
|
|
ITC |
Tobacco |
India |
11,423 |
2.0 |
3,528 |
|
Hero Motocorp |
Automobiles |
India |
10,797 |
1.9 |
10,418 |
|
Bank of Philippine Islands |
Banks |
Philippines |
10,674 |
1.9 |
11,928 |
|
CNOOC |
Oil, Gas & Consumable Fuels |
China |
10,062 |
1.7 |
13,858 |
|
Keppel Corp |
Industrial Conglomerates |
Singapore |
9,047 |
1.6 |
12,901 |
|
Dairy Farm International |
Food & Staples Retailing |
Hong Kong |
8,718 |
1.5 |
12,918 |
|
DBS Group |
Banks |
Singapore |
8,263 |
1.4 |
8,581 |
|
E-Mart Co |
Food & Staples Retailing |
South Korea |
7,846 |
1.4 |
9,052 |
|
ICICI Bank |
Banks |
India |
7,614 |
1.3 |
8,623 |
|
Hang Lung Group |
Real Estate Management & Development |
Hong Kong |
7,310 |
1.3 |
9,769 |
|
Top thirty investments |
|
|
466,599 |
81.0 |
|
|
Hang Lung Properties |
Real Estate Management & Development |
Hong Kong |
6,648 |
1.2 |
8,953 |
|
PetroChina 'H' |
Oil, Gas & Consumable Fuels |
China |
6,518 |
1.1 |
10,269 |
|
Public Bank |
Banks |
Malaysia |
5,909 |
1.0 |
7,811 |
|
British American Tobacco Malaysia |
Tobacco |
Malaysia |
5,738 |
1.0 |
7,152 |
|
Piramal Enterprises |
Pharmaceuticals |
India |
5,540 |
1.0 |
- |
|
CIMB Group Holdings |
Banks |
Malaysia |
5,307 |
0.9 |
8,666 |
|
Unilever Indonesia |
Household Products |
Indonesia |
5,192 |
0.9 |
4,510 |
|
DFCC Bank |
Banks |
Sri Lanka |
5,158 |
0.9 |
4,808 |
|
Swire Properties |
Real Estate Management & Development |
Hong Kong |
4,918 |
0.9 |
5,019 |
|
Li & Fung |
Textiles, Apparel & Luxury Goods |
Hong Kong |
4,071 |
0.7 |
7,092 |
|
Top forty investments |
|
|
521,598 |
90.6 |
|
|
Ultratech Cement |
Construction Materials |
India |
3,752 |
0.7 |
6,036 |
|
Oriental Holdings |
Automobiles |
Malaysia |
3,706 |
0.6 |
- |
|
ASM Pacific Technology |
Semiconductors & Semiconductor Equipment |
Hong Kong |
3,638 |
0.6 |
6,851 |
|
Holcim Indonesia |
Construction Materials |
Indonesia |
3,474 |
0.6 |
- |
|
BNK Financial Group |
Banks |
South Korea |
3,211 |
0.6 |
4,195 |
|
Global Brands Group |
Textiles, Apparel & Luxury Goods |
Hong Kong |
3,185 |
0.6 |
1,314 |
|
DGB Financial Group |
Banks |
South Korea |
2,930 |
0.5 |
4,465 |
|
Shinsegae Company |
Multiline Retail |
South Korea |
2,918 |
0.5 |
1,914 |
|
PTT Exploration & Production (Alien) |
Oil, Gas & Consumable Fuels |
Thailand |
2,588 |
0.4 |
10,974 |
|
Kerry Logistics Network |
Air Freight & Logistics |
Hong Kong |
2,562 |
0.4 |
- |
|
Top fifty investments |
|
|
553,562 |
96.1 |
|
|
Yoma Strategic Holdings |
Real Estate Management & Development |
Singapore |
2,455 |
0.4 |
- |
|
China Conch Venture Holdings |
Machinery |
China |
1,983 |
0.3 |
- |
|
MTR Corp |
Road & Rail |
Hong Kong |
1,876 |
0.3 |
- |
|
Batu Kawan |
Chemicals |
Malaysia |
1,730 |
0.3 |
- |
|
Tata Consultancy Services |
IT Services |
India |
1,509 |
0.3 |
- |
|
Astra International |
Automobiles |
Indonesia |
1,092 |
0.2 |
- |
|
Venture Corp |
Electronic Equipment Instruments & Components |
Singapore |
846 |
0.1 |
5,737 |
|
China Resources Enterprise |
Food & Staples Retailing |
China |
789 |
0.1 |
- |
|
Bank Central Asia |
Banks |
Indonesia |
592 |
0.1 |
- |
|
Total investments |
|
|
566,434 |
98.2 |
|
|
Net current assets |
|
|
10,451 |
1.8 |
|
|
Total assets{C} |
|
|
576,885 |
100.0 |
|
|
|
|||||
|
{A} Valuation amalgamates both UK (£14,976,000; 2014 - £16,833,000) and Hong Kong (£3,006,000; 2014 - £4,655,000) listed equity holdings. |
|||||
|
{B} Valuation amalgamates both warrants (£186,000; 2014 - £385,000) and listed equity holdings (£12,533,000; 2014 - £14,423,000). |
|||||
|
{C} See definition on page 58 of the published 2015 annual report. |
|||||
|
|
|||||
|
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings. |
|||||
DIRECTORS RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Accounts 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.
The financial statements are required by law to 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 its 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 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. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's 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.
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
2 November 2015
GOING CONCERN
The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale.
The Directors believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements, and they consider that the Company has adequate resources to continue in operational existence for the foreseeable future.
