Last checked at 
21 Nov 2019 07:00
SHIRES INCOME PLC
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89
INVESTMENT OBJECTIVE
The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and fixed income securities.
BENCHMARK
The Company's benchmark is the FTSE All-Share Index (total return).
DIVIDENDS
The Company pays dividends to Ordinary shareholders on a quarterly basis.
HIGHLIGHTS
| 30 September 2019 | 31 March 2019 | % change |
Total assets (£'000) A | 101,685 | 99,055 | +2.7 |
Equity shareholders' funds (£'000) | 82,688 | 80,057 | +3.3 |
Net asset value per share | 270.73p | 265.49p | +2.0 |
Share price (mid-market) | 263.00p | 267.00p | -1.5 |
(Discount)/premium to net asset value (cum-income) B | (2.9)% | 0.6% |
|
Dividend yield B | 5.0% | 4.9% |
|
Net gearing B | 18.5% | 19.6% |
|
Ongoing charges ratio B | 0.94% | 0.98% |
|
| |||
A Less current liabilities excluding bank loans of £9,000,000. | |||
B Considered to be an Alternative Performance Measure. | |||
PERFORMANCE (TOTAL RETURN)
| Six months ended | Yearended | Three years ended | Five years ended |
| 30 September | 30 September | 30 September | 30 September |
| 2019 | 2019 | 2019 | 2019 |
Net asset value A | +4.7% | +4.4% | +20.8% | +40.5% |
Share price A | +1.1% | +9.4% | +34.2% | +41.0% |
FTSE All-Share Index | +4.6% | +2.7% | +21.7% | +38.9% |
| ||||
A Considered to be an Alternative Performance Measure. | ||||
All figures are for total return and assume reinvestment of net dividends excluding transaction costs. | ||||
For further information, please contact:
Scott Anderson
Aberdeen Asset Managers Limited
0131 222 1863
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Market Background
The first half of the financial year saw stock markets continue to move higher and, on the surface, the economy continues to perform reasonably well at both a UK and global level. Low levels of unemployment, some wage growth and low interest rates mean the consumer continues to have more disposable income. However, that headline assessment hides what has been a general weakening in economic growth indicators and a growing concern about the strength and duration of the economic cycle.
Over the six month period, the global economic outlook continued to be dominated by a number of controversies. These have affected both corporate and investor confidence, witnessed by a slowing in business investment and more skittish investor behaviour. On a global basis, the ongoing trade dispute between the US and China has been the prime driver of market sentiment. Any worsening of relations has seen global growth questioned and a selling of equities. However, more recently, progress and optimism appears to have returned, at least until the next change in direction. It would appear that, even if some sort of deal with China is secured relations are likely to remain fragile, and the US is likely to move onto a further tariff war with the EU and uncertainty is unlikely to dissipate.
The other main driver of economies has been interest rate movements, with the last six months seeing a sustained reduction in rate expectations as the US Federal Reserve has reversed direction and begun to cut rates while the European Central Bank has implemented even more negative interest rates. This reflects a lack of confidence in the underlying strength of the economy. Indeed, Global Purchasing Managers' Indices ("PMI") surveys suggest that the manufacturing sector is already enduring a mild recession. In August, for the first time since 2012, surveys in China, Europe and the US were below the 50 level, indicating a synchronised industrial contraction in activity. Although the larger services sector has been more resilient it is still trending downwards, and signals that extremely accommodative monetary policy is likely to remain in place.
In general, the environment of low interest rates and increased political and economic uncertainty has led to investors continuing to favour what are perceived to be lower-risk growth stocks. While this has been the trend for much of the last ten years, it was notable in September that a small move higher in bond yields triggered a sharp rally in value assets. More consistent positive economic data is required for this to be sustained, but the potential remains for value, and therefore more cyclical stocks to return to investor favour.
In the UK, the process of our exit from the EU continues to dominate even these global macro trends. Over recent weeks there has at least been some progress, with a revised deal proposed and the prospect of a no-deal exit made more unlikely by Parliament. UK domestic assets have rebounded in response, but remain cheap compared to international companies. Steps towards clarity over Brexit have also seen a number of UK companies acquired or bid for by foreign buyers, highlighting the attractiveness of valuations. The UK equity market remains historically cheap and out of favour from international investors, both of which provide the potential for upside in returns.
Investment Performance
The Company's net asset value ("NAV") total return for the six-month period ended 30 September 2019 was 4.7%, ahead of the total return of 4.6% from the Company's benchmark, the FTSE All-Share Index. The performance is encouraging given that the portfolio delivers a premium yield to the market and the last half year has been challenging for higher yielding stocks. For reference, the Investment Association UK Equity Income sector returned 3.0% over the same period, so the portfolio has performed well compared to other income focused strategies.
