REG - Murray Intnl Trust - Annual Financial Report
MURRAY INTERNATIONAL TRUST PLC
Legal Entity Identifier (LEI): 549300BP77JO5Y8LM553
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2020
1. STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights
Net asset value total return{AB}
Share price total return{AB}
Reference Index total return{BC}
(Discount)/Premium to net asset value {AD}
2020
+0.9%
2020
-5.3%
2020
+7.0%
2020
-0.7%
2019
+12.4%
2019
+16.5%
2019
+21.1%
2019
5.9%
Dividends per share {BE}
Revenue return per share {B}
Net gearing {AD}
Ongoing charges ratio {AD}
2020
54.5p
2020
46.6p
2020
13.4%
2020
0.68%
2019
53.5p
2019
54.1p
2019
11.3%
2019
0.65%
{A} Alternative Performance Measure
{B} For the year to 31 December.
{C} Reference Index comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020.
{D} As at 31 December.
{E} Dividends declared for the year in which they were earned.
2. CHAIRMAN'S STATEMENT
Performance
2020 will long be remembered as an extraordinary chapter in the history of the world and financial markets. Against a backdrop of a global pandemic affecting over 200 countries and claiming the lives of over two million people, the general population, companies and policy makers found themselves operating in very unfamiliar territory. It was hardly surprising that equity and bond markets experienced widespread periodic volatility as the news flow continually reflected the unfolding circumstances. In an environment of evaporating demand and disrupted supply, numerous companies had no choice but to suspend or cut dividends in order to preserve cash and remain solvent. Over the year, the Company's total return on net assets ended marginally positive with quarterly dividend payments maintained despite the market disruption. During the darkest days of 2020, even such a relatively subdued outcome appeared overly optimistic.
The Company's net asset value ("NAV") posted a total return (i.e. with net income reinvested) of 0.9%. For comparative purposes, the total return for the Reference Index (comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020) was 7.0%. The share price posted a total return of -5.3%, reflecting a move from trading at a premium to NAV of 5.9% at the start of the year to a discount of 0.7% at the year end. Income per share generated from the Company's portfolio amounted to 46.6p for the year.
The Investment Manager's Review gives further details of performance including an attribution analysis. Rapidly changing social and work practices had a significant impact on corporate profitability and balance sheets. Regional equity markets highly weighted with companies exposed to technology and beneficiaries of social isolation, such as the NASDAQ in the United States, performed very well. Those with more of an income focus, such as the UK, tended to struggle. Whilst the Company's geographically diversified portfolio held up well relative to previous dividend recessions, negotiating the toughest income environment for close to twenty years proved very difficult. Yet, encouragingly, with adversity came numerous attractive opportunities to rebalance the portfolio and capitalise on the prevailing volatility, the outcomes of which are discussed further in the Investment Manager's Review.
Dividends and Dividend Policy
Three interim dividends of 12.0p per share (2019: three interims of 12.0p) have been declared during the year. Your Board is now recommending a final dividend of 18.5p per share (2019: fourth interim dividend of 17.5p) which is subject to shareholder approval. If approved at the Annual General Meeting, this final dividend will be paid on 18 May 2021 to shareholders on the register on 6 April 2021. Subject to this approval, total Ordinary dividends for the year will amount to 54.5p (2019: 53.5p), an increase of 1.9% which compares favourably with the 1.2% increase in the Retail Prices Index in 2020. This represents the 16th year of dividend increases for the Company and cements its position as an AIC 'Next Generation Dividend Hero'. The payment of the final dividend will use approximately £10.2 million from the Company's accumulated revenue reserves, amounting to approximately 15% of these reserves. This use of reserves is in line with the policy that I have highlighted to shareholders in previous years. I can confirm that the Board intends to maintain its progressive dividend policy, given the Company's investment objective. This means that, in some years, revenue will be added to reserves, while, in others, revenue may be taken from reserves to supplement earned revenue for that year, in order to pay the annual dividend. Shareholders should not be surprised or concerned by either outcome as, over time, the Company will aim to pay out what the underlying portfolio earns in sterling terms. We are also maintaining our present policy not to hedge the sterling translation risk of revenue arising from non-UK assets.
Investment Strategy Review
During the year, the Board conducted a strategic review of the Company's investment strategy in conjunction with the Manager and other advisers with the focus on dividend policy, ongoing charges and the promotion of the Company. In line with the Company's investment objective, the Board has encouraged the Manager to continue to seek out stocks that offer balanced yield and growth potential. It is pleasing to note that the management team remains positive about the availability of higher yielding investment opportunities that also have attractive growth prospects. As part of the review and consistent with the Company's stated investment objective, the Board has authorised the Manager to implement a limited strategy to write covered put and call options on the underlying portfolio investments from 2021 onwards with the aim of generating small additions to revenue. The Manager will also initiate modest stock lending on the portfolio and this is expected to provide a further small enhancement to the Company's revenue streams. The Investment Manager's Review provides further detail about these strategies. The Board also continues to recognise the need to promote the Company and supports the Manager's continuing efforts to market the Company to a wider investor base.
Gearing
At the year end, total borrowings amounted to £200 million, representing net gearing (calculated by dividing the total assets less cash by shareholders' funds) of 13.4% (2019: 11.3%), all of which is drawn in sterling. On 14 May 2020, the Company agreed a new one year £50 million revolving credit facility ("RCF") with The Royal Bank of Scotland International Limited ("RBSI") which was drawn in full and used to repay a maturing £50 million fixed rate loan with RBSI. The Company is in the process of reviewing options for the RCF which expires in May 2021 and will update the market as soon as a decision has been taken.
Annual General Meeting ("AGM")
The Board has been monitoring closely the ongoing impact of the Covid-19 pandemic upon the arrangements for the Company's upcoming AGM on 23 April 2021. At the time of writing, elements of the National Lockdown remain in place and shareholder attendance at AGMs is not legally permissible. It is very difficult to predict the extent, if any, to which further Stay at Home regulations will be relaxed in the near future. Therefore, in order to provide certainty, whilst encouraging and promoting interaction and engagement with our shareholders, the Board has decided to hold an interactive Online Shareholder Presentation which will be held at 11.00 a.m. on Tuesday 13 April 2021. At the presentation, shareholders will receive updates from the Chairman and Manager and there will be the opportunity for an interactive question and answer session. Following the online presentation, shareholders will still have almost two weeks during which to submit their proxy votes prior to the AGM and I would encourage all shareholders to lodge their votes in advance in this manner. Full details on how to join the Online Shareholder Presentation can be found in my accompanying letter and further information on how to register for the event can be found on www.workcast.com/register?cpak=1616117971176592.
The AGM on 23 April 2021 will, by necessity, be a functional only AGM, and it will be held at 3.00 p.m. at the offices of Dickson Minto WS at 17 Charlotte Square, Edinburgh EH2 4DF. In the light of the Government guidance and social distancing measures, including the restrictions on public gatherings, and the possibility that these measures will remain in place in April, the AGM will follow the minimum legal requirements for an AGM. Arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business be concluded. The Board considers these arrangements to be in the best interests of shareholders given the current circumstances.
The Board strongly discourages shareholders from attending the AGM and entry will be refused if Government guidance so requires or if the Chairman considers it to be necessary. Instead, shareholders are encouraged to exercise their votes in respect of the meeting in advance. Any questions from shareholders who are unable to join the Online Shareholder Presentation may be submitted to the company secretary at: Murray.International@aberdeenstandard.com. The Board and/or the Manager will seek to respond to all such questions received either before, or after the AGM. Given the constantly evolving nature of the situation, should circumstances change significantly before the time of the AGM, we want to ensure that we are able to adapt arrangements and to welcome shareholders to the AGM, within safety constraints and in accordance with government guidelines. In the unlikely event that we consider that it has become possible to do so, we will notify shareholders of the changes by updating the Company's website at murray-intl.co.uk and through an RIS announcement, where appropriate, as early as is possible before the date of the meeting.
On behalf of the Board I should like to thank shareholders in advance for their co-operation and understanding and I very much look forward to presenting to as many shareholders as possible at the Online Shareholder Presentation.
Management of Premium and Discount
At the AGM held in April 2020, shareholders renewed the annual authorities to issue up to 10% of the Company's issued share capital for cash at a premium and to buy back up to 14.99% of the issued share capital at a discount, to the prevailing net asset value. During the year, 973,341 Ordinary shares were purchased for Treasury and 80,000 new Ordinary shares were allotted at a premium to NAV under the Company's blocklisting facility. The Board will be seeking approval from shareholders to renew both authorities at the AGM in 2021. As in previous years, new or Treasury shares will only be issued at a premium to NAV (excluding income) and will only be bought back at a discount to NAV (including income). Resolutions to this effect will be proposed at the AGM and the Directors strongly encourage shareholders to support these proposals.
The Board continues to believe that it is appropriate to seek to address temporary imbalances of supply and demand for the Company's shares which might otherwise result in a recurring material discount or premium. The Board believes that this process is in all shareholders' interests as it seeks to reduce volatility in the premium or discount to underlying NAV whilst also making a small positive contribution to the NAV. Since the year end up to 4 March 2021, the Company has bought back a further 69,709 Ordinary shares for Treasury. At the latest practicable date, the NAV (excluding income) per share was 1133.4p and the share price was 1119.0p equating to a discount of 1.3% per Ordinary share.
Proposed Changes to Articles of Association
At the forthcoming AGM, a resolution is being proposed that relates to the adoption of new Articles of Association ("the Articles"). If passed, as well as a general updating of the Articles, new provisions will enable the Company to hold virtual and hybrid general meetings (including AGMs) in the future. This is in response to the challenges posed by Government restrictions on social interactions as a result of the Covid-19 pandemic. Notwithstanding this proposed change, the Board remains fully committed to ensuring that future general meetings (including AGMs) incorporate a physical meeting whenever law and regulation permits in order to fulfil the Board's commitment to enable shareholders to meet and interact with the Board on a face-to-face basis. The potential to hold a general meeting through wholly electronic means is intended as a solution to be adopted as a last resort to ensure the continued smooth operation of the Company. Your Board would only use virtual meetings in extreme operating circumstances where physical meetings are prohibited or not practicable.
Ongoing Charges Ratio
The Board remains focused on delivering value to shareholders and regularly reviews the ongoing charges ratio ("OCR"). The OCR for 2020 increased very slightly to 0.68% (2019: 0.65%) which in part reflects the small decline in net assets over the year. During the year, the Board conducted a detailed review of all costs with the aim of ensuring that all service providers' fees remained competitive and I should like to thank our service providers for their input into this process. This difficult, virus-impacted year has necessitated a significant increase in the level of operational scrutiny from the Board and Manager alike and I am pleased with the diligence, assistance and uninterrupted support that has been provided to the Company by all stakeholders.
Environmental, Social and Governance ("ESG") Matters
As part of its responsible stewardship of shareholders' assets, the Board continues to engage actively with the Manager with regard to the assessment and integration of ESG factors in the Manager's investment process. During the past year, ESG reporting by the Manager to the Board has been enhanced, including regular assessments of the Company's holdings and portfolio against industry benchmarks. Further information on the important work undertaken in this area by the Manager is provided in the Strategic Report.
Climate Change
Your Board supports the principle of further regulation to promote climate change disclosures and considers that the related physical, transition and litigation risks are becoming increasingly likely and financially material. The Board's desire is, therefore, for the Manager to build an increasingly resilient portfolio and to seek to exploit opportunities arising from a net zero economy so far as this is consistent with the Company's investment objective, without becoming prescriptive on specific investment exclusion criteria. A key ingredient in building such a portfolio is seen as meaningful, regular and continuing dialogue with high emitting investee companies with a view not only to understanding better risk exposure and evolving business models but also to influence corporate behaviour in regard to climate change.
Directorate
As reported last year, in accordance with the Board's on-going succession planning, Simon Fraser joined the Board on 1 May 2020 and will succeed me as Chairman after my retirement at the AGM in April. Our Audit and Risk Committee Chair, Marcia Campbell, will also be retiring at the conclusion of the forthcoming AGM after completing nine years as a Board member. On behalf of the Board, I should like to take this opportunity to convey our sincere thanks to Marcia for her skilful leadership of the Audit and Risk Committee and significant contribution to the smooth and effective running of the Company. Claire Binyon will succeed Marcia as Chair of the Audit and Risk Committee at the conclusion of the forthcoming AGM. I should also like to wish Simon, and the entire Board, well when he assumes the role of Chairman upon my retirement. Finally, I have had the great privilege of serving in total with 10 fellow Directors, past and present, and would like to express my heartfelt thanks to each of them for the insight and service that they have delivered to shareholders and to me during my tenure as Chairman. It has also been a pleasure working with Bruce Stout, William Hemmings and Charles Mearns from the Manager. They have been a constant during my whole time on the Board and have unwaveringly cooperated with the Board to promote the best interests of shareholders.
The Company is in the process of recruiting a new independent non-executive Director using the services of an independent recruitment consultant. Shareholders will be updated when a candidate has been appointed.
Outlook
From an economic perspective, recovering from the Covid-19 induced worldwide recession presents numerous challenges. Virtually all sectors and businesses have experienced some degree of disruption, suggesting the landscape of the future is unlikely to return to the prior normality. The discovery and rollout of a number of effective vaccines against the virus hold out the prospect of emergence from the pandemic. However, the lasting legacy of enormous debt obligations accrued by some nations in response to Covid will linger for years to come. Clearly, the path ahead is not likely to be smooth.
From an investment perspective, the Company's unconstrained global mandate offers great flexibility. Whilst the developed world's pandemic debt legacy may be long-lasting, numerous other parts of the world appear less constrained. Recent evidence already shows growth rebounding and business recovering in a number of Asian and developing countries that quickly contained infection rates last year. There is the prospect of improving corporate profits and above average dividend and capital growth from many high-quality companies exposed to these markets. Portfolio exposures will continue to focus on such businesses in pursuit of the Company's long-term investment objective.
Kevin Carter,
Chairman
4 March 2021
3. INVESTMENT MANAGER'S REVIEW
Background
Exogenous shocks and financial markets are seldom compatible companions. The former conjures up chaos, the latter craves certitude. Past panics, manias and stock market crashes invariably blame an extraneous event as the catalyst of catastrophe yet, in truth, the facts usually suggest otherwise.
Forensic analysis of world-wide credit crunches, property collapses, banking blowouts or debt defaults clearly identify the DNA of disruption embedded in prolonged periods of unrealistic expectations and mismanagement. When historical post-mortems dissect the dramatic, destabilising events of the past twelve months, no such conclusions will be reached. In 2020, the Covid-19 virus caused the largest global recession in modern history, and nobody was to blame.
The scale of the worldwide impact was simply devastating. As the pandemic proliferated, simultaneous economic contractions reverberated around the globe like tumbling dominos. Rampant infections reduced labour supply and productivity, whilst enforced lock-downs, social-distancing and business failure constrained manufacturing output and the provision of essential services. By late spring, global economic activity was effectively paralysed. Sharply rising unemployment depressed incomes and household consumption, whilst government policy directives evoked radical changes to social behaviour. Virtually all economic sectors experienced some degree of disruption, with areas such as travel, tourism, culture, education and the arts being severely impacted. Keeping companies solvent became the business mantra for most, yet with adversity came opportunity for some. Prevailing circumstances rapidly transformed the fortunes of those business involved in 'e'. Revenues soared for companies providing e-banking, e-commerce, e-learning, e-currency and numerous other electronic services that thrived under social and economic isolation. Not surprisingly, so too did their equity valuations. For heavily technology weighted indices, such as the NASDAQ in the United States, 2020 witnessed huge total returns unrepresentative of evolving events within the broader economy.
Most businesses were less fortunate. Nowhere was this more pronounced, ironically, than in another sector beginning with 'e', namely energy. Evaporating demand for oil evoked unimaginable turmoil within energy markets. At the oil price nadir of close to minus $40 a barrel in April, oil companies were effectively paying customers to take possession of excessive unwanted inventories. Such distorted fundamentals spread into other supply/demand dynamics, causing great consternation to employees and investors alike. Uncertain as to whether the unfolding pandemic represented just a temporary distortion to the global economic cycle or was redefining economic reality in businesses such as commodities, real estate, retail and leisure, strong nerves and deep resolve were a constant pre-requisite.
Uncertainty prevailed throughout the summer until October's sudden breakthrough on Covid-19 vaccines dramatically changed sentiment. Anticipation of imminent inoculation rekindled belief that within a reasonable timeframe economic recovery could commence. Without caution towards realistic vaccination schedules well into 2021 or consideration of redressing mounting fiscal liabilities, all that mattered to financial markets was some semblance of certainty about the future, no matter how intangible that might be. By year end, hope sprang eternal.
Few investment managers could legitimately claim custodianship of portfolios consciously constructed to withstand/benefit from a global health pandemic. As Managers, we would certainly make no such assertion. The consequential positive and negative exaggerations to pre-pandemic business dynamics of companies held in the portfolio stretched quantifiable assumptions and proved challenging at times. Of great importance was sticking to our investment disciplines and processes against this unpredictable backdrop. Inevitably, some original investment reasoning irrevocably changed but, beyond the fog, some clear longer-term opportunities arose. Initial equity market weakness through February-March prompted a reduction in the portfolio's emerging market fixed income exposure with proceeds reinvested into equities. Capitalising on attractive valuations, new positions were established in pharmaceutical company Abbvie and global semi-conductor giant Broadcom. Both additions captured double-digit earnings and dividend growth with running yields above 6%. This strategic theme continued with additions to existing holdings in Canadian pipeline operator TC Energy, Brazilian financial services provider Banco Bradesco and Taiwanese semiconductor producer GlobalWafers.
