Annual Financial Report
EDINBURGH DRAGON TRUST plc
ANNUAL FINANCIAL REPORT FOR THE YEAR TO 31 AUGUST 2018
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.
- There has been some stabilisation in the Company's investment performance, over the year to 31 August 2018. The Company's net asset value (NAV) rose by 2.3% on a total return basis compared to a 2.2% return from its benchmark.
- The changes made to the Company's underlying portfolio, including building exposure in China, particularly in companies that are benefiting from emerging structural technology and growing domestic consumption trends, have started to yield results.
- Whilst emerging markets can be vulnerable to economic contagion, Asia, having learnt well the lessons from the 1997 financial crisis, remains robust to such challenges. Inflation is relatively low, economic growth is still resilient and central banks have been uncompromising in their approach. The outlook for Asia seems relatively positive and should bode well for your Company in the years ahead.
- Following consultation with a number of the larger shareholders in advance of the Company's three yearly continuation vote at the AGM in December 2018, the Board has proposed a Tender offer for 30% of the Company's issued shares at a discount of 2% to formula asset value (being net asset value less the costs of the tender offer). The Company's largest shareholder, City of London Investment Management, has provided an irrevocable undertaking to vote in favour of the continuation vote and tender offer.
- The Board strongly recommends that shareholders vote in favour of the continuation resolution; the prospects for Asian markets remain positive, and the Company is managed by one of the leading Asian fund managers.
For further information please contact:-
Adrian Lim, Senior Investment Manager,
Aberdeen Standard Investments (Asia) Limited 0065 6395 2700
Jonathon McManus, Manager - Investment Trust Investor Relations, 0207 618 1444
Aberdeen Standard Investments
FINANCIAL HIGHLIGHTS
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Net asset value total return{AB} |
+2.3% |
Share price total return{A} +3.4% |
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2017
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+21.6% |
2017 |
+20.8% |
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Benchmark total return{A} (in sterling terms) |
+2.2% |
Ongoing charges{A} |
0.80% |
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2017
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+27.2% |
2017 |
1.03% |
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Earnings per share (revenue) |
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5.03p |
Dividend per share |
4.00p |
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2017 |
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4.68p |
2017 |
3.30p |
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{A} Alternative Performance Measure (see pages 11, 68 and 69 of of the published 2018 Annual Report). |
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{B} 2018 presented on an undiluted basis as Convertible Unsecured Loan Stock ("CULS") matured during the year; 2017 - presented on a diluted basis as CULS "in the money". |
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STRATEGIC REPORT
CHAIRMAN'S STATEMENT
Overview
Over the year to 31 August 2018 the Company's net asset value (NAV) rose by 2.3% on a total-return basis and the share price rose by 3.4%. In comparison, the benchmark MSCI All Country Asia (ex Japan) Index gained 2.2%.
This rise in Asian equities over the year came alongside a significant increase in volatility during the second half. Unlike 2017, when stock markets tracked the synchronised global economic upswing, the new year was disrupted by three key factors. The first was the squeeze on US dollar liquidity, caused by the White House led tax reforms that compelled American companies to repatriate their foreign cash hoards, as well as the Federal Reserve's accelerated interest rate normalisation. The second reason was the increased US hostility towards key trading partners that resulted in a series of tit-for-tat tariff increases. Thirdly, heightened worries of contagion afflicted emerging markets after a series of individual mishaps in Argentina, South Africa, and Turkey, which could be partially attributed to the first two factors. As a result, China lost a fifth of its value from its peak in January, while the broader developing markets followed suit in mid-August amid concerns that the market turmoil might spread.
There has been some stabilisation in investment performance over the last 12 months. This may be a result of investors' greater focus on corporate fundamentals in light of the market gyrations, as well as your Manager's continued efforts to identify long-term capital growth opportunities, including building exposure to China, particularly in companies that are benefiting from emerging structural technology and growing domestic consumption trends. The changes made to the underlying portfolio have started to yield results: contributions from your Manager's choice of holdings outweighed the negative impact of the portfolio's exposure to individual markets and adverse currency movements in the review period.
Performance
Overall, the Company's portfolio benefited from your Manager's decision to increase exposure to Chinese equities. Notably, half of the top 10 contributors to the portfolio's performance were from the mainland, including China International Travel, China Conch, Kweichow Moutai, Shanghai International Airport and China Resources Land. Further Chinese companies were added to the portfolio in the second half of the reporting period. A more detailed analysis of your Company's performance can be found in the Investment Manager's Review.
Gearing
Since 2011, the Company's gearing has been provided by its 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"), which matured at the end of January 2018. The Company continued to make use of its capacity to implement structural gearing through the £50 million one year unsecured multi-currency revolving credit loan facility with Scotiabank (Ireland) Designated Activity Company. Due to downward pressure on Asian markets and economies, the Manager has only drawn down around half of this facility with the view to increase gearing further when there is greater clarity in the outlook. As at 31 August 2018, £25.5m was drawn down under this facility and net gearing represented 2.2% of net assets.
The Board continues to believe that the sensible use of modest financial gearing should enhance returns to shareholders and further gearing options will be considered prior to the maturity of the loan facility at the end of January 2019.
Discounts and Share Buybacks
The Board has continued to demonstrate its commitment to the buying back of shares in order to keep Dragon's discount in line with its peer group. The final conversion date for CULS holders was 31 January 2018 which resulted in the listing of 14.4 million new Ordinary shares on 9 February 2018. Not all of these shareholders wished to retain their holdings and the Company was willing to buy back some of these shares.
During the year ended 31 August 2018, 18.2 million shares were bought back into treasury at a cost of £67.9 million. Since the period end, a further 827,000 shares have been bought back into treasury at a cost of £3.0 million. The discount at the end of August 2018 was 12.2% compared to 14.7% at the previous year end.
The Company trades at a comparable discount to the broad Asia Pacific Equity investment trust peer group. Sentiment towards the sector remains lukewarm in light of the uncertainty created by the prospect of a damaging US-China trade war, as well as ongoing concerns around the health of a number of weaker global emerging markets.
Fees
The Board maintains an ongoing dialogue with the Manager on the level of management fees payable by the Company. In the last 5 years, the management fee has been reduced from 1.0% of net assets to 0.85% of net assets up to £350 million and 0.5% on net assets over £350 million, which has resulted in a reduction in ongoing charges from 1.23% to 0.8%.
The Board will continue to monitor fee levels and maintain the dialogue with the Manager.
Revenue Account
I am pleased to report that the Company's revenue return per share increased to 5.03p for the year to 31 August 2018 (2017 - 4.68p). 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 4.0p per Ordinary share (2017 - 3.3p) which, if approved by shareholders at the Annual General Meeting, will be paid on 21 December 2018.
Review of Manager
Last year, I reported on the due diligence exercise that the Board had carried out on your Manager in 2017. I noted that the Board would continue to review the Manager's performance. To that end the Board again visited with the team in Singapore in April 2018 and gained comfort with the leadership and changes made to date. I am encouraged that the Company's recent performance has improved and is marginally ahead of the index over the year. The Board will, of course, continue to monitor the Manager's performance.
The Board
The Board is pleased to report the appointment of James Will as a non-executive director on 1 October 2018. James is the former Chairman of law firm Shepherd and Wedderburn LLP where he was a senior corporate partner, heading its financial sector practice. He has experience in working with companies across a wide range of industry sectors, including financial services, technology, energy and life sciences. He is currently the chairman of The Scottish Investment Trust, as well as the audit committee chairman of Herald Investment Trust.
Charlie Ricketts will join the Audit Committee with effect from the AGM, replacing Allan McKenzie.
Continuation Vote
As shareholders will be aware, they are given the opportunity to vote on the continuation of the Company every three years. Edinburgh Dragon Trust is one of the largest investment trusts specialising in the Asia (ex Japan) sector. The Board believes that the Trust offers investors a broad and marketable exposure to Asian equity markets, many of which continue to provide attractive long-term investment opportunities in the region. The Directors believe that the prospects for Asian markets remain positive, and your Company is managed by one of the leading Asian fund managers. Your Board, thus, strongly recommends that shareholders vote in favour of the resolution.
The Board has an ongoing programme of contact with shareholders. The Board and the Company's advisers have recently consulted a number of the larger shareholders of Dragon, some of whom had indicated their wish for a tender offer to be offered in conjunction with this year's Annual General Meeting at which the three yearly continuation vote will be considered.
