Annual Financial Report
SHIRES INCOME PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2014
STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
The Company
The Company is an investment trust and its Ordinary shares are listed on the premium segment of the Official List of the UK Listing Authority and traded on the London Stock Exchange. An investment trust is a way to make a single investment that gives you a share in a much larger portfolio.
Investment Objective
The Company aims to provide shareholders with a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities.
Company Benchmark
FTSE All-Share Index (Total Return).
Manager
The Company is managed by Aberdeen Asset Managers Limited ("AAM" or the "Manager").
Website
Up-to-date information can be found on the Company's website - www.shiresincome.co.uk
Financial Highlights
|
|
2014 |
2013 |
|
Net asset value total return |
+11.5% |
+29.1% |
|
Share price total return |
+14.0% |
+27.2% |
|
Benchmark total return |
+8.8% |
+16.8% |
|
Earnings per share (revenue) |
12.63p |
11.92p |
|
Dividend per share |
12.0p |
12.0p |
|
Dividend yield |
4.8% |
5.2% |
|
Total return assumes the re-investment of net dividends paid during the year. |
||
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Introduction
The purpose of this report is to provide shareholders with details of the Company's strategy and business model as well as the principal risks and challenges it faces.
The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future.
Objective
To provide for shareholders a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities.
Business Model
Investment Policy and Approach
In pursuit of its objective, the Company's policy is to invest principally in the ordinary shares of UK quoted companies, and in convertible and preference shares with above average yields.
The Directors are responsible for determining the gearing strategy of the Company. Gearing is used with the intention of enhancing long-term returns. Gearing is subject to a maximum equity gearing level of 35% of net assets at the time of draw down. Any borrowing, except for short-term liquidity purposes, is used for investment purposes.
The Company generates income primarily from ordinary shares, convertibles and preference shares. It also achieves income by writing call and put options on shares owned, or shares the Manager would like to own. By doing so, the Company generates premium income.
The Directors and Manager put a great deal of emphasis on being able to provide shareholders with a high level of dividend. There is a sizeable revenue reserve, equivalent to 14.1p per share (after providing for the dividends relating to the current year), which could be drawn upon if required.
Investment Process
The Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is intended as the major source of added value. No stock is bought without the Manager having first met management. The Manager estimates 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. Top-down investment factors are secondary in the Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights.
The Manager's portfolios are generally run conservatively, with an emphasis on traditional buy-and-hold, top-slicing/topping up and this approach results in low turnover within portfolios.
Portfolios are managed by the Manager on a team basis, with individual investment managers carrying out their own research and analysis. All ideas are shared via formal committees and common databases, with desk heads and the Manager's chief investment officer ensuring consistency.
Principal Risks and Uncertainties
The principal risks facing the Company relate to the Company's investment activities and gearing and include market risk and credit risk. An explanation of these risks and how they are managed is contained in note 16 to the financial statements. The Board has adopted a matrix of the key risks that affect its business.
i. Performance risk: A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The net asset value performance relative to the FTSE All-Share Index ("the Index") and the underlying stock weightings in the portfolio against the Index weightings are monitored closely by the Board.
ii. Investment risk: Investment risk within the portfolio is managed in three ways:
- Adherence to the investment process in order to minimise investments in poor quality companies and/or overpaying.
- Diversification of investment - seeking to invest in a wide variety of companies with strong balance sheets and the earnings power to pay increasing dividends. In addition, investments are diversified by sector in order to reduce the risk of a single large exposure. The Company invests mainly in equities, preference shares and convertibles.
- The Board has laid down absolute limits on maximum holdings and exposures in the portfolio at the time of acquisition. These can only be over-ridden with Board approval. These include the following:
- Maximum 7.5% of assets invested in the securities of one company (excluding Aberdeen Smaller Companies High Income Trust PLC);
- Maximum 5% of quoted investee company's ordinary shares.
The Company also invests in preference shares, primarily to enhance the income generation of the Company. The majority of these investments is in large financial institutions. The maximum holding in preference shares is managed by the first guideline referred to above. In addition, the Company cannot hold more than 10% of any investee company's preference shares.
The Company enters into traded option contracts, also primarily to enhance the income generation of the Company. The risks associated with these option contracts are managed through the principal guidelines below, which operated in the year under review:
- Call options written to be covered by stock;
- Put options written to be covered by net current assets/borrowing facilities;
- Call options not to be written on more than 100% of a holding of stock;
- Call options not to be written on more than 30% of the UK equity portfolio;
- Put options not to be written on more than 30% of the UK equity portfolio.
iii. Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Sections 1158-1159 of the Corporation Tax Act 2010, 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.
iv. Gearing risk: In the long-term, to help income generation and capital growth, the Company has borrowed to invest in the assets. This is undertaken in the belief that the assets will produce a greater total return than the cost of the borrowing over time. However, if asset values decline, that fall is exacerbated by gearing. During the year under review, the Company's borrowing was exclusively bank borrowing, utilising a revolving credit facility. The bank borrowings have certain associated covenants which are monitored by the Manager and Board. The gearing risk of the Company is actively managed and monitored with the Manager able to increase or decrease the short-term borrowings in line with their view of the stock market. As stated earlier, the maximum equity gearing limit, set by the Board, is 35% which constrains the amount of gearing that can be invested in equities which are more volatile than the fixed interest part of the portfolio.
The Board and the Manager keep under review options available to protect a portion of the portfolio from a sudden decline in markets.
v. Investment in smaller companies: Rather than the Company holding a number of smaller companies shares, Shires Income invests indirectly in this part of the equity market through one holding in Aberdeen Smaller Companies High Income Trust PLC, which is also managed by AAM.
The Directors regularly review this holding (currently 7.8% of the Company's portfolio). All of the directors of Aberdeen Smaller Companies High Income Trust PLC are independent of Shires Income PLC. AAM does not charge any management fee in respect of the amount of Shires Income's assets attributable to this holding.
vi. Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Board regularly reviews the Company's premium/discount.
vii Income risk: The level of income, and hence the level of dividend paid to shareholders, is dependent primarily on the dividends paid by investee companies. At times, those dividends may fall with a consequential effect on the ability of the Company to maintain dividends to shareholders. However, the Company may draw upon dividend reserves if required.
Performance and Outlook
The strategic direction and development of the Company is regularly discussed as part of Board meeting agendas. At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The Board also considers the future direction of the Company at an annual strategy meeting where a wide discussion takes place on development and strategic direction. The Company's brokers, J.P. Morgan Securities, present to the Board during the course of the year and cover the topics of sector development, perception of the Company and relevant strategic issues. The Board also considers the efficacy of marketing and promotion of the Company, including communications with shareholders.
A review of the Company's activities and performance during the year ended 31 March 2014 and future developments is detailed in the Chairman's Statement and the Manager's Review. This covers market background, investment activity, portfolio strategy, dividend and gearing policy and investment outlook.
Key Performance Indicators (KPIs)
The main KPIs against which the Board assesses the Company's performance include:
- Net Asset Value
- Revenue Return per Ordinary Share
- Share Price
- Dividend per share
- Discount
- Performance relative to FTSE All-Share Index
- Ongoing Charges
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. At 31 March 2014, there was one female and three male Directors. The Company has no employees.
Employee and Socially Responsible Policies
As the Company has delegated the management of the portfolio, it has no employees and therefore has no requirement for disclosures in this area. The Company's socially responsible investment policy is set out in the Statement of Corporate Governance.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Manager's corporate socially responsible investment policy including environmental policy can be found on http://www.aberdeen-asset.com/aam.nsf/groupCsr/home.
Anthony B. Davidson
Chairman
28 May 2014
STRATEGIC REPORT - CHAIRMAN'S STATEMENT
Results Review
The outcome for the year to the end of March 2014 was an increase in the Company's net asset value per share of 11.5% on a total return basis. This compares to a rise in our benchmark, the FTSE All-Share Index, of 8.8%; the total return from the share price was 14.0%. This rate of return again compares favourably to most other asset classes.
Gearing has again been a positive factor. The debt is notionally deployed in the preference share portfolio. The purpose of these investments is to deliver a solid revenue stream but with lower volatility than would be expected from an equity portfolio. This was achieved during the year, producing returns of 8.3%, generally in line with the benchmark.
The Board is proposing a full year dividend of 12.0p per share. This is 1.05 times covered by the revenue generated by the portfolio. If approved at the Annual General Meeting, a final dividend of 3.0p per share will be paid on 31 July 2014 to shareholders on the register on 4 July 2014.
Business confidence has been increasing during the year as evidenced by a pick up in corporate activity, with the Vodafone and Verizon deal being one of the most obvious examples. At the same time companies like Centrica and Sage have been engaging in share buy back programmes. Primary and secondary equity issuance has increased markedly, while large companies in particular have been taking advantage of very low costs of funding to facilitate often sizable debt issuance.
Despite the shift in corporate focus from a cautious to a more growth orientated approach, management teams have remembered their shareholders and have rewarded them with welcome dividend increases. This has been reflected in the portfolio where many of your investments have had a successful year that has facilitated pleasing uplifts in distributions. Indeed, there are thirteen holdings whose dividends were increased by double digits.
Performance
The drivers of performance have been broadly spread throughout the portfolio. The holding in Aberdeen Smaller Companies High Income Trust PLC has again been beneficial as the share prices of smaller companies have risen more rapidly than those of larger companies. The portfolio is overweight the Aerospace and Defence sector and was rewarded with a pleasing gain from Cobham. Other positive areas included being underweight the Mining sector and overweight Life Assurance, the latter allowed the portfolio to benefit from improving market conditions. There will always be companies that do less well in any portfolio. Last year the major supermarkets began to struggle in an increasingly competitive environment and the holding in Morrisons in particular detracted from performance. The Company has exposure to the Utilities sector, regarding this area of the market as one where there are some attractive dividends.
Earnings and Dividends
This has been another good year for dividend growth amongst our investee companies. In general, the companies in the portfolio have traded well over the past year. This, allied with balance sheets that are in good health, has facilitated some increases in dividends. I commented last year that future dividend growth might be expected to slow to match more closely the growth in corporate earnings. This has proved to be the case with underlying growth in dividends across the UK market of 6.8%. In the current year dividend growth is expected to remain positive but to be below that of last year. The largest impact being the effect of the strength of sterling on the 40% or so of UK dividends that are declared in dollars.
Portfolio Profile and Gearing
The Company's gearing decreased slightly during the year from 22.8% to 18.9%. The Board continually monitors the level of gearing in the Company. Although the absolute level of gearing looks high, I remind shareholders that it is deployed notionally in fixed interest securities which bring an element of diversification to the Company's total revenue stream.
Regulatory Changes
Pursuant to recent regulatory changes, this Chairman's Statement now forms part of the new Strategic Report. Shareholders will also note other changes to the format of the annual report which have been implemented as a result of these new regulatory requirements.
