27 Feb 2020 07:00
STANDARD LIFE UK SMALLER COMPANIES TRUST PLC
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
Legal Entity Identifier (LEI): 213800UUKA68SHSJBE37
INVESTMENT OBJECTIVE
The Company's objective is to achieve long-term capital growth by investment in UK-quoted smaller companies.
Reference Index
The Company's reference index is the Numis Smaller Companies including AIM (ex investment companies) Index.
PERFORMANCE HIGHLIGHTS
Net asset value total return per Ordinary ShareA | Share price total return per Ordinary ShareA | Reference index total return | |||
Six months ended31 December 2019 | Six months ended31 December 2019 | Six months ended31 December 2019 | |||
+17.5% | +31.5% | +11.3% | |||
Premium/(discount) to net asset valueA | Revenue return per Ordinary Share | Ongoing charges ratioA | |||
As at31 December 2019 | Six months ended31 December 2019 | Forecast year ending30 June 2020 | |||
1.8% | 4.62p | 0.88% | |||
As at 30 June 2019 | (8.9)% | Six months ended 31 December 2018 | 3.84p | Year ended 30 June 2019 | 0.90% |
A Considered to be an Alternative Performance Measure. | |||||
FINANCIAL HIGHLIGHTS
Capital return | 31 December 2019 | 30 June2019 | %change |
Total assets (m)A | £672.21 | £567.57 | +18.4% |
Equity shareholders' funds (m) | £627.32 | £542.69 | +15.6% |
Market capitalisation (m) | £638.64 | £494.38 | +29.2% |
Net asset value per Ordinary ShareB | 626.69p | 539.54p | +16.2% |
Share price per Ordinary Share | 638.00p | 491.50p | +29.8% |
Premium/(discount) of Ordinary Share price to net asset valueC | 1.8% | (8.9)% | |
Reference index | 5,842.58 | 5,321.09 | +9.8% |
Revenue return per Ordinary ShareD | 4.62p | 3.84p | +20.3% |
Interim dividend per Ordinary ShareE | 2.70p | 1.60p | +68.8% |
Net gearingC | 3.4% | 1.5% | |
Ongoing chargesC | 0.88%F | 0.90% | |
A Defined as total assets per the Statement of Financial Position less current liabilities (before deduction of bank loans). | |||
B With debt at par value. | |||
C Considered to be an Alternative Performance Measure. | |||
D Figure for 31 December 2019 is for the six months to that date. Figure for 30 June 2019 is for the six months to 31 December 2018. | |||
E The increase in interim dividend follows the Board's announcement in the 2019 Annual Report that it was rebalancing the split between interim and final dividends. | |||
F The ongoing charges ratio for the current year includes a forecast of costs, charges and net assets for the six months to 30 June 2020. | |||
For further information, please contact:
Scott Anderson
Evan Bruce-Gardyne
Aberdeen Standard Investments
0131 372 2200
HALF YEARLY BOARD REPORT - CHAIRMAN'S STATEMENT
Introduction
This will be my last report as Chairman of your Company, as I am stepping down from the Board at the end of March. I am delighted that I am able to hand over the baton to Liz Airey at a time when the Company is in such a strong position. The return in the period was very positive and continues the performance in the first six months of 2019. The Company has delivered a share price total return of over 100% in less than 3½ years. By contrast, the Numis Smaller Companies including AIM (ex investment companies) Index, which is the Company's reference index, and the FTSE All-Share Index have both taken over seven years to achieve the same level of return.
Performance
The Company's net asset value ("NAV") total return ("NAV TR") was 17.5% for the six months to 31 December 2019, while the share price total return was 31.5%. This compares with a total return of 11.3% for the Company's reference index, the Numis Smaller Companies including AIM (ex investment companies) Index. The outperformance of the share price relative to the NAV meant that, at 31 December 2019, the share price was trading at a premium of 1.8% to the NAV per share. The returns for the period came on top of a 22.9% NAV total return in the first six months of 2019. The share price total return was 59.0% for the whole of 2019.
The Investment Manager's Review provides further information on stock performance and portfolio activity during the period, as well as the Investment Manager's outlook for smaller companies. The Board supports the Investment Manager's view that quality growth stocks should outperform cyclical stocks over the long term.
While the absolute returns are impressive, it is also good to see from the table below that the performance has outstripped the peer group over all time frames, and represents good progress on the position this time last year.
