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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Abrdn Asia Focus Plc | LSE:AAS | London | Ordinary Share | GB00BMF19B58 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 268.00 | 268.00 | 273.00 | 4,438 | 08:00:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 45.3M | 35.19M | 0.2249 | 11.92 | 419.31M |
From Apr 2019 to Apr 2024
TIDMAAS
RNS Number : 6279D
Aberdeen Asian Smaller Co's Inv Tst
28 October 2015
ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2015
STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights
Hot Features
Premium
31 July 31 July % change
2015 2014
Total assets GBP380,911,000 GBP405,840,000 -6.1
Total equity shareholders'
funds (net assets) GBP343,967,000 GBP369,118,000 -6.8
Net asset value per share
(basic) 906.16p 968.89p -6.5
Net asset value per share
(diluted) 896.31p 952.52p -5.9
Share price (mid market) 790.00p 946.00p -16.5
Market capitalisation GBP299,875,000 GBP360,396,000 -16.8
Discount to net asset
value (diluted) 11.9% 0.7%
MSCI AC Asia Pacific ex
Japan Index (currency
adjusted, capital gains
basis) 540.72 564.62 -4.2
MSCI AC Asia Pacific ex
Japan Small Cap Index
(currency adjusted, capital
gains basis) 1,138.98 1,179.98 -3.5
Net gearing(A) 8.8% 8.4%
Dividends and earnings
Total return per share
(basic)(B) (50.13)p (31.46)p
Revenue return per share
(basic) 18.21p 11.43p +59.3
Dividends per share(C) 15.00p 13.00p +15.4
Dividend cover 1.21 0.88 +37.5
Revenue reserves(D) GBP10,553,000 GBP8,568,000 +23.2
Operating costs
Ongoing charges ratio(E) 1.46% 1.44%
(A) Calculated in accordance with AIC guidance
"Gearing Disclosures post RDR".
(B) Measures the total earnings for the year divided
by the weighted average number of Ordinary shares
in issue (see note 8).
(C) The figures for dividends per share reflect
the dividends for the year in which they were earned.
(D) Prior to payment of final and special dividends.
(E) Ongoing charges ratio calculated in accordance
with guidance issued by the AIC as the total of
the investment management fee and administrative
expenses divided by the average cum income net
asset value throughout the year. Management fees
are charged on the basis of the average net asset
value of the Company over a rolling 24 month period.
STRATEGIC REPORT - CHAIRMAN'S STATEMENT
Results
During the last year, we have seen the collapse in energy and commodity prices, the rise and fall of the equity markets in China and the weakness in regional currencies across Asia.
Against this backdrop, the net asset value total return, in Sterling terms, fell by 4.7%. Approximately 1.3% of this fall is attributed to currency loss. This compared to a fall in the MSCI AC Asia Pacific ex Japan Index of -1.2% and the MSCI AC Asia Pacific ex Japan Small Cap Index's return of
-0.8%. During the same period, market uncertainty saw the discount widen with a consequent fall in the share price from 946.0p to 790.0p.
2015 is our 20th anniversary. In the brochure that will accompany the Annual Report (copies of which are available for download on the Company's website: asian-smaller.co.uk), we have attempted to chronicle the history of this Company in the context of the underlying story which has seen the Asia-Pacific region emerge to become amongst the most vibrant in the world. We have seen our net assets grow from GBP35m to over GBP380m but this has not happened in a straight line. Since 1995, there have been three periods of great economic and market uncertainty and 2015 looks as though it will be a fourth.
However, on each previous occasion, the companies in which we invest have continued to grow their businesses to the benefit of their shareholders. The fundamental reason for this goes to the heart of the investment philosophy that has been pursued by Hugh Young and his team at Aberdeen in Singapore since the Company's inception. It is based on carrying out fundamental research to establish that each company in which we invest has strong management, a robust balance sheet and excellent prospects. This philosophy has stood us in good stead in the past and both your Board and the management team at Aberdeen believe it will on this occasion.
While the accompanying brochure deals with the local economic background in greater depth, it is worth noting that amid all the current commentary on the slowdown in China, The Economist Intelligence Unit is projecting that "By 2050, the Asia-Pacific region is on track to constitute more than half of the global economy. In the process it will again transform beyond recognition". Underpinning this statement is the fact that Asia is home to some of the world's largest and fastest growing retail markets. "By 2018, retail sales in China will approximate those of the US, while sales in Indonesia will come close to matching those of Germany."
The smaller companies in the portfolio serve the local markets and therefore will enjoy the benefits of an emerging and economically powerful middle class across the region.
It is also important to closely monitor ongoing investments to ensure that they continue to meet the criteria on which the original investment decision was made. With its broad spread of offices in the region, Aberdeen is well placed to not only do this but also to identify potential new investments.
As we have seen, investing in a smaller company during its growth stages can reap outsized rewards. In serving niche markets with steady demand for their products and services, these companies are more likely to enjoy rapid growth compared to their larger counterparts operating in mature western markets. Small-cap stocks can be overlooked, as analysts typically focus on better-known large-cap names. A lack of research across such a broad sector means that there is more scope for market mispricing, which provides opportunities to purchase quality holdings at attractive valuations.
Overview
While the medium term continues to offer great opportunities, there were four short-term broad macroeconomic themes that dominated during the year.
The first was the collapse in energy prices. This has been largely positive for Asian countries, such as India, Indonesia and Thailand, as the bulk of these economies are net importers of energy and should therefore benefit from lower import prices. In addition, this presents an opportunity for governments to remove fuel subsidies that have been costly, while more importantly providing resources for spending on key areas such as infrastructure. Lower inflationary pressures from reduced energy prices also provided policymakers with more flexibility to boost growth. This will particularly help India regain some of the momentum lost under the previous Government.
The second was the collapse in commodity prices. Lower crude palm oil prices weighed on Malaysia, which is one of the world's largest exporters of palm oil. Concerns over the impact on the economy weighed on both its equity market and its currency, the ringgit, over the period. Our exposure to Malaysia's palm oil sector has hurt performance but we remain confident of the longer-term prospects of these holdings, which are backed by solid balance sheets. Meanwhile, iron ore prices sank to their lowest since the global financial crisis, hovering around US$50 a tonne. Australia felt the brunt of the fallout, as its trade deficit was worsened by sharply lower bulk commodity prices that drove a fall in export values, with the consequential impact on economic growth. We are underweight to Australia and have no exposure to commodity companies there, and hence, we have been sheltered from any negative impact on performance as a result.
The third was the rise and fall of the equity markets in China. During the review period, Chinese stocks rose to multi-year highs following Beijing's rate cuts and fresh initiatives to liberalise its capital markets. Companies became increasingly expensive against the backdrop of deteriorating macroeconomic conditions and fundamentals. The liquidity-fuelled rally, however, did not last long. Despite the government's supportive measures, stocks continued to fall in July, most notably with the Shanghai stock market posting the biggest one-day loss in eight years. The steep decline vindicated Aberdeen's disinclination to follow the herd and the importance of investing in companies with solid fundamentals. We continue to have little exposure to Chinese companies due to the challenges in finding companies that fit our quality investment criteria.
The fourth was the weakness in regional currencies across Asia. Regional currencies, such as the Australian dollar, Malaysian ringgit, Indonesian rupiah and Thai baht, weakened against the US dollar. Expectations of a Federal Reserve rate increase have fuelled a shift towards US-dollar assets. The Malaysian ringgit was further beset by deepening political problems and allegations of corruption.
Dividend
As I have advised in previous years, subject to market conditions, it is your Company's aim to maintain or increase the Ordinary dividend so that shareholders can rely on a consistent stream of income.
In the current year, we have seen a steady increase in both ordinary income and in the income that we receive as special dividends. Accordingly, the Board is pleased to recommend an increase in the Ordinary dividend by 0.5p to 10.5p (2014: 10.0p) and to recommend a special dividend of 4.5p (2014: 3.0p). If approved by shareholders at the Annual General Meeting of the Company on 1 December 2015, the final and special dividends will be paid on 4 December 2015 to shareholders on the register on 6 November 2015.
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It is worth noting that in the last 20 years, the Board has recommended an increase in the dividend in all but seven years and has paid special dividends in nine of these years.
Gearing and Share Capital Management
The Company's year-end net gearing was 8.8%. The majority of the gearing is provided by the Convertible Unsecured Loan Stock of which approximately GBP33 million remains outstanding. The Company also has a GBP20 million loan facility with State Street and GBP5.0 million was drawn down under that facility at the year end. On 1 September 2015 the Board approved the drawing down of a further $9 million under the facility in order to allow the Manager to exploit on-going turbulence in the markets. The Directors monitor the Company's gearing on a regular basis in accordance with the Company's investment policy and under advice from the Manager.
During the year the Company purchased for treasury 142,000 Ordinary shares at a discount to the prevailing NAV. Subsequent to the period end a further 590,947 Ordinary shares have been purchased into treasury. Share buy backs can reduce the volatility of any discount as well as modestly enhancing the NAV for shareholders.
Annual General Meeting
The Annual General Meeting is scheduled to be held on 1 December 2015 at 11.30 a.m. In addition to the usual ordinary business, as special business the Board is seeking to renew its authority to issue new shares and sell treasury shares for cash at a premium without pre-emption rules applying and to renew its authority to buy back shares and either hold them in treasury for future resale (at a premium to the prevailing net asset value per share) or cancel them.
The Board is happy to take general questions on the Annual Report and financial statements at the meeting but would advise that questions of a technical nature should be addressed in writing to the Company Secretary, in advance.
We look forward to seeing as many shareholders as possible and very much hope that any, who wish, will stay for lunch afterwards.
Outlook
The story over the last twenty years has been remarkable. The Asia-Pacific region will continue as a key player in the global economic story. Your Board together with Hugh Young and his team believe that the portfolio is well positioned to benefit from strong growth across the region. While short term movements in the market are hard to judge, we remain confident that the companies in which we invest, will continue to prosper, grow their dividends and add value in the years to come.
On a more personal note, I would like to thank all those involved in the Company- shareholders, Directors, Managers or advisors, for all their enormous support and help during the last twenty years- it has been a great honour and pleasure to serve as your Chairman during this period.
Nigel Cayzer
Chairman
27 October 2015
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The business of the Company is that of an investment company which seeks to qualify as an investment trust for UK capital gains tax purposes.
The Company aims to maximise total return to shareholders over the long term from a portfolio of smaller quoted companies (with a market capitalisation of up to approximately US$1 billion at the time of investment) in the economies of Asia and Australasia, excluding Japan by following the investment policy described below. When it is in shareholders' interests to do so, the Company reserves the right to participate in the rights issue of an investee company notwithstanding that the market capitalisation of that investee may exceed the stated ceiling. The Directors do not envisage any change in this activity in the foreseeable future.
Investment Policy and Approach
The Company's assets are invested in a diversified portfolio of securities (including equity shares, preference shares, convertible securities, warrants and other equity-related securities) in quoted smaller companies spread across a range of industries and economies in the investment region including Australia, Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Pakistan, The Philippines, Singapore, Sri Lanka, Taiwan and Thailand, together with such other countries in Asia as the Directors may from time to time determine, (collectively, the "Investment Region").
Investments may also be made through collective investment schemes and in companies traded on stock markets outside the Investment Region provided that over 75% of their consolidated revenue is earned from trading in the Investment Region or they hold more than 75% of their consolidated net assets in the Investment Region.
