Annual Financial Report
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2016
The Company
Dunedin Income Growth Investment Trust PLC ("the Company") is an investment trust. Its Ordinary shares are listed on the premium segment of the London Stock Exchange.
Investment Objective
The Company's objective is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.
Benchmark
In assessing its performance, the Company compares its return with the return of the FTSE All-Share Index. Performance is measured on a net asset value total return basis over the long-term.
Management
Aberdeen Fund Managers Limited ("AFML", the "AIFM" or the "Manager")
Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager")
Website
Up-to-date information can be found on the Company's website: www.dunedinincomegrowth.co.uk
COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS
|
Net asset value total returnA |
|
|
Share price total returnA |
|
|
2016 |
-11.5% |
|
2016 |
-13.5% |
|
2015 |
+11.1% |
|
2015 |
+6.8% |
|
AWith debt at market value (dividends reinvested) |
AWith debt at market value (dividends reinvested) |
|||
|
Earnings per share (revenue) |
|
|
Dividends per Ordinary share |
|
|
2016 |
12.11p |
|
2016 |
11.40p (+1.3%) |
|
2015 |
11.90p |
|
2015 |
11.25p |
|
Ongoing charges |
|
|
Discount to net asset value |
|
|
2016 |
0.62% |
|
2016 |
4.6% |
|
2015 |
0.62% |
|
2015 |
2.5% |
For further information, please contact:-
Jeremy Whitley/Ben Ritchie
Aberdeen Asset Managers Limited 0131 528 4000
Andrew Leigh
Aberdeen Asset Managers Limited 0207 463 6312
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
COMPANY OVERVIEW - CHAIRMAN'S STATEMENT
Introduction
As I explain below, and have written in previous years, we have three main priorities as a Company: growing the dividend, outperforming the FTSE All-Share Index and maintaining an attractive yield. Whilst we have met two of these three objectives we underperformed against our benchmark during the past year. This was a disappointment as we recorded our first year of negative absolute returns since the banking crisis of 2008/09 and, with a NAV Total Return of -11.5%, underperformed the FTSE All-Share Index by 6.9%. A number of factors combined to provide a particularly challenging environment; these included our significant weighting in large capitalisation stocks, our overseas exposure (including foreign exchange translation) and some stock specific difficulties - particularly in companies exposed to the sharp fall in commodity prices. However, the Board continues to believe that a single year's results must be evaluated in the context of a longer term view and over the last five years, DIGIT's performance has been sound.
On a better note, earnings per share reached a record level of 12.1p as we benefitted from a refund of overseas withholding tax worth around 0.5p per share. When this is excluded, along with one-off items from the previous year, our income per share was broadly unchanged. Nonetheless, we have been able to increase the dividend in line with inflation and make a useful contribution to revenue reserves. This continues the Company's solid long term record, with dividends having been increased in 32 of the past 36 years and maintained in the remaining four. Your shares currently offer a dividend yield of over 5%, a premium of more than 20% to the yield on the FTSE All-Share Index and more than three times the yield available on 10 year Gilts. Dividend sustainability is bolstered by revenue reserves which now stand above the level at which they stood prior to the crisis of 2008/09.
Dividend
The Company seeks to provide a well underpinned dividend that can grow in real terms and at the same time allow the pursuit of capital gains. When it comes to setting dividend distributions, the Board takes a long-term view of the income generating capability of the portfolio and the levels of earnings cover and revenue reserves, whilst keeping close watch on the potential for capital growth amongst our holdings. We believe that it is important that our policy of investing in high quality companies that provide above average yields should not overly constrain the Manager's ability to grow the portfolio income and generate total returns. At a time when a number of companies have cut dividends, we believe a strong dividend reserve is of great benefit to our shareholders, and the ability to draw on reserves if necessary strengthens the dividend growth prospects of the Company in the medium term. We also believe that the revenue reserve provides flexibility to invest in lower yielding companies.
We are therefore proposing a final dividend of 3.675p per share which will make a total dividend of 11.4p per share for the year, an increase of 1.3% on last year and in line with the rate of inflation as measured by the Retail Price Index. This is fully covered by current earnings and reflects a balance of caution over the future outlook for earnings growth coupled with confidence in the sustainability of the dividend.
After provision for the third interim and proposed final dividends, revenue reserves of 9.6p per share will be available to support future distributions and represent 84% of the current annual dividend cost.
Background
The UK economy shrugged off the uncertainties presented by a closely fought general election to continue to perform relatively well in a global context, with GDP expanding by 1.9% over 2015. However, at the same time, we saw concerns over emerging markets, and China in particular, increase significantly as their economic activity slowed. In many cases the impact of falling commodity prices placed significant pressure on government finances and industrial production. Indeed the rapid decline in commodity prices, especially oil, was one of the most significant features of the year, continuing the trend experienced in the second half of 2014. While, over time, this may prove to have increased consumers' disposable incomes, in the near term it has been more than outweighed by the instability caused by such a rapid and substantial decline, alongside the more immediate effects on industrial production of the huge reductions in capital expenditure by the energy and mining industries.
The FTSE All-Share Index, given its significant international exposure, was surprisingly resilient against this backdrop, falling just 4.6% on a total return basis. This performance was supported by strong returns from both consumer-facing companies and mid and small capitalisation stocks, aided by their greater exposure to domestic economic trends. To add some context, the FTSE 250 Index increased by 3.8% on a total return basis and the FTSE SmallCap (ex Investment Companies) Index increased by 5.8%, while Beverages and Tobacco were the two leading sectors in terms of their relative contributions to the FTSE All-Share's performance.
Performance
Against this background, the Manager's bias towards businesses with international operations, especially those in emerging markets, together with the allocation of part of the portfolio to overseas listed holdings has proved to be difficult for performance relative to our benchmark. Our significant weighting in companies producing high dividends was also detrimental in a year when higher yielding stocks generally performed poorly.
Until the start of the 2015 financial year, returns since the current lead managers' appointment in 2009 had been solid, with outperformance against our benchmark in five of the previous six years. So it is undoubtedly disappointing that, given the relatively conservative approach to investing pursued by the Manager, we have underperformed this year's falling benchmark index. As you would expect, the Board has addressed this issue with the Manager and conducted a detailed review into the reasons behind our underperformance. Having done so, the Board remains confident in the Manager's investment process and notes the Manager's conviction in the potential for improved returns to come from the current portfolio, but we remain extremely vigilant and keen to see investment performance improve.
Gearing
The Board believes that the sensible use of modest financial gearing, whilst amplifying market movements in the short term, will enhance returns of both capital and income to shareholders over the long term. We also consider that a reasonable proportion of long-term fixed rate funding provides some certainty over financing costs and commits us to an appropriate level of structural gearing.
Shareholders may remember that last year I reported that we continued to review the long term funding market for suitable opportunities and, in December 2015, we successfully completed the issue of £30 million of 30 year loan notes at a fixed rate of 3.99%. This enabled us to pre-finance the replacement of the existing debenture that matures in April 2019 and secured the low level of long-term interest rates that are currently available. The proceeds of the loan notes have been invested in a portfolio of investment grade bonds, broadly matching the duration of the 2019 debenture and largely offsetting the interest cost of the new issue while not increasing our equity gearing. Also, and as previously announced, in July 2015 we renewed our loan facility with a three year multi-currency revolving credit facility of £25 million with Scotiabank on improved terms to the previous arrangement.
With debt valued at par, the Company's potential gearing increased from 9.1% to 18.7% during the year, largely due to the issue of the new fixed rate loan notes but also reflecting the decline in the value of investments. However, on a pure equity basis, after netting off our cash and bonds, gearing only increased from 7.9% to 10.7%. Your Board believes this remains a relatively conservative level of net gearing.
Discount
The discount at which the price of the Company's shares has traded relative to the net asset value has widened from 2.5% to 4.6% as at 31 January 2016 (on an ex-income basis with borrowings stated at fair value).
Over the course of the year the Company traded at a wider discount than it has done for much of the recent past and in the past few months, in line with a general widening of discounts within the investment trust sector, the discount has widened to levels not seen for five or six years. Since the end of the year, the Company has purchased 185,500 shares to hold in treasury. We will again seek shareholders' permission to buy back shares at the forthcoming AGM and are prepared to continue to use this measure in the light of both the Company's absolute level of discount and that relative to those of our peer group.
Board Composition
As previously announced, following a formal recruitment process the Board has appointed two new independent non-executive Directors, David Barron and Jasper Judd, both of whom joined the Board on 1 February 2016 and will stand for election at the AGM.
David Barron is a director of Miton Group plc, where he holds the role of Director of Investment Trusts and Product Strategy. He was, until 2013, Head of Investment Trusts of JP Morgan Asset Management and, until 2014, a director of The Association of Investment Companies. He is a Chartered Accountant. Jasper Judd is also a Chartered Accountant and a director of JPMorgan Indian Investment Trust plc. Until 2012, he worked for Brambles Limited, a listed Australian multinational, where he held a number of senior executive roles including Global Head of Strategy.
Peter Wolton, who has been a non-executive Director of the Company since May 2006, will retire from the Board at the conclusion of the AGM. On behalf of the Board I would like to thank Peter for his significant contribution to the Company over this time.
Following the above appointments and Peter's retirement, the Board will comprise six independent non-executive Directors for a transitional period. This is in line with our succession plans and our wish to ensure a suitable period of overlap between incoming and outgoing members. It is our current intention that one further long serving Director will retire at the AGM in 2017, thereby taking the number of Directors back to five.
Annual General Meeting
The AGM will be held at the offices of Aberdeen Asset Management PLC, Bow Bells House, 1 Bread Street, London EC4M 9HH on Wednesday 25 May 2016 at 12 noon. This is a good opportunity for shareholders to meet the Board and Manager and we would encourage you to attend.
Outlook
We are cautious on the prognosis for income generation. 2016/17 is likely to yield little underlying earnings growth for our portfolio amidst a difficult global economic backdrop and specific challenges facing a number of our larger holdings. That said, our dividend is supported at current levels by both underlying earnings and Company reserves and it remains the Board's intention to continue to look to increase the dividend in real terms over the medium term. We are also cautious on the outlook for the wider market from a capital value perspective, with various clouds on the horizon, not least any pause in investment due to the referendum on Europe. We believe, however, that the low valuations currently accorded to many of the Company's holdings provide attractive potential upside, and that demonstrating the sustainability of the dividend and a turnaround in investment performance should result in an improved rating of your Company's shares.
Rory Macnamara
Chairman
31 March 2016
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Introduction
The Company is an investment trust with a premium listing on the London Stock Exchange.
Business Model
Investment Objective
The Company's objective is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.
