REG - Asia Dragon Trust - Half-Yearly Results
21 April 2020
ASIA DRAGON TRUST PLC
Capturing growth from world-class Asian companies
HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 29 FEBRUARY 2020
Highlights
- The worsening spread of the COVID-19 pandemic during 2020 has impacted the global landscape completely and the situation remains highly fluid
- Over the six months to 29 February 2020, the Company's Net Asset Value (NAV) and share price declined by 2.6% and 1.9% respectively, on a total return basis, trailing the 0.6% increase in the benchmark, MSCI AC Asia Pacific ex Japan Index
- Despite this, the Company still outperformed over the 12 months to 29 February 2020. The NAV and share price, on a total return basis, increased 8.1% and 6.7% respectively versus 4.6% from the benchmark
- Longer-term performance remains robust. Over ten years to 29 February 2020, on a total return basis, the NAV and share price have increased by 128.1% and 126.2% respectively compared a return of 116.2% from the benchmark
- Ultimately, the best way to mitigate risk in a climate dominated by fear and volatility is a continued focus on the fundamentals. Here, the Manager's quality and value style is as relevant as ever
- The Manager's on the ground presence and emphasis on regular engagement with the boards and management of companies is a particular virtue as it affords them a deeper understanding of the opportunities and risks facing companies and sectors
- The Trust is committed to its approach of seeking best-in-class companies in Asia which are strongly positioned with clear competitive advantages and defensive earnings streams
- The Board and Manager remain optimistic that the Company's portfolio can navigate the present challenges and thrive once the current pandemic comes under control
Investment Objective
Asia Dragon Trust's objective is long-term capital growth through investment in Asia, with the exception of Japan and Australasia. Investments are made primarily in stock markets in the region, principally in large companies. When appropriate, the Company will utilise gearing to maximise long term returns.
For further information please contact:-
Adrian Lim, Investment Director, Aberdeen Standard Investments (Asia) Limited 0065 6395 2700
Pruksa Iamthongthong, Investment Director, Aberdeen Standard Investments (Asia) Limited 0065 6395 2700
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Overview
I am writing primarily to cover the Company's first half-year to 29 February 2020. Events since then, however, due to the COVID-19 pandemic, have obviously changed the landscape completely, not just in investment terms. Accordingly my report is split into two parts, one reporting on the period and the other comprising the Outlook. We have endeavoured in the latter part to address some of the issues facing the Company, albeit this is very much speculation as it appears likely that the full impact of this virus will be felt for some time to come.
The first half-year was a testing period for Asian stocks. Equity markets reacted to the ebb and flow of the US-China trade dispute, which culminated in both sides reaching a "Phase One" accord. Sterling strength, on the back of the Conservatives' decisive UK election win, dampened your Company's returns. Against this backdrop, the Trust's net asset value (NAV) declined by 2.6% on a total return basis (in sterling terms), trailing the 0.6% increase in our benchmark (the MSCI All Country Asia (ex Japan) Index). The share price slipped a little less by 1.9%, slightly tightening the discount to NAV.
The final quarter of 2019 accounted for the bulk of the Trust's underperformance over the review period. Signals that the US and China would reach an agreement propelled stockmarkets higher. Loose monetary policy worldwide and a brightening outlook for the technology sector lifted the mood too. Amid such exuberance, your Company struggled to keep pace with rallying markets, particularly in China, as fundamentals took a back seat. While the US and China did roll back some tariffs, a significant number remained in place. Moreover, the next stage of talks will centre on more complex issues, making a full resolution unlikely to be reached quickly, if at all.
In contrast, the start of 2020 saw a swift reversal of fortunes as the COVID-19 outbreak became a full-blown global pandemic. As infections and deaths rose, fears grew that the damage to the global economy would be more severe than first thought. This, coupled with the collapse in oil prices caused by a disagreement between Russia and Saudi Arabia, triggered the widespread sell-off across equity markets.
Portfolio
The Trust's performance, and the positioning of your Company's underlying portfolio, reflected your Manager's continued focus on quality amid volatile markets.
China was a good example, as several holdings there made meaningful contributions. One of these was Tencent, now the Trust's largest position, which provides diversified exposure to the fast-growing Chinese IT and consumer segments. The internet giant emerged from a difficult period in which regulatory hurdles had buffeted its key mobile-game business and its shares rebounded on growing recognition that its efforts to build up its advertising, payments and cloud businesses had created a more sustainable business model. As COVID-19 spread, quarantine measures to contain the outbreak forced people to stay indoors. This drove up demand for indoor entertainment and online games, further supporting Tencent's stock.
