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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Abrdn Diversified Income And Growth Plc | LSE:ADIG | London | Ordinary Share | GB0001297562 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 75.60 | 75.20 | 76.00 | 43,054 | 08:33:18 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 3.49M | -299k | -0.0010 | -756.00 | 233.74M |
From Apr 2019 to Apr 2024
TIDMADIG
RNS Number : 0579C
Aberdeen Diversified I&G Trust PLC
17 January 2018
ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC
Legal Entity Identifier (LEI): 2138003QINEGCHYGW702
Information disclosed in accordance with Section 4.1.3 of the FCA's Disclosure Guidance and Transparency Rules ("DTR")
ANNUAL FINANCIAL REPORT FOR THE YEARED 30 SEPTEMBER 2017
COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS
Aberdeen Diversified Income and Growth Trust plc (the "Company") is an investment trust with its Ordinary shares listed on the premium segment of the London Stock Exchange. The Company targets a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.
The Company is governed by a board of directors, all of whom are independent, and has no employees. Like most other investment companies, the Company outsources its investment management and administration to an investment management group, the Aberdeen Group, and other third party providers. The Company does not have a fixed life.
Hot Features
Premium
Net asset value total return Share price total
{AB} return {A}
2017 +7.6% 2017 +14.6%
2016 -0.4% 2016 -10.2%
Revenue return per Dividend per
share share
2017 5.31p 2017 5.89p
2016 7.56p 2016 6.54p
Ongoing charges {C} Discount to net asset
value (capital basis)
{AB}
2017 0.58% 2017 3.1%
2016 0.62% 2016 6.9%
{A} Alternative Performance Measures (see note 16
and note 22 for more information).
{B} Debt at fair value.
{C} Lower than would normally be expected due to
management fee waiver in place during the year (see
note 4 and note 19 for details).
COMPANY OVERVIEW - CHAIRMAN'S STATEMENT
A Year of Significant Change
On 11 February 2017, Aberdeen Fund Managers Limited was appointed Manager in place of BlackRock and the Company was renamed Aberdeen Diversified Income and Growth Trust plc. A discount control policy was announced on 13 February 2017 and shareholders approved a new investment objective and policy at the General Meeting held on 30 March 2017. In early April 2017, a 20% tender offer and merger with Aberdeen UK Tracker Trust plc resulted in an enlargement of your company with a 24% net increase in shareholders' funds and changes to the Board of Directors.
It is still early days and, whilst our performance should be judged over the rolling five year cycles of our new investment objective, it is nevertheless heartening to report an encouraging set of performance outcomes, further details of which are covered in the sections below:
- Our net asset value ("NAV"), calculated with debt at fair value, is up by 7.6% over the year ended 30 September 2017 (the "Year") on a total return basis
- Our discount, calculated using an NAV with debt at fair value and excluding income, improved from 6.9% to 3.1% over the Year, and had narrowed further to 2.3% at the time of writing
- Our dividend, at an annualised rate based on the fourth interim dividend, would have equated to a dividend yield of 4.3% based on the year end share price
- Our total shareholder return was 14.6% for the Year
Net Asset Value and Shareholder Return
Over the year ended 30 September 2017, the Company's NAV per share, with debt at fair value, rose 7.6% on a total return basis. The Company's share price ended the year at 120.50p, compared to 111.0p at 30 September 2016, resulting in a total return to shareholders over the year of 14.6%, which compares to a total return of -10.2% for the previous year. The Company's performance during the year is split into two periods, before and after the appointment of Aberdeen Fund Managers Limited, and further information may be found in the Investment Manager's Report.
Earnings and Dividends
The Company's revenue return for the year ended 30 September 2017 was 5.31 pence per share, compared to 7.56 pence per share for the prior year.
First and second quarterly dividends of 1.635 pence per share were paid to shareholders on 24 March 2017 and 28 April 2017. A third interim dividend of 1.31 pence per share was paid to shareholders on 6 October 2017. This lower dividend was consistent with what was set out in the circular to shareholders published in March 2017 (the "Circular") which described the need to rebase the dividend to a more sustainable level and hence to declare quarterly dividends equivalent to an annualised rate of at least 5.2 pence per share (as compared to an annualised rate of 6.54 pence per share in the previous financial year).
On 19 December 2017, the Board declared a fourth interim dividend of 1.31 pence per share to be payable on 26 January 2018 to shareholders on the register on 29 December 2017. The ex dividend date was 28 December 2017. At an annualised rate, the fourth interim dividend would have equated to a dividend yield of 4.3%, based on a year end share price of 120.5 pence.
As in previous years, the Board intends to put to shareholders at the next Annual General Meeting ("AGM") in March 2018, a resolution in respect of its current policy to declare four interim dividends each year.
Discount Management Policy
The Board announced on 13 February 2017 that, in normal market conditions and subject to the prevailing gearing level and the composition of the Company's portfolio, it would implement a discount control policy to maintain the Company's share price discount to net asset value, calculated excluding income and with debt at fair value, at no wider than 5%. Over the period from 13 February 2017 to 30 September 2017, the average discount with debt at fair value and excluding income was 5.7%. The discount, calculated with debt at fair value and excluding income, narrowed from 6.9% to 3.1% over the year ended 30 September 2017. It is pleasing that the discount had narrowed further to 2.3% at the time of writing.
Other than in connection with the tender offer referred to below, 3,125,000 shares were bought back by the Company during the year ended 30 September 2017. This resulted in 329,066,705 shares in issue with voting rights and an additional 36,344,169 shares held in treasury at the year end. The Board continues to monitor closely the Company's discount and will undertake buybacks where it is in shareholders' interests to do so.
Tender Offer and Merger with Aberdeen UK Tracker Trust plc ("AUKT")
Following shareholder approval obtained at the General Meeting held on 30 March 2017, and further to the Circular, the Company announced on 6 April 2017 the repurchase of 53.4m shares, representing 20% of the Company's issued share capital. The Company also announced on 6 April 2017 the issue of 118.6m shares to those shareholders of AUKT electing to roll-over their shares, further to shareholder approval of the merger with AUKT. In aggregate, this equated to an increase in the Company's assets of GBP146m.
Appointment of Aberdeen Fund Managers Limited and New Investment Objective and Investment Policy
On 11 February 2017, the Company appointed Aberdeen Fund Managers Limited as Manager and changed its name to Aberdeen Diversified Income and Growth Trust plc.
As described in the Circular, the Manager contributed GBP849,000 to the Company in relation to the costs incurred in merging with AUKT. In addition, the Manager agreed to waive any entitlement to a management fee from the date of their appointment until 6 October 2017.
Following shareholder approval of the new investment objective and investment policy at the General Meeting on 30 March 2017, the Manager completed the realignment of the Company's investment portfolio during the second six months of the financial year. For up to date information on the portfolio, I would encourage shareholders to visit the Company's website (aberdeendiversified.co.uk) which includes a Manager's monthly factsheet containing commentary on the portfolio and performance.
Aberdeen Asset Management
The merger on 14 August 2017 between Aberdeen Asset Management PLC and Standard Life plc has resulted in a new investment division under the banner of Aberdeen Standard Investments. The Board will continue to monitor developments closely to ensure that consistent client service is maintained.
Gearing
The Company's net gearing fell to 12.8% at 30 September 2017, from 21.5% at 30 September 2016, reflecting the overall increase in net assets following the merger with AUKT and the cash outflow from the tender offer.
Board Composition
Lynn Ruddick and Jimmy West retired as Directors on 6 April 2017 following completion of the Company's merger with AUKT. Lynn served as a Director for over 11 years, including as Chairman from 2009 to 2015. The Board wishes to place on record its thanks to Lynn for her unstinting commitment as a Director, including her leadership of the Company. Jimmy retired after 21 years as a Director; the Board benefited from his wide investment company experience and from his steady guidance as Senior Independent Director.
At the same time, following the completion of the merger, I was delighted to welcome from AUKT Kevin Ingram, Tom Challenor and Paul Yates as Directors of the Company; Kevin succeeded Jimmy as the Company's Senior Independent Director.
Savings Planholders
Since April 2017, it has been possible to acquire shares in the Company via Aberdeen's Investment Plan for Children, Investment Trust Share Plan or Investment Trust ISA (the "Aberdeen Products"). Further information may be found under Investor Information in the published Annual Report.
With effect from May 2017, planholders in the BlackRock NISA and Share Plan were no longer permitted to own the Company's shares in BlackRock's wrapper products and were offered the opportunity to transfer to the equivalent Aberdeen Products. I am pleased to report that 10m shares transferred, whose owners maintained their shareholding, with Aberdeen planholders now representing 10% of the Company's share register. The Board is supporting the Manager's promotional activities, as part of the Aberdeen Investment Trust pooled programme, which are designed to attract new and retain current shareholders, with the aim of sustaining demand for the Company's shares among retail investors in particular.
AGM
The AGM, which will be held at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ from 11.30am on 2 March 2018, provides shareholders with an opportunity to hear a presentation from the Manager and to ask any questions that they may have of both the Board and the Manager. The Notice of AGM may be found in the published Annual Report. I look forward to meeting shareholders and Aberdeen Savings Planholders at the AGM.
Outlook
Against a background of global stock markets trading near-record highs and rising geopolitical tension across the world, there are reasons for caution as 2018 progresses. However, our new Manager has brought a simple and transparent investment process to deliver the new investment objective, which fully utilises the advantages of the closed ended structure. I believe that the Company continues to be well positioned to offer a diversified multi-asset approach which is attractive to current and potential investors.
James M Long
Chairman
16 January 2018
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The Company is an investment trust with a premium listing on the London Stock Exchange.
Investment Objective
With effect from 11 February 2017, the Company's investment objective was changed to target a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.
Up until 10 February 2017, the Company's investment objective was, over the medium term (five to seven years), to aim to preserve capital in real terms and to grow the dividend at least in line with inflation and to target a total portfolio return of UK Consumer Prices Index plus 4% per annum (before ongoing charges) over a five to seven year cycle.
Investment Policy
The Company invests globally using a flexible multi-asset approach via quoted and unquoted investments. The Company has not set maximum or minimum exposures for any geographical regions or sectors and will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. Further details of the new investment policy may be found in the Directors' Report.
Risk Diversification
It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.
Gearing
The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 20% of the net asset value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate.
Management and Delivering the Investment Objective
The Directors are responsible for determining the Company's investment objective and investment policy.
Day-to-day management of the Company's assets has been delegated to Aberdeen Fund Managers Limited ("AFML", the "AIFM" or the "Manager"). In turn, the investment management of the Company has been delegated by AFML to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are wholly owned subsidiaries of Aberdeen Asset Management PLC (the "Aberdeen Group") which is itself a subsidiary of Standard Life Aberdeen plc.
Investment Process
The Investment Manager believes that many investors could dramatically improve their long-run returns and / or reduce risk by having a more diversified portfolio. The Investment Manager's aim is to build a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers that will deliver an attractive return for the Company's shareholders. The Investment Manager engages all of its research capabilities, including specialist macro and asset class researchers, to identify appropriate investments. The approach, which incorporates a robust risk framework, is not constrained by a benchmark mix of assets. This flexibility ensures that the Investment Manager does not feel compelled to invest shareholders' capital in investments which they believe to be unattractive.
The Company's portfolio consists of investments from the widest range of asset classes. The portfolio may include equity-focussed investments, alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, asset backed securities, property, infrastructure, commodities, absolute return investments, insurance linked, farmland, royalty-based investments and aircraft leasing) and low return assets such as gold, investment grade credit, tail risk hedging and government bonds. Detailed investment research (including operational due diligence for unquoted funds managed by third parties) is carried out on each potential opportunity by specialist teams within the Investment Manager.
The weighting ascribed to each investment in the portfolio reflects the perceived attractiveness of the investment case, including the contribution to portfolio diversification. The Investment Manager also ensures that the weighting is in keeping with their overall strategic framework for the portfolio based on the return and valuation analysis of the Investment Manager's Economic and Thematic Research team. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis. A schematic of the investment process is included in the published Annual Report along with a description of the Investment Manager's risk control process.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining its progress in pursuing its investment policy. The primary KPIs are shown in the table below.
KPI Description
Investment performance The Board reviews the performance
of the portfolio as well as the net
asset value and share price for the
Company over a range of time periods
and compares this to the return on
the Company's target of LIBOR plus
5.5% per annum (net of fees) over
rolling five-year periods. The Board
also reviews NAV and share price
performance in comparison to the
performance of competitors in the
Company's peer group, the Association
of Investment Companies' Flexible
Investment sector, to assess how
the Company's performance compares
in the shorter term, given the limited
relevance of the target index over
shorter periods.
The Board also monitors the Company's
yield and compares this to the yield
generated by competitors in the Company's
peer group. The Board reviews the
sustainability of the Company's dividend
policy and regularly reviews revenue
forecasts and analysis provided by
the Investment Manager on the sources
of portfolio income in order to monitor
the extent to which dividends are
covered by revenue. The Company's
performance returns may be found
in Performance, below.
Premium/discount The Board monitors the level of the
to net asset Company's premium or discount to
value ("NAV") NAV and considers strategies for
managing this.
Up until 12 February 2017 the Board
had been implementing a policy whereby
share buybacks were pursued in order
to maintain the discount to NAV at
close to nil. On 13 February 2017,
the Company announced a discount
control mechanism for the Company
which was effective following the
implementation of the proposals on
30 March 2017, published on 6 March
2017, for the Company to merge with
Aberdeen UK Tracker Trust plc. Subject
to normal market conditions, the
prevailing gearing level and the
composition of the Company's portfolio,
the Company has implemented a discount
control mechanism to maintain the
Company's share price discount to
net asset value (ex income, debt
at fair value) at no wider than 5%,
by repurchasing Ordinary shares in
the market. The Board has also resolved
to put forward a continuation vote
to shareholders at the AGM in 2020
and at every AGM thereafter.
