Annual Financial Report
ABERDEEN SMALLER COMPANIES INCOME TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017
STRATEGIC REPORT
1. FINANCIAL HIGHLIGHTS
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Net asset value total return{A} |
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FTSE Small Cap ex Inv Trust Index total return |
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2017: +32.9% |
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2017: +15.6% |
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2016: +8.2% |
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2016: +12.5% |
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Share price total return{A} |
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Return per share (revenue) |
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2017: +46.0% |
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2017: 7.76p |
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2016: -1.8% |
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2016: 7.34p |
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Dividends per share |
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2017: 7.05p |
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2016: 6.85p |
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{A} Considered to be an Alternative Performance Measurement (see note 21 to the financial statements) |
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2. OVERVIEW OF STRATEGY
Business Model
The business of the Company is that of an investment company which conducts its affairs in order to qualify as an investment trust for UK capital gains tax purposes.
The Company aims to attract long term private and institutional investors looking to benefit from the income and capital growth prospects of UK smaller companies. The Directors do not envisage any change in this activity in the foreseeable future.
Investment Objective
The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.
Investment Policy
The Company invests in equities, corporate bonds and preference shares. The primary aim of the Company is to invest in the equity shares of smaller companies listed on a regulated UK stock market in order to gain growth in dividends and capital. The Company employs gearing with the primary intention of enhancing income and to a lesser extent, long-term total returns. The majority of the additional funds raised by gearing is invested in investment grade corporate bonds and preference shares.
Gearing
The level of gearing varies with opportunities in the market and the Board adopts a prudent approach to the use of gearing. The total level of gearing will not exceed 25% of the Company's net assets, at the time it is instigated, and within that gearing limit, the equity portfolio gearing will not exceed 10%, at the time it is instigated.
Risk diversification
The investment risk within the portfolio is managed through a diversified portfolio of equities, corporate bonds and preference shares. The Company does not invest in securities that are unquoted at the time of investment. A maximum of 5% of the Company's total assets can be invested in the securities of one company at the time of purchase. Although the Company is not permitted to invest more than 15% of its total assets in other listed investment companies (including investment trusts), the Board currently does not intend to invest in other listed investment companies.
Benchmark Index
FTSE Small Cap excluding Investment Trusts (total return).
Management
The Board has appointed Aberdeen Fund Managers Limited ("AFML" or "the Manager") to act as the alternative investment fund manager ("AIFM").
The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited ("AAML" or "the Investment Manager") by way of a delegation agreement in place between AFML and AAML. Both companies are wholly owned subsidiaries of Aberdeen Asset Management PLC (the "Aberdeen Group").
Delivering the Investment Policy
Equity Investment Process
The equity investment process is active and bottom-up, based on a disciplined evaluation of companies through company visits by the Investment Manager. Stock selection is the major source of added value, concentrating on company quality first, then value.
Great emphasis is placed on understanding a company's business and understanding how it should be valued. New investments are not made without the Investment Manager having first met management of the investee company and undertaken further analysis to outline the underlying investment merits. Top-down investment factors are secondary in the equity portfolio construction, with diversification rather than formal controls guiding stock and sector weights.
Fixed Income Investment Process
The fixed income investment process is an active investment style which identifies value between individual securities.
This is achieved by combining bottom-up security selection with a top-down investment approach. Investments in corporate bonds and preference shares are also managed by investment guidelines drawn up by the Board in conjunction with the Investment Manager which include:
- No holding in a single fixed interest security to exceed 5% of the total bond issue of the investee company; and
- Maximum acquisition cost of an investment grade bond is £1 million and of a non-investment grade bond is £500,000.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
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KPI |
Description |
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Performance of net asset value against the benchmark Index |
The Board considers the Company's net asset value total return figures to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The Board measures performance against the benchmark index - the FTSE Small Cap excluding Investment Trusts. The returns over 1, 3 and 5 years are provided on page 14 of the published 2017 Annual Report and a graph showing performance against the benchmark index is shown on page 15 of the published 2017 Annual Report.
The Board also monitors performance relative to competitor investment trusts over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.
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Revenue return and dividend growth |
The Board monitors the Company's net revenue return and dividend growth through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company aims to grow the dividend at a level above inflation. A graph showing the dividends and yields over 5 years is provided on page 15 of the published 2017 Annual Report.
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Share price performance |
The Board monitors the performance of the Company's share price on a total return basis. A graph showing the share price total return performance against the benchmark index is shown on page 15 of the published 2017 Annual Report. |
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Discount/premium to net asset value |
The discount/premium relative to the net asset value per share represented by the share price is closely monitored by the Board. A graph showing the share price discount/premium relative to the net asset value is shown on page 15 of the published 2017 Annual Report. |
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions it has taken. The Board has carried out a robust assessment of these risks, which includes those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are on the Company's website. The risks and uncertainties faced by the Company are reviewed annually by the Audit Committee in the form of a risk matrix and heat map and a summary of the principal risks is set out below.
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Description |
Mitigating Action |
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Investment and Market risk The Company is exposed to fluctuations in share prices and a fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds. The Company invests in smaller companies which may be subject to greater volatility than larger companies counterparts. |
The Board has appointed AFML to manage the portfolio within the remit of the investment policy. The Board monitors the results and implementation of the Manager's investment process and reviews the investment portfolio, including diversification and performance, at each meeting. |
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Investment portfolio management Investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives, as well as a widening discount. |
The Board is responsible for ensuring that the investment policy is met. The day-to-day management of the Company's assets has been delegated to the Manager under investment guidelines determined by the Board. The Board regularly reviews these guidelines to ensure they remain appropriate and monitors compliance with the guidelines through regular reports from the Manager, including performance reporting. The Board also monitors the Company's share price relative to the net asset value per share. |
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Gearing risk Gearing has the effect of accentuating market falls and market gains. The inability of the Company to meet its financial obligations, or an increase in the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares. |
The Board monitors the Company's actual gearing levels (including equity gearing) in relation to its assets and liabilities and reviews the Company's compliance with the principal loan covenants. In addition, AFML, as alternative investment fund manager, has set an overall leverage limit of 2.0x on a commitment basis (2.5x on a gross notional basis) and includes updates in its reports to the Board. However, the Board currently has no plans to initiate this level of gearing and intends to continue to employ a much more modest level of gearing.
The Company's gearing consists of a £10 million facility comprised of a £5 million three year fixed rate loan and a £5 million five year variable rate loan. The facility commenced in April 2015 and at the year end £7 million was drawn down (£5 million fixed rate and £2 million variable rate). |
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Income and dividend risk The ability of the Company to pay dividends and any future dividend growth will depend over the longer term on the level of income generated from its investments and the timing of receipt of such income by the Company. In the shorter term the size of the Company's revenue reserves will determine the extent that shareholder dividend payments can be less volatile than the dividends actually paid by the companies in which the Trust invest. Accordingly there is no guarantee that the Company's dividend objective will continue to be met.
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The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each Board meeting and the Manager has developed detailed and sophisticated models for forecasting and monitoring dividend payments. |
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Operational risk The Company is dependent on third parties for the provision of services and systems, in particular those of the Manager and the Depositary. Failure by a third party provider to carry out its contractual obligations could result in loss or damage to the Company. |
Written agreements are in place defining the roles and responsibilities of third party providers and their performance is reviewed on an annual basis. The Board reviews regular reports from the Manager on its internal controls and risk management systems, including internal audit and compliance monitoring functions. The Manager reports to the Board on the control environment and quality of service provided by third parties, including business continuity plans and policies to address cyber crime. Further details of internal controls are set out in the Audit Committee's Report.
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Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group. The Aberdeen Group Head of Brand reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the composition of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Duration
The Company does not have a fixed life. However, the Company's articles of association require that an ordinary resolution is proposed at every fifth Annual General Meeting to allow the Company to continue as an investment trust for a further five year period. The present five year mandate expires in 2020 and a vote on continuation will therefore be proposed at the Annual General Meeting to be held in 2020.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge represented on the Board in order to allow the Board to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new Board members. At 31 December 2017, the Board consisted of three males and one female.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover.
The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Socially Responsible Investment Policy
The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of corporate governance. It believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver long term growth on its investments for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have focused upon the following factors:
- The principal risks detailed in the Strategic Report and the steps taken to mitigate these risks;
- The ongoing relevance of the Company's investment objective in the current environment;
- The Company is invested in readily realisable listed securities;
- The level of gearing is closely monitored. The Company has the ability to renew or repay its gearing: and
- The impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values.
Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
Future
Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of changes in regulations and changes within the pensions and savings market in the UK. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio can be found in the Investment Manager's Review.
Robert Lister
Chairman
5 March 2018
3. CHAIRMAN'S STATEMENT
Performance
I am delighted to report on a successful year for the Trust. The Company's NAV rose by 32.9% for the year ended 31 December 2017, on a total return basis, compared to the performance of its benchmark, the FTSE Small Cap (exc investment trusts) Index, which rose 15.6%. The share price total return was 46.0% reflecting a narrowing of the Company's discount over the year from 22.1% to 15.1%.
Dividend
Consistent with my commentary at the half year, the Trust's revenue account will, for the foreseeable future, continue to be primarily driven by the equity portfolio and we are pleased to report good underlying growth of dividends from these investments. We also received two special dividends over the course of the year from Elementis and Savills.