The heightened volatility also created opportunities to introduce some additional mainland China companies at attractive valuations. Your Manager continues to screen prospective holdings for their financial strength, prospects and corporate governance standards and favours industry leaders with strong and sustainable competitive positions in areas of structural growth. Among the additions was Beijing Sinnet Technology, a leading internet data-centre provider that also offers broadband, cloud and other value-added services. China will be a key pillar of growth in the global data-centre segment, driven by trends such as 5G networks and "the internet of things." All these are expected to increase demand for Beijing Sinnet's services. In addition, the company's first-mover status has enabled it to secure spaces in prime locations, something that its rivals cannot easily replicate.
Another area of vast potential is China's burgeoning middle class and the shift in consumer tastes in favour of more premium products and services. To that end, your Manager bought Meituan Dianping, which is uniquely placed to tap consumption growth stemming from e-commerce. Meituan operates a "super app" that caters to a wide range of consumer needs. With over 400 million users, it offers services such as food delivery and travel bookings, as well as wedding and funeral services.
Your Company's core technology holdings, Samsung Electronics and Taiwan Semiconductor Manufacturing Co (TSMC), stood out as well. The pair are global leaders with proven track records of delivering solid returns over the business cycle, again highlighting the advantage of the quality-led approach. More recently, they rallied in tandem with the wider semiconductor sector on the back of an anticipated turnaround in memory chip demand. Looking forward, your Manager believes that the outlook for Samsung and TSMC remains bright, given their scale and commitment to investing for the future. While COVID-19 is disrupting both supply and demand for the sector over the short term, longer-term sources of growth appear intact. Notably, emergent technologies such as 5G networks, cloud computing and AI, should lift demand for more-advanced memory chips. Meanwhile, both companies' healthy cash flow and robust balance sheets support steady shareholder returns, a valuable buffer against near and medium term shocks.
Elsewhere, the Trust's heavy exposure to India dented returns as market-specific issues further weighed on stocks there. These included large-scale protests against controversial changes to a citizenship law, persistent stress in the financial system and a disappointing Budget. In line with efforts to maintain the portfolio's quality, your Manager sold several Indian holdings due to waning conviction in their prospects. Motorcycle maker Hero Motocorp, for instance, faced stiffer competition, declining margins, and expectations of lower sales due to higher vehicle ownership costs. Another exit was Grasim Industries, as weakening demand in its core chemicals business clouded its outlook.
Revenue Account
For the six months to 28 February 2020, the revenue account recorded a return on ordinary activities after taxation of £353,000, representing 0.28p per share, compared with a return of £613,000 for the six months to 28 February 2019. The majority of the Company's portfolio income, as is typical with Asian equities, is accounted for in the second half of the Company's financial year.
Events during the Period
At the Company's Annual General Meeting on 12 December 2019, all resolutions were passed.
Discounts and Share Buybacks
The Board seeks to manage the Company's discount in line with its peer group. The discount level of the Company's shares is closely monitored by the Board and Manager and share buybacks are undertaken when appropriate. During the six month period to 29 February 2020, 996,000 shares were bought back and held in treasury.
Since the outbreak of COVID-19, market dislocation is such that closed end fund discounts of most investment trusts have widened substantially, including the Asian-Pacific sector. As at 17 April 2020, the Company's discount stood at 10.8%, with the sector average at 8.4%.
Gearing
The Board continues to believe that the sensible use of modest financial gearing should enhance returns to shareholders over the longer term. The Company has in place a £50 million three-year loan facility, of which £25 million is fixed and fully drawn down and £25 million is revolving.
At 29 February 2020, £6 million of the revolving facility was drawn and the Trust's net gearing position was 3.6%, compared to 3.5% at the end of August 2019.
The Manager is closely monitoring gearing levels and bank covenants. As at 17 April 2020 the Company's net assets stood at £521.39 million and net gearing was 1.8%, and the Company is pleased to report that these levels remain comfortably within the covenant limits.
The Board
As part of the Board's succession planning, Gaynor Coley assumed the chair of the audit committee following the AGM in December 2019. Iain McLaren, who has assisted with the audit chair transition, will retire from the Board at the end of April 2020, following the publication of our interim results. On behalf of the Board, I should like to thank Iain for his outstanding contribution, particularly in his role as Audit Committee Chairman. Charlie Ricketts will assume the role of Senior Independent Director from 1 May 2020.
Outlook
As I mention above, since the end of January 2020, almost all issues have been overtaken by the worsening spread of the COVID-19 virus.
