We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Abrdn Latin American Income Fund Limited | LSE:ALAI | London | Ordinary Share | JE00B44ZTP62 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 60.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMALAI
RNS Number : 0139U
Aberdeen Latin American Inc Fd Ltd
19 October 2017
ABERDEEN LATIN AMERICAN INCOME FUND LIMITED
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 AUGUST 2017
Legal Entity Identifier (LEI): 549300DN623WEGE2MY04
STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Investment Objective
The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.
Gearing
The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing. The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis. Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets. The Company will not have any fixed, long-term borrowings.
Risk Diversification
The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments. The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.
Management
The Company is managed by Aberdeen Private Wealth Management Limited ("APWML"), which is registered with the Jersey Financial Services Commission ("JFSC") for the conduct of fund services business. The investment management of the Company has been delegated by APWML to Aberdeen Asset Managers Limited ("AAM"). AAM is based in London and is also a wholly-owned subsidiary of Standard Life Aberdeen plc (the "Standard Life Aberdeen Group"), a publicly-quoted company on the LSE.
References throughout this document to Aberdeen refer to both APWML and AAM and their responsibilities as Manager and Investment Manager respectively to the Company.
Financial Highlights
Hot Features
Premium
Ordinary share price total Earnings per Ordinary
return share (revenue)
2017 2016 2017 2016
+23.7% +36.7% 4.77p 4.60p
Net asset value total Dividends per Ordinary
return share
2017 2016 2017 2016
+25.1% +46.2% 3.50p 3.50p
Benchmark total Discount to net
return asset value per
Ordinary share
2017 2016 2017 2016
+21.4% +38.8% 13.3% 11.8%
Total return represents the capital return plus
dividends reinvested.
Source: Aberdeen, Morningstar, Russell Mellon,
Lipper & JPMorgan
STRATEGIC REPORT - CHAIRMAN'S STATEMENT
Overview
Latin American markets rode on a sustained and robust rally for the second year, lifted by confidence in the asset class mainly as a result of domestic economic and political changes. Donald Trump's pledge to cut US taxes and three well-signalled Federal Reserve interest rate hikes also supported markets. Most regional currencies strengthened against sterling, which continued to suffer from bouts of Brexit angst.
Besides a short-term market reaction to Donald Trump's surprise US presidential election victory, the only major blip on the radar occurred in May 2017, when Brazilian President Michel Temer was sucked into the vortex of a corruption scandal that threatened to upend his leadership. Temer denied any wrongdoing, rejected calls to step down, and Congress later voted against his indictment. The biggest effect of the episode was a delay to the all-important pension reform, which the administration was relying on to help reign in the country's debilitating fiscal spending. Still, all hope has not been lost - these policy proposals are back on the negotiating table and may yet come to fruition.
On the whole, the Temer administration's reform agenda and successes with pulling the economy out of its deepest recession ever buoyed investor sentiment, and kept Brazil's position up as one of the better performing Latin American markets during the year. Social spending was frozen for 20 years, an offer of debt-relief to states was cancelled, and the country's labour laws were overhauled. At the same time, consumer price inflation has fallen from double-digit levels of early last year to well below the official target, allowing the central bank to cut interest rates several times, contributing to the strong bond market rally
Similar disinflationary patterns were observed across all major South American economies, as the base effects of earlier currency weakness dissipated. Central banks of Chile, Colombia and Peru also eased monetary conditions, supporting the strong performance of the local bond markets. One notable exception in the region was Mexico, where the positive price impact of the structural reforms enacted over the last few years has faded, and inflation accelerated. The Mexican central bank had to deliver a rate hiking cycle to protect the currency and anchor inflation expectations.
In equities Chile was another outperformer, despite sluggish economic growth. The stock market saw record foreign inflows amid improving consumer confidence, particularly as greater clarity emerged about the upcoming presidential elections in November. Market favourite Sebastián Piñera threw his hat in the ring and retains a solid lead over his leftist opponents, whose support base appears fragmented.
On the flipside, Argentina was hurt by benchmark provider MSCI's decision not to restore its status as an emerging market, in spite of President Mauricio Macri's raft of business-friendly policies. Mexico was another laggard, but the market still posted double-digit returns. Both share prices and the Peso took a beating in the lead-up to the US presidential elections, but rebounded in the second half of the review period, defying fears of US protectionism. The economy expanded, exports reached a new high and President Peña Nieto began to take a more proactive stance in NAFTA renegotiations.
Results and Dividends
I am pleased to report that your Company's NAV total return was 25.1% for the year ended 31 August 2017, ahead of the 21.4% rise in our composite benchmark's return. On a total return basis the Ordinary share price rose by 23.7% to 78.4p reflecting a widening in the level of discount to NAV per share which moved from 11.8% to 13.3% at the year end.
The earnings per Ordinary share for the year ended 31 August 2017 were 4.8p (2016: 4.6p). The Company has declared four interim dividends of 0.875p per Ordinary share in respect of the year bringing the total level of dividends to 3.5p (2016: 3.5p). Allowing for the payment of the four dividends GBP800,000 has been transferred to the carried forward revenue reserve. The Board will continue to keep the level of revenue from the portfolio under careful review and intends to continue to pay an annual dividend of at least 3.5p per Ordinary share for the financial year ending 31 August 2018. Dividends remain subject to investee company performance, the level of income from investments and currency movements.
As previously indicated, the Board has agreed to reinstate the company secretarial fee payable to the Manager at the level of GBP114,000 for the year ending 31 August 2017. However, the Board is pleased to announce that it has secured agreement from the Manager to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.
Portfolio
During the year the allocation between equities and bonds was progressively adjusted with the portfolio being 50% equities and 50% bonds at the period end, as the Investment Manager continued to seek to exploit market opportunities (2016: 39% equities 61% bonds). Subsequent to the period end the Investment Manager has continued this trend towards increasing equity exposure as economic conditions improve and the Company's revenue streams stabilise further and at the time of the writing the portfolio is approximately 52.5% equities and 47.5% bonds.
Share Capital Management
During the year the Company purchased for treasury 2,015,000 Ordinary shares for a total consideration of GBP1.45 million, at a discount to the NAV per share. Market volatility has, at times, continued to affect our ability to have a meaningful impact on the discount through the purchase of the Ordinary shares in the market and over this period the discount to NAV has widened from 11.8% to 13.3%. It remains the Board's intention, in more normal market conditions, to try to maintain a discount of around 5% over the longer term. Subsequent to the year end a further 130,000 Ordinary shares have been purchased for treasury. The Board will continue to make selective use of share buybacks, subject to prevailing market conditions and where to do so would be in Shareholders' interests. At the time of writing the Ordinary shares were trading at a discount of 10.8%.
Gearing
During the year the Company entered into a new unsecured three year GBP8 million multi-currency revolving facility agreement with Scotiabank (Ireland) Designated Activity Company (the "New Facility") which replaced a GBP10 million unsecured facility that matured in August. The existing drawings of GBP6.5 million were rolled over under the New Facility. The Board will continue to monitor the level of gearing under recommendation from the Investment Manager and in the light of market conditions.
Annual General Meeting
The AGM will be held at 10.00 a.m. on 7 December 2017 at the Company's registered office, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB and I look forward to meeting Shareholders on the day.
We are proposing to renew the Company's authority to buy back Ordinary shares subject to the United Kingdom Listing Authority's Listing Rules and Jersey law and any purchases will be at the absolute discretion of the Directors. We are also seeking to renew the authority to issue new Ordinary shares equivalent to up to 10% of the Company's existing Ordinary share capital at the AGM. Ordinary shares will only ever be issued at a premium to NAV per Ordinary share and will therefore be accretive and not disadvantageous to Ordinary Shareholders.
Investment Manager
The recent merger between the Investment Manager's parent company, Aberdeen Asset Management PLC, and Standard Life plc has produced the new investment arm which is Aberdeen Standard Investments. The new combined management group's investment approach will remain team-based with a strong emphasis on the fundamentals of individual companies. The equity investment process will continue to be headed by Devan Kaloo with global emerging debt continuing to be headed by Brett Diment. The Board will continue to monitor operational effects of the merger on the Company to ensure that satisfactory arrangements are in place for its effective management and successful performance.
Directorate
Martin Gilbert has indicated that he intends to retire from the Board at the forthcoming AGM and I would like to take this opportunity to sincerely thank him for his contribution to the Company since its launch in 2010. The Nomination Committee is in the process of searching for a new independent non executive Director. Shareholders will be updated in due course on the outcome of the search.
Outlook
A rigorous rebound since July has propelled Latin American equities to more than compensate for the May 2017 sell-off, and markets are likely to continue being supported by both local and external factors. A pick-up in global trade, a moderating US dollar and a fairly stable China could be helpful. A somewhat balanced oil and commodity prices environment would also reduce volatility. Meanwhile, the moderate growth and inflation outlook bodes well for the local bond markets, and we can expect lower or stable policy rates in the coming quarters. However, key global risks remain, not least among which is the threat of geopolitical turmoil triggered by heightened rhetoric between North Korea and the US.
On the continent, politics continues to take centre-stage with a host of elections anticipated for the next year. Brazil goes to the polls next October, leaving the Temer administration a quickly-diminishing window of opportunity to make its mark. Despite the overwrought headlines, the government has so far made progress in steering the economy into greener pastures and staying focused on improving the business environment. This bodes well for the future. Elsewhere, Mexico remains resilient as it asserts itself in trade negotiations with key partners in the lead-up to next July's presidential elections. In Chile, many are looking to the outcome of the November ballot for a sense of the direction in which the country will turn.
Within this context, your Investment Manager continues to seek out and add to the underlying portfolio with companies that have efficient operations and experienced management. The Latin American region provides appealing opportunities still because of the vast untapped potential of its growing populations with increasing disposable income. I am confident in your Manager's ongoing commitment to improve returns through due diligence and a disciplined long-term investment approach.
Richard Prosser
Chairman
18 October 2017
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.
The business of the Company is that of an investment company and the Directors do not envisage any change in this activity in the foreseeable future.
Investment Policy and Approach
The Company invests in:
- companies listed on stock exchanges in the Latin American region;
- Latin American securities (such as ADRs and GDRs) listed on other international stock exchanges;
- companies listed on other international exchanges that derive significant revenues or profits from the Latin American region; and
- debt issued by governments and companies in the Latin American region.
The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments. The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.
Whilst the Board has provided the Investment Manager with broad investment guidelines in order to ensure a spread of risk, the Company's portfolio is not managed by reference to any benchmark and, therefore, the composition of its portfolio is not restricted by minimum or maximum country, market capitalisation or sector weightings.
The Company may invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in the Latin American region.
Derivative investments may be used for efficient portfolio management and hedging and may also be used in order to achieve the investment objective and to enhance portfolio performance. The Company may purchase and sell derivative investments such as exchange-listed and over-the-counter put and call options on currencies, securities, fixed income, currency and interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon and enter into various interest rate and currency transactions such as swaps, caps, floors or collars or credit transactions and credit derivative instruments. The Company may also purchase derivative instruments that combine features of these instruments. Aberdeen employs a risk management process to oversee and manage the Company's exposure to derivatives. Aberdeen may use one or more separate counterparties to undertake derivative transactions on behalf of the Company, and may be required to pledge collateral in order to secure the Company's obligations under such contracts. Aberdeen will assess on a continuing basis the creditworthiness of counterparties as part of its risk management process.
The Company may underwrite or sub-underwrite any issue or offer for sale of investments.
The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing. The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis. Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets calculated at the time of drawing. The Company will not have any fixed, long-term borrowings.
The Company may also use derivative instruments for gearing purposes, in which case the investment restrictions will be calculated on the basis that the Company has acquired the securities to which the derivatives are providing exposure.
The Company will normally be fully invested. However, during periods in which economic conditions or other factors warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.
The Company invests and manages its assets, including its exposure to derivatives, with the objective of spreading risk in line with the Company's investment policy.
The Company may only make material changes to its investment policy (including the level of gearing set by the Board) with the approval of Ordinary Shareholders (in the form of an ordinary resolution).
Investment Restrictions
The minimum and maximum percentage limits set out under "Investment Policy and Approach" and "Investment Restrictions" will only be applied at the time of the relevant acquisition, trade or borrowing. No more than 15% of the Company's or its subsidiary's gross assets will be invested in any company.
The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other investment companies admitted to the Official List of the Financial Conduct Authority, provided that this restriction does not apply to investments in any such investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed investment companies admitted to the Official List of the Financial Conduct Authority.
The Company may invest up to 25% of its gross assets in non-investment grade government debt issues (being debt issues rated BB+/Ba1 or lower).
The Company's aggregate gross exposure to derivative instruments will not exceed 50% of its gross assets.
The Company will not acquire securities that are unlisted or unquoted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be listed or quoted if Aberdeen considers this to be appropriate.
No underwriting or sub-underwriting commitment will be entered into if the aggregate of such investments would exceed 10% of the Company's net assets and no such individual investment would exceed 5% of the Company's net assets.