Investment Policy
In pursuit of its objective, the Company's investment policy is to invest in high quality companies with strong income potential, while at the same time providing an above-average portfolio yield.
The Company maintains a diversified portfolio consisting, substantially, of equity or equity-related securities, and it can invest in other financial instruments. The Company is invested mainly in companies listed or quoted in the United Kingdom and has freedom to invest up to 20% of its gross assets overseas.
It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.
The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 30% of the net asset value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate.
Delivering the Investment Objective
The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated, via the AIFM, to the Investment Manager, Aberdeen Asset Managers Limited.
Investment Process
The Investment Manager believes that, over the long-term, share prices reflect the underlying business fundamentals of companies and hence investments are made based on research undertaken on individual companies. This is known as a "bottom up" investment process. This process involves a disciplined evaluation of potential investments through meeting investee companies. New investments are not made without the Investment Manager having first met the management of the investee company, undertaken further analysis and written detailed notes to outline the underlying investment merits. A company's value is estimated in two stages, quality then price. Quality is defined by reference to management, business focus, balance sheet and corporate governance. Price is assessed relative to key financial ratios and business prospects.
The Investment Manager's portfolios are generally run conservatively, with an emphasis on traditional buy-and-hold and top-slicing/topping up. This approach usually results in low turnover within portfolios.
Portfolios are managed by the Investment Manager on a team basis, with individual fund managers carrying out their own research and analysis. All ideas are shared via formal committees and common databases, with desk heads and the Chief Investment Officer ensuring consistency.
Benchmark
In assessing its performance, the Company compares its return with the return of the FTSE All-Share Index. Performance is measured on a net asset value total return basis over the long-term.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are show in the following table:
|
KPI |
Description |
|
Performance of NAV |
The Board considers the Company's NAV total return figures to be the best indicator of performance over time and this is therefore the main indicator of performance used by the Board. |
|
Performance against benchmark index and competitor investment trusts |
The Board measures performance against the benchmark index - the FTSE All-Share Index. The Board also monitors performance relative to the Company's peer group over a range of time periods, taking into consideration the differing investment policies and objectives. |
|
Revenue Return per Ordinary share |
The Board also monitors the Company's net revenue return. |
|
Share price performance |
The Board monitors the performance of the Company's share price on a total return basis. |
|
Discount/premium to NAV |
The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. |
|
Ongoing charges |
The Board monitors the Company's operating costs carefully. |
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions it has taken. The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website. The risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and a summary of the principal risks is set out below.
|
Risk |
Mitigating Action |
|
Investment objectives - a lack of demand for the Company's shares due to its objectives becoming unattractive to investors could result in a widening of the discount of the share price to its underlying net asset value and a fall in the value of its shares. |
Board review. The Board formally reviews the Company's objectives and strategies for achieving them on an annual basis, or more regularly if appropriate.
Shareholder communication. The Board is cognisant of the importance of regular communication with shareholders. Directors attend the Manager's annual meetings with the Company's largest shareholders and meet shareholders at the Annual General Meeting. The Board reviews shareholder correspondence and investor relations reports and also receives feedback from the Company's broker.
Discount monitoring. The Board, through the Manager, keeps the level of discount under constant review. |
|
Investment strategies - the Company adopts inappropriate investment strategies in pursuit of its objectives which could result in investors avoiding the Company's shares, leading to a widening of the discount and poor investment performance.
|
Adherence to investment guidelines. The Board sets investment guidelines and restrictions which the Manager follows, covering matters such as asset allocation, diversification, gearing, currency exposure, use of derivatives etc. These guidelines are reviewed regularly and the Manager reports on compliance with them at Board meetings.
In order to ensure adequate diversification, the Board has set absolute limits on maximum holdings and exposures in the portfolio at the time of investment, which are in addition to the limits contained in the Company's investment policy, including the following:
- No more than 10% of gross assets to be invested in any single stock; and - The top five holdings should not account for more than 40% of gross assets.
Regular shareholder communication and discount monitoring, as above.
|
|
Investment Manager - the appointment or continuing appointment of a manager with inadequate resources, skills or expertise could result in poor investment performance. |
Monitoring of the Manager. The Board meets the Manager on a regular basis and keeps under close review (inter alia) its resources, adherence to investment processes, the adequacy of risk controls, and investment performance. A detailed formal appraisal of the Manager is carried out annually by the Management Engagement Committee. |
|
Income/dividends - the level of income falls and / or levels of expenditure / taxation rise, resulting in cuts to or suspension of dividends to shareholders. |
Revenue forecasting and monitoring. The Manager presents detailed forecasts of income and expenditure covering both the current and subsequent financial years at Board meetings. Dividend income received is compared to forecasts and variances analysed.
Use of reserves. The Company has built up significant revenue reserves which are available to smooth dividends payable to shareholders should there be a shortfall in revenue returns.
|
|
Gearing - gearing has the effect of accentuating market gains and market falls and an inappropriate level of gearing at a time of falling markets could result in a significant fall in the value of the Company's shares. Lenders set various conditions on the continuing availability of funding. A fall in the value of the Company's investment portfolio could result in a breach of such covenants and trigger demands for early repayment. This could result in further losses.
|
Gearing restrictions. The Board sets gearing limits within which the Manager can operate.
Monitoring. Both the limits and actual levels of gearing are monitored on an ongoing basis by the Manager and at regular Board meetings. In the event of a possible impending covenant breach, appropriate action would be taken to reduce borrowing levels.
Scrutiny of loan agreements. The Board takes advice from the Manager and the Company's lawyers before approving details of loan agreements. Care is taken to ensure that covenants are appropriate and unlikely to be breached.
Limits on derivative exposure. The Board has set limits on derivative exposures and positions are monitored at regular Board meetings.
|
|
Regulatory - failure to comply with relevant regulations (including the Companies Act, The Financial Services and Markets Act, The Alternative Investment Fund Managers Directive, accounting standards, Investment Trust regulations, the Listing Rules, Disclosure and Transparency Rules and Prospectus Rules) could result in fines, loss of reputation and potentially loss of an advantageous tax regime.
|
Management expertise. Directors have an awareness of the more important regulations and are provided with information on changes by The Association of Investment Companies. In terms of day to day compliance with regulations, the Board is reliant on the knowledge and expertise of the Manager. The Manager's Company Secretariat and accounting teams use checklists to aid compliance and these are backed by a compliance monitoring programme and risk based internal audit investigations.
|
|
Operational - the Company is reliant on services provided by third parties (in particular those of the Manager and the Depositary) and any control gaps and failures in their operations could expose the Company to loss or damage.
|
Agreements. Written agreements are in place defining the roles and responsibilities of all third party service providers.
Internal control systems of the Manager. The Board receives reports on the operation and efficacy of the Manager's IT and control systems, including its internal audit and compliance functions.
Depositary oversight. The Depositary is ultimately responsible for the safekeeping of the Company's assets and its records are reconciled to those of the Manager on a regular basis. Through a delegation by the Depositary, the Company's investments and cash balances are held in segregated accounts by the Custodian.
Monitoring by the Manager. The Manager monitors closely the control environments and quality of services provided by third parties, including those of the Depositary and Custodian, through service level agreements, regular meetings and key performance indicators.
|
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group. The Aberdeen Group Head of Brand reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge in order to allow it to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new Board members. However, in making new appointments, the Board's overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity. The Board has not therefore set any measurable objectives in relation to its diversity. At 31 January 2016, there were three male and two female Directors.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.
Socially Responsible Investment Policy
The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of corporate governance. It believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver long term growth on its investments for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Board considers the Company, with no fixed life, to be a long term investment vehicle and, for the purposes of this viability statement, has decided that five years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.
In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:
- The principal risks and uncertainties detailed above and the steps taken to mitigate these risks.
- The relevance of the Company's investment objective, especially in the current low yield environment.
- The Company is invested in readily realisable listed securities.
- Share buy backs carried out in the past have not resulted in significant reductions to the capital of the Company.
- The Board's policy is to have a relatively modest level of equity gearing and the financial covenants attached to the Company's borrowings provide for significant headroom.
- The repayment of the Company's £28.6 million 7 7/8% Debenture Stock on 30 April 2019 has been pre-financed through the issue of £30 million 3.99% Loan Notes which are repayable in December 2045, the proceeds of which have been invested in a portfolio of fixed interest securities which broadly match the duration of the Debenture.
In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock or significant stock market volatility, and changes in regulation or investor sentiment.
Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report.
Outlook
The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in the Manager's Review.
