Half Yearly Report

RNS Number : 3404X

Aberdeen Smaller Co's High Inc Tst

28 August 2015

 

Aberdeen Smaller Companies High Income Trust PLC

Half Yearly Financial Report for the six months to 30 June 2015

Objective

Aberdeen Smaller Companies High Income Trust PLC aims 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.

Highlights	30 June 2015	31 December 2014	% change
Equity shareholders' funds (£'000)	57,189	50,098	+14.2
Net asset value per share	258.66p	226.59p	+14.2
Share price (mid-market)	220.25p	184.00p	+19.7
Discount to adjusted net asset value{A}	14.3%	18.2%
Dividend yield	3.0%	3.5%
{A} Based on IFRS net asset value above reduced by dividend adjustment of 1.65p (31 December 2014 - 1.65p).

Performance (total return)	Six months ended	1 year ended	3 years ended	5 years ended
	30 June 2015	30 June 2015	30 June 2015	30 June 2015
Share price	+ 21.8%	+ 8.5%	+ 107.2%	+ 162.5%
Net asset value per share	+ 15.8%	+ 16.2%	+ 96.2%	+ 150.4%
FTSE SmallCap Index (ex IC's)	+ 11.9%	+ 8.4%	+ 88.3%	+ 119.5%
FTSE All-Share Index	+ 3.0%	+ 2.6%	+ 29.2%	+ 96.7%
Markit iBoxx Sterling Non-Gilts 1-15 Years Index{A}	- 0.1%	+ 5.5%	+ 19.8%	+ 34.6%
{A}        Source: Aberdeen Asset Management, Markit iBoxx, Morningstar & Factset.
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT

Performance

After a flat 2014 the first half of 2015 has seen the shares of smaller companies deliver strong returns. Positive UK economic data has been a favourable background for smaller companies whereas the tougher global economic backdrop has impacted equity markets more broadly. We have also seen a period of increased volatility in Europe with the Greek default and referendum weighing heavily on investor sentiment.  This has led to generally lacklustre global equity market performance with the FTSE 100 up 1.4%, S&P 500 0.3% and Europe (excluding UK) 4.4%.  In contrast the FTSE Small-Cap (ex-IT) benchmark rose 11.9% on a total return basis with the Trust outperforming with a total return of 15.8%.

Splitting out the asset class performance, the Equity portfolio returned 16.2%, Preference Shares and Convertibles 4.4% and 6.8% respectively while Fixed Interest fell 0.2%. The split of assets at the end of June has continued to tilt towards equity through superior returns. The Manager has taken no further action in reducing the allocation to fixed income. The Board and Manager are also comfortable that the current split reflects our view on valuations across the spectrum of investable assets.

The Board has supplemented the strong capital growth with increased first and second quarter dividends to 1.65p per share. We continue to believe in a progressive dividend policy although I would reiterate that the current yield environment remains tough across the asset class spectrum.

Overview

There have been a number of interesting themes through the first half of 2015 none more so than the collapse in commodity prices. The Manager has long felt, from a quality perspective, that these sectors are tough given their volatility, difficulty in forecasting commodity prices and lack of diversification. The Trust has generally chosen to gain exposure to the sector through the service providers including James Fisher, Aveva, Elementis and recent introduction Exova. Whilst these companies have been impacted to varying degrees, each is protected somewhat by flexibility in the cost-base and divisional diversification. The Manager has been conducting a detailed analysis of the sector as there is value on offer although they are aware that cash-flow remains depressed and balance sheets have come under pressure.

The earnings season was positive for the Trust with very few company specific issues. That said the market quickly turns its focus to the forward looking or outlook statements which as you would expect, this early in the year, strike a cautious tone. Profits visibility remains low and with emerging market weakness, currency volatility and a tough commodity price environment companies are facing headwinds. The Manager has conducted meetings with the majority of their company-holdings over the last six months and has been broadly encouraged by the conversations. These meetings have also allowed the Manager to revisit the valuations and with the strong returns seen over the first-half this has been a good opportunity to reallocate capital to areas of relative value. We have also been encouraged by the tone the Manager has struck at recent Board meetings where they feel valuations are looking more appealing.

