REG - Edinburgh Dragon Tst - Half-Yearly Results

Asia Dragon TrustAnnouncement

01/05/2018 07:05

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This file is provided for EAP sample purposes only; it's structure and detail are subject to change, and should not be used as a definitive reference for actual development and processing.2018-05-01T06:00:18.847Z2018-05-01T06:00:18.847Z_UCDP:parsn_lse_10.54.132.131_1.2.37102:2019-06-01T06:00:18.847Z3RSA6428MaREG - Edinburgh Dragon Tst  - Half-Yearly ResultsLEGACY: Financials (TRBC)LEGACY: Investment Trusts (TRBC)UK Investment Trusts (TRBC level 5)Financials (TRBC level 1)Collective Investments (TRBC level 3)Western EuropeUnited KingdomEuropeSuggested SourcesServicesNews AnnouncementsRegulatory Corporate News AnnouncementsCompany NewsEurope daily earnings hits & missesEdinburgh Dragon Trust PLC








RNS Number : 6428M
Edinburgh Dragon Trust plc
01 May 2018
 

1 May 2018
 
 
EDINBURGH DRAGON TRUST PLC
 
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018
 
 
Edinburgh Dragon Trust's objective is long-term capital growth through investment in Asia, with the exception of Japan and Australasia.   Investments are made primarily in stock markets in the region, principally in large companies.  When appropriate, the Company will utilise gearing to maximise long term returns.
The Company's benchmark index is the MSCI All Country Asia (ex Japan).
 
-       The Company outperformed its benchmark rising by 4.2% over the period (benchmark rose by 3.4%).
-       The key drivers of outperformance were the stock selection in China and in the financial and technology sectors.
-       The Trust repaid its Convertible Unsecured Loan Stock, refinancing through bank debt.
-       Markets are likely to remain unsettled as concerns persist over the prospect of a global trade war and the rate rising cycle. These have led to an increased focus upon fundamentals.
-       Corporate fundamentals in Asia remain supportive of valuations, and the region is expected to remain a major driver of global growth.
 
 
For further information please contact:-
 
Adrian Lim, Senior Investment Manager, Aberdeen Asset Management Asia                              0065 6395 2700
 
 
 
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
 
Background
For the six months ended 28 February 2018, the Company reported a 4.2% return on Net Asset Value (NAV), ahead of the benchmark MSCI AC Asia ex Japan Index's return of 3.4%. The share price rose by 3.4% to 370p, with a narrowing of the discount from 14.7% at the start of the period to 13.8% at the end of the review period. This recovery in your Company's performance is welcomed.
 
While unsettling, the equity pullback towards the end of the period was overdue. Sustained liquidity resulting from years of easy money had distorted global asset prices and seen major stockmarket indices rallying rather indiscriminately. Quality and value were relegated to the sidelines. The recent fluctuation punctured some of that exuberance and it led to a refocus on fundamentals. This should bode well for the portfolio, given your Manager's style of investing in stocks with sound management, strong balance sheets and high levels of governance.
 
Overall your Manager's stock selections in China and in the technology and financial sectors were all key drivers of performance during the period.
 
Overview
Asian equities, despite a late pullback, posted a reasonable return over the half-year period. The global economy's ongoing synchronised recovery, healthy corporate earnings and accommodative financial conditions buoyed sentiment for the most part. Markets in the region also seemed impervious to the Trump administration's increasingly protectionist rhetoric.
 
But volatility resurfaced in February after 15 months of relative calm. Concerns that inflationary pressures would force central banks to accelerate interest rate hikes triggered the bout of turbulence. Candid comments from newly-installed Federal Reserve chair Jerome Powell reinforced expectations of a tighter monetary policy. This sparked a temporary sell-off in the bond markets, with the yield on the 10-year US Treasury hitting a four-year peak of almost 3%. Rising bond yields are an indicator that markets expect the cost of borrowing to rise. The volatility index (also known as the VIX Index, or Wall Street's fear gauge) briefly spiked to a high not seen since 2015. These bond market movements spilled over to equities worldwide. Wall Street fell from record highs, Europe fell in tandem. Asian stockmarkets were not immune from the global sell-off, although most recovered lost ground by the period-end.
 
Portfolio
China's stockmarket was among the few that led the region, notching up gains of more than 7% over the review period. The rise in internet stocks and steady macroeconomic prospects underpinned the rally. More recently, the leadership's efforts to trim excess capacity, curb leverage and improve the quality of growth are showing signs of working, which augurs well for the long term. Domestic consumption now accounts for more than half of the mainland's economy; the transition away from an export-led economy appears to be well under way.
 