Periodic bouts of volatility throughout the year constantly presented opportunities. Two new positions were established in China. The first, China Resources Land, maintains a leading position in mainland property development, whilst the second, Ping An Insurance, distinguishes itself as one of the world's most technologically advanced multi-line insurance providers. Bolstered by numerous Asian countries providing greater clarity on viral infection rates compared with trends emerging globally, such transparency inspired confidence. Overall Asian portfolio exposure was further boosted by a new position in Hon Hai Precision, a Taiwanese provider of electronic manufacturing services for numerous leading computer, smart phone and communication companies worldwide.
Another geographical region providing selective equity enticement was Europe. Dragged down by persistently changing containment strategies and ongoing Brexit negotiations, numerous companies remained scorned. The insurance sector proved particularly interesting where balance sheets remained strong and business prospects relatively unscathed. New positions were established in Zurich Insurance, a Swiss based worldwide provider of multiline insurance services, and leading Scandinavian general insurance underwriter Tryg, based in Denmark. Completing a trilogy of new European domiciled growth opportunities, a new position was also established in multinational power company Enel. Managing wind, solar, geothermal and hydropower plants in Europe, the Americas, Africa and Asia, Enel commands a leading position in the rapidly growing worldwide renewable energy market.
With overall portfolio transaction activity near twice the level of fiscal year 2019, the past twelve months clearly witnessed above-average portfolio turnover. Funds raised for new investment in equities came from a variety of sources. Close to 5% of net assets was raised from divesting Emerging Market Bonds, notably all Brazilian Sovereign and Corporates plus some Indonesian Sovereign bonds. Having performed strongly on both an absolute and relative basis, the switch into equities offered compelling value at the time. Over 3% of net assets was raised from ongoing reductions to Taiwan Semiconductor, one of the strongest performers over the period and still the portfolio's largest holding. Outright divestment of Bank Pekao in Poland and Public Bank in Malaysia centred on concerns over pandemic related damage to longer-term business objectives, whilst sales of smaller Brazilian equity holdings in Ultrapar and Wilson Sons provided capital for increased investment concentration into core Latin American holdings. The large position in Unilever Indonesia was switched into the Unilever parent company for yield enhancement at an attractive relative valuation, whilst reductions to strongly performing shares of Swedish Industrials Epiroc and Atlas Copco plus Chilean lithium producer Socieda Quimica (Soquimich) was symptomatic of profit recycling in line with the Company's disciplined investment process. The unique circumstances of 2020's investment landscape presented numerous unforeseen challenges but for the most part higher portfolio activity reflected the opportunity that accompanied adversity in what proved one of the most uncertain twelve-month periods in the Company's recent history.
Performance
The NAV total return for the year to 31 December 2020 with net dividends reinvested was 0.9%. This compared with the Reference Index total return of 7.0%. The top five and bottom five stock contributors to performance are detailed below:
Top Five Stock Contributors
%*
Bottom Five Stock Contributors
%*
Taiwan Semiconductor Manufacturing
2.7
Banco Bradesco
-1.0
Sociedad Quimica
1.9
Grupo Asur
-0.9
GlobalWafers
1.9
Singapore Telecommunications
-0.9
Samsung Electronics
1.1
Schlumberger
-0.8
Broadcom
1.1
Telefonica Brasil
-0.7
* % relates to the percentage contribution to return relative to the Reference Index (comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020)
The apparently sedate NAV total return of +0.9% over the period masked the most volatile year for asset valuations since the financial turmoil of 2008. Global equity market volatility oscillated sharply throughout the year, reflecting constantly changing sentiment towards the evolving pandemic. Daily portfolio net asset values vacillated accordingly, and at times excessively. At its low in late March, the NAV per share troughed at 826p, a decline of close to 30% from year end 2019. As previously mentioned, this prompted one of the most active periods of switching fixed income securities into equities, part of which undoubtedly aided the subsequent year end recovery in NAV, but also capitalised on yield enhancement, future dividend growth and very attractive equity valuations. Relative underperformance to the Reference Index must be noted but, given the prevailing portfolio orientation, is hardly surprising. Overall market conditions for dividend paying companies proved extremely hostile. The combination of debt-dependant companies with no choice but to cut dividends, companies cutting dividends to preserve cash, companies being mandated to cut dividends by regulators and companies "obliged" to cut dividends through political pressure produced the worst environment for income orientated funds in over twenty years. From an income perspective, the UK equity market witnessed the most severe dividend declines, the 44% contraction year-on-year wiping out eight years of dividend growth, but the rest-of-the-world was not immune either. It is debatable whether global financial markets have ever witnessed such concentrated worldwide economic uncertainty and corporate balance sheet stress in such a short period. Under such circumstances, the overall portfolio emerged relatively unscathed, the 14% reduction in earnings per share reflecting greater portfolio diversification across geographies, sectors and businesses.
Attribution Analysis
The attribution analysis below details the various influences on portfolio performance. In context, it should be noted that the Company's income objective gives rise to a portfolio of investments that differs significantly from the Reference Index in terms of geographical exposures, sector allocations and stock selection. During the period under review, when increasingly concentrated market (United States), sector (Technology) and stock (low-yielding) outperformance dominated composite index returns, the statistical limitations of relative attribution analysis were clearly evident. However, from the analysis in summary, of the 580 basis points (before expenses) of performance below the Reference Index, asset allocation added 10 basis points and stock selection detracted 610 basis points. Structural effects, relating to the fixed income portfolio and gearing net of borrowing costs, added 50 basis points of relative performance.
CompanyReference Index{A}
Contribution from:
Asset
Stock
Weight
Return
Weight
Return
Allocation
Selection
Total
%
%
%
%
%
%
%
UK
6.9
-17.2
4.1
-11.7
2.7
-0.5
2.2
Europe ex UK
18.8
1.6
13.6
8.4
0.1
-1.1
-1.0
North America
26.1
0.7
58.3
16.4
-1.7
-3.8
-5.5
Japan
1.0
-5.1
7.4
11.1
-0.1
-0.2
-0.3
Asia Pacific ex Japan
31.8
10.9
14.3
15.2
2.1
-2.0
0.1
Other International
15.4
-2.0
2.3
-18.7
-3.0
1.5
-1.5
______
______
______
______
______
______
______
Gross equity portfolio return
100.0
1.2
100.0
7.0
0.1
-6.1
-6.0
FX instruments, fixed Interest, cash and gearing effect
0.5
______
Net portfolio return
1.7
Management fees and administrative expenses
-0.7
Tax charge
-0.3
Technical differences
0.2
______
______
Total return
0.9
7.0
______
______
{A} Reference Index comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020.
Notes to Performance Analysis
Asset allocation effect - measures the impact of over or underweighting each asset category, relative to the Reference Index weights.
Stock selection effect - measures the effect of security selection within each category.
Technical differences - the impact of different return calculation methods used for NAV and portfolio performance.
Source: Aberdeen Standard Investments & BNP Paribas Securities Services Limited. Figures may appear not to add up due to rounding.
Global Review
Previous annual reviews proffered extensive economic commentary on geographical regions primarily to update and inform on the investment backdrop supporting portfolio investment. With global economic activity being universally crippled by the pandemic last year, reflecting on the depth of regional recessions and deeply distorted macroeconomic trends arguably serves little productive purpose. Everyone suffered, some much more than others. Of far greater significance, perhaps, is the consideration of the economic and financial legacies the truly surreal experience of 2020 might bequeath. The range and magnitude of lasting effects will have significant influence on the investment landscape ahead.
In nominal dollars spent and aggregated infected population, the United States earned the unenviable accolade of leading the world in both. Breaching a raft of historical records, the nation's fiscal deficit spiralled upwards eclipsing imbalances recorded during World War Two and the 2008/09 financial crisis. For a country dependant on foreign capital financing of wayward fiscal and current account deficits, external confidence in its debt-servicing capability and resilience of the dollar is crucial. With debt interest escalating hourly, the outlook for spending, growth and income looks extremely compromised. At some point, higher taxes and tighter fiscal policy look inevitable. Significant revaluation of the technology sector predicated on the belief that rock-bottom interest rates will persist in perpetuity suggests an inherent vulnerability within the US equity market. The disconnect between Wall Street and Main Street grows ever wider.
The UK's Office of Budget Responsibility currently predicts around £400bn of required State borrowing for the financial year ending April 2021. To put this in context, before the pandemic the UK Government expected to borrow £55bn over the twelve-month period. Such a widening chasm in UK fiscal financing reflects the largest distortion between revenues and spending ever witnessed, making the UK one of the most structurally damaged nations from Covid-19. All evidence suggests the country is perilously close to debt servicing limits. Ahead for the UK economy lies a protracted path of constrained options, as policymakers attempt to manage an orderly reinvigoration of growth whilst simultaneously trying to restore some semblance of fiscal respectability in public finances. Investment opportunities against this backdrop could easily be "crowded out" by debt servicing obligations.
Similar debilitating debt dynamics now also prevail in Europe. With the European debt crisis of 2009-2011 still fresh in the memory, European policymakers must consider current escalating pandemic-related costs with great trepidation. Having suspended all EU Fiscal Treaty rules for member states, the medium-term outlook remains dominated by excessive spending and collapsing tax revenues. The resulting fiscal deficits threaten to eclipse previous depths, suggesting significant structural damage to the region's future borrowing capabilities. Just how such enormous imbalances will be addressed, by whom and over what time frame presents significant challenges for regional unity and next generation prosperity.
Aggregating cumulative consequences for Asia and the rest of the Developing World is virtually impossible. The cultural and economic diversity that produced vastly differing pandemic responses will likely produce a broad spectrum of future outcomes. Densely populated nations such as India and Indonesia suffered significantly and carry a legacy of higher unemployment and larger income declines. Similarly, the pandemic proved particularly problematic for Latin America. Unable to isolate effectively and protect a population disproportionately dependant on the informal economy and manufacturing industry, the scale of human suffering and economic disruption was relatively high. Yet certain summations can be made. For numerous Asian countries, from containment to recovery, the intent and execution of public policy was generally impressive. It is somewhat ironic that the region where Covid-19 originated should suffer less, both clinically and economically, but it very much looks like it. In other Emerging Markets, where infection rates were quickly contained through stringent mobility measures and effective information directives, the trajectory of recovery has already begun. Boosted by ongoing stimulus in China and pent-up demand exaggerated by Covid-19 restrictions, growth remains on track to recover sharply once clinical challenges subside.
Summary of Investment Changes During the Year
Valuation
Appreciation/Net purchases/
Valuation
31 December 2020
(depreciation)
(sales)
31 December 2019
£'000
%
£'000
£'000
£'000
%
Equities
United Kingdom
73,372
4.4
(29,655)
-
103,027
5.9
North America
380,614
22.9
(7,159)
79,608
308,165
17.7
Europe ex UK
274,030
16.4
(2,340)
68,615
207,755
12.0
Japan
13,848
0.8
(1,862)
-
15,710
0.9
Asia Pacific ex Japan
489,281
29.5
22,318
(64,508)
531,471
30.6
Latin America
218,535
13.2
(16,525)
(22,968)
258,028
14.8
Africa
5,995
0.4
(2,911)
-
8,906
0.5
_______
_______
_______
_______
_______
_______
1,455,675
87.6
(38,134)
60,747
1,433,062
82.4
_______
_______
_______
_______
_______
_______
Preference shares
United Kingdom
7,488
0.5
(189)
-
7,677
0.4
7,488
0.5
(189)
-
7,677
0.4
Fixed income
Europe ex UK
13,182
0.8
(4,140)
66
17,256
1.0
Asia Pacific ex Japan
69,365
4.2
1,431
(18,734)
86,668
5.0
Latin America
83,621
5.0
(7,347)
(47,682)
138,650
8.0
Africa
17,074
1.0
(1,267)
81
18,260
1.1
_______
_______
_______
_______
_______
_______
183,242
11.0
(11,323)
(66,269)
260,834
15.1
_______
_______
_______
_______
_______
_______
Other net assets
15,227
0.9
(21,959)
-
37,186
2.1
_______
_______
_______
_______
_______
_______
Total assets{A}
1,661,632
100.0
(71,605)
(5,522)
1,738,759
100.0
_______
_______
_______
_______
_______
_______
{A} The total assets less current liabilities as shown on the Balance Sheet with the addition of prior charges
Options Writing and Stock Lending
As indicated in the Chairman's Statement, the Board conducted an investment strategy review during the year. In line with the Company's stated investment objective, the Board has authorised the Manager to implement a limited strategy to write covered put and call options on the underlying portfolio investments with the aim of generating extra revenue in future years. The Manager has significant experience of using option strategies to enhance revenues for its clients. Option writing will only be conducted at levels where we would have considered entering into a transaction in the normal course of portfolio management, e.g. if the Manager would have been willing to sell a stock at a level 5% higher than the current share price that is where the option strike price would be written. This means that options writing will always relate to transactions that we would have been looking to enter into in any event and will not be speculative. The use of options represents a relatively low risk way of enhancing the returns from the portfolio and we would only write options where there is sufficient liquidity in the underlying stock within the portfolio.
We are also planning to initiate stock lending on the portfolio which is expected to provide a further, albeit modest, enhancement to the Company's revenue streams. Stock lending can offer strong risk adjusted returns to the Company and its shareholders. As Manager, we have extensive knowledge and experience in running profitable risk averse securities lending programmes across a range of clients, which have minimal impact on the day-to-day management of the portfolio and ensure that risk management remains pivotal in all transactions. All current lending programmes accept non-cash collateral only (in segregated accounts with no reinvestment or re-hypothecation of collateral), maintain full flexibility over all loans, including the full right of restriction and recall, and focus on lending only those assets with significant fees attached to them to ensure that less stock is lent whilst maintaining a reasonable revenue stream.
Outlook
Such a simultaneous threat to life and livelihood, health and wealth, occurring as it did throughout the world in 2020, has never happened in living memory. Undoubtedly, the clinical and economic damage afflicted on the global population will leave deep scars needing considerable time to heal. For a world prepared to do "whatever it takes" to alleviate a "nobody's fault recession", it is reasonable to assume short-term good intentions overlooked potential longer-term adverse consequences. In no way should this be taken as a criticism of government actions in response to Covid-19. Desperate to avoid systemic collapse, policymakers in developed economies had no choice but to throw the proverbial kitchen sink at the pandemic infused chaos. Unfortunately, for those nations where state intervention was the highest, the associated payback costs are likely to be the most onerous. Future clinical concerns aside, the exponential rise in financial burdens for those nations now represents a debt legacy that may sharply constrain growth and investment opportunities going forward. Countries such as the UK and the United States now find themselves at the undesirable vanguard of such longer-term debilitating debt dynamics.
For many nations, individuals and companies, life may well have irrevocably changed; correspondingly, for investors, the future financial landscape may also prove unfamiliar relative to the past. Yet, as always, it would be presumptuous to extrapolate the events and investment themes of an extremely distorted 2020 as the "new normal" since for the majority of world citizens the "old normal" is not a life choice but simply economic reality. Some sectors, industries and occupations most affected may ultimately face extinction, but classical economic theory would attribute evolution rather than the virus as ultimately responsible. For those subscribing to such logic, the pandemic merely hastened the process along. Yet where the truly intriguing collateral damage of the past twelve months has been most evident are those businesses written off by financial markets in their myopic pursuit of all things technology. Does the investment landscape really believe the world no longer needs such essential services as gas and electricity, construction materials like cement, concrete, iron and steel, not to mention other so-called cyclical assets be it property, insurance, Asia or Emerging Markets? Relative underperformance, attractive absolute valuations and scope for significant sentiment change towards companies that remain productive, profitable and providers of the population's evolving needs offer compelling future investment opportunities for the Company going forward. By strict adherence to the proven practice of investing in high-quality, financially strong companies, great scope exists to capitalise on such positive prospects.
Bruce Stout
Senior Investment Director
Martin Connaghan and Samantha Fitzpatrick
Investment Directors
Aberdeen Asset Managers Limited
4 March 2021
4. STRATEGIC REPORT - OVERVIEW OF STRATEGY
THE MANAGER'S INVESTMENT PROCESS AND ESG ENGAGEMENT
The Manager's Investment Process
The Company's Alternative Investment Fund Manager is Aberdeen Standard Fund Managers Limited ("ASFML") which is authorised and regulated by the Financial Conduct Authority. Day-to-day management of the portfolio is delegated to Aberdeen Asset Managers Limited ("AAM"). AAM and ASFML are collectively referred to as the "Investment Manager" or the "Manager". Aberdeen Standard Investments ("ASI") is the investment arm of Standard Life Aberdeen plc, the ultimate parent of AAM and ASFML.