The Company's preference share holdings, which are an important differentiator, performed well, generating a total return of 7.7% for the period, and continue to offer a premium yield. This has allowed the equity portfolio to hold a number of more growth-oriented positions with lower yields, which have contributed to performance over the six months. The top contributor was London Stock Exchange, which increased by 56% after announcing an accretive deal to acquire data service provider Refinitiv. Other growth stocks that had a positive impact on performance were Assura and Rentokil.
Offsetting this, it is notable that some higher yielding names held in the portfolio under-performed over the period. Chesnara, Telecom Plus and Diversified Gas & Oil all offer high, stable dividends but have seen share prices decline over the period. In each case the Investment Manager is confident that the dividend paying ability of these companies is robust and they remain core holdings. The largest detractor from performance was Saga, which reported weaker performance from its insurance business and, as stated below, the Investment Manager exited this position during the period.
Portfolio Activity
Over the period the Investment Manager added six new positions to the portfolio and exited three. Reflecting outperformance of growth stocks in the market, the trend has been to take profits on those companies that have performed well and where valuations look stretched. Re-investment has been into names with either more attractive valuations, higher yields or more defensive characteristics given the ongoing economic uncertainty.
There were three exits over the last six months. As stated above, the Investment Manager sold the remaining position in Saga. The investment case on the company was based on management taking action to improve its competitive position in the insurance market and to control the debt position ahead of the launch of two new cruise ships in its travel division next year. Despite repeated encouraging commentary from management, the company revealed that the strategy in insurance was not working. It now faces increased uncertainty while it waits to see if a long-term fixed price offering in insurance can gain traction in a competitive market. As such, the company no longer fits the criteria of high-quality businesses that the Investment Manager looks to own for the long term.
The Investment Manager also sold out of the remaining position in Nordea Bank. This had been held due to its strong capital position and high level of dividend yield. However, the combination of falling interest margins in the bank's home markets and ongoing concerns around money laundering meant that management had officially put the dividend under review. We therefore chose to move on.
The remaining position in Inmarsat was also sold. The company's shares performed well following a bid from a private equity consortium. However, they now trade at the bid price and with a low headline yield and limited chance of an increased bid the Investment Manager saw the holding as a source of cash.
The first new position initiated during the period was Cineworld. This is a cinema company with operations mainly in the UK and the US. A recent significant acquisition in the US gives the company exposure to an under invested estate. An experienced and entrepreneurial management team has an opportunity to extract value from this combination with clear synergy potential which should drive earnings growth.
The Investment Manager also acquired a holding in Rentokil. The company has a leading position in pest control globally, with strong market share in the US and access to potential growth markets in Latin America. Although the valuation is not cheap and the 3% yield is below market levels, the company should be able to deliver earnings growth with a high degree of certainty and grow the dividend per share steadily.
The third new holding was Sirius Real Estate. The company operates warehousing and industrial property in Germany, which exposes it to structural trends for increasing distribution demand. The company has a strong management team and the scope for rental growth, vacancy improvements and refurbishments to continue to add value. The dividend yield is attractive and the company is valued at a discount to peers.
Energean Oil & Gas, a gas producer focused on the Eastern Mediterranean, was the next addition to the portfolio. The Company took part in a capital raise to fund the acquisition of additional assets being sold by EDF, the French utility company. The deal should be highly accretive to cash flows and is consistent with the company's existing strategy. It adds assets with very limited commodity price risk due to the use of fixed price gas contracts and maintains focus on the highly prospective eastern Mediterranean gas basin. Energean continues to develop the Karish gas field in Israel and following the start-up of this field the company should deliver significant free cash flow, resulting in a meaningful dividend from 2021 onwards.
SSE was another addition with attractive yield characteristics and under-appreciated growth potential. UK utilities have underperformed meaningfully compared to European peers, mainly because of the perceived risk of nationalisation should a Labour government come to power. SSE is attractive because of a high yield (13% at the time of purchase due to a special dividend) but also because of its potential to grow over time. The company is most well-known for its retail business, but the potential sale of this part of the company would allow it to focus on the higher return generation assets. In particular, the company's pipeline of offshore wind projects is very strong and has the potential to deliver growth in a higher multiple business and to increase the potential benefit from higher carbon pricing over time.
On a similar theme, the Company acquired a modest position in Fortum. The company is a European power generator and offers an attractive yield (5.8%) in a defensive sector with upside optionality from carbon pricing. The generation business should deliver decent earnings growth in the next few years, helped by power price inflation, nuclear start-up and an expected recovery in Nordic hydro volumes. Importantly, Fortum is one of the more sensitive names to carbon pricing in the EU. Given the potential for carbon pricing to increase as liquidity in permits causes a squeeze in supply, this creates upside optionality in earnings estimates.
Investment Income
The Company's revenue earnings per share for the period were 7.15p, which compares to 6.60p for the equivalent period last year.
Within the portfolio, a number of companies reported double digit increases in their dividend payments, including Cineworld, Countryside Properties, London Stock Exchange, Rentokil and Standard Chartered. Offsetting this, Saga and Vodafone have reduced their dividends during the last year.
