Last checked at 
24 Sep 2020 07:00
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 31 JULY 2020
Legal Entity Identifier (LEI): 549300PPXLZPR5JTL763
INVESTMENT OBJECTIVE
The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.
BENCHMARK
The Company's benchmark is the FTSE All-Share Index (total return). Performance is measured on a net asset value total return basis over the long-term.
PERFORMANCE HIGHLIGHTS
Net asset value total return per Ordinary shareAB | Share price total return per Ordinary shareA | FTSE All-Share Index total return | ||||||||||||
Six months ended 31 July 2020 | -11.4% |
Six months ended 31 July 2020 | -13.8% |
Six months ended 31 July 2020 | -17.8% | |||||||||
Year ended 31 January 2020 | +22.2% | Year ended 31 January 2020 | +28.8% | Year ended 31 January 2020 | +10.7% | |||||||||
Revenue return per Ordinary share | Dividend yieldA | Discount to net asset valueAB | ||||||||||||
Six months ended 31 July 2020 | 6.14p | As at 31 July 2020 | 5.0% | As at 31 July 2020 | 6.4% | |||||||||
Six months ended 31 July 2019 | 6.72p | As at 31 January 2020 | 4.2% | As at 31 January 2020 | 3.6% | |||||||||
A Considered to be an Alternative Performance Measure. | ||||||||||||||
B With debt at fair value. | ||||||||||||||
FINANCIAL HIGHLIGHTS
Highlights | |||
31 July 2020 | 31 January 2020 | % change | |
Total assetsA | £452,532,000 | £510,537,000 | (11.4) |
Equity shareholders' funds | £408,756,000 | £469,806,000 | (13.0) |
Market capitalisation | £374,913,000 | £446,043,000 | (15.9) |
Net asset value per Ordinary share | 275.84p | 317.04p | (13.0) |
Net asset value per Ordinary share with debt at fair valueB | 270.36p | 312.22p | (13.4) |
Share price per Ordinary share (mid) | 253.00p | 301.00p | (15.9) |
Discount to net asset value with debt at fair valueB | 6.4% | 3.6% | |
Revenue return per Ordinary shareC | 6.14p | 6.72p | (8.6) |
Gearing - netB | 9.1% | 5.1% | |
Ongoing chargesB | 0.66% | 0.59% | |
A Defined as total assets per the Statement of Financial Position less current liabilities (before deduction of bank loans and Loan Notes). | |||
B Considered to be an Alternative Performance Measure. | |||
C Figure for 31 July 2020 is for six months to that date. Figure for 31 January 2020 is for the six months to 31 July 2019. | |||
For further information, please contact:-
Stephanie Hocking
Aberdeen Standard Investments
0131 372 2200
HALF YEARLY BOARD REPORT - CHAIRMAN'S STATEMENT
Review of the Period
Amidst challenging financial market conditions, the Company delivered weak absolute but positive relative returns for the six month period ended 31 July 2020. The net asset value ("NAV") fell by 11.4% on a total return basis, outperforming its benchmark, the FTSE All-Share Index, which produced a total return of -17.8%. The share price total return for the period was -13.8%, reflecting a widening of the discount at which the Company's shares trade to the NAV. The discount at the end of the period (on a cum-income basis with borrowings stated at fair value) was 6.4%, compared to 3.6% at the beginning of the period.
Although it is never good to report negative returns, the Board is encouraged to note the strong performance of the Company relative to the benchmark and its peers during recent periods. The Company has outperformed the benchmark over one, three and five years and, in terms of both NAV and share price total return performance, is one of the best performing investment trusts in the UK Equity Income Sector over each of these periods.
In marked contrast to the relatively buoyant equity market conditions of the previous financial year, the FTSE All-Share Index declined rapidly over the second half of February and through March as the COVID-19 virus spread quickly across the world, driving the cessation of large parts of global economic activity. At the same time, volatility indices surged to record highs, Government bond yields collapsed to new lows and, for a very brief period, the oil price turned negative as supply exceeded storage such was the collapse in demand. As a result, financial market conditions deteriorated rapidly and the prospect of a significant systemic crisis loomed large. Fortunately, with memories amongst policy makers still relatively fresh from the global financial crisis of 2007-09 and the Eurozone crisis of 2010-12, rapid policy action from central banks and regulators was able to head off what looked like an extremely dangerous situation.
