Annual Financial Report
1 November 2017
EDINBURGH DRAGON TRUST plc
ANNUAL FINANCIAL REPORT FOR THE YEAR TO 31 AUGUST 2017
Edinburgh Dragon Trust's objective is long-term capital growth through investment in Asia with the exception of Japan and Australasia. Investments are made primarily in stock markets in the region, principally in large companies. When appropriate the Company will utilise gearing to maximise long term returns.
The Company`s benchmark is the MSCI All Country Asia (ex Japan) Index.
- For the year to 31 August 2017, the Company delivered a second year of double digit returns, with the NAV rising by 21.6% on a total return basis. However, this performance was less than the benchmark's increase of 27.2% in sterling terms.
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- Following concerns over performance, the Board undertook a detailed assessment of the Manager and commissioned a global consultancy firm to assist with its evaluation of Aberdeen's investment style and performance. That evaluation concluded that, given Aberdeen's investment style and the direction of markets over the past 5 years, the Manager's performance was not out of line with expectations. As a result of this report and their own due diligence, the Board resolved to retain Aberdeen as Manager having agreed a number of clear parameters to be used to monitor the ongoing suitability of Aberdeen.
- Taking into account the downward pressures on management fees, the Board has agreed with the Manager a reduction in the management fee for the Trust. With effect from 1 September 2017, the management fee will be calculated at 0.85% of net assets up to £350 million and 0.5% of net assets exceeding £350 million.
- Against a background of global economic and geo-political challenges, Asian fundamentals and markets have proved to be resilient. Strong domestic demand and rapidly growing consumption underpin the economies of three of the region's most populous nations. Frontier markets offer fresh and attractive opportunities for investment as companies within these markets develop.
- Aberdeen has been a long-term investor in Asia, and with its local presence in key markets, has the necessary experience and resources to seek good quality companies in the region that can provide medium to long-term growth for investors.
For further information please contact:-
Adrian Lim, Senior Investment Manager,
Aberdeen Asset Management Asia 0065 6395 2700
Jonathon McManus, Manager - Investment Trust Investor Relations, 0207 618 1444
Aberdeen Asset Management
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
Overview
Asian equities posted good absolute returns in a year of unsettling political events, from the unexpected election of Donald Trump as US President to North Korea's rising belligerence. Accommodative monetary policy played a major role in driving the region's performance. Although the US Federal Reserve delivered three well-telegraphed interest rate hikes and signalled its intent to reverse quantitative easing, it was at odds with its peers across the rest of the world. Hence, global liquidity stayed abundant and investors chased better returns, particularly in Asia, where economic activity and reforms seemed to underpin rapidly-rising valuations.
Over the year to 31 August 2017, your Company's net asset value (diluted) rose by 21.6% on a total-return basis, the second year of double-digit returns. Even then, this was less than the benchmark MSCI All Country Asia (ex Japan) Index's rise of 27.2% in sterling terms, albeit still ahead of the MSCI World Index's gain of 19.1%. As with the previous reporting year, sterling's weakness against the US dollar and most Asian currencies enhanced the Company's absolute returns and benefited UK investors.
The share price rose by 19.5% to 361.0p, with the discount to NAV (diluted) widening marginally, from 12.4% at the start of the period to 13.1% as at 31 August 2017. Since the year end, this discount has narrowed to 11.7% as at 31 October 2017.
Underperformance is never pleasing. Undoubtedly, the easy money environment has inflated asset prices, and created challenging conditions for your Manager, who adheres to a principled fundamental stock picking approach. This should position the portfolio soundly as the world`s central banks confront the need to moderate policy and reduce the forces of liquidity which have buoyed markets.
For your Board, the case for investing in Asia remains compelling, framed by the twin growth engines of China and India. Notably, China's investment profile continues to strengthen, underscored by benchmark provider MSCI's decision to include A-shares in its key indices, a move that should improve foreign participation and raise governance standards. For India, bold reforms augur well for the long-term prospects of the economy and its markets. Further afield, smaller, frontier markets appear attractive but not without their own unique challenges. These are underpenetrated markets with young populations, nascent middle-classes with rising buying power, as well as increasingly sophisticated governments that recognise the need for infrastructure development to overcome potential bottlenecks. All these characteristics open up a wide range of opportunities for an experienced investor.
Performance
Overall, the Company's light exposure to China, one of the best-performing regional markets, was largely the reason for your Company's underperformance. In particular, relative returns were hindered by the lack of exposure to mainland internet stocks, which rallied on the back of healthy earnings. While China's stock markets are gaining greater acceptance globally, your Manager has been more circumspect because of the markets' speculative nature, concerns over the state's heavy-handed intervention and generally still-low standards of corporate governance. There has been a gradual increase in the portfolio's exposure to China as more well-run companies are identified. The Company now has exposure to several A-share holdings, including video surveillance specialist Hangzhou Hikvision, top white-spirit distiller Kweichow Moutai and Shanghai International Airport, all of which contributed to relative performance over the year.
Elsewhere, the considerable exposure to India, notably in the underlying stock selection, contributed significantly to performance, affirming your Manager's long-held conviction that some of the best companies in Asia are to be found there. A more detailed analysis of your Company's performance is contained in the Investment Manager's Review.
Board Review of the Investment Management Process
The Company's objective is to provide investors with medium- to long-term capital growth by investing in good quality companies in the Asia ex Japan region. During 2016 and 2017, the Board conducted due diligence visits to Aberdeen's offices in Singapore where it met several members of the fund management, research and risk teams, including Flavia Cheong, Head of Asian Equities and Adrian Lim, your portfolio manager. Given ongoing performance concerns however, this year the Board also commissioned a global consultancy firm to assist the Board with its evaluation of Aberdeen's investment style and actions that have impacted performance, and whether retaining Aberdeen remains an appropriate course of action. This consultancy, backed by a large research team, has vast experience of working with active managers.
The results of the review suggest that your Manager's performance for the Trust had been in line with what would be expected over a full market cycle. In particular, the style of investing is consistent with that which your Manager employs for other similar mandates. The Board is comfortable therefore that the investment process is not broken, and recognizes Aberdeen's enhancements to that process. In addition, given the direction of markets over the past 5 years it is not surprising that the strategy had underperformed the benchmark to some extent.
The consultancy's advice was to retain your Manager, subject to the Board being comfortable with the expected outperformance target that is likely to be achieved over a given time horizon. The Board considered this advice in conjunction with its own reviews, meetings and experience with your Manager and concluded that the ongoing appointment of your Manager continues to be in the best interest of shareholders. The Board have agreed clear parameters with the Manager against which they will monitor the ongoing suitability of Aberdeen as the Manager of Edinburgh Dragon Trust.
Gearing
The Company has no bank borrowings and its gearing is provided by the 3.5% Convertible Unsecured Loan Stock 2018 (CULS) of £44.7 million nominal at the year end, representing net gearing of 4.1%. The CULS provides the Company with long-term structural gearing at an acceptable cost, which is in line with the Manager's long-term investment philosophy. The Board monitors the Company's gearing level on a regular basis.
The final conversion date of the CULS is 31 January 2018 and CULS holders will have the final opportunity to exercise their right to convert their holdings into Ordinary shares in the 30 days prior to that date.
The Board is supportive of gearing and further gearing options are currently under consideration and expects to report on progress towards the end of 2017.
Revenue Account and Dividend
I am pleased to report that the Company's revenue return per share increased to 4.68p for the year to 31 August 2016 (2016 - 4.50p). It remains the Board's policy to pay a final dividend marginally in excess of the minimum required to maintain investment trust status, which may, of course, lead to some volatility in the level of dividend paid. The Board, therefore, recommends the payment of a final dividend of 3.3p per Ordinary share (2016 - 3.2p) which, if approved by shareholders at the Annual General Meeting, will be paid on 15 December 2017.
Management Agreement
The Board believes that the level of management fees for investment trusts is on a downward path. Over recent years the Board has engaged with your Manager to reduce fees and, with effect from 1 September 2017, the management fee will be calculated at 0.85% of net assets up to £350 million and 0.5% of net assets exceeding £350 million. Based on net assets at 31 August 2017, the revised management fee would have equated to £5.26 million and 0.66% of net assets.
The Board will continually review the level of management fees and maintain an active dialogue with your Manager.
Discounts and Share Buybacks
During the period discount volatility continued to be a feature for investment trust companies and Dragon was not alone in this respect. The Board continues to monitor closely the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares at certain levels. The Board remains committed to share buybacks where to do so would be in the interests of all shareholders. During the year ended 31 August 2017, 4.6 million shares were bought back into treasury at a cost of £15.6 million. The Company's discount at the year end was 13.1%. Since the year end, a further 897,700 shares have been bought back into treasury at a cost of £3.2 million.
Shareholder authority will again be sought at the Annual General Meeting to purchase the Company's shares to provide the Company with the flexibility to hold any shares that have been repurchased in treasury before either cancelling those shares or selling them back to the market at a later date. Repurchased shares would only be resold at a price above the NAV at the relevant date. The share buyback authority would only be exercised if to do so would increase the net asset value per Ordinary share for the remaining shareholders and would be in the best interests of shareholders generally.
Investment Manager
The recent merger between Aberdeen Asset Management PLC and Standard Life plc has produced the new investment arm of the combined Group, Aberdeen Standard Investments. The new Group's investment approach will remain team-based with a strong emphasis on the fundamentals of individual companies. Adrian Lim will continue as the Company's portfolio manager. The Board will closely monitor the impact of the merger on the Company and ensure that satisfactory arrangements remain in place for its effective management and successful performance.
Annual General Meeting
The Annual General Meeting will be held at the Manager's Edinburgh office on Tuesday 12 December 2017 at 12.00 noon, followed by a lunch for shareholders. This will give shareholders the opportunity to meet the Directors and Manager after the formal AGM business has concluded and we welcome all shareholders to attend. The AGM will continue to be alternated between Edinburgh and London.
