Annual Financial Report
ABERDEEN SMALLER COMPANIES INCOME TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2016
STRATEGIC REPORT
1. FINANCIAL HIGHLIGHTS
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Net asset value total return |
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FTSE SmallCap ex Inv Trust Index total return |
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2016: +8.2% |
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2016: +12.5% |
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2015: +13.4% |
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2015: +13.0% |
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Share price total return |
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Earnings per share (revenue) |
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2016: -1.8% |
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2016: 7.34p |
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2015: +20.4% |
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2015: 7.54p |
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Dividend per share |
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2016: 6.85p |
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2015: 6.65p |
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2. OVERVIEW OF STRATEGY
Business Model
The business of the Company is that of an investment company which seeks 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 objective 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 are 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
FTSE SmallCap Index - excluding Investment Companies (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.
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 an 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 SmallCap Index (excluding Investment Companies). The returns over 1, 3 and 5 years are provided on page 15 of the published 2016 Annual Report and Accounts and a graph showing performance against the benchmark index is shown on page 16 of the published 2016 Annual Report and Accounts.
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 16 of the published 2016 Annual Report and Accounts.
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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 16 of the published 2016 Annual Report and Accounts. |
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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 16 of the published 2016 Annual Report and Accounts. |
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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.
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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 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 employ a much more modest level of gearing.
The Company's gearing currently in place is a £10 million facility comprised of a £5 million 3 year fixed rate loan and a £5 million 5 year variable rate loan. The facility commenced in April 2015 and at the year end £7 million was drawn down.
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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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Reliance on Third Party Service Providers 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. |
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 2016, 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.
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; and
- The level of gearing is closely monitored.
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 regulatory changes (including MiFID II and the Packaged Retail Investment and Insurance Products regulations) and the recent changes to 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 are provided below.
Carolan Dobson
Chairman
9 March 2017
3. CHAIRMAN'S STATEMENT
Performance
2016 was a volatile year for markets but despite these ups and downs, the FTSE Small Cap ex-IT still managed to post a 12.5% total return over the year. UK equities outperformed both gilts and corporate bonds which were up 10.1% and 11.8% respectively. Following on from the very strong market performances of recent years, this was a surprisingly good outcome for both equity and bond markets. The year saw a reversal of fortunes from the last few years, with large cap stocks outperforming their mid and smaller cap peers, and the FTSE All Share Index generating a total return of 18.5%. Exposure to overseas earnings, the perception of larger companies as "safer" assets and the seemingly growth oriented and "America first" remarks made by President Donald Trump have all contributed to the strong performance of larger companies. A further interesting observation was the rotation from more defensive sectors, like travel & leisure and consumer staples, into more cyclical or commodity sectors, and this was noticeable in stock level performance at both the large and smaller ends of the market. However, over the last 3 and 5 years, the FTSE Small Cap ex-IT has handsomely outperformed its larger peer Index by 5.4% and 88.3% respectively on a cumulative basis in total return terms.
The Company's Net Asset Value (NAV) was up 8.2% in total return terms for the year. In real terms this is a good return but it lagged the performance of our index, the FTSE Small Cap ex-IT, which rose by 12.5%.
I commented in last year's annual report about some of the Board's findings post our strategy review in 2015, where we looked at both the investment style of the portfolio and the investment approach taken by our Manager. We concluded that relative to the market, returns for our Company had been particularly strong in periods where stock markets fell but had tended to lag rising stock markets and there was also a bias to growth over value in the portfolio. This investment style has been slightly out of favour this year and that is reflected in the relative performance. Underperformance is, of course, never welcome but reassuringly the portfolio appears to be performing as the Board would expect and the longer term performance remains sound.
Discount
The Board and the Manager continue to work consistently hard at promoting the merits of our Company but our efforts to manage the discount through marketing and engagement are currently being exceeded by the general outflows from UK Equity funds. The Directors are disappointed that the Company's discount widened over the course of the year and was 22.1% at the year end. The Company was not alone in this phenomenon as discounts across the smaller companies investment trust sector also widened. Since the year end the discount has narrowed a little and was 17.8% at 8 March 2017.
Investee Company Stewardship
This has been an area of increasing focus this last year. There have been a number of examples where the Manager has actively engaged with company boards and management teams to both strengthen existing relationships and enhance avenues of dialogue but also, where necessary, to bring about genuine change. An example of the latter would be the Manager's successful participation in efforts to appoint two new non-executive directors on the Stock Spirits board. An example of another engagement would be the discussion held with the new Chairman of Xaar where the Manager emphasised, amongst other things, our preference for a net cash balance sheet, a return on capital employed metric in remuneration discussions and some more clarity on the way on the way in which Xaar's 2020 strategic plan was being communicated. Acting as owners and behaving as long term stewards of shareholder's capital remains a critical part of the Manager's approach to investing and we expect this to enhance the financial performance of the companies we invest in.
Gearing/Debt
The Company's debt position is unchanged since the half year end with £7 million of the £10 million facility currently deployed and equity gearing remaining below 100%. Our debt is well diversified with both 3 and 5 year maturity terms and is evenly split between fixed and floating interest rates. We have seen the overall cost of borrowing edge down marginally over the year.
The net gearing position (borrowings less cash against net assets) has increased slightly over the year to 11.1%. We continue to see very little value in fixed income markets, with bond yields remaining at such unattractively low yields, so we may well see more of a tilt towards equities in our asset allocation, in the short term at least.
Dividend
Whilst regular dividend payments from our companies grew well, there was a marginal decrease in the revenue return to 7.34p (2015 - 7.54p) due to a lower number of special dividends received in 2016. The Board has declared four interim dividends during the year ended 31 December 2016 making a total dividend of 6.85p, an increase of 3% from the 6.65p paid last year, compared to an increase of 1.6% in the CPI in the year. At the year end share price of 203.5p the Trust's dividend yield is 3.4% and at a premium compared to the yield of the FTSE SmallCap (excluding investment companies) Index of 3.2%.
The Trust's revenue account will continue to be driven by the equity portfolio and we are pleased to report steady underlying growth of ordinary dividends from those investments. We continue to invest in a range of companies that offer a mix of higher and lower yields. In the case of the latter, we believe that these will generate faster growth in dividends and believe this policy, coupled with our ongoing focus on balance sheet strength, should position the income account securely for the future.
The fixed income portfolio, although now smaller, continues to provide a yield supplement over our attractively priced borrowings and this enhances our dividend payments to shareholders.
Board Composition
The Board continues to review its composition and to consider its succession and refreshment polices. As reported in the half yearly report, the Board appointed David Fletcher as a non-executive Director on 1 August 2016. David is a chartered accountant with over 20 years' experience of investment banking with particular focus on the financial services sector and is currently the Group Finance Director of Stonehage Fleming Family & Partners. David took over the chairmanship of the Audit Committee following the retirement of Jimmy West on 5 September 2016.
