REG - Aberdeen Smll Cos IT - Half-year Report

Abrdn Smaller Companies Income TrustAnnouncement

20/09/2019 07:00

RNS Number : 0201N
Aberdeen Smaller Co's Inc Tst PLC
20 September 2019
 


Aberdeen Smaller Companies Income Trust PLC
Half Yearly Financial Report for the six months to 30 June 2019
 
 
OBJECTIVE
The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.
 
BENCHMARK
FTSE SmallCap Index - excluding Investment Companies (total return).
 
MANAGEMENT
The Company's alternative investment fund manager is Aberdeen Standard Fund Managers Limited ("ASFML" or "the Manager") (authorised and regulated by the Financial Conduct Authority).  The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited ("AAML" or "the Investment Manager") by way of a delegation agreement in place between ASFML and AAML.
 
 
 
 
HIGHLIGHTS
 







30 June 2019


31 December 2018


% change




Equity shareholders' funds (£'000)


73,473


63,052


+16.5




Net asset value per Ordinary share


332.31p


285.18p


+16.5




Share price (mid-market)


288.00p


224.00p


+28.6




Discount to net asset value per Ordinary share{A}


13.3%


21.5%








Net gearing{A}


6.6%


6.2%








Ongoing charges ratio{A}


1.27%


1.28%








{A} Considered to be an Alternative Performance Measure. Further details can be found below.



 
 
PERFORMANCE (TOTAL RETURN)
 







 Six months ended


 1 year ended


 3 years ended


 5 years ended








 30 June 2019


 30 June 2019


 30 June 2019


 30 June 2019




Share price{A}


+30.6%


+0.1%


+73.6%


+60.2%




Net asset value per Ordinary share{A}


+18.1%


-0.8%


+54.8%


+65.0%




FTSE SmallCap Index (ex IC's)


+6.1%


-8.6%


+24.8%


+30.3%




FTSE All-Share Index


+13.0%


+0.6%


+29.5%


+35.8%




{A} Considered to be an Alternative Performance Measure. Further details can be found below.




Source: ASFML, Morningstar & Factset.



 
 
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
 
Performance
In the six month period to the end of June 2019, I am pleased to report that the Trust has strongly outperformed its benchmark, the FTSE Smaller Companies Index (excl. Investment Trusts), returning 18.1% on a Net Asset Value (NAV) basis compared to the Index return of 6.1%. The Trust's share price increased by 30.6% in the period, with the discount to NAV narrowing substantially to 13.3%. The Trust's record of outperformance can also be seen in its 1, 3 and 5 year returns. 
 
Trust Gearing and Debt
There has been no change to the level of borrowings the Company employs. The Trust has a 5 year £5m fixed rate loan facility and a 3 year £5m revolving credit facility, of which a total of £7m is currently drawn down.  Portfolio gearing remains largely unchanged at the end of June 2019 at 6.1%, compared with gearing of 6.2% at the end of December 2018.
 
Dividend
You will have seen that the Board announced first and second quarter dividends year to date of 1.95p each (2018 - 1.80p each), an increase on last year's equivalent figures of 8.3%. This compares to an increase in the CPI for the first six months of this year of 0.75%.
 
With more of a focus on growth characteristics in the investment philosophy, the outlook for income growth looks attractive. The income account is also benefitting from some further special dividends, and there is a healthy reserve. The Company is well positioned to maintain solid dividend growth in the years to come.  
 
Benchmark
Following discussions with the Manager, the Board has decided to implement a change to the Company's benchmark from the FTSE Smaller Companies ex Investment Trusts Index to the Numis Smaller Companies ex Investment Trusts Index (NSCI XIC) with effect from 1 January 2020.  The NSCI XIC is the most common benchmark for UK Smaller Companies Trusts,  and we feel now has more relevance to the holdings in the Company's portfolio.   Approximately 25% of the Company's stocks are in the FTSE Small Cap ex Investment Trusts index, compared to 32% in the NSCI XIC). The Numis benchmark is currently outperforming the FTSE Smaller Companies Index (excl. Investment Trusts) to 30 June 2019 with a total return of 10.5%, making the Company's out-performance relevant to the Numis Index in the period 7.6%.
 
Preference Share Portfolio
Subsequent to the period end, the decision was taken to sell the Company's four preference share holdings and re-invest the proceeds into equities. The Portfolio Manager and the Board felt that Aviva's proposal last year to redeem its irredeemable shares had fundamentally changed investor sentiment toward the Preference Share market and that at this time the Company's capital could be better deployed in instruments with growing rather than flat income.
 
Outlook
Uncertainty remains in both political and economic markets globally, with the UK at elevated levels due to Brexit and Prime Ministerial changes. UK smaller companies markets have come under pressure given the perception of their domestic focus, however more recent news flow on US-China trade tensions highlights there are concerns across regions.
 
Following many years of bull markets, we are without doubt closer to the next downturn than the last. The Manager's investment process, based on bottom up stock selection rather than macro views, should guide us well through more difficult markets. The Manager takes a lower risk approach to Smaller Companies investing, and we believe  the quality focus should protect the portfolio through more difficult markets. Investing in businesses which can grow throughout the cycle helps continue to deliver dividend growth to shareholders.
 
If the environment turns to one of lower economic growth, this will undoubtedly become tougher on our investments and their ability to sustain attractive growth rates. Whilst the quality focus should provide resilience, growth may be more challenging in the short term.
 
Robert Lister
Chairman
 
19 September 2019
 
 
INTERIM BOARD REPORT - OTHER
 
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 together with a description of the mitigating actions it has taken.  These can be summarised under the following headings:
 
-     Investment and Market
-     Investment Portfolio Management
-     Gearing
-     Income and Dividend
-     Operational
 
Details of these risks are provided in detail on pages 5 to 6 of the 2018 Annual Report. The principal risks have not changed nor are they expected to change in the second half of the financial year ended 31 December 2019.
 
In addition to these risks, the outcome of the UK Government's negotiations with the European Union on Brexit is still unclear at the date of this report.  This remains an economic risk for the Company, principally in relation to the potential impact of Brexit on UK companies within the portfolio and on the Manager's operations.  Whilst most of the portfolio holdings are UK-based companies, many have operations overseas with broad and geographically diverse earnings streams.  Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit.
 
In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end.
 
Going Concern
In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued in September 2014, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist principally of equity shares in companies listed on the London Stock Exchange.
 
The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and at least twelve months from the date of approval of this Half Yearly Report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
 
Directors' Responsibility Statement
The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:
 
-     the condensed set of Financial Statements has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'
-     the Interim Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year)
-     the Interim Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).
 
The Half Yearly Financial Report for the six months to 30 June 2019 comprises the Interim Board Report and a condensed set of financial statements.
 
For and on behalf of the Board of Aberdeen Smaller Companies Income Trust PLC
 
Robert Lister
Chairman
 
19 September 2019
 
 
INVESTMENT MANAGER'S REVIEW
 
Overview
The first half of 2019 has been a strong period of performance for the Trust, in supportive market conditions. With a Net Asset Value (NAV) total return of +18.1%, this reflects significant outperformance relative to the benchmark return for FTSE Small Cap ex Investment Companies of +6.1%. Long term performance remains very favourable over 3 and 5 year time periods, with 3 year NAV growth of +54.8% vs the benchmark of +24.8%, and 5 year NAV growth of +65.0% vs the benchmark of +30.3%. Despite some negative sentiment towards smaller companies in the UK, given the perception that it is domestically focused, we have been pleased to see the discount narrow over the period with a 30.6% total return in the share price over the first 6 months of the year.
 
Despite continued macro uncertainty, heightened by political volatility around Brexit, markets have shown a lot of resilience. Having sold off in the latter part of 2018, with concerns around economic growth levels and the prospect of interest rate rises, we started 2019 with a strong market rally. Valuations on the UK market had fallen, and relative to other regions limited growth was being priced in which has helped attract investors back into the UK despite broader high level concerns. What is evident though is that FTSE Small Cap ex Investment Companies has lagged other markets in the UK, driven by its more domestic focus and the markets concerns about the UK in particular and the outcome of Brexit. FTSE 100 and FTSE 250 have performed stronger so far this year, given their more international exposure, as investors continue to look overseas for what they consider more resilient exposures and perhaps also more defensive and lower risk investments.
 
The UK market contains a wide and diverse range of companies, sometimes even more so at the smaller end. Through our bottom up stock selection focus we identify businesses which have Quality, Growth and Momentum characteristics, with an income balance. We do not look to take macroeconomic calls or time the cycle, but instead focus on identifying businesses which we believe have the levers and ability to grow in a sustainable manner, despite the external distractions the economy might experience. In difficult market environments and at times when economic growth slows, quality is a characteristic we believe comes into even more focus. Quality businesses with healthy balance sheets, management teams with a strong pedigree, good corporate governance and strong competitive positions have the ability to be resilient through more difficult periods, and even improve their positioning when peers may be struggling.
 
Equity Portfolio
Strong stock selection has been a significant contributor to the outperformance the Trust has delivered over the first half of the year. Aveva shares continued their excellent long term performance driven by reporting strength. Their organic growth has remained at attractive levels, with further growth support coming through the benefits of the integration with Schneider Software. The integration of the businesses has made good progress, with benefits being seen on product innovation and through the sales teams already. Intermediate Capital has been a positive contributor, with significant earnings and dividend expectations increases. We believe the business model is higher quality than historically, with a more diversified revenue stream, and will be less cyclical then previous downturns. They are increasingly asset light given the increasing importance of the third-party asset management. Encouragingly they continue to attract assets, and given the long term and closed ended nature of funds, we view these as lower risk in more difficult times. Dechra Pharmaceuticals, a long term winner for the portfolio, has contributed positively again this period with both organic and acquisitive growth being at attractive levels, helped by new product innovation and distribution gains. The cash generation strength helps finance investment for growth as well as a dividend yield which remains attractive. The continued positive contribution from these long term holdings in the Trust highlights the merits of our desire to "run our winners". 2 newer holdings which have been strong positive contributors are AJ Bell and Games Workshop. We participated in the IPO of AJ Bell where we believed the strong market position of this founder run business could be even further enhanced through market share gains. Their product offering has many strengths and with attractive fee levels they are not subject to the same degree of fee pressures that some other players face. This helps convert Assets Under Administration growth into both earnings growth and cash generation. We were impressed with the collaborative and collegiate culture within the business, driven heavily by the founder and significant shareholder Andy Bell. Games Workshop, the hobbyist retailer, has delivered very appealing growth levels over recent periods with the business increasingly focused on online penetration and international markets. Their ownership of the intellectual property for Warhammer provides barriers to entry, and Games Workshop is a good example of where we invest in dominant players in what may be a niche market, but then that niche can expand globally and therefore, the addressable market can provide growth for years to come. The cash generation from growth has provided surplus capital, and despite also investing in capacity, the management team look to return this excess cash to shareholders.
 
The main detractors from performance have been non-holds over the period. Two of these, KCOM and Tarsus, are companies which have been bid for, driving their share price strength. Burford shares lagged the market rally following a couple of years of very strong performance. Given their high rating they are dependent on strong growth dynamics to sustain this, and in the period we also saw some negative market commentary challenging some governance and accounting areas. Post the period end, the aggressive short seller Muddy Waters published a short sell note on Burford, challenging a number of areas including accounting and corporate governance. Shares were heavily depressed on this report, and have since only recovered a small degree of the fall.  We continue to engage with the Burford team, and are evaluating this investment on an ongoing basis.
 
Somero unfortunately issued a profit warning, blaming wet weather in the US. The weather disruption has made concrete laying very difficult in some regions, and therefore has detracted from sales of new equipment. Their customer's order books remain at healthy levels, however in the short term the lower earnings do depress the potential levels of shareholder returns through dividends.
 
Following the portfolio repositioning done in late 2018, and the increasing focus on investing in growth businesses, we have continued to add some new holdings. The portfolio is focused on investments which deliver attractive income yields, but also which have strong Quality, Growth and Momentum dynamics. The portfolio continues to have an attractive dividend yield, and through investing in faster growing businesses we look to focus on growth of income.
 
New holdings include Kesko, Games Workshop, Paypoint, Somero, MJ Gleeson, Moneysupermarket and Barclays Bank 9% 2023-Perpetual. These investments exhibit those Quality Growth Momentum dynamics we look for, have attractive yields and score well on our stock screening tool, the Matrix. Kesko is a Finnish business with a high market share in Finnish food retail. This business has been successfully positioned with a unique offering that has protected it versus competitors, and should provide a solid defensive core. The next stage is an improvement in their Building and Technical business, which is B2B and B2C. They have a strong balance sheet, which will allow them to do M&A. Games Workshop, is the hobbyist business that owns the intellectual propertyand manufactures the products of "Warhammer". They are driving strong growth from increasing online customer interaction, increasing trade accounts, new product launches, and store growth with increasingly global exposure. The capacity expansion of the new facility should provide further growth capabilities. They have a net cash balance sheet and are highly cash generative. Paypoint, is a relatively defensive player providing retail payment services. They have strong market positions across the service range in the UK, and their Romanian business is also well positioned with good growth opportunities. Their balance sheet is healthy and cash generation is good. Somero has a very attractive matrix score and a high dividend yield. This US based manufacturer of concrete "screeds" continues to deliver strong growth and cash generation. Utilising their machinery means the quality of flat concrete flooring is significantly higher, but also the cost and time of laying it is reduced, delivering a good return on investment to customers. They pay a good dividend, and then supplement that with paying out 50% of cash above $15m. Moneysupermarket has had a difficult couple of years, but both end markets and their operational strategy are seeing improvements. Under new management, they have reinvested in technology, with a real focus on personalisation. Building closer customer relationships means long term they should be able to spend less on customer acquisition. This would improve the quality of the revenue stream, through more repeat business, and also drive operational leverage. Shares sit on a discount to other platform stocks, and their free cash flow generation is very attractive. With a strong net cash balance sheet, they have announced a capital return to shareholders, however unfortunately the fund struggled to build a full position in advance of this due to illiquidity given multiple funds were trading. Their standard yield is around 3%, but this year including special cash it is yielding 5%. MJ Gleeson, was added after another good meeting with management. It screens well on our internal screening tool, the Matrix and has a  dividend yield over 4%. Whilst shares do get impacted by sentiment on housebuilders, MJ Gleeson has a very unique market position. Their affordability, simple operational structure, unique client base, ability to expand their model into new regions through replication. They have a well-placed strategic land business in the South, which can either generate a steady profit stream over years, or could be sold and generate an upfront monetisation of that business, which we would hope might be returned to shareholders. It also trades on an attractive valuation for strong sustainable earnings growth.
 
We exited holdings in Scandinavian Tobacco, Victoria, Smart Metering Systems, Elementis, Genus, Anglian Water bonds and RPC (post bid). These businesses did not fit our Quality Growth Momentum focus, with many facing more challenging times where they were seeing earnings downgrades. We have also taken some profit in names such as Aveva and Dechra, keeping position sizes under control post strong performance.
 
Since the period end, we have also taken the opportunity to exit all of the Company's preference share holdings.  This was done in a disciplined manner over a few weeks, the positions being sold down as natural liquidity presented itself.  Whilst the yield from the preference shares was attractive, they did not deliver income growth which consequently dragged the overall total growth rate of income from the portfolio.
 
Given the heightened focus on liquidity of portfolios, we would like to take this opportunity to highlight that we have not made any investments on behalf of the Company in unquoted securities.  
 
Fixed Income Portfolio
Amid continuing disappointing economic data and trade worries, the rally in global government bond markets were driven largely by expectations of increasing dovishness from leading global central banks. The ECB essentially confirmed that it was moving towards policy easing, both through cutting interest rates and restarting asset purchases. While in the US, the US Federal Reserve cut interest rates by 25 basis points and signalled the potential for more. In the UK, with the UK's economic future still in a state of flux, growth is likely to remain subdued with investment spending in particular being sensitive to the elevated uncertainty.
 
Corporate bond markets continued to deliver strong returns, driven again by both tightening credit risk premiums and falling government bond yields. Both quarterly earnings and first half results across a variety of sectors reflected the mixed global macroeconomic environment. However, management's financial and strategic discipline has been encouraging. Credit spreads have recovered all their spread widening which was seen in the fourth quarter of 2018.
 
With respect to portfolio activity, we added a holding in Barclays Bank 9% 2023- Perpetual rated BB+/Ba2/BBB bond to the portfolio, to replace the Anglian Water bond. The upside from Barclays comes from its potential for early redemption prior to its first call date, October 2023, as the bond is non-compliant for capital adequacy purposes post January 2022. Additionally, the yield was more attractive and the switch reduced duration by 3 years, driving less sensitivity to changes in government bond yields.  This also reduced  exposure to the water sector, where there is a Labour threat of nationalisation which might drive volatility around the time of a general election.
 
Investee Company Stewardship
We met with the Senior Independent Director of  Hilton Food Group and had a good discussion on the how the changes on the board and at the executive level have been performing. The CEO has moved to the new role of Executive Chairman for a period of two years to oversee the restructuring of the Australian joint venture. The Chief Operating Officer has moved to the role of Group CEO. Both appear to be performing well in their new roles; the CEO has had decent feedback from investors for his performance on the investor roadshows. The new Executive Chair has taken a step back from the running of the day to day business and now focuses on the Australian business and his duties as Chairman.  We encouraged the company that more needs to be done on diversity especially on the board; they need to appoint another female Non-Executive Director to improve the balance on the board, subject to finding the right candidate.
 
At Cineworld, we met the Chair and Deputy Chair to discuss board composition and succession planning. The Deputy Chair will take over at the 2020 AGM and we discussed why such a long handover was necessary and how they will work together in the interim. We also discussed executive succession which, although some way off, will need to be handled carefully given the key role of the two Greidinger brothers who are CEO and Deputy CEO and whose family own 28% of the shares. Finally, we discussed the audit tender process and the key audit matters arising from the Regal acquisition.
 
Post the note issued by Muddy Waters, we have engaged with Burford Capital's management on a number of separate occasions. We continue to engage with them on business operations and governance. We believe Burford had been aware of the desire by investors to improve areas of governance prior to this report and we are pleased with the public announcements made recently about board composition, a possible US listing and the change of CFO.
 
Outlook
Whilst some market concerns such as interest rate rises have eased since late 2018, other areas have come to the fore. Economic growth looks to be slowing, US-China trade tensions remain volatile, the outcome of Brexit remains uncertain, and after many years of bull markets investors are conscious that these can't last forever. These dynamics create a lot of uncertainty and volatility, but despite these the market has remained positive throughout the period. Towards the end of the first half this looks to be coming under some challenge, with tougher sentiment and performance in global markets.
 
Our investment process focused on stock analysis as the key driver of decision making, rather than taking macroeconomic driven views. We look to invest in companies who can prove resilient through tougher times, which have structural growth drivers, their own independent levers for growth, are driven by management teams with a strong pedigree and have good corporate governance to protect our interests. In this process we are not looking to time markets, and our focus on Quality Growth and Momentum with an Income focus remains true despite where we may prove to be in economic cycles, although if the economy widely slows down, growth will be more challenging for companies to achieve. In tougher periods we believe the market will reward companies with Quality aspects who prove resilient, so if we enter a more sustained downturn, we think our focus on Quality will be helpful in terms of risk reduction.
 
The UK market remains an attractive universe of diverse businesses, an opportunity to access a wide variety of end markets and themes globally, and gain exposure to overseas earnings where that is seen as attractive. The 'Matrix', our stock screening tool, will continue to guide us towards utilising our analytical resources on the stocks which are most suitable for inclusion in the portfolio.
 
 
Aberdeen Asset Managers Limited
19 September 2019
 
 




Distribution of Assets and Liabilities
As at 30 June 2019
 







Valuation at


Movement during the period


Valuation at








31 December










Gains/


30 June








2018


Purchases


Sales


(losses)


2019








£'000


%


£'000


£'000


£'000


£'000


%




Listed investments
































Equities


61,663


97.9


12,260


(25,153)


23,830


72,600


98.8




Convertible preference shares


954


1.5


-


-


(18)


936


1.3




Corporate bonds


1,026


1.6


380


(543)


18


881


1.2




Preference shares


3,200


5.1


-


-


314


3,514


4.8








_______


_______


_______


_______


_______


_______


_______








66,843


106.1


12,640


(25,696)


24,144


77,931


106.1








_______


_______


_______


_______


_______


_______


_______




Current assets


3,414


5.4














2,777


3.8




Other current liabilities


(222)


(0.4)














(250)


(0.4)




Loans


(6,983)


(11.1)














(6,985)


(9.5)








_______


_______














_______


_______




Net assets


63,052


100.0














73,473


100.0








_______


_______














_______


_______




Net asset value per share


285.18p


















332.31p












_______


















_______







 
 




Condensed Statement of Comprehensive Income  
 











 Six months ended












 30 June 2019












 (unaudited)












 Revenue


 Capital


 Total








Notes


 £'000


 £'000


 £'000




Gains/(losses) on investments at fair value






-


10,297


10,297




Currency (losses)/gains






-


(10)


(10)


























Revenue




















Dividend income


2


1,546


-


1,546




Interest income from investments


2


22


-


22




Other income


2


5


-


5












_________


_________


_________












1,573


10,287


11,860












_________


_________


_________




Expenses




















Investment management fee






(80)


(186)


(266)




Other administrative expenses






(194)


-


(194)




Finance costs






(33)


(76)


(109)












_________


_________


_________




Profit/(loss) before tax






1,266


10,025


11,291












_________


_________


_________




Taxation


3


(8)


-


(8)












_________


_________


_________




Profit/(loss) attributable to equity holders






1,258


10,025


11,283












_________


_________


_________


























Return per Ordinary share (pence)


5


5.69


45.34


51.03












_________


_________


_________


























The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.




The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit/(loss) attributable to equity holders" is also the "Total comprehensive income attributable to equity holders" as defined in IAS 1 (revised).










The accompanying notes are an integral part of these condensed financial statements.



 
 




Condensed Statement of Comprehensive Income 
(Continued)
 











Six months ended


Year ended












30 June 2018


31 December 2018












(unaudited)


(audited)












Revenue


Capital


Total


Revenue


Capital


Total








Notes


£'000


£'000


£'000


£'000


£'000


£'000




Gains/(losses) on investments at fair value






-


249


249


-


(12,256)


(12,256)




Currency (losses)/gains






-


-


-


-


1


1






































Revenue
































Dividend income


2


1,512


-


1,512


2,513


-


2,513




Interest income from investments


2


46






46


87






87




Other income


2


1


-


1


4


-


4












_______


_______


_______


_______


_______


_______












1,559


249


1,808


2,604


(12,255)


(9,651)












_______


_______


_______


_______


_______


_______




Expenses
































Investment management fee






(88)


(206)


(294)


(166)


(389)


(555)




Other administrative expenses






(187)


-


(187)


(374)


-


(374)




Finance costs






(26)


(61)


(87)


(56)


(130)


(186)












_______


_______


_______


_______


_______


_______




Profit/(loss) before tax






1,258


(18)


1,240


2,008


(12,774)


(10,766)












_______


_______


_______


_______


_______


_______




Taxation


3


(11)


-


(11)


(11)


-


(11)












_______


_______


_______


_______


_______


_______




Profit/(loss) attributable to equity holders






1,247


(18)


1,229


1,997


(12,774)


(10,777)












_______


_______


_______


_______


_______


_______






































Return per Ordinary share (pence)


5


5.64


(0.08)


5.56


9.03


(57.77)


(48.74)












_______


_______


_______


_______


_______


_______



 
 




Condensed Balance Sheet
 











As at


As at


As at












30 June

2019


30 June

2018


31 December 2018












(unaudited)


(unaudited)


(audited)








Notes


£'000


£'000


£'000




Non-current assets




















Equities






72,600


75,214


61,663




Convertible preference shares






936


972


954




Corporate bonds






881


1,731


1,026




Preference shares






3,514


3,674


3,200












____________


____________


____________




Securities at fair value






77,931


81,591


66,843












____________


____________


____________




Current assets




















Cash






2,166


724


3,071




Other receivables






611


745


343












____________


____________


____________












2,777


1,469


3,414












____________


____________


____________




Current liabilities




















Bank loan






(2,000)


(2,000)


(2,000)




Trade and other payables






(250)


(225)


(222)












____________


____________


____________












(2,250)


(2,225)


(2,222)












____________


____________


____________




Net current assets/(liabilities)






527


(756)


1,192












____________


____________


____________




Total assets less current liabilities






78,458


80,835


68,035


























Non-current liabilities




















Bank loan






(4,985)


(4,981)


(4,983)












____________


____________


____________




Net assets






73,473


75,854


63,052












____________


____________


____________




Share capital and reserves




















Called-up share capital






11,055


11,055


11,055




Share premium account






11,892


11,892


11,892




Capital redemption reserve






2,032


2,032


2,032




Capital reserve


6


44,984


47,715


34,959




Revenue reserve






3,510


3,160


3,114












____________


____________


____________




Equity shareholders' funds






73,473


75,854


63,052












____________


____________


____________


























Net asset value per Ordinary share (pence)


7


332.31


343.08


285.18












____________


____________


____________



 
 
 
Condensed Statement of Changes in Equity
 



Six months ended 30 June 2019 (unaudited)


































































Share


Capital




















Share


premium


redemption


Capital


Revenue












capital


account


reserve


reserve


reserve


Total








£'000


£'000


£'000


£'000


£'000


£'000




As at 31 December 2018


11,055


11,892


2,032


34,959


3,114


63,052




Profit for the period


-


-


-


10,025


1,258


11,283




Dividends paid in the period


-


-


-


-


(862)


(862)








______


______


______


______


______


______




As at 30 June 2019


11,055


11,892


2,032


44,984


3,510


73,473








______


______


______


______


______


______


































Six months ended 30 June 2018 (unaudited)


































































Share


Capital




















Share


premium


redemption


Capital


Revenue












capital


account


reserve


reserve


reserve


Total








£'000


£'000


£'000


£'000


£'000


£'000




As at 31 December 2017


11,055


11,892


2,032


47,733


2,709


75,421




(Loss)/profit for the period


-


-


-


(18)


1,247


1,229




Dividends paid in the period


-


-


-


-


(796)


(796)








______


______


______


______


______


______




As at 30 June 2018


11,055


11,892


2,032


47,715


3,160


75,854








______


______


______


______


______


______


































Year ended 31 December 2018 (audited)


































































Share


Capital




















Share


premium


redemption


Capital


Revenue












capital


account


reserve


reserve


reserve


Total








£'000


£'000


£'000


£'000


£'000


£'000




As at 31 December 2017


11,055


11,892


2,032


47,733


2,709


75,421




(Loss)/profit for the year


-


-


-


(12,774)


1,997


(10,777)




Dividends paid in the year


-


-


-


-


(1,592)


(1,592)








______


______


______


______


______


______




As at 31 December 2018


11,055


11,892


2,032


34,959


3,114


63,052








______


______


______


______


______


______



 
 




Condensed Cash Flow Statement
 







Six months ended


Six months ended


Year

ended








30 June 2019


30 June 2018


31 December 2018








(unaudited)


(unaudited)


(audited)








£'000


£'000


£'000




Cash flows from operating activities
















Dividend income received


1,381


1,531


2,498




Interest income received


4


29


90




Other income received


-


1


4




Investment management fee paid


(254)


(304)


(526)




Other cash expenses


(167)


(195)


(370)








___________


___________


___________




Cash generated from operations


964


1,062


1,696






















Interest paid


(100)


(94)


(162)




Overseas taxation suffered


(15)


(26)


(27)




Net cash inflows from operating activities


849


942


1,507








___________


___________


___________




Cash flows from investing activities
















Purchases of investments


(12,645)


(5,682)


(14,690)




Sales of investments


11,763


5,678


17,295








___________


___________


___________




Net cash (outflows)/inflows from investing activities


(882)


(4)


2,605








___________


___________


___________




Cash flows from financing activities
















Loan repaid


-


-


(7,000)




Loan drawndown


-


-


7,000




Costs relating to drawdown of loan


-


-


(32)




Equity dividends paid


(862)


(796)


(1,592)








___________


___________


___________




Net cash outflows from financing activities


(862)


(796)


(1,624)








___________


___________


___________




Net (decrease)/increase in cash and cash equivalents


(895)


142


2,488








___________


___________


___________




Analysis of changes in cash and cash equivalents during the period












Opening balance


3,071


582


582




Currency (losses)/gains


(10)


-


1




(Decrease)/increase in cash and cash equivalents as above


(895)


142


2,488








___________


___________


___________




Cash and cash equivalents at the end of the period


2,166


724


3,071








___________


___________


___________



 
 




NOTES TO THE ACCOUNTS
 



1.


Accounting policies








Basis of preparation








The condensed financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board ('IASB'), and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') of the IASB. They have also been prepared using the same accounting policies applied for the year ended 31 December 2018 financial statements, which received an unqualified audit report.


















The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk' the Directors have undertaken a review of the Company's assets which principally consist of equity shares in companies listed on the London Stock Exchange.



 











Six months ended


Six months ended


Year

ended












30 June 2019


30 June 2018


31 December 2018




2.


Income


£'000


£'000


£'000








Income from investments




















Dividend income from UK equity securities


1,212


1,141


1,912








Dividend income from overseas equity securities


215


251


349








Property income distribution


119


89


221








Stock dividends from UK equity securities


-


31


31












___________


___________


___________












1,546


1,512


2,513








Interest income from investments


22


46


87












___________


___________


___________












1,568


1,558


2,600












___________


___________


___________








Other income




















Bank interest


5


1


4












___________


___________


___________








Total revenue income


1,573


1,559


2,604












___________


___________


___________



 



3.


Taxation








The tax expense reflected in the Condensed Statement of Comprehensive Income represents irrecoverable withholding tax suffered on overseas dividend income.



 



4.


Dividends








The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.


































 Six months ended


 Six months ended


 Year

ended












 30 June 2019


 30 June 2018


 31 December 2018












 £'000


 £'000


 £'000








Profit attributable


1,258


1,247


1,997








Dividends declared


(862){A}


(796){B}


(1,625){C}












___________


___________


___________












396


451


372












___________


___________


___________






























{A}        Dividends declared relate to first two interim dividends (both 1.95p each) declared in respect of the financial year 2019.








{B}        Dividends declared relate to first two interim dividends (both 1.80p each) declared in respect of the financial year 2018.








{C}        Dividends declared relate to the four interim dividends declared in respect of the financial year 2018 totalling 7.35p.



 











 Six months ended


 Six months ended


 Year

ended












 30 June 2019


 30 June 2018


 31 December 2018




5.


Return per Ordinary share


 p


 p


 p








Revenue return


5.69


5.64


9.03








Capital return


45.34


(0.08)


(57.77)












___________


___________


___________








Net return


51.03


5.56


(48.74)












___________


___________


___________






























The returns per Ordinary share are based on the following figures:










































 Six months ended


 Six months ended


 Year

ended












 30 June 2019


 30 June 2018


 31 December 2018












 £'000


 £'000


 £'000








Revenue return


1,258


1,247


1,997








Capital return


10,025


(18)


(12,774)












___________


___________


___________








Net return


11,283


1,229


(10,777)












___________


___________


___________








Weighted average number of shares in issue


22,109,765


22,109,765


22,109,765












___________


___________


___________



 



6.


Capital reserves








The capital reserve reflected in the Condensed Balance Sheet at 30 June 2019 includes gains of £23,747,000 (30 June 2018 - gains of £29,551,000; 31 December 2018 - gains of £15,898,000) which relate to the revaluation of investments held at the reporting date.



 



7.


Net asset value per Ordinary share








The net asset value per Ordinary share and the net asset values attributable to Ordinary shareholders at the period end calculated in accordance with the Articles of Association were as follows:


































As at


As at


As at












30 June 2019


30 June 2018


31 December 2018












 (unaudited)


 (unaudited)


(audited)








Attributable net assets (£'000)


73,473


75,854


63,052








Number of Ordinary shares in issue


22,109,765


22,109,765


22,109,765








Net asset value per Ordinary share (p)


332.31


343.08


285.18



 



8.


Transaction costs








During the period expenses were incurred in acquiring or disposing of investments classified as fair value. These have been expensed through capital and are included within gains/(losses) on investments at fair value in the Condensed Statement of Comprehensive Income. The total costs were as follows:


































Six months ended


Six months ended


Year

ended












30 June

2019


30 June

2018


31 December 2018












£'000


£'000


£'000








Purchases


55


31


74








Sales


7


4


11












___________


___________


___________












62


35


85












___________


___________


___________



 



9.


Fair value hierarchy








Under IFRS 13 'Fair Value Measurement' an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making measurements. The fair value hierarchy has the following levels:


















Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;








Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and








Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).


















The financial assets measured at fair value in the Condensed Balance Sheet are grouped into the fair value hierarchy as follows:














































Level 1


Level 2


Level 3


Total








At 30 June 2019 (unaudited)


Note


£'000


£'000


£'000


£'000








Financial assets at fair value through profit or loss




























Quoted equities


a)


72,600


-


-


72,600








Quoted convertibles, bonds and preference shares


b)


-


5,331


-


5,331
















________


________


________


________
















72,600


5,331


-


77,931
















________


________


________


________














































Level 1


Level 2


Level 3


Total








At 30 June 2018 (unaudited)


Note


£'000


£'000


£'000


£'000








Financial assets at fair value through profit or loss




























Quoted equities


a)


75,214


-


-


75,214








Quoted convertibles, bonds and preference shares


b)


-


6,377


-


6,377
















________


________


________


________
















75,214


6,377


-


81,591
















________


________


________


________














































Level 1


Level 2


Level 3


Total








At 31 December 2018 (audited)


Note


£'000


£'000


£'000


£'000








Financial assets at fair value through profit or loss




























Quoted equities


a)


61,663


-


-


61,663








Quoted convertibles, bonds and preference shares


b)






5,180


-


5,180
















________


________


________


________
















61,663


5,180


-


66,843
















________


________


________


________






































a)     Quoted equities








The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.








b)     Quoted convertibles, bonds and preference shares








The fair value of the Company's investments in quoted convertibles, bonds and preference shares has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets. 


















There have been no transfers of assets between levels of the fair value hierarchy during any of the the periods covered in this Report.



 



10.


Related party transactions








There were no related party transactions during the period.



 



11.


Transactions with the Manager








The Company has agreements with Aberdeen Standard Fund Managers Limited ("ASFML" or "the Manager") for the provision of investment management, secretarial, accounting and administration and promotional activities.


















The management fee was calculated at an annual rate of 0.75% of the net assets of the Company adding back bank debt, calculated and paid monthly until 18 April 2018. With effect from 19 April 2018, the Company and the Manager agreed that the management fee be calculated at an annual rate of 0.75% of the net assets of the Company, calculated and paid monthly. During the period £266,000 (30 June 2018 - £294,000; 31 December 2018 - £555,000) of investment management fees were payable to the Manager, with a balance of £92,000 (30 June 2018 - £41,000; 31 December 2018 - £80,000) being payable to ASFML at the period end. There were no commonly managed funds held in the portfolio during the period to 30 June 2019 (30 June 2018 and 31 December 2018 - none). The management fee is chargeable as follows:- 30% to revenue and 70% to capital.


















During the period expenses of £32,000 (30 June 2018 - £30,000; 31 December 2018 - £64,000) were payable to the Manager in connection with the promotion of the Company. The balance outstanding at the period end was £32,000 (30 June 2018 - £30,000; 31 December 2018 - £16,000).



 



12.


Segmental information








The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.



 



13.


Publication of non-statutory accounts








The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 June 2019 and 30 June 2018 has not been audited.


















The information for the year ended 31 December 2018 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.



 



14.


This Half Yearly Financial Report was approved by the Board on 19 September 2019.



 
 
 
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
 
 



ALTERNATIVE PERFORMANCE MEASURES




Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes IFRS and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.










Total return




Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.










The tables below provide information relating to the NAV and share price of the Company on the dividend reinvestment dates during the six months ended 30 June 2019 and the year ended 31 December 2018.


























Dividend






Share




Six months ended 30 June 2019


rate


NAV


price




31 December 2018


N/A


285.18p


224.00p




3 January 2019


1.95p


282.14p


225.50p




4 April 2019


1.95p


319.23p


270.50p




30 June 2019


N/A


332.31p


288.00p












________


________




Total return






+18.1%


+30.6%












________


________


























Dividend






Share




Year ended 31 December 2018


rate


NAV


price




31 December 2017


N/A


341.12p


288.00p




4 January 2018


1.80p


339.42p


291.50p




5 April 2018


1.80p


327.65p


284.00p




12 July 2018


1.80p


339.87p


295.50p




4 October 2018


1.80p


321.46p


267.00p




31 December 2018


N/A


285.18p


224.00p












________


________




Total return






-14.6%


-20.2%












________


________






















Discount to Net Asset Value per Ordinary share
















The amount by which the market price per Ordinary share of 288.00p (31 December 2018 - 224.00p) is lower than the net asset value per Ordinary share, expressed as a percentage of the net asset value per Ordinary share.










Net gearing 




Net gearing measures the total borrowings of £6,985,000 (31 December 2018 - £6,983,000) less cash and cash equivalents of £2,166,000 (31 December 2018 - £3,071,000) divided by shareholders' funds of £73,473,000 (31 December 2018 - £63,052,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due to and from brokers at the period end, in addition to cash and short term deposits.










Ongoing charges




Ongoing charges is considered to be an alternative performance measure. 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 and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 30 June 2019 is based on forecast ongoing charges for the year ending 31 December 2019.






















30 June 2019


31 December 2018




Investment management fees (£'000)


541


555




Administrative expenses (£'000)


371


374








________


________




Ongoing charges (£'000)


912


929








________


________




Average net assets (£'000)


71,818


72,296








________


________




Ongoing charges ratio


1.27%


1.28%








________


________


















The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations.










 
 
Investment Portfolio - Ordinary Shares
As at 30 June 2019
 











Market


Total












value


portfolio




Company


Sector


£'000


%




Aveva






3,845


4.9




One of the world's leading engineering, design and information management software providers to the process, plant and marine industries. Aveva's world-leading technology was originally developed and spun out of Cambridge University and today the business operates in 46 countries around the world.


Software & Computer Services












Intermediate Capital






3,090


4.0




ICG is a specialist asset manager with 29 years' history in private debt, credit and equity. ICG is focused on providing capital to help companies grow through private and public markets. We operate across four asset classes - corporate, capital markets, real assets and private equity solutions.


Financial Services












Assura






3,017


3.9




Assura is a long-term investor and developer of primary care property, working with general practitioners, health professionals and National Health Services to deliver patient care.


Real Estate Investment Trusts












Dechra Pharmaceuticals






2,789


3.6




An international specialist veterinary pharmaceuticals business that manufactures and distributes veterinary products in more than 50 countries around the world. Recent acquisitions have enhanced the pipeline of drugs as well as granted access to new markets.


Pharmaceuticals & Biotechnology












DiscoverIE






2,720


3.5




DiscoverIE Group is a supplier of niche electronic products, manufacturing customs designed and built electronics to industrial and medical companies across Europe and South Africa.


Support Services












Hollywood Bowl






2,540


3.3




Leisure operator focused on ten pin bowling in the UK. Growth driven by refurbishments, new site openings, and acquisitions; generating attractive returns and cash generation.


Travel & Leisure












Telecom Plus






2,395


3.1




Telecom Plus, through its Utility Warehouse brand, is a  supplier of energy and telephony services to UK households. It is a reseller which  makes  money  from  managing  the  end  customer  relationship.


Fixed Line Telecommunications












Big Yellow






2,283


2.9




Big Yellow is the UK's brand leader in self storage. It operates from a platform of 92 stores, including 19 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. Big Yellow provides self storage solutions for homes and business and combines the latest technology with excellent customer service and a network of storage facilities across London and the UK in high profile, easy-to-access locations.


Real Estate Investment Trusts












Victrex






2,175


2.8




The leading global manufacturer of PEEK polymer which is a high performance thermoplastic. With its high strength and performance qualities it is used as an alternative product to metal in a number of different industries. Victrex's dominant position is entrenched through their reputation and product quality as well as their track record in commercialising applications for PEEK.


Chemicals












Unite






2,160


2.8




Unite Students is the leading provider of student accommodation in the UK, providing homes for 50,000 students across 28 cities. As the largest manager and developer of purpose-built student accommodation, Unite Students is a pioneer, supporting the country's world-leading higher education sector.


Real Estate Investment Trusts












Ten largest equity investments






27,014


34.8



 
 




Investment Portfolio - Other Equity Investments
as at 30 June 2019
 











Market


Total












value


portfolio




Company


Sector


£'000


%




FDM


Software & Computer Services


2,141


2.7




AJ Bell


Financial Services


2,130


2.7




Morgan Sindall


Construction and Materials


2,105


2.7




Burford Capital


Financial Services


2,079


2.7




XP Power


Electronic & Electrical Equipment


2,076


2.7




Chesnara


Life Insurance


1,951


2.5




Hilton Food


Food Producers


1,905


2.4




Robert Walters


Support Services


1,875


2.4




Close Brothers


Financial Services


1,810


2.3




Workspace


Real Estate Investment Trusts


1,743


2.2




Twenty largest equity investments


46,829


60.1




Fisher (James) & Sons


Industrial Transportation


1,691


2.2




Moneysupermarket.com


Media


1,669


2.1




Games Workshop


Leisure Goods


1,652


2.1




Barr (A.G.)


Beverages


1,636


2.1




Ultra Electronics


Aerospace & Defense


1,532


2.0




Midwich


Support Services


1,489


1.9




Hiscox


Non-life Insurance


1,489


1.9




Cineworld


Travel & Leisure


1,425


1.8




Abcam


Pharmaceuticals & Biotechnology


1,402


1.8




Rathbone Brothers


Financial Services


1,365


1.8




Thirty largest equity investments


62,179


79.8




Savills


Real Estate Investment & Services


1,265


1.6




Liontrust Asset Management


Financial Services


1,249


1.6




Paypoint


Support Services


1,143


1.5




Diploma


Support Services


1,098


1.4




Kesko 'B' {A}


Food & Drug Retailers


1,032


1.3




MJ Gleeson


Household Goods & Home Construciton


831


1.1




Somero Enterprises


Industrial Engineering


783


1.0




Hansteen


Real Estate Investment Trusts


684


0.9




Fuller Smith & Turner 'A'


Travel & Leisure


581


0.7




Hostelworld


Travel & Leisure


507


0.7




Forty largest equity investments


71,352


91.6




Cairn Homes


Household Goods & Home Construction


489


0.6




Oxford Instruments


Electronic & Electrical Equipment


372


0.5




Euromoney Institutional Investor


Media


242


0.3




Stock Spirits


Beverages


145


0.2




Total equity investments






72,600


93.2




{A} All investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges.



 
 




Investment Portfolio - Other Investments
As at 30 June 2019
 







Market


Total








value


portfolio




Company


£'000


%




Convertible Preference Shares












Balfour Beatty Cum Conv 10.75%


936


1.2








_______


_______




Total Convertible Preference Shares


936


1.2








_______


_______




Corporate Bonds












SSE 3.875% Var Perp


506


0.6




Barclays Bank 9%  Perp


375


0.5








_______


_______




Total Corporate Bonds


881


1.1








_______


_______




Preference Shares{A}












Aviva 8.75%


1,303


1.7




General Accident 8.875%


1,293


1.6




Ecclesiastical Insurance 8.625%


918


1.2








_______


_______




Total Preference Shares


3,514


4.5








_______


_______




Total Other Investments


5,331


6.8








_______


_______




Total Investments


77,931


100.0








_______


_______


















{A} None of the Preference Shares listed have a fixed redemption date.




All investments are listed on the London Stock Exchange (Sterling based).



 
 
 
For further information please contact:-
 
Aberdeen Standard Investments                                                                                                0131 528 4000
                                                                                                                                                                  
 




This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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