Overall this resulted in an increase in the revenue return for the year ending 31 December 2017 to 7.76p (2016 - 7.34p). The Board has declared four interim dividends during the year ended 31 December 2017 making a total dividend of 7.05p, an increase of 2.9% from the 6.85p paid last year, compared to an increase of 3.0% in the CPI in the year. At the year end share price of 288.0p the Trust's dividend yield is 2.5%.
The Manager seeks to identify and invest in businesses with long-term focused business models, secure financing and effective governance in the belief that they are the most capable of sustaining and growing their dividends over time.
We believe this policy, coupled with the ongoing focus on high quality cash generation and balance sheet strength, should position the income account securely for the future.
The revenue reserve account which currently provides 120% full year dividend cover provides further reassurance that the Trust should be able to maintain its dividend during periods of lower underlying growth.
Investee Company Stewardship
The Manager has actively engaged with a number of companies over the course of the year. This regular contact with the investee Boards is, we believe, an increasingly important commitment for principled and effective investors and we are very supportive of our Manager's efforts in this regard. The Manager provides some engagement examples in his report.
Gearing/Debt
There has been no change to the Company's debt position in the year. The Trust has a £10 million facility of which £5 million is fixed and fully drawn down and £5 million is floating. At the year end £7 million of the facility was deployed which roughly matched the size of the Trust's fixed income investments and we secured a good yield pick-up on these given our relatively low financing costs.
The facility also has staggered maturity terms for its fixed and floating rate elements. The Board will undertake a review of the Trust's gearing strategy in advance of April 2018, the repayment date of the fixed element of the facility.
Board Composition
During the financial year, I took over the chairmanship of the Company following Carolan Dobson's retirement from the Board at the AGM on 28 April 2017. On behalf of the Board I would like to thank Carolan very much for her contribution and wise counsel to the Company.
Dagmar Kent Kershaw, who has over 20 years' investment experience specialising in credit and structured finance markets, was appointed as an independent non-executive Director with effect from 2 May 2017.
Manager
The Board notes the completion of the merger in August 2017 between Aberdeen Asset Management PLC ("Aberdeen"), which is the parent company of the Manager, and Standard Life PLC whereby Aberdeen has become the wholly owned subsidiary of Standard Life Aberdeen plc. The Board will continue to monitor developments closely to ensure that satisfactory arrangements are in place for the continued effective management of the Company.
Annual General Meeting
The Annual General Meeting will be held at the offices of Aberdeen Asset Management PLC, 1 Bread Street, London, on Thursday 19 April 2018 at 12 noon. In addition to the formal business of the meeting, our portfolio manager, Jonathan Allison, will provide a presentation on performance for the year and the outlook for smaller companies, and there will also be an opportunity for shareholders to meet informally with the Directors and representatives from the management team at the conclusion of the meeting. An invitation to the meeting is included with the Annual Report and shareholders are requested to complete and return this to the Company Secretary.
Outlook
2017 saw a number of major equity indices finish the year at all-time highs. Consequently, company valuations have reached quite lofty levels warranting some caution on how long this bull market can continue to run.
Reassuringly, the real world economic picture appears increasingly robust. Whilst growth projections for the UK economy have been reducing, the prospects for the rest of the world look healthier with growth forecasts for the US, Eurozone and Japan having seen upward revisions of late and improvements in world trade and firming commodity prices supporting a more broad-based recovery in emerging markets. Political news in 2018 will continue to play its part in shaping investor sentiment.
As a Board, however, we believe the Trust is well placed to benefit from the opportunities of global growth and, with its bottom-up focus on quality stocks, should be well placed to weather any choppier waters along the way.
Robert Lister
Chairman
5 March 2018
4. INVESTMENT MANAGER'S REVIEW
Overview
The Trust has had a strong year with a Net Asset Value (NAV) total return of 32.9% and the share price rising 46% as the discount narrowed. Longer term performance is also strong with the Trust's NAV over 3 and 5 years having grown 17.7% and 18.3% and the share price 19.9% and 17.4% respectively ahead of the benchmark which was up 13.7% and 15.5% over those time periods. These are all annualised figures.
UK Small Caps have had a remarkable year ending as one of the top performing asset classes globally in 2017. This may have come as a surprise to some following the Brexit vote and the misconception that these companies would be disproportionately exposed to the domestic market and, hence, slower UK growth. As we have mentioned in our commentary throughout this year we saw this as an opportunity for two reasons. Firstly, the small and mid cap universe is large and varied and has proven to be a rich hunting ground for high growth businesses. Many of these have broad and geographically diverse earnings streams and are able to capitalize on a progressively improving global growth environment. Secondly, we had observed that the UK Small Cap sector was trading at a slight discount to the wider market, and especially large caps, many of which had enjoyed a strong currency benefit following Brexit owing to high overseas earnings. This discount has narrowed over the year as the market has identified and then capitalized on this relative valuation gap.
Even in these strong markets the Trust produced material outperformance and it is a strong vindication of our investment approach that the biggest performance benefits have come from stock selection over the year. Companies that we regard as possessing the best collection of quality attributes, and hence those that we have held at higher weights in the portfolio, have delivered the most impressive returns. I will talk about this in more detail below.
The split of assets at the year end has not changed materially over the financial year although the equity weighting has increased marginally to 90% with fixed income assets 9% (made up of preference shares and bonds) and the remainder in cash.
Equity portfolio
The three biggest contributors to outperformance were XP Power, Burford Capital and Dechra Pharmaceuticals. XP Power had a very good year and is enjoying the fruits of its recent labours to transition the businesses into one that designs and manufactures the majority of its own products. In doing so it has not only increased the penetration of sales with existing customers but also created multiple new ones. XP's acquisition strategy will further enhance its product range and aid expansion into new markets. Consistent earnings upgrades have followed as the company has exceeded market expectations and the share price has responded. Burford Capital has benefited from being the dominant player in what is a vast litigation financing market worldwide. Investment commitments have continued at elevated levels and the market is continuing to develop internationally which should provide ample further opportunities for growth. Dechra Pharmaceuticals' results this year have benefited from strong sales of newly acquired products, through the Putney acquisition in the US in particular, and supported by good growth and strong fundamentals in the companion animals market. The company's strong cash flow generation has provided fuel for new acquisitions that will help to build a distribution platform and drug pipeline for long-term growth.
Despite the strong year, there are always one or two investments that encounter more difficult times. The two largest detractors last year were Dignity and Interserve. After a very challenging last few years we exited the remaining position in Interserve. The increased uncertainty, and at this stage unquantifiable liability, related to their troublesome Energy from Waste contracts as well as the fact that this small holding contributed no dividend to the portfolio was ultimately what led us to sell. It is worth noting though that the impact of its significant share price decline in 2017 was mitigated by the fact that it had been held at a very small weight in the portfolio. Dignity has been a poor performer this year. The funeral services provider has faced an increasingly competitive industry environment as competitors have cut prices, in an effort to steal market share, and price transparency in the market has vastly improved. The business faces significant challenges ahead but as long term investors we gain some reassurance from the fact that they have a robust Crematoria business - with substantial asset backing - as well as an appropriately structured balance sheet with fixed interest payments and a long maturity profile.
There was a fair amount of portfolio repositioning in the Trust over the year, perhaps more than might be expected from a long-term buy and hold approach, as throughout the period we saw opportunities to both upgrade the aggregate quality of the holdings as well as increase the weighting in companies, we believe, offer some of the strongest dividend growth prospects for the future. Some companies were also acquired in the year.
After a period of strong performance we took the opportunity to exit what was a small position in Huntsworth which for some time had been held as a "manage for value" position. After some additional research work by the team on the future prospects for oil & gas company Enquest we decided it would be sensible to exit this small sub-par weight. There had been some share price recovery over the course of the last 12 months and we felt that the capital upside potential, for one of the zero yielders in the portfolio, was no longer strong enough to outweigh the balance sheet and operational risks that persist.
Earlier in the year there was a successful bid for Exova by Element Materials Technology Group. This was slightly unfortunate as despite the boost to the share price following the bid we would not have chosen to exit at this price. We engaged with the Chairman and management team to express our concerns, which they took on board, but unfortunately we were not in a position to influence the outcome in this case. Berendsen was sold from the portfolio earlier in the year following a successful bid from French company Elis.
We gradually recycled some of this capital into building positions in new introductions which we believe to be higher quality businesses as well as being strong income generators for the Trust.
In the half year report, we mentioned four new introductions namely Victoria, Scandinavian Tobacco Group, Workspace and Unite Group. In the latter half of the year, we also introduced Big Yellow Group and a small position in Italian business GIMA. Big Yellow is the leading brand in the UK self-storage market with attractive supply/demand dynamics and high barriers to entry. The company has the largest exposure in the market to the more attractive regions of London and the South East and benefits from a larger average store capacity giving scale benefits and higher operating margins. GIMA is an Italian-listed mid cap which recently underwent an IPO. The company produces manufacturing and packaging machines for the tobacco industry with a particularly strong niche in next generation products, an area where we would expect to see significant growth over the medium to longer term.
Investee Company Stewardship
A meeting was held with Aveva Group's CEO and CFO to discuss risk management, specifically around cyber security and intellectual-property protection. We were reassured that the Group was taking a fairly holistic approach to all its risks, both financial and non-financial but we encouraged them to link the management of key risks to remuneration and consider how communications with customers about cloud-based products might help to address cyber-security fears. During a meeting with Abcam's interim chairman, the recruitment process for a new Chairman was discussed. We also suggested a simplification of the remuneration policy with a preference for policies that align executive interests with those of shareholders by placing greater weight on share rewards and we also expressed an opposition to benchmarking against US pay structures.