Rory Macnamara
Director
31 March 2016
STRATEGIC REPORT - RESULTS
Financial Highlights
|
|
31 January 2016 |
31 January 2015 |
% change |
|
Total assets |
£436,965,000 |
£467,830,000 |
-6.6 |
|
Equity shareholders' funds A |
£358,602,000 |
£422,300,000 |
-15.1 |
|
Equity shareholders' funds with debt valued at par |
£368,041,000 |
£428,702,000 |
-14.1 |
|
Market capitalisation |
£332,214,000 |
£401,676,000 |
-17.3 |
|
Share price (mid) |
220.00p |
266.00p |
-17.3 |
|
Net asset value per share A |
237.48p |
279.66p |
-15.1 |
|
Net asset value per share with debt valued at par |
243.51p |
283.86p |
-14.2 |
|
FTSE All-Share Index |
3,335.90 |
3,621.81 |
-7.9 |
|
|
|
|
|
|
Discount B (difference between share price and net asset value) |
|
|
|
|
Discount where borrowings are deducted at market value |
(4.6%) |
(2.5%) |
|
|
|
|
|
|
|
Gearing |
|
|
|
|
Net gearing C |
18.57% |
7.78% |
|
|
Equity gearing D |
10.65% |
7.87% |
|
|
|
|
|
|
|
Dividends and earnings |
|
|
|
|
Total return per share |
(28.94p) |
27.76p |
|
|
Revenue return per share |
12.11p |
11.90p |
|
|
Total dividend per share for the year |
11.40p |
11.25p |
|
|
Dividend cover |
1.06 |
1.06 |
|
|
|
|
|
|
|
Revenue reserves |
|
|
|
|
Prior to payment of third interim dividend declared and proposed final dividend |
15.87p |
14.99p |
|
|
After payment of third interim dividend declared and proposed final dividend |
9.63p |
8.89p |
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
Ongoing charges E |
0.62% |
0.62% |
|
|
|
|
|
|
|
A Calculated by valuing the Company's debt at its market value. |
|||
|
B These discounts are based on capital only NAVs, calculated in accordance with AIC guidelines. |
|||
|
C Calculated in accordance with AIC guidance "Gearing Disclosures post RDR" |
|||
|
D Calculated by dividing the total value of equity securities held by shareholders' funds, expressed as a percentage. |
|||
|
E The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses divided by the average cum-income net asset value throughout the year. |
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Performance
|
|
1 year |
3 year |
5 year |
|
|
% return |
% return |
% return |
|
Capital return |
|
|
|
|
Net asset value |
-15.1% |
-5.6% |
+4.7% |
|
FTSE All-Share Index |
-7.9% |
+1.5% |
+9.6% |
|
Share price |
-17.3% |
-11.7% |
+1.9% |
|
|
|
|
|
|
Total return (Capital return plus net dividends reinvested) |
|
|
|
|
Net asset value |
-11.5% |
+6.8% |
+30.6% |
|
FTSE All-Share Index |
-4.6% |
+12.5% |
+30.4% |
|
Share price |
-13.5% |
+0.3% |
+27.9% |
|
Source: Aberdeen, Factset & Morningstar |
|
|
|
Ten Year Financial Record
|
Year ended 31 January |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
|
Total revenue (£'000) |
17,988 |
18,717 |
19,998 |
14,251 |
16,904 |
19,173 |
18,866 |
20,750 |
20,994 |
20,359 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Per share (p) |
|
|
|
|
|
|
|
|
|
|
|
Revenue return |
10.04 |
10.58 |
11.72 |
7.99 |
10.15 |
11.00 |
10.77 |
11.89 |
11.90 |
12.11 |
|
Dividends paid/proposed |
9.00 |
10.00 |
10.25 |
10.25 |
10.25 |
10.65 |
10.75 |
11.10 |
11.25 |
11.40 |
|
Revenue reserve A |
7.09 |
7.85 |
9.41 |
7.16 |
7.06 |
7.42 |
7.45 |
8.22 |
8.89 |
9.63 |
|
Net asset value B |
296.10 |
254.74 |
160.45 |
201.37 |
230.13 |
226.39 |
255.82 |
267.17 |
283.86 |
243.51 |
|
Total return |
50.75 |
(32.16) |
(84.12) |
51.15 |
39.00 |
6.50 |
41.30 |
22.24 |
27.76 |
(28.94) |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Shareholders' funds (£'000) |
456,067 |
386,680 |
241,944 |
303,603 |
346,927 |
341,280 |
385,605 |
403,526 |
428,702 |
368,041 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
|
A After payment of third interim and final dividends. |
||||||||||
|
B With debt at par. |
||||||||||
DIVIDENDS
|
Dividend per share |
Rate |
xd date |
Record date |
Payment date |
|
Proposed final dividend 2016 |
3.675p |
5 May 2016 |
6 May 2016 |
27 May 2016 |
|
Third interim dividend 2016 |
2.575p |
4 February 2016 |
5 February 2016 |
26 February 2016 |
|
Second interim dividend 2016 |
2.575p |
5 November 2015 |
6 November 2015 |
27 November 2015 |
|
First interim dividend 2016 |
2.575p |
6 August 2015 |
7 August 2015 |
28 August 2015 |
|
Total dividend 2016 |
11.40p |
|
|
|
|
|
|
|
|
|
|
Dividend per share |
Rate |
xd date |
Record date |
Payment date |
|
Proposed final dividend 2015 |
3.525p |
7 May 2015 |
8 May 2015 |
29 May 2015 |
|
Third interim dividend 2015 |
2.575p |
5 February 2015 |
6 February 2015 |
27 February 2015 |
|
Second interim dividend 2015 |
2.575p |
6 November 2014 |
7 November 2014 |
28 November 2014 |
|
First interim dividend 2015 |
2.575p |
6 August 2014 |
8 August 2014 |
29 August 2014 |
|
Total dividend 2015 |
11.25p |
|
|
|
STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW
Introduction
This was a very challenging year for the portfolio's relative and absolute capital performance. It is frustrating, therefore, having advocated caution on equity markets for some years and believing ourselves to be reasonably conservatively positioned, to be reporting a period of underperformance against a generally weak market backdrop.
A number of factors combined to hurt performance, largely centred on a continued strong relative performance from the UK economy and weakness from emerging markets and companies involved in parts of the commodity value chain. This favoured the performance of more domestically focused cyclical stocks, particularly the lower yielding mid and small cap companies that typically have greater exposure to the UK economy. In contrast we have, for some considerable time, preferred companies with broader international exposure, believing that over the long term they will have the best opportunities to grow and to diversify. In particular, we have looked to invest in companies with strong positions in emerging markets that can prosper from structural demographic and demand trends. Given the Company's relatively high yield, we have found it difficult to have significant amounts of capital deployed in lower yielding companies. Many of the higher yielding parts of the market in which we need to invest for income are more exposed to both commodities and emerging markets. These factors led us to have less weighting in what turned out to be the best performing areas of the stock market during the last year, such as housebuilders, while carrying significant exposure to some of the areas that have struggled the most.
This dynamic, combined with a number of stock specific challenges, lay behind the disappointing performance. It is not to be underestimated just how difficult investment conditions have been for some parts of the market. While the headline returns suggest a relatively modest decline, for commodity exposed companies conditions have arguably been more difficult than during the financial crisis in 2008/09. While we are underweight both oil and gas producers and mining companies, we do have investments in businesses that offer services, products and financing to these industries or that have direct exposures as part of their overall portfolio of activities and it is here that we have been hurt the most.
The positive side is that we believe that the above factors that have hurt performance the most are largely cyclical and will reverse over time. We have not significantly changed our positioning and if anything have added to existing positions where we see attractive long-term value. Indeed the year has provided the opportunity to make some selective investments at attractive prices in good quality businesses which have been negatively impacted by external conditions. As we begin the financial year 2016/17 we see more value in the portfolio than at any time since 2009.
Performance
The Company's income declined by 3.0% compared to the previous year. Dividends received from equities fell by 5.5% as Centrica, Tesco, ENI and Standard Chartered all announced cuts to their pay-outs over the course of the year. However, the main driver of the actual decline in income was the lack of any special or one-off dividends and the weakness in the Euro relative to the prior year. In mitigation, we benefited from a higher amount of option premium received and from two months of coupons generated by the bond portfolio, created in early December. Operating costs declined slightly given a lower average level of shareholders' funds, while interest costs increased as a result of the issue of the new fixed rate loan notes. At the bottom line we were boosted by a rebate of withholding tax from the French government. Overall, revenue earnings per share per share increased by 1.8%.
As the Chairman has noted, we underperformed by 6.9%, with the net asset value per share falling by 11.5% against a decline in the FTSE All-Share Index of 4.6% on a total return basis. Of that underperformance, 4.9% came in the first half of the year. In the second half, when the FTSE All- Share actually fell quite substantially, we outperformed on a gross assets basis but saw the upward revaluation of the newly issued fixed rate loan notes, the impact of gearing in a falling market and the expensive cost of the historic debenture combine to negatively impact net returns.
While it was a difficult year we actually benefited in aggregate from a cautious approach to selection and allocation within the mining, banks and oil and gas producer sectors. We also saw a continued strong performance from a number of our holdings, such as Inmarsat, Sage, Provident Financial and Unilever. These companies all made strong operational and financial progress over the period and saw profits, share prices and dividends move ahead strongly.
Inmarsat, a satellite telecommunications company, has had a successful year having launched the latest generation 'Global Express' satellites which gives them the platform to deliver a steady and growing new revenue stream from 2016 onwards. In addition they have taken promising steps towards delivering broadband connectivity for passenger aircraft which has the potential to be a significant opportunity for them in the long term. We remain confident in the outlook as demand for high speed mobile data communications continues to grow, and Inmarsat are in a unique position to capitalise on this with their dominant market position and very high barriers to entry.
Sage, which provides accounting software to small businesses, is benefiting from the actions of a relatively new management team who are refocussing the company on the fastest growing parts of their portfolio. The early signs are that the execution of their strategy is going well, whilst at the same time the original attractions of the Sage business model remain, with their unrivalled market position, high degree of recurring earnings and strong cash flow generation.
Specialist personal lender Provident Financial had an excellent year, achieving high growth in earnings which allowed them to increase the dividend by 27%. They continue to benefit from rising demand in an underserved market, with a model which is very difficult for competitors to replicate allowing them to maintain a strong market position. Due to a combination of their product initiatives and favourable market backdrop we believe that they are well poised to grow over the long term.
Unilever has been facing tougher market conditions as it generates the majority of its revenue from the slowing emerging markets. Nonetheless they have managed to grow ahead of the market and deliver strong results in 2015 with a double digit increase in underlying operating profit. This has been driven by production innovation and sharpened category strategies that have helped support their brands and infrastructure. We believe they have a sensible strategy which should allow the company to continue to grow its top line at a reasonable rate, whilst continuing to make incremental improvements to margins. This will put them in good stead for further growth in earnings and dividends in the upcoming years.
We thought it would be helpful to also address five companies which particularly hurt relative performance and tackle each one in turn to explain why we expect returns from those investments to improve.
Pearson is the world's leading for-profit education business with high market shares and extremely valuable intellectual property and technology. It is currently facing cyclical and policy related headwinds in a number of its key markets which has led to a recent substantial decline in the share price and a significant de-rating of the shares. We believe that these problems will prove to be transitory as effects annualise and enrolments in US higher education colleges stabilise. In addition we believe that a return to growth, combined with the recently announced cost cutting plans and the support that they have from their strong balance sheet, should see a significant recovery in the market value of the company.
Centrica is a vertically integrated utility company that has faced tough trading conditions, in particular in its upstream business due to falling oil and gas prices. This has put pressure on earnings and in turn led them to rebase the dividend. However, whilst material commodity headwinds persist, the company is delivering resilient results under the strategy of the relatively new management which involves more focused capital expenditure and significant cost reductions. Cash flow is expected to increase in future years which will support dividend growth whilst at the same time maintaining a robust balance sheet and allowing them to invest in sensible growth opportunities. Regulatory and political uncertainty around Centrica's retail energy supply business has not helped sentiment towards the company; however it is looking increasingly likely that any regulatory intervention will not have a significant impact on financial performance.
BHP Billiton has long been regarded as the leading diversified miner given their breadth of high quality assets and low cost of production. However, alongside others in the sector they have faced significant headwinds from very weak commodity prices and as a result they have seen a sharp decline in profits and cut the dividend. It is likely that conditions will remain tough in the near term, however management are taking the appropriate actions to ensure that they emerge from this cyclical downturn in a strong position. Examples here include significant reductions in costs and capital expenditure and a change to a more flexible dividend policy which will allow them to continue to generate positive cash flow in this low price environment. The balance sheet remains one of the most robust in the sector and their ability to survive a prolonged downturn is not in question. They look well set to emerge in a stronger position once the cycle starts to turn in their favour. We are of the view that the valuation is already pricing in a bleak outlook and therefore for the patient long-term investor there is significant upside for those willing to wait through the down-cycle.
Standard Chartered has a strong retail and commercial banking network in economies that enjoy high long-term structural growth such as Africa, the Middle East and Asia. It has, however, been hit by the recent cyclical slowdown in emerging market economies and over-exposure in lending to commodity producers. Under the new management of Bill Winters, the bank is taking action to raise capital, improve credit quality, cut costs and realign their operations to where they have the most significant competitive advantages. Conditions are likely to remain tough over the next 12-18 months but the current valuation is even lower than that experienced by the bank in the depths of the 1997/98 Asian crisis and the potential rewards for investors who are prepared to stick with them through this challenging period are substantial.
Weir Group sells equipment such as pumps and valves to the oil, gas and mining sectors and therefore has been another company that has suffered on the back of lower commodity prices. What differentiates Weir from its competitors is the fact that they have a strong aftermarket servicing business that helps buoy profitability and cash flow during times of lower equipment revenues such as now. In addition, the management have been through cycles in the past and are well experienced in reducing costs. Their good cash generation is allowing them to continue to invest in medium-term growth opportunities in a measured way, meaning that they are well set to not just survive the current downturn, but to emerge in a stronger competitive position.
Portfolio Activity
Activity during the year was a little more brisk than in past years, with market volatility providing us with some interesting opportunities. We continued to look to allocate more capital to companies where we see potential for both capital and dividend growth and away from areas with higher starting dividend yields but less potential for either form of growth.
We added five new holdings during the year: Rotork, Elementis, Capita, Imperial Brands and Hansteen. Rotork produces actuators and flow control equipment. They have an excellent business model and our confidence is supported by many years of strong financial performance. The shares have historically traded at a high multiple, however their exposure to oil and gas has caused some share price weakness of late allowing us to initiate a position at a more moderate valuation. There is clear potential for a return to high rates of dividend growth when end market conditions improve.
Elementis is a specialty chemical company with niche positioning and the ability to generate good returns as a low-volume, high-margin producer. The company has similarly seen its share price de-rate of late due to some weaker demand trends providing us with an attractive entry point. They retain a strong net cash balance sheet with a commitment to return excess cash to shareholders through regular special dividends.
Capita provides white collar outsourcing services and is the only player of scale in an industry which has significant scope for structural growth. Other attractions include the acyclicality of demand and the long average duration of contracts which provide high levels of future revenue visibility, while the company has recently expanded its service offering into Germany and Switzerland. All of this supports a well-covered dividend that has grown at an attractive rate over many years.
Imperial Brands is a tobacco company with defensive earnings, stable cashflows and an attractive dividend yield with good scope for growth. Its recent acquisition of assets in the United States has given it an additional opportunity for growth, alongside continued cost cutting and they remain committed to returning a high proportion of profits to shareholders.
Hansteen is a niche property company investing in a portfolio of higher yielding multi-let industrial property in the UK and continental Europe. It invests in undermanaged assets with diverse tenants, high yields, high vacancy and low levels of rents that give the capacity for them to improve cash generation through intensive leasing activity. This all offers a resilient stream of cash which can be returned to investors and which we expect to grow steadily as the portfolio matures over the next few years.
These new holdings were in part funded by the exits of Casino and ENI. We decided to exit Casino as a result of continued financial engineering amid challenging trading conditions. We saw ENI as the weakest of our holdings within the oil and gas sector, with concerns over their capacity to maintain their dividend and given the harsh operating environment we decided to recycle the proceeds into other attractively valued names that we believe are on a more solid footing. We also sold the holding in South 32, the spin-out from BHP Billiton, and reinvested the proceeds back into the parent company.
The most significant strategic reduction was to our holding in Cobham, where we became increasingly concerned over the combination of a leveraged balance sheet and much more subdued trading dynamics. Conversely, we became more enthused with prospects at Vodafone over the course of the year as trading in their core European geographies continued to improve, some of the competitive and regulatory pressures began to ease and they started to benefit from their large scale infrastructure investment programme. As the business returns to top line growth and capital investment drops away we see the potential for healthy improvement in free cash flow generation and as a result we added to the holding.
Amongst the companies that had a more challenging year, we further increased the holding in Total, considering it to be one of the best positioned oil and gas companies in today's low hydrocarbon price environment. We also made small additions to Weir Group, Wood Group and Rolls Royce, whilst also participating in the Standard Chartered rights issue, considering all these businesses to offer attractive long term returns, even if current trading is difficult.
Outlook
We have not significantly changed our positioning despite the difficult performance. If anything we have marginally increased exposure to some of the areas that have been hit the hardest and where we see the greatest capital upside. We believe that there is substantial value in the portfolio. When a more favourable dynamic develops for global economic growth relative to the UK, in particular emerging market growth, alongside a more stable environment for commodity markets, there is the prospect of significant realisation of that value and meaningful outperformance. Over the past few years we have looked to allocate more capital towards companies with lower starting yields but faster potential dividend growth. One benefit of volatile markets is that these opportunities present themselves more frequently and at more attractive prices. We will continue to look hard for such potential investments.
The outlook for revenue generation is more uncertain. While we are confident of making underlying progress this financial year; looking out further than the next twelve months we do see a more challenging environment. Within the portfolio there are a number of companies where dividend cover is low and where an improvement in the external environment or successful execution of their turnaround plans are needed in order to secure those distributions. In most of these cases we see large enough upside to capital values to justify those holdings regardless of the ultimate outcome with regard to dividends. In situations where the capital opportunity is modest and the dividend prospects are uncertain we will look to reduce exposure. However, we face this period of uncertainty with substantial revenue reserves, some portfolio optionality and modest equity gearing which all provide additional balance sheet flexibility.
Jeremy Whitley and Ben Ritchie
Aberdeen Asset Managers Limited
31 March 2016
DIRECTORS' REPORT (EXTRACT)
The Directors present their report and the audited financial statements for the year ended 31 January 2016.
Results and Dividends
The financial statements for the year ended 31 January 2016 are contained below. First, second and third interim dividends, each of 2.575p per Ordinary share, were paid on 28 August 2015, 27 November 2015 and 26 February 2016 respectively. The Directors now recommend a final dividend of 3.675p per Ordinary share payable on 27 May 2016 to shareholders on the register on 6 May 2016. The ex-dividend date is 5 May 2016. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company (registered in Scotland No. SC000881) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been accepted by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 February 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 January 2016 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure
The issued Ordinary share capital at 31 January 2016 consisted of 151,006,187 Ordinary shares of 25p and 2,671,748 Ordinary shares of 25p held in treasury. Since the end of the year, the Company has purchased 185,500 Ordinary shares to be held in treasury and at the date of approval of this Report there were 150,820,687 Ordinary shares of 25p in issue and 2,857,248 Ordinary shares of 25p held in treasury.
Voting Rights
Each Ordinary share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company has appointed Aberdeen Fund Managers Limited ("AFML" or the "Manager"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager ("AIFM"). AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager") by way of a group delegation agreement in place between AFML and AAM. In addition, AFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML, and fees payable for these services are shown in note 4 to the financial statements.
The management fee, details of which are shown in note 3 to the financial statements, is calculated on a monthly basis at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum on amounts over £425 million of the net assets of the Company calculated with debt at par and excluding commonly managed funds. The fee for the year ended 31 January 2016 amounted to 0.40% of average monthly net assets. The management agreement is terminable on not less than six months' notice. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period. The terms and conditions of the Manager's appointment and its performance are reviewed by the Management Engagement Committee on an annual basis.
Substantial Interests
As at 31 January 2016, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure and Transparency Rules:
|
Shareholder |
Number of shares held |
% heldB |
|
Aberdeen Asset Managers Limited Retail PlansA |
36,435,418 |
24.1 |
|
Brewin Dolphin |
10,710,058 |
7.0 |
|
1607 Capital Partners LLC |
7,619,495 |
5.0 |
|
D C Thomson & Company Ltd |
5,900,000 |
3.9 |
|
Aviva plc |
4,994,491 |
3.3 |
A Non-beneficial interest
B Based on 151,006,187 Ordinary shares in issue as at 31 January 2016
Since the end of the year, Aviva plc has disclosed that its interest in the Company's issued Ordinary share capital has fallen below 3%. There have been no other changes notified to the Company as at the date of approval of this Report.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code (the "UK Code"), as published in September 2014 and effective for financial years commencing on or after 1 October 2014, which is available on the Financial Reporting Council's website: frc.org.uk
The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. The AIC Code and AIC Guide are available on the AIC's website: theaic.co.uk
The Board considers that reporting in accordance with the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.
The Board confirms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
- the role of the chief executive (A.1.2);
- executive directors' remuneration (D.1.1 and D.1.2);
- the need for an internal audit function (C.3.6).
For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further
in respect of these provisions.
The full text of the Company's Corporate Governance Statement will be included on its website.
Directors
Throughout the year the Board comprised five non-executive Directors. On 1 February 2016, David Barron and Jasper Judd were appointed as non-executive Directors, taking the current number of Directors to seven.
All Directors are considered by the Board to be independent of the Company and the Manager. Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.
The Directors attended scheduled Board and Committee meetings during the year ended 31 January 2016 as follows (with their eligibility to attend the relevant meetings in brackets):
|
Director |
Scheduled Board Meetings |
Audit Committee |
Management |
Nomination and Remuneration Committee Meetings |
|
Rory Macnamara (Chairman) |
4 (6) |
1 (3) |
1 (1) |
1(1) |
|
John Carson |
6 (6) |
3 (3) |
1 (1) |
1(1) |
|
Catherine Claydon |
6 (6) |
3 (3) |
1 (1) |
1(1) |
|
Elisabeth Scott |
6 (6) |
3 (3) |
1 (1) |
1(1) |
|
Peter Wolton |
6 (6) |
3 (3) |
1 (1) |
1(1) |
The Board meets more frequently when business needs require. There were four additional Board meetings held during the year which had not been scheduled.
Following their appointments on 1 February 2016, David Barron and Jasper Judd will stand for election at the Annual General Meeting. Both of these Directors have significant skills and experience which are complementary to the skills and experience of the other Directors and the Board therefore recommends their election at the Annual General Meeting.
Having served as a Director for more than nine years, Rory Macnamara will retire at the Annual General Meeting and, being eligible, offers himself for re-election. Peter Wolton, who has also served for more than nine years, will retire at the Annual General Meeting but will not seek re-election. Mr Wolton will therefore retire as a Director of the Company at the conclusion of the Annual General Meeting.