To that end, your Manager has been increasing the Company's exposure to China. This may come as a surprise, given their long-standing caution about mainland stocks. Granted, investing in China comes with a certain degree of risk and volatility, and poor corporate governance standards remain an issue; the portfolio's below benchmark exposure reflects this caution. However, more opportunities are emerging, particularly in the private sector where your Manager has found some high quality companies with strong business models that are tied to domestic consumption. These included white goods manufacturer Midea, travel and duty-free group China International Travel Services, airport operator Shanghai International Airport, and leading distiller Kweichow Moutai, all of which have consistently delivered healthy growth, and were among the portfolio's star performers. Their robust fundamentals and earnings momentum are expected to remain supportive of their share prices.
 
The technology sector also proved beneficial for the first time in a long while. Stock picks in the technology hardware and semiconductor segments aided performance, most notably Chinese video-surveillance specialist Hangzhou Hikvision and Korean technology giant Samsung Electronics (SEC). Hikvision enjoyed solid growth in both its domestic and overseas operations. SEC continued to outpace the semiconductor segment, maintaining substantial profit margins, supported by growing demand for its more advanced memory chips - key components in building mobile devices and other electronic products. In anticipation of future needs, SEC is increasing its capital expenditure significantly, with the bulk being spent on expanding its memory chip factories. It is also improving shareholder returns through share buybacks and dividends. Another name that boosted returns was laser equipment maker Han's Laser Technology, which counts Apple as a key customer, and has gained from rising automation in consumer electronics.  
 
The software and services segment, a significant detractor in recent periods, was less of a drag during this interim period as the broader sector took a breather after a very strong run in 2017. Being underweight the benchmark in Tencent was costly. This was especially so because its share price rose by more than 20% on the back of good earnings growth. Your Manager has been gradually building the position in the Hong Kong listed Chinese internet giant after initiating it at the start of the review period. The introduction of Tencent reflects your Manager's growing conviction in its business, corporate structure and governance. Through the years, work has been done to understand Tencent's corporate structure, and on monitoring how fairly it treated minority shareholders. This research has mitigated your Manager's concerns. Meanwhile, Tencent is making waves in diversifying its presence in the Chinese internet space. It dominates online and mobile gaming in the mainland and has used its leadership position to branch out into mobile payments and financial services, online advertisements and digital content. This combination of an expanding ecosystem and an increased level of monetisation of the user base will drive earnings growth. Due to Tencent's good cash generation and clear growth trajectory, your Manager thinks its valuation is not overly excessive, especially compared to consumer businesses with similar potential.
 
With disruptive trends such as self-driving vehicles, electrification in the auto industry and digital connectivity driving demand for semiconductor chips and parts, your Manager has been gradually shifting your Company's exposure from IT services towards the internet and semiconductor players. Before Tencent was initiated, the Company already held Korean internet company Naver, which is dominant in the domestic search portal business, while its mobile messaging subsidiary, LINE, is a major player in other parts of the region. In semiconductors, your Manager added to market leaders, Samsung Electronics (SEC) and Taiwan Semiconductor Manufacturing (TSMC).
 
The Company's financial holdings proved rewarding too. Upbeat performance from banking drove solid share price performances from Singapore bank holdings DBS and OCBC, along with Indonesian lender Bank Central Asia and Malaysia's Public Bank. Investors are now generally expecting the start of a credit-cycle recovery, given better macroeconomic conditions, normalising credit costs and improving net interest margins amid a rising interest rate environment. The Singapore lenders were further boosted as provisioning for exposure to the oil and gas sector appears to be past the worst, while the Malaysian lenders, including Public Bank, are expected to benefit from the earlier than expected monetary policy tightening. This rerating in financials provided your Manager with the opportunity to take some profits.
 
On a less upbeat note, your Company's significant position in India, which was among the weaker regional markets, detracted from performance. Earlier in the period, worries over subdued corporate earnings and anaemic growth following a bumpy rollout of the goods and services tax (GST) led to a round of profit-taking. Although the market later recovered on the government's plan to recapitalise state-owned banks, and a revamp of part of the GST structure, the Budget's proposal in January to revive the long term capital gains tax dampened sentiment. Subsequently, a decision by Indian exchanges to restrict market accessibility drew a firm rebuke from MSCI, the global index provider. They described the move as anticompetitive and warned that this could affect India's weighting in its indices. Separately, a US$1.8 billion fraud uncovered at state owned Punjab National Bank highlighted severe weaknesses in the lender's controls and systems. The Company's holdings, such as diversified financials Housing Development Finance Corp, tobacco company ITC, motorcycle distributor Hero MotoCorp and consumer goods company Hindustan Unilever, lagged in the wake of these wider concerns. Despite these developments, your Manager continues to rate the quality of Indian companies highly and remains optimistic about their long term prospects. The country's recent reforms have been steady and consistent, with Prime Minister Modi showing a willingness to make unpopular decisions. There are encouraging signs of a nascent demand recovery following the tweaks to the GST regime, which should fuel further earnings upgrades.
 
In Hong Kong, Jardine Strategic and Swire Pacific's share price weakness also detracted. Jardine remained under pressure from concerns over heightened competition in its automotive business in Indonesia, while Swire was weakened by the restructuring of its airline business and cyclical challenges for its marine segment. Your Manager has been trimming Jardine but still see value in the holding.
 