Fixed Income portfolio
At the portfolio level we continue to run a strategy of investing in short dated sterling bonds of high quality well financed companies. This will help to protect capital values in a rising yield environment.
Over the 12 month period, the bond element returned 4.4%. The significant tightening in credit spreads over the last year, especially since April 17, saw the Trust's higher beta bonds benefiting most as investors continued to look for extra yield. The best contribution came from SSE Hybrid 3.875% 2020 +8.4%, followed by HBOS 6.461% subordinated bond +5.4%. The two regulated utility companies produced lesser, positive returns. Earlier on in the year we sold out of our position in the medium dated EDF 6% 2026 hybrid debt post its balance sheet refinancing and subsequent price rally. A number of questions still remain on both its nuclear power and large capex programmes going forward.
The positive macro-economic environment globally continues to support risk assets including corporate bonds. Although there are risks - Brexit, Italian elections and geopolitics to name a few - the demand for yield-generating investments remains strong. We expect the UK to grow by 1.5% in both 2017 and 2018. The squeeze on consumers from high inflation may ease slowly but businesses will remain wary of investing in a climate of Brexit-related uncertainty. Valuations, following a surprisingly strong 2017, are less compelling, however, and a more conservative risk position towards our fixed income component appears appropriate.
Outlook
What remains a largely accommodative monetary policy environment combined with ample liquidity has driven an insatiable appetite for yield across all asset classes. In a world of ultra-low bond yields, equities' relative attractions are plain to see and this has ensured prices have continued to rise. Whilst these forces remain supportive, in the short term at least, we would not expect the level of share price growth we have seen in recent years to be sustainable.
Whilst cognisant of the variety of "bigger picture" market forces at play, our bottom-up, stock specific approach allows for a more dispassionate approach. This enables us to focus on identifying those quality smaller businesses operating in high growth, and often niche, markets which have the balance sheet capacity and cash flow strength to invest on a multi-year time horizon and in so doing become materially bigger businesses in the future.
Aberdeen Asset Managers Limited*
5 March 2018
*on behalf of Aberdeen Fund Managers Limited
Both companies are subsidiaries of Standard Life Aberdeen plc.
5. RESULTS AND PERFORMANCE
Financial Highlights
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31 December 2017 |
31 December 2016 |
% change |
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Total investments |
£81,673,000 |
£64,517,000 |
+26.6 |
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Shareholders' funds |
£75,421,000 |
£58,133,000 |
+29.7 |
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Market capitalisation |
£63,676,000 |
£44,993,000 |
+41.5 |
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Net asset value per share |
341.12p |
262.93p |
+29.7 |
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Adjusted net asset value per share{A} |
339.32p |
261.18p |
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Share price (mid market) |
288.00p |
203.50p |
+41.5 |
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Discount to adjusted net asset value{A} |
15.1% |
22.1% |
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Net gearing{B} |
8.5% |
11.1% |
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Ongoing charges ratio{C} |
1.35% |
1.44% |
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Dividends and earnings |
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Revenue return per share{D} |
7.76p |
7.34p |
+5.7 |
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Dividends per share{E} |
7.05p |
6.85p |
+2.9 |
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Dividend cover |
1.10 |
1.07 |
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Revenue reserves{F} |
£2,709,000 |
£2,541,000 |
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{A} Based on net asset value above being reduced by 1.80p (2016 - 1.75p) in respect of the fourth interim dividend which is not recognised at the year-end in accordance with the Company's accounting policies. |
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{B} Calculated in accordance with AIC guidance "Gearing Disclosures post Retail Distribution Review" (see definition on page 72 of the published 2017 Annual Report). |
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{C} The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees (excluding performance fees) and administrative expenses divided by the average cum income net asset value throughout the year. |
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{D} Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income). |
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{E} The figures for dividends per share reflect the years in which they were earned (see note 8). |
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{F} The revenue reserve figure does not take account of the fourth interim dividend amounting to £398,000 (2016 - £387,000). |
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Performance (Total Return) |
1 year |
3 year |
5 year |
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% return |
% return |
% return |
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Net asset value |
+32.9 |
+63.0 |
+131.4 |
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Share price (based on mid price) |
+46.0 |
+72.5 |
+123.4 |
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FTSE Small Cap ex Inv Trust Index |
+15.6 |
+47.0 |
+105.8 |
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FTSE All-Share Index |
+13.1 |
+33.3 |
+63.0 |
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All figures are for total return and assume re-investment of net dividends excluding transaction costs. |
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Dividends
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Rate per share |
xd date |
Record date |
Payment date |
|
First interim dividend |
1.75p |
6 April 2017 |
7 April 2017 |
28 April 2017 |
|
Second interim dividend |
1.75p |
6 July 2017 |
7 July 2017 |
28 July 2017 |
|
Third interim dividend |
1.75p |
5 October 2017 |
6 October 2017 |
27 October 2017 |
|
Fourth interim dividend |
1.80p |
4 January 2018 |
5 January 2018 |
26 January 2018 |
|
|
________ |
|
|
|
|
2017 |
7.05p |
|
|
|
|
|
________ |
|
|
|
|
First interim dividend |
1.70p |
7 April 2016 |
8 April 2016 |
29 April 2016 |
|
Second interim dividend |
1.70p |
7 July 2016 |
8 July 2016 |
29 July 2016 |
|
Third interim dividend |
1.70p |
6 October 2016 |
7 October 2016 |
28 October 2016 |
|
Fourth interim dividend |
1.75p |
5 January 2017 |
6 January 2017 |
27 January 2017 |
|
|
________ |
|
|
|
|
2016 |
6.85p |
|
|
|
|
|
________ |
|
|
|
6. PORTFOLIO INVESTMENTS
|
TEN LARGEST EQUITY HOLDINGS |
|
||||
|
at 31 December 2017 |
|
||||
|
|
|
||||
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2017 |
Portfolio |
2016 |
|
|
Company |
Sector |
£'000 |
% |
£'000 |
|
|
XP Power |
|
3,379 |
4.1 |
2,309 |
|
|
A power solutions business that designs and manufactures power convertors used by customers to ensure their electronic equipment can function both safely and efficiently. With over 5,000 different products, XP Power can provide a full value add capability to its customers. |
Electronic & Electrical Equipment |
|
|
|
|
|
Aveva Group |
|
3,000 |
3.7 |
1,715 |
|
|
One of the world's leading engineering, design and information management software providers to the process, plant and marine industries. Aveva's world-leading technology was originally developed and spun out of Cambridge University and today the business operates in 46 countries around the world. |
Software & Computer Services |
|
|
|
|
|
Assura |
|
2,989 |
3.7 |
1,040 |
|
|
Assura is a long-term investor and developer of primary care property, working with general practitioners, health professionals and National Health Services to deliver patient care. |
Real Estate Investment Trusts |
|
|
|
|
|
DiscoverIE Group (formerly Acal) |
|
2,545 |
3.1 |
1,305 |
|
|
Discoverie Group is a supplier of niche electronic products, manufacturing customs designed and built electronics to industrial and medical companies across Europe and South Africa. |