The Manager believes that deep fundamental research into companies, mediated through team debate and a rigorous stock selection process, is the key to unlocking investment insight and driving investment returns for clients such as the Company. The Manager utilises a truly bottom-up, fundamental stock-picking approach, where sector, regional and country allocations are a consequence of the bottom-up stock selection decisions, constrained by appropriate risk controls. The Manager operates a comprehensive risk system with tools that provide better insights for its individual fund managers and a more complete understanding of all risk exposures in the portfolios to ensure that the managers only take the sort of risk that the Manager is comfortable with and can back with insight from extensive first hand research.
The Manager takes a long term quality approach by focusing on companies that the research analysts identify as high quality. This involves assessing each company on five key factors, namely the durability of the business model and moat, the attractiveness of the industry, the strength of the financials, the capability of management, and assessment of the company's ESG credentials. In the assessment of what is an appropriate valuation for a company, the Manager focuses primarily on earnings yields, free cashflow yields and dividend yields, set against expected long-term growth rates for those elements. The Manager targets a double digit implied annual return. From this pool of companies the Manager looks to construct a focused portfolio of 40 - 60 companies, selecting those companies that have the most attractive quality and valuation characteristics, offering the best expected risk adjusted returns, within a diversified portfolio. Position sizes typically range from 1% to 5% and are considered on an absolute, rather than benchmark relative basis.
An overview of the investment process is provided below and further explanation of this process can be found on page 101 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Reference Index (formerly Benchmark)
Up to 27 April 2020, the Company's performance was measured against a composite Benchmark comprising 40% of the FTSE World UK Index and 60% of the FTSE World ex-UK Index. On 27 April 2020 shareholders approved the replacement of the Benchmark with a new Reference Index, the FTSE All World TR Index. Performance is now measured against a blend of the old composite Benchmark up to 27 April 2020 and the FTSE All World TR Index thereafter. Given the composition of the portfolio and the Manager's investment process, it is likely that the Company's investment performance may diverge, possibly significantly, from this Reference Index.
Delivering the Investment Policy
Day-to-day management of the Company's assets has been delegated to the Manager. The Manager invests in a diversified range of international companies and securities in accordance with the investment objective.
Bruce Stout has responsibility for portfolio construction across all regional segments and is assisted by Martin Connaghan and Samantha Fitzpatrick. The management team utilises a "Global Coverage List" which is constructed by each of the specialist country management teams. This list contains all buy (and hold) recommendations for each management team, which are then used by the portfolio manager as the Company's investment universe. Stock selection is the major source of added value over time.
Top-down investment factors are secondary in the Manager's portfolio construction, with stock diversification rather than formal controls guiding stock and sector weights. Market capitalisation is not a primary concern.
A detailed description of the investment process and risk controls employed by the Manager is disclosed on pages 101 and 102 of the published Annual Report and Financial Statements for the year ended 31 December 2020. A comprehensive analysis of the Company's portfolio is disclosed on pages 33 to 45 of the published Annual Report and Financial Statements for the year ended 31 December 2020 including a description of the twenty largest investments, the portfolio of investments by value, distribution of investments and distribution of equity investments. The portfolio attribution analysis is disclosed above.
In addition to equity exposures, the investment mandate provides the flexibility to invest in fixed income securities. The process of identifying, selecting and monitoring both sovereign and corporate bonds follows exactly the same structure and methodology as that for equity investment, fully utilising the global investment resources of the Manager. As in the case of equity exposure, the total amount, geographical preference, sector bias and specific securities will ultimately depend upon relative valuation and future prospects.
At the year end, the Company's portfolio consisted of 53 equity and 24 bond holdings. The Manager is authorised by the Board to hold between 45 and 150 holdings in the portfolio.
The Manager's Focus on ESG
Introduction
Whilst environmental, social and governance ("ESG") factors are not the over-riding criteria in relation to the investment decisions taken by the Manager for the Company, significant prominence is placed on ESG and climate related factors throughout the Manager's investment process. The following disclosures highlight the way that ESG and climate change are considered by the Manager. These processes are reviewed regularly and liable to change and the latest information will be available for download on the Company's website, murray-intl.co.uk.
Core beliefs: Assessing Risk, Enhancing Value
Whilst the management of the Company's investments is not undertaken with any specific instructions to exclude certain asset types or classes, the consideration of ESG factors is a fundamental part of the Manager's investment process and has been for over 30 years. It is one of the key criteria on which the Manager assesses the investment case for any company in which it invests for three key reasons.
Responsible Investing - Integration of ESG into the Manager's Investment Process
"By embedding ESG factors into our active equity investment process we aim to reduce risk, enhance potential value for our investors and foster companies that can contribute positively to the world." Aberdeen Standard Investments
Financial Returns
ESG factors can be financially material - the level of consideration they are given in a company will ultimately have an impact on corporate performance, either positively or negatively. Those companies that take their ESG responsibilities tend to outperform those that do not.
Fuller Insight
Systematically assessing a company's ESG risks and opportunities alongside other financial metrics allows the Manager to make better investment decisions.
Corporate Advancement
Informed and constructive engagement helps foster better companies, protecting and enhancing the value of the Company's investments.
"We believe that the market systematically undervalues the importance of ESG factors. We believe that in-depth ESG analysis is part of both fundamental company research and portfolio construction and will lead to better client outcomes." Aberdeen Standard Investments
Researching Companies: Deeper Company Insights for Better Investor Outcomes
The Manager conducts extensive and high-quality fundamental and first-hand research to fully understand the investment case for every company in its global universe. A key part of the Manager's research involves focusing its extensive resources on analysis of ESG issues. The Manager's investment managers, ESG Equity Analysts and central ESG Investment Team collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company. Stewardship and active engagement with every company are also fundamental to the investment process helping to produce positive outcomes that lead to better risk-adjusted returns.
ASI's Global ESG Infrastructure
ASI has around 150 equity professionals globally. Each systematically analyses ESG risks and opportunities as part of the Manager's research output for each company. Its central team and ESG equity analysts support the investment managers' first-hand company analysis, producing research into specific themes (e.g. labour relations or climate change), sectors (e.g. forestry) and ESG topics to understand and highlight best practice. Examples of thematic and sector research can be found on the Manager's website at: aberdeenstandard.com/en/uk/investor/responsible-investing.
Investment Managers
All ASI equity investment managers seek to engage actively with companies to gain insight into their specific risks and provide a positive ongoing influence on their corporate strategy for governance, environmental and social impact
ESG Equity Analysts
ASI has dedicated and highly experienced ESG equity analysts located across the UK, US, Asia and Australia. Working as part of individual investment teams, rather than as a separate department, these specialists are integral to pre-investment due diligence and post-investment ongoing company engagement. They are also responsible for taking thematic research produced by the central ESG Investment Team (see below), interpreting and translating it into actionable insights and engagement programmes for our regional investment strategies.
ESG Investment Team
This central team of more than 20 experienced specialists based in Edinburgh and London provides ESG consultancy and insight for all asset classes. Taking a global approach both identifies regions, industries and sectors that are most vulnerable to ESG risks and identifies those that can take advantage of the opportunities presented. Working with investment managers, the team is key to the Manager's active stewardship approach of using shareholder voting and corporate engagement to drive positive change.
Climate Change
The Manager has a duty to consider all factors that may have a financially material impact on returns. Climate change is such a key factor.
The related physical and transition risks are vast and are becoming increasingly financially material for many of our investments. Not only in the obvious high-emitting sectors, such as energy, utilities and transportation, but also along the supply chain, providers of finance and in those reliant on agricultural outputs and water.
In the Manager's view, companies that successfully manage climate change risks will perform better in the long-term. It is important that the Manager assesses the financial implications of material climate change risks across all asset classes, including real assets, to make portfolios more resilient to climate risk.
Adaptation measures are essential to help limit damages from the physical impacts of climate change. Comparable climate-related data is necessary to enable effective decision making, and is something the Manager actively sources and incorporates into its process. The Manager is supportive of the Task Force on Climate-related Financial Disclosures (TCFD) framework to strengthen climate reporting globally.
Regular engagement with high-emitting investee companies allows the Manager to better understand its exposure and management of climate change risks and opportunities. In actively managed investments, ownership provides a strong ability to challenge companies where appropriate. The Manager can also influence corporate behaviour positively in relation to climate-risk management.
The Manager believes that this is more powerful for an effective energy transition than a generic fossil fuel divestment approach. Through active engagement it is possible to steer investee companies towards ambitious targets and more sustainable low-carbon solutions. If there is limited progress in response to the engagement, the Manager will consider the ultimate option of selling its holdings.
The Manager strongly encourages companies to consider the social dimension of the energy transition to ensure it is inclusive and 'just'. This means worker and community needs are considered on the path to a low-carbon economy so they are not left stranded. Other social aspects, such as affordability and reliability of energy supply are also important. Influencing through engagement has worked particularly well in collaboration with other asset managers and asset owners as part of our involvement in Climate Action 100+. This is a five-year initiative to engage and influence high-emitting companies collaboratively.
Consideration of climate change risks and opportunities is an integral part of the investment process and corporate engagement is seen as essential to ensuring that portfolio companies manage climate-related risks and support a 'just' energy transition. This is an important part of the role of an active investor.
The Manager provides climate change insights through research and data to investment decision makers. This helps assess the financial materiality of climate change risks and opportunities.
The Manager aims to influence the management of climate-related risks through engagement and voting and is part of Climate Action 100+ having signed the 2018 Just Transition statement.
From Laggards to Best in Class: Rating Company ESG Credentials
A systematic and globally-applied approach to evaluating stocks allows the Manager to compare companies consistently on their ESG credentials - both regionally and against their peer group.
The Manager captures the findings from its research and company engagement meetings in formal research notes.
Some of the key questions include:
- Which ESG issues are relevant for this company, how material are they, and how are they being addressed?
- What is ASI's assessment of the quality of this company's governance, ownership structure and management?
- Are incentives and key performance indicators aligned with the company's strategy and the interests of shareholders?
Having considered the regional universe and peer group in which the company operates, the Manager's equity team then allocates it an ESG rating between one and five (see below). This is applied across every stock that the Manager covers globally.
The Manager also uses a combination of external and proprietary in-house quantitative scoring techniques to complement and cross-check analyst-driven ESG assessments. ESG analysis is peer-reviewed within the equities team, and ESG factors impacting both sectors and stocks are discussed as part of the formal sector reviews. To be considered 'best in class', the management of ESG factors must be a material part of the company's core business strategy. It must provide excellent disclosure of data on key risks. It must also have clear policies and strong governance structures, among other criteria.
Working with Companies: Staying Engaged, Driving Change
Once ASI invests in a company, it is committed to helping that company maintain or raise their ESG standards further, using the Manager's position as a shareholder to press for action as needed. ASI actively engages with the companies in which it invests to maintain ESG focus and encourage improvement.
The Manager sees this programme of regular engagement as a necessary fulfilment of its duty as a responsible steward of clients' assets. It is also an opportunity to share examples of best practice seen in other companies and to use the Manager's influence to effect positive change. The Manager's engagement is not limited to the company's management team. It can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company's clients. What gets measured gets managed, so the Manager strongly encourages companies to set clear targets or key performance indicators on all material ESG risks.
The investment process consists of four interconnected and equally important stages.
Monitor
Contact
Engage
Act
Ongoing due diligence
- Business performance
- Company financials
- Corporate governance
- Company's key risks and opportunities
Frequent dialogue
- Senior executives
- Board members
- Heads of departments and specialists
- Site visits
Exercise rights
- Attend AGM/EGMs
- Always vote
- Explain voting decisions
- Maximise influence to drive positive outcomes
Consider all options
- Increase or decrease our shareholding
- Collaborate with other investors
- Take legal action if necessary
Novartis Case-Study 1
The Manager had several positive engagements with the Swiss-based pharmaceutical giant Novartis during the year. Novartis has recently developed its own ESG scorecard, which is a welcome step focusing the company on the financial materiality of ESG issues, including innovation, access to medicine, safety and ethical standards. Along with other pharmaceutical companies, it has brought its infrastructure and platforms to the fight against Covid-19. Its access to medicine targets includes reaching twice as many patients by 2025, focusing on low and middle-income countries. Finally, the company launched a 1.85 billion Euro ESG linked bond in September 2020. Bondholders may receive greater interest if Novartis does not meet its goals for expanding access to medicine in poorer countries and addressing key global health challenges.
Enel Case Study 2
Enel is an Italian multinational integrated power company. It has impressively reduced scope one emissions ('scope one' covers direct emissions from owned or controlled sources) by 47% since 2017 and while 17% of power generation still comes from coal, the group is committed to reducing that over the next ten years. Enel is already a leader in renewable energy generation globally, with the most installed and managed renewable capacity of any private company. Hydro represents two-thirds of renewable capacity, but more recent investment has been towards solar and wind.
PROMOTING THE COMPANY'S SUCCESS (S172 STATEMENT)
What We Do
The Board is required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year under section 172 (1) of the Companies Act 2006 (the "s172 Statement"). This s172 Statement, from 'What We Do' to "Long-Term Investment" below, provides an explanation of how the Directors have promoted the success of the Company for the benefit of its members as a whole, taking into account the likely long-term consequences of decisions, the need to foster relationships with all stakeholders and the impact of the Company's operations on the environment.
The purpose of the Company is to act as a vehicle to provide, over time, financial returns (both income and capital) to its shareholders. The Company's investment objective is disclosed below. The activities of the Company are overseen by the Board of Directors of the Company.
The Board's philosophy is that the Company should operate with a transparent culture where all parties are treated with respect as well as the opportunity to offer practical challenge and participate in positive debate which is focused on achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the other key service providers.
The mechanics of how the Company operates are set out on page 22 of the published Annual Report and Financial Statements for the year ended 31 December 2020. These mechanics, which have evolved over time, are designed to protect shareholders' interests.
Investment trusts, such as the Company, are long-term investment vehicles, with a recommended holding period of five or more years. Typically, investment trusts are externally managed, have no employees, and are overseen by an independent non-executive board of directors. Your Company's Board of Directors sets the investment mandate, monitors the performance of all service providers (including the Manager) and is responsible for reviewing strategy on a regular basis. All this is done with the aim of preserving and enhancing shareholder value over the longer-term.
Shareholder Engagement
Shareholders are key stakeholders in the Company - they look to the Manager to achieve the investment objective over time and to deliver a regular growing income together with some capital growth. In normal circumstances the Board is available to meet at least annually with shareholders at the Annual General Meeting and this includes informal meetings with them over lunch following the formal business of the AGM. This is seen as a very useful opportunity to understand the needs and views of the shareholders. In between AGMs, the Directors and Manager also conduct programmes of investor meetings with larger institutional, private wealth and other shareholders to ensure that the Company is meeting their needs. Such regular meetings may take the form of joint presentations with the Investment Manager or meetings directly with a Director where any matters of concern may be raised directly.
The following table describes some of the ways we engage with our shareholders:
AGM
Ordinarily the AGM provides an opportunity for the Directors to engage with shareholders, answer their questions and meet them informally. In light of the ongoing restrictions surrounding Covid-19, the next AGM will be a functional only meeting. However, we have put in place arrangements for an interactive Online Shareholder Presentation at 11.00 a.m. on Tuesday 13 April 2021 and shareholders are encouraged to register and attend.
Annual and Half Yearly Reports
We publish a full Annual Report in March/April each year that contains a strategic report, governance section, financial statements and additional information; we also publish a Half Yearly Report in August/September. The reports are available online and in paper format.
Company Announcements
We issue announcements for all substantive news relating to the Company. Shareholders can find these announcements on the Company's website.
Results Announcements
We release a full set of financial results at the half year and full year stage. Updated net asset value figures are announced on a daily basis.
Monthly Factsheets
The Manager publishes monthly factsheets on the Company's website including commentary on portfolio and market performance.
Website
Our website contains a range of information on the Company and includes a full monthly portfolio listing of our investments. Details of financial results, the investment process and Manager together with Company announcements and contact details can be found here: murray-intl.co.uk.
Other Shareholder Engagement
We aim to join the Manager in meeting the largest shareholders together with prospective shareholders at the annual and interim results presentations.
The Manager
The key service provider for the Company is the Alternative Investment Fund Manager and the performance of the Manager is reviewed in detail at each Board meeting. The Manager's investment process is outlined on page 16 and page 101 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Other Service Providers
The other key stakeholder group is that of the Company's third party service providers. The Board is responsible for selecting the most appropriate outsourced service providers and monitoring the relationships with these suppliers regularly in order to ensure a constructive working relationship. Our service providers look to the Company to provide them with a clear understanding of the Company's needs in order that those requirements can be delivered efficiently and fairly. The Board, via the Management Engagement Committee, ensures that the arrangements with service providers are reviewed at least annually in detail. The aim is to ensure that contractual arrangements are good value for money, remain in line with best practice, services being offered meet the requirements and needs of the Company and performance is in line with the expectations of the Board, Manager and other relevant stakeholders. Reviews include those of the Company's depositary and custodian, share registrar and broker. The Audit and Risk Committee reviews the terms of engagement of the auditor. In addition the Manager operates a 'three lines of defence' model with the ASI business units responsible for adhering to applicable rules and regulations; the compliance team is then responsible for checking that the rules are being followed and then internal audit is responsible for independently reviewing these arrangements.
Principal Decisions
Pursuant to the Board's aim of promoting the long-term success of the Company, the following principal decisions have been taken during the year:
Investment Strategy Review
As explained in the Chairman's Statement, the Board has conducted an extensive investment strategy review in conjunction with the Manager in order to ensure that the Company remains competitive and the investment process adopted by the Manager remains effective and fit for purpose in the current markets. From shareholder feedback, it is clear that the Company's dividends are very attractive to shareholders and the review highlighted the potential use of stock lending and covered options to boost the level of revenue that the portfolio generates. The review included a focus on the Company's cost base in order to ensure that supplier costs remained competitive.
Portfolio
The Investment Manager's Review details the key investment decisions taken during the year and subsequently. The Manager has continued to monitor the investment portfolio throughout the year under the supervision of the Board. A list of the key portfolio changes can be found in the Investment Manager's Review.
Gearing
In May 2020 the Board agreed a new one year revolving credit facility of £50m to replace a maturing £50m facility. In light of the then escalating Covid-19 pandemic, the aim at the time of this renewal had been to ensure continuity whilst maintaining future flexibility in order not to lock in rates at a time when the markets were particularly volatile. The Board and Manager are now actively investigating options for the replacement of that £50m revolving credit facility that will be maturing in May 2021 with the focus being on enhancing shareholder returns over the longer-term.
Share Issuance/Buybacks
During the year, the Board has continued to review the trading in the Company's shares and has successfully issued a limited number of new shares in order to manage the level of premium to NAV at which the shares have been trading, to increase the size of the Company and improve the liquidity of the Company's shares. Also during the year, the Board has restarted share buybacks at times when the number of sellers has exceeded the number of buyers. The aim of the buybacks is to ensure that the discount to NAV does not become excessive, compared to the peer group.
ESG/Climate Change
As highlighted above, the Board is responsible for overseeing the work of the Manager and this is not limited solely to the investment performance of the portfolio companies. The Board also has regard for environmental, social and governance matters (ESG) that subsist within the portfolio companies. The Board has conducted regular meetings with the Manager and is supportive of the Manager's pro-active approach to ESG and climate change engagement. During the year, at the Board's request, the Manager has reviewed and improved the quality and content of its ESG and associated reporting to the Board.
Directorate
The Directors welcomed Mr Simon Fraser to the Board, as an independent non-executive Director on 1 May 2020, following the retirement of Mr Peter Dunscombe on 24 April 2020. In accordance with the agreed succession plan, Dr Kevin Carter and Ms Marcia Campbell will be retiring from the Board at the AGM in 2021 and a process to find a new independent Director is currently underway. The Board believes that shareholders' interests are best served by ensuring a smooth and orderly refreshment of the Board. This provides continuity and maintains the Board's open and collegiate style. As part of the handover of Chairmanship, Dr Carter and Mr Fraser have conducted a number of meetings with shareholders during the year.
Long-Term Investment
The Company is in its 114th year. It is a long-term investor and the Board has in place the necessary procedures and processes to continue to promote the long-term success of the Company. The Board will continue to monitor, evaluate and seek to improve these processes as the Company grows over time, to ensure that the investment proposition is delivered to shareholders and other stakeholders in line with their expectations.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
KPI
Description
Performance versus Reference Index
Absolute Performance: The Board considers the Company's NAV total return figures to be the best indicators of performance over time and these are therefore the main indicators of performance used by the Board.
Relative Performance: The Board also measures performance against the Reference Index and performance relative to investment trusts within the Company's peer group over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.
Share Price Performance: The Board also monitors the price at which the Company's shares trade relative to the Reference Index on a total return basis over time
A graph showing absolute, relative and share price performance is shown on page 32 of the published Annual Report and Financial Statements for the year ended 31 December 2020 and further commentary on the performance of the Company is contained in the Chairman's Statement and Investment Manager's Review.
Discount/Premium to NAV
The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount/premium by the use of share buybacks and the issuance of new shares or the sale of Treasury shares, subject to market conditions. A graph showing the share price premium/(discount) relative to the NAV is shown on page 31 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Dividend
The Board's aim is to seek to increase the Company's revenues over time in order to maintain an above average dividend yield. Dividends paid over the past 10 years are set out in the published Annual Report and Financial Statements for the year ended 31 December 2020 on page 31 together with a graph showing dividend growth against CPI and RPI on page 32.
Gearing
The Board's aim is to ensure that gearing is kept within the Board's guidelines issued to the Manager as disclosed on page 27 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Investment Objective
The aim of the Company is to achieve an above average dividend yield, with long-term growth in dividends and capital ahead of inflation, by investing principally in global equities.
Investment Policy
Asset Allocation
The Company's assets are currently invested in a diversified portfolio of international equities and fixed income securities spread across a range of industries and economies. The Company's investment policy is flexible and it may, from time to time, hold other securities including (but not limited to) index-linked securities, convertible securities, preference shares, unlisted securities, depositary receipts and other equity-related securities. The Company may invest in derivatives for the purposes of efficient portfolio management in the furtherance of its investment objective.
The Company's investment policy does not impose any geographical, sectoral or industrial constraints upon the Manager. The Board has set guidelines which the Manager is required to work within from meeting to meeting. It is the investment policy of the Company to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts), at the time of purchase. The Company currently does not have any investments in other investment companies. The Manager is authorised to enter into stock lending contracts and the Company plans to undertake limited stocklending activity in 2021.
Risk Diversification
The Manager actively monitors the Company's portfolio and attempts to mitigate risk primarily through diversification. The Company is permitted to invest up to 15% of its investments by value in any single holding (at the time of purchase) although typically, individual investments do not exceed 5% of the total portfolio.
Gearing
The Board considers that returns to shareholders can be enhanced by the judicious use of borrowing. The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis. Any borrowing, except for short-term liquidity purposes, is used for investment purposes or to fund the purchase of the Company's own shares.
Total gearing will not in normal circumstances exceed 30% of net assets with cash deposits netted against the level of borrowings. At the year end, there was net gearing of 13.4% (calculated in accordance with Association of Investment Companies guidance) and particular care is taken to ensure that any bank covenants permit maximum flexibility in investment policy.
Changes to Investment Policy
Any material change to the investment policy will require the approval of the shareholders by way of an ordinary resolution at a general meeting. The Company will promptly issue an announcement to inform the shareholders and the public of any change of its investment policy.
Risk Management
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. A summary of the principal risks is set out below, together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's shares are published monthly on the Company's fact sheet and can also be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website.
With the help of a detailed risk matrix, the Board regularly undertakes a robust review of the principal risks and uncertainties facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Board collectively discusses with the Manager areas where there may be risks emerging and maintains a register of these. In the event that an emerging risk has gained significant weight or importance, that risk is categorised and added to the Company's risk register and is monitored accordingly.
The Board has kept the risks related to the Covid-19 pandemic under regular review. The impact of the pandemic on markets will continue to affect the value of the Company's investments due to ongoing disruption of supply chains and changes in demand for products and services, increased costs and potential cash flow issues. The pandemic has significantly impacted world stock markets as well as creating uncertainty around future dividend payments. However, the Board notes the Manager's robust and disciplined investment process which continues to focus on long-term company fundamentals including balance sheet strength and deliverability of sustainable earnings growth. The pandemic has also impacted the Company's third party service providers, with business continuity and home working plans having been implemented. The Board, through the Manager, has been closely monitoring all third party service arrangements and is pleased to report that it has not seen any reduction in the level of service provided to the Company to date.
Significant matters relating to the work of the Audit and Risk Committee are discussed in the Report of the Audit and Risk Committee and further detail on financial risks and risk management is disclosed in note 18 to the financial statements. The Board continues to monitor the impact of the UK leaving the EU ("Brexit") which became effective on 31 January 2020. Following the expiry of the transition period on 1 January 2021 the Board does not believe that there will be a significant short to medium term impact on the Company from Brexit but will continue to monitor the longer term impact. In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the current financial year.
Principal Risks
Mitigating Action
Investment strategy and objectives - if the Company's investment objective becomes unattractive and the Company fails to adapt to changes in investor demand, the Company may become unattractive to investors, leading to decreased demand for its shares and a widening discount.
The Board keeps the level of discount and/or premium at which the Company's shares trade as well as the investment objective and policy under review. The Board holds an annual strategy meeting where the Board reviews updates from the Manager and investor relations reports, and the Broker reports on the market. In addition, the Board is updated at each Board meeting on the make up of and any movements in the shareholder register and the Directors attend meetings with shareholders to keep abreast of investor opinion.
Investment portfolio, investment management - investing outside the investment restrictions and guidelines set by the Board or poor stock selection could result in poor performance and inability to meet the Company's objectives.
The Board sets and monitors its investment restrictions and guidelines and receives regular Board reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines. The Manager attends all Board meetings. The Board also monitors the Company's share price relative to the NAV.
Financial obligations - the ability of the Company to meet its financial obligations, or increasing the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares.
The Board sets a gearing limit and receives regular updates on the actual gearing levels the Company has reached from the Manager together with the assets and liabilities of the Company and reviews these at each Board meeting. In addition, ASFML, as Alternative Investment Fund Manager, in conjunction with the Board, has set an overall leverage limit of 2.0x on a commitment basis (2.5x on a gross notional basis) and provides regular updates to the Board.
Financial and Regulatory - the financial risks associated with the portfolio, including the impact of movements in foreign currency exchange rates, could result in losses to the Company. In addition, failure to comply with relevant regulation (including the Companies Act, the Corporation Taxes Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the FCA's Listing Rules, Disclosure and Prospectus Rules) may have an impact on the Company.
The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are mitigated in conjunction with the Manager. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 18 to the financial statements. The Board relies upon the Standard Life Aberdeen Group to ensure the Company's compliance with applicable regulations and from time to time employs external advisers to advise on specific concerns.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of the Standard Life Aberdeen Group) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.
The Board receives reports from the Manager on internal controls and risk management at each Board meeting. It receives assurances from all its significant service providers including the depositary, as well as back to back assurance from the Manager at least annually. Further details of the internal controls which are in place are set out in the Directors' Report.
The Potential Impact of ESG Investment Principles Applying ESG and sustainability criteria in the investment process may result in the exclusion of assets in which the Company might otherwise invest. This may have a positive or negative impact on performance.
The Board supports and encourages the ESG analysis incorporated by the Manager as part of its investment decision making process and understands that over the short-term companies with weak ESG compliance may appear to perform strongly. Over the longer-term, the Board believes that companies with stronger ESG ratings will outperform.
Viability Statement
The Company does not have a fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long-term investment vehicle but, for the purposes of this viability statement, has decided that a period of five years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long-term horizon and the inherent uncertainties of looking out further than five years.
In assessing the viability of the Company over the review period, the Directors have considered the operational resilience of the Company including the regular updates and reporting received from the Manager and have focused upon the following factors:
- The principal and emerging risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's shares evidenced by the historical level of premium and/or discount;
- The level of income generated by the Company;
- The need to ensure that that the Manager and the Company's other third party service providers have suitable processes and controls in place to enable them to continue to provide their services to the Company within the context of the ongoing Covid-19 pandemic;
- The liquidity of the Company's portfolio - over 88% of the investments are categorised as level 1, held within active markets and realisable within seven days; and
- The profile of the Company's £200 million loan facilities which mature between May 2021 and May 2024 and the ability of the Company to refinance or repay the £50m facility that matures in May 2021.
Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due for a period of five years from the date of this Report. In making this assessment, the Board has considered scenario modelling prepared by the Manager which analysed the impact of matters such as significant economic and stock market volatility which could result in a substantial reduction in the liquidity of the portfolio, changes in investor sentiment or a significant reduction in earnings which could all have an impact on the assessment of the Company's prospects and viability in the future.
Promoting the Company
The Board recognises the importance of communicating the long-term attractions of your Company to prospective investors both for improving liquidity and for enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Manager on behalf of a number of investment companies under its management. The Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns. The purpose of these initiatives is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. The Company's financial contribution to the programmes is matched by the Manager. The Manager reports quarterly to the Board providing an analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
Board Diversity Policy
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. However, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment and, therefore, the Company does not consider it appropriate to set diversity targets. At 31 December 2020, there were three male Directors and three female Directors on the Board.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day-to-day management and administrative functions to Aberdeen Standard Fund Managers Limited. There are, therefore, no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.
Due to the nature of the Company's business, being a Company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company, therefore, is not required to make a slavery and human trafficking statement.
Socially Responsible Investment Policy
The Company supports the UK's Stewardship Code, and seeks to play its role in supporting good stewardship of the companies in which it invests. While the delivery of stewardship activities has been delegated to the Manager, the Board acknowledges its role in setting the tone for the effective delivery of stewardship on the Company's behalf.
Further details on stewardship may be found in the Directors' Report.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Website
murray-intl.co.uk
Kevin Carter
Chairman
4 March 2021
5. EXTRACTS FROM THE DIRECTORS' REPORT
The Directors present their report and the audited financial statements for the year ended 31 December 2020.
Results and Dividends
Details of the Company's results and proposed dividends are shown above.
Investment Trust Status
The Company is registered as a public limited company (registered in Scotland No. SC006705) and has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 January 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2020 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure
The Company's capital structure is summarised in note 14 to the financial statements. At 31 December 2020, there were 128,438,662 fully paid Ordinary shares of 25p each (2019 -129,332,003 Ordinary shares) in issue. At the year end there were 973,341 Ordinary shares held in Treasury (2019 - nil).
Share Issuance and Buybacks
During the year 80,000 new Ordinary shares were issued at a premium to NAV under the Company's blocklisting authority (2019: 406,531 Ordinary shares sold from Treasury and 781,927 new Ordinary shares issued) and 973,341 Ordinary shares were purchased in the market for Treasury (2019 - nil). Subsequent to the year end, a further 69,709 Ordinary shares have been purchased for Treasury at a discount to the prevailing NAV per share.
Share Rights
Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends and on a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
Borrowings
On 14 May 2020, the Company agreed a new £50 million revolving credit facility with the Royal Bank of Scotland International Limited ("RBSI") which was drawn in full and used to repay a maturing £50 million loan (also with RBSI). In May 2021 the £50 million revolving credit facility with RBSI is due to mature and the Directors are in the process of reviewing options to replace that facility.
Management and Secretarial Arrangements
The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML"), a wholly owned subsidiary of Standard Life Aberdeen plc, as its alternative investment fund manager under the terms of an investment management agreement dated 14 July 2014 (as amended). Under the terms of the agreement, the Company's portfolio is managed by Aberdeen Asset Managers ("AAM") by way of a group delegation agreement in place between ASFML and AAM. Investment management services are provided to the Company by ASFML. Company secretarial, accounting and administrative services have been delegated by ASFML to Aberdeen Asset Management PLC.
The annual management fee is charged on net assets (ie excluding borrowings for investment purposes), averaged over the six previous quarters ("Net Assets") on the following tiered basis: 0.5% of Net Assets up to £1,200m and 0.425% of Net Assets above £1,200m.
The secretarial fee of £100,000 per annum is included within the first tier of the annual management fee. A fee of 1.5% per annum remains chargeable on the value of any unlisted investments. The investment management fee is chargeable 30% against revenue and 70% against realised capital reserves in line with the Board's long-term expectation of returns from revenue and capital. No fees are charged in the case of investments managed or advised by the Standard Life Aberdeen Group. The management agreement may be terminated by either party on the expiry of six months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due up to that date.
The Board considers the continued appointment of the Manager on the terms agreed to be in the interests of the shareholders as a whole because the Standard Life Aberdeen Group has the investment management, secretarial, promotional and administrative skills and expertise required for the effective operation of the Company.
The Board
The Board currently consists of six non-executive Directors. The names and biographies of the current Directors are disclosed on pages 49 to 51 of the published Annual Report and Financial Statements for the year ended 31 December 2020 indicating their range of experience as well as length of service. Mr Dunscombe retired from the Board on 24 April 2020.
The Directors will retire at the AGM in April 2021 and, with the exception of Dr Carter and Ms Campbell, each Director will stand for re-election (with Mr Fraser standing for election). Following Dr Carter's retirement, Mr Fraser will become Chairman of the Company, the Management Engagement and Nomination Committees and will stand down from the Remuneration and Audit and Risk Committees. Following Ms Campbell's retirement at the AGM in 2021 Ms Binyon will become Chairman of the Audit and Risk Committee.
The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively. The reasons for the re-election, where relevant, of the individual Directors are set out on pages 49 to 51 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company. The Company's Articles of Association provide an indemnity to the Directors out of the assets of the Company against any liability incurred in defending proceedings or in connection with any application to the Court in which relief is granted.
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chairman also engages with major shareholders and ensures that all Directors understand shareholder views.
Directors' Report
The Senior Independent Director acts as a sounding board for the Chairman and acts as an intermediary for other Directors, when necessary. Working closely with the Nomination Committee, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have.
Management of Conflicts of Interest
No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 21 to the financial statements and the Directors' Remuneration Report. No Directors had any other interest in contracts with the Company during the period or subsequently.
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest, as required by the Companies Act 2006. As part of this process, the Directors are required to disclose other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting. All proposed significant external appointments are also required to be approved, in advance, by the Chairman and then communicated to other Directors for information.
The Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Manager also adopts a group-wide zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Manager's anti-bribery and corruption policies are available on its website.