Ongoing charges The ongoing charges ratio reflects
those expenses which are likely to
recur in the foreseeable future,
whether charged to capital or revenue,
and which relate to the operation
of the Company as a collective investment
fund, excluding the costs of acquisition
or disposal of investments, financing
charges and gains or losses arising
on investments. The ongoing charges
are based on actual costs incurred
in the year as being the best estimate
of future costs. The Board reviews
the ongoing charges and monitors
the expenses incurred by the Company.
The Company's ongoing charges for
the year, and the previous year,
are disclosed in Financial Highlights,
noting that the figure of 0.58% reflects
a reduction in net management fees
following the Manager's agreement
to waive its entitlement to a management
fee for part of the year under review.
Principal Risks and Uncertainties
The key risks faced by the Company are set out below. The Board has in place a robust process to assess and monitor the principal risks of the Company. A core element of this is the Company's risk controls self-assessment ("RCSA"), which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment and plotted on a risk heat-map. This approach allows the effect of any mitigating procedures to be reflected in the final assessment which is within the risk appetite set by the Board.
The RCSA, its method of preparation and the operation of the key controls in the Manager's and third party service providers systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of the Manager's and other third party service providers' risk management processes, and how these apply to the Company's business, the Manager's internal audit department presents to the Audit Committee setting out the results of testing performed in relation to the Manager's internal control processes. The Audit Committee also periodically receives presentations from the Manager's compliance, internal audit and business risk teams, and reviews ISAE3402 reports from the Manager and from the Company's custodian (Bank of New York Mellon (International) Limited). The custodian is appointed by the Company's Depositary and does not have a direct contractual relationship with the Company.
The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The Board is confident that the procedures which the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year ended 30 September 2017.
The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can also be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website
Risk Mitigating Action
Performance risk
The Board is responsible To manage these risks
for determining the investment the Board regularly reviews
policy to fulfil the Company's the Company's investment
objectives and for monitoring mandate and long term
the performance of the strategy, and has put
Company's Investment Manager in place appropriate limits
and the strategy adopted. over levels of unlisted
An inappropriate policy alternative assets and
or strategy may lead to gearing. No more than
poor performance, dissatisfied 40% of the Company's total
shareholders and a widening assets, at the time of
discount. The Company may investment, may be invested
invest in unlisted alternative in aggregate in unlisted
investments (such as agricultural alternative assets.
land, development property,
infrastructure, private The Investment Manager
equity and trade finance). provides an explanation
These types of investments of significant investment
are expected to have a decisions, the rationale
different risk and return for the composition of
profile to the rest of the investment portfolio
the Company's investment and movements in the level
portfolio. They may be of gearing. The Board
relatively illiquid and monitors the maintenance
it may be difficult for of an adequate spread
the Company to realise of investments in order
these investments over to minimise the risks
a short time period, which associated with particular
may have a negative impact countries or factors specific
on performance. to particular sectors,
based on the diversification
requirements inherent
in the Company's investment
policy.
Portfolio risk
Risk analysis for a multi-asset The Board reviews portfolio
portfolio is more complex risk to ensure that the
due to the need to ensure risks being taken within
that correlation of risk the portfolio are appropriately
is appropriate across the diversified and relevant
various portfolio strategies. to the Company's portfolio
objective and market conditions.
The Board also reviews
portfolio attribution
data to understand the
impact on the Company's
relative performance of
the various components
such as asset allocation,
stock selection and gearing.
Gearing risk
The Company has the authority All borrowings require
to borrow money or increase the approval of the Board
levels of market exposure and gearing levels are
through the use of derivatives reviewed regularly by
(gearing) and does so when the Board and the Investment
the Investment Manager Manager. Borrowings (including
is confident that market the Bond) would not normally
conditions and opportunities be expected to exceed
exist to enhance investment 20% of shareholders' funds.
returns. However, if the Total gearing, including
investments fall in value, net derivative exposure,
any borrowings will magnify would not normally be
the extent of this loss. expected to result in
In addition, the Company net economic equity exposure
has in place fixed borrowings in excess of 120%.
in the form of a GBP60
million 6.25% Bond 2031
(the "Bond").
Income/dividend risk
The amount of dividends The Board monitors this
will depend on the Company's risk through the receipt
underlying portfolio. Any of detailed income forecasts
change in the tax treatment and considers the level
of the dividends or interest of income at each meeting.
received by the Company
(including as a result
of withholding taxes or
exchange controls imposed
by jurisdictions in which
the Company invests) may
reduce the level of dividends
received by shareholders.
Regulatory risk
The Company operates as The Investment Manager
an investment trust in monitors investment movements,
accordance with Chapter the level and type of
4 of Part 24 of the Corporation forecast income and expenditure
Tax Act 2010. As such, and the amount of proposed
the Company is exempt from dividends, if any, to
capital gains tax on the ensure that the provisions
profits realised from the of Chapter 4 of Part 24
sale of its investments. of the Corporation Tax
Act 2010 are not breached
and the results are reported
to the Board at each meeting.
Following authorisation
under the Alternative
Investment Fund Managers
Directive (AIFMD), the
Company and its appointed
AIFM are subject to the
risk that the requirements
of this Directive are
not correctly complied
with. The Board and the
AIFM also monitor changes
in government policy and
legislation which may
have an impact on the
Company.
Operational risk
In common with most other The security of the Company's
investment trust companies, assets, dealing procedures,
the Company has no employees. accounting records and
The Company therefore relies maintenance of regulatory
upon the services provided and legal requirements,
by third parties and is depend on the effective
dependent on the control operation of these systems
systems of the Manager in place with third parties.
and BNY Mellon Trust & These have been regularly
Depositary (UK) Limited tested and monitored throughout
(the Depositary). the year which is evidenced
through their SOC 1 reports
to provide assurance regarding
the effective operation
of internal controls which
are reported on by their
reporting accountants
and give assurance regarding
the effective operation
of controls. The Board
also considers succession
arrangements for key employees
of the Investment Manager
and the business continuity
arrangements for the Company's
key service providers.
Market risk
Market risk arises from The Board considers the
volatility in the prices diversification of the
of the Company's investments. portfolio, the portfolio
It represents the potential risk and portfolio beta,
loss the Company might asset allocation, stock
suffer through holding selection, unquoted investments
investments in the face and levels of gearing
of negative market movements. on a regular basis and
The Company invests in has set investment restrictions
global equities across and guidelines which are
a range of countries, and monitored and reported
changes in general economic on by the Investment Manager.
and market conditions in The Board monitors the
certain countries, such implementation and results
as interest rates, exchange of the investment process
rates, rates of inflation, with the Investment Manager.
industry conditions, competition,
political events and trends,
tax laws, national and
international conflicts,
economic sanctions and
other factors can also
substantially and adversely
affect the securities and,
as a consequence, the Company's
prospects and share price.
Financial risks
The Company's investment Further details are disclosed
activities expose it to in note 17 to the financial
a variety of financial statements, together with
risks which include foreign a summary of the policies
currency risk and interest for managing these risks.
rate risk.
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 (the "Programme") run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by the Aberdeen Group. The Aberdeen Group regularly reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the composition 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 the 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 has not set any measurable objectives in relation to its diversity but recognises the benefits, and is supportive, of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. In making new appointments, the Board's overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity. At 30 September 2017, there were seven male Directors following the merger with Aberdeen UK Tracker Trust PLC on 6 April 2017.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.
Socially Responsible Investment Policy
The Directors, through the Manager, encourage companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas. The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this must not be to the detriment of the return on the investment portfolio.
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 its website.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board conducted this review for the period up to the AGM in 2023, being a five year period from the date that this Annual Report is due to be approved by shareholders. The five year review period was selected because it is aligned with the medium term performance period of five years over which the Company is assessed in its objective of target returns of LIBOR +5.5% per annum (net of fees) over rolling five-year periods. 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 five years.
In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:
- the principal risks and uncertainties detailed above and the steps taken to mitigate these risks;
- the relevance of the Company's investment objective and investment policy, especially in the current low yield environment, which targets a truly diversified multi-asset approach to generate highly attractive long-term income and capital returns;
- the majority of the Company's investment portfolio is invested in securities which are realisable within a short timescale;
- the level of share buy backs carried out in the past have not resulted in significant reductions to the capital of the Company;
- although the Company's stated investment policy contains a gearing limit of 20% of the net asset value at the time of draw down, the Board's policy is to have a relatively modest level of equity gearing and the financial covenants attached to the Company's borrowings provide for significant headroom;
- the continuation vote to be put to shareholders at the AGM in 2020 and at each subsequent AGM;
- the level of demand for the Company's shares.
In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock or significant stock market volatility, and changes in regulation or investor sentiment.
The Board has also considered a number of financial metrics, including:
- the level of current and historic ongoing charges incurred by the Company; - the share price premium or discount to NAV; - the level of income generated by the Company; - future income forecasts; and - the liquidity of the Company's portfolio.
As an investment Company with a relatively liquid portfolio and largely fixed overheads which comprise a very small percentage of net assets, the Board has concluded that, even in exceptionally stressed operating conditions, the
Company would be able to meet its ongoing operating costs as they fall due.
Taking into account the Company's current position 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 five years from the date of this Report, subject to shareholders' approval of the continuation vote at the AGM in 2020, and at each AGM thereafter.
Outlook
The Board's view on the general outlook for the Company can be found in the Chairman's Statement while the Investment Manager's views on the outlook for the portfolio are included in their report.
On behalf of the Board
James M Long
Chairman
16 January 2018
STRATEGIC REPORT - RESULTS
FINANCIAL HIGHLIGHTS
2017 2016 % change
Total assets less current
liabilities (before deducting
prior charges) GBP496,399,000 GBP429,211,000 +15.7
Equity shareholders' funds
(Net Assets) GBP436,767,000 GBP351,521,000 +24.3
Market capitalisation GBP396,525,000 GBP296,411,000 +33.8
Ordinary share price (mid
market) 120.50p 111.00p +8.6
Net asset value per Ordinary
share (debt at par) 132.73p 131.64p +0.8
Net asset value per Ordinary
share (debt at fair value){A} 126.44p 123.62p +2.3
Net asset value per Ordinary
share (debt at par)(capital
basis){A} 130.59p 127.26p +2.6
Net asset value per Ordinary
share (debt at fair value)(capital
basis){A} 124.30p 119.25p +4.2
Discount to net asset value
on Ordinary shares (debt
at par) 9.21% 15.68%
Discount to net asset value
on Ordinary shares (debt
at fair value){A} 4.70% 10.21%
Discount to net asset value
on Ordinary shares (debt
at par)(capital basis){A} 7.72% 12.78%
Discount to net asset value
on Ordinary shares (debt
at fair value)(capital basis){A} 3.06% 6.92%
Gearing (ratio of borrowings
less cash to shareholders'
funds)
Net gearing{B} 12.8% 21.5%
Dividends and earnings per
Ordinary share
Revenue return per share 5.31p 7.56p -29.8
Dividends per share{C} 5.89p 6.54p -9.9
Dividend cover (including
proposed fourth interim dividend) 0.90 1.16
Revenue reserves{D} GBP37,424,000 GBP39,109,000 -4.3
Ongoing charges{E} 0.58% 0.62%
{A} Considered to be an Alternative Performance
Measure. Details of the calculation can be found
in note 16.
{B} Calculated in accordance with AIC guidance "Gearing
Disclosures post RDR".
{C} The figure for dividends per share reflects
the years to which their declaration relates (see
note 8).
{D} The revenue reserve figure does not take account
of the third and fourth interim dividends amounting
to GBP4,317,000 and GBP4,304,000 respectively (2016
- GBP4,366,000 and GBP4,366,000).
{E} Ongoing charges are 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. The decrease in the 2017
ongoing charges figure reflects in part the saving
from Aberdeen's agreement to waive its entitlement
to a management fee during the period, which was
offset by the inclusion for the first time of any
additional charges incurred through holding other
investment funds which amounted to 0.21%.
PERFORMANCE
Total Return {A}
11 February 1 October
2017 - 2016 -
30 September 10 February 1 year 3 years 5 years
2017 2017
% return % return % return % return % return
Net asset value
- debt at par +5.6 +0.1 +5.7 +3.9 +27.2
Net asset value
- debt at fair
value +7.2 +0.4 +7.6 +2.6 +22.3
Share price +12.8 +1.8 +14.6 +5.4 +29.5
{A}Total return represents the capital
return plus dividends reinvested.
TEN YEAR FINANCIAL RECORD
Year to 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
30 September
Total revenue
(GBP'000) 21,414 18,369 17,156 19,166 21,887 22,382 23,608 23,120 23,265 17,961
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Per Ordinary share (p)
Net revenue
return 6.2p 5.8p 5.0p 5.7p 6.6p 6.6p 7.0p 7.1p 7.6p 5.3p
Total return (41.8p) 13.8p 14.0p (5.8p) 19.6p 19.3p 9.3p (4.5p) 1.3p 8.0p
Net dividends
payable 5.934p 6.112p 6.112p 6.112p 6.112p 6.252p 6.440p 6.540p 6.540p 5.890p
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Net asset value per Ordinary share (p)
Debt at
par value 114.0p 121.9p 129.8p 117.9p 131.4p 144.5p 147.5p 136.6p 131.6p 132.7p
Debt at
fair value 111.3p 119.0p 127.0p 114.8p 125.1p 139.3p 143.3p 131.0p 123.6p 126.4p
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Equity
shareholders'
funds (GBP'000) 333,516 354,742 377,793 343,293 382,535 418,345 426,865 374,832 351,521 436,767
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
DIVIDS
Rate xd date Record date Payment
date
First interim 2017 1.635p 2 March 3 March 24 March
2017 2017 2017
Second interim 1.635p 6 April 7 April 28 April
2017 2017 2017 2017
Third interim 2017 1.310p 31 August 1 September 6 October
2017 2017 2017
Fourth interim 1.310p 28 December 29 December 26 January
2017 2017 2017 2018
_____
2017 5.890p
_____
First interim 2016 1.635p 10 March 11 March 8 April
2016 2016 2016
Second interim 1.635p 23 June 24 June 22 July
2016 2016 2016 2016
Third interim 2016 1.635p 15 September 16 September 10 October
2016 2016 2016
Fourth interim 1.635p 5 January 6 January 27 January
2016 2017 2017 2017
_____
2016 6.540p
_____
STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT
The end of an investment company's financial year marks a useful point to think about the aims of the Company and also to take stock of the progress it has made over the past twelve months towards meeting its objectives. About a third of the way through this financial year, we were appointed as managers of Aberdeen Diversified Income and Growth Trust plc. In writing this report, we are mindful that most of the Company's shareholders ended the year travelling in a different direction compared to the journey they started on. Other shareholders, including both of us and members of our families, have joined the journey along the way. The Board has set us a clear objective: to target a total portfolio return of LIBOR plus 5.5% per annum (net of fees) over rolling five year periods. This is our direction of travel. Our mode of travel - the Company's investment policy - is to invest globally using a flexible multi-asset approach. The first stage of our journey - the realignment of the portfolio - is complete. In our first Annual Report to shareholders, we review the progress we have made so far and outline the key components and characteristics of your Company's portfolio.