Support Services |
|
|
|
|
|
Euromoney Institutional Investor |
|
2,545 |
3.1 |
1,878 |
|
|
International business-to-business information company. Euromoney's publications provide extensive financial and business information and are delivered largely in digital format on a yearly subscription basis which ensures a strong stream of recurring revenues. |
Media |
|
|
|
|
|
Smart Metering Systems |
|
2,499 |
3.1 |
1,454 |
|
|
Smart Metering Systems is the largest independent provider of gas and electricity metering assets in the UK. The company is set to benefit from the growth arising from a UK government initiative mandating the installation of a smart meter in every home and small business across the UK by 2020. |
Support Services |
|
|
|
|
|
Victrex |
|
2,321 |
2.8 |
1,699 |
|
|
The leading global manufacturer of PEEK polymer which is a high performance thermoplastic. With its high strength and performance qualities it is used as an alternative product to metal in a number of different industries. Victrex's dominant position is entrenched through their reputation and product quality as well as their track record in commercialising applications for PEEK. |
Chemicals |
|
|
|
|
|
Chesnara |
|
2,298 |
2.8 |
2,112 |
|
|
Chesnara is a holding company engaged in the management of life and pension books in the UK, Sweden and the Netherlands. The overriding strategy is to deliver a reliable dividend stream to shareholders funded from the emergence of surplus cash from their various life assurance subsidiaries. |
Life Insurance |
|
|
|
|
|
Morgan Sindall |
|
2,231 |
2.7 |
1,298 |
|
|
Morgan Sindall operates a specialist construction group in the United Kingdom and the Channel Islands. The main activities include office design, fitting out, refurbishment, building contracting, property investment and related specialist services. |
Construction & Materials |
|
|
|
|
|
Dechra Pharmaceuticals |
|
2,157 |
2.6 |
2,188 |
|
|
An international specialist veterinary pharmaceuticals business that manufactures and distributes veterinary products in more than 50 countries around the world. Recent acquisitions have enhanced the pipeline of drugs as well as granted access to new markets. |
Pharmaceuticals & Biotechnology |
|
|
|
|
|
|
|
25,964 |
31.7 |
|
|
Investment Portfolio - Other Equity Investments
As at 31 December 2017
|
|
|
Valuation |
Total |
Valuation |
|
|
|
2017 |
portfolio |
2016 |
|
Company |
Sector classification |
£'000 |
% |
£'000 |
|
BBA Aviation |
Industrial Transportation |
2,112 |
2.7 |
1,711 |
|
RPC Group |
General Industrials |
2,036 |
2.5 |
2,210 |
|
Stock Spirits Group |
Beverages |
1,904 |
2.3 |
851 |
|
Elementis |
Chemicals |
1,855 |
2.3 |
1,787 |
|
Close Brothers |
Financial Services |
1,853 |
2.3 |
1,560 |
|
Manx Telecom |
Fixed Line Telecommunications |
1,826 |
2.2 |
1,344 |
|
Genus |
Pharmaceuticals & Biotechnology |
1,746 |
2.1 |
1,113 |
|
Rathbone Brothers |
Financial Services |
1,715 |
2.1 |
1,331 |
|
Burford Capital |
Financial Services |
1,697 |
2.1 |
1,288 |
|
Unite Group |
Real Estate Investment Trusts |
1,634 |
2.0 |
- |
|
|
|
________ |
________ |
________ |
|
Twenty largest investments |
|
44,342 |
54.3 |
|
|
|
|
________ |
________ |
________ |
|
Wilmington |
Media |
1,608 |
2.0 |
1,831 |
|
Big Yellow |
Real Estate Investment Trusts |
1,585 |
1.9 |
- |
|
Devro |
Food Producers |
1,581 |
1.9 |
1,002 |
|
Robert Walters |
Support Services |
1,580 |
1.9 |
1,281 |
|
Cairn Homes |
Household Goods & Home Construction |
1,569 |
1.9 |
1,171 |
|
Intermediate Capital Group |
Financial Services |
1,564 |
1.9 |
1,056 |
|
Oxford Instruments |
Electronic & Electrical Equipment |
1,534 |
1.9 |
1,479 |
|
Telecom Plus |
Fixed Line Telecommunications |
1,532 |
1.9 |
- |
|
Scandinavian Tobacco{A} |
Tobacco |
1,514 |
1.9 |
- |
|
Workspace Group |
Real Estate Investment Trusts |
1,470 |
1.8 |
- |
|
|
|
________ |
________ |
________ |
|
Thirty largest investments |
|
59,879 |
73.3 |
|
|
|
|
________ |
________ |
________ |
|
Savills |
Real Estate Investment & Services |
1,400 |
1.7 |
988 |
|
Barr (A.G.) |
Beverages |
1,390 |
1.7 |
1,151 |
|
Fisher (James) & Sons |
Industrial Transportation |
1,379 |
1.7 |
1,524 |
|
Abcam |
Pharmaceuticals & Biotechnology |
1,372 |
1.7 |
997 |
|
Victoria |
Household Goods & Home Construction |
1,354 |
1.7 |
- |
|
Xaar |
Electronic & Electrical Equipment |
1,293 |
1.6 |
1,083 |
|
Hiscox |
Non-life Insurance |
1,288 |
1.6 |
997 |
|
Dignity |
General Retailers |
1,285 |
1.6 |
1,431 |
|
Hansteen |
Real Estate Investment Trusts |
1,004 |
1.2 |
1,594 |
|
Fuller Smith & Turner 'A' |
Travel & Leisure |
905 |
1.1 |
960 |
|
|
|
________ |
________ |
________ |
|
Forty largest investments |
|
72,549 |
88.9 |
|
|
|
|
________ |
________ |
________ |
|
Keller Group |
Construction & Materials |
691 |
0.8 |
599 |
|
TT Electronics |
Electronic & Electrical Equipment |
541 |
0.7 |
792 |
|
GIMA TT{A} |
Industrial Engineering |
391 |
0.5 |
- |
|
Mothercare |
General Retailers |
372 |
0.5 |
646 |
|
|
|
________ |
________ |
________ |
|
Total Equity investments |
|
74,544 |
91.4 |
|
|
|
|
________ |
________ |
________ |
|
|
|
|
|
|
|
{A} All investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges based in sterling. |
||||
Investment Portfolio - Other Investments
As at 31 December 2017
|
|
Valuation |
Total |
Valuation |
|
|
2017 |
portfolio |
2016 |
|
Company |
£'000 |
% |
£'000 |
|
Convertible Preference Shares |
|
|
|
|
Balfour Beatty Cum Conv 10.75% |
1,004 |
1.2 |
1,055 |
|
|
________ |
________ |
________ |
|
Total Convertibles |
1,004 |
1.2 |
|
|
|
________ |
________ |
________ |
|
Corporate Bonds |
|
|
|
|
Anglian Water 4.5% 2026 |
570 |
0.7 |
578 |
|
Wales & West Utilities Finance 6.75% 2036 |
523 |
0.6 |
547 |
|
SSE 3.875% Var perp |
519 |
0.6 |
496 |
|
HBOS Cap Funding 6.461% Var Perp |
416 |
0.5 |
418 |
|
|
________ |
________ |
________ |
|
Total Corporate Bonds |
2,028 |
2.4 |
|
|
|
________ |
________ |
________ |
|
Preference Shares |
|
|
|
|
Aviva 8.75% |
1,599 |
2.0 |
1,298 |
|
General Accident 8.875% |
1,568 |
1.9 |
1,312 |
|
Ecclesiastical Insurance 8.625% |
930 |
1.1 |
807 |
|
|
________ |
________ |
________ |
|
Total Preference shares |
4,097 |
5.0 |
|
|
|
________ |
________ |
|
|
Total Other investments |
7,129 |
8.6 |
|
|
|
________ |
________ |
|
|
Total investments |
81,673 |
100.0 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
All investments are listed on the London Stock Exchange (sterling based). |
|||
|
Distribution of Assets and Liabilities As at 31 December 2017 |
|||||||||
|
|
|
|
|
||||||
|
|
Valuation at |
Movement during the year |
Valuation at |
||||||
|
|
31 December |
|
|
|
Gains/ |
31 December |
|||
|
|
2016 |
Purchases |
Sales |
Other |
(losses) |
2017 |
|||
|
|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
% |
|
|
Listed investments |
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
57,527 |
99.0 |
15,198 |
(15,182) |
- |
17,001 |
74,544 |
98.9 |
|
|
Convertible preference shares |
1,055 |
1.8 |
- |
- |
348{A} |
(399) |
1,004 |
1.3 |
|
|
Corporate bonds |
2,518 |
4.3 |
- |
(485) |
(1){B} |
(4) |
2,028 |
2.7 |
|
|
Other fixed interest |
3,417 |
5.9 |
- |
- |
|
680 |
4,097 |
5.4 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
64,517 |
111.0 |
15,198 |
(15,667) |
347 |
17,278 |
81,673 |
108.3 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
Current assets |
818 |
1.4 |
|
|
|
|
912 |
1.2 |
|
|
Other current liabilities |
(202) |
(0.3) |
|
|
|
|
(164) |
(0.2) |
|
|
Short-term loan |
(2,000) |
(3.5) |
|
|
|
|
(7,000) |
(9.3) |
|
|
Long-term loan |
(5,000) |
(8.6) |
|
|
|
|
- |
- |
|
|
|
______ |
______ |
|
|
|
|
______ |
______ |
|
|
Net assets |
58,133 |
100.0 |
|
|
|
|
75,421 |
100.0 |
|
|
|
______ |
______ |
|
|
|
|
______ |
______ |
|
|
Net asset value per Ordinary share |
262.9p |
|
|
|
|
|
341.1p |
|
|
|
|
______ |
|
|
|
|
|
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
{A} Accretion of £348,000 recognised in the capital account in respect of a reclassification of a convertible preference share holding from fixed interest to equity in nature. |
|||||||||
|
{B} Amortisation adjustment of £1,000 (see note 3). |
|||||||||
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether they have been prepared in accordance with IFRSs as adopted by the EU; 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 adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies 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.