Having served on the Board for over 12 years I shall be retiring at the forthcoming AGM and Robert Lister will take over as Chairman at that point. The Board is currently undertaking a search for a new Director.
Manager
Shareholders will be aware that the holding company of the Trust's Manager, Aberdeen Asset Management PLC, has recently announced a proposed recommended merger with Standard Life which will be subject to shareholders' and regulatory approvals and the Board will closely monitor developments.
Outlook
2016 was an unusually eventful year and one that delivered some quite unexpected outcomes. The impact of Brexit and the election of Donald Trump as the new President of the United States of America had both immediate and material impacts on markets and will, I am sure, continue to have profound implications for the economy in the years ahead. These material events do tend to create investment opportunities and the Manager has reacted to some of the market dislocation we have witnessed by introducing some new and interesting companies to the portfolio. It is early days yet but these investments appear to be performing well.
On a more general note, as a Board, we take great comfort in the conservative and long-term approach taken by the Manager. The aim of building a diversified, high-quality portfolio with earnings growth stemming from both UK and overseas markets we believe to be the most judicious approach during these highly uncertain times.
I will close off by saying that I have greatly enjoyed being both Chairman and a Director of our Company over these past 12 years and we have lived through both exciting and demanding times. I will remember my time with Aberdeen Smaller Companies Income Trust fondly. I believe that the portfolio is in good shape for the future and that I am leaving the Company in highly capable hands and I wish the Board and the Manager the very best for the future.
Carolan Dobson
Chairman
9 March 2017
4. INVESTMENT MANAGER'S REVIEW
Overview
The Trust's Net Asset Value (NAV) growth was behind its FTSE Small Cap ex-IT benchmark over the year returning 8.2% versus 12.5% for the index - both in total return terms. After a difficult start to the year followed by some recovery of lost performance in the months following the Brexit vote we unfortunately lost a bit of ground again in the last few months of the year.
Our focus on quality companies means that the portfolio tends to have a skew to what would be regarded as more defensive sectors. This means that we do sometimes lag very strong market rebounds, especially those characterised by sharp recoveries in cyclically depressed sectors. We saw exactly that in early 2016 with a number of mining and oil and gas stocks rallying strongly on the back of improving commodity prices. These companies are often single commodity in nature, more exploration than production led - and therefore with less durable cash flows - and often operating in areas of the world that we would deem to carry significantly higher operational and political risk. For those reasons they tend not to pass our quality hurdles and we struggle to justify owning them with a long-term buy and hold philosophy in mind. In the immediate aftermath of Brexit we recovered some lost performance. The portfolio has less exposure to domestically focused general retailers, travel & leisure and real estate businesses, all sectors that witnessed a period of acute weakness following the event. Unfortunately in the final quarter we again lost some ground suffering from a rotation into more cyclical areas of the market precipitated by the election of seemingly "pro-growth" Donald Trump as the President of the United States.
Stock selection was also partly to blame for the Trust's underperformance this year. The majority of our companies continue to deliver good earnings growth but a few witnessed more difficult trading over the course of the year and their share prices suffered as a result. Mothercare, Interserve and Devro all had particularly difficult years. This is discussed in more detail in the portfolio review section below.
Following the Board's approval for the Manager to broaden the investment universe available to the Trust (up to 10% NAV in smaller non-UK listed equities) we have been researching some potentially interesting investment opportunities. Keeping within the remit of our investment objective we will take the following approach: We will look for companies that offer different exposures to what is available at the smaller end of the UK investment universe, that offer a good blend of capital and income growth potential and these companies will need to be of a market cap size that is in keeping within the 'spirit' of a smaller companies mandate.
We have been concerned about low bond yields for several years and with the continued contraction over the course of 2016 we struggled to uncover very much value in this asset class and as a result did not increase our exposure here. Our portfolio did produce a positive return over the year but with bonds having lagged equities overall, the portfolio was a negative drag on performance from an asset allocation point of view.
Turning to the macroeconomic picture, despite earlier fears, the UK referendum result appeared to do little to dampen consumer spending and the domestic economy appeared to carry some momentum into the year end. Even with these better-than-predicted readings, when we look ahead to 2017 with our future relationship with the EU still unclear we would expect to see a period of weaker corporate confidence and the adoption of a more hesitant approach to business investment. We have noted this more cautious approach from our company managers in recent meetings.
At its December meeting, the Bank of England's Monetary Policy Committee voted to maintain interest rates at 0.25% as well as continue with its purchases of both corporate and government bonds. Increased scepticism over the effectiveness of more quantitative easing as well as the long-term consequences of pumping ever greater amounts of money into an already fragile economic system has amplified calls for some measure of fiscal policy support. But, whether 2017 will be the year of the fiscal boost remains to be seen and so far Chancellor Philip Hammond has announced only a modest programme of measures but with the flexibility to up the ante should economic growth start to falter.
Equity portfolio
A number of our holdings released encouraging results over the year and there were positive developments with some of our recent introductions. A few of our businesses also faced more enduring challenges during 2016 and there were also those more acutely impacted by the potential implications of Brexit and the more circumspect outlook for near term UK growth.
BBA Aviation appears to be progressing well with the integration of its recent acquisition of Landmark. Encouragingly the company is predicting higher cost synergies than initially calculated and the customer response to the new takeover has also been positive. BBA also announced the sale of its ASIG business (airline services) to John Menzies for $200m. This business was becoming of less and less relevance to the group and they had been searching for a buyer for some time. The sale proceeds should help them to deleverage the balance sheet further. Dechra Pharmaceuticals' results this last year pointed to a continuation of particularly good growth in the North American animal pharmaceuticals segment which has benefitted from the recent Putney acquisition. It was also encouraging to see some recovery in the European food producing animal products division which had been struggling for a few years. Other interesting news was the announcement of the approval from the FDA for their first generic antibiotic for the US market. Cairn Homes, the Irish house builder, was a stock we introduced this last year. We have had a number of productive updates with the management team and they appear increasingly optimistic about the scale of the opportunity in the Irish market and remain confident of their ability to deliver on the plan of 1,200 new home units by 2019 with a land bank in place that equates to 11,500 units over eight years. The focus of the next few years will be on scaling the business and then returning capital to shareholders. Outsourced legal provider Burford Capital released strong half year numbers in July which were already ahead of full year forecasts. Most encouragingly for future prospects, they noted new commitments at significantly higher levels than the prior year and commented that demand for their services could potentially increase following Brexit. Encouragingly, and indicative of the underlying cash generation in the business, the dividend was raised by 15% at the half year.