Alternative Investment Fund Managers Directive
Shareholders may be aware of the Alternative Investment Fund Managers Directive (the "AIFMD"), which creates a European-wide framework for regulating managers of alternative investment funds ("AIF"s). Listed investment companies such as Shires Income are caught within the definition of an AIF. The AIFMD is intended to reduce systemic risk created by the financial sector and aims to improve regulation, enhance transparency and investor protection, develop a single EU market for AIFs and implement effective mechanisms for micro- and macro-prudential oversight. The AIFMD came into force in July 2013 but a transitional period means that investment companies have until July 2014 to comply with the relevant regulations. We have agreed to appoint a subsidiary of Aberdeen Asset Management PLC to act as our AIFM and are currently in the process of finalising the arrangements required under the new regulatory regime. An announcement will be made once these new arrangements are in place.
Corporate Governance
During the year the Nomination Committee evaluated the operations of the Board, individual Directors and the Chairman. The Directors have discussed succession planning and a recruitment process will commence during the year to replace David Kidd who will retire from the Board following the 2015 Annual General Meeting. The Management Engagement Committee undertook a formal review of the Manager covering the investment management, company secretarial, administrative and marketing services provided to the Company. The review took into account the Manager's investment performance record, management processes, investment style, resources and risk control mechanisms. I am pleased to report that the Board agreed with the Committee's recommendation that the continued appointment of the Manager is very much in the interests of shareholders as a whole.
Annual General Meeting
The Company's Annual General Meeting takes place in London, on 3 July 2014, and I look forward to seeing as many of you there as possible.
Outlook
A year ago I wrote that investors needed to remain mindful of the risks posed by rising indebtedness in the US and the potential for sovereign default in some European countries. These two concerns remain. US Government expenditure is increasing and as we witnessed with last Autumn's "shutdown" in Federal services the Republicans and Democrats remain polarised as to how to resolve the issues. Meanwhile, in Europe we have seen sovereign yields falling, in many cases to pre crisis levels. That should be welcome news, but if we consider one of the countries hardest hit by the crisis, Greece, debt to GDP still stands at 175%. Hence, it is hard to say that their problems are resolved. The market believes that the ECB will in effect act as a backstop for any country that again finds itself in difficulties. That remains an unproven concept.
More positive has been the strength of the recovery in both the US and UK. Much investor attention is now focussed on the US programme of tapering, a gradual withdrawal of stimulus that suggests increasing confidence in prospects there. In the UK the housing market is key to confidence and, although not back at peak levels, both volumes and prices have recovered strongly. Unemployment has declined and inflation has fallen below its 2% target. That is helpful in that it eases the pressure on the MPC to raise interest rates. Expectations for growth in the domestic economy have been revised sharply upwards. Recovery is starting across much of Europe and, in the absence of concerns regarding sovereign debt, might be expected to continue.
Equity markets are forward looking and investors have begun to discount these rosier prospects in the valuations they are prepared to ascribe to shares. Multiples have expanded as share prices have increased without commensurate growth in profits. This has eroded some of the attractions of domestic equities relative to both other asset classes and overseas equity markets. Valuations do not appear to be unreasonably stretched but further progression in markets will likely need economic recovery to manifest itself in rising corporate profitability. Any further strengthening of sterling will represent an additional headwind to this.
As I have commented previously, the portfolio contains a broad spread of businesses with attractive medium and longer term prospects across many different industries. The investment strategy remains the same with a focus on ownership of businesses with sustainable competitive advantages and reliable management teams. These factors give us the confidence to be cautiously optimistic.
Anthony B. Davidson
Chairman
28 May 2014
STRATEGIC REPORT - MANAGER'S REVIEW
Portfolio Strategy
We take a long-term approach to investing, believing that whilst there might be volatility in the short and even medium term, share prices will ultimately reflect the fundamental value of a company. Consequently, there has been no change to our approach to the construction of the portfolio. We seek to identify the best quality companies we can and buy them at attractive valuations. Investment decisions are based on detailed internal due diligence and we endeavour to insulate ourselves from the noise that constantly permeates markets. Such a strategy is likely, by definition, to lead to low levels of turnover in the portfolio and we have experienced that again this year.
Gearing has declined further, falling from 22.8% to 18.9%, a function of both the growth in shareholders' funds and a decrease in the level of net debt. The gearing is notionally invested in the preference share portfolio. This part of the portfolio provides a core level of high income and would, in normal conditions, be expected to be more resilient than equities in the event of a fall in the market.
The Company's assets are invested in equities, preference shares and convertible shares. At the year end, 69.8% of the portfolio's assets were invested in equities, 24% in preference shares and the remainder in convertible shares and cash.
Revenue Account
The following table details the Company's main sources of income over the last five years.
|
2014 |
2013 |
2012 |
2011 |
2010 |
|
|
|
% |
% |
% |
% |
% |
|
Ordinary dividends |
52.5 |
49.8 |
48.5 |
44.1 |
41.6 |
|
Preference dividends |
36.1 |
38.2 |
39.6 |
44.4 |
44.7 |
|
Aberdeen Smaller Companies |
4.9 |
5.7 |
5.5 |
6.9 |
7.4 |
|
Fixed interest and bank interest |
0.2 |
0.3 |
0.3 |
0.6 |
1.3 |
|
Traded option premiums |
6.3 |
6.0 |
6.1 |
4.0 |
5.0 |
|
|
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
|
Total income (£'000s) |
4,534 |
4,275 |
4,352 |
4,153 |
4,201 |
Earnings per share have increased by 6.0% over the year. This is a pleasing result, especially when one considers that just over one third of the Company's revenues come from fixed interest instruments, which deliver no growth in dividends. The equity portfolio delivered earnings growth of almost 10%, helped by the special dividend paid by Sage. If this is excluded, the underlying growth was a little over 7%. Clearly higher yielding companies face more difficulties raising their distributions than businesses that are coming from a lower base. Nonetheless, there were some important contributors last year. These included Unilever and Prudential with each posting a 15% increase. Close Brothers continued to benefit from the countercyclical and conservative nature of their banking operations and were able to lift their dividend by 8%. Schroders is another financial business that traded strongly and they increased their final distribution by 40%. The introduction of Inmarsat, which has a 4% yield was also beneficial to the portfolio's earnings.
Equities
Markets were in a bullish mood at the start of the year, continuing the trend that had been present throughout the prior year. Indeed, the FTSE All-Share surpassed its 2007 peak, achieved prior to the onset of the financial crisis as it delivered its twelfth consecutive month of gains. Recovery was continuing in the US, evidenced by ongoing falls in unemployment. In the UK a return to growth heralded an avoidance of the much feared triple dip recession, while inflation was continuing to fall.
However, many emerging markets and much of the rest of Europe were experiencing difficulties. Chinese growth was slowing, which was impacting demand for commodities and hence the share prices of mining companies. Indeed copper would go on to hit a three year low and the price of iron ore would decline by 40% from its peak. In Europe, a sixth successive quarter of contraction and an expectation that this would continue throughout 2013 prompted the ECB to cut interest rates to 0.5%, their lowest ever level.
By the early summer the recovery in the US was sufficiently strong that the Chairman of the Federal Reserve, Ben Bernanke, remarked that he could envisage a situation whereby some stimulus could be withdrawn. This should have been regarded as a positive outlook. However, investors were worried by the potential reduction in asset purchases and markets fell sharply with an 11% peak to trough decline. There was a knock-on effect on emerging markets currencies which began to weaken in the face of less liquidity flowing into those markets. This, combined with a continuation of slowing growth, caused some precipitous declines in many emerging market equities. In the context of the portfolio this was important because whereas a high level of sales into these markets had previously been regarded positively by investors it was now viewed as a negative.
As the summer progressed there were three notable features. The US and UK economies continued to improve, though the shutdown in US Federal spending was unhelpful for the recovery. Investors were increasingly expecting some form of tapering. That pushed up gilt yields to levels not seen for two years. Mark Carney chaired his first meeting as Governor of the Bank of England and immediately sought to dampen expectations of interest rate increases in the domestic economy. The oil price was rising on the back of concerns about the likelihood of military action in Syria. More positively, Europe recorded unexpectedly positive growth with even Spain showing signs of stabilisation.
These factors served to increase investor confidence. Two examples that demonstrate this were the successful IPO of Royal Mail and the Government's ability to place a portion of their holding in Lloyds Bank. Optimism was boosted by the IMF's increase in their forecasts for growth in the UK for 2014, Spain's return to growth and further declines in the cost of debt for peripheral European countries.
This was slightly at odds with corporate performance where profit warnings had begun to accelerate. Businesses across a diverse array of industries including software, aerospace suppliers, pump manufacturers, food producers and lift manufacturers all issued disappointing trading statements.
2013 ended much as it had begun, with further improvements and upgrades to expectations for the UK. Indeed unemployment was falling faster than expected prompting Mark Carney to again emphasise that interest rates would not increase in the near term. In the US the Federal Open Market Committee was sufficiently confident that they felt able to announce that the first wave of tapering would occur in the new year. Conversely, European growth was sufficiently disappointing that the ECB had to cut interest rates again to a new all-time low of 0.25%.
The new year has witnessed a continuation of these trends with the US able to accelerate their programme of tapering, inflation in the UK falling below the 2% target for the first time since 2009 and growth in both countries remaining pleasingly positive. Europe is still struggling and, having exhausted conventional monetary policy options, the ECB indicated that it may engage in "unconventional activity", presumably encompassing some form of quantitative easing.
The corporate results season concluded with most businesses achieving expectations, though it should be noted that in aggregate these had been reduced over the course of 2013.
Our long-term approach to investing means that the core features of the portfolio tend to be in place for a number of years and change tends to be evolutionary.
Consequently, many of the aspects that we have discussed in previous reports have remained in place over the course of the year.
We do not believe that an index, which is merely a measure of historic performance, represents a sensible starting point for determining portfolio construction. Therefore, where companies or sectors are very large constituents of the benchmark we are often underweight relative to those positions. This is most clearly illustrated by our underweight position in the Oil and Gas sector. We remain underweight the mining sector, though we have added to our exposure as we topped up BHP Billiton when the shares weakened. We find that many companies in this industry suffer from a combination of geopolitical and commodity risk. We also believe that given the uncertainty over commodity prices it is difficult to establish fundamental valuations. Similarly with the domestic banks, we struggle to understand fully the risks of political interference and hence to evaluate the companies' prospects. Our exposure to banking in general has increased over the year when we topped up both HSBC and Standard Chartered as concerns about emerging market exposure created opportunities to do so.
Areas where we are overweight include the Food Producers, which is primarily Unilever. The company benefits from defensive growth prospects and significant exposure to emerging market opportunities. The portfolio also holds Associated British Foods which has been a very strong performer on the back of the success they have enjoyed with their Primark retail brand. We are also overweight both Pharmaceuticals and Utilities where we believe that there are attractive yields with the potential for long-term growth.