Responsibility statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and
- the Strategic Report includes 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 they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
For and on behalf of Aberdeen Smaller Companies Income Trust PLC
Robert Lister
Chairman
5 March 2018
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
|
|
|
Year ended |
Year ended |
||||
|
|
|
31 December 2017 |
31 December 2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains on investments at fair value |
10 |
- |
17,278 |
17,278 |
- |
3,223 |
3,223 |
|
Currency gains/(losses) |
|
- |
1 |
1 |
- |
(3) |
(3) |
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
|
|
|
|
|
|
|
Dividend income |
|
2,212 |
- |
2,212 |
1,887 |
- |
1,887 |
|
Interest income/(expense) from investments |
|
104 |
347 |
451 |
256 |
(27) |
229 |
|
Other income |
|
2 |
- |
2 |
7 |
- |
7 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
2,318 |
17,626 |
19,944 |
2,150 |
3,193 |
5,343 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fee |
4 |
(167) |
(390) |
(557) |
(138) |
(322) |
(460) |
|
Other administrative expenses |
5 |
(371) |
- |
(371) |
(339) |
- |
(339) |
|
Finance costs |
6 |
(50) |
(116) |
(166) |
(51) |
(119) |
(170) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Profit before tax |
|
1,730 |
17,120 |
18,850 |
1,622 |
2,752 |
4,374 |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(14) |
- |
(14) |
- |
- |
- |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Profit attributable to equity holders |
9 |
1,716 |
17,120 |
18,836 |
1,622 |
2,752 |
4,374 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per Ordinary share (pence) |
9 |
7.76 |
77.43 |
85.19 |
7.34 |
12.45 |
19.79 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. |
|||||||
|
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit attributable to equity holders " is also the "Total comprehensive income attributable to equity holders" as defined in IAS 1 (revised). |
|||||||
|
The accompanying notes are an integral part of these financial statements. |
|||||||
BALANCE SHEET (AUDITED)
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2017 |
2016 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Ordinary shares |
|
74,544 |
57,527 |
|
Convertibles |
|
1,004 |
1,055 |
|
Corporate bonds |
|
2,028 |
2,518 |
|
Other fixed interest |
|
4,097 |
3,417 |
|
|
|
_________ |
_________ |
|
Securities at fair value |
10 |
81,673 |
64,517 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Cash |
|
582 |
547 |
|
Other receivables |
11 |
330 |
271 |
|
|
|
_________ |
_________ |
|
|
|
912 |
818 |
|
|
|
_________ |
_________ |
|
Current liabilities |
|
|
|
|
Trade and other payables |
12 |
(164) |
(202) |
|
Bank loan |
12 |
(7,000) |
(2,000) |
|
|
|
_________ |
_________ |
|
|
|
(7,164) |
(2,202) |
|
|
|
_________ |
_________ |
|
Net current liabilities |
|
(6,252) |
(1,384) |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
75,421 |
63,133 |
|
|
|
_________ |
_________ |
|
Non-current liabilities |
|
|
|
|
Bank loan |
13 |
- |
(5,000) |
|
|
|
_________ |
_________ |
|
Net assets |
|
75,421 |
58,133 |
|
|
|
_________ |
_________ |
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
14 |
11,055 |
11,055 |
|
Share premium account |
|
11,892 |
11,892 |
|
Capital redemption reserve |
|
2,032 |
2,032 |
|
Capital reserve |
|
47,733 |
30,613 |
|
Revenue reserve |
|
2,709 |
2,541 |
|
|
|
_________ |
_________ |
|
Equity shareholders' funds |
|
75,421 |
58,133 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
15 |
341.12 |
262.93 |
|
|
|
_________ |
_________ |
STATEMENT OF CHANGES IN EQUITY (AUDITED)
|
Year ended 31 December 2017 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
As at 31 December 2016 |
|
11,055 |
11,892 |
2,032 |
30,613 |
2,541 |
58,133 |
|
Profit for the year |
|
- |
- |
- |
17,120 |
1,716 |
18,836 |
|
Dividends paid in the year |
8 |
- |
- |
- |
- |
(1,548) |
(1,548) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
As at 31 December 2017 |
|
11,055 |
11,892 |
2,032 |
47,733 |
2,709 |
75,421 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
Year ended 31 December 2016 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
As at 31 December 2015 |
|
11,055 |
11,892 |
2,032 |
27,861 |
2,423 |
55,263 |
|
Profit for the year |
|
- |
- |
- |
2,752 |
1,622 |
4,374 |
|
Dividends paid in the year |
8 |
- |
- |
- |
- |
(1,504) |
(1,504) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
As at 31 December 2016 |
|
11,055 |
11,892 |
2,032 |
30,613 |
2,541 |
58,133 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
CASH FLOW STATEMENT (AUDITED)
|
|
Year ended |
Year ended |
|
|
31 December 2017 |
31 December 2016 |
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
Dividend income received |
2,152 |
1,885 |
|
Interest income received |
117 |
244 |
|
Other income received |
2 |
5 |
|
Investment management fee paid |
(585) |
(420) |
|
Other cash expenses |
(365) |
(343) |
|
|
_______ |
_______ |
|
Cash generated from operations |
1,321 |
1,371 |
|
|
|
|
|
Interest paid |
(182) |
(170) |
|
Overseas taxation suffered |
(26) |
- |
|
|
_______ |
_______ |
|
Net cash inflows from operating activities |
1,113 |
1,201 |
|
|
_______ |
_______ |
|
Cash flows from investing activities |
|
|
|
Purchases of investments |
(15,198) |
(9,365) |
|
Sales of investments |
15,667 |
7,201 |
|
|
_______ |
_______ |
|
Net cash inflow/(outflow) from investing activities |
469 |
(2,164) |
|
|
_______ |
_______ |
|
Cash flows from financing activities |
|
|
|
Equity dividends paid |
(1,548) |
(1,504) |
|
|
_______ |
_______ |
|
Net cash outflow from financing activities |
(1,548) |
(1,504) |
|
|
_______ |
_______ |
|
Net increase/(decrease) in cash and cash equivalents |
34 |
(2,467) |
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents during the year |
|
|
|
Opening balance |
547 |
3,014 |
|
Currency gains |
1 |
- |
|
Increase/(decrease) in cash and cash equivalents as above |
34 |
(2,467) |
|
|
_______ |
_______ |
|
Closing balances |
582 |
547 |
|
|
_______ |
_______ |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2017
|
1. |
Principal activity |
|
|
The Company is a closed-end investment company, registered in Scotland No SC137448, with its Ordinary shares being listed on the London Stock Exchange. |
|
2. |
Accounting policies |
|
|
|
(a) |
Basis of accounting |
|
|
|
The financial statements of the Company 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 International Financial Reporting 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 also been prepared in accordance with the Statement of Recommended Practice ("SORP") 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in January 2017 with consequential amendments, to the extent that it is consistent with IFRS. |
|
|
|
|
|
|
|
The financial statements have been prepared under the historical cost convention as modified to include the revaluation of securities held at fair value and on the assumption that approval as an investment trust will continue to be granted. The principal accounting policies adopted are set out below. These policies have been applied consistently throughout the year. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report (unaudited) on page 28 of the published 2017 Annual Report. |
|
|
|
|
|
|
|
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 in the Statement of Comprehensive Income. |
|
|
|
|
|
|
|
At the date of authorisation of these financial statements, the following Standards were effective for annual periods beginning on or after 1 January 2018: |
|
|
|
IFRS 9 - Financial Instruments |
|
|
|
IFRS 15 - Revenue from Contracts with Customers |
|
|
|
|
|
|
|
At the date of authorisation of these financial statements, the following Standard was effective for annual periods beginning on or after 1 January 2019: |
|
|
|
IFRS 16 - Leases |
|
|
|
|
|
|
|
The following amendments to Standards are all effective for annual periods beginning on or after 1 January 2018: |
|
|
|
IFRS 2 - Classification and measurement of share-based payment transactions |
|
|
|
IFRS 4 - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts |
|
|
|
IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses |
|
|
|
|
|
|
|
The Company will adopt the Standards and Interpretations in the reporting period when they become effective and following an assessment the Board concludes that the adoption of these Standards and Interpretations in future periods will not materially impact the Company's financial results in the period of initial application although there will be revised presentations to the Financial Statements and additional disclosures. In forming this opinion the Board specifically notes the fundamental rewrite of accounting rules for financial instruments under IFRS 9 and introduces a new classification model for financial assets that is more principles-based than the current requirements under IAS 39 Financial Instruments: Recognition and Measurement. Financial assets are classified according to their contractual cash flow characteristics and the business models under which they are held. Instruments will be classified either at amortised cost, the newly established measurement category fair value through other comprehensive income or fair value through profit of loss. The Company's portfolio includes a relatively small exposure to corporate bonds, which have contractual cash flows and the Board have determined it will be appropriate to continue to classify these securities at fair value through profit or loss as even though the Company will collect contractual cash flows while it holds these securities as it is only incidental and not integral to achieving the investment objective, which is to provide investors with a total return. In further considering the business model, the Board is mindful that the Manager manages and evaluates the performance of the Company on a fair value basis and is compensated based on the fair value of assets managed rather than contractual cash flows collected. |
|
|
|
|
|
|
|
Following an assessment, the Company concludes that IFRS 15 will not have a significant impact on the financial statements. |
|
|
|
|
|
|
(b) |
Investments (Financial Assets) |
|
|
|
Investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from The London Stock Exchange. SETS is the London Stock Exchange's electronic trading service for UK securities including all the FTSE All-Share Index constituents. |
|
|
|
|
|
|
|
Gains and losses arising from the changes in fair value are treated in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. Transaction costs are treated as a capital cost. |
|
|
|
|
|
|
(c) |
Income |
|
|
|
Dividend income from equity investments including preference shares is recognised when the shareholders' rights to receive payment have been established, normally the ex-dividend date. |