Since the end of March, the FTSE All-Share Index has recovered some of its losses, albeit held back by the sharp appreciation of Sterling against the US Dollar and its substantial exposure to some of the more challenged areas of the market, namely banks and oil. Economic activity has bounced back sharply in both the UK and much of the developed world, aided by aggressive fiscal action from governments, coupled with a further expansion of quantitative easing. In China, which was the first economy to be hit by the virus, output has more or less normalised. Within the UK economy, activity levels have been sharply polarised with the areas most affected, particularly those in travel and leisure, only seeing modest rebounds. Meanwhile those with exposure to more online revenues and virtual business models have, in many cases, actually seen their growth accelerate as a result of the change in consumer and business behaviours. In some cases we have seen many years' worth of market share gains occur in just a few months.
Against this extremely volatile market backdrop, the Investment Manager has continued to execute our strategy of reducing the dependence on higher yielding, lower growth companies and focussing capital on businesses of higher quality and with stronger growth potential. Whilst we have not been immune from the difficulties of 2020, we believe the robust relative performance of both our capital and income has validated our current approach. Despite the ongoing challenges, our dividend policy remains to grow the dividend faster than inflation over the medium term and, with the Company's robust revenue reserves and the underlying dividend growth of the companies within the portfolio, the Board believes the policy's continuation to be appropriate.
A detailed review of portfolio activity during the period is contained in the Investment Manager's Review.
Earnings and Dividends
Revenue earnings per share declined by 8.6% during the period to 6.14p per share (2019: 6.72p). This fall was primarily driven by a series of dividend cuts from companies in response to the financial impact of COVID-19. While the income performance was under pressure, it is worth noting that the Company's revenue generation has been materially better than that of the wider UK equity market. During the period the Revenue Account benefitted from not holding a number of companies that have been traditional components of the portfolios of many UK Equity Income trusts, for example HSBC, Royal Dutch Shell and BP.
A first interim dividend in respect of the year ending 31 January 2021, of 3.0 p per share (2020: 3.0p), was paid on 28 August 2020 and the Board has declared a second interim dividend of 3.0p (2020: 3.0p) per share, which will be paid on 27 November 2020 to shareholders on the register on 6 November 2020.
As mentioned above, it remains the Board's intention to continue a policy of growing total annual dividends in real terms.
Gearing
The Company currently employs two sources of gearing; the £30 million loan notes maturing in 2045, and a three year £15 million multi-currency revolving credit facility that was taken out in July 2018. Under the terms of the facility the Company has the option to increase the level of the commitment from £15 million to £30 million at any time, subject to the lender's credit approval. In March, amidst very weak equity markets, the Investment Manager increased the level of gearing by around £3 million to take advantage of the declines in a number of preferred long-term holdings. A Sterling equivalent of £14.1 million was drawn down under the facility at the end of the period.
With debt valued at par, the Company's net gearing increased from 5.1% to 9.1% during the period. Despite the increase the Board believes this remains a relatively conservative level of gearing and, with the option to increase the commitment under the revolving credit facility, provides the Company with financial flexibility should further opportunities to deploy capital arise.
Discount
As stated above, the discount at the end of the period (on a cum-income basis with borrowings stated at fair value) was 6.4%, compared to 3.6% at the beginning of the period. The widening of the discount is in line with a general widening of discounts in the UK Equity Income sector.
Based on last year's annual dividend of 12.7p per share, the dividend yield on the Company's shares was 5.0% at the end of the period. This is one of the highest yields available from the AIC's UK Equity sector and is 30% higher than the yield available from the UK equity market as measured by the FTSE All-Share Index.
There were no share buy backs during the period but the Board will continue to monitor the level of discount carefully and make use of the Company's share buy back powers to address any imbalance of supply and demand in the Company's shares. The Board believes that this action, together with continued delivery of investment performance, our commitment to grow the dividend faster than inflation over the medium term and clear communication of the strategy should all help narrow the Company's discount.
Board Composition
Following the retirement of Catherine Claydon from the Board at the AGM on 16 July 2020, the Board has appointed Howard Williams as the Senior Independent Director and Chairman of the Nomination and Remuneration Committee with immediate effect.
Management Changes
Having worked alongside Ben Ritchie in managing the Company's portfolio since 2016, Louise Kernohan has recently decided to leave Aberdeen Standard Investments ("ASI") to pursue other interests. The Board would like to thank Louise for her significant contribution over this time.
The Board is pleased that Ben Ritchie continues as the Company's lead fund manager, and that he continues to be supported by the wider UK and European equity teams at ASI. The Board is also pleased that Georgina Cooper, an existing member of the team who has been involved in the management of the Company's portfolio, will support Ben in managing the portfolio following Louise's departure. ASI adopts a team-based investment approach which ensures continuity in research and portfolio management. The Board notes ASI's continued commitment to enhancing its resources and capabilities in the team and maintaining a focus on delivering superior investment outcomes for its clients.