Risk Diversification
The Company does not invest more than 15% of its gross assets at the time of investment either in other listed investment companies (including listed investment trusts), or in the shares of any one company. The Manager is authorised to invest up to 15% of the Company's gross assets in any single stock.
Gearing
The Board is responsible for determining the gearing strategy for the Company. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing is subject to a maximum gearing level of up to 25% of adjusted NAV at the time of draw down.
Delivering the Investment Policy
The Directors are responsible for determining the investment policy and the investment objective of the Company. Day to day management of the Company's assets has been delegated, via the AIFM, to the Investment Manager, AAM Asia. AAM Asia invests in a diversified range of companies throughout the Investment Region in accordance with the investment policy. AAM Asia follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value. No stock is bought without the fund managers having first met management. The Investment Manager estimates a company's worth in two stages, quality then price. Quality is defined by reference to management, business focus, the balance sheet and corporate governance. Price is calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. Except for the maximum market capitalisation limit, little regard is paid to market capitalisation.
A detailed description of the investment process and risk controls employed by the Investment Manager is disclosed in the Annual Report. A comprehensive analysis of the Company's portfolio is disclosed on below including a description of the ten largest investments, the portfolio investments by value, sector/geographical analysis and currency/market performance. At the year end the Company's portfolio consisted of 78 holdings.
Comparative Indices
The Company does not have a benchmark. The Investment Manager utilises two general regional indices, the MSCI AC Asia Pacific ex Japan Index (currency adjusted) and the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted), as well as peer group comparisons for Board reporting. It is likely that performance will diverge, possibly quite dramatically in either direction, from these or any other indices. The Investment Manager seeks to minimise risk by using in depth research and does not see divergence from an index as risk.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
KPI Description
Performance The Board considers the Company's
and net asset net asset value total return figures
value to be the best indicator of performance
over time and is therefore the main
indicator of performance used by the
Board. The figures for this year and
for the past 3, 5 and 10 years are
set out in the annual Report.
Performance The Board also measures performance
against comparative against a combination of two regional
indices indices - the MSCI AC Asia Pacific
ex Japan Index (currency adjusted)
and the MSCI AC Asia Pacific ex Japan
Small Cap Index (currency adjusted)
together with comparison against its
peers. Graphs showing performance
are shown in the Annual Report. The
Board also monitors performance relative
to competitor investment trusts over
a range of time periods, taking into
consideration the differing investment
policies and objectives employed by
those companies.
Share price The Board also monitors the price
(on a total at which the Company's shares trade
return basis) relative to the MSCI Asia Pacific
ex Japan Index (sterling adjusted)
on a total return basis over time.
A graph showing the total NAV return
and the share price performance against
the comparative index is shown in
the Annual Report.
Discount/Premium The discount/premium relative to the
to net asset net asset value per share represented
value by the share price is closely monitored
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by the Board. The objective is to
avoid large fluctuations in the discount
relative to similar investment companies
investing in the region by the use
of share buy backs subject to market
conditions. A graph showing the share
price premium/
(discount) relative to the NAV is
also shown in the Annual Report.
Dividend The Board's aim is to maintain or
increase the Ordinary dividend so
that shareholders can rely on a consistent
stream of income. Dividends paid over
the past 10 years are set out in the
Annual Report.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board have identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. The Board reviews the risks and uncertainties faced by the Company in the form of a risk matrix and heat map at its annual audit committee and a summary of the principal risks are set out below.
Description Mitigating Action Investment strategy The Board keeps the level of and objectives discount at which the Company's - the setting of shares trade as well as the investment an unattractive objective and policy under review strategic proposition and in particular holds an annual to the market and strategy meeting where the Board the failure to reviews updates from the Investment adapt to changes Manager, investor relations reports in investor demand and the Broker on the market. may lead to the In particular, the Board is updated Company becoming at each board meeting on the unattractive to make up of and any movements investors, a decreased in the shareholder register. demand for shares and a widening discount Investment portfolio, The Board sets, and monitors, investment management its investment restrictions and - investing outside guidelines, and receives regular of the investment board reports which include performance restrictions and reporting on the implementation guidelines set of the investment policy, the by the Board could investment process and application result in poor of the guidelines. The Investment performance and Manager attends all Board meetings. inability to meet The Board also monitors the Company's the Company's objectives, share price relative to the net as well as a weakening asset value discount Financial obligations The Board sets a gearing limit - the ability of and receives regular updates the Company to on the actual gearing levels meet its financial the Company has reached from obligations, or the Investment Manager together increasing the with the assets and liabilities level of gearing, of the Company and reviews these could result in at each Board meeting. In addition, the Company becoming Aberdeen Fund Managers Limited, over-geared or as alternative investment fund unable to take manager, has set an overall leverage advantage of potential limit of 2x on a commitment basis opportunities and (2.5x on a gross notional basis) result in a loss includes updates in its reports of value to the to the Board. Company's shares. It could also result in the Company being unable to meet the interest repayments due on the CULS. Financial and Regulatory The financial risks associated - the financial with the Company include market risks associated risk, liquidity risk and credit with the portfolio risk, all of which are mitigated could result in by the Investment Manager. Further losses to the Company. details of the steps taken to In addition, failure mitigate the financial risks to comply with associated with the portfolio relevant regulation are set out in note 19 to the (including the financial statements. The Board Companies Act, relies upon the Aberdeen Group the Financial Services to ensure the Company's compliance and Markets Act, with applicable regulations and the Alternative from time to time employs external Investment Fund advisers to advice on specific Managers Directive, concerns. Accounting Standards and the listing rules, disclosure and prospectus rules) may have an impact on the Company. Operational - the The Board receives reports from Company is dependent the Manager on internal controls on third parties and risk management at each board for the provision meeting. It receives assurances of all systems from all its significant service and services (in providers, as well as back to particular, those back assurances where activities of Aberdeen Asset are themselves sub-delegated Management) and to other third party providers any control failures with which the Company has no and gaps in these direct contractual relationship. systems and services Further details of the internal could result in controls which are in place are a loss or damage set out in the Directors' Report. to the Company
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group. The Aberdeen Group Head of Brand reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, marketing and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new board members.
At 31 July 2015, there were six male Directors and one female Director on the Board.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.
Socially Responsible Investment Policy
The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of Corporate Governance. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver superior investment return for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Future
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Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes (including MiFID II and Packaged Retail Investment and Insurance Products) and the recent changes to the pensions and savings market in the UK. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in my Chairman's statement whilst the Investment Manager's views on the outlook for the portfolio are included below.
Nigel Cayzer
Chairman
27 October 2015
STRATEGIC REPORT - MANAGER'S REVIEW
Overview
Asian small-cap equities generally retreated during the year. Monetary policy easing supported sentiment, as growth weakened globally except in the US, where recovery appeared to gain traction. The US Federal Reserve contemplated policy normalisation. Elsewhere, the reverse was true, with Europe launching quantitative easing, while most Asian central banks trimmed interest rates. Tumbling oil prices soothed inflation fears and enabled the reduction or removal of fuel-subsidy cuts across Southeast Asia, diverting resources towards more productive infrastructure projects.
In early 2015, China's accelerated stimulus efforts drove heavy speculative buying in its domestic markets. Other Asian markets rode on the feel-good sentiment, rallying sharply through April. Market momentum, however, reversed dramatically thereafter. Most global asset classes suffered heightened volatility. This was driven by turbulence in Chinese equities, anxiety over Greece and a commodity rout. China's faltering economy and concerns over systemic risk sparked several stop-gap measures that granted markets only a temporary reprieve. Prices of many commodities sank to multi-year lows on the back of dwindling demand from China.
After the review period, China's central bank devalued the yuan, shaking regional stock and currency markets, as investors interpreted the move as a sign that the economy was in much worse shape than conveyed by official data.
Portfolio Review
The portfolio underperformed the regional small-cap benchmark over the period. We have heavy exposure to India, where we find quality companies that rank among the top in Asia. It is worth noting that our country weightings result from where we find the best companies. Our overweight position benefited the fund, as the Indian stockmarket was the best regional performer, buoyed by hopes that the new government under prime minister Narendra Modi would press ahead with much-needed reforms. Our Indian holdings also performed impressively relative to the domestic stock market. Optimism over consumer spending and a recovery in the domestic car sector boosted industrial and auto paints maker Kansai Nerolac Paints and lubricants producer Castrol India. Cement-maker Ramco Cements benefited from the government's focus on fixing creaky infrastructure. Gujarat Gas' plans to merge with sister company GSPC Gas were viewed positively by the market. Godrej Consumer Products also outperformed, given its healthy bottom line and leading position in the fast-moving consumer goods industry.
In China, we have long been apprehensive about the quality of domestic companies and, hence, remain underweight there. The dominant role of the state is also a deterrent. During the period, we saw irrational exuberance, as local speculators dominated the run-up and fundamentals proved inconsequential. The subsequent correction saw big state-owned entities engaging in national service by supporting the market. Our light exposure hurt performance, as the stockmarket was among the best performers despite the sell-off.
We prefer to gain exposure to China via smaller companies listed in Hong Kong that have operations on the mainland. The territory has the added advantage of better standards of accounting and transparency. The underlying holdings there, particularly Dah Sing Financial, benefited from the broader China rally.
Elsewhere, in North Asia, the lack of exposure to Taiwan added to performance, owing to expectations that slowing exports could hurt some of the country's core industries, such as electronics. But the underweight to Korea dampened returns, given that the market was the second-strongest regional performer after India, led by sizzling gains in health-care and internet stocks. The central bank cut interest rates to a record low of 1.75% in efforts to revitalise the economy. The portfolio has a small position in the country, because chaebol domination can make the business landscape less competitive, while moves to prevent hostile domestic takeovers have also raised concerns.
The plunge in commodity prices hurt stockmarkets and currencies of resources-exporting countries, such as Australia, Indonesia and Malaysia. Investors worried about the impact of shrinking revenues on government income and economic growth, although depreciating currencies could offer some cushion. The portfolio benefited from its light exposure to energy and mining-related stocks, particularly in Australia, which sold off heavily. We maintain our view that small-cap producers in the highly cyclical sector tend to be less efficient and unable to derive the same economies of scale as their large-cap peers. At the stock level, our holding in ARB - which makes and sells parts for four-wheel-drive vehicles - contributed to performance; its exports were boosted by the weak currency, while its domestic and Thai plants operated efficiently through the year.
Conversely, the heavy exposure to Indonesia and Malaysia detracted from performance. Aside from commodity weakness, country-specific risks also eroded sentiment. In Indonesia, delays to government projects weighed on investment activity and confidence, with questions over the ability of president Joko Widodo to navigate the political waters and boost the economy. He has since realigned his cabinet, bringing in former central bank governor, Darmin Nasution, and a close ally, Luhut Panjaitan. Among our holdings, cement-maker Holcim Indonesia's shares fell in tandem with other cement stocks, as president Jokowi requested state-owned producers to cut prices. Our view is that as infrastructure projects kick off in the second half of 2015, cement demand should begin to rise. Another weak performer was Multi Bintang, as the brewer reported weaker results amid a tightening regulatory environment.
Elsewhere, the political storm over alleged misuse of funds at state-owned 1MDB caused the ringgit to plumb new multi-year lows, amid concerns over the deterioration of sovereign governance. Some of our holdings lagged over the period. Retailer Aeon Co (Malaysia), a core holding, was hurt by higher store-opening costs and weaker consumer confidence after the goods and services tax was implemented in April. We continue to hold it because of its established brand, wide store network and pipeline of new malls. Despite share price weakness, Shangri-La Hotel (Malaysia)'s results were decent and the weak ringgit could boost tourist arrivals.