|
|
|
|
|
|
|
Interest from debt securities is accounted for on an effective yield 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 an investment trust which frequently trades in debt securities and believe any premium or discount paid for such an investment is a capital item. |
|
|
|
|
|
|
|
Interest receivable on AAA rated money market funds and short term deposits are accounted for on an accruals basis. |
|
|
|
|
|
|
|
Underwriting commission 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 management fee and finance costs have been allocated 30% to revenue and 70% to capital (2016 - same), in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company. This allocation is reviewed on a regular basis. |
|
|
|
|
|
|
(e) |
Borrowings |
|
|
|
Borrowings are measured initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest method. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to capital in the Statement of Comprehensive Income to reflect the Company's investment policy and prospective income and capital growth. |
|
|
|
|
|
|
(f) |
Cash |
|
|
|
Cash comprises cash in hand and demand deposits. |
|
|
|
|
|
|
(g) |
Taxation |
|
|
|
The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date. |
|
|
|
|
|
|
|
Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound. |
|
|
|
|
|
|
|
The SORP requires that a transfer should be made from income to capital equivalent to the tax value of any management expenses that arise in capital but are utilised against revenue. The Directors consider that this requirement is not appropriate for an investment trust with an objective to provide a high and growing dividend that does not generate a corporation tax liability. Given there is only one class of shareholder and hence overall the net effect of such a transfer to the net asset value of the shares is nil no such transfer has been made. |
|
|
|
|
|
|
(h) |
Foreign currencies |
|
|
|
Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses arising from a change in exchange rates subsequent to the date of a transaction are included as a currency gain or loss in revenue or capital in the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature. |
|
|
|
|
|
|
(i) |
Nature and purpose of reserves |
|
|
|
Share premium account |
|
|
|
The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 50p per share. |
|
|
|
|
|
|
|
Capital redemption reserve |
|
|
|
The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. |
|
|
|
|
|
|
|
Capital reserve |
|
|
|
This reserve reflects any gains or losses on investments realised in the period along with any increases and decreases in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. |
|
|
|
|
|
|
|
Revenue reserve |
|
|
|
This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|
|
|
|
|
|
(j) |
Dividends payable |
|
|
|
Dividends payable to equity shareholders are recognised in the financial statements when they have been approved by Shareholders and become a liability of the Company. Interim dividends are recognised in the financial statements in the period in which they are paid. |
|
|
|
|
|
|
(k) |
Segmental reporting |
|
|
|
The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided. |
|
|
|
2017 |
2016 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK listed dividends |
1,746 |
1,619 |
|
|
Overseas listed dividends |
324 |
222 |
|
|
Property income distributions |
142 |
46 |
|
|
|
_______ |
_______ |
|
|
|
2,212 |
1,887 |
|
|
Fixed interest income |
104 |
256 |
|
|
|
_______ |
_______ |
|
|
|
2,316 |
2,143 |
|
|
|
_______ |
_______ |
|
|
Other income |
|
|
|
|
Bank interest |
- |
2 |
|
|
Underwriting commission |
2 |
5 |
|
|
|
2 |
7 |
|
|
Total income |
2,318 |
2,150 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
As per note 2(c), the Company amortises the premium or discount on acquisition on debt securities against unrealised capital reserve. For 2017 this represented £1,000 (2016 - £27,000) which has been reflected in the capital column of the Statement of Comprehensive Income. |
||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
167 |
390 |
557 |
138 |
322 |
460 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
||||||
|
|
The Company has an agreement with Aberdeen Fund Managers Limited ("AFML") for the provision of management services. For the year ended 31 December 2017 management services were provided by Aberdeen Fund Managers Limited ("AFML"). The fee is at an annual rate of 0.75% on the Company's net assets plus debt, calculated and paid monthly. The balance due to AFML at the year end was £52,000 (2016 - £80,000). |
||||||
|
|
|
||||||
|
|
The agreement is terminable on twelve months' written notice from the Company or the Manager, however, the Company may terminate the agreement on immediate notice on the payment to the Manager of six months' fees in lieu of notice. |
||||||
|
|
|
2017 |
2016 |
|
5. |
Other administrative expenses |
£'000 |
£'000 |
|
|
Directors' fees |
107 |
109 |
|
|
Auditor's remuneration: |
|
|
|
|
- fees payable for the audit of the annual accounts |
19 |
19 |
|
|
- fees payable for iXBRL tagging services |
2 |
- |
|
|
Promotional activities |
59 |
55 |
|
|
Legal and professional fees |
31 |
23 |
|
|
Registrars' fees |
18 |
13 |
|
|
Printing and postage |
20 |
19 |
|
|
Broker fees |
36 |
36 |
|
|
Directors' & Officers' liability insurance |
7 |
6 |
|
|
Trade subscriptions |
26 |
24 |
|
|
Other expenses |
46 |
35 |
|
|
|
_______ |
_______ |
|
|
|
371 |
339 |
|
|
|
_______ |
_______ |
|
|
The Company has an agreement with AFML for the provision of promotional activities. Total fees incurred under the agreement during the year were £59,000 (2016 - £55,000) of which £15,000 (2016 - £14,000) was due to AFML at the year end. |
||
|
|
|
||
|
|
All of the expenses above, with the exception of the auditor's remuneration, include irrecoverable VAT where applicable. The VAT charged on the auditor's remuneration is disclosed within other expenses. |
||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
6. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loans |
50 |
116 |
166 |
51 |
119 |
170 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
2017 |
2016 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
Overseas tax suffered |
26 |
- |
26 |
- |
- |
- |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
______ |
|
|
|
Overseas tax recoverable |
(12) |
- |
(12) |
- |
- |
- |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
______ |
|
|
|
Total tax charge for the year |
14 |
- |
14 |
- |
- |
- |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
______ |
|
|
(b) |
Factors affecting the tax charge for the year |
|
|
|
|
|
|
|
|
|
The UK corporation tax rate was 20% until 31 March 2017 and 19% from 1 April 2017 giving an effective standard rate of 19.25% (2016 - standard rate of 20%). The tax assessed for the year is lower than the corporation tax rate. The differences are explained below: |
||||||
|
|
|
|
||||||
|
|
|
|
2017 |
2016 |
||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Profit before tax |
1,730 |
17,120 |
18,850 |
1,622 |
2,752 |
4,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax multiplied by the effective standard rate of corporation tax |
333 |
3,296 |
3,629 |
324 |
550 |
874 |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
Non taxable UK dividend income |
(348) |
- |
(348) |
(324) |
- |
(324) |
|
|
|
Capital gains disallowed for the purposes of corporation tax |
- |
(3,393) |
(3,393) |
- |
(639) |
(639) |
|
|
|
Non taxable overseas income |
(62) |
- |
(62) |
(44) |
- |
(44) |
|
|
|
Excess management expenses not utilised |
77 |
97 |
174 |
27 |
89 |
116 |
|
|
|
Prior year adjustment to management expenses |
- |
- |
- |
17 |
- |
17 |
|
|
|
Irrecoverable overseas withholding tax |
14 |
- |
14 |
|
|
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Total tax charge for the year |
14 |
- |
14 |
- |
- |
- |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Factors that might affect future tax charges |
||||||
|
|
|
No provision for deferred tax has been made in the current or prior accounting period. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. |
||||||
|
|
|
|
||||||
|
|
|
At 31 December 2017, the Company had net surplus management expenses and loan interest (loan relationship deficits) of £13,452,000 (2016 - £12,548,000) 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 and deficits 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 and loan interest (loan relationship deficits). |
||||||
|
|
|
2017 |
2016 |
|
8. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Fourth interim dividend for 2016 - 1.75p (2015 - 1.70p) per share |
387 |
376 |
|
|
Three interim dividends for 2017 totalling 5.25p (2016 - 5.10p) per share |
1,161 |
1,128 |
|
|
|
_______ |
_______ |
|
|
|
1,548 |
1,504 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
The fourth interim dividend for 2017 of 1.80p per share has not been included as a liability in these financial statements as it was paid after the year end. |
||
|
|
|
||
|
|
The following table sets out the total 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. The revenue available for distribution by way of dividend for the year is £1,716,000 (2016 - £1,622,000). |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Three interim dividends for 2017 totalling 5.25p (2016 - 5.10p) per share |
1,161 |
1,128 |
|
|
Fourth interim dividend for 2017 of 1.80p (2016 - 1.75p) per share |
398 |
387 |
|
|
|
_______ |
_______ |
|
|
|
1,559 |
1,515 |
|
|
|
_______ |
_______ |
|
|
|
2017 |
2016 |
|
9. |
Return and net asset value per share |
£'000 |
£'000 |
|
|
The returns per share are based on the following figures: |
|
|
|
|
Revenue return |
1,716 |
1,622 |
|
|
Capital return |
17,120 |
2,752 |
|
|
|
_______ |
_______ |
|
|
Net return |
18,836 |
4,374 |
|
|
|
_______ |
_______ |
|
|
Weighted average number of shares in issue |
22,109,765 |
22,109,765 |
|
|
|
__________ |
__________ |
|
|
|
2017 |
2016 |
|
10. |
Non-current assets - securities at fair value |
£'000 |
£'000 |
|
|
Listed on recognised stock exchanges: |
|
|
|
|
United Kingdom |
79,768 |
64,038 |
|
|
Overseas |
1,905 |
479 |
|
|
|
_______ |
_______ |
|
|
|
81,673 |
64,517 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Opening fair value |
64,517 |
59,157 |
|
|
Opening investment holdings gains |
(16,838) |
(16,162) |
|
|
|
_______ |
_______ |
|
|
Opening book cost |
47,679 |
42,995 |
|
|
Purchases |
15,198 |
9,365 |
|
|
Accretion/(amortisation) of fixed interest securities book cost{A} |
347 |
(27) |
|
|
Sales - proceeds |
(15,667) |
(7,201) |
|
|
|
_______ |
_______ |
|
|
Sales - net gains |
5,101 |
2,547 |
|
|
|
_______ |
_______ |
|
|
Closing book cost |
52,658 |
47,679 |
|
|