FINANCIAL STATEMENTS
INCOME STATEMENT (audited)
|
|
|
Year ended 31 August 2015 |
Year ended 31 August 2014 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
(Losses)/gains on investments held at fair value through profit or loss |
9 |
- |
(81,793) |
(81,793) |
- |
50,341 |
50,341 |
|
Currency losses |
|
- |
(53) |
(53) |
- |
(43) |
(43) |
|
Income |
2 |
18,372 |
- |
18,372 |
17,010 |
- |
17,010 |
|
Investment management fee |
3 |
(5,955) |
- |
(5,955) |
(5,597) |
- |
(5,597) |
|
Administrative expenses |
4 |
(1,023) |
- |
(1,023) |
(1,203) |
- |
(1,203) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
11,394 |
(81,846) |
(70,452) |
10,210 |
50,298 |
60,508 |
|
|
|
|
|
|
|
|
|
|
Interest payable and similar charges |
5 |
(2,740) |
- |
(2,740) |
(2,741) |
- |
(2,741) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return on ordinary activities before taxation |
|
8,654 |
(81,846) |
(73,192) |
7,469 |
50,298 |
57,767 |
|
|
|
|
|
|
|
|
|
|
Taxation on ordinary activities |
6 |
(564) |
- |
(564) |
(732) |
(6) |
(738) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return on ordinary activities after taxation |
|
8,090 |
(81,846) |
(73,756) |
6,737 |
50,292 |
57,029 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per share (pence) |
8 |
|
|
|
|
|
|
|
Basic |
|
4.13 |
(41.81) |
(37.68) |
3.43 |
25.61 |
29.04 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Diluted |
|
n/a |
n/a |
n/a |
n/a |
23.32 |
27.59 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The total column of this statement represents the profit and loss account of the Company. |
|||||||
|
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
BALANCE SHEET (audited)
|
As at 31 August 2015 |
|
|
|
|
|
|
As at |
As at |
|
|
|
31 August 2015 |
31 August 2014 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
9 |
566,434 |
646,672 |
|
|
|
____________ |
____________ |
|
Current assets |
|
|
|
|
Debtors and prepayments |
10 |
3,163 |
2,850 |
|
Money market funds |
|
4,800 |
7,000 |
|
Cash and short term deposits |
|
4,376 |
6,209 |
|
|
|
____________ |
____________ |
|
|
|
12,339 |
16,059 |
|
|
|
____________ |
____________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Other creditors |
11 |
(1,886) |
(2,040) |
|
|
|
____________ |
____________ |
|
Net current assets |
|
10,453 |
14,019 |
|
|
|
____________ |
____________ |
|
Total assets less current liabilities |
|
576,887 |
660,691 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
12 |
(58,252) |
(57,614) |
|
|
|
____________ |
____________ |
|
Net assets |
|
518,635 |
603,077 |
|
|
|
____________ |
____________ |
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
13 |
39,206 |
39,275 |
|
Share premium account |
|
4,484 |
4,475 |
|
Special reserve |
|
351 |
6,726 |
|
Equity component of 3.5% Convertible Unsecured Loan Stock 2018 |
12 |
1,392 |
1,981 |
|
Capital redemption reserve |
|
17,015 |
16,945 |
|
Capital reserve |
|
429,266 |
511,112 |
|
Revenue reserve |
|
26,921 |
22,563 |
|
|
|
____________ |
____________ |
|
Equity shareholders' funds |
14 |
518,635 |
603,077 |
|
|
|
____________ |
____________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
14 |
267.22 |
307.10 |
|
|
|
____________ |
____________ |
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS (audited)
For the year ended 31 August 2014
|
For the year ended 31 August 2015 |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Equity |
Capital |
|
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 August 2014 |
39,275 |
4,475 |
6,726 |
1,981 |
16,945 |
511,112 |
22,563 |
603,077 |
|
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
(81,846) |
8,090 |
(73,756) |
|
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
1 |
9 |
- |
(1) |
- |
- |
- |
9 |
|
Buyback of Ordinary shares for cancellation |
(70) |
- |
(1,011) |
- |
70 |
- |
- |
(1,011) |
|
Buyback of Ordinary shares for treasury |
- |
- |
(5,364) |
- |
- |
- |
- |
(5,364) |
|
Dividend paid |
- |
- |
- |
- |
- |
- |
(4,320) |
(4,320) |
|
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
- |
- |
(588) |
- |
- |
588 |
- |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 August 2015 |
39,206 |
4,484 |
351 |
1,392 |
17,015 |
429,266 |
26,921 |
518,635 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 August 2014 |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Equity |
Capital |
|
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 August 2013 |
39,274 |
4,452 |
6,726 |
2,572 |
16,945 |
460,820 |
19,557 |
550,346 |
|
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
50,292 |
6,737 |
57,029 |
|
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
1 |
23 |
- |
(2) |
- |
- |
- |
22 |
|
Dividend paid |
- |
- |
- |
- |
- |
- |
(4,320) |
(4,320) |
|
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
- |
- |
(589) |
- |
- |
589 |
- |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 August 2014 |
39,275 |
4,475 |
6,726 |
1,981 |
16,945 |
511,112 |
22,563 |
603,077 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £157,395,000 (2014 - £270,246,000), as disclosed in note 9. |
||||||||
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
||||||||
|
The accompanying notes are an integral part of the financial statements. |
||||||||
CASHFLOW STATEMENT (audited)
|
|
|
Year ended |
Year ended |
||
|
|
|
31 August 2015 |
31 August 2014 |
||
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
|
Net cash inflow from operating activities |
15 |
|
8,206 |
|
7,328 |
|
|
|
|
|
|
|
|
Servicing of finance |
|
|
|
|
|
|
Interest paid on CULS |
|
|
(2,093) |
|
(2,094) |
|
|
|
|
|
|
|
|
Taxation |
|
|
|
|
|
|
Net tax paid |