Outlook
Confidence in the global economy has waned in recent months. President Trump's plans for an overhaul of the tax and healthcare systems remain unattained. In Europe the German electorate, while supporting Angela Merkel, returned a larger than expected number of far right members of the Bundestag. In France, Emmanuel Macron's reforms are facing a hostile reception. Coupled with the Brexit negotiations apparently making little headway this has led to increasing levels of uncertainty in western economies. These challenges may seem far removed from Asia, but they have worldwide repercussions. Within Asia, North Korea's latest missile threat is another timely reminder that geopolitical risks are never far away.
Nonetheless, the Board remains positive about Asia's resilience. Robust foreign exchange reserves and strengthening external positions provide the reassurance that regional markets have the wherewithal to withstand sudden shocks to the system.
At the same time, Asia's fundamentals are sound. The export upswing continues to underpin the region's growing consumerism. Chinese domestic demand now makes up more than half of the mainland's economy, while the other two most-populous nations of India and Indonesia are similarly driven by rapidly growing consumption. Frontier economies, meanwhile, offer fresh opportunities as they play catch-up to their more advanced Asian peers. Your Company already has exposure to Myanmar, Vietnam and Sri Lanka, through holdings such as Yoma Strategic, Vinamilk, John Keells and DFCC Bank. Investing in these markets with their frontier-like characteristics make them inherently more risky. Hence, your Manager has astutely kept exposure here modest. But being long-term investors in Asia, your Manager has the necessary experience to adjust these exposures in tandem with the development of these companies.
Overall, Asian companies are in good shape but investors must have ample resources to seek them out. Your Manager is well placed to do that, with its local presence in key markets, staying vigilant and keeping its focus firmly on your Company's objective of providing medium to long-term growth, investing in good quality companies in the region.
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
1 November 2017
OVERVIEW OF STRATEGY
Business Model
The business model of the Company is to operate as an investment trust for UK capital gains tax purposes in line with its investment objective. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2017 so as to enable it to comply with the relevant eligibility conditions for investment trust status as defined by Section 1158 of the Corporation Tax Act 2010.
Investment Policy
The Company's assets are invested in a diversified portfolio of securities in quoted companies spread across a range of industries and economies in the Asia Pacific region, excluding Japan and Australasia. The shares that make up the portfolio are selected from companies that have proven management and whose shares are considered to be attractively priced. The Company invests in a diversified range of sectors and countries. Investments are not limited as to market capitalisation, sector or country weightings within the region.
The Company's policy is to invest no more than 15% of gross assets in other listed investment companies (including listed investment trusts).
The Company complies with Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 and does not invest more than 15% of its assets in the shares of any one company.
When appropriate the Company will utilise gearing to maximise long-term returns, subject to a maximum gearing level of 20% of net assets imposed by the Board.
The Company does not currently utilise derivatives but keeps this under review.
Company Benchmark
MSCI All Country Asia (ex Japan) Index (sterling adjusted).
Alternative Investment Fund Manager ("AIFM")
The AIFM is Aberdeen Fund Managers Limited ("AFML" or the "Manager") which is authorised and regulated by the Financial Conduct Authority.
The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Management Asia Ltd ("AAMA" or the "Investment Manager") by way of a delegation agreement in place between AFML and AAMA.
Achieving the Investment Policy and Objective
The Directors are responsible for determining the investment policy and the investment objective of the Company. Day-to-day management of the Company's assets has been delegated to the Investment Manager who invests in a diversified range of companies throughout the Asia Pacific investment region in accordance with the investment policy. The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct contact by its fund managers. Stock selection is the major source of added value. No stock is bought without the Investment Manager having first met management. The Investment Manager evaluates a company's worth in two stages; quality then price. Quality is defined by reference to management, business focus, the balance sheet and corporate governance. Price is evaluated by reference to key financial ratios, the market, the peer group and business prospects. Stock selection is key in constructing a diversified portfolio of companies. Top-down investment approach and benchmark weightings are secondary factors. The Investment Manager is authorised to invest up to 15% of the Company's gross assets in any single stock, calculated at the time an investment is made.
A detailed description of the investment process and risk controls employed by the Investment Manager is disclosed on page 60 of the published 2017 Annual Report.
A comprehensive analysis of the Company's portfolio by country and by sector is disclosed on pages 18 to 22 of the published 2017 Annual Report, including a description of the ten largest investments, the full investment portfolio by value and sector/geographical analysis. At 31 August 2017, the Company's portfolio consisted of 70 holdings.
Gearing is used to leverage the Company's portfolio in order to enhance returns when this is considered appropriate to do so. At 31 August 2017, the Company's net gearing was 4.1%.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial position, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company in the table opposite and the appropriate mitigating action. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. Further details on the internal control environment can be found in the Statement of Corporate Governance.
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Risk |
Mitigating Action |
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Investment Performance -The Company's investment performance is the most critical factor to the Company's long term success. Sustained underperformance may result in reduced demand for the Company's shares. |
The Board continually monitors the investment performance of the Company, taking account of stockmarket factors, and reviews the Company's performance compared to its benchmark index and peer group, In addition to its own due diligence, the Board uses consultants to provide an independent perspective on the Manager's process and performance. *
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Concentration Risk - Trading volumes in certain securities of emerging markets can be low. The Investment Manager may accumulate investment positions across all its managed funds that represent a significant multiple of the normal trading volumes of an investment which may result in a lack of liquidity and price volatility. Accordingly, the Company will not necessarily be able to realise, within a short period of time, an illiquid investment and any such realisation that may be achieved may be at considerably lower prices than the Company's valuation of that investment for the purpose of calculating the net asset value ("NAV") per Ordinary share.
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The Board reviews, on a regular basis, Aberdeen's total holdings for each stock within the Company's portfolio and the liquidity of these stocks.
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Resource - The Company is an investment trust and has no employees. The responsibility for the provision of investment management, marketing and administration services for the Company has been delegated to the AIFM, Aberdeen Fund Managers Limited, under the management agreement. The terms of the management agreement cover the necessary duties and conditions expected of the Manager. As a result, the Company is dependent on the performance of the AIFM.
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The Board reviews the performance of the Manager on a regular basis and their compliance with the management contract formally on an annual basis. As part of that review, the Board assesses the Manager's succession plans, risk management framework and marketing activities. |
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Gearing - As at 31 August 2017 the Company had £44.7 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS") in issue. Gearing has the effect of exacerbating market falls and gains.
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In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20% of net assets and receives regular updates from the Manager on the actual gearing levels the Company has reached together with the assets and liabilities of the Company and reviews these at each Board meeting.
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Regulatory - The Company operates in a complex regulatory environment and faces a number of regulatory risks. Serious breaches of regulations, such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage.
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The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager, AIC updates and reports from the Company Secretary.
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Discount Volatility - The Company's share price can trade at a discount to its underlying net asset value. |
The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits.
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Reliance on Third Party Service Providers -The Company has entered into a number of contracts with third party providers including share registrar and depositary services. Failure by any service provider to carry out its contractual obligations could have a detrimental impact on the Company operations. |
The Board reviews the performance of third party providers on an annual basis. The Manager monitors the quality of services provided through regular reports and due diligence reviews. Third party service providers report periodically on their internal controls which includes confirmation of their business continuity arrangements and procedures to address cyber-crime. |
* Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks are provided in note 16 to the financial statements.
Performance
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators ("KPIs") are established industry measures, and are as follows:
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KPI |
Description |
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Net asset value and share price (total return) |
The Board monitors the NAV and share price performance of the Company over different time periods. Performance figures for one, three and five years are provided in the Results section.
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Performance against benchmark |
Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index (in sterling terms).
The Board also considers peer group comparative performance over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.
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Discount/Premium to net asset value |
The discount/premium relative to the NAV represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions. A graph showing the share price discount relative to the NAV is also shown on page 13 of the published 2017 Annual Report.
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Further analysis of the above KPIs is provided in the Chairman's Statement.
Promoting the Company
The Board recognises the importance of promoting the Company and believes an effective way to achieve this is through subscription to, and participation in, the promotional and investor relations programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. The Company's financial contribution to the programme is matched by the Aberdeen Group and regular reports are provided to the Board on promotional activities as well as an analysis of the shareholder register.
Board Diversity
The Board's statement on diversity is set out in the Statement of Corporate Governance. At 31 August 2017 there were four male Directors and one female Director.
Environmental, Social and Human Rights Issues
The Company has no employees and therefore no disclosures are required to be made in respect of employees.
The Company has no greenhouse gas emissions to report nor does it have responsibility for any other emissions producing sources. More information on socially responsible investment is is set out in the Statement of Corporate Governance.
Viability Statement
In accordance with the provisions of the UK Corporate Governance Code the Board has assessed the viability of the Company. The Company is a long-term investor and the Board believes it is appropriate to assess the Company's viability over a five year horizon which reflects the Investment Manager's long-term approach. The Directors believe this period reflects a proper balance between the long term horizon and the inherent uncertainties of looking to the future. The Directors have taken account of the requirement to put forward a continuation resolution to the 2018 AGM and the Company's convertible loan maturing in January 2018.
In assessing the viability of the Company the Directors have carried out a robust assessment of the following factors:
- the principal risks set out in the Strategic Report above and the steps available to mitigate these risks;
- the liquidity and diversity (in both sector and geography) of the Company's investment portfolio;
- the demand for the Company's shares as evidenced by the level of discount at which the shares trade; and
- the level of gearing and revenue surplus generated by the Company. The Company has the ability to renew or repay its gearing.
When considering the risk of under-performance, the Board reviewed the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values. The Board has also had regard to matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio or changes in investor sentiment, all of which could have an impact on the Company's prospects and viability in the future. The results of the stress tests have given the Board comfort over the viability of the Company.
Taking into account all of these factors, the Company's current position and the potential impact of the principal risks and uncertainties faced by the Company, the Board has concluded that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of this assessment to 31 August 2022.
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 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 included below.