Portfolio Activity
A few companies caught our eye on quality and valuation grounds, and we initiated positions in their stocks. Among them was Singapore-listed Chinese property company First Sponsor Group. It has a solid balance sheet, enabling it to fund its development pipeline targeting the mass market. One of its key shareholders is the Kwek family, who also owns the biggest stake in City Developments (CDL), an established large-cap real estate group that we know well. The stock was received as an in-specie distribution from an existing holding, Millennium & Copthorne Hotels New Zealand, a CDL unit. We subsequently added to our position. Our confidence in the Kwek stewardship also led us to initiate a position in New Zealand-listed property firm CDL Investments, a subsidiary of Millennium & Copthorne.
We also introduced Manulife Malaysia, an insurer with a growing domestic franchise. It is backed by a strong parent in Canadian-based financial services group Manulife Financial. Another new holding was MayAir Group, as we participated in its initial public offering on London's AIM market. MayAir supplies air-filtration systems for industrial cleanrooms and is a leading brand in China, the biggest market for cleanrooms. Since it was founded in 2001, MayAir has been profitable, owing to a healthy order book and recurring revenues from filter replacements. We also invested in Malaysia's Riverstone Holdings, the global leader in cleanroom gloves used in semiconductor manufacturing. It has decent operating margins, strong operating cash flow and a net-cash balance sheet.
In addition, we supported the rights issues of Korea's DGB Financial, given its regional market position, solid customer relationships and loan growth expectations, and Yoma Strategic, a Singapore-listed conglomerate with businesses in property, agriculture and tourism in Myanmar. Both issues were priced at an attractive discount. We also added to our position in Pacific Basin Shipping. The operating environment remains tough, but the company runs a solid operation in its core chartering business.
Conversely, we capitalised on the Indian market's rally to take profits in several holdings, such as Castrol India, Godrej Consumer, Gujarat Gas and Kansai Nerolac.
Outlook
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We expect conditions to remain difficult across Asia and, hence, are cautious about the earnings outlook in the year ahead, although valuations remain reasonable with the Company's portfolio trading at a forward multiple of around 15.9 times for the financial year 2015 (as of end-July). Your Chairman has highlighted key challenges for the region. In such a climate, we are sticking to our knitting. We invest in companies with sustainable competitive advantages, capable management and solid financials. These attributes stand out even more in tough times, acting as a buffer against fierce headwinds. They also enable the opportunistic capturing of market share by the merging with or acquiring of more highly leveraged rivals. We will continue to do what we have been doing well: identify good-quality stocks at a reasonable price and hold them. We believe that our investment approach, based on company due diligence, is key to generating good long-term returns. This is backed by our track record. Over five years and longer, the portfolio has consistently outperformed the benchmark. On a broader level, we remain convinced of Asia's growth potential, underpinned by increasing domestic consumption on the back of a growing middle class.
Aberdeen Asset Management Asia Limited
Investment Manager
27 October 2015
STRATEGIC REPORT - RESULTS
1 year 3 year 5 year 10 year % Since
% return % return % return % return inception
Share price -15.4 +10.9 +72.4 +267.2 +1051.0
Net asset value per
Ordinary share - diluted -4.7 +25.2 +72.3 +318.7 +1103.1
MSCI AC Asia Pacific
ex Japan Index (currency
adjusted) -1.2 +18.1 +29.6 +143.0 +204.6
MSCI AC Asia Pacific
ex Japan Small Cap Index
(currency adjusted) -0.8 +19.9 +18.1 +135.2 n/a
Source: Aberdeen Asset Management PLC, Fundamental
Data, Factset & Russell Mellon
Dividends
Rate xd date Record date Payment
date
Proposed final 10.50p 5 November 6 November 4 December
2015 2015 2015 2015
Proposed special 4.50p 5 November 6 November 4 December
2015 2015 2015 2015
15.00p
Final 2014 10.00p 6 November 11 November 5 December
2014 2014 2014
Special 2014 3.00p 6 November 11 November 5 December
2014 2014 2014
13.00p
Ten Year Financial Record
Year to 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 31 July Total revenue (GBP'000) 5,080 5,485 5,021 4,954 6,103 8,380 9,168 11,512 11,427 14,746 Per share (p) Net revenue return 7.25 6.98 5.88 6.75 12.85 15.42 13.18 13.84 11.43 18.21 Total return 31.48 108.38 (50.80) 48.21 236.82 137.91 68.56 275.43 (31.46) (50.13) Net ordinary dividends paid/proposed 3.45 3.45 4.00 5.00 8.20 9.50 9.50 10.00 10.00 10.50 Net special dividends paid/proposed 2.70 2.70 1.00 - 1.90 2.80 3.00 3.00 3.00 4.50 Net asset value per share (p) Basic 306.56 404.18 347.24 390.96 619.37 686.39 746.55 1013.82 968.89 906.16 Diluted 276.45 364.77 316.46 355.95 562.57 n/a n/a 922.81 952.52 896.31 Shareholders' funds (GBP'000) 98,669 131,679 109,829 121,963 192,851 239,965 260,994 382,932 369,118 343,967
INVESTMENT PORTFOLIO
As at 31 July 2015
Investment Portfolio - Ten Largest Investments
Valuation Total Valuation
2015 assets 2014
Company Industry Country GBP'000 % GBP'000
LPI Capital Berhad
Malaysia-based insurance
company involved in
underwriting fire,
motor, marine, aviation,
transit and miscellaneous
insurance. Insurance Malaysia 11,372 3.0 10,319
AEON Co (M)
Operator of general
merchandise stores,
supermarkets and convenience Multiline
stores. Retail Malaysia 10,865 2.8 17,358
AEON Credit Service
(M)(A)
Subsidiary company
of Aeon Credit Japan
that provides shariah
compliant consumer
financial services Consumer
in Malysia. Finance Malaysia 10,802 2.8 9,307
Dah Sing Financial
Holdings
A conservative medium-sized
Hong Kong based bank
with exposure to both
Hong Kong and China.
The bank offers appealing
valuation and strong Hong
asset quality. Banks Kong 10,409 2.7 8,379
Shangri-La Hotels
Malaysia
Operator of hotels,
beach resorts, property Hotels,
management and investment, Restaurants
and commercial laundry. & Leisure Malaysia 9,444 2.5 12,793
Bank OCBC NISP
Indonesian subsidiary
of Singapore-based
OCBC Bank. Banks Indonesia 9,384 2.5 11,351
Asian Terminals
One of the Philippines'
main port operators.
ATI manages and operates
Port of Manila South
Harbour Container
Terminal, Port of
Batangas, Port of
General Santos and
the Inland Clearance
Depot yard in Calamba, Transportation
Laguna. Infrastructure Philippines 9,155 2.4 7,397
CMC
A subsidiary of Tata
Consultancy Services,
it is an IT services
provider to global
clients. IT Services India 9,122 2.4 8,711
Gujarat Gas Co
One of India's largest
gas distributors that
is based in the State
of Gujarat. Gas Utilities India 9,086 2.4 6,251
Bukit Sembawang Estates
Singapore-based residential
property developer Real Estate
with a large land Management
bank. & Development Singapore 8,968 2.4 11,570
Top ten investments 98,607 25.9
(A) Holding includes investment in both common and
non-voting depositary receipt lines.
Investment Portfolio - Other Investments
Valuation Total Valuation
2015 assets 2014
Company Industry Country GBP'000 % GBP'000
Electronic
Equipment,
Hana Microelectronics Instruments
(Foreign) & Components Thailand 8,776 2.3 9,939
Real Estate
Management
First Sponsor & Development Singapore 8,545 2.2 7,895
Real Estate
Management
Cebu Holdings & Development Philippines 8,219 2.2 7,606
Tisco Financial
Group(B) Banks Thailand 7,943 2.1 7,898
AEON Thana Sinsap
(Thailand)(B) Consumer Finance Thailand 7,742 2.0 11,201
Real Estate
Yoma Strategic Management
Holdings & Development Singapore 7,265 1.9 6,878
Public Financial Hong
Holdings Banks Kong 7,213 1.9 6,327
Construction
Ramco Cements Materials India 6,943 1.8 5,439
Jollibee Foods Hotels, Restaurants
Corporation & Leisure Philippines 6,812 1.8 6,166
United Plantations Food Products Malaysia 6,788 1.8 8,020
Top twenty investments 174,853 45.9
Sanofi India Pharmaceuticals India 6,767 1.8 4,545
Specialty Hong
Giordano International Retail Kong 6,514 1.7 6,991
Hong Kong Economic Hong
Times Holdings Media Kong 6,293 1.7 5,186
Eastern Water Resources
Development and
Management (Foreign) Water Utilities Thailand 6,233 1.6 6,049
Multi Bintang Indonesia Beverages Indonesia 6,150 1.6 9,488
ARB Corporation Auto Components Australia 6,132 1.6 5,664
Linde India Chemicals India 6,127 1.6 5,999
United
M.P. Evans Group Food Products Kingdom 5,987 1.6 6,838
Thai Stanley Electric
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(Foreign) Auto Components Thailand 5,940 1.6 7,358
Castrol India Chemicals India 5,936 1.5 5,238
Top thirty investments 236,932 62.2
Kansai Nerolac
Paints Chemicals India 5,761 1.5 5,459
Straits Trading
Company Metals & Mining Singapore 5,672 1.5 6,332
Commercial Bank Sri
of Ceylon Banks Lanka 5,607 1.5 4,458
Millennium & Copthorne Hotels, Restaurants New
Hotels New Zealand(C) & Leisure Zealand 5,360 1.4 5,404
Guinness Anchor Beverages Malaysia 5,353 1.4 5,638
Convenience Retail Food & Staples Hong
Asia Retailing Kong 5,080 1.3 5,593
Real Estate
Management
YHN Property & Development Malaysia 4,977 1.3 6,146
Thaire Life Assurance
(Foreign) Insurance Thailand 4,794 1.3 6,080
Construction
Tasek Corporation Materials Malaysia 4,757 1.2 4,950
Commercial
Services &
Cabcharge Australia Supplies Australia 4,439 1.2 6,755
Top forty investments 288,732 75.8
Valuation Total Valuation
2015 assets 2014
Company Industry Country GBP'000 % GBP'000
United International
Enterprises Food Products Denmark 4,308 1.1 3,977
Real Estate
Wheelock Properties Management
(S) & Development Singapore 4,051 1.1 4,497
Oil, Gas &
Consumable
Green Dragon Gas Fuels China 3,936 1.0 6,459
Textiles,
Kingmaker Footwear Apparel & Hong
Holdings Luxury Goods Kong 3,886 1.0 1,799
Industrial Sri
John Keells Holdings(D) Conglomerates Lanka 3,815 1.0 3,850
Sri
DFCC Vardhana Bank Banks Lanka 3,693 1.0 2,919
Godrej Consumer
Products Personal Products India 3,677 1.0 7,974
Construction
Holcim Indonesia Materials Indonesia 3,592 0.9 4,103
Jammu & Kashmir
Bank Banks India 3,548 0.9 5,294
Asia Satellite Diversified
Telecommunications Telecommunication Hong
Holdings Services Kong 3,449 0.9 5,035
Top fifty investments 326,687 85.7
Hong
Pacific Basin Shipping Marine Kong 3,398 0.9 1,405
Air Freight
Pos Malaysia & Logistics Malaysia 3,390 0.9 5,365
AEON Stores Hong Multiline Hong
Kong Retail Kong 3,275 0.9 2,570
United Malacca Food Products Malaysia 3,122 0.8 4,213
The Hong Kong & Hotels, Restaurants Hong
Shanghai Hotels & Leisure Kong 3,057 0.8 3,036
Oil, Gas &
Chevron Lubricants Consumable Sri
Lanka Fuels Lanka 2,700 0.7 3,831
Eu Yan Sang International Pharmaceuticals Singapore 2,359 0.6 4,001
South
DGB Financial Group Banks Korea 2,214 0.6 2,896
National Development Sri
Bank Banks Lanka 2,178 0.6 1,624
Hong Leong Finance Consumer Finance Singapore 2,141 0.6 2,376
Top sixty investments 354,521 93.1
Hotels, Restaurants Hong
Cafe de Coral Holdings & Leisure Kong 2,136 0.6 2,000
SBS Transit Road & Rail Singapore 2,098 0.5 2,095
ORIX Leasing Pakistan Consumer Finance Pakistan 1,868 0.5 864
Real Estate
CDL Hospitality Investment
Trusts Trusts Singapore 1,790 0.5 2,035
Haad Thip (Foreign) Beverages Thailand 1,778 0.5 1,654
Commercial
Services &
Riverstone Holdings Supplies Singapore 1,760 0.5 -
Goodyear (Foreign) Auto Components Thailand 1,653 0.4 1,762
Aitken Spence & Industrial Sri
Co Conglomerates Lanka 1,620 0.4 1,655
United
Mayfair Group Machinery Kingdom 1,350 0.4 -
Hotels, Restaurants Hong
City e-Solutions & Leisure Kong 1,221 0.3 1,268
Top seventy investments 371,795 97.7
Valuation Total Valuation
2015 assets 2014
Company Industry Country GBP'000 % GBP'000
Containers Hong
Hung Hing Printing & Packaging Kong 698 0.2 717
Specialty
FJ Benjamin Holdings Retail Singapore 482 0.1 926
Wintermar Offshore
Marine Marine Indonesia 479 0.1 2,797
Real Estate
Investment New
CDL Investments Trusts Zealand 413 0.1 -
Riverview Rubber
Estates Food Products Malaysia 304 0.1 385
Mustika Ratu Personal Products Indonesia 203 - 367
Manulife Holdings Insurance Malaysia 59 - -
Greka Engineering Energy Equipment
& Technology & Services China 27 - 131
Total investments 374,460 98.3
Net current assets (before
deducting prior charges) 6,451 1.7
Total assets 380,911 100.0
(B) Holding includes investment in both common and
non-voting depositary receipt lines.