Aberdeen Diversified Income and Growth Trust plc
By definition, all investment portfolios are diversified. But, rather like the animals in George Orwell's famous novella, some portfolios are more diversified than others. The Company's new investment policy has been designed to give shareholders access to the widest range of asset classes. This enables us to take full advantage of the benefits of diversification: reduced volatility and potentially enhanced returns compared to a portfolio based on a single asset class. In addition, as a closed ended investment company, the Company can access less liquid asset classes. The portfolio includes several such investments, described below, which are longer term in nature and are not otherwise readily available to private investors.
We draw upon the full resources of the investment teams at Aberdeen Standard Investments to identify specific opportunities for the Company's portfolio. In areas such as equities, corporate loans or emerging market debt, teams manage funds or sub-portfolios on our behalf. In alternative asset classes, other teams, along with our colleagues in the Diversified Assets Team, conduct extensive research on third party fund managers in areas such as property, private equity, real assets, absolute return and structured credit investments. Our process ensures that the Company's shareholders have access to the very best investment talent. At the end of the year, 40% of the portfolio consisted of investments managed by third party managers.
For each investment in the portfolio, we have a clear understanding of its unique return drivers and risk characteristics. We make sure that the portfolio is not over-exposed to particular types of risk. We pay close attention to valuation when determining whether we are being appropriately rewarded for the risks we are bearing. We also take other factors into account, such as balance sheet structure and environmental, social and governance issues. Where appropriate, a specialist team within Aberdeen Standard Investments conducts operational due diligence on the manager of a third party fund.
The strategic framework for the portfolio - in terms of our broad allocations to the major asset classes, such as equities, emerging market debt etc - is based upon our medium term return forecasts for different asset classes. These are regularly updated by our colleagues who specialise in economic and thematic research. Using these insights, our portfolio construction process combines assets which we believe will deliver the most favourable combination of medium term return and risk. We also seek out opportunities to rotate out of expensive assets into cheap ones.
Today, after nearly ten years of monetary easing from the world's central banks after the onset of the global financial crisis, valuations in traditional asset classes such as equities and developed market government bonds are mostly at high levels compared to historic standards. This means that future returns from these asset classes are likely to be significantly lower than investors have been used to. Because we are not constrained by a benchmark mix of assets, we are not compelled to invest shareholders' capital in investments which we believe to be unattractive.
Against this background, over the first few months after our appointment, we sold down the existing positions in UK and global equities, various equity funds, corporate bonds and a property fund. We also sold out of investments in gold, UK gilts and an unlisted investment, MAS Mortgages, which was sold at a premium to the 31st March carrying value. In addition, as part of the portfolio transfer arrangements, the previous investment manager closed out the derivatives positions that were part of its strategy at the time.
We retained a small number of investments in alternatives asset classes which amounted to 11% of the Company's portfolio at the start of the financial year. In the next two sections, we outline how we reinvested the proceeds from the sale of assets and also the injection of GBP84m of new capital received by way of the merger with Aberdeen UK Tracker Trust plc in April 2017.
Aberdeen Diversified Income and Growth Trust plc
Equities usually form a core part of any growth portfolio. We expect our equity exposure to typically account for 20% - 35% of the overall portfolio. We ended the period towards the lower end of that range in reflection of our cautious view on equity valuations, which are generally high with profit margins close to cyclical peaks.
Your portfolio achieves its equity exposure via a fund, Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund, which is actively managed by our Quantitative Equities team. The fund aims to outperform the MSCI AC World Index while targeting around 85% of the volatility and 140% of the dividend yield of the index. The portfolio consists of around 200 global equities, with stock selection based on a range of quantitative factors including valuation and financial strength. The portfolio, which currently yields around 2.9%, is regularly rebalanced in favour of those companies which rank highly on the preferred measures. It is well diversified by country, sector and position size. The table below shows the Company's top ten holdings and its country and sector allocation as at 30 September 2017.
Aberdeen Smart Beta Low Volatility Global Equity Income Fund
% of
Portfolio
Top 10 positions Country Sector at 30 September
2017
Valero Energy
Corporation United States Energy 0.4%
Information
HP Inc. United States Technology 0.4%
Itochu Corporation Japan Industrials 0.4%
Rio Tinto plc United Kingdom Materials 0.4%
Consolidated
Edison Inc. United States Utilities 0.4%
CVS Health Corporation United States Consumer Staples 0.4%
Humana Inc. United States Healthcare 0.4%
Anthem Inc. United States Healthcare 0.3%
Information
Kla-Tencor Corporation United States Technology 0.3%
Sumitomo Corporation Japan Industrials 0.3%
% of % of
Portfolio Portfolio
Top 5 sectors at 30 September Top 5 countries at 30 September
2017 2017
Information
Technology 3.8% United States 9.3%
Industrials 3.3% Japan 3.1%
Consumer Discretionary 3.1% Hong Kong 1.7%
Financials 2.8% United Kingdom 1.1%
Utilities 2.3% Taiwan 1.0%
Two of our property investments have a focus on capital growth rather than income. Aberdeen European Residential Opportunities Fund uses our extensive property investment management resources to identify and purchase commercial properties which are suitable for re-development as residential properties. The fund, which aims to deliver a return in excess of 10% per annum, is not open to retail investors. It has a three year initial investment period, followed by a further 3 - 5 years when properties will be developed and sold. Our total commitment to the fund of EUR15m will be invested progressively as suitable opportunities are identified by the fund managers. So far, initial investments have been made in Frankfurt, Aarhus in Denmark, Henley-on-Thames and Bath.
Similarly, Aberdeen Property Secondaries Partners II (APSP II) is managed by our Property Multi-Manager team. They use their wide ranging industry contacts to identify attractive funds managed by third-parties that are trading at sizeable discounts to their fundamental value. We have made a EUR23m commitment to this fund. An initial investment has been made in a Nordic retail fund. APSP II targets returns in excess of 10% per annum and has an investment period of five years.
Elsewhere, we have made initial investments in two opportunities identified by our private equity team. The first is a co-investment in TrueNoord, an aircraft leasing business based in the Netherlands, which focuses on short haul regional aircraft used by airlines such as Air France / KLM's subsidiary, Hop!, Aero Mexico and Tui. We invested via an equity capital-raising which will enable TrueNoord's experienced management team to continue to expand the business. The second is an investment in two private equity funds managed by Maj Invest, a Danish investor in small and medium-sized businesses. Fund 4 launched in 2012 and has investments in eight businesses. We have also made a commitment to Fund 5, a more recent vintage (2016) with four investments made so far. Our expectation is that we will reinvest the proceeds received from the sale of maturing businesses in Maj 4 into new businesses in fund 5.
In addition, we hold a stake in a venture capital fund, Forward Partners I, which makes early stage investments in technology-led start-up companies in service-related areas. The private equity segment of the portfolio is expected to deliver very attractive returns, well in excess of our target portfolio return, over the next 3-5 years. By their nature, these equity investments are held for their growth characteristics; their contribution to portfolio diversification is of secondary importance.
Aberdeen Diversified Income and Growth Trust plc
Income is widely acknowledged to be an important component of long term investment returns. For example, over the ten years prior to 30 September 2017, a period which takes in a full market cycle, UK equities, as measured by the FTSE All-Share Index, delivered a total return of +5.8% per annum. Our analysis shows that more than half of the return from UK equities over that period can be attributed to the reinvestment of dividends.
At the end of the Company's financial year, ten year gilts were trading on a gross redemption yield of only 1.2% per annum. For UK investors, this is one measure of the risk-free return. However, compared to the current rate of inflation or the previous ten year period, when the iBoxx 7-10 year gilt index returned +6.3% per annum, it is a return which is likely to satisfy very few.
Compared to gilts and most developed market government bonds, emerging market bonds, in many cases offering yields in excess of 6%, appear compelling to us. We gain exposure via a well-diversified portfolio of local currency bonds with a broad balance of exposures to countries in Africa, Asia, Latin America and Eastern Europe. Colleagues in our emerging markets debt (EMD) team manage this sub-portfolio on our behalf. The team also manage the Aberdeen Indian Bond Fund - where we take a particularly positive view of the reforms being enacted by Prime Minister Modi - and the Aberdeen Frontier Markets Bond Fund which invests predominantly in US dollar bonds.
Over the year, we have seen a favourable combination of improving growth prospects and benign inflation develop for several emerging markets, with Russia and Brazil being to the fore. It is also worth highlighting that many emerging market countries have much lower debt to GDP ratios than developed countries. Although we do not have an investment there, China is closely watched as a barometer of the economic health of emerging market asset classes (and, indeed, the global economy). Our economists currently forecast a 'soft landing' for China with GDP growth of 6.8% in 2017 falling to around 6% in 2018 and 2019.
Currency returns can have a heavy influence on returns from emerging market investments. We view the currencies as being undervalued and fund our EMD exposure via a basket of major currencies (AUD, EUR, GBP and JPY. Shareholders may be surprised to see that the returns from EMD are more stable than those from global equities. Strikingly, over the year to Q1 2009, the EMD index actually rose by 7% when the MSCI World Index fell by 39%.
Strategic Report
In a range of asset classes, an attractive level of income - often around 5% per annum or more - is a common feature of many of the opportunities that the Aberdeen Standard Investment teams seek out for us. Your capital earns this level of income return by supporting a wide range of economic and commercial activities. A number of these opportunities have opened up since the global financial crisis in areas where governments and banks have pulled back from providing finance because of budget or regulatory capital constraints.
For example, housing associations and other registered providers of social housing have seen their government grants, which funded the development of new properties, cut back. Funds such as Triple Point Social Housing have been launched to buy purpose-built developments of residential flats which are being leased to registered providers of social housing on long term leases. The rents, which are inflation-linked, are funded by local authorities. Residential Secure Income REIT and PRS REIT also provide housing finance in the fields of shared ownership social housing and private rental homes respectively. All three funds target a dividend yield of around 5%.
Similarly, specialist funds have benefited from the reduced availability of bank finance in areas such as small business lending (Funding Circle SME Income Fund and P2P Global), trade finance (MRTCP I LP - a fund with a six year life) and aircraft leasing (Doric Nimrod Air Two). We also have investments in funds which specialise in secured loans made to corporate borrowers, both directly - via Aberdeen Alpha Global Loans - and via asset-backed securities (TwentyFour Asset Backed Opportunities, Fair Oaks Income and Blackstone / GSO Loan Financing). These funds offer a better risk-return trade-off when compared to unsecured corporate high yield bonds.
Two of these investments feature in the top three portfolio positions. TwentyFour Asset Backed Opportunities is a dedicated pooled fund managed on our behalf by a specialist manager, TwentyFour Asset Management. It targets a return of LIBOR + 5-8% p.a. after fees with income of around 6% p.a. investing in a diversified portfolio of the medium-risk structured credit products focussing on European mortgages and corporate loans. Aberdeen Alpha Global Loans Fund provides diversified exposure to secured loans and similar instruments mainly issued by corporate borrowers. At 30 September, the fund held positions in over 80 loans and fixed rate bonds with an average yield of around 4.4%. The fund, which is managed by our specialist loans team supported by colleagues in global credit research, is a Luxembourg-registered UCITS fund which values on a quarterly basis.
Investments in other areas such as renewable infrastructure (where we added to the portfolio's exposure via Renewables Infrastructure, Greencoat Renewables and BlackRock Renewable Income UK) and social infrastructure (International Public Partnerships) offer particularly attractive income returns which are largely independent of the economic cycle. The same is true of our investments in insurance-linked securities ("ILS") and BioPharma Credit, a specialist fund which makes loans to pharmaceutical and biotechnology companies secured against royalties on product sales.
Our investments in ILS - CATCo Reinsurance Opportunities and two Blue Capital vehicles - are worthy of more detailed comment. Insurance losses resulting from hurricanes Harvey and Irma, which struck Texas and Florida respectively at the end of the summer, caused sharp falls in the net asset values of all three funds. CATCo, for example, suffered a share price decline of 18% over three months to September 2017 but, even after this loss, it has returned +7% per annum to investors, predominantly via income, since it launched in 2010. CATCo has announced that it intends to raise additional capital to take advantage of a very sharp increase in the premium rates that will be charged to its clients when its policies are renewed at the end of this year. This underpins our view that insurance-linked securities offer attractive returns for the long term investor. In addition, being driven by factors unique to the asset class - premium rates and the incidence of major catastrophes - they add considerably to portfolio diversification.
A number of the closed ended funds highlighted above have attractive income characteristics and diversification benefits but, over time, some of these will be sold down in order to fund our preferred investments in longer term, less liquid asset classes. In the property and private equity funds mentioned earlier, initial investments have been established and further capital will be invested by us, up to an agreed limit in each case, as managers identify appropriate opportunities. Similarly, our agricultural fund, ACM II, which is managed by a specialist manager in the United States, has made investments in two blueberry farms, a citrus ranch and a fruit packing facility in California. The aim is to deliver very high cash yields after farms are converted into organic production. Importantly, ACM II's investments should show little correlation to other asset classes. At the end of the period, 6% of the portfolio was invested in longer term investments of this kind. Details of the outstanding commitments are listed in note 21 to the financial statements.