The Board takes the view that independence of individual Directors is not necessarily compromised by length of tenure and that experience can add significantly to the Board's strength. In the case of Rory Macnamara, who has been a Director since 2005, the Board is satisfied that he remains independent of the Manager and free of any relationship which could materially interfere with the exercise of his judgement on issues of strategy, performance, resources and standards of conduct and confirms that, following a formal performance evaluation, Rory Macnamara's performance continues to be effective and demonstrates commitment to the role. The Board therefore recommends the re-election of Rory Macnamara at the Annual General Meeting.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him or her in the execution of his or her duties in relation to the affairs of the Company. These rights are included in the Articles of Association of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.
Going Concern
The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and derivative contract positions and regularly reviews actual exposures, cash flow projections and compliance with loan covenants. The current bank loan expires in July 2018. The Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Accountability and Audit
Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Independent Auditor
The Company's auditor, KPMG LLP, has indicated its willingness to remain in office. The Board will place resolutions before the Annual General Meeting to re-appoint KPMG LLP as auditor for the ensuing year and to authorise the Directors to determine its remuneration.
The UK Stewardship Code and Proxy Voting
The purpose of the UK Stewardship Code is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and assist institutional investors with the efficient exercise of their governance responsibilities.
The Company's investments are held in nominee names. The Board has delegated responsibility for actively monitoring the activities of portfolio companies, including the exercise of voting powers on its behalf, to the Manager who has in turn delegated this responsibility to the Investment Manager.
The Investment Manager is responsible for reviewing, on a regular basis, the annual reports, circulars and other publications produced by portfolio companies and for attending company meetings. The Investment Manager, in the absence of explicit instruction from the Board, is empowered to use discretion in the exercise of the Company's voting rights.
In exercising the Company's voting rights, the Aberdeen Group follows a number of principles which set out the framework on corporate governance, proxy voting and shareholder engagement in relation to the companies in which the Aberdeen Group has invested or is considering investing. The Board has reviewed these principles together with the Aberdeen Group's Disclosure Response to the UK Stewardship Code, and is satisfied that the exercise of delegated voting powers by the Investment Manager is being properly executed. The Aberdeen Group's Corporate Governance Principles together with the Aberdeen Group's Disclosure Response to the UK Stewardship Code may be found on the Aberdeen Group's website, at: aboutus.aberdeen-asset.com/en/aboutus/expertise/equities/stewardship
The Board recognises and supports the Aberdeen Group's policy of active engagement with investee companies and the voting of all of the shares held by the Company. The Board receives regular reports on the exercise of the Company's voting rights and discusses any issues arising with the Investment Manager. It is the Board's view that having an active voting policy and a process for monitoring the Investment Manager's exercise of those votes, especially in relation to controversial issues, aids the efficient exercise of the Company's governance responsibilities.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. Shareholders and investors may obtain up to date information on the Company through the Company's website and the Manager's information service. The Annual Report is widely distributed to other parties who have an interest in the Company's performance.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or the Manager) in situations where direct communication is required, and representatives from the Board meet with major shareholders on an annual basis in order to gauge their views.
In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board Meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.
The notice of the Annual General Meeting included within the Annual Report is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board at the meeting and a presentation from the Investment Manager covers the investment performance and strategy during the financial year and the outlook for the year ahead. The Board hopes that as many shareholders as possible will be able to attend the meeting.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
40 Princes Street
Edinburgh EH2 2BY
31 March 2016
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected 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 the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments 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; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply 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.
We confirm that to the best of our knowledge:
- the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and
- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
For and on behalf of the Board of Dunedin Income Growth Investment Trust PLC
Rory Macnamara
Director
31 March 2016
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 31 January 2016 |
Year ended 31 January 2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
(Losses)/gains on investments |
9 |
- |
(59,180) |
(59,180) |
- |
25,888 |
25,888 |
|
Currency (losses)/gains |
|
- |
(278) |
(278) |
- |
510 |
510 |
|
Income |
2 |
20,359 |
- |
20,359 |
20,994 |
- |
20,994 |
|
Investment management fee |
3 |
(643) |
(966) |
(1,609) |
(665) |
(998) |
(1,663) |
|
Administrative expenses |
4 |
(935) |
- |
(935) |
(932) |
- |
(932) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
18,781 |
(60,424) |
(41,643) |
19,397 |
25,400 |
44,797 |
|
|
|
|
|
|
|
|
|
|
Finance costs |
5 |
(1,046) |
(1,566) |
(2,612) |
(975) |
(1,464) |
(2,439) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities before taxation |
|
17,735 |
(61,990) |
(44,255) |
18,422 |
23,936 |
42,358 |
|
|
|
|
|
|
|
|
|
|
Taxation |
6 |
558 |
- |
558 |
(446) |
- |
(446) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities after taxation |
|
18,293 |
(61,990) |
(43,697) |
17,976 |
23,936 |
41,912 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per Ordinary share (pence) |
8 |
12.11 |
(41.05) |
(28.94) |
11.90 |
15.86 |
27.76 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The column of this statement headed "Total" represents the profit and loss account of the Company. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
STATEMENT OF FINANCIAL POSITION
|
|
|
As at |
As at |
|
|
|
31 January 2016 |
31 January 2015 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Equity securities |
|
407,235 |
462,444 |
|
Fixed interest securities |
|
28,777 |
- |
|
|
|
_________ |
_________ |
|
Investments at fair value through profit or loss |
9 |
436,012 |
462,444 |
|
|
|
_________ |
_________ |
|
Current assets |
|
|
|
|
Loans and receivables |
10 |
1,513 |
603 |
|
Cash and short term deposits |
|
568 |
5,783 |
|
|
|
_________ |
_________ |
|
|
|
2,081 |
6,386 |
|
|
|
_________ |
_________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Bank loan |
11 |
(10,653) |
(10,583) |
|
Other creditors |
11 |
(1,128) |
(1,000) |
|
|
|
_________ |
_________ |
|
|
|
(11,781) |
(11,583) |
|
|
|
_________ |
_________ |
|
Net current liabilities |
|
(9,700) |
(5,197) |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
426,312 |
457,247 |
|
|
|
|
|
|
Creditors: amounts falling due after more than one year |
12 |
(58,271) |
(28,545) |
|
|
|
_________ |
_________ |
|
Net assets |
|
368,041 |
428,702 |
|
|
|
_________ |
_________ |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
13 |
38,419 |
38,419 |
|
Share premium account |
|
4,619 |
4,619 |
|
Capital redemption reserve |
|
1,606 |
1,606 |
|
Capital reserve |
14 |
299,437 |
361,427 |
|
Revenue reserve |
|
23,960 |
22,631 |
|
|
|
_________ |
_________ |
|
Equity shareholders' funds |
|
368,041 |
428,702 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Adjusted net asset value per Ordinary share (pence) |
16 |
243.51 |
283.86 |
|
|
|
_________ |
_________ |
STATEMENT OF CHANGES IN EQUITY
|
For the year ended 31 January 2016 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2015 |
|
38,419 |
4,619 |
1,606 |
361,427 |
22,631 |
428,702 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
(61,990) |
18,293 |
(43,697) |
|
Dividends paid |
7 |
- |
- |
- |
- |
(16,964) |
(16,964) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2016 |
|
38,419 |
4,619 |
1,606 |
299,437 |
23,960 |
368,041 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 31 January 2015 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2014 |
|
38,419 |
4,619 |
1,606 |
337,491 |
21,391 |
403,526 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
23,936 |
17,976 |
41,912 |
|
Dividends paid |
7 |
- |
- |
- |
- |
(16,736) |
(16,736) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2015 |
|
38,419 |
4,619 |
1,606 |
361,427 |
22,631 |
428,702 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
STATEMENT OF CASH FLOWS
|
|
|
Year ended |
Year ended |
|
|
|
31 January 2016 |
31 January 2015 |
|
|
Notes |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Net return on ordinary activities before finance costs and taxation |
(41,643) |
44,797 |
|
|
Adjustment for: |
|
|
|
|
Losses/(gains) on investments |
|
59,180 |
(25,888) |
|
Currency losses/(gains) |
|
70 |
(438) |
|
(Increase)/decrease in dividend income |
|
14 |
195 |
|
(Increase)/decrease in interest income |
|
(707) |
- |
|
Stock dividends included in dividend income |
|
(2,105) |
(1,500) |
|
Amortisation of fixed income book cost |
|
44 |
- |
|
Decrease in other creditors |
|
(36) |
(302) |
|
Net tax received/(paid) |
|
340 |
(481) |
|
|
|
_______ |
_______ |
|
Net cash flow from operating activities |
|
15,157 |
16,383 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Purchases of investments |
|
(69,807) |
(60,620) |
|
Sales of investments |
|
39,121 |
56,787 |
|
|
|
_______ |
_______ |
|
Net cash used in investing activities |
|
(30,686) |
(3,833) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Interest paid |
|
(2,433) |
(2,429) |
|
Dividends paid |
7 |
(16,964) |
(16,736) |
|
Repayment of loan |
|
- |
(5,000) |
|
Drawdown of loan |
|
- |
11,021 |
|
Issue of Loan Notes |
|
29,711 |
- |
|
|
|
_______ |
_______ |
|
Net cash flow from/(used in) financing activities |
|
10,314 |
(13,144) |
|
|
|
_______ |
_______ |
|
Decrease in cash and cash equivalents |
|
(5,215) |
(594) |
|
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents during the year |
|
||
|
Opening balance |
|
5,783 |
6,377 |
|
Decrease in cash as above |
|
(5,215) |
(594) |
|
|
|
_______ |
_______ |
|
Closing balance |
|
568 |
5,783 |
|
|
|
_______ |
_______ |
|
The accompanying notes are an integral part of the financial statements. |
|||
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 JANUARY 2016
|
1. |
Accounting policies |
|
|
|
(a) |
Basis of preparation and going concern |
|
|
|
The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. |
|
|
|
|
|
|
|
These financial statements are the first since FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) came into effect for accounting periods beginning on or after 1 January 2015. An assessment of the impact of adopting FRS 102 has been carried out and found that no restatement of balances as at the transition date, 1 February 2015, or comparative figures in the Statement of Financial Position or the Statement of Comprehensive Income is considered necessary. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. |