Income from the Company's preference share holdings has been stable, with the exception of the position in REA Holdings. After a period of low palm oil prices, the company was forced to suspend payment of dividends on its preference shares. The commodity price has since stabilised and the Investment Manager is hopeful that dividend payments will resume in 2020. The other preference shares held in the portfolio have continued to pay a high level of income and appear secure.
The income forecast for the remainder of the financial year remains robust, even without the inclusion of potential special dividends and, with a healthy level of revenue reserves, the Company remains in a strong position to continue delivering a high level of income.
Dividends
A first interim dividend of 3.0p per share in respect of the year ending 31 March 2020 was paid on 25 October 2019. The Board declares a second interim dividend of 3.0p per share, payable on 24 January 2020 to shareholders on the register at close of business on 3 January 2020. Subject to unforeseen circumstances, it is proposed to pay a further interim dividend of 3.0p per share prior to the Board deciding on the rate of final dividend at the time of reviewing the full year results.
The current annual rate of dividend is 13.2p per share, representing a dividend yield of 5.0% based on the share price of 263.0p as at 30 September 2019. The Board considers that one of the key attractions of the Company is its high level of income and recognises that, in the current economic environment, there is likely to be a continuing demand for an attractive and reliable level of income. Whilst the Company aims to cover its annual dividend cost with net income, the Board is conscious of the significant revenue reserves, which amounted to 1.2 times the annual dividend cost as at 30 September 2019, hence providing added security on the sustainability of the dividend.
Discount/Premium
As at 30 September 2019 the Company's Ordinary shares were trading at a discount of 2.9% to the NAV per share (including income) compared to a premium of 0.6% at the start of the period. During the course of the period, with the shares trading at a premium to the NAV and in response to investor demand, the Company was able to issue a total of 370,000 new Ordinary shares on a non-dilutive basis.
The Board and Manager monitor the discount/premium of the Company's shares on an ongoing basis and will consider future issuance if there is sufficient investor demand.
Gearing
On 23 September 2019, the Company announced that it had entered into a new £20 million loan facility agreement with Scotiabank Europe PLC (the "New Facility"). The New Facility is for a three-year period to 20 September 2022 and extends the previous £20 million loan facility agreement with Scotiabank Europe PLC which was due to mature on 30 October 2020.
Under the terms of the New Facility, a £10 million fixed rate loan has been drawn down at an all-in interest rate of 1.706% per annum. This rate of interest is fixed until the maturity of the facility on 20 September 2022 and the proceeds were used to repay the Company's previous £10 million fixed rate loan which had a higher all-in interest rate of 1.956% per annum, with only a modest break cost being incurred on repayment of the existing fixed rate loan.
In addition, £9 million has been drawn down on a revolving basis with the proceeds used to repay the Company's previous drawings under the old revolving credit facility.
The benefits of longer term duration and lower fixed costs outweighed the early repayment costs of the previous loan facilities.
Following the drawdowns under the New Facility, the Company's borrowings were unchanged, and amounted to £19 million at the period end. Net of cash, this represented gearing of 18.5%, compared to 19.6% at the start of the period. The Board continually monitors the level of gearing and, as stated in previous years, although the absolute level may look high relative to some other investment trusts, strategically we take the view that it is notionally deployed into fixed interest securities which bring diversification to the Company's total revenue stream and with lower volatility than would be expected from a portfolio invested exclusively in equities. The Board takes the view that the enhanced balance of assets arising from a combination of fixed income securities and equities allows for an appropriate level of risk within the portfolio in order to achieve the overall investment objective.
Electronic Communications for Registered Shareholders
As indicated within the Annual Report earlier this year, the Board is proposing to move to more electronic based forms of communication with its registered shareholders. Increased use of electronic communications should be a more cost effective, as well as a faster, more efficient and environmentally friendly way of providing information to shareholders. Registered shareholders will therefore find enclosed with this Half Yearly Report a letter containing our electronic communications proposals. Registered shareholders who wish to continue to receive hard copies of documents and communications by post are encouraged to send back their replies in accordance with the instructions set out in the letter.
Shareholders who hold their shares through the Aberdeen Standard Investments Children's Plan, Investment Trust Share Plan or ISA ("Planholders") will continue to receive all documentation by post in hard copy for the time being. The Plan Manager is currently assessing how to adopt more electronically-based communications within these savings plans and Planholders will be contacted directly with more detail in due course.
Shareholders who hold their shares in the Company through any other platform or share plan provider will need to continue to make separate arrangements with their provider if they wish to receive communications relating to the Company in hard copy and any electronic communications from the Company that the provider receives. Some platform and share plan providers may make a charge for this. Such shareholders will need to continue to make separate arrangements with their provider or nominee holder should they wish to attend and vote at general meetings of the Company.
Board Composition
As previously announced, having served as a Director since 2008, Andrew Robson will retire from the Board at the Company's AGM in 2020. The Board has commenced a process to appoint a new independent non-executive Director which it expects to complete before the end of the financial year.
Outlook
As highlighted above, the market outlook is balanced. While there are legitimate concerns around the strength of growth we also expect to see stimulus in China and EU and the persistence of very low interest rates in the US and around the world. These should be supportive of equity valuations in the UK which are currently far from high by historic standards. Investor positioning has been clearly defensive, with cash positions at the highest level since 2008, but the Investment Manager believes there is scope for the UK stock market to move higher from here.
From the perspective of the UK Equity Income sector, this is the case even more so. Dividend yields are high and the gap between equity yields and bond yields remains at very high levels. The Company's portfolio provides a premium yield compared to the market, while being appropriately diversified to weather more turbulent times.
In the short term we continue to see UK economic data remaining uninspiring and, as long as this continues, a rise in bond yields and a full shift in market positioning looks unlikely. The under-performance of value / yield has thrown up many attractive yield opportunities in companies that should prove resilient in a downturn, while the Company's preference share holdings should maintain their capital position and deliver a high level of income. Overall, the UK equity market remains very out of favour with many investors which we feel provides the potential for outperformance were this to change.
For the Company, the Board believes that our combination of a high dividend from well diversified sources and the ability to participate in equity market upside remains an attractive one for shareholders.
Robert Talbut
Chairman
21 November 2019
INTERIM 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 within the Half Yearly Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'; and
- the Interim Board Report (constituting the Interim Management Report) includes a fair review of the information required by rules 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 financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).
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 March 2019 and comprise the following risk headings:
- Investment performance
- Failure to maintain and grow the dividend over the longer term
- Widening of discount
- Gearing
- Operational
- Regulatory
- Financial, economic and political
The heightened political uncertainty in UK continues to impact the economic outlook for the Company, invested as it is, substantially in UK listed securities. In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.
Going Concern
The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial statements.
On behalf of the Board
Robert Talbut
Chairman
21 November 2019
DISTRIBUTION OF ASSETS AND LIABILITIES
| Valuation at | Movement during the period | Valuation at | ||||
| 31 March 2019 | Purchases | Sales | Gains | 30 September 2019 | ||
| £'000 | % | £'000 | £'000 | £'000 | £'000 | % |
Listed investments |
|
|
|
|
|
|
|
Equities | 70,400 | 87.9 | 8,244 | (7,632) | 816 | 71,828 | 86.9 |
Convertibles | 530 | 0.7 | - | - | (10) | 520 | 0.6 |
Preference shares | 24,041 | 30.0 | - | - | 1,071 | 25,112 | 30.4 |
| ______ | ______ | ______ | ______ | ______ | ______ | ______ |
Total investments | 94,971 | 118.6 | 8,244 | (7,632) | 1,877 | 97,460 | 117.9 |
Current assets | 4,323 | 5.4 |
|
|
| 4,517 | 5.4 |
Current liabilities | (9,239) | (11.5) |
|
|
| (9,292) | (11.2) |
Non-current liabilities | (9,998) | (12.5) |
|
|
| (9,997) | (12.1) |
| ______ | ______ |
|
|
| ______ | ______ |
Net assets | 80,057 | 100.0 |
|
|
| 82,688 | 100.0 |
| ______ | ______ |
|
|
| ______ | ______ |
Net asset value per Ordinary share | 265.49p |
|
|
|
| 270.73p |
|
| ______ |
|
|
|
| ______ |
|
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
|
| 30 September 2019 | ||
|
| (unaudited) | ||
|
| Revenue | Capital | Total |
| Note | £'000 | £'000 | £'000 |
Gains/(losses) on investments at fair value |
| - | 1,843 | 1,843 |
Currency (losses)/gains |
| - | (7) | (7) |
|
|
|
|
|
Investment income |
|
|
|
|
Dividend income |
| 2,374 | - | 2,374 |
Interest income |
| 8 | - | 8 |
Stock dividends |
| 123 | - | 123 |
Traded option premiums |
| 100 | - | 100 |
Money market interest |
| - | - | - |
|
| _______ | _______ | _______ |
|
| 2,605 | 1,836 | 4,441 |
|
| _______ | _______ | _______ |
Expenses |
|
|
|
|
Management fee |
| (104) | (104) | (208) |
Administrative expenses |
| (211) | - | (211) |
Finance costs |
| (106) | (106) | (212) |
|
| _______ | _______ | _______ |
|
| (421) | (210) | (631) |
|
| _______ | _______ | _______ |
Profit/(loss) before taxation |
| 2,184 | 1,626 | 3,810 |
|
|
|
|
|
Taxation | 2 | (11) | - | (11) |
|
| _______ | _______ | _______ |
Profit/(loss) attributable to equity holders |
| 2,173 | 1,626 | 3,799 |
|
| _______ | _______ | _______ |
Return per Ordinary share (pence) | 4 | 7.15 | 5.35 | 12.50 |
|
| _______ | _______ | _______ |
|
|
|
|
|
The Company does not have any income or expense that is not included in the profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised). | ||||
| ||||
The total column of this statement represents the Condensed Statement of Comprehensive Income of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. | ||||