The Board has adopted a policy that the value of the Company's borrowings or derivatives (but excluding collateral held in respect of any such derivatives) will not exceed 30% the Company's net assets.
Duration
The Company does not have a fixed life or continuation vote.
Benchmark
The Company measures its performance against a composite benchmark index weighted as to 60% MSCI EM Latin America 10/40 Index and 40% JP Morgan GBI-EM Global Diversified (Latin America Carve Out) (both in sterling terms) (the "Benchmark"). The Company does not seek to replicate the Benchmark index in constructing its portfolio and the portfolio is not managed by reference to any index. It is likely, therefore, that there will be periods when the Company's performance will be uncorrelated to any index or benchmark.
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
Net Asset The Board considers the Company's
Value ("NAV") NAV total return figures versus the
Total Return Benchmark to be the best indicator
Performance of performance over time and is therefore
versus Benchmark the main indicator of performance
Index Total used by the Board. The figures for
Return this year, three years, five years
and since inception are set out in
the Annual Report.
Share Price The discount/premium relative to the
Discount/Premium NAV per share represented by the share
to NAV per price is closely monitored by the
Ordinary Board. The objective is to avoid large
Share 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.
Ordinary The Board also monitors the price
Share Price at which the Company's shares trade
Total Return relative to the Benchmark on a total
Performance 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.
Dividends The Board's aim is to provide shareholders
per Ordinary with an attractive yield. Dividends
Share paid in 2016 and 2017 are set out
in the Annual Report.
Further commentary on the Company's performance is contained in the Chairman's Statement and Investment Manager's Review and further explanation of the terms is provided in the Glossary 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 has 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.
Overview of Strategy continued
Strategic Report
An explanation of other risks relating to the Company's investment activities, specifically market risk including interest rate risk, foreign currency risk and other price risk, liquidity risk, credit risk, gearing risk and a note of how these risks are managed, is contained in note 14 to the financial statements.
Description Mitigating Action
Investment strategy and The Board keeps the level
objectives - the setting of discount at which the
of an unattractive strategic Company's Ordinary shares
proposition to the market trade as well as the investment
and the failure to adapt objective and policy under
to changes in investor review and the Board is
demand may lead to the updated at each Board
Company becoming unattractive meeting on the make up
to investors, a decreased of and any movements in
demand for Ordinary shares the Shareholder register.
and a widening discount
at which the Ordinary
shares trade relative
to their NAV.
Investment portfolio, The Board sets, and monitors,
investment management its investment restrictions
- investing outside of and guidelines, and receives
the investment restrictions regular reports which
and guidelines set by include performance reporting
the Board could result on the implementation
in poor performance and of the investment policy,
inability to meet the the investment process
Company's objectives. and application of the
guidelines.
Financial obligations The Board sets a gearing
- the ability of the Company limit to ensure that covenant
to meet its financial restrictions in the Company's
obligations, or increasing loan facility are not
the level of gearing, breached and the Board
could result in the Company receives regular updates
becoming over-geared and on the actual gearing
therefore unable to take levels the Company has
advantage of potential reached from the Investment
opportunities and result Manager together with
in a loss of value of the assets and liabilities
the Company's Shares. of the Company and reviews
these at each Board meeting.
Financial and Regulatory The financial risks associated
- the financial risks with the Company include
associated with the portfolio market risk, liquidity
could result in losses risk and credit risk,
to the Company. In addition, all of which are managed
failure to comply with by the Investment Manager.
relevant regulation (including Further details of the
the Companies (Jersey) steps taken to mitigate
Law, the Financial Services the financial risks associated
and Markets Act, the Alternative with the portfolio are
Investment Fund Managers set out in note 14 to
Directive, Accounting the financial statements.
Standards and the FCA's The Board relies upon
listing rules, disclosure Aberdeen to ensure the
and prospectus rules) Company's compliance with
may have a negative impact applicable regulations
on the Company. and from time to time
employs external advisers
to advise on specific
matters.
Operational - the Company The Board receives reports
is dependent on third from the Manager on internal
parties for the provision controls and risk management
of all systems and services at each Board meeting
(in particular, those and receives assurances
of AAM) and any control from its significant service
failures and gaps in these providers. Further details
systems and services could of the internal controls
result in a loss or damage which are in place are
to the Company. set out in the Directors'
Report in the Annual Report.
Income and dividend risk The Board monitors this
- there is a risk that risk through the review
the portfolio could fail of income forecasts, provided
to generate sufficient by the Manager, at each
income to meet the level Board meeting.
of the annual dividend
drawing upon, rather than
replenishing, its revenue
and/or capital reserves.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have carried out a robust assessment of the principal risks focussing upon the following factors:
- The principal risks detailed in the Strategic Report; - The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's Shares evidenced by the historical level of premium and or discount;
- The level of income generated by the Company; - The liquidity of the Company's portfolio; and,
- The flexibility of the Company's multi currency loan facility which matures in August 2020 including the financial covenants of the loans.
Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, significant discount to NAV, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
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 Aberdeen on behalf of a number of investment companies under its management. The Company's financial contribution to the programme is matched by the Aberdeen. Aberdeen's Brand team 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, promotional 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 and notes that gender is only one aspect of diversity. At 31 August 2017, there were four male Directors on the Board.
Environmental, Social and Human Rights Issues
The Company has no employees as it is managed by APWML and ordinarily all activities are contracted out to third party service providers. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Annual Report.
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.
Future
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 and the impact of regulatory changes (including MiFID II and Packaged Retail Investment and Insurance Products). 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 in the Investment Manager's Review.
For and on behalf of the Board
Richard Prosser
Chairman
18 October 2017
STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW
Performance Commentary
Latin American markets made healthy gains in the year under review, in tandem with the broader emerging market rally. Sentiment was buoyed by improving macroeconomic data, along with sluggish growth and inflation in the US. Markets largely took the US Federal Reserve's rate hikes in their strides, while their currencies strengthened against the US dollar.
Initially, markets and currencies were shaky, selling-off after Donald Trump's election victory in November, with Mexico faring the worst. The turn of the year saw a turnaround, driven by a more positive economic outlook. But markets tumbled again after Brazilian President Michel Temer was implicated in a corruption scandal. Temer successfully defended himself against the allegations, although the risk has not fully abated. As a result, sentiment was boosted by expectations that the path towards economic recovery would not be derailed, and markets subsequently recovered some of their poise. In addition, equities gained from the Fed's caution, which fuelled speculation that it would slow the pace of policy tightening.
Against this backdrop, the equity portfolio rose by 29.72% in sterling terms, outperforming the benchmark MSCI Emerging Markets Latin America 10/40 Index's 25.04% gain.
Brazil was the biggest contributor to relative performance in the equity portfolio, as our holdings there outperformed the wider market. Consumer stocks, in particular, performed well on a pickup in consumption. Shoemaker Arezzo was bolstered by impressive growth and expanding margins. Apparel retailers, Lojas Renner and Hering, rose on good results, while lower interest rates boosted car rental business Localiza. Also contributing positively was Bradespar, which benefited from sound operational performance and governance improvements at its main asset, iron ore miner Vale.
Not holding state-owned oil giant Petrobras and payments company Cielo also lifted relative returns. The former was pressured by volatile oil prices, while the latter was hurt by ongoing regulatory uncertainty. However, BRF was a major detractor, as the food company's shares suffered following a corruption investigation, as well as lower volumes domestically and margin pressures internationally.
The exposure to Mexico also benefited the portfolio, given the market's Trump-induced weakness before and immediately after the US election. Stock selection was also positive, with leading airport operator Asur delivering sound results on the back of healthy passenger traffic growth. Conversely, the lack of exposure to telecommunications group America Movil proved costly, as shares rebounded following better-than-expected quarterly results.
Also detracting was Peruvian construction company Grana Y Montero. Its shares fell after the firm was involved in corruption investigations over a project linked to former partner Odebrecht. The non-benchmark exposure to Argentina was also negative, as markets were weighed by benchmark provider MSCI's decision not to restore its emerging market status. In particular, pipe manufacturer Tenaris was a key laggard, following weak results and a pessimistic outlook on the back of the retreating oil price.
The bond portfolio returned 18.36% over the year, outperforming the JPM GBI-EM Global Diversified Latin America Index's return of 15.45%. Underweight exposure to the Mexican bond market and currency, which had the worst performance in the region, had the largest positive contribution to relative performance. Overweight to Brazilian long maturity bonds and to inflation linked bonds in Uruguay also significantly contributed to the outperformance, while the underweight position in Colombia and Chile and the overweight exposure to Peruvian duration had smaller positive impact.
It is worth noting that over the review period the Latin American index universe has expanded, as Argentina joined the benchmark in March, Uruguay's first eligible global bond was issued in June, allowing the country to join the index in August, while the weight of Chile increased substantially throughout the second quarter, as the country opened up its local bonds for international clearing. This underlines the gradual broadening and the improving liquidity of the local currency bond markets in the region.
Portfolio Activity
In addition to the changes mentioned in the Half Yearly Report, we introduced Mexican hotel operator Hoteles City Express, which has a solid business in a sector with good long-term growth opportunities. We also initiated BBVA Frances, a well-run and conservative Argentine lender. Against this, we sold Brazilian cosmetics manufacturer Natura Cosmeticos to fund better opportunities elsewhere.
During the year we have increased our allocation to Argentinian bonds, keeping our active long position. Most recently we have rotated part of our exposure from the belly of the fixed rate curve into shorter dated monetary policy rate linked bonds, taking profits after a rally, and getting exposure to much higher short rates. In Mexico we have gradually moved from an underway duration position into an overweight one, as the inflation and rate hiking cycles ran their course, and positioned the portfolio to benefit from the upcoming fall in inflation. In Uruguay we participated in the inaugural fixed rate global bond issuance, reducing our short dated inflation linked bond exposure on the other side.
In Brazil, the new management team's strategy at Petrobras has been well received by the market, so too their efforts to deleverage the balance sheet. However we are sceptical of the company's ability to deliver on its ambitious target of 2.5x net debt to EBITDA by 2018, likewise management's capacity to execute consistently in upstream and focus on efficiencies amongst ongoing political uncertainty in Brazil. Above all, we remain wary of subpar governance standards at the state controlled oil and gas company following the Lava Jato scandal.
Outlook
Latin American markets appear to be on firmer ground and well-positioned to sustain their upward trajectory, supported by low inflation and accommodative policies. Risks persist, however. The increasing probability of interest rate normalisation by central banks in the US and Europe may dampen risk appetite. In the region, greater uncertainty due to upcoming elections in key markets could hurt the nascent economic recovery.
In Brazil, attention now turns to the government's reform push. Improving economic growth, along with interest rate reductions due to subdued inflation is expected to boost consumption, benefiting consumer names there. However, significant slack remains in the economy after the deepest recession on record, preventing improving labour incomes translating into inflationary pressures. Similarly in Mexico, the peso's strength and tight policy could foster disinflation and help consumption remain resilient. This could benefit holdings like Femsa and Walmex. However, NAFTA renegotiations and the vagaries of President Trump could yet dent sentiment. On a broader level, firmer demand for commodities, aided by a stabilising China, will support Chile's economy, a major copper exporter, as well as the portfolio's mining stocks.
The improved operating environment, coupled with companies' efforts over the years to cut costs, improve efficiencies and expand margins, indicate the potential for profitability to rise even more. We remain confident in our bottom-up process, and will continue to favour quality companies with solid balance sheets and sensible management strategies, that can weather political uncertainties and benefit from the region's growth opportunities over the long-term.
Aberdeen Asset Managers Limited
18 October 2017
STRATEGIC REPORT - RESULTS
Financial Highlights
31 August 31 August % change
2017 2016
Total assets (GBP'000) 62,670 55,963 12.0
Total equity shareholders'
funds (net assets) (GBP'000) 56,170 48,463 15.9
Market capitalisation (GBP'000) 48,704 42,745 13.9
Ordinary share price (mid
market) 78.38p 66.63p 17.6
Net asset value per Ordinary
share 90.40p 75.54p 19.7
Discount to net asset value
per Ordinary share 13.29% 11.80%
Net gearing {A} 10.58% 14.39%
Dividends and earnings
Total return per Ordinary
share 18.00p 24.04p
Earnings per Ordinary share
(revenue) 4.77p 4.60p 3.7
Dividends per Ordinary share 3.50p 3.50p
Dividend cover 1.36 times 1.31 times
Revenue reserves{B} (GBP'000) 2,080 1,281
Operating costs
Ongoing charges ratio{C} 1.98% 2.01%
{A} Calculated in accordance with AIC guidance
"Gearing Disclosures post Retail Distribution
Review".
{B} Excludes payment of fourth interim dividend
of 0.875p (2016 - 0.875p) per Ordinary share equating
to GBP543,000 (2016 - GBP561,000).
{C} 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. Details of a
cap on the ongoing charges ratio can be found
in the Chairman's Statement and notes 6 and 16
to the financial statements.
Performance (total return)
1 year 3 year 5 year Since launch{A}
% return % return % return % return
Ordinary share price +23.7 +14.5 +10.7 +11.9
Net asset value +25.1 +15.5 +19.0 +27.3
Benchmark +21.4 +14.1 +19.6 +23.9
Total return represents the capital return plus
dividends reinvested.
{A} Launch date 16 August 2010.
Dividends
Rate xd date Record date Payment
date
1st interim 0.875p 15 December 16 December 30 January
2017 2016 2017 2017
2nd interim 0.875p 27 April 28 April 12 May 2017
2017 2017 2017
3rd interim 0.875p 6 July 2017 7 July 2017 28 July
2017 2017
4th interim 0.875p 5 October 6 October 27 October
2017 2017 2017 2017
______
Total dividends
2017 3.500p
______
Rate xd date Record date Payment
date
1st interim 0.875p 17 December 18 December 29 January
2016 2015 2015 2016
2nd interim 0.875p 21 April 22 April 29 April
2016 2016 2016 2016
3rd interim 0.875p 7 July 2016 8 July 2016 29 July
2016 2016
4th interim 0.875p 6 October 7 October 28 October
2016 2016 2016 2016
______
Total dividends
2016 3.500p
______
INVESTMENT PORTFOLIO
Ten Largest Equity Investments
As at 31 August 2017
Valuation Total Valuation
2017 assets 2016
Company Sector Country GBP'000 %{A} GBP'000
Banco Bradesco ADR
A leading Brazilian
bank with a good quality
loan portfolio, it
has benefited from
robust growth in retail
lending. Banks Brazil 2,326 3.7 1,927
Itau Unibanco Holdings
ADR
Brazil's largest privately-owned
bank, it is strongly
capitalised and well
positioned with decent
growth and asset quality. Banks Brazil 2,155 3.4 1,829
Lojas Renner{B}
The second largest
clothing retailer in
Brazil. Retailing Brazil 1,548 2.5 1,302
Ambev{B}
Latin America's largest
producer of beer and
the sole distributor Food,
of Pepsi products in Beverage
Brazil. & Tobacco Brazil 1,536 2.4 1,047
Fomento Economico Mexicano
ADR
Fomento Economico Mexicano
participates in beverages
through Coca-Cola FEMSA,
the largest bottler
of Coca-Cola products
globally. The company
also participates in
small-format stores
through FEMSA Comercio
which includes 12,800
Oxxo convenience stores
and more recent developments Food,
into pharmacies and Beverage
gas stations. & Tobacco Mexico 1,288 2.1 929
Grupo Financiero Banorte
Mexico's third largest
bank in terms of assets
and the largest and
only locally owned
Mexican bank, well
positioned to continue
growing and strengthening
its competitive position
to benefit from this
underpenetrated market. Banks Mexico 1,266 2.0 1,008
Grupo Aeroportuario
Sureste ADR
It operates 9 airports
in south east Mexico
with a 50 year concession,
expiring in 2048, including
Cancun, its primary
airport, which accounts
for 70% of its traffic.
In 2012 the business
also won a bidding
process to operate
an airport in Puerto
Rico. Transportation Mexico 1,256 2.0 1,028
Multiplan Empreendimentos
NPV{B}
Brazil's leading mall
developer and operator,
owner of a solid portfolio Real
of high quality malls. Estate Brazil 1,194 1.9 1,037
Wal-Mart De Mexico
Wal-Mart De Mexico
is the largest retailer
in Mexico, Costa Rica,
El Salavdor, Honduras,
Guatemala and Nicaragua
with over 3,000 stores.
It retails, food, clothing Food
and a variety of other & Staples
merchandise. Retailing Mexico 1,103 1.8 780
Vale ADR
Vale is one of the
world's largest, fully-integrated,
natural resources companies.
Based in Brazil, the
company produces iron-ore,
manganese, alloys,
gold, nickel, copper,
aluminium, potash and
numerous other minerals.
In addition to its
mining assets, Vale
also owns and operates
railways and maritime
terminals. Materials Brazil 1,075 1.7 337
Top ten equity investments 14,747 23.5
Portfolio investments reflect consolidated investee
holdings of the Company and its Subsidiary.
{A} Total assets less current liabilities (before
deducting prior charges).
{B} Held in Subsidiary.
Investment Portfolio - Other Investments
As at 31 August 2017
Valuation Total Valuation
2017 assets 2016
Company Sector Country GBP'000 %{A} GBP'000
Ultrapar Participacoes
ADR Energy Brazil 1,037 1.7 908
S.A.C.I. Falabella{B} Retailing Chile 1,001 1.6 600
Bradespar{B} Materials Brazil 958 1.5 211
Consumer
Arezzo Industria Durables
e Comercio{B} & Apparel Brazil 901 1.4 589
Embotelladora Andina Food, Beverage
'A' Pref{B} & Tobacco Chile 867 1.4 697
Diversified
B3 Brasil Bolsa Balco{B}{C} Financials Brazil 753 1.2 567
Banco Santander-Chile
ADR Banks Chile 742 1.2 646
Brazil Foods Sponsored Food, Beverage
ADR & Tobacco Brazil 658 1.0 855
Localiza Rent A Car{B} Transportation Brazil 644 1.0 450
Capital
WEG{B} Goods Brazil 630 1.0 401
Top twenty equity
investments 22,938 36.5
Food, Beverage
Arca Continental & Tobacco Mexico 611 1.0 401
Parque Arauco{B} Real Estate Chile 541 0.9 378
Grupo Bancolombia Banks Columbia 503 0.8 434
Health Care
Equipment
Odontoprev{B} & Services Brazil 499 0.8 370
Tenaris ADR Energy Argentina 494 0.8 523
Cementos Pacasmayo Materials Peru 474 0.8 326
Software
TOTVS{B} & Services Brazil 424 0.7 304
Wilson, Sons{B} Transportation Brazil 413 0.7 387
Iguatemi Empressa
de Shopping{B} Real Estate Brazil 393 0.6 313
Telecommunication
Linx Services Brazil 376 0.6 -
Top thirty equity
investments 27,666 44.2
Commercial
& Professional
Valid Solucoes{B} Services Brazil 363 0.6 215
Grupo Financiero
Santander Banks Mexico 340 0.5 250
BBVA Banco Frances Banks Argentina 326 0.5 0
Food, Beverage
Grupo Lala & Tobacco Mexico 311 0.5 177
Cia Hering Com Retailing Brazil 309 0.5 223
Consumer
Hoteles City Express Services Mexico 261 0.4 -
Itau Unibanco Banks Brazil 256 0.4 65
Household
Kimberly-Clark de & Personal
Mexico Products Mexico 249 0.4 203
Food, Beverage
BRF & Tobacco Brazil 174 0.3 -
Itausa Investimentos Diversified
Itau Financials Brazil 132 0.2 -
Top forty equity
investments 30,387 48.5
Ultrapar Participacoes Energy Brazil 120 0.2 -
Capital
Grana Y Montero Goods Peru 119 0.2 255
Banco Bradesco Banks Brazil 85 0.1 -
Fossal Materials Peru 4 - -
Total equity investments 30,715 49.0
Portfolio investments reflect consolidated investee
holdings of the Company and its Subsidiary.
{A} Total assets less current liabilities (before
deducting prior charges).
{B} Held in Subsidiary.
{C} Previously BM&F Bovespa
Investment Portfolio
- Bonds
As at 31 August
2017
Valuation Total Valuation
2017 assets 2016
Issue Sector Country GBP'000 %{C} GBP'000
Brazil (Fed Rep Government
of) 10% 01/01/25{A} Bonds Brazil 6,197 9.9 5,656
Colombia (Rep of) Government
9.85% 28/06/27 Bonds Columbia 3,990 6.4 4,771
Mexico (United Mexican Government
States) 8.5% 18/11/38 Bonds Mexico 2,483 3.9 846
Uruguay (Rep of) Government
5% 14/09/18 Bonds Uruguay 2,171 3.4 5,046
Mex Bonos Desarr Government
Fix Rt 10% 20/11/36 Bonds Mexico 2,089 3.3 -
Brazil (Fed Rep Government
of) 10% 01/01/21{A} Bonds Brazil 1,798 2.9 1,204
Uruguay (Rep of) Government
9.875% 20/06/22 Bonds Uruguay 1,790 2.9 -
Brazil (Fed Rep Government
of) 10% 01/01/27{A} Bonds Brazil 1,698 2.7 -
Peru (Rep of) 6.95% Government
12/08/31 Bonds Peru 1,397 2.2 1,259
Mex Bonos Desarr Government
Fix Rt 10% 05/12/24 Bonds Mexico 1,364 2.2 -
_______ _____
Top ten Bonds 24,977 39.8
Brazil (Fed Rep Government
of) 10% 01/01/18{A} Bonds Brazil 1,168 1.9 1,235
Mexico (United Mexican Government
States) 7.5% 03/06/27 Bonds Mexico 1,089 1.7 1,504
Uruguay (Rep of) Government
4.25% 05/04/27 Bonds Uruguay 820 1.3 1,007
Argentina (Rep of) Government
15.5% 17/10/26 Bonds Argentina 788 1.3 -
Peru (Rep of) 6.95% Government
12/08/31 Bonds Peru 677 1.1 610
Argentina (Rep of) Government
Frn 21/06/20 Bonds Argentina 661 1.1 -
Petroleos Mexicanos
7.19% 12/09/24 Bonds Mexico 270 0.4 510
Mexico (United Mexican Government
States) 7.75% 13/11/42 Bonds Mexico 164 0.3 169
Bonos De Tesoreria Government
6.35% 12/08/28 Bonds Peru 90 0.1 -
Peru (Rep of) 6.15% Government
12/08/32 Bonds Peru 62 0.1 -
_______ _____
Total value of Bonds 30,766 49.1
_______ _____
Total value of equity
investments 30,715 49.0
_______ _____
Total value of portfolio
investments 61,481 98.1
_______ _____
Other net assets
held in subsidiary 340 0.5
_______ _____
Total investments 61,821 98.6
_______ _____
Net current assets{B} 849 1.4
_______ _____
Total assets{C} 62,670 100.0
_______ _____
Portfolio investments reflect consolidated investee
holdings of the Company and its Subsidiary.
{A} Held in Subsidiary.
{B} Excluding bank loans of GBP6,500,000 (2016 -
GBP7,500,000)
{C} Total assets less current liabilities (before
deducting prior charges).
DIRECTORS' REPORT
The Directors present their Report and the audited financial statements for the year ended 31 August 2017.
Status
The Company is registered with limited liability in Jersey as a closed-ended investment company under the Companies (Jersey) Law 1991 with registered number 106012. In addition, the Company is constituted and regulated as a collective investment fund under the Collective Investments Funds (Jersey) Law 1988. The Company has no employees and makes no political or charitable donations.
The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account and it is the Directors' intention that the Company should continue to be a qualifying investment.
Results and Dividends
Details of the Company's results and dividends are shown under Strategic Report - Results above.
Management Arrangements
The Company has an agreement (the "Management Agreement") with APWML for the provision of management services, details of which are shown in notes 5 and 6 to the financial statements.
Under the Management Agreement, Aberdeen is entitled to both a management fee and a company secretarial and administration fee. The secretarial and administration fee of GBP112,000 was waived for the years ended 31 August 2015 and 2016. The Board has agreed to reinstate the company secretarial fee payable to the Manager at the level of GBP114,000 for the year ending 31 August 2017. The Manager has agreed to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.
The Directors review the terms of the Management Agreement on a regular basis and have confirmed that, due to the investment skills, experience and commitment of Aberdeen, in their opinion the continuing appointment of APWML, on the terms agreed, is in the interests of Shareholders as a whole.
Share Capital
As at 31 August 2017 there were 62,137,824 Ordinary shares and 4,435,000 Ordinary shares held in treasury. Details of changes to the Company's shares in issue during the year are provided in 'Your Company's Share Capital History' in the Annual Report.
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.
Risk Management
Details of the principal risks and uncertainties and KPIS are disclosed in the Strategic Report. Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 14 to the financial statements.
Directors
The current Directors, Richard Prosser, Martin Adams, George Baird and Martin Gilbert were the only Directors in office during the period.
The Directors' beneficial holdings are disclosed in the Directors' Remuneration Report. No Director has a service contract with the Company. The Directors' interests in contractual arrangements with the Company are as shown in note 16 to the financial statements. Details of the Directors retiring by rotation at the Annual General Meeting on 7 December 2017 are disclosed below under Policy on Tenure. Mr Gilbert has indicated that he intends to retire from the Board at the forthcoming AGM and will not be seeking re-election.
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 April 2016) for the year ended 31 August 2017. The UK Corporate Governance Codes are available on the Financial Reporting Council's website: frc.org.uk.
The Company is a member of the Association of Investment Companies (AIC). The Board has considered the principles and recommendations of the AIC Code of Corporate Governance for Jersey-domiciled member companies (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: 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); - the need for a Senior Independent Director; and, - and the need for an internal audit function (C.3.6).
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, latamincome.co.uk.
Directors have attended Board and Committee meetings during the year ended 31 August 2017 as follows (with their eligibility to attend the relevant meeting in brackets):
Audit Nomination
Board Committee MEC Committee
R Prosser 5 (5) 2 (2) 1 (1) 2 (2)
M Adams 5 (5) 2 (2) 1 (1) 2 (2)
G Baird 5 (5) 2 (2) 1 (1) 2 (2)
M Gilbert** 2 (5) n/a n/a 0 (2)
**Mr Gilbert is not a member of the Audit Committee or Management Engagement Committee
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 will voluntarily offer themselves for re-election on an annual basis in the future.
The Board has a schedule of matters reserved to it for decision and the requirement for Board approval on these matters is communicated directly to the senior staff of Aberdeen. Such matters include strategy, gearing, treasury and dividend policy. Full and timely information is provided to the Board to enable the Directors to function effectively and to discharge their responsibilities. The Board also reviews the financial statements, performance and revenue budgets.
The Board has put in place necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self-evaluation and a performance evaluation of the Board as a whole. For the year to 31 August 2017 this was undertaken using detailed questionnaires followed by one-on-one discussions. The Board also reviewed the Chairman's and Directors' other commitments and is satisfied that the Chairman and other Directors are capable of devoting sufficient time to the Company. Accordingly, the Board has no hesitation in recommending to Shareholders the reappointment of Mr Gilbert and Mr Prosser who are each due to retire at the forthcoming AGM and submit themselves for re-election.
There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access which every Director has to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.
Board Committees
Under the United Kingdom Listing Authority's Listing Rules, where an investment company has only non-executive directors, the UK Code principles relating to directors' remuneration do not apply. Accordingly, the Board has not appointed a separate remuneration committee. The remuneration of the Directors has been set in order to attract individuals of a calibre appropriate to the future development of the Company. The Company's policy on Directors' remuneration, together with details of the remuneration of each Director, is detailed in the Directors' Remuneration Report in the Annual Report.
Audit Committee
The Report of the Audit Committee is below.
Management Engagement Committee ("MEC")
The Board has appointed a MEC which comprises three independent Directors, Mr R Prosser (Chairman), Mr M Adams and Mr G Baird. The function of this Committee is to review performance and to ensure that the Manager and the Investment Manager comply with the terms of the Management Agreement and that the provisions of the agreement follow industry practice and remain competitive and in the best interest of Shareholders as a whole. The Committee remains satisfied that the continuing appointment of Aberdeen on the terms agreed is in the interests of Shareholders as a whole. The key factors taken into account in reaching this decision are the investment skills, experience and commitment and performance record of Aberdeen. The Management Agreement may be terminated by either party by giving not less than 12 months' notice in writing.
Directors' Report continued
Nomination Committee
Appointments to the Board of Directors are considered by the Nominations Committee which comprises the entire Board and whose Chairman is Mr R Prosser. Possible new Directors are identified against the requirements of the Company's business and the need to have a balanced Board. Every Director is entitled to receive appropriate training as deemed necessary. The Board's overriding priority when appointing new Directors to the Board will be to identify the candidate with the best range of skills and experience to complement existing Directors.
The Articles of Association require that all Directors shall submit themselves for election by Shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves to re-election. Mr Gilbert is Co-Chief Executive of Standard Life Aberdeen plc and under the United Kingdom Listing Authority's Listing Rules is subject to annual re-election by Shareholders. However, at the AGM of the Company to be held on 7 December 2017, Mr Gilbert has indicated that he will retire from the Board and does not intend to seek re-election. The Nomination Committee has resolved that Mr Baird will stand for re-election at the AGM consistent with the re-election process. 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 Directors contribute effectively
The Committee is in the process of conducting a search for a new non executive Director and will update shareholders in due course on the outcome of this process.
Diversity
Since launch in 2010, the Company has not appointed any new Directors to the Board. The Board's overriding priority for the current search for a new Director is to identify the candidate with the best range of skills and experience to complement the existing Directors. The Board recognises the benefits of diversity in the composition of the Board. When Board positions become available in the future as a result of retirement or resignation, the Company will ensure that a diverse group of candidates is considered.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets including those of its subsidiary consist of a diverse portfolio of listed equities, equity-related investments and fixed income investments exposed to the Latin American market which in most circumstances are realisable within a very short timescale.
The Company has considerable financial resources and, as a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite uncertainties in the economic outlook.
The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report and have reviewed forecasts detailing revenue and liabilities and the Directors 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 continue to adopt the going concern basis in preparing the financial statements of the Company as at the date of the approval of this report.
Internal Controls and Risk Management
The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management. The Board has prepared its own risk register which identifies potential risks both major and minor relating to: strategy; investment management; Shareholders; marketing; gearing; regulatory and financial obligations; third party service providers and the Board. The Board considers the potential cause and possible impact of these risks as well as reviewing the controls in place to mitigate these potential risks. A risk is rated by having a likelihood and an impact rating and the residual risk is plotted on a "heat map" and is reviewed regularly.
The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. The Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial Business Reporting published in September 2014 (the FRC Guidance), assists Directors in applying section C.2 of the UK Code. The Board confirms that there is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company. This process has been in place for the period under review and up to the date of approval of this Annual Report and financial statements, and is regularly reviewed by the Board and accords with the 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 principal risks affecting the Company and policies by which these risks are managed. The principal risks and uncertainties faced by the Company are detailed in the Strategic Report.
The key components designed to provide effective internal control are outlined below:
- Aberdeen prepares monthly forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;
- the Board and Aberdeen 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 Aberdeen as appropriate;
- as a matter of course Aberdeen's compliance department continually reviews its' operations;
- written agreements are in place which specifically define the roles and responsibilities of the Manager and other third-party service providers and the Committee reviews, where relevant, periodic ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations; the Board has reviewed the exceptions arising from the Manager's ISAE3402 for the year to 30 June 2017 which were not considered to be directly relevant to the Company; the Board is made aware by the Manager of relevant exceptions in ISAE3402 reporting from key third party service providers as part of the Manager's third party service provider oversight regime.
- at its October 2017 meeting, the Audit Committee members carried out an annual assessment of internal controls for the year ended 31 August 2017 by considering documentation from Aberdeen, including the internal audit and compliance functions and taking account of events since 31 August 2017. The results of the assessment were then reported to the Directors at the Board meeting which followed; and,
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at Aberdeen, has decided to place reliance on Aberdeen's systems and internal audit procedures.
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.
Substantial Interests
The Company has been advised that the following Shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 August 2017:
Shareholder Number of % held
shares held
City of London Investment 7,627,985 12.3
Aberdeen Retail Plans 6,743,060 10.9
1607 Capital Partners 5,747,427 9.3
Hargreaves Lansdown, stockbrokers 5,375,379 8.7
CCLA Investment Management 2,350,000 3.8
Raymond James Investment Services 2,229,792 3.6
Philip J Milton Stockbrokers 1,993,638 3.2
Barclays Stockbrokers 1,899,543 3.1
Alliance Trust Savings 1,870,412 3.0
On 13 October 2017 City of London Investment notified the Company that its holding had decreased to 7,127,985 Ordinary shares (11.5%). There have been no other significant changes notified in respect of the above holdings between 31 August 2017 and 18 October 2017.
Alternative Investment Fund Managers Directive ("AIFMD")
On 14 July 2014, the Jersey Financial Services Commission granted the Company a certificate of exemption from the application of the Alternative Investment Funds (Jersey) Regulations 2012 to any marketing it may carry out within any EU member state. APWML, as the Company's non-EEA alternative investment fund manager, also notified the UK Financial Conduct Authority ("FCA") in accordance with the requirements of the UK National Private Placement Regime for inclusion of the Company on the UK register as a non-EEA alternative investment fund being marketed in the UK.
In addition, in accordance with Article 23 of the AIFMD and Rule 3.2.2 of the FCA FUND Sourcebook, APWML is required to make available certain disclosures for potential investors in the Company and these are available on the Company's website: latamincome.co.uk.
Special Business at the Annual General Meeting
Directors' Authority to Allot Relevant Securities
There are no provisions under Jersey law which confer rights of pre-emption upon the issue or sale of any class of shares in the Company. However, as the Ordinary shares are traded on the LSE and have a premium listing, the Company is required to offer pre-emption rights to its Shareholders and the Articles of Association reflect this. Ordinary shares will only be issued at a premium to the prevailing NAV per Ordinary share and, therefore, will not be disadvantageous to existing Ordinary Shareholders.
Directors' Report continued
Governance
Unless previously disapplied by special resolution, in accordance with the Listing Rules of the Financial Conduct Authority, the Company is required to first offer any new shares or securities (or rights to subscribe for, or to convert or exchange into, shares) proposed to be issued for cash to Shareholders in proportion to their holdings in the Company. In order to provide for such share issues, your Board is therefore also proposing that an annual disapplication of the pre-emption rights is given to the Directors so that they may issue shares as and when appropriate. Accordingly, Resolution 7, a Special Resolution, proposes a disapplication of the pre-emption rights in respect of 10% of the shares in issue, set to expire on the earlier of eighteen months from the date of the resolution or at the conclusion of the Annual General Meeting to be held in 2018.
Purchase of the Company's Securities
In the past the Company has quoted the aim of its discount management policy as being to try to maintain the price at which the Ordinary shares trade relative to their NAV at a discount of no more that 5%. As stated in the Chairman's Statement, during the year under review the Company bought back 2,015,000 Ordinary shares for treasury at a total cost of GBP1,454,000. Subsequent to the period end a further 130,000 Ordinary shares have been purchased for treasury at a cost of GBP102,000.
Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing exclusive of income NAV per Ordinary share (as last calculated) where the Directors believe such purchases will enhance Shareholder value and are likely to assist in narrowing any discount to NAV at which the Ordinary shares may trade.
Resolution 6, a Special Resolution, will be proposed to renew the Directors' authority to make market purchases of the Ordinary shares in accordance with the provisions of the Listing Rules of the Financial Conduct Authority. The Company will seek authority to purchase up to a maximum of 9,294,972 Ordinary shares (representing 14.99 per cent. of the current issued Ordinary share capital excluding treasury shares). The authority being sought shall expire at the conclusion of the Annual General Meeting in 2018 unless such authority is renewed prior to that time. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly, or the Ordinary shares will be held in treasury, in accordance with the authority previously conferred by Shareholders.
The Companies (Jersey) Law 1991 allows companies to either cancel shares or hold them in treasury following a buy-back. These powers give Directors additional flexibility and the Board considers that it is in the interest of the Company that such powers be available, including the power to hold treasury shares. Any future sales of Ordinary shares from treasury will only be undertaken at a premium to the prevailing NAV per Ordinary share for the benefit of all Shareholders. The Directors monitor the level of shares held in treasury and whilst there are no upper limits on the number of shares that can be held in treasury consideration will be given to cancelling treasury shares if the number becomes excessively high compared to the issues share capital.
Reappointment of Independent Auditor
Our 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 them as independent auditor for the ensuing year, and to authorise the Directors to determine their remuneration.
Recommendation
Your Board considers Resolutions 6 and 7 to be in the best interests of the Company and its members as a whole. Accordingly, your Board recommends that Ordinary Shareholders should vote in favour of Resolutions 6 and 7 to be proposed at the Annual General Meeting, as they intend to do in respect of their own beneficial shareholdings amounting to 164,000 Ordinary shares.
Directors' & Officers Liability Insurance
Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.
Relations with Shareholders
The Directors place a great deal of importance on communication with Shareholders. The Chairman welcomes feedback from all Shareholders and meets periodically with the largest Shareholders to discuss the Company. The Annual Report and financial statements are 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 Aberdeen's freephone information service and the Company's website: latamincome.co.uk.
The Board's policy is to communicate directly with Shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or Aberdeen) in situations where direct communication is required and representatives from the Board meet periodically with major Shareholders.
The Notice of the Annual General Meeting included within the Annual Report and financial statements is ordinarily sent out at least 20 working days in advance of the meeting. All Shareholders have the opportunity to put questions to the Board or Aberdeen, either formally at the Company's Annual General Meeting or informally following the meeting. The Company Secretary is available to answer general Shareholder queries at any time throughout the year. The Directors are keen to encourage dialogue with Shareholders and the Chairman welcomes direct contact from Shareholders.
UK Stewardship Code and Proxy Voting as an Institutional Shareholder
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.
The full text of the Company's response to the Stewardship Code may be found on the Company's website.
Socially Responsible Investment Policy
The Board is aware of its duty to act in the best interests of the Company. As an investment company, the Company has no direct social, environmental or community responsibilities. However, the Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and the Board, therefore, ensures that they take regular account of the social, environment and ethical factors, which may affect the performance or value of the Company's investments.
For and on behalf of the Board
Aberdeen Private Wealth Management Limited
Secretary
18 October 2017
1st Floor, Sir Walter Raleigh House
48 - 50 Esplanade, St Helier
Jersey JE2 3QB
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
The Companies (Jersey) Law 1991 requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles. The financial statements of the Company are required by law to 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. In preparing these financial statements, the Directors should:
- select suitable accounting policies and then apply them consistently; - make judgments and estimates that are reasonable; - specify which generally accepted accounting principles have been adopted in their preparation;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
- assess whether the Annual Report and financial statements, taken as a whole, is 'fair, balanced and understandable'.
The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure & Transparency Rules of the UK Listing Authority which, with regard to Corporate Governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the UK Corporate Governance Code applicable to the Company.
Declaration
The Directors listed in the Directors' Report, being the persons responsible, hereby confirm to the best of their knowledge:
- that the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the International Accounting Standards Board 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; and
- the Strategic Report, including the Chairman's Statement and the Investment Manager's Review, 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 and on behalf of the Board
Richard Prosser
Chairman
18 October 2017
1st Floor, Sir Walter Raleigh House
48 - 50 Esplanade, St Helier
Jersey JE2 3QB
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 Year ended 31 August
August 2017 2016
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Income from investments 4 3,772 - 3,772 3,544 - 3,544
Gains on financial
assets held at
fair value through
profit or loss - 9,016 9,016 - 13,984 13,984
Currency losses - (183) (183) - (1,222) (1,222)
(Losses)/gains
on forward foreign
currency contracts - (65) (65) - 132 132
_______ _______ _______ _______ _______ _______
3,772 8,768 12,540 3,544 12,894 16,438
_______ _______ _______ _______ _______ _______
Expenses
Investment management
fee 5 (233) (349) (582) (181) (271) (452)
Other operating
expenses 6 (443) - (443) (322) - (322)
_______ _______ _______ _______ _______ _______
Profit before
finance costs
and taxation 3,096 8,419 11,515 3,041 12,623 15,664
Finance costs (36) (54) (90) (40) (60) (100)
_______ _______ _______ _______ _______ _______
Profit before
taxation 3,060 8,365 11,425 3,001 12,563 15,564
Taxation (46) - (46) (27) - (27)
_______ _______ _______ _______ _______ _______
Profit for the
year 3,014 8,365 11,379 2,974 12,563 15,537
_______ _______ _______ _______ _______ _______
Earnings per
Ordinary share
(pence) 8 4.77 13.23 18.00 4.60 19.44 24.04
_______ _______ _______ _______ _______ _______
The profit for the year is also the comprehensive
income for the year.
The total column of this statement represents the
Statement of Comprehensive Income, prepared in accordance
with IFRS. The revenue and capital columns are supplementary
to this and are prepared under guidance published
by the Association of Investment Companies.
All items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of these
financial statements.
BALANCE SHEET
As at As at
31 August 31 August
2017 2016
Notes GBP'000 GBP'000
Non-current assets
Investments held at fair
value through profit or loss 9 61,821 55,177
_______ _______
Current assets
Cash 653 524
Forward foreign currency
contracts 56 86
Other receivables 473 338
_______ _______
Total current assets 1,182 948
_______ _______
Total assets 63,003 56,125
Current liabilities
Bank loan 10 (6,500) (7,500)
Forward foreign currency
contracts (13) (21)
Other payables (320) (141)
_______ _______
Total current liabilities (6,833) (7,662)
_______ _______
Net assets 56,170 48,463
_______ _______
Equity capital and reserves
Equity capital 11 65,936 65,936
Capital reserve 12 (11,846) (18,754)
Revenue reserve 2,080 1,281
_______ _______
Equity Shareholders' funds 56,170 48,463
_______ _______
Net asset value per Ordinary
share (pence) 13 90.40 75.54
_______ _______
STATEMENT OF CHANGES IN EQUITY
Year ended 31 August 2017
Stated Capital Revenue
capital reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 September
2016 65,936 (18,754) 1,281 48,463
Profit for the year - 8,365 3,014 11,379
Dividends paid 7 - - (2,215) (2,215)
Purchase of own shares
to be held in treasury - (1,457) - (1,457)
_______ _______ _______ _______
Balance at 31 August 2017 65,936 (11,846) 2,080 56,170
_______ _______ _______ _______
Year ended 31 August 2016
Stated Capital Revenue
capital reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 September
2015 65,936 (30,722) 658 35,872
Profit for the year - 12,563 2,974 15,537
Dividends paid 7 - (154) (2,351) (2,505)
Purchase of own shares
to be held in treasury - (441) - (441)
_______ _______ _______ _______
Balance at 31 August 2016 65,936 (18,754) 1,281 48,463
_______ _______ _______ _______
CASH FLOW STATEMENT
Year ended Year ended
31 August 31 August
2017 2016
GBP'000 GBP'000
Dividend income 515 338
Fixed interest income 1,465 1,116
Income from Subsidiary 1,407 1,332
Investment management fee paid (576) (442)
Other paid expenses (408) (276)
_______ _______
Cash generated from operating activities
before finance costs and taxation 2,403 2,068
Interest paid (89) (99)
Withholding taxes paid (46) (25)
_______ _______
Net cash inflow from operating activities 2,268 1,944
Cash flows from investing activities
Purchases of investments (12,957) (3,940)
Proceeds from sales of investments 12,510 6,027
_______ _______
Net cash (outflow)/inflow from investing
activities (447) 2,087
Cash flows from financing activities
Equity dividends paid (2,215) (2,505)
Repurchase of own shares (1,437) (441)
Capital returned from Subsidiary 3,209 970
Loan drawn down - 7,500
Loan repaid (1,000) (9,157)
_______ _______
Net cash outflow from financing
activities (1,443) (3,633)
_______ _______
Net increase in cash 378 398
Foreign exchange (249) (712)
Cash at start of year 524 838
_______ _______
Cash and cash equivalents at end
of year 653 524
_______ _______
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The Company is a closed-ended investment company
incorporated in Jersey, and its shares are traded
on the London Stock Exchange and are listed in
the premium segment of the Financial Conduct
Authority's Official List. The Company's principal
activity is investing in Latin American securities.
The principal activity of its Delaware incorporated
subsidiary, Aberdeen Latin American Income Fund
LLC ("Subsidiary") is similar in all relevant
respects to that of its Jersey parent.
2. Accounting policies
(a) Basis of preparation
The accounting policies which follow set out
those policies which apply in preparing the
financial statements for the year ended 31
August 2017.
The financial statements of the Company have
been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted
by International Accounting Standards Board
(IASB). The financial statements have been
prepared on a historical-cost basis, except
for financial assets and financial liabilities
held at fair value through profit or loss.
The Directors believe that the Company has
adequate resources to continue in operational
existence for the foreseeable future and, for
the above reasons, they continue to adopt the
going concern basis in preparing the financial
statements.
The Company's financial statements are presented
in sterling, which is also the functional currency
as it is the currency in which shares are issued
and expenses are generally paid. All values
are rounded to the nearest thousand pounds
(GBP'000) except when otherwise indicated.
Where presentational guidance set out in the
Statement of Recommended Practice ("SORP"):
'Financial Statements of Investment Trust Companies
and Venture Capital Trusts' issued by the Association
of Investment Companies ("AIC"), is consistent
with the requirements of IFRS, the Directors
have sought to prepare the financial statements
on a basis compliant with the recommendations
of the SORP issued in January 2017.
Significant accounting judgements, estimates
and assumptions
The preparation of financial statements in
conformity with IFRS requires the use of certain
significant accounting judgements, estimates
and assumptions which requires management to
exercise its judgement in the process of applying
the accounting policies.
Management have identified two such areas in
preparing the financial statements being the
application of IFRS 10 'Consolidated Financial
Statements' and valuation technique used to
derive the fair value of the Company's subsidiary
for financial reporting purposes.
Application of IFRS 10: Assessment of investment
entity
One of the key areas for consideration has
been the application of IFRS 10 'Consolidated
Financial Statements' including the Amendments,
'Investment entities (Amendments to IFRS 10,
IFRS 12 and IAS 27) (Investment Entity Amendments).
The amendments require entities that meet the
definition of an investment entity to fair
value certain subsidiaries through profit or
loss in accordance with IAS 39 Financial Instruments:
Recognition and Measurement, rather than consolidate
their results. However, entities which are
not themselves investment entities and provide
investment related services to the Company
will continue to be consolidated.
Entities which meet the definition of an investment
entity are required to fair value subsidiaries
through profit or loss rather than consolidate
them. An investment entity meets the definition
of an investment entity if it satisfies the
following three criteria:
(i) an entity obtains funds from one or more
investors for the purpose of providing those
investors with investment services; the Company
provides investment services and has several
investors who pool funds to gain access to
these services and investment opportunities
which they might not be able to as individuals.
(ii) an entity commits to its investors that
its business purpose is to investment solely
for capital appreciation, investment income,
or both; the Company's investment objective
is to provide Ordinary Shareholders with a
total return, with an above average yield,
primarily through investing in Latin American
securities.
(iii) an entity measures and evaluates the
performance of substantially all of its investments
on a fair value basis; the Company has elected
to measure and evaluate the performance of
all of its investments on a fair value basis.
The fair value basis is used to present the
Company's performance in its communication
with the market and the primary measurement
attribute to evaluate performance of all of
its investments and to make investment decisions.
The Company meets the definition of an investment
entity, and, therefore, all investments in
subsidiaries are recorded at fair value through
profit or loss.
Fair value of the Subsidiary
The Directors conclude that the net asset value
of the wholly owned Subsidiary is the best
estimate of fair value for financial reporting
purposes based on the composition of the Subsidiary's
balance sheet and the other reasons disclosed
in note 9(a).
New and amended standards and interpretations
There were no new or amended standards adopted
by the Company during the year.
Standards issued but not yet effective
At the date of authorisation of these financial
statements, the following Standards and Interpretations
were in issue but not yet effective:
IFRS 9 Financial Instruments (effective 1 January
2018, revised, early adoption permitted)
IFRS 15 Revenue from contracts with customers
(effective 1 January 2018)
The Company will adopt the Standards and Interpretations
in the reporting period when they become effective
and following an assessment the Board concludes
that the adoption of these Standards and Interpretations
in future periods will not materially impact
the Company's financial results in the period
of initial application although there will
be revised presentations to the Financial Statements
and additional disclosures. In forming this
opinion the Board specifically notes the fundamental
rewrite of accounting rules for financial instruments
under IFRS 9 and introduces a new classification
model for financial assets that is more principles-based
than the current requirements under IAS 39
Financial Instruments: Recognition and Measurement.
Financial assets are classified according to
their contractual cash flow characteristics
and the business models under which they are
held. Instruments will be classified either
at amortised cost, the newly established measurement
category fair value through other comprehensive
income or fair value through profit of loss.
The Company's portfolio includes a relatively
small exposure to corporate bonds, which have
contractual cash flows and the Board have determined
it will be appropriate to continue to classify
these securities at fair value through profit
or loss as even though the Company will collect
contractual cash flows while it holds these
securities as it is only incidental and not
integral to achieving the investment objective,
which is to provide investors with a total
return. In further considering the business
model, the Board is mindful that the Manager
manages and evaluates the performance of the
Company on a fair value basis and is compensated
based on the fair value of assets managed rather
than contractual cash flows collected. Following
an assessment, the Company concludes that IFRS
15 will not have a significant impact on the
financial statements.
(b) Income
Dividend income from equity investments is
recognised on the ex-dividend date. Dividend
income from equity investments where no ex-dividend
date is quoted are brought into account when
the Company's right to receive payment is established.
Where the Company has elected to receive dividends
in the form of additional shares rather than
in cash, the amount of the cash dividend foregone
is recognised as income. Special dividends
are credited to capital or revenue according
to their circumstances.
The fixed returns on debt instruments are recognised
using the effective interest rate method.
(c) Expenses and interest payable
All expenses, with the exception of interest,
which is recognised using the effective interest
method, are accounted for on an accruals basis.
Expenses are charged to the revenue column
of the Statement of Comprehensive Income except
as follows:
costs incidental to the issue of new shares
as defined in the prospectus are charged to
capital;
expenses resulting from the acquisition or
disposal of an investment are charged to the
capital column of the Statement of Comprehensive
Income; and
expenses are charged to the capital column
of the Statement of Comprehensive Income where
a connection with the maintenance or enhancement
of the value of the investments can be demonstrated.
The Company charges 60% of investment management
fees and finance costs to capital, in accordance
with the Board's estimate of expected long-term
return in the form of capital gains and income
respectively from the investment portfolio
of the Company.
(d) Taxation
Profits arising in the Company for the year
ended 31 August 2017 will be subject to Jersey
income tax at the rate of 0% (2016 - 0%).
Investment income and capital gains are subject
to withholding tax deducted at the source of
the income. The Company presents the withholding
tax separately from the gross investment income
in the Statement of Comprehensive Income under
taxation.
(e) Investments held at fair value through profit
or loss
Purchases of investments are recognised on
a trade-date basis and designated upon initial
recognition as held at fair value through profit
or loss. All investments are considered to
form part of a group of financial assets and
subsequently measured on a fair value basis,
in accordance with the Company's documented
investment strategy, and information about
the Company is provided internally on that
basis. These investments also include inflation-linked
bonds which are considered to be compound financial
instruments. Proceeds are measured at fair
value, which is regarded as the proceeds of
sale less any transaction costs. Sales of investments
are also recognised on a trade date basis.
Changes in the value of investments held at
fair value through profit or loss, gains and
losses on disposal and related transaction
costs are recognised in the Statement of Comprehensive
Income.
(f) Fair value measurement
Fair value is the price that would be received
to sell an asset or paid to transfer a liability
in an orderly transaction between market participants
at the measurement date. The fair value is
derived from unadjusted quoted bid prices in
active markets, with the exception of inflation-linked
bonds whose quoted bid prices are adjusted
for indexation arising from the movement of
the consumer prices index for the relevant
country of issue of the bond. The fair value
of forward currency contracts is calculated
by reference to current forward exchange rates
for contracts with similar maturity profiles.
An active market is a market in which transactions
for the asset or liability take place with
sufficient frequency and volume to provide
pricing information on an ongoing basis.
(g) Cash and cash equivalents
Cash comprises cash at banks and short-term
deposits.
(h) Other receivables and payables
Other receivables do not carry any interest
and are short-term in nature and are accordingly
stated at their recoverable amount. Other payables
are non interest bearing and are stated at
their payable amount.
(i) Nature and purpose of reserves
Capital reserve
This reserve reflects any gains or losses on
investments realised in the period along with
any movement in the fair value of investments
held that have been recognised in the Statement
of Comprehensive Income. These include gains
and losses from foreign currency exchange differences.
Additionally, expenses, including finance costs,
are charged to this reserve in accordance with
(c) above.
When the Company purchases its Ordinary shares
to be held in treasury, the amount of the consideration
paid, which includes directly attributable
costs, is net of any tax effect, and is recognised
as a deduction from the capital reserve. Should
these shares be sold subsequently, the amount
received is recognised as an increase in equity,
and the resulting surplus or deficit on the
transaction is transferred to or from the capital
reserve.
Revenue reserve
This reserve reflects all income and costs
which are recognised in the revenue column
of the Statement of Comprehensive Income less
dividends which have been paid.
(j) Foreign currency
Monetary assets and liabilities are converted
into sterling at the rate of exchange ruling
at the Balance Sheet date. Transactions during
the period 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 a currency gain or loss.
(k) Bank loans
Monies borrowed to finance the investment objectives
of the Company are stated at the amount of
the net proceeds immediately after the issue
plus cumulative finance costs less cumulative
payments made in respect of the debt. The finance
cost of such borrowings is allocated to years
over the term of the debt at a constant rate
on the carrying amount and is charged 40% to
revenue and 60% to capital reserves to reflect
the Company's investment policy and estimated
prospective income and capital growth.
Borrowings are held at amortised cost using
the effective interest rate method.
(l) Intercompany balances
The net income generated in the Subsidiary
is transferred to the Company via an intercompany
balance on a periodic basis.
(m) Derivative financial instruments
The Company may use forward foreign exchange
contracts to manage currency risk arising from
investment activity.
Derivatives are measured at fair value calculated
by reference to forward exchange rates for
contracts with similar maturity profiles.
Changes in the fair value of derivatives are
recognised in the Statement of Comprehensive
Income as revenue or capital depending on their
nature.
3. Segmental reporting
The Company is engaged in a single segment of
business. For management purposes, the Company
is organised into one main operating segment,
which invests in equity securities, debt instruments
and related derivatives. All of the Company's
activities are interrelated, and each activity
is dependent on the others. Accordingly, all
significant operating decisions are based on
the Company as one segment.
The following table analyses the Company's income,
including income derived from the Subsidiary's
investments, by geographical location. The basis
for attributing the income is the place of incorporation
of the instrument's investment, however, where
the Company invests in ADR designated securities
the underlying geographic location is considered
to be the basis.
2017 2016
GBP'000 GBP'000
Argentina 212 15
Brazil 1,791 1,691
Chile 66 54
Columbia 314 331
Mexico 665 426
Peru 160 139
Uruguay 564 888
_______ _______
3,772 3,544
_______ _______
The Company's income (including that of its Subsidiary
on a look-through basis) is derived 20% (2016
- 15%) from equities, 80% (2016 - 85%) from bonds.
2017 2016
4. Income from investments GBP'000 GBP'000
Dividend income 518 356
Fixed interest income 1,683 1,654
Income from Subsidiary 1,571 1,534
_______ _______
3,772 3,544
_______ _______
The Company owns 100% of the share capital of
its Subsidiary. The Company receives income from
its Subsidiary and there are no significant restrictions
on the transfer of funds to or from the Subsidiary.
During the year net revenue of GBP1,571,000 (2016
- GBP1,534,000) was generated by the Subsidiary.
5. Investment management fee
The Company has an agreement with APWML for the
provision of management services. Portfolio management
services have been delegated by APWML to AAM.
The management fee is based on an annual rate
of 1% of the NAV of the Company, valued monthly.
The agreement is terminable on one year's notice.
The balance due to APWML at the year end was
GBP52,000 (2016 - GBP47,000). Investment management
fees are charged 40% to revenue and 60% to capital.
2017 2016
6. Other operating expenses GBP'000 GBP'000
Directors' fees 75 71
Promotional activities 36 32
Secretarial and administration fee 114 -
Auditor's remuneration:
- fees payable for the audit of
the annual accounts 33 30
Legal and advisory fees 2 14
Custodian and overseas agents' charges 64 61
Broker fees 30 30
Stock exchange fees 19 17
Registrar's fees 19 17
Printing 17 15
Other 34 35
_______ _______
443 322
_______ _______
The Company has an agreement with AAM for the
provision of promotional activities. The total
fees incurred under the agreement during the
year were GBP36,000 (2016 - GBP32,000), of which
GBP6,000 (2016 - GBP5,000) was due to AAM PLC
at the year end.
The Company's management agreement with APWML
provides for the provision of company secretarial
and administration services. This agreement has
been sub-delegated to Aberdeen Asset Managers
Limited. APWML is entitled to an annual fee of
GBP114,000 which increases annually in line with
any increase in the UK Retail Price Index. A
balance of GBP28,500 (2016 -N/A) was due to APWML
at the year end. APWML waived its entitlement
to a fee during the year to 31 August 2016.
The Manager has agreed to ensure that the Company's
ongoing charges ratio ("OCR") will not exceed
2.0% when calculated annually as at 31 August.
Until further notice, to the extent that the
OCR ever exceeds 2.0% the Manager will rebate
part of its fees in order to bring that ratio
down to 2.0%.
2017 2016
7. Dividends on equity shares GBP'000 GBP'000
Distributions to equity holders
in the period:
Fourth interim dividend for 2016 561 812{A}
-0.875p (2015 - 1.25p) per Ordinary
share
First interim dividend for 2017
- 0.875p (2016 - 0.875p) per Ordinary
share 558 567
Second interim dividend for 2017
- 0.875p (2016 - 0.875p) per Ordinary
share 550 564
Third interim dividend for 2017
- 0.875p (2016 - 0.875p) per Ordinary
share 546 562
_______ _______
2,215 2,505
_______ _______
{A}Part paid from capital reserves (GBP154,000)
due to insufficient revenue reserves available
at the time.
The fourth interim dividend for the year of 0.875p
per Ordinary share has not been included as a
liability in these financial statements as it
was announced and paid after 31 August 2017.
8. Earnings per Ordinary share
The basic earnings or loss per Ordinary share
is based on the profit for the year of GBP11,379,000
(2016 - GBP15,537,000) and on 63,208,980 (2016
- 64,626,472) Ordinary shares, being the weighted
average number of Ordinary shares in issue during
the year.
The basic earnings per Ordinary share detailed
above can be further analysed between revenue
return and capital return as follows:
2017 2016
Basic Revenue Capital Total Revenue Capital Total
Profit (GBP'000) 3,014 8,365 11,379 2,974 12,563 15,537
Weighted average
number of Ordinary
shares in issue
('000) 63,209 64,626
Return per Ordinary
share (pence) 4.77 13.23 18.00 4.60 19.44 24.04
Year ended Year ended
9. Investments held at fair value 31 August 31 August
through profit or loss 2017 2016
(a) Company GBP'000 GBP'000
Quoted equities 16,599 13,165
Quoted bonds 19,904 18,540
Investment in Subsidiary 25,318 23,472
_______ _______
Closing valuation 61,821 55,177
_______ _______
Investment in Subsidiary
The Company holds 100% of the share capital
of its Subsidiary. The Company meets the definition
of an investment entity, therefore it does
not consolidate its Subsidiary but recognises
it as an investment at fair value through
profit or loss. The fair value of the Subsidiary
is based on its net assets which comprises
investments held at fair value, cash, income
receivable and other receivables/payables.
The Company receives income from its Subsidiary
and there are no significant restrictions
on the transfer of funds to or from the Subsidiary.
(b) Transaction costs
During the year, expenses were incurred in
acquiring or disposing of investments classified
as fair value through profit or loss. The
total costs were as follows:
Year ended Year ended
31 August 31 August
2017 2016
GBP'000 GBP'000
Purchases 4 4
Sales 3 4
_______ _______
7 8
_______ _______
10. Creditors: amounts falling due within one year
Bank loan
During the year the Company entered into a new
GBP8 million (2016 - GBP10 million) three year
unsecured revolving multi-currency loan facility
with Scotiabank (Ireland) Designated Activity
Company expiring on 15 August 2020. At the year
end GBP6,500,000 was drawn down (2016 - GBP7,500,000)
under the facility, fixed to 15 September 2017
at an all-in rate of 1.32544%.
At the date this Report was approved, GBP6,500,000
was drawn down under this facility and fixed
to 16 November 2017 at an all-in rate of 1.37544%.
Under the terms of the loan facilities the Company's
borrowings must not exceed 25% of adjusted NAV.
Adjusted NAV is defined as total net assets less,
inter alia, the aggregate of all excluded assets,
excluded assets being, without double counting,
the value of any unquoted assets, all investments
issued by a single issuer in excess of 15% of
total NAV, all Brazilian and Mexican bonds in
excess of 30%, any MSCI Industry category in
excess of 25% and cash, and any shortfall in
cash, equities and investment Grade bonds below
70%.
The Directors are of the opinion that there is
no significant difference between the carrying
value and fair value of the bank loan due to
its short term nature.
2017 2016
11. Stated capital Number GBP'000 Number GBP'000
Issued and fully paid
- Ordinary shares
Balance brought forward 64,152,824 65,936 65,022,824 65,389
Ordinary shares bought
back in the period (2,015,000) - (870,000) -
Deferred shares redeemed
in the period - - - 547
_______ _______ _______ _______
Balance carried forward 62,137,824 65,936 64,152,824 65,936
_______ _______ _______ _______
2017 2016
Number GBP'000 Number GBP'000
Issued and fully paid
- Subscription shares
Balance brought forward - - 10,420,986 547
Subscription shares
converted to deferred
shares and redeemed
in the period - - (10,420,986) (547)
_______ _______ _______ _______
Balance carried forward - - - -
_______ _______ _______ _______
2017 2016
Number GBP'000 Number GBP'000
Issued and fully paid
- Treasury shares
Balance brought forward 2,420,000 - 1,550,000 -
Ordinary shares bought
back in the period 2,015,000 - 870,000 -
_______ _______ _______ _______
Balance carried forward 4,435,000 - 2,420,000 -
_______ _______ _______ _______
2017 2016
Number GBP'000 Number GBP'000
Issued and fully paid
- Deferred shares
Balance brought forward - - - -
Subscription shares
converted in the period - - 10,420,986 547
Deferred shares redeemed
in the period - - (10,420,986) (547)
_______ _______ _______ _______
Balance carried forward - - - -
_______ _______ _______ _______
Stated capital 66,572,824 65,936 66,572,824 65,936
_______ _______ _______ _______
The Company's Ordinary shares have no par value.
The number of Ordinary shares authorised for
issue is unlimited.
During the year ended 31 August 2017, 2,015,000
(2016 - 870,000) Ordinary shares were bought
back at a total cost of GBP1,457,000 (2016 -
GBP441,000) including expenses. All of these
shares were placed in treasury (2016 - same).
Shares held in treasury consisting of 4,435,000
(2016 - 2,420,000) Ordinary shares represent
6.66% (2016 - 3.64%) of the Company's total issued
share capital at 31 August 2017.
The Ordinary shares are entitled to all of the
capital growth in the Company's assets and to
all the income from the Company that is resolved
to be distributed.
2017 2016
12. Capital reserve GBP'000 GBP'000
At beginning of year (18,754) (30,722)
Payment of dividend - (154)
Currency losses (183) (1,222)
Forward foreign currency contracts
(losses)/gains (65) 132
Movement in investment holdings
fair value gains 9,956 16,102
Loss on sales of investments (940) (2,118)
Capitalised expenses (403) (331)
Purchase of own shares to be held
in treasury (1,457) (441)
_______ _______
At end of year (11,846) (18,754)
_______ _______
13. Net asset value per Ordinary share
The basic net asset value per Ordinary share
is based on a net asset value of GBP56,170,000
(2016 - GBP48,463,000) and on 62,137,824 (2016
- 64,152,824) Ordinary shares, being the number
of Ordinary shares issued and outstanding at
the year end.
14. Risk management policies and procedures
The Company, and through its Subsidiary, invests
in equities and sovereign bonds for the long
term so as to achieve its objective. In pursuing
its investment objective, the Company is exposed
to a variety of financial risks that could result
in a reduction in the Company's net assets and
a reduction in the revenue available for distribution
by way of dividends.
The Directors conclude that it is appropriate
to present the financial risk disclosures of
the Company and its wholly owned Subsidiary in
combination as this accurately reflects how the
Company uses its Subsidiary to carry out its
investment activities, including those relating
to portfolio allocation and risk management.
These financial risks of the Company and its
Subsidiary are market risk (comprising market
price risk, currency risk and interest rate risk),
liquidity risk and credit risk, and the Directors'
approach to the management of these risks, are
set out below. The Board of Directors is responsible
for the Company's risk management. The overall
risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential
adverse effects on the Company's financial performance.
The Board determines the objectives, policies
and processes for managing the risks that are
set out below, under the relevant risk category
and relies upon Aberdeen's system of internal
controls. The policies for the management of
each risk are unchanged from the previous accounting
period.
(a) Market risk
The fair value of a financial instrument held
by the Company and its Subsidiary may fluctuate
due to changes in market prices. Market risk
comprises - market price risk (see note 14(b)),
currency risk (see note 14(c)) and interest
rate risk (see note 14(d)). The Investment
Manager assesses the exposure to market risk
when making each investment decision, and
monitors the overall level of market risk
on the whole of the investment portfolio on
an ongoing basis.
(b) Market price risk
Market price risks (i.e. changes in market
prices other than those arising from interest
rate risk or currency risk) may affect the
value of the quoted investments.
Management of the risk
The Board of Directors monitors the risks
inherent in the investment portfolio by ensuring
full and timely access to relevant information
from the Investment Manager. The Board meets
regularly and at each meeting reviews investment
performance. The Board monitors the Investment
Manager's compliance with the Company's objectives,
and is directly responsible for oversight
of the investment strategy and asset allocation.
Concentration of exposure to market price
risk
A geographical analysis of the Company's and
its Subsidiary's combined investment portfolio
is shown in the Annual Report. This shows
the significant amounts invested in Argentina,
Brazil, Chile, Colombia, Mexico, and Peru.
Accordingly, there is a concentration of exposure
to those countries, though it is recognised
that an investment's country of domicile or
of listing does not necessarily equate to
its exposure to the economic conditions in
that country.
Market price sensitivity
The following table illustrates the sensitivity
of the return after taxation for the year
and the equity to an increase or decrease
of 10% (2016 - 10%) in the fair value of the
Company's and its Subsidiary's investments.
This level of change is considered to be reasonably
possible based on observation of past and
current market conditions. The sensitivity
analysis is based on the Company's and its
Subsidiary's investments at each balance sheet
date and the investment management fees for
the year ended 31 August 2017, with all other
variables held constant.
2017 2017 2016 2016
Increase Decrease Increase Decrease
in fair in fair in fair in fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Statement of Comprehensive
Income - return
after tax
Revenue return (25) 25 (22) 22
Capital return 6,111 (6,111) 5,443 (5,443)
_______ _______ _______ _______
Impact on total
return after tax
for the year and
net assets 6,086 (6,086) 5,421 (5,421)
_______ _______ _______ _______
(c) Currency risk
Most of the Company's and its Subsidiary's
assets, liabilities and income are denominated
in currencies other than sterling (the Company's
functional currency, and in which it reports
its results). As a result, movements in exchange
rates may affect the sterling value of those
items.
Management of the risk
The Investment Manager manages the Company's
exposure to foreign currencies and reports
to the Board on a regular basis.
The Investment Manager also manages the risk
to the Company and its Subsidiary of the foreign
currency exposure by considering the effect
on the Company's NAV and income of a movement
in the exchange rates to which the Company's
and Subsidiary's assets, liabilities, income
and expenses and those of its Subsidiary are
exposed.
Income denominated in foreign currencies is
converted into sterling on receipt. The Company
and its Subsidiary do not use financial instruments
to mitigate currency exposure in the period
between the time that income is included in
the financial statements and its receipt.
Foreign currency exposure
The table below shows, by currency, the split
of the Company and Subsidiary's non-sterling
monetary assets and investments that are denominated
in currencies other than sterling. The exposure
is shown on a look through basis.
ARS BRL CLP COP MXN PEN UYU USD
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Debtors (due
from brokers,
dividends and
other receivables) 79 328 - 59 170 8 95 122
Cash - 8 7 - 4 - - 42
Creditors (due
to brokers,
accruals and
other creditors) - (66) - - (132) (28) - (5)
_____ _____ _____ _____ _____ _____ _____ _____
Total foreign
currency exposure
on net monetary
items 79 270 7 59 42 (20) 95 159
Investments
at fair value
through profit
or loss 2,268 29,821 3,152 4,493 11,599 2,225 4,781 3,142
_____ _____ _____ _____ _____ _____ _____ _____
Total net foreign
currency exposure 2,347 30,091 3,159 4,552 11,641 2,205 4,876 3,301
_____ _____ _____ _____ _____ _____ _____ _____
ARS BRL CLP COP MXN PEN UYU USD
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Debtors (due
from brokers,
dividends and
other receivables) - 281 - 70 90 76 136 29
Cash - 65 - - 20 - - 86
Creditors (due - - - - (20) - - -
to brokers,
accruals and
other creditors)
_____ _____ _____ _____ _____ _____ _____ _____
Total foreign
currency exposure
on net monetary
items - 346 - 70 90 76 136 115
Investments
at fair value
through profit
or loss 523 27,582 1,676 5,204 8,374 2,159 6,053 3,185
_____ _____ _____ _____ _____ _____ _____ _____
Total net foreign
currency exposure 523 27,928 1,676 5,274 8,464 2,235 6,189 3,300
_____ _____ _____ _____ _____ _____ _____ _____
Foreign currency sensitivity
The sensitivity of the total return after
tax for the year and the net assets in regard
to the movements in the Company's and its
Subsidiary's foreign currency financial assets
and financial liabilities and the exchange
rates for the GBP/Argentine Peso (ARS), GBP/Brazilian
Real (BRL), GBP/Chilean Peso (CLP), GBP/Colombian
Peso (COP), GBP/Mexican Peso (MXN), GBP/Peruvian
Nuevo Sol (PEN), GBP/Uruguayan Peso (UYU)
and GBP/US Dollar USD) are set out below:
It assumes the following changes in exchange
rates:
GBP/Argentine Peso +/-60% (2016 +/- 123%)
(maximum downside risk 100%)
GBP/Brazilian Real +/-9% (2016 +/-15%)
GBP/Chilean Peso +/-18% (2016 +/-13%)
GBP/Columbian Peso +/-19% (2016 +/-29%)
GBP/Mexican Peso +/-6% (2016 +/-20%)
GBP/Peruvian Nuevo Sol +/-12% (2016 +/-2%)
GBP/Uruguayan Peso +/-7% (2016 +/-8%)
GBP/US Dollar +/-22% (2016 +/-15%)
These percentages have been determined based
on the average market volatility in exchange
rates in the previous 3 years and using the
Company's and its Subsidiary's foreign currency
financial assets and financial liabilities
held at each balance sheet date.
For 2017, if sterling had strengthened against
the currencies shown, this would have had
the following effect, with a weakening of
sterling having an equal and opposite effect:
ARS BRL CLP COP MXN PEN UYU USD
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Statement
of
Comprehensive
Income -
return after
tax
Revenue return (47) (30) - (11) (10) (1) (7) (27)
Capital return (1,361) (2,679) (569) (854) (688) (264) (335) (699)
_____ _____ _____ _____ _____ _____ _____ _____
Impact on
total return
after tax
for the year
and net assets (1,408) (2,708) (569) (865) (698) (265) (341) (726)
_____ _____ _____ _____ _____ _____ _____ _____
For 2016, if sterling had strengthened against
the currencies shown, this would have had
the following effect, with a weakening of
sterling having an equal and opposite effect:
ARS BRL CLP COP MXN PEN UYU USD
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Statement
of
Comprehensive
Income -
return after
tax
Revenue return - (42) - (20) (18) (2) (11) (4)
Capital return (523) (4,147) (218) (1,509) (1,675) (43) (484) (491)
_____ _____ _____ _____ _____ _____ _____ _____
Impact on
total return
after tax
for the year
and net assets (523) (4,189) (218) (1,529) (1,693) (45) (495) (495)
_____ _____ _____ _____ _____ _____ _____ _____
The above sensitivity analyses are not representative
of the year as a whole, since the level of
exposure changes frequently.
Foreign exchange contracts
The following forward contracts were outstanding
at the Balance Sheet date:
Unrealised
gain/(loss)
31 August
Buy Sell Settlement Amount Contracted 2017
Date Currency Currency date '000 rate GBP'000
of contract
10 July 13 October
2017 GBP USD 2017 2,146 1.2904 (1)
10 July 13 October
2017 MXN GBP 2017 2,464 23.1535 42
19 July 13 October
2017 GBP MXN 2017 636 23.1535 (1)
24 July 13 October
2017 USD GBP 2017 61 1.2904 1
04 August 13 October
2017 USD GBP 2017 778 1.2904 10
07 August 13 October
2017 GBP USD 2017 55 1.2904 (1)
08 August 13 October
2017 GBP USD 2017 53 1.2904 -
15 August 22 November
2017 COP USD 2017 204 1.2920 3
15 August 22 November
2017 USD PEN 2017 2,182 1.2920 (10)
18 August 13 October
2017 GBP USD 2017 410 1.2904 -
Unrealised
gain/(loss)
31 August
Buy Sell Settlement Amount Contracted 2016
Date Currency Currency date '000 rate GBP'000
of contract
08 July 17 October
2016 MXN GBP 2016 3,068 24.8467 (20)
12 July 17 October
2016 USD GBP 2016 114 1.3111 1
21 July 17 October
2016 USD GBP 2016 272 1.3111 2
08 July 17 October
2016 GBP USD 2016 3,523 1.3111 37
22 August 17 October
2016 GBP USD 2016 404 1.3111 (1)
17 August 23 November
2016 USD BRL 2016 1,525 1.3120 -
17 August 23 November
2016 USD PEN 2016 2,195 1.3120 46
The fair value of forward exchange contracts
is based on forward exchange rates at the
Balance Sheet date.
A sensitivity analysis of foreign currency
contracts is not presented as the Directors
conclude that these are not significant given
the short duration of the contracts and expected
volatility of the respective foreign exchange
rates over the term of the contracts.
(d) Interest rate risk
Interest rate risk is the risk that arises
from fluctuating interest rates. Interest
rate movements may affect:
the fair value of the investments in fixed
interest rate securities;
the level of income receivable on cash deposits;
interest payable on the Company's variable
interest rate borrowings.
The interest rate risk applicable to a bond
is dependent on the sensitivity of its price
to interest rate changes in the market. The
sensitivity depends on the bond's time to
maturity, and the coupon rate of the bond.
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 decisions.
Financial assets
The Company and its Subsidiary hold fixed
rate government bonds with prices determined
by market perception as to the appropriate
level of yields given the economic background.
Key determinants include economic growth prospects,
inflation, the relevant government's fiscal
position, short-term interest rates and international
market comparisons. The Investment Manager
takes all these factors into account when
making investment decisions. Each quarter
the Board reviews the decisions made by the
Investment Manager and receives reports on
each market in which the Company and its Subsidiary
invest together with economic updates.
Returns from bonds are fixed at the time of
purchase, as the fixed coupon payments are
known, as are the final redemption proceeds.
This means that if a bond is held until its
redemption date, the total return achieved
is unaltered from its purchase date. However,
over the life of a bond the market price at
any given time will depend on the market environment
at that time. Therefore, a bond sold before
its redemption date is likely to have a different
price to its purchase price and a profit or
loss may be incurred.
Financial liabilities
The Company primarily finances its operations
through use of equity and bank borrowings.
The Company has a revolving multi-currency
facility, details of which are disclosed in
note 12.
The Board actively monitors its bank borrowings.
A decision on whether to roll over its existing
borrowings will be made prior to their maturity
dates, taking into account the Company's policy
of not having any fixed, long-term borrowings.
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 exposure
The exposure at 31 August of financial assets
and financial liabilities to interest rate
risk is shown by reference to floating interest
rates - when the interest rate is due to be
re-set.
2017 2016
Within Within
one year Total one Total
year
GBP'000 GBP'000 GBP'000 GBP'000
Exposure to floating
interest rates
Cash 653 653 524 524
Borrowings under loan
facility (6,500) (6,500) (7,500) (7,500)
________ ________ ________ ________
Total net exposure
to interest rates (5,847) (5,847) (6,976) (6,976)
________ ________ ________ ________
The Company does not have any fixed interest
rate exposure to cash or bank borrowings at
31 August 2017 (2016 - nil). Interest receivable
and finance costs are at the following rates:
interest received on cash balances, or paid
on bank overdrafts, is at a margin below LIBOR
or its foreign currency equivalent (2016 -
same).
interest paid on borrowings under the loan
facility was at a margin above LIBOR. The
weighted average interest rate of these at
31 August 2017 was 1.220264%.
Interest rate sensitivity
A sensitivity analysis demonstrates the sensitivity
of the Company's results for the year to a
reasonably possible change in interest rates,
with all other variables held constant.
The sensitivity of the profit/(loss) for the
year is the effect of the assumed change in
interest rates on:
the net interest income for the year, based
on the floating rate financial assets held
at the Balance Sheet date; and
changes in fair value of investments for the
year, based on revaluing fixed rate financial
assets and liabilities at the Balance Sheet
date.
If interest rates had been 50 basis points
higher or lower and all other variables were
held constant, the Company's net interest
for the year ended 31 August 2017 would decrease/increase
by GBP29,000 (2016 - GBP35,000). This is attributable
to the Company's exposure to interest rates
on its floating rate cash balances and bank
loan.
If interest rates had been 50 basis points
higher and all other variables were held constant,
a change in fair value of the Company's fixed
rate financial assets at the year ended 31
August 2017 of GBP30,766,000 (2016 - GBP32,102,000)
would result in a decrease of GBP880,000 (2016
- GBP742,000). If interest rates had been
50 basis points lower and all other variables
were held constant, a change in fair value
of the Company's fixed rate financial assets
at the year ended 31 August 2017 would result
in an increase of GBP923,000 (2016 - GBP774,000).
(e) Liquidity risk
This is the risk that the Company will encounter
difficulty in meeting obligations associated
with financial liabilities.
Management of the risk
The majority of the Company's and its Subsidiary's
assets are investments in quoted bonds and
equities that are actively traded. The Company's
level of borrowings is subject to regular
review.
The Company's investment policy allows the
Investment Manager to determine the maximum
amount of the Company's resources that should
be invested in any one company.
Liquidity risk exposure
The remaining contractual maturities of the
financial liabilities at 31 August 2017, based
on the earliest date on which payment can
be required are as follows:
Due
Due between Due
within 3 months after
3 months and 1 1 year Total
year
31 August 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors: amounts
falling due within
one year
Borrowings under the
loan facility (including
interest) (6,504) - - (6,504)
Amounts due on forward
foreign currency contracts (13) - - (13)
Amounts due to brokers
and accruals (316) - - (316)
________ ________ ________ ________
(6,833) - - (6,833)
________ ________ ________ ________
Due
Due between Due
within 3 months after
3 months and 1 1 year Total
year
31 August 2016 GBP'000 GBP'000 GBP'000 GBP'000
Creditors: amounts
falling due within
one year
Borrowings under the
loan facility (including
interest) (7,504) - - (7,504)
Amounts due on forward
foreign currency contracts (21) - - (21)
Amounts due to brokers
and accruals (137) - - (137)
________ ________ ________ ________
(7,662) - - (7,662)
________ ________ ________ ________
(f) Credit risk
The failure of the counterparty to a transaction
to discharge its obligations under that transaction
could result in the Company or its Subsidiary
suffering a loss.
Management of the risk
Investment transactions are carried out with
a number of brokers, whose credit-standing
is reviewed regularly by Aberdeen, and limits
are set on the amount that may be due from
any one broker; the risk of counterparty exposure
due to failed trades causing a loss to the
Company or its Subsidiary is mitigated by
the review of failed trade reports on a daily
basis. In addition, the administrator carries
out both cash and stock reconciliations to
the custodians' records on a daily basis to
ensure discrepancies are detected on a timely
basis.
Cash is held only with reputable banks with
high quality external credit ratings. None
of the Company's or its Subsidiary's financial
assets have been pledged as collateral.
Credit risk exposure
In summary, compared to the amounts included
in the Balance Sheet, the maximum exposure
to credit risk at 31 August was as follows:
2017 2016
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Bonds at fair value
through profit or
loss{A} 30,766 30,766 32,102 32,102
Current assets
Cash 653 653 524 524
Other receivables 473 473 338 338
Forward foreign currency
contracts 56 56 86 86
________ ________ ________ ________
31,948 31,948 33,050 33,050
________ ________ ________ ________
{A}Includes quoted bonds held by the Company
and its Subsidiary on a look-through basis.
For more detail on these bonds refer to Investment
Portfolio - Bonds above.
None of the Group's financial assets are secured
by collateral or other credit enhancements
and none are past their due date or impaired.
Credit ratings
The table below provides a credit rating profile
using Standard and Poors credit ratings for
the bond portfolio at 31 August 2017 and 31
August 2016:
2017 2016
GBP'000 GBP'000
A 7,459 5,556
A- 2,136 2,159
BB 10,861 13,563
BBB 8,771 10,824
Non-rated 1,539 -
________ ________
30,766 32,102
________ ________
At 31 August 2017 the Standard and Poors credit
ratings agency did not provide a rating for
the Argentinian bonds or the Peruvian corporate
bond held by the Company and were accordingly
categorised as non-rated in the table above.
15. Capital management policies and procedures
The Company's capital management objectives are:
to ensure that it will be able to continue as
a going concern; and
to maximise the income and capital return to
its Equity Shareholders through equity capital
and debt.
The Company's capital at 31 August 2017 comprises
its equity capital and reserves that are shown
in the Balance Sheet at a total of GBP56,170,000
(2016 - GBP48,463,000). As at 31 August 2017
gross debt as a percentage of net assets stood
at 11.6% (2016 - 15.5%).
The Board, with the assistance of Aberdeen, monitors
and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes:
the planned level of gearing, which takes account
of Aberdeen's views on the market;
the need to buy back Ordinary shares for cancellation
or treasury, which takes account of the difference
between the net asset value per share and the
share price (i.e. the level of share price discount);
the need for new issues of Ordinary shares, including
issues from treasury; and
the extent to which distributions from reserves
may be made.
The Company's objectives, policies and processes
for managing capital are unchanged from the preceding
accounting period.
16. Related party transactions
Fees payable during the year to the Directors
are disclosed within the Directors' Remuneration
Report in the Annual Report.
Mr Prosser is a group director of Estera Group
(formerly known as Appleby Group) and a director
of its wholly-owned trust company, Estera Trust
(Jersey) Limited (formerly known as Appleby Trust
(Jersey) Limited).
Mr Gilbert is a director of Standard Life Aberdeen
plc, of which APWML is a subsidiary. Management,
promotional activities and secretarial, administration
and custody services are provided by APWML with
details of transactions during the year and balances
outstanding at the year end disclosed in notes
5 and 6. Mr Gilbert does not draw a fee for providing
his services as a Director of the Company.
Under the terms of the management agreement with
the Company, APWML is entitled to receive both
a management fee and a company secretarial and
administration fee. The company secretarial and
administration fee is based on an annual amount
of GBP114,000 (31 August 2016 - waived), increasing
annually in line with any increases in the UK
Retail Prices Index, payable quarterly in arrears.
During the period GBP85,500 (31 August 2016 -
N/A) were payable with GBP28,500 (31 August 2016
- N/A) outstanding at the period end. APWML agreed
to waive its company secretarial and administration
fee of GBP114,000, for the year ended 31 August
2016. This waiver constitutes a smaller related
party transaction for the purpose of LR 11.1.10
R of the Financial Conduct Authority's Listing
Rules.
The Manager has agreed to ensure that the Company's
ongoing charges ratio ("OCR") will not exceed
2.0% when calculated annually as at 31 August.
Until further notice, to the extent that the
OCR ever exceeds 2.0% the Manager will rebate
part of its fees in order to bring that ratio
down to 2.0%.
The Company owns 100% of the share capital of
its Subsidiary. The Company receives income from
its Subsidiary and there are no significant restrictions
on the transfer of funds to or from the Subsidiary.
During the year the Subsidiary transferred GBP4,616,000
(2016 - GBP2,301,000) to the Company by way of
income and capital returns and at 31 August 2017
the amount due to the Company by its Subsidiary
was GBP17,141,000 (2016 - GBP21,757,000).
17. Controlling party
The Company has no immediate or ultimate controlling
party.
18. Fair value hierarchy
IFRS 13 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 Company has classified 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 (i.e.
as prices) or indirectly (i.e. derived from
prices); and
- Level 3: inputs for the asset or liability
that are not based on observable market data
(unobservable inputs).
Financial assets and financial liabilities are
either carried in the balance sheet at their
fair value (investments and forward currency
contracts) or the balance sheet amount is a reasonable
approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers,
accruals, cash at bank and amounts due under
the loan facility).
The financial assets and liabilities measured
at fair value in the Balance Sheet grouped into
the fair value hierarchy at 31 August 2017 as
follows:
Level Level Total
1 2
Note GBP'000 GBP'000 GBP'000
Financial assets/(liabilities)
at fair value through profit
or loss
Quoted equities a) 16,599 - 16,599
Quoted bonds b) - 19,904 19,904
Investment in Subsidiary c) - 25,318 25,318
16,599 45,222 61,821
Forward foreign currency
contracts d) - 56 56
Forward foreign currency
contracts d) - (13) (13)
_______ _______ _______
Net fair value 16,599 45,265 61,864
_______ _______ _______
Level Level Total
1 2
As at 31 August 2016 Note GBP'000 GBP'000 GBP'000
Financial assets/(liabilities)
at fair value through profit
or loss
Quoted equities a) 13,165 - 13,165
Quoted bonds b) - 18,540 18,540
Investment in Subsidiary c) - 23,472 23,472
13,165 42,012 55,177
Forward foreign currency
contracts d) - 86 86
Forward foreign currency
contracts d) - (21) (21)
_______ _______ _______
Net fair value 13,165 42,077 55,242
_______ _______ _______
There were no assets for which significant unobservable
inputs (Level 3) were used in determining fair
value during the years ended 31 August 2017 and
31 August 2016. For the years ended 31 August
2017 and 31 August 2016 there were no transfers
between any levels.
a) Quoted equities
The fair value of the Company's investments
in quoted equities has been determined by
reference to their quoted bid prices at the
reporting date. Quoted equities included in
Fair Value Level 1 are actively traded on
recognised stock exchanges.
b) Quoted bonds
The fair value of the Company's investments
in Level 1 quoted bonds has been determined
by reference to their quoted bid prices in
active markets. The fair value of Level 2
quoted bonds has been determined by reference
to their quoted bid prices which are adjusted
for indexation arising from the movement of
the consumer prices index within the country
of their incorporation.
c) Investment in Subsidiary
The Company's investment in its Subsidiary
is categorised in Fair Value Level 2 as its
fair value has been determined by reference
to the Subsidiary's net asset value at the
reporting date. The net asset value is predominantly
made up of quoted equities traded on recognised
stock exchanges (2017 - 55.8%; 2016 - 40.4%)
and quoted bonds (2017 - 42.9%; 2016 - 57.8%)
in Fair Value Levels 1 and 2 respectively.
d) Forward foreign currency contracts
The fair value of forward currency contracts
is calculated by reference to current forward
exchange rates for contracts with similar
maturity profiles.
19. Subsequent events
Subsequent to the Balance Sheet date, the Company
purchased a further 130,000 Ordinary shares to
be held in treasury for a total cost of GBP102,000.
20. Alternative Performance Measures
The table below provides information relating
to the underlying net asset values ("NAV") and
share prices of the Company on the dividend reinvestment
dates during the years ended 31 August 2017 and
31 August 2016.
2017 2016
Dividend Share Dividend Share
Rate NAV Price Rate NAV Price
Date (pence) (pence) (pence) Date (pence) (pence) (pence)
6 October 8 October
2016 0.875 79.28 68.63 2015 1.250 54.33 48.75
15 December 17 December
2016 0.875 73.42 64.00 2015 0.875 51.41 46.00
27 April 21 April
2017 0.875 82.26 72.88 2016 0.875 61.85 54.00
6 July 7 July
2017 0.875 81.09 71.13 2016 0.875 71.90 62.25
The Annual General Meeting will be held at 10.00 a.m. on 7 December 2017 at 1(st) Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB.
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.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The Annual Report and financial statements will be delivered to the Jersey Financial Services Commission in due course.
The audited Annual Report and financial statements will be posted in November. Copies may be obtained during normal business hours from the Company's Registered Office, Aberdeen Private Wealth Management Limited, 1(st) Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB or from the Company's website, latamincome.co.uk*.
* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
By Order of the Board
Aberdeen Private Wealth Management Limited
Secretary
18 October 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR MPBLTMBTBBAR
(END) Dow Jones Newswires
October 19, 2017 02:00 ET (06:00 GMT)
1 Year Abrdn Latin American Inc... Chart |
1 Month Abrdn Latin American Inc... Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