In relation to the corporate offence of failing to prevent tax evasion, it is the Company's policy to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to facilitation of tax evasion whether under UK law or under the law of any foreign country and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 December 2020:
Shareholder
No. of Ordinary shares held
% held
Rathbones
14,056,655
10.9
Hargreaves Lansdown A
11,307,177
8.8
Aberdeen Standard Retail Plans A
10,158,980
7.9
Interactive Investor A
9,757,161
7.6
Charles Stanley
6,899,398
5.4
Investec Wealth & Management
5,781,438
4.5
Smith & Williamson Wealth Management
5,163,206
4.0
AJ Bell
3,902,329
3.0
A Non-beneficial interests
There have been no significant changes notified in respect of the above holdings between 31 December 2020 and 4 March 2021.
Corporate Governance
The Corporate Governance Statement forms part of the Directors' Report. The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk.
The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.
The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
- interaction with the workforce (provisions 2, 5 and 6);
- the role and responsibility of the chief executive
- (provisions 9 and 14);
- previous experience of the chairman of a remuneration committee (provision 32); and
- executive directors' remuneration (provisions 33 and 36 to 40).
The Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.
The full text of the Company's Corporate Governance Statement can be found on the Company's website, murray-intl.co.uk.
Directors have attended Board and Committee meetings during the year ended 31 December 2020 as follows (with their eligibility to attend the relevant meeting in brackets):
Scheduled
BoardOther
BoardNom
ComAudit
Com
MEC/
RemK J Carter A
6 (6)
4 (4)
2 (2)
n/a
1 (1)
C. Binyon
6 (6)
3 (4)
2 (2)
3 (3)
2 (2)
M Campbell
6 (6)
3 (4)
2 (2)
3 (3)
2 (2)
S Fraser B
4 (4)
0 (0)
1 (1)
2 (2)
1 (1)
D Hardie
6 (6)
4 (4)
2 (2)
3 (3)
2 (2)
A Mackesy
6 (6)
3 (4)
2 (2)
3 (3)
2 (2)
A Dr Carter is not a member of either the Audit and Risk Committee or the Remuneration Committee but attended all Committee meetings by invitation
B Mr Fraser was appointed to the Board on 1 May 2020
Board Committees
Terms of Reference
The terms of reference of all the Board Committees may be found on the Company's website murray-intl.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the Board for their adequacy on an annual basis.
Audit and Risk Committee
The Report of the Audit and Risk Committee is on pages 63 and 64 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Management Engagement Committee ("MEC")
The MEC comprises all of the Directors. Dr Carter is the Chairman. The Committee reviews the performance of the Manager and its compliance with the terms of the management and secretarial agreement. The terms and conditions of the Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. The Committee believes that the continuing appointment of the Manager on the terms that have been agreed is in the interests of shareholders as a whole. The Committee is also responsible for the oversight of all other key service provider relationships.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which comprises the entire Board and is chaired by Dr Carter. The Board's overriding priority in appointing new Directors to the Board is to identify the candidate with the best range of skills and experience to complement existing Directors. The Board also recognises the benefits of diversity and its policy on diversity is referred to in the Strategic Report. When Board positions become available as a result of retirement or resignation, the Company ensures that a diverse group of candidates is considered.
The Board's policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board. The Board also takes the view that independence is not necessarily compromised by length of tenure on the Board. However, in compliance with the provisions of the AIC Code, it is expected that Directors will serve in accordance with the time limits laid down by the AIC Code. It is the policy of the Board that the Chairman of the Company should retire once he or she has served as a Director for nine years in line with current best practice of the Financial Reporting Council. However there could be circumstances where it might be appropriate to ask a Chair to stay on for a limited period and the reasons for the extension will be fully explained to shareholders and a timetable for the departure of the Chairman clearly set out.
Dr Carter and Ms Campbell will retire from the Board with effect from the conclusion of the business at the AGM to be held in 2021. Accordingly, the Company has initiated a search for a new independent non-executive Director using the services of Nurole Limited, an independent external recruitment agent that has no other connections with the Company. A key requirement of the recruitment process was to ensure the continuity of the Board's open and inclusive culture, policies and practices which are judged to be essential to the future success of the Company. The Company will update shareholders as soon as a new appointment has been made.
The Committee has put in place the necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self evaluation and a performance evaluation of the Board as a whole. An external evaluation was undertaken in 2018 by Stephenson & Co. an independent external board evaluation service provider that does not have any other connections with the Company. In 2020 questionnaires covering the Board, individual Directors, the Chairman and the Audit and Risk Committee Chairman were completed. The Chairman then met each Director individually to review their responses. This evaluation highlighted certain areas of further focus such as continuing professional development which will be addressed over time with input where necessary from the Company's advisors. Overall, the Committee has concluded that the Board has a relevant balance of experience and knowledge of investment markets, legal regulation and financial accounting and continues to work in a collegiate and effective manner. The Board intends to conduct the next externally facilitated evaluation of the Board during 2021.
In accordance with Principle 23 of the AIC's Code of Corporate Governance which recommends that all directors of investment companies should be subject to annual re-election by shareholders, all the members of the Board, with the exception of Dr Carter and Ms Campbell, will retire at the forthcoming Annual General Meeting and will offer themselves for re-election (with Mr Fraser offering himself for election). In conjunction with the evaluation feedback, the Committee has reviewed each of the proposed reappointments and concluded that each of the Directors has the requisite high level and range of business and financial experience and recommends their re-election at the forthcoming AGM. Details of the contributions provided by each Director during the year are disclosed on pages 49 to 51 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Remuneration Committee
The level of fees payable to Directors is considered by the Remuneration Committee which comprises the entire Board excluding the Chairman and which is chaired by Mr Hardie.
The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report on pages 60 to 62 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Going Concern
The Directors have undertaken a robust review of the Company's viability (refer to statement in strategic Report) and ability to continue as a going concern. The Company's assets consist of a diverse portfolio of listed equity shares and bonds. The equities and a majority of the bond portfolio are, in most circumstances, realisable within a very short timescale.
The Company has a £50 million loan facility with RBSI which is due to mature in May 2021. The Directors are currently reviewing options to replace the facility. However, at this stage it is too early to confirm that the facility will be renewed. If acceptable terms are available, the Company expects to continue to access a similarly sized level of gearing. However, should the Board decide not to replace the facility any maturing debt would be repaid through the proceeds of equity and/or bond sales.
The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report including the major global economic disruption caused by the Covid-19 pandemic and have reviewed forecasts detailing revenue and liabilities. Notwithstanding the continuing uncertain economic environment, the Directors believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements.
Accountability and Audit
Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware, and he or she has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Independent Auditor
BDO LLP was appointed independent auditor to the Company with effect from the AGM on 27 April 2020. BDO LLP has expressed its willingness to continue to be the Company's independent auditor and a Resolution to re-appoint BDO LLP as the Company's auditor will be put to the forthcoming AGM, along with a separate Resolution to authorise the Directors to fix the auditor's remuneration.
Internal Controls and Risk Management
Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 18 to the financial statements. The Board of Directors is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. Following the Financial Reporting Council's publication of "Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting" (the "FRC Guidance"), the Directors confirm that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the full year under review and up to the date of approval of the financial statements, and this process is regularly reviewed by the Board and accords with the relevant sections of the FRC Guidance.
The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management. The Board has prepared its own risk register which identifies potential risks relating to strategy, investment management, shareholders, marketing, gearing, regulatory and financial obligations, third party service providers and the Board. The Board considers the potential cause and possible impact of these risks as well as reviewing the controls in place to mitigate these potential risks. A risk is rated by having a likelihood and an impact rating and the residual risk is plotted on a "heat map" and is reviewed at least twice a year.
The Board has reviewed the effectiveness of the system of internal control and, in particular, it has reviewed the process for identifying and evaluating the significant risks faced by the Company and the policies and procedures by which these risks are managed.
The Directors have delegated the investment management of the Company's assets to ASFML within overall guidelines and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by ASFML's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by each function within the Manager's activities. Risk is considered in the context of the FRC Guidance and includes financial, regulatory, market, operational and reputational risk. This helps the Manager's internal audit risk assessment model to identify those functions for review. Any relevant weaknesses identified through internal audit's review are reported to the Board and timetables are agreed for implementing improvements to systems, processes and controls. The implementation of any remedial action required is monitored and feedback provided to the Board.
The key components designed to provide effective internal control for the year under review and up to the date of this Report are outlined below:
- the Manager prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its investment performance;
- the Board and Manager have agreed clearly defined investment criteria;
- there are specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board. The Manager's investment process and financial analysis of the companies concerned include detailed appraisal and due diligence;
- as a matter of course the internal audit and compliance departments of ASFML continually review the Manager's operations;
- written agreements are in place which specifically define the roles and responsibilities of the Manager and other third party service providers and monitoring reports are received from these providers when required;
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at the Manager, has decided to place reliance on the Manager's systems and internal audit procedures; and
- twice a year, at its Board meetings, the Board carries out an assessment of internal controls by considering documentation from the Manager, including its internal audit and compliance functions and taking account of events since the relevant period end.
In addition, the Manager ensures that clearly documented contractual arrangements exist in respect of any activities that have been delegated to external professional organisations. The Board meets annually with representatives from BNY Mellon and reviews a control report covering the activities of the depositary and custodian.
Representatives from the Internal Audit Department of the Manager report six monthly to the Audit and Risk Committee of the Company and have direct access to the Directors at any time.
The Board has reviewed the effectiveness of the Manager's system of internal control including its annual internal controls report prepared in accordance with the International Auditing and Assurance Standards Board's International Standard on Assurances Engagements ("ISAE") 3402, "Assurance Reports on Controls at a Service Organisation". The Board has also reviewed the Manager's process for identifying and evaluating the significant risks faced by the Company and the policies and procedures by which these risks are managed. The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and, by their nature, can provide reasonable but not absolute assurance against material misstatement or loss.
Discount Management Policy and Special Business at Annual General Meeting
Issue of Shares
In terms of the Companies Act 2006 (the "Act"), the Directors may not allot shares unless so authorised by the shareholders. Resolution 10 in the Notice of Annual General Meeting which will be proposed as an Ordinary Resolution will, if passed, give the Directors the necessary authority to allot shares up to an aggregate nominal amount of £3,209,224 (equivalent to 12,836,895 Ordinary shares or 10% of the Company's existing issued share capital at 4 March 2021, the latest practicable date prior to the publication of this Annual Report). Such authority will expire on the date of the 2022 Annual General Meeting or on 30 June 2022, whichever is earlier. This means that the authority will have to be renewed at the next Annual General Meeting.
When shares are to be allotted for cash, Section 561 of the Act provides that existing shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares otherwise than by a pro rata issue to existing shareholders. Special Resolution 11 will, if passed, also give the Directors power to allot for cash equity securities up to an aggregate nominal amount of £3,209,224 (equivalent to 12,836,895 Ordinary shares or 10% of the Company's existing issued share capital at 4 March 2021, the latest practicable date prior to the publication of this Annual Report), as if Section 561 of the Act does not apply. This is the same nominal amount of share capital which the Directors are seeking the authority to allot pursuant to Resolution 10. This authority will also expire on the date of the 2022 Annual General Meeting or on 30 June 2022, whichever is earlier. This authority will not be used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions 10 and 11 to allot shares and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. Accordingly, issues will only be made where shares can be issued at a premium of 0.5% or more to NAV and there will never be any dilution for existing shareholders. The issue proceeds will be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in general meeting. Resolution 11 will also disapply pre-emption rights on the sale of Treasury shares as envisaged above. Once again, the pre-emption rights would only be disapplied where the Treasury shares are sold at a premium to NAV of not less than 0.5%.
Share Buybacks
At the Annual General Meeting held on 27 April 2020, shareholders approved the renewal of the authority permitting the Company to repurchase its Ordinary shares.
The Directors wish to renew the authority given by shareholders at the last Annual General Meeting. The principal aim of a share buyback facility is to enhance shareholder value by acquiring shares at a discount to NAV, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to NAV per share, should result in an increase in the NAV per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the NAV per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the Annual General Meeting.
Under the Listing Rules, the maximum price that may be paid on the exercise of this authority must not be more than the higher of (i) an amount equal to 105% of the average of the middle market quotations for a share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the share is purchased; and (ii) the higher of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p
per share.
It is currently proposed that any purchase of shares by the Company will be made from the capital reserve of the Company. The purchase price will normally be paid out of the cash balances held by the Company from time to time.
Special Resolution 12 will permit the Company to buy back shares and any shares bought back by the Company may be cancelled or held as Treasury shares. The benefit of the ability to hold Treasury shares is that such shares may be resold. This should give the Company greater flexibility in managing its share capital and improve liquidity in its shares. The Company would only sell on Treasury shares at a premium to NAV. When shares are held in Treasury, all voting rights are suspended and no distribution (either by way of dividend or by way of a winding up) is permitted in respect of Treasury shares. If the Directors believe that there is no likelihood of re-selling shares bought back, such shares would be cancelled. During the year to 31 December 2020 the Directors have successfully used the share buyback authority to acquire 973,341 shares for Treasury.
Special Resolution 12 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum of 14.99% of shares in issue at the date of the Annual General Meeting (amounting to 19,242,506 Ordinary shares as at 4 March 2021). Such authority will expire on the date of the 2022 Annual General Meeting or on 30 June 2022, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General Meeting or earlier if the authority has been exhausted.
Adoption of New Articles of Association
As explained in detail in the Chairman's Statement, the Directors are proposing Special Resolution 13 which seeks shareholder approval to adopt new Articles of Association (the "New Articles") in order to update the Company's current Articles of Association (the "Existing Articles"). The proposed amendments being introduced in the New Articles primarily relate to changes in law and regulation and developments in market practice since the Existing Articles were adopted, and principally include:
- provisions enabling the Company to hold virtual shareholder meetings using electronic means (as well as physical shareholder meetings or hybrid meetings);
- removal of the provision in the Existing Articles which expressly prohibits the distribution of capital profits such that the Company will have the ability to pay dividends from the Company's capital profits going forward where the Board considers it is in the best interests of shareholders to do so;
- increasing the limit on aggregate annual Directors' fees from £225,000 to £300,000;
- simplifying the procedure in relation to untraced shareholders by removing the requirement for the Company to publish newspaper advertisements and clarifying that the consideration (if any) received by the Company upon the sale of any share pursuant to the untraced shareholder provisions will belong to the Company;
- a requirement for the Directors to submit themselves for re-election at each AGM of the Company (and removal of the retirement by rotation provisions); and
- updating the methods of settling cash dividends.
A summary of the principal amendments being introduced in the New Articles is set out in the Appendix to the AGM Notice (on pages 113 and 114 of the published Annual Report and Financial Statements for the year ended 31 December 2020). Other amendments, which are of a minor, technical or clarifying nature, have not been summarised in the Appendix.
While the New Articles (if adopted) would permit shareholder meetings to be conducted using electronic means, the Directors have no present intention of holding a virtual-only meeting. Notwithstanding this proposed change, the Board remains fully committed to ensuring that future general meetings (including AGMs) incorporate a physical meeting whenever law, regulation and the circumstances permit in order to fulfil the Board's commitment to enable shareholders to meet and interact with the Board on a face-to-face basis. The potential to hold a general meeting through wholly electronic means is intended as a solution to be adopted as a last resort to ensure the continued smooth operation of the Company. Your Board would only use wholly virtual meetings in extreme operating circumstances where physical meetings are prohibited or not practicable.
The full terms of the proposed amendments to the Company's articles of association would have been made available for inspection as required under LR 13.8.10R (2) but for the Government restrictions implemented in response to the Covid-19 pandemic. As an alternative, a copy of the New Articles, together with a copy showing all of the proposed changes to the Existing Articles, will be available for inspection on the Company's website, murray-intl.co.uk from the date of the AGM Notice until the close of the AGM, and will also be available for inspection at the venue of the AGM from 15 minutes before and during the AGM. In the event that the current Covid-19 related restrictions are lifted before the AGM, a hard copy of these documents will be available for inspection at Bow Bells House, 1 Bread Street, London EC4M 9HH until the close of the AGM.
Recommendation
The Directors consider that the authorities requested above are in the best interests of the shareholders taken as a whole and recommend that all shareholders vote in favour of the resolutions, as the Directors intend to in respect of their own beneficial holdings of Ordinary shares amounting in aggregate to 102,122 shares, representing approximately 0.1% of the Company's issued share capital as at 4 March 2021.
The UK Stewardship Code and Proxy Voting
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the AIFM which has sub-delegated that authority to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code which aims to enhance the quality of engagement by investors with investee companies in order to improve their socially responsible performance and the long-term investment return to shareholders.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website (murray-intl.co.uk). The Company responds to letters from shareholders on a wide range of issues.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Standard Life Aberdeen Group (either the Company Secretary or the Manager) in situations where direct communication is required and usually a representative from the Board meets with major shareholders on an annual basis in order to gauge their views.
In addition to the formal Annual General Meeting, the Board seeks regular engagement with the Company's major shareholders through roadshow meetings undertaken in conjunction with the Manager and Broker as well as private meetings, in order to understand their views on governance and performance against the company's investment objective and investment policy. The results of these meetings are formally reported back to the Board at the regular quarterly Board meetings and discussed.