| ||||
All 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 (Cont'd)
|
| 30 September 2018 | ||
|
| (unaudited) | ||
|
| Revenue | Capital | Total |
| Note | £'000 | £'000 | £'000 |
Gains/(losses) on investments at fair value |
| - | 1,636 | 1,636 |
Currency (losses)/gains |
| - | 1 | 1 |
|
|
|
|
|
Investment income |
|
|
|
|
Dividend income |
| 2,274 | - | 2,274 |
Interest income |
| 1 | - | 1 |
Stock dividends |
| 40 | - | 40 |
Traded option premiums |
| 61 | - | 61 |
Money market interest |
| 2 | - | 2 |
|
| _______ | _______ | _______ |
|
| 2,378 | 1,637 | 4,015 |
|
| _______ | _______ | _______ |
Expenses |
|
|
|
|
Management fee |
| (105) | (105) | (210) |
Administrative expenses |
| (186) | - | (186) |
Finance costs |
| (85) | (85) | (170) |
|
| _______ | _______ | _______ |
|
| (376) | (190) | (566) |
|
| _______ | _______ | _______ |
Profit/(loss) before taxation |
| 2,002 | 1,447 | 3,449 |
|
|
|
|
|
Taxation | 2 | (22) | - | (22) |
|
| _______ | _______ | _______ |
Profit/(loss) attributable to equity holders |
| 1,980 | 1,447 | 3,427 |
|
| _______ | _______ | _______ |
Return per Ordinary share (pence) | 4 | 6.60 | 4.82 | 11.42 |
|
| _______ | _______ | _______ |
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)
|
| 31 March 2019 | ||
|
| (audited) | ||
|
| Revenue | Capital | Total |
| Note | £'000 | £'000 | £'000 |
Gains/(losses) on investments at fair value |
| - | (466) | (466) |
Currency (losses)/gains |
| - | 14 | 14 |
|
|
|
|
|
Investment income |
|
|
|
|
Dividend income |
| 4,536 | - | 4,536 |
Interest income |
| 5 | - | 5 |
Stock dividends |
| 74 | - | 74 |
Traded option premiums |
| 94 | - | 94 |
Money market interest |
| 3 | - | 3 |
|
| _______ | _______ | _______ |
|
| 4,712 | (452) | 4,260 |
|
| _______ | _______ | _______ |
Expenses |
|
|
|
|
Management fee |
| (203) | (203) | (406) |
Administrative expenses |
| (372) | - | (372) |
Finance costs |
| (173) | (173) | (346) |
|
| _______ | _______ | _______ |
|
| (748) | (376) | (1,124) |
|
| _______ | _______ | _______ |
Profit/(loss) before taxation |
| 3,964 | (828) | 3,136 |
|
|
|
|
|
Taxation | 2 | (44) | - | (44) |
|
| _______ | _______ | _______ |
Profit/(loss) attributable to equity holders |
| 3,920 | (828) | 3,092 |
|
| _______ | _______ | _______ |
Return per Ordinary share (pence) | 4 | 13.06 | (2.76) | 10.30 |
|
| _______ | _______ | _______ |
CONDENSED BALANCE SHEET
|
| As at | As at | As at |
|
| 30 September 2019 | 30 September 2018 | 31 March 2019 |
|
| (unaudited) | (unaudited) | (audited) |
| Note | £'000 | £'000 | £'000 |
Non-current assets |
|
|
|
|
Equities |
| 71,828 | 72,779 | 70,400 |
Convertibles |
| 520 | 545 | 530 |
Preference shares |
| 25,112 | 25,212 | 24,041 |
|
| _______ | _______ | _______ |
Securities at fair value |
| 97,460 | 98,536 | 94,971 |
|
| _______ | _______ | _______ |
Current assets |
|
|
|
|
Trade and other receivables |
| 21 | 19 | 395 |
Accrued income and prepayments |
| 763 | 803 | 1,015 |
Cash and cash equivalents |
| 3,733 | 1,693 | 2,913 |
|
| _______ | _______ | _______ |
|
| 4,517 | 2,515 | 4,323 |
|
| _______ | _______ | _______ |
Creditors: amounts falling due within one year |
|
|
|
|
Trade and other payables |
| (292) | (256) | (239) |
Short-term borrowings |
| (9,000) | (9,000) | (9,000) |
|
| _______ | _______ | _______ |
|
| (9,292) | (9,256) | (9,239) |
|
| _______ | _______ | _______ |
Net current liabilities |
| (4,775) | (6,741) | (4,916) |
|
| _______ | _______ | _______ |
Total assets less current liabilities |
| 92,685 | 91,795 | 90,055 |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Long-term borrowings |
| (9,997) | (9,998) | (9,998) |
|
| _______ | _______ | _______ |
Net assets |
| 82,688 | 81,797 | 80,057 |
|
| _______ | _______ | _______ |
Share capital and reserves |
|
|
|
|
Called-up share capital | 6 | 15,312 | 15,049 | 15,127 |
Share premium account |
| 20,446 | 19,308 | 19,626 |
Capital reserve | 7 | 40,111 | 40,760 | 38,485 |
Revenue reserve |
| 6,819 | 6,680 | 6,819 |
|
| _______ | _______ | _______ |
Equity shareholders' funds |
| 82,688 | 81,797 | 80,057 |
|
| _______ | _______ | _______ |
|
|
|
|
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Net asset value per Ordinary share (pence) | 5 | 270.73 | 272.68 | 265.49 |
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| _______ | _______ | _______ |
CONDENSED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 September 2019 (unaudited) |
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| Share |
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| Share | premium | Capital | Revenue |
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| capital | account | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
As at 31 March 2019 | 15,127 | 19,626 | 38,485 | 6,819 | 80,057 |
Issue of Ordinary shares | 185 | 820 | - | - | 1,005 |
Profit for the period | - | - | 1,626 | 2,173 | 3,799 |
Equity dividends | - | - | - | (2,173) | (2,173) |
| _______ | _______ | _______ | _______ | _______ |
As at 30 September 2019 | 15,312 | 20,446 | 40,111 | 6,819 | 82,688 |
| _______ | _______ | _______ | _______ | _______ |
Six months ended 30 September 2018 (unaudited) |
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| Share |
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| Share | premium | Capital | Revenue |
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| capital | account | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
As at 31 March 2018 | 15,049 | 19,308 | 39,313 | 6,795 | 80,465 |
Profit for the period | - | - | 1,447 | 1,980 | 3,427 |