|
|
|
|
|
|
(b) |
Revenue, expenses and interest payable |
|
|
|
Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on AAA rated money market funds and short term deposits and expenses are accounted for on an accruals basis. Income from underwriting commission is recognised as earned. Interest payable is calculated on an effective yield basis. |
|
|
|
|
|
|
|
The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities. |
|
|
|
|
|
|
|
Underwriting commission is taken to revenue, unless any shares underwritten are required to be taken up, in which case the proportionate commission received is deducted from the cost of the investment. |
|
|
|
|
|
|
|
Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs including the amortisation of expenses and premium related to the debenture issue and loan note placement are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long-term in the form of revenue and capital respectively (see note 3). |
|
|
|
|
|
|
|
Stock lending income is recognised on an accruals basis. |
|
|
|
|
|
|
(c) |
Investments |
|
|
|
Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income. |
|
|
|
|
|
|
(d) |
Dividends payable |
|
|
|
Interim and final dividends are recognised in the period in which they are paid. |
|
|
|
|
|
|
(e) |
Nature and purpose of reserves |
|
|
|
Share premium account |
|
|
|
The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 25p. |
|
|
|
Capital redemption reserve |
|
|
|
The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. |
|
|
|
|
|
|
|
Capital reserve |
|
|
|
Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. |
|
|
|
|
|
|
|
The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. |
|
|
|
|
|
|
|
Revenue reserve |
|
|
|
This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|
|
|
|
|
|
(f) |
Taxation |
|
|
|
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. |
|
|
|
|
|
|
|
Owing to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
|
(g) |
Foreign currency |
|
|
|
The Company receives a proportion of its investment income in foreign currency. These amounts are translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position date. |
|
|
|
|
|
|
(h) |
Traded options |
|
|
|
The Company may enter into certain derivatives (e.g. options). Option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value. The initial fair value is based on the initial premium, which is recognised upfront. The premium received and fair value changes in the open position which occur due to the movement in underlying securities are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income. |
|
|
|
|
|
|
|
In addition, the Company may enter into derivative contracts to manage market risk and gains or losses arising on such contracts are recorded in the capital column of the Statement of Comprehensive Income. |
|
|
|
|
|
|
(i) |
Borrowings |
|
|
|
Immediately after issue, debt is stated at the fair value of the consideration received on the issue of the capital instrument after deduction of issue costs. The finance cost of the debt is allocated to periods over the term of the debt at a constant rate on the carrying amount. |
|
|
|
2016 |
2015 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK listed - franked |
12,902 |
13,089 |
|
|
Overseas listed |
3,370 |
4,847 |
|
|
Fixed income |
162 |
- |
|
|
Stock dividends |
2,105 |
1,500 |
|
|
|
_________ |
_________ |
|
|
|
18,539 |
19,436 |
|
|
|
_________ |
_________ |
|
|
Other income |
|
|
|
|
Deposit interest |
55 |
6 |
|
|
Income on derivatives |
1,751 |
1,546 |
|
|
Underwriting commission |
14 |
- |
|
|
Income from stock lending |
- |
6 |
|
|
|
_________ |
_________ |
|
|
|
1,820 |
1,558 |
|
|
|
_________ |
_________ |
|
|
Total income |
20,359 |
20,994 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
During the year, the Company was entitled to premiums totaling £1,751,000 (2015 - £1,546,000) in exchange for entering into derivative transactions. Derivatives utilised were based on individual FTSE 100 stocks and FT 500 World's largest companies. The Company had no open positions in derivative contracts at 31 January 2016 (2015 - no open positions). Losses realised on the exercise of derivative transactions are disclosed in note 9. |
||
|
|
|
2016 |
2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
643 |
966 |
1,609 |
665 |
998 |
1,663 |
|
|
|
_______ |
_______ |
______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Investment management and secretarial services are provided by Aberdeen Fund Managers Limited ("AFML"). Under the terms of the management agreement, AFML provides investment management, accounting, administrative and secretarial duties. The management fee is calculated, on a monthly basis, at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum on amounts over £425 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The balance due at the year end was £126,000 (2015 - £136,000). The management fee is chargeable 40% to revenue and 60% to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2016 (2015 - none). |
||||||
|
|
|
2016 |
2015 |
|
4. |
Administrative expenses |
£'000 |
£'000 |
|
|
Directors' fees |
120 |
120 |
|
|
Auditor's remuneration (excluding irrecoverable VAT): |
|
|
|
|
fees payable to the Company's auditor for the audit of the Company's annual accounts |
17 |
17 |
|
|
fees payable to the Company's auditor for other services |
|
|
|
|
- interim review |
6 |
6 |
|
|
- other services |
1 |
1 |
|
|
Promotional activities |
372 |
378 |
|
|
Registrar's fees |
45 |
44 |
|
|
Share plan fees |
72 |
91 |
|
|
Printing and postage |
49 |
52 |
|
|
Other expenses |
253 |
223 |
|
|
|
_________ |
_________ |
|
|
|
935 |
932 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
Expenses of £372,000 (2015 - £378,000) were paid to AAML in respect of the promotion of the Company. The balance outstanding at the year end was £124,000 (2015 - £124,000). |
||
|
|
|
||
|
|
All of the expenses above, with the exception of auditor's remuneration, include irrecoverable VAT where applicable. The VAT charged on the auditor's remuneration is disclosed within other expenses |
||
|
|
|
2016 |
2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
5. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loan interest |
68 |
102 |
170 |
68 |
104 |
172 |
|
|
Debenture Stock |
901 |
1,352 |
2,253 |
901 |
1,352 |
2,253 |
|
|
Amortised Debenture Stock premium and issue expenses |
5 |
8 |
13 |
5 |
8 |
13 |
|
|
Loan Notes - repayable after 5 years |
69 |
103 |
172 |
- |
- |
- |
|
|
Amortised Loan Notes issue expenses |
1 |
1 |
2 |
- |
- |
- |
|
|
Bank overdraft interest |
2 |
- |
2 |
1 |
- |
1 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
1,046 |
1,566 |
2,612 |
975 |
1,464 |
2,439 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
Finance costs (excluding bank overdraft interest) are chargeable 40% to revenue and 60% to capital. |
||||||
|
|
|
2016 |
2015 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
|
Overseas tax (suffered)/recovered |
(371) |
- |
(371) |
601 |
- |
601 |
|
|
|
Overseas tax reclaimable |
(187) |
- |
(187) |
(155) |
- |
(155) |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Current tax charge for the year |
(558) |
- |
(558) |
446 |
- |
446 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Factors affecting the tax charge for the year |
||||||
|
|
|
The UK corporation tax rate was 21% until 31 March 2015 and 20% from 1 April 2015, giving an effective rate for the year of 20.17% (2015 - effective rate of 21.33%). The tax assessed for the year is higher than the rate of corporation tax. The differences are explained below: |
||||||
|
|
|
|
||||||
|
|
|
|
2016 |
2015 |
||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Return on ordinary activities before taxation |
17,735 |
(61,990) |
(44,255) |
18,422 |
23,936 |
42,358 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Corporation tax at 20.17% (2015 - 21.33%) |
3,577 |
(12,503) |
(8,926) |
3,929 |
5,106 |
9,035 |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
Non-taxable UK dividends |
(2,602) |
- |
(2,602) |
(2,792) |
- |
(2,792) |
|
|
|
Non-taxable stock dividends |
(425) |
- |
(425) |
(320) |
- |
(320) |
|
|
|
Capital gains on investments not taxable |
- |
11,936 |
11,936 |
- |
(5,522) |
(5,522) |
|
|
|
Currency gains not taxable |
- |
56 |
56 |
- |
(109) |
(109) |
|
|
|
Overseas taxes |
(558) |
- |
(558) |
446 |
- |
446 |
|
|
|
Non-taxable overseas dividends |
(674) |
- |
(674) |
(929) |
- |
(929) |
|
|
|
Expenses not deductible for tax purposes |
1 |
- |
1 |
- |
- |
- |
|
|
|
Excess management expenses |
123 |
511 |
634 |
112 |
525 |
637 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
Current tax charge |
(558) |
- |
(558) |
446 |
- |
446 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Factors that may affect future tax charges |
||||||
|
|
|
At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £117,155,000 (2015 - £114,014,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. |
||||||
|
|
|
2016 |
2015 |
|
7. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Third interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p) paid 27 February 2015 |
3,888 |
3,888 |
|
|
Final dividend for the year ended 31 January 2015 - 3.525p (2014 - 3.375p) paid 29 May 2015 |
5,323 |
5,096 |
|
|
First interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) paid 28 August 2015 |
3,888 |
3,888 |
|
|
Second interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) paid 27 November 2015 |
3,888 |
3,888 |
|
|
Return of unclaimed dividends |
(23) |
(24) |
|
|
|
_________ |
_________ |
|
|
Dividends paid in the period |
16,964 |
16,736 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
A third interim dividend was declared on 12 January 2016 with an ex date of 4 February 2016. This dividend of 2.575p was paid on 26 February 2016 and has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
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 upon which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £18,293,000 (2015 - £17,976,000). |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
First interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) |
3,888 |
3,888 |
|
|
Second interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) |
3,888 |
3,888 |
|
|
Third interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) |
3,888 |
3,888 |
|
|
Proposed final dividend for the year ended 31 January 2016 - 3.675p (2015 - 3.525p) |
5,543 |
5,323 |
|
|
|
_________ |
_________ |
|
|
|
17,207 |
16,987 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
185,500 Ordinary shares have been bought back since the year end and the proposed final dividend is based on the latest share capital of 150,820,687 Ordinary shares. |
||
|
|
|
2016 |
2015 |
||
|
8. |
Return per Ordinary share |
£'000 |
p |
£'000 |
p |
|
|
Revenue return |
18,293 |
12.11 |
17,976 |
11.90 |
|
|
Capital return |
(61,990) |
(41.05) |
23,936 |
15.86 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
Total return |
(43,697) |
(28.94) |
41,912 |
27.76 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
Weighted average number of Ordinary shares in issue |
|
151,006,187 |
|
151,006,187 |
|
|
|
|
_________ |
|
_________ |
|
|
|
Listed |
Listed |
|
|
|
2016 |
2015 |
|
9. |
Investments: listed at fair value through profit or loss |
£'000 |
£'000 |
|
|
Opening fair value |
462,444 |
431,223 |
|
|
Opening investment holding gains |
(123,861) |
(108,613) |
|
|
|
_________ |
_________ |
|
|
Opening book cost |
338,583 |
322,610 |
|
|
Purchases at cost |
71,868 |
62,120 |
|
|
Sales - proceeds |
(39,121) |
(56,787) |
|
|
Sales - realised gains A |
5,698 |
10,640 |
|
|
|
_________ |
_________ |
|
|
Closing book cost |
377,028 |
338,583 |
|
|
Closing investment holdings gains |
58,984 |
123,861 |
|
|
|
_________ |
_________ |
|
|
Closing fair value |
436,012 |
462,444 |
|
|
|
_________ |
_________ |
|
|
|
2016 |
2015 |