(C) Holding includes investment in both common and
preference lines.
(D) Holding includes investment in both common and
convertible warrant lines.
All investments are in equities.
DIRECTORS' REPORT EXTRACTS
The Directors present their Report and the audited financial statements for the year ended 31 July 2015.
Results and Dividends
Details of the Company's results and proposed dividends are shown under Financial Highlights above.
Investment Trust Status
The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 August 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 July 2015 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure, Buybacks and Issuance
The Company's capital structure is summarised in note 13 to the financial statements. At 31 July 2015, there were 37,958,890 fully paid Ordinary shares of 25p each (2014 - 38,096,807 Ordinary shares) in issue with a further 1,218,290 Ordinary shares of 25p held in treasury (2014 - 1,076,290 treasury shares). During the year 142,000 Ordinary shares were purchased in the market for treasury. Subsequent to the period a further 590,947 Ordinary shares have been purchased in the market for treasury. During the period and up to the date of this report no new Ordinary shares were issued for cash at a premium to the prevailing net asset value per share and no shares were sold from treasury.
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On 12 December 2014, 29,188 units of Convertible Unsecured Loan Stock were converted into 3,510 new Ordinary shares and on 12 June 2015, 4,790 units of CULS were converted into 573 new Ordinary shares. In accordance with the terms of the CULS Issue, the conversion price of the CULS was determined at 830.0 pence nominal of CULS for one Ordinary share.
Voting Rights
Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
CULS holders have the right to attend but not vote at general meetings of the Company. A separate resolution of CULS holders would be required to be passed before any modification or compromise of the rights attaching to the CULS can be made.
Borrowings
During the year the Company agreed a new GBP20 million multi currency loan facility with State Street Bank and Trust Company and at the year end GBP5.0 million had been drawn down under the facility.
Management Agreement
The Company has appointed Aberdeen Fund Managers Limited, a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager. Under the management arrangements with AFML, management of the Company's portfolio has been delegated to Aberdeen Asset Management Asia Limited by way of a group delegation agreement in place between AFML and AAM Asia.
Similarly, company secretarial services are provided by Aberdeen and accounting and administrative services are delegated to Aberdeen Asset Managers Limited, which then outsources those arrangements to BNP Paribas Securities Services Limited. Aberdeen Asset Managers also operates the Aberdeen Group's promotional programme.
The management agreement may be terminated by either the Company or the Manager on the expiry of twelve months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due to that date. Details of the fees payable by the Company to the Aberdeen Group companies for the provision of management, secretarial and promotional services are shown in notes 3 and 4 to the financial statements.
The management engagement committee review the terms of the management agreement on a regular basis and have confirmed that, due to the long-term relative performance, investment skills, experience and commitment of the investment management team, in their opinion the continuing appointment of AFML and AAM Asia is in the interests of shareholders as a whole.
Political and Charitable Donation
The Company does not make political donations (2014 - nil).
During the year the Company made no charitable donations (2014 GBP10,000 was donated to the British Red Cross Typhoon Haiyan Appeal in the Philippines.)
Risk Management
Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 19 to the financial statements.
The Board
The current Directors, Messrs N K Cayzer, Randal McDonnell (Viscount Dunluce), M J Gilbert (alternate H Young), M Hadsley-Chaplin, C S Maude, P Yea (appointed to the Board on 23 January 2014) and Ms H Fukuda were the only Directors who served during the year. Messrs Gilbert, Cayzer and Ms Fukuda have each served on the Board for more than nine years and, in accordance with corporate governance best practice, will retire at the Annual General Meeting on 1 December 2015 and, being eligible, offer themselves for re-election.
The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively.
In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, has applied the principles identified in the UK Corporate Governance Code (published in September 2012) for the year ended 31 July 2015. For the year ending 31 July 2016 the company will be required to comply with the UK Corporate Governance Code (published in September 2014) which is effective for financial years commencing on or after 1 October 2014). The UK Corporate Governance Codes are available on the Financial Reporting Council's website: www.frc.org.uk.
The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company. Both the AIC Code and the AIC Guide are available on the AIC's website: www.theaic.co.uk.
The Company has complied throughout the accounting period with the relevant provisions contained within the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.
The UK Corporate Governance Code includes provisions relating to:
- the role of the chief executive (A.1.2); - executive directors' remuneration (D.2.1 and D.2.2); - and the need for an internal audit function (C.3.5).
For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Corporate Governance Statement can be found on the Company's website, www.asian-smaller.co.uk.
Policy on Tenure
The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only. The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis. In accordance with corporate governance best practice, Directors who have served for more than nine years or who are non-independent voluntarily offer themselves for re-election on an annual basis.
Board Committees
Audit Committee
The Audit Committee Report contained in the Annual Report.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which comprises the entire Board and is chaired by Nigel Cayzer. The Board's overriding priority in appointing new Directors to the Board is to identify the candidate with the best range of skills and experience to complement existing Directors. The Board also recognises the benefits of diversity and its policy on diversity is referred to in the Strategic Report.
Remuneration Committee
Under the UK Listing Authority rules, where an investment trust has only non-executive directors, the Code principles relating to directors' remuneration do not apply. Accordingly, matters relating to remuneration are dealt with by the full Board, which acts as the Remuneration Committee, and is chaired by Nigel Cayzer.
The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report.
Terms of Reference
The terms of reference of all the Board Committees may be found on the Company's website www.asian-smaller.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the Board for their adequacy on an annual basis.
Going Concern
In accordance with the Financial Reporting Council's guidance on Going Concern and Liquidity Risk issued in October 2009 the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants.
The Directors are mindful of the principal risks and uncertainties disclosed above and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
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No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 18 to the financial statements. No other Directors had any interest in contracts with the Company during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection with the financial statements are set out in the Annual Report.
Each Director confirms that:
- so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware, and
- each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Additionally there have been no important events since the year end.
The Directors have reviewed the level of non-audit services provided by the independent auditor during the year, together with the independent auditor's procedures in connection with the provision of such services, and remain satisfied that the auditor's objectivity and independence is being safeguarded.
Independent Auditor
The auditor, Ernst & Young LLP, has indicated its willingness to remain in office. The Directors will place a resolution before the Annual General Meeting to re-appoint Ernst & Young LLP as auditor for the ensuing year, and to authorise the Directors to determine its remuneration.
Internal Control
The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness and confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and Accounts. It is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.
The Directors have delegated the investment management of the Company's assets to the Aberdeen Group within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Aberdeen Group's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by each function within the Aberdeen Group's activities. Risk includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being financial; operational; and compliance-related.
The key components of the process designed by the Directors to provide effective internal control are outlined below:
- the Aberdeen Group prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;
- the Board and Investment Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the Manager and Investment Manager as appropriate;
- as a matter of course the Aberdeen Group's compliance department continually reviews the Aberdeen Group's operations;
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place within the Aberdeen Group, has decided to place reliance on the Aberdeen Group's systems and internal audit procedures; and
- at its September 2015 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 July 2015 by considering documentation from the Manager, Investment Manager and the Depositary, including the internal audit and compliance functions and taking account of events since 31 July 2015. The results of the assessment, that internal controls are satisfactory, were then reported to the Board at the next Board meeting.
Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.
The UK Stewardship Code and Proxy Voting
The purpose of the UK Stewardship Code is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and assist institutional investors with the efficient exercise of their governance responsibilities.
The Company's investments are held in nominee names. The Board has delegated responsibility for actively monitoring the activities of portfolio companies, including the exercise of voting powers on its behalf, to the Manager who has in turn delegated this responsibility to the Investment Manager.
The Investment Manager is responsible for reviewing, on a regular basis, the annual reports, circulars and other publications produced by the portfolio company and for attending company meetings. The Investment Manager, in the absence of explicit instruction from the Board, is empowered to use discretion in the exercise of the Company's voting rights.
In exercising the Company's voting rights, the Aberdeen Group follows a number of principles which set out the framework on corporate governance, proxy voting and shareholder engagement in relation to the companies in which the Aberdeen Group has invested or is considering investing. The Board has reviewed these principles together with the Aberdeen Group's Disclosure Response to the UK Stewardship Code, and is satisfied that the exercise of delegated voting powers by the Investment Manager is being properly executed. The Aberdeen Group's Corporate Governance Principles together with the Aberdeen Group's Disclosure Response to the UK Stewardship Code may be found on the Aberdeen Group's website, at http://www.aberdeen-asset.com/aam.nsf/AboutUs/governancestewardship.