Equity dividends | - | - | - | (2,095) | (2,095) |
| _______ | _______ | _______ | _______ | _______ |
As at 30 September 2018 | 15,049 | 19,308 | 40,760 | 6,680 | 81,797 |
| _______ | _______ | _______ | _______ | _______ |
Year ended 31 March 2019 (audited) |
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| Share |
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| Share | premium | Capital | Revenue |
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| capital | account | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
As at 31 March 2018 | 15,049 | 19,308 | 39,313 | 6,795 | 80,465 |
Issue of Ordinary shares | 78 | 318 | - | - | 396 |
(Loss)/profit for the year | - | - | (828) | 3,920 | 3,092 |
Equity dividends | - | - | - | (3,896) | (3,896) |
| _______ | _______ | _______ | _______ | _______ |
As at 31 March 2019 | 15,127 | 19,626 | 38,485 | 6,819 | 80,057 |
| _______ | _______ | _______ | _______ | _______ |
CONDENSED CASH FLOW STATEMENT
| Six months ended | Six months ended | Yearended |
| 30 September 2019 | 30 September 2018 | 31 March2019 |
| (unaudited) | (unaudited) | (audited) |
| £'000 | £'000 | £'000 |
Net cash inflow from operating activities |
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Dividend income received | 2,626 | 2,390 | 4,440 |
Interest income received | 8 | 1 | 5 |
Options premium received | 109 | 46 | 67 |
Money market interest received | - | 3 | 3 |
Management fee paid | (203) | (211) | (413) |
Other cash expenses | (181) | (190) | (363) |
| __________ | __________ | __________ |
Cash generated from operations | 2,359 | 2,039 | 3,739 |
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Interest paid | (208) | (168) | (342) |
Loan breakage costs | (32) | - | - |
Overseas tax paid | (31) | (23) | (45) |
| __________ | __________ | __________ |
Net cash inflows from operating activities | 2,088 | 1,848 | 3,352 |
| __________ | __________ | __________ |
Cash flows from investing activities |
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Purchases of investments | (8,114) | (9,281) | (22,672) |
Sales of investments | 8,027 | 8,958 | 23,457 |
| __________ | __________ | __________ |
Net cash (outflow)/inflow from investing activities | (87) | (323) | 785 |
| __________ | __________ | __________ |
Cash flows from financing activities |
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Equity dividends paid | (2,173) | (2,095) | (3,896) |
Issue of Ordinary shares | 1,005 | - | 396 |
Loan arrangement fees | (6) | - | - |
| __________ | __________ | __________ |
Net cash outflow from financing activities | (1,174) | (2,095) | (3,500) |
| __________ | __________ | __________ |
Net increase/(decrease) in cash and cash equivalents | 827 | (570) | 637 |
| __________ | __________ | __________ |
Reconciliation of net cash flow to movements in cash and cash equivalents |
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Increase/(decrease) in cash and cash equivalents as above | 827 | (570) | 637 |
Net cash and cash equivalents at start of period | 2,913 | 2,262 | 2,262 |
Effect of foreign exchange rate changes | (7) | 1 | 14 |
| __________ | __________ | __________ |
Cash and cash equivalents at end of period | 3,733 | 1,693 | 2,913 |
| __________ | __________ | __________ |
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Non-cash transactions during the period comprised stock dividends of £136,000 (30 September 2018 - £40,000; 31 March 2019 - £74,000). | |||
Notes to the Financial Statements
For the six months ended 30 September 2019
1. | Accounting policies - Basis of accounting |
| The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 31 March 2019 financial statements, which received an unqualified audit report. |
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| The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk' the Directors have undertaken a review of the Company's assets which primarily consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. |
2. | Taxation | |
| The taxation charge for the period represents withholding tax suffered on overseas dividend income. |
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3. | Dividends | |||
| The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate. | |||
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| Six months ended | Six months ended | Year ended |
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| 30 September 2019 | 30 September 2018 | 31 March 2019 |
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| £'000 | £'000 | £'000 |
| Revenue | 2,173 | 1,980 | 3,920 |
| Dividends declared | (1,831) A | (1,800) B | (3,984) C |
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| __________ | __________ | __________ |
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| 342 | 180 | 64 |
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| __________ | __________ | __________ |
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| A Dividends declared relate to first two interim dividends (3.00p each) in respect of the financial year 2019/20. | |||
| B Dividends declared relate to first two interim dividends (3.00p each) in respect of the financial year 2018/19. | |||
| C First three interim dividends (3.00p each) and the final dividend (4.20p) declared in respect of the financial year 2018/19. | |||
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| Six months ended | Six months ended | Year ended |
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| 30 September 2019 | 30 September 2018 | 31 March 2019 |
4. | Returns per Ordinary share | £'000 | £'000 | £'000 |