Turning to some of the more troubled holdings, Devro experienced difficult trading conditions and start-up challenges at two of its new facilities in China and the USA which led to a profit warning late in the year. The valuation does appear to factor in many of these issues and the structural attractions of the business and industry remain. At the half year we talked about some of the difficulties Mothercare was facing and the stock has unfortunately been one of the poorer performers over the last twelve months. Slowing growth in the international operations and the difficult task of restructuring the UK business have led to disappointing sales and profit performance. We still believe there to be significant value in the investment but this may take a few years to be realised. Interserve was another weak performer. The company's support services, equipment services and international construction have all been trading in line but a problem contract in the UK construction business, specifically in the energy from waste sector, has been problematic. The company will be exiting the energy from waste sector completely. More positively, a strong focus on working capital and debt collection has seen the cash performance in the business improve and this facilitated a reduction in overall gearing.
Fixed Income portfolio
2016 ended with a renewed focus on bond yields from many in the market as the US moved more firmly into a rate increase cycle. There was, however, a notable disconnect between rates in Europe, which remained at historically low levels, and rising rates in the US - German 2yr bunds ending the year in negative yield territory for example. This backdrop is reflected in the trends seen for the Company's bond portfolio which mostly saw yields modestly tighten over the course of the year, with limited impact from the equity market excitement which drove bank equities markedly higher at the tail end of the year as they anticipated an earnings boost from higher rates.
As in recent years, the lack of yield available influenced our continued modest exposure to the asset class and the ongoing focus on short duration assets. During the period, the Coventry Building Society bond was redeemed and the Society of Lloyds 7.421% FRN was sold as it approached its first call point. There were two purchases to reinvest these proceeds, the first, HBOS (Lloyds) 6.461% 2018-Perp yielding 6% which is callable in 2018 and has to pay the coupon if dividend payments are to be made by Lloyds, a key component of their strategy. The second investment was into the SSE 3.875% variable perpetuity which offered an attractive 4% yield and short maturity. We will remain patient and await more attractive levels of yield before looking to materially increase our overall exposure to this asset class.
Outlook
Quite deliberately the Trust contains a collection of UK businesses with a geographically diverse stream of earnings and therefore the health of the world economy and the prospects for global growth are equally as important considerations for us as that of the domestic UK situation. Whilst global growth is still languishing at its slowest pace since the financial crisis we do expect that to start to pick up modestly in 2017 led by a gradual recovery in emerging markets.
However, volatility and uncertainty is rife and 2017 is bound to be an eventful year with elections coming up in France, Germany and the Netherlands, the first year of the Trump Presidency and further, difficult Brexit negotiations ahead of us. In terms of the economic outlook, higher UK inflation and weaker investment is set to slow growth to 1.5% in 2017 from 2.1% this year (Aberdeen in-house projections). Stronger growth in the US might lead to more interest rate increases there but the haphazard Trump rhetoric is also very difficult to decipher and we might well see some less positive economic policies emerge. The risk of trade restrictions and higher US interest rates (strong $) could heighten emerging market risk. Finally, despite the negative political headlines, the Eurozone recovery continues to progress at a modest pace and our Aberdeen internal forecasts have been upgraded for both 2017 and 2018 to 1.5% from 1.4% previously.
Focusing the lens on company valuations, small cap stocks are looking more attractively valued in aggregate but we are mindful of an environment where underlying earnings growth might be more difficult to come by. Despite this, selective opportunities will continue to emerge and in difficult markets like these a careful and diligent stock-picking approach can reap rewards. We will also remain true to our investment style which is to invest in high quality companies with strong competitive positions and pricing power as well as healthy cash flows and balance sheets. We believe this to be the best strategy in traversing a more volatile period ahead and one able to deliver strong, stable returns over the long term.
Aberdeen Asset Managers Limited*
9 March 2017
*on behalf of Aberdeen Fund Managers Limited
Both companies are subsidiaries of Aberdeen Asset Management PLC
5. RESULTS AND PERFORMANCE
Financial Highlights
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31 December 2016 |
31 December 2015 |
% change |
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Total investments |
£64,517,000 |
£59,157,000 |
+9.1 |
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Shareholders' funds |
£58,133,000 |
£55,263,000 |
+5.2 |
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Market capitalisation |
£44,993,000 |
£47,425,000 |
-5.1 |
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Net asset value per share |
262.93p |
249.95p |
+5.2 |
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Share price (mid market) |
203.50p |
214.50p |
-5.1 |
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Discount to adjusted NAV{A} |
22.1% |
13.6% |
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Net gearing{B} |
11.1% |
7.2% |
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Ongoing charges ratio{C} |
1.44% |
1.50% |
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Dividends and earnings |
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Revenue return per share{D} |
7.34p |
7.54p |
-2.6 |
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Dividends per share{E} |
6.85p |
6.65p |
+3.0 |
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Dividend cover |
1.07 |
1.13 |
|
|
Revenue reserves{F} |
£2,541,000 |
£2,423,000 |
|
|
{A} Based on IFRS NAV above reduced by dividend adjustment of 1.75p (2015 - 1.70p). |
|||
|
{B} Calculated in accordance with AIC guidance "Gearing Disclosures post Retail Distribution Review" |
|||
|
{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. |
|||
|
{D} Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income). |
|||
|
{E} The figures for dividends per share reflect the years in which they were earned (see note 7). |
|||
|
{F} The revenue reserve figure does not take account of the fourth interim dividend amounting to £387,000 (2015 - £376,000). |
|||
|
Performance (Total Return) |