|
|
(578) |
|
(374) |
|
|
|
|
|
|
|
|
Financial investment |
|
|
|
|
|
|
Purchases of investments |
|
(70,944) |
|
(39,815) |
|
|
Sales of investments |
|
72,094 |
|
48,303 |
|
|
|
|
_______ |
|
_______ |
|
|
Net cash inflow from financial investment |
|
|
1,150 |
|
8,488 |
|
|
|
|
|
|
|
|
Equity dividend paid |
|
|
(4,320) |
|
(4,320) |
|
|
|
|
_______ |
|
_______ |
|
Net cash inflow before financing |
|
|
2,365 |
|
9,028 |
|
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
Purchase of own shares for treasury |
|
|
(5,339) |
|
- |
|
Purchase of own shares for cancellation |
|
|
(1,006) |
|
- |
|
|
|
|
|
|
|
|
Management of liquid resources |
|
|
|
|
|
|
Purchases of money market funds |
|
|
(26,000) |
|
(7,000) |
|
Sales of money market funds |
|
|
28,200 |
|
- |
|
|
|
|
_______ |
|
_______ |
|
(Decrease)/increase in cash |
16 |
|
(1,780) |
|
2,028 |
|
|
|
|
_______ |
|
_______ |
|
|
|
|
|
|
|
|
Reconciliation of net cash flow to movements in net debt |
|
|
|
|
|
|
(Decrease)/increase in cash as above |
|
|
(1,780) |
|
2,028 |
|
Net change in liquid resources |
|
|
(2,200) |
|
7,000 |
|
Other non-cash movements |
|
|
(638) |
|
(624) |
|
Exchange movements |
|
|
(53) |
|
(43) |
|
|
|
|
_______ |
|
_______ |
|
Movement in net debt in the year |
|
|
(4,671) |
|
8,361 |
|
Net debt at 1 September |
|
|
(44,405) |
|
(52,766) |
|
|
|
|
_______ |
|
_______ |
|
Net debt at 31 August |
|
|
(49,076) |
|
(44,405) |
|
|
|
|
_______ |
|
_______ |
NOTES TO THE ACCOUNTS (audited)
|
1. |
Accounting policies |
|
|
|
(a) |
Basis of accounting |
|
|
|
The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Statement of Corporate Governance (unaudited) on page 26 of the published 2015 annual report. |
|
|
|
|
|
|
|
The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP'). |
|
|
|
|
|
|
(b) |
Investments |
|
|
|
Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised on the trade date at fair value, which is generally deemed to be the cost of the investment at that point. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve. |
|
|
|
|
|
|
(c) |
Income |
|
|
|
Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the foregone cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend foregone is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. |
|
|
|
|
|
|
(d) |
Expenses |
|
|
|
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement with the exception of expenses directly relating to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP. These expenses are charged to the capital column of the Income Statement and are separately identified and disclosed in note 9. |
|
|
|
|
|
|
(e) |
Deferred taxation |
|
|
|
Deferred taxation is provided on all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date, measured on an undiscounted basis and based on enacted tax rates. 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 accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
|
(f) |
Capital reserves |
|
|
|
Gains and losses on investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. |
|
|
|
|
|
|
(g) |
Foreign currency |
|
|
|
Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Income Statement and are then transferred to the capital reserve. |
|
|
|
|
|
|
(h) |
Dividends payable |
|
|
|
Final dividends are dealt with in the period in which they are paid. |
|
|
|
|
|
|
(i) |
3.5% Convertible Unsecured Loan Stock 2018 |
|
|
|
Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.662%. The notional uplift in interest from 3.5% to 4.662% is shown in note 5. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective interest rate. |
|
|
|
|
|
|
|
Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument. |
|
|
|
|
|
|
|
The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.662% at initial recognition to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying liability of the CULS. |
|
|
|
|
|
|
|
On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion. |
|
|
|
|
|
|
|
When CULS is repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss. The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised. |
|
|
|
|
|
|
|
In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed. |
|
|
|
|
|
|
(j) |
Treasury shares |
|
|
|
When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the special reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the special reserve. |
|
|
|
2015 |
2014 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK dividend income |
1,009 |
903 |
|
|
Overseas dividend income |
15,274 |
13,714 |
|
|
Scrip dividends |
2,056 |
2,381 |
|
|
|
______ |
______ |
|
|
|
18,339 |
16,998 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
Other income |
£'000 |
£'000 |
|
|
Deposit interest |
4 |
4 |
|
|
Interest from money market funds |
29 |
8 |
|
|
|
______ |
______ |
|
|
|
33 |
12 |
|
|
|
______ |
______ |
|
|
Total income |
18,372 |
17,010 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
Income from investments |
£'000 |
£'000 |
|
|
Listed UK |
912 |
692 |
|
|
Listed overseas |
17,427 |
16,306 |
|
|
|
18,339 |
16,998 |
|
|
|
2015 |
2014 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
5,955 |
- |
5,955 |
5,597 |
- |
5,597 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
Management fees paid to Aberdeen Fund Managers Limited ("the Manager") are calculated at 1.0% on net assets up to £600,000,000, 0.9% on net assets between £600,000,000 and £1,000,000,000 and 0.8% on net assets over £1,000,000,000. Management fees are calculated and billed on a quarterly basis. Prior to 1 January 2014 management fees were calculated at 0.25% per quarter of the total net assets less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager. |