Total returns to | 6 months | 1 year | 3 years | 5 years | 10 years |
31 December 2019 | % | % | % | % | % |
NAVA | +17.5% | +44.5% | +69.0% | +130.1% | +425.9% |
Reference indexB | +11.3% | +22.2% | +23.6% | +51.8% | +209.6% |
Peer group rankingC | 4/24 | 2/24 | 2/21 | 1/19 | 4/14 |
Share priceA | +31.5% | +59.0% | +85.8% | +153.4% | +492.3% |
Reference indexB | +11.3% | +22.2% | +23.6% | +51.8% | +209.6% |
Peer Group rankingC | 3/24 | 3/24 | 4/21 | 2/19 | 4/14 |
A Considered to be an Alternative Performance Measure. | |||||
B Numis Smaller Companies including AIM (ex investment companies), prior to 1 January 2018 Numis Smaller Companies (ex investment companies). | |||||
C Compared to the constituents of the AIC UK Smaller Companies sector. | |||||
Source: Aberdeen Standard Investments/Morningstar/Factset | |||||
Earnings and Dividends
The revenue return per share for the six months to 31 December 2019 increased by 20.3% to 4.62p (2018 - 3.84p), with the total income received from investee companies rising by 36.5% compared to the same period last year. The difference between the two rates of increase is, in part, explained by the merger with Dunedin Smaller Companies Investment Trust in October 2018, which meant that the comparative numbers only include the income from the enlarged Company for just under three months, as compared to the full six months this year.
In the 2019 Annual Report, I explained that the Board was minded, in normal circumstances, to look to maintain the policy of a progressive dividend, but to distribute around one third of the total expected dividend for the year at the half year end, as compared to just over one fifth as has been the case in recent years. As a result of the rebalancing of the split between the interim and final dividends the Board is declaring an interim dividend of 2.70p per share (2018: 1.60p per share) and this will be paid on 10 April 2020 to shareholders on the register as at 13 March 2020 with an associated ex-dividend date of 12 March 2020.
Gearing
The Board has given the Investment Manager discretion to vary the level of gearing between a net cash position of 5% and net gearing of 25% of net assets. The £20 million revolving credit facility was drawn in full during December 2019 shortly after the result of the General Election was announced which provided the Investment Manager with a greater degree of confidence in the outlook for smaller companies.
Discount Control and Share Buy Backs
At 31 December 2019 the Company's shares were trading at a 1.8% premium to the NAV per share. This was a marked improvement in the position that had prevailed during most of 2019 whereby the share price tended to trade at close to an 8% discount to NAV, the upper end of the level for the discount targeted by the Board's discount control mechanism. In accordance with this policy, during the period the Company bought back 485,640 shares to hold in treasury.
Shareholder Relations
The Board held the AGM on Wednesday 23 October 2019 at the Manager's office in Edinburgh and intends to hold the AGM for the current financial year in London on Wednesday, 21 October 2020.
Management Changes
We note the recent announcement about Harry Nimmo's change of role to become the Investment Leader of the Smaller Companies team at Aberdeen Standard Investments ("ASI") and to step back from his managerial and administration role. We consider that this change is positive as it allows him more time to focus on managing the Company. With a new head and deputy head in place, additional resource in UK stock selection and a long established investment process, we are reassured that the portfolio is in safe hands.
Board Changes
The Board and I have agreed that I will step down as Chairman and retire from the Board on 31 March 2020. The Board has elected Liz Airey, who was appointed as an independent non-executive Director on 21 August 2019, to succeed me as Chairman. I have enjoyed my involvement in the Company over the last five and a half years and wish the Board and all shareholders the very best for the future. I am confident that the Company is in safe hands.
Outlook
12 December 2019 is likely to be seen as an economic and political watershed in the recent history of the United Kingdom, however the departure of the UK from the EU is the start, not the end, of the process and there will inevitably be obstacles and issues that are, by their very nature, unforeseen. All the companies in which this Company invests are going to be affected, to a greater or lesser extent, and the valuations of companies will be affected, both positively and negatively. The path chosen by the UK electorate is unlikely to be easy in the short term.
However, regardless of the obstacles, winners will emerge. They will be led by those management teams that have the experience to understand the implications and the ability to adapt and seize any new opportunities that may arise as a result. Harry Nimmo and his team's proven experience in identifying the winners and avoiding the losers continues to provide a strong platform for the future of the Company.
Allister Langlands
Chairman27 February 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.
The Half Yearly Financial Report for the six months ended 31 December 2019 comprises an Interim Management Report, in the form of the Chairman's Statement and Other Matters, the Investment Manager's Review, Portfolio Information and a condensed set of Financial Statements which has not been reviewed or audited by the Company's auditor.
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 30 June 2019 and comprise the following risk categories:
- Strategy
- Investment performance
- Share price
- Financial instruments
- Financial obligations
- Regulatory
- Operational
- Key man risk
- Geopolitical
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 consist mainly of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants, when applicable.