| Returns are based on the following figures: |
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| Revenue return | 2,173 | 1,980 | 3,920 |
| Capital return | 1,626 | 1,447 | (828) |
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| __________ | __________ | __________ |
| Total return | 3,799 | 3,427 | 3,092 |
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| __________ | __________ | __________ |
| Weighted average number of Ordinary shares in issue | 30,394,580 | 29,997,580 | 30,021,438 |
5. | Net asset value per Ordinary share | |||
| The net asset value per Ordinary share and the net asset values attributable to Ordinary shareholders at the period end were as follows: | |||
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| As at | As at | As at |
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| 30 September 2019 | 30 September 2018 | 31 March 2019 |
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| (unaudited) | (unaudited) | (audited) |
| Net assets (£'000) per Condensed Balance Sheet | 82,688 | 81,797 | 80,057 |
| 3.5% Cumulative Preference shares of £1 each (£'000) | (50) | - | - |
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| __________ | __________ | __________ |
| Attributable net assets (£'000) | 82,638 | 81,797 | 80,057 |
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| __________ | __________ | __________ |
| Number of Ordinary shares in issue | 30,524,580 | 29,997,580 | 30,154,580 |
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| __________ | __________ | __________ |
| Net asset value per Ordinary share (p) | 270.73 | 272.68 | 265.49 |
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| __________ | __________ | __________ |
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| During the period the Company has adopted a policy of calculating the net asset value per Ordinary based on net assets less an amount due to holders of 3.5% Cumulative Preference shares of £1 each equating to £1 per share (£50,000), divided by the number of Ordinary shares in issue. This does not give rise to any material change in the net asset value per share figures. | |||
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| 30 September 2019 | 30 September 2018 | 31 March 2019 | |||
6. | Called up share capital | Number | £'000 | Number | £'000 | Number | £'000 |
| Allotted, called up and fully paid Ordinary shares of 50 pence each: |
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| Balance brought forward | 30,154,580 | 15,077 | 29,997,580 | 14,999 | 29,997,580 | 14,999 |
| Ordinary shares issued | 370,000 | 185 | - | - | 157,000 | 78 |
| Balance carried forward | 30,524,580 | 15,262 | 29,997,580 | 14,999 | 30,154,580 | 15,077 |
| 3.5% Cumulative Preference shares of £1 each | 50,000 | 50 | 50,000 | 50 | 50,000 | 50 |
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| _______ |
| _______ |
| _______ |
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| 15,312 |
| 15,049 |
| 15,127 |
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| _______ |
| _______ |
| _______ |
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| During the six months ended 30 September 2019 the Company issued 370,000 Ordinary shares of 50p each (six months ended 30 September 2018 - nil; year ended 31 March 2019 - 157,000) for proceeds of £1,005,000 (six months ended 30 September 2018 - £nil; year ended 31 March 2019 - £396,000). | ||||||
7. | Capital reserve |
| The capital reserve reflected in the Condensed Balance Sheet at 30 September 2019 includes unrealised gains of £15,076,000 (30 September 2018 - gains of £18,900,000; 31 March 2019 - gains of £13,429,000) which relate to the revaluation of investments held at the reporting date. |
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| Six months ended | Six months ended | Year ended |
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| 30 September 2019 | 30 September 2018 | 31 March 2019 |
8. | Analysis of changes in financing | £'000 | £'000 | £'000 |
| Opening balance at 1 April | 18,998 | 18,997 | 18,997 |
| Cashflow: |
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| Loan arrangement fees | (3) | - | - |
| Non cash: |
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| Unamortised loan arrangement fees | 2 | 1 | 1 |
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| __________ | __________ | __________ |
| Closing balance | 18,997 | 18,998 | 18,998 |
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| __________ | __________ | __________ |
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| On 23 September 2019, the Company announced that it had entered into a new £20 million loan facility agreement with Scotiabank Europe PLC (the "New Facility"). The New Facility is for a three-year period to 20 September 2022 and extends the previous £20 million loan facility agreement with Scotiabank Europe PLC which was due to mature on 30 October 2020. Further details are included in the Chairman's Statement. | |||
9. | Transactions with the Manager |
| The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities and saving scheme services in relation to the Company. |