Allan McKenzie
Chairman
1 November 2017
INVESTMENT MANAGER'S REVIEW
Background/Portfolio review
Signs of the global recovery that began in mid-2016 carried its momentum into the year under review. Economic activity continued to pick up, as governments, central banks and companies responded by introducing pro-growth policies, tightening liquidity to keep price pressures in check, or engaging in corporate restructuring to improve efficiency.
Against this backdrop, the Trust's net asset value diluted (NAV) rose by 21.6% over the year - its second year of double-digit returns in absolute terms. This, however, lagged the benchmark MSCI All Country Asia (excluding Japan) Index's performance, which was up by 27.2% in sterling terms. The share price rose by 19.5% to 361.0p.
Holdings in India, Singapore, and our substantial exposure to financials were the portfolio's star performers. They are long-held positions that we have stuck to, as we deeply believe that they offer good quality and value. They also will stand to benefit from Asia's growth.
India is home to many high quality companies, several of which are held in the portfolio. Its growth rate is among the best in Asia, and many of the India-listed holdings have good long term prospects. In fact, the Trust's top performing stock, Grasim Industries, hails from India. Over the year, Grasim has managed to unlock more value through restructuring. It was also added to regional indices, which fuelled optimism for its stock. Elsewhere, private sector financial services firms Housing Development Finance Corporation and Piramal Enterprises did well. Investors liked their healthy balance sheets, and their favourable market positions that gave them an advantage over their competitors that are stretched and poorly run.
Singapore is an open economy backed by sound economic policies amid a stable political environment. It is home to many well run businesses, with high standards of corporate governance and scope to expand across the region. For example, Singapore-based developer City Developments was one of the portfolio's top performers. It boasts a seasoned management with future value to be realised, not only from its sizeable low cost land bank, but also from its holding in the global Millennium & Copthorne (M&C) hotel chain. M&C has properties in prime locations in key cities around the world, but its brand name is still not as well recognised as other hotel chains.
Banks saw their share prices rise over the year, as expectations of interest rate hikes in the US also pointed to better days ahead for them as lenders. In addition, the ongoing global economic recovery meant that companies were gearing up their capital spending, which translated into a better outlook for financial institutions. For Singapore banks UOB and OCBC, their share prices received a further boost, when investors saw that they had reduced their exposures to the beleaguered oil and gas sector. This helped improve their balance sheets. In Hong Kong, HSBC's stock was lifted by solid earnings and news of its multi-billion dollar share buyback scheme
While we were compensated for our views on India, Singapore, and in the financial sector, our conviction about China worked against us this year. We continue to see the mainland as a tough place to invest. While there are companies that meet our strict quality and valuation criteria, astute managers must still conduct due diligence and remain vigilant in such a market. China's macro outlook seems to be improving, and the key for us is finding ways to tap into this growth through good quality companies that are well run and respect minority shareholders. Although the Chinese stocks in the portfolio did well, with video-surveillance products maker Hangzhou Hikvision, distilled-liquor producer Kweichow Moutai, and operator Shanghai International Airport emerging as top contributors, it could not compensate for the rally in the broader market.
China's stockmarket performance has been led by the technology sector. Share prices of internet giants Alibaba and Tencent's share prices did well over the past year, contributing to almost half of the MSCI China's gains in the first half of 2017 alone. Although the internet ecosystems that they are active in are increasingly important to Chinese economic growth and Chinese consumers, we remain cautious about the sustainability of their business models, as they operate in a dynamic landscape. We are also mindful of their corporate structures in general.
The technology sector elsewhere offers many attractive companies. Taiwan Semiconductor Manufacturing Company (TSMC) is a market leader. TSMC's large, global customer base and product diversification allows it to withstand fluctuations in global demand that buffet the consumer technology sector. Samsung Electronics (SEC), another key contributor, still accounts for the lion's share of profits among Asian technology names. It is one of the world's largest smartphone makers, and recently overtook Intel as the world's largest chipmaker. But SEC is not without controversy. Recent news about parent Samsung Group's de facto head Lee Jae-yong appealing against a bribery conviction has taken a toll on investor confidence. We believe SEC is well placed to weather any adverse impact, given its efforts at shoring up business operations - something we had engaged with management over the course of holding this company for more than ten years. Its management bench is deep and experienced, helped by an earlier move to appoint a co-CEO. Nonetheless, we view engagement with SEC as important, and we will continue our conversation with the company on issues, such as management succession.
Portfolio activity
We have had a relatively active year with 14 new stocks and seven exits, as market volatility generated attractive opportunities for the fund. Some of the highlights of the portfolio changes follow.
In India, we initiated Hindustan Unilever, a leading fast moving consumer goods company with a well established distribution network which provides exposure to domestic consumption. We also introduced Kotak Mahindra Bank and Aditya Birla Capital, as we feel that both would give us exposure to the private sector financial institutions that can expand their share in the loan market.
In China, on top of initiating positions in Kweichou Moutai, Hangzhou Hikvision, and Shanghai International Airport, we also added Han's Laser. The laser-machine maker is well positioned in a niche segment that has growth potential. As industrial automation becomes more ubiquitous locally, the demand for laser machines is expected to rise from a relatively low base.
In Singapore, we initiated Raffles Medical Group, a hospital operator with attractive long term growth prospects, as healthcare spending continues to rise in Asia. In Indonesia, we bought leading cement player Indocement, as we view it as a proxy for growth in Southeast Asia's largest economy, particularly in sectors such as domestic property, which is on the cusp of a cyclical recovery, and infrastructure that will receive much government attention. We also initiated Bangkok Dusit Medical Services which is the largest private hospital group in Thailand with well recognised brands and good management. Given its reputation in high quality complex treatments, it stands to benefit from rising domestic demand for health care and medical tourism from across the region.
Against these, we exited small positions in Korean regional banks BNK Financial and DGB Financial, as highlighted in the interim report. We sold Shinsegae for other opportunities. In Malaysia, we exited British American Tobacco Malaysia as there was rising uncertainty, with its operations facing an increasingly tough operating environment, given the rampant illicit cigarette trade and the excise tax hikes. We also sold PetroChina and Hong Kong's Global Brands Group in view of better opportunities elsewhere. We exited India's Infosys (after the August year-end) after Vishal Sikka's resignation as chief executive officer (CEO). We recognise that the selection of a new CEO will take time, and during this period, Infosys may face uncertainty on several fronts - strategy, management, board and leadership - over the coming months.
Outlook
The global economic recovery is expected to continue. Asian economies are still reporting continued expansion and export growth. At the same time, Asian policymakers are pulling ahead with market reforms, and this will raise potential growth for their economies.
China will remain at the forefront as the main driver of regional growth. Although there are worries over how policy tightening may hurt the Chinese economy, these remain short term concerns, as its financial system and economic growth will emerge more robust in the longer term. China is pouring huge sums into its One Belt, One Road Initiative to improve the region's infrastructure, and this can help tighten intra-regional trade flows. The other Asian growth engine, India, experienced temporary disruption following the nationwide rollout of the Goods and Services tax, but once companies become more familiar with this development, India's economy should be raring to go again, underpinned by favourable demographic conditions and good quality management.
On the policy front, the expected gradual monetary tightening by major central banks outside of Asia is likely to strengthen major currencies such as the US dollar and the euro. This makes Asian currencies cheaper, and in turn, their exports will be more attractive to consumers in advance economies. Higher interest rates will also bode well for the many Asian financial stocks that the portfolio holds.
We remain upbeat about corporate earnings growth in the coming year. Several of the Trust's holdings have embarked on, or have completed restructuring, and are well placed to take advantage of the economic recovery. Backed by solid foundations, good management, and proven business models, our investments will be resilient in the year ahead.
Aberdeen Asset Management Asia Limited*
1 November 2017
* on behalf of Aberdeen Fund Managers Limited. Both companies are subsidiaries of Aberdeen Asset Management PLC.