The change in investment policy approved by shareholders included a rebasing of the Company's dividend. As we noted in the Half-Yearly Report, timing effects (relating to the accounting treatment of income earned by investments held within funds in the portfolio) required the Company to use a small amount of its revenue reserves in order to pay the dividend in the transitional year under review. We expect the dividend to be fully covered by earnings in the years ahead and, importantly, have constructed the portfolio to ensure that income is generated from the widest range of sources.
Performance and Outlook
As the Chairman has noted in his Statement the year ended 30 September 2017 produced a positive total return for shareholders of +14.6%. The NAV return (including dividend reinvestment) for the period was +7.6%. During this period most asset classes performed well but developed market government bonds were the notable exception as investors anticipated monetary tightening by the major central banks. Global equities were the standout performer - the MSCI World Index returned +15% in sterling terms with the bulk of gains being generated in the first six months - in reaction to the improving outlook for economic growth in most regions. The UK equity market returned +11.9% and, despite marking time over the summer in the face of uncertainties over Westminster politics and Brexit, the FTSE All Share Index ended the period close to an all-time high.
The focus of the remainder of our performance commentary is on the six month period following the change in investment policy at the AGM on 30 March 2017. Over that period, the shares delivered a total return of +7.0% comprising of an NAV increase (including reinvested dividends) of +3.7% and the benefit of an improved rating. (The shares ended the period on a 3.1% discount to NAV, calculated excluding income and with debt at fair value, compared to 6.9% at 30 September 2016.) The main contributors to portfolio performance were low volatility equities (+1.6% contribution to portfolio return), asset backed securities (+0.6%), UK equities (+0.4%) and infrastructure (+0.4%). As noted above, insurance linked securities were the most notable laggard (-0.6%).
Emerging market debt made a small positive contribution to portfolio performance (+0.2%) when measured in terms of our currency funding basket. Similarly, portfolio gearing - via the 2031 debenture - had a positive effect on performance during the period when the impact of the gilt hedge is taken into account. (As we highlighted in the Half-Yearly Report, a position in the UK 10 year gilt future neutralises the impact of movements in gilt yields on the value of the debenture. We also use forward contracts to hedge developed market currency exposures back to sterling. We do this in order to minimise the impact on the Company's NAV of fluctuations caused by interest rate and currency movements.)
Our view on the global economic outlook has not changed to any great extent: global GDP growth of 3.6% is expected in 2017 followed by 3.8% and 3.6% in 2018 and 2019. Our forecasts are closely in line with those recently published by the IMF. We expect global inflation to be around 3% p.a. over the next three years. Employment markets are tight but wage pressures remain low. Taking account of recent changes in guidance from central banks, we anticipate that UK interest rates will hit 1% in 2018 and our forecast is for US interest rates to rise to 2.25% in 2018 and to 3.0% in 2019.
Against this fairly benign background and, with market volatility at historically low levels, our view is that many mainstream asset classes appear expensive. Over the medium term, we see little value in supposedly safe assets such as developed market government bonds or investment grade corporate bonds and so do not currently include these in the portfolio. Instead, we continue to see attractions in a range of asset classes and, at the year end, we were close to being fully invested.
The Company's website, aberdeendiversified.co.uk, contains a compilation of comments on each asset class from the factsheets which we post on the site each month (along with the month-end portfolio listing). We have also republished the description of our investment philosophy and process which appeared in the Company's Prospectus published earlier this year and expands on the summary given earlier in our report.
In the Half-Yearly Report - also available on the website - we drew shareholders' attention to various clouds on the investment horizon. Six months on, little has changed: Brexit is looming; politics remains a feature with President Donald Trump finding it easier to threaten North Korea than to enact many of his campaign promises; and, many financial market commentators seem to predict stormy weather on almost a daily basis. We do not profess to be financial market meteorologists. Instead, our approach ensures that your Company's investment portfolio is built from a wide range of asset classes to give us the best chance of delivering an attractive return for shareholders over the medium term whatever the financial weather.
Mike Brooks
Tony Foster
Aberdeen Asset Managers Limited
Investment Manager
16 January 2018
Ten Largest Equity & Alternative
Investments
At At
30 September 30 September
2017 2016
% %
Aberdeen Smart Beta Low Volatility 23.8 -
Global Equity Income Fund{A}
Diversified equity fund
TwentyFour Asset Backed Opportunities 13.0 -
Fund
Investments in mortgages, SME loans
etc originated in Europe
Aberdeen Alpha Global Loans Fund{A} 9.1 -
Portfolio of senior secured loans
and corporate bonds
Alternative Risk Premia 2.9 -
Fund investing in risk factor indices
for a variety of asset classes
Blackstone GSO Loan Financing 2.5 2.7
Diversified exposure to senior
secured loans via CLO securities
AQR Managed Futures 2.1 -
Trend-following investment strategy
Funding Circle SME Income Fund 2.0 2.2
Smaller company lending fund
CATCo Reinsurance Opportunities 2.0 -
Fund
Investments linked to catastrophe
reinsurance risks
BlackRock Infrastructure Renewable 1.8 -
Income Fund
Renewable infrastructure investments
- UK wind and solar
P2P Global Investments 1.5 -
Range of investments sourced via
market-place lending platforms
{A} Denotes Aberdeen managed products.
Largest Fixed Income Investments (included
within top 10 overall portfolio holdings)
At At
30 September 30 September
2017 2016
% %
Aberdeen Global Indian Bond Fund{A} 4.1 -
Diverse portfolio of Indian bonds
Aberdeen Global Frontier Markets 2.1 -
Bond Fund{A}
Diverse portfolio of bonds issued
by companies, governments or other
bodies in frontier market countries.
All percentages in the tables "Ten Largest Equity
& Alternative Investments" and "Largest Fixed Income
Investments (included within top 10 overall portfolio
holdings)" reflect the value of the holding as
a percentage of total investments at 30 September
2017 and 30 September 2016. Together, the ten largest
equity and alternative investments represent 60.7%
of the Company's portfolio (30 September 2016 -
26.0%).
{A} Denotes Aberdeen managed products.
Investment Portfolio - Equities
& Alternatives
As at 30 September 2017
Valuation Net assets
2017 2017
Company GBP'000 %
Low Volatility Income Strategy
Equities
Aberdeen Global Smart Beta Low
Volatility Global Equity Income
Fund{A} 113,511 26.0
________ ________
Total Low Volatility Income Strategy
Equities 113,511 26.0
Private Equity
Forward Partners 1 LP 4,896 1.1
Maj Equity Fund 4 4,792 1.1
TrueNoord Co-Investment II LP 2,236 0.5
Maj Equity Fund V 569 0.1
________ ________
Total Private Equity 12,493 2.8
Property
PRS REIT 4,457 1.0
Triple Point Social Housing 4,159 1.0
Residential Secure Income 3,740 0.9
Aberdeen European Residential Opportunities
Fund{A} 3,100 0.7
Aberdeen Property Secondaries Partners
II{A} 2,545 0.6
________ ________
Total Property 18,001 4.2
Infrastructure
BlackRock Infrastructure Renewable
Income Fund 8,592 2.0
Renewables Infrastructure 6,528 1.5
Foresight Solar Fund 5,985 1.4
International Public Partnerships 5,063 1.1
John Laing 4,086 0.9
Greencoat Renewables 2,681 0.6
________ ________
Total Infrastructure 32,935 7.5
Loans
Aberdeen Alpha Global Loans Fund{A} 43,293 9.9
________ ________
Total Loans 43,293 9.9
Asset Backed Securities
TwentyFour Asset Backed Opportunities
Fund 62,110 14.2
Blackstone GSO Loan Financing 12,040 2.8
Fair Oaks Income 3,016 0.7
________ ________
Total Asset Backed Securities 77,166 17.7
Insurance-Linked Securities
CATCo Reinsurance Opportunities
Fund 9,343 2.1
Blue Capital Alternative Income 5,378 1.2
Blue Capital Reinsurance Holdings 1,202 0.3
________ ________
Total Insurance-Linked Securities 15,923 3.6
Special Opportunities
Funding Circle SME Income Fund 9,625 2.2
P2P Global Investments 7,221 1.7
Doric Nimrod Air Two 5,135 1.2
BioPharma Credit 4,782 1.1
MRTCP I LP 223 -
________ ________
Total Special Opportunities 26,986 6.2
Absolute Return
Alternative Risk Premia 13,915 3.2
AQR Managed Futures 9,939 2.3
36 South Funds Kohinoor Core Fund 3,255 0.7
________ ________
Total Absolute Return 27,109 6.2
Real Assets
Agriculture Capital ACM Fund II 764 0.2
________ ________
Total Real Assets 764 0.2
________ ________
Total Alternatives 254,670 58.3
________ ________
{A} Denotes Aberdeen managed products.
Investment Portfolio - Bonds
As at 30 September 2017
Valuation Net assets
2017 2017
Company GBP'000 %
Emerging Market Bonds
Aberdeen Global Indian Bond Fund{A} 19,497 4.5
Aberdeen Global Frontier Markets
Bond Fund{A} 9,812 2.2
South Africa (Rep of) 10.5% 21/12/26 7,546 1.7
Poland (Rep of) 1.5% 25/04/20 6,633 1.5
Turkey (Rep of) 10.7% 17/02/21 6,346 1.5
Russian Federation 7.05% 19/01/28 6,048 1.4
Brazil (Fed Rep of) 10% 01/01/25 5,660 1.3
Indonesia (Rep of) 9% 15/03/29 5,370 1.2
Brazil (Fed Rep of) 10% 01/01/27 4,774 1.1
Colombia (Rep of) 7% 30/06/32 3,311 0.8
________ ________
Top ten investments 74,997 17.2
________ ________
Malaysian (Govt of) 4.048% 30/09/21 3,139 0.7
Mexico Bonos Desarr Fix Rt 8% 11/06/20 2,722 0.6
Turkey (Rep of) 10.6% 11/02/26 2,159 0.5
Peru (Rep of) 6.95% 12/08/31 1,935 0.4
Petroleos Mexicanos 7.19% 12/09/24 1,726 0.4
Mexico (United Mexican States)
7.75% 13/11/42 1,622 0.4
Mexico (United Mexican States)
6.5% 09/06/22 1,573 0.4
Colombia (Rep of) 7% 04/05/22 1,555 0.4
Indonesia (Rep of) 8.375% 15/03/34 1,439 0.3
Russian Federation 7.5% 27/02/19 1,386 0.3
________ ________
Top twenty investments 94,253 21.6
________ ________
Indonesia (Rep of) 9% 15/09/18 1,365 0.3
Malaysia (Govt of) 4.498% 15/04/30 1,291 0.3
Argentina (Rep of) FRN 21/06/20 1,184 0.3
Mexico Bonos Desarr Fix Rt 10%
05/12/24 1,058 0.2
Indonesia (Rep of) 7.875% 15/04/19 995 0.2
Argentina (Rep of) 16% 17/10/23 819 0.2
Poland (Rep of) 5.75% 25/04/29 818 0.2
Republic Orient Uruguay 8.5% 15/03/28 803 0.2
Uruguay (Rep of) 9.875% 20/06/22 781 0.2
Ghana (Rep of) 24.75% 19/07/21 701 0.2
________ ________
Top thirty investments 104,068 23.9
________ ________
Indonesia (Rep of) 8.25% 15/05/36 662 0.1
Malaysia (Govt of) 4.378% 29/11/19 559 0.1
Poland (Rep of) 2.5% 25/07/26 505 0.1
Peru (Rep of) 6.15% 12/08/32 309 0.1
Malaysia (Govt of) 3.9% 30/11/26 249 0.1
________ ________
Total Emerging Markets Bonds 106,352 24.4
________ ________
High Yield Bonds
NB Distressed Debt Extended Life 2,431 0.5
Banco Espirito Santo 4.75% 15/01/18 106 -
Banco Espirito Santo 4% 21/01/19 80 -
________ ________
Total High Yield Bonds 2,617 0.5
________ ________
Total Fixed Income 108,969 24.9
________ ________
{A} Denotes Aberdeen managed products.
Investment Portfolio
Net Assets Summary and Asset Allocation
As at 30 September 2017
Valuation Net assets
2017 2017
GBP'000 %
Total investments 477,150 109.2
________ ________
Cash and cash equivalents 3,627 0.8
Forward contracts 13,431 3.1
6.25% Bonds 2031 (59,632) (13.6)
Other net assets 2,191 0.5
________ ________
Net assets 436,767 100.0
________ ________
DIRECTORS' REPORT
The Directors present their report and the audited financial statements for the year ended 30 September 2017 which was a year of significant change for the Company.
On 11 February 2017, Aberdeen Fund Managers Limited was appointed Manager in place of BlackRock and the Company was renamed Aberdeen Diversified Income and Growth Trust plc. A discount control policy was announced on 13 February 2017 with shareholders approving a new investment objective and policy at the General Meeting held on 30 March 2017. A tender offer and merger with Aberdeen UK Tracker Trust plc ("AUKT") was undertaken on 6 April 2017.
Appointment of Aberdeen Fund Managers Limited and Change of Name of the Company
On 11 February 2017, the Company appointed Aberdeen Fund Managers Limited and changed its name to Aberdeen Diversified Income and Growth Trust plc.
Discount Management Policy and Share Buybacks
The Board announced on 13 February 2017 that, in normal market conditions and subject to the prevailing gearing level and the composition of the Company's portfolio, it would implement a discount control policy to maintain the Company's share price discount to net asset value, calculated excluding income and with debt at fair value, at no wider than 5%. As at 30 September 2017 the Company's discount, with debt at fair value and excluding income, was 3.1%, as compared to 6.9% as at 30 September 2016. Other than in connection with the tender offer referred to below, 3,125,000 shares were bought back by the Company. The Board continues to monitor closely the Company's discount and will undertake buybacks where it is in shareholders' interests to do so. The discount had narrowed further to 2.3% as at the date of this Report.