In other key portfolio changes, two new stocks were introduced: Korean chemical company LG Chem and Chinese financial conglomerate Ping An Insurance; both are leveraging on the mass of adoption of new technologies to grow their businesses. At its core, LG Chem has a robust and cash generative chemicals business that serves as a robust base for the company to build on, given its leading position in the electric vehicle battery market. It has already established a broad automotive customer base and growing order backlog. Ping An, which has one of the best life insurance franchises in China, is taking advantage of the latest technology to build a financial supermarket. Your Manager subsequently added to Ping An as they grew more comfortable with the insurer's risk management processes; these are considered vital, given the complexity of the group.
 
In Malaysia, your Manager took advantage of pre-election liquidity in the local market to sell financial group CIMB and investment holding company Batu Kawan.
 
Gearing
The Board continues to believe that sensible use of modest financial gearing should enhance returns to shareholders. Since 2011, the Company's gearing has been provided by its 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"), which matured at the end of January 2018. The Company's gearing has been replaced by a £50 million one year unsecured multi-currency revolving credit loan facility with Scotiabank (Ireland) Designated Activity Company (the "new facility"). As at 28 February 2018, the amount drawn down was £25.5 million and net gearing represented 1.2% of net assets.
 
Discounts and Share Buybacks
The Board has continued to demonstrate its commitment to the buying back of shares in order to keep Dragon's discount in line with its peer group. The final conversion date for CULS holders was 31 January 2018 which resulted in the listing of 14.4 million new Ordinary shares on 9 February 2018. A large proportion of the CULS holders who converted their holdings into Ordinary shares have not wished to remain as long term shareholders and accordingly a large number of buybacks were undertaken to meet this demand. 
 
During the six months ended 28 February 2018, 9.02 million shares were bought back into treasury at a cost of £33.6 million. Since the period end, a further 3.76 million shares have been bought back into treasury at a cost of £14.0 million. 
 
The discount (on an undiluted NAV basis) at the end of February 2018 was 13.8% compared to 14.7% at the year end. Over the same period the sector discount widened from circa 6% to 8%.
 
Revenue Account
For the six months to 28 February 2018, the revenue account recorded a deficit after taxation of £687,000, representing (0.36p) per share compared with a deficit of £665,000 for the six months to 29 February 2017.  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 and the Company anticipates making a positive revenue return for its full financial year. 
 
Manager
The Board will continue to monitor closely the impact of the merger between Aberdeen Asset Management PLC ("Aberdeen"), which is the parent company of the Manager, and Standard Life PLC to ensure that satisfactory arrangements are in place for the effective management and successful performance of the Company.
 
Outlook
Equities have rebounded as quickly as they had been sold off, but volatility could remain elevated as major central banks move towards normalising monetary policy. The US Federal Reserve is on track for more rate hikes to curb resurgent inflation. Monetary conditions in Asia are tightening as well, with China, Korea and Malaysia looking to curtail credit growth; bond yields have already reflected the prospect of tighter liquidity. Plans by the US to impose tariffs on steel, aluminium, and Chinese imports have also fuelled concerns about the prospect of a global trade war. Another worry is if Beijing overtightens controls on debt, causing a sharper than expected slowdown.
 
Still there are reasons to remain optimistic. Asia is in good shape. Exports are rising on the back of the global economic upturn. Consumption and demand are recovering in most parts of the region, which bodes well for your Company's consumer holdings. Inflation remains generally subdued. The region is expected to remain a major driver of global growth, propelled by China and India. Meanwhile, corporate fundamentals are solid, with improving sales and cost efficiency providing support to earnings growth. Buoyancy in global growth has led to the beginning of a recovery in capital expenditures, as companies boost investment to keep up with demand. Earnings forecasts for this year point to continued momentum and valuations, as a whole, appear reasonable.
 
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
 
30 April 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 position, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company which can be summarised under the following headings:
 
-           Investment Performance
-           Concentration Risk
-           Resource
-           Gearing
-           Regulatory
-           Discount volatility
-           Reliance on Third Party Service Providers
 
Details of these risks and a description of the mitigating action which the Company has taken are provided in detail on page 9 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 August 2018.
 
There are also a large number of international political and economic uncertainties which could have an impact on the performance of Asian markets.
 
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.
 
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 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 Edinburgh Dragon Trust plc
 
Allan McKenzie
Chairman
 
30 April 2018
 
 
 
FINANCIAL HIGHLIGHTS
 




 


28 February 2018


31 August 2017


% change




Equity shareholders' funds (£'000)


842,087


807,330


+4.3




Net asset value per share


429.4p


423.3p


+1.4




Share price (mid-market)


370.0p


361.0p


+2.5




MSCI AC Asia (ex Japan) Index (in sterling terms; capital return)


989.3


962.4


+2.8




Discount to net asset value


13.8%


14.7%


 




Net gearing{A}


1.2%


4.1%


 




Ongoing charges ratio{B}


0.79%


1.03%


 




{A}         Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". 