As at 31 December 2019, the Company had a £45 million unsecured loan facility agreement with Royal Bank of Scotland International Ltd which matures on 31 October 2022. This consists of a five year, fixed-rate term loan facility of £25 million and a five year revolving credit facility of £20 million.
The Directors are mindful of the Principal Risks and Uncertainties as summarised above and they believe that the Company has adequate financial resources to continue its operational existence for a period of not less than 12 months from the date of approval of this Report. They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities could be used to meet short-term funding requirements were they to arise. They have also reviewed the revenue and ongoing expenses forecasts for the coming year. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
On behalf of the Board
Allister Langlands
Chairman
27 February 2020
INVESTMENT MANAGER'S REVIEW
The first six months of the current financial year produced strong returns on the back of the returns in the half year to 30 June 2019. The Company generated a net asset value total return ("NAV TR") for the six months to 31 December 2019 of 17.5%, while the share price total return was 31.5%. By comparison, the UK smaller companies sector as represented by the Numis Smaller Companies including AIM (excluding investment companies) Index returned 11.3% during the last six months of 2019. Over the same period the FTSE 100 Index of the UK's largest listed companies returned 3.7%. Since the appointment of Aberdeen Standard Investments to manage the Company at the end of August 2003, the share price total return has been 1,610%, while the reference index and the FTSE 100 Index have delivered returns of 353% and 232% respectively.
Equity Markets
Markets fell from June to August as investors worried about a recession in the USA, with a yield inversion occurring in August, whereby short interest rates were higher than long rates; normally a sure sign of impending recession. In addition a trade war between the USA and China loomed large. It also felt like a disorderly Brexit was on the cards. Then the Federal Reserve reversed its policy and cut rates and a stage one trade treaty was signed. It also became less likely that a potentially disastrous "no deal" Brexit would happen. An emphatic Conservative victory at the General Election in December 2019 provided enough constitutional clarity to afford the promise that consumers and businesses in the UK would be happier to spend and invest in the UK. Top down global macro investors took this as a signal to pile into UK midcap companies in particular as an investable way of tapping into the recovery in the UK economy and markets. This led to a euphoric bounce in UK midcap markets in the last three weeks of the year.
At the company level however, the tone of trading statements was generally negative during the period in question. This was particularly the case for building, construction, auto dealers and retail sectors. Industrials were also generally weak, as were financial services, oil services, personal goods, healthcare and software, particularly data services related companies that were seen as potentially impacted by Brexit concerns. However, there was a recovery in sentiment in the post-election closing weeks of the year with the data services sector in particular seeing a dramatic recovery. In the two days after the election the FTSE 250 Index rose by 6%.
Media and real estate were among the few sectors of noticeable strength.
FTSE SmallCap (ex investment companies) remained a weaker feature alongside the AIM market as liquidity concerns hit the smallest companies. Blue sky companies (ie. those that have yet to prove that they have a viable product) remained out of favour.
The oil price was basically flat in the period averaging $64; copper likewise. Gold however rose by 20% to $1,572.
Bid activity remained subdued over the summer with the most significant activity being a bid for pub group Ei by Stonegate. No bids were received for holdings in the portfolio.
Performance
The portfolio out-performed its reference index in five of the six months of the period in question with October and November being particularly strong. July was the only month of underperformance. Share performance either tended to be driven by stock-specific events or where there was a perception about exposure to Brexit. For example, data service companies such as Kainos and FDM were weak on Brexit concerns, only to recover sharply after the election.
The stars were very much aligned when it came to performance in the period in question. In uncertain economic and geopolitical times our focus on Quality , Growth and Momentum was very beneficial. The removal of uncertainty with the General Election also led to a very strong finish to the year. This was helped by a spectacular performance by Dart Group.
Our five leading performers in the period were as follows:-
Dart Group (Contribution to total return +2.5% (Closing weight: 3.6%)) which owns Jet2 and Jet2holidays.com benefited from not having any Boeing 737 MAX jets in its fleet, unlike some of its competitors and also from the demise of Thomas Cook.
Future (+1.6% (3.2%)) has recovered from the short selling attack with good trading figures and further acquisitions.
JD Sports Fashion (+1.3 (3.0%)) returned yet another outstanding set of results.
Workspace (+1.1% (2.7%)) is back in fashion post-election and trading well.
Diploma (+1.1% (3.1%)) continues to trade strongly helped by further sensible bolt-on deals.
Our five worst performers in the period were as follows:-
First Derivatives (-1.0 (2.1%)) was weak following the sudden death of its founder and CEO.