Outlook
As we look forward into the rest of the year and into 2021, the key is really whether the recovery that is underway can be sustained and, ultimately, what level of output can be reached. The prospects for global growth were modest and arguably deteriorating prior to the development of COVID-19 and so we wait to see what impact this has over the longer term dynamics. Your Investment Manager retains a relatively cautious outlook and sees little reason to shift from a conservative focus on higher quality businesses, consistent with delivering your Company's strategy. That said, they remain watchful for opportunities that may arise from any further dislocation to markets.
David Barron,
Chairman23 September 2020
HALF YEARLY BOARD REPORT - OTHER MATTERS
Directors' Responsibility Statement
The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:
· The condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting';
· The Interim Board Report (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
· The financial statements include a fair review of the information required by DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.
Principal Risks and Uncertainties
The Board regularly reviews the principal risks and uncertainties faced by the Company together with the mitigating actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 January 2020 and comprise the following risk categories:
· Investment objectives
· Investment strategies
· Investment performance
· Income/dividends
· Financial/market
· Gearing
· Regulatory
· Operational
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 remaining six months of the Company's financial year.
In addition to the risk categories stated above, the Board is conscious of the impact on financial markets caused by the outbreak of the COVID-19 pandemic around the world. During the period the Board has considered the implications for the Company as a result of the spread of the COVID-19 virus, including the resilience of the reporting and control systems in place for both the Manager and other service providers. The Board is also conscious of the ongoing negotiations regarding the UK's departure from the EU. The Board considers that each of these issues are additional risks that could have further implications for financial markets or on the operating environment of the Company.
Going Concern
The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances are considered to be realisable within a short timescale, including in current market conditions caused by the COVID-19 pandemic. The Board has set limits for borrowing and derivative contract positions and regularly reviews actual exposures, cash flow projections and compliance with loan covenants. The Board has also performed stress testing and liquidity analysis.
The Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.
On behalf of the BoardDavid Barron,
Chairman23 September 2020
INVESTMENT MANAGER'S REVIEW
It has been an extraordinary six month period, with one of the fastest bear markets in financial history followed by one of the biggest rallies. Whilst we are never pleased to report a decline in value for the Company, we are satisfied that our performance, both in terms of capital and income, has been resilient against these extremely challenging conditions. Furthermore, it is pleasing to note that the Company is one of the best performing investment trusts in the AIC UK Equity Income Sector over one, three and five years.
Shareholders may recall from previous reports that, since our appointment as lead managers four years ago, we have looked to increase the Company's exposure to holdings that can drive medium term capital and income growth, whilst moving away from companies with higher starting yields but lower growth prospects. This required us to be increasingly selective with a focus on the very best businesses that we can find and led the portfolio to be in good shape for the challenging conditions that materialised in the period. The holdings, by virtue of their selection, have the characteristics that make them more resilient and it was pleasing that, by and large, this proved to be the case.
When reflecting on the investment performance during the period, a good part came from our ability and willingness to be different from the benchmark. The Company has a large underweight position relative to the oil majors and banks, sectors in which we find it challenging to find high quality businesses in. These make up a significant part of the benchmark but did not fare so well during the period both in terms of capital performance and income. Additionally, a broad range of the holdings contributed positively, for example UK healthcare property owner Assura, specialty chemical company Croda, Danish pharmaceutical company Novo-Nordisk and Swiss medical instrument producer Tecan. The Company had relatively low exposure to stocks that proved the most vulnerable, such as those in travel, leisure or high street retail.
In terms of income generation from the holdings, the Company was not immune to the raft of dividend cuts or suspensions that we saw. However, performance was again more resilient than the UK market as a whole. At the time of writing, companies making up approximately 13% of forecast income for the current financial year have announced the suspension of, or cuts to, their dividends. This compares to the wider market that has suffered an approximate 35-40% hit to income. However, the Company's dividend is supported by healthy revenue reserves. We have also started to see some cancelled dividends restored, such as Direct Line Insurance, and we are hopeful that others may follow in due course. Whilst the fall in income is not helpful, it is manageable, and we are advantaged by our selective option writing strategy that allows us to supplement the income generated by dividends. Indeed, higher levels of volatility have presented opportunities to generate increased option premiums.
It was another busy period for portfolio activity. Whilst we entered the year with a well-positioned portfolio, the market volatility provided us with a number of opportunities to upgrade the quality and income growth prospects of the Company further.
We initiated new positions in Coca Cola Hellenic, Hannover Re, Intermediate Capital Group, Pets at Home, Prosus and SSE.