1 year |
3 year |
5 year |
|
|
% return |
% return |
% return |
|
Net asset value |
+8.2 |
+20.1 |
+130.2 |
|
Share price (based on mid price) |
-1.8 |
+0.6 |
+130.6 |
|
FTSE SmallCap Index (excluding Investment Companies) |
+12.5 |
+23.7 |
+142.6 |
|
FTSE All-Share Index |
+16.8 |
+19.3 |
+61.8 |
|
All figures are for total return and assume re-investment of net dividends excluding transaction costs. |
|||
Dividends
|
|
Rate per share |
xd date |
Record date |
Payment date |
|
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 |
|
|
|
|
|
________ |
|
|
|
|
First interim dividend |
1.65p |
2 April 2015 |
7 April 2015 |
30 April 2015 |
|
Second interim dividend |
1.65p |
9 July 2015 |
10 July 2015 |
31 July 2015 |
|
Third interim dividend |
1.65p |
8 October 2015 |
9 October 2015 |
30 October 2015 |
|
Fourth interim dividend |
1.70p |
7 January 2016 |
8 January 2016 |
29 January 2016 |
|
|
________ |
|
|
|
|
2015 |
6.65p |
|
|
|
|
|
________ |
|
|
|
6. PORTFOLIO INVESTMENTS
|
TOP 10 INVESTMENTS |
|
|
|
|
|
at 31 December 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
2016 |
Portfolio |
2015 |
|
Company |
Sector |
£'000 |
% |
£'000 |
|
XP Power |
|
2,309 |
3.6 |
1,931 |
|
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 |
|
|
|
|
RPC Group |
|
2,210 |
3.4 |
1,974 |
|
A global plastic and packaging company with industry leading product design capabilities. RPC manufactures a range of products and components leveraging their significant scale in what are quite fragmented specialist packaging markets. |
General Industrials |
|
|
|
|
Dechra Pharmaceuticals |
|
2,188 |
3.4 |
2,000 |
|
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 |
|
|
|
|
Chesnara |
|
2,112 |
3.3 |
1,638 |
|
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 |
|
|
|
|
Euromoney Institutional Investor |
|
1,878 |
2.9 |
1,532 |
|
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 |
|
|
|
|
Wilmington |
|
1,831 |
2.8 |
1,775 |
|
Provider of business-to-business digital services in four key areas of Risk & Compliance, Finance, Legal and Insight. The services provide information, education and training as well as networking opportunities for clients who tend to come from well-funded professional markets. Wilmington enjoys a high proportion of subscription and repeatable revenues. |
Media |
|
|
|
|
Elementis |
|
1,787 |
2.8 |
1,565 |
|
Elementis is a global specialty chemicals company that specialises in three areas: Speciality products, Surfactants and Chromium. The products they produce are used by customers to enhance the operating performance of their own products and so are a small but critical element of the supply chain ensuring strong pricing power. |
Chemicals |
|
|
|
|
Aveva Group |
|
1,715 |
2.7 |
1,400 |
|
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 |
|
|
|
|
BBA Aviation |
|
1,711 |
2.6 |
1,223 |
|
BBA Aviation is a market leading provider of global aviation support and aftermarket services. The core Flight Support business provides specialist on-airport services like refuelling and ground handling to private, business and commercial aircraft. One of their unique propositions is the fact that they operate in over 300 locations across 5 continents. |
Industrial Transportation |
|
|
|
|
Victrex |
|
1,699 |
2.6 |
1,371 |
|
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 |
|
|
|
|
|
|
19,440 |
30.1 |
|
Investment Portfolio - Ordinary Shares
As at 31 December 2016
|
|
|
Valuation |
Total |
Valuation |
|
|
|
2016 |
portfolio |
2015 |
|
Company |
Sector classification |
£'000 |
% |
£'000 |
|
Hansteen |
Real Estate Investment Trusts |
1,594 |
2.5 |
1,617 |
|
Close Brothers |
Financial Services |
1,560 |
2.4 |
1,364 |
|
Fisher (James) & Sons |
Industrial Transportation |
1,524 |
2.4 |
1,484 |
|
Fenner |
Industrial Engineering |
1,497 |
2.3 |
1,017 |
|
Oxford Instruments |
Electronic & Electrical Equipment |
1,479 |
2.3 |
1,550 |
|
Smart Metering Systems |
Support Services |
1,454 |
2.3 |
27 |
|
Dignity |
General Retailers |
1,431 |
2.2 |
1,148 |
|
Manx Telecom |
Fixed Line Telecommunications |
1,344 |
2.1 |
1,404 |
|
Rathbone Brothers |
Financial Services |
1,331 |
2.1 |
1,287 |
|
Acal |
Support Services |
1,305 |
2.0 |
1,607 |
|
Twenty largest investments |
|
33,959 |
52.7 |
|
|
Morgan Sindall |
Construction & Materials |
1,298 |
2.0 |
1,393 |
|
Burford Capital |
Financial Services |
1,288 |
2.0 |
- |
|
Robert Walters |
Support Services |
1,281 |
2.0 |
1,107 |
|
Interserve |
Support Services |
1,253 |
1.9 |
1,317 |
|
Berendsen |
Support Services |
1,206 |
1.9 |
1,791 |
|
Cairn Homes |
Household Goods & Home Construction |
1,171 |
1.8 |
- |
|
Barr (A.G.) |
Beverages |
1,151 |
1.8 |
794 |
|
Genus |
Pharmaceuticals & Biotechnology |
1,113 |
1.7 |
839 |
|
Xaar |
Electronic & Electrical Equipment |
1,083 |
1.7 |
592 |
|
Intermediate Capital Group |
Financial Services |
1,056 |
1.6 |
1,064 |
|
Thirty largest investments |
|
45,859 |
71.1 |
|
|
Assura |
Real Estate Investment Trusts |
1,040 |
1.6 |
- |
|
Exova |
Support Services |
1,024 |
1.6 |
725 |
|
Devro |
Food Producers |
1,002 |
1.6 |
1,586 |
|
Abcam |
Pharmaceuticals & Biotechnology |
997 |
1.6 |
1,164 |
|
Hiscox |
Non-life Insurance |
997 |
1.6 |
1,138 |
|
Savills |
Real Estate Investment & Services |
988 |
1.5 |
992 |
|
Fuller Smith & Turner 'A' |
Travel & Leisure |
960 |
1.5 |
1,182 |
|
Stock Spirits Group |
Beverages |
851 |
1.3 |
525 |
|
TT Electronics |
Electronic & Electrical Equipment |
792 |
1.2 |
1,098 |
|
Helical Bar |
Real Estate Investment & Services |
653 |
1.0 |
1,450 |
|
Forty largest investments |
|
55,163 |
85.6 |
|
|
Mothercare |
General Retailers |
646 |
1.0 |
1,258 |
|
Enquest |
Oil & Gas Producers |
600 |
0.9 |
195 |
|
Keller Group |
Construction & Materials |
599 |
0.9 |
442 |
|
Huntsworth |
Media |
519 |
0.8 |
539 |
|
Total Ordinary shares |
|
57,527 |
89.2 |
|
Investment Portfolio - Other Investments
As at 31 December 2016
|
|
Valuation |
Total |
Valuation |
|
|
2016 |
portfolio |
2015 |
|
Company |
£'000 |
% |
£'000 |
|
Convertibles |
|
|
|
|
Balfour Beatty Cum Conv 10.75% |
1,055 |
1.6 |
1,003 |
|
Total Convertibles |
1,055 |
1.6 |
|
|
Corporate Bonds |
|
|
|
|
Anglian Water 4.5% 2026 |
578 |
0.9 |
532 |
|
Wales & West Utilities Finance 6.75% 2036 |
547 |
0.8 |
553 |
|
SSE 3.875% Var perp |
496 |
0.8 |
- |
|
Electricite de France 6% {A} |
479 |
0.7 |
478 |
|
HBOS Cap funding 6.461% var perp |
418 |
0.7 |
- |
|
Total Corporate Bonds |
2,518 |
3.9 |
|
|
Preference shares |
|
|
|
|
General Accident 8.875% |
1,312 |
2.0 |
1,284 |
|
Aviva 8.75% |
1,298 |
2.0 |
1,270 |
|
Ecclesiastical Insurance 8.625% |
807 |
1.3 |
792 |
|
Total Preference shares |
3,417 |
5.3 |
|
|
Total Other Investments |
6,990 |
10.8 |
|
|
Total investments |
64,517 |
100.0 |
|
|
{A}All investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges based in sterling. |
|||
|
Distribution of Assets and Liabilities As at 31 December 2016 |
|||||||||
|
|
|
|
|
||||||
|
|
Valuation at |
Movement during the year |
Valuation at |
||||||
|
|
31 December |
|
|
|
Gains/ |
31 December |
|||
|
|
2015 |
Purchases |
Sales |
Other{A} |
(losses) |
2016 |
|||
|