During the period the Trust has seen bids made for two of its holdings. The first of these was Domino Printing that received a recommended bid from Brother Industries at a 43% premium to the prevailing share price. The offer price reflected a full valuation considering the uncertainty in the market, especially in China. The position was halved above the offer price with the remainder of the holding tendered. We also had a bid for Anite which sells telecom testing software into the handset and network markets. On this occasion the Manager felt the approach from Keysight Technologies didn't reflect the full value of the company. The Manager, therefore, engaged with Keysight and the Board and management team of Anite on this issue to reflect their concerns on the valuation being offered. They were disappointed that this offer was recommended by the Board at what they believed was a difficult time for the company given end market weakness. Their efforts on this matter didn't have the desired outcome but as a Board we were encouraged by the actions taken to seek value for our shareholders. Post the period end Aveva have decided to put their business together with Schneider's Invensys assets. The deal looks logical from initial due diligence and the Manager feels the potential synergies will provide some decent upside over the medium term. It remains early in the discussion process and the Manager has further work to conduct before finalising their thoughts.

The Manager used the proceeds from the Domino acquisition to introduce two new positions, Exova and Xaar. Exova provide laboratory based testing into the Aerospace, Oil & Gas, Industrial, Health Sciences, Fire and Transportation markets. These markets are growing in large part due to the critical nature of the products, high cost of failure and regulation. Within Aerospace, for example, they stress test parts for Rolls Royce coming off the production line to make sure that they meet the tolerances and pressures required. There is therefore a high degree of recurring revenue where this is mandated or required work. Xaar is a leading designer and manufacturer of digital print heads. The business possesses a significant amount of intellectual property and benefits from high barriers to entry. Demand for their products is undergoing structural growth driven by a number of end markets and the growth in digital printing as a whole. The timing and development of these markets is unpredictable leading to lumpiness in profits, but with expectation of growth over the long term. The lumpiness can cause fluctuations in the share price and it was such an event that created the opportunity for us to build an initial position in a company we have followed for some time.

Bond markets have been volatile this year with the European Central Bank's decision to finally confirm the imminent Quantitative Easing programme which was positively received. That said the markets have become heavily skewed with yields negative across parts of Northern Europe which is not a sustainable position. Because of this we are seeing investors chase high yield debt and also hybrid securities which are more akin to equity and therefore carry a much higher risk profile. The pursuit of yield and a disregard for risk in parts of the market is a strategy which the Board remains wary of. Closer to home the UK market has also been broadly supportive of yields tightening with unemployment continuing to decline, inflation low and growth trending around the 2.5% level.

At a portfolio level we continue to run the same strategy with a blue-chip short duration conservative portfolio. The fixed income portfolio represents 4.4% of the total assets of the Trust which is reflective of our thoughts around valuation. The Manager has found it difficult to find reinvestment opportunities where bonds have matured and doesn't expect this to change in the short-term. In terms of activity the NatWest 5.9779% was eventually called at par in January. This had been one of the Trust's top performers over the last few years having traded at a huge discount to par through the financial crisis. This yield could not be replaced without taking on considerable risk which is perhaps driving some of the behaviour mentioned above. Our Stagecoach 5.75% bond is also due to mature in 2016 and whilst the yield is tighter again we will continue to face a reinvestment headwind. In this environment, and one where we don't want to add equity gearing, the Manager has sought opportunities in equity markets to improve the yield. This Manager does not feel this is at the expense of potential growth and has been a valuation call by the Manager as part of the work conducted post the recent round of management meetings.

The preference share and convertible portfolio has delivered decent returns over the first half. This was mainly driven by the General Accident and Aviva holdings which rose near to all-time highs. This has been driven by the performance of the underlying business but these are also unique assets in the current low yield environment. They have weakened of late but remain core to the revenue generation of the Trust despite being a small part of the total assets.