At the time of writing, the situation remains highly fluid. Financial markets, after their initial heavy falls, are seeing wild swings as optimism about stimulus is tempered by the worrying COVID-19 newsflow and gloomy economic data. With virus cases still rising, notably in the US and Europe, the widespread travel curbs, border closures and lockdowns of entire cities should help to stem the virus' spread, but the economic impact will be considerable. Sectors such as manufacturing, tourism and retail are likely to bear the brunt. Governments' policy support, including stimulus packages, tax relief and interest rate cuts, should help soften the blow but with the duration and magnitude of the downturn still unknown, the volatile conditions are likely to persist for some time.
It seems likely, therefore, that Shareholders should be prepared for further tough times ahead. The economic toll of the pandemic, both in Asia and worldwide, will be substantial. All sectors will be affected in this downturn. China's initial manufacturing shock was already beginning to spill over across the region, but with the expected rapid fall in consumption, especially on discretionary items and services, this is likely to weigh heavily upon corporate earnings.
Ultimately, the best way to mitigate risk in a climate dominated by fear and volatility is a continued focus on the fundamentals. Here, your Manager's quality and value style is as relevant as ever. The Company is committed to its approach, seeking best-in-class companies in Asia which are strongly positioned, with clear competitive advantages and defensive earnings streams. Their robust balance sheets, with healthy cash positions and low debt levels, should also help their relative positioning in the event of any potential liquidity constraints. At the same time, these companies are exposed to long-term growth drivers arising from structural trends. These include rising discretionary spending, growing adoption of nascent technologies and demand for infrastructure. Your Manager's on the ground presence and emphasis on regular engagement with the boards and management of investee companies is a particular virtue as it affords them a deeper understanding of the opportunities and risks facing companies and sectors at this difficult time. Thus, I remain optimistic that your Company's portfolio can navigate the present challenges and thrive once the current pandemic comes under control.
For Asia Dragon Trust plc,
James Will,
Chairman
20 April 2020
INTERIM BOARD REPORT
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial position, performance and prospects. The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company and to identify and evaluate newly emerging risks. A summary of the principal risks and uncertainties facing the Company is summarised below under the following headings:
- Investment Performance
- Concentration Risk
- Resource
- Reliance on Third Party Service Providers
- Discount volatility
- Gearing
- Regulatory
Details of these risks and a description of the mitigating action which the Company has taken are provided in detail on pages 9 to 10 of the 2019 Annual Report. The principal risks have not changed nor are they expected to change in the second half of the financial year ended 31 August 2020.
In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of Asian markets. The outbreak of the recent global COVID-19 virus has resulted in business disruption and stockmarket volatility across the world. The extent of the effect of the virus, including its long term impact, remains uncertain. The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will review carefully the composition of the Company's portfolio and will be pro-active where necessary. In addition the Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts.
The outcome and potential impact of Brexit remains an economic risk for the Company, principally in relation to the potential impact of Brexit on currency volatility. As an investment trust with an Asian mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise. The uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value.
The Board will continue to monitor developments as they occur.
Going Concern
In accordance with the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, 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 substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Company has adequate resources to continue in operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets.
Post the end of the half-year, and as referred to in the Chairman's Statement, the investment landscape has changed completely due to the COVID-19 pandemic. Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.
Responsibility Statement of the Directors in respect of the Half Yearly Financial Report
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting;
- the Interim Board Report (constituting the interim management report) includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance 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 year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
For Asia Dragon Trust plc,
James Will,
Chairman
20 April 2020
FINANCIAL HIGHLIGHTS
29 February 2020
31 August 2019
% change
Equity shareholders' funds (£'000)
563,885
589,708
-4.4
Net asset value per share
441.39p
458.03p
-3.6
Share price (mid)
390.00p
402.50p
-3.1
Discount to net asset value per Ordinary share{A}
11.6%
12.1%
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return)
935.12
935.63
-0.1
Net gearing{A}
3.6%
3.5%
Ongoing charges ratio{A}
0.89%
0.83%
{A} Considered to be an Alternative Performance Measure as defined below.
Net asset value total return per Ordinary share{A}
Share price total return per Ordinary share{A}
MSCI AC Asia Pacific ex Japan Index total return
Six months ended
29 February 2020-2.6%
Six months ended
29 February 2020-1.9%
Six months ended
29 February 20200.6%
Year ended
31 August 2019+9.8%
Year ended
31 August 2019+10.0%
Year ended
31 August 2019+0.3%
Discount to net asset value{A}
As at 29 February 2020
11.6%
As at
31 August 201912.1%
{A} Considered to be an Alternative Performance Measure as defined below.
PERFORMANCE (TOTAL RETURN {A})
6 months ended
Year
ended3 years ended
5 years ended
10 years ended
29 February 2020
29 February 2020
29 February 2020
29 February 2020
29 February 2020
Net asset value per share{A}
-2.6%
+8.1%
+21.0%
+46.6%
+128.1%
Share price{A}
-1.9%
+6.7%
+24.3%
+46.7%
+126.2%
MSCI AC Asia (ex Japan) Index (in sterling terms)
+0.6%
+4.6%
+19.1%
+49.8%
+116.2%
{A} Considered to be an Alternative Performance Measure as defined below.
INVESTMENT PORTFOLIO
As at 29 February 2020
Total
Valuation
assets
Company
Industry
Country
£'000
%
Tencent Holdings
Interactive Media & Services
China
51,327
8.6
Samsung Electronics (Pref)
Technology Hardware Storage & Peripherals
South Korea
47,711
8.0
Taiwan Semiconductor Manufacturing Company
Semiconductors & Semiconductor Equipment
Taiwan
44,321
7.4
Ping An Insurance 'H'
Insurance
China
20,993
3.5
AIA Group
Insurance
Hong Kong
18,454
3.1
Housing Development Finance Corp
Thrifts & Mortgage Finance
India
18,085
3.0
Bank Central Asia
Banks
Indonesia
17,295
2.9
China Resources Land
Real Estate Management & Development
China
16,150
2.7
Oversea-Chinese Banking Corporation
Banks
Singapore
14,768
2.5
Kweichow Moutai 'A'
Beverages
China
13,406
2.2
Top ten investments
262,510
43.9
Tata Consultancy
IT Services
India
13,272
2.2
China International Travel Services 'A'
Hotels, Restaurants & Leisure
China
12,299
2.1
Ayala Land
Real Estate Management & Development
Philippines
10,685
1.8
Swire Properties
Real Estate Management & Development
Hong Kong
10,008
1.7
Wuxi Biologics (Cayman)
Life Sciences Tools & Services
China
9,592
1.6
ITC
Tobacco
India
9,588
1.6
Keppel Corp
Industrial Conglomerates
Singapore
8,727
1.5
HDFC Bank
Banks
India
8,537
1.4
SBI Life Insurance
Insurance
India
8,206
1.4
Midea Group 'A'
Household Durables
China
7,986
1.3
Twenty largest investments
361,410
60.5
CNOOC
Oil, Gas & Consumable Fuels
China
7,969
1.3
Ultratech Cement
Construction Materials
India
7,590
1.3
Astra International
Automobiles
Indonesia
7,136
1.2
Kotak Mahindra Bank
Banks
India
7,107
1.2
LG Chem
Chemicals
South Korea
6,747
1.1
DBS Group
Banks
Singapore
6,716
1.1
Hong Kong Exchanges & Clearing
Capital Markets
Hong Kong
6,537
1.1
Jardine Strategic Holdings
Industrial Conglomerates
Hong Kong
6,348
1.1
China Conch Venture Holdings
Machinery
China
6,255
1.1
Bank Rakyat
Banks
Indonesia
6,224
1.0
Thirty largest investments
430,039
72.0
Hangzhou Hikvision Digital 'A'
Electronic Equipment, Instruments & Components
China
6,063
1.0
Saic Motor Corp 'A'
Automobiles
China
6,020
1.0
Siam Cement 'F'
Construction Materials
Thailand
5,969
1.0
City Developments
Real Estate Management & Development
Singapore
5,911
1.0
Shanghai International Airport 'A'
Transport Infrastructure
China
5,779
1.0
ASM Pacific Technology
Semiconductors & Semiconductor Equipment
Hong Kong
5,640
1.0
Vietnam Dairy Products
Food Products
Vietnam
5,638
1.0
Kerry Logistics Network
Air Freight & Logistics
Hong Kong
5,575
0.9
John Keells Holdings
Industrial Conglomerates
Sri Lanka
5,532
0.9
58.com ADR
Interactive Media & Services
China
5,312
0.9
Forty largest investments
487,478
81.7
Bank of Philippine Islands
Banks
Philippines
5,200
0.9
China Merchants Bank 'H'
Banks
India
5,032
0.8
Taiwan Mobile
Wireless Telecommunication Services
Taiwan
4,850
0.8
Huazhu Group ADR
Hotels, Restaurants & Leisure
China
4,839
0.8
Singapore Telecommunications
Diversified Telecommunication Services
Singapore
4,747
0.8
United Overseas Bank
Banks
Singapore
4,513
0.8
Vietnam Technological & Commercial Bank
Banks
Vietnam
4,497
0.8
Koh Young Technology
Semiconductors & Semiconductor Equipment
South Korea
4,367
0.7
Budweiser Brewing
Beverages
Hong Kong
4,297
0.7
CapitaLand
Real Estate Management & Development
Singapore
4,244
0.7
Fifty largest investments
534,064
89.5
Piramal Enterprises
Pharmaceuticals
India
4,239
0.7
Autohome ADR
Interactive Media & Services
China
4,227
0.7
IHH Healthcare Berhad
Health Care Providers & Services
Malaysia
4,205
0.7
Beijing Sinnet Technology 'A'
IT Services
China
4,131
0.7
Indocement Tunggal Prakarsa
Construction Materials
Indonesia
3,903
0.7
Raffles Medical Group
Health Care Providers & Services
Singapore
3,824
0.6
Hindustan Unilever
Household Products
India
3,578
0.6
Yum China Holdings
Hotels, Restaurants & Leisure
China
3,071
0.5
Hon Hai Precision Industry
Electronic Equipment, Instruments & Components
Taiwan
3,057
0.5
Prestige Estate Projects
Real Estate Management & Development
India
2,932
0.5
Sixty largest investments
571,231
95.7
Central Pattana Public Co 'F'
Real Estate Management & Development
Thailand
2,910
0.5
Bangkok Dusit Medical Services 'F'
Health Care Providers & Services
Thailand
2,812
0.5
Unilever Indonesia
Household Products
Indonesia
2,581
0.4
Yoma Strategic Holdings
Real Estate Management & Development
Myanmar
2,289
0.4
DFCC Bank
Banks
Sri Lanka
2,185
0.4
Meituan-Dianping Class B
Internet & Direct Marketing Retail
China
1,856
0.3
585,864
98.2
Net current assets{A}
10,966
1.8
Total assets less current liabilities{A}
596,830
100.0
{A} Excluding bank loan of £6,000,000.
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended
29 February 2020
Revenue
Capital
Total
Note
£'000
£'000
£'000
Losses on investments
-
(15,496)
(15,496)
Net currency losses
-
(299)
(299)
Income
2
3,639
-
3,639
Investment management fee
(2,027)
-
(2,027)
Administrative expenses
(585)
9
(576)
_________
_________
_________
Net return/(loss) before finance costs and taxation
1,027
(15,786)
(14,759)
Interest payable and similar charges
(280)
-
(280)
_________
_________
_________
Net return/(loss) before taxation
747
(15,786)
(15,039)
Taxation
3
(394)
(216)
(610)
_________
_________
_________
Net return/(loss) attributable to equity shareholders
353
(16,002)
(15,649)
_________
_________
_________
Return per Ordinary share (pence)
4
0.28
(12.50)
(12.22)
_________
_________
_________
The total columns of this statement represent the profit and loss account of the Company. There is no other comprehensive income and therefore the return attributable to equity shareholders is also the total comprehensive income for the period.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the condensed financial statements.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended
28 February 2019
Revenue
Capital
Total
Note
£'000
£'000
£'000
Losses on investments
-
(20,918)
(20,918)
Net currency losses
-
(1,887)
(1,887)
Income
2
4,028
-
4,028
Investment management fee
(2,220)
-
(2,220)
Administrative expenses
(527)
-
(527)
_________
_________
_________
Net return/(loss) before finance costs and taxation
1,281
(22,805)
(21,524)
Interest payable and similar charges
(226)
-
(226)
_________
_________
_________
Net return/(loss) before taxation
1,055
(22,805)
(21,750)
Taxation
3
(442)
393
(49)
_________
_________
_________
Net return/(loss) attributable to equity shareholders
613
(22,412)
(21,799)
_________
_________
_________
Return per Ordinary share (pence)
4
0.35
(12.73)
(12.38)
_________
_________
_________
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
As at
As at
29 February 2020
31 August 2019
Notes
£'000
£'000
Non-current assets
Investments at fair value through profit or loss
585,864
611,829
_________
_________
Current assets
Debtors and prepayments
2,944
1,818
Money market funds
2,300
1,500
Cash and short term deposits
9,443
8,670
_________
_________
14,687
11,988
_________
_________
Creditors: amounts falling due within one year
Other creditors
(3,721)
(1,332)
Bank loan
10
(6,000)
(6,000)
_________
_________
(9,721)
(7,332)
_________
_________
Net current assets
4,966
4,656
_________
_________
Creditors: amounts falling due after more than one year
Bank loan
10
(24,994)
(24,993)
Deferred tax liability on Indian capital gains
3
(1,951)
(1,784)
_________
_________
(26,945)
(26,777)
_________
_________
Net assets
563,885
589,708
_________
_________
Capital and reserves
Called-up share capital
31,922
31,922
Share premium account
60,416
60,416