|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
% |
|
|
Listed investments |
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
52,741 |
95.4 |
7,889 |
(6,145) |
- |
3,042 |
57,527 |
99.0 |
|
|
Convertibles |
1,003 |
1.8 |
- |
- |
- |
52 |
1,055 |
1.8 |
|
|
Corporate bonds |
2,067 |
3.7 |
1,476 |
(1,056) |
(27) |
58 |
2,518 |
4.3 |
|
|
Other fixed interest |
3,346 |
6.1 |
- |
- |
- |
71 |
3,417 |
5.9 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
59,157 |
107.0 |
9,365 |
(7,201) |
(27) |
3,223 |
64,517 |
111.0 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
3,271 |
5.9 |
|
|
|
|
818 |
1.4 |
|
|
Other current liabilities |
(165) |
(0.3) |
|
|
|
|
(202) |
(0.3) |
|
|
Short-term loan |
(2,000) |
(3.6) |
|
|
|
|
(2,000) |
(3.5) |
|
|
Long-term loan |
(5,000) |
(9.0) |
|
|
|
|
(5,000) |
(8.6) |
|
|
|
______ |
______ |
|
|
|
|
______ |
______ |
|
|
Net assets |
55,263 |
100.0 |
|
|
|
|
58,133 |
100.0 |
|
|
|
______ |
______ |
|
|
|
|
______ |
______ |
|
|
Net asset value per Ordinary share |
249.9p |
|
|
|
|
|
262.9p |
|
|
|
|
______ |
|
|
|
|
|
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
{A} Amortisation adjustment of £27,000 (see note 2). |
|
|
|
|
|
|
|
||
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
Carolan Dobson
Chairman
9 March 2017
GOING CONCERN
The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Board has set gearing limits and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility of which £5 million expires in 2018 and £5 million expires in 2020. The Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and at least 12 months from the date of this annual report and accordingly, continue to adopt the going concern basis in preparing the financial statements.
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
|
|
|
Year ended |
Year ended |
||||
|
|
|
31 December 2016 |
31 December 2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains on investments at fair value |
9 |
- |
3,223 |
3,223 |
- |
5,464 |
5,464 |
|
Currency losses |
|
- |
(3) |
(3) |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
Revenue |
2 |
|
|
|
|
|
|
|
Dividend income |
|
1,887 |
- |
1,887 |
1,963 |
- |
1,963 |
|
Interest income/(expense) from investments |
|
256 |
(27) |
229 |
236 |
(47) |
189 |
|
Other income |
|
7 |
- |
7 |
14 |
- |
14 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
2,150 |
3,193 |
5,343 |
2,213 |
5,417 |
7,630 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fee |
3 |
(138) |
(322) |
(460) |
(141) |
(330) |
(471) |
|
Other administrative expenses |
4 |
(339) |
- |
(339) |
(351) |
- |
(351) |
|
Finance costs of borrowings |
5 |
(51) |
(119) |
(170) |
(55) |
(129) |
(184) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Profit before tax |
|
1,622 |
2,752 |
4,374 |
1,666 |
4,958 |
6,624 |
|
Tax expense |
6 |
- |
- |
- |
- |
- |
- |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Profit attributable to equity holders |
8 |
1,622 |
2,752 |
4,374 |
1,666 |
4,958 |
6,624 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Earnings per Ordinary share (pence) |
8 |
7.34 |
12.45 |
19.79 |
7.54 |
22.42 |
29.96 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
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). |
|||||||
|
All of the profit and comprehensive income are attributable to the equity holders of the Company. |
|||||||
|
All items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of these financial statements. |
|||||||
BALANCE SHEET (AUDITED)
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2016 |
2015 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Ordinary shares |
|
57,527 |
52,741 |
|
Convertibles |
|
1,055 |
1,003 |
|
Corporate bonds |
|
2,518 |
2,067 |
|
Other fixed interest |
|
3,417 |
3,346 |
|
|
|
_________ |
_________ |
|
Securities at fair value |
9 |
64,517 |
59,157 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
|
547 |
3,014 |
|
Other receivables |
10 |
271 |
257 |
|
|
|
_________ |
_________ |
|
|
|
818 |
3,271 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Short-term loan |
11 |
(2,000) |
(2,000) |
|
Trade and other payables |
11 |
(202) |
(165) |
|
|
|
_________ |
_________ |
|
|
|
(2,202) |
(2,165) |
|
|
|
_________ |
_________ |
|
Net current (liabilities)/assets |
|
(1,384) |
1,106 |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
63,133 |
60,263 |
|
|
|
_________ |
_________ |
|
Non-current liabilities |
|
|
|
|
Long-term loan |
11 |
(5,000) |
(5,000) |
|
|
|
_________ |
_________ |
|
Net assets |
|
58,133 |
55,263 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
12 |
11,055 |
11,055 |
|
Share premium account |
|
11,892 |
11,892 |
|
Capital redemption reserve |
|
2,032 |
2,032 |
|
Retained earnings: |
|
|
|
|
Capital reserve |
|
30,613 |
27,861 |
|
Revenue reserve |
|
2,541 |
2,423 |
|
|
|
_________ |
_________ |
|
Equity shareholders' funds |
|
58,133 |
55,263 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
8 |
262.93 |
249.95 |
|
|
|
_________ |
_________ |
STATEMENT OF CHANGES IN EQUITY (AUDITED)
|
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 |
|
Revenue profit for the year |
|
- |
- |
- |
- |
1,622 |
1,622 |
|
Net capital gains for the year |
|
- |
- |
- |
2,752 |
- |
2,752 |
|
Dividends paid in the year |
7 |
- |
- |
- |
- |
(1,504) |
(1,504) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
As at 31 December 2016 |
|
11,055 |
11,892 |
2,032 |
30,613 |
2,541 |
58,133 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December 2015 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
As at 31 December 2014 |
|
11,055 |
11,892 |
2,032 |
22,903 |
2,216 |
50,098 |
|
Revenue profit for the year |
|
- |
- |
- |
- |
1,666 |
1,666 |
|
Net capital gains for the year |
|
- |
- |
- |
4,958 |
- |
4,958 |
|
Dividends paid in the year |
7 |
- |
- |
- |
- |
(1,459) |
(1,459) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
As at 31 December 2015 |
|
11,055 |
11,892 |
2,032 |
27,861 |
2,423 |
55,263 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
CASH FLOW STATEMENT (AUDITED)
|
|
Year ended |
Year ended |
|
|
31 December 2016 |
31 December 2015 |
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
Investment income received |
2,134 |
2,275 |
|
Investment management fee paid |
(420) |
(543) |
|
Other cash expenses |
(343) |
(360) |
|
|
_______ |
_______ |
|
Cash generated from operations |
1,371 |
1,372 |
|
|
|
|
|
Interest paid |
(170) |
(173) |
|
|
_______ |
_______ |
|
Net cash inflows from operating activities |
1,201 |
1,199 |
|
|
_______ |
_______ |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchases of investments |
(9,365) |
(9,999) |
|
Sales of investments |
7,201 |
14,526 |
|
|
_______ |
_______ |
|
Net cash (outflow)/inflow from investing activities |
(2,164) |
4,527 |
|
|
_______ |
_______ |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Loan repaid |
- |
(10,000) |
|
Loan drawdown |
- |
7,000 |
|
Equity dividends paid |
(1,504) |
(1,459) |
|
|
_______ |
_______ |
|
Net cash outflow from financing activities |
(1,504) |
(4,459) |
|
|
_______ |
_______ |
|
Net (decrease)/increase in cash and cash equivalents |
(2,467) |
1,267 |