As a result, the Board will, subject to the continuation vote, propose a tender offer for 30% of the Company's issued shares at a discount of 2% to formula asset value (being net asset value less the costs of the tender offer) on the calculation date, which will be at the end of the tender offer process.
The tender offer is expected to be conducted, following the necessary shareholder approval, in early 2019. A document setting out the terms of the tender offer will be sent to shareholders shortly in December 2018.
In these circumstances, the Board believes that this proposal is in the interests of shareholders. It ensures that shareholders who do not tender any shares are protected against the costs of the tender offer and receive benefit from a modest uplift in their net asset value. It also provides an exit mechanism for the shareholders who have asked for one.
The Company's largest shareholder, City of London Investment Management, has provided an irrevocable undertaking to vote in favour of the continuation vote and tender offer.
Annual General Meeting
The Annual General Meeting will be held at the Manager's London office on Monday 17 December 2018 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
Like the rest of the emerging markets, the situation in Asia appears bleak at first glance, especially in view of the US dollar liquidity crunch, the US induced trade war, the tensions in the South China Sea and the Fed's planned interest-rate hikes.
Deeper analysis suggests that Asia does not face the same challenges as those emerging economies currently under such close scrutiny. This is because none of the Asian countries is in the same boat as those in the other troubled regions, having learnt well the lessons from the 1997 financial crisis. Inflation is relatively low, economic growth is still resilient and central banks have been uncompromising in their approach. Indonesia, which was identified lately as being vulnerable to the emerging markets contagion, saw its central bank raise interest rates successively to quell inflation and staunch the rupiah's decline.
Fears over China's moderating growth rate and elevated debt levels appear overdone as well, chiefly because its financial system is a closed one, with little likelihood of spill-over impact if the situation goes awry. In addition, Beijing has been responsive and shown a steady hand during difficult spells. It could also bring to bear its massive arsenal of foreign exchange reserves that stand at more than 1.5 times that of Japan, the next nearest country on the World Bank's top five list.
On the US-China trade war front, while shots have been fired and tariffs imposed, both sides have nevertheless shown restraint in not pushing for the maximum amount flaunted in the rhetoric. This supports the view that all the sound and fury has merely been posturing so far and both countries have left ample room for future negotiations. President Trump's "Art of the Deal" approach to trade relations is starting to become somewhat predictable, with his opening gambit giving way to a subsequent more composed compromise, as was the case with the recently concluded NAFTA deal, now known as the United States-Mexico-Canada Agreement.
With these factors in mind, the outlook for Asia seems relatively positive, with an environment that should suit your Manager's style, and should bode well for your Company in the years ahead.
On a personal note I intend to retire from the Board in July 2019. A new Chairman of the Board will be appointed at that time. It has been a great privilege to have been on the Board since 2006 and Chairman since 2009. My focus at all times has been to look after the interests of all shareholders. I would like to thank all who have served with me on the Board since my initial appointment. I would also like to thank all of you who have interacted with me at annual one-to-one meetings and at AGMs.
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
1 November 2018
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 2018 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 Standard Investments (Asia) Limited ("ASI Asia" or the "Investment Manager") by way of a delegation agreement. ASI Asia changed its name from Aberdeen Asset Management Asia Limited on 3 September 2018. ASI Asia and AFML are both wholly owned subsidiaries of Standard Life Aberdeen plc, formed by the merger of Aberdeen Asset Management PLC and Standard Life plc on 14 August 2017.
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. 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. 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 64 of the published 2018 Annual Report.
A comprehensive analysis of the Company's portfolio by country and by sector is disclosed on pages 17 to 22, of the published 2018 Annual Report, including a description of the ten largest investments, the full investment portfolio by value and sector/geographical analysis. At 31 August 2018, the Company's portfolio consisted of 72 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 2018, the Company's net gearing was 2.2%.
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 and undertaken a robust review of 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, the Manager'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 2018 the Company had £25.5 million of bank borrowings. 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.
The Directors do not anticipate any significant adverse effect on the Company arising from Brexit.
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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.
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* 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 shown on page 12 of the published 2018 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 Manager 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 Manager 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 2018 there were four male Directors and one female Director. Subsequent to the year end, a male director was appointed to the Board on 1 October 2018.
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 set out in the Statement of Corporate Governance.
Viability Statement
In accordance with the provisions of the Listing Rules and 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 at the 2018 AGM and the renewal of the Company's borrowings in January 2019.
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;
- the level of gearing and revenue surplus generated by the Company. The Company has the ability to renew or repay its gearing; and
- the feed-back following consultation with major shareholders on the continuation of the Company and the proposed Tender offer.
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 2023.
Allan McKenzie
Chairman
1 November 2018
INVESTMENT MANAGER'S REVIEW
Background/Portfolio review
Asian equities posted decent returns over a review year of two distinct halves. Markets were buoyant in the first six months, boosted by steady global growth, upbeat earnings results and optimism over Chinese internet stocks. But volatility spiked subsequently, as investors grew nervous over aggressive interest rate hikes in the US and further escalation in the US-China trade war. In China, fears of moderating growth further pressured stocks and the renminbi, prompting policymakers to boost liquidity and introduce fresh stimulus.
Against this backdrop, the Trust's net asset value (NAV) total return increased by 2.3% over the year, slightly ahead of the benchmark MSCI All Country Asia (ex Japan) Index which gained 2.2% in sterling terms. The share price rose by 3.4% on a total return basis to 370p, and the discount to NAV narrowed from 14.7% at the start of the period to 12.2% as at 31 August 2018.
The portfolio's returns were driven mainly by our approach of investing in well run companies with sound fundamentals, resilient business models and healthy cashflows. These traits build resilience into your portfolio in volatile conditions.
Your Company's holdings in China, especially those in the consumer discretionary and industrial sectors, were the portfolio's key contributors. We are mindful of the speculative nature of China's capital markets, the risk of heavy handed state intervention and generally weak standards of corporate governance. Nevertheless, we have identified companies that met our stringent investment criteria, and we have been building the portfolio's exposure to China gradually. Notably, these mainland holdings delivered attractive returns amid a subdued broader market thus underlining the value of our approach.
Two consumer companies stood out: China International Travel Services (CITS) and Kweichow Moutai. CITS, a leading domestic land tour company and the mainland's largest duty free operator, benefited from growing demand for domestic travel. As the only nationwide player, it is well positioned to take advantage of the growing affluence of the middle class. Similarly, Kweichow Moutai, a distiller of high end spirits, delivered excellent results underpinned by robust sales growth. It commands pricing power through a solid brand and is well placed to capitalise on shifting consumer preferences towards premium products.
Industrial names also contributed to returns. Shanghai International Airport was a key contributor, as growth in rental income from its newly renovated passenger terminal prompted the airport operator to forecast healthy profits. Cement maker Anhui Conch advanced, thanks to rising cement prices that resulted from better industry discipline and supply side reforms.
The portfolio's performance was also lifted by technology stocks, which benefited from a favourable semiconductor cycle, though concerns over smartphone demand capped gains. Samsung Electronics delivered record earnings on higher memory chip prices, a segment where it remains the technology leader globally. Supported by a solid balance sheet and steady cash flows, Samsung has also made good progress in returning more money to shareholders over the past few years, including an increase in dividend payouts. While profit taking and reduced risk appetite have pressured Asian technology names in recent months, we remain confident of the longer term outlook of the sector. We see new demand from growing use of smartphones, autonomous driving, internet connected homes and factories, as well as high performance computing.
Nevertheless, the portfolio's larger exposure to cement and real estate stocks weighed on performance. Within the Indian cement industry, which continues to suffer from oversupply, subdued demand and rising energy costs, India's Grasim Industries was the main laggard. After rallying at the end of 2017 on the back of restructuring efforts, it succumbed to profit taking amid renewed concerns over muted cement prices. We remain confident of its prospects and expect demand to exceed capacity expansion soon. Grasim's cement business is also benefiting from higher infrastructure spending and demand for affordable housing in the rural regions.
In real estate, Singapore developer City Developments (CDL) fell after the government intervened to cool the resurgent domestic property market, with the severity of the measures catching many by surprise. Myanmar focused group Yoma Strategic was pressured by a property slowdown in the country, though its latest earnings showed signs of stabilising. We still like CDL for its sizeable low cost land bank and its holding in the global Millennium & Copthorne hotel chain and find Yoma is well placed to tap Myanmar's longer term growth potential.