Coca Cola Hellenic is a bottling company for the Coca Cola brands, primarily in faster growing markets in Eastern Europe. Demand for its products should be relatively economically insensitive, it has a strong balance sheet and good cash generation which should underpin a steadily growing dividend.
Hannover Re is a German-listed global reinsurer with an extremely conservative approach that also generates industry leading returns. We believe the outlook for pricing in the reinsurance market is increasingly favourable and Hannover Re is well positioned to benefit. Furthermore, it also pays a healthy dividend which we expect to grow over time. It also brings the advantage of adding another differentiated economic exposure to the portfolio.
Intermediate Capital Group is a specialist private markets asset manager with a strong track record in its niche where there is good scope for growth into the long term and where barriers to entry are particularly high. It pays a good dividend yield underpinned by strong financial characteristics with attractive scope for growth of both capital and income.
Pets at Home is a niche UK retailer in a category that has attractive and resilient growth characteristics. It has a strong online presence, a significant percentage of revenues from services and the potential for internal improvements which should help underpin the business.
Prosus is a Dutch-listed holding company which owns a 31% shareholding in Chinese internet company Tencent. We are extremely enthused by the prospects for Tencent, and with Prosus trading at a very large discount to the value of its net assets we see a compelling value opportunity in a high growth company, not something that happens very often.
SSE is a UK utility company that today is focussed on the ownership of electricity networks and renewable power generation. Its earnings should be well underpinned by its regulated asset base with growth being provided by its exposure to renewables. It offers an attractive yield premium to the market and the prospect of reasonable growth.
The most notable exit during the period was of Royal Dutch Shell, where we believe the the mid-term outlook is challenging and the rationale for holding it has weakened following its dividend cut. In addition, we exited UK storage company Big Yellow, Italian-listed hearing aid retailer Amplifon and Swiss-listed testing company SGS. Each of these remain high quality businesses but with full valuations relative to their prospects we took the opportunity to recycle that capital into the more attractive opportunities outlined above.
In addition to the introductions and exits, we selectively added capital to some of the existing positions. In March, amidst the sharp market declines, we took the opportunity to draw down some borrowings from the Company's variable bank facilities which raised the level of gearing by about one percentage point. We reinvested this capital, along with some of the existing cash, into a number of companies that we believed would be relatively resilient in tough markets but where the share prices had declined sharply. This included additions to the recent purchases of SSE and Coca Cola Hellenic as well as Direct Line Insurance and Rio Tinto. We also added to a variety of other holdings that we felt had seen their share prices suffer severely despite attractive mid-long term prospects, such as Euromoney, Ashmore and Weir Group.
We participated modestly in the placing by WH Smith to strengthen its cash position and balance sheet ahead of what are likely to be tough times for its business, although we believe that, over the longer term, it will both survive and indeed prosper as one of the strongest players in the market.
Addressing the governance and risk controls of the companies within the portfolio is an aspect of investing that we embrace at Aberdeen Standard Investments and it aligns well with our long term investment horizon. A key part of the responsibility of share ownership is corporate stewardship and engagement. The investment team takes full responsibility, with dedicated on-desk resource and helped by expert advisors within the business. We frequently engage with non-executive board members, risk officers and other relevant personnel from the companies in which we invest. How the companies we invest in identify environmental and social risks is something we analyse closely and we believe that companies which manage these risks well and place high importance on responsible business practices are those that are setting themselves up best to produce positive long term results.
Looking ahead, the outlook for the economy remains uncertain. Whilst we have seen a recovery start to take hold, the level to which the global economy recovers to and its ultimate growth trajectory remain unclear. Across many markets there are signs of positive progress as economies re-open, however there are also indications of a resurgence in virus cases in a number of countries. The economic recovery has been reflected in markets to a reasonable degree with a strong rebound since the lows of March, but significant challenges remain ahead. Overall, we see little reason to shift from our conservative focus on high quality businesses, where we specifically search for companies with drivers that are separate to the economic outlook, with exposures to powerful structural drivers such as the digitisation of industry, changing demographics or consumer trends. We remain confident that in the long run the strength of the holdings in the portfolio will prevail against these challenging market conditions and we remain watchful for further opportunities to take advantage of should there be further volatility ahead.
