REG - Aberdeen Smll Cos IT - Half Yearly Results
Aberdeen Smaller Companies Income Trust PLC
Half Yearly Financial Report for the six months to 30 June 2018
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 Fund Managers Limited ("AFML" 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 AFML and AAML.
For further information please contact:-
Jonathan Allison, Senior Investment Manager, 020 7463 6240
Aberdeen Asset Management Limited
HIGHLIGHTS
30 June 2018
31 December 2017
% change
Equity shareholders' funds (£'000)
75,854
75,421
+0.6
Net asset value per share
343.08p
341.12p
+0.6
Share price (mid-market)
296.00p
288.00p
+2.8
Discount to net asset value
13.7%
15.6%
Dividend yield
2.4%
2.5%
Ongoing charges ratio{A}
1.25%
1.35%
{A} Considered to be an Alternative Performance Measure. Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses (annualised) divided by the average cum income net asset value throughout the year. The ratio for 30 June 2018 is based on forecast ongoing charges for the year ending 31 December 2018.
PERFORMANCE (TOTAL RETURN)
Six months ended
1 year ended
3 years ended
5 years ended
30 June 2018
30 June 2018
30 June 2018
30 June 2018
Share price{A}
+ 4.1%
+ 31.6%
+ 47.5%
+ 86.0%
Net asset value per share{A}
+ 1.7%
+ 18.0%
+ 43.1%
+ 105.6%
FTSE SmallCap Index (ex IC's)
+ 0.1%
+ 6.4%
+ 31.6%
+ 78.7%
FTSE All-Share Index
+ 1.7%
+ 9.0%
+ 31.6%
+ 52.8%
{A} Considered to be an Alternative Performance Measure. All figures are for total return and assume re-investment of net dividends excluding transaction costs.
Source: AFML, Morningstar & Factset.
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Performance
In the six month period to the end of June 2018, the Trust has outperformed its benchmark, the FTSE Smaller Companies Index (excl. Investment Trusts), returning 1.7% on a Net Asset Value (NAV) basis compared to the Index return of 0.1%. The Trust's share price grew 4.1% with the discount to NAV narrowing over the period. Over the 1, 3 and 5 year periods, it is pleasing to report that both the NAV and share price are comfortably ahead of the benchmark returns.
Trust Gearing and Debt
We renewed the Trust's debt facilities at the end of April, opting to continue with a 5 year £5m fixed rate loan facility and a 3 year £5m revolving credit facility. There has been no change to the level of borrowings drawn down with £7m of the total £10m facility currently being deployed. The Trust's gearing remains modest and continues to be used largely to fund the fixed income portfolio as this provides a good yield enhancement on what is attractively priced debt. Portfolio gearing was approximately 8% at the end of June 2018 which is a slight reduction from 8.5% at the end of December 2017 and reflects a slightly higher cash balance at this half year end.
We are comfortable that there is sufficient flexibility with these facilities for the Manager to put more money to work quickly should interesting investment opportunities arise.
Dividend
After some robust dividend growth from the portfolio, and the addition of some large special dividends from Victrex and Aveva this year, the income account looks very healthy. The portfolio is also well positioned for sound dividend growth in the years ahead.
Ongoing Charges
Your Board actively monitors costs and is committed to keeping these under tight control. Following a review, it was agreed to revise the basis of the calculation of the management fee from net assets plus debt to net assets with effect from 19 April 2018. The management fee rate remains at 0.75%.
Management Changes
Following the merger of Aberdeen Asset Management PLC and Standard Life plc, and the subsequent integration of the equity teams at Aberdeen Standard Investments (ASI), Abby Glennie has taken over the management of the Company's portfolio. Abby has been at Standard Life Investments since February 2013 and joined the UK Smaller Companies team at Standard Life Investments in January 2016.
Our previous portfolio manager, Jonathan Allison, has moved to another team at ASI and we would like to take this opportunity to thank him for his stewardship.
Outlook
At a global level, trade war fears have arguably overtaken concerns over the interest rate cycle as the main talking point for markets and will continue to dominate economic headlines for the foreseeable future. Narrowing the lens on the UK domestic picture, the future shape of Brexit remains frustratingly unclear and one suspects this will continue to act as a dampener on UK growth and general investor sentiment for some time yet.