||||||
|
|
|
||||||
|
|
Net assets exclude long term borrowings less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager. |
||||||
|
|
|
||||||
|
|
The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required by the Manager is six months. |
||||||
|
|
|
2015 |
2014 |
|
4. |
Administrative expenses |
£'000 |
£'000 |
|
|
Promotional activities |
203 |
200 |
|
|
Directors' fees |
148 |
153 |
|
|
Custody fees |
239 |
429 |
|
|
Auditor's remuneration: |
|
|
|
|
Fees payable to the Company's auditor for the audit of the Company's annual accounts |
17 |
17 |
|
|
Fees payable to the Company's auditor for the review of the Company's half yearly accounts |
5 |
5 |
|
|
Secretarial fee |
- |
36 |
|
|
Other expenses |
411 |
363 |
|
|
|
______ |
______ |
|
|
|
1,023 |
1,203 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
The Company has an agreement with Aberdeen Fund Managers Limited ("the Manager") for the provision of promotional activities in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £203,000 (2014 - £200,000) and the sum due to the Manager at the year end was £34,000 (2014 - £33,000). |
||
|
|
|
||
|
|
The secretarial fee paid to the Manager ceased with effect from 1 January 2014. In previous periods this was adjusted annually in line with the Retail Prices Index. |
||
|
|
|
||
|
|
No pension contributions were made in respect of any of the Directors. |
||
|
|
|
||
|
|
The Company does not have any employees. |
||
|
|
|
2015 |
2014 |
|
5. |
Interest payable and similar charges |
£'000 |
£'000 |
|
|
Interest on 3.5% Convertible Unsecured Loan Stock 2018 |
2,093 |
2,094 |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
588 |
589 |
|
|
Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses |
59 |
58 |
|
|
|
______ |
______ |
|
|
|
2,740 |
2,741 |
|
|
|
______ |
______ |
|
|
|
2015 |
2014 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
Overseas tax suffered |
564 |
- |
564 |
732 |
6 |
738 |
|
|
|
|
______ |
______ |
_____ |
______ |
______ |
_____ |
|
|
|
Taxation on ordinary activities |
564 |
- |
564 |
732 |
6 |
738 |
|
|
|
|
______ |
______ |
_____ |
______ |
______ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Factors affecting the tax charge for the year |
||||||
|
|
|
The tax assessed for the year is lower than the effective rate of corporation tax in the UK. |
||||||
|
|
|
|
||||||
|
|
|
|
2015 |
2014 |
||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Return on ordinary activities before taxation |
8,654 |
(81,846) |
(73,192) |
7,469 |
50,298 |
57,767 |
|
|
|
|
______ |
______ |
_____ |
______ |
______ |
_____ |
|
|
|
Effective rate of corporation tax at 20.58% (2014 - 22.17%) |
1,781 |
(16,844) |
(15,063) |
1,656 |
11,151 |
12,807 |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
UK dividend income |
(208) |
- |
(208) |
(200) |
- |
(200) |
|
|
|
Losses/(gains) on investments not taxable |
- |
16,833 |
16,833 |
- |
(11,161) |
(11,161) |
|
|
|
Currency losses not taxable |
- |
11 |
11 |
- |
10 |
10 |
|
|
|
Other non-taxable income |
(3,567) |
- |
(3,567) |
(3,568) |
- |
(3,568) |
|
|
|
Increase in excess expenses and loan relationship deficit |
1,993 |
- |
1,993 |
2,112 |
- |
2,112 |
|
|
|
Prior year adjustment in respect of overseas tax |
(134) |
- |
(134) |
- |
- |
- |
|
|
|
Net overseas tax suffered |
699 |
- |
699 |
732 |
6 |
738 |
|
|
|
|
______ |
______ |
_____ |
______ |
______ |
_____ |
|
|
|
Current tax charge for year |
564 |
- |
564 |
732 |
6 |
738 |
|
|
|
|
______ |
______ |
_____ |
______ |
______ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Provision for deferred taxation |
||||||
|
|
|
No provision for deferred taxation has been made in the current year or in the prior year. |
||||||
|
|
|
|
||||||
|
|
|
The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. |
||||||
|
|
|
|
||||||
|
|
(d) |
Factors that may affect future tax charges |
||||||
|
|
|
The Company has not recognised a deferred tax asset £10,369,000 (2014 - £8,464,000) arising as a result of excess management expenses and non-trading loan relationship deficits (CULS interest). These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. |
||||||
|
7. |
Dividends |
||
|
|
In order to comply with the requirements of Sections 1158 -1159 of the Corporation Tax Act 2010 and with company law, the Company is required to make a final dividend distribution. |
||
|
|
|
||
|
|
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £8,090,000 (2014 - £6,737,000). |
||
|
|
|
2015 |
2014 |
|
|
|
£'000 |
£'000 |
|
|
Proposed final dividend for 2015 - 3.00p per Ordinary share (2014 - 2.20p) |
5,805 |
4,320 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
The amounts reflected above for the cost of the proposed final dividend for 2015 is based on 193,512,844 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this Report. |
||
|
|
|
||
|
|
The final dividend will be paid on 18 December 2015 to shareholders on the register at the close of business on 20 November 2015. |
||
|
|
|
2015 |
2014 |
||
|
8. |
Return per Ordinary share |
£'000 |
pence |
£'000 |
pence |
|
|
Basic |
|
|
|
|
|
|
Revenue return |
8,090 |
4.13 |
6,737 |
3.43 |
|
|
Capital return |
(81,846) |
(41.81) |
50,292 |
25.61 |
|
|
|
______ |
______ |
_____ |
______ |
|
|
Total return |
(73,756) |
(37.68) |
57,029 |
29.04 |
|
|
|
______ |
______ |
_____ |
______ |
|
|
Weighted average Ordinary shares in issue |
|
195,773,845 |
|
196,371,896 |
|
|
|
|
_________ |
|
_________ |
|
|
|
|
|
||
|
|
|
2015 |
2014 |
||
|
|
Diluted |
£'000 |
pence |
£'000 |
pence |
|
|
Revenue return |