FINANCIAL HIGHLIGHTS AND RESULTS
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Net asset value total return{AB} |
+21.6% |
Share price total return{A} +20.8% |
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2016
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+30.4% |
2016 |
+29.7% |
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Benchmark total return{A} (in sterling terms) |
+27.2% |
Ongoing charges |
1.03% |
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2016
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+33.0% |
2016 |
1.14% |
|
Earnings per share (revenue) |
|
4.68p |
Dividend per share |
3.30p |
|
2016
|
|
4.50p |
2016 |
3.20p |
|
{A} Capital return plus dividends reinvested. |
|
|
||
|
{B} Diluted. |
|
|
|
|
|
|
31 August 2017 |
31 August 2016 |
% change |
|
|
Performance |
|
|
|
|
|
Equity shareholders' funds (£'000) |
807,330 |
664,159 |
+21.6 |
|
|
Net asset value per share (basic) (p) |
423.26 |
348.62 |
+21.4 |
|
|
Net asset value per share (diluted) (p) |
415.19 |
344.66 |
+20.5 |
|
|
Share price (p) |
361.00 |
302.00 |
+19.5 |
|
|
Market capitalisation (£'000) |
688,577 |
575,338 |
+19.7 |
|
|
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis) |
962.36 |
776.06 |
+24.0 |
|
|
Revenue return per share (basic) (p) |
4.68 |
4.50 |
+4.0 |
|
|
Total return per share (basic) (p) |
79.08 |
83.36 |
-5.1 |
|
|
|
|
|
|
|
|
Gearing |
|
|
|
|
|
Net gearing (%){A} |
4.1 |
6.9 |
|
|
|
|
|
|
|
|
|
Discount |
|
|
|
|
|
Discount to net asset value (diluted) (%) |
13.1 |
12.4 |
|
|
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
|
Ongoing charges ratio{B}
|
1.03 |
1.14 |
|
|
|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
||||
|
{B} Ongoing charges ratio is calculated in accordance with guidance issued by the AIC as the total of the investment management fee and ongoing administrative expenses divided by the average undiluted net asset value in the year. |
||||
PERFORMANCE (TOTAL RETURN)
|
|
1 year return |
3 year return |
5 year return |
|
|
% |
% |
% |
|
Share price |
+20.8 |
+36.7 |
+59.7 |
|
Net asset value - basic |
+22.6 |
+41.7 |
+67.0 |
|
Net asset value - diluted |
+21.6 |
+39.0 |
+63.8 |
|
MSCI AC Asia (ex Japan) Index (in sterling terms) |
+27.2 |
+53.8 |
+91.7 |
|
{A}Capital return plus dividends reinvested. |
|
|
|
PORTFOLIO
Changes in Asset Distribution
Year Ended 31 August 2017
|
|
Value at |
|
Sales |
Gains/ |
Value at |
|
|
31 August 2016 |
Purchases |
proceeds |
(losses) |
31 August 2017 |
|
Country |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
China |
42,386 |
68,254 |
7,740 |
8,048 |
110,948 |
|
Hong Kong |
168,485 |
18,892 |
37,612 |
39,091 |
188,856 |
|
India |
118,932 |
16,445 |
34,539 |
36,239 |
137,077 |
|
Indonesia |
28,524 |
16,005 |
- |
3,162 |
47,691 |
|
Malaysia |
26,768 |
266 |
5,043 |
2,098 |
24,089 |
|
Philippines |
31,139 |
5,088 |
1,899 |
(839) |
33,489 |
|
Singapore |
131,075 |
10,726 |
31,801 |
28,511 |
138,511 |
|
South Korea |
72,114 |
9,322 |
28,684 |
14,816 |
67,568 |
|
Sri Lanka |
17,547 |
595 |
2,162 |
153 |
16,133 |
|
Taiwan |
46,692 |
- |
11,757 |
9,844 |
44,779 |
|
Thailand |
22,142 |
3,497 |
2,036 |
233 |
23,836 |
|
Vietnam |
4,330 |
2,572 |
- |
(133) |
6,769 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total investments |
710,134 |
151,662 |
163,273 |
141,223 |
839,746 |
|
Net current assets |
12,907 |
- |
- |
(908) |
11,999 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total assets less current liabilities |
723,041 |
151,662 |
163,273 |
140,315 |
851,745 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
Investment Portfolio - Ten Largest Investments
|
As at 31 August 2017 |
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2017 |
assets |
2016 |
|
Company |
Industry |
Country |
£'000 |
% |
£'000 |
|
Samsung Electronics (Pref) |
|
|
38,129 |
4.5 |
43,420 |
|
A leading semiconductor company which is also a major player in mobile phones and consumer electronics. |
Technology Hardware, Storage & Peripherals |
South Korea |
|
|
|
|
Jardine Strategic Holdings |
|
|
36,053 |
4.2 |
31,463 |
|
A Singapore-listed conglomerate with interests across the region spanning property, hotels and consumer-related businesses. |
Industrial Conglomerates |
Hong Kong |
|
|
|
|
Taiwan Semiconductor Manufacturing Company |
|
|
32,769 |
3.9 |
29,669 |
|
The leading semiconductor foundry in Taiwan. |
Semiconductors & Semiconductor Equipment |
Taiwan |
|
|
|
|
Oversea-Chinese Banking Corporation |
|
|
29,849 |
3.5 |
28,414 |
|
A leading, well-run Singaporean banking group with assets and operations in South East Asia and China. |
Banks |
Singapore |
|
|
|
|
Housing Development Finance Corp |
|
|
28,115 |
3.3 |
28,918 |
|
Leading domestic mortgage provider with a leading distribution network, cost structure and balance sheet quality. |
Thrifts & Mortgage Finance |
India |
|
|
|
|
AIA Group |
|
|
27,446 |
3.2 |
26,885 |
|
The Group offers life insurance, accident insurance, health insurance and wealth management solutions to individuals and businesses in the Asia Pacific region. |
Insurance |
Hong Kong |
|
|
|
|
City Developments |
|
|
25,000 |
2.9 |
20,450 |
|
A leading Singapore-based property developer with seasoned management. We see value in the company, not just from its sizeable low-cost land bank but also from its holding in the global Millennium & Copthorne hotel chain. |
Real Estate Management & Development |
Singapore |
|
|
|
|
China Mobile |
|
|
23,794 |
2.8 |
21,321 |
|
The number one mobile operator in China. |
Wireless Telecommunication Services |
China |
|
|
|
|
Singapore Telecommunications |
|
|
21,627 |
2.5 |
23,035 |
|
A telecom operator that has steady operations in Singapore and Australia, coupled with growth from Asia's emerging markets via its regional franchises. The company offers a healthy dividend yield, with a robust balance sheet and cash flow. |
Diversified Telecommunication Services |
Singapore |
|
|
|
|
Grasim Industries |
|
|
20,323 |
2.4 |
15,682 |
|
A diversified operating company, part of the Aditya Birla group which manufactures a wide range of products including viscose staple fibre, |
Construction Materials |
India |
|
|
|
|
Top ten investments |
|
|
283,105 |
33.2 |
|
|
Investment portfolio - other investments |
|||||
|
As at 31 August 2017 |
|||||
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2017 |
assets |
2016 |
|
Company |
Sector |
Country |
£'000 |
% |
£'000 |
|
Siam Cement |
Construction Materials |
Thailand |
19,973 |
2.3 |
22,142 |
|
Bank Central Asia |
Banks |
Indonesia |
19,821 |
2.3 |
7,632 |
|
ITC |
Tobacco |
India |
19,300 |
2.3 |
16,726 |
|
HSBC Holdings |
Banks |
Hong Kong |
18,811 |
2.2 |
20,557 |
|
Standard Chartered{A} |
Banks |
United Kingdom |
17,404 |
2.0 |
18,125 |
|
Hong Kong Exchanges & Clearing |
Capital Markets |
Hong Kong |
16,691 |
2.0 |
6,627 |
|
Singapore Technologies Engineering |
Aerospace & Defence |
Singapore |
15,694 |
1.8 |
15,252 |
|
Swire Pacific 'B' |
Real Estate Management & Development |
Hong Kong |
15,394 |
1.8 |
20,520 |
|
Ayala Land |
Real Estate Management & Development |
Philippines |
14,978 |
1.8 |
15,466 |
|
Piramal Enterprises |
Pharmaceuticals |
India |
14,908 |
1.8 |
10,727 |
|
Top twenty investments |
|
|
456,079 |
53.5 |
|
|
Bank of Philippine Islands |
Banks |
Philippines |
14,340 |
1.7 |
15,673 |
|
Kweichow Moutai 'A' |
Beverages |
China |
13,853 |
1.6 |
- |
|
John Keells Holdings{B} |
Industrial Conglomerates |
Sri Lanka |
12,704 |
1.5 |
13,712 |
|
DBS Group |
Banks |
Singapore |
12,558 |
1.5 |
8,645 |
|
Naver Corp |
Internet Software & Services |
South Korea |
12,297 |
1.5 |
7,065 |
|
Keppel Corp |
Industrial Conglomerates |
Singapore |
12,269 |
1.4 |
10,121 |
|
United Overseas Bank |
Banks |
Singapore |
12,149 |
1.4 |
21,130 |
|
Taiwan Mobile |
Wireless Telecommunication Services |
Taiwan |
12,010 |
1.4 |
17,022 |
|
Hangzhou Hikvision Digital 'A' |
Electronic Equipment Instruments & Components |
China |
11,973 |
1.4 |
- |
|
Tata Consultancy Services |
IT Services |
India |
11,895 |
1.4 |
11,789 |
|
Top thirty investments |
|
|
582,127 |
68.3 |
|
|
Hero MotoCorp |
Automobiles |
India |
11,732 |
1.4 |
11,755 |
|
Astra International |
Automobiles |
Indonesia |
10,765 |
1.3 |
7,483 |
|
Yum China Holdings |
Hotels, Restaurants & Leisure |
China |
10,752 |
1.3 |
- |
|
Shanghai International Airport 'A' |
Transportation Infrastructure |
China |
10,550 |
1.3 |
- |
|
Swire Properties |
Real Estate Management & Development |
Hong Kong |
10,299 |
1.2 |
5,330 |
|
Midea Group 'A' |
Household Durables |
China |
9,518 |
1.1 |
- |
|
CIMB Group Holdings |
Banks |
Malaysia |
9,494 |
1.1 |
6,376 |
|
E-Mart Co |
Food & Staples Retailing |
South Korea |
8,763 |
1.0 |
6,105 |
|
China International Travel Services 'A' |
Hotels, Restaurants & Leisure |
China |
8,758 |
1.0 |
- |
|
MTR Corp |
Road & Rail |
Hong Kong |
8,745 |
1.0 |
5,555 |
|
Top forty investments |
|
|
681,503 |
80.0 |
|
|
Kotak Mahindra Bank |
Banks |
India |
8,598 |
1.0 |
- |
|
Hang Lung Group |
Real Estate Management & Development |
Hong Kong |
8,524 |
1.0 |
7,880 |
|
Unilever Indonesia |
Household Products |
Indonesia |
8,295 |
1.0 |
7,351 |
|
Kerry Logistics Network |
Air Freight & Logistics |
Hong Kong |
8,143 |
1.0 |
5,388 |
|
China Conch Venture Holdings |
Machinery |
China |
8,044 |
0.9 |
3,078 |
|
Dairy Farm International |
Food & Staples Retailing |
Hong Kong |
8,022 |
0.9 |
11,277 |
|
HDFC Bank |
Banks |
India |
7,946 |
0.9 |
3,677 |
|
Public Bank |
Banks |
Malaysia |
7,940 |
0.9 |
7,914 |
|
ASM Pacific Technology |
Semiconductors & Semiconductor Equipment |
Hong Kong |
6,909 |
0.9 |
4,276 |
|
Vietnam Dairy Products |
Food Products |
Vietnam |
6,769 |
0.8 |
4,330 |
|
Top fifty investments |
|
|
760,693 |
89.3 |
|
|
Hang Lung Properties |
Real Estate Management & Development |
Hong Kong |
6,414 |
0.8 |
8,146 |
|
CNOOC |
Oil, Gas & Consumable Fuels |
China |
6,364 |
0.7 |
6,439 |
|
Amorepacific Corp (Pref) |
Personal Products |
South Korea |
5,625 |
0.7 |
7,106 |
|
Hans Laser Technology 'A' |
Machinery |
China |
5,529 |
0.6 |
- |
|
Yoma Strategic Holdings |
Real Estate Management & Development |
Singapore |
4,825 |
0.6 |
4,027 |
|
Indocement Tunggal Prakarsa |
Construction Materials |
Indonesia |
4,578 |
0.6 |
- |
|
Aditya Birla Capital |
Diversified Financial Services |
India |
4,433 |
0.5 |
- |
|
Oriental Holdings |
Automobiles |
Malaysia |
4,422 |
0.5 |
4,582 |
|
Hindustan Unilever |
Household Products |
India |
4,297 |
0.5 |
- |
|
Holcim Indonesia |
Construction Materials |
Indonesia |
4,232 |
0.5 |
6,058 |
|
Top sixty investments |
|
|
811,412 |
95.3 |
|
|
Ayala Corp |
Diversified Financial Services |
Philippines |
4,170 |
0.5 |
- |
|
Bangkok Dusit Medical Services 'F' |
Health Care Providers & Services |
Thailand |
3,865 |
0.5 |
- |
|
Ultratech Cement |
Construction Materials |
India |
3,642 |
0.4 |
3,442 |
|
DFCC Bank |
Banks |
Sri Lanka |
3,429 |
0.4 |
3,835 |
|
Raffles Medical Group |
Health Care Providers & Services |
Singapore |
3,117 |
0.4 |
- |
|
Amorepacific Group |
Personal Products |
South Korea |
2,754 |
0.3 |
- |
|
Batu Kawan |
Chemicals |
Malaysia |
2,233 |
0.3 |
2,215 |
|
Infosys Ltd |
IT Services |
India |
1,887 |
0.2 |
6,534 |
|
China Resources Land |
Real Estate Management & Development |
China |
1,815 |
0.2 |
- |
|
Fraser & Neave |
Beverages |
Singapore |
1,422 |
0.1 |
- |
|
Total investments |
|
|
839,746 |
98.6 |
|
|
Net current assets{B} |
|
|
11,999 |
1.4 |
|
|
Total assets{C} |
|
|
851,745 |
100.0 |
|
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
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 its profit or loss 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 applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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 its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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; and
- the Strategic report includes a fair review of the development and performance of the business and the position of the issuer, 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 Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
1 November 2017
GOING CONCERN
The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale.