We are overweight Financials but this is skewed by the inclusion of our holding in Aberdeen Smaller Companies High Income Trust PLC. If this were excluded our equity portfolio would be more closely aligned with the index. Within the sector we have exposure to Life Assurance and Financial Services. In the case of Life Assurance we have investments in Prudential and Chesnara. We believe that Prudential has the opportunity to deliver significant long term growth from its Asian operations. As we saw at the recent final results, this can translate into very attractive increases in the dividend. Chesnara has a simpler business model that involves the running off of closed end books of business with the cash generated returned to investors though a high dividend yield. In Financial Services our holdings cover a diverse array of end markets and include Close Brothers the countercyclical bank, Provident Financial the non conventional lender and Schroders the blue chip asset manager.
One new holding was introduced over the year. Inmarsat operates a global communications satellite array. The business is benefitting from the growth in demand for both voice and high speed data services. The barriers to entry are substantial and the finite supply of orbital slots in particular limits the likelihood of new entrants. Customers include businesses in the maritime, oil and gas, media and aeronautical industries as well as governments and aid agencies. The business has been going through a period of investment and transitioning of its model. This makes the short-term valuation metrics appear high. However, taking a longer term view we expect a significant pick up in earnings and cash generation, a sizable element of which can be expected to find its way to shareholders. In the meantime a 4% yield is attractive in its own right.
We sold three holdings. Whitbread has been a very good holding for the portfolio. Although the Costa Coffee and Premier Inn brands continue to perform strongly we believe that much of the potential upside is already recognised in the share price. Amec has been one of the ways we have sought to gain exposure to the oil and gas industries over and above owning the majors. In short, we have preferred to own the providers of the "picks and shovels." However, the company has announced an intention to make a sizable acquisition that we feel introduces integration and financial risks that make this a less attractive investment proposition. Aviva was sold as we had growing concerns about their long term prospects.
The portfolio had a significant holding in Vodafone, where we had identified the potential value in their stake in Verizon Wireless. This was crystallised during the year when they sold their holding to the parent company and returned $84 billion to investors, the largest such transaction in history. This has had the effect of reducing the size of our holding though we retain a material position because we believe that the company now has the financial flexibility to participate in the evolution of the convergence of European communications markets. It is worth mentioning that given the level of the yield on Vodafone, the significant reduction in the size of the holding will impact the portfolio's earnings this year. We have taken steps to mitigate this impact, but we believe that we should highlight this to investors especially in light of the strength of earnings growth achieved last year.
In more general portfolio activity we took advantage of weakness in the share prices of many companies with emerging market exposures to top them up. These included BHP Billiton, Unilever, HSBC and Standard Chartered. We also bought a little more Pearson, Cobham, AstraZeneca and BG Group as we became more comfortable with their long term prospects. We top sliced holdings that had done well, amongst which were Land Securities, Provident Financial, British American Tobacco and Aberdeen Small Companies High Income Trust. Morrisons was a disappointment during the year. In common with their peers, they have struggled in the face of rising competition from the hard discounters and a consumer spending environment that remains very tough. They also have problems of their own making, that include the lack of an online capability and an underdeveloped convenience store portfolio. As such they need to make very significant investments in the business at a time when it is far from clear that they will be able to generate adequate returns. We have therefore sold around half the position.
In many cases the transactions were enacted via the assignment or exercise of put and call options.
Investment Performance Analysis
In the year to the end of March 2014, the total return on net assets was 11.5% compared to our benchmark, the FTSE All-Share Index which returned 8.8%. As we would hope, stock selection was an important contributor to performance.
Aberdeen Smaller Companies High Income Trust PLC has again been the most significant contributor to performance, delivering a return of 25.2%. This is a material gain in its own right and well ahead of our benchmark. Other notable successes included GKN, whose share price rose strongly as economic recovery led to more favourable prospects for their automotive operations. Sage Group, re-rated on expectations of improving demand from its SME core customer base. Having been a detractor from performance previously the holding in Cobham was beneficial last year. The share price increased by 27% as investors recognised that the negative impact of reductions in US Department of Defence expenditure might be expected to ease next year.
At the sectoral level the underweight position to Mining aided performance as share prices fell on the back of declining demand for commodities from China in particular. Being underweight the Banks was also a positive. Our overweight position in other financial companies was beneficial. Rising markets were helpful to a number of companies from Schroders to Chesnara. Close Brothers continued to experience growth in their countercyclical banking operations. Prudential experienced strong growth in its Asian businesses.
Unsurprisingly, there were some companies in the portfolio that suffered difficulties. Tesco and Morrisons face an increasingly competitive environment. Pearson is moving through a transitional phase but it is taking longer and has been more problematic than was originally envisioned. Unilever has faced tough conditions as weakening emerging market currencies have impacted on demand.
The portfolio is constructed to deliver growth in both capital and earnings over time. The success of this strategy can be seen in the performance which at the year end had exceeded that delivered by its benchmark over each of one, three and five years. Capital and earnings growth are unlikely to progress either smoothly or in line with each other. We are however very aware of the desirability of growth in the portfolio's earnings. It is pleasing therefore to be able to report that 13 holdings increased their final dividends by double digit amounts during the year. Amongst these Unilever and Prudential with 15% increases, Rolls Royce almost 13% and Schroders with 34% are deserving of special mention.
Prospects
Across Europe, we have now had three years of no earnings growth. Yet, markets have moved ahead strongly. The net effect has been that valuation multiples have expanded. That is not necessarily an issue given they were coming from a low base. However, we have now reached a stage where it seems likely that further share price accretion will require growth in profits rather than additional re-ratings.
The economic backdrop is supportive. This should remain the case, at least as long as investors discount a return of the European sovereign debt crisis and fixed income managers invest in peripheral nations' debt at valuations last seen just prior to the onset of the crisis. That risk aside, a US and UK recovery alongside a gradual pick-up in prospects across the continent may lead to an export led pick-up in Emerging Markets and global growth can resume. However, tapering in the US has the potential to cause further currency weakness in Emerging Markets.
Key to any such recovery is corporate and investor confidence and there are clear signs that both are increasing. Having spent years strengthening their balance sheets, management teams are now more prepared to engage in merger and acquisition activity. That is generally a positive for markets though one might observe that, given muted prospects for growth, managements feel obliged to try and buy their way to expansion. The capital markets are very active and there has been a raft of IPO and secondary market activity. Some of this reflects pent-up demand but the fact that it is happening at all is indicative of rising investor confidence.
So what are the key risks? Sterling has been strengthening and this is weighing on the outlook for profits growth. At the time of writing the market's expectations for EPS growth across the FTSE All-Share in 2014 has fallen from 9.3% at the start of the year to 5.3%, much of this is currency based. Related to this is the belief that interest rates will eventually have to rise. Whilst this is not a uniformly bad thing, it will put pressure on those businesses and individuals that still have too much debt. It will also serve to limit the earnings accretion that can be engineered through deal making.
At this point, it is worth mentioning the likely impact of rate increases on the preference share portfolio. Spreads are currently wide enough that we anticipate there will be some capacity to absorb rising interest rates. In addition, the preference shares can be expected to behave with more equity-like characteristics than conventional pure debt instruments and hence should be more resilient than other forms of fixed interest.
Of course, European recovery is not a given, as evidenced by the ECB's comments about considering further stimulus. It is difficult to divine how the market would respond to this; would the focus be on the disappointing fundamentals or on the short term boost provided by their programme of purchases?
We have demonstrated throughout the crisis and subsequent recovery in markets that we will not waiver from our commitment to endeavour to invest in businesses that we regard as having suitably strong business models, management teams and balance sheets whilst being cognisant of the dangers of overpaying. A sharper than expected economic recovery could prove beneficial for the shares of companies that we believe to be of a lower quality. We will not change our approach to suit the climate of the day, believing instead that superior returns will be delivered across the cycle by holding to our principles.