Abcam (-0.4% (1.1%)) had results that were modestly disappointing.
Next 15 Communications (-0.4 (1.2%)) whose results were a little sub-par because of delays in spending by a couple of their clients, Samsung and Just Eat.
Robert Walters (-0.4% (1.4%)) where trading in the UK and Hong Kong markets are weak. The latter in part because of recent political unrest in the territory.
Fevertree Drinks (-0.4% (0.9%)) continues to be sub-par both in the UK, where its market share is high, but also in the USA.
The portfolio did however avoid some of the major disappointments in the half year notably at Ferrexpo, Sirius Minerals, AG Barr and Hurricane Energy, whose average share price fell by around 48% in the period.
Dealing and Activity
Activity was very subdued during the period in question with only one new holding added; that of AB Dynamics and one re-purchased that had been owned before; Greggs. AB Dynamics is one of the world's leading specialists in automotive test systems across a wide range of applications, from validation and durability to the development of advanced technologies for active safety and autonomous driving. Its focus on quality, support and test efficiency has made it a long-term trusted partner for vehicle manufacturers and technology suppliers worldwide.
Four holdings were sold altogether; they were Ted Baker, Accesso, Hostelworld and ECO Animal Health, all on poor Matrix scores. Other sales of stocks that have performed very strongly over many years, but have become too large to count as smaller companies, included Abcam, Dechra Pharmaceuticals, Fevertree Drinks (which has fallen over 26% since the year end) and JD Sports Fashion.
The biggest purchases were:-
Greggs. We bought back into the company which continues to trade ahead of expectations following some particularly effective PR with the launch of the vegan sausage roll and steak bake, alerting potential customers to changes that made it worthwhile giving the baker turned "food-to-go" company another try.
Trainline. This is a recent new issue. It is the train and bus booking website and app that is very popular in the UK but also performing strongly on the continent.
Intermediate Capital. We added to an existing large holding. This reflected our confidence in the international high yield debt and mezzanine finance manager. This is a much lower risk business than previously with less capital at risk. The interim dividend rose a spectacular 50%. This holding is now the fourth largest holding in the portfolio.
GlobalData. More was added to this holding. It is the research company with the chief executive we know well from his days at Datamonitor. GlobalData is just the same except it is enabled for on-line delivery.
Games Workshop. We increased our position as trading momentum remained strong.
Sector Exposure
Our leading sector at the period end was support services at 14.8% of the portfolio, a slight reduction on the previous position. Next largest is software at 11.6% and a rise on the previous period. Travel & leisure goods is at 10.3% which is a significant rise on last time due to some spectacular share price performances from Dart Group, Team 17 and Games Workshop. Next is financials at 9.3%, then media at 9.2% and food & drink at 6.7%, which is down somewhat. Real estate is steady at 6.7% of the portfolio although this is the first time in many years that the Company has been overweight in real estate.
There are no holdings in mining and oil & gas companies. The portfolio also remains light in industrials, engineers, aerospace and house-builders.
Gearing
£45.0 million of borrowings were drawn down at the period end while cash stood at £23.3 million . This left the Company with net gearing of 3.4%.
Outlook
Several big uncertainties have been removed. Most importantly a government with a working majority creates more certainty as to the constitutional future of the UK and its relations with the European Union. The US and world economies look in better shape following Federal Reserve easing and some semblance of a rapprochement on trade between the USA and China.
The other unknown is the progress of the Coronavirus, the ultimate impact is as yet difficult to quantify.
The deadline for the negotiation on the actual terms of Britain's departure from the EU at the 31st December 2020 looks tight and could present a considerable challenge to negotiators.
Our two new themes continue to work very well for the portfolio. That is, the position in media as that sector sees positive renewal. The other theme is the identification of customer-focused companies in more difficult industries. Our preference is for companies that have strong corporate cultures which may include paying bonuses to all staff, such as Games Workshop and Greggs. They may also have unique business methodologies that set them apart, such as Motorpoint and Robert Walters.
As I have said before, our process remains unchanged. Our emphasis on risk aversion, resilience, growth and momentum still feels right for the future. Caution should be the watch-word however.
Investing in smaller companies should be viewed as a long-term investment and we have no doubt that patient investors will be rewarded in the longer term. Our stable process has withstood the ravages of four full economic cycles. I remain very optimistic about the prospects for the portfolio and the Company in the long term.