Ben Ritchie and Louise Kernohan,
Aberdeen Asset Managers Limited
23 September 2020
INDEPENDENT REVIEW REPORT TO DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
We have been engaged by Dunedin Income Growth Investment Trust PLC (the "Company") to review the condensed set of financial statements in the Half Yearly Financial Report for the six months ended 31 July 2020 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Statement of Cash Flows and the related explanatory notes 1 to 14. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with United Kingdom Generally Accepted Accounting Practice (including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'). The condensed set of financial statements included in this Half Yearly Financial Report has been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting'.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half Yearly Financial Report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of half yearly financial information consists of making inquiries, 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 Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Yearly Financial Report for the six months ended 31 July 2020 is not prepared, in all material respects, in accordance with Financial Reporting Standard 104 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of our Report
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Deloitte LLP,
Statutory Auditor
Glasgow, United Kingdom
23 September 2020
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended | |||||||
31 July 2020 | |||||||
Revenue | Capital | Total | |||||
Note | £'000 | £'000 | £'000 | ||||
Losses on investments | - | (58,397) | (58,397) | ||||
Income | 2 | 10,359 | - | 10,359 | |||
Investment management fees | (330) | (495) | (825) | ||||
Administrative expenses | (546) | - | (546) | ||||
Exchange losses | - | (933) | (933) | ||||
Net return before finance costs and tax | 9,483 | (59,825) | (50,342) | ||||
Finance costs | (267) | (397) | (664) | ||||
Return before taxation | 9,216 | (60,222) | (51,006) | ||||
Taxation | 3 | (115) | - | (115) | |||
Return after taxation | 9,101 | (60,222) | (51,121) | ||||
Return per Ordinary share (pence) | 5 | 6.14 | (40.64) | (34.50) | |||
The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company. | |||||||
All revenue and capital items in the above statement derive from continuing operations. | |||||||
The accompanying notes are an integral part of the financial statements. | |||||||
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended | |||||||||
31 July 2019 | |||||||||
Revenue | Capital | Total | |||||||
Note | £'000 | £'000 | £'000 | ||||||
Gains on investments | - | 53,977 | 53,977 | ||||||
Income | 2 | 11,543 | - | 11,543 | |||||
Investment management fees | (337) | (505) | (842) | ||||||
Administrative expenses | (447) | - | (447) | ||||||
Exchange losses | - | (356) | (356) | ||||||
Net return before finance costs and tax | 10,759 | 53,116 | 63,875 | ||||||
Finance costs | (493) | (733) | (1,226) | ||||||
Return before taxation | 10,266 | 52,383 | 62,649 | ||||||
Taxation | 3 | (301) | - | (301) | |||||
Return after taxation | 9,965 | 52,383 | 62,348 | ||||||
Return per Ordinary share (pence) | 5 | 6.72 | 35.34 | 42.06 | |||||
| |||||||||
The accompanying notes are an integral part of the financial statements. |
| ||||||||
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
As at | As at | ||
31 July 2020 | 31 January 2020 | ||
Note | £'000 | £'000 | |
Non-current assets | |||
Investments at fair value through profit or loss | 9 | 444,420 | 492,115 |
Current assets | |||
Debtors | 2,722 | 5,106 | |
Cash and short-term deposits | 6,881 | 13,754 | |
9,603 | 18,860 | ||
Creditors: amounts falling due within one year | |||
Bank loans | (14,055) | (11,013) | |
Exchange traded options | 9 | (443) | - |
Other creditors | (1,048) | (438) | |
(15,546) | (11,451) | ||
Net current (liabilities)/assets | (5,943) | 7,409 | |
Total assets less current liabilities | 438,477 | 499,524 | |
Creditors: amounts falling due after more than one year | |||
Loan Notes 2045 | (29,721) | (29,718) | |
Net assets | 408,756 | 469,806 | |
Capital and reserves | |||
Called-up share capital | 38,419 | 38,419 | |
Share premium account | 4,619 | 4,619 | |
Capital redemption reserve | 1,606 | 1,606 | |
Capital reserve | 6 | 338,806 | 399,028 |
Revenue reserve | 25,306 | 26,134 | |
Equity shareholders' funds | 408,756 | 469,806 | |
Net asset value per Ordinary share (pence) | 7 | 275.84 | 317.04 |
The accompanying notes are an integral part of the financial statements.
| |||
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 31 July 2020 | |||||||
Share | Capital | ||||||
Share | premium | redemption | Capital | Revenue | |||
capital | account | reserve | reserve | reserve | Total | ||
Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 January 2020 | 38,419 | 4,619 | 1,606 | 399,028 | 26,134 | 469,806 | |
Return after taxation | - | - | - | (60,222) | 9,101 | (51,121) | |
Dividends paid | 4 | - | - | - | - | (9,929) | (9,929) |
Balance at 31 July 2020 | 38,419 | 4,619 | 1,606 | 338,806 | 25,306 | 408,756 | |
Six months ended 31 July 2019 | |||||||
Share | Capital | ||||||
Share | premium | redemption | Capital | Revenue | |||
capital | account | reserve | reserve | reserve | Total | ||
Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 January 2019 | 38,419 | 4,619 | 1,606 | 330,402 | 26,685 | 401,731 | |
Return after taxation | - | - | - | 52,383 | 9,965 | 62,348 | |
Dividends paid | 4 | - | - | - | - | (9,562) | (9,562) |
Buyback of Ordinary shares for treasury | - | - | (281) | - | (281) | ||
Balance at 31 July 2019 | 38,419 | 4,619 | 1,606 | 382,504 | 27,088 | 454,236 | |
The accompanying notes are an integral part of the financial statements.