The Directors believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements, and they consider that the Company has adequate resources to continue in operational existence for the foreseeable future.
FINANCIAL STATEMENTS
Statement of Comprehensive Income (audited)
|
|
|
Year ended 31 August 2017 |
Year ended 31 August 2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains on investments held at fair value through profit or loss |
10 |
- |
141,223 |
141,223 |
- |
151,827 |
151,827 |
|
Currency losses |
|
- |
(289) |
(289) |
- |
(272) |
(272) |
|
Income |
3 |
20,041 |
- |
20,041 |
18,144 |
- |
18,144 |
|
Investment management fee |
4 |
(6,228) |
- |
(6,228) |
(5,107) |
- |
(5,107) |
|
Administrative expenses |
5 |
(1,219) |
- |
(1,219) |
(997) |
- |
(997) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
12,594 |
140,934 |
153,528 |
12,040 |
151,555 |
163,595 |
|
|
|
|
|
|
|
|
|
|
Interest payable and similar charges |
6 |
(2,678) |
- |
(2,678) |
(2,730) |
- |
(2,730) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return before taxation |
|
9,916 |
140,934 |
150,850 |
9,310 |
151,555 |
160,865 |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(1,051) |
(52) |
(1,103) |
(655) |
- |
(655) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return after taxation |
|
8,865 |
140,882 |
149,747 |
8,655 |
151,555 |
160,210 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per share (pence) |
|
|
|
|
|
|
|
|
Basic |
9 |
4.68 |
74.40 |
79.08 |
4.50 |
78.86 |
83.36 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Diluted |
9 |
n/a |
67.62 |
73.12 |
n/a |
71.67 |
76.98 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The total column of this statement represents the profit and loss account of the Company. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
Statement of Financial Position (Audited)
|
|
|
As at |
As at |
|
|
|
31 August 2017 |
31 August 2016 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
10 |
839,746 |
710,134 |
|
|
|
____________ |
____________ |
|
Current assets |
|
|
|
|
Debtors and prepayments |
11 |
5,010 |
2,610 |
|
Money market funds |
|
4,800 |
7,700 |
|
Cash and short term deposits |
|
4,487 |
4,603 |
|
|
|
____________ |
____________ |
|
|
|
14,297 |
14,913 |
|
|
|
____________ |
____________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Other creditors |
12 |
(2,298) |
(2,006) |
|
3.5% Convertible Unsecured Loan Stock 2018 |
12 |
(44,415) |
- |
|
|
|
____________ |
____________ |
|
|
|
(46,713) |
(2,006) |
|
|
|
____________ |
____________ |
|
Net current (liabilities)/assets |
|
(32,416) |
12,907 |
|
|
|
____________ |
____________ |
|
Total assets less current liabilities |
|
807,330 |
723,041 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
12 |
- |
(58,882) |
|
|
|
____________ |
____________ |
|
Net assets |
|
807,330 |
664,159 |
|
|
|
____________ |
____________ |
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
13 |
40,180 |
39,207 |
|
Share premium account |
|
18,618 |
4,492 |
|
Equity component of 3.5% Convertible Unsecured Loan Stock 2018 |
12 |
238 |
812 |
|
Capital redemption reserve |
|
17,015 |
17,015 |
|
Capital reserve |
14 |
697,550 |
572,266 |
|
Revenue reserve |
|
33,729 |
30,367 |
|
|
|
____________ |
____________ |
|
Equity shareholders' funds |
|
807,330 |
664,159 |
|
|
|
____________ |
____________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
|
|
|
|
Basic |
15 |
423.26 |
348.62 |
|
Diluted |
15 |
415.19 |
344.66 |
|
|
|
____________ |
____________ |
Statement of Changes In Equity (audited)
|
|
|
|
|
Share |
Equity |
Capital |
|
|
|
|
|
|
|
Share |
premium |
component |
redemption |
Capital |
Revenue |
|
|
|
|
|
capital |
account |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 August 2016 |
|
|
39,207 |
4,492 |
812 |
17,015 |
572,266 |
30,367 |
664,159 |
|
Return after taxation |
|
|
- |
- |
- |
- |
140,882 |
8,865 |
149,747 |
|
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
13 |
|
973 |
14,126 |
- |
- |
- |
- |
15,099 |
|
Buyback of Ordinary shares for treasury |
14 |
|
- |
- |
- |
- |
(15,598) |
- |
(15,598) |
|
Dividend paid |
8 |
|
- |
- |
- |
- |
- |
(6,077) |
(6,077) |
|
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
6 |
|
- |
- |
(574) |
- |
- |
574 |
- |
|
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Balance at 31 August 2017 |
|
|
40,180 |
18,618 |
238 |
17,015 |
697,550 |
33,729 |
807,330 |
|
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 August 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Equity |
Capital |
|
|
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 August 2015 |
|
39,206 |
4,484 |
351 |
1,392 |
17,015 |
429,266 |
26,921 |
518,635 |
|
Return after taxation |
|
- |
- |
- |
- |
- |
151,555 |
8,655 |
160,210 |
|
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
13 |
1 |
8 |
- |
(1) |
- |
- |
- |
8 |
|
Buyback of Ordinary shares for treasury |
14 |
- |
- |
(351) |
- |
- |
(8,555) |
- |
(8,906) |
|
Dividend paid |
8 |
- |
- |
- |
- |
- |
- |
(5,788) |
(5,788) |
|
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
6 |
- |
- |
- |
(579) |
- |
- |
579 |
- |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Balance at 31 August 2016 |
|
39,207 |
4,492 |
- |
812 |
17,015 |
572,266 |
30,367 |
664,159 |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £357,950,000 (2016 - £288,730,000), as disclosed in note 10. |
|||||||||
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||||
Statement of Cashflows (Audited)
|
|
|
Year ended |
Year ended |
|
|
|
31 August 2017 |
31 August 2016 |
|
|
Notes |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Net return before finance costs and taxation |
|
153,528 |
163,595 |
|
Adjustment for: |
|
|
|
|
Gains on investments |
|
(141,223) |
(151,827) |
|
Currency losses |
|
289 |
272 |
|
(Increase)/decrease in accrued dividend income |
|
(1,130) |
610 |
|
Decrease/(increase) in other debtors |
|
56 |
(11) |
|
Increase in other creditors |
|
287 |
201 |
|
Scrip dividends included in investment income |
|
(2,150) |
(1,029) |
|
Overseas withholding tax |
|
(1,122) |
(730) |
|
|
|
_______ |
_______ |
|
Net cash flow from operating activities |
|
8,535 |
11,081 |
|
Investing activities |
|
|
|
|
Purchases of investments |
|
(149,415) |
(63,159) |
|
Sales of investments |
|
161,967 |
72,198 |
|
|
|
_______ |
_______ |
|
Net cash from investing activities |
|
12,552 |
9,039 |
|
Financing activities |
|
|
|
|
Equity dividends paid |
8 |
(6,077) |
(5,788) |
|
Interest paid |
6 |
(2,045) |
(2,092) |
|
Buyback of Ordinary shares |
|
(15,692) |
(8,841) |
|
|
|
_______ |
_______ |
|
Net cash used in financing activities |
|
(23,814) |
(16,721) |
|
|
|
_______ |
_______ |
|
(Decrease)/increase in cash and cash equivalents |
|
(2,727) |
3,399 |
|
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents during the year |
|
|
|
|
Opening balance |
|
12,303 |
9,176 |
|
Effect of exchange rate fluctuations on cash held |
|
(289) |
(272) |
|
(Decrease)/increase in cash and cash equivalents as above |
|
(2,727) |
3,399 |
|
|
|
_______ |
_______ |
|
Closing cash and cash equivalents |
|
9,287 |
12,303 |
|
|
|
_______ |
_______ |
Notes to the Accounts (Audited)
|
1. |
Principal activity |
|
|
The Company is a closed-end investment company, registered in Scotland No SC106049, with its Ordinary shares being listed on the London Stock Exchange. |
|
2. |
Accounting policies |
|
|
|
(a) |
Basis of accounting |
|
|
|
The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the guidance set out in the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture capital Trusts issued in November 2014 and updated in January 2017 with consequential amendments. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Statement of Corporate Governance (unaudited) in the published 2017 Annual Report. |
|
|
|
|
|
|
(b) |
Investments |
|
|
|
Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised on the trade date at fair value, which is generally deemed to be the cost of the investment at that point. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve. |
|
|
|
|
|
|
(c) |
Income |
|
|
|
Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the foregone cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend foregone is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. |
|
|
|
|
|
|
(d) |
Expenses |
|
|
|
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income with the exception of expenses directly relating to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP. These expenses are charged to the capital column of the Statement of Comprehensive Income and are separately identified and disclosed in note 9. |
|
|
|
|
|
|
(e) |
Deferred taxation |
|
|
|
Deferred taxation is provided on all timing differences, that have originated but not reversed at the reporting date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the reporting date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
|
(f) |
Capital reserves |
|
|
|
Gains and losses on investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. |
|
|
|
|
|
|
(g) |
Foreign currency |
|
|
|
Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the reporting date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve. |
|
|
|
|
|
|
(h) |
Dividends payable |
|
|
|
Final dividends are dealt with in the period in which they are paid. |
|
|
|
|
|
|
(i) |
3.5% Convertible Unsecured Loan Stock 2018 |
|
|
|
Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.662%. The notional uplift in interest from 3.5% to 4.662% is shown in note 6. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective interest rate. |
|
|
|
|
|
|
|
Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument. |
|
|
|
|
|
|
|