Gearing/Debt

The Board have discussed the structure of the portfolio and the level of gearing we feel is appropriate for the current environment. Following on from our discussion in the 2015 Annual Report the first agenda item this year was the refinancing of the Trust's debt facility which was due to mature in June. The Board had three objectives with the new facilities. First of all we wanted to provide some protection to interest rate rises by fixing half of the facility.  Secondly, to stagger the maturity terms which provides the Board and Manager optionality should we find ourselves in a tougher lending environment, as was seen during the financial crisis. Finally the Board wanted to deliver this flexibility and protection at the on the best possible terms. We managed to deliver on all fronts which leaves the Trust in a strong financial position with 3 and 5 year debt secured at rates that attractive rates.

The other side of the decision was how we deploy the £10 million facility which until recently was fully drawn and invested. The Manager had been 4% geared into Equities at the outset of the year but we felt that a neutral position was more appropriate given the recent performance. We also reviewed the level of gearing we wanted into the fixed income market. As you are aware we have been running a short duration portfolio to protect the downside. We have seen a number of bonds reach maturity or yields compress to levels which made the investment uneconomical. We have therefore repaid £2 million of the £5 million revolving debt facility. Total gearing (against Net Asset Value) of the Trust was 12.6% as at 30 June 2015 compared to 16.5% at the outset of the year.  As markets are dynamic, we will continue to monitor this at our forthcoming Board meetings.

Dividend

The dividend outlook hasn't changed much from the comments I made at the full-year. The equity portfolio continues to deliver steady mid-single digit dividend growth on average which is broadly in line with the earnings per share growth. The headwind has been driven by the fixed income portfolio which we discussed above although this is coming towards an end. It is also a less significant part of the Trust's revenue today (7%).  It is also worth noting that we have managed to grow the dividend through this period whilst also reducing the gearing. It would have been easier for the Board to grow the dividend had we decided to take a less conservative approach to the fixed income portfolio or to keep a higher level of gearing in place. As a Board we will not sacrifice the long-term strategy for short-term gains which is the message that we have consistently presented to our shareholders.

Our focus on balance sheet strength has also seen four of our holdings announce special dividends; Elementis, Victrex, Hiscox and Greggs. I would remind you that we don't factor these into the assumptions for the Trust's dividend growth. We view these as one-off in nature and whilst they don't accrue in dividend increases they do go into the Trust's revenue reserves which the Board has used to top up the dividend in tougher times.

The Board therefore feel the Trust is well placed to deliver a progressive dividend despite the challenges that we are facing in the market.

Outlook

The Manager has been encouraged by the operational performance of the Trust's holdings at the beginning of 2015. We felt at the outset of the year that the Trust could deliver single digit earnings per share growth supplemented by steady dividend growth and mid-way through the year we stand by this outlook. We have seen volatility increase over the last month with a slowdown in China the main concern. Whilst smaller companies are not immune from this weakness the Trust has minimal exposure to the region. We are, however, encouraged that we are seeing value appear which in part is due to this volatility and we will use these opportunities to add to holdings where we feel share prices don't reflect company fundamentals. That said the Board is acutely aware of the returns that smaller companies have delivered over the last five years to our shareholders and preservation of capital therefore remains at the forefront of discussions at our Board meetings.

Carolan Dobson

Chairman

27 August 2015

INTERIM BOARD REPORT - OTHER

Principal Risks and Uncertainties

The principal risks facing the Company relate to the Company's investment activities and include market risk (comprising interest rate risk and other price risk), liquidity risk and credit risk. The Board has adopted a matrix of the key risks that affect its business.

Investment Risk

The Directors are responsible for determining the investment policy and the investment objectives of the Company, while 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 Board approval is required before any exceptions are permitted. 

 

Equity Investment Process

The equity investment process is active and  bottom-up, based on a  disciplined evaluation of companies through direct visits by the Manager. Stock selection is the major source of added value, concentrating on company quality first, then value.