Harry Nimmo
Portfolio Manager
Aberdeen Standard Investments
27 February 2020
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months ended | ||||
31 December 2019 | ||||
Revenue | Capital | Total | ||
Notes | £'000 | £'000 | £'000 | |
Net gains/(losses) on investments held at fair value | - | 90,245 | 90,245 | |
Income | 2 | 5,672 | - | 5,672 |
Investment management fee | (528) | (1,583) | (2,111) | |
Administrative expenses | (414) | - | (414) | |
_______ | _______ | _______ | ||
Net return before finance costs and taxation | 4,730 | 88,662 | 93,392 | |
Finance costs | (95) | (286) | (381) | |
_______ | _______ | _______ | ||
Return before taxation | 4,635 | 88,376 | 93,011 | |
Taxation | 3 | - | - | - |
_______ | _______ | _______ | ||
Return after taxation | 4,635 | 88,376 | 93,011 | |
_______ | _______ | _______ | ||
Return per Ordinary share (pence) | 5 | 4.62p | 88.16p | 92.78p |
_______ | _______ | _______ | ||
The total column of the condensed Statement of Comprehensive Income represents 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 December 2018 | ||||
Revenue | Capital | Total | ||
Notes | £'000 | £'000 | £'000 | |
Net gains/(losses) on investments held at fair value | - | (105,188) | (105,188) | |
Income | 2 | 4,171 | - | 4,171 |
Investment management fee | (406) | (1,217) | (1,623) | |
Administrative expenses | (353) | - | (353) | |
_______ | _______ | _______ | ||
Net return before finance costs and taxation | 3,412 | (106,405) | (102,993) | |
Finance costs | (93) | (280) | (373) | |
_______ | _______ | _______ | ||
Return before taxation | 3,319 | (106,685) | (103,366) | |
Taxation | 3 | 4 | - | 4 |
_______ | _______ | _______ | ||
Return after taxation | 3,323 | (106,685) | (103,362) | |
_______ | _______ | _______ | ||
Return per Ordinary share (pence) | 5 | 3.84p | (123.13p) | (119.29p) |
_______ | _______ | _______ | ||
The accompanying notes are an integral part of the financial statements.CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
As at | As at | ||
31 December 2019 | 30 June2019 | ||
Notes | £'000 | £'000 | |
Non-current assets | |||
Investments held at fair value through profit or loss | 649,771 | 550,909 | |
_______ | _______ | ||
Current assets | |||
Debtors | 1,626 | 1,847 | |
Investments in AAA-rated money market funds | 23,060 | 15,911 | |
Cash and short term deposits | 249 | 668 | |
_______ | _______ | ||
24,935 | 18,426 | ||
Current liabilities | |||
Creditors: amounts falling due within one year | |||
Bank loan | 8 | (20,000) | - |
Other creditors | (2,493) | (1,764) | |
_______ | _______ | ||
(22,493) | (1,764) | ||
_______ | _______ | ||
Net current assets | 2,442 | 16,662 | |
_______ | _______ | ||
Total assets less current liabilities | 652,213 | 567,571 | |
Creditors: amounts falling due in more than one year | |||
Bank loan | 8 | (24,895) | (24,877) |
_______ | _______ | ||
Net assets | 627,318 | 542,694 | |
_______ | _______ | ||
Capital and reserves | |||
Called-up share capital | 26,041 | 26,041 | |
Share premium account | 170,146 | 170,146 | |
Special reserve | 28,696 | 30,977 | |
Capital reserve | 393,040 | 304,664 | |
Revenue reserve | 9,395 | 10,866 | |
_______ | _______ | ||
Equity shareholders' funds | 627,318 | 542,694 | |
_______ | _______ | ||
Net asset value per Ordinary share (pence) | 7 | 626.69 | 539.54 |
_______ | _______ | ||
The accompanying notes are an integral part of the financial statements. | |||
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 31 December 2019 | ||||||
Share | ||||||
Share | premium | Special | Capital | Revenue | ||
capital | account | reserve | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 30 June 2019 | 26,041 | 170,146 | 30,977 | 304,664 | 10,866 | 542,694 |
Return after taxation | - | - | - | 88,376 | 4,635 | 93,011 |
Buyback of shares into Treasury | - | - | (2,281) | - | - | (2,281) |
Dividends paid (see note 4) | - | - | - | - | (6,106) | (6,106) |
_______ | _______ | _______ | _______ | _______ | _______ | |
Balance at 31 December 2019 | 26,041 | 170,146 | 28,696 | 393,040 | 9,395 | 627,318 |
_______ | _______ | _______ | _______ | _______ | _______ | |
Six months ended 31 December 2018 | ||||||
Share | ||||||
Share | premium | Special | Capital | Revenue | ||
capital | account | reserve | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 30 June 2018 | 19,071 | 29,693 | 36,311 | 314,924 | 8,275 | 408,274 |
Return after taxation | - | - | - | (106,685) | 3,323 | (103,362) |
Issue of Ordinary Shares | 6,970 | 140,439 | - | - | - | 147,409 |
Buyback of Ordinary Shares into Treasury | - | - | (5,121) | - | - | (5,121) |
Dividends paid (see note 4) | - | - | - | - | (4,031) | (4,031) |
_______ | _______ | _______ | _______ | _______ | _______ | |
Balance at 31 December 2018 | 26,041 | 170,132 | 31,190 | 208,239 | 7,567 | 443,169 |