| |||||||
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended | Six months ended | |
31 July 2020 | 31 July 2019 | |
£'000 | £'000 | |
Operating activities | ||
Net return before finance costs and taxation | (50,342) | 63,875 |
Adjustments for: | ||
Losses/(gains) on investments | 58,397 | (53,977) |
Currency losses | 933 | 356 |
Increase in accrued dividend income | (1,033) | (503) |
Decrease in accrued interest income | - | 855 |
Stock dividends included in dividend income | (515) | (175) |
Amortisation of fixed income book cost | - | 154 |
Increase in other debtors excluding tax | (260) | (213) |
Increase in other creditors | 647 | 408 |
Net tax received/(paid) | 444 | (618) |
Net cash inflow from operating activities | 8,271 | 10,162 |
Investing activities | ||
Purchases of investments | (51,724) | (39,887) |
Sales of investments | 45,064 | 74,665 |
Net cash (used in)/from investing activities | (6,660) | 34,778 |
Financing activities | ||
Interest paid | (664) | (1,786) |
Dividends paid | (9,929) | (9,562) |
Buyback of Ordinary shares for treasury | - | (281) |
Repayment of Debenture Stock | - | (28,600) |
Loan repayment | (1,273) | - |
Loan drawdowns | 3,501 | - |
Net cash used in financing activities | (8,365) | (40,229) |
(Decrease)/increase in cash and cash equivalents | (6,754) | 4,711 |
Analysis of changes in cash and cash equivalents during the period | ||
Opening balance | 13,754 | 3,548 |
Effect of exchange rate fluctuations on cash held | (119) | 123 |
(Decrease)/increase in cash as above | (6,754) | 4,711 |
Closing balance | 6,881 | 8,382 |
The accompanying notes are an integral part of the financial statements. | ||
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 JULY 2020
1. | Accounting policies |
Basis of preparation. The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting' and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that status as an investment trust will be maintained. | |
The half yearly financial statements have been prepared using the same accounting policies applied as the preceding annual financial statements, which were prepared in accordance with Financial Reporting Standard 102. |
2. | Income | ||
Six months ended | Six months ended | ||
31 July 2020 | 31 July 2019 | ||
£'000 | £'000 | ||
Income from investments | |||
UK dividend income | 7,631 | 7,895 | |
Overseas dividend income | 1,255 | 2,804 | |
Fixed income | - | 104 | |
Stock dividends | 515 | 175 | |
9,401 | 10,978 | ||
Other income | |||
Income from traded options | 957 | 553 | |
Interest income | 1 | 12 | |
958 | 565 | ||
Total income | 10,359 | 11,543 |
3. | Taxation. The taxation charge for the period, and the comparative period, represents withholding tax suffered on overseas dividend income. |
4. | Ordinary dividends on equity shares | ||
Six months ended | Six months ended | ||
31 July 2020 | 31 July 2019 | ||
£'000 | £'000 | ||
Third interim dividend 2020 of 3.00p (2019 - 3.00p) | 4,446 | 4,449 | |
Final dividend 2020 of 3.70p (2019 - 3.45p) | 5,483 | 5,113 | |
9,929 | 9,562 | ||
A first interim dividend in respect of the year ending 31 January 2021 of 3.00p per Ordinary share (2019 - 3.00p) was paid on 28 August 2020 to shareholders on the register on 7 August 2020. The ex-dividend date was 6 August 2020. | |||
5. | Returns per share | ||
Six months ended | Six months ended | ||
31 July 2020 | 31 July 2019 | ||
p | p | ||
Revenue return | 6.14 | 6.72 | |
Capital return | (40.64) | 35.34 | |
Total return | (34.50) | 42.06 | |
The returns per share are based on the following: | |||
Six months ended | Six months ended | ||
31 July 2020 | 31 July 2019 | ||
£'000 | £'000 | ||
Revenue return | 9,101 | 9,965 | |
Capital return | (60,222) | 52,383 | |
Total return | (51,121) | 62,348 | |
Weighted average number of Ordinary shares | 148,187,119 | 148,236,960 |
6. | Capital reserves. The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2020 includes gains of £50,475,000 (31 January 2020 - gains of £111,577,000) which relate to the revaluation of investments held at the reporting date. |
7. | Net asset value. Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 102. The analysis of equity shareholders' funds on the face of the Condensed Statement of Financial Position does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the period end, adjusted to reflect the deduction of the Loan Notes at par. A reconciliation between the two sets of figures is as follows: | ||
31 July 2020 | 31 January 2020 | ||
Net assets attributable (£'000) | 408,756 | 469,806 | |