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| The management fee is based on 0.45% per annum up to £100 million and 0.40% per annum over £100 million, by reference to the net assets of the Company and any borrowings up to a maximum of £30 million, and excluding commonly managed funds, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital. The agreement is terminable on not less than six months' notice. The total of the fees paid and payable during the period to 30 September 2019 was £208,000 (30 September 2018 - £210,000; 31 March 2019 - £406,000) and the balance due to ASFML at the period end was £104,000 (30 September 2018 - £105,000; 31 March 2019 - £99,000). The Company held an interest in a commonly managed fund, Aberdeen Smaller Companies Income Trust PLC, in the portfolio during the period to 30 September 2019 (30 September 2018 and 31 March 2019 - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company. |
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| The management agreement with ASFML also provides for the provision of promotional activities, which ASFML has delegated to Aberdeen Asset Managers Limited. The total fees paid and payable in relation to promotional activities were £26,000 (30 September 2018 - £32,000; 31 March 2019 - £58,000) and the balance due to ASFML at the period end was £13,000 (30 September 2018 - £13,000; 31 March 2019 - £13,000). The Company's management agreement with ASFML also provides for the provision of company secretarial and administration services to the Company; no separate fee is charged to the Company in respect of these services, which have been delegated to Aberdeen Asset Management PLC. |
10. | Segmental information |
| For management purposes, the Company is organised into one main operating segment, which invests in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole. |
11. | Fair value hierarchy | ||||||
| IFRS 13 'Fair Value Measurement' 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: | ||||||
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| Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; | ||||||
| Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and | ||||||
| Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). | ||||||
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| The financial assets and liabilities measured at fair value in the Condensed Balance Sheet are grouped into the fair value hierarchy as follows: | ||||||
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| Level 1 | Level 2 | Level 3 | Total | |
| At 30 September 2019 | Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
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| Quoted investments | a) | 97,460 | - | - | 97,460 | |
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| Financial liabilities at fair value through profit or loss |
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| Derivatives | b) | - | (65) | - | (65) | |
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| ______ | ______ | ______ | ______ | |
| Net fair value |
| 97,460 | (65) | - | 97,395 | |
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| ______ | ______ | ______ | ______ | |
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| Level 1 | Level 2 | Level 3 | Total | |
| At 30 September 2018 | Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
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| Quoted investments | a) | 98,536 | - | - | 98,536 | |
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| Financial liabilities at fair value through profit or loss |
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| Derivatives | b) | - | (33) | - | (33) | |
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| ______ | ______ | ______ | ______ | |
| Net fair value |
| 98,536 | (33) | - | 98,503 | |
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| ______ | ______ | ______ | ______ | |
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| Level 1 | Level 2 | Level 3 | Total | |
| As at 31 March 2019 | Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
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| Quoted investments | a) | 94,971 | - | - | 94,971 | |
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| Financial liabilities at fair value through profit or loss |
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| Derivatives | b) | - | - | - | - | |
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| ______ | ______ | ______ | ______ | |
| Net fair value |
| 94,971 | - | - | 94,971 | |
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| ______ | ______ | ______ | ______ |
| a) | Quoted investments |
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| The fair value of the Company's quoted investments has been determined by reference to their quoted bid prices at the reporting date. Quoted investments included in Fair Value Level 1 are actively traded on recognised stock exchanges. | |||||
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| b) | Derivatives | |||||
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| The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis although not actively traded and therefore have been classed as Level 2. | |||||
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| The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices included within Level 2. | |||||
12. | 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 30 September 2019 and 30 September 2018 has not been reviewed or audited by the Company's independent auditor. |
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| The information for the year ended 31 March 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the independent auditor on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006. |
13. | This Half Yearly Financial Report was approved by the Board on 21 November 2019. |
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
21 November 2019
* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.