_______ | _______ | _______ | _______ | _______ | _______ | |
The accompanying notes are an integral part of the financial statements. | ||||||
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended | Six months ended | |
31 December 2019 | 31 December 2018 | |
£'000 | £'000 | |
Operating activities | ||
Net return before finance costs and taxation | 93,392 | (102,993) |
Adjustment for: | ||
(Gains)/losses on investments | (90,245) | 105,188 |
Decrease in accrued income | 433 | 33 |
Increase in other debtors | (5) | (6) |
Increase in other creditors | 1,145 | 856 |
Net overseas tax | 2 | 10 |
_______ | _______ | |
Net cash inflow from operating activities | 4,722 | 3,088 |
Investing activities | ||
Purchases of investments | (36,077) | (23,963) |
Sales of investments | 26,819 | 46,811 |
Purchases of AAA-rated money market funds | (45,664) | (39,768) |
Sales of AAA-rated money market funds | 38,515 | 20,085 |
_______ | _______ | |
Net cash (outflow)/inflow from investing activities | (16,407) | 3,165 |
_______ | _______ | |
Financing activities | ||
Interest paid | (347) | (351) |
Drawdown of loans | 20,000 | - |
Equity dividends paid | (6,106) | (4,031) |
Net cash acquired following merger | - | 2,753 |
Buyback of shares | (2,281) | (4,996) |
_______ | _______ | |
Net cash inflow/(outflow) from financing activities | 11,266 | (6,625) |
_______ | _______ | |
Decrease in cash and short term deposits | (419) | (372) |
_______ | _______ | |
Analysis of changes in cash during the period | ||
Opening cash and short term deposits | 668 | 415 |
Decrease in cash and short term deposits as above | (419) | (372) |
_______ | _______ | |
Closing cash and short term deposits | 249 | 43 |
_______ | _______ | |
The accompanying notes are an integral part of the financial statements. | ||
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
1. | Accounting policies |
Basis of accounting. The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting' and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in October 2019. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. | |
The half-year financial statements have been prepared using the same accounting policies as the preceding annual accounts. |
2. | Income | ||
Six months ended | Six months ended | ||
31 December 2019 | 31 December 2018 | ||
£'000 | £'000 | ||
Income from investments | |||
UK dividend income | 4,717 | 3,418 | |
REIT income | 594 | 393 | |
Overseas dividend income | 272 | 279 | |
_______ | _______ | ||
5,583 | 4,090 | ||
_______ | _______ | ||
Interest income | |||
Interest from AAA-rated money market funds | 89 | 81 | |
_______ | _______ | ||
Total income | 5,672 | 4,171 | |
_______ | _______ |
3. | Taxation. The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on management's best estimate of the weighted annual corporation tax rate expected for the full financial year. The estimated annual tax rate used for the year to 30 June 2020 is 18.5%. |
As a result of the Company's investment trust status the tax charge for the period is £nil (31 December 2018 - credit of £4,000). During the period the Company received no recovery of withholding tax on overseas dividend income (31 December 2018 - £4,000). |
4. | Ordinary dividend on equity shares | ||
Six months ended | Six months ended | ||
31 December 2019 | 31 December 2018 | ||
£'000 | £'000 | ||
2019 final dividend of 6.10p per share (2018 - 5.50p) | 6,106 | 4,031 | |
_______ | _______ |
5. | Return per share | ||
Six months ended | Six months ended | ||
31 December 2019 | 31 December 2018 | ||
p | p | ||
Revenue return | 4.62 | 3.84 | |
Capital return | 88.16 | (123.13) | |
_______ | _______ | ||
Total return | 92.78 | (119.29) | |
_______ | _______ | ||
Weighted average number of Ordinary Shares | 100,251,509 | 86,645,790 | |
__________ | __________ | ||
The figures above are based on the following: | |||
Six months ended | Six months ended | ||
31 December 2019 | 31 December 2018 | ||
£'000 | £'000 | ||
Revenue return | 4,635 | 3,323 | |
Capital return | 88,376 | (106,685) | |
_______ | _______ | ||
Total return | 93,011 | (103,362) | |
_______ | _______ |
6. | 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/(losses) on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows: | ||
Six months ended | Six months ended | ||
31 December 2019 | 31 December 2018 | ||
£'000 | £'000 | ||
Purchases | 169 | 90 | |
Sales | 20 | 31 | |
_______ | _______ | ||
189 | 121 | ||
_______ | _______ | ||
7. | Net asset value. Total shareholders' funds have been calculated in accordance with the provisions of applicable accounting standards. The analysis of total shareholders' funds on the face of the Condensed Statement of Financial Position reflects 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. | |||