Number of Ordinary shares in issue at the period endA | 148,187,119 | 148,187,119 | |
Net asset value per Ordinary share | 275.84p | 317.04p | |
A Excluding shares held in treasury | |||
31 July 2020 | 31 January 2020 | ||
Adjusted net assets | £'000 | £'000 | |
Net assets attributable (as above) | 408,756 | 469,806 | |
Unamortised Loan Notes issue expenses | (279) | (282) | |
Adjusted net assets attributable | 408,477 | 469,524 | |
Number of Ordinary shares in issue at the period end{A} | 148,187,119 | 148,187,119 | |
Adjusted net asset value per Ordinary share | 275.65p | 316.85p | |
A Excluding shares held in treasury. | |||
31 July 2020 | 31 January 2020 | ||
Net assets - debt at fair value | £'000 | £'000 | |
Net assets attributable | 408,756 | 469,806 | |
Amortised cost Loan Notes | 29,721 | 29,718 | |
Market value Loan Notes | (37,835) | (36,851) | |
Net assets attributable - debt at fair value | 400,642 | 462,673 | |
Number of Ordinary shares in issue at the period endA | 148,187,119 | 148,187,119 | |
Net asset value per Ordinary share - debt at fair value | 270.36p | 312.22p | |
A Excluding shares held in treasury. | |||
8. | Transaction costs. During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows: | ||
Six months ended | Six months ended | ||
31 July 2020 | 31 July 2019 | ||
£'000 | £'000 | ||
Purchases | 205 | 164 | |
Sales | 25 | 24 | |
230 | 188 | ||
9. | Fair value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications: | |||||||||
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. | ||||||||||
Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | ||||||||||
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | ||||||||||
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 July 2020 | Note | £'000 | £'000 | £'000 | £'000 | |||||
Financial assets at fair value through profit or loss | ||||||||||
Quoted equities | a) | 444,420 | - | - | 444,420 | |||||
Total | 444,420 | - | - | 444,420 | ||||||
Financial liabilities at fair value through profit or loss | ||||||||||
Derivatives | b) | (443) | - | - | (443) | |||||
Net fair value | 443,977 | - | - | 443,977 | ||||||
Level 1 | Level 2 | Level 3 | Total | |||||||
As at 31 January 2020 | Note | £'000 | £'000 | £'000 | £'000 | |||||
Financial assets at fair value through profit or loss | ||||||||||
Quoted equities | a) | 492,115 | - | - | 492,115 | |||||
Total | 492,115 | - | - | 492,115 | ||||||
Financial liabilities at fair value through profit or loss | ||||||||||
Derivatives | b) | - | - | - | - | |||||
Net fair value | 492,115 | - | - | 492,115 | ||||||
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) | Derivatives. The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and has been included in Fair Value Level 1. At 31 July 2020 there were 11 open positions amounting to a liability of £443,000 (31 January 2020 - nil). | |||||||||
10. | Analysis of changes in net debt | |||||
At | Currency | Non-cash | At | |||
31 January 2020 | differences | Cash flows | movements | 31 July 2020 | ||
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Cash and cash equivalents | 13,754 | (119) | (6,754) | - | 6,881 | |
Debt due within one year | (11,013) | (814) | (2,228) | - | (14,055) | |
Debt due after more than one year | (29,718) | - | - | (3) | (29,721) | |
(26,977) | (933) | (8,982) | (3) | (36,895) | ||
At | Currency | Non-cash | At | |||
31 January 2019 | differences | Cash flows | movements | 31 July 2019 | ||
Analysis of changes in net debt | £'000 | £'000 | £'000 | £'000 | £'000 | |
Cash and cash equivalents | 3,548 | 123 | 4,711 | - | 8,382 | |
Debt due within one year | (40,024) | (479) | 28,600 | (9) | (11,912) | |
Debt due after more than one year | (29,725) | - | - | (6) | (29,731) | |
(66,201) | (356) | 33,311 | (15) | (33,261) | ||
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. | ||||||
11. | Transactions with the Manager. The Company has an agreement with the Standard Life Aberdeen Group (the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services. |
The management fee is calculated and charged, on a monthly basis, at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum on amounts over £425 million of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 40% to revenue and 60% to capital. During the period £825,000 (31 July 2019 - £842,000) of investment management fees were payable to the Manager, with a balance of £139,000 (31 July 2019 - £146,000) being due at the period end. There were no commonly managed funds held in the portfolio during the six months to 31 July 2020 (2019 - none). | |