These are volatile times but as a Board we take comfort in the judicious and systematic investment approach followed by our Managers, which is focused on identifying stocks with the most diversified earnings streams and resilient business models. We believe this approach will help to buffer the portfolio during times of stress and help to position the portfolio to deliver attractive longer term returns for our shareholders.
Robert Lister
Chairman
19 September 2018
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
- Reliance on Third Party Service Providers
Details of these risks are provided in detail on pages 5 to 6 of the 2017 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 2018.
The impact on the risks of the Company following the implementation of the 'Leave' decision of the EU Referendum is difficult to assess at this stage although it may affect the Company's risk profile by introducing potentially significant new uncertainties and instability in financial markets as the United Kingdom negotiates its exit terms.
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 which are, in most circumstances, realisable within a short timescale.
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 2018 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 2018
INVESTMENT MANAGER'S REVIEW
Equity Portfolio Performance
Stock specific rather than sector allocation reasons contributed to the Trust's outperformance in the first six months of the year.
During this period, the UK software engineering business Aveva and animal pharmaceutical business Dechra were the biggest positive contributors. Aveva's share price has continued to move ahead, following its merger with Schneider Electric's Software division, as investors have begun to factor in the significant cost savings and revenue growth opportunities on offer as a result of the combination. Dechra continues to deliver good growth numbers, particularly out of its North American business, and the market also reacted positively to news of two further acquisitions earlier in the year which will strengthen its European presence. Against this, Dignity and RPC were the primary laggards. Dignity shares fell sharply after its strategic review earlier in the year highlighted an increasingly competitive UK funeral services market and RPC disappointed investors with an organic outlook that was slightly below expectations.
Economic Overview
Recent macroeconomic news has been dominated by Trade War talk. President Trump's decision to impose tariffs on selected Chinese goods, and his threats to do so elsewhere, has increased the risk of a surge in protectionist measures across the globe. Despite these risks the latest trade figures are healthy with most economists' global GDP growth figures little changed since the start of the year.
In the UK, weak growth numbers in the first quarter of the year were due to temporary factors, including a disruptive week of snow in late February/early March, with growth bouncing back in the second quarter. A stronger recovery in household spending is likely to be constrained by both tighter credit conditions and tough welfare reforms. Those factors, together with evidence that inflation was easing from its highs earlier in the year, are likely to have caused the Bank of England to hold off on increasing interests rates in May. However, the Monetary Policy Committee in early August voted unanimously to raise rates to 0.75%. Bank of England Governor Mark Carney has suggested most recently that one hike a year over the next three years might be the appropriate path for rates.
In the Eurozone there are concerns over whether the recovery there could be running out of steam. Our view is that the investment outlook continues to improve and that the region is still some way short of running into any major capacity constraints. There are more acute risks in both Spain and Italy because of the more uncertain political environments in those countries.
In the US, economic momentum has picked up this year, benefitting from tax cuts and higher government spending, against this, as mentioned above, trade tensions have risen and it remains uncertain as to what the eventual outcome of negotiations with large trading partners like China will be.
The outlook for emerging markets continues to be dominated by fears of escalating trade protectionism and what a strong Dollar will mean for those countries - like Argentina and Turkey - that have substantial amounts of Dollar based lending.
Portfolio Activity
We participated in two capital raisings earlier in the year. The first was an equity placing by Dechra Pharmaceuticals to help fund the acquisition of Dutch animal pharma business AST Farma and European animal-focused company Le Vet. These two businesses will help Dechra expand its European network as well as bolster the product portfolio and pipeline. We also supported Unite Group's placing to finance some large student accommodation developments in London and Oxford, an attractive continuation of their niche property strategy.
Other strategic actions included the exit of Xaar, Dignity and Mothercare and introductions of Hollywood Bowl and Hostelworld.
Xaar released another weak trading update announcing that the decline in sales from its legacy ceramic tile business was more severe than expected and it is now reliant on cost savings to meet full year estimates. We view the risk to near term guidance as significant and have been unconvinced that the investment to support growth in new areas is delivering the necessary results. The announcement that the fairly new CFO would be departing in November was further cause for concern. We recycled the proceeds into Hollywood Bowl, a niche UK leisure business which runs ten pin bowling centres, that has a good track record of delivering reliable, steady growth over the long term. Returns in the business are attractive helped by a carefully managed refurbishment programme and innovative pricing initiatives. The company offers a high dividend yield with the potential for additional special dividends in the absence of larger acquisitions.
We also started a new position in Hostelworld in the Trust. The company's booking platform is a global leader with strong growth opportunities in a number of markets, as the hostel industry continues to professionalise. It also benefits from the powerful network effects that being a dominant platform provider brings. The cash flow and balance sheet are strong, enabling it to pay an attractive yield with good growth prospects.
Mothercare had been a difficult investment for us for some time but one that we'd deliberately kept at a very low weight with the prevailing investment rationale one of 'managing for short term value', given the lowly valuation and market expectations. Unfortunately, like a number of other embattled UK consumer businesses, the company experienced a very difficult Christmas trading period resulting in a set of weak UK numbers both in-store and online. Unlike in past years, the International business was unable to offset this weakness as acute trading problems, in Russia and the Middle East specifically, hampered the performance of that division. Finally, whilst we had taken some comfort earlier last year that Mothercare would be able to materially improve its debt position over the short to medium term, following the difficult trading more recently, net debt guidance was pushed out to £50m for the financial year 2018 from an already adjusted £30-40m range. This was a further cause for concern and something we believed would ultimately limit the company's ability to take more meaningful restructuring actions and hence the holding was sold.
In Dignity's case our decision to sell ultimately came down to our growing uncertainty over the company's ability to prosper in what has become an increasingly competitive pricing environment in the funeral market. The overall level of debt on the balance sheet was also cause for concern especially under a scenario where the quality of earnings and cash flows is not as strong as it once was.
Corporate Governance
Highlights for the first six months of the year included a meeting with BBA Aviation's Remuneration Committee Chair and Company Secretary in order to address our concerns regarding their proposed remuneration amendments. They have taken on board our comments and we should see greater clarity of disclosure on targets and performance going forward. We also discussed Board and CEO succession and welcomed the positive progress culminating in the appointment of new CEO Mark Johnstone at the start of the year. We have also been conducting regular engagement with RPC Group, Europe's largest plastics business, on its sustainability strategy. RPC is broadly in favour of a revision to the Plastic Recovery Note (PRN) system. PRN's are taken by accredited recyclers for every tonne of recycled material taken for processing but there is a de minimis in place for companies that handle less than 50 tonnes of waste and have less than £2m of turnover. RPC is in favour of a revision of this exemption to allow more companies to fall under the regulatory requirements. The company has also developed a 'circular economy' rating tool. This tool is integral to the design process and rates products according to RecyClass criteria such as light-weighting, recycled content and end-of-life use.
Fixed Income and Preference Shares
Market volatility jumped sharply higher in 2018, with political uncertainty in Italy, where the prospect of an anti-establishment government clashing with Brussels, unsettled markets and President Trump's less than orthodox approach to both domestic and foreign policy were a constant source of market nervousness. US data has demonstrated a solid pace of economic activity and it continues to lead and outperform other developed markets globally. This has led to further tightening by the US Fed. UK data was a mixed bag over the second quarter. There was significant evidence that the first quarter was, as suspected, weather affected and therefore not to be extrapolated, however, some industrial and manufacturing data continues to show weakness. This is in keeping with, and likely connected to, similar weakness across Europe and in such places as China. Like other countries UK government yields have risen, with the expectation of another rate rise in the not too distant future. On the back of this, corporate bond spreads widened from the lows in February 2018, particular long dated and lower quality credits. This was led by banks and insurance companies which have previously been the stronger performers.
The only transaction in the Trust's bond portfolio has been the part tender of Wales & West Utilities. Trading at +120bp over gilts, it was tendered at +50bp. The remaining holding is expected to be called in December 2018.
In March the preference shares within the portfolio suffered some sharp falls following the announcement by Aviva that it might cancel some of these securities at par despite their 'irredeemable' status. After significant investor criticism, and engagement from a number of parties including ourselves, Aviva decided not to cancel these shares. The preference stocks climbed favourably in response, largely regaining their prior valuations.
Outlook
Domestically exposed UK businesses face additional pressures from Brexit unpredictability, which has led to a drop in consumer confidence and expectations of more lacklustre growth ahead. However, this increased market volatility can also create interesting valuation opportunities for patient bottom up investors. UK stocks now look relatively good value and we anticipate some interesting investment opportunities to arise as a result.
As ever, our focus is on selecting a range of high quality businesses that are capable of weathering shorter term gyrations in the market as well as thriving over the long term.
Aberdeen Asset Managers Limited
19 September 2018
Distribution of Assets and Liabilities
As at 30 June 2018
Valuation at
Movement during the period
Valuation at
31 December
Gains/
30 June
2017
Purchases
Sales
(losses)
2018
£'000
%
£'000
£'000
£'000
£'000
%
Listed investments
Equities
74,544
98.9
5,735
(5,822)
757
75,214
99.2
Convertible preference shares
1,004
1.3
-
-
(32)
972
1.3
Corporate bonds
2,028
2.7
-
(244)
(53)
1,731
2.3
Preference shares
4,097
5.4
-
-
(423)
3,674
4.8
_______
_______
_______
_______
_______
_______
_______
81,673
108.3
5,735
(6,066)
249
81,591
107.6
_______
_______
_______
_______
_______
_______
_______
Current assets
912
1.2
1,469
1.9
Other current liabilities
(164)
(0.2)
(225)
(0.3)
Short-term loan
(7,000)
(9.3)
(2,000)
(2.6)
Long-term loan
-
-
(4,981)
(6.6)
_______
_______
_______
_______
Net assets
75,421
100.0
75,854
100.0
_______
_______
_______
_______
Net asset value per share
341.1p
343.1p
_______
_______
Condensed Statement of Comprehensive Income
Six months ended
30 June 2018
(unaudited)
Revenue
Capital
Total
Notes
£'000
£'000
£'000
Gains on investments at fair value
-
249
249
Currency gains
-
-
-
Revenue
Dividend income
2
1,512
-
1,512
Interest income/(expense) from investments
2
46
-
46
Other income
2
1
-
1
_________
_________
_________
1,559
249
1,808
_________
_________
_________
Expenses
Investment management fees
(88)
(206)
(294)
Other administrative expenses
(187)
-
(187)
Finance costs
(26)
(61)
(87)
_________
_________
_________
Profit/(loss) before tax
1,258
(18)
1,240
_________
_________
_________
Taxation
3
(11)
-
(11)
_________
_________
_________
Profit/(loss) attributable to equity holders
1,247
(18)
1,229
_________
_________
_________
Return per Ordinary share (pence)
5
5.64
(0.08)
5.56
_________
_________
_________
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. 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 2017
31 December 2017
(unaudited)
(audited)
Revenue
Capital
Total
Revenue
Capital
Total
Notes
£'000
£'000
£'000
£'000
£'000
£'000
Gains on investments at fair value
-
7,660
7,660
-
17,278
17,278
Currency gains
-
-
-
-
1
1
Revenue
Dividend income
2
1,173
-
1,173
2,212
-
2,212
Interest income/(expense) from investments
2
101
(13)
88
104
347
451
Other income
2
2
-
2
2
-
2
_______
_______
_______
_______
_______
_______
1,276
7,647
8,923
2,318
17,626
19,944
_______
_______
_______
_______
_______
_______
Expenses
Investment management fees
(78)
(183)
(261)
(167)
(390)
(557)
Other administrative expenses
(204)
-
(204)
(371)
-
(371)
Finance costs
(25)
(57)
(82)
(50)
(116)
(166)
_______
_______
_______
_______
_______
_______
Profit/(loss) before tax
969
7,407
8,376
1,730
17,120
18,850
_______
_______
_______
_______
_______
_______
Taxation
3
(8)
-
(8)
(14)
-
(14)
_______
_______
_______
_______
_______
_______
Profit/(loss) attributable to equity holders
961
7,407
8,368
1,716
17,120
18,836
_______
_______
_______
_______
_______
_______
Return per Ordinary share (pence)
5
4.35
33.51
37.86
7.76
77.43
85.19
_______
_______
_______
_______
_______
_______
Condensed Balance Sheet
As at
As at
As at
30 June
201830 June
201731 December 2017
(unaudited)
(unaudited)
(audited)
Notes
£'000
£'000
£'000
Non-current assets
Equities
75,214
65,552
74,544
Convertible preference shares
972
1,024
1,004
Corporate bonds
1,731
2,046
2,028
Preference shares
3,674
3,748
4,097
____________
____________
____________
Securities at fair value
81,591
72,370
81,673
____________
____________
____________
Current assets
Cash
724
191
582
Other receivables
745
318
330
____________
____________
____________
1,469
509
912
____________
____________
____________
Current liabilities
Bank loan
(2,000)
(7,000)
(7,000)
Trade and other payables
(225)
(152)
(164)
____________
____________
____________
(2,225)
(7,152)
(7,164)
____________
____________
____________
Net current liabilities
(756)
(6,643)
(6,252)
____________
____________
____________
Total assets less current liabilities
80,835
65,727
75,421
Non-current liabilities
Bank loan
(4,981)
-
-
____________
____________
____________
Net assets
75,854
65,727
75,421
____________
____________
____________
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
47,715
38,020
47,733
Revenue reserve
3,160
2,728
2,709
____________
____________
____________
Equity shareholders' funds
75,854
65,727
75,421
____________
____________
____________
Net asset value per Ordinary share (pence)
7
343.08
297.28
341.12
____________
____________
____________
The accompanying notes are an integral part of these condensed financial statements.
Condensed Statement of Changes in Equity
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
______
______
______
______
______
______
Six months ended 30 June 2017 (unaudited)
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
£'000
£'000
£'000
£'000
£'000
£'000
As at 31 December 2016
11,055
11,892
2,032
30,613
2,541
58,133
Profit for the period
-
-
-
7,407
961
8,368
Dividends paid in the period
-
-
-
-
(774)
(774)
______
______
______
______
______
______
As at 30 June 2017
11,055
11,892
2,032
38,020
2,728
65,727
______
______
______
______
______
______
Year ended 31 December 2017 (audited)
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
£'000
£'000
£'000
£'000
£'000
£'000
As at 31 December 2016
11,055
11,892
2,032
30,613
2,541
58,133
Profit for the year
-
-
-
17,120
1,716
18,836
Dividends paid in the year
-
-
-
-
(1,548)
(1,548)
______
______
______
______
______
______
As at 31 December 2017
11,055
11,892
2,032
47,733
2,709
75,421
______
______
______
______
______
______
Condensed Cash Flow Statement
Six months ended
Six months ended
Year
ended
30 June
201830 June
201731 December 2017
(unaudited)
(unaudited)
(audited)
£'000
£'000
£'000
Cash flows from operating activities
Dividend income received
1,531
1,160
2,152
Interest income received
29
88
117
Other income received
1
2
2
Investment management fees paid
(304)
(296)
(585)
Other cash expenses
(195)
(217)
(365)
___________
___________
___________
Cash generated from operations
1,062
737
1,321
Interest paid
(94)
(85)
(182)
Overseas taxation suffered
(26)
(14)
(26)
___________
___________
___________
Net cash inflows from operating activities
942
638
1,113
___________
___________
___________
Cash flows from investing activities
Purchases of investments
(5,682)
(8,025)
(15,198)
Sales of investments
5,678
7,805
15,667
___________
___________
___________
Net cash (outflows)/inflows from investing activities
(4)
(220)
469
___________
___________
___________
Cash flows from financing activities
Equity dividends paid
(796)
(774)
(1,548)
___________
___________
___________
Net cash outflows from financing activities
(796)
(774)
(1,548)
Net increase/(decrease) in cash and cash equivalents
142
(356)
34
___________
___________
___________
Analysis of changes in cash and cash equivalents during the period
Opening balance
582
547
547
Currency gains
-
-
1
Increase/(decrease) in cash and cash equivalents as above
142
(356)
34
___________
___________
___________
Cash and cash equivalents at the end of the period
724
191
582
___________
___________
___________
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 2017 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 which, in most circumstances, are realisable within a short timescale.
Six months ended
Six months
endedYear
ended
30 June 2018
30 June 2017
31 December 2017
2.
Income
£'000
£'000
£'000
Income from investments
UK listed dividends
1,141
939
1,746
Overseas listed dividends
251
195
324
Property income distribution
89
39
142
Scrip dividends
31
-
-
_________
_________
_________
1,512
1,173
2,212
Fixed interest income
46
101
104
_________
_________
_________
1,558
1,274
2,316
_________
_________
_________
Other income
Bank interest
1
-
-
Underwriting commission
-
2
2
_________
_________
_________
1
2
2
_________
_________
_________
The Company amortises the premium or discount on acquisition on debt securities against the capital reserve. For the six months to 30 June 2018 this represented £nil (30 June 2017 - £13,000; 31 December 2017 - £1,000) which has been reflected in the capital column of the Condensed Statement of Comprehensive Income.
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
201830 June
201731 December 2017
£'000
£'000
£'000
Revenue
1,247
961
1,716
Dividends declared
(796){A}
(774){B}
(1,559){C}
_________
_________
_________
451
187
157
_________
_________
_________
{A} Dividends declared relate to first two interim dividends (both 1.80p each) declared in respect of the financial year 2018.
{B} Dividends declared relate to first two interim dividends (both 1.75p each) declared in respect of the financial year 2017.
{C} Dividends declared relate to the four interim dividends declared in respect of the financial year 2017 totalling 7.05p.
Six months ended
Six months ended
Year
ended
30 June
201830 June
201731 December 2017
5.
Return per share
p
p
p
Revenue return
5.64
4.35
7.76
Capital return
(0.08)
33.51
77.43
_________
_________
_________
Net return
5.56
37.86
85.19
_________
_________
_________
The returns per share are based on the following figures:
Six months ended
Six months ended
Year
ended
30 June
201830 June
201731 December 2017
£'000
£'000
£'000
Revenue return
1,247
961
1,716
Capital return
(18)
7,407
17,120
_________
_________
_________
Net return
1,229
8,368
18,836
_________
_________
_________
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 2018 includes gains of £29,551,000 (30 June 2017 - gains of £21,773,000; 31 December 2017 - gains of £29,015,000) which relate to the revaluation of investments held at the reporting date.
7.
Net asset value per share
Ordinary shares
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
201830 June
201731 December 2017
(unaudited)
(unaudited)
(audited)
Attributable net assets (£'000)
75,854
65,727
75,421
Number of Ordinary shares in issue
22,109,765
22,109,765
22,109,765
Net asset value per Ordinary share (p)
343.08
297.28
341.12
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 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
201830 June
201731 December 2017
£'000
£'000
£'000
Purchases
31
32
64
Sales
4
5
9
_________
_________
_________
35
37
73
_________
_________
_________
9.
Fair value hierarchy
IFRS 13 'Fair Value Measurement' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making measurements. The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The financial assets 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 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 30 June 2017 (unaudited)
Note
£'000
£'000
£'000
£'000
Financial assets at fair value through profit or loss
Quoted equities
a)
65,552
-
-
65,552
Quoted convertibles, bonds and preference shares
b)
-
6,818
-
6,818
______
______
______
______
65,552
6,818
-
72,370
______
______
______
______
Level 1
Level 2
Level 3
Total
At 31 December 2017 (audited)
Note
£'000
£'000
£'000
£'000
Financial assets at fair value through profit or loss
Quoted equities
a)
74,544
-
-
74,544
Quoted convertibles, bonds and preference shares
b)
-
7,129
-
7,129
______
______
______
______
74,544
7,129
-
81,673
______
______
______
______
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.
Quoted preference shares of £3,748,000 at 30 June 2017 have been reclassified as level 2 investments from level 1 due to them not being considered to trade in active markets.
There have been no transfers of assets between levels of the fair value hierarchy during the period to 30 June 2018.
10.
Related party transactions
There were no related party transactions during the period.
11.
Transactions with the Manager
The Company has agreements with Aberdeen Fund Managers Limited ("AFML" 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 £294,000 (30 June 2017 - £261,000; 31 December 2017 - £557,000) of investment management fees were payable to the Manager, with a balance of £41,000 (30 June 2017 - £45,000; 31 December 2017 - £52,000) being payable to AFML at the period end. There were no commonly managed funds held in the portfolio during the period to 30 June 2018 (30 June 2017 and 31 December 2017 - none). The management fee is chargeable 30% to revenue and 70% to capital.
During the period expenses of £30,000 (30 June 2017 - £30,000; 31 December 2017 - £59,000) were payable to the Manager in connection with the promotion of the Company. The balance outstanding at the period end was £30,000 (30 June 2017 - £15,000; 31 December 2017 - £15,000).
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 2018 and 30 June 2017 has not been audited.
The information for the year ended 31 December 2017 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 2018.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested
Investment Portfolio - Ordinary Shares
As at 30 June 2018
Market
Total
value
portfolio
Company
Sector
£'000
%
XP Power
3,316
4.1
A power solutions business that designs and manufactures power convertors used by customers to ensure their electronic equipment can function both safely and efficiently. With over 5,000 different products, XP Power can provide a full value add capability to its customers.