By order of the Board of Murray International Trust PLC
Aberdeen Asset Management PLC
Secretary
1 George Street,
Edinburgh EH2 2LL
4 March 2021
6. FINANCIAL HIGHLIGHTS
31 December 2020
31 December 2019
%
changeTotal assets less current liabilities (before deducting prior charges)
£1,661.6m
£1,738.8m
-4.4
Equity shareholders' funds (Net Assets)
£1,461.8m
£1,539.1m
-5.0
Market capitalisation
£1,451.4m
£1,629.6m
-10.9
Net Asset Value per Ordinary share{A}
1,138.2p
1,190.0p
-4.4
Share price - Ordinary share (mid market){A}
1,130.0p
1,260.0p
-10.3
(Discount)/premium to Net Asset Value per Ordinary share{B}
-0.7%
5.9%
Gearing (ratio of borrowings less cash to shareholders' funds)
Net gearing{B}
13.4%
11.3%
Dividends and earnings per Ordinary share
Revenue return per share
46.6p
54.1p
-13.8
Dividends per share{C}
54.5p
53.5p
+1.9
Dividend cover (including proposed final dividend){B}
0.86
1.01
Revenue reserves{D}
£66.8m
£75.7m
Operating costs
Ongoing charges ratio{B}
0.68%
0.65%
{A} Capital values.
{B} Considered to be an Alternative Performance Measure
{C} The figure for dividends per share reflects the years to which their declaration relates (see note 8) and assuming approval of the final dividend of 18.5p (2019 - fourth interim dividend of 17.5p).
{D} The revenue reserve figure does not take account of the third interim and final dividends amounting to £15,413,000 and £23,748,000 respectively (2019 - third interim dividend of £15,520,000 and fourth interim dividend of £22,647,000).
PERFORMANCE (TOTAL RETURN)
1 year
3 year
5 year
10 year
% return
% return
% return
% return
Share price{AB}
-5.3
+2.8
+71.8
+85.9
Net asset value per Ordinary share{A}
+0.9
+4.8
+68.6
+90.8
Reference Index{C}
+7.0
+22.8
+74.2
+147.5
{A} Considered to be an Alternative Performance Measure.
{B} Mid to mid.
{C} Reference Index comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020.
Source: Aberdeen Standard Investments, Morningstar & Lipper
7. STATEMENT OF DIRECTORS' RESPONSIBILITIES
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business; and
- prepare a director's report, a strategic report and director's remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and accounts, taken as a whole, is fair, balanced, and understandable and provides the information necessary for shareholders to assess the position, performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on murray-intl.co.uk, the Company's website, in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Directors' Responsibilities Pursuant to DTR4
The Directors confirm to the best of their knowledge:
- The financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
- The Annual Report includes a fair review of the development and performance of the business and the financial position of the company, together with a description of the principal risks and uncertainties that they face.
For Murray International Trust PLC
Kevin Carter,
Chairman
4 March 2021
8. STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2020
Year ended 31 December 2019
Revenue
Capital
Total
Revenue
Capital
Total
Notes
£'000
£'000
£'000
£'000
£'000
£'000
(Losses)/gains on investments
10
-
(49,645)
(49,645)
-
109,664
109,664
Income
3
68,918
-
68,918
82,417
-
82,417
Investment management fees
4
(2,054)
(4,795)
(6,849)
(2,139)
(4,991)
(7,130)
Currency losses
-
(3,757)
(3,757)
-
(147)
(147)
Administrative expenses
5
(1,966)
-
(1,966)
(2,109)
-
(2,109)
_______
_______
_______
_______
_______
_______
Net return before finance costs and taxation
64,898
(58,197)
6,701
78,169
104,526
182,695
Finance costs
6
(1,189)
(2,775)
(3,964)
(1,283)
(2,994)
(4,277)
_______
_______
_______
_______
_______
_______
Return before taxation
63,709
(60,972)
2,737
76,886
101,532
178,418
Taxation
7
(3,513)
1,033
(2,480)
(7,138)
1,517
(5,621)
_______
_______
_______
_______
_______
_______
Return attributable to equity shareholders
60,196
(59,939)
257
69,748
103,049
172,797
_______
_______
_______
_______
_______
_______
Return per Ordinary share (pence)
9
46.6
(46.4)
0.2
54.1
80.0
134.1
_______
_______
_______
_______
_______
_______
The "Total" column of this statement represents the profit and loss account of the Company. There is no other comprehensive income and therefore the return after taxation is also the total comprehensive income for the year. The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these financial statements.
9. STATEMENT OF FINANCIAL POSITION
As at
As at
31 December 2020
31 December 2019
Notes
£'000
£'000
Non-current assets
Investments at fair value through profit or loss
10
1,646,405
1,701,573
Current assets
Debtors
11
14,410
14,780
Cash and short-term deposits
3,208
30,040
_______
_______
17,618
44,820
_______
_______
Creditors: amounts falling due within one year
Bank loans
12,13
(50,000)
(50,000)
Other creditors
12
(2,391)
(7,634)
_______
_______
(52,391)
(57,634)
_______
_______
Net current liabilities
(34,773)
(12,814)
_______
_______
Total assets less current liabilities
1,611,632
1,688,759
Creditors: amounts falling due after more than one year
Bank loans
12,13
(149,805)
(149,704)
_______
_______
Net assets
1,461,827
1,539,055
_______
_______
Capital and reserves
Called-up share capital
14
32,353
32,333
Share premium account
362,967
361,989
Capital redemption reserve
8,230
8,230
Capital reserve
15
991,513
1,060,756
Revenue reserve
66,764
75,747
_______
_______
Equity shareholders' funds
1,461,827
1,539,055
_______
_______
Net asset value per Ordinary share (pence)
16
1,138.2
1,190.0
_______
_______
10. STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
Note
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 31 December 2019
32,333
361,989
8,230
1,060,756
75,747
1,539,055
Return after taxation
-
-
-
(59,939)
60,196
257
Dividends paid
8
-
-
-
-
(69,179)
(69,179)
Issue of new shares
14
20
978
-
-
-
998
Buy back of shares to Treasury
14
-
-
-
(9,304)
-
(9,304)
_______
______
______
_______
______
_______
Balance at 31 December 2020
32,353
362,967
8,230
991,513
66,764
1,461,827
_______
______
______
_______
______
_______
For the year ended 31 December 2019
Share
Capital
Share
premium
redemption
Capital
Revenue
capital
account
reserve
reserve
reserve
Total
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 31 December 2018
32,137
351,666
8,230
953,992
73,563
1,419,588
Return after taxation
-
-
-
103,049
69,748
172,797
Dividends paid
8
-
-
-
-
(67,564)
(67,564)
Issue of shares from Treasury
14
-
1,046
-
3,715
-
4,761
Issue of new shares
14
196
9,277
-
-
-
9,473
_______
______
______
_______
______
_______
Balance at 31 December 2019
32,333
361,989
8,230
1,060,756
75,747
1,539,055
_______
______
______
_______
______
_______
The accompanying notes are an integral part of these financial statements.
11. STATEMENT OF CASH FLOWS
Year ended
Year ended
31 December 2020
31 December 2019
Notes
£'000
£'000
Net return before finance costs and taxation
6,701
182,695
Decrease in accrued expenses
(104)
(229)
Overseas withholding tax
(6,857)
(6,400)
Decrease/(increase) in accrued income
3,520
(413)
Interest paid
(4,019)
(4,183)
Losses/(gains) on investments
49,645
(109,664)
Currency losses
3,757
147
Increase in other debtors
(53)
(10)
Corporation tax received/(paid)
2,707
(541)
_______
______
Net cash inflow from operating activities
55,297
61,402
Investing activities
Purchases of investments
(257,535)
(159,028)
Sales of investments
256,648
158,516
_______
______
Net cash used in investing activities
(887)
(512)
Financing activities
Equity dividends paid
8
(69,179)
(67,564)
Ordinary shares bought back to Treasury
14
(9,304)
-
Issue of Ordinary shares from Treasury
14
-
4,761
Issue of Ordinary shares
14
998
9,473
Loan repayment
(50,000)
(15,000)
Loan drawdown
50,000
30,000
_______
______
Net cash used in financing activities
(77,485)
(38,330)
_______
______
(Decrease)/increase in cash
(23,075)
22,560
_______
______
Analysis of changes in cash during the year
Opening balance
30,040
7,627
Effect of exchange rate fluctuations on cash held
(3,757)
(147)
(Decrease)/increase in cash as above
(23,075)
22,560
_______
______
Closing balances
3,208
30,040
_______
______
The accompanying notes are an integral part of these financial statements.
12. NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1.
Principal activity. The Company is a closed-end investment company, registered in Scotland No SC006705, with its Ordinary shares being listed on the London Stock Exchange.
2.
Accounting policies
(a)
Basis of preparation. The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the AIC's Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in October 2019. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
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 Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a revolving loan facility which expires in May 2021. Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks and other matters set out in the Viability Statement, the Directors believe that, after making enquiries, the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.
Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies and are continually evaluated. The areas requiring most significant judgement and assumption in the financial statements is the determination of the fair value hierarchy classification of quoted preference shares and bonds which have been assessed as being Level 2 due to them not being considered to trade in active markets and also the determination of whether special dividends received are considered to be revenue or capital in nature. The Directors do not consider there to be any significant estimates within the financial statements.
(b)
Income. Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends are recognised on their due date. Provision is made for any dividends not expected to be received. Special dividends are credited to capital or revenue, according to their circumstances.
In some jurisdictions, investment income and capital gains are subject to withholding tax deducted at the source of the income. The Company presents the withholding tax separately from the gross investment income in the Statement of Comprehensive Income under taxation.
The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities.
Interest receivable from cash and short-term deposits is accrued to the end of the year.
(c)
Expenses. All expenses are accounted for on an accruals basis and are charged to the Statement of Comprehensive Income. Expenses are charged against revenue except as follows:
- transaction costs on the acquisition or disposal of investments are charged against capital in the Statement of Comprehensive Income; and
- expenses are treated as a capital item in the Statement of Comprehensive Income and ultimately recognised in the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 30% to revenue and 70% to the capital reserve to reflect the Company's investment policy and prospective income and capital growth.
(d)
Taxation. The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net return as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date.
Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year, based on the marginal basis.
(e)
Investments. The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis.
Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured at fair value. For listed investments, the valuation of investments at the year end is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange.
Gains and losses arising from changes in fair value are treated in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.
(f)
Cash and cash equivalents. Cash comprises cash in hand and demand deposits. Cash equivalents includes bank overdrafts repayable on demand and short-term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value.
(g)
Short-term debtors and creditors. Both short-term debtors and creditors are measured at amortised cost and not subject to interest charges.
(h)
Borrowings. Borrowings, which comprise interest bearing bank loans are recognised initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest method. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to capital in the Statement of Comprehensive Income to reflect the Company's investment policy and prospective income and capital growth.
(i)
Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue. This reserve is not distributable.
Share premium account. The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising Ordinary shares of 25p. This reserve is not distributable.
Capital redemption reserve. The capital redemption reserve arose when Ordinary shares were cancelled, at which point an amount equal to the par value of the Ordinary share capital was transferred from the share capital account to the capital redemption reserve. This reserve is not distributable.
Capital reserve. This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences. Additionally, expenses, including finance costs, are charged to this reserve in accordance with (c) and (h) above. This reserve is not distributable except for the purpose of funding share buybacks to the extent that gains are deemed realised.
When the Company purchases its Ordinary shares to be held in Treasury, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from the capital reserve. Should these shares be sold subsequently, the amount received is recognised as an increase in equity, and the resulting surplus on the transaction is transferred to the share premium account or where a deficit on the transaction then it is transferred from the capital reserve.
Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
(j)
Foreign currency. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on dividends receivable are recognised in the Statement of Comprehensive Income and are reflected in the revenue reserve. Gains and losses on the realisation of foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve.
(k)
Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.
(l)
Dividends payable. Dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends are recognised in the financial statements in the period in which they are paid.
3.
Income
2020
2019
£'000
£'000
Income from investments (all listed)
UK dividend income
5,855
9,123
Overseas dividends
47,138
52,126
Overseas interest
15,731
21,141
_______
______
68,724
82,390
_______
______
Other income
Deposit interest
2
24
Interest on corporation tax reclaim
192
3
_______
______
Total income
68,918
82,417
_______
______
4.
Investment management fees
2020
2019
Revenue
Capital
Total
Revenue
Capital
Total
£'000
£'000
£'000
£'000
£'000
£'000
Investment management fees
2,054
4,795
6,849
2,139
4,991
7,130
_______
______
______
_______
______
_______
The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of investment management, secretarial, accounting and administration and promotional activity services.
The annual management fee is charged on net assets (i.e. excluding borrowings for investment purposes) averaged over the six previous quarters ("Net Assets"), on a tiered basis. The annual management fee is charged at 0.5% of Net Assets up to £1,200 million and 0.425% of Net Assets above £1,200 million. A fee of 1.5% per annum is chargeable on the value of any unlisted investments. The investment management fee is chargeable 30% against revenue and 70% against realised capital reserves. During the year £6,849,000 (2019 - £7,130,000) of investment management fees was payable to the Manager, with a balance of £1,680,000 (2019 - £1,799,000) being due at the year end.
Included within the management fee arrangements is a secretarial fee of £100,000 per annum which is chargeable 100% to revenue. During the year £100,000 (2019 - £100,000) of secretarial fees was payable to the Manager, with a balance of £25,000 (2019 - £25,000) being payable to ASFML at the year end. Subsequent to the year end, the Company and the Manager agreed to terminate the arrangement of allocating £100,000 of the management fee to secretarial fees with effect from 1 January 2021.
No fees are charged in the case of investments managed or advised by the Standard Life Aberdeen Group. The management agreement may be terminated by either party on the expiry of six months' written notice. On termination the Manager is entitled to receive fees which would otherwise have been due up to that date.
5.
Administrative expenses
2020
2019
£'000
£'000
Promotional activities{A}
400
394
Secretarial fees{B}
100
100
Registrars' fees
151
147
Directors' remuneration
198
184
Bank charges and custody fees
690
682
Depositary fees
136
149
Stock exchange fees
92
80
Printing and postage
88
78
Irrecoverable VAT
2
60
Auditor's fees for:
- Statutory audit
30
35
- Other assurance services
4
-
Other expenses
75
200
_______
______
1,966
2,109
_______
______
{A} In 2020 £400,000 (2019 - £394,000) was payable to ASFML to cover promotional activities during the year. At the year end £100,000 (2019 - £100,000) was due to ASFML.
{B} Details of the fee basis are contained in note 4.
6.
Finance costs
2020
2019
Revenue
Capital
Total
Revenue
Capital
Total
£'000
£'000
£'000
£'000
£'000
£'000
Bank loans
1,189
2,775
3,964
1,283
2,994
4,277
_______
______
______
_______
______
_______
7.
Taxation
2020
2019
Revenue
Capital
Total
Revenue
Capital
Total
£'000
£'000
£'000
£'000
£'000
£'000
(a)
Total tax charge
Analysis for the year
Current UK tax
837
-
837
1,892
-
1,892
Double taxation relief
(837)
-
(837)
(1,224)
-
(1,224)
Corporation tax prior year adjustment
(3,071)
-
(3,071)
(453)
-
(453)
Tax relief to capital
1,438
(1,438)
-
1,517
(1,517)
-
Irrecoverable overseas tax suffered
6,688
405
7,093
7,104
-
7,104
Overseas tax reclaimable
(1,542)
-
(1,542)
(1,698)
-
(1,698)
_______
______
______
_______
______
_______
Total tax charge for the year
3,513
(1,033)
2,480
7,138
(1,517)
5,621
_______
______
______
_______
______
_______
(b)
Factors affecting the tax charge for the year. The UK corporation tax rate is 19% (2019 - 19%). The tax assessed for the year is lower than the corporation tax rate. The differences are explained below:
2020
2019
Revenue
Capital
Total
Revenue
Capital
Total
£'000
£'000
£'000
£'000
£'000
£'000
Return before taxation
63,709
(60,972)
2,737
76,886
101,532
178,418
Return multiplied by the effective standard rate of corporation tax of 19% (2019 - 19%)
12,105
(11,585)
520
14,608
19,291
33,899
Effects of:
Non taxable UK dividend income
(1,112)
-
(1,112)
(1,733)
-
(1,733)
Losses/(gains) on investments not taxable
-
9,433
9,433
-
(20,836)
(20,836)
Currency losses not taxable
-
714
714
-
28
28
Non taxable overseas dividends
(8,718)
-
(8,718)
(9,467)
-
(9,467)
Irrecoverable overseas tax suffered
6,688
405
7,093
7,104
-
7,104
Overseas tax reclaimable
(1,542)
-
(1,542)
(1,698)
-
(1,698)
Double taxation relief
(837)
-
(837)
(1,224)
-
(1,224)
Corporation tax prior year adjustment
(3,071)
-
(3,071)
(453)
-
(453)
Expenses not deductible for tax purposes
-
-
-
1
-
1
_______
______
______
_______
______
_______
Total tax charge for the year
3,513
(1,033)
2,480
7,138
(1,517)
5,621
_______
______
______
_______
______
_______
The Company has not provided for deferred tax on chargeable gains or losses arising on the revaluation or disposal of investments as it is exempt from corporation tax on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset (2019 - same) arising as a result of there being no excess management expense to be utilised in future periods.
8.