The management agreement may be terminated by either party on not less than six months' written notice. On termination by the Company on less than the agreed notice period the Manager would be entitled to receive fees which would otherwise have been due up to that date. | |
The Manager also receives a separate promotional activities fee which is based on a current annual amount of £310,000 plus VAT payable quarterly in arrears. During the period £155,000 plus VAT (31 July 2019 - £155,000 plus VAT) of fees were payable to the Manager, with a balance of £103,000 plus VAT (31 July 2019 - £103,000 plus VAT) being due at the period end. |
12. | Segmental information. |
The Company is engaged in a single segment of business, which is to invest mainly in equity securities. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment. |
13. | The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 31 July 2020 and 31 July 2019 has not been audited. |
The information for the year ended 31 January 2020 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006. | |
The auditor has reviewed the financial information for the six months ended 31 July 2020 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The report of the auditor is included above. |
14. | This Half Yearly Financial Report was approved by the Board on 23 September 2020. |
ALTERNATIVE PERFORMANCE MEASURES ("APMs") |
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. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend. | |||||
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 31 July 2020 and the year ended 31 January 2020 and the total return for the periods. | |||||
Dividend | Share | ||||
Six months ended 31 July 2020 | rate | NAV | price | ||
31 January 2020 | N/A | 312.22p | 301.00p | ||
6 February 2020 | 3.00p | 318.65p | 302.00p | ||
7 May 2020 | 3.70p | 263.63p | 248.00p | ||
31 July 2020 | N/A | 270.36p | 253.00p | ||
Total return | -11.4% | -13.8% | |||
Dividend | Share | ||||
Year ended 31 January 2020 | rate | NAVA | price | ||
31 January 2019 | 3.00p | 263.83p | 242.00p | ||
2 May 2019 | 3.45p | 287.09p | 253.00p | ||
1 August 2019 | 3.00p | 300.63p | 275.00p | ||
7 November 2019 | 3.00p | 293.84p | 275.00p | ||
31 January 2020 | N/A | 312.22p | 301.00p | ||
Total return | +22.2% | +28.8% | |||
A 2019 Cum-income NAV with debt at fair value, adjusted to exclude the third interim dividend for the year ended 31 January 2019 which went ex-dividend on 31 January 2019 but was not paid until 22 February 2019 due to the difference in recognition of dividends payable on an ex-dividend date basis under AIC reporting guidelines and upon payment under accounting standards. | |||||
Discount to net asset value per share with debt at fair value. The discount is the amount by which the share price of 253.00p (31 January 2020 - 301.00p) is lower than the net asset value per share with debt at fair value of 270.36p (31 January 2020 - 312.22p), expressed as a percentage of the net asset value with debt at fair value. | |||||
Dividend yield. Dividend yield is calculated using the Company's historic annual dividend of 12.70p per Ordinary share divided by the share price at 31 July 2020 of 253.00p (31 January 2020 - 301.00p) expressed as a percentage. | |||||
Net gearing. Net gearing measures the total borrowings of £43,776,000 (31 January 2020 - £40,731,000) less cash and cash equivalents of £6,399,000 (31 January 2020 - £16,871,000) divided by shareholders' funds of £408,756,000 (31 January 2020 - £469,806,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to brokers at the period end of £482,000 (31 January 2020 - due from brokers - £3,117,000) as well as cash and short term deposits of £6,881,000 (31 January 2020 - £13,754,000). | |||||
Ongoing charges. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 31 July 2020 is based on forecast ongoing charges for the year ending 31 January 2021. | |||||
31 July 2020 | 31 January 2020 | ||||
Investment management fees (£'000) | 1,637 | 1,719 | |||
Administrative expenses (£'000) | 1,005 | 875 | |||
Less: non-recurring charges (£'000) | (2) | (36) | |||
Ongoing charges (£'000) | 2,640 | 2,558 | |||
Average net assets (£'000) | 402,243 | 434,571 | |||
Ongoing charges ratio | 0.66% | 0.59% | |||
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which amongst other things, includes the cost of borrowings and transaction costs. | |||||
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
23 September 2020
Please note that past performance is not necessarily a guide to the future and the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested