Last checked at 
7 Jun 2023 07:00
abrdn Diversified Income and Growth plc
(formerly Aberdeen Diversified Income and Growth Trust PLC)
Half Yearly Report 31 March 2023
Investing across asset classes aiming to deliver reliable income and growth
Performance Highlights
Net asset value total returnAB | Share price total returnA | |||
Six months ended 31 March 2023 | Six months ended 31 March 2023 | |||
+2.2% | -6.5% | |||
Year ended 30 September 2022 | +1.2% | Year ended 30 September 2022 | -5.0% | |
Dividend yieldA | Revenue return per share | |||
As at 31 March 2023 | Six months ended 31 March 2023 | |||
7.0% | 2.52p | |||
As at 30 September 2022 | 6.2% | Six months ended 31 March 2022 | 2.79p | |
A Considered to be an Alternative Performance Measure.. | ||||
B Debt at fair value. | ||||
Financial Calendar, Dividends and Highlights
Expected payment dates of quarterly dividends | 3 April 2023 6 July 2023 19 October 202322 January 2024 |
Financial year end | 30 September 2023 |
Expected announcement of results for year ending 30 September 2023 | December 2023 |
Annual General Meeting (London) | February 2024 |
Financial Highlights
31 March 2023 | 30 September 2022 | % change | |
Total assets less current liabilities (before deducting prior charges) | £368,028,000 | £379,052,000 | -2.9 |
Total shareholders' funds (Net Assets) | £352,317,000 | £363,358,000 | -3.0 |
Ordinary share price (mid market) | 81.40p | 89.80p | -9.4 |
Net asset value per Ordinary share (debt at fair value)AB | 115.93p | 117.63p | -1.4 |
Discount to net asset value on Ordinary shares (debt at fair value)AB | 29.8% | 23.7% | |
Net (cash)/gearing (debt at fair value)AB | (0.60%) | 2.00% | |
Ongoing charges ratioA | 1.35% | 1.41% | |
A Considered to be an Alternative Performance Measure.. | |||
B Fair value of 6.25% Bonds 2031 £17,043,000 (2022 - £16,222,000). | |||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | % change | |
Net revenue return after taxation | £7,740,000 | £8,628,000 | -10.3 |
Revenue return per share | 2.52p | 2.79p | -9.7 |
Dividends | |||
First interim dividend | 1.42p | 1.40p | +1.4 |
Second interim dividend | 1.42p | 1.40p | +1.4 |
Total dividends declared in respect of the period | 2.84p | 2.80p | +1.4 |
Chairman's Statement
"Since the new investment strategy was adopted in September 2020, through periods of volatility, the Company has delivered dependable income as part of an NAV total return of 19.6%, ahead of the target return of 6% per annum, equivalent to 16.2% over the same period."
Change of Name
The Company announced on 31 March 2023 a change of its name to abrdn Diversified Income and Growth plc, to reflect the rebranding of the Company's Manager, abrdn.
Performance
Over the six months ended 31 March 2023, the Company's net asset value per share ("NAV"), with debt at fair value and including income, delivered a total return of 2.2%. Losses on the revaluation of investments were broadly offset by gains resulting from the management of currency risk.
However, the Company's share price total return (which assumes dividends are reinvested) was -6.5% with the share price discount to NAV widening from 23.7% to 29.8% at 31 March 2023. The drop in the share price appears to be driven predominantly by the stock market currently applying a substantial discount to private equity assets, reflecting uncertainties over asset valuations. Although your Company has under 12% of its assets in private equity investments, this substantial discount appears to have been applied to all the Company's private market assets, even to sectors such as infrastructure (comprising 16% of the Company's assets), which typically trades on a tighter discount.
The Board appreciates the frustration of shareholders at this share price performance. To address the issue, the Board and Manager continue to communicate to the market the quality of the Company's portfolio and the steady NAV returns it has generated. Since the new investment strategy was adopted in September 2020, the Company has delivered an NAV total return of 19.6%, ahead of the target return of 6% per annum, equivalent to 16.2% over the same period.
The Board will also continue to monitor regularly the valuations applied to all private market assets to ensure they are prudent and as up to date as possible. It is pleasing to report in that context that since the half year end, the only revaluation that has occurred has been to revise up the valuation of the Burford Opportunity Fund by 17% following a positive ruling in one of the court cases it has funded.
Dividend
Part of our investment proposition to shareholders is to offer a dependable quarterly dividend. The Company's revenue return for the six months ended 31 March 2023 was 2.52 pence per share (2022 - 2.79 pence). For the year to 30 September 2023, a first interim dividend of 1.42 pence (2022 - 1.40 pence) per share was paid to shareholders on 3 April 2023. A second interim dividend per share of 1.42 pence (2022 - 1.40 pence) per share, payable on 6 July 2023, was announced by the Company on 31 May 2023.
On an annualised basis, a quarterly dividend of 1.42 pence per share is equivalent to a dividend yield of 7.0% based on the period end share price of 81.4p.
Share buybacks and Treasury shares policy
In line with the investment-led share buyback policy, the Company will use available cash to buy back its own shares where this represents a better prospect of delivering the return objective and long-term shareholder value than could be achieved by investing in new opportunities. As a result, the Company bought back 5.7m shares into treasury at a cost of £5.0 million. Despite these significant buybacks the Company's discount (calculated with debt at fair value) increased from 23.7% as at 30 September 2022 to 29.8% as at 31 March 2023.
Between 1 April 2023 and the date of approval of this Report, the Company bought back an additional 1.1m shares into treasury. The Board monitors frequently the wider discount at which the Company's shares currently trade, relative to their underlying net asset value, and will continue to buy back shares into treasury in accordance with its stated policy.
Gearing
The Company's gearing showed a net cash position of 0.6% as at 31 March 2023, with its £16.1m 6.25% Bonds due 2031 priced at fair value. The Board continues to keep the overall level of gearing under review but, in the prevailing economic environment, there is no current intention to introduce further fixed rate gearing.
Environmental, social and governance ("ESG")
Taking account of ESG factors is now an integral part of the investment process at abrdn as well as ongoing monitoring after investments are brought into the portfolio. Equally as important the investment teams undertake constructive engagement with the management of the investments held, in both public and private markets, on ESG issues and related risks. More detail on the approach to ESG may be found in the Company's 2022 Annual Report. It is an evolutionary process, and the Board continues to review closely the Manager's approach to, and adherence with, its ESG philosophy and policies.
Outlook
In the short-term markets will continue to move on the back of assumptions around inflation, interest rates and economic growth while also reflecting the significant geopolitical risks that currently exist. The Board believes that over the medium term, however, the Company's strategy, which seeks to provide capital growth and a dependable quarterly dividend from a diversified portfolio, is well positioned to deliver an attractive total return, with lower volatility than equities, to our shareholders. Diversification within the portfolio is provided through investment in a broad range of asset classes, both listed and unlisted, and we continue to believe that the Company is well-placed to take advantage of access to investment opportunities usually only available to institutional investors. We remain mindful of the challenges ahead and your Board together with the Manager review positioning on a regular basis and continue to work to grow the NAV and narrow the wide discount that the shares stand at to that NAV.
Davina WalterChairman
6 June 2023
Interim Management Report and Directors' Responsibility Statement
The Chairman's Statement and the Investment Manager's Report provide details of the important events which have occurred during the period and their impact on the financial statements.
Principal Risks and Uncertainties
The principal risks faced by the Company can be divided into various areas as follows:
· Performance;
· Portfolio;
· Gearing;
· Income/dividend;
· Regulatory;
· Operational;
· Market; and
· Financial.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements (the "Annual Report") for the year ended 30 September 2022; a detailed explanation can be found in the Strategic Report on pages 12 to 14 of the Annual Report which is available on the Company's website: abrdndiversified.co.uk
The Board continues to monitor the volatility and risks associated with heightened political and economic uncertainty, particularly the reaction to higher interest rates and the market volatility associated with the conflict in Ukraine, both of which are expected to endure over the six months to 30 September 2023.
The Board is also conscious of the elevated threat posed by climate change and continues to monitor, through its Investment Manager, the potential risk that its portfolio investments may fail to adapt to the requirements imposed by climate change.
In the view of the Board, there have not been any other changes to the fundamental nature of the principal risks and uncertainties facing the Company since the previous Annual Report, which are considered to be equally applicable to the remaining six months of the financial year to 30 September 2023 as they were to the six months under review.
Going Concern
The Financial Statements of the Company have been prepared on a going concern basis. The Directors have assessed the financial position of the Company as outlined above and in the Chairman's Statement. The Board takes comfort from the Manager's construction of an actively managed portfolio of diversified assets which is designed to provide both a level of resilience in the face of market volatility and the potential for an attractive return over the medium and longer term.
The forecast projections and actual performance are reviewed on a regular basis throughout the period and the Directors believe that this is the appropriate basis and that the Company is financially sound with adequate resources to continue in operational existence for the foreseeable future (being a period of twelve months from the date that these financial statements were approved). The Company is able to meet all of its liabilities from its assets, including its ongoing operating expenses.
Whilst the Company is obliged to hold an annual continuation vote at the AGM, as an ordinary resolution, the Directors do not believe this should automatically trigger the adoption of a basis other than going concern in line with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("AIC SORP") which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.
Related Party Disclosures and Transactions with the Alternative Investment Fund Manager and Investment Manager
abrdn Fund Managers Limited ("AFML") has been appointed as the Company's alternative investment fund manager.
AFML has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to abrdn Investments Limited and abrdn Holdings Limited, which are regarded as related parties under the UKLA's Listing Rules. Details of the fees payable to AFML are set out in note 3 to the condensed financial statements.
Directors' Responsibility Statement
The Disclosure and Transparency Rules of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standard FRS 104 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and return of the Company for the period ended 31 March 2023; and
· the Interim Management Report, together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.
This Half-Yearly Financial Report has been reviewed by the Company's auditor, PricewaterhouseCoopers LLP, and their report is set out below.
The Half-Yearly Financial Report was approved by the Board and the above Director's Responsibility Statement was signed on its behalf by the Chairman.
For and on behalf of the BoardDavina WalterChairman
6 June 2023
Investment Manager's Report
Markets at the end of March moved to calmer waters as compared to the stormy conditions seen in September 2022. That being said, it has not all been plain sailing, as volatility still remains elevated, and we have started to see some cracks appearing in pockets of the economy, with commercial property values falling sharply, surprise OPEC oil production cuts, and the collapse of Silicon Valley Bank followed by the acquisition of Credit Suisse by UBS. These latter two events do not appear to be systemic, but there are headwinds for investors to navigate.
Relative calm, but markets still exhibiting elevated volatility
In the last Annual Report, we noted that inflation was the number one factor driving markets, with significant debate since then as to when it may peak and for how long it will endure. This story has continued to drive markets, with inflation remaining stubbornly higher than central bank targets globally, forcing central bankers to continue to hike rates at a rapid pace. In the US rates have hit 5% from a starting point of 0.25% 12 months ago, while the UK has seen rates rise 3.5% over the same period. Further rises of 0.25% were announced by the Bank of England, for the UK, in each of April 2023 and May 2023.
Over the last six months, the market has anticipated that hiking cycles are nearing their peak, and the medium to long end of bond yields fell as a result. This was interpreted as being positive for equity markets, in particular large cap tech stocks, with the NASDAQ 100 up 20% in USD terms over the period. However, this reaction is in contrast to economic forecasts, with our own expectation for a recession in the US in the second half of 2023. Recent stresses in the banking sector indicate that the long and variable lags of monetary policy are starting to have an impact, although for now the data from the US remains relatively strong. A mild winter and lower energy prices have helped Europe avoid a deep contraction so far, but core inflation pressures show little sign of moderating, with further interest rate hikes from the ECB anticipated and a European recession also looking the likely outcome. This bifurcation of rising markets and a worsening earnings outlook provides challenges for equity and credit investors.
By contrast, the Chinese economy is rebounding rapidly and has the spare capacity to keep growth going through our forecast horizon. Indeed, we expect growth in China to exceed consensus expectations this year. While the spillover from a strong China into broader emerging markets will be smaller than it has been in the past, all this adds up to a global economy that should look increasingly divergent later this year.
A stable NAV in a volatile environment
On an absolute and relative basis, the return on net asset value ("NAV"), with debt at fair value and including income, has been reasonable during the period. The Company delivered a total return of 2.2% with 3.2% volatility, a good risk adjusted return per unit of risk taken. This compared with a 10.4% return in equities as measured by the FTSE All-Share Index with 12.7% volatility, and 4.5% in government bonds as measured by the ICE BofA UK Gilt Index with a volatility of 13.9%. The share price total return was -6.5% during the period.
The Company has been able to protect capital in an incredibly challenging market environment, with Higher Yielding Fixed Income positions the top performer, while Equity Growth and Diversifying Opportunities also performed well. Our Real Asset holdings detracted from returns after a strong start to 2022.
In Higher Yield Fixed Income, the standout performers were Emerging Market ("EM") Bonds, and Asset Backed positions. Equities in general were positive over the period as signs of inflation coming under control coupled with expectations of peak interest rates and a growing belief that there could be a soft landing. Our Diversifying Opportunities positions were also positive, with the Litigation Finance fund, managed by Burford, the top performer.
We discuss performance, gross of management fees and expenses directly attributable to the Company, in greater detail below.
How did the Company produce returns during such a volatile period?
Equity Growth
Equities returned 4.9% over the period, contributing 0.7% to the Company. This was driven predominantly by the large cap tech names within our ESG Enhanced Equity exposure. This sector is highly sensitive to discount rate movements, as the majority of a fast-growing tech company's earnings will occur in the future, with higher discount rates reducing the present value of those future cashflows. Thus, the sector benefited from a decreasing government bond yield environment in the US, with the NASDAQ up 9% in GBP terms over the 6 month period.
Higher Yielding Fixed Income
Higher Yielding Fixed Income led return generation over the six months, adding 1.9%. Within this EM Bonds were the top performer, contributing 0.8%. As well as offering strong income over the period, there were signs that certain EM central banks are approaching the end of their interest rate hikes.
Credit markets have continued to experience low default rates and, while spreads are wider than they were pre-Covid, this has helped to keep them within a narrower range over the last six months. Our tilt to floating rate lending has also enabled the portfolio to benefit from a higher rate environment, increasing the running yield. Positive returns were generated by privately held names Mount Row II, Hark III, and PIMCO Private Income Fund; the Asset Backed portfolio was also positive with TwentyFour Asset Backed Opportunities the top performer here.
Real Assets
Real assets detracted from performance, returning -1.5% over the six months.
Property assets have suffered from continued weakness in sectors such as commercial offices, while the inability to fully pass through inflation has also made them susceptible to rising rates. As central banks have increased rates the yield on government bonds has increased. These are typically used as the risk-free rate in discounted cashflow calculations that drive the valuations for real assets. A higher risk-free rate increases the discount rate and reduces the present value of future cashflows. As rates increased at a fast pace over 2022, this has fed through to lower valuations, with the bulk of the impact of rate rise moves over 2022 felt in the last 6 months.
While NAVs for our infrastructure positions have been more resilient to rising interest rates, given the high inflation linkage of underlying revenues for assets in the privately held portfolio, concerns about changes to the energy market in Europe weighed on returns towards the end of the period.
There were a number of stock specific events over the period. Social housing holding Home REIT was negative on concerns around the valuations of the underlying assets and company governance. We sold in December following an internal review, however, the stock still contributed -0.2% to returns. In addition, one of the assets in private fund Agriculture Capital Management II was written down to nil following a poor yield on its grape harvest resulted in the company breaching its debt covenants - this detracted 0.2% from the Company's performance.
Diversifying Opportunities
The basket of Diversifying Opportunities contributed 0.65% to the performance of the Company over the period. Within this, the private holding in Burford Opportunity Fund, in the litigation finance sector was the largest driver, adding 0.3% to performance. The law courts in the US had been forced to pause certain activities during the COVID pandemic, but normal service was mostly resumed in 2022, and this has led to the successful resolution of several cases in the Burford portfolio. Right at the end of the period, there was significant progress in the YPF case, which has unlocked significant value for the Company (see the case study).
Defensive Assets
Our exposure to lower returning defensive assets, such as government bonds and cash, is limited as we seek to provide long term returns from a diversified exposure of return seeking opportunities. While we had added to the exposure at the end of the period given the more attractive yields on offer and the economic challenges that we see ahead, over the period as a whole the small Defensive basket, albeit performing as expected, had a limited impact on performance, contributing a small positive return.
What portfolio changes did we make?
Equity Growth
Within the Equity Growth basket, we reduced the weighting of the ESG Enhanced Core Equity sleeve by half and sold the satellite holding in Apax Global, given our reduced conviction in the growth outlook and the increased likelihood of recession in developed markets. The proceeds were moved to the Defensive Assets basket.
In the privately held equity portfolio, there was a capital call of $1.7m USD by the Secondary Opportunities Fund, to repay a tranche of debt put in at the portfolio's inception. There were several small distributions from the HarbourVest and Dover Street funds as portfolio investments matured and were exited.
Higher Yielding Fixed Income
Within the higher yielding fixed income basket, we trimmed exposure to junior ABS as well as EMD positions. The assets were rotated into higher quality fixed income within the defensive basket.
In our private credit portfolio, the majority of committed capital has been called, and there were no new commitments made, so there was no change at a portfolio allocation level over the period.
Real Assets
Within private Real Assets, a significant change was the successful exit of the I77 toll road asset in the US in December, which raised USD17.4m, crystalising a strong return from this investment. In addition, there were regular income payments from the renewable energy and concession infrastructure projects invested in by the Company. From an investment perspective, there was a medium sized drawdown from SLCI II to fund expansion of Airband's rural UK fibre network. Ultimately, given the size of the I77 sale, the overall allocation to private real assets reduced over the period (see the case study).
In the public sphere, we sold the struggling Home REIT in December prior to its stock market suspension in early January. We also reduced our allocation to property as a whole, selling out of further social housing investments in the portfolio, as well as Supermarket Income REIT. Proceeds from these sales were rotated into Foresight Solar, and diversified infrastructure names 3i and Pantheon.
Diversifying Opportunities
In the public investments, we reduced our exposure to Round Hill Music Royalties. In the privately held investments, the majority of the committed capital in the sector has been called, and there were no new commitments made, so there was no change at a portfolio allocation level over the period.
Where do we go from here?
Global divergence is a key theme for the second half of the year. We continue to think a US recession is, in some sense, "necessary" to restore price stability and bring inflation in line with target. Well-documented banking stresses, as well as the broader evolution of the US data flow, increase our conviction that the Fed's rate hiking cycle is providing the conditions for such a recession. While we have seen some headline making and non-trivial events, banking issues are not, at this time, believed to be a 2008 repeat.
In Europe, while economic data of late has been stronger, underlying inflation pressures remain worryingly strong, which will keep the ECB hawkish in the near term meaning European growth will move broadly sideways. In contrast, we expect China to be the fastest growing major economy in 2023. A strong re-opening rebound is underway, boosting domestic consumption with some knock-on benefits for Emerging Markets in the region and commodities.
With core inflation still ahead of target, central banks will raise interest rates further in the near term. However, the point of peak rates is close, and once the recession commences and core inflation has fallen, a pronounced cutting cycle will begin. As such, we have recently added some duration into the portfolio to benefit from falling rates.
The likelihood of recession and the impact on earnings means we are less favourable on corporate risk than earlier in the cycle. We have a preference for investment-grade corporate bonds rather than high yield debt as a result. In the higher yield space, we are maintaining our Emerging Market debt positions. Emerging Market central banks are ahead of developed peers in combatting inflation and will have more room to cut when a global recession hits. We remain mindful of shorter-term volatility in this space however.
We are currently negative on Global Property. Despite the linkage of rents to inflation, we expect the depressed economic environment to erode capital values. In addition, sectors such as offices, are facing severe headwinds from a reduction in demand due to hybrid working, and expensive refinancing rates, with recent headlines of landlords turning the keys over to their banks rather than refinance certain assets. We hold alternative investments in this space, focussed on healthcare and social housing.
The Company has a well-diversified portfolio which has proven to be resilient in the recent challenging environment. While we expect market conditions to remain challenging, we believe the Company is well placed to continue to provide a dependable income for shareholders and to navigate what is proving to be a difficult economic environment.
Nalaka De Silva
Simon Fox
Heather McKay
Nic Baddeleyabrdn Investments Limited Investment Manager
6 June 2023
Ten Largest Investments
As at 31 March 2023
At | At | |
31 March | 30 September | |
2023 | 2022 | |
% of Total | % of Total | |
investments | investments | |
SL Capital Infrastructure IIAB | 6.1 | 5.2 |
European economic infrastructure | ||
Aberdeen Standard Global Private Markets FundA | 5.7 | 5.1 |
Multi-strategy private markets exposure | ||
TwentyFour Asset Backed Opportunities Fund | 5.4 | 6.8 |
Investments in mortgages, SME loans originated in Europe | ||
Burford Opportunity FundB | 5.1 | 4.7 |
Diverse portfolio of litigation finance investments initiated by Burford Capital | ||
Bonaccord Capital Partners I-AB | 4.3 | 4.1 |
Targets investment in alternative asset management companies. | ||