Closing investment holdings gains |
29,015 |
16,838 |
|
|
|
_______ |
_______ |
|
|
Closing fair value |
81,673 |
64,517 |
|
|
|
_______ |
_______ |
|
|
{A} see above for further details. |
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Gains on non-current assets |
£'000 |
£'000 |
|
|
Net gains on sales |
5,101 |
2,547 |
|
|
Net movement in investment holding gains |
12,177 |
676 |
|
|
|
_______ |
_______ |
|
|
|
17,278 |
3,223 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Purchases |
64 |
37 |
|
|
Sales |
9 |
6 |
|
|
|
_______ |
_______ |
|
|
|
73 |
43 |
|
|
|
_______ |
_______ |
|
|
|
2017 |
2016 |
|
11. |
Other receivables |
£'000 |
£'000 |
|
|
Accrued income & prepayments |
330 |
271 |
|
|
|
_______ |
_______ |
|
|
None of the above amounts are overdue or impaired. |
|
|
|
|
|
2017 |
2016 |
|
|
12. |
Current liabilities |
£'000 |
£'000 |
|
|
|
(a) |
Bank loan |
|
|
|
|
|
Fixed rate loan |
5,000 |
- |
|
|
|
Short-term loan |
2,000 |
2,000 |
|
|
|
|
_______ |
_______ |
|
|
|
|
7,000 |
2,000 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
The Company has in place a £10 million facility with State Street Bank comprised of two £5 million tranches; Tranche A is at a fixed rate for three years and the Tranche B is at a variable rate for five years. Tranche A was drawn down in full on 29 April 2015 and is repayable on 27 April 2018. The interest on Tranche A is fixed at 2.47% per annum, payable quarterly in arrears. £2 million has been drawn down on Tranche B. On 24 November 2017 Tranche B was rolled over until 24 January 2018 at a rate of 1.81031% per annum. Subsequently, the amount drawn down under Tranche B has been rolled over on a monthly basis with a rate of 1.79381% applying at the date this Report was approved. |
||
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
(b) |
Trade and other payables |
£'000 |
£'000 |
|
|
|
Investment management fee |
52 |
80 |
|
|
|
Interest payable |
14 |
30 |
|
|
|
Sundry creditors |
98 |
92 |
|
|
|
|
_______ |
_______ |
|
|
|
|
164 |
202 |
|
|
|
|
_______ |
_______ |
|
|
|
2017 |
2016 |
|
13. |
Non-current liabilities |
£'000 |
£'000 |
|
|
Bank loan |
|
|
|
|
Fixed rate loan |
- |
5,000 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
All financial liabilities are measured at amortised cost. |
||
|
|
|
Ordinary shares |
|
|
|
|
of 50 pence each |
|
|
14. |
Called-up share capital |
Number |
£'000 |
|
|
Allotted and fully paid |
|
|
|
|
At 31 December 2017 and 31 December 2016 |
22,109,765 |
11,055 |
|
|
|
__________ |
_______ |
|
15. |
Net asset value per share |
||
|
|
The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows: |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Net asset value attributable (£'000) |
75,421 |
58,133 |
|
|
Number of Ordinary shares in issue |
22,109,765 |
22,109,765 |
|
|
Net asset value per share (p) |
341.12 |
262.93 |
|
16. |
Financial instruments and risk management |
||||||||||||
|
|
The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise UK listed equities, preference shares, convertibles and corporate fixed interest bonds, cash balances, debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may enter into derivative transactions for the purpose of managing market risks arising from the Company's activities though there was no exposure to derivative instruments, including contracts for difference, during the year. |
||||||||||||
|
|
|
||||||||||||
|
|
The Board has delegated the risk management function to Aberdeen Fund Managers Limited ("the AIFM" or "AFML") under the terms of its management agreement with AFML (further details of which are included under note 4). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. |
||||||||||||
|
|
|
||||||||||||
|
|
Risk management framework |
||||||||||||
|
|
The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
||||||||||||
|
|
|
||||||||||||
|
|
AFML is a fully integrated member of the Aberdeen Asset Management PLC ("Aberdeen") group of companies (referred to as "the Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
||||||||||||
|
|
|
||||||||||||
|
|
The AIFM conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
||||||||||||
|
|
|
||||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
||||||||||||
|
|
|
||||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. |
||||||||||||
|
|
|
||||||||||||
|
|
Risk management |
||||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk and price risk), (ii) liquidity risk and (iii) credit risk. |
||||||||||||
|
|
|
|
|||||||||||
|
|
(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 two elements - interest rate risk and price risk. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Interest rate risk |
|||||||||||
|
|
|
Interest rate risk is the risk that interest rate movements will affect: |
|||||||||||
|
|
|
- |
the fair value of the investments in fixed interest rate securities; |
||||||||||
|
|
|
- |
the level of income receivable on cash deposits; |
||||||||||
|
|
|
- |
interest payable on the Company's variable rate borrowings. |
||||||||||
|
|
|
|
|||||||||||
|
|
|
Management of the risk |
|||||||||||
|
|
|
The Board will monitor the effects of interest movements closely to take account of 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 |
|
|
|
||||||
|
|
|
|
Weighted average |
average |
|
|
Non- |
||||||
|
|
|
|
period for which |
interest |
Fixed |
Floating |
interest |
||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
bearing |
||||||
|
|
|
As at 31 December 2017 |
Years |
% |
£'000 |
£'000 |
£'000 |
||||||
|
|
|
Assets |
|
|
|
|
|
||||||
|
|
|
Corporate bonds |
21.60 |
5.00 |
2,028 |
- |
- |
||||||
|
|
|
Preference shares |
- |
5.22 |
4,097 |
- |
- |
||||||
|
|
|
Cash |
- |
- |
- |
582 |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total assets |
- |
- |
6,125 |
582 |
- |
||||||
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
Liabilities |
|
|
|
|
|
||||||
|
|
|
Short-term bank loan |
0.08 |
1.81 |
(2,000) |
- |
- |
||||||
|
|
|
Fixed rate bank loan |
0.33 |
2.47 |
(5,000) |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total liabilities |
- |
- |
(7,000) |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total |
- |
- |
(875) |
582 |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Weighted |
|
|
|
||||||
|
|
|
|
Weighted average |
average |
|
|
Non- |
||||||
|
|
|
|
period for which |
interest |
Fixed |
Floating |
interest |
||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
bearing |
||||||
|
|
|
As at 31 December 2016 |
Years |
% |
£'000 |
£'000 |
£'000 |
||||||
|
|
|
Assets |
|
|
|
|
|
||||||
|
|
|
Corporate bonds |
19.88 |
5.22 |
2,518 |
- |
- |
||||||
|
|
|
Preference shares |
- |
6.26 |
3,417 |
- |
- |
||||||
|
|
|
Cash |
- |
- |
- |
547 |
- |
||||||
|
|
|
Total assets |
- |
- |
5,935 |
547 |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Liabilities |
|
|
|
|
|
||||||
|
|
|
Short-term bank loan |
0.08 |
1.62 |
(2,000) |
- |
- |
||||||
|
|
|
Fixed rate bank loan |
1.33 |
2.47 |
(5,000) |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total liabilities |
- |
- |
(7,000) |
- |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total |
- |
- |
(1,065) |
547 |
- |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
|
|
||||||
|
|
|
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 loan is based on the interest rate payable, weighted by the total value of the loan. The maturity date of the Company's loan is shown in note 12 to the financial statements. |
|||||||||||
|
|
|
The cash assets consist of cash deposits on call earning interest at prevailing market rates. |
|||||||||||
|
|
|
Short-term debtors and creditors, with the exception of bank loans, have been excluded from the above tables. |
|||||||||||
|
|
|
All financial liabilities are measured at amortised cost. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Interest rate sensitivity |
|||||||||||
|
|
|
The sensitivity analysis 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 and all other variables were held constant, the Company's: |
|||||||||||
|
|
|
- |
profit before tax for the year ended 31 December 2017 would decrease by approximately £64,000 (2016 - £65,000 decrease) in relation to the Company's exposure to interest rates on its floating rate cash balances and bank loans. These figures have been calculated based on cash positions and bank loans at each year end; and |
||||||||||
|
|
|
- |
profit before tax for the year ended 31 December 2017 would decrease by £202,000 (2016 - £196,000 decrease) in relation 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. |
||||||||||
|
|
|
|
|
||||||||||
|
|
|
If interest rates had been 100 basis points lower and all other variables were held constant, the Company's: |
|||||||||||
|
|
|
- |
profit before tax for the year ended 31 December 2017 would increase by approximately £64,000 (2016 - £65,000 increase) based on the Company's exposure to interest rates on its floating rate cash balances and bank loans. These figures have been calculated based on cash positions and bank loans at each year end; and |
||||||||||
|
|
|
- |
profit before tax for the year ended 31 December 2017 would increase by £202,000 (2016 - £196,000) in relation 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 would not necessarily reflect 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. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Price risk |
|||||||||||
|
|
|
Price risks (ie changes in market prices other than those arising from interest rate) will affect the value of the quoted investments. The Company's stated objective is to provide a high and growing dividend with capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Management of the risk |
|||||||||||
|
|
|
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process, as detailed on page 67 of the published 2017 Annual Report, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. All of the investments held by the Company are listed on the London Stock Exchange, with the exception of its holdings in Gima and Scandinavian Tobacco, which are traded on Borsa Italiana and Copenhagen exchanges. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Price sensitivity |
|||||||||||
|
|
|
If market prices at the Balance Sheet date had been 10% higher while holdings remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2017 would have increased by £7,555,000 (2016 - £5,858,000). If market prices at the Balance Sheet date had been 10% lower while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2017 would have decreased by £7,555,000 (2016 - £5,858,000). This is based on the Company's equity portfolio and convertible preference shares held at each year end. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