Great emphasis is placed on understanding the business and understanding how it should be valued. New investments are not made without the Manager having first met management of the investee company, undertaken further analysis and written detailed notes 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 Manager which include: 

 

-         No holding in a single fixed interest security to exceed 5% of the total bond issue of the investee company

-         Maximum acquisition cost of an investment grade bond is £1 million and of an non-investment grade bond is £500,000

Gearing Risk

Gearing has the effect of accentuating market falls and market gains. The Company's gearing currently in place is a £10 million facility comprising a £5 million three year fixed loan and £5 million five year floating rate loan. As at 30 June 2015 £8 million of the total facility was drawn down. 

Income and Dividend Risk

The ability of the Company to pay dividends and any future dividend growth will depend primarily on the level of income generated from its investments and the timing of receipt of such income by the Company and the size of the Company's revenue reserves, accordingly there is no guarantee that the Company's dividend objective will continue to be met. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting.

Going Concern

In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued in September 2014, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist entirely of equity shares in companies listed on the London Stock Exchange which are, in most circumstances, realisable within a short timescale.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-    the condensed set of Financial Statements has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'

-    the Half-Yearly Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year)

-    the Half-Yearly Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half Yearly Financial Report for the six months to 30 June 2015 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board of Aberdeen Smaller Companies High Income Trust PLC

Carolan Dobson

Chairman

27 August 2015

Distribution of Assets and Liabilities

	Valuation at		Movement during the period				Valuation at
	31 December					Gains/	30 June
	2014		Purchases	Sales	Other{A}	(losses)	2015
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	50,748	101.3	4,691	(5,093)	-	7,015	57,361	100.3
Convertibles	1,016	2.0	-	-	-	37	1,053	1.8
Corporate Bonds	3,234	6.5	521	(968)	(29)	(25)	2,733	4.8
Other fixed interest	3,224	6.4	-	-	-	50	3,274	5.7
	_______	_______	_______	_______	_______	_______	_______	_______
	58,222	116.2	5,212	(6,061)	(29)	7,077	64,421	112.6
	_______	_______	_______	_______	_______	_______	_______	_______
Current assets	2,115	4.2					1,003	1.8
Other current liabilities	(239)	(0.5)					(235)	(0.4)
Long-term loan	(10,000)	(19.9)					(8,000)	(14.0)
	_______	_______					_______	_______
Net assets	50,098	100.0					57,189	100.0
	_______	_______					_______	_______
Net asset value per share	226.6p						258.7p
	_______						_______
{A}        Represents amortisation costs on debt securities of £29,000.

Condensed Statement of Comprehensive Income  

		Six months ended
		30 June 2015
		(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Dividend income	2	1,159	-	1,159
Interest income from investments	2	122	(29)	93
Other income	2	1	-	1
Gains/(losses) on investments held at fair value		-	7,077	7,077
		_________	_________	_________
Total income		1,282	7,048	8,330
		_________	_________	_________
Expenses
Investment management fees		(71)	(166)	(237)
Other administrative expenses		(186)	-	(186)
Finance costs of borrowing		(26)	(60)	(86)
		_________	_________	_________
Profit/(loss) before taxation		999	6,822	7,821
		_________	_________	_________
Taxation	3	-	-	-
Profit/(loss) attributable to equity holders	4	999	6,822	7,821
		_________	_________	_________
Return per Ordinary share (pence)	5	4.52	30.86	35.37
		_________	_________	_________
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.
The Company does not have any income or expense that is not included in profit for the period, and therefore the "Profit attributable to equity holders" is also the "Total comprehensive income attributable to equity holders".
All items in the above statement derive from continuing operations.