Andean Social Infrastructure Fund IAB | 4.0 | 3.4 |
Infrastructure project investments in the Andean region of South America | ||
Healthcare Royalty Partners IVB | 3.7 | 3.6 |
Invests in healthcare royalty streams primarily in the US | ||
iShares GBP Corp Bond UCITS ETF | 3.5 | - |
Tracks the performance of an index composed of Sterling denominated investment grade corporate bonds. | ||
Aberdeen Property Secondaries Partners IIAB | 3.0 | 2.6 |
Realisation of value from property funds which are in run-off | ||
BlackRock Renewable Income - UK | 2.8 | 2.3 |
Invests in renewable power infrastructure projects in the United Kingdom. | ||
A Denotes abrdn plc managed products | ||
B Unlisted holdings |
Investment Portfolio - Private Markets
As at 31 March 2023 | |||
Valuation | Valuation | Valuation | |
31 March 2023 | 31 March 2023 | 30 September 2022 | |
Company | £'000 | % | £'000 |
Infrastructure | |||
SL Capital Infrastructure IIAB | 20,841 | 6.1 | 19,581 |
Andean Social Infrastructure Fund IAB | 13,922 | 4.0 | 12,691 |
BlackRock Renewable Income - UKB | 9,752 | 2.8 | 8,523 |
Aberdeen Global Infrastructure Partners II (AUD)AB | 5,951 | 1.7 | 6,840 |
Pan European Infrastructure FundB | 1,666 | 0.5 | 1,697 |
Total Infrastructure | 52,132 | 15.1 | |
Private Equity | |||
Bonaccord Capital Partners I-AB | 14,818 | 4.3 | 15,255 |
Aberdeen Standard Secondary Opportunities Fund IVAB | 9,312 | 2.7 | 9,385 |
TrueNoord Co-InvestmentB | 9,225 | 2.7 | 9,976 |
Maj Invest Equity 5B | 2,364 | 0.7 | 2,492 |
HarbourVest International Private Equity VIB | 2,011 | 0.6 | 2,100 |
Maj Invest Equity 4B | 1,252 | 0.4 | 1,335 |
Mesirow Financial Private Equity IVB | 653 | 0.2 | 882 |
HarbourVest VIII Buyout FundB | 199 | 0.1 | 260 |
Mesirow Financial Private Equity IIIB | 150 | - | 228 |
HarbourVest VIII Venture Fund | 137 | - | 178 |
Top ten holdings | 40,121 | 11.7 | |
Other holdings | 35 | - | |
Total Private Equity | 40,156 | 11.7 | |
Real Estate | |||
Aberdeen Property Secondaries Partners IIAB | 10,378 | 3.0 | 9,851 |
Aberdeen European Residential Opportunities FundAB | 9,389 | 2.7 | 9,769 |
Cheyne Social Property Impact FundB | 3,632 | 1.1 | 4,813 |
Total Real Estate | 23,399 | 6.8 | |
Natural Resources | |||
Agriculture Capital Management Fund IIB | 3,286 | 1.0 | 4,258 |
Total Natural Resources | 3,286 | 1.0 | |
Private Credit | |||
Mount Row Credit Fund IIB | 8,703 | 2.6 | 7,494 |
PIMCO Private Income Fund Offshore Feeder I LPB | 7,573 | 2.2 | 8,796 |
ASI Hark IIIAB | 5,698 | 1.7 | 4,088 |
Total Private Credit | 21,974 | 6.5 | |
Other | |||
Aberdeen Standard Global Private Markets FundAB | 19,632 | 5.7 | 19,122 |
Burford Opportunity FundB | 17,589 | 5.1 | 17,520 |
Healthcare Royalty Partners IVB | 12,734 | 3.7 | 13,522 |
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPIB | 285 | 0.1 | 298 |
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPIB | 45 | - | 281 |
Total Other | 50,285 | 14.6 | |
Total Private Markets | 191,232 | 55.7 | |
A Denotes abrdn plc managed products | |||
B Unlisted holdings | |||
Investment Portfolio - Equities
As at 31 March 2023 | |||
Valuation | Valuation | Valuation | |
31 March 2023 | 31 March 2023 | 30 September 2022 | |
Company | £'000 | % | £'000 |
ESG Enhanced Equity Sub-Fund | |||
Apple | 577 | 0.2 | 1,329 |
Microsoft | 424 | 0.1 | 941 |
Alphabet | 215 | 0.1 | 543 |
Amazon.com | 175 | 0.1 | 524 |
Nvidia | 151 | - | 178 |
Top five holdings | 1,542 | 0.5 | |
Other holdings | 10,062 | 2.9 | |
Total ESG Enhanced Equity Sub-Fund | 11,604 | 3.4 | |
Total European Green Infrastructure Sub-Fund | 175 | - | |
Infrastructure Sub-Fund | |||
3I Infrastructure | 4,353 | 1.3 | 2,532 |
International Public Partnerships | 2,662 | 0.8 | 2,194 |
HICL Infrastructure | 2,555 | 0.7 | 3,627 |
Cordiant Digital Infrastructure | 2,131 | 0.6 | 2,336 |
Sequoia Economic Infrastructure Income | 1,543 | 0.5 | 1,570 |
Top five holdings | 13,244 | 3.9 | |
Other holdings | 781 | 0.2 | |
Total Infrastructure Sub-Fund | 14,025 | 4.1 | |
Real Estate Sub-Fund | |||
Assura | 2,071 | 0.6 | 2,271 |
PRS REIT | 1,447 | 0.4 | 1,673 |
Target Health Care | 603 | 0.2 | 786 |
Total Real Estate Sub-Fund | 4,121 | 1.2 | |
Alternative Income Sub-Fund | |||
BioPharma Credit | 4,239 | 1.3 | 6,267 |
Tufton Oceanic Assets | 2,409 | 0.7 | 2,936 |
Round Hill Music Royalty Fund | 1,742 | 0.5 | 3,446 |
GCP Asset Backed Income Fund | 1,475 | 0.4 | 2,440 |
SME Credit Realisation | 44 | - | 201 |
Total Alternative Income Sub-Fund | 9,909 | 2.9 | |
Renewables Infrastructure Sub-Fund | |||
Greencoat UK Wind | 2,758 | 0.8 | 2,643 |
Greencoat Renewables | 2,537 | 0.7 | 2,700 |
Foresight Solar Fund | 1,824 | 0.5 | 985 |
NextEnergy Solar Fund | 1,672 | 0.5 | 1,739 |
Pantheon Infrastructure | 1,656 | 0.5 | 921 |
Top five holdings | 10,447 | 3.0 | |
Other holdings | 5,899 | 1.7 | |
Total Renewables Infrastructure Sub-Fund | 16,346 | 4.7 | |
Reinsurance Sub-Fund | |||
CATCo Reinsurance Opportunities Fund | 83 | - | 150 |
Total Reinsurance Sub-Fund | 83 | - | |
Total Equities | 56,263 | 16.3 | |
Investment Portfolio - Fixed Income & Credit
As at 31 March 2023 | |||
Valuation | Valuation | Valuation | |
31 March 2023 | 31 March 2023 | 30 September 2022 | |
Company | £'000 | % | £'000 |
Structured Credit | |||
TwentyFour Asset Backed Opportunities Fund | 18,620 | 5.4 | 25,509 |
Neuberger Berman CLO Income Fund | 9,205 | 2.7 | 13,315 |
Blackstone/GSO Loan Financing | 3,488 | 1.0 | 3,468 |
Fair Oaks Income Fund | 944 | 0.3 | 1,089 |
Total Structured Credit | 32,257 | 9.4 | |
Syndicated Loans | |||
Aberdeen Standard Alpha - Global Loans FundA | 2,165 | 0.6 | 2,347 |
Total Syndicated Loans | 2,165 | 0.6 | |
Investment Grade Credit | |||
iShares GBP Ultrashort Bond | 8,007 | 2.4 | - |
iShares LI UK Gilts UCITS ETF | 7,991 | 2.3 | - |
Total Investment Grade Credit | 15,998 | 4.7 | |
Corporate Debt | |||
iShares GBP Corp Bond UCTS ETF | 12,076 | 3.5 | - |
Total Corporate Debt | 12,076 | 3.5 | |
Emerging Market Debt | |||
Brazil (Fed Rep of) 10% 01/01/25 | 2,657 | 0.8 | 1,313 |
Secretaria Tesouro 10% 01/01/31 | 1,954 | 0.6 | 1,755 |
Mexico Bonos Desarr Fix Rt 10% 05/12/24 | 1,782 | 0.5 | 1,775 |
South Africa (Rep of) 8.75% 31/01/44 | 1,490 | 0.4 | 1,034 |
Mexico (Utd Mex St) 5% 06/03/25 | 1,447 | 0.4 | - |
Indonesia (Rep of) 8.375% 15/03/34 | 1,290 | 0.4 | 1,346 |
Indonesia (Rep of) 8.125% 15/05/24 | 1,193 | 0.3 | 1,309 |
Indonesia (Rep of) 8.375% 15/03/24 Fr70Idr | 1,111 | 0.3 | 1,219 |
Malaysia (Govt of) 3.828% 05/07/34 | 1,027 | 0.3 | 988 |
Chile (Rep Of) 5.8% 01/06/24 Clp | 1,007 | 0.3 | 894 |
Top ten holdings | 14,958 | 4.3 | |
Other holdings | 19,203 | 5.6 | |
Total Emerging Market Debt | 34,161 | 9.9 | |
Total Fixed Income & Credit | 96,657 | 28.1 | |
A Denotes abrdn plc managed products | |||
Investment Portfolio - Net Assets Summary
As at 31 March 2023 | ||||
Valuation | Net assets | Valuation | Net assets | |
31 March 2023 | 31 March 2023 | 30 September 2022 | 30 September 2022 | |
£'000 | % | £'000 | % | |
Total investments | 344,152 | 97.7 | 373,732 | 102.9 |
Cash and cash equivalentsA | 19,211 | 5.5 | 8,984 | 2.5 |
Forward contracts | 4,344 | 1.2 | (4,922) | (1.4) |
6.25% Bonds 2031 | (15,711) | (4.5) | (15,694) | (4.3) |
Other net assets | 321 | 0.1 | 1,258 | 0.3 |
Net assets | 352,317 | 100.0 | 363,358 | 100.0 |
A Includes outstanding settlements | ||||
Investment Case Studies
Burford Opportunity Fund
Burford Opportunity Fund ("BOF") invests in litigation finance, a form of specialty finance used by litigants and law firms involved in commercial litigation. In short, BOF forward funds legal cases and receives a portion of the proceeds should the case be won. The Company has committed $25m to BOF, and BOF was c.5.0% of the Company's NAV as at 31 March 2023.
BOF has deployed a significant amount in a case against the government of Argentina relating to the nationalisation of YPF. YPF is an Argentinian oil and gas company that went public on the New York Stock Exchange in 1993. To allay investor concerns at the time, the Argentinian government guaranteed that if in the future they decided to nationalise the company, it would pay shareholders a figure that would equal YPF's earnings per share over the preceding four quarters multiplied by its highest price/earnings ratio over the preceding two years. In early 2012, YPF was nationalised, but there was debate around which date should be used for share price calculation. Two of the largest minority shareholders in YPF suffered financial distress as a result, and Burford has provided finance for their legal claims against the Argentine government.
Since March 2022, the case has been sitting at the summary judgement phase with the US Southern District Court of NY. A decision was made at 3pm (BST) on 31 March 2023 that the judgement was in BOF's favour, with a decision required on the exact amount of damages to be awarded and the interest rate that should be applied, particularly significant when there is eleven years of compounding to consider.
While there are still factors at play influencing the outcome between now and cash being received, the ruling is a significant event which unlocks substantial value for BOF, evidencing its role as an uneconomically linked driver of return in the Company's portfolio.
SL Capital Partners II Fund
SL Capital Partners II ("SLCI II") invests in infrastructure assets in Europe and the UK, with a portfolio of assets including district heating networks in Finland, liquid bulk storage terminals and rolling stock leases in Germany, rolling stock leases and broadband networks in the UK, and a large portfolio of operating solar photovoltaic farms in Poland.
The Q4 2022 valuation of the portfolio was up by 2% on the previous quarter, and up 20% vs Q4 2021. The uplift in the most recent quarter was due to the strong operational performance of Central Europe Renewable Infrastructure ("CERI"), the Polish solar energy portfolio. Annual generation was 9.9% above budget following consistently favourable weather conditions and the high-power price environment. A number of operating expenses such as security and insurance have benefited from the economies of scale at the portfolio, reducing costs and improving the profit margins. In FY 2022, CERI generated 438,496 MWh of CO2 free energy, saving 142,664 tonnes of CO2 emissions. As the portfolio is now fully operational, it has started to distribute funds to SLCI II, which in turn is gradually building up the yield it pays to the Company.
Condensed Statement of Comprehensive Income (unaudited)
Six months ended | Six months ended | ||||||
31 March 2023 | 31 March 2022 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
(Losses)/gains on investments | - | (13,384) | (13,384) | - | 8,537 | 8,537 | |
Foreign exchange gains/(losses) | - | 14,058 | 14,058 | - | (3,023) | (3,023) | |
Income | 2 | 9,118 | - | 9,118 | 9,757 | - | 9,757 |
Investment management fees | 3 | (291) | (291) | (582) | (264) | (397) | (661) |
Administrative expenses | (461) | (21) | (482) | (476) | (13) | (489) | |
Net return before finance costs and taxation | 8,366 | 362 | 8,728 | 9,017 | 5,104 | 14,121 | |
Finance costs | (259) | (259) | (518) | (210) | (314) | (524) | |
Net return before taxation | 8,107 | 103 | 8,210 | 8,807 | 4,790 | 13,597 | |
Taxation | 4 | (367) | (927) | (1,294) | (179) | (798) | (977) |
Return attributable to equity shareholders | 7,740 | (824) | 6,916 | 8,628 | 3,992 | 12,620 | |
Return per Ordinary share (pence) | 5 | 2.52 | (0.27) | 2.25 | 2.79 | 1.29 | 4.08 |
The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company. There has been no other comprehensive income during the period, accordingly, the return/(loss) attributable to equity shareholders is equivalent to the total comprehensive income/(loss) for the period. | |||||||
All revenue and capital items in the above statement derive from continuing operations. | |||||||
The accompanying notes are an integral part of these condensed financial statements. | |||||||
Condensed Statement of Financial Position (unaudited)
As at | As at | ||
31 March 2023 | 30 September 2022 | ||
(unaudited) | (audited) | ||
Notes | £'000 | £'000 | |
Non-current assets | |||
Investments at fair value through profit or loss | 344,152 | 373,732 | |
Deferred taxation asset | 4 | 240 | 1,167 |
344,392 | 374,899 | ||
Current assets | |||
Debtors | 1,792 | 2,845 | |
Derivative financial instruments | 4,432 | 984 | |
Cash and cash equivalents | 18,626 | 7,179 | |
24,850 | 11,008 | ||
Creditors: amounts falling due within one year | |||
Derivative financial instruments | (88) | (5,906) | |
Other creditors | (1,126) | (949) | |
(1,214) | (6,855) | ||
Net current assets | 23,636 | 4,153 | |
Total assets less current liabilities | 368,028 | 379,052 | |
Non-current liabilities | |||
6.25% Bonds 2031 | 7 | (15,711) | (15,694) |
Net assets | 352,317 | 363,358 | |
Capital and reserves | |||
Called up share capital | 9 | 91,352 | 91,352 |
Share premium account | 116,556 | 116,556 | |
Capital redemption reserve | 26,629 | 26,629 | |
Capital reserve | 83,733 | 89,560 | |
Revenue reserve | 34,047 | 39,261 | |
Total shareholders' funds | 352,317 | 363,358 | |
Net asset value per Ordinary share (pence) | 10 | ||
Bonds at par value | 116.37 | 117.80 | |
Bonds at fair value | 115.93 | 117.63 | |
The accompanying notes are an integral part of these condensed financial statements. | |||
Condensed Statement of Changes in Equity (unaudited)
Six months ended 31 March 2023 | |||||||
Share | Capital | ||||||
Share | premium | redemption | Capital | Revenue | |||
capital | account | reserve | reserve | reserve | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 October 2022 | 91,352 | 116,556 | 26,629 | 89,560 | 39,261 | 363,358 | |
Ordinary shares purchased for treasury | 9 | - | - | - | (5,003) | - | (5,003) |
Return after taxation | - | - | - | (824) | 7,740 | 6,916 | |
Dividends paid | 6 | - | - | - | - | (12,954) | (12,954) |
At 31 March 2023 | 91,352 | 116,556 | 26,629 | 83,733 | 34,047 | 352,317 | |
Six months ended 31 March 2022 | |||||||
Share | Capital | ||||||
Share | premium | redemption | Capital | Revenue | |||
capital | account | reserve | reserve | reserve | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 October 2021 | 91,352 | 116,556 | 26,629 | 106,572 | 41,009 | 382,118 | |
Ordinary shares purchased for treasury | 9 | - | - | - | (221) | - | (221) |
Return after taxation | - | - | - | 3,992 | 8,628 | 12,620 | |
Dividends paid | 6 | - | - | - | - | (12,864) | (12,864) |
At 31 March 2022 | 91,352 | 116,556 | 26,629 | 110,343 | 36,773 | 381,653 | |
The accompanying notes are an integral part of these condensed financial statements. | |||||||
Condensed Statement of Cash Flows (unaudited)
Six months ended | Six months ended | |
31 March 2023 | 31 March 2022 | |
£'000 | £'000 | |
Operating activities | ||
Net return before finance costs and taxation | 8,728 | 14,121 |
Adjustments for: | ||
Dividend income | (7,613) | (8,379) |
Fixed interest income | (1,349) | (1,340) |
Interest income | (136) | - |
Other income | (20) | - |
Dividends received | 7,529 | 8,384 |
Fixed interest income received | 1,324 | 1,199 |
Interest received | 136 | - |
Other income received | 20 | - |
Unrealised (gains)/losses on forward contracts | (9,266) | 2,121 |
Foreign exchange (losses)/gains | (246) | 217 |
Losses/(gains) on investments | 13,384 | (8,537) |
Decrease in other debtors | 36 | 2 |
Increase in accruals | 40 | 121 |
Corporation tax paid | (359) | (273) |
Taxation withheld | (34) | (82) |
Net cash flow from operating activities | 12,174 | 7,554 |
Investing activities | ||