{B}          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 28 February 2018 is based on forecast ongoing charges for the year ending 31 August 2018.




 
 
PERFORMANCE (TOTAL RETURN {A})
 




 


Six months ended


Year ended




 


28 February 2018


31 August 2017




Share price


+3.4%


+20.8%




Net asset value per share {B}


+4.2%


+21.6%




MSCI All Country Asia (ex Japan) Index (in sterling terms)


+3.4%


+27.2%




{A} Capital return plus dividends reinvested.
{B} Based on diluted net asset value per share where applicable (see note 7 below)


 


 




 
 
INVESTMENT PORTFOLIO
As at 28 February 2018




 


 


 


 


Total




 


 


 


Valuation


assets




Company


Industry


Country


£'000


%




Samsung Electronics (Pref)


Technology Hardware Storage & Peripherals


South Korea


47,340


5.5




Taiwan Semiconductor Manufacturing Company


Semiconductors & Semiconductor Equipment


Taiwan


37,423


4.3




Tencent Holdings


Internet Software & Services


Hong Kong


35,636


4.1




Oversea-Chinese Banking Corporation


Banks


Singapore


29,678


3.4




Jardine Strategic Holdings


Industrial Conglomerates


Hong Kong


27,629


3.2




Housing Development Finance Corp


Thrifts & Mortgage Finance


India


25,973


3.0




AIA Group


Insurance


Hong Kong


25,037


2.9




Bank Central Asia


Banks


Indonesia


21,975


2.5




City Developments


Real Estate Management & Development


Singapore


21,796


2.5




Hong Kong Exchanges & Clearing


Capital Markets


Hong Kong


19,831


2.3




Ten largest investments


 


 


292,318


33.7




Siam Cement


Construction Materials


Thailand


19,441


2.2




HSBC Holdings


Banks


Hong Kong


18,069


2.1




Singapore Telecommunications


Diversified Telecommunication Services


Singapore


17,347


2.0




DBS Group


Banks


Singapore


16,734


1.9




ITC


Tobacco


India


16,527


1.9




China International Travel Services 'A'


Hotels, Restaurants & Leisure


China


16,424


1.9




Keppel Corp


Industrial Conglomerates


Singapore


14,953


1.7




Tata Consultancy


IT Services


India


14,945


1.7




Naver Corp


Internet Software & Services


South Korea


14,601


1.7




Grasim Industries


Construction Materials


India


14,340


1.7




Twenty largest investments


 


 


455,699


52.5




Astra International


Automobiles


Indonesia


14,237


1.6




Yum China Holdings


Hotels, Restaurants & Leisure


China


14,212


1.6




Kweichow Moutai 'A'


Beverages


China


13,802


1.6




China Resources Land


Real Estate Management & Development


China


13,324


1.6




Swire Properties


Real Estate Management & Development


Hong Kong


12,889


1.5




Bank of Philippine Islands


Banks


Philippines


12,809


1.5




Standard Chartered


Banks


United Kingdom


12,713


1.5




China Conch Venture


Machinery


China


12,434


1.4




Hangzhou Hikvision Digital 'A'


Electronic Equipment, Instruments & Components


China


12,142


1.4




Ayala Land


Real Estate Management & Development


Philippines


11,692


1.3




Thirty largest investments


 


 


585,953


67.5




China Mobile


Wireless Telecommunication Services


China


11,640


1.3




John Keells Holdings


Industrial Conglomerates


Sri Lanka


11,540


1.3




Shanghai International Airport 'A'


Transport Infrastructure


China


11,426


1.3




Midea Group 'A'


Household Durables


China


10,734


1.3




United Overseas Bank


Banks


Singapore


10,400


1.2




Hero MotoCorp


Automobiles


India


10,135


1.2




Ping An Insurance


Insurance


China


10,017


1.2




Piramal Enterprises


Pharmaceuticals


India


9,885


1.2




E-Mart Co


Food & Staples Retailing


South Korea


9,365


1.1




Public Bank


Banks


Malaysia


9,032


1.0




Forty largest investments


 


 


690,127


79.6




Singapore Technologies Engineering


Aerospace & Defence


Singapore


8,938


1.0




Kotak Mahindra Bank


Banks


India


8,779


1.0




Taiwan Mobile


Wireless Telecommunication Services


Taiwan


8,508


1.0




Vietnam Dairy Products


Food Products


Vietnam


8,351


1.0




Unilever Indonesia


Household Products


Indonesia


8,035


0.9




Hans Laser Technology 'A'


Machinery


China


7,832


0.9




HDFC Bank


Banks


India


7,766


0.9




ASM Pacific Technology


Semiconductors & Semiconductor Equipment


Hong Kong


7,535


0.9




Bangkok Dusit Medical Services 'F'


Health Care Providers & Services


Thailand


7,387


0.8




Kerry Logistics Network


Air Freight & Logistics


Hong Kong


7,275


0.8




Fifty largest investments


 


 


770,533


88.8




CNOOC


Oil, Gas & Consumable Fuels


China


7,245


0.8




Hang Lung Group


Real Estate Management & Development


Hong Kong


6,673


0.8




Swire Pacific 'B'


Real Estate Management & Development


Hong Kong


6,214


0.7




Ultratech Cement


Construction Materials


India


5,226


0.6




Amorepacific Corp (Pref)


Personal Products


South Korea


4,855


0.6




Indocement Tunggal Prakarsa


Construction Materials


Indonesia


4,640


0.5




Ayala Corp


Diversified Financial Services


Philippines


4,419


0.5




Raffles Medical Group


Health Care Providers & Services


Singapore


4,415


0.5




Hindustan Unilever


Household Products


India


4,263


0.5




Dairy Farm International


Food & Staples Retailing


Hong Kong


4,172


0.5




Sixty largest investments


 


 


822,655


94.8




LG Chem


Chemicals


South Korea


4,107


0.5




Holcim Indonesia


Construction Materials


Indonesia


4,083


0.5




Hang Lung Properties


Real Estate Management & Development


Hong Kong


3,824


0.4




Yoma Strategic Holdings


Real Estate Management & Development


Singapore


3,592


0.4




MTR Corp


Road & Rail


Hong Kong


3,141


0.4




Oriental Holdings


Automobiles


Malaysia


3,132


0.4




Amorepacific Group


Personal Products


South Korea


2,522


0.3




DFCC Bank


Banks


Sri Lanka


2,505


0.3




Fraser & Neave


Food Products


Singapore


2,324


0.2




Total investments


 


 


851,885


98.2




Net current assets{A}


 


 


15,694


1.8




Total assets less current liabilities{A}


 


 


867,579


100.0




{A} Excluding bank loan of £25,492,000.




Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings.




 
 
 
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 




 


 


Six months ended




 


 


28 February 2018




 


 


Revenue


Capital


Total




 


Note


£'000


£'000


£'000




Gains on investments


 


-


30,861


30,861




Net currency losses


 


-


(207)


(207)




Income


2


3,753


-


3,753




Investment management fee


 


(2,662)


-


(2,662)




Administrative expenses


 


(586)


-


(586)




Net return before finance costs and taxation


 


505


30,654


31,159




 


 


 


 


 




Interest payable and other charges


 


(955)


-


(955)




Net (loss)/return before taxation


 


(450)


30,654


30,204




 


 


 


 


 




Taxation


3


(237)


-


(237)




 


 


_________


_________


_________




Net (loss)/return after taxation


 


(687)


30,654


29,967




 


 


_________


_________


_________




Return per Ordinary share (pence)


4


 


 


 




Basic


 


(0.36)


16.18


15.82




 


 


_________


_________


_________




Diluted


 


n/a


15.16


15.26




 


 


_________


_________


_________




 


 


 


 


 




The total columns of this statement represent the profit and loss account of the Company.




All revenue and capital items in the above statement derive from continuing operations.




 
 
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 




 


 


Six months ended




 


 


28 February 2017




 


 


Revenue


Capital


Total




 


Note


£'000


£'000


£'000




Gains on investments


 


-


56,530


56,530




Net currency losses


 


-


(269)


(269)




Income


2


4,436


-


4,436




Investment management fee


 


(2,891)


-


(2,891)




Administrative expenses


 


(626)


-


(626)




 


 


_________


_________


_________




Net return before finance costs and taxation


 


919


56,261


57,180




 


 


 


 


 




Interest payable and other charges


 


(1,350)


-


(1,350)




 


 


_________


_________


_________




Net (loss)/return before taxation


 


(431)


56,261


55,830




 


 


 


 


 




Taxation


3


(234)


-


(234)




 


 


_________


_________


_________




Net (loss)/return after taxation


 


(665)


56,261


55,596




 


 


_________


_________


_________




Return per Ordinary share (pence)


4


 


 


 




Basic


 


(0.35)


29.65


29.30




 


 


_________


_________


_________




Diluted


 


n/a


26.92


27.21




 


 


_________


_________


_________




 
 
 
CONDENSED STATEMENT OF FINANCIAL POSITION
 




 


 


As at


As at




 


 


28 February 2018


31 August 2017




 


Notes


£'000


£'000




Non-current assets


 


 


 




Investments at fair value through profit or loss


 


851,885


839,746




 


 


 


 




Current assets


 


 


 




Debtors and prepayments


 


2,258


5,010




Money market funds


 


15,500


4,800




Cash and cash equivalents


 


1,456


4,487




 


 


_________


_________




 


 


19,214


14,297




 


 


_________


_________




Creditors: amounts falling due within one year


 


 


 




Other creditors


 


(3,520)


(2,298)




Bank loan


11


(25,492)


-




3.5% Convertible Unsecured Loan Stock 2018


10


-


(44,415)




 


 


_________


_________




 


 


(29,012)


(46,713)




 


 


_________


_________




Net current liabilities


 


(9,798)


(32,416)




 


 


_________


_________




Net assets


 


842,087


807,330




 


 


_________


_________




Capital and reserves


 


 


 




Called-up share capital


 


43,061


40,180




Share premium account


 


60,416


18,618




Equity component of 3.5% Convertible Unsecured Loan Stock 2018


10


-


238




Capital redemption reserve


 


17,015


17,015




Capital reserve


6


694,565


697,550




Revenue reserve


 


27,030


33,729




 


 


_________


_________




Equity shareholders' funds


 


842,087


807,330




 


 


_________


_________




Net asset value per Ordinary share (pence)


 


 


 




Basic


7


429.36


423.26




 


 


_________


_________




Diluted


7


n/a


415.19




 


 


_________


_________




 
 
 
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
 
Six months ended 28 February 2018




 
 


 


 


 


 


 


 


 




 


 


 Share


 Equity


 Capital


 


 


 




 


 Share


premium


 component


 redemption


 Capital


 Revenue


 




 


 capital


 account


 CULS 2018


 reserve


 reserve 


 reserve


 Total




 


 £'000


 £'000


 £'000


 £'000


 £'000


 £'000


 £'000




Balance at 31 August 2017


40,180


18,618


238


17,015


697,550


33,729


807,330




Return/(loss) after taxation


-


-


-


-


30,654


(687)


29,967




Dividend paid


-


-


-


-


-


(6,250)


(6,250)




Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018


2,881


41,798


-


-


-


-


44,679




Buyback of Ordinary shares for treasury


-


-


-


-


(33,639)


-


(33,639)




Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018


-


-


(238)


-


-


238


-




 


_____


_____


_____


_____


_____


_____


_____




Balance at 28 February 2018


43,061


60,416


-


17,015


694,565


27,030


842,087




 


_____


_____


_____


_____


_____


_____


_____




 


 


 


 


 


 


 


 




Six months ended 28 February 2017


 


 


 


 


 


 


 




 


 


 Share


 Equity


 Capital


 


 


 




 


 Share


premium


 component


 redemption


 Capital


 Revenue


 




 


 capital


 account


 CULS 2018


 reserve


 reserve 


 reserve


Total




 


£'000


£'000


 £'000


£'000


£'000


£'000


£'000




Balance at 31 August 2016


39,207


4,492


812


17,015


572,266


30,367


664,159




Return/(loss) after taxation


-


-


-


-


56,261


(665)


55,596




Dividend paid


-


-


-


-


-


(6,077)


(6,077)




Buyback of Ordinary shares for treasury


-


-


-


-


(5,578)


-


(5,578)




Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018


-


92


-


-


-


-


92




Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018


-


-


(292)


-


-


292


-




 


_____


_____


_____


_____


_____


_____


_____




Balance at 28 February 2017


39,207


4,584


520


17,015


622,949


23,917


708,192




 


_____


_____


_____


_____


_____


_____


_____




 
 
 
CONDENSED STATEMENT OF CASH FLOWS
 




 


Six months ended


Six months ended




 


28 February 2018


28 February 2017




 


£'000


£'000




Operating activities


 


 




Net return before finance costs and taxation


31,159


57,180




Adjustments for:


 


 




Gains on investments


(30,861)


(56,530)




Currency losses


207


269




Decrease/(increase) in accrued income


1,128


(59)




Decrease in other debtors


6


57




(Decrease)/increase in creditors


(320)


55




Overseas withholding tax


(14)


(75)




Stock dividends included in investment income


(421)


(1,079)




 


_________


_________




Net cash inflow/(outflow) from operating activities


884


(182)




 


 


 




Investing activities


 


 




Purchases of investments


(99,657)


(57,344)




Sales of investments


120,737


71,035




 


_________


_________




Net cash inflow from investing activities


21,080


13,691




 


_________


_________




Financing activities


 


 




Drawdown of loan


25,500


-




Interest paid


(803)


(1,046)




Equity dividend paid


(6,250)


(6,077)




Buyback of own shares to treasury


(32,535)


(5,578)




 


_________


_________




Net cash outflow from financing activities


(14,088)


(12,701)




 


_________


_________




Increase in cash and cash equivalents


7,876


808




 


_________


_________




Analysis of changes in cash during the period


 


 




Opening balance


9,287


12,303




Effect of exchange rate fluctuations on cash held


(207)


(269)




Increase in cash as above


7,876


3,808




 


_________


_________




Closing balance


16,956


15,842




 


_________


_________




 
 
 
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 the principles of the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in February 2018 with consequential updates (applicable for accounting periods beginning on or after 1 January 2019 but adopted early). They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted by HMRC.




 


 




 


The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.




 




 


 


Six months ended


Six months ended




 


 


28 February 2018


28 February 2017




2.


Income


£'000


£'000




 


Income from investments


 


 




 


UK dividend income


567


713




 


Overseas dividends


3,165


3,709




 


 


_________


_________




 


 


3,732


4,422




 


 


_________


_________




 


Other income


 


 




 


Deposit interest


2


1




 


Interest from money market funds


19


13




 


 


_________


_________




 


 


21


14




 


 


_________


_________




 


Total income


3,753


4,436




 


 


_________


_________




 




3.


The taxation for the period represents withholding tax suffered on overseas dividend income. An amount of £237,000 of withholding tax was suffered in the six months to 28 February 2018 (28 February 2017 - £234,000).




 




 


 


Six months ended


Six months ended




 


 


28 February 2018


28 February 2017




4.


Return per Ordinary share


p


p




 


Basic


 


 




 


Revenue return


(0.36)


(0.35)




 


Capital return


16.18


29.65




 


 


_________


_________




 


Total return


15.82


29.30




 


 


_________


_________




 


The figures above are based on the following:


 


 




 


 


£'000


£'000




 


Revenue return


(687)


(665)




 


Capital return


30,654


56,261




 


 


_________


_________




 


Total return


29,967


55,596




 


 


_________


_________




 


Weighted average number of Ordinary shares in issue


189,396,397


189,741,358




 


 


_________


_________




 


 


 


 




 


 


Six months ended


Six months ended




 


 


28 February 2018


28 February 2017




 


Return per Ordinary share


p


p




 


Diluted


 


 




 


Revenue return


n/a


n/a




 


Capital return


15.16


26.92




 


 


_________


_________




 


Total return


15.26


27.21




 


 


_________


_________




 


The figures above are based on the following:


 


 




 


 


£'000


£'000




 


Revenue return


200


602




 


Capital return


30,654


56,261




 


 


_________


_________




 


Total return


30,854


56,863




 


 


_________


_________




 


Number of dilutive shares


12,813,642


19,272,972




 


 


_________


_________




 


Diluted shares in issue


202,210,039


209,014,330




 


 


_________


_________




 


 




 


The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with IAS 33, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 12,813,642 (2017 - 19,270,852) to 202,210,039 (2017 - 209,012,210) Ordinary shares.




 


 




 


For the periods ended 28 February 2018 and 28 February 2017 there was no dilution to the revenue return per Ordinary share due to a loss being incurred. Where dilution does occur, the net returns are adjusted for items relating to the CULS. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. Accrued CULS finance costs for the period and unamortised issue expenses are reversed.




 


 




 


The CULS matured on 31 January 2018.




 




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 gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:




 


 


 


 




 


 


Six months ended


Six months ended




 


 


28 February 2018


28 February 2017




 


 


£'000


£'000




 


Purchases


167


85




 


Sales


233


142




 


 


_________


_________




 


 


400


227




 


 


_________


_________




 




6.


Capital reserves




 


The capital reserve reflected in the Condensed Statement of Financial Position at 28 February 2018 includes gains of £337,136,000 (31 August 2017 - £357,950,000) 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




 


 


28 February 2018


31 August 2017




 


Basic


 


 




 


Net assets attributable (£'000)


842,087


807,330




 


Number of Ordinary shares in issue{A}


196,127,026


190,741,556




 


Net asset value per share (pence)


429.36


423.26




 


 


_________


_________




 


Diluted


 


 




 


Net assets attributable assuming conversion of CULS (£'000)


n/a


851,745




 


Number of potential Ordinary shares in issue


n/a


205,146,955




 


Net asset value per share (pence)


n/a


415.19




 


 


_________


_________




 


{A} Excluding shares held in treasury.


 


 




 


 


 


 




 


The diluted net asset value per Ordinary share as at 31 August 2017 was calculated in accordance with guidelines issued by the Association of Investment Companies ("AIC") on the assumption that the £44,678,748 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS") are converted at a rate of 1 Ordinary share for every 310.1528p nominal of CULS at the period end, resulting in 14,405,399 additional Ordinary shares. Where dilution occurs, the net assets are adjusted for items relating to the CULS. 




 


 




 


The CULS matured on 31 January 2018, and therefore no diluted NAV has been calculated at 28 February 2018. Details of the maturity are disclosed in Note 10.




 




 


 


Six months ended


Six months ended




 


 


28 February 2018


28 February 2017




8.


Dividends


£'000


£'000




 


2016 final dividend - 3.2p


-


6,077




 


2017 final dividend - 3.3p


6,250


-




 


 


_________


_________




 


 


6,250


6,077




 


 


_________


_________




 


 


 


 




 


There will be no interim dividend for the year to 31 August 2018 (2017 - 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 2017 - same) 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 (28 February 2018 - £851,885,000; 31 August 2017 - £839,746,000) have therefore been deemed as Level 1.




 




10.