Elsewhere, Hong Kong-based investment holding group Jardine Strategic faltered, mainly due to pullbacks in the stock prices of Indonesian conglomerate Astra International, auto group Jardine Cycle & Carriage and retailer group Dairy Farm. Astra, which the portfolio also holds directly, similarly declined as its market share was pressured by increased competition.
Portfolio activity
Market volatility during the year afforded opportunities for us to introduce attractively valued companies. We continued to build the portfolio's exposure in China, particularly in companies that are benefiting from emerging technology and growing domestic consumption trends.
Hong Kong-listed Tencent Holdings is one such company with high quality growth potential. The Chinese internet giant has succeeded in diversifying its products, creating a powerful, interlocking suite of services that has entrenched itself in the everyday lives of Chinese consumers, who use Tencent's products to make electronic payments, read the news and stay in touch with family and friends. The company's growing product shelf deepens this relationship with end users and entices them to pay for value added services, which will drive future earnings growth. Its shares have fallen in recent months, following a country wide freeze on approvals for new online games that affected its mobile version of a blockbuster game. However, Tencent's management is confident that its game would receive approval eventually. Tighter control over the industry will strengthen the positions of big players such as Tencent.
To capture opportunities within the Chinese consumption theme, we introduced Autohome, the dominant online hub for car transactions on the mainland, and hospitality chain Huazhu Hotels Group. Autohome has a classifieds advertising business that draws those interested in buying and selling cars, which is complemented by its comprehensive content that attracts high quality user traffic. Meanwhile, Huazhu's portfolio of almost 4,000 hotels serves as a proxy for tourism growth. It operates with an asset light franchise model, receiving revenues in the form of fees and booking commissions. Its management's track record and its partnership with Accor should drive further margin improvements.
We also initiated positions in three other mainland companies: Ping An Insurance, China Resources Land, and Wuxi Biologics. Ping An is a Chinese financial conglomerate with one of the best life insurance franchises domestically. It has adroitly tapped technology to build a robust financial supermarket and is well positioned in a structurally growing segment. Its competent management has also put in place adequate risk management processes that mitigate the complexity of the group.
China Resources Land is a Hong Kong-listed Chinese developer with superior profitability, substantial land bank, as well as a good mix of property development and investment. It enjoys steady growth in its malls and low financing costs as a state owned enterprise.
Wuxi Biologics, meanwhile, is a contract development manufacturing organisation (CDMO) with a significant model in the biologics outsourcing market. It is the only CDMO that offers end to end service, from drug discovery and development all the way to commercial manufacturing of biological drugs. This means that it owns the intellectual property and has high technical knowhow. With R&D at the drug discovery stage, it has a higher chance of retaining customers through the lifecycle of a drug.
Other recent additions to the portfolio include Thai mall developer Central Pattana, which has a good track record of executing its strategic goals and could grow margins from increasing rentals, and Vietnamese lender Vietnam Technological & Commercial Joint Stock Bank (Techcombank), which is led by internationally experienced management that is focused on profitability rather than market share.
Against these, we divested our positions in Singapore defence group ST Engineering, as well as Swire Pacific and MTR Corporation in Hong Kong, after their share prices rallied. We also took advantage of pre-election liquidity in the Malaysian market to exit financial group CIMB and investment holding company Batu Kawan.
Outlook
Given prevailing trade tensions, investor sentiment has turned more wary, and politics and policy will likely continue to hold sway over Asian markets. Many companies are shelving investment plans, which could dampen near term economic growth in the region. There are also other market specific issues that could present challenges to the portfolio's underlying holdings. In India and Indonesia, political risk may feature more prominently given upcoming elections. Beijing's delicate tightrope between reducing risks in the financial system and sustaining growth could have wide reaching implications. More broadly, central banks in the region also have to grapple with defending their currencies and maintaining price stability, while contending with rising commodity prices, tightening US monetary policy and a strengthening US dollar.
However, many Asian economies are in better shape, with healthy external balances and foreign currency reserves. Corporate fundamentals remain resilient too. Despite more cautious forecasts, many of your Company's holdings are still delivering fair earnings growth. The portfolio, given its exposure to largely domestic companies with local revenues and costs, is also relatively insulated from the trade war between the US and its major trading partners. Many holdings stand to benefit from improving consumer sentiment in both China and the rest of the region.
Aberdeen Standard Investments (Asia) Limited*
1 November 2018
* on behalf of Aberdeen Fund Managers Limited. Both companies are subsidiaries of Standard Life Aberdeen plc.
RESULTS
|
|
31 August 2018 |
31 August 2017 |
% change |
|
|
Performance |
|
|
|
|
|
Equity shareholders' funds (£'000) |
788,019 |
807,330 |
-2.4 |
|
|
Net asset value per share (basic) (p) |
421.54 |
423.26 |
-0.4 |
|
|
Net asset value per share (diluted) (p) |
N/A |
415.19 |
N/A |
|
|
Share price (p) |
370.00 |
361.00 |
+2.5 |
|
|
Market capitalisation (£'000) |
691,672 |
688,577 |
+0.4 |
|
|
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis) |
958.84 |
962.36 |
-0.4 |
|
|
Revenue return per share (basic) (p) |
5.03 |
4.68 |
+7.5 |
|
|
Total return per share (basic) (p) |
5.33 |
79.08 |
-93.3 |
|
|
|
|
|
|
|
|
Gearing |
|
|
|
|
|
Net gearing (%){A} |
2.2 |
4.1 |
|
|
|
|
|
|
|
|
|
Discount |
|
|
|
|
|
Discount to net asset value (basic) (%) |
12.2 |
14.7 |
|
|
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
|
Ongoing charges ratio{B} |
0.80 |
1.03 |
|
|
|
|
||||
|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
||||
|
{B} Considered to be an Alternative Performance Measure. Ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of the management fee and administrative expenses divided by the average fair value cum income net asset value throughout the year. |
||||
PERFORMANCE (TOTAL RETURN)
|
|
1 year return |
3 year return |
5 year return |
|
|
% |
% |
% |
|
Share price {A} |
+3.4 |
+62.1 |
+52.5 |
|
Net asset value - diluted{AB} |
+2.3 |
+62.3 |
+57.0 |
|
MSCI AC Asia (ex Japan) Index (in sterling terms) |
+2.2 |
+72.9 |
+77.9 |
|
{A} Considered to be an Alternative Performance Measure (see Glossary on page 68 of the published 2018 Annual Report for more information). |
|||
|
{B} 1 year return presented on an undiluted basis as Convertible Unsecured Loan Stock ("CULS") matured during the year; 2017 - presented on a diluted basis as CULS "in the money". |
|||
PORTFOLIO
TEN LARGEST INVESTMENTS
As at 31 August 2018
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2018 |
assets |
2017 |
|
Company |
Industry |
Country |
£'000 |
% |
£'000 |
|
Samsung Electronics (Pref) |
|
|
48,576 |
6.0 |
38,129 |
|
A leading semiconductor company which is also a major player in mobile phones and consumer electronics. |
Technology Hardware, Storage & Peripherals |
South Korea |
|
|
|
|
Tencent Holdings |
|
|
41,686 |
5.1 |
- |
|
The internet giant continues to strengthen its ecosystem, and the Manager sees tremendous potential in Tencent's advertising business as it starts monetising its social media and payment platforms. |
Internet Software & Services |
China |
|
|
|
|
Taiwan Semiconductor Manufacturing Company |
|
|
35,748 |
4.4 |
32,769 |
|
The leading semiconductor foundry in Taiwan. |
Semiconductors & Semiconductor Equipment |
Taiwan |
|
|
|
|
Bank Central Asia |
|
|
25,236 |
3.1 |
19,821 |
|
Among the largest local private banks in Indonesia, it is well capitalised and has a big and stable base of low-cost deposits that funds its lending, while asset quality has remained solid. |
Banks |
Indonesia |
|
|
|
|
AIA Group |
|
|
24,922 |
3.1 |
27,446 |
|
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 |
|
|
|
|
Oversea-Chinese Banking Corporation |
|
|
24,380 |
3.0 |
29,849 |
|
A leading, well-run Singaporean banking group with assets and operations in South East Asia and China. |
Banks |
Singapore |
|
|
|
|
Housing Development Finance Corp |
|
|
23,759 |
3.0 |
28,115 |
|
Leading domestic mortgage provider with a leading distribution network, cost structure and balance sheet quality. |
Thrifts & Mortgage Finance |
India |
|
|
|
|
Jardine Strategic Holdings |
|
|
22,810 |
2.8 |
36,053 |
|
A Singapore-listed conglomerate with interests across the region spanning property, hotels and consumer-related businesses. |
Industrial Conglomerates |
Hong Kong |
|
|
|
|
ITC |
|
|
19,412 |
2.4 |
19,300 |
|
An associate of British American Tobacco, it is a dominant cigarette player in the Indian market with a strong distribution system. |
Tobacco |
India |
|
|
|
|
Siam Cement |
|
|
18,152 |
2.2 |
19,973 |
|
Thailand's largest cement producer with other key interests in petrochemicals, pulp & paper and building materials. Its balance sheet remains strong and valuations are reasonable, with an attractive dividend yield. |
Construction Materials |
Thailand |
|
|
|
|
|
|
|
_________ |
______ |
|
|
Top ten investments |
|
|
284,681 |
35.1 |
|
|
|
|
|
_________ |
______ |
|
|
OTHER INVESTMENTS |
|
|||||
|
As at 31 August 2018 |
|
|||||
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
|
2018 |
assets |
2017 |
|
|
Company |
Sector |
Country |
£'000 |
% |
£'000 |
|
|
Ping An Insurance |
Insurance |
China |
16,937 |
2.1 |
- |
|
|
China International Travel Services 'A' |
Hotels, Restaurants & Leisure |
China |
16,913 |
2.1 |
8,758 |
|
|
HSBC Holdings |
Banks |
Hong Kong |
16,857 |
2.1 |
18,811 |
|
|
Hong Kong Exchanges & Clearing |
Capital Markets |
Hong Kong |
16,673 |
2.0 |
16,691 |
|
|
Swire Properties |
Real Estate Management & Development |
Hong Kong |
15,743 |
1.9 |
10,299 |
|
|
Tata Consultancy Services |
IT Services |
India |
15,316 |
1.9 |
11,895 |
|
|
DBS Group |
Banks |
Singapore |
14,926 |
1.8 |
12,558 |
|
|
City Developments |
Real Estate Management & Development |
Singapore |
14,632 |
1.8 |
25,000 |
|
|
Naver Corp |
Internet Software & Services |
South Korea |
14,101 |
1.7 |
12,297 |
|
|
China Resources Land |
Real Estate Management & Development |
China |
13,780 |
1.7 |
1,815 |
|
|
|
|
|
_________ |
______ |
|
|
|
Top twenty investments |
|
|
440,559 |
54.2 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Ayala Land |
Real Estate Management & Development |
Philippines |
13,028 |
1.6 |
14,978 |
|
|
Astra International |
Automobiles |
Indonesia |
12,648 |
1.6 |
10,765 |
|
|
Keppel Corp |
Industrial Conglomerates |
Singapore |
12,477 |
1.5 |
12,269 |
|
|
Kweichow Moutai 'A' |
Beverages |
China |
12,315 |
1.5 |
13,853 |
|
|
Singapore Telecommunications |
Diversified Telecommunication Services |
Singapore |
12,049 |
1.5 |
21,627 |
|
|
Bank of Philippine Islands |
Banks |
Philippines |
11,909 |
1.5 |
14,340 |
|
|
Grasim Industries |
Construction Materials |
India |
11,889 |
1.5 |
20,323 |
|
|
Yum China Holdings |
Hotels, Restaurants & Leisure |
China |
11,663 |
1.4 |
10,752 |
|
|
John Keells Holdings |
Industrial Conglomerates |
Sri Lanka |
10,270 |
1.3 |
12,704 |
|
|
Kotak Mahindra Bank |
Banks |
India |
10,109 |
1.2 |
8,598 |
|
|
|
|
|
_________ |
______ |
|
|
|
Top thirty investments |
|
|
558,916 |
68.8 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Piramal Enterprises |
Pharmaceuticals |
India |
9,862 |
1.2 |
14,908 |
|
|
Standard Chartered{A} |
Banks |
United Kingdom |
9,832 |
1.2 |
17,404 |
|
|
Shanghai International Airport 'A' |
Transport Infrastructure |
China |
9,510 |
1.2 |
10,550 |
|
|
LG Chem |
Chemicals |
South Korea |
9,254 |
1.1 |
- |
|
|
Bangkok Dusit Medical Services 'F' |
Health Care Providers & Services |
Thailand |
8,920 |
1.1 |
3,865 |
|
|
Public Bank |
Banks |
Malaysia |
8,809 |
1.1 |
7,940 |
|
|
Hangzhou Hikvision Digital 'A' |
Electronic Equipment, Instruments & Components |
China |
8,802 |
1.1 |
11,973 |
|
|
Kerry Logistics Network |
Air Freight & Logistics |
Hong Kong |
8,382 |
1.0 |
8,143 |
|
|
United Overseas Bank |
Banks |
Singapore |
8,368 |
1.0 |
12,149 |
|
|
HDFC Bank |
Banks |
India |
8,267 |
1.0 |
7,946 |
|
|
|
|
|
_________ |
______ |
|
|
|
Top forty investments |
|
|
648,922 |
79.8 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Midea Group 'A' |
Household Durables |
China |
7,974 |
1.0 |
9,518 |
|
|
China Conch Venture Holdings |
Machinery |
China |
7,855 |
1.0 |
8,044 |
|
|
Hero MotoCorp |
Automobiles |
India |
7,271 |
0.9 |
11,732 |
|
|
Vietnam Dairy Products |
Food Products |
Vietnam |
6,912 |
0.9 |
6,769 |
|
|
E-Mart Co |
Food & Staples Retailing |
South Korea |
6,815 |
0.8 |
8,763 |
|
|
Autohome |
Internet Software & Services |
China |
6,755 |
0.8 |
- |
|
|
Taiwan Mobile |
Wireless Telecommunication Services |
Taiwan |
6,616 |
0.8 |
12,010 |
|
|
Ayala Corp |
Diversified Financial Services |
Philippines |
6,439 |
0.8 |
4,170 |
|
|
Han's Laser Technology 'A' |
Machinery |
China |
5,896 |
0.7 |
5,529 |
|
|
ASM Pacific Technology |
Semiconductors & Semiconductor Equipment |
Hong Kong |
5,863 |
0.7 |
6,909 |
|
|
|
|
|
_________ |
______ |
|
|
|
Top fifty investments |
|
|
717,318 |
88.2 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Hang Lung Group |
Real Estate Management & Development |
Hong Kong |
5,842 |
0.7 |
8,524 |
|
|
CNOOC |
Oil, Gas & Consumable Fuels |
China |
5,521 |
0.7 |
6,364 |
|
|
Ultratech Cement |
Construction Materials |
India |
5,476 |
0.7 |
3,642 |
|
|
Unilever Indonesia |
Household Products |
Indonesia |
5,249 |
0.6 |
8,295 |
|
|
Huazhu Group |
Hotels, Restaurants & Leisure |
China |
5,215 |
0.6 |
- |
|
|
Amorepacific Corp (Pref) |
Personal Products |
South Korea |
4,744 |
0.6 |
5,625 |
|
|
Holcim Indonesia |
Construction Materials |
Indonesia |
4,694 |
0.6 |
4,232 |
|
|
Hindustan Unilever |
Household Products |
India |
4,360 |
0.5 |
4,297 |
|
|
China Mobile |
Wireless Telecommunication Services |
China |
4,359 |
0.5 |
23,794 |
|
|
Raffles Medical Group |
Health Care Providers & Services |
Singapore |
4,316 |
0.5 |
3,117 |
|
|
|
|
|
_________ |
______ |
|
|
|
Top sixty investments |
|
|
767,094 |
94.2 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Sunny Optical Technology |
Electronic Equipment Instruments & Components |
China |
4,250 |
0.5 |
- |
|
|
Koh Young Technology |
Semiconductors & Semiconductor Equipment |
South Korea |
4,041 |
0.5 |
- |
|
|
China Merchants Bank |
Banks |
China |
4,015 |
0.5 |
- |
|
|
Wuxi Biologics (Cayman) |
Life Sciences Tools & Services |
China |
3,981 |
0.5 |
- |
|
|
Indocement Tunggal Prakarsa |
Construction Materials |
Indonesia |
3,698 |
0.5 |
4,578 |
|
|
Saic Motor Corp |
Automobiles |
China |
3,666 |
0.5 |
- |
|
|
Hang Lung Properties |
Real Estate Management & Development |
Hong Kong |
3,350 |
0.4 |
6,414 |
|
|
Yoma Strategic Holdings |
Real Estate Management & Development |
Singapore |
2,658 |
0.3 |
4,825 |
|
|
Vietnam Technological & Commercial Bank |
Banks |
Vietnam |
2,475 |
0.3 |
- |
|
|
Central Pattana Public Co |
Real Estate Management & Development |
Thailand |
2,404 |
0.3 |
- |
|
|
|
|
|
_________ |
______ |
|
|
|
Top seventy investments |
|
|
801,632 |
98.5 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
DFCC Bank |
Banks |
Sri Lanka |
2,137 |
0.3 |
3,429 |
|
|
Amorepacific Group |
Personal Products |
South Korea |
1,988 |
0.2 |
2,754 |
|
|
|
|
|
_________ |
______ |
|
|
|
Total investments |
|
|
805,757 |
99.0 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Net current assets{B} |
|
|
7,762 |
1.0 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
Total assets{C} |
|
|
813,519 |
100.0 |
|
|
|
|
|
|
_________ |
______ |
|
|
|
|
|
|
|
|
|
|
|
{A} 2018 valuation reflects UK listing holding of £9,832,000. 2017 valuation reflects UK listed equity holding of £15,222,000 and Hong Kong listed equity holdings of £2,182,000. |
|
|||||
|
{B} Excludes bank loan of £25,500,000. |
||||||
|
{C} See definition on page 70 of the published 2018 Annual Report. |
||||||
|
|
||||||
|
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings. |
||||||
CHANGES IN ASSET DISTRIBUTION
Year Ended 31 August 2018
|
|
Value at |
|
|
|
Value at |
|
|
31 August 2017 |
|
Sales |
Gains/ |
31 August 2018 |
|
Country |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
China |
110,948 |
58,143 |
44,461 |
20,763 |
145,393 |
|
Hong Kong |
173,634 |
53,644 |
48,728 |
(12,408) |
166,142 |
|
India |
137,077 |
11,517 |
35,851 |
2,979 |
115,722 |
|
Indonesia |
47,691 |
6,212 |
1,584 |
(794) |
51,525 |
|
Malaysia |
24,089 |
174 |
16,969 |
1,515 |
8,809 |
|
Philippines |
33,489 |
3,868 |
4,826 |
(1,156) |
31,375 |
|
Singapore |
138,511 |
4,719 |
41,303 |
(8,120) |
93,807 |
|
South Korea |
67,568 |
25,602 |
4,019 |
366 |
89,517 |
|
Sri Lanka |
16,133 |
- |
623 |
(3,103) |
12,407 |
|
Taiwan |
44,779 |
3,754 |
11,203 |
5,034 |
42,364 |
|
Thailand |
23,836 |
5,253 |
- |
388 |
29,477 |
|
United Kingdom |
15,222 |
- |
3,351 |
(2,039) |
9,832 |
|
Vietnam |
6,769 |
3,979 |
- |
(1,361) |
9,387 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total investments |
839,746 |
176,865 |
212,918 |
2,064 |
805,757 |
|
Net current assets |
11,999 |
- |
- |
(4,237) |
7,762 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total assets less current liabilities |
851,745 |
176,865 |
212,918 |
(2,173) |
813,519 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
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 2018
GOING CONCERN
Shareholders will be given the opportunity to vote on the continuation of the Company at the next Annual General Meeting in December 2018. As referred to, and for the reasons set on in the Chairman's Statement, the Directors recommend that shareholders vote in favour of the continuation vote.
The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale.
Having regard to the matters referred to above, inclusive of the discussion regarding the continuation vote included in the Chairman's Statement, and after due consideration, 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 2018 |
Year ended 31 August 2017 |
||||
|
|
|
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 |
- |
2,064 |
2,064 |
- |
141,223 |
141,223 |
|
Currency losses |
|
- |
(167) |
(167) |
- |
(289) |
(289) |
|
Income |
3 |
18,299 |
- |
18,299 |
20,041 |
- |
20,041 |
|
Investment management fee |
4 |
(5,296) |
- |
(5,296) |
(6,228) |
- |
(6,228) |
|
Administrative expenses |
5 |
(1,211) |
- |
(1,211) |
(1,219) |
- |
(1,219) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
11,792 |
1,897 |
13,689 |
12,594 |
140,934 |
153,528 |
|
|
|
|
|
|
|
|
|
|
Interest payable and similar charges |
6 |
(1,137) |
- |
(1,137) |
(2,678) |
- |
(2,678) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return before taxation |
|
10,655 |
1,897 |
12,552 |
9,916 |
140,934 |
150,850 |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(1,085) |
(1,326) |
(2,411) |
(1,051) |
(52) |
(1,103) |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Return after taxation |
|
9,570 |
571 |
10,141 |
8,865 |
140,882 |
149,747 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per share (pence) |
|
|
|
|
|
|
|
|
Basic |
9 |
5.03 |
0.30 |
5.33 |
4.68 |
74.40 |
79.08 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
Diluted |
9 |
n/a |
0.29 |
5.61 |
n/a |
67.62 |
73.12 |
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
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 below are an integral part of the financial statements. |
|||||||
STATEMENT OF FINANCIAL POSITION (AUDITED)
|
|
|
As at |
As at |
|
|
|
31 August 2018 |
31 August 2017 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
10 |
805,757 |
839,746 |
|
|
|
____________ |
____________ |
|
Current assets |
|
|
|
|
Debtors and prepayments |
11 |
2,185 |
5,010 |
|
Money market funds |
|
- |
4,800 |
|
Cash and short term deposits |
|
8,775 |
4,487 |
|
|
|
____________ |
____________ |
|
|
|
10,960 |
14,297 |
|
|
|
____________ |
____________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Other creditors |
12 |
(3,198) |
(2,298) |
|
3.5% Convertible Unsecured Loan Stock 2018 |
12 |
- |
(44,415) |
|
Bank loan |
12 |
(25,500) |
- |
|
|
|
____________ |
____________ |
|
|
|
(28,698) |
(46,713) |
|
|
|
____________ |
____________ |
|
Net current liabilities |
|
(17,738) |
(32,416) |
|
|
|
____________ |
____________ |
|
Net assets |
|
788,019 |
807,330 |
|
|
|
____________ |
____________ |
|
Share capital and reserves |
|
|
|
|
Called-up share capital |
13 |
43,061 |
40,180 |
|
Share premium account |
|
60,416 |
18,618 |
|
Equity component of 3.5% Convertible Unsecured Loan Stock 2018 |
12 |
- |
238 |
|
Capital redemption reserve |
|
17,015 |
17,015 |
|
Capital reserve |
14 |
630,239 |
697,550 |
|
Revenue reserve |
|
37,288 |
33,729 |
|
|
|
____________ |
____________ |
|
Equity shareholders' funds |
|
788,019 |
807,330 |
|
|
|
____________ |
____________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
|
|
|
|
Basic |
15 |
421.54 |
423.26 |
|
Diluted |
15 |
N/A |
415.19 |
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 2017 |
|
40,180 |
18,618 |
238 |
17,015 |
697,550 |
33,729 |
807,330 |
|
Return after taxation |
|
- |
- |
- |
- |
571 |
9,570 |
10,141 |
|
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
13 |
2,881 |
41,798 |
- |
- |
- |
- |
44,679 |
|
Buyback of Ordinary shares for treasury |
14 |
- |
- |
- |
- |
(67,882) |
- |
(67,882) |
|
Dividend paid |
8 |
- |
- |
- |
- |
- |
(6,249) |
(6,249) |
|
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
6 |
- |
- |
(238) |
- |
- |
238 |
- |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Balance at 31 August 2018 |
|
43,061 |
60,416 |
- |
17,015 |
630,239 |
37,288 |
788,019 |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 August 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £265,721,000 (2017 - £357,950,000), as disclosed in note 10. |
||||||||
|
The Revenue reserve and the part of the Capital reserve represented by realised capital gains represent the amount of the Company's reserves distributable by way of dividend. |
||||||||
|
The accompanying notes below are an integral part of the financial statements. |
||||||||
STATEMENT OF CASHFLOWS (AUDITED)
|
|
|
Year ended |
Year ended |
|
|
|
31 August 2018 |
31 August 2017 |
|
|
Notes |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Net return before taxation |
|
12,552 |
150,850 |
|
Adjustment for: |
|
|
|
|
Gains on investments |
|
(2,064) |
(141,223) |
|
Currency losses |
|
167 |
289 |
|
Decrease/(increase) in accrued dividend income |
|
1,014 |
(1,130) |
|
Decrease in other debtors |
|
1 |
56 |
|
Increase in other creditors |
|
802 |
287 |
|
Interest payable and similar charges |
6 |
1,137 |
2,678 |
|
Scrip dividends included in investment income |
|
(685) |
(2,150) |
|
Overseas withholding tax |
|
(2,425) |
(1,122) |
|
|
|
_______ |
_______ |
|
Cash from operations |
|
10,499 |
8,535 |
|
Interest paid |
6 |
(873) |
(2,045) |
|
|
|
_______ |
_______ |
|
Net cash inflow from operating activities |
|
9,626 |
6,490 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Purchases of investments |
|
(176,034) |
(149,415) |
|
Sales of investments |
|
214,694 |
161,967 |
|
|
|
_______ |
_______ |
|
Net cash from investing activities |
|
38,660 |
12,552 |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Equity dividends paid |
8 |
(6,249) |
(6,077) |
|
Buyback of Ordinary shares |
|
(67,882) |
(15,692) |
|
Drawdown of bank loan |
|
25,500 |
- |
|
|
|
_______ |
_______ |
|
Net cash used in financing activities |
|
(48,631) |
(21,769) |
|
|
|
_______ |
_______ |
|
Decrease in cash and cash equivalents |
|
(345) |
(2,727) |
|
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents during the year |
|
|
|
|
Opening balance |
|
9,287 |
12,303 |
|
Effect of exchange rate fluctuations on cash held |
|
(167) |
(289) |
|
Decrease in cash and cash equivalents as above |
|
(345) |
(2,727) |
|
|
|
_______ |
_______ |
|
Closing cash and cash equivalents |
|
8,775 |
9,287 |
|
|
|
_______ |
_______ |
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 February 2018 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, on the assumption the continuation vote is passed by Shareholders at the forthcoming Annual General Meeting, 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) on page 32 of the published 2018 Annual Report. |
|
|
|
|
|
|
|
Key Accounting Judgements |
|
|
|
The Company's investments and borrowings are made in a number of currencies, however the Board considers the Company's functional currency to be Sterling. In arriving at this conclusion, the Board considered that the shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its shareholder base in the United Kingdom, pays dividends and expenses in Sterling. Consequently, the Board also considers the Company's presentational currency to be Sterling. |
|
|
|
|
|
|
(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 10. |
|
|
|
|
|
|
(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 |
|
|
|
Monetary 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. Unrealised and realised gains and losses on foreign currency movements on investments held through profit or loss are recognised in the capital column of the Statement of Comprehensive Income. |
|
|
|
|
|
|
(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 has been 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, was derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component was subsequently measured at amortised cost using the effective interest rate. |
|
|
|
|
|
|
|
Direct expenses associated with the CULS issue were allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component were amortised over the life of the instrument. |
|
|
|
|
|
|
|
The interest expense on the CULS was 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 was added to the carrying liability of the CULS. |
|
|
|
|
|
|
|
On conversion of CULS, equity was issued and the liability component was derecognised. The original equity component recognised at inception remained 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. |
|
|
|
|
|
|
(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 any resulting surplus on the transaction is transferred to the share premium account and any resulting deficit is transferred from the capital reserve. |
|
|
|
2018 |
2017 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK dividend income |
1,137 |
390 |
|
|
Overseas dividend income |
16,437 |
17,480 |
|
|
Scrip dividends |
685 |
2,150 |
|
|
|
_______ |
_______ |
|
|
|
18,259 |
20,020 |
|
|
|
_______ |
_______ |
|
|
Other income |
|
|
|
|
Deposit interest |
7 |
1 |
|
|
Interest from money market funds |
33 |
20 |
|
|
|
_______ |
_______ |
|
|
|
40 |
21 |
|
|
|
_______ |
_______ |
|
|
Total income |
18,299 |
20,041 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2018 |
2017 |
|
|
Income from investments |
£'000 |
£'000 |
|
|
Listed UK |
196 |
- |
|
|
Listed overseas |
18,063 |
20,020 |
|
|
|
_______ |
_______ |
|
|
|
18,259 |
20,020 |
|
|
|
_______ |
_______ |
|
|
|
2018 |
2017 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
5,296 |
- |
5,296 |
6,228 |
- |
6,228 |
|
|
|
_______ |
_______ |
_______ |
_______ |
______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Management fees paid to Aberdeen Fund Managers Limited ("the Manager") are calculated at 0.85% per annum on net assets up to £350 million and 0.50% per annum on net assets over £350 million. Management fees are calculated and payable on a quarterly basis. |
||||||
|
|
|
||||||
|
|
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 2018 (2017 - none) where the Manager earned a management fee elsewhere on the underlying holding. The balance due to the Manager at the year end was £1,291,000 (2017 - £1,716,000). |
||||||
|
|
|
||||||
|
|
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. |
||||||
|
|
|
2018 |
2017 |
|
5. |
Administrative expenses |
£'000 |
£'000 |
|
|
Promotional activities |
200 |
200 |
|
|
Directors' fees |
154 |
154 |
|
|
Custody fees |
316 |
355 |
|
|
Auditor's remuneration: Fees payable to the Company's auditor for |
|
|
|
|
audit of the Company's annual report |
18 |
21 |
|
|
review of the Company's half yearly report |
5 |
5 |
|
|
Other expenses |
518 |
484 |
|
|
|
_______ |
_______ |
|
|
|
1,211 |
1,219 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
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 Standard Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £200,000 (2017 - £200,000) and the sum due to the Manager at the year end was £34,000 (2017 - £34,000). |
||
|
|
|
||
|
|
No pension contributions were made in respect of any of the Directors. |
||
|
|
|
||
|
|
The Company does not have any employees. |
||
|
|
|
2018 |
2017 |
|
6. |
Interest payable and similar charges |
£'000 |
£'000 |
|
|
Interest on 3.5% Convertible Unsecured Loan Stock 2018 |
646 |
2,045 |
|
|
Notional interest of 1.162% on 3.5% Convertible Unsecured Loan Stock 2018 |
238 |
574 |
|
|
Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses |
26 |
59 |
|
|
Interest on bank loans |
227 |
- |
|
|
|
_______ |
_______ |
|
|
|
1,137 |
2,678 |
|
|
|
_______ |
_______ |
|
|
|
2018 |
2017 |
||||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
|
Overseas tax suffered |
1,085 |
- |
1,085 |
1,051 |
52 |
1,103 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
Total current tax charge for the year |
1,085 |
- |
1,085 |
1,051 |
52 |
1,103 |
|
|
|
|
Deferred tax liability on Indian capital gains |
- |
1,326 |
1,326 |
- |
- |
- |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
Total tax charge for the year |
1,085 |
1,326 |
2,411 |
1,051 |
52 |
1,103 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On 1 April 2018, the Indian Government withdrew an exemption from capital gains tax on investments held for twelve months or longer. Accordingly, the Company has recognised a deferred tax liability of £1,326,000 (2017 - £nil) on capital gains which may arise if Indian investments are sold. |
|||||||
|
|
|
|
|||||||
|
|
|
The Company has not recognised a deferred tax asset of £13,331,000 (2017 - £12,041,000) 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. |
|||||||
|
|
|
|
|
||||||
|
|
(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. |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
Return before taxation |
10,655 |
1,897 |
12,552 |
9,916 |
140,934 |
150,850 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
Effective rate of corporation tax at 19.00% (2017 - 19.58%) |
2,024 |
361 |
2,385 |
1,942 |
27,595 |
29,537 |
|
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
|
UK dividend income |
(216) |
- |
(216) |
(216) |
- |
(216) |
|
|
|
|
Gains on investments not taxable |
- |
(392) |
(392) |
- |
(27,651) |
(27,651) |
|
|
|
|
Currency losses not taxable |
- |
31 |
31 |
- |
56 |
56 |
|
|
|
|
Other non-taxable income |
(3,253) |
- |
(3,253) |
(3,705) |
- |
(3,705) |
|
|
|
|
Expenses not deductible for tax purposes |
3 |
- |
3 |
- |
- |
- |
|
|
|
|
Increase in excess expenses and loan relationship deficit |
1,442 |
- |
1,442 |
1,979 |
- |
1,979 |
|
|
|
|
Capital gains tax charge |
- |
- |
- |
- |
52 |
52 |
|
|
|
|
Movement in deferred tax liability on Indian capital gains |
- |
1,326 |
1,326 |
- |
- |
- |
|
|
|
|
Net overseas tax suffered |
1,085 |
- |
1,085 |
1,051 |
- |
1,051 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
Current tax charge for year |
1,085 |
1,326 |
2,411 |
1,051 |
52 |
1,103 |
|
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
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 £9,570,000 (2017 - £8,865,000). |
||
|
|
|
2018 |
2017 |
|
|
|
£'000 |
£'000 |
|
|
Proposed final dividend for 2018 - 4.00p per Ordinary share (2017 - 3.30p) |
7,444 |
6,249 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The amounts reflected above for the cost of the proposed final dividend for 2018 is based on 186,111,029 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 21 December 2018 to shareholders on the register at the close of business on 23 November 2018. |
||
|
|
|
2018 |
2017 |
||
|
9. |
Return per Ordinary share |
£'000 |
pence |
£'000 |
pence |
|
|
Basic |
|
|
|
|
|
|
Revenue return |
9,570 |
5.03 |
8,865 |
4.68 |
|
|
Capital return |
571 |
0.30 |
140,882 |
74.40 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total return |
10,141 |
5.33 |
149,747 |
79.08 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Weighted average Ordinary shares in issue |
|
190,358,754 |
|
189,359,122 |
|
|
|
|
__________ |
|
__________ |
|
|
|
|
|
||
|
|
|
2018 |
2017 |
||
|
|
Diluted |
£'000 |
pence |
£'000 |
pence |
|
|
Revenue return |
10,457 |
n/a |
11,460 |
n/a |
|
|
Capital return |
571 |
0.29 |
140,882 |
67.62 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total return |
11,028 |
5.61 |
152,342 |
73.12 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Weighted average Ordinary shares in issue{A} |
|
196,712,871 |
|
208,338,133 |
|
|
|
|
__________ |
|
__________ |
|
|
|
|
|
|
|
|
|
{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 14,405,297 (2017 - 18,979,011) to 196,712,916 (2017 - 208,338,133) Ordinary shares. |
||||
|
|
|
||||
|
|
For the years ended 31 August 2018 and 31 August 2017 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 |
459,574 |
22,222 |
481,796 |
|
|
Opening fair value gains/(losses) on investments held |
364,950 |
(7,000) |
357,950 |
|
|
|
_______ |
_______ |
_______ |
|
|
Opening fair value |
824,524 |
15,222 |
839,746 |
|
|
Movements in year: |
|
|
|
|
|
Purchases at cost |
176,865 |
- |
176,865 |
|
|
Sales - proceeds |
(209,567) |
(3,351) |
(212,918) |
|
|
Sales - gains/(losses) on sales |
95,539 |
(1,246) |
94,293 |
|
|
Current year fair value losses on investments held |
(91,437) |
(792) |
(92,229) |
|
|
|
_______ |
_______ |
_______ |
|
|
Closing fair value |
795,924 |
9,833 |
805,757 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Listed |
Listed |
|
|
|
|
overseas |
in UK |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
Closing book cost |
522,411 |
17,625 |
540,036 |
|
|
Closing fair value gains/(losses) on investments held |
273,513 |
(7,792) |
265,721 |
|
|
|
_______ |
_______ |
_______ |
|
|
Closing fair value |
795,924 |
9,833 |
805,757 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
2018 |
2017 |
|
|
Gains on investments held at fair value through profit or loss |
£'000 |
£'000 |
|
|
|
Realised gains on sales |
94,293 |
72,003 |
|
|
|
(Decrease)/increase in fair value gains on investments held |
(92,229) |
69,220 |
|
|
|
|
_______ |
_______ |
|
|
|
|
2,064 |
141,223 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: |
|||
|
|
|
|
|
|
|
|
|
2018 |
2017 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Purchases |
304 |
226 |
|
|
|
Sales |
376 |
342 |
|
|
|
|
_______ |
_______ |
|
|
|
|
680 |
568 |
|
|
|
|
|
|
|
|
|
The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. |
|||
|
|
|
2018 |
2017 |
|
11. |
Debtors and prepayments |
£'000 |
£'000 |
|
|
Accrued income |
1,337 |
2,351 |
|
|
Overseas withholding tax recoverable |
366 |
401 |
|
|
Amounts due from brokers |
31 |
1,806 |
|
|
Other debtors and prepayments |
451 |
452 |
|
|
|
_______ |
_______ |
|
|
|
2,185 |
5,010 |
|
|
|
_______ |
_______ |
|
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 2018 |
£'000 |
£'000 |
£'000 |
|
|
|
|
Balance at 31 August 2017 |
44,679 |
44,415 |
238 |
|
|
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares |
(44,679) |
(44,679) |
- |
|
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
238 |
- |
|
|
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve |
- |
- |
(238) |
|
|
|
|
Amortisation of issue expenses (see note 2(i)) |
- |
26 |
- |
|
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
Balance at 31 August 2018 |
- |
- |
- |
|
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
Liability |
Equity |
|
|
|
|
|
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 |
|
|
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
In January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The CULS were convertible at the election of holders into Ordinary Shares during the months of January and July each year up to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of CULS. Interest was 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 during the life of the CULS. |
||||
|
|
|
|
||||
|
|
|
The Company was required to recognise the liability component and the equity component of the CULS at the date of issue. The liability component was required to be increased to the nominal value over the life of the CULS by crediting the liability and debiting the profit or 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. |
||||
|
|
|
|
||||
|
|
|
Following the maturity of the CULS on 31 January 2018, the Company received conversion requests in respect of £43,741,559 nominal of CULS from CULS holders. The result was the issue of 14,103,127 Ordinary shares on 9 February 2018. |
||||
|
|
|
|
||||
|
|
|
In accordance with the Trust Deed, and after receiving independent financial advice, the remaining £937,189 nominal of CULS, for which no conversion requests had been received from the CULS holders, were converted into Ordinary shares at a price of 310.1528p per share by the Trustee. The Ordinary shares arising as a result of the exercise of conversion rights, being 302,170 Ordinary shares, were sold to the market at a price of 383p per Ordinary share with the proceeds of this sale, less any applicable expenses, being returned to those CULS holders who had made no conversion election pro rata their holding of unconverted CULS. |
||||
|
|
|
|
|
|
||
|
|
|
|
2018 |
2017 |
||
|
|
(b) |
Bank loans |
£'000 |
£'000 |
||
|
|
|
Falling due within one year |
25,500 |
- |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
|
|
|
||
|
|
|
The Company entered into a £50 million Revolving Facility Agreement with Scotiabank (Ireland) Designated Activity Company (the "Lender") on 31 January 2018, with the option to increase this facility to £75 million if required. This agreement will terminate on 31 January 2019. At the year end £25,500,000 had been drawn down at a rate of 1.412% which matured on 11 September 2018. At the date of this Report, £25,500,000 has been rolled over at an interest rate of 1.521% until maturity on 12 November 2018. |
||||
|
|
|
|
||||
|
|
|
The agreement contains the following covenants: |
||||
|
|
|
- the net asset value of the Company shall not at any time be less than £385 million. |
||||
|
|
|
- the adjusted asset coverage of the Company, as defined in the loan facility agreement, shall not at any time be less than 4.00 to 1.00. |
||||
|
|
|
|
|
|
||
|
|
|
|
2018 |
2017 |
||
|
|
(c) |
Other creditors |
£'000 |
£'000 |
||
|
|
|
Amounts due to brokers |
277 |
131 |
||
|
|
|
Deferred tax liability on capital gains |
1,326 |
- |
||
|
|
|
Other amounts due |
1,595 |
2,167 |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
|
3,198 |
2,298 |
||
|
|
|
|
_______ |
_______ |
||
|
|
|
2018 |
2017 |
|
13. |
Called-up share capital |
£'000 |
£'000 |
|
|
Allotted, called-up and fully paid: |
|
|
|
|
Ordinary shares of 20p |
|
|
|
|
Opening balance of 200,899,056 (2017 - 196,030,502) shares |
40,180 |
39,207 |
|
|
Issue of 14,405,297 (2018 - 4,868,554) Ordinary shares on conversion of £44,678,748 (2017 - £15,100,040) nominal 3.5% Convertible Unsecured Loan Stock 2018 |
2,881 |
973 |
|
|
|
_______ |
_______ |
|
|
Closing balance of 215,304,353 (2017 - 200,899,056) shares |
43,061 |
40,180 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
During the year 14,405,297 Ordinary shares were issued as a result of CULS conversion (2017 - 4,868,554). |
||
|
|
|
||
|
|
During the year 18,208,444 Ordinary shares of 20p each were purchased to be held in treasury by the Company (2017 - 4,636,200) at a total cost of £67,882,000 (2017 - £15,598,000). At the year end 28,365,944 (2017 - 10,157,500) Ordinary shares of 20p each were held in treasury, which represents 15.2% (2017 - 5.3%) of the Company's total issued share capital at 31 August 2018. |
||
|
|
|
||
|
|
Since the year end a further 827,380 Ordinary shares of 20p each have been purchased by the Company at a total cost of £2,957,000 all of which were held in treasury. |
||
|
|
|
2018 |
2017 |
|
14. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 September 2017 |
697,550 |
572,266 |
|
|
Movement in fair value gains |
2,064 |
141,223 |
|
|
Foreign exchange movement |
(167) |
(289) |
|
|
Buyback of Ordinary shares for treasury |
(67,882) |
(15,598) |
|
|
Capital gains tax charge |
(1,326) |
(52) |
|
|
|
_______ |
_______ |
|
|
As at 31 August 2018 |
630,239 |
697,550 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £265,721,000 (2017 - £357,950,000), 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: |
||
|
|
|
|
|
|
|
Basic |
2018 |
2017 |
|
|
Net assets attributable (£'000) |
788,019 |
807,330 |
|
|
Number of Ordinary shares in issue {A} |
186,938,409 |
190,741,556 |
|
|
Net asset value per share (p) |
421.54 |
423.26 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Diluted |
2018 |
2017 |
|
|
Net assets attributable (£'000) |
N/A |
851,745 |
|
|
Number of Ordinary shares in issue |
N/A |
205,146,955 |
|
|
Net asset value per share (p) |
N/A |
415.19 |
|
|
{A} Excluding shares held in treasury. |
_______ |
_______ |
|
|
|
|
|
|
|
The CULS matured on 31 January 2018, and therefore a diluted net asset value is not applicable at 31 August 2018. Details of the CULS maturity are disclosed in note 12. |
||
|
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, bank loans 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 Standard Life Aberdeen Group (the "Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Standard Investments (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 co-Chief Executive Officers 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 co-CEOs 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 Standard Life Aberdeen Group, 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 a £50 million Revolving Credit Facility which is due to terminate on 31 January 2019. At 31 August 2018 £25,500,000 had been drawn down at a rate of 1.4116% and matured on 11 September 2018. At the date of this Report, £25,500,000 has been rolled over at an interest rate of 1.521% until maturity on 12 November 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 |
|
|
|
||||||||
|
|
|
period for which |
average |
Fixed |
Floating |
||||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
||||||||
|
|
At 31 August 2018 |
Years |
% |
£'000 |
£'000 |
||||||||
|
|
Assets |
|
|
|
|
||||||||
|
|
Hong Kong Dollar |
- |
- |
- |
153 |
||||||||
|
|
Sterling |
- |
- |
- |
4,159 |
||||||||
|
|
Taiwanese Dollar |
- |
- |
- |
3 |
||||||||
|
|
Vietnamese Dollar |
- |
- |
- |
4,460 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Total assets |
n/a |
n/a |
- |
8,775 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Liabilities |
|
|
|
|
||||||||
|
|
Bank loan |
0.42 |
1.41 |
25,500 |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
Weighted average |
|
|
|
||||||||
|
|
|
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 |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
||||||||
|
|
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 2018 |
31 August 2017 |
||||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
||||||
|
|
|
Overseas |
monetary |
currency |
Overseas |
monetary |
currency |
||||||
|
|
|
investments |
assets |
exposure |
investments |
assets |
exposure |
||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
Chinese Yuan |
179,430 |
- |
179,430 |
60,180 |
2 |
60,182 |
||||||
|
|
Hong Kong Dollar |
120,442 |
(81) |
120,361 |
169,573 |
984 |
170,557 |
||||||
|
|
Indian Rupee |
115,721 |
31 |
115,752 |
137,077 |
3,962 |
141,039 |
||||||
|
|
Indonesian Rupiah |
51,525 |
- |
51,525 |
47,691 |
- |
47,691 |
||||||
|
|
Korean Won |
89,519 |
- |
89,519 |
67,568 |
- |
67,568 |
||||||
|
|
Malaysian Ringgit |
8,809 |
- |
8,809 |
24,089 |
- |
24,089 |
||||||
|
|
Philippine Peso |
31,376 |
- |
31,376 |
33,489 |
- |
33,489 |
||||||
|
|
Singapore Dollar |
93,806 |
- |
93,806 |
138,511 |
475 |
138,986 |
||||||
|
|
Sri Lankan Rupee |
12,407 |
- |
12,407 |
16,133 |
- |
16,133 |
||||||
|
|
Taiwanese Dollar |
42,364 |
3 |
42,367 |
44,779 |
3 |
44,782 |
||||||
|
|
Thailand Baht |
29,476 |
- |
29,476 |
23,838 |
- |
23,838 |
||||||
|
|
US Dollar |
11,663 |
(43) |
11,620 |
54,827 |
- |
54,827 |
||||||
|
|
Vietnamese Dong |
9,387 |
4,460 |
13,847 |
6,769 |
215 |
6,984 |
||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
795,925 |
4,370 |
800,295 |
824,524 |
5,641 |
830,165 |
||||||
|
|
Sterling |
9,832 |
4,159 |
13,991 |
15,222 |
5,321 |
20,543 |
||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
Total |
805,757 |
8,529 |
814,286 |
839,746 |
10,962 |
850,708 |
||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
|
|
||||||
|
|
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 64 of the published 2018 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 2018 would have increased/decreased by £80,576,000 (2017 - increased/decreased by £83,975,000) 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. |
||||||||||||
|
|
|
||||||||||||
|
|
Liquidity risk exposure |
||||||||||||
|
|
At 31 August 2018, the Company had drawn down £25,500,000 (2017 - n/a) from a £50 million Revolving Facility Agreement with Scotiabank (Ireland) Designated Activity Company, which matured on 11 September 2018 with interest payable at maturity and was subsequently rolled over details of which are disclosed in note 12. At 31 August 2017 the Company had borrowings in the form of the £44,678,748 nominal of 3.5% Convertible Unsecured Loan Stock 2018 which matured 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: |
||||||||||||
|
|
|
||||||||||||
|
|
|
2018 |
2017 |
||||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
||||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
||||||||
|
|
Current assets |
£'000 |
£'000 |
£'000 |
£'000 |
||||||||
|
|
Loans and receivables |
2,185 |
2,185 |
5,010 |
5,010 |
||||||||
|
|
Cash at bank and in hand |
8,775 |
8,775 |
4,487 |
4,487 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
10,960 |
10,960 |
9,497 |
9,497 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
||||||||
|
|
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: |
||||||||||||
|
|
|
||||||||||||
|
|
|
2018 |
2017 |
||||||||||
|
|
|
£'000 |
£'000 |
||||||||||
|
|
In less than one year |
25,500 |
44,415 |
||||||||||
|
|
In more than one year |
- |
- |
||||||||||
|
|
|
_______ |
_______ |
||||||||||
|
|
|
25,500 |
44,415 |
||||||||||
|
|
|
_______ |
_______ |
||||||||||
|
|
|
|
|
||||||||||
|
|
At 31 August 2018 the full contractual liability for the CULS assuming no further conversions was £nil (2017 - £45,699,000). |
||||||||||||
|
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 (2017 - same) which are 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 as at 31 August 2018 of £805,757,000 (31 August 2017 - £839,746,000) has 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 on pages 34 and 35 of the published 2018 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. |
|
|
|
|
|
At the year end the Company had £nil (31 August 2017 - £4,800,000) invested in Aberdeen Liquidity Fund (Lux) - Sterling Fund which is managed and administered by ASI. 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. |
Subsequent events |
|
|
On 10 October 2018, the Board announced that it had undertaken a shareholder consultation exercise ahead of the Company's continuation vote in December 2018. As a result of this consultation exercise the Board announced that, if the continuation vote is passed, it intends to undertake a tender offer for up to 30 per cent. of the Ordinary shares in issue at a tender price equal to 98 per cent. of the prevailing net asset value (less the costs of implementing the tender offer).The Board intends to post a circular to shareholders in due course containing details of the tender offer, timetable and the procedure for tendering shares. It is expected that the tender offer will take place in early 2019 and depending on the level of support from Shareholders could materially impact the size of the Company. |
21. The Annual General Meeting will be held on 17 December 2018 at Bow Bells House, 1 Bread Street, London EC4M 9HH.
22. The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2018 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 2018 and 2017 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 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The 2018 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, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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