Purchases of investments | (42,572) | (30,549) |
Sales of investments and return of capital | 59,893 | 36,045 |
Net cash flow from investing activities | 17,321 | 5,496 |
Financing activities | ||
Purchase of own shares to treasury | (4,837) | (221) |
Interest paid | (503) | (510) |
Equity dividends paid (note 6) | (12,954) | (12,864) |
Net cash flow used in financing activities | (18,294) | (13,595) |
Increase/(decrease) in cash and cash equivalents | 11,201 | (545) |
Analysis of changes in cash and cash equivalents during the period | ||
Opening balance | 7,179 | 7,201 |
Foreign exchange | 246 | (217) |
Increase/(decrease) in cash and cash equivalents as above | 11,201 | (545) |
Closing balance | 18,626 | 6,439 |
The accompanying notes are an integral part of these condensed financial statements. | ||
Notes to the Financial Statements
For the year ended 31 March 2023
1. | Accounting policies - Basis of accounting |
The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in July 2022 and with the Disclosure Transparency Rules issued by the Financial Reporting Council. Given the Company's portfolio comprises a significant proportion of "Level 1" and "Level 2" assets (listed on recognisable exchanges and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate. The condensed financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted by HMRC and that the annual continuation vote will be passed at the Company's Annual General Meeting. Annual financial statements are prepared under Financial Reporting Standard 102. | |
The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements. There have been no new standards, amendments or interpretations effective for the first time for this interim period that require a change in accounting policies. | |
Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires Directors to exercise their judgement in the process of applying the accounting policies. The area where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the financial statements are the determination of the fair value of unlisted investments (Level 3 assets in the Fair Value Hierarchy table in note 12). |
2. | Income | ||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | ||
£'000 | £'000 | ||
Income from investments | |||
UK listed dividends | 1,260 | 1,566 | |
Overseas listed dividends | 2,802 | 2,327 | |
Unquoted Limited Partnership income | 3,551 | 4,485 | |
Stock dividends | - | 1 | |
Treasury bill income | - | 9 | |
Fixed interest income | 1,349 | 1,340 | |
8,962 | 9,728 | ||
Other income | |||
Interest | 136 | - | |
Other income | 20 | 29 | |
Total income | 9,118 | 9,757 |
3. | Investment management fee | ||||||
Six months ended | Six months ended | ||||||
31 March 2023 | 31 March 2022 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Investment management fee | 291 | 291 | 582 | 264 | 397 | 661 | |
The investment management fee is levied by abrdn Fund Managers Limited at the following tiered levels: | |||||||
- 0.50% per annum in respect of the first £300 million of the net asset value (with the 6.25% Bonds 2031 at fair value); and | |||||||
- 0.45% per annum in respect of the balance of the net asset value (with the 6.25% Bonds 2031 at fair value). | |||||||
The Company also receives rebates in respect of underlying investments in other funds managed by the Group (where an investment management fee is charged by the Group on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Manager which themselves invest directly into alternative investments including, but not limited to, infrastructure and property are charged at the Manager's lowest institutional fee rate. To avoid double charging, such investments are excluded from the overall management fee calculation. | |||||||
At the period end, an amount of £288,000 (31 March 2022 - £216,000) was outstanding in respect of management fees due by the Company. | |||||||
4. | Taxation |
The taxation charge for the period represents withholding tax suffered on overseas dividend income and fixed interest income and applicable corporation tax. | |
The Company has a deferred tax asset of £240,000 as it is considered likely that accumulated unrelieved management expenses and loan relationship deficits will be extinguished in future years. In arriving at the amount recognised, the Company has taken account of current year and future levels of taxable income forecast to be generated. | |
The Company does not apply the marginal method of allocation of tax relief. |
5. | Return per Ordinary share | ||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | ||
p | p | ||
Revenue return | 2.52 | 2.79 | |
Capital (loss)/return | (0.27) | 1.29 | |
Total return | 2.25 | 4.08 | |
The figures above are based on the following: | |||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | ||
£'000 | £'000 | ||
Revenue return | 7,740 | 8,628 | |
Capital (loss)/return | (824) | 3,992 | |
Total return | 6,916 | 12,620 | |
Weighted average number of shares in issueA | 307,154,680 | 309,200,265 | |
A Calculated excluding shares held in treasury. | |||
6. | Dividends | ||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | ||
£'000 | £'000 | ||
Third interim dividend for 2022 - 1.40p (2021 - 1.38p) | 4,319 | 4,269 | |
Fourth interim dividend for 2022 - 1.40p (2021 - 1.38p) | 4,314 | 4,267 | |
First interim dividend for 2023 - 1.42p (2022 - 1.40p) | 4,321 | 4,328 | |
12,954 | 12,864 | ||
On 15 September 2022, the Board declared a third interim dividend of 1.40 pence per share which was paid on 20 October 2022 to shareholders on the register on 23 September 2022. On 15 December 2022, the Board declared a fourth interim dividend of 1.40 pence per share which was paid on 19 January 2023 to shareholders on the register on 23 December 2022. On 2 March 2023, the Board declared a first interim dividend of 1.42 pence per share (2022 - 1.40p) which was paid on 3 April 2023 to shareholders on the register on 10 March 2023, although this was prefunded to the Company's registrar on 29 March 2023. | |||
Subsequent to the period end, the Board declared a second interim dividend of 1.42p per share (2022 - 1.40p), which will be paid on 6 July 2023 to shareholders on the register as at 9 June 2023. The ex dividend date is 8 June 2023. The total cost of this dividend, based on 301,355,592 as the number of shares in issue, excluding 36,395,854 reasury shares, as at the date of this Report, will be £4,279,000 (2022 - £4,323,000). | |||
7. | 6.25% Bonds 2031 | ||
Six months ended | Year ended | ||
31 March 2023 | 30 September 2022 | ||
£'000 | £'000 | ||
Balance at beginning of period | 15,694 | 15,664 | |
Amortisation of discount and issue expenses | 17 | 30 | |
Balance at end of period | 15,711 | 15,694 | |
The Company has in issue £16,096,000 (2022 - 16,096,000) Bonds 2031 which were issued at 99.343%. The Bonds have been accounted for in accordance with accounting standards, which require any discount or issue costs to be amortised over the life of the bonds. The Bonds are secured by a floating charge over all of the assets of the Company with interest paid in March and September each year. | |||
Under the covenants relating to the Bonds, the Company is required to ensure that, at all times, the aggregate principal amount outstanding in respect of monies borrowed by the Company does not exceed an amount equal to its share capital and reserves. | |||
The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 31 March 2023 of 105.8836p (30 September 2022 - 100.7812p) per bond was £17,043,000 (30 September 2022 - £16,222,000). | |||
8. | Analysis of changes in net debt | |||||
At | Currency | Non-cash | At | |||
1 October 2022 | differences | Cash flows | movements | 31 March 2023 | ||
£000 | £000 | £000 | £000 | £000 | ||
Cash and cash equivalents | 7,179 | - | 11,447 | - | 18,626 | |
Forward contracts | (4,922) | 9,266 | - | - | 4,344 | |