As at | As at | ||
Net asset value per share | 31 December 2019 | 30 June 2019 | |
Total Shareholders' funds (£'000) | 627,318 | 542,694 | |
Number of Ordinary Shares in issue at the period endA | 100,099,771 | 100,585,411 | |
Net asset value per share (pence) | 626.69 | 539.54 | |
A Excluding shares held in treasury. | |||
During the six months ended 31 December 2019 the Company repurchased 485,640 Ordinary Shares to be held in treasury (31 December 2018 - 1,081,975) at a cost of £2,281,000 (31 December 2018 - £5,121,000). | |||
As at 31 December 2019 there were 100,099,771 Ordinary Shares in issue (30 June 2019 - 100,585,411). There are also 4,064,651 Ordinary Shares (30 June 2019 - 3,579,011) held in treasury. | |||
8. | Loans. On 1 November 2017 the Company entered into a £45,000,000 unsecured loan facility agreement with The Royal Bank of Scotland International Ltd. The facility consists of a five year fixed-rate term loan facility of £25,000,000 (the "Term Loan") and a five year revolving credit facility of £20,000,000 (the "RCF"). The Term Loan has a maturity date of 31 October 2022. |
At 31 December 2019, £25,000,000 of the Term Loan had been drawn down (30 June 2019 - £25,000,000) at a rate of 2.349% (30 June 2019 - 2.349%). At 31 December 2019, £20,000,000 of the RCF had been drawn down (30 June 2019 - £nil) at a rate of 1.944% (30 June 2019 - 0%). | |
The Term Loan is shown in the Statement of Financial Position net of unamortised expenses of £105,000. | |
The fair value of the Term Loan at 31 December 2019 was £26,193,000 (30 June 2019 - £26,404,000), the value being calculated per the disclosure in note 10. |
9. | Analysis of changes in net debt | ||||
At | At | ||||
30 June 2019 | Cashflows | Non-cashmovements | 31 December 2019 | ||
£000 | £000 | £000 | £000 | ||
Cash and short term deposits | 668 | (419) | - | 249 | |
Investments in AAA-rated money market funds | 15,911 | 7,149 | - | 23,060 | |
Debt due within one year | - | (20,000) | - | (20,000) | |
Debt due after one year | (24,877) | - | (18) | (24,895) | |
Amounts (due to)/from brokers | (106) | 640 | - | 534 | |
_______ | _______ | _______ | _______ | ||
Total net debt | (8,404) | (12,630) | (18) | (21,052) | |
_______ | _______ | _______ | _______ | ||
At | At | ||||
30 June 2018 | Cashflows | Non-cashmovements | 31 December 2018 | ||
£000 | £000 | £000 | £000 | ||
Cash and short term deposits | 415 | (372) | - | 43 | |
Investments in AAA-rated money market funds | 9,559 | 19,683 | - | 29,242 | |
Debt due after one year | (24,790) | - | (68) | (24,858) | |
Amounts (due to)/from brokers | (1,155) | 1,200 | - | 45 | |
_______ | _______ | _______ | _______ | ||
Total net (debt)/funds | (15,971) | 20,511 | (68) | 4,472 | |
_______ | _______ | _______ | _______ |
10. | Fair Value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications: | |
Level 1: | unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. | |
Level 2: | inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | |
Level 3: | inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | |
All of the Company's investments are in quoted equities (30 June 2019 - same) that are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (31 December 2019 - £649,771,000 ; June 2019 - £550,909,000) have therefore been deemed as Level 1. | ||
The fair value of borrowings as at 31 December 2019 has been estimated at £26,193,000 (30 June 2019 - £26,404,000) with a par value per Statement of Financial Position of £24,895,000 (30 June 2019 - £24,877,000) using the interest rate swap valuation technique. Under the fair value hierarchy in accordance with FRS 102, these borrowings can be classified as Level 2. | ||
11. | Transaction with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of investment management, secretarial, accounting and administration and promotional activity services. During the six months ended 31 December 2019 the management fee paid to ASFML was charged applying a tiered rate of 0.85% to the first £250 million of net assets, 0.65% of net assets between £250 million and £550 million and 0.55% of net assets above £550 million. The contract is terminable by either party on six months' notice. |
During the period £2,111,000 (31 December 2018 - £1,623,000) of investment management fees were earned by ASFML, with a balance of £2,111,000 (31 December 2018 - £1,623,000) due at the period end. | |
ASFML also receive fees for secretarial and administrative services of (i) £110,000 per annum and (ii) 0.02% of the net asset value of the Company in excess of £70,000,000 (the net asset value of the Company being as shown in the annual accounts of the Company) up to a maximum annual amount of £150,000 exclusive of VAT. | |