10,626 |
n/a |
9,218 |
n/a |
|
|
Capital return |
(81,846) |
n/a |
50,292 |
23.32 |
|
|
|
______ |
______ |
_____ |
______ |
|
|
Total return |
(71,220) |
n/a |
59,510 |
27.59 |
|
|
|
______ |
______ |
_____ |
______ |
|
|
Weighted average Ordinary shares in issue{A} |
|
215,052,963 |
|
215,656,495 |
|
|
|
|
_________ |
|
_________ |
|
|
|
||||
|
|
{A} The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with Financial Reporting Standard 22, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 3.5% Convertible Unsecured Loan Stock 2018 (CULS). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 19,279,118 (2014 - 19,284,599) to 215,052,963 (2014 - 215,656,495) Ordinary shares. |
||||
|
|
|
||||
|
|
For the years ended 31 August 2015 and 31 August 2014 there was no dilution to the revenue return per Ordinary share. Additionally, for the year ended 31 August 2015 there was no dilution to the capital return per Ordinary share due to a loss being reported. Where dilution does occur, the net returns are adjusted for items relating to the CULS. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. Accrued CULS finance costs for the period and unamortised issues expenses are reversed. |
||||
|
|
|
Listed |
Listed |
|
|
|
|
overseas |
in UK |
Total |
|
9. |
Investments |
£'000 |
£'000 |
£'000 |
|
|
Fair value through profit or loss: |
|
|
|
|
|
Opening book cost |
356,835 |
19,591 |
376,426 |
|
|
Opening fair value gains/(losses) on investments held |
273,003 |
(2,757) |
270,246 |
|
|
|
________ |
________ |
_______ |
|
|
Opening fair value |
629,838 |
16,834 |
646,672 |
|
|
Movements in year: |
|
|
|
|
|
Purchases at cost |
67,541 |
6,100 |
73,641 |
|
|
Sales - proceeds |
(72,086) |
- |
(72,086) |
|
|
Sales - gains on sales |
31,058 |
- |
31,058 |
|
|
Current year fair value (losses) on investments held |
(104,893) |
(7,958) |
(112,851) |
|
|
|
________ |
________ |
_______ |
|
|
Closing fair value |
551,458 |
14,976 |
566,434 |
|
|
|
________ |
________ |
_______ |
|
|
|
|
|
|
|
|
|
Listed |
Listed |
|
|
|
|
overseas |
in UK |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
Closing book cost |
383,348 |
25,691 |
409,039 |
|
|
Closing fair value gains/(losses) on investments held |
168,110 |
(10,715) |
157,395 |
|
|
|
________ |
________ |
_______ |
|
|
Closing fair value |
551,458 |
14,976 |
566,434 |
|
|
|
________ |
________ |
_______ |
|
|
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
|
|
£'000 |
£'000 |
|
|
Listed on a recognised overseas investment exchange |
|
551,458 |
629,838 |
|
|
Listed in the UK |
|
14,976 |
16,834 |
|
|
|
|
________ |
________ |
|
|
|
|
566,434 |
646,672 |
|
|
|
|
________ |
________ |
|
|
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
Gains on investments held at fair value through profit or loss |
|
£'000 |
£'000 |
|
|
Realised gains on sales |
|
31,058 |
23,523 |
|
|
(Decrease)/increase in fair value gains on investments held |
|
(112,851) |
26,818 |
|
|
|
|
________ |
________ |
|
|
|
|
(81,793) |
50,341 |
|
|
|
|
________ |
________ |
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows: |
|||
|
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Purchases |
170 |
58 |
|
|
|
Sales |
193 |
101 |
|
|
|
|
________ |
________ |
|
|
|
|
363 |
159 |
|
|
|
|
________ |
________ |
|
|
|
|
2015 |
2014 |
|
10. |
Debtors and prepayments |
£'000 |
£'000 |
|
|
Accrued income |
1,937 |
1,710 |
|
|
Overseas withholding tax recoverable |
199 |
130 |
|
|
Amounts due from brokers |
531 |
539 |
|
|
Other debtors and prepayments |
496 |
471 |
|
|
|
________ |
________ |
|
|
|
3,163 |
2,850 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Included in other debtors and prepayments is an amount of USD696,000, equivalent to £446,000 (2014 - USD696,000, £405,000), being the estimated recovery of funds following the settlement between Aberdeen Asset Managers Limited and Satyam Computer Services in relation to a claim made following the discovery of a financial fraud, which led to the sale of the stock at a weakened price. |
||
|
|
|
2015 |
2014 |
|
11. |
Creditors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Amounts due to brokers |
179 |
117 |
|
|
Amounts due relating to purchase of own shares to treasury |
30 |
- |
|
|
Other creditors |
1,677 |
1,923 |
|
|
|
________ |
________ |
|
|
|
1,886 |
2,040 |
|
|
|
________ |
________ |
|
12. |
Non-current liabilities - 3.5% Convertible Unsecured Loan Stock 2018 |
|||
|
|
|
|
|
|
|
|
|
Number |
Liability |
Equity |
|
|
|
of units |
component |
component |
|
|
Year ended 31 August 2015 |
£'000 |
£'000 |
£'000 |
|
|
Balance at 31 August 2014 |
59,797 |
57,614 |
1,981 |
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares |
(10) |
(9) |
(1) |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
588 |
- |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve |
- |
- |
(588) |
|
|
Amortisation of issue expenses (see note 1(i)) |
- |
59 |
- |
|
|
|
________ |
________ |
________ |
|
|
Balance at 31 August 2015 |
59,787 |
58,252 |
1,392 |
|
|
|
________ |
________ |
________ |
|
|
|
|
|
|
|
|
|
Number |
Liability |
Equity |
|
|
|
of units |
component |
component |
|
|
Year ended 31 August 2014 |
£'000 |
£'000 |
£'000 |
|
|
Balance at 31 August 2013 |
59,822 |
56,990 |
2,572 |
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares |
(25) |
(23) |
(2) |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
589 |
- |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve |
- |
- |
(589) |
|
|
Amortisation of issue expenses (see note 1(i)) |
- |
58 |
- |
|
|
|
________ |
________ |
________ |
|
|
Balance at 31 August 2014 |