Ordinary dividends on equity shares
2020
2019
£'000
£'000
Amounts recognised as distributions paid during the year:
Third interim for 2019 of 12.0p (2018 - 11.5p)
15,520
14,736
Fourth interim dividend for 2019 of 17.5p (2018 - final dividend of 17.0p)
22,647
21,904
First interim for 2020 of 12.0p (2019 - 12.0p)
15,529
15,462
Second interim for 2020 of 12.0p (2019 - 12.0p)
15,483
15,462
_______
______
69,179
67,564
_______
______
A third interim dividend was declared on 7 December 2020 with an ex date of 7 January 2021. This dividend of 12.0p was paid on 19 February 2021 and has not been included as a liability in these financial statements. The proposed final dividend for 2020 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £60,196,000 (2019 - £69,748,000).
2020
2019
£'000
£'000
Three interim dividends for 2020 of 12.0p (2019 - 12.0p)
46,425
46,444
Proposed final dividend for 2020 of 18.5p (2019 - fourth interim dividend of 17.5p)
23,748
22,647
_______
______
70,173
69,091
_______
______
The amount reflected above for the cost of the proposed final dividend for 2020 is based on 128,368,953 Ordinary shares, being the number of Ordinary shares in issue excluding those held in Treasury at the date of this Report.
9.
Return per Ordinary share
2020
2019
£'000
p
£'000
p
Returns are based on the following figures:
Revenue return
60,196
46.6
69,748
54.1
Capital return
(59,939)
(46.4)
103,049
80.0
_______
______
______
_______
Total return
257
0.2
172,797
134.1
_______
______
______
_______
Weighted average number of Ordinary shares
129,160,107
128,850,295
_________
_________
10.
Investments at fair value through profit or loss
2020
2019
£'000
£'000
Opening book cost
1,276,337
1,225,730
Opening investment holdings gains
425,236
359,436
_______
______
Opening fair value
1,701,573
1,585,166
Analysis of transactions made during the year
Purchases at cost
252,553
164,010
Sales proceeds received
(256,648)
(158,516)
(Losses)/gains on investments
(49,645)
109,664
(Amortisation)/accretion of fixed income book cost
(1,428)
1,249
_______
______
Closing fair value
1,646,405
1,701,573
_______
______
Closing book cost
1,324,155
1,276,337
Closing investment gains
322,250
425,236
_______
______
Closing fair value
1,646,405
1,701,573
_______
______
The Company received £256,648,000 (2019 - £158,516,000) from investments sold in the period. The book cost of these investments when they were purchased was £203,307,000 (2019 - £114,652,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
2020
2019
The portfolio valuation
£'000
£'000
Listed on stock exchanges:
United Kingdom:
- equities
100,322
127,902
- preference shares
7,488
7,677
Overseas:
- equities
1,355,353
1,305,160
- fixed income
183,242
260,834
_______
______
Total
1,646,405
1,701,573
_______
______
Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Statement of Comprehensive Income. The total costs were as follows:
2020
2019
£'000
£'000
Purchases
180
172
Sales
348
132
_______
______
528
304
_______
______
The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations.
11.
Debtors: amounts falling due within one year
2020
2019
£'000
£'000
Corporation tax refund
457
93
Overseas withholding tax
4,366
3,385
Other debtors
109
56
Accrued income
9,478
11,246
_______
______
14,410
14,780
_______
______
None of the above amounts are overdue or impaired.
12.
Creditors
2020
2019
£'000
£'000
Amounts falling due within one year:
Bank loans (note 13)
50,000
50,000
Amounts due to brokers
-
4,982
Accruals
2,391
2,652
_______
______
52,391
57,634
_______
______
2020
2019
£'000
£'000
Amounts falling due after more than one year:
Bank loans (note 13)
149,805
149,704
_______
______
All financial liabilities are measured at amortised cost.
13.
Bank loans
2020
2019
£'000
£'000
Unsecured bank loans repayable within one year:
Revolving credit facilities
-
£50,000,000 at 0.72588% - 14 January 2021
50,000
-
-
£50,000,000 at 2.4975% - 13 May 2020
-
50,000
Unsecured bank loans repayable in more than one year but no more than five years:
Fixed rate term loan facilities
-
£60,000,000 at 1.714% - 31 May 2022
59,915
59,855
-
£60,000,000 at 2.328% - 31 May 2023
59,935
59,908
-
£30,000,000 at 2.25% - 16 May 2024
29,955
29,941
_______
______
199,805
199,704
_______
______
The terms of these loans permit early repayment at the borrower's option which may give rise to additional amounts being either payable or repayable in respect of fluctuations in interest rates since drawdown. Since the Directors currently have no intention of repaying the loans early, then no such charges are included in the cash flows used to determine their effective interest rate.
During 2020 the Company entered into a revolving credit facility for £50 million with RBSI which was fully drawn down. As of the latest practicable date prior to signing of this report the £50 million loan had been drawn down to 15 March 2021 at an interest rate of 0.73325%.
The Company also has three fixed rate term loan facilities with RBSI, all of which are fully drawn down and have maturity dates of 31 May 2022, 31 May 2023 and 16 May 2024 respectively. Financial covenants contained within the relevant loan agreements provide, inter alia, that borrowings shall at no time exceed 40% of net assets and that the net assets must exceed £650 million. At 31 December 2020 net assets were £1,461,827,000 and borrowings were 13.7% thereof. The Company has complied with all financial covenants throughout the year.
14.
Share capital
2020
2019
Number
£'000
Number
£'000
Allotted, called up and fully paid Ordinary shares of 25p each:
Balance brought forward
129,332,003
32,333
128,143,545
32,036
Ordinary shares issued from Treasury in the year
-
-
406,531
101
Ordinary shares bought back to Treasury in the year
(973,341)
(243)
-
-
Ordinary shares issued in the year
80,000
20
781,927
196
_________
______
________
_______
Balance carried forward
128,438,662
32,110
129,332,003
32,333
_________
______
________
_______
Treasury shares:
Balance brought forward
-
-
406,531
101
Ordinary shares issued from Treasury in the year
-
-
(406,531)
(101)
Ordinary shares bought back to Treasury in the year
973,341
243
-
-
_______
______
______
_______
Balance carried forward
973,341
243
-
-
_______
______
______
_______
At 31 December 2020, shares held in Treasury represented 0.8% (2019 - 0%) of the Company's total issued share capital.
During the year 973,341 Ordinary shares were bought back to Treasury (2019 - 406,531 Ordinary shares were issued from Treasury) and 80,000 (2019 - 781,927) new Ordinary shares were issued. All these shares were issued at a premium to net asset value, enhancing net assets per share for existing shareholders. The issue prices ranged from 1,239p to 1,254p (2019 - 1,164p to 1,243p). The Ordinary shares bought back to Treasury cost a total of £9,304,000 (2019 - the issue of Ordinary shares from Treasury raised a total of £4,761,000 net of expenses) and the issue of new Ordinary shares raised £998,000 (2019 - £9,473,000) net of expenses. Subsequent to the year end a further 69,709 Ordinary shares have been bought back to Treasury at prices ranging from 1,088p to 1,103p costing a total of £768,000.
On a winding up of the Company, any surplus assets available after payment of all debts and satisfaction of all liabilities of the Company shall be applied in repaying the Ordinary shareholders the amounts paid up on such shares. Any surplus shall be divided among the holders of Ordinary shares according to the amount paid up on such shares respectively.
Voting rights. In accordance with the Articles of Association of the Company, on a show of hands, every member (or duly appointed proxy) present at a general meeting of the Company has one vote; and, on a poll, every member present in person or by proxy shall have one vote for every 25p nominal amount of Ordinary shares held.
15.
Capital reserve
2020
2019
£'000
£'000
At 31 December 2019
1,060,756
953,992
Movement in fair value gains
(49,645)
109,664
Capital expenses (including taxation)
(6,537)
(6,468)
Issue of shares from Treasury
-
3,715
Buy back of shares to Treasury
(9,304)
-
Currency losses
(3,757)
(147)
_______
______
At 31 December 2020
991,513
1,060,756
_______
______
Included in the total above are investment holdings gains at the year end of £322,250,000 (2019 - £425,236,000).
16.
Net asset value per share. The net asset value per share and the net asset value attributable to the Ordinary shares, at the year end calculated in accordance with the Articles of Association and FRS 102 were as follows:
As at
As at
31 December 2020
31 December 2019
Attributable net assets (£'000)
1,461,827
1,539,055
Number of Ordinary shares in issue (excluding Treasury)
128,438,662
129,332,003
Net asset value per share (pence)
1,138.2
1,190.0
17.
Analysis of changes in net debt
At
At
31 December
Currency
Cash
Non-cash
31 December
2019
differences
flows
movements
2020
£'000
£'000
£'000
£'000
£'000
Cash and short-term deposits
30,040
(3,757)
(23,075)
-
3,208
Debt due within one year
(50,000)
-
-
-
(50,000)
Debt due after more than one year
(149,704)
-
-
(101)
(149,805)
_______
______
______
_______
______
(169,664)
(3,757)
(23,075)
(101)
(196,597)
_______
______
______
_______
______
At
At
31 December
Currency
Cash
Non-cash
31 December
2018
differences
flows
movements
2019
£'000
£'000
£'000
£'000
£'000
Cash and short-term deposits
7,627
(147)
22,560
-
30,040
Debt due within one year
(15,000)
-
15,000
(50,000)
(50,000)
Debt due after more than one year
(169,676)
-
(30,000)
49,972
(149,704)
_______
______
______
_______
______
(177,049)
(147)
7,560
(28)
(169,664)
_______
______
______
_______
______
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.
18.
Financial instruments and risk management. The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise listed equities and debt securities, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may enter into derivative transactions for the purpose of managing market risks arising from the Company's activities in the form of swap contracts, forward foreign currency contracts, futures and options.
The Board has delegated the risk management function to Aberdeen Standard Fund Managers Limited ("ASFML") under the terms of its management agreement with ASFML (further details of which are included in the Directors' Report). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors.
Risk management framework. The directors of ASFML collectively assume responsibility for ASFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
ASFML is a fully integrated member of the Standard Life Aberdeen Group ("the Group"), which provides a variety of services and support to ASFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD").
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's Chief Executive Officer and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
The Group's corporate governance structure is supported by several committees to assist the board of directors of Standard Life Aberdeen plc, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.
Risk management. The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, foreign currency risk and price risk), (ii) liquidity risk and (iii) credit risk.
(i)
Market risk. The fair value and future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and price risk.
Interest rate risk. Interest rate risk is the risk that interest rate movements will affect:
- the fair value of the investments in fixed interest rate securities; and
- the level of income receivable on cash deposits;
Management of the risk. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
The Board reviews the values of the fixed interest rate securities on a regular basis.
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate facilities, which are used to finance opportunities at low rates. Current bank covenant guidelines are detailed in note 13.
Interest risk profile. The interest rate risk profile of the portfolio of financial assets and liabilities at the Statement of Financial Position date was as follows:
Weighted
average
period for
Weighted
Non-
which
average
Fixed
Floating
interest
rate is fixed
interest rate
rate
rate
bearing
At 31 December 2020
Years
%
£'000
£'000
£'000
Assets
Sterling
-
-
7,488
2,932
100,322
US Dollar
23.42
6.02
53,354
269
485,232
Other
6.25
7.32
129,888
7
870,121
_______
______
______
Total assets
190,730
3,208
1,455,675
_______
______
______
Liabilities
Bank loans
1.66
1.73
(199,805)
-
-
_______
______
______
Total liabilities
(199,805)
-
-
_______
______
______
Weighted
average
period for
Weighted
Non-
which
average
Fixed
Floating
interest
rate is fixed
interest rate
rate
rate
bearing
At 31 December 2019
Years
%
£'000
£'000
£'000
Assets
Sterling
-
-
7,677
12,122
127,902
US Dollar
20.84
6.83
78,934
-
408,012
Other
6.04
7.80
181,900
17,918
897,148
_______
______
______
Total assets
268,511
30,040
1,433,062
_______
______
______
Liabilities
Bank loans
2.49
2.17
(199,704)
-
-
_______
______
______
Total liabilities
(199,704)
-
-
_______
______
______
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's loans are shown in note 13 to the financial statements.
The fixed rate assets represents quoted preference shares and bonds.
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
The non-interest bearing assets represent the equity element of the portfolio.
Short-term debtors and creditors have been excluded from the above tables as they are not considered to be exposed to interest rate risk.
Interest rate sensitivity. The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the Statement of Financial Position date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 25 basis points higher or lower (based on the current parameter used by the Manager's Investment Risk Department on risk assessment) and all other variables were held constant, the Company's revenue return for the year ended 31 December 2020 would increase/decrease by £8,000 (2019 - increase/decrease by £75,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.
The capital return would decrease/increase by £nil (2019 - increase/decrease by £13,260,000) using VAR ("Value at Risk") analysis based on a 10% shock to interest rates on the fixed interest portfolio positions at each year end.
Foreign currency risk. A significant proportion of the Company's investment portfolio is invested overseas whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investment holdings can result, indirectly, in changes in their valuations. Consequently the Statement of Financial Position can be affected by movements in exchange rates.
Management of the risk. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. The Manager seeks, when deemed appropriate, to manage exposure to currency movements on borrowings by using forward foreign currency contracts as a hedge against potential foreign currency movements. At 31 December 2020 the Company did not have any forward foreign currency contracts (2019 - none).
The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk.
Currency risk exposure. Currency risk exposure (excluding fixed interest securities) by currency of denomination:
31 December 2020
31 December 2019
UK and
UK and
overseas
Net
Total
overseas
Net
Total
equity
monetary
currency
equity
monetary
currency
investments
assets{A}
exposure
investments
assets{A}
exposure
£'000
£'000
£'000
£'000
£'000
£'000
US Dollar
485,232
269
485,501
408,012
-
408,012
Taiwan Dollar
191,477
5
191,482
163,804
16,633
180,437
Euro
103,464
-
103,464
53,409
-
53,409
Mexican Peso
97,057
-
97,057
107,860
-
107,860
Swiss Franc
93,181
-
93,181
66,861
-
66,861
Canadian Dollar
65,727
-
65,727
61,776
-
61,776
Swedish Krone
58,688
-
58,688
53,189
-
53,189
Hong Kong Dollar
57,642
-
57,642
15,706
-
15,706
Singapore Dollar
56,426
-
56,426
70,903
-
70,903
Thailand Baht
39,075
-
39,075
52,884
-
52,884
Indonesian Rupiah
35,729
-
35,729
86,559
(4,982)
81,577
Norwegian Krone
18,699
-
18,699
20,282
-
20,282
Indian Rupee
17,164
2
17,166
19,114
2
19,116
New Zealand Dollar
15,949
-
15,949
26,645
-
26,645
Japanese Yen
13,848
-
13,848
15,710
-
15,710
South African Rand
5,995
-
5,995
8,906
-
8,906
Brazilian Real
-
-
-
17,834
-
17,834
Malaysian Ringgit
-
-
-
25,112
-
25,112
Australian Dollar
-
-
-
16,579
-
16,579
Polish Zloty
-
-
-
14,015
-
14,015
_______
______
______
_______
______
_______
1,355,353
276
1,355,629
1,305,160
11,653
1,316,813
Sterling
100,322
(196,873)
(96,551)
127,902
(187,582)
(59,680)
_______
______
______
_______
______
_______
Total
1,455,675
(196,597)
1,259,078
1,433,062
(175,929)
1,257,133
_______
______
______
_______
______
_______
{A} Reflects cash, short-term deposits and bank borrowings.
The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual markets.
Foreign currency sensitivity. The following table details the Company's sensitivity to a 10% decrease (in the context of a 10% increase the figures below should all be read as negative) in sterling against the major foreign currencies in which the Company has exposure (based on exposure >5% of total exposure). The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates, being a reasonable range of fluctuations for the period.
2020
2019
Capital{A}
Capital{A}
£'000
£'000
US Dollar
48,550
40,801
Taiwan Dollar
19,148
18,044
Euro
10,346
-
Mexican Peso
9,706
10,786
Swiss Franc
9,318
6,686
Canadian Dollar
6,573
-
Indonesian Rupiah
-
8,158
Singapore Dollar
-
7,090
_______
______
Total
103,641
91,565
_______
______
{A} Represents equity exposures to the relevant currencies.
Price risk. Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. The Company's stated objective is to achieve an above average dividend yield, with long-term growth in dividends and capital ahead of inflation by investing principally in global equities.
Management of the risk. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The allocation of assets to international markets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide.
Price risk sensitivity. If market prices at the Statement of Financial Position date had been 10% higher or lower, which is a reasonable range of annual price fluctuations, while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 December 2020 would have increased/decreased by £145,568,000 (2019 - increase/decrease of £143,306,000) and equity would have increased/decreased by the same amount.
(ii)
Liquidity risk. This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities as they fall due in line with the maturity profile analysed below.