|
|
|
|
|
|
|
Gains on investments |
£'000 |
£'000 |
|
|
Realised gains on sales A |
5,698 |
10,640 |
|
|
Change in investment holdings gains |
(64,878) |
15,248 |
|
|
|
_________ |
_________ |
|
|
|
(59,180) |
25,888 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
A Includes losses realised on the exercise of traded options of £1,633,000 (2015 - £1,211,000). Premiums received of £1,751,000 (2015 - £1,546,000) are included within income per note 2. |
||
|
|
|
||
|
|
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: |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Purchases |
169 |
313 |
|
|
Sales |
27 |
42 |
|
|
|
_________ |
_________ |
|
|
|
196 |
355 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
Stock lending |
£'000 |
£'000 |
|
|
Aggregate value of securities on loan at the year end |
- |
- |
|
|
Maximum aggregate value of securities on loan during the year |
- |
5,071 |
|
|
Fee income from stock lending |
- |
6 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
Stock lending is the temporary transfer of securities by a lender to a borrower, with an agreement by the borrower to return equivalent securities to the lender at an agreed date. Fee income is received for making the investments available to the borrower. The principal risks and rewards, namely the market movements in share prices and associated dividend income are retained by the Company. In all cases the securities lent continue to be recognised on the Statement of Financial Position. |
||
|
|
|
||
|
|
All stocks lent under these arrangements are fully secured against collateral. There was no collateral held at 31 January 2016 (2015 - £nil). |
||
|
|
|
2016 |
2015 |
|
10. |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Net dividends and interest receivable |
1,087 |
394 |
|
|
Tax recoverable |
399 |
182 |
|
|
Other loans and receivables |
27 |
27 |
|
|
|
_________ |
_________ |
|
|
|
1,513 |
603 |
|
|
|
_________ |
_________ |
|
11. |
Creditors: amounts falling due within one year |
2016 |
2015 |
|
|
|
(a) |
Bank loan |
£'000 |
£'000 |
|
|
|
EUR 6,100,000 - 15 February 2016 |
4,653 |
4,583 |
|
|
|
GBP 6,000,000 - 15 February 2016 |
6,000 |
6,000 |
|
|
|
|
_________ |
_________ |
|
|
|
|
10,653 |
10,583 |
|
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
|
The Company has an agreement (which expires 15 July 2018) with Scotiabank to provide a loan facility for up to £25,000,000 (2015 - £30,000,000 facility with Royal Bank of Scotland). At 31 January 2016 €6,100,000 was drawn down at a rate of 0.8% (2015 - €6,100,000) and £6,000,000 was also drawn down at a rate of 1.31069% (2015 - £6,000,000). The terms of the loan facility contain covenants that the adjusted asset coverage is not be less than 4.00 to 1.00 and that the minimum net assets of the Company are £200 million. |
||
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
(b) |
Other creditors |
£'000 |
£'000 |
|
|
|
Debenture Stock, Loan Notes and bank loan interest |
750 |
586 |
|
|
|
Sundry creditors |
378 |
414 |
|
|
|
|
_________ |
_________ |
|
|
|
|
1,128 |
1,000 |
|
|
|
|
_________ |
_________ |
|
|
|
2016 |
2015 |
|
12. |
Creditors: amounts falling due after more than one year |
£'000 |
£'000 |
|
|
7⅞% Debenture Stock 2019 (issued in 1997) |
28,600 |
28,600 |
|
|
Unamortised Debenture Stock premium and issue expenses |
(42) |
(55) |
|
|
3.99% Loan Notes 2045 (issued in 2015) |
30,000 |
- |
|
|
Unamortised Loan Note issue expenses |
(287) |
- |
|
|
|
_________ |
_________ |
|
|
Amortised cost of Debenture Stock |
58,271 |
28,545 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
The 7⅞% Debenture Stock is due to be redeemed at par on 30 April 2019 and interest is payable in half-yearly instalments in April and October. The Debenture Stock is secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Debenture Stock Trust Deed that total borrowings should not be greater than adjusted capital and reserves throughout the year and up to the date this report was signed. |
||
|
|
|
||
|
|
The 3.99% Loan Notes are due to be redeemed at par on 8 December 2045 and interest is payable in half-yearly instalments in June and December. The Loan Notes are secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Loan Note Trust Deed that total net borrowings (ie. after the deduction of cash balances) should not exceed 33% of the Net Asset Value and that the Net Asset Value should not be less than £200 million. |
||
|
|
|
||
|
|
The fair value of the Debenture Stock as at 31 January 2016 was £33,578,000 (2015 - £34,946,000), the value being calculated per the disclosure in note 17. The effect on the net asset value of deducting the Debenture Stock at fair value rather than at par is disclosed in note 16. |
||
|
|
|
||
|
|
The fair value of the Loan Notes as at 31 January 2016 was £34,132,000 (2015 - n/a), the value being calculated per the disclosure in note 17. The effect on the net asset value of deducting the Loan Notes at fair value rather than at par is disclosed in note 16. |
||
|
|
|
2016 |
2015 |
|
|
13. |
Called-up share capital |
£'000 |
£'000 |
|
|
|
Allotted, called up and fully paid: |
|
|
|
|
|
151,006,187 (2015 - 151,006,187) Ordinary shares of 25p each - equity |
37,751 |
37,751 |
|
|
|
Treasury shares: |
|
|
|
|
|
2,671,748 (2015 - 2,671,748) Ordinary shares of 25p each - equity |
668 |
668 |
|
|
|
|
_________ |
_________ |
|
|
|
|
38,419 |
38,419 |
|
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
|
No Ordinary shares were sold from Treasury account during the year. (2015 - nil). |
|
||
|
|
|
|||
|
|
Since the year end 185,500 Ordinary shares of 25p each have been purchased by the Company at a total cost of £399,000. These are held in treasury. |
|
||
|
|
|
2016 |
2015 |
|
14. |
Capital reserve |
£'000 |
£'000 |
|
|
At 31 January 2015 |
361,427 |
337,491 |
|
|
Net gains on sales of investments during the year |
5,698 |
10,640 |
|
|
Movement in investment holdings gains during the year |
(64,878) |
15,248 |
|
|
Currency gains |
(278) |
510 |
|
|
Finance costs of borrowings (note 5) |
(1,566) |
(1,464) |
|
|
Investment management fee |
(966) |
(998) |
|
|
|
_________ |
_________ |
|
|
At 31 January 2016 |
299,437 |
361,427 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
Included in the total above are investment holdings gains at the year end of £58,984,000 (2015 - £123,861,000). |
||
|
|
|
2016 |
2015 |
|||
|
|
|
Equity |
|
|
Equity |
|
|
|
|
share capital |
|
|
share capital |
|
|
|
|
(including |
Loan |
Debenture |
(including |
Debenture |
|
|
|
premium) |
Notes |
stock |
premium) |
stock |
|
|
|
2016 |
2016 |
2016 |
2015 |
2015 |
|
15. |
Analysis of changes in financing during the year |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Opening balance at 31 January 2015 |
43,038 |
- |
28,545 |
43,038 |
28,532 |
|
|
Loan Notes issued in the period |
- |
29,711 |
- |
- |
- |
|
|
Movement in unamortised Debenture Stock discount and issue expenses |
- |
- |
13 |
- |
13 |
|
|
Movement in unamortised Loan Notes issue expenses |
- |
2 |
- |
- |
- |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
Closing balance at 31 January 2016 |
43,038 |
29,713 |
28,558 |
43,038 |
28,545 |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. |
|||||
|
16. |
Net asset value per share |
||
|
|
Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Statement of Financial Position does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the year end, adjusted to reflect the deduction of the Debenture Stock and Loan Notes at par. A reconciliation between the two sets of figures is as follows: |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
Equity shareholders' funds |
£368,041,000 |
£428,702,000 |
|
|
Adjusted net assets |
£367,712,000 |
£428,647,000 |
|
|
Number of equity shares in issue at year end{A} |
151,006,187 |
151,006,187 |
|
|
{A} Excluding shares held in treasury. |
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
Equity shareholders' funds per share |
243.73p |
283.90p |
|
|
Less: unamortised Debenture Stock premium and issue expenses |
(0.03p) |
(0.04p) |
|
|
Less: unamortised Loan Notes issue expenses |
(0.19p) |
- |
|
|
|
_________ |
_________ |
|
|
Adjusted net asset value per share |
243.51p |
283.86p |
|
|
|
_________ |
_________ |
|
|
|
||
|
|
The net asset value per share at 31 January 2016, adjusted to include the Debenture Stock at market value and Loan Notes at fair value rather than at par is 237.48p (2015 - 279.66p). |
||
|
|
|
|
|
|
|
The movements during the year of the assets attributable to the Ordinary shares were as follows: |
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Opening adjusted net assets |
428,647 |
403,458 |
|
|
Capital return for the year |
(61,990) |
23,936 |
|
|
Revenue on ordinary activities after taxation |
18,293 |
17,976 |
|
|
Dividends appropriated in the year |
(16,964) |
(16,736) |
|
|
Movement in unamortised Loan Notes issue expenses |
(287) |
- |
|
|
Movement in unamortised Debenture Stock premium and issue expenses |
13 |
13 |
|
|
|
_________ |
_________ |
|
|
Closing adjusted net assets |
367,712 |
428,647 |
|
|
|
_________ |
_________ |
|
17. |
Financial instruments and risk management |
|||||||||||||
|
|
The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, 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 Company also has the ability to enter into derivative transactions in the form of option contracts for the purpose of generating income and futures/options for hedging market exposures. |
|||||||||||||
|
|
|
|||||||||||||
|
|
During the year, the Company entered into certain options contracts for the purpose of generating income. Positions closed during the year realised a loss of £1,633,000 (2015 - £1,211,000). As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £1,751,000 (2015 - £1,546,000). The largest position in derivative contracts held during the year at any given time was £611,000 (2015 - £946,000). The Company had no open positions in derivative contracts at 31 January 2016 (2015 - none). |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Board relies on Aberdeen Fund Managers Limited ("AFML" or the "Manager") for the provision of risk management activities 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. |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models. |
|||||||||||||
|
|
|
|||||||||||||
|
|
Risk management framework |
|||||||||||||
|
|
The directors of AFML collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|||||||||||||
|
|
|
|||||||||||||
|
|
AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. |
|||||||||||||
|
|
|
|||||||||||||
|
|
Risk Management |
|||||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||||
|
|
|
|||||||||||||
|
|
The Board regularly reviews and agrees policies for managing each of these risks. The Aberdeen Group's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures. |
|||||||||||||
|
|
|
|||||||||||||
|
|
(i) |
Market risk |
||||||||||||
|
|
|
Market risk comprises three elements - interest rate risk, currency risk and price risk. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
(a) Interest rate risk |
||||||||||||
|
|
|
Interest rate movements may affect: |
||||||||||||
|
|
|
- the fair value of the investments in fixed interest rate securities; |
||||||||||||
|
|
|
- the level of income receivable on cash deposits; and |
||||||||||||
|
|
|
- interest payable on the Company's variable rate borrowings. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
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. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. Details of borrowings at 31 January 2016 are shown in notes 11 and 12. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Interest risk profile |
||||||||||||
|
|
|
The interest rate risk profile of the portfolio of financial assets and liabilities at the Statement of Financial Position date was as follows: |
||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Weighted |
|
|
|
||||||||
|
|
|
|
average |
Weighted |
|
|
||||||||