Aberdeen Asset Managers Limited
28 May 2014
STRATEGIC REPORT - RESULTS
Financial Summary
|
|
31 March 2014 |
31 March 2013 |
% change |
|
Total investments |
£87,835,000 |
£85,624,000 |
+2.6 |
|
Shareholders' funds |
£74,502,000 |
£70,306,000 |
+6.0 |
|
Market capitalisation |
£75,669,000 |
£69,894,000 |
+8.3 |
|
Net asset value per share |
248.36p |
234.37p |
+6.0 |
|
Share price (mid-market) |
252.25p |
233.00p |
+8.3 |
|
Premium/(discount) to NAV A |
1.6% |
(0.6%) |
|
|
|
|
|
|
|
Gearing |
|
|
|
|
Net gearing |
18.9% |
22.8% |
|
|
Equity gearing |
17.9% |
21.8% |
|
|
|
|
|
|
|
Dividends and earnings |
|
|
|
|
Revenue return per share B |
12.63p |
11.92p |
+6.0 |
|
Dividends per share C |
12.00p |
12.00p |
|
|
Dividend cover |
1.05 |
0.99 |
|
|
Revenue reserves D |
£6,031,000 |
£5,837,000 |
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
Ongoing charges ratio E |
1.00% |
1.08% |
|
|
A This has been reported on an unadjusted basis in line with current market practice. The Company previously reported on an adjusted basis. B Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income). |
|||
|
C The figures for dividends per share reflect the years in which they were earned. |
|||
|
D The revenue reserve figure does not take account of the third interim or final dividend amounting to £1,799,855 (2013 - £1,799,855) combined. |
|||
|
E Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. |
|||
Performance (total return)
|
|
1 year |
3 year |
5 year |
|
|
% return |
% return |
% return |
|
Net asset value |
+11.5 |
+50.0 |
+199.2 |
|
Share price (based on mid-market) |
+14.0 |
+58.5 |
+233.1 |
|
FTSE All-Share Index |
+8.8 |
+28.8 |
+113.3 |
|
All figures are for total return and assume re-investment of net dividends excluding transaction costs. |
|||
Dividends
|
|
Rate per share |
xd |
Record |
Payment |
|
First interim dividend |
3.00p |
2 October 2013 |
4 October 2013 |
31 October 2013 |
|
Second interim dividend |
3.00p |
31 December 2013 |
3 January 2014 |
31 January 2014 |
|
Third interim dividend |
3.00p |
2 April 2014 |
4 April 2014 |
30 April 2014 |
|
Proposed final dividend |
3.00p |
2 July 2014 |
4 July 2014 |
31 July 2014 |
|
2013/14 |
12.00p |
|
|
|
|
|
|
|
|
|
|
First interim dividend |
3.00p |
3 October 2012 |
5 October 2012 |
31 October 2012 |
|
Second interim dividend |
3.00p |
2 January 2013 |
4 January 2013 |
31 January 2013 |
|
Third interim dividend |
3.00p |
3 April 2013 |
5 April 2013 |
30 April 2013 |
|
Final dividend |
3.00p |
3 July 2013 |
5 July 2013 |
31 July 2013 |
|
2012/13 |
12.00p |
|
|
|
Ten Year Financial Record
|
Year to 31 March |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Revenue available for ordinary dividends (£'000) |
5,770 |
5,792 |
5,987 |
6,026 |
5,536 |
3,512 |
3,292 |
3,615 |
3,556 |
3,789 |
|
Per share (p) |
|
|
|
|
|
|
|
|
|
|
|
Net revenue return |
19.7 |
18.9 |
19.3 |
22.2 |
18.8 |
11.8 |
11.1 |
12.2 |
11.9 |
12.6 |
|
Net dividends paid/proposed |
19.25 |
19.25 |
19.25 |
19.75 |
19.75 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
|
Total return |
52.8 |
74.2 |
25.9 |
(63.4) |
(112.9) |
85.3 |
22.6 |
7.4 |
53.5 |
26.0 |
|
Net asset value |
272.2 |
327.1 |
334.0 |
251.1 |
118.5 |
186.8 |
197.5 |
192.9 |
234.4 |
248.4 |
|
Shareholders' funds (£m) |
80.8 |
97.1 |
99.1 |
74.6 |
35.2 |
55.5 |
58.6 |
57.3 |
70.3 |
74.5 |
|
The figures for 2011 to 2014 are for the Company only, following the dissolution of the subsidiaries in May 2011. |
||||||||||
Cumulative Performance
Rebased to 100 at 31 March 2004
|
As at 31 March |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
NAV |
100.0 |
114.5 |
137.7 |
140.9 |
105.5 |
49.8 |
78.4 |
82.8 |
80.9 |
98.3 |
104.2 |
|
NAV total return A |
100.0 |
123.9 |
159.8 |
173.8 |
138.4 |
72.2 |
127.9 |
144.1 |
150.1 |
193.7 |
216.1 |
|
Share price performance |
100.0 |
118.8 |
140.0 |
138.7 |
98.2 |
48.7 |
82.1 |
84.8 |
86.8 |
104.0 |
112.6 |
|
Share price total return A |
100.0 |
129.3 |
163.1 |
172.0 |
130.0 |
71.8 |
137.1 |
151.0 |
165.0 |
209.8 |
239.3 |
|
Benchmark performance |
100.0 |
111.9 |
138.7 |
149.4 |
133.2 |
90.3 |
132.5 |
139.6 |
136.7 |
153.9 |
161.8 |
|
Benchmark total return A |
100.0 |
115.6 |
147.9 |
164.4 |
151.7 |
107.2 |
163.3 |
177.5 |
180.0 |
210.2 |
228.7 |
|
NAV figures are based on Company only values following the dissolution of the subsidiaries in May 2011. |
|||||||||||
|
A Total return figures are based on reinvestment of net income. |
|||||||||||
INVESTMENT PORTFOLIO - ORDINARY SHARES
AS AT 31 MARCH 2014
|
|
Valuation |
Total |
Valuation |
|
|
2014 |
portfolio |
2013 |
|
Company |
£'000 |
% |
£'000 |
|
Aberdeen Smaller Companies High Income Trust |
6,865 |
7.8 |
7,280 |
|
Royal Dutch Shell |
3,380 |
3.8 |
3,114 |
|
Centrica |
3,024 |
3.4 |
2,828 |
|
British American Tobacco |
2,935 |
3.3 |
3,245 |
|
AstraZeneca |
2,810 |
3.2 |
2,392 |
|
GlaxoSmithKline |
2,801 |
3.2 |
2,708 |
|
HSBC Holdings |
2,690 |
3.1 |
2,290 |
|
Unilever |
2,612 |
3.0 |
2,369 |
|
BHP Billiton |
2,582 |
2.9 |
1,848 |
|
Prudential |
2,550 |
2.9 |
2,417 |
|
Ten largest investments |
32,249 |
36.6 |
|
|
Close Brothers |
2,400 |
2.7 |
1,788 |
|
Pearson |
2,179 |
2.5 |
1,705 |
|
BP |
2,083 |
2.4 |
1,973 |
|
National Grid |
2,080 |
2.4 |
1,935 |
|
Vodafone |
2,038 |
2.3 |
3,165 |
|
Chesnara |
2,002 |
2.3 |
1,532 |
|
Standard Chartered |
1,993 |
2.3 |
1,244 |
|
Tesco |
1,772 |
2.0 |
2,114 |
|
Sage Group |
1,651 |
1.9 |
1,254 |
|
Cobham |
1,564 |
1.8 |
1,271 |
|
Twenty largest investments |
52,011 |
59.2 |
|
|
Compass |
1,373 |
1.6 |
1,261 |
|
Schroders |
1,365 |
1.6 |
1,260 |
|
GKN |
1,211 |
1.4 |
1,045 |
|
Land Securities |
1,176 |
1.3 |
1,245 |
|
Associated British Foods |
1,085 |
1.2 |
1,141 |
|
Rolls Royce |
1,031 |
1.2 |
1,085 |
|
Inmarsat |
995 |
1.1 |
- |
|
Weir Group |
938 |
1.1 |
837 |
|
Provident Financial |
823 |
0.9 |
909 |
|
Experian |
703 |
0.8 |
741 |
|
Thirty largest investments |
62,711 |
71.4 |
|
|
Wood Group (John) |
690 |
0.8 |
615 |
|
BG Group |
570 |
0.7 |
260 |
|
Morrison (Wm.) |
390 |
0.4 |
1,182 |
|
Total Ordinary shares |
64,361 |
73.3 |
|
|
|
|||
|
|
|||
INVESTMENT PORTFOLIO - OTHER INVESTMENTS
AS AT 31 MARCH 2014
|
|
Valuation |
Total |
Valuation |
|
|
2014 |
portfolio |
2013 |
|
Company |
£'000 |
% |
£'000 |
|
Convertibles |
|
|
|
|
Premier Farnell 89.2p Cum Conv |
769 |
0.9 |
739 |
|
Balfour Beatty Cum Conv 10.75% |
585 |
0.6 |
615 |
|
Total Convertibles |
1,354 |
1.5 |
|
|
Preference shares |
|
|
|
|
Ecclesiastical Insurance Office 8 5/8% |
5,130 |
5.8 |
5,300 |
|
Royal & Sun Alliance 7 3/8% |
4,720 |
5.4 |
4,850 |
|
General Accident 7.875% |
4,063 |
4.6 |
3,974 |
|
Santander 10.375% |
3,680 |
4.2 |
3,294 |
|
Standard Chartered 8.25% |
3,391 |
3.9 |
3,405 |
|
R.E.A. Holdings 9% |
1,136 |
1.3 |
1,139 |
|
Total Preference shares |
22,120 |
25.2 |
|
|
Total other investments |
23,474 |
26.7 |
|
|
Total investments |
87,835 |
100.0 |
|
|
|
|||
|
Purchases and/or sales effected during the year result in 2013 and 2014 values not being directly comparable. |
|||
Distribution of Assets and Liabilities
|
|
|
Movement during the year |
|
|||||
|
|
Valuation at |
|
|
|
Gains/ |
Valuation at |
||
|
|
31 March 2013 |
Purchases |
Sales |
Other |
(losses) |
31 March 2014 |
||
|
|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
% |
|
Listed investments |
|
|
|
|
|
|
|
|
|
Ordinary shares |
62,308 |
88.6 |
6,500 |
(8,569) |
- |
4,122 |
64,361 |
86.4 |
|
Convertibles |
1,354 |
1.9 |
- |
- |
(10) |
10 |
1,354 |
1.8 |
|
Preference shares |
21,962 |
31.3 |
- |
- |
(83) |
241 |
22,120 |
29.7 |
|
|
_______ |
______ |
_______ |
______ |
_____ |
_______ |
_______ |
_____ |
|
Total investments |
85,624 |
121.8 |
6,500 |
(8,569) |
(93) |
4,373 |
87,835 |
117.9 |
|
Current assets |
2,927 |
4.2 |
|
|
|
|
5,380 |
7.2 |
|
Current liabilities |
(18,245) |
(26.0) |
|
|
|
|
(18,713) |
(25.1) |
|
|
_______ |
______ |
|
|
|
|
_______ |
_____ |
|
Net assets |
70,306 |
100.0 |
|
|
|
|
74,502 |
100.0 |
|
|
_______ |
______ |
|
|
|
|
_______ |
_____ |
|
Net asset value per Ordinary share |
234.4p |
|
|
|
|
|
248.4p |
|
|
|
_______ |
|
|
|
|
|
_______ |
|
DIRECTORS' REPORT
Introduction
The Board of Directors, A.B. Davidson (Chairman), M. Glen, D.P. Kidd and A.S. Robson held office throughout the whole year under review. The Directors present their report and audited financial statements for the year ended 31 March 2014.
The Company and its Objective
The Company is an investment trust and its Ordinary shares are listed on the premium segment of the Official List of the UK Listing Authority and traded on the London Stock Exchange. The Company's objective is to provide for shareholders a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities. In pursuit of the Company's objective, the Company invests principally in the ordinary shares of UK quoted companies, and in convertible and preference shares with above average yields. A review of the Company's activities is given in the Strategic Report. This includes the overall strategy of the business of the Company and its principal activities, main risks faced by the Company, likely future developments of the business and the recommended dividend.
Status
The Company, which was incorporated in 1929, is an investment company, within the terms of Section 833 of the Companies Act 2006 ("2006 Act") and carries on business as an investment trust. The Company is registered as a public limited company in England and Wales. The Company's registration number is 00386561. The Company has no employees and the Company makes no political donations.
The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 April 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 March 2014 so as to enable it to comply with the ongoing requirements for investment trust status.
The affairs of the Company were conducted in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.
Results and Dividends
Dividends on the Ordinary shares are payable quarterly at the end of January, April, July and October. Dividends accounted for in the year amounted to 12.0p.
A third interim dividend of 3.0p per Ordinary share was declared on 21 March 2014 payable on 30 April 2014. A final dividend of 3.0p per Ordinary share is proposed, payable on 31 July 2014 to shareholders on the register on 4 July 2014. The ex-dividend date is 2 July 2014. Under International Financial Reporting Standards (IFRS) both these dividends will be accounted for in the financial year ended 31 March 2015.
Investment Management Agreement
The Company has an agreement with Aberdeen Asset Managers Limited ("AAM") for the provision of investment management, administrative and secretarial services which is terminable by six months' notice on either side. The fee is 0.45% for funds up to £100 million and 0.40% for funds over £100 million, excluding commonly managed funds.
Going Concern
The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Company's revolving credit facility was extended and matures on 9 May 2015. The Board considers that the Company has adequate financial resources to continue in operational existence for the foreseeable future.
Accountability and Audit
Each Director confirms that, so far as he or she (hereinafter referred to as "he") is aware, there is no relevant audit information of which the Company's auditor is unaware, and he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. Additionally there are no important events affecting the Company since the year end.