Creditors: amounts falling due within one year 




 


 


Number


Liability


Equity




 


 


of units


component


component




 


3.5% Convertible Unsecured Loan Stock 2018 ("CULS")


£'000


£'000


£'000




 


Balance at beginning of period


44,679


44,415


238




 


Maturity of CULS into Ordinary shares


(44,679)


(44,679)


-




 


Notional interest element on CULS


-


238


-




 


Notional interest element on CULS transferred to revenue reserve


-


-


(238)




 


Amortisation of issue expenses


-


26


-




 


 


_________


_________


 




 


Balance at end of period


-


-


-




 


 


_________


_________


 




 


 


 


 


 




 


On 12, 26 and 27 January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The CULS can be converted at the election of holders into Ordinary shares during the months of January and July each year throughout their life, to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of CULS. Once 80% of the CULS issued have been converted the Company is allowed to request that holders redeem or convert the remainder. Interest is paid on the CULS on 31 January and 31 July each year, of which 100% is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.




 


 




 


Following the maturity of the CULS on 31 January 2018, the Company received conversion requests in respect of £43,741,559 nominal of CULS from CULS holders. The result of this was the issue 14,103,127 Ordinary shares on 9 February 2018.




 


 




 


In accordance with the Trust deed, and after receiving independent financial advice, the remaining £937,189 nominal of CULS, for which no conversion requests were received from the CULS holders, were converted into Ordinary shares at a price of 310.1528p per share. The Ordinary shares arising as a result of the exercise of Conversion Rights by the Trustee, being 302,170 Ordinary shares, were sold to the market at a price of 383 pence per Ordinary share with the proceeds of this sale, less any applicable expenses, being remitted to those CULS holders who made no conversion election pro rata of their holding of unconverted CULS.




 




11.


Bank loans




 


The Company currently has a £50 million Revolving Facility Agreement with Scotiabank (Ireland) Designated Activity Company ("the Lender") with the option to increase this facility to £75 million if required. This agreement was entered into on 31 January 2018 and terminates on 31 January 2019.




 


 




 


The agreement contains the following covenants:




 


the net asset value of the Company shall not at any time be less than £385 million.




 


the adjusted asset coverage of the Company shall not at any time be less than 4.00 to 1.00.




 


 




 


On 6 February 2018 a revolving loan amount of £25,500,000 was drawn down at a rate of 1.269% and matured on 6 March 2018. At the time of writing £25,500,000 has been rolled over at an interest rate of 1.305% until maturity on 11 May 2018.




 




12.


Called-up share capital




 


As at 28 February 2018 there were 196,127,026 (31 August 2017 - 190,741,556) Ordinary shares in issue. Following the period end a further 3,756,850 Ordinary shares have been bought back for treasury at a cost of £13,967,000 including expenses, resulting in there being 192,380,176 Ordinary shares in issue and 22,924,177 Ordinary shares held for treasury at the date this Report was approved.




 




13.


Related party transactions and 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 services.




 


 




 


The management fee for the six months ended 28 February 2018 is calculated, on a quarterly basis, at 0.85% of net assets up to £350,000,000 and 0.50% of net assets over this threshold. During the year ended 31 August 2017 the management fee was calculated on a quarterly basis, at 0.85% of net assets. The management fee is chargeable 100% to revenue. During the period £2,662,000 (28 February 2017 - £2,891,000) of investment management fees were earned by the Manager, with a balance of £1,359,000 (28 February 2017 - £1,505,000) being payable to AFML at the period end.




 


 




 


No fees are charged in the case of investment managed or advised by the Aberdeen Asset Management Group. The management agreement may be terminated by either party on the expiry of 3 months written notice. On termination the Manager would be entitled to receive fees which would otherwise have been due up to that date.




 


 




 


At the end of the period the Company had £15,500,000 (28 February 2017 - £11,800,000) invested in Aberdeen Liquidity Fund (Lux) - Sterling Fund which is managed and administered by the Standard Life Aberdeen Group. The Company pays a management fee of 0.85% per annum on the value of these holdings but no fee is chargeable at the underlying fund level.




 




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.


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 28 February 2018 and 28 February 2017 has not been audited.




 


 




 


The information for the year ended 31 August 2017 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.




 


 




 


The auditor has reviewed the financial information for the six months ended 28 February 2018 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The report of the auditor is provided below.




 




16.


This Half-Yearly Financial Report was approved by the Board on 30 April 2018.




 
 
INDEPENDENT REVIEW REPORT TO THE AUDITORS
 
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2018 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Statement of Cash Flows and the related explanatory notes.
 
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2018 is not prepared, in all material respects, in accordance with FRS 104 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   
 
Scope of review 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 
 
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.
 
Directors' responsibilities 
The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 
 
The annual financial statements of the company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with FRS 104 Interim Financial Reporting.
 
Our responsibility 
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
 
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
 
John Waterson
for and on behalf of KPMG LLP 
Chartered Accountants 
 
20 Castle Terrace
Edinburgh
EH1 2EG
 
30 April 2018



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