The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.662% at initial recognition to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying liability of the CULS. |
|
|
|
|
|
|
|
On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion. |
|
|
|
|
|
|
|
When CULS is repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss. The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised. |
|
|
|
|
|
|
|
In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed. |
|
|
|
|
|
|
(j) |
Treasury shares |
|
|
|
When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the capital reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve. |
|
|
|
2017 |
2016 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK dividend income |
390 |
1,456 |
|
|
Overseas dividend income |
17,480 |
15,625 |
|
|
Scrip dividends |
2,150 |
1,029 |
|
|
|
_______ |
_______ |
|
|
|
20,020 |
18,110 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Other income |
£'000 |
£'000 |
|
|
Deposit interest |
1 |
5 |
|
|
Interest from money market funds |
20 |
29 |
|
|
|
_______ |
_______ |
|
|
|
21 |
34 |
|
|
|
_______ |
_______ |
|
|
Total income |
20,041 |
18,144 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Income from investments |
£'000 |
£'000 |
|
|
Listed UK |
- |
1 |
|
|
Listed overseas |
20,020 |
18,109 |
|
|
|
_______ |
_______ |
|
|
|
20,020 |
18,110 |
|
|
|
_______ |
_______ |
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
6,228 |
- |
6,228 |
5,107 |
- |
5,107 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Management fees paid to Aberdeen Fund Managers Limited ("the Manager") are calculated at 0.85% on net assets from 1 April 2016. Management fees are calculated and billed on a quarterly basis. Prior to 1 April 2016 management fees were calculated at 1% on net assets from 1 April 2016 up to £600 million, 0.9% on net assets between £600 million and £1 billion and 0.8% on net assets over £1 billion. |
||||||
|
|
|
||||||
|
|
Net assets exclude long term borrowings less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager. There were no commonly managed funds held in the portfolio during the year to 31 August 2017 (2016 - none) where the Manager earned a management fee elsewhere on the underlying holding. The balance due to the Manager at the year end was £1,716,000 (2016 - £1,479,000). |
||||||
|
|
|
||||||
|
|
The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required to be given by the Manager is six months. |
||||||
|
|
|
||||||
|
|
Following a review, a revision of the management fee arrangements has been agreed by the Company and the Manager. With effect from 1 September 2017, the management fee will be based on 0.85% per annum for net assets up to £350 million and 0.50% per annum for net assets over £350 million, calculated and paid quarterly. |
||||||
|
|
|
2017 |
2016 |
|
5. |
Administrative expenses |
£'000 |
£'000 |
|
|
Promotional activities |
207 |
204 |
|
|
Directors' fees |
154 |
142 |
|
|
Custody fees |
355 |
263 |
|
|
Auditor's remuneration: Fees payable to the Company's auditor for |
|
|
|
|
audit of the Company's annual accounts |
21 |
17 |
|
|
review of the Company's half yearly accounts |
5 |
5 |
|
|
Other expenses |
477 |
366 |
|
|
|
_______ |
_______ |
|
|
|
1,219 |
997 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The Company has an agreement with Aberdeen Fund Managers Limited ("the Manager") for the provision of promotional activities in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £200,000 (2016 - £204,000) and the sum due to the Manager at the year end was £34,000 (2016 - £34,000). |
||
|
|
|
||
|
|
No pension contributions were made in respect of any of the Directors. |
||
|
|
|
||
|
|
The Company does not have any employees. |
||
|
|
|
2017 |
2016 |
|
6. |
Interest payable and similar charges |
£'000 |
£'000 |
|
|
Interest on 3.5% Convertible Unsecured Loan Stock 2018 |
2,045 |
2,092 |
|
|
Notional interest of 1.162% on 3.5% Convertible Unsecured Loan Stock 2018 |
574 |
579 |
|
|
Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses |
59 |
59 |
|
|
|
_______ |
_______ |
|
|
|
2,678 |
2,730 |
|
|
|
_______ |
_______ |
|
|
|
2017 |
2016 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
Overseas tax suffered |
1,051 |
52 |
1,103 |
655 |
- |
655 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Taxation on ordinary activities |
1,051 |
52 |
1,103 |
655 |
- |
655 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Factors affecting the tax charge for the year |
||||||
|
|
|
The tax assessed for the year is lower than the effective rate of corporation tax in the UK. |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
2016 |
|
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Return before taxation |
9,916 |
140,934 |
150,850 |
9,310 |
151,555 |
160,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate of corporation tax at 19.58% (2016 - 20.00%) |
1,942 |
27,595 |
29,537 |
1,862 |
30,311 |
32,173 |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
UK dividend income |
(216) |
- |
(216) |
(291) |
- |
(291) |
|
|
|
Gains on investments not taxable |
- |
(27,651) |
(27,651) |
- |
(30,365) |
(30,365) |
|
|
|
Currency losses not taxable |
- |
56 |
56 |
- |
54 |
54 |
|
|
|
Other non-taxable income |
(3,705) |
- |
(3,705) |
(3,331) |
- |
(3,331) |
|
|
|
Increase in excess expenses and loan relationship deficit |
1,979 |
- |
1,979 |
1,760 |
- |
1,760 |
|
|
|
Capital gains tax charge |
- |
52 |
52 |
- |
- |
- |
|
|
|
Net overseas tax suffered |
1,051 |
- |
1,051 |
655 |
- |
655 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Current tax charge for year |
1,051 |
52 |
1,103 |
655 |
- |
655 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Provision for deferred taxation |
||||||
|
|
|
No provision for deferred taxation has been made in the current year or in the prior year. |
||||||
|
|
|
|
||||||
|
|
|
The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. |
||||||
|
|
|
|
||||||
|
|
(d) |
Factors that may affect future tax charges |
||||||
|
|
|
The Company has not recognised a deferred tax asset £12,041,000 (2016 - £12,145,000) arising as a result of excess management expenses and non-trading loan relationship deficits (CULS interest). These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. |
||||||
|
8. |
Dividends |
||
|
|
In order to comply with the requirements of Sections 1158 -1159 of the Corporation Tax Act 2010 and with company law, the Company is required to make a final dividend distribution. |
||
|
|
|
||
|
|
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £8,865,000 (2016 - £8,655,000). |
||
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Proposed final dividend for 2017 - 3.30p per Ordinary share (2016 - 3.20p) |
6,265 |
6,077 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The amounts reflected above for the cost of the proposed final dividend for 2017 is based on 189,843,856 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this Report. |
||
|
|
|
||
|
|
The final dividend will be paid on 15 December 2017 to shareholders on the register at the close of business on 24 November 2017. |
||
|
|
|
2017 |
2016 |
||
|
9. |
Return per Ordinary share |
£'000 |
pence |
£'000 |
pence |
|
|
Basic |
|
|
|
|
|
|
Revenue return |
8,865 |
4.68 |
8,655 |
4.50 |
|
|
Capital return |
140,882 |
74.40 |
151,555 |
78.86 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total return |
149,747 |
79.08 |
160,210 |
83.36 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Weighted average Ordinary shares in issue |
|
189,359,122 |
|
192,195,250 |
|
|
|
|
_______ |
|
_______ |
|
|
|
|
|
||
|
|
|
2017 |
2016 |
||
|
|
Diluted |
£'000 |
pence |
£'000 |
pence |
|
|
Revenue return |
11,460 |
n/a |
11,243 |
n/a |
|
|
Capital return |
140,882 |
67.62 |
151,555 |
71.67 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total return |
152,342 |
73.12 |
162,798 |
76.98 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Weighted average Ordinary shares in issue{A} |
|
208,338,133 |
|
211,470,625 |
|
|
|
|
_______ |
|
_______ |
|
|
|
|
|
|
|
|
|
{A} The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with IAS 33, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 3.5% Convertible Unsecured Loan Stock 2018 (CULS). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 18,979,011 (2016 - 19,275,375) to 208,338,133 (2016 - 211,470,625) Ordinary shares. |
||||
|
|
|
||||
|
|
For the years ended 31 August 2017 and 31 August 2016 there was no dilution to the revenue return per Ordinary share. Where dilution does occur, the net returns are adjusted for items relating to the CULS. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. Accrued CULS finance costs for the period and unamortised issues expenses are reversed. |
||||
|
|
|
Listed |
Listed |
|
||
|
|
|
overseas |
in UK |
Total |
||
|
10. |
Investments |
£'000 |
£'000 |
£'000 |
||
|
|
Fair value through profit or loss: |
|
|
|
||
|
|
Opening book cost |
395,360 |
26,044 |
421,404 |
||
|
|
Opening fair value gains/(losses) on investments held |
299,899 |
(11,169) |
288,730 |
||
|
|
|
_______ |
_______ |
_______ |
||
|
|
Opening fair value |
695,259 |
14,875 |
710,134 |
||
|
|
Movements in year: |
|
|
|
||
|
|
Purchases at cost |
151,662 |
- |
151,662 |
||
|
|
Sales - proceeds |
(161,002) |
(2,271) |
(163,273) |
||
|
|
Sales - gains/(losses) on sales |
73,554 |
(1,551) |
72,003 |
||
|
|
Current year fair value gains on investments held |
65,051 |
4,169 |
69,220 |
||
|
|
|
_______ |
_______ |
_______ |
||
|
|
Closing fair value |
824,524 |
15,222 |
839,746 |
||
|
|
|
_______ |
_______ |
_______ |
||
|
|
|
|
|
|
||
|
|
|
Listed |
Listed |
|
||
|
|
|
overseas |
in UK |
Total |
||
|
|
|
£'000 |
£'000 |
£'000 |
||
|
|
Closing book cost |
459,574 |
22,222 |
481,796 |
||
|
|
Closing fair value gains/(losses) on investments held |