Independent Auditor
Following their intention to gradually wind down the activity in their registered firm, KPMG Audit Plc, KPMG have proposed that an alternative entity, KPMG LLP, become the Company's auditor. The change is purely administrative and there will be no adverse impact on investors' interests as a result.
Accordingly, KPMG have notified the Company that KPMG Audit Plc is not seeking reappointment and have provided a statutory statement of circumstances upon ceasing to hold office pursuant to Section 519 of the 2006 Act. In accordance with Section 520 of the 2006 Act, a copy of this statement is enclosed with the report and accounts. The Board has decided to put KPMG LLP forward to be appointed as auditor and a resolution concerning its appointment will be put to the forthcoming Annual General Meeting ("AGM") of the Company. There is no impact on the terms in which the auditor will be retained.
The Directors have reviewed the level of non-audit services provided by the auditor during the year, together with the auditor's procedures in connection with the provision of such services, and remain satisfied that KPMG Audit Plc's objectivity and independence is being safeguarded.
By order of the Board
Aberdeen Asset Management PLC
Secretary, 28 May 2014
STATEMENT OF 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 they are required to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.
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 they have been prepared in accordance with IFRSs as adopted by the EU subject to any material departures disclosed and explained in the notes to 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 Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
- the financial statements, 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
- that in the opinion of the Directors, 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 and on behalf of Shires Income PLC
Anthony B. Davidson
Chairman
28 May 2014
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended |
Year ended |
|||||
|
|
|
31 March 2014 |
31 March 2013 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Gains on investments at fair value |
10 |
- |
4,387 |
4,387 |
- |
12,795 |
12,795 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
|
|
|
|
|
|
|
Dividend income |
|
3,399 |
- |
3,399 |
3,248 |
- |
3,248 |
|
|
Interest income/(expense) from investments |
|
579 |
(93) |
486 |
578 |
(93) |
485 |
|
|
Stock dividends |
|
260 |
- |
260 |
177 |
- |
177 |
|
|
Traded option premiums |
|
286 |
- |
286 |
260 |
- |
260 |
|
|
Money market interest |
|
10 |
- |
10 |
12 |
- |
12 |
|
|
Exchange gains |
|
- |
2 |
2 |
- |
- |
- |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
|
2 |
4,534 |
4,296 |
8,830 |
4,275 |
12,702 |
16,977 |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
Investment management fee |
3 |
(186) |
(186) |
(372) |
(165) |
(165) |
(330) |
|
|
Other administrative expenses |
4 |
(347) |
- |
(347) |
(323) |
- |
(323) |
|
|
Finance costs of borrowings |
6 |
(160) |
(160) |
(320) |
(176) |
(176) |
(352) |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
|
|
(693) |
(346) |
(1,039) |
(664) |
(341) |
(1,005) |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
Profit before taxation |
|
3,841 |
3,950 |
7,791 |
3,611 |
12,361 |
15,972 |
|
|
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(52) |
52 |
- |
(55) |
55 |
- |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
Profit attributable to equity holders of the Company |
|
3,789 |
4,002 |
7,791 |
3,556 |
12,416 |
15,972 |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
Earnings per Ordinary share (pence) |
9 |
12.63 |
13.34 |
25.97 |
11.92 |
41.60 |
53.52 |
|
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit for the year" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised). |
||||||||
|
The total column of this statement represents the Statement of Comprehensive Income of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. |
||||||||
|
All items in the above statement derive from continuing operations. |
||||||||
|
The accompanying notes are an integral part of these financial statements. |
||||||||
|
|
||||||||
|
The following table shows the revenue for each year under IFRS less the ordinary dividends declared in respect of the financial year to which they relate. This table is for information purposes only and does not form part of the above Statement of Comprehensive Income. |
||||||||
|
|
|
|
||||||
|
|
Year to |
Year to |
||||||
|
|
31 March |
31 March |
||||||
|
|
2014 A |
2013 B |
||||||
|
|
£'000 |
£'000 |
||||||
|
Revenue |
3,789 |
3,556 |
||||||
|
Dividends declared |
(3,600) |
(3,591) |
||||||
|
|
_______ |
_______ |
||||||
|
|
189 |
(35) |
||||||
|
|
_______ |
_______ |
||||||
|
|
|
|
||||||
|
A Dividends declared relates to first three interim dividends (each 3.0p) and the proposed final dividend (3.0p) declared in respect of financial year 2013/14. |
||||||||
|
B Dividends declared relates to first three interim dividends (each 3.0p) and the final dividend (3.0p) declared in respect of financial year 2012/13. |
||||||||
BALANCE SHEET
|
|
|
As at |
As at |
|
|
|
31 March 2014 |
31 March 2013 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Ordinary shares |
|
64,361 |
62,308 |
|
Convertibles |
|
1,354 |
1,354 |
|
Other fixed interest |
|
22,120 |
21,962 |
|
|
|
__________ |
__________ |
|
Securities at fair value |
10 |
87,835 |
85,624 |
|
|
|
__________ |
__________ |
|
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
|
19 |
16 |
|
Accrued income and prepayments |
|
956 |
937 |
|
Cash and cash equivalents |
|
4,405 |
1,974 |
|
|
|
__________ |
__________ |
|
|
11 |
5,380 |
2,927 |
|
|
|
__________ |
__________ |
|
Total assets |
|
93,215 |
88,551 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
(213) |
(245) |
|
Short-term borrowings |
|
(18,500) |
(18,000) |
|
|
|
__________ |
__________ |
|
|
12 |
(18,713) |
(18,245) |
|
|
|
__________ |
__________ |
|
Net assets |
|
74,502 |
70,306 |
|
|
|
__________ |
__________ |
|
|
|
|
|
|
Issued capital and reserves attributable to equity holders |
|
|
|
|
Called-up share capital |
13 |
15,049 |
15,049 |
|
Share premium account |
14 |
19,308 |
19,308 |
|
Capital reserve |
15 |
34,114 |
30,112 |
|
Revenue reserve |
15 |
6,031 |
5,837 |
|
|
|
__________ |
__________ |
|
Equity shareholders' funds |
|
74,502 |
70,306 |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
9 |
248.36 |
234.37 |
|
|
|
__________ |
__________ |
STATEMENT OF CHANGES IN EQUITY
|
Year ended 31 March 2014 |
|
|
|
|
|
|
|
|
Share |
|
Retained |
|
|
|
Share |
premium |
Capital |
revenue |
|
|
|
capital |
account |
reserve |
reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
As at 31 March 2013 |
15,049 |
19,308 |
30,112 |
5,837 |
70,306 |
|
Revenue profit for the year |
- |
- |
- |
3,789 |
3,789 |
|
Capital profit for the year |
- |
- |
4,002 |
- |
4,002 |
|
Equity dividends (see note 8) |
- |
- |
- |
(3,595) |
(3,595) |
|
|
_________ |
__________ |
_________ |
________ |
_________ |
|
As at 31 March 2014 |
15,049 |
19,308 |
34,114 |
6,031 |
74,502 |
|
|
_________ |
__________ |
_________ |
________ |
_________ |
|
|
|
|
|
|
|
|
Year ended 31 March 2013 |
|
|
|
|
|
|
|
|
Share |
|
Retained |
|
|
|
Share |
premium |
Capital |
revenue |
|
|
|
capital |
account |
reserve |
reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
As at 31 March 2012 |
14,899 |
18,840 |
17,696 |
5,850 |
57,285 |
|
Issue of own shares |
150 |
468 |
- |
- |
618 |
|
Revenue profit for the year |
- |
- |
- |
3,556 |
3,556 |
|
Capital profit for the year |
- |
- |
12,416 |
- |
12,416 |
|
Equity dividends (see note 8) |
- |
- |
- |
(3,569) |
(3,569) |
|
|
_________ |
__________ |
_________ |
________ |
_________ |
|
As at 31 March 2013 |
15,049 |
19,308 |
30,112 |
5,837 |
70,306 |
|
|
_________ |
__________ |
_________ |
________ |
_________ |
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||
|
The accompanying notes are an integral part of these financial statements. |
|||||
CASH FLOW STATEMENT
|
|
Year ended |
Year ended |
||
|
|
31 March 2014 |
31 March 2013 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Investment income received |
|
3,956 |
|
3,676 |
|
Money market interest received |
|
10 |
|
12 |
|
Investment management fee paid |
|
(365) |
|
(320) |
|
Other cash expenses |
|
(358) |
|
(278) |
|
|
|
________ |
|
________ |
|
Cash generated from operations |
|
3,243 |
|
3,090 |
|
|
|
|
|
|
|
Interest paid |
|
(320) |
|
(352) |
|
|
|
________ |
|
________ |
|
Net cash inflows from operating activities |
|
2,923 |
|
2,738 |
|
|
|
________ |
|
________ |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of investments |
(6,240) |
|
(7,067) |
|
|
Sales of investments |
8,841 |
|
5,521 |
|
|
|
________ |
|
________ |
|
|
Net cash inflow/(outflow) from investing activities |
|
2,601 |
|
(1,546) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid |
(3,595) |
|
(3,569) |
|
|
|
________ |
|
________ |
|
|
Net cash outflow from financing activities |
|
(3,595) |
|
(3,569) |
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
Share issue |
- |
|
618 |
|
|
|
________ |
|
________ |
|
|
Net cash inflow from financing |
|
- |
|
618 |
|
|
|
________ |
|
________ |
|
Net increase/(decrease) in cash and cash equivalents |
|
1,929 |
|
(1,759) |
|
|
|
________ |
|
________ |
|
|
|
|
|
|
|
Reconciliation of net cash flow to movements in cash and cash equivalents |
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents as above |
|
1,929 |
|
(1,759) |
|
Net cash and cash equivalents at start of period |
|
(16,026) |
|
(14,267) |
|
Exchange movements |
|
2 |
|
- |
|
|
|
________ |
|
________ |
|
Net cash and cash equivalents at end of period |
|
(14,095) |
|
(16,026) |
|
|
|
________ |
|
________ |
|
Net cash and cash equivalents comprise: |
|
|
|
|
|
Cash and cash equivalents |
|
4,405 |
|
1,974 |
|
Short-term borrowings |
|
(18,500) |
|
(18,000) |
|
|
|
________ |
|
________ |
|
|
|
(14,095) |
|
(16,026) |
|
|
|
________ |
|
________ |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2014
|
1. |
Accounting policies |
|
|
|
(a) |
Basis of accounting |
|
|
|
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union. |
|
|
|
|
|
|
|
The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in line with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. The Directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP except as referred to in paragraph (c) below. The financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.. |
|
|
|
|
|
|
|
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Sections 1158-1159 of the Corporation Tax Act 2010. |
|
|
|
|
|
|
|
At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective (and in some cases, had not yet been adopted by the EU). These have not been applied to these financial statements. |
|
|
|
|
|
|
|
IFRS 9 - Financial Instruments (early adoption permitted) (effective for annual periods beginning on or after 1 January 2018); |
|
|
|
Amendments to IFRS 10, IFRS 12 & IAS27 - Investment Entities (early adoption permitted) (effective for annual periods beginning on or after 1 January 2014; |
|
|
|
Amendments to IAS 32 - Offsetting Financial Assets and Liabilities (effective for annual periods beginning on or after 1 January 2014). |
|
|
|
|
|
|
|
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company. |
|
|
|
|
|
|
(b) |
Investments |
|
|
|