New Investment Objective and Investment Policy
At a General Meeting on 30 March 2017, shareholders approved a new investment objective, as set out above in the Strategic Report - Overview of Strategy, and a new investment policy, as follows -
The Company invests globally using a flexible multi-asset approach via quoted and unquoted investments. The Company has not set maximum or minimum exposures for any geographical regions or sectors and will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. This includes, but is not limited to, achieving exposure to the following securities and asset classes:
- equity driven assets, comprising developed equity, emerging market equity and private equity;
- alternative diversifying assets including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing; and
- low return assets such as gold, government bonds, investment grade credit and tail risk hedging.
Asset allocation is flexible allowing investment in the most attractive investment opportunities at any point in time whilst always maintaining a diversified portfolio.
The Company complies with the following investment restrictions, at the time of investment:
- no individual quoted company or transferable security exposure in the portfolio may exceed 15% of the Company's total assets, other than in treasuries and gilts;
- no other individual asset in the portfolio (including property, infrastructure, private equity, commodities and other alternative assets) may exceed 5% of the Company's total assets;
- the Company will not normally invest more than 5% of its total assets in the unquoted securities issued by any individual company; and
- no more than 15% of the Company's total assets may be invested in an individual regulated pooled investment fund, with the exception of a global equity UCITS pooled fund which may be no more than 35% of the Company's total assets. In aggregate the largest three investments in regulated pooled funds will not comprise more than 60% of the Company's total assets.
The Company may invest in exchange-traded funds provided they are quoted on a recognised investment exchange. The Company may invest in cash and cash equivalents including money market funds, treasuries and gilts.
No more than 10% of the Company's total assets may be invested in other listed closed-ended investment companies, provided that this restriction does not apply to investments in any such listed closed-ended investment companies which themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies.
The Company may use derivatives to enhance portfolio returns (of a capital or income nature) and for efficient portfolio management, that is, to reduce, transfer or eliminate risk in its investments, including protection against currency risks, or to gain exposure to a specific market.
The Company may use gearing, in the form of borrowings and derivatives, to enhance income and capital returns over the long term. The borrowings may be in sterling or other currencies. The Company's articles of association contain a borrowing limit equal to the value of its adjusted total of capital and reserves. However, borrowings would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in a net economic equity exposure in excess of 120%.
The Company may invest from time to time in funds managed by the Manager.
Following shareholder approval of the new investment objective and investment policy at the General Meeting on 30 March 2017, the Manager realigned the Company's investment portfolio and further information may be found in the Investment Manager's Report.
Details of the Company's investment policy prior to 30 March 2017 may be found on page 6 of the Company's Annual Report for the year ended 30 September 2016.
Tender Offer and Merger with Aberdeen UK Tracker Trust plc
Following shareholder approval obtained at the General Meeting held on 30 March 2017, and further to the circular published on 6 March 2017 (the "Circular") which is available from the Company's website, the Company announced on 6 April 2017 the repurchase of 53.4m shares, representing 20% of the Company's issued share capital.
The Company also announced on 6 April 2017 the issue of 118.6m shares to those shareholders of AUKT electing to roll-over their shares, further to shareholder approval of the merger with AUKT. This equated to an increase in the Company's assets of GBP146m.
Results and Dividends
The financial statements for the year ended 30 September 2017 are contained below. The Company's revenue return for the year ended 30 September 2017 was 5.31p per share compared to 7.56p per share in the previous year.
First and second interim dividends, each of 1.635p per Ordinary share, and a third interim dividend of 1.31p per Ordinary share, were paid on 24 March 2017, 28 April 2017 and 6 October 2017 respectively. On 19 December 2017, the Directors declared a fourth interim dividend of 1.31p per Ordinary share payable on 26 January 2018 to shareholders on the register on 29 December 2017. The ex-dividend date is 28 December 2017. The third and fourth interim dividends were reduced by 20% as explained in the Circular. The Company intends to continue to declare and pay four interim dividends each year and, in line with corporate governance best practice, a resolution in respect of this dividend policy will be put to shareholders at each Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company (registered in Scotland No. SC3721) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 September 2017 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure and Voting rights
The issued Ordinary share capital at 30 September 2017 consisted of 329,066,705 Ordinary shares of 25p each and
36,344,169 Ordinary shares held in treasury. An additional 515,000 Ordinary shares were bought back between 1 October 2017 and the date of approval of this Annual Report resulting in 328,551,705 Ordinary shares in issue, with voting rights, and 36,859,169 Ordinary shares in treasury.
Each Ordinary share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager with effect from 11 February 2017, replacing BlackRock.
AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between AFML and AAML. In addition, AFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML.
The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the first GBP300 million of NAV and 0.45% of NAV in excess of GBP300 million. In calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The value of any investments in ETFs, unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the Standard Life Aberdeen plc group is the operator, manager or investment adviser, is deducted from net assets. Details of the management fee charged during the year are included in note 4 to the financial statements.
The management agreement is terminable on not less than six months' notice subject to a minimum notice period which expires no earlier than 11 February 2019. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.
The Manager agreed to waive any entitlement to management fees from 11 February 2017 until 30 September 2017; additionally, this waiver was in place until 6 October 2017, being the date six months subsequent to the Company's merger with Aberdeen UK Tracker Trust plc. Accordingly, as detailed in note 4 to the financial statements, no investment management fees were charged by the Manager during the year under review.
For the period to 10 February 2017, the investment management fee paid to BlackRock was levied at a rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans). The Manager also agreed to pay to the Company an amount equal to six months' management fees payable to BlackRock (in line with the notice period clause) calculated at the rate of 0.4% per annum of the gross assets of the Company as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement).
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors' Report, may be found in the Annual Report.
Directors
At the year end the Board comprised seven non-executive Directors. Lynn Ruddick and Jimmy West retired from the Board on 6 April 2017 while Kevin Ingram, Tom Challenor and Paul Yates were appointed non-executive Directors on 6 April 2017. The names and biographies of each of the current Directors are shown on the Company's website on in the published Annual Report and indicate their range of skills and experience as well as length of service.
Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.
Kevin Ingram, Tom Challenor and Paul Yates, as Directors appointed during the year, retire and seek election at the AGM. The Board has adopted a policy, in line with best practice in corporate governance, that all Directors offer themselves for re-election at each AGM and, accordingly, James Long, Ian Russell, Jim Grover and Julian Sinclair retire and, being eligible, each submit themselves for re-election at the AGM. The Board believes that all seven Directors remain independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that, following a formal performance evaluation, the performance of all Directors continues to be effective and demonstrates commitment to the role. The Board therefore recommends to shareholders the individual elections of Kevin Ingram, Tom Challenor and Paul Yates and individual re-elections of James Long, Ian Russell, Jim Grover and Julian Sinclair at the AGM.
The Directors attended scheduled Board, Audit Committee and Nomination Committee meetings during the year ended 30 September 2017 as follows (with their eligibility to attend the relevant meetings in brackets):
Director Scheduled Audit Committee Nomination Committee
Board Meetings Meetings Meetings
James Long 5 (5) - 1 (1)
Kevin Ingram
(A) 2 (2) 1 (1) 1 (1)
Ian Russell 4 (5) 2 (2) 1 (1)
Tom Challenor
(A) 2 (2) 1 (1) 1 (1)
Jim Grover 5 (5) 2 (2) 1 (1)
Julian Sinclair 4 (5) 2 (2) 1 (1)
Paul Yates (A) 2 (2) 1 (1) 1 (1)
Lynn Ruddick 3 (3) - -
(B)
Jimmy West (B) 2 (3) - -
(A) Appointed a Director on 6 April 2017
(B) Retired as a Director on 6 April 2017
The Directors meet more regularly when business needs require. During the year ended 30 September 2017, in addition to the scheduled meetings, the Board met more frequently in relation to the strategic review, tender offer and merger with Aberdeen UK Tracker Trust plc.
Board Committees
The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report is contained in the Annual Report.
Management Engagement Committee
The Management Engagement Committee consists of all the Directors and was chaired by James Long throughout the year. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Committee on an annual basis. The Committee also keeps the resources of the Aberdeen Group under review, together with its commitment to the Company and its investment trust business. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's main third party suppliers. The Management Engagement Committee did not meet formally during the year ended 30 September 2017 as the functions of the Committee, including in particular the strategic review which resulted in the subsequent appointment of Aberdeen Fund Managers Limited as Manager, were undertaken by the Board as a whole.
The Board remains satisfied with the capability of the Aberdeen Group to deliver satisfactory investment performance, that its investment screening processes are thorough and robust and that it employs a well-resourced team of skilled and experienced fund managers. In addition, the Board is satisfied that the Aberdeen Group has the secretarial, administrative and promotional skills required for the effective operation and administration of the Company. Accordingly, the Board believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.
Nomination Committee
The Nomination Committee consists of all the Directors and was chaired by James Long throughout the year. The Committee reviews the effectiveness of the Board, succession planning, Board appointments, appraisals, training and the remuneration policy. As stated in the Directors' Remuneration Report, contained in the published Annual Report, the full Board determines the level of Directors' fees and there is no separate Remuneration Committee.
Led by the Chairman, the Committee undertakes an annual appraisal of each Director and the performance of the Board as a whole. An appraisal of the Chairman is led by the Senior Independent Director. The intention is that the evaluation is externally facilitated every three years, the last such review being in 2015/16.
Potential new Directors are identified against the requirements of the Company's business and the need to have a balance of skills, experience, independence, diversity and knowledge of the Company within the Board.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him in the execution of his duties in relation to the affairs of the Company. These rights are included in the Articles of Association of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.
Going Concern
The Financial Statements of the Company have been prepared on a going concern basis. The forecast projections and actual performance are reviewed on a regular basis throughout the period and the Directors believe that this is the appropriate basis and that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of twelve months from the date that these financial statements were approved) and is financially sound. The Company is able to meet all of its liabilities from its assets including its ongoing charges. The Company's longer term viability is considered in the viability statement in the Strategic Report - Overview of Strategy.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection with the financial statements appear in the published Annual Report.
Each Director confirms that, so far as he is aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Substantial Interests
As at 30 September 2017, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:
Shareholder Number of shares held % held (B) Aberdeen Asset Managers Limited Retail Plans (A) 33,228,578 10.1 Aberdeen Standard Investments 29,709,435 9.0 Alliance Trust Savings 20,845,897 6.3 Hargreaves Lansdown (A) 15,308,371 4.7 Charles Stanley 12,487,801 3.8 Investec Wealth & Investment 10,414,455 3.2
(A) Non-beneficial interest
(B) Based on 329,066,705 Ordinary shares in issue as at 30 September 2017
There have been no changes advised to the Company in relation to the above information, as at the date of approval of this Report, other than notification by Schroders plc of a holding of 20,995,284 Ordinary shares, equivalent to 6.4% of the Company's issued share capital.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. Shareholders and investors may obtain up to date information on the Company through its website and the Manager's Customer Services Department.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required. In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.
The notice of the Annual General Meeting is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Manager at the meeting.
Annual General Meeting
The Annual General Meeting will be held at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ on Friday 2 March 2018 at 11.30am. The Notice of the Meeting is included in the published Annual Report. Resolutions including the following business will be proposed:
Allotment of Shares
Resolution 13 will be proposed as an ordinary resolution to confer an authority on the Directors, in substitution for any existing authority, to allot up to 10% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (up to a maximum aggregate nominal amount of GBP8.2m based on the number of Ordinary shares in issue as at the date of this Report) in accordance with Section 551 of the Companies Act 2006. The authority conferred by this resolution will expire at the next Annual General Meeting of the Company or, if earlier, 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting).
The Directors consider that the authority proposed to be granted by resolution 13 is necessary to retain flexibility.
Limited Disapplication of Pre-emption Provisions
Resolution 14 will be proposed as a special resolution and seeks to give the Directors power to allot Ordinary shares or to sell Ordinary shares held in treasury (see below) (i) by way of a rights issue (subject to certain exclusions); (ii) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportion to their shareholdings (subject to certain exclusions); and (iii) to persons other than existing shareholders for cash up to a maximum aggregate nominal amount representing 5% of the Company's issued Ordinary share capital as at the date of the passing of the resolution (up to an aggregate nominal amount of GBP4.1m based on the number of Ordinary shares in issue as at the date of this Report), without first being required to offer such shares to existing shareholders pro rata to their existing shareholding.
This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting).
The Company may buy back and hold shares in treasury and then sell them at a later date for cash rather than cancelling them. Such sales are required to be on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued Ordinary share capital on a non pre-emptive basis, resolution 14 will also give the Directors power to sell Ordinary shares held in treasury on a non pre-emptive basis, subject always in both cases to the limitations noted above. Pursuant to this power, Ordinary shares would only be issued for cash, and treasury shares would only be sold for cash, at a premium to the net asset value per share (calculated after the deduction of prior charges at market value). Treasury shares are explained in more detail under the heading "Market Purchase of the Company's own Ordinary Shares" below.
Market Purchase of the Company's own Ordinary Shares
Resolution 15 will be proposed as a special resolution to authorise the Company to make market purchases of its own Ordinary shares. The Company may do either of the following things in respect of its own Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury:
- sell such shares (or any of them) for cash (or its equivalent); or - ultimately cancel the shares (or any of them).
Treasury shares may be resold quickly and cost effectively. The Directors therefore intend to continue to take advantage of this flexibility as they deem appropriate. Treasury shares also enhance the Directors' ability to manage the Company's capital base.
No dividends will be paid on treasury shares and no voting rights attach to them.
The maximum aggregate number of Ordinary shares which may be purchased pursuant to the authority is 14.99% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution (approximately 49 million Ordinary shares). The minimum price which may be paid for an Ordinary share is 25p (exclusive of expenses). The maximum price (exclusive of expenses) which may be paid for the shares is the higher of a) 5% above the average of the middle market quotations of the Ordinary shares (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase; and b) the higher of the price of the last independent trade and the highest current independent bid on the main market for the Ordinary shares.