Condensed Statement of Comprehensive Income 

(Continued)

		Six months ended			Year ended
		30 June 2014			31 December 2014
		(unaudited)			(audited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Dividend income	2	1,008	-	1,008	1,840	-	1,840
Interest income from investments	2	131	(18)	113	265	(34)	231
Other income	2	-	-	-	12	-	12
Gains/(losses) on investments held at fair value		-	(1,880)	(1,880)	-	(2,207)	(2,207)
		_______	_______	_______	_______	_______	_______
Total income		1,139	(1,898)	(759)	2,117	(2,241)	(124)
		_______	_______	_______	_______	_______	_______
Expenses
Investment management fees		(70)	(164)	(234)	(137)	(319)	(456)
Other administrative expenses		(161)	-	(161)	(347)	-	(347)
Finance costs of borrowing		(26)	(62)	(88)	(54)	(124)	(178)
		_______	_______	_______	_______	_______	_______
Profit/(loss) before taxation		882	(2,124)	(1,242)	1,579	(2,684)	(1,105)
		_______	_______	_______	_______	_______	_______
Taxation	3	-	-	-	-	-	-
Profit/(loss) attributable to equity holders	4	882	(2,124)	(1,242)	1,579	(2,684)	(1,105)
		_______	_______	_______	_______	_______	_______
Return per Ordinary share (pence)	5	3.99	(9.61)	(5.62)	7.14	(12.14)	(5.00)
		_______	_______	_______	_______	_______	_______

Condensed Balance Sheet

		As at	As at	As at
		30 June 2015	30 June 2014	31 December 2014
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		57,361	52,596	50,748
Convertibles		1,053	1,043	1,016
Corporate bonds		2,733	3,193	3,234
Preference shares		3,274	3,246	3,224
		____________	____________	____________
Securities at fair value		64,421	60,078	58,222
		____________	____________	____________
Current assets
Cash and cash equivalents		679	386	1,747
Other receivables		324	426	368
		____________	____________	____________
Total current assets		1,003	812	2,115
		____________	____________	____________
Total assets		65,424	60,890	60,337
Current liabilities
Short-term loan		(3,000)	-	(10,000)
Trade and other payables		(235)	(221)	(239)
		____________	____________	____________
Total current liabilities		(3,235)	(221)	(10,239)
		____________	____________	____________
Non-current liabilities
Long-term loan		(5,000)	(10,000)	-
		____________	____________	____________
Total liabilities		(8,235)	(10,221)	(10,239)
		____________	____________	____________
Net assets		57,189	50,669	50,098
		____________	____________	____________
Issued capital and reserves attributable to equity holders
Called-up share capital		11,055	11,055	11,055
Share premium account		11,892	11,892	11,892
Capital redemption reserve		2,032	2,032	2,032
Capital reserve	6	29,725	23,463	22,903
Revenue reserve		2,485	2,227	2,216
		____________	____________	____________
Equity shareholders' funds		57,189	50,669	50,098
		____________	____________	____________
Net asset value per Ordinary share (pence)	5	258.66	229.17	226.59
		____________	____________	____________

Condensed Statement of Changes in Equity

Six months ended 30 June 2015 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2014		11,055	11,892	2,032	22,903	2,216	50,098
Revenue profit for the period		-	-	-	-	999	999
Capital loss for the period		-	-	-	6,822	-	6,822
Equity dividends	4	-	-	-	-	(730)	(730)
		______	______	______	______	______	______
Balance at 30 June 2015		11,055	11,892	2,032	29,725	2,485	57,189
		______	______	______	______	______	______
Six months ended 30 June 2014 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2013		11,055	11,892	2,032	25,587	2,052	52,618
Revenue profit for the period		-	-	-	-	882	882
Capital profit for the period		-	-	-	(2,124)	-	(2,124)
Equity dividends	4	-	-	-	-	(707)	(707)
		______	______	______	______	______	______
Balance at 30 June 2014		11,055	11,892	2,032	23,463	2,227	50,669
		______	______	______	______	______	______
Year ended 31 December 2014 (audited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2013		11,055	11,892	2,032	25,587	2,052	52,618
Revenue profit for the year		-	-	-	-	1,579	1,579
Capital profit for the year		-	-	-	(2,684)	-	(2,684)
Equity dividends	4	-	-	-	-	(1,415)	(1,415)
		______	______	______	______	______	______
Balance at 31 December 2014		11,055	11,892	2,032	22,903	2,216	50,098
		______	______	______	______	______	______