Debt due after one year | (15,694) | - | - | (17) | (15,711) | |
Total | (13,437) | 9,266 | 11,447 | (17) | 7,259 | |
At | Currency | Non-cash | At | |||
1 October 2021 | differences | Cash flows | movements | 30 September 2022 | ||
£000 | £000 | £000 | £000 | £000 | ||
Cash and cash equivalents | 7,201 | - | (22) | - | 7,179 | |
Forward contracts | (2,917) | (2,005) | - | - | (4,922) | |
Debt due after one year | (15,664) | - | - | (30) | (15,694) | |
Total | (11,380) | (2,005) | (22) | (30) | (13,437) | |
9. | Called up share capital |
During the period 5,696,441 (year ended 30 September 2022 - 871,424) Ordinary shares of 25p each were purchased to be held in treasury at a cost of £5,003,000 (year ended 30 September 2022 - £864,000). | |
At the end of the period there were 302,750,873 (30 September 2022 - 308,447,314) Ordinary shares in issue and 35,000,933 (30 September 2022 - 29,304,492) shares held in treasury. |
10. | Net asset value per Ordinary share | ||
As at | As at | ||
31 March 2023 | 30 September 2022 | ||
Debt at par | |||
Net asset value attributable (£'000) | 352,317 | 363,358 | |
Number of Ordinary shares in issue excluding treasury | 302,750,873 | 308,447,314 | |
Net asset value per share (p) | 116.37 | 117.80 | |
Debt at fair value | £'000 | £'000 | |
Net asset value attributable | 352,317 | 363,358 | |
Add: Amortised cost of 6.25% Bonds 2031 | 15,711 | 15,694 | |
Less: Market value of 6.25% Bonds 2031 | (17,043) | (16,222) | |
350,985 | 362,830 | ||
Number of Ordinary shares in issue excluding treasury | 302,750,873 | 308,447,314 | |
Net asset value per share (p) | 115.93 | 117.63 | |
11. | Transaction costs | ||
During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within losses on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows: | |||
Six months ended | Six months ended | ||
31 March 2023 | 31 March 2022 | ||
£'000 | £'000 | ||
Purchases | 17 | 23 | |
Sales | 23 | 31 | |
40 | 54 | ||
12. | Fair value hierarchy | |||||||
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: | ||||||||
Level 1 - Quoted prices in active markets for identical instruments. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The Company does not adjust the quoted price for these instruments.
| ||||||||
Level 2 - Valuation techniques using observable inputs. This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. | ||||||||
Valuation techniques used for non-standardised financial instruments such as over-the-counter derivatives, include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs. | ||||||||
Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation. | ||||||||
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The investment manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. | ||||||||
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. | ||||||||
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. | ||||||||
The financial assets and liabilities measured at fair value in the Condensed 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 March 2023 | £'000 | £'000 | £'000 | £'000 | ||||
Financial assets/(liabilities) at fair value through profit or loss | ||||||||
Equity investments | 88,769 | 18,620 | 191,232 | 298,621 | ||||
Loan investments | - | 11,370 | - | 11,370 | ||||
Fixed interest instruments | - | 34,161 | - | 34,161 | ||||
Forward currency contracts - financial assets | - | 4,432 | - | 4,432 | ||||
Forward currency contracts - financial liabilities | - | (88) | - | (88) | ||||
Net fair value | 88,769 | 68,495 | 191,232 | 348,496 | ||||
Level 1 | Level 2 | Level 3 | Total | |||||
As at 30 September 2022 | £'000 | £'000 | £'000 | £'000 | ||||
Financial assets/(liabilities) at fair value through profit or loss | ||||||||
Equity investments | 91,349 | 25,509 | 209,065 | 325,923 | ||||
Loan investments | - | 15,662 | - | 15,662 | ||||
Fixed interest instruments | - | 32,147 | - | 32,147 | ||||
Forward currency contracts - financial assets | - | 984 | - | 984 | ||||
Forward currency contracts - financial liabilities | - | (5,906) | - | (5,906) | ||||
Net fair value | 91,349 | 68,396 | 209,065 | 368,810 | ||||
As at | As at | |||||||
31 March 2023 | 30 September 2022 | |||||||
Level 3 Financial assets at fair value through profit or loss | £'000 | £'000 | ||||||
Opening fair value | 209,065 | 172,108 | ||||||
Purchases including calls (at cost) | 10,936 | 24,445 | ||||||
Disposals and return of capital | (17,395) | (20,803) | ||||||
Transfers from level 1* | - | 70 | ||||||
Transfers from level 2* | - | 2,853 | ||||||
Total gains or losses included in losses on investments in the Statement of Comprehensive Income: | ||||||||
- assets disposed of during the period | 7,276 | 535 | ||||||
- assets held at the end of the period* | (18,650) | 29,857 | ||||||
Closing balance | 191,232 | 209,065 | ||||||
* see note below on holdings in Russia. | ||||||||
The Company's holdings in unlisted investments are classified as Level 3. Unquoted investments, including those in Limited Partnerships ("LPs") are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. | ||||||||
The Company's investments in LPs are subject to the terms and conditions of the respective investee's offering documentation. The investments in LPs are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or General Partner of the LPs and adjusted by the Directors in consultation with the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses including carried interest amounts of the investees and the underlying investments held by each LP are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of LPs reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company. | ||||||||
During the prior year, the Company reviewed its exposure to holdings in Russia in light of the war in Ukraine and decided to write their value down to £nil. The consequence of this is noted in transfers from Level 1 and Level 2 in the above table and the write down in value of £70,000 and £2,853,000 respectively is included with assets held at the period end. | ||||||||
13. | Related party disclosures | |
Transactions with the Manager. The investment management fee is levied by aFML at the following tiered levels, payable monthly in arrears: | ||
- 0.50% per annum in respect of the first £300 million of the net asset value (with debt at fair value); and | ||
- 0.45% per annum in respect of the balance of the net asset value (with debt at fair value). | ||
During the period, the Manager charged the Company £93,000 (2022 - £100,000) in respect of promotional activities carried out on the Company's behalf. | ||
The Company also receives rebates with regards to underlying investments in other funds managed by abrdn plc (the "Group") (where an investment management fee is charged by the Group on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Group which themselves invest directly into alternative investments including, but not limited to, infrastructure and property are charged at the Group's lowest institutional fee rate. To avoid double charging, such investments are excluded from the overall management fee calculation. | ||
The table below details all investments held at 31 March 2023 that were managed by the Group. | ||
31 March 2023 | ||
£'000 | ||
SL Capital Infrastructure IIB | 20,841 | |
Aberdeen Standard Global Private Markets FundB | 19,632 | |
Andean Social Infrastructure Fund IB | 13,922 | |
Aberdeen Property Secondaries Partners IIC | 10,378 | |
Aberdeen European Residential Opportunities FundB | 9,389 | |
Aberdeen Standard Secondary Opportunities Fund IVC | 9,312 | |
Aberdeen Global Infrastructure Partners II (AUD)D | 5,951 | |
ASI Hark IIIB | 5,698 | |
Aberdeen Standard Alpha - Global Loans FundA | 2,165 | |
97,288 | ||
A The Company is invested in a share class which is not subject to a management charge from the Group. | ||