This authority, if conferred, will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting) and will be exercised only if it would result in an increase in net asset value per Ordinary share for the remaining shareholders and if it is in the best interests of shareholders as a whole.
Holding General Meetings on less than 14 days' clear notice
Under the Companies Act 2006, the notice period for all general meetings of the Company is 21 clear days' notice. Annual general meetings will always be held on at least 21 clear days' notice but shareholders can approve a shorter notice period for other general meetings. Resolution 16 seeks the authority from shareholders for the Company to be able to hold general meetings (other than Annual General Meetings) on not less than 14 clear days' notice. The approval will be effective until the Company's next annual general meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on 14 days' notice.
The Board believes that it is in the best interests of Shareholders to have the ability to call meetings on no less than 14 clear days' notice should an urgent matter arise. The Directors do not intend to hold a general meeting on less than 21 clear days' notice unless immediate action is required.
Recommendation
The Directors consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders and recommend that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 412,465 Ordinary shares, representing 0.13% of the issued share capital.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
7(th) Floor, 40 Princes Street
Edinburgh EH2 2BY
16 January 2018
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website but not for any information on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
- the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and
- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
On behalf of the Board
James M Long
Director
16 January 2018
STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
30 September 30 September
2017 2016
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments 10 - 6,160 6,160 - 11,623 11,623
Foreign exchange
gains/(losses) - 4,544 4,544 - (25,019) (25,019)
Income 3 17,961 - 17,961 23,265 - 23,265
Investment management
fees 4 56 104 160 (486) (902) (1,388)
Administrative
expenses 5 (726) (281) (1,007) (758) (209) (967)
______ ______ ______ ______ ______ ______
Net return before
finance costs and
taxation 17,291 10,527 27,818 22,021 (14,507) 7,514
Finance costs 6 (1,333) (2,475) (3,808) (1,346) (2,492) (3,838)
______ ______ ______ ______ ______ ______
Net return before
taxation 15,958 8,052 24,010 20,675 (16,999) 3,676
Taxation 7 (179) - (179) (73) - (73)
______ ______ ______ ______ ______ ______
Return attributable
to equity shareholders 15,779 8,052 23,831 20,602 (16,999) 3,603
______ ______ ______ ______ ______ ______
Return per Ordinary
share (pence) 9 5.31 2.71 8.02 7.56 (6.24) 1.32
______ ______ ______ ______ ______ ______
The total column of this statement represents the
profit and loss account of the Company. The 'Revenue'
and 'Capital' columns represent supplementary information
prepared under guidance issued by the Association
of Investment Companies.
There has been no other comprehensive income during
the year, accordingly, the return attributable
to equity shareholders is equivalent to the total
comprehensive income for the year.
All revenue and capital items in the above statement
derive from continuing operations.
No operations were acquired or discontinued in
the year.
The accompanying notes are an integral part of
these financial statements.
STATEMENT OF FINANCIAL POSITION
As at As at
30 September 30 September
2017 2016
Note GBP'000 GBP'000
Non-current assets
Investments at fair value through
profit or loss 10 477,150 420,128
_________ _________
Current assets
Debtors 11 2,613 6,347
Derivative financial instruments 13,449 2,652
Collateral pledged with brokers - 11,497
Cash and cash equivalents 3,627 2,203
_________ _________
19,689 22,699
_________ _________
Creditors: amounts falling
due within one year
Bank overdraft - (18,084)
Collateral received from brokers - (770)
Derivative financial instruments (18) (9,758)
Other creditors 12 (422) (3,088)
_________ _________
(440) (31,700)
_________ _________
Net current assets/(liabilities) 19,249 (9,001)
_________ _________
Total assets less current liabilities 496,399 411,127
Non-current liabilities
6.25% Bonds 2031 13 (59,632) (59,606)
_________ _________
Net assets 436,767 351,521
_________ _________
Capital and reserves
Called-up share capital 14 91,352 72,778
Share premium account 116,556 -
Capital redemption reserve 26,629 15,563
Capital reserve 15 164,806 224,071
Revenue reserve 37,424 39,109
_________ _________
Equity shareholders' funds 436,767 351,521
_________ _________
Net asset value per Ordinary
share (pence) 16
Bonds at par value 132.73 131.64
_________ _________
Bonds at fair value 126.44 123.62
_________ _________
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended
30 September 2017
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 October
2016 72,778 - 15,563 224,071 39,109 351,521
Return after taxation - - - 8,052 15,779 23,831
Ordinary shares
issued 14 29,640 116,556 - - - 146,196
Ordinary shares
purchased for treasury 15 - - - (3,998) - (3,998)
Ordinary shares 14,
purchased for cancellation 15 (11,066) - 11,066 (62,038) - (62,038)
Tender offer costs - - - (1,281) - (1,281)
Dividends paid 8 - - - - (17,464) (17,464)
______ ______ ______ ______ ______ ______
Balance at 30 September
2017 91,352 116,556 26,629 164,806 37,424 436,767
______ ______ ______ ______ ______ ______
For the year ended
30 September 2016
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 October
2015 72,778 - 15,563 249,811 36,680 374,832
Return after taxation - - - (16,999) 20,602 3,603
Ordinary shares
issued from treasury - - - 270 - 270
Ordinary shares
purchased for treasury 15 - - - (9,003) - (9,003)
Tender offer costs - - - (8) - (8)
Dividends paid 8 - - - - (18,173) (18,173)
______ ______ ______ ______ ______ ______
Balance at 30 September
2016 72,778 - 15,563 224,071 39,109 351,521
______ ______ ______ ______ ______ ______
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CASH FLOWS
Year ended Year ended
30 September 30 September
2017 2016
as re-presented
(note
2a)
Note GBP'000 GBP'000
Operating activities
Net return before finance costs
and taxation 27,818 7,514
Adjustments for:
Dividend income (9,686) (10,372)
Fixed interest income (5,941) (2,871)
Interest income 4 (25)
Other income (2,338) (9,997)
Other income received 2,338 9,997
Dividends received 9,246 9,893
Fixed interest income received 5,952 2,871
Interest received (4) 25
Foreign exchange (4,544) (1,860)
Gains on investments (6,160) (11,623)
Increase in other debtors - (434)
(Decrease)/increase in accruals (996) 814
Stock dividends included in investment
income (1,058) (52)
Amortisation of fixed income
book cost 659 531
Forward contracts (13,796) (1,802)
Net movement in collateral balances 10,727 5,913
Taxation withheld (222) (62)
________ ________
Net cash flow from/(used in)
operating activities 11,999 (1,540)
Investing activities{A}
Purchases of investments (643,322) (408,381)
Sales of investments 588,685 408,256
________ ________
Net cash flow used in investing
activities (54,637) (125)
Financing activities{B}
Shares issued 146,196 -
Purchase of own shares to treasury (3,998) (9,003)
Shares issued from treasury - 270
Purchase of own shares for cancellation (62,038) -
Interest paid (3,813) (3,840)
Tender offer costs (1,281) (8)
Equity dividends paid 8 (17,464) (18,173)
________ ________
Net cash flow from/(used in)
financing activities 57,602 (30,754)
________ ________
Increase/(decrease) in cash and
cash equivalents 14,964 (32,419)
________ ________
Analysis of changes in cash and cash
equivalents during the year
Opening balance (15,881) 14,678
Foreign exchange 4,544 1,860
Increase/(decrease) in cash and cash
equivalents as above 14,964 (32,419)
________ ________
Closing balance 3,627 (15,881)
________ ________
{A} In a change to presentation, the purchases and
sales of investments are now being classified as
investing activities as part of the investment policy
of the Company. Previously these had been classified
as operating activities.
{B} In another change to presentation, interest paid
is now being classified as a financing activity.
Previously this had been classified as an operating
activity. These reclassifications in the above Statement
of Cashflows have no impact on net assets, the Statement
of Comprehensive Income or the Statement of Financial
Position.
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2017
1. Principal activity
The Company is a closed-end investment company,
registered in Scotland No SC003721, with its
Ordinary shares being listed on the London Stock
Exchange.
2. Accounting policies
(a) Basis of preparation
The financial statements have been prepared
in accordance with FRS 102 and with the AIC's
Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies
and Venture Capital Trusts' issued in January
2017. The financial statements are prepared
in sterling which is the functional currency
of the Company and rounded to the nearest
GBP'000. They have also been prepared on
a going concern basis and on the assumption
that approval as an investment trust will
continue to be granted.
The Directors have, at the time of approving
the financial statements, a reasonable expectation
that the Company has adequate resources to
continue in operational existence for the
foreseeable future. Thus they continue to
adopt the going concern basis of accounting
in preparing the financial statements. Further
detail is included in the Directors' Report.
The financial statements are presented in
sterling, which is the Company's functional
and presentation currency. The Company's
performance is evaluated and its liquidity
is managed in sterling. Therefore sterling
is considered as the currency that most faithfully
represents the economic effects of the underlying
transactions, events and conditions.
The presentation of items in the Statement
of Cash Flows for the comparative 2016 period
has been changed to comply with best accounting
practice FRS 102.
Significant accounting judgements, estimates
and assumptions
The preparation of financial statements 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. The area where estimates and assumptions
have the most significant effect on the amounts
recognised in the financial statements is
the determination of the fair value of unquoted
investments, as disclosed in note 2(e).
(b) Income
Dividend income receivable on equity shares
is recognised on the ex-dividend date. Dividend
income on equity shares where no ex-dividend
date is quoted is 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. Dividend income is presented
gross of any non-recoverable withholding
taxes, which are disclosed separately in
the Statement of Comprehensive Income.
The fixed returns on debt securities and
non-equity shares are recognised using the
effective interest rate method.
Interest income is accounted for on an accruals
basis.
Underwriting commission is recognised when
the issue underwritten closes.
Option premium is recognised as revenue evenly
over the life of the option contract and
included in the revenue column of the Statement
of Comprehensive Income unless the option
has been written for the maintenance and
enhancement of the Company's investment portfolio
and represents an incidental part of a larger
capital transaction, in which case any premia
arising are allocated to the capital column
of the Statement of Comprehensive Income.
Where the premium is taken to revenue, an
appropriate amount is shown as a capital
return such that the total return reflects
the overall change in the fair value of the
option. When an option is closed out or exercised
the gain or loss is accounted for as capital
and any unamortised premium is also retained
in capital.
CDS premium income is recognised as revenue
evenly over the life of the CDS contract
and included in the revenue column of the
Statement of Comprehensive Income unless
the CDS has been written for the maintenance
and enhancement of the Company's investment
portfolio, in which case any premia arising
are allocated to the capital column of the
Statement of Comprehensive Income. When a
CDS is closed out the gain or loss is accounted
for as capital.
Total Return Swaps ("TRS") may be held in
the portfolio for generating or protecting
capital returns, or potentially for generating
or maintaining revenue returns. Where the
purpose of the TRS is the generation of income,
the premium received is treated as a revenue
item. Where the purpose of the TRS is the
maintenance of capital, the premium paid
is treated as a capital item. The value of
the TRS is subsequently marked to market
to reflect the fair value of the TRS based
on traded prices.
(c) Expenses
All expenses, with the exception of interest
expenses, which are recognised using the
effective interest method, are accounted
for on an accruals basis. Expenses are charged
through the revenue column of the Statement
of Comprehensive Income except as follows:
- expenses which are incidental to the acquisition
or disposal of an investment are treated
as capital and separately identified and
disclosed in note 10;
- the Company charges 65% of investment management
fees and finance costs to capital, in accordance
with the Board's expected long term return
in the form of capital gains and income respectively
from the investment portfolio of the Company.
(d) Taxation
The tax expense represents the sum of tax
currently payable and deferred tax. Any tax
payable is based on the taxable profit for
the year. Taxable profit differs from net
profit as reported in the Statement of Comprehensive
Income because it excludes items of income
or expense that are taxable or deductible
in other years and it further excludes items
that are never taxable or deductible. The
Company's liability for current tax is calculated
using tax rates that were applicable at the
Statement of Financial Position date.
Deferred taxation is recognised in respect
of all timing differences that have originated
but not reversed at the Statement of Financial
Position date, where transactions or events
that result in an obligation to pay more
tax in the future or right to pay less tax
in the future have occurred at the Statement
of Financial Position date. This is subject
to deferred tax assets only being recognised
if it is considered more likely than not
that there will be suitable profits from
which the future reversal of the underlying
timing differences can be deducted. Timing
differences are differences arising between
the Company's taxable profits and its results
as stated in the financial statements which
are capable of reversal in one or more subsequent
periods. Deferred tax is measured on a non-discounted
basis at the tax rates that are expected
to apply in the periods in which timing differences
are expected to reverse, based on tax rates
and laws enacted or substantively enacted
at the Statement of Financial Position date.
Due to the Company's status as an investment
trust company and the intention to continue
meeting the conditions required to obtain
approval in the foreseeable future, the Company
has not provided deferred tax on any capital
gains and losses arising on the revaluation
or disposal of investments.
The tax effect of different items of income/gain
and expenditure/loss is allocated between
capital and revenue within the Statement
of Comprehensive Income on the same basis
as the particular item to which it relates
using the Company's effective rate of tax
for the year. The Company does not apply
the marginal method of allocation of tax
relief.
(e) Investments
The Company has chosen to apply the recognition
and measurement provisions of IAS 39 Financial
Instruments: Recognition and Measurement
(as adopted for use in the EU) and investments
have been designated upon initial recognition
at fair value through profit or loss. This
is done because all investments are considered
to form part of a group of financial assets
which is evaluated on a fair value basis,
in accordance with the Company's documented
investment strategy, and information about
the grouping is provided internally on that
basis.