During the period fees of £75,000 (31 December 2018 - £75,000) exclusive of VAT were earned by the ASFML for the provision of secretarial and administration services. The balance due to the ASFML at the period end was £75,000 (31 December 2018 - £75,000) exclusive of VAT. | |
The Manager also receives a separate promotional activities fee which is based on a current annual amount of £100,000 exclusive of VAT payable quarterly in arrears. During the period fees of £50,000 (31 December 2018 - £10,000) exclusive of VAT were payable to the Manager, with a balance of £60,000 (31 December 2018 - £47,000) exclusive of VAT being due at the period end. |
12. | Half Yearly Financial Report. The financial information in this report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 June 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The interim accounts have been prepared using the same accounting policies as the preceding annual accounts. |
13. | This Half Yearly Financial Report was approved by the Board on 27 February 2020. |
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. | |||||
The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. Where the calculation of an APM is not detailed within the financial statements, an explanation of the methodology employed is provided below: | |||||
Discount & premium. A discount is the percentage by which the market price is lower than the Net Asset Value ("NAV") per share. A premium is the percentage by which the market price per share exceeds the NAV per share. | |||||
31 December 2019 | 30 June019 | ||||
Share price | 638.00p | 491.50p | |||
Net Asset Value per share | 626.69p | 539.54p | |||
Premium/(discount) | 1.8% | (8.9%) | |||
Net gearing. Net gearing measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due from and to brokers at the period end as well as cash and short-term deposits. | |||||
31 December 2019 | 30 June2019 | ||||
£'000 | £'000 | ||||
Total borrowingsA | 44,895 | 24,877 | |||
Cash and short term deposits | 249 | 668 | |||
Investments in AAA-rated money market funds | 23,060 | 15,911 | |||
Amounts due from brokers | 534 | 326 | |||
Amounts payable to brokers | - | (432) | |||
Total cash and cash equivalentsB | 23,843 | 16,473 | |||
Gearing (borrowings less cash & cash equivalents) (A-B) | 21,052 | 8,404 | |||
Shareholders' funds | 627,318 | 542,694 | |||
Net gearing | 3.4% | 1.5% | |||
Ongoing charges ratio. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC, which is defined as the total of investment management fees and recurring administrative expenses and expressed as a percentage of the average net asset values throughout the year. The ratio reported at 31 December 2019 includes actual costs and charges for the six months and includes a forecast for costs, charges and the asset base for the remaining six months of the financial year ending 30 June 2020. | |||||
31 December 2019A | 30 June 2019B | ||||
£'000 | £'000 | ||||
Investment management fees | 4,400 | 3,564 | |||
Administrative expenses | 807 | 699 | |||
Less: non-recurring chargesC | (8) | - | |||
Ongoing charges | 5,199 | 4,263 | |||
Average net assets | 588,288 | 475,484 | |||
Ongoing charges ratio | 0.88% | 0.90% | |||
A Forecast ratio for the year ending 30 June 2020, based on estimates as at 31 December 2019. | |||||
B For the year ended 30 June 2019. | |||||
C Comprises professional fees not expected to recur. | |||||
The other ongoing costs reported in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes the ongoing charges ratio and the financing and transaction costs. | |||||
Total return. NAV and share price total returns show how the NAV and share price have performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves reinvesting the net dividend paid by the Company back into 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 back into the share price of the Company on the date on which that dividend goes ex-dividend. | |||||
The table below provides information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the period and the resultant total return. | |||||
In order to calculate the total return for the period, returns are calculated on each key date during the period and then the return for the period is derived from the product of these individual returns. Dividends are reported on their ex-dividend date and are added back to the NAV or share price to calculate the return for that period. | |||||
Dividend | Share | ||||
Six months ended 31 December 2019 | rate | NAV | price | ||
30 June 2019 | N/A | 539.54p | 491.50p | ||
3 October 2019 | 6.10p | 512.72p | 475.50p | ||
31 December 2019 | N/A | 626.69p | 638.00p | ||
Total return | +17.5% | +31.5% | |||
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
27 February 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