All investments have been designated upon initial recognition at fair value through profit or loss. This is because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis. Investments are recognised or derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned. Proceeds are measured at fair value which is regarded as the proceeds of sales less any transaction costs. |
|
|
|
|
|
|
|
The fair value of the financial instruments is based on their quoted bid price at the Balance Sheet date, without deduction for any estimated future selling costs. |
|
|
|
|
|
|
|
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as "Gains/(losses) on investments". Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase. |
|
|
|
|
|
|
(c) |
Income |
|
|
|
Dividend income from equity investments which includes all ordinary shares and also preference shares classified as equity instruments is accounted for when the shareholders' rights to receive payment have been established, normally the ex-dividend date. |
|
|
|
|
|
|
|
Interest from debt securities, which include preference shares classified as debt instruments, is accounted for on an effective interest rate basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against capital reserve. The SORP recommends that such a write-off should be allocated against revenue. The Directors believe this treatment is not appropriate for a high yielding investment trust which frequently buys and sells debt securities, and believe any premium or discount included in the price of such an investment is a capital item. |
|
|
|
|
|
|
|
Traded option contracts are restricted to writing out-of-the-money options with a view to generating income. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Gains and losses on the underlying shares acquired or disposed of as a result of options exercised are included in the capital account. Unexpired traded option contracts at the year end are accounted for at their fair value. |
|
|
|
|
|
|
|
Interest from deposits is dealt with on an effective interest basis. |
|
|
|
|
|
|
|
Underwriting commission is recognised when the underwriting services are provided and is taken to revenue, unless any shares underwritten are required to be taken up, in which case the proportionate commission received is deducted from the cost of the investment. |
|
|
|
|
|
|
(d) |
Expenses |
|
|
|
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the investment management fee and finance costs have been allocated 50% to revenue and 50% to capital, in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company. |
|
|
|
|
|
|
(e) |
Short-term borrowings |
|
|
|
Short-term borrowings, which comprise interest bearing bank loans and overdrafts, are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. The finance costs, being the difference between the net proceeds of borrowings and the total amount of payments that require to be made in respect of those borrowings, accrue evenly over the life of the borrowings and are allocated 50% to revenue and 50% to capital. |
|
|
|
|
|
|
(f) |
Taxation |
|
|
|
The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company has no liability for current tax. |
|
|
|
|
|
|
|
Deferred tax is provided in full on temporary differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. |
|
|
|
|
|
|
(g) |
Foreign currencies |
|
|
|
Transactions involving foreign currencies are converted at the rate ruling at the time of the transaction. Assets and liabilities in foreign currencies are translated at the closing rates of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in capital reserve or the revenue account as appropriate. |
|
|
|
2014 |
2013 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from listed investments |
|
|
|
|
Dividend income |
3,399 |
3,248 |
|
|
Interest income from investments |
579 |
578 |
|
|
Money market interest |
10 |
12 |
|
|
Stock dividend |
260 |
177 |
|
|
|
________ |
________ |
|
|
|
4,248 |
4,015 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Other income from investment activity |
|
|
|
|
Traded option premiums |
286 |
260 |
|
|
|
________ |
________ |
|
|
Total income |
4,534 |
4,275 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
|
2014 |
2013 |
|
|
Total income comprises: |
£'000 |
£'000 |
|
|
Dividends and interest from investments |
4,248 |
4,015 |
|
|
Other income from investment activity |
286 |
260 |
|
|
|
________ |
________ |
|
|
Total income |
4,534 |
4,275 |
|
|
|
________ |
________ |
|
|
|
||
|
|
All dividend income was received from UK companies. The amount of £(93,000) (2013 - £(93,000)) included in the capital column of Investment Income represents the write off of the premium or discount on acquisition of debt securities referred to in note 1(c). |
||
|
|
|
2014 |
2013 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3. |
Investment management fees |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Investment management fees |
186 |
186 |
372 |
165 |
165 |
330 |
|
|
|
________ |
________ |
________ |
________ |
________ |
________ |
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 March 2014 management and secretarial services were provided by Aberdeen Asset Managers Limited. The fee is 0.45% for funds up to £100 million and 0.40% for funds over £100 million, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital. |
||||||
|
|
|
2014 |
2013 |
|
4. |
Administrative expenses |
£'000 |
£'000 |
|
|
Directors' remuneration |
97 |
91 |
|
|
Audit Fees (net of VAT): |
18 |
18 |
|
|
Marketing contribution paid to Aberdeen |
73 |
64 |
|
|
Professional fees |
17 |
20 |
|
|
Directors & Officers' liability insurance |
10 |
9 |
|
|
Trade subscriptions |
27 |
32 |
|
|
Share Plan costs |
18 |
15 |
|
|
Registrars fees |
29 |
29 |
|
|
Printing, postage and stationery |
23 |
20 |
|
|
Other administrative expenses |
35 |
25 |
|
|
|
________ |
________ |
|
|
|
347 |
323 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Marketing expenses of £73,000 (2013 - £64,000) were paid to the Manager in respect of marketing and promotion of the Company. |
||
|
5. |
Directors' remuneration |
|
|
The Company had no employees during the year (2013 - nil). No pension contributions were paid for Directors (2013 - £nil). |
|
|
|
2014 |
2013 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
6. |
Finance costs and borrowings |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loans and overdrafts repayable within five years |
160 |
160 |
320 |
176 |
176 |
352 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
7. |
Taxation |
||||||
|
|
The following table is a reconciliation of current taxation to the charges/credits which would arise if all ordinary activities were taxed at the standard UK corporation tax rate of 23% (2013 - 24%). |
||||||
|
|
|
|
|
||||
|
|
|
2014 |
2013 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Profit before taxation |
3,841 |
3,950 |
7,791 |
3,611 |
12,361 |
15,972 |
|
|
|
|
|
|
|
|
|
|
|
Taxation of return on ordinary activities at the standard rate of corporation tax |
883 |
908 |
1,791 |
867 |
2,967 |
3,834 |
|
|
Effects of: |
|
|
|
|
|
|
|
|
UK dividend income not liable to further tax |
(768) |
- |
(768) |
(766) |
- |
(766) |
|
|
Non taxable stock dividends |
(60) |
- |
(60) |
(43) |
- |
(43) |
|
|
Tax relief obtained by expenses capitalised |
- |
(52) |
(52) |
- |
(55) |
(55) |
|
|
Non taxable overseas dividends |
(3) |
- |
(3) |
(3) |
- |
(3) |
|
|
Expenses charged to capital available to be utilised |
- |
80 |
80 |
- |
82 |
82 |
|
|
Realised gains not taxable |
- |
(1,009) |
(1,009) |
- |
(3,071) |
(3,071) |
|
|
Capital income not allowed |
- |
21 |
21 |
- |
22 |
22 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
52 |
(52) |
- |
55 |
(55) |
- |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2014 the Company had surplus management expenses and loan relationship debits with a tax value of £4,618,000 (2013 - £5,283,000) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses. |
||||||
|
|
|
2014 |
2013 |
|
8. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Third interim dividend for the year ended 31 March 2013 of 3.0p (2012 - 3.0p) per share |
900 |
891 |
|
|
Final dividend for the year ended 31 March 2013 of 3.0p (2012 - 3.0p) per share |
900 |
891 |
|
|
First two interim dividends for the year ended 31 March 2014 totalling 6.0p (2013 - 6.0p) per share |
1,800 |
1,791 |
|
|
Refund of unclaimed dividends from previous periods |
(7) |
(6) |
|
|
|
_______ |
_______ |
|
|
|
3,593 |
3,567 |
|
|
|
_______ |
_______ |
|
|
3.5% Cumulative Preference shares |
2 |
2 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
The third interim dividend of 3.0p for the year to 31 March 2014 paid on 30 April 2014 and the proposed final dividend for the year to 31 March 2014 payable on 31 July 2014 have not been included as liabilities in these financial statements. |
||
|
|
|
||
|
|
We also set out below the total ordinary dividends payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered: |
||
|
|
|
|
|
|
|
|
2014 |
2013 |
|
|
|
£'000 |
£'000 |
|
|
Three interim dividends for the year ended 31 March 2014 totalling 9.0p (2013 - 9.0p) per share |
2,700 |
2,691 |
|
|
Proposed final dividend for the year ended 31 March 2014 of 3.0p (2013 - 3.0p) per share |
900 |
900 |
|
|
|
_______ |
_______ |
|
|
|
3,600 |
3,591 |
|
|
|
_______ |
_______ |
|
9. |
Return and net asset value per share |
|
|
|
|
The gains per share are based on the following figures: |
|
|
|
|
|
2014 |
2013 |
|
|
|
£'000 |
£'000 |
|
|
Revenue return |
3,789 |
3,556 |
|
|
Capital return |
4,002 |
12,416 |
|
|
|
_______ |
_______ |
|
|
Net return |
7,791 |
15,972 |
|
|
|
_______ |
_______ |
|
|
Weighted average number of Ordinary shares |
29,997,580 |
29,843,881 |
|
|
|
__________ |
__________ |
|
|
|
||
|
|
Net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £74,502,000 (2013 - £70,306,000) and on the 29,997,580 (2013 - 29,997,580) Ordinary shares in issue at 31 March 2014. |
||
|
|
|
2014 |
2013 |
||||||||
|
10. |
Non-current assets - Securities at fair value |
£'000 |
£'000 |
||||||||
|
|
Listed on recognised stock exchanges: |
|
|
||||||||
|
|
United Kingdom |
87,835 |
85,624 |
||||||||
|
|
|
|
_______ |
______ |
|||||||
|
|
|
|
|
|
|||||||
|
|
|
2014 |
2013 |
||||||||
|
|
|
Listed |
Restricted |
|
Listed |
Restricted |
|
||||
|
|
|
investments |
investments |
Total |
investments |
investments |
Total |
||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
|
Cost at 31 March 2013 |
71,417 |
139 |
71,556 |
68,605 |
139 |
68,744 |
||||
|
|
Investment holdings gains/(losses) at 31 March 2013 |
14,207 |
(139) |
14,068 |
2,345 |
(139) |
2,206 |
||||
|
|
Fair value at 31 March 2013 |
85,624 |
- |
85,624 |
70,950 |
- |
70,950 |
||||
|
|
Purchases |
6,500 |
- |
6,500 |
7,244 |
- |
7,244 |
||||
|
|
Sales - proceeds |
(8,569) |
- |
(8,569) |
(5,247) |
- |
(5,247) |
||||
|
|
Sales - net realised gains |
2,292 |
- |
2,292 |
908 |
- |
908 |
||||
|
|
Amortised cost adjustments todebt securities A |
(93) |
- |
(93) |
(93) |
- |
(93) |
||||
|
|
Fair value movement in the year |
2,081 |
- |
2,081 |
11,862 |
- |
11,862 |
||||
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
______ |
||||
|
|
Fair value at 31 March 2014 |
87,835 |
- |
87,835 |
85,624 |
- |
85,624 |
||||
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
______ |
||||
|
|
A Charged to capital. |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
2014 |
2013 |
||||||||
|
|
|
Listed |
Restricted |
|
Listed |
Restricted |
|
||||
|
|
|
investments |
investments |
Total |
investments |
investments |
Total |
||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
|
Cost at 31 March 2014 |
71,547 |
139 |
71,686 |
71,417 |
139 |
71,556 |
||||
|
|
Investment holdings gains/(losses) at 31 March 2014 |
16,288 |
(139) |
16,149 |
14,207 |
(139) |
14,068 |
||||
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
______ |
||||
|
|
Fair value at 31 March 2014 |
87,835 |
- |
87,835 |
85,624 |
- |
85,624 |
||||
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
______ |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
2014 |
2013 |
||||
|
|
Gains on investments |
£'000 |
£'000 |
||||||||
|
|
Net realised gains on sales of investments |
2,492 |
1,115 |
||||||||
|
|
Call options exercised |
(200) |
(207) |
||||||||
|
|
|
_______ |
______ |
||||||||
|
|
Net realised gains on sales |
2,292 |
908 |
||||||||
|
|
Movement in fair value of investments |
2,203 |
11,935 |
||||||||
|
|
Put options assigned |
(122) |
(73) |
||||||||
|
|
Movement in appreciation of traded options held |
14 |
25 |
||||||||
|
|
|
_______ |
______ |
||||||||
|
|
|
4,387 |
12,795 |
||||||||
|
|
|
_______ |
______ |
||||||||
|
|
|
|
|
||||||||
|
|
The cost of the exercising of call options and the assigning of put options is the difference between the market price of the underlying shares and the strike price of the options. The premiums earned on options expired, exercised or assigned of £286,000 (2013 - £260,000) have been dealt with in the revenue account. |
||||||||||
|
|
|
||||||||||
|
|
The movement in the fair value of traded option contracts has been calculated in accordance with the accounting policy stated in note 1(c) and has been charged to the capital reserve. |
||||||||||
|
|
|
||||||||||
|
|
As at 31 March 2014, the Company had pledged collateral equal to nil% (2013 - 288%) of the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £nil (2013 - £750,000) all in the form of securities. The collateral position is monitored on a daily basis. |
||||||||||
|
|
|
||||||||||
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs on the purchases and sales of investments in the year was £44,000 (2013 - £44,000). |
||||||||||
|
|
|
||||||||||
|
|
All investments are categorised as held at fair value through profit and loss and were designated as such upon initial recognition. |
||||||||||
|
|
|
||||||||||
|
|
At 31 March 2014 the Company held the following investments comprising more than 3% of the class of share capital held: |
||||||||||
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
Class |
||||||
|
|
|
Country of |
Number of |
Class of |
held |
||||||
|
|
Company |
incorporation |
shares held |
shares held |
% |
||||||
|
|
Aberdeen Smaller Companies High Income Trust PLC |
Scotland |
3,120,476 |
ordinary |
14.1 |
||||||
|
|
Ecclesiastical Insurance Office |
England |
4,240,000 |
8 5/8% cum pref |
4.0 |
||||||
|
|
Royal & Sun Alliance |
England |
4,350,000 |
7 3/8% cum pref |
3.5 |
||||||
|
|
General Accident |
Scotland |
3,548,000 |
7.875% cum pref |
3.2 |
||||||
|
|
|
2014 |
2013 |
|
11. |
Current assets |
£'000 |
£'000 |
|
|
Accrued income and prepayments |
956 |
937 |
|
|
Other debtors |
19 |
16 |
|
|
Cash and cash equivalents |
4,405 |
1,974 |
|
|
|
_______ |
_______ |
|
|
|
5,380 |
2,927 |
|
|
|
_______ |
_______ |
|
|
None of the above amounts is overdue. |
|
|
|
|
|
2014 |
2013 |
|
12. |
Current liabilities |
£'000 |
£'000 |
|
|
Bank loans |
18,500 |
18,000 |
|
|
Option contracts |
22 |
47 |
|
|
Other creditors |
191 |
198 |
|
|
|
_______ |
_______ |
|
|
|
18,713 |
18,245 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Included above are the following amounts owed to Aberdeen, the Manager and Secretary, for management and secretarial services and for marketing expenses in respect of marketing and promotion of the Company. |
||
|
|
|
|
|
|
|
|
2014 |
2013 |
|
|
|
£'000 |
£'000 |
|
|
Other creditors |
115 |
105 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The Company currently has an agreement with Scotiabank Europe PLC to provide a loan facility to May 2015 for up to £20,000,000. At the year end £18,500,000 had been drawn down at an all-in interest rate of 1.64177%, which matured on 28 April 2014. At the date of signing this report the principal amount drawn down was £18,500,000 at an all-in interest rate of 1.64302%. |
||
|
|
|
||
|
|
The terms of the Scotiabank Europe facility contain a covenant that gross borrowings may not exceed one-third of adjusted net assets. The Company has met this covenant since inception of the agreement until the date of this Report. |
||
|
|
|
2014 |
2013 |
||
|
13. |
Called up share capital |
Number |
£'000 |
Number |
£'000 |
|
|
Allotted, called up and fully paid |
|
|
|
|
|
|
Ordinary shares of 50 pence each |
29,997,580 |
14,999 |
29,997,580 |
14,999 |
|
|
3.5% Cumulative Preference shares of £1 each |
50,000 |
50 |
50,000 |
50 |
|
|
|
|
_______ |
|
_______ |
|
|
|
|
15,049 |
|
15,049 |
|
|
|
|
_______ |
|
_______ |
|
|
|
|
|
|
|
|
|
During the year nil (2013 - 300,000) Ordinary shares were issued by the Company at a total consideration received, including transaction costs of £nil (2013 - £618,000). |
||||
|
|
|
2014 |
2013 |
|
14. |
Share premium account |
£'000 |
£'000 |
|
|
At 31 March 2013 |
19,308 |
18,840 |
|
|
Issue of own shares |
- |
468 |
|
|
|
_______ |
_______ |
|
|
At 31 March 2014 |
19,308 |
19,308 |
|
|
|
_______ |
_______ |
|
|
|
2014 |
2013 |
|
15. |
Retained earnings |
£'000 |
£'000 |
|
|
Capital reserve |
|
|
|
|
At 31 March 2013 |
30,112 |
17,696 |
|
|
Net gains on sales of investments during year |
2,292 |
908 |
|
|
Movement in fair value gains on investments |
2,081 |
11,862 |
|
|
Amortised cost adjustment charged to capital |
(93) |
(93) |
|
|
Investment management fees |
(186) |
(165) |
|
|
Interest on bank loans and overdrafts repayable within five years |
(160) |
(176) |
|
|
Tax relief obtained by expenses capitalised |
52 |
55 |
|
|
Foreign exchange movement |
2 |
- |
|
|
Traded options |
14 |
25 |
|
|
|
_______ |
_______ |
|
|
At 31 March 2014 |
34,114 |
30,112 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2014 |
2013 |
|
|
Revenue reserve |
£'000 |
£'000 |
|
|
At 31 March 2013 |
5,837 |
5,850 |
|
|
Revenue |
3,789 |
3,556 |
|
|
Dividends paid |
(3,595) |
(3,569) |
|
|
|
_______ |
_______ |
|
|
At 31 March 2014 |
6,031 |
5,837 |
|
|
|
_______ |
_______ |
|
16. |
Risk management, financial assets and liabilities |
||||||||||
|
|
Risk management |
||||||||||
|
|
The Company's objective is to provide for shareholders a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities. |
||||||||||
|
|
|
||||||||||
|
|
The impact of security price volatility is reduced by diversification. Diversification is by type of security - ordinary shares, preference shares, convertibles, corporate fixed interest and gilt-edged and by investment in the stocks and shares of companies in a range of industrial, commercial and financial sectors. The management of the portfolio is conducted according to investment guidelines, established by the Board after discussion with the Manager, which specify the limits within which the Manager is authorised to act. |
||||||||||
|
|
|
||||||||||
|
|
Subject to Board approval, the Company also has the ability to enter into derivative transactions, in the form of traded options, for the purpose of enhancing income returns and portfolio management. During the year, the Company entered into certain derivative contracts. As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £286,000. Positions closed during the year realised a loss of £322,000. The largest position in derivative contracts held during the year at any given time was £97,000 (2013 - £89,000). The Company had open positions in derivative contracts at 31 March 2014 valued at a liability of £22,000 as discussed in note 12. |
||||||||||
|
|
|
||||||||||
|
|
The Manager has a dedicated investment management process, which aims to ensure that the investment objective is achieved. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee. |
||||||||||
|
|
|
||||||||||
|
|
The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, balanced, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's performance & investment risk committee which is chaired by the Manager's chief investment officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models. |
||||||||||
|
|
|
||||||||||
|
|
Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's risk management committee. |
||||||||||
|
|
|
||||||||||
|
|
Financial assets and liabilities |
||||||||||
|
|
The Company's financial assets include investments, cash at bank and short-term debtors. Financial liabilities comprise a bank loan and other short-term creditors. The Company may from time to time use FTSE options for protection of the loss of value to the portfolio at modest cost. |
||||||||||
|
|
|
||||||||||
|
|
Gearing |
||||||||||
|
|
Short-term borrowing consisting of revolving credit facilities from banking institutions is also used. The gearing risk is actively managed and monitored as part of the overall investment strategy. The employment of gearing magnifies the impact on net assets of both positive and negative changes in the value of the Company's portfolio of investments. |
||||||||||
|
|
|
||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. The Company has minimal exposure to foreign currency risk as it holds only a small amount of foreign currency assets and has no exposure to any foreign currency liabilities. |
||||||||||
|
|
|
||||||||||
|
|
The Company is subject to interest rate risk because bond yields are linked to underlying bank rates or equivalents, and its short-term borrowings and cash resources carry interest at floating rates. The interest rate profile is managed as part of the overall investment strategy of the Company. |
||||||||||
|
|
|
||||||||||
|
|
(i) |
Market risk |
|||||||||
|
|
|
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Interest rate risk |
|||||||||
|
|
|
Interest rate movements may affect: |
|||||||||
|
|
|
the fair value of the investments in fixed interest rate securities; |
|||||||||
|
|
|
the level of income receivable on cash deposits; and |
|||||||||
|
|
|
interest payable on the Company's variable rate borrowings. |
|||||||||
|
|
|
|
|||||||||
|
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
|||||||||
|
|
|
|
|||||||||
|
|
|
The Board reviews on a regular basis the values of the fixed interest rate securities. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Interest rate profile |
|||||||||
|
|
|
The interest rate risk profile of the portfolio of financial assets and liabilities (excluding ordinary shares and convertibles) at the Balance Sheet date was as follows: |
|||||||||
|
|
|
|
|||||||||
|
|
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
average |
|
|
|
|
||||
|
|
|
|
period |
Weighted |
|
|
|
||||
|
|
|
|
for which |
average |
|
|
Non- |
||||
|
|
|
|
rate is |
interest |
Fixed |
Floating |
interest |
||||
|
|
|
|
fixed |
rate |
rate |
rate |
bearing |
||||
|
|
|
As at 31 March 2014 |
Years |
% |
£'000 |
£'000 |
£'000 |
||||
|
|
|
Assets |
|
|
|
|
|
||||
|
|
|
UK irredeemable preference shares |
- |
8.47 |
22,120 |
- |
- |
||||
|
|
|
Cash and cash equivalents |
- |
0.28 |
- |
4,405 |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Total assets |
- |
- |
22,120 |
4,405 |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Liabilities |
|
|
|
|
|
||||
|
|
|
Short-term bank loan |
0.08 |
1.64 |
(18,500) |
- |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Total liabilities |
- |
- |
(18,500) |
- |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
average |
|
|
|
|
||||
|
|
|
|
period |
Weighted |
|
|
|
||||
|
|
|
|
for which |
average |
|
|
Non- |
||||
|
|
|
|
rate is |
interest |
Fixed |
Floating |
interest |
||||
|
|
|
|
fixed |
rate |
rate |
rate |
bearing |
||||
|
|
|
As at 31 March 2013 |
Years |
% |
£'000 |
£'000 |
£'000 |
||||
|
|
|
Assets |
|
|
|
|
|
||||
|
|
|
UK irredeemable preference shares |
- |
8.44 |
21,962 |
- |
- |
||||
|
|
|
Cash and cash equivalents |
- |
0.59 |
- |
1,974 |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Total assets |
- |
- |
21,962 |
1,974 |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Liabilities |
|
|
|
|
|
||||
|
|
|
Short-term bank loan |
0.08 |
1.85 |
(18,000) |
- |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
Total liabilities |
- |
- |
(18,000) |
- |
- |
||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. |
|||||||||
|
|
|
The cash assets consist of cash deposits on call earning interest at prevailing market rates. |
|||||||||
|
|
|
The UK irredeemable preference shares assets have no maturity date. |
|||||||||
|
|
|
Short-term debtors and creditors (with the exception of bank loans) have been excluded from the above tables. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Maturity profile |
|||||||||
|
|
|
The maturity profile of the Company's financial assets and financial liabilities (excluding convertibles) at the Balance Sheet date was as follows: |
|||||||||
|
|
|
|
|
|
|
||||||
|
|
|
|
Within |
Within |
More than |
||||||
|
|
|
|
1 year |
1-5 years |
5 years |
||||||
|
|
|
At 31 March 2014 |
£'000 |
£'000 |
£'000 |
||||||
|
|
|
Fixed rate |
|
|
|
||||||
|
|
|
UK irredeemable preference shares |
- |
- |
22,120 |
||||||
|
|
|
Short-term bank loan |
- |
(18,500) |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
|
- |
(18,500) |
22,120 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
Floating rate |
|
|
|
||||||
|
|
|
Cash and cash equivalents |
4,405 |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
Total |
4,405 |
(18,500) |
22,120 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
||||||
|
|
|
|
Within |
Within |
More than |
||||||
|
|
|
|
1 year |
1-5 years |
5 years |
||||||
|
|
|
At 31 March 2013 |
£'000 |
£'000 |
£'000 |
||||||
|
|
|
Fixed rate |
|
|
|
||||||
|
|
|
UK irredeemable preference shares |
- |
- |
21,962 |
||||||
|
|
|
Short-term bank loan |
- |
(18,000) |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
|
- |
(18,000) |
21,962 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
||||||
|
|
|
Floating rate |
|
|
|
||||||
|
|
|
Cash and cash equivalents |
1,974 |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
Total |
1,974 |
(18,000) |
21,962 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
||||||
|
|
|
Interest rate sensitivity |
|
|
|
||||||
|
|
|
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. |
|||||||||
|
|
|
|
|||||||||
|
|
|
If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's: |
|||||||||
|
|
|
profit before tax for the year ended 31 March 2014 would increase/decrease by £44,000 (2013 - £20,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end. |
|||||||||
|
|
|
profit before tax for the year ended 31 March 2014 would increase/decrease by £869,000 (2013 - increase/decrease by £1,282,000). This is mainly attributable to the Company's exposure to interest rates on its fixed interest securities. This is based on a Value at Risk ('VaR') calculated at a 99% confidence level. |
|||||||||
|
|
|
|
|||||||||
|
|
|
In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. The risk parameters used will also fluctuate depending on the current market perception. |
|||||||||
|
|
|
|
|||||||||
|
|
|
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. |
|||||||||
|
|
|
|
|||||||||
|
|
|
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the London Stock Exchange. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Other price sensitivity |
|||||||||
|
|
|
If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the profit before tax attributable to Ordinary shareholders for the year ended 31 March 2014 would have increased/decreased by £6,436,000 (2013 - increase/decrease of £6,231,000). This is based on the Company's equity portfolio held at each year end. |
|||||||||
|
|
|
|
|||||||||
|
|
(ii) |
Liquidity risk |
|||||||||
|
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of a revolving credit facility (note 12). |
|||||||||
|
|
|
|
|||||||||
|
|
(iii) |
Credit risk |
|||||||||
|
|
|
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
|||||||||
|
|
|
|
|||||||||
|
|
|
The risk is not considered to be significant as it is actively managed as follows: |
|||||||||
|
|
|
-where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; |
|||||||||
|
|
|
-investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk; |
|||||||||
|
|
|
-transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default; |
|||||||||
|
|
|
-investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker; |
|||||||||
|
|
|
-the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to Custodian's records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's Risk Management Committee and to the Board of the Company. This review will also include checks on the maintenance and security of investments held; |
|||||||||
|
|
|
-transactions involving derivatives, structured notes and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest are subject to rigorous assessment by the Investment Manager of the credit worthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and |
|||||||||
|
|
|
-cash is held only with reputable banks with high quality external credit enhancements. |
|||||||||
|
|
|
|
|||||||||
|
|
|
It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. |
|||||||||
|
|
|
|
|||||||||
|
|
|
None of the Company's financial assets is secured by collateral or other credit enhancements. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Credit risk exposure |
|||||||||
|
|
|
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 March 2014 was as follows: |
|||||||||
|
|
|
|
|||||||||
|
|
|
|
2014 |
2013 |
|||||||
|
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||
|
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
|
Non-current assets |
|
|
|
|
|||||
|
|
|
Securities at fair value through profit or loss |
87,835 |
87,835 |
85,624 |
85,624 |
|||||
|
|
|
Current assets |
|
|
|
|
|||||
|
|
|
Trade and other receivables |
19 |
19 |
16 |
16 |
|||||
|
|
|
Accrued income |
956 |
956 |
937 |
937 |
|||||
|
|
|
Cash and cash equivalents |
4,405 |
4,405 |
1,974 |
1,974 |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
93,215 |
93,215 |
88,551 |
88,551 |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
None of the Company's financial assets is past due or impaired. |
|||||||||
|
|
|
|
|||||||||
|
|
|
Fair value of financial assets and liabilities |
|||||||||
|
|
|
The book value of cash at bank and bank loans and overdrafts included in these financial statements approximate to fair value because of their short-term maturity. Investments held as dealing investments are valued at fair value. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. Traded options contracts are valued at fair value which have been determined with reference to quoted market values of the contracts. The contracts are tradeable on a recognised exchange. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity. |
|||||||||
|
17. |
Fair value hierarchy |
||||||
|
|
IFRS 7 'Financial Instruments: Disclosures' require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: |
||||||
|
|
|
||||||
|
|
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
||||||
|
|
Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and |
||||||
|
|
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
||||||
|
|
|
||||||
|
|
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 March 2014 as follows: |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted investments |
a) |
87,835 |
- |
- |
87,835 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
Derivatives |
b) |
(21) |
(1) |
- |
(22) |
|
|
|
Financial liabilities at amortised cost |
c) |
- |
(18,500) |
- |
(18,500) |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Net fair value |
|
87,814 |
(18,501) |
- |
69,313 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
As at 31 March 2013 |
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted investments |
a) |
85,624 |
- |
- |
85,624 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
Derivatives |
b) |
(44) |
(3) |
- |
(47) |
|
|
|
Financial liabilities at amortised cost |
c) |
- |
(18,000) |
- |
(18,000) |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Net fair value |
|
85,580 |
(18,003) |
- |
67,577 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
a) |
Quoted investments |
|||||
|
|
|
The fair value of the Company's quoted investments has been determined by reference to their quoted bid prices at the reporting date. Quoted investments included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
|||||
|
|
|
|
|||||
|
|
b) |
Derivatives |
|||||
|
|
|
The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and therefore has been classed as Level 1. |
|||||
|
|
|
|
|||||
|
|
|
The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices included within Level 1. |
|||||
|
|
|
|
|||||
|
|
c) |
Financial liabilities at amortised cost |
|||||
|
|
|
Financial liabilities in the form of short term borrowings are held at amortised cost. The fair value is considered to be the same as the carrying value and is categorised as Level 2.
|
|||||
|
18. |
Capital management policies and procedures |
|
|
The Company's capital management objectives are: |
|
|
to ensure that the Company will be able to continue as a going concern; and |
|
|
to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt. |
|
|
|
|
|
The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. |
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements. |
19. The Directors recommend that a final dividend of 3.0p per Ordinary share be paid, making a total of 12.0p for the year ended 31 March 2014 (2013 - 3.0p). The final dividend will be paid on 31 July 2014 to Shareholders on the register at 4 July 2014. The ex-dividend date is 2 July 2014.
20. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2014 or 2013. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The statutory accounts for 2014 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts and their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. The Company's Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on 3 July 2014 at 12 noon.
21. The Annual Report and Accounts will be posted to shareholders in June 2014 and copies will be available from the registered office of the Manager. The accounts will be available on the Company's website, wwwshiresincome.co.uk
Please note that past performance is not necessarily a guide to the future and the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
For Shires Income PLC
Aberdeen Asset Management PLC, Secretary
28 May 2014
This information is provided by RNS
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