The Board recognises and supports the Aberdeen Group's policy of active engagement with investee companies and the voting of all of the shares held by the Company. The Board receives regular reports on the exercise of the Company's voting rights and discusses any issues arising with the Investment Manager. It is the Board's view that having an active voting policy and a process for monitoring the Investment Manager's exercise of those votes, especially in relation to controversial issues, aids the efficient exercise of the Company's governance responsibilities.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website (www.asian-smaller.co.uk). The Company responds to letters from shareholders on a wide range of issues.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Aberdeen Group (either the Company Secretary or the Manager) in situations where direct communication is required and usually a representative from the Board meets with major shareholders on an annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report and Accounts, is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board or the Aberdeen Group, either formally at the Company's Annual General Meeting or at the subsequent buffet luncheon for shareholders. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
By order of the Board
Aberdeen Asset Management PLC - Secretaries
Bow Bells House
1 Bread Street
London EC4M 9HH
27 October 2015
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
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In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgments and estimates that are reasonable and prudent; and
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report including Business Review, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The financial statements are published on www.asian-smaller.co.uk which is a website maintained by the Company's Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors listed in the Annual Report, being the persons responsible, hereby confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
- that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy. In reaching this conclusion the Board has assumed that the reader of the Annual Report and financial statements would have a reasonable level of general investment knowledge, and in particular, of investment trusts; and
- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
For Aberdeen Asian Smaller Companies Investment Trust PLC
Nigel Cayzer
Chairman
27 October 2015
INCOME STATEMENT
Year ended 31 Year ended 31
July 2015 July 2014
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments 9 - (26,196) (26,196) - (16,444) (16,444)
Income 2 14,746 - 14,746 11,427 - 11,427
Exchange (losses)/gains - (131) (131) - 103 103
Investment
management
fees 3 (4,381) - (4,381) (3,907) - (3,907)
Administrative
expenses 4 (1,108) - (1,108) (1,147) - (1,147)
_______ _______ _______ _______ _______ _______
Net return
on ordinary
activities
before finance
costs and taxation 9,257 (26,327) (17,070) 6,373 (16,341) (9,968)
Finance costs 5 (1,522) - (1,522) (1,457) - (1,457)
_______ _______ _______ _______ _______ _______
Return on ordinary
activities
before taxation 7,735 (26,327) (18,592) 4,916 (16,341) (11,425)
Taxation 6 (797) 294 (503) (572) 36 (536)
_______ _______ _______ _______ _______ _______
Return on ordinary
activities
after taxation 6,938 (26,033) (19,095) 4,344 (16,305) (11,961)
_______ _______ _______ _______ _______ _______
Return per
share (pence):
Basic 8 18.21 (68.34) (50.13) 11.43 (42.89) (31.46)
_______ _______ _______ _______ _______ _______
For the years ended 31 July 2015 and 31 July 2014
the conversion option for potential Ordinary shares
within the Convertible Unsecured Loan Stock was non-dilutive
due to a capital loss being reported and no dilution
to the revenue return per Ordinary share.
The total column of this statement represents the
profit and loss account of the Company.
All revenue and capital items in the above statement
derive from continuing operations.
No operations were acquired or discontinued in the
year.
A Statement of Total Recognised Gains and Losses
has not been prepared as all gains and losses are
recognised in the Income Statement.
The accompanying notes are an integral part of the
financial statements.
BALANCE SHEET
As at As at
31 July 31 July
2015 2014
Notes GBP'000 GBP'000
Non-current assets
Investments at fair value
through profit or loss 9 374,460 400,760
__________ __________
Current assets
Debtors and prepayments 10 1,010 227
Cash and short term deposits 17 6,678 5,685
__________ __________
7,688 5,912
__________ __________
Creditors: amounts falling
due within one year
Bank loans 11 (5,000) (5,000)
Other creditors 11 (1,237) (832)
__________ __________
(6,237) (5,832)
__________ __________
Net current assets 1,451 80
__________ __________
Total assets less current
liabilities 375,911 400,840
Non-current liabilities
3.5% Convertible Unsecured
Loan Stock 2019 12 (31,944) (31,722)
__________ __________
Net assets 343,967 369,118
__________ __________
Capital and reserves
Called-up share capital 13 9,794 9,793
Capital redemption reserve 2,062 2,062
Share premium account 39,644 39,611
Special reserve 10,578 11,715
Equity component of 3.5%
Convertible Unsecured Loan
Stock 2019 12 1,361 1,361
Capital reserve 14 269,975 296,008
Revenue reserve 14 10,553 8,568
__________ __________
Equity shareholders' funds 343,967 369,118
__________ __________
Net asset value per share
(pence):
Basic 15 906.16 968.89
__________ __________
Diluted 15 896.31 952.52
__________ __________
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 31 July 2015
Capital Share Equity
Share redemption premium Special Component Capital Revenue
capital reserve account reserve CULS reserve reserve Total
2019
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 August 2014 9,793 2,062 39,611 11,715 1,361 296,008 8,568 369,118
Conversion
of 3.5% Convertible
Unsecured
Loan Stock
2019 12 1 - 33 - - - - 34
Purchase of
own shares
to treasury 13 - - - (1,137) - - - (1,137)
Return on
ordinary activities
after taxation - - - - - (26,033) 6,938 (19,095)
Dividends
paid 7 - - - - - - (4,953) (4,953)
______ _______ ______ ______ ______ ______ ______ ______
Balance at
31 July 2015 9,794 2,062 39,644 10,578 1,361 269,975 10,553 343,967
______ _______ ______ _____ ______ ______ ______ _____
For the year ended 31 July 2014
Capital Share Equity
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Share redemption premium Special Component Capital Revenue
capital reserve account reserve CULS reserve reserve Total
2019
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 August 2013 9,712 2,062 36,617 11,715 1,361 312,313 9,152 382,932
Conversion
of 3.5% Convertible
Unsecured
Loan Stock
2019 12 6 - 205 - - - - 211
Issue of own
shares 13 75 - 2,789 - - - - 2,864
Return on
ordinary activities
after taxation - - - - - (16,305) 4,344 (11,961)
Dividends
paid 7 - - - - - - (4,928) (4,928)
______ _______ ______ _____ ______ ______ ______ _____
Balance at
31 July 2014 9,793 2,062 39,611 11,715 1,361 296,008 8,568 369,118
______ _______ ______ _____ ______ ______ ______ _____
The accompanying notes are an integral part of the financial
statements.
CASH FLOW STATEMENT
Year ended Year ended
31 July 31 July 2014
2015
Notes GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow from operating
activities 16 7,347 5,725
Servicing of finance
Interest paid (1,266) (1,212)
Financial investment
Purchases of investments (18,074) (34,044)
Sales of investments 18,794 14,933
_______ _______
Net cash inflow/(outflow)
from financial investment 720 (19,111)
Equity dividends paid 7 (4,953) (4,928)
_______ _______
Net cash inflow/(outflow)
before financing 1,848 (19,526)
Financing
Issue of own shares 13 - 2,864
Purchase of own shares to
treasury 13 (724) -
Drawdown of loan 11 - 5,000
_______ _______
Net cash (outflow)/inflow
from financing activities (724) 7,864
_______ _______
Increase/(decrease) in cash 1,124 (11,662)
_______ _______
Reconciliation of net cash flow
to movements in net debt
Increase/(decrease) in cash
as above 1,124 (11,662)
Drawdown of loan - (5,000)
Other non-cash movements (222) (34)
Exchange movements (131) 103
_______ _______
Movement in net debt 771 (16,593)
Net debt at 1 August (31,037) (14,444)
_______ _______
Net debt at 31 July 17 (30,266) (31,037)
_______ _______
The accompanying notes are an integral part of the
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended 31 July 2015
1. Accounting policies
(a) Basis of preparation and going concern
The financial statements have been prepared
in accordance with the applicable UK Accounting
Standards and with the Statement of Recommended
Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts'.
The financial statements have also been prepared
on the assumption that approval as an investment
trust will continue to be granted. The financial
statements have been prepared on a going
concern basis. The Directors believe this
is appropriate for the reasons outlined in
the Directors' Report.
The financial statements, and the net asset
value per share figures, have been prepared
in accordance with UK Generally Accepted
Accounting Practice ('UK GAAP').
(b) Valuation of investments
Listed investments have been designated upon
initial recognition as fair value through
profit or loss. Investments are recognised
and de-recognised at trade date where a purchase
or sale is under a contract whose terms require
delivery within the time frame established
by the market concerned, and are initially
measured at cost. Subsequent to initial recognition,
investments are valued at fair value. For
listed investments, this is deemed to be
bid market prices. Gains and losses arising
from changes in fair value and disposals
are included in net profit or loss for the
period as a capital item in the Income Statement
and are ultimately recognised in the capital
reserve.
(c) Borrowings
Interest-bearing bank loans and overdrafts
are initially recognised at cost, being the
fair value of the consideration received,
net of any issue expenses. Subsequently,
they continue to be valued at fair value,
which is determined by aggregating the expected
future cash flows for that loan or overdraft
at a rate comprising the borrower's margin
plus an average of market rates applicable
to loans or overdrafts of a similar period
of time and currency. Finance charges are
accounted for on an accruals basis using
the effective interest rate method and are
charged 100% to revenue.
(d) Income
Dividends, including taxes deducted at source,
are included in revenue by reference to the
date on which the investment is quoted ex-dividend.
Special dividends are reviewed on a case-by-case
basis and may be credited to capital, if
circumstances dictate. Dividends receivable
on equity shares where no ex-dividend date
is quoted are brought into account when the
Company's right to receive payment is established.
Fixed returns on non-equity shares are recognised
on a time apportioned basis so as to reflect
the effective yield on shares. Other returns
on non-equity shares are recognised when
the right to return is established. The fixed
return on a debt security, if material, is
recognised on a time apportioned basis so
as to reflect the effective yield on each
security. Where the Company has elected to
receive its dividends in the form of additional
shares rather than cash, the amount of the
cash dividend is recognised as income. Any
excess in the value of the shares received
over the amount of the cash dividend is recognised
in capital reserves. Interest receivable
on bank balances is dealt with on an accruals
basis.
(e) Expenses
All expenses are accounted for on an accruals
basis. Expenses, including management fees
and finance costs, are charged 100% through
the revenue column of the Income Statement
with the exception of transaction costs incurred
on the purchase and disposal of investments
which are charged to the capital column of
the Income Statement and are separately identified
and disclosed in note 9 within gains on investments.
(f) Taxation
The charge for taxation is based on the profit
for the year.
Deferred tax
The charge for taxation is based on the profit
for the year and takes into account taxation
deferred because of timing differences between
the treatment of certain items for taxation
and accounting purposes. Deferred taxation
is provided using the liability method on
all timing differences, calculated at the
rate at which it is anticipated the timing
differences will reverse. Deferred tax assets
are recognised only when, on the basis of
available evidence, it is more likely than
not that there will be taxable profits in
future against which the deferred tax asset
can be offset.
(g) Capital reserve
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The capital reserve reflects the following:
* gains and losses on the sale of investments and
changes in fair values of investments held are
transferred to the capital reserve; and
* applicable capital tax charges.
(h) Foreign currency
Overseas monetary assets are converted into
Sterling at the rate of exchange ruling at
the Balance Sheet date. Transactions during
the year involving foreign currencies are
converted at the rate of exchange ruling
at the transaction date. Any gain or loss
arising from a change in exchange rates subsequent
to the date of the transaction is included
as an exchange gain or loss in the capital
reserve or in the revenue account depending
on whether the gain or loss is of a capital
or revenue nature respectively.
(i) 3.5% Convertible Unsecured Loan Stock 2019
Convertible Unsecured Loan Stock ("CULS")
issued by the Company is regarded as a compound
instrument, comprising of a liability component
and an equity component. At the date of issue,
the fair value of the liability component
was estimated by assuming that an equivalent
non-convertible obligation of the Company
would have a coupon rate of 4.662%. The fair
value of the equity component, representing
the option to convert liability into equity,
is derived from the difference between the
issue proceeds of the CULS and the fair value
assigned to the liability. The liability
component is subsequently measured at amortised
cost using the effective interest rate and
the equity component remains unchanged.