Investments are recognised and de-recognised
at trade date where a purchase or sale is
under a contract whose terms require delivery
within the timeframe established by the market
concerned, and are measured initially at
fair value. Subsequent to initial recognition,
investments are valued at fair value through
profit or loss. For listed investments, this
is deemed to be bid market prices or closing
prices for SETS (London Stock Exchange's
electronic trading service) stocks sourced
from the London Stock Exchange.
Unquoted investments, including those in
Limited Partnerships ("LPs") are valued by
the Directors at fair value using International
Private Equity and Venture Capital Valuation
Guidelines.
The Company's investments in LPs are subject
to the terms and conditions of the respective
investee's offering documentation. The investments
in LPs are valued based on the reported Net
Asset Value ("NAV") of such assets as determined
by the administrator or General Partner of
the LPs and adjusted by the Directors in
consultation with the Manager to take account
of concerns such as liquidity so as to ensure
that investments held at fair value through
profit or loss are carried at fair value.
The reported NAV is net of applicable fees
and expenses including carried interest amounts
of the investees and the underlying investments
held by each LP are accounted for, as defined
in the respective investee's offering documentation.
While the underlying fund managers may utilise
various model-based approaches to value their
investment portfolios, on which the Company's
valuations are based, no such models are
used directly in the preparation of fair
values of the investments. The NAV of LPs
reported by the administrators may subsequently
be adjusted when such results are subject
to audit and audit adjustments may be material
to the Company.
Gains and losses arising from changes in
fair value are treated in net profit or loss
for the period as a capital item in the Statement
of Comprehensive Income and are ultimately
recognised in the capital reserve.
(f) Borrowings
Borrowings are measured initially at the
fair value of the consideration received,
net of any issue expenses, and subsequently
at amortised cost using the effective interest
method. The finance costs of such borrowings
are accounted for on an accruals basis using
the effective interest rate method and are
charged 35% to revenue and 65% to capital
in the Statement of Comprehensive Income
to reflect the Company's investment policy
and prospective income and capital growth.
(g) Nature and purpose of reserves
Called up share capital
The Ordinary share capital on the Statement
of Financial Position relates to the number
of shares in issue and in treasury. Only
when the shares are cancelled, either from
treasury or directly, is a transfer made
to the capital redemption reserve.
Capital redemption reserve
The capital redemption reserve is used to
record the amount equivalent to the nominal
value of any of the Company's own shares
purchased and cancelled in order to maintain
the Company's capital.
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) and (f) above.
Revenue reserve
This reserve reflects all income and costs
which are recognised in the revenue column
of the Statement of Comprehensive Income.
The revenue reserve represents the amount
of the Company's reserves distributable by
way of dividend.
(h) Valuation of derivative financial instruments
Derivatives are classified as fair value
through profit or loss - held for trading.
Derivatives are initially accounted and measured
at fair value on the date the derivative
contract is entered into and subsequently
measured at fair value. The gain or loss
on re-measurement is taken to the Statement
of Comprehensive Income. The sources of the
return under the derivative contract are
allocated to the revenue and capital column
of the Statement of Comprehensive Income
in alignment with the nature of the underlying
source of income and in accordance with guidance
in the AIC SORP.
(i) Dividends payable
Dividends payable to equity shareholders
are recognised in the financial statements
when they have been approved by Shareholders
and become a liability of the Company. Interim
dividends are recognised in the financial
statements in the period in which they are
paid.
(j) Foreign currency
Monetary assets and liabilities and non-monetary
assets held at fair value denominated in
foreign currencies are converted into sterling
at the rate of exchange ruling at the reporting
date. Transactions during the year involving
foreign currencies are converted at the rate
of exchange ruling at the transaction date.
Gains or losses arising from a change in
exchange rates subsequent to the date of
a transaction are included as a currency
gain or loss in revenue or capital in the
Statement of Comprehensive Income, depending
on whether the gain or loss is of a revenue
or capital nature.
(k) Treasury shares
When the Company purchases the Company's
equity share capital as treasury shares,
the amount of the consideration paid, which
includes directly attributable costs, is
net of any tax effects, and is recognised
as a deduction from equity. When these shares
are sold or reissued subsequently, the amount
received is recognised as an increase in
equity, and the resulting surplus on the
transaction is transferred to the share premium
account or where a deficit on the transaction
then it is transferred from the capital reserve.
(l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits.
Cash equivalents includes bank overdrafts
repayable on demand and short term, highly
liquid investments, that are readily convertible
to known amounts of cash and that are subject
to an insignificant risk of change in value.
(m) Segmental reporting
The Directors are of the opinion that the
Company is engaged in a single segment of
business activity, being investment business.
Consequently, no business segmental analysis
is provided.
2017 2016
3. Income GBP'000 GBP'000
Income from investments
UK listed dividends 3,031 6,461
Overseas listed dividends 5,597 3,911
Stock dividends 1,058 -
Fixed interest income 5,941 2,871
______ ______
15,627 13,243
______ ______
2017 2016
GBP'000 GBP'000
Other income
Interest (4) 25
Derivative income 2,304 9,955
Other income 34 42
______ ______
2,334 10,022
______ ______
Total income 17,961 23,265
______ ______
2017 2016
Revenue Capital Total Revenue Capital Total
4. Investment management GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
fees
Investment management
fee - BlackRock 241 448 689 486 902 1,388
Investment management
fee - Aberdeen (297) (552) (849) - - -
______ ______ ______ ______ ______ ______
(56) (104) (160) 486 902 1,388
______ ______ ______ ______ ______ ______
With effect from 11 February 2017, Aberdeen
Fund Managers Limited has been appointed as
the Company's Alternative Investment Fund Manager
in place of BlackRock Fund Managers Limited.
For the period to 10 February 2017 the investment
management fee was levied at a rate of 0.4%
per annum of the Company's total assets less
current liabilities (excluding loans) and was
allocated 35% to the revenue column and 65%
to the capital column of the Statement of Comprehensive
Income.
Following their appointment as Alternative Investment
Fund Manager on 11 February 2017 through to
the end of the year, Aberdeen agreed to waive
any entitlement to management fees. Additionally,
this waiver was in place until 6 October 2017,
being the date six months subsequent to the
Company's merger with Aberdeen UK Tracker Trust
plc. The sums shown above for Aberdeen reflect
sums paid to and retained by the Company, being
the amount equal to six months management fees
payable to BlackRock (in line with the notice
period clause) calculated at the rate of 0.4%
per annum of the Company's total assets less
current liabilities (excluding loans) as at
10 February 2017 (being the date of termination
of the BlackRock Investment Management Agreement).
Following completion of the waiver period, the
investment management fee to be levied by Aberdeen
will be at the following tiered levels:
* 0.50% per annum in respect of the first GBP300
million of the net asset value (with the 6.25% Bonds
2031 at fair value);
* 0.45% per annum in respect of the balance of the net
asset value (with the 6.25% Bonds 2031 at fair
value).
The Company will also receive rebates in respect
of underlying investments in other funds managed
by the Manager (where an investment management
fee is charged by the Manager on that fund)
in the normal course of business to ensure that
no double counting occurs. Any investments made
in funds managed by the Manager which themselves
invest directly into alternative investments
including, but not limited to, infrastructure
and property will be charged at the Manager's
lowest institutional fee rate. To avoid double
charging, such investments will be excluded
from the overall management fee calculation.
2017 2016
Revenue Capital Total Revenue Capital Total
5. Administrative expenses GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' remuneration 202 - 202 182 - 182
Custody fees 54 - 54 26 - 26
Depositary fees 57 - 57 50 - 50
Shareholders' services{A} 36 - 36 94 - 94
Registrar's fees 75 - 75 82 - 82
Transaction costs - 17 17 - 32 32
Auditor's remuneration:
- statutory audit 35 - 35 44 - 44
- taxation compliance
services 6 - 6 6 - 6
- other non-audit
services
- Review of Board
compliance certificate 1 - 1 1 - 1
- Review of transition 7 - 7 - - -
- Review of Half-yearly
Report 7 - 7 7 - 7
Other expenses 246 264 510 266 177 443
______ ______ ______ ______ ______ ______
726 281 1,007 758 209 967
______ ______ ______ ______ ______ ______
{A} Includes registration, savings scheme and
other wrapper administration and promotion expenses,
of which GBP36,000 (2016 - GBP94,000) was paid
to BlackRock to cover promotional activities
during the year. There was GBPnil (2016 - GBP86,000
due to BlackRock) due to Aberdeen Standard Investments
in respect of these promotional activities at
the year end.
2017 2016
Revenue Capital Total Revenue Capital Total
6. Finance costs GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
6.25% Bonds 2031 1,320 2,450 3,770 1,325 2,461 3,786
Overdraft interest 13 25 38 21 31 52
______ ______ ______ ______ ______ ______
1,333 2,475 3,808 1,346 2,492 3,838
______ ______ ______ ______ ______ ______
2017 2016
Revenue Capital Total Revenue Capital Total
7. Taxation GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Analysis of charge
for the year
Overseas tax suffered 350 - 350 81 - 81
Overseas tax reclaimable (171) - (171) (8) - (8)
______ ______ ______ ______ ______ ______
Total tax charge
for the year 179 - 179 73 - 73
______ ______ ______ ______ ______ ______
(b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than
the standard rate of corporation tax of 19.5%
(2016 - 20%). The differences are explained
as follows:
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return before
taxation 15,958 8,052 24,010 20,675 (16,999) 3,676
______ ______ ______ ______ ______ ______
Net return before
taxation multiplied
by the standard
rate of corporation
tax of 19.5% (2016
- 20%) 3,112 1,570 4,682 4,135 (3,400) 735
Effects of:
Non taxable (gains)/losses
on investments
held at fair value
through profit
or loss - (4,192) (4,192) - (2,325) (2,325)
Exchange gain
not taxable - 1,809 1,809 - 5,005 5,005
Non taxable UK
dividend income (562) - (562) (1,288) - (1,288)
Non taxable overseas
dividend income (1,077) - (1,077) (598) - (598)
Disallowable expenses 74 463 537 - 42 42
Irrecoverable
overseas tax 350 - 350 81 - 81
Overseas tax recovered (171) - (171) (8) - (8)
Utilisation of
excess management
expenses brought
forward (1,538) 350 (1,188) - (1,571) (1,571)
Effect of not
applying the marginal
method of allocation
of tax relief (9) - (9) (2,249) 2,249 -
______ ______ ______ ______ ______ ______
179 - 179 73 - 73
______ ______ ______ ______ ______ ______
(c) Factors that may affect future tax charges
No provision for deferred tax has been made
in the current or prior accounting period.
The Company has not provided for deferred
tax on capital gains or losses arising on
the revaluation or disposal of investments
as it is exempt from tax on these items because
of its status as an investment trust company.
At the year end, the Company has, for taxation
purposes only, accumulated unrelieved management
expenses and loan relationship deficits of
GBP39,507,000 (2016 - GBP45,830,000). A deferred
tax asset in respect of this has not been
recognised and these expenses will only be
utilised if the Company has profits chargeable
to corporation tax in the future. It is considered
too uncertain that the Company will generate
such profits and therefore no deferred tax
asset has been recognised.
2017 2016
8. Ordinary dividends on equity shares GBP'000 GBP'000
Third interim dividend for 2016
- 1.635p (2015 - 1.67p) 4,366 4,583
Fourth interim dividend for 2016
- 1.635p (2015 - 1.70p) 4,366 4,669
First interim dividend for 2017
- 1.635p (2016 - 1.635p) 4,366 4,478
Second interim dividend for 2017
- 1.635p (2016 - 1.635p) 4,366 4,443
______ ______
17,464 18,173
______ ______
Set out below are the total dividends paid and
proposed in respect of the financial year, which
is the basis on which the requirements of Sections
1158 and 1159 of the Corporation Tax Act 2010
are considered. The revenue available for distribution
by way of dividend for the year is GBP15,779,000
(2016 - GBP20,602,000).
2017 2016
GBP'000 GBP'000
First interim dividend for 2017
- 1.635p (2016 - 1.635p) 4,366 4,478
Second interim dividend for 2017
- 1.635p (2016 - 1.635p) 4,366 4,443
Third interim dividend for 2017
- 1.31p (2016 - 1.635p) 4,317 4,366
Fourth interim dividend for 2017
- 1.31p{A} (2016 - 1.635p) 4,304 4,366
______ ______
17,353 17,653
______ ______
{A} The amount reflected above for the cost of
the fourth interim dividend for 2017 is based
on 328,551,705 Ordinary shares, being the number
of Ordinary shares in issue, excluding shares
held in treasury, as at the date of this Report.
2017 2016
9. Return per Ordinary share p p
Revenue return 5.31 7.56
Capital return 2.71 (6.24)
______ ______
Total return 8.02 1.32
______ ______
The figures above are based on the
following:
2017 2016
GBP'000 GBP'000
Revenue return 15,779 20,602
Capital return 8,052 (16,999)
______ ______
Total return 23,831 3,603
______ ______
Weighted average number of shares
in issue{A} 297,328,911 272,290,493
______ ______
{A} Calculated excluding shares
held in treasury.
2017 2016
10. Investments GBP'000 GBP'000
Held at fair value through profit
or loss:
Opening valuation 420,128 402,865
Opening investment holdings (gains)/losses (35,035) 34,785
______ ______
Opening book cost 385,093 437,650
Movements during the year:
Purchases at cost 643,106 408,549
Sales - proceeds (584,479) (410,015)
Sales - gains/(losses) 39,158 (51,091)
Accretion of fixed income book cost (659) -
______ ______
Closing book cost 482,219 385,093
Closing investment holdings (losses)/gains (5,069) 35,035
______ ______
Closing valuation of investments 477,150 420,128
______ ______
2017 2016
The portfolio valuation GBP'000 GBP'000
UK equities 131,977 185,758
Overseas equities 179,431 88,321
Fixed interest 108,969 131,680
Loan investments 43,293 -
Liquidity funds - 1,248
Unquoted holdings 13,480 13,121
477,150 420,128
Derivative financial instruments{A} 13,431 (7,106)
________ ________
490,581 413,022
________ ________
{A} Shown on the Statement of Financial Position
under Current assets and Creditors: amounts
falling due within one year.