Capital redemption reserve
28,154
28,154
Capital reserve
6
411,857
431,945
Revenue reserve
31,536
37,271
_________
_________
Equity shareholders' funds
563,885
589,708
_________
_________
Net asset value per Ordinary share (pence)
7
441.39
458.03
_________
_________
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 29 February 2020
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 31 August 2019
31,922
60,416
28,154
431,945
37,271
589,708
(Loss)/return after taxation
-
-
-
(16,002)
353
(15,649)
Dividend paid (note 8)
-
-
-
-
(6,088)
(6,088)
Buyback of Ordinary shares for treasury
-
-
-
(4,086)
-
(4,086)
_______
_______
_______
_______
_______
_______
Balance at 29 February 2020
31,922
60,416
28,154
411,857
31,536
563,885
_______
_______
_______
_______
_______
_______
Six months ended 28 February 2019
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 31 August 2018
43,061
60,416
17,015
630,239
37,288
788,019
(Loss)/return after taxation
-
-
-
(22,412)
613
(21,799)
Dividend paid (note 8)
-
-
-
-
(7,438)
(7,438)
Buyback of Ordinary shares for treasury
-
-
-
(4,939)
-
(4,939)
Buyback of Ordinary shares for cancellation as a result of the Tender Offer
(11,139)
-
11,139
(217,974)
-
(217,974)
_______
_______
_______
_______
_______
_______
Balance at 28 February 2019
31,922
60,416
28,154
384,914
30,463
535,869
_______
_______
_______
_______
_______
_______
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended
Six months ended
29 February 2020
28 February 2019
£'000
£'000
Operating activities
Net return before taxation
(15,039)
(21,750)
Adjustments for:
Losses on investments
15,496
20,918
Currency losses
299
1,887
Decrease in accrued dividend income
173
231
Decrease/(increase) in other debtors
15
(43)
Decrease in other creditors
(42)
(367)
Interest payable and similar charges
280
226
Stock dividends included in investment income
-
(7)
Overseas withholding tax
(307)
(249)
_________
_________
Cash from operations
875
846
Interest paid
(282)
(240)
_________
_________
Net cash inflow from operating activities
593
606
Investing activities
Purchases of investments
(67,830)
(55,006)
Sales of investments
79,337
282,906
Capital gains tax on sales
(49)
-
_________
_________
Net cash from investing activities
11,458
227,900
_________
_________
Financing activities
Equity dividend paid
(6,088)
(7,438)
Buyback of Ordinary shares to treasury
(4,086)
(4,939)
Tender Offer for Ordinary shares inclusive of expenses
(5)
(217,892)
_________
_________
Net cash used in financing activities
(10,179)
(230,269)
_________
_________
Increase/(decrease) in cash and cash equivalents
1,872
(1,763)
_________
_________
Analysis of changes in cash and cash equivalents during the period
Opening balance
10,170
8,775
Effect of exchange rate fluctuations on cash held
(299)
(1,887)
Increase/(decrease) in cash and cash equivalents as above
1,872
(1,763)
_________
_________
Closing balance
11,743
5,125
_________
_________
Represented by:
Money market funds
2,300
1,500
Cash and short term deposits
9,443
3,625
_________
_________
11,743
5,125
_________
_________
NOTES TO THE FINANCIAL STATEMENTS
1.
Accounting policies
Basis of preparation. The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the principles of the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. Given that the Company's portfolio comprises primarily "Level 1" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate. The condensed financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted by HMRC.
The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.
2.
Income
Six months ended
Six months ended
29 February 2020
28 February 2019
£'000
£'000
Income from investments
UK dividend income
38
447
Overseas dividends
3,582
3,537
_________
_________
3,620
3,984
_________
_________
Other income
Deposit interest
8
17
Interest from money market funds
9
27
Other income
2
-
_________
_________
19
44
_________
_________
Total income
3,639
4,028
_________
_________
3.
Taxation. The taxation for the period represents withholding tax suffered on overseas dividend income and a movement in provision for Indian Capital Gains Tax.
An amount of £394,000 of withholding tax was suffered in the six months to 29 February 2020 (28 February 2019 - £442,000). The Indian Capital Gains Tax accrual has increased by £167,000 (28 February 2019 - reduction of £393,000) since the year end with a balance outstanding at 29 February 2020 of £1,951,000 (28 February 2019 - £933,000).
4.
Return per Ordinary share
Six months ended
Six months ended
29 February 2020
28 February 2019
p
p
Basic
Revenue return
0.28
0.35
Capital return
(12.50)
(12.73)
_________
_________
Total return
(12.22)
(12.38)
_________
_________
The figures above are based on the following:
£'000
£'000
Revenue return
353
613
Capital return
(16,002)
(22,412)
_________
_________
Total return
(15,649)
(21,799)
_________
_________
Weighted average number of Ordinary shares in issue
128,111,741
176,131,021
_________
_________
The Company has no securities in issue that could dilute the return per Ordinary share. Therefore, for the six months ended 29 February 2020 (28 February 2019 -same) no diluted calculation is provided.
5.
Transaction costs. During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within losses on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:
Six months ended
Six months ended
29 February 2020
28 February 2019
£'000
£'000
Purchases
113
85
Sales
127
502
_________
_________
240
587
_________
_________
In the six months ended 28 February 2019, the transaction costs were higher due to the increased volume of trading ahead of the Tender Offer.
6.
Capital reserves. The capital reserve reflected in the Condensed Statement of Financial Position at 29 February 2020 includes gains of £162,996,000 (31 August 2019 - £199,349,000) which relate to the revaluation of investments held at the reporting date.
7.
Net asset value. The net asset value per share and the net assets attributable to the Ordinary shareholders at the period end were as follows:
As at
As at
29 February 2020
31 August 2019
Net assets attributable (£'000)
563,885
589,708
Number of Ordinary shares in issue{A}
127,753,054
128,748,848
Net asset value per share (pence)
441.39
458.03
_________
_________
{A} Excluding shares held in treasury.
8.
Dividends
Six months ended
Six months ended
29 February 2020
28 February 2019
£'000
£'000
2018 final dividend - 4.00p
-
7,438
2019 final dividend - 4.75p
6,088
-
_________
_________
6,088
7,438
_________
_________
There will be no interim dividend for the year to 31 August 2020 (2019 - nil) as the objective of the Company is long-term capital appreciation.
9.
Fair value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
All of the Company's investments are in quoted equities (31 August 2019 - same) which are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments as at 29 February 2020 of £585,864,000 (31 August 2019 - £611,829,000) has therefore been deemed as Level 1.
10.
Bank loans. The Company has a £25,000,000 multicurrency revolving facility with Scotiabank Europe Plc. This agreement was entered into on 30 July 2019 with a termination date of 29 July 2022. At 29 February 2020, £6,000,000 of this facility has been drawn down at a rate of 1.623% which matures on 28 May 2020.
The Company has a fixed loan facility agreement of £25,000,000 at an interest rate of 1.61% with Scotiabank Europe Plc, with a termination date of 29 July 2022. The agreement of this facility incurred an arrangement fee of £7,500, which is being amortised over the life of the loan.
The agreements contain the following covenants:
- the net asset value of the Company shall not at any time be less than £385 million.
- the adjusted asset coverage of the Company, as defined in the loan facility agreement, shall not at any time be less than 4.00 to 1.00.
All covenants have been complied with throughout the period.
11.
Called-up share capital. In the six months to 29 February 2020, the Company bought back 995,794 (28 February 2019 - 1,375,330) Ordinary shares to be held in treasury, at a total cost of £4,086,000 (28 February 2019 - £4,939,000).
At the end of the period there were 159,611,677 (28 February 2019 - 159,611,677) Ordinary shares in issue, of which 31,858,623 (28 February 2019 - 29,741,274) were held in treasury.
Following the period end a further 35,279 Ordinary shares have been bought back for treasury at a cost of £142,430 including expenses, resulting in there being 159,611,677 Ordinary shares in issue, of which 31,893,902 Ordinary shares were held in treasury at the date this Report was approved.
12.
Analysis of changes in net debt
At
At
31 August 2019
Currency
differencesCash
flowsNon-cash
movements29 February 2020
£'000
£'000
£'000
£'000
£'000
Cash and short term deposits
10,170
(299)
1,872
-
11,743
Debt due within one year
(6,000)
-
-
-
(6,000)
Debt due after more than one year
(24,993)
-
-
(1)
(24,994)
________
________
________
________
________
(20,823)
(299)
1,872
(1)
(19,251)
________
________
________
________
________
At
At
31 August 2018
Currency
differencesAsh
flowsNon-cash
movements28 February 2019
£'000
£'000
£'000
£'000
£'000
Cash and short term deposits
8,775
(1,887)
(1,763)
-
5,125
Debt due within one year
(25,500)
-
-
-
(25,500)
________
________
________
________
________
(16,725)
(1,887)
(1,763)
-
(20,375)
________
________
________
________
________
A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.
13.
Related party transactions and transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML" or the "Manager") for the provision of management and administration services, promotional activities and secretarial services.
The management fee for the six months ended 29 February 2020 is calculated at 0.85% per annum of net assets up to £350 million and 0.50% per annum of net assets over this threshold. Management fees are calculated and payable on a quarterly basis. The management fee is chargeable 100% to revenue. During the period £2,027,000 (28 February 2019 - £2,220,000) of management fees were payable to the Manager, with a balance of £1,011,000 (28 February 2019 - £976,000) due to ASFML at the period end.
The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required to be given by the Manager is six months.
At the end of the period the Company had £2,300,000 (28 February 2019 - £1,500,000) invested in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which is managed and administered by Aberdeen Standard Investments. The Company pays a management fee on the value of these holdings but no fee is chargeable at the underlying fund level.
Promotional activities costs are based on current annual amount of £200,000 (28 February 2019 - £200,000), payable quarterly in arrears. During the period £100,000 (28 February 2019 - £100,000) of fees were payable, with a balance of £33,000 (28 February 2019 - £33,000) being due at the period end.
14.
Segmental information. The Company is engaged in a single segment of business, which is to invest in equity securities. 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.
15.
Subsequent events. Subsequent to the year end, the Company's NAV has suffered as a result of a decline in stockmarket values, primarily due to the COVID-19 pandemic. This is considered to be a non-adjusting event for the financial statements. At the date of this Report the latest NAV per share was 408.24p as at the close of business on 17 April 2020, a decline of 7.5% compared to the NAV per share of 441.39p at the period end.
16.
Half-Yearly Financial Report. 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 29 February 2020 and 28 February 2019 has not been audited. The Company's external auditor, KPMG LLP, has not reviewed the financial information for the six months ended 29 February 2020.
The information for the year ended 31 August 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
17.
This Half-Yearly Financial Report was approved by the Board on 20 April 2020.
ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures ("APMs") 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 FRS 102 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. 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 NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 29 February 2019 and 28 February 2018 and total return for the period.
Dividend
Share
2020
rate
NAV
price
31 August 2019
N/A
458.03p
402.50p
21 November 2019
4.75p
445.34p
396.50p
29 February 2020
N/A
441.39p
390.00p
________
________
Total return
-2.6%
-1.9%
________
________
Dividend
Share
2019
rate
NAV
price
31 August 2018
N/A
421.54p
370.00p
22 November 2018
4.00p
387.05p
347.00p
28 February 2019
N/A
412.62p
402.50p
________
________
Total return
+1.2%
-1.1%
________
________
Discount to net asset value per Ordinary share. The difference between the share price of 390.00p (31 August 2019 - 402.50p) and the net asset value per Ordinary share of 441.39p (31 August 2019 - 458.03p) expressed as a percentage of the net asset value per Ordinary share.
Net gearing. Net gearing measures the total borrowings of £30,994,000 (31 August 2019 - £30,993,000) less cash and cash equivalents of £10,720,000 (31 August 2019 - £10,186,000) divided by shareholders' funds of £563,885,000 (31 August 2019 - £589,708,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to brokers at the period end of £1,023,000 (31 August 2019 - due from brokers - £16,000) as well as cash and cash equivalents of £11,743,000 (31 August 2019 - £10,170,000).
Ongoing charges. 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 28 February 2020 is based on forecast ongoing charges for the year ending 31 August 2020.
28 February
31 August
2020
2019
Investment management fees (£'000)
4,049
4,272
Administrative expenses (£'000)
1,122
1,040
Less: non-recurring charges (£'000)
(28)
(13)
________
________
Ongoing charges (£'000)
5,143
5,299
________
________
Average net assets (£'000)
576,001
638,726
________
________
Ongoing charges ratio
0.89%
0.83%
________
________
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which among other things, includes the cost of borrowings and transaction costs.
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.ENDIR BSGDSUDDDGGG
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