Direct expenses associated with the CULS
issue are allocated to the liability and
equity components in proportion to the split
of the proceeds of the issue. Expenses allocated
to the liability component are amortised
over the life of the instrument using the
effective interest rate.
The interest expense on the CULS is calculated
according to the effective interest rate
method by applying the assumed rate of 4.662%
to the liability component of the instrument.
On conversion of CULS, equity is issued and
the liability component is derecognised.
The original equity component recognised
at inception remains in equity. No gain or
loss is recognised on conversion.
When CULS is repurchased for cancellation,
the fair value of the liability at the redemption
date is compared to its carrying amount,
giving rise to a gain or loss on redemption
that is recognised through profit or loss.
The amount of consideration allocated to
equity is recognised in equity with no gain
or loss being recognised.
2015 2014
2. Income GBP'000 GBP'000
Income from investments
Overseas dividends 14,060 11,287
Stock dividends 677 130
_______ _______
14,737 11,417
_______ _______
2015 2014
GBP'000 GBP'000
Other income
Deposit interest 9 10
_______ _______
Total income 14,746 11,427
_______ _______
2015 2014
3. Investment management fees GBP'000 GBP'000
Investment management fees 4,381 3,907
_______ _______
The Company has an agreement with Aberdeen Fund
Managers Limited for the provision of management
services, which has been delegated to Aberdeen
Asset Management Asia Limited.
During the year the management fee was payable
monthly in arrears and is based on an annual
amount of 1.2%, calculated on the average net
asset value of the Company over a 24 month period,
valued monthly. The management fee is calculated
by reference to the value of the Company's net
assets (gross assets less liabilities excluding
the amount of any loan facilities or overdraft
facilities drawn down). The balance due to the
Manager at the year end was GBP366,000 (2014
- GBP347,000). The agreement is terminable on
one year's notice.
2015 2014
4. Administrative expenses GBP'000 GBP'000
Administration fees 86 84
Directors' fees 171 168
Promotional activities 230 240
Auditor's remuneration:
* fees payable to the auditor for the audit of the
annual accounts 25 24
* fees payable to the auditor and its associates for
other services:
* interim review 7 6
* taxation and iXBRL tagging services (all compliance) 13 11
Custodian charges 260 283
Other expenses 316 331
_______ _______
1,108 1,147
_______ _______
The Company has a management agreement with
Aberdeen Fund Managers Limited ("AFML") for
inter alia the provision of administration services
which are, in turn, delegated to Aberdeen Asset
Management PLC. The administration fee is payable
quarterly in advance and based on an index-linked
annual amount of GBP87,000 (2014 - GBP85,000)
and there was an accrual of GBP22,000 (2014
- GBP21,000) at the year end. The agreement
is terminable on six months' notice.
Under the management agreement, the Company
has also appointed AFML to provide promotional
activities to the Company by way of its participation
in the Aberdeen Investment Trust Share Plan
and ISA. AFML has delegated this role to Aberdeen
Asset Managers Limited ("AAML"). The total fee
paid and payable under the agreement in relation
to promotional activities was GBP230,000 (2014
- GBP240,000) and there was a GBP83,000 (2014
- GBP73,000) balance due to AAML at the year
end.
No pension contributions were made in respect
of any of the Directors.
2015 2014
5. Finance costs GBP'000 GBP'000
Loans repayable in less than 1
year 109 50
Interest on 3.5% Convertible Unsecured
Loan Stock 2019 1,157 1,162
Notional interest on 3.5% Convertible
Unsecured Loan Stock 2019 181 170
Amortisation of 3.5% Convertible
Unsecured Loan Stock 2019 issue
expenses 75 75
_______ _______
1,522 1,457
_______ _______
2015 2014
Revenue Capital Total Revenue Capital Total
6. Taxation GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Analysis of
charge for
the year
Overseas taxation 503 - 503 536 - 536
_______ ______ _____ _______ ______ _____
Current taxation 503 - 503 536 - 536
Movement on
deferred taxation 294 (294) - 36 (36) -
_______ ______ ______ _______ ______ ______
Total tax 797 (294) 503 572 (36) 536
_______ ______ _____ _______ ______ _____
At 31 July 2015 the Company had surplus management
expenses and loan relationship deficits with
a tax value of GBP4,972,000 (2014 - GBP3,540,000)
in respect of which a deferred tax asset
has not been recognised. This is due to the
Company having sufficient excess management
expenses available to cover the potential
liability and the Company is not expected
to generate taxable income in the future
in excess of deductible expenses.
(b) Factors affecting the tax charge for the
year
The tax assessed for the year is lower than
the effective rate of corporation tax in
the UK for a large company of 20.67% (2014
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- 22.33%). The differences are explained
below:
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Return on
ordinary activities
before taxation 7,735 (26,327) (18,592) 4,916 (16,341) (11,425)
Return on
ordinary activities
multiplied
by the effective
UK standard
tax rate of
corporation
tax of 20.67%
(2014 - 22.33%) 1,599 (5,442) (3,843) 1,098 (3,649) (2,551)
Effects of:
Losses on
investments
not taxable - 5,415 5,415 - 3,672 3,672
Exchange losses/(gains) - 27 27 - (23) (23)
Overseas tax 503 - 503 536 - 536
Non-taxable
dividend income (3,012) - (3,012) (2,525) - (2,525)
Movement in
unutilised
management
expenses 1,101 - 1,101 1,104 - 1,104
Movement in
unutilised
loan relationship
deficits 312 - 312 323 - 323
_______ ______ ______ _______ ______ ______
Current tax
charge for
the year 503 - 503 536 - 536
_______ ______ ______ _______ ______ ______
2015 2014
7. Dividends GBP'000 GBP'000
Final dividend for 2014 - 10.00p
(2013 - 10.00p) 3,810 3,791
Special dividend for 2014 - 3.00p
(2013 - 3.00p) 1,143 1,137
_______ _______
4,953 4,928
_______ _______
Proposed final and special dividends are subject
to approval by shareholders at the Annual General
Meeting and are not included as a liability
in the financial statements.
We set out below the total dividends paid and
proposed in respect of the financial year, which
is the basis on which the requirements of Sections
1158 - 1159 of the Corporation Tax Act 2010
are considered. The revenue available for distribution
by way of dividend for the current year is GBP7,160,000
(2014 - GBP4,344,000).
2015 2014
GBP'000 GBP'000
Proposed final dividend for 2015
- 10.50p (2014 - 10.00p) 3,938 3,810
Proposed special dividend for
2015 - 4.50p (2014 - 3.00p) 1,688 1,143
_______ _______
Total 5,626 4,953
_______ _______
2015 2014
8. Return per Ordinary Revenue Capital Total Revenue Capital Total
share
Basic
Return on ordinary
activities after
taxation (GBP'000) 6,938 (26,033) (19,095) 4,344 (16,305) (11,961)
Weighted average
number of shares
in issue(A) 38,094,721 38,020,666
Return per Ordinary
share (p) 18.21 (68.34) (50.13) 11.43 (42.89) (31.46)
_______ ______ _______ _______ ______ _______
2015 2014
Diluted Revenue Capital Total Revenue Capital Total
Return on ordinary
activities after
taxation (GBP'000) 7,990 (26,033) (18,043) 5,314 (16,305) (10,991)
Weighted average
number of shares
in issue(B) 42,077,584 42,016,382
Return per Ordinary n/a n/a n/a n/a n/a n/a
share (p)
_______ ______ _______ _______ ______ _______
(A) Calculated excluding shares held in treasury.
(B) The calculation of the diluted total, revenue and capital returns per
Ordinary share are carried out in accordance with Financial Reporting Standard
22, "Earnings per Share". For the purpose of calculating total, revenue
and capital returns per Ordinary share, the number of Ordinary shares used
is the weighted average number used in the basic calculation plus the number
of Ordinary shares deemed to be issued for no consideration on exercise
of all 3.5% Convertible Unsecured Loan Stock 2019 (CULS). The calculations
indicate that the exercise of CULS would result in an increase in the weighted
average number of Ordinary shares of 3,982,863 (2014 - 3,995,716) to 42,077,584
(2014 - 42,016,382) Ordinary shares.
For the period ended 31 July 2015 the assumed conversion for potential Ordinary
shares was non-dilutive due to a capital loss being reported and no dilution
to the revenue return per Ordinary share. For the period ended 31 July 2014
there was also no dilution to the revenue return per Ordinary share. Where
dilution occurs, the net returns are adjusted for items relating to the
CULS. Accrued CULS finance costs for the period and unamortised issues expenses
are reversed. Total earnings for the period are tested for dilution. Once
dilution has been determined individual revenue and capital earnings are
adjusted.
Listed Listed
in UK overseas Total
9. Investments GBP'000 GBP'000 GBP'000
Fair value through profit
or loss:
Opening book cost 6,248 212,397 218,645
Opening fair value gains
on investments held 7,180 174,935 182,115
_______ _______ _______
Opening fair value 13,428 387,332 400,760
Movements in year:
Purchases at cost 1,395 17,303 18,698
Sales - proceeds (16) (18,786) (18,802)
Sales - gains on sales 10 16,094 16,104
Movement in fair value gains
on investments held (3,517) (38,783) (42,300)
_______ _______ _______
Closing fair value 11,300 363,160 374,460
_______ _______ _______
Closing book cost 7,637 227,008 234,645
Closing fair value gains
on investments held 3,663 136,152 139,815
_______ _______ _______
11,300 363,160 374,460
_______ _______ _______
(Losses)/gains on investments
Gains on sales 10 16,094 16,104
Movement in fair value gains
on investments held (3,517) (38,783) (42,300)
_______ _______ _______
(3,507) (22,689) (26,196)
_______ _______ _______
Transaction costs
During the year expenses were incurred in acquiring
or disposing of investments classified as fair
value through profit or loss. These have been
expensed through capital and are included within
(losses)/gains on investments in the Income Statement.
The total costs were as follows:
2015 2014
GBP'000 GBP'000
Purchases 37 52
Sales 77 23
_______ _______
114 75
_______ _______
2015 2014
10. Debtors: amounts falling due within GBP'000 GBP'000
one year
Amounts due from brokers 8 -
Other debtors 11 30
Prepayments and accrued income 991 197
_______ _______
1,010 227
_______ _______
None of the above amounts are past their due
date or impaired (2014 - nil).
2015 2014
11. Creditors: amounts falling due GBP'000 GBP'000
within one year
Bank loans 5,000 5,000
Amounts due to brokers 30 83
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Amount due for the purchase of 413 -
own shares to treasury
Other creditors 794 749
_______ _______
6,237 5,832
_______ _______
As at 31 July 2015, GBP5,000,000 (2014 - GBP5,000,000)
had been drawn down at an all-in rate of 1.4%
(2014 - 1.4%) which matured on 28 August 2015.
On 28 August 2015 the principal amount was rolled
over at an all-in interest rate of 1.4% until
maturity on 28 September 2015, when the principal
amount was rolled over at an all-in interest
rate of 1.4% until maturity on 28 October 2015.
Further, an additional US$9,000,000 was drawn
down on 1 September 2015 at an all-in rate of
1.1% until maturity on 28 September 2015, when
the principal amount was rolled over at an all-in
rate of 1.1% until maturity on 28 October 2015.