364,950 |
(7,000) |
357,950 |
||
|
|
|
_______ |
_______ |
_______ |
||
|
|
Closing fair value |
824,524 |
15,222 |
839,746 |
||
|
|
|
_______ |
_______ |
_______ |
||
|
|
|
|
|
|
||
|
|
|
|
2017 |
2016 |
||
|
|
Gains on investments held at fair value through profit or loss |
|
£'000 |
£'000 |
||
|
|
Realised gains on sales |
|
72,003 |
20,492 |
||
|
|
Increase in fair value gains on investments held |
|
69,220 |
131,335 |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
|
141,223 |
151,827 |
||
|
|
|
|
_______ |
_______ |
||
|
|
Transaction costs |
|
|
|
||
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows: |
|||||
|
|
|
|
2017 |
2016 |
||
|
|
|
|
£'000 |
£'000 |
||
|
|
Purchases |
|
226 |
102 |
||
|
|
Sales |
|
342 |
189 |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
|
568 |
291 |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
2017 |
2016 |
|
11. |
Debtors and prepayments |
£'000 |
£'000 |
|
|
Accrued income |
2,351 |
1,357 |
|
|
Overseas withholding tax recoverable |
401 |
244 |
|
|
Amounts due from brokers |
1,806 |
501 |
|
|
Other debtors and prepayments |
452 |
508 |
|
|
|
_______ |
_______ |
|
|
|
5,010 |
2,610 |
|
|
|
_______ |
_______ |
|
12. |
Creditors: amounts falling due within one year |
|
|
|
|
|
|
|
|
Number |
Liability |
Equity |
|
|
(a) |
3.5% Convertible Unsecured Loan Stock 2018 |
of units |
component |
component |
|
|
|
Year ended 31 August 2017 |
£'000 |
£'000 |
£'000 |
|
|
|
Balance at 31 August 2016 |
59,779 |
58,882 |
812 |
|
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares |
(15,100) |
(15,100) |
- |
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
574 |
- |
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve |
- |
- |
(574) |
|
|
|
Amortisation of issue expenses (see note 2(i)) |
- |
59 |
- |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
Balance at 31 August 2017 |
44,679 |
44,415 |
238 |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Number |
Liability |
Equity |
|
|
|
|
of units |
component |
component |
|
|
|
Year ended 31 August 2016 |
£'000 |
£'000 |
£'000 |
|
|
|
Balance at 31 August 2015 |
59,787 |
58,252 |
1,392 |
|
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares |
(8) |
(9) |
(1) |
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
579 |
- |
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve |
- |
- |
(579) |
|
|
|
Amortisation of issue expenses (see note 2(i)) |
- |
60 |
- |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
Balance at 31 August 2016 |
59,779 |
58,882 |
812 |
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
On 12, 26 and 27 January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The CULS can be converted at the election of holders into Ordinary Shares during the months of January and July each year throughout their life, to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of CULS. Once 80% of the CULS issued have been converted the Company is allowed to request that holders redeem or convert the remainder. Interest is paid on the CULS on 31 January and 31 July each year, of which 100% is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company. |
|||
|
|
|
|
|||
|
|
|
The Company was required to recognise the liability component and the equity component of the CULS at their date of issue. The liability component must be increased to the nominal value over the life of the CULS by crediting the liability and debiting the profit and loss account. In order to align the revenue reserves with the distributable reserves the Company has decided to make an annual transfer between the equity component of the CULS and the revenue reserve so that the revenue reserve reflects distributable reserves as defined by company law. |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
(b) |
Other creditors |
£'000 |
£'000 |
|
|
|
|
Amounts due to brokers |
131 |
32 |
|
|
|
|
Amounts due relating to purchase of own shares to treasury |
- |
94 |
|
|
|
|
Other amounts due |
2,167 |
1,880 |
|
|
|
|
|
_______ |
_______ |
|
|
|
|
|
2,298 |
2,006 |
|
|
|
|
|
_______ |
_______ |
|
|
|
|
2017 |
2016 |
|
13. |
Called-up share capital |
£'000 |
£'000 |
|
|
Allotted, called-up and fully paid: |
|
|
|
|
Ordinary shares of 20p |
|
|
|
|
Opening balance of 196,030,502 (2016 - 196,027,844) shares |
39,207 |
39,206 |
|
|
Issue of 4,868,554 (2016 - 2,658) Ordinary shares on conversion of £15,100,040 (2016 - £8,254) nominal 3.5% Convertible Unsecured Loan Stock 2018 |
973 |
1 |
|
|
|
_______ |
_______ |
|
|
Closing balance of 200,899,056 (2016 - 196,030,502) shares |
40,180 |
39,207 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
During the year 4,868,554 Ordinary shares were issued as a result of CULS conversion (2016 - 2,658). |
||
|
|
|
||
|
|
During the year 4,636,200 Ordinary shares of 20p each were purchased to be held in treasury by the Company (2016 - 3,577,800) at a total cost of £15,598,000 (2016 - £8,906,000). At the year end 10,157,500 (2016 - 5,521,300) Ordinary shares of 20p each were held in treasury, which represents 5.3% (2016 - 2.9%) of the Company's total issued share capital at 31 August 2017. |
||
|
|
|
||
|
|
Since the year end a further 897,700 Ordinary shares of 20p each have been purchased by the Company at a total cost of £3,201,000 all of which were held in treasury. |
||
|
|
|
2017 |
2016 |
|
14. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 September 2016 |
572,266 |
429,266 |
|
|
Movement in fair value gains |
141,223 |
151,827 |
|
|
Foreign exchange movement |
(289) |
(272) |
|
|
Buyback of Ordinary shares for treasury |
(15,598) |
(8,555) |
|
|
Capital gains tax charge |
(52) |
- |
|
|
|
_______ |
_______ |
|
|
As at 31 August 2017 |
697,550 |
572,266 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £357,950,000 (2016 - £288,730,000), as disclosed in note 10. |
||
|
15. |
Net asset value per share |
||
|
|
The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows: |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Basic |
|
|
|
|
Net assets attributable (£'000) |
807,330 |
664,159 |
|
|
Number of Ordinary shares in issue {A} |
190,741,556 |
190,509,202 |
|
|
Net asset value per share (p) |
423.26 |
348.62 |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Diluted |
|
|
|
|
Net assets attributable (£'000) |
851,745 |
723,040 |
|
|
Number of Ordinary shares in issue {B} |
205,146,955 |
209,783,182 |
|
|
Net asset value per share (p) |
415.19 |
344.66 |
|
|
{A} Excluding shares held in treasury. |
|
|
|
|
{B} The calculations indicate that the exercise of CULS would result in an increase in the number of Ordinary shares of 14,405,399 (2016 - 19,273,980) to 205,146,955 (2016 - 209,783,182) Ordinary shares. |
||
|
|
|
||
|
|
The impact of the 3.5% Convertible Unsecured Loan Stock 2018 on the net asset value per share was dilutive for the year ended 31 August 2017 (2016 - dilutive) |
||
|
16. |
Financial instruments |
|||||||||||
|
|
Risk management |
|||||||||||
|
|
The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, Convertible Unsecured Loan Stock and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. |
|||||||||||
|
|
|
|||||||||||
|
|
The Board has delegated the risk management function to AFML under the terms of its management agreement with AFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors. |
|||||||||||
|
|
|
|||||||||||
|
|
Risk management framework |
|||||||||||
|
|
The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|||||||||||
|
|
|
|||||||||||
|
|
AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Management Asia Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|||||||||||
|
|
|
|||||||||||
|
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
|||||||||||
|
|
|
|||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
|||||||||||
|
|
|
|||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. |
|||||||||||
|
|
|
|||||||||||
|
|
Risk management |
|||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||
|
|
|
|||||||||||
|
|
Market risk |
|||||||||||
|
|
The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. The Company is exposed to gearing risk which has the effect of exacerbating market falls and gains. Short term gearing is represented by £44.7 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS) which are due to mature on 31 January 2018. |
|||||||||||
|
|
|
|||||||||||
|
|
Interest rate risk |
|||||||||||
|
|
Interest rate movements may affect the level of income receivable on cash deposits. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
|||||||||||
|
|
|
|||||||||||
|
|
Interest risk profile |
|||||||||||
|
|
The interest rate risk profile of the portfolio of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the reporting date was as follows: |
|||||||||||
|
|
|
|||||||||||
|
|
|
Weighted average |
Weighted |
|
|
|||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||
|
|
At 31 August 2017 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
Assets |
|
|
|
|
|||||||
|
|
Chinese Yuan |
- |
- |
- |
2 |
|||||||
|
|
Indian Rupee |
- |
- |
- |
3,261 |
|||||||
|
|
Singapore Dollar |
- |
- |
- |
485 |
|||||||
|
|
Sterling |
- |
0.10 |
- |
5,321 |
|||||||
|
|
Taiwanese Dollar |
- |
- |
- |
3 |
|||||||
|
|
Vietnamese Dollar |
- |
- |
- |
215 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
Total assets |
n/a |
n/a |
- |
9,287 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
Liabilities |
|
|
|
|
|||||||
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
0.42 |
3.50 |
44,415 |
- |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
Weighted average |
Weighted |
|
|
|||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||
|
|
At 31 August 2016 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
Assets |
|
|
|
|
|||||||
|
|
Singapore Dollar |
- |
- |