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents during the year |
|
|
|
Opening balance |
3,014 |
1,747 |
|
(Decrease)/increase in cash and cash equivalents as above |
(2,467) |
1,267 |
|
|
_______ |
_______ |
|
Closing balances |
547 |
3,014 |
|
|
_______ |
_______ |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2016
|
1. |
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", 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 financial statements have been prepared on a going concern basis. |
|
|
|
|
|
|
|
|
|
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented 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 amendment to Standards is effective for annual periods beginning on or after 1 January 2017: |
|
|
|
|
- |
IAS 7 Disclosure Initiative |
|
|
|
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 Directors anticipate that the adoption of these Standards in future periods will have no material financial impact on the financial statements of the Company. The Company concludes however that certain additional disclosures may be necessary on their application. |
|
|
|
|
|
|
|
|
(b) |
Investments |
|
|
|
|
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 included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost. |
|
|
|
|
|
|
|
|
(c) |
Income
|
|
|
|
|
Dividend income from equity investments including preference shares which have a discretionary dividend is recognised when the shareholders' rights to receive payment have been established, normally the ex-dividend date. |
|
|
|
|
|
|
|
|
|
Interest from debt securities which include preference shares which do not have a discretionary dividend are 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% (2015: 30%) to revenue and 70% (2015: 70%) to capital, 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) |
Bank borrowings |
|
|
|
|
Interest-bearing bank loans and overdrafts are recorded at the proceeds received. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method. |
|
|
|
|
|
|
|
|
(f) |
Finance costs and long-term borrowings |
|
|
|
|
Long-term borrowings are stated at the amount of the proceeds of issue net of expenses. The finance costs, being the difference between the net proceeds of borrowing and the total amount of payments that require to be made in respect of that borrowing, accrue evenly over the life of the borrowing and are allocated between capital and revenue. |
|
|
|
|
|
|
|
|
|
Finance costs have been allocated 30% (2015: 30%) to revenue and 70% (2015: 70%) to capital in the Statement of Comprehensive Income, in order to reflect the Directors expected long-term view of the nature of the investment returns of the Company. |
|
|
|
|
|
|
|
|
(g) |
Taxation |
|
|
|
|
The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible (see note 6 for a more detailed explanation). The Company has no liability for current tax. |
|
|
|
|
|
|
|
|
|
Deferred tax is provided in full on timing differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. |
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
Transactions involving foreign currencies are converted at the rate ruling at the time of the transaction. Assets and liabilities in foreign currencies are translated at the closing rates of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in capital reserve or the revenue account as appropriate. |
|
|
|
|
|
|
|
|
(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. |
|
|
|
|
2016 |
2015 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
Dividend income from UK equity securities |
1,619 |
1,675 |
|
|
Dividend income from overseas equity securities |
222 |
248 |
|
|
Property income distributions |
46 |
40 |
|
|
|
_______ |
_______ |
|
|
|
1,887 |
1,963 |
|
|
Interest income from investments |
256 |
236 |
|
|
|
_______ |
_______ |
|
|
|
2,143 |
2,199 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Other income |
|
|
|
|
Bank interest |
2 |
3 |
|
|
Underwriting commission |
5 |
11 |
|
|
|
_______ |
_______ |
|
|
Total revenue income |
2,150 |
2,213 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
As per note 1(c), the Company amortises the premium or discount on acquisition on debt securities against unrealised capital reserve. For 2016 this represented £27,000 (2015 - £47,000) which has been reflected in the capital column of the Statement of Comprehensive Income. |
||
|
|
|
2016 |
2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
138 |
322 |
460 |
141 |
330 |
471 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 December 2016 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 £80,000 (2015 - £39,000). The fee is allocated 70% (2015: 70%) to capital and 30% (2015: 30%) to revenue. |
||||||
|
|
|
2016 |
2015 |
|
4. |
Other administrative expenses |
£'000 |
£'000 |
|
|
Directors' fees |
109 |
107 |
|
|
Auditor's remuneration: |
|
|
|
|
fees payable to the Company's auditor for the audit of the financial statements |
19 |
19 |
|
|
Promotional activities |
55 |
54 |
|
|
Legal and professional fees |
23 |
12 |
|
|
Registrars' fees |
13 |
16 |
|
|
Printing and postage |
19 |
17 |
|
|
Broker fees |
36 |
36 |
|
|
Directors' & Officers' liability insurance |
6 |
7 |
|
|
Trade subscriptions |
24 |
23 |
|
|
Other expenses |
35 |
60 |
|
|
|
_______ |
_______ |
|
|
|
339 |
351 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Expenses of £55,000 (2015 - £54,000) were paid to Aberdeen Fund Managers Limited (AFML) in respect of the promotion of the Company. The balance outstanding at the year end was £14,000 (2015 - £14,000). |
||
|
|
|
||
|
|
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. |
||
|
|
|
2016 |
2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
5. |
Finance costs and borrowings |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loans |
51 |
119 |
170 |
55 |
129 |
184 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
6. |
Taxation |
||||||
|
|
The UK corporation tax rate was 20% for the entire financial year giving an effective rate of 20% (2015 - effective rate of 20.25%). The tax assessed for the year is lower than the corporation tax rate. The differences are explained below: |
||||||
|
|
|
|
|||||
|
|
|
2016 |
2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Profit before tax |
1,622 |
2,752 |
4,374 |
1,666 |
4,958 |
6,624 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
Taxation of return on ordinary activities at the standard rate of corporation tax |
324 |
550 |
874 |
337 |
1,004 |
1,341 |
|
|
Effects of: |
|
|
|
|
|
|
|
|
UK dividend income not liable to further tax |
(324) |
- |
(324) |
(357) |
- |
(357) |
|
|
Capital gains disallowed for the purposes of corporation tax |
- |
(639) |
(639) |
- |
(1,097) |
(1,097) |
|
|
Overseas income not subject to tax |
(44) |
- |
(44) |
(50) |
- |
(50) |
|
|
Excess management expenses not utilised |
27 |
89 |
116 |
70 |
93 |
163 |
|
|
Prior year adjustment to management expenses |
17 |
- |
17 |
- |
- |
- |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
Taxation charge for the year |
- |
- |
- |
- |
- |