59,797 |
57,614 |
1,981 |
|
|
|
________ |
________ |
________ |
|
|
|
|
|
|
|
|
On 12, 26 and 27 January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The CULS can be converted at the election of holders into Ordinary Shares during the months of January and July each year throughout their life, to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of CULS. Once 80% of the CULS issued have been converted the Company is allowed to request that holders redeem or convert the remainder. Interest is paid on the CULS on 31 January and 31 July each year, of which 100% is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company. |
|||
|
|
|
|||
|
|
The Company was required to recognise the liability component and the equity component of the CULS at their date of issue. The liability component must be increased to the nominal value over the life of the CULS by crediting the liability and debiting the profit and loss account. In order to align the revenue reserves with the distributable reserves the Company has decided to make an annual transfer between the equity component of the CULS and the revenue reserve so that the revenue reserve reflects distributable reserves as defined by company law. |
|||
|
|
|
|||
|
|
During the year ended 31 August 2015 the Company converted £9,582 (2014 - £25,056) nominal amount of CULS into 3,085 (2014 - 8,070) Ordinary shares. |
|||
|
|
|
|||
|
|
As at 31 August 2015, there was £59,787,042 (2014 - £59,796,624) nominal amount of CULS in issue. |
|||
|
|
|
2015 |
2014 |
|
13. |
Called-up share capital |
£'000 |
£'000 |
|
|
Allotted, called-up and fully paid: |
|
|
|
|
Ordinary shares of 20p |
|
|
|
|
Opening balance of 196,376,759 (2014 - 196,368,689) shares |
39,275 |
39,274 |
|
|
Issue of 3,085 (2014 - 8,070) Ordinary shares on conversion of £9,582 (2014 - £25,056) nominal 3.5% Convertible Unsecured Loan Stock 2018 |
1 |
1 |
|
|
Buyback of 2,295,500 (2014 - NIL) Ordinary shares with 352,000 shares being cancelled |
(70) |
- |
|
|
|
________ |
________ |
|
|
Closing balance of 196,027,844 (2014 - 196,376,759) shares |
39,206 |
39,275 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
During the year there were a further 3,085 Ordinary shares issued as a result of CULS conversion (2014 - 8,070). |
||
|
|
|
||
|
|
During the year 352,000 Ordinary shares of 20p each were purchased for cancellation by the Company (2014 - nil) at a total cost of approximately £1,011,000 (2014 - £nil). A further 1,943,500 Ordinary shares of 20p each were purchased to be held in treasury by the Company (2014 - nil) at a total cost of approximately £5,364,000 (2014 - £nil). At the year end 1,943,500 (2014 - nil) Ordinary shares of 20p each were held in treasury, which represents 1.0% (2014 - nil) of the Company's total issued share capital at 31 August 2015. |
||
|
|
|
||
|
|
Since the year end a further 571,500 Ordinary shares of 20p each have been purchased by the Company at a total cost of £1,347,000, all of which were held in treasury. |
||
|
14. |
Net asset value per share |
||
|
|
The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows: |
||
|
|
|
|
|
|
|
|
2015 |
2014 |
|
|
Net assets attributable (£'000) |
518,635 |
603,077 |
|
|
Number of Ordinary shares in issue |
194,084,344 |
196,376,759 |
|
|
Net asset value per share (p) |
267.22 |
307.10 |
|
|
|
|
|
|
|
The impact of the 3.5% Convertible Unsecured Loan Stock 2018 on the net asset value per share was anti-dilutive for the years ended 31 August 2015 and 31 August 2014. |
||
|
15. |
Reconciliation of net return before finance costs and |
2015 |
2014 |
|
|
taxation to net cash inflow from operating activities |
£'000 |
£'000 |
|
|
Net return before finance costs and taxation |
(70,452) |
60,508 |
|
|
Adjustments for: |
|
|
|
|
Losses/(gains) on investments held at fair value through profit or loss |
81,793 |
(50,341) |
|
|
Exchange losses charged to capital |
53 |
43 |
|
|
Increase in accrued income |
(227) |
(263) |
|
|
Increase in tax on accrued income |
(55) |
- |
|
|
(Increase)/decrease in other debtors |
(25) |
25 |
|
|
(Decrease)/increase in sundry creditors including management fee due |
(246) |
110 |
|
|
Stock dividends included in investment income |
(2,635) |
(2,754) |
|
|
|
________ |
________ |
|
|
Net cash inflow from operating activities |
8,206 |
7,328 |
|
|
|
________ |
________ |
|
|
|
1 September |
|
|
Other non-cash |
31 August |
|
|
|
2014 |
flow |
movements |
movements |
2015 |
|
16. |
Analysis of changes in net debt |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash and short term deposits |
6,209 |
(1,780) |
(53) |
- |
4,376 |
|
|
Money market funds |
7,000 |
(2,200) |
- |
- |
4,800 |
|
|
Debt falling due in more than one year |
(57,614) |
- |
- |
(638) |
(58,252) |
|
|
|
________ |
________ |
________ |
________ |
________ |
|
|
Net debt |
(44,405) |
(3,980) |
(53) |
(638) |
(49,076) |
|
|
|
________ |
________ |
________ |
________ |
________ |
|
17. |
Capital management policies and procedures |
|
|
The Company's capital management objectives are: |
|
|
to ensure that the Company will be able to continue as a going concern; and |
|
|
to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board has imposed a maximum gearing level of 20% of net assets. |
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained. |
|
|
|
|
|
The Company has no externally imposed capital requirements. |
|
18. |
Financial instruments |
|||||||||||
|
|
Risk management |
|||||||||||
|
|