- |
129 |
|||||||
|
|
Sterling |
- |
0.10 |
- |
12,078 |
|||||||
|
|
Taiwanese Dollar |
- |
- |
- |
3 |
|||||||
|
|
Vietnamese Dollar |
- |
- |
- |
93 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
Total assets |
n/a |
n/a |
- |
12,303 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
Liabilities |
|
|
|
|
|||||||
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
1.42 |
3.50 |
58,882 |
- |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
|
|
|
|
|||||||
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. |
|||||||||||
|
|
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates. |
|||||||||||
|
|
The Company's equity portfolio and short-term debtors and creditors have been excluded from the above tables. |
|||||||||||
|
|
|
|||||||||||
|
|
Interest rate sensitivity |
|||||||||||
|
|
Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit. |
|||||||||||
|
|
|
|||||||||||
|
|
Foreign currency risk |
|||||||||||
|
|
The majority of the Company's investment portfolio is invested in overseas securities and the Statement of Financial Position, therefore, can be significantly affected by movements in foreign exchange rates. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk
|
|||||||||||
|
|
It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings. |
|||||||||||
|
|
|
|||||||||||
|
|
The Statement of Comprehensive Income is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk. |
|||||||||||
|
|
|
|||||||||||
|
|
Foreign currency risk exposure by currency of denomination: |
|||||||||||
|
|
|
|||||||||||
|
|
|
31 August 2017 |
31 August 2016 |
|||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
|||||
|
|
|
Overseas |
monetary |
currency |
Overseas |
monetary |
currency |
|||||
|
|
|
investments |
assets |
exposure |
investments |
assets |
exposure |
|||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
Chinese Yuan |
60,180 |
2 |
60,182 |
- |
- |
- |
|||||
|
|
Hong Kong Dollar |
169,573 |
984 |
170,557 |
153,256 |
- |
153,256 |
|||||
|
|
Indian Rupee |
137,077 |
3,962 |
141,039 |
118,932 |
- |
118,932 |
|||||
|
|
Indonesian Rupiah |
47,691 |
- |
47,691 |
28,524 |
- |
28,524 |
|||||
|
|
Korean Won |
67,568 |
- |
67,568 |
72,114 |
419 |
72,533 |
|||||
|
|
Malaysian Ringgit |
24,089 |
- |
24,089 |
26,768 |
- |
26,768 |
|||||
|
|
Philippine Peso |
33,489 |
- |
33,489 |
31,139 |
- |
31,139 |
|||||
|
|
Singapore Dollar |
138,511 |
475 |
138,986 |
131,075 |
179 |
131,254 |
|||||
|
|
Sri Lankan Rupee |
16,133 |
- |
16,133 |
17,547 |
- |
17,547 |
|||||
|
|
Taiwanese Dollar |
44,779 |
3 |
44,782 |
46,692 |
3 |
46,695 |
|||||
|
|
Thailand Baht |
23,838 |
- |
23,838 |
22,142 |
- |
22,142 |
|||||
|
|
US Dollar |
54,827 |
- |
54,827 |
42,740 |
- |
42,740 |
|||||
|
|
Vietnamese Dong |
6,769 |
215 |
6,984 |
4,330 |
93 |
4,423 |
|||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
824,524 |
5,641 |
830,165 |
695,259 |
694 |
695,953 |
|||||
|
|
Sterling |
15,222 |
5,321 |
20,543 |
14,875 |
11,984 |
26,859 |
|||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
Total |
839,746 |
10,962 |
850,708 |
710,134 |
12,678 |
722,812 |
|||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||
|
|
|
|
|
|
|
|
|
|||||
|
|
Foreign currency sensitivity |
|||||||||||
|
|
There is no sensitivity analysis included, as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis, so as to show the overall level of exposure. |
|||||||||||
|
|
|
|||||||||||
|
|
Other price risk |
|||||||||||
|
|
Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets and the stock selection process, as detailed on page 60 of the published 2017 Annual Report, act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide. |
|||||||||||
|
|
|
|||||||||||
|
|
Other price risk sensitivity |
|||||||||||
|
|
If market prices at the reporting date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2017 would have increased/decreased by £83,975,000 (2016 - increased/decreased by £71,013,000) and equity reserves would have increased/decreased by the same amount. |
|||||||||||
|
|
|
|||||||||||
|
|
Liquidity risk |
|||||||||||
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk |
|||||||||||
|
|
The Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary. In order to monitor the concentration of Dragon's investee companies with Aberdeen, the total percentage holdings of those securities owned by Aberdeen-managed funds is reviewed by the Board. |
|||||||||||
|
|
|
|||||||||||
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%. Short-term flexibility can be achieved through the use of loan and overdraft facilities. At 31 August 2016 and 2017 the Company had no loan or overdraft facility in place. |
|||||||||||
|
|
|
|||||||||||
|
|
Liquidity risk exposure |
|||||||||||
|
|
At 31 August 2017 the Company had borrowings in the form of the £44,678,748 (2016 - £59,778,788) nominal of 3.5% Convertible Unsecured Loan Stock 2018 which are due to mature on 31 January 2018. |
|||||||||||
|
|
|
|||||||||||
|
|
Credit risk |
|||||||||||
|
|
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
|||||||||||
|
|
|
|||||||||||
|
|
Management of the risk
|
|||||||||||
|
|
investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; |
|||||||||||
|
|
the risk of counterparty, including the Depositary, exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, the third party administrators' carries out a stock reconciliation to the Depositary's records on a daily basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Depositary's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held; |
|||||||||||
|
|
cash is held only with reputable banks with high quality external credit enhancements. |
|||||||||||
|
|
|
|||||||||||
|
|
None of the Company's financial assets are secured by collateral or other credit enhancements. |
|||||||||||
|
|
|
|||||||||||
|
|
Credit risk exposure |
|||||||||||
|
|
In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 31 August was as follows: |
|||||||||||
|
|
|
|||||||||||
|
|
|
2017 |
2016 |
|||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||
|
|
Current assets |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
Loans and receivables |
5,010 |
5,010 |
2,610 |
2,610 |
|||||||
|
|
Cash at bank and in hand |
4,487 |
4,487 |
4,603 |
4,603 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
9,497 |
9,497 |
7,213 |
7,213 |
|||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||
|
|
|
|
|
|
|
|||||||
|
|
None of the Company's financial assets is past due or impaired. |
|||||||||||
|
|
|
|||||||||||
|
|
Maturity of financial liabilities |
|||||||||||
|
|
The maturity profile of the Company's financial liabilities at 31 August was as follows: |
|||||||||||
|
|
|
|
|
|||||||||
|
|
|
2017 |
2016 |
|||||||||
|
|
|
£'000 |
£'000 |
|||||||||
|
|
In less than one year |
44,415 |
- |
|||||||||
|
|
|
_______ |
_______ |
|||||||||
|
|
In more than one year |
- |
58,882 |
|||||||||
|
|
|
_______ |
_______ |
|||||||||
|
|
|
44,415 |
58,882 |
|||||||||
|
|
|
_______ |
_______ |
|||||||||
|
|
|
|
|
|||||||||
|
|
At 31 August 2017 the full contractual liability for the CULS assuming no further conversions was £45,699,000 (2016 - £63,897,000). |
|||||||||||
|
17. |
Fair value hierarchy |
|
|
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications: |
|
|
|
|
|
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. |
|
|
Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. |
|
|
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. |
|
|
|
|
|
All of the Company's investments are in quoted equities (2016 - same) actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments for 2017 of £839,746,000 (2016 - £710,134,000) have therefore been deemed as Level 1. |
|
18. |
Related party transactions and transactions with the Manager |
|
|
Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report in the published 2017 Annual Report |
|
|
|
|
|
The Company has an agreement in place with Aberdeen Fund Managers Limited ("AFML") for the provision of management and administration services, promotional activities and secretarial services. Details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5. Details of a revision to the management fee arrangements agreed by the Company and the Manager after the reporting date are contained in note 4. |
|
|
|
|
|
At the year end the Company had £4,800,000 (31 August 2016 - £7,700,000) invested in Aberdeen Liquidity Fund (Lux) - Sterling Fund which is managed and administered by AAML. The Company pays a management fee of 0.85% per annum on the value of these holdings but no fee is chargeable at the underlying fund level. |
|
19. |
Capital management policies and procedures |
|
|
|
The Company's capital management objectives are: |
|
|
|
to ensure that the Company will be able to continue as a going concern; and |
|
|
|
to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board has imposed a maximum gearing level of 20% of net assets. |
|
|
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained. |
|
|
|
|
|
|
|
The Company has no externally imposed capital requirements. |
|
20. The Annual General Meeting will be held on 12 December 2017 at 40 Princes Street, Edinburgh.
21. The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2017 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2017 and 2016 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The 2017 accounts will be filed with the Registrar of Companies in due course.
The annual results are circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY or on the Company's website www.edinburghdragon.co.uk.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
By Order of the Board
Aberdeen Asset Managers Limited, Secretary
This information is provided by RNS
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