12. Non-current liabilities Number Liability Equity
of
units component component
3.5% Convertible Loan Stock GBP'000 GBP'000 GBP'000
2019
Balance at beginning of
year 33,077 31,722 1,361
Conversion of 3.5% Convertible
Unsecured Loan Stock 2019 (34) (34) -
Notional interest on CULS - 181 -
transferred to revenue reserve
Amortisation and issue expenses - 75 -
_______ _______ _______
Balance at end of year 33,043 31,944 1,361
_______ _______ _______
The 3.5% Convertible Unsecured Loan Stock 2019
("CULS") can be converted at the election of
holders into Ordinary shares during the months
of May and November each year throughout their
life, commencing 30 November 2012 to 31 May 2019
at a rate of 1 Ordinary share for every 830.0p
nominal of CULS. Interest is paid on the CULS
on 31 May and 30 November each year, commencing
30 November 2012. 100% of the interest is charged
to revenue in line with the Board's expected
long-term split of returns from the investment
portfolio of the Company.
The CULS has been constituted as an unsecured
subordinated obligation of the Company by the
Trust Deed between the Company and the Trustee,
the Law Debenture Trust Corporation p.l.c., dated
17 May 2012. The Trust Deed details the CULS
holders' rights and the Company's obligations
to the CULS holders and the trustee oversees
the operation of the Trust Deed. In the event
of a winding-up of the Company the rights and
claims of the Trustee and CULS holders would
be subordinate to the claims of all creditors
in respect of the Company's secured and unsecured
borrowings, under the terms of the Trust Deed.
During the year ended 31 July 2015 the Company
converted GBP33,978 (31 July 2014 - GBP211,293)
nominal amount of CULS into 4,083 (31 July 2014
- 25,438) Ordinary shares.
As at 31 July 2015, there was GBP33,043,143 (2014
- GBP33,077,121) nominal amount of 3.5% Convertible
Unsecured Loan Stock 2019 in issue.
2015 2014
13. Called up share capital GBP'000 GBP'000
Allotted, called-up and
fully paid
Ordinary shares of 25p 9,490 9,524
Treasury shares 304 269
_______ _______
9,794 9,793
_______ _______
Ordinary Treasury Total
shares shares
Number Number Number
At 31 July 2014 38,096,807 1,076,290 39,173,097
Conversion of CULS 4,083 - 4,083
Buyback of own shares (142,000) 142,000 -
_______ _______ _______
At 31 July 2015 37,958,890 1,218,290 39,177,180
_______ _______ _______
During the year 142,000 Ordinary shares of 25p
were purchased by the Company (2014 - 300,000
Ordinary shares issued) at a total cost of GBP1,137,000
(2014 - total consideration of GBP2,864,000),
all of which were held in treasury (2014 - none).
At the year end 1,218,290 (2014 - 1,076,290)
shares were held in treasury, which represents
3.11% (2014 - 2.75%) of the Company's total issued
share capital at 31 July 2015. During the year
there were a further 4,083 Ordinary shares issued
as a result of CULS conversion (2014 - 25,438).
Since the year end a further 590,947 Ordinary
shares of 25p have been purchased by the Company
at a total cost of GBP4,322,000, all of which
were held in treasury.
2015 2014
14. Retained earnings GBP'000 GBP'000
Capital reserve
At 31 July 296,008 312,313
Movement in investment holdings
fair value (42,300) (26,695)
Gains on realisation of investments
at fair value 16,104 10,251
Foreign exchange movement (131) 103
Capital tax charge 294 36
_______ _______
At 31 July 269,975 296,008
_______ _______
2015 2014
Revenue reserve GBP'000 GBP'000
At 31 July 8,568 9,152
Revenue 6,938 4,344
Dividends paid (4,953) (4,928)
_______ _______
At 31 July 10,553 8,568
_______ _______
15. Net asset value per equity share 2015 2014
Basic
Net assets attributable GBP343,967,000 GBP369,118,000
Number of Ordinary shares in
issue(A) 37,958,890 38,096,807
Net asset value per Ordinary
share 906.16p 968.89p
2015 2014
Diluted
Net assets attributable GBP375,911,000 GBP400,840,000
Number of Ordinary shares in
issue (excluding shares held
in treasury)(A) 41,939,992 42,082,002
Net asset value per Ordinary
share(B) 896.31p 952.52p
(A) Calculated excluding shares
held in treasury
(B) The diluted net asset value per Ordinary
share has been calculated on the assumption that
the 33,043,143 (2014 - 33,077,121) 3.5% Convertible
Unsecured Loan Stock 2019 ("CULS") are converted
at 830.00p per share, giving a total of 41,939,992
(2014 - 42,082,002) Ordinary shares. Where dilution
occurs, the net assets are adjusted for items
relating to the CULS.
Net asset value per share - debt converted
In accordance with the Company's understanding
of the current methodology adopted by the AIC,
convertible financial instruments are deemed
to be 'in the money' if the cum income net asset
value ("NAV") exceeds the conversion price of
830.00p per share. In such circumstances a net
asset value is produced and disclosed assuming
the convertible debt is fully converted. At 31
July 2015 the cum income NAV was 906.16p (31
July 2014 - 968.89p) and thus the CULS were 'in
the money'.
16. Reconciliation of net return before 2015 2014
finance costs and
taxation to net cash inflow from GBP'000 GBP'000
operating activities
Net returns before finance costs
and taxation (17,070) (9,968)
Adjustments for:
Losses on investments 26,196 16,444
Effect of foreign exchange rate
losses/(gains) 131 (103)
(Increase)/decrease in prepayments
and accrued income (794) 270
Decrease/(increase) in other debtors 19 (9)
Increase/(decrease) in other creditors 45 (243)
Overseas withholding tax suffered (503) (536)
Stock dividends included in investment
income (677) (130)
_______ _______
Net cash inflow from operating
activities 7,347 5,725
_______ _______
Other
1 August Cash Exchange non-cash 31 July
2014 flow movements movements 2015
17. Analysis of changes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
in net debt
Cash and short term
deposits 5,685 1,124 (131) - 6,678
Debt falling due
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within one year (5,000) - - - (5,000)
Debt falling due
in more than one
year (31,722) - - (222) (31,944)
_______ _______ _______ _______ _______
Net debt (31,037) 1,124 (131) (222) (30,266)
_______ _______ _______ _______ _______
18. Related Party Transactions and Transactions with
the Manager
Fees payable during the year to the Directors
and their interests in shares of the Company
are considered to be related party transactions
and are disclosed within the Directors' Remuneration
Report in the Annual Report. The balance of fees
due to Directors at the year end was GBP2,000
(2014 - GBP2,000).
Mr Gilbert and his alternate Director, Mr Young
are both directors of Aberdeen Asset Management
PLC ("AAM") and its subsidiary Aberdeen Asset
Management Asia Limited ('AAM Asia') which has
been delegated, under an agreement with Aberdeen
Fund Managers Limited, to provide management
services to the Company, the terms of which are
outlined in note 3. Neither Mr Gilbert nor Mr
Young are directors of AFML.
19. Financial instruments
Risk management
The Company's investment activities expose it
to various types of financial risk associated
with the financial instruments and markets in
which it invests. The Company's financial instruments
comprise equities and other investments, cash
balances, loans and debtors and creditors that
arise directly from its operations; for example,
in respect of sales and purchases awaiting settlement,
and debtors for accrued income.
The Board has delegated the risk management function
to Aberdeen Fund Managers Limited ("AFML") under
the terms of its management agreement with AFML
(further details of which are included under
note 3 and in the Directors' Report), however,
it remains responsible for the risk and control
framework and operation of third parties. The
Board regularly reviews and agrees policies for
managing each of the key financial risks identified
with the Manager. The types of risk and the Manager's
approach to the management of each type of risk,
are summarised below. Such approach has been
applied throughout the year and has not changed
since the previous accounting period. The numerical
disclosures exclude short-term debtors and creditors.
Risk management framework
The directors of Aberdeen Fund Managers Limited
collectively assume responsibility for AFML's
obligations under the AIFMD including reviewing
investment performance and monitoring the Company's
risk profile during the year.
AFML is a fully integrated member of the Aberdeen
Group, which provides a variety of services and
support to AFML in the conduct of its business
activities, including in the oversight of the
risk management framework for the Company. The
AIFM has delegated the day to day administration
of the investment policy to Aberdeen Asset Management
Asia Ltd, which is responsible for ensuring that
the Company is managed within the terms of its
investment guidelines and the limits set out
in its pre-investment disclosures to investors
(details of which can be found on the Company's
website). The AIFM has retained responsibility
for monitoring and oversight of investment performance,
product risk and regulatory and operational risk
for the Company.
The Group's Internal Audit Department is independent
of the Risk Division and reports directly to
the Group CEO and to the Audit Committee of the
Group's Board of Directors. The Internal Audit
Department is responsible for providing an independent
assessment of the Group's control environment.
The Manager conducts its risk oversight function
through the operation of the Group's risk management
processes and systems which are embedded within
the Group's operations. The Group's Risk Division
supports management in the identification and
mitigation of risks and provides independent
monitoring of the business. The Division includes
Compliance, Business Risk, Market Risk, Risk
Management and Legal. The team is headed up by
the Group's Head of Risk, who reports to the
Chief Executive Officer of the Group. The Risk
Division achieves its objective through embedding
the Risk Management Framework throughout the
organisation using the Group's operational risk
management system ("SWORD").
The Group's corporate governance structure is
supported by several committees to assist the
board of directors of Aberdeen, its subsidiaries
and the Company to fulfil their roles and responsibilities.
The Group's Risk Division is represented on all
committees, with the exception of those committees
that deal with investment recommendations. The
specific goals and guidelines on the functioning
of those committees are described in the committees'
terms of reference.
Risk management
The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest
rate, foreign currency and other price risk),
(ii) liquidity risk and (iii) credit risk.
Market risk
The fair value of or future cash flows from a
financial instrument held by the Company may
fluctuate because of changes in market prices.
This market risk comprises three elements - interest
rate risk, currency risk and other price risk.
Interest rate risk
Interest rate movements may affect:
* the level of income receivable on cash deposits;
* interest payable on the Company's variable rate
borrowings;
* valuation of debt securities in the portfolio.
Management of the risk
The possible effects on fair value and cash flows
that could arise as a result of changes in interest
rates are taken into account when making investment
and borrowing decisions.
Interest rate risk profile
The interest rate risk profile of the Company's
financial assets and liabilities, excluding equity
holdings which are all non-interest bearing,
at the Balance Sheet date was as follows:
Weighted Weighted
average
period for average Fixed Floating
which
rate is interest rate rate
fixed rate
At 31 July 2015 Years % GBP'000 GBP'000
Assets
Sterling - - - 6,675
Thailand Baht - - - 3
_______ _______ _______ _______
- - - 6,678
_______ _______ _______ _______
Liabilities
Bank loan 0.08 1.4 5,000 -
3.5% Convertible
Loan Stock 2019 3.83 3.5 31,944 -
_______ _______ _______ _______
- - 36,944 -
_______ _______ _______ _______
Weighted Weighted
average
period for average Fixed Floating
which
rate is interest rate rate
fixed rate
At 31 July 2014 Years % GBP'000 GBP'000
Assets
Hong Kong Dollar - - - 184
Sterling - - - 5,498
Thailand Baht - - - 3
_______ _______ _______ _______
- - - 5,685
_______ _______ _______ _______
Liabilities
Bank loan 0.08 1.4 5,000 -
3.5% Convertible
Loan Stock 2019 4.83 3.5 31,722 -
_______ _______ _______ _______
- - 36,722 -
_______ _______ _______ _______
The weighted average interest rate is based on
the current yield of each asset, weighted by
its market value. The weighted average interest
rate on bank loans is based on interest payable,
weighted by the value of the loan. Details of
the Company's loan are shown in note 11 to the
financial statements.