More
Within
Within
Within
Within
than
1 year
1-2 years
2-3 years
3-4 years
4-5 years
5
yearsTotal
At 31 December 2020
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Bank loans
50,000
60,000
60,000
30,000
-
-
200,000
Interest cash flows on bank loans
3,131
2,585
1,371
337
-
-
7,424
Cash flows on other creditors
2,085
-
-
-
-
-
2,085
_____
_____
_____
_____
_____
____
_____
55,216
62,585
61,371
30,337
-
-
209,509
_____
_____
_____
_____
_____
____
_____
Within
Within
Within
Within
Within
More
than
1 year
1-2 years
2-3 years
3-4 years
4-5 years
5
yearsTotal
At 31 December 2019
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Bank loans
50,000
-
60,000
60,000
30,000
-
200,000
Interest cash flows on bank loans
3,117
3,100
2,585
1,371
337
-
10,510
Cash flows on other creditors
7,634
-
-
-
-
-
7,634
_____
_____
_____
_____
______
_____
_____
60,751
3,100
62,585
61,371
30,337
-
218,144
_____
_____
_____
_____
______
_____
_____
Management of the risk. Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 13).
(iii)
Credit risk. This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
Management of the risk
- where the Manager makes an investment in a bond, corporate or otherwise, the credit ratings of the issuer are taken into account so as to manage the risk to the Company of default;
- investments in quoted bonds are made across a variety of industry sectors and geographic markets so as to avoid concentrations of credit risk;
- transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;
- investment transactions are carried out with a number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports. In addition, both stock and cash reconciliations to the custodian's records are performed daily to ensure discrepancies are investigated in a timely manner. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee;
- cash is held only with reputable banks with acceptable credit quality. It is the Manager's policy to trade only with A- and above (Long-term rated) and A-1/P-1 (Short-term rated) counterparties.
Credit risk exposure. In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 31 December 2020 was as follows:
2020
2019
Balance
Maximum
Balance
Maximum
Sheet
exposure
Sheet
exposure
£'000
£'000
£'000
£'000
Non-current assets
Quoted preference shares and bonds at fair value through profit or loss
190,730
190,730
268,511
268,511
Current assets
Other debtors
109
109
56
56
Accrued income
9,478
9,478
11,246
11,246
Cash and short-term deposits
3,208
3,208
30,040
30,040
_______
______
______
_______
203,525
203,525
309,853
309,853
_______
______
______
_______
None of the Company's financial assets is secured by collateral or other credit enhancements.
Credit ratings. The table below provides a credit rating profile using Moodys credit ratings for the quoted preference shares and bonds at 31 December 2020 and 31 December 2019:
2020
2019
£'000
£'000
A3
14,901
30,680
Ba1
-
20,607
Baa1
15,365
-
Ba2
38,310
29,036
Baa2
32,707
50,782
Ba3
13,350
12,951
Baa3
17,292
58,179
Non-rated
58,805
66,276
_______
______
190,730
268,511
_______
______
At 31 December 2020 Moodys credit ratings agency did not provide a rating for Ecuador bonds, Indian bonds, Turkish bonds and Irredeemable preference shares (2019 - Ecuador bonds, Indian bonds, Turkish bonds and Irredeemable preference shares) held by the Company and were accordingly categorised as non-rated in the table above. It was noted however that Fitch credit ratings agency do provide a B- rating for Ecuador bonds with a value of £5,157,000 (2019 - £9,298,000 with a B- rating) and a BB- rating for Turkish bonds with a value of £13,182,000 (2019 - £17,255,000 with a B+ rating). Whilst a substantial proportion of the fixed interest portfolio does not have a rating provided by Moodys, the Manager undertakes an ongoing review of their suitability for inclusion within the portfolio as set out in "Investment Process" and "Delivering the Investment Policy".
Fair values of financial assets and financial liabilities. The fair value of borrowings has been calculated at £203,597,000 as at 31 December 2020 (2019 - £201,026,000) compared to a carrying amount in the financial statements of £199,805,000 (2019 - £199,704,000) (note 12). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. The carrying value of all other assets and liabilities is an approximation of fair value.
19.
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 shall have the following classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included in Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
Level 1
Level 2
Level 3
Total
As at 31 December 2020
Note
£'000
£'000
£'000
£'000
Financial assets at fair value through profit or loss
Quoted equities
a)
1,455,675
-
-
1,455,675
Quoted preference shares
b)
-
7,488
-
7,488
Quoted bonds
b)
-
183,242
-
183,242
_______
______
______
_______
Total
1,455,675
190,730
-
1,646,405
_______
______
______
_______
Level 1
Level 2
Level 3
Total
As at 31 December 2019
Note
£'000
£'000
£'000
£'000
Financial assets at fair value through profit or loss
Quoted equities
a)
1,433,062
-
-
1,433,062
Quoted preference shares
b)
-
7,677
-
7,677
Quoted bonds
b)
-
260,834
-
260,834
_______
______
______
_______
Total
1,433,062
268,511
-
1,701,573
_______
______
______
_______
a)
Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.
b)
Quoted preference shares and bonds. The fair value of the Company's investments in quoted preference shares and bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets.
20.
Capital management policies and procedures. The investment objective of the Company is to achieve an above average dividend yield, with long-term growth in dividends and capital ahead of inflation by investing principally in global equities.
The capital of the Company consists of bank borrowings and equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
- the planned level of gearing which takes into account the Investment Manager's views on the market;
- the level of equity shares in issue; and
- the extent to which revenue in excess of that which is required to be distributed should be retained.
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
Details of the Company's gearing facilities and financial covenants are detailed in note 13 of the financial statements. The Company does not have any other externally imposed capital requirements.
21.
Related party transactions
Directors' fees and interests. Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report on page 62 of the published Annual Report and Financial Statements for the year ended 31 December 2020.
Transactions with the Manager. The Company has agreements with ASFML for the provision of management, secretarial, accounting and administration services and promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 4 and 5.
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 December 2020 are an abridged version of the Company's full Annual Report and financial statements, which have been approved and audited with an unqualified report. The 2019 and 2020 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the Registrar of Companies. The 2020 financial statements will be filed with the Registrar of Companies in due course.
The Annual Report will be posted to shareholders in March 2021 and additional copies will be available from the registered office of the Company and on the Company's website, murray-intl.co.uk*
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
*Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
For Murray International Trust PLC
Aberdeen Asset Management PLC, Secretaries
4 March 2021
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes 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. Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.
The tables below provide information relating to the NAV and share price of the Company on the dividend reinvestment dates during the years ended 31 December 2020 and 31 December 2019.
Dividend
Share
Year ended 31 December 2020
rate
NAV
price
31 December 2019
N/A
1,190.00p
1,260.00p
2 January 2020
12.00p
1,192.52p
1,260.00p
2 April 2020
17.50p
894.96p
848.00p
2 July 2020
12.00p
1,027.56p
996.00p
1 October 2020
12.00p
989.17p
936.00p
31 December 2020
N/A
1,138.15p
1,130.00p
________
________
Total return
+0.9%
-5.3%
________
________
Dividend
Share
Year ended 31 December 2019
rate
NAV
price
31 December 2018
N/A
1,107.81p
1,132.00p
3 January 2019
11.50p
1,104.62p
1,120.00p
4 April 2019
17.00p
1,151.42p
1,172.00p
4 July 2019
12.00p
1,210.10p
1,172.00p
3 October 2019
12.00p
1,163.80p
1,150.00p
31 December 2019
N/A
1,190.00p
1,260.00p
________
________
Total return
+12.4%
+16.5%
________
________
Dividend cover. Revenue return per share of 46.6p (31 December 2019 - 54.1p) divided by total dividends per share of 54.5p (31 December 2019 - 53.5p) expressed as a ratio.
Net gearing. Net gearing measures the total borrowings of £199,805,000 (31 December 2019 - £199,704,000) less cash and cash equivalents of £3,208,000 (31 December 2019 - £25,058,000) divided by shareholders' funds of £1,461,827,000 (31 December 2019 - £1,539,055,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to brokers at the year end of £nil (31 December 2019 - £4,982,000) as well as cash and short-term deposits of £3,208,000 (31 December 2019 - £30,040,000).
(Discount)/premium to net asset value per Ordinary share. The difference between the share price of 1,130.00p (31 December 2019 - 1,260.00p) and the net asset value per Ordinary share of 1,138.15p (31 December 2019 - 1,190.00p) expressed as a percentage of the net asset value per Ordinary share.
Ongoing charges. Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year.
2020
2019
Investment management fees (£'000)
6,849
7,130
Administrative expenses (£'000)
1,966
2,109
Less: non-recurring charges{A} (£'000)
(81)
(96)
________
________
Ongoing charges (£'000)
8,734
9,143
________
________
Average net assets (£'000)
1,346,488
1,499,807
________
________
Ongoing charges ratio (excluding look-through costs)
0.65%
0.61%
________
________
Look-through costs{B}
0.03%
0.04%
________
________
Ongoing charges ratio (including look-through costs)
0.68%
0.65%
________
________
{A} Professional services comprising new Director recruitment costs and legal fees considered unlikely to recur.
{B} Costs associated with holdings in collective investment schemes as defined by the Committee of European Securities Regulators' guidelines on the methodology for the calculation of the ongoing charges figure, issued on 1 July 2010.
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes amongst other things, the cost of borrowings and transaction costs.
TEN LARGEST INVESTMENTS
As at 31 December 2020
Taiwan Semiconductor Manufacturing
Aeroporto del Sureste ADS
Taiwan Semiconductor Manufacturing is one of the largest integrated circuit manufacturers in the world. The company is involved in component design, manufacturing, assembly, testing and mass production of integrated circuits.
Grupo Aeroporto del Sureste operates airports in Mexico. The company holds long-term concessions to manage airports in leading tourist resorts and major cities.
GlobalWafers
Roche Holdings
The company specialises in manufacturing silicon wafers for the global semiconductor industry. The company is vertically integrated, having production capability for wafer slicing, etching, diffusion and polishing. Finished products are sold to all leading technology companies worldwide.
Roche Holdings develops and manufactures pharmaceutical and diagnostic products. The company produces prescription drugs for a variety of medical conditions.
Samsung Electronics
Sociedad Quimica Y Minera de Chile
Korean based Samsung Electronics manufactures a wide range of consumer and industrial electronic equipment and products such as semiconductors, personal computers, monitors, peripherals, televisions and home appliances. The company also has significant global market share of the mobile phone handsets and telecommunication equipment.
Based in Chile, the Company produces and markets speciality fertilizers, including potassium nitrate, sodium nitrate and potassium sulphate for the agricultural industry. The Company also produces industrial chemicals including iodine and lithium, the latter of which is used extensively in the production of electric batteries.
CME Group
Verizon Communications
Based in Chicago, USA CME Group operates a derivatives exchange that trades futures contracts and options, interest rates, stock indexes, foreign exchange and commodities.
Verizon Communications is an integrated telecommunications company based in New York that provides wire line voice and data services, wireless services, internet services and published directory information.
Philip Morris International
Broadcom Corporation
Spun out from the Altria Group in 2008, Philip Morris International is one of the world's leading global tobacco companies. It manufactures and sells leading recognisable brands such as Marlboro, Parliament and Virginia Slims.
Broadcom designs, develops and markets digital and analogue semiconductors. The company offers wireless components, storage adaptors, networking processors, switches, fibre optic modules and optical sensors. Broadcom markets its products worldwide.
LIST OF INVESTMENTS
Valuation
Total
Valuation
2020
assets{A}
2019{B}
Company
Country
£'000
%
£'000
Taiwan Semiconductor Manufacturing
Taiwan
82,638
5.0
83,350
Aeroporto del Sureste ADS
Mexico
72,113
4.3
77,863
GlobalWafers
Taiwan
55,300
3.3
24,048
Roche Holdings
Switzerland
51,146
3.1
48,953
Samsung Electronics
Korea
48,868
2.9
29,289
Sociedad Quimica Y Minera de Chile
Chile
46,657
2.8
35,271
CME Group
USA
45,256
2.7
51,495
Verizon Communications
USA
42,942
2.6
46,311
Philip Morris International
USA
42,360
2.6
44,925
Broadcom Corporation
USA
38,438
2.3
-
Top ten investments
525,718
31.6
Oversea-Chinese Bank
Singapore
33,411
2.0
36,849
Vale do Rio Doce{C}
Brazil
32,664
2.0
47,137
Epiroc
Sweden
32,285
1.9
26,974
Total
France
31,597
1.9
41,662
AbbVie
USA
31,316
1.9
-
British American Tobacco
UK
29,788
1.8
35,547
Taiwan Mobile
Taiwan
29,612
1.8
56,406
Telus
Canada
28,918
1.7
29,234
Banco Bradesco
Brazil
27,461
1.7
36,563
Pepsico
USA
27,104
1.6
25,782
Top twenty investments
829,874
49.9
BHP Group
Australia
26,950
1.6
24,875
Ping An Insurance
China
26,875
1.6
-
Atlas Copco
Sweden
26,402
1.6
26,216
Cisco Systems
USA
26,178
1.6
-
Intel Corporation
USA
25,517
1.5
31,604
Kimberly Clark de Mexico
Mexico
24,944
1.5
29,996
Zurich Insurance
Switzerland
24,729
1.5
-
Unilever
Netherlands
24,401
1.5
-
Hon Hai Precision Industry
Taiwan
23,927
1.5
-
Singapore Telecommunications
Singapore
23,016
1.4
34,054
Top thirty investments
1,082,813
65.2
Johnson & Johnson
USA
23,005
1.4
22,009
China Resources Land{D}
China
21,217
1.3
-
TC Energy
Canada
20,785
1.3
16,057
Tryg
Denmark
20,747
1.2
-
Telkom Indonesia Persero (formerly Telekomunikasi)
Indonesia
20,681
1.2
25,904
Tesco Lotus Retail Growth
Thailand
19,901
1.2
25,327
Siam Commercial Bank
Thailand
19,174
1.2
27,557
Telenor
Norway
18,699
1.1
20,282
Enel
Italy
18,520
1.1
-
Novartis
Switzerland
17,305
1.0
17,907
Top forty investments
1,282,847
77.2
Castrol India
India
17,164
1.0
19,114
Royal Dutch Shell
UK
17,128
1.0
30,457
Republic of South Africa 7% 28/02/31
South Africa
17,074
1.0
18,260
Nutrien
Canada
16,025
1.0
16,484
Auckland International Airport
New Zealand
15,949
1.0
26,645
Republic of Indonesia 6.125% 15/05/28
Indonesia
15,746
1.0
15,306
Standard Chartered
UK
15,571
0.9
23,815
United Mexican States 5.75% 05/03/26
Mexico
15,365
0.9
15,165
Indocement Tunggal Prakarsa
Indonesia
15,048
0.9
20,690
America Movil Sab De 6.45% 05/12/22
Mexico
14,901
0.9
15,515
Top fifty investments
1,442,818
86.8
Telefonica Brasil
Brazil
14,696
0.9
24,520
Japan Tobacco
Japan
13,848
0.8
15,710
Petroleos Mexicanos 6.75% 21/09/47
Mexico
13,717
0.8
15,126
Alfa 6.875% 25/03/44
Mexico
13,612
0.8
12,827
Republic of Dominica 6.85% 27/01/45
Dominican Republic
13,350
0.8
12,951
Schlumberger
USA
12,770
0.8
24,264
Republic of Indonesia 8.375% 15/03/34
Indonesia
12,128
0.7
11,627
Vodafone Group
UK
10,885
0.7
13,208
Swire Pacific 'B'
Hong Kong
9,550
0.6
15,706
HDFC Bank 7.95% 21/09/26
India
8,209
0.5
8,050
Top sixty investments
1,565,583
94.2
Bayer
Germany
8,199
0.5
11,746
Power Finance Corp 7.63% 14/08/26
India
7,922
0.5
7,595
Petroleos Mexicanos 5.5% 27/06/44
Mexico
7,519
0.5
8,125
Republic of Turkey 8% 12/03/25
Turkey
6,638
0.4
8,687
Republic of Turkey 9% 24/07/24
Turkey
6,544
0.4
8,569
MTN
South Africa
5,995
0.4
8,906
Housing Dev Finance Corp 8.43% 04/03/25
India
5,483
0.3
5,485
Power Finance Corp 8.2% 10/03/25
India
5,452
0.3
5,283
Republic of Indonesia 10% 15/02/28
Indonesia
4,833
0.3
4,800
ICICI Bank 7.6% 07/10/23
India
4,810
0.3
4,795
Top seventy investments
1,628,978
98.1
ICICI Bank 7.42% 27/06/24
India
4,782
0.3
4,678
General Accident 7.875% Cum Irred Pref
UK
3,808
0.2
3,836
Santander 10.375% Non Cum Pref
UK
3,680
0.2
3,841
Republic of Ecuador 0.5% 31/07/35
Ecuador
2,556
0.2
-
Republic of Ecuador 0.5% 31/07/30
Ecuador
1,833
0.1
-
Republic of Ecuador 0.5% 31/07/40
Ecuador
556
-
-
Republic of Ecuador 0.0% 31/07/30
Ecuador
212
-
-
Total investments
1,646,405
99.1
Net current assets{A}
15,227
0.9
Total assets{E}
1,661,632
100.0
{A} Excluding bank loans.
{B} The 2019 column denotes the Company's holding at 31 December 2019.
{C} The 2019 holding comprises equity and fixed interest income securities split £26,529,000 and £20,608,000. Vale Overseas Limited 6.875% 21/11/36 was sold during 2020.
{D} Holding comprises £21,035,000 in parent company China Resources Land and £182,000 in a subsidiary China Resources Mixc Lifestyle Services.
{E} The total assets less current liabilities as shown on the Balance Sheet with the addition of prior charges.
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