In the opinion of the Directors, the above sensitivity analyses would not necessarily reflect 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. |
|||||||||||
|
|
|
|
|||||||||||
|
|
(ii) |
Liquidity risk |
|||||||||||
|
|
|
This is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair value or from the inability to generate cash inflows as required. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Management of the risk |
|||||||||||
|
|
|
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 loan facilities (note 12). |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Maturity profile |
|||||||||||
|
|
|
The maturity profile of the Company's financial assets and liabilities at the Balance Sheet date was as follows: |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
|
Within |
Within |
Within |
Within |
Within |
More than |
|||||
|
|
|
|
1 year |
1-2 years |
2-3 years |
3-4 years |
4-5 years |
5 years |
|||||
|
|
|
At 31 December 2017 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
|
Trade and other payables |
(164) |
- |
- |
- |
- |
- |
|||||
|
|
|
Bank loan |
(7,070) |
- |
- |
- |
- |
- |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
(7,234) |
- |
- |
- |
- |
- |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
Within |
Within |
Within |
Within |
Within |
More than |
|||||
|
|
|
|
1 year |
1-2 years |
2-3 years |
3-4 years |
4-5 years |
5 years |
|||||
|
|
|
At 31 December 2016 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
|
Trade and other payables |
(202) |
- |
- |
- |
- |
- |
|||||
|
|
|
Bank loan |
(2,129) |
(5,062) |
- |
- |
- |
- |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
(2,331) |
(5,062) |
- |
- |
- |
- |
|||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
|
|
|
|
|
|
|||||
|
|
(iii) |
Credit risk |
|||||||||||
|
|
|
This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Management of the risk |
|||||||||||
|
|
|
The Company considers credit risk not to be significant as it is actively managed as follows: |
|||||||||||
|
|
|
- |
where the 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 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 the 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; |
||||||||||
|
|
|
- |
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 Manager of the credit worthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board. The Company does not currently use derivatives. The Manager requires the Board's approval to implement the use of derivatives; |
||||||||||
|
|
|
- |
cash is held only with reputable banks with high quality external credit enhancements. |
||||||||||
|
|
|
|
|
||||||||||
|
|
|
None of the Company's financial assets are secured by collateral or other credit enhancements. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Credit risk exposure |
|||||||||||
|
|
|
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 December was as follows: |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
|
2017 |
|
2016 |
|
|||||||
|
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||
|
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
|
Non-current assets |
|
|
|
|
|||||||
|
|
|
Quoted convertibles, bonds and preference shares at fair value through profit or loss |
7,129 |
7,129 |
6,990 |
6,990 |
|||||||
|
|
|
|
|
|
|
|
|||||||
|
|
|
Current assets |
|
|
|
|
|||||||
|
|
|
Accrued income |
330 |
330 |
271 |
271 |
|||||||
|
|
|
Cash and cash equivalents |
582 |
582 |
547 |
547 |
|||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
|
8,041 |
8,041 |
7,808 |
7,808 |
|||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
|
|
|
|
|
|||||||
|
|
|
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. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices and have been categorised as Level 1 and Level 2 within the Fair Value Hierarchy tables in note 18. For details of bond maturities and interest rates, see list of other investments. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Gearing |
|||||||||||
|
|
|
The Company has in place a £7 million unsecured loan. Although this gearing increases the opportunity for gain, it also increases the risk of loss in falling markets. The risk of increased gearing is managed by retaining the flexibility to reduce short term borrowings as appropriate. |
|||||||||||
|
17. |
Income enhancement |
||||
|
|
The SORP recommends that debt securities are accounted for on an effective yield basis with the associated adjustment being allocated to revenue. The Company has decided to allocate this adjustment to capital as explained in note 2(c). The effect of this treatment on revenue and capital is set out below. |
||||
|
|
|
||||
|
|
As explained in note 2(g) revenue may utilise surplus management expenses that have arisen in capital but does not compensate capital for this tax effect as recommended by the SORP. |
||||
|
|
|
||||
|
|
The effect of these income enhancement strategies on revenue and capital is summarised in the table below. There is a risk with these strategies that capital will be eroded unless the charges to capital are covered by gains elsewhere in the portfolio, and this is managed by investing in a portfolio of shares which in the long run is expected to provide adequate capital growth to absorb the effective yield adjustment while paying growing dividends which contribute to the pursuit of the Company's objectives. |
||||
|
|
|
||||
|
|
In following this strategy, the Directors recognise that there is only one class of shareholder. |
||||
|
|
|
||||
|
|
|
2017 |
2016 |
||
|
|
|
Revenue |
Capital |
Revenue |
Capital |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Finance costs arising on bank loan finance |
(25) |
(58) |
(25) |
(59) |
|
|
Return on corresponding investments |
3 |
(3) |
(46) |
46 |
|
|
Amortised cost adjustment charged to capital on debt securities |
1 |
(1) |
27 |
(27) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
(21) |
(62) |
(44) |
(40) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
18. |
Fair value hierarchy |
||||||
|
|
Under IFRS 13 'Fair Value Measurement' an entity is required 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 December 2017 as follows: |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted equities |
a) |
74,544 |
- |
- |
74,544 |
|
|
|
Quoted convertibles, preference shares and bonds |
b) |
- |
7,129 |
- |
7,129 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Total |
|
74,544 |
7,129 |
- |
81,673 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
As at 31 December 2016 |
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted equities |
a) |
57,527 |
- |
- |
57,527 |
|
|
|
Quoted convertibles, preference shares and bonds |
b) |
- |
6,990 |
- |
6,990 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Total |
|
57,527 |
6,990 |
- |
64,517 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
a) |
Quoted equities |
|||||
|
|
|
The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
|||||
|
|
|
||||||
|
|
b) |
Quoted convertibles, preference shares and bonds |
|||||
|
|
|
The fair value of the Company's investments in quoted convertibles, preference shares and bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets. |
|||||
|
|
|
||||||
|
|
Quoted preference shares of £4,097,000 (2016 - £3,417,000) at the year end have been reclassified as Level 2 investments due to them not being considered to trade in active markets. |
||||||
|
19. |
Related party transactions |
|
|
Directors fees and interests |
|
|
Fees payable during the year to the Directors and their interests in the shares of the Company are disclosed within the Directors' Remuneration Report on page 31 of the published 2017 Annual Report. |
|
|
|
|
|
Transactions with the Manager |
|
|
Management, promotional activities, secretarial and administration services are provided by AFML with details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5. |
|
20. |
Capital management policies and procedures |
|
|
The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities. |
|
|
|
|
|
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. |
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: |
|
|
the planned level of gearing, which takes account of the Investment Manager's views on the market; |
|
|
the level of equity shares in issue; and |
|
|
the extent to which revenue in excess of that which is required to be distributed should be retained. |
|
|
|
|
|
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. |
|
|
|
|
|
The Company does not have any externally imposed capital requirements. |
|
21. |
Alternative performance measures |
|||
|
|
Total return is considered to be an alternative performance measure. NAV total return involves investing the same net dividend in the NAV of the Company on the date on which that dividend was earned. Share price total return involves reinvesting the net dividend in the month that the share price goes ex-dividend. |
|||
|
|
|
|||
|
|
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the years ended 31 December 2017 and 31 December 2016. |
|||
|
|
|
|
|
|
|
|
|
Dividend |
|
Share |
|
|
2017 |
rate |
NAV |
price |
|
|
31 December 2016 |
N/A |
262.93p |
203.50p |
|
|
5 January 2017 |
1.75p |
263.38p |
203.50p |
|
|
6 April 2017 |
1.75p |
280.47p |
212.50p |
|
|
6 July 2017 |
1.75p |
295.78p |
228.63p |
|
|
5 October 2017 |
1.75p |
321.55p |
269.50p |
|
|
31 December 2017 |
N/A |
341.12p |
288.00p |
|
|
|
_______ |
_______ |
_______ |
|
|
Total return |
|
32.9% |
46.0% |
|
|
|
|
|
|
|
|
|
Dividend |
|
Share |
|
|
2016 |
rate |
NAV |
price |
|
|
31 December 2015 |
N/A |
249.95p |
214.50p |
|
|
7 January 2016 |
1.70p |
242.17p |
212.50p |
|
|
7 April 2016 |
1.70p |
239.31p |
193.63p |
|
|
7 July 2016 |
1.70p |
227.56p |
178.50p |
|
|
6 October 2016 |
1.70p |
260.66p |
202.00p |
|
|
31 December 2016 |
N/A |
262.93p |
203.50p |
|
|
|
_______ |
_______ |
_______ |
|
|
Total return |
|
8.2% |
-1.8% |
ADDITIONAL NOTES TO THE ANNUAL FINANCIAL REPORT
This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 December 2017. The statutory accounts for the year ended 31 December 2017 received an audit report which was unqualified.
The statutory accounts for the financial year ended 31 December 2017 were approved by the Directors on 5 March 2018 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 12 noon on 19 April 2018 at Bow Bells House, One Bread Street, London EC4M 9HH.
The Annual Report will be posted to shareholders in March 2018 and additional copies will be available from the Manager (Investor Helpline - Tel. 0808 500 4000) or by download from the Company's webpage (www.aberdeensmallercompanies.co.uk)
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
For Aberdeen Smaller Companies Income Trust PLC
Aberdeen Asset Management PLC, Secretaries
This information is provided by RNS
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