|
|
|
|
period for |
average |
|
|
||||||||
|
|
|
|
which |
interest |
Fixed |
Floating |
||||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
||||||||
|
|
|
At 31 January 2016 |
Years |
% |
£'000 |
£'000 |
||||||||
|
|
|
Assets |
|
|
|
|
||||||||
|
|
|
Sterling |
22.50 |
6.58 |
28,777 |
568 |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Total assets |
- |
- |
28,777 |
568 |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Liabilities |
|
|
|
|
||||||||
|
|
|
Bank loans |
0.08 |
1.09 |
(10,653) |
- |
||||||||
|
|
|
Loan Notes |
29.85 |
3.99 |
(29,713) |
- |
||||||||
|
|
|
Debenture Stock |
3.25 |
7.87 |
(28,558) |
- |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Total liabilities |
- |
- |
(68,924) |
- |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
|
|
|
|
|
||||||||
|
|
|
The weighted average period for which interest rates are fixed in relation to the Company's fixed interest portfolio, at 22.5 years, extends significantly beyond the maturity date of the 7/78% Debenture Stock, which matures on 30 April 2019. This is due to the large number of perpetual holdings within that portfolio which have call dates around the time of the maturity of the Debenture. |
||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Weighted |
|
|
|
||||||||
|
|
|
|
average |
Weighted |
|
|
||||||||
|
|
|
|
period for |
average |
|
|
||||||||
|
|
|
|
which |
interest |
Fixed |
Floating |
||||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
||||||||
|
|
|
At 31 January 2015 |
Years |
% |
£'000 |
£'000 |
||||||||
|
|
|
Assets |
|
|
|
|
||||||||
|
|
|
Sterling |
- |
- |
- |
5,783 |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Total assets |
- |
- |
- |
5,783 |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Liabilities |
|
|
|
|
||||||||
|
|
|
Bank loans |
0.09 |
1.23 |
(10,583) |
- |
||||||||
|
|
|
Debenture Stock |
4.25 |
7.87 |
(28,545) |
- |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
Total liabilities |
- |
- |
(39,128) |
- |
||||||||
|
|
|
|
_________ |
_________ |
_________ |
_________ |
||||||||
|
|
|
|
|
|
|
|
||||||||
|
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's borrowings are shown in notes 11 and 12 to the financial statements. |
||||||||||||
|
|
|
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 (excluding bank loans) have been excluded from the above tables. All financial liabilities are measured at amortised cost. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Interest rate sensitivity |
||||||||||||
|
|
|
Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit. |
||||||||||||
|
|
|
(b) Foreign currency risk |
||||||||||||
|
|
|
A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Statement of Financial Position can be affected by movements in 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 investment with foreign currency borrowings. A proportion of the Company's borrowings, as detailed in note 11, is in foreign currency as at 31 January 2016. The revenue account is subject to currency fluctuations arising on dividends received in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Foreign currency risk exposure by currency of denomination: |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
|
31 January 2016 |
31 January 2015 |
||||||||||
|
|
|
|
|
Net |
Total |
|
Net |
Total |
||||||
|
|
|
|
|
monetary |
currency |
|
monetary |
currency |
||||||
|
|
|
|
Investments |
assets |
exposure |
Investments |
assets |
exposure |
||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
|
Euro |
33,637 |
(4,373) |
29,264 |
46,774 |
(4,483) |
42,291 |
||||||
|
|
|
Swiss Francs |
29,462 |
139 |
29,601 |
34,302 |
349 |
34,651 |
||||||
|
|
|
Sterling |
372,913 |
(63,737) |
309,176 |
381,368 |
(29,608) |
351,760 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
Total |
436,012 |
(67,971) |
368,041 |
462,444 |
(33,742) |
428,702 |
||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual stocks in these markets. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Foreign currency sensitivity |
||||||||||||
|
|
|
There is no sensitivity analysis included as the Board believes the amount exposed to foreign currency denominated monetary assets to be immaterial. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
(c) Price risk |
||||||||||||
|
|
|
Price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments and traded options. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Management of the risk |
||||||||||||
|
|
|
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. Both the allocation of assets and the stock selection process 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 in the UK and Europe. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Price risk sensitivity |
||||||||||||
|
|
|
If market prices at the Statement of Financial Position date had been 10% higher while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 January 2016 would have increased by £43,601,000 (2015 - increase of £46,244,000) and equity reserves would have increased by the same amount. Had market prices been 10% lower the converse would apply. |
||||||||||||
|
|
|
|
||||||||||||
|
|
(ii) |
Liquidity risk |
||||||||||||
|
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Management of the risk |
||||||||||||
|
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise Debenture Stock, Loan Notes and a revolving facility. The Debenture Stock and Loan Notes provide secure long-term funding while short term flexibility is achieved through the borrowing facility. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of less than 30% at all times. Details of borrowings at 31 January 2016 are shown in notes 11 and 12. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Liquidity risk is not considered to be significant as the Company's assets comprise mainly cash and listed securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Liquidity risk exposure |
||||||||||||
|
|
|
At 31 January 2016 and 31 January 2015 the amortised cost of the Company's Debenture Stock was £28,558,000 and £28,545,000 respectively. This is due to be redeemed at par on 30 April 2019. At 31 January 2016 and 31 January 2015 the amortised cost of the Company's Loan Notes was £29,713,000 and £nil respectively. At 31 January 2016 and 31 January 2015 the Company's bank loans amounted to £10,653,000 and £10,583,000 respectively. The facility is committed until 15 July 2018. |
||||||||||||
|
|
|
|
||||||||||||
|
|
(iii) |
Credit risk |
||||||||||||
|
|
|
This is 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 exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Aberdeen Group's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Aberdeen Group's Risk Management Committee. This review will also include checks on the maintenance and security of investments held; |
||||||||||||
|
|
|
· the risk of counterparty exposure due to stock lending is mitigated by the review of collateral positions provided daily by the various counterparties involved; |
||||||||||||
|
|
|
· cash is held only with reputable banks whose credit ratings are monitored on a regular basis. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
The Company participates in stock lending activities. Under the terms of the stock lending agreement, all loans are backed by collateral (cash, near cash, government and public securities, certificates of deposit, letter of credit and UK equities) equal to or greater than 105% of the market value (as calculated daily on each business day) of the securities on loan. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
There are internal exposure limits to cash balances placed with counterparties. The credit worthiness of counterparties is also reviewed on a regular basis. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
With the exception of securities on loan referred to in note 9, 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 January was as follows: |
||||||||||||
|
|
|
|
|
|
||||||||||
|
|
|
|
2016 |
2015 |
||||||||||
|
|
|
|
Balance |
Maximum |
Balance Maximum |
|||||||||
|
|
|
|
Sheet |
exposure |
Sheet Exposure |
|||||||||
|
|
|
|
£'000 |
£'000 |
£'000 £'000 |
|||||||||
|
|
|
Current assets |
|
|
|
|||||||||
|
|
|
Debtors and prepayments |
1,513 |
1,513 |
603 603 |
|||||||||
|
|
|
Cash and short term deposits |
568 |
568 |
5,783 5,783 |
|||||||||
|
|
|
|
_________ |
_________ |
_________ _________ |
|||||||||
|
|
|
|
2,081 |
2,081 |
6,386 6,386 |
|||||||||
|
|
|
|
_________ |
_________ |
_________ _________ |
|||||||||
|
|
|
|
||||||||||||
|
|
|
None of the Company's financial assets is past due or impaired. |
||||||||||||
|
|
|
|
||||||||||||
|
|
|
Fair values of financial assets and financial liabilities |
||||||||||||
|
|
|
The fair value of borrowings has been calculated at £78,363,000 as at 31 January 2016 (2015 - £45,530,000) compared to an accounts value in the financial statements of £69,253,000 (2015 - £39,183,000) (notes 11 and 12). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. All other assets and liabilities of the Company are included in the Statement of Financial Position at fair value. |
||||||||||||
|
18. |
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 Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by issued by the Financial Reporting Council in March 2016. 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. |
||||
|
|
|
||||
|
|
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows: |
||||
|
|
|
||||
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
As at 31 January 2016 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
Quoted equities |
407,235 |
- |
- |
407,235 |
|
|
Quoted bonds |
28,777 |
- |
- |
28,777 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
Total |
436,012 |
- |
- |
436,012 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
As at 31 January 2015 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
Quoted equities |
462,444 |
- |
- |
462,444 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
Total |
462,444 |
- |
- |
462,444 |
|
|
|
_________ |
_________ |
_________ |
_________ |
|
|
Quoted equities and bonds |
|
|
|
|
|
|
The fair value of the Company's investments in quoted equities and quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Quoted equities and quoted bonds included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
||||
|
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 return to its equity shareholders through an appropriate balance of equity capital and debt. |
|
|
|
|
|
The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. |
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital. 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 is not subject to any externally imposed capital requirements. |
|
20. |
Related party transactions |
|
|
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors' Remuneration Report. |
|
21. |
Transactions with the Manager |
|
|
The Company has agreements with Aberdeen Fund Managers Limited for the provision of management, secretarial, accounting and administration services and an agreement with Aberdeen Asset Managers Limited for the provision of promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 3 and 4. |
Additional Notes to Annual Financial Report
The Annual General Meeting will be held on 25 May 2016 at 12 noon at Bow Bells House, 1 Bread Street, London EC4M 9HH..
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2016 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2015 and 2016 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2015 is derived from the statutory accounts for 2015 which have been delivered to the Registrar of Companies. The 2016 accounts will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in April 2016 and copies will be available from the registered office of the Manager and on the Company's website, www.dunedinincomegrowth.co.uk.*
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
This information is provided by RNS
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