The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, Convertible Unsecured Loan Stock 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 Board has delegated the risk management function to AFML under the terms of its management agreement with AFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors. |
|||||||||||
|
|
|
|||||||||||
|
|
Risk management framework |
|||||||||||
|
|
The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|||||||||||
|
|
|
|||||||||||
|
|
AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Management Asia Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|||||||||||
|
|
|
|||||||||||
|
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
|||||||||||
|
|
|
|||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
|||||||||||
|
|
|
|||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. |
|||||||||||
|
|
|
|||||||||||
|
|
Risk management |
|||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||
|
|
|
|||||||||||
|
|
Market risk |
|||||||||||
|
|
The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. The Company is exposed to gearing risk which has the effect of exacerbating market falls and gains. Long term gearing is represented by £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS). |
|||||||||||
|
|
|
|||||||||||
|
|
Interest rate risk |
|||||||||||
|
|
Interest rate movements may affect the level of income receivable on cash deposits. |
|||||||||||
|
|
|
|||||||||||
|
|
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. |
|||||||||||
|
|
|
|||||||||||
|
|
Interest risk profile |
|||||||||||
|
|
The interest rate risk profile of the portfolio of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Balance Sheet date was as follows: |
|||||||||||
|
|
|
|||||||||||
|
|
|
Weighted average |
Weighted |
|
|
|||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||
|
|
At 31 August 2015 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
Assets |
|
|
|
|
|||||||
|
|
Korean Won |
- |
- |
- |
23 |
|||||||
|
|
Singapore Dollar |
- |
- |
- |
233 |
|||||||
|
|
Sterling |
- |
0.10 |
- |
6,696 |
|||||||
|
|
Taiwanese Dollar |
- |
- |
- |
3 |
|||||||
|
|
Thailand Baht |
- |
- |
- |
2,221 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
Total assets |
n/a |
n/a |
- |
9,176 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
Liabilities |
|
|
|
|
|||||||
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
2.42 |
3.50 |
58,252 |
- |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
Weighted average |
Weighted |
|
|
|||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||
|
|
At 31 August 2014 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
Assets |
|
|
|
|
|||||||
|
|
Indian Rupee |
- |
- |
- |
125 |
|||||||
|
|
Korean Won |
- |
- |
- |
14 |
|||||||
|
|
Malaysian Ringgit |
- |
- |
- |
77 |
|||||||
|
|
Sterling |
- |
0.10 |
- |
12,236 |
|||||||
|
|
Taiwanese Dollar |
- |
- |
- |
755 |
|||||||
|
|
US Dollar |
- |
- |
- |
2 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
Total assets |
n/a |
n/a |
- |
13,209 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
Liabilities |
|
|
|
|
|||||||
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
3.42 |
3.50 |
57,614 |
- |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
|
|
|
|||||||||
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. |
|||||||||||
|
|
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates. |
|||||||||||
|
|
The Company's equity portfolio and short-term debtors and creditors have been excluded from the above tables. |
|||||||||||
|
|
|
|||||||||||
|
|
Interest rate sensitivity |
|||||||||||
|
|
Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit. |
|||||||||||
|
|
|
|||||||||||
|
|
Foreign currency risk |
|||||||||||
|
|
The majority of the Company's investment portfolio is invested in overseas securities and the Balance Sheet, therefore, can be significantly affected by movements in foreign exchange rates. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings. |
|||||||||||
|
|
|
|||||||||||
|
|
The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk. |
|||||||||||
|
|
|
|||||||||||
|
|
Foreign currency risk exposure by currency of denomination: |
|||||||||||
|
|
|
|||||||||||
|
|
|
31 August 2015 |
31 August 2014 |
|||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
|||||
|
|
|
Overseas |
monetary |
currency |
Overseas |
monetary |
currency |
|||||
|
|
|
investments |
assets |
exposure |
investments |
assets |
exposure |
|||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
Hong Kong Dollar |
136,200 |
- |
136,200 |
161,360 |
- |
161,360 |
|||||
|
|
Indian Rupee |
93,969 |
- |
93,969 |
90,103 |
125 |
90,228 |
|||||
|
|
Indonesian Rupiah |
10,349 |
(55) |
10,294 |
4,510 |
- |
4,510 |
|||||
|
|
Korean Won |
43,180 |
23 |
43,202 |
54,067 |
14 |
54,081 |
|||||
|
|
Malaysian Ringgit |
22,390 |
(124) |
22,266 |
23,630 |
77 |
23,707 |
|||||
|
|
Philippine Peso |
22,910 |
- |
22,910 |
27,389 |
- |
27,389 |
|||||
|
|
Singapore Dollar |
116,204 |
764 |
116,968 |
137,957 |
- |
137,957 |
|||||
|
|
Sri Lankan Rupee |
17,877 |
- |
17,877 |
19,616 |
- |
19,616 |
|||||
|
|
Taiwanese Dollar |
35,619 |
3 |
35,622 |
40,252 |
755 |
41,007 |
|||||
|
|
Thailand Baht |
19,010 |
2,221 |
21,231 |
30,832 |
- |
30,832 |
|||||
|
|
US Dollar |
33,750 |
- |
33,750 |
40,122 |
2 |
40,124 |
|||||
|
|
|
________ |
________ |
________ |
________ |
________ |
________ |
|||||
|
|
|
551,458 |
2,832 |
554,289 |
629,838 |
973 |
630,811 |
|||||
|
|
Sterling |
14,976 |
6,665 |
21,641 |
16,834 |
12,236 |
29,070 |
|||||
|
|
|
________ |
________ |
________ |
________ |
________ |
________ |
|||||
|
|
Total |
566,434 |
9,497 |
575,930 |
646,672 |
13,209 |
659,881 |
|||||
|
|
|
________ |
________ |
________ |
________ |
________ |
________ |
|||||
|
|
|
|
|
|
|
|
|
|||||
|
|
Foreign currency sensitivity |
|||||||||||
|
|
There is no sensitivity analysis included, as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis, so as to show the overall level of exposure. |
|||||||||||
|
|
|
|||||||||||
|
|
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 country or sector. Both the allocation of assets and the stock selection process, as detailed on page 53 of the published 2015 annual report, act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide. |
|||||||||||
|
|
|
|||||||||||
|
|
Other price risk sensitivity |
|||||||||||
|
|
If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2015 would have increased/decreased by £56,643,000 (2014 - increased/decreased by £64,667,000) and equity reserves would have increased/decreased by the same amount. |
|||||||||||
|
|
|
|||||||||||
|
|
Liquidity risk |
|||||||||||
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
The Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary. In order to monitor the concentration of Dragon's investee companies with Aberdeen, the total percentage holdings of those securities owned by Aberdeen-managed funds is reviewed by the Board. |
|||||||||||
|
|
|
|||||||||||
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%. Short-term flexibility can be achieved through the use of loan and overdraft facilities. At 31 August 2014 and 2015 the Company had no loan or overdraft facility in place. |
|||||||||||
|
|
|
|||||||||||
|
|
Liquidity risk exposure |
|||||||||||
|
|
At 31 August 2015 the Company had borrowings in the form of the £59,787,042 (2014 - £59,796,624) nominal of 3.5% Convertible Unsecured Loan Stock 2018. |
|||||||||||
|
|
|
|||||||||||
|
|
Credit risk |
|||||||||||
|
|
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
investment transactions are carried out with a large 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, including the Depositary, exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, the third party administrators' carries out a stock reconciliation to the Depositary's records on a daily basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Depsoitary's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held; |
|||||||||||
|
|
cash is held only with reputable banks with high quality external credit enhancements. |
|||||||||||
|
|
|
|||||||||||
|
|
None of the Company's financial assets are secured by collateral or other credit enhancements. |
|||||||||||
|
|
|
|||||||||||
|
|
Credit risk exposure |
|||||||||||
|
|
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 August was as follows: |
|||||||||||
|
|
|
|
|
|||||||||
|
|
|
2015 |
2014 |
|||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||
|
|
Current assets |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
Loans and receivables |
3,163 |
3,163 |
2,850 |
2,850 |
|||||||
|
|
Cash at bank and in hand |
4,376 |
4,376 |
6,209 |
6,209 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
|
7,539 |
7,539 |
9,059 |
9,059 |
|||||||
|
|
|
________ |
________ |
________ |
________ |
|||||||
|
|
|
|||||||||||
|
|
None of the Company's financial assets is past due or impaired. |
|||||||||||
|
|
|
|||||||||||
|
|
Maturity of financial liabilities |
|||||||||||
|
|
The maturity profile of the Company's financial liabilities at 31 August was as follows: |
|||||||||||
|
|
|
|||||||||||
|
|
|
2015 |
2014 |
|||||||||
|
|
|
£'000 |
£'000 |
|||||||||
|
|
In more than one year |
58,252 |
57,614 |
|||||||||
|
|
|
________ |
________ |
|||||||||
|
|
|
|
|
|||||||||
|
|
At 31 August 2015 the full contractual liability for the CULS assuming no further conversions was £65,037,000 (2014 - £67,122,000). |
|||||||||||
|
19. |
Fair value hierarchy |
|
|
|
FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: |
|
|
|
|
|
|
|
Level 1: |
quoted prices (unadjusted) in active markets for identical assets or liabilities; |
|
|
Level 2: |
inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and |
|
|
Level 3: |
inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
|
|
|
|
|
|
All of the Company's investments are in quoted equities (2014 - same) actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (2015 - £566,434,000; 2014 - £646,672,000) have therefore been deemed as Level 1. |
|
|
20. |
Related party transactions and transactions with the Manager |
|
|
Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report on pages 28 and 29 of the published 2015 annual report. |
|
|
|
|
|
The Company has an agreement in place with Aberdeen Fund Managers Limited ("AFML") for the provision of management and administration services, promotional activities and secretarial services. Details of transactions during the year and balances outstanding at the year end disclosed in notes 3 and 4. |
21. The Annual General Meeting will be held on 15 December 2015 at 40 Princes Street, Edinburgh.
22. The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2015 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2015 and 2014 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2014 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The 2015 accounts will be filed with the Registrar of Companies in due course.
The annual results are circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY or on the Company's website www.edinburghdragon.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 and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
By Order of the Board
Aberdeen Asset Managers Limited, Secretary
This information is provided by RNS
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