- |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Management expenses arising on revenue items this year were sufficient to offset against taxable revenue. In accordance with accounting policy 1(g) £nil (2015 - £nil) has been credited to capital and charged to revenue as a notional corporation tax item. |
||||||
|
|
|
||||||
|
|
At 31 December 2016, the Company had net surplus management expenses and loan interest (loan relationship deficits) of £12,548,000 (2015 - £11,975,000) 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). |
||||||
|
|
|
2016 |
2015 |
|
7. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Fourth interim dividend for the year ended 31 December 2015 of 1.70p (2014 - 1.65p) per share |
376 |
365 |
|
|
Three interim dividends for the year ended 31 December 2016 totalling 5.10p (2015 - 4.95p) per share |
1,128 |
1,094 |
|
|
|
_______ |
_______ |
|
|
|
1,504 |
1,459 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The fourth interim dividend of 1.75p per share, declared on 12 December 2016 and paid on 27 January 2017, has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
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: |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Three interim dividends for the year ended 31 December 2016 totalling 5.10p (2015 - 4.95p) per share |
1,128 |
1,094 |
|
|
Fourth interim dividend for the year ended 31 December 2016 of 1.75p (2015 - 1.70p) per share |
387 |
376 |
|
|
|
_______ |
_______ |
|
|
|
1,515 |
1,470 |
|
|
|
_______ |
_______ |
|
|
|
2016 |
2015 |
|
8. |
Return and net asset value per share |
£'000 |
£'000 |
|
|
The returns per share are based on the following figures: |
|
|
|
|
Revenue return |
1,622 |
1,666 |
|
|
Capital return |
2,752 |
4,958 |
|
|
|
_______ |
_______ |
|
|
Net return |
4,374 |
6,624 |
|
|
|
_______ |
_______ |
|
|
Weighted average number of shares in issue |
22,109,765 |
22,109,765 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
The net asset value per share is based on net assets attributable to shareholders of £58,133,000 (2015 - £55,263,000) and on the 22,109,765 (2015 - 22,109,765) shares in issue at 31 December 2016. |
||
|
|
|
2016 |
2015 |
|
9. |
Non-current assets - securities at fair value |
£'000 |
£'000 |
|
|
Listed on recognised stock exchanges: |
|
|
|
|
United Kingdom |
64,038 |
58,679 |
|
|
Overseas |
479 |
478 |
|
|
|
_______ |
_______ |
|
|
|
64,517 |
59,157 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Cost at 31 December 2015 |
42,995 |
42,695 |
|
|
Investment holdings gains at 31 December 2015 |
16,162 |
15,527 |
|
|
|
_______ |
_______ |
|
|
Fair value at 31 December 2015 |
59,157 |
58,222 |
|
|
Purchases |
9,365 |
9,999 |
|
|
Amortised cost adjustments to fixed interest securities |
(27) |
(47) |
|
|
Sales - proceeds |
(7,201) |
(14,481) |
|
|
Sales - net gains |
2,547 |
4,829 |
|
|
Movement in investment holdings gains during the year |
676 |
635 |
|
|
|
_______ |
_______ |
|
|
Fair value at 31 December 2016 |
64,517 |
59,157 |
|
|
|
_______ |
_______ |
|
|
Cost at 31 December 2016 |
47,679 |
42,995 |
|
|
Investment holdings gains at 31 December 2016 |
16,838 |
16,162 |
|
|
|
_______ |
_______ |
|
|
Fair value at 31 December 2016 |
64,517 |
59,157 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
For an analysis of investments between equity and fixed interest securities and for detailed interest rates, see above. |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
Gains on investments |
£'000 |
£'000 |
|
|
Net realised gains on sales |
2,547 |
4,829 |
|
|
Movement in fair value |
676 |
635 |
|
|
|
_______ |
_______ |
|
|
Gains on investments |
3,223 |
5,464 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The total transaction costs on the purchases and sales in the year were £37,000 (2015 - £42,000) and £6,000 (2015 - £10,000) respectively. |
||
|
|
|
||
|
|
All investments are categorised as held at fair value through profit and loss. |
||
|
|
|
2016 |
2015 |
|
10. |
Other receivables |
£'000 |
£'000 |
|
|
Accrued income & prepayments |
271 |
257 |
|
|
|
_______ |
_______ |
|
|
None of the above amounts are overdue. |
|
|
|
|
|
2016 |
2015 |
|
|
11. |
Current liabilities |
£'000 |
£'000 |
|
|
|
(a) |
Bank loan included at amortised cost |
2,000 |
2,000 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Bank loan |
|
|
|
|
|
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. Tranche A has been included within the balance sheet as a non-current liability as noted below. £2 million has been drawn down on Tranche B. On 28 November 2016 Tranche B was rolled over for two months at a rate of 1.624630% per annum. Subsequently, the amount drawn down under Tranche B has been rolled over on a monthly basis with a rate of 1.565% applying at the date this report was approved. |
||
|
|
|
|
||
|
|
|
The Directors are of the opinion that the fair value of the short term bank loan at 31 December 2016 is not materially different from the book value. |
||
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
(b) |
Trade and other payables |
£'000 |
£'000 |
|
|
|
Investment management fee |
80 |
39 |
|
|
|
Interest payable |
30 |
31 |
|
|
|
Sundry creditors |
92 |
95 |
|
|
|
_______ |
_______ |
|
|
|
|
202 |
165 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
Non-current liabilities |
£'000 |
£'000 |
|
|
|
Bank loan included at amortised cost |
5,000 |
5,000 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
The fair value of the long term loan at 31 December 2016 is estimated to be £5,047,000 (2015-£5,025,000). |
|||
|
|
|
Ordinary shares |
|
|
|
|
of 50 pence each |
|
|
12. |
Called-up share capital |
Number |
£'000 |
|
|
Allotted and fully paid |
|
|
|
|
At 31 December 2016 and 31 December 2015 |
22,109,765 |
11,055 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
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. |
||
|
13. |
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 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. |
||||||||||||||
|
|
|
||||||||||||||
|
|
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 average |
|
|
|
|
||||||||
|
|
|
|
period for which |
average |
|
|
Non- |
||||||||
|
|
|
|
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) |
- |
- |
||||||||
|
|
|
Long-term bank loan |
1.33 |
2.47 |
(5,000) |
|
|
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
Total liabilities |
- |
- |
(7,000) |
- |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
Total |
- |
- |
(1,065) |
547 |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Weighted average |
|
|
|
|
||||||||
|
|
|
|
period for which |
average |
|
|
Non- |
||||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
Bearing |
||||||||
|
|
|
As at 31 December 2015 |
Years |
% |
£'000 |
£'000 |
|
||||||||
|
|
|
Assets |
|
|
|
|
|
||||||||
|
|
|
Corporate bonds |
19.67 |
5.65 |
2,067 |
- |
- |
||||||||
|
|
|
Preference shares |
- |
6.39 |
3,346 |
- |
- |
||||||||
|
|
|
Cash |
- |
- |
- |
3,014 |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
Total assets |
- |
- |
5,413 |
3,014 |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Liabilities |
|
|
|
|
|
||||||||
|
|
|
Short-term bank loan |
0.08 |
1.84 |
(2,000) |