2017 2016
Gains/(losses) on investments GBP'000 GBP'000
Realised gains/(losses) on sales 39,158 (51,091)
Net movement in investment holdings
gains (32,998) 62,714
________ ________
6,160 11,623
________ ________
Transaction costs
During the year expenses were incurred in acquiring
or disposing of investments classified as fair
value through profit or loss. These have been
expensed through capital and are included within
gains on investments in the Statement of Comprehensive
Income. The total costs were as follows:
2017 2016
GBP'000 GBP'000
Purchases 187 486
Sales 98 152
________ ________
285 638
________ ________
Substantial Holdings
At the year end the Company held more than 3%
of a share class in the following investees;
% of
Investee Class Class
Aberdeen Global Smart Beta Low Volatility
Global Equity Income Fund Z-1 99
Aberdeen Alpha Global Loans Fund Z-1 100
Aberdeen Global Indian Bond Fund Z-1 10
Aberdeen Global Frontier Markets
Bond Fund I-1 38
Aberdeen European Residential Opportunities
Fund B 86
Aberdeen Property Secondaries Partners
II A-1 43
TwentyFour Asset Backed Opportunities
Fund I-1 81
2017 2016
11. Debtors GBP'000 GBP'000
Amounts due from brokers 109 4,315
Prepayments and accrued income 2,333 1,904
Taxation recoverable 171 128
______ ______
2,613 6,347
______ ______
2017 2016
12. Creditors: amounts falling due within GBP'000 GBP'000
one year
Amounts due to brokers - 1,273
Interest on 6.25% Bonds 2031 209 214
Other creditors 213 1,601
______ ______
422 3,088
______ ______
2017 2016
13. Creditors: amounts falling due after GBP'000 GBP'000
more than one year
6.25% Bonds 2031{A}
Balance at beginning of year 59,606 59,579
Amortisation of discount and issue
expenses 26 27
______ ______
Balance at end of year 59,632 59,606
______ ______
{A} The market value of the 6.25% Bonds using
the last available quoted offer price from the
London Stock Exchange as at 30 September 2017
was 133.88p, a total of GBP80,326,000 (2016
- 135.02p, total of GBP81,010,000).
The Company has in issue GBP60 million Bonds
2031 which were issued at 99.343%. The bonds
have been accounted for in accordance with accounting
standards, which require any discount or issue
costs to be amortised over the life of the bonds.
The bonds are secured by a floating charge over
all of the assets of the Company.
Under the covenants relating to the bonds, the
Company is to ensure that, at all times, the
aggregate principal amount outstanding in respect
of monies borrowed by the Company does not exceed
an amount equal to its share capital and reserves.
All covenants were met during the year and also
during the period from the year end to the date
of this report.
Ordinary Treasury Total
shares shares shares
14. Called up share capital (number) (number) (number) GBP'000
Allotted, called up and
fully paid
Ordinary shares of 25p
each
At 30 September 2016 267,037,282 24,075,000 291,112,282 72,778
Shares issued 118,561,879 - 118,561,879 29,640
Shares purchased for
cancellation (44,263,287) - (44,263,287) (11,066)
Shares purchased for
treasury (12,269,169) 12,269,169 - -
_________ _________ _________ ______
At 30 September 2017 329,066,705 36,344,169 365,410,874 91,352
_________ _________ _________ ______
Since the year end a further 515,000 Ordinary
shares of 25p each have been purchased by the
Company at a total cost of GBP601,000 all of
which were held in treasury.
2017 2016
15. Capital reserve GBP'000 GBP'000
At 1 October 224,071 249,811
Movement in investment holding gains (32,998) 62,714
Gains/(losses) on realisation of
investments at fair value 39,158 (51,091)
Currency losses (9,279) (25,019)
Forward currency contracts 13,823 -
Tender offer costs (1,281) (8)
Transaction and other costs (281) (209)
Finance costs (2,475) (2,492)
Shares issued from treasury - 270
Purchase of own shares to treasury (3,998) (9,003)
Purchase of own shares for cancellation (62,038) -
Investment management fees 104 (902)
______ ______
At 30 September 164,806 224,071
______ ______
16. Net asset value per share
The net asset value per Ordinary share and the
net asset value attributable to the Ordinary
shares at the year end were as follows:
Debt at par 2017 2016
Net asset value attributable (GBP'000) 436,767 351,521
Number of Ordinary shares in issue
excluding treasury (note 14) 329,066,705 267,037,282
Net asset value per share (p) 132.73 131.64
Debt at fair value GBP'000 GBP'000
Net asset value attributable 436,767 351,521
Add: Amortised cost of 6.25% Bonds
2031 59,632 59,606
Less: Market value of 6.25% Bonds
2031 (80,326) (81,010)
______ ______
416,073 330,117
______ ______
Number of Ordinary shares in issue
excluding treasury (note 14) 329,066,705 267,037,282
Net asset value per share (p) 126.44 123.62
Debt at par (capital basis) GBP'000 GBP'000
Net asset value attributable 436,767 351,521
Less: revenue return for the year (15,779) (20,602)
Add: interim dividends paid 8,732 8,921
______ ______
429,720 339,840
______ ______
Number of Ordinary shares in issue
excluding treasury (note 14) 329,066,705 267,037,282
Net asset value per share (p) 130.59 127.26
Debt at fair value (capital basis) GBP'000 GBP'000
Net asset value attributable 436,767 351,521
Add: Amortised cost of 6.25% Bonds
2031 59,632 59,606
Less: Market value of 6.25% Bonds
2031 (80,326) (81,010)
Less: revenue return for the year (15,779) (20,602)
Add: interim dividends paid 8,732 8,921
______ ______
409,026 318,436
______ ______
Number of Ordinary shares in issue
excluding treasury (note 14) 329,066,705 267,037,282
Net asset value per share (p) 124.30 119.25
17. Financial instruments
Risk management
The Company's investment activities expose it
to various types of financial risk associated
with the financial instruments and markets in
which it invests. The Company's financial instruments,
other than derivatives, comprise securities and
other investments, cash balances, liquid resources,
loans and debtors and creditors that arise directly
from its operations; for example, in respect
of sales and purchases awaiting settlement, and
debtors for accrued income. The Company also
has the ability to enter into derivative transactions
in the form of forward foreign currency contracts,
futures and options, subject to Board approval,
for the purpose of enhancing portfolio returns
and for hedging purposes in a manner consistent
with the Company's broader investment policy.
As at 30 September 2017 there were 13 open positions
in derivatives transactions (2016 - 103).
Risk management framework
The directors of Aberdeen Fund Managers Limited
collectively assume responsibility for AFML's
obligations under the AIFMD including reviewing
investment performance and monitoring the Company's
risk profile during the year.
AFML is a fully integrated member of the Aberdeen
Group, which provides a variety of services and
support to AFML in the conduct of its business
activities, including in the oversight of the
risk management framework for the Company. The
AIFM has delegated the day to day administration
of the investment policy to Aberdeen Asset Managers
Limited, which is responsible for ensuring that
the Company is managed within the terms of its
investment guidelines and the limits set out
in its pre-investment disclosures to investors
(details of which can be found on the Company's
website). The AIFM has retained responsibility
for monitoring and oversight of investment performance,
product risk and regulatory and operational risk
for the Company.
The Group's Internal Audit Department is independent
of the Risk Division and reports directly to
the Group CEO and to the Audit Committee of the
Group's Board of Directors. The Internal Audit
Department is responsible for providing an independent
assessment of the Group's control environment.
The Manager conducts its risk oversight function
through the operation of the Group's risk management
processes and systems which are embedded within
the Group's operations. The Group's Risk Division
supports management in the identification and
mitigation of risks and provides independent
monitoring of the business. The Division includes
Compliance, Business Risk, Market Risk, Risk
Management and Legal. The team is headed up by
the Group's Head of Risk, who reports to the
Chief Executive Officer of the Group. The Risk
Division achieves its objective through embedding
the Risk Management Framework throughout the
organisation using the Group's operational risk
management system ("SWORD").
The Group's corporate governance structure is
supported by several committees to assist the
board of directors of Aberdeen, its subsidiaries
and the Company to fulfil their roles and responsibilities.
The Group's Risk Division is represented on all
committees, with the exception of those committees
that deal with investment recommendations. The
specific goals and guidelines on the functioning
of those committees are described in the committees'
terms of reference.
Risk management
The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest
rate, foreign currency and other price risk),
(ii) liquidity risk and (iii) credit risk.
In order to mitigate risk, the investment strategy
is to select investments for their fundamental
value. Stock selection is therefore based on
disciplined accounting, market and sector analysis.
It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order
to reduce the risk arising from factors specific
to a particular asset class. The Investment Manager
actively monitors market prices throughout the
year and reports to the Board, which meets regularly
in order to consider investment strategy. Current
strategy is detailed in the Chairman's Statement
and in the Investment Manager's Report.
The Board has agreed the parameters for net gearing/cash,
which was 12.8% of net assets as at 30 September
2017 (2016 - 21.5%). The Manager's policies for
managing these risks are summarised below and
have been applied throughout the current and
previous year. The numerical disclosures in the
tables listed below exclude short-term debtors
and creditors.
Market risk
The Company's investment portfolio is exposed
to market price fluctuations, which are monitored
by the Manager in pursuance of the investment
objective. Adherence to investment guidelines
and to investment and borrowing powers set out
in the management agreement mitigates the risk
of exposure to any particular security or issuer.
Further information on the investment portfolio
is set out in the Investment Manager's Report.
Market price risk arises mainly from uncertainty
about future prices of financial instruments
used in the Company's operations. It represents
the potential loss the Company might suffer through
holding market positions as a consequence of
price movements. It is the Board's policy to
hold equity investments in the portfolio in a
broad spread of asset classes in order to reduce
the risk arising from factors specific to a particular
asset class.
Interest rate risk
Interest rate movements may affect:
- the level of income receivable on cash deposits;
- interest payable on the Company's variable
rate borrowings; and
- the fair value of any investments in fixed
interest rate securities.
Management of the risk
The possible effects on fair value and cash flows
that could arise as a result of changes in interest
rates are taken into account when making investment
and borrowing decisions. Details of the 6.25%
Bonds 2031 and interest rates applicable can
be found in note 13.
The Board imposes borrowing limits to ensure
gearing levels are appropriate to market conditions
and reviews these on a regular basis. Interest
rate risk is the risk of movements in the value
of financial instruments as a result of fluctuations
in interest rates.
Financial assets
The interest rate risk of the portfolio of financial
assets at the reporting date was as follows:
2017 2016
Within More Within More
than than
1 year 1 year Total 1 year 1 year Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Exposure to fixed
interest rates
Fixed interest
investments 1,471 75,764 77,235 30 128,928 128,958
Exposure to floating
interest rates
Fixed interest
investments - 31,734 31,734 - 2,722 2,722
Loan investments - 43,293 43,293 - - -
Cash & cash equivalents 3,627 - 3,627 2,203 - 2,203
Bank overdraft - - - (18,084) - (18,084)
Net collateral
pledged with brokers - - - 10,727 - 10,727
BlackRock's Institutional
Sterling Liquidity
Fund - - - 1,248 - 1,248
_______ _______ _______ _______ _______ _______
5,098 150,791 155,889 (3,876) 131,650 127,774
_______ _______ _______ _______ _______ _______
Financial liabilities
The Company has borrowings by way of a bond issue,
held at amortised cost of GBP59,632,000 (2016
- GBP59,606,000) details of which are in note
13. The fair value of this loan has been calculated
at GBP80,326,000 as at 30 September 2017 (2016
- GBP81,010,000).
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 Statement of Financial Position
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
30 September 2017 would increase/decrease by
GBP18,000 (2016 - decrease/increase GBP20,000).
This is attributable to the Company's exposure
to interest rates on its floating rate cash balances
and the bank overdraft at 30 September 2016.
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
and loan financial assets at the year ended 30
September 2017 of GBP152,262,000 (2016 - GBP131,680,000)
would result in a decrease of GBP2,025,000 (2016
- GBP1,988,000). 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 30 September 2017 would result in
an increase of GBP2,116,000 (2016 - GBP1,988,000).
Foreign currency risk
A proportion of the Company's investment portfolio
is invested in overseas securities whose values
are subject to fluctuation due to changes in
foreign exchange rates. In addition, the impact
of changes in foreign exchange rates upon the
profits of investee companies can result, indirectly,
in changes in their valuations. Consequently
the Statement of Financial Position can be affected
by movements in exchange rates.
Management of the risk
The revenue account is subject to currency fluctuations
arising on dividends receivable in foreign currencies
and, indirectly, due to the impact of foreign
exchange rates upon the profits of investee companies.
It is not the Company's policy to hedge this
currency risk but the Board keeps under review
the currency returns in both capital and income.
Foreign currency risk exposure by currency of
denomination excluding other debtors and receivables
and other payables falling due within one year:
30 September 2017 30 September 2016
Net Total Net Total
monetary currency monetary currency
Investments items exposure Investments items exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
US Dollar 232,657 (140) 232,517 93,723 552 94,275
Euro 20,552 - 20,552 25,997 2,754 28,751
Other 82,405 170 82,575 29,827 - 29,827
______ ______ ______ ______ ______ ______
335,614 30 335,644 149,547 3,306 152,853
______ ______ ______ ______ ______ ______
Foreign currency sensitivity
The following table details the impact on the
Company's net assets to a 10% decrease (in the
context of a 10% increase the figures below should
all be read as negative) in Sterling against
the foreign currencies in which the Company has
exposure. The sensitivity analysis includes foreign
currency denominated monetary items and adjusts
their translation at the period end for a 10%
change in foreign currency rates.
2017 2016
GBP'000 GBP'000
US Dollar 23,251 9,427
Euro 2,055 2,875
Other 8,258 2,983
______ ______
33,564 15,285
______ ______
Foreign exchange contracts
The following forward contracts were outstanding
at the Statement of Financial Position date:