B The value of this holding is removed from the management fee calculation to ensure that no double counting occurs. | ||
C An amount equivalent to the management fee received by the Manager on the underlying is offset against the management fee payable by the Company to ensure that no double counting occurs. | ||
D The invested capital commitment is removed from the management fee calculation to ensure that no double counting occurs. | ||
14. | Segmental information |
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business. |
15. | Half-Yearly Report |
The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 September 2022 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The interim accounts have been prepared using the same accounting policies as the preceding annual accounts. | |
PricewaterhouseCoopers LLP has reviewed the financial information for the six months ended 31 March 2023 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. |
16. | This Half-Yearly Report was approved by the Board and authorised for issue on 6 June 2023. |
Alternative Performance Measures
Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. | ||||||||||
Net asset value per Ordinary share - debt at fair value | ||||||||||
The net asset value per Ordinary share with debt at fair value is calculated as follows: | ||||||||||
As at | As at | |||||||||
31 March 2023 | 30 September 2022 | |||||||||
£'000 | £'000 | |||||||||
Net asset value attributable | 352,317 | 363,358 | ||||||||
Add: Amortised cost of 6.25% Bonds 2031 | 15,711 | 15,694 | ||||||||
Less: Market value of 6.25% Bonds 2031 | (17,043) | (16,222) | ||||||||
350,985 | 362,830 | |||||||||
Number of Ordinary shares in issue excluding treasury shares | 302,750,873 | 308,447,314 | ||||||||
Net asset value per share (p) | 115.93 | 117.63 | ||||||||
Discount to net asset value per Ordinary share - debt at fair value | ||||||||||
The discount is the amount by which the Ordinary share price is lower than the net asset value per Ordinary share - debt at fair value, expressed as a percentage of the net asset value - debt at fair value. The Board considers this to be the most appropriate measure of the Company's discount. | ||||||||||
31 March 2023 | 30 September 2022 | |||||||||
Net asset value per Ordinary share (p) | a | 115.93 | 117.63 | |||||||
Share price (p) | b | 81.40 | 89.80 | |||||||
Discount | (a-b)/a | 29.8% | 23.7% | |||||||
Dividend yield | ||||||||||
The annual dividend per Ordinary share divided by the share price, expressed as a percentage. | ||||||||||
31 March 2023 | 30 September 2022 | |||||||||
Dividend per Ordinary share (p) | a | 5.68 | 5.60 | |||||||
Share price (p) | b | 81.40 | 89.80 | |||||||
Dividend yield | a/b | 7.0% | 6.2% | |||||||
Net (cash)/gearing - debt at par value | ||||||||||
Net (cash)/gearing with debt at par value measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end, in addition to cash and short term deposits. | ||||||||||
31 March 2023 | 30 September 2022 | |||||||||
Borrowings (£'000) | a | 15,711 | 15,694 | |||||||
Cash (£'000) | b | 18,626 | 7,179 | |||||||
Amounts due to brokers (£'000) | c | 166 | - | |||||||
Amounts due from brokers (£'000) | d | 751 | 1,806 | |||||||
Shareholders' funds (£'000) | e | 352,317 | 363,358 | |||||||
Net (cash)/gearing | (a-b+c-d)/e | (1.0%) | 1.8% | |||||||
Net (cash)/gearing - debt at fair value | ||||||||||
Net (cash)/gearing with debt at fair value measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the year end, in addition to cash and short term deposits per the Statement of Financial Position. | ||||||||||
31 March 2023 | 30 September 2022 | |||||||||
Borrowings (£'000) | a | 17,043 | 16,222 | |||||||
Cash (£'000) | b | 18,626 | 7,179 | |||||||
Amounts due to brokers (£'000) | c | 166 | - | |||||||
Amounts due from brokers (£'000) | d | 751 | 1,806 | |||||||
Shareholders' funds (£'000) | e | 350,985 | 362,830 | |||||||
Net (cash)/gearing | (a-b+c-d)/e | (0.6%) | 2.0% | |||||||
Ongoing charges | ||||||||||
The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average daily net asset values with debt at fair value published throughout the year. The ratio for 31 March 2023 is based on forecast ongoing charges for the year ending 30 September 2023. | ||||||||||
31 March 2023 | 30 September 2022 | |||||||||
£ | £ | |||||||||
Investment management fees | 1,152,000 | 1,293,000 | ||||||||
Administrative expenses | 935,000 | 930,000 | ||||||||
Less: non-recurring chargesA | (1,000) | (37,000) | ||||||||
Ongoing charges | 2,086,000 | 2,186,000 | ||||||||
Average net assets with debt at fair value | 352,729,000 | 371,257,000 | ||||||||
Ongoing charges ratio (excluding look-through costs) | 0.59% | 0.59% | ||||||||
Look-through costsB | 0.76% | 0.82% | ||||||||
Ongoing charges ratio (including look-through costs) | 1.35% | 1.41% | ||||||||
A Professional services considered unlikely to recur. | ||||||||||
B Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis. | ||||||||||
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes financing and transaction costs. This can be found within the literature library section of the Company's website: abrdndiversified.co.uk. | ||||||||||
Total return | ||||||||||
NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV and share price total returns are monitored against open-ended and closed-ended competitors, and the Reference Index, respectively. | ||||||||||
NAV | NAV | Share | ||||||||
Six months ended 31 March 2023 | (debt at par) | (debt at fair value) | Price | |||||||
Opening at 1 October 2022 | a | 117.8p | 117.6p | 89.8p | ||||||
Closing at 31 March 2023 | b | 116.4p | 116.0p | 81.4p | ||||||
Price movements | c=(b/a)-1 | -1.2% | -1.4% | -9.4% | ||||||
Dividend reinvestmentA | d | 3.6% | 3.6% | 2.9% | ||||||
Total return | c+d | +2.4% | +2.2% | -6.5% | ||||||
NAV | NAV | Share | ||||||||
Year ended 30 September 2022 | (debt at par) | (debt at fair value) | Price | |||||||
Opening at 1 October 2021 | a | 123.5p | 121.7p | 100.0p | ||||||
Closing at 30 September 2022 | b | 117.8p | 117.6p | 89.8p | ||||||
Price movements | c=(b/a)-1 | -4.6% | -3.4% | -10.2% | ||||||
Dividend reinvestmentA | d | 4.4% | 4.6% | 5.2% | ||||||
Total return | c+d | -0.2% | +1.2% | -5.0% | ||||||
A 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. | ||||||||||
Independent review report to abrdn Diversified Income and Growth plc on the condensed financial statements
Report on the condensed interimfinancial statements
Our conclusion
We have reviewed abrdn Diversified Income and Growth plc's condensed interim financial statements (the "interim financial statements") in the Half Yearly Report of abrdn Diversified Income and Growth plc for the 6 month period ended 31 March 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with FRS 104 "Interim Financial Reporting" issued by the Financial Reporting Council and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
· the Condensed Statement of Financial Position as at 31 March 2023;
· the Condensed Statement of Comprehensive Income for the period then ended;
· the Condensed Statement of Cash Flows for the period then ended;
· the Condensed Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Yearly Report of abrdn Diversified Income and Growth plc have been prepared in accordance with FRS 104 "Interim Financial Reporting" issued by the Financial Reporting Council and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Yearly Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the company to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Yearly Report, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Yearly Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Half Yearly Report, including the interim financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Half Yearly Report based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLPChartered Accountants Edinburgh6 June 2023
END