The floating rate assets consist of cash deposits
on call earning interest at prevailing market
rates.
The Company's equity portfolio and short term
debtors and creditors (excluding bank loans)
have been excluded from the above tables.
Maturity profile
The maturity profile of the Company's financial
assets and liabilities at 31 July was as follows:
2015 2014
GBP'000 GBP'000
Assets
In less than
one year 6,678 5,685
_______ _______
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2015 2014
Liabilities GBP'000 GBP'000
In less than
one year 5,000 5,000
In more than
one year 31,944 31,722
_______ _______
36,944 36,722
_______ _______
All the other financial assets and liabilities
do not have a maturity date. The full contractual
liability for the CULS assuming no further conversion
is GBP37,091,000 (2014 - GBP38,869,000).
Interest rate sensitivity
Movements in interest rates would not significantly
affect net assets attributable to the Company's
shareholders and total profit.
Foreign currency risk
All of the Company's investment portfolio is
invested in overseas securities and the Balance
Sheet, therefore, can be significantly affected
by movements in foreign exchange rates.
Management of the risk
It is not the Company's policy to hedge this
risk on a continuing basis but the Company may,
from time to time, match specific overseas investment
with foreign currency borrowings.
The revenue account is subject to currency fluctuation
arising on dividends paid in foreign currencies.
The Company does not hedge this currency risk.
Foreign currency risk exposure by currency of
denomination:
31 July 2015 31 July 2014
Net monetary Net monetary
Total Total
Overseas assets/ currency Overseas assets/ currency
investments (liabilities) exposure Investments (liabilities) exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Australian
Dollar 10,571 - 10,571 12,419 - 12,419
Danish
Krona 4,308 - 4,308 3,977 - 3,977
Hong Kong
Dollar 56,629 - 56,629 54,210 - 54,210
Indian
Rupee 56,967 - 56,967 54,910 184 55,094
Indonesian
Rupiah 19,808 - 19,808 28,106 - 28,106
Korean
Won 2,214 - 2,214 2,896 - 2,896
Malaysian
Ringgit 71,233 - 71,233 84,494 - 84,494
New Zealand
Dollar 5,772 - 5,772 5,404 - 5,404
Pakistan
Rupee 1,868 - 1,868 864 - 864
Philippine
Peso 24,186 - 24,186 21,169 - 21,169
Singapore
Dollar 45,131 - 45,131 48,605 - 48,605
Sri Lankan
Rupee 19,612 - 19,612 18,337 - 18,337
Thailand
Baht 44,861 3 44,864 51,941 3 51,944
_______ _______ _______ _______ _______ _______
363,160 3 363,163 387,332 187 387,519
Sterling 11,300 (30,269) (18,969) 13,428 (31,224) (17,796)
_______ _______ _______ _______ _______ _______
Total 374,460 (30,266) 344,194 400,760 (31,037) 369,723
_______ _______ _______ _______ _______ _______
Foreign currency sensitivity
There is no sensitivity analysis included as
the Company's significant foreign currency financial
instruments are in the form of equity investments,
which have been included within security price
risk sensitivity analysis so as to show the overall
level of exposure. Due consideration is paid
to foreign currency risk throughout the investment
process.
Other price risk
Other price risks (ie changes in market prices
other than those arising from interest rate or
currency risk) may affect the value of the quoted
investments.
Investment in Far East equities or those of companies
that derive significant revenue or profit from
the Far East involves a greater degree of risk
than that usually associated with investment
in the securities in major securities markets.
The securities that the Company owns may be considered
speculative because of this higher degree of
risk. It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order
to reduce the risk arising from factors specific
to a particular country or sector. Both the allocation
of assets and the stock selection process, act
to reduce market risk. The Manager actively monitors
market prices throughout the year and reports
to the Board, which meets regularly in order
to review investment strategy. The investments
held by the Company are listed on various stock
exchanges worldwide.
Other price risk sensitivity
If market prices at the Balance Sheet date had
been 10% (2014 - 10%) higher or lower while all
other variables remained constant, the return
attributable to Ordinary shareholders for the
year ended 31 July 2015 would have increased/(decreased)
by GBP37,446,000 (2014 - increased/(decreased)
by GBP40,076,000)) and equity reserves would
have increased/(decreased) by the same amount.
Liquidity risk
This is the risk that the Company will encounter
difficulty in meeting obligations associated
with financial liabilities.
Management of the risk
The Board imposes borrowing limits to ensure
gearing levels are appropriate to market conditions
and reviews these on a regular basis. Gearing
comprises both bank loans and convertible unsecured
loan stock. The Board has imposed a maximum gearing
level, measured on the most stringent basis of
calculation after netting off cash equivalents,
of 25%. Details of borrowings at the 31 July
2015 are shown in notes 11 and 12.
Liquidity risk is not considered to be significant
as the Company's assets comprise mainly readily
realisable securities, which can be sold to meet
funding commitments if necessary. Short-term
flexibility is achieved through the use of a
loan facility, details of which can be found
in note 11. Under the terms of the loan facility,
the Manager provides the lender with loan covenant
reports on a monthly basis, to provide the lender
with assurance that the terms of the facility
are not being breached. The Manager will also
review the credit rating of a lender on a regular
basis. Details of the Board's policy on gearing
are shown in the investment policy section of
the Annual Report.
Liquidity risk exposure
At 31 July 2015 the Company had borrowings in
the form of the GBP33,043,143 (2014 - GBP33,077,121)
nominal of 3.5% Convertible Unsecured Loan Stock
2019.
At 31 July 2015 the Company's bank loan, amounting
to GBP5,000,000 (2014 - GBP5,000,000), was due
for repayment or roll-over within 1 month. The
maximum exposure during the year was GBP5,000,000
(2014 - GBP5,000,000) and the minimum exposure
during the year was GBPnil (2014 - GBPnil).
The maturity profile of the Company's existing
borrowings is is" set out below.
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 1 year
year
GBP'000 GBP'000 GBP'000 GBP'000
3.5% Convertible Unsecured
Loan Stock 2019 37,091 - 1,157 35,934
Bank loans 5,000 5,000 - -
_______ _______ _______ _______
42,091 5,000 1,157 35,934
_______ _______ _______ _______
Credit risk
This is the risk of failure of the counterparty
to a transaction to discharge its obligations
under that transaction that could result in the
Company suffering a loss.
Management of the risk
* investment transactions are carried out with a large
number of brokers, whose credit-standing is reviewed
periodically by the Investment Manager, and limits
are set on the amount that may be due from any one
broker. Settlement of investment transactions are
also done on a delivery versus payment basis;
* the risk of counterparty exposure due to failed
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trades causing a loss to the Company is mitigated by
the review of failed trade reports on a monthly
basis. In addition, the third party administrator
carries out a stock reconciliation to Custodian
records on a monthly basis to ensure discrepancies
are picked up on a timely basis. The Manager's
compliance department carries out periodic reviews of
the Custodian's operations and reports its finding to
the Manager's risk management committee. This review
will also include checks on the maintenance and
security of investments held; and
* cash is held only with reputable banks with high
quality external credit ratings.
None of the Company's financial assets is secured
by collateral or other credit enhancements.
Credit risk exposure
In summary, compared to the amounts in the Balance
Sheet, the maximum exposure to credit risk at
31 July was as follows:
2015 2014
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
Current assets GBP'000 GBP'000 GBP'000 GBP'000
Debtors 1,010 1,010 212 212
Cash and short term
deposits 6,678 6,678 5,685 5,685
_______ _______ _______ _______
7,688 7,688 5,897 5,897
_______ _______ _______ _______
None of the Company's financial assets is past
due or impaired.
Fair values of financial assets and financial
liabilities
Investments held at fair value through profit
or loss are valued at their quoted bid prices
which equate to their fair values. The Directors
are of the opinion that the other financial assets
and liabilities, excluding CULS which are held
at amortised cost, are stated at fair value in
the Balance Sheet and considered that this approximates
to the carrying amount.
20. Fair value hierarchy
FRS 29 'Financial Instruments: Disclosures' requires
an entity to classify fair value measurements
using a fair value hierarchy that reflects the
significance of the inputs used in making the
measurements. The fair value hierarchy has the
following levels:
Level 1: quoted prices (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).
The financial assets and liabilities measured
at fair value in the Balance Sheet are grouped
into the fair value hierarchy at 31 July 2015
as follows:
Level Level Level Total
1 2 3
As at 31 July 2015 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets and
liabilities at fair value
through profit or loss
Quoted equities a) 365,374 - - 365,374
Unquoted equities b) - 9,086 - 9,086
CULS c) (37,174) - - (37,174)
_______ _______ _______ _______
Net fair value 328,200 9,086 - 337,286
_______ ______ ______ ______
Level Level Level Total
1 2 3
As at 31 July 2014 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets and
liabilities at fair value
through profit or loss
Quoted equities a) 400,760 - - 400,760
CULS c) (38,204) - - (38,204)
_______ ______ ______ ______
Net fair value 362,556 - - 362,556
_______ ______ ______ ______
a) Quoted equities
The fair value of the Company's investments in
quoted equities have been determined by reference
to their quoted bid prices at the reporting date.
Quoted equities included in Fair Value Level
1 are actively traded on recognised stock exchanges.
b) Unquoted equities
Equities included in Fair Value Level 2 are assets
that do not have regular market pricing, but
whose fair value can be readily determined based
on other data values or market prices.
c) Convertible Unsecured Loan Stock ("CULS")
The Company's CULS are actively traded on a recognised
stock exchange. The fair value of the CULS have
therefore been deemed Level 1. The carrying value
of the CULS is disclosed in note 12.
21. Capital management policies and procedures
The Company manages its capital to ensure that it will be able to continue
as a going concern while maximising the return to shareholders through the
optimisation of the debt (comprising bank borrowings and CULS) and equity
balance.
The Company's capital comprises
the following:
2015 2014
GBP'000 GBP'000
Equity
Equity share capital 9,794 9,793
Reserves 334,173 359,325
Liabilities _______ _______
CULS 31,944 31,722
_______ _______
375,911 400,840
_______ _______
The Board's policy is to utilise gearing when the Manager believes it appropriate
to do so, up to a maximum of 25% geared at the time of drawdown. Gearing
for this purpose is defined as the excess amount above shareholders' funds
of total assets (including net current assets/liabilities) less cash/cash
equivalents, expressed as a percentage of the shareholders' funds. If the
amount so calculated is negative, this is shown as a 'net cash' position.
2015 2014
GBP'000 GBP'000
Investments at fair value through
profit or loss 374,460 400,760
Current assets excluding cash 1,010 227
Current liabilities excluding bank
loans (1,237) (832)
_______ _______
Total assets 374,233 400,155
_______ _______
Net assets 343,967 369,118
_______ _______
Gearing (%) 8.8 8.4
_______ _______
The Board monitors and reviews the broad structure of the Company's capital
on an ongoing basis. The review includes:
the planned level of gearing which takes account of the Manager's views
on the market;
the level of equity shares in issue;
the extent to which revenue in excess of that which is required to be distributed
should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company does not have any externally imposed capital requirements.
The Annual General Meeting will be held at 11.30 a.m. on 1 December 2015 at Bow Bells House, 1 Bread Street, London EC4M 9HH.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
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