Electronic & Electrical Equipment
Dechra Pharmaceuticals
3,020
3.7
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
Victrex
2,929
3.6
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
Aveva Group
2,914
3.6
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
DiscoverIE Group
2,830
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
Assura
2,724
3.3
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
Euromoney Institutional Investor
2,617
3.2
International business-to-business information company. Euromoney's publications provide extensive financial and business information and are delivered largely in digital format on a yearly subscription basis which ensures a strong stream of recurring revenues.
Media
Smart Metering Systems
2,223
2.7
Smart Metering Systems is the largest independent provider of gas and electricity metering assets in the UK. The company is set to benefit from the growth arising from a UK government initiative mandating the installation of a smart meter in every home and small business across the UK by 2020.
Support Services
Chesnara
2,137
2.6
Chesnara is a holding company engaged in the management of life and pension books in the UK, Sweden and the Netherlands. The overriding strategy is to deliver a reliable dividend stream to shareholders funded from the emergence of surplus cash from their various life assurance subsidiaries.
Life Insurance
Morgan Sindall
2,071
2.5
Morgan Sindall operates a specialist construction group in the United Kingdom and the Channel Islands. The main activities include office design, fitting out, refurbishment, building contracting, property investment and related specialist services.
Construction & Materials
Ten Largest Equity Investments
26,781
32.8
Investment Portfolio - Other Equity Investments
as at 30 June 2018
Market
Total
value
portfolio
Company
Sector
£'000
%
Burford Capital
Financial Services
2,006
2.5
Workspace Group
Real Estate Investment Trusts
1,960
2.4
Unite Group
Real Estate Investment Trusts
1,909
2.3
Close Brothers
Financial Services
1,902
2.3
Genus
Pharmaceuticals & Biotechnology
1,819
2.2
Telecom Plus
Fixed Line Telecommunications
1,790
2.2
Big Yellow
Real Estate Investment Trusts
1,738
2.1
Abcam
Pharmaceuticals & Biotechnology
1,734
2.1
Ultra Electronics
Aerospace & Defence
1,734
2.1
RPC Group
General Industrials
1,728
2.1
Twenty largest investments
45,101
55.1
Robert Walters
Support Services
1,714
2.1
Manx Telecom
Fixed Line Telecommunications
1,692
2.1
Oxford Instruments
Electronic & Electrical Equipment
1,640
2.0
Elementis
Chemicals
1,628
2.0
Wilmington
Media
1,624
2.0
Stock Spirits Group
Beverages
1,608
2.0
Rathbone Brothers
Financial Services
1,595
2.0
Victoria
Household Goods & Home Construction
1,564
1.9
Fisher (James) & Sons
Industrial Transportation
1,540
1.9
Intermediate Capital Group
Financial Services
1,504
1.9
Thirty largest investments
61,210
75.0
Devro
Food Producers
1,503
1.8
Barr (A.G.)
Beverages
1,432
1.8
Cairn Homes{A}
Household Goods & Home Construction
1,420
1.8
BBA Aviation
Industrial Transportation
1,390
1.7
Hiscox
Non-life Insurance
1,342
1.6
Savills
Real Estate Investment & Services
1,227
1.5
Scandinavian Tobacco{A}
Tobacco
1,211
1.5
Fuller Smith & Turner 'A'
Travel & Leisure
936
1.1
Hostelworld
Travel & Leisure
898
1.1
Hollywood Bowl
Travel & Leisure
863
1.1
Forty largest investments
73,432
90.0
Hansteen
Real Estate Investment Trusts
732
0.9
Keller Group
Construction & Materials
720
0.9
GIMA TT A
Industrial Engineering
330
0.4
Total Equity Investments
75,214
92.2
{A} All investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges based in sterling.
Investment Portfolio - Other Investments
As at 30 June 2018
Market
Total
value
portfolio
Company
£'000
%
Convertible Preference Shares
Balfour Beatty Cum Conv 10.75%
972
1.2
Total Convertible Preference Shares
972
1.2
Corporate Bonds
Anglian Water 4.5% 2026
548
0.7
SSE 3.875% Var Perp GBP
505
0.6
HBOS Cap Funding 6.461% Var Perp
406
0.5
Wales & West Utilities Finance 6.75% 2036
272
0.3
Total Corporate Bonds
1,731
2.1
Preference Shares
Aviva 8.75%
1,405
1.7
General Accident 8.875%
1,357
1.7
Ecclesiastical Insurance 8.625%
912
1.1
Total Preference Shares
3,674
4.5
Total Other Investments
6,377
7.8
Total Investments
81,591
100.0
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