Condensed Cash Flow Statement

	Six months ended	Six months ended	Year ended
	30 June 2015	30 June 2014	31 December 2014
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	1,274	1,069	2,121
Deposit interest received	1	-	-
Investment management fees paid	(307)	(234)	(460)
Other cash expenses	(177)	(158)	(320)
	___________	___________	___________
Cash generated from operations	791	677	1,341
Interest paid	(83)	(89)	(178)
	___________	___________	___________
Net cash inflows from operating activities	708	588	1,163
	___________	___________	___________
Cash flows from investing activities
Purchases of investments	(5,153)	(4,077)	(7,068)
Sales of investments	6,107	2,899	7,384
	___________	___________	___________
Net cash inflows/(outflows) from investing activities	954	(1,178)	316
	___________	___________	___________
Cash flows from financing activities
Loan repaid	(7,000)	-	-
Loan drawdown	5,000	-	-
Equity dividends paid	(730)	(707)	(1,415)
	___________	___________	___________
Net cash outflows from financing activities	(2,730)	(707)	(1,415)
	___________	___________	___________
Net (decrease)/increase in cash and cash equivalents	(1,068)	(1,297)	64
Cash and cash equivalents at the start of the period	1,747	1,683	1,683
	___________	___________	___________
Cash and cash equivalents at the end of the period	679	386	1,747
	___________	___________	___________
Cash and cash equivalents comprise:
Cash and cash equivalents	679	386	1,747
	___________	___________	___________

1.	Accounting policies
	(a)	Basis of preparation
		The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board ('IASB'), and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') of the IASB. They have also been prepared using the same accounting policies applied for the year ended 31 December 2014 financial statements, which received an unqualified audit report.
		At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective. The following are the Standards and amendments to existing Standards which may be relevant but not yet effective. Other Standards, Interpretations and amendments to Standards which are not yet effective and not relevant have not been included;
		IFRS 9 - Financial Instruments: Classification and Measurement (current proposed effective date for implementation 1 January 2018)
		IAS 34 - Interim Financial Reporting regarding disclosure of information (current proposed effective date for implementation 1 January 2016)
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.

		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
2.	Income	£'000	£'000	£'000
	Income from investments
	Dividend income from UK equity securities	969	847	1,547
	Dividend income from overseas equity securities	171	126	185
	Stock dividends	-	32	93
	Property income distribution	19	3	15
	Interest income from investments	122	131	265
		__________	__________	__________
		1,281	1,139	2,105
		__________	__________	__________
		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
	Other Income	£'000	£'000	£'000
	Bank interest	1	-	1
	Underwriting commission	-	-	11
		__________	__________	__________
		1	-	12
		__________	__________	__________
	The Company amortises the premium or discount on acquisition on debt securities against unrealised capital reserve. For the six months to 30 June 2015 this represented £29,000 (30 June 2014 - £18,000; 31 December 2014 - £34,000) which has been reflected in the capital column of the Condensed Statement of Comprehensive Income.

3.	Taxation
	The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on management's best estimate of the weighted average annual corporation tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 December 2015 is 20.25%.

4.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
		£'000	£'000	£'000
	Revenue	999	882	1,579
	Dividends declared	(730){A}	(707){B}	(1,426){C}
		__________	__________	__________
		269	175	153
		__________	__________	__________
	{A}        Dividends declared relate to first two interim dividends (both 1.65p each) declared in respect of the financial year 2015.
	{B}        Dividends declared relate to first two interim dividends (both 1.60p each) declared in respect of the financial year 2014.
	{C}        Dividends declared relate to the four interim dividends declared in respect of the financial year 2014 totalling 6.45p.

		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
5.	Return and net asset value per share	p	p	p
	Revenue return	4.52	3.99	7.14
	Capital return	30.86	(9.61)	(12.14)
		__________	__________	__________
	Total return	35.37	(5.62)	(5.00)
		__________	__________	__________
	The returns per share are based on the following figures:
		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
		£'000	£'000	£'000
	Revenue return	999	882	1,579
	Capital return	6,822	(2,124)	(2,684)
		__________	__________	__________
	Total return	7,821	(1,242)	(1,105)
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	22,109,765	22,109,765	22,109,765
		__________	__________	__________
	The net asset value per share is based on net assets attributable to shareholders of £57,189,000 (30 June 2014 - £50,669,000; 31 December 2014 - £50,098,000) and on 22,109,765 (30 June 2014 - 22,109,765; 31 December 2014 - 22,109,765) Ordinary shares in issue at each period end.