- |
- |
||||||||
|
|
|
Long-term bank loan |
2.33 |
2.47 |
(5,000) |
|
|
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
Total liabilities |
- |
- |
(7,000) |
- |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
Total |
- |
- |
(1,587) |
3,014 |
- |
||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
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 11 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. |
|||||||||||||
|
|
|
Maturity profile |
|||||||||||||
|
|
|
The maturity profile of the Company's financial assets and liabilities at the Balance Sheet date was as follows:
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
More than |
|||||||
|
|
|
|
1 year |
1-2 years |
2-3 years |
3-4 years |
4-5 years |
5 |
|||||||
|
|
|
At 31 December 2016 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
|
Fixed rate |
|
|
|
|
|
|
|||||||
|
|
|
Corporate bonds |
- |
- |
- |
- |
- |
2,518 |
|||||||
|
|
|
Bank loan |
(2,000) |
(5,000) |
- |
- |
- |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
|
(2,000) |
(5,000) |
- |
- |
- |
2,518 |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
Floating rate |
|
|
|
|
|
|
|||||||
|
|
|
Cash |
547 |
- |
- |
- |
- |
- |
|||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
Total |
(1,453) |
(5,000) |
- |
- |
- |
2,518 |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
More than |
|||||||
|
|
|
|
1 year |
1-2 years |
2-3 years |
3-4 years |
4-5 years |
5 |
|||||||
|
|
|
At 31 December 2015 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
|
Fixed rate |
|
|
|
|
|
|
|||||||
|
|
|
Corporate bonds |
- |
- |
- |
- |
- |
2,067 |
|||||||
|
|
|
Bank loan |
(2,000) |
- |
(5,000) |
- |
- |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
|
(2,000) |
- |
(5,000) |
- |
- |
2,067 |
|||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
Floating rate |
|
|
|
|
|
|
|||||||
|
|
|
Cash |
3,014 |
- |
- |
- |
- |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
Total |
1,014 |
- |
(5,000) |
- |
- |
2,067 |
|||||||
|
|
|
|
______ |
______ |
______ |
_______ |
______ |
______ |
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
The maturity table above excludes the value of holdings in UK irredeemable preference shares held at the year end, as they are considered to be equity in nature due to there being no maturity dates. The value of these irredeemable preference shares at the year end equated to £3,417,000 (2015 - £3,346,000). |
|||||||||||||
|
|
|
|
|||||||||||||
|
|
|
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 2016 would decrease by approximately £65,000 (2015 - £40,000 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 2016 would decrease by £80,000 (2015 - £58,000 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 2016 would increase by approximately £65,000 (2015 - £40,000 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 2016 would increase by £80,000 (2015 - £58,000) 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 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 holding in Electricite de France, which is traded on Euronext Paris. |
|||||||||||||
|
|
|
|
|||||||||||||
|
|
|
Price sensitivity |
|||||||||||||
|
|
|
If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2016 would have increased by £5,858,000 (2015 - £5,374,000). 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 2016 would have decreased by £5,858,000 (2015 - £5,374,000).This is based on the Company's equity portfolio and convertibles held at each year end. |
|||||||||||||
|
|
|
|
|||||||||||||
|
|
(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 11). |
|||||||||||||
|
|
|
|
|||||||||||||
|
|
(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: |
|||||||||||||
|
|
|
|
|||||||||||||
|
|
|
|
2016 |
2015 |
|||||||||||
|
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||||
|
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||
|
|
|
Non-current assets |
|
|
|
|
|||||||||
|
|
|
Securities at fair value through profit or loss |
64,517 |
64,517 |
59,157 |
59,157 |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Current assets |
|
|
|
|
|||||||||
|
|
|
Accrued income |
271 |
271 |
257 |
257 |
|||||||||
|
|
|
Cash and cash equivalents |
547 |
547 |
3,014 |
3,014 |
|||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
|
|
65,335 |
65,335 |
62,428 |
62,428 |
|||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
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 table. For details of bond maturities and interest rates, see above. 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. |
|||||||||||||
|
14. |
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 1(c). The effect of this treatment on revenue and capital is set out below. |
||||
|
|
|
||||
|
|
As explained in note 1(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 capital and income 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. |
||||
|
|
|
||||
|
|
|
2016 |
2015 |
||
|
|
|
Income |
Capital |
Income |
Capital |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Finance costs arising on bank loan finance |
(25) |
(59) |
(27) |
(64) |
|
|
Return on corresponding investments |
(46) |
46 |
45 |
(45) |
|
|
Amortised cost adjustment charged to capital on debt securities |
27 |
(27) |
47 |
(47) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
(44) |
(40) |
65 |
(156) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
15. |
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 2016 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) |
60,944 |
- |
- |
60,944 |
|
|
|
Quoted bonds |
b) |
- |
3,573 |
- |
3,573 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Total |
|
60,944 |
3,573 |
- |
64,517 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2015 |
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted equities |
a) |
56,087 |
- |
- |
56,087 |
|
|
|
Quoted bonds |
b) |
- |
3,070 |
- |
3,070 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
Total |
|
56,087 |
3,070 |
- |
59,157 |
|
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
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 bonds |
|||||
|
|
|
The fair value of the Company's investments in Corporate quoted 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. |
|||||
|
|
|
|
|||||
|
|
There have been no transfers of assets or liabilities between levels of the fair value hierarchy during any of the above periods. |
||||||
|
16. |
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 2016 Annual Report and Accounts. |
|
|
|
|
|
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 3 and 4. |
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 2016. The statutory accounts for the year ended 31 December 2016 received an audit report which was unqualified.
The statutory accounts for the financial year ended 31 December 2016 were approved by the Directors on 9 March 2017 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 28 April 2017 at Bow Bells House, One Bread Street, London EC4M 9HH.
The Annual Report will be posted to shareholders in March 2017 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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