6.	Capital reserves
	The capital reserve reflected in the Balance Sheet at 30 June 2015 includes gains of £20,798,000 (30 June 2014 - gains of £17,497,000; 31 December 2014 - gains of £15,527,000) which relate to the revaluation of investments held at the reporting date.

7.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains on investments held at fair value in the Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 June 2015	30 June 2014	31 December 2014
		£'000	£'000	£'000
	Purchases	21	17	27
	Sales	5	3	7
		__________	__________	__________
		26	20	34
		__________	__________	__________

8.	Fair value hierarchy
	IFRS 13 'Fair Value Measurement' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making 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 Balance Sheet are grouped into the fair value hierarchy as follows:
			Level 1	Level 2	Level 3	Total
	At 30 June 2015 (unaudited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	60,635	-	-	60,635
	Quoted bonds	b)	3,786	-	-	3,786
			________	________	________	________
			64,421	-	-	64,421
	Financial liabilities at fair value through profit or loss
	Financial liabilities at amortised cost	c)	-	(8,000)	-	(8,000)
			________	________	________	________
	Net fair value		64,421	(8,000)	-	56,421
			________	________	________	________
			Level 1	Level 2	Level 3	Total
	At 30 June 2014 (unaudited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	55,842	-	-	55,842
	Quoted bonds	b)	4,236	-	-	4,236
			________	________	________	________
			60,078	-	-	60,078
	Financial liabilities at fair value through profit or loss
	Financial liabilities at amortised cost	c)	-	(10,000)	-	(10,000)
			________	________	________	________
	Net fair value		60,078	(10,000)	-	50,078
			________	________	________	________
			Level 1	Level 2	Level 3	Total
	At 31 December 2014 (audited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	53,972	-	-	53,972
	Quoted bonds	b)	4,250	-	-	4,250
			________	________	________	________
			58,222	-	-	58,222
	Financial liabilities at fair value through profit or loss
	Financial liabilities at amortised cost	c)	-	(10,000)	-	(10,000)
			________	________	________	________
	Net fair value		58,222	(10,000)	-	48,222
			________	________	________	________
	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.
	c)     Financial liabilities at amortised cost
	Financial liabilities in the form of short-term and long-term borrowings are held at amortised cost. The fair value is considered to approximate the carrying value.
	There have been no transfers of assets or liabilities between levels of the fair value hierarchy during any of the above periods.

9.	Publication of non-statutory accounts
	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 June 2015 and 30 June 2014 has not been audited.
	The information for the year ended 31 December 2014 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

10.	This Half-Yearly Financial Report was approved by the Board on 27 August 2015.

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

Investment Portfolio - Ordinary Shares

As at 30 June 2015

		Market	Total
		value	portfolio
Company	Sector	£'000	%
RPC Group		2,388	3.7
Europe's leading manufacturer of rigid plastic packaging which is benefiting from lightweighting, product innovation, and a pan-european footprint giving them the ability to target the large FMCG companies.	General Industrials
Wilmington		2,359	3.7
Provider of B2B digital services in niche areas of compliance, pensions, and Insurance. The model is predominantly subscription based with high level of recurring revenue.	Media
XP Power		2,354	3.7
XP Power designs and produces power control components. They sell critical high cost of failure low value equipment to healthcare, industrial and technology industries. Their investment into new facilities and R&D is driving future growth.	Electronic & Electrical Equipment
Dechra Pharmaceuticals		1,996	3.1
Develops, manufactures and distributes veterinary pharmaceuticals with excellent opportunities to expand further into both Europe and the US.	Pharmaceuticals & Biotechnology
Euromoney Institutional Investor		1,874	2.9
Online media business aimed at servicing the financial sector through their market leading BCA business. High recurring subscription base provides a solid backdrop.	Media
Acal		1,794	2.8
Manufacturer and supplier of custom designed and built electronics to the industrial and medical sectors.	Support Services
Berendsen		1,692	2.6
European textile services business with high barriers to entry and strong customer relationships. Business has been focused around core growth opportunities which are gaining traction.	Support Services
Interserve		1,671	2.6
Interserve provides advice, design, construction and maintenance services for buildings and infrastructure, runs the operational systems and back-office that support them and provides a range of plant and equipment in specialist fields.	Support Services
Devro		1,655	2.6
Producer of collagen-based casings for the food industry including sausages, salami, hams and other cooked meats.	Food Producers
Helical Bar		1,610	2.5
Develops, invests and trades property in the United Kingdom, deriving rental income from retail, office and industrial properties.	Real Estate Investment & Services
Ten largest investments		19,393	30.2

Investment Portfolio - Ordinary Shares

As at 30 June 2015

		Market	Total
		value	portfolio
Company	Sector	£'000	%
Chesnara	Life Insurance	1,589	2.5
Hansteen	Real Estate Investment Trusts	1,581	2.5
Aveva Group	Software & Computer Services	1,564	2.4
Close Brothers	Financial Services	1,559	2.4
Morgan Sindall	Construction & Materials	1,553	2.4
Mothercare	General Retailers	1,544	2.4
Elementis	Chemicals	1,506	2.3
Anite	Software & Computer Services	1,502	2.3
Fenner	Industrial Engineering	1,474	2.3
Robert Walters	Support Services	1,405	2.2
Twenty largest investments		34,670	53.9
Manx Telecom	Fixed Line Telecommunications	1,297	2.0
Victrex	Chemicals	1,274	2.0
BBA Aviation	Industrial Transportation	1,273	2.0
Rathbone Brothers	Financial Services	1,256	2.0
Fuller Smith & Turner 'A'	Travel & Leisure	1,204	1.9
TT Electronics	Electronic & Electrical Equipment	1,185	1.8
Dignity	General Retailers	1,157	1.8
Fisher James	Industrial Transportation	1,150	1.8
Oxford Instruments	Electronic & Electrical Equipment	1,108	1.7
Intermediate Capital Group	Financial Services	1,088	1.7
Thirty largest investments		46,662	72.6
Savills	Real Estate Investment & Services	1,060	1.7
Hiscox	Non- Life Insurance	1,059	1.6
Abcam	Pharmaceuticals & Biotechnology	1,036	1.6
Bloomsbury Publishing	Media	912	1.4
Huntsworth	Media	869	1.3
Bellway	Household Goods & Home Construction	866	1.3
Keller Group	Construction & Materials	834	1.3
Exova	Support Services	797	1.2
Greggs	Food & Drug Retailers	722	1.1
Xaar	Electronic & Electrical Equipment	656	1.0
Forty largest investments		55,473	86.1
The Restaurant Group	Travel & Leisure	647	1.0
Numis	Financial Services	643	1.0
Barr (AG)	Beverages	598	0.9
Total Ordinary shares		57,361	89.0

Investment Portfolio - Other Investments

As at 30 June 2015

	Market	Total
	value	portfolio
Company	£'000	%
Convertibles
Balfour Beatty Cum Conv 10.75%	1,053	1.7
Total Convertibles	1,053	1.7
Corporate Bonds
Stagecoach Group 5.75% 2016	633	1.0
Wales & West Utilities Finance 6.75% 2036	563	0.9
Anglian Water 4.5% 2026	524	0.8
HFC Bank 7% 2015	507	0.8
Electricite de France 6%A	506	0.8
Total Corporate Bonds	2,733	4.3
Preference shares
General Accident 8.875%	1,256	1.9
Aviva 8.75%	1,250	1.9
Ecclesiastical Insurance 8.625%	768	1.2
Total Preference shares	3,274	5.0
Total Other Investments	7,060	11.0
Total Investments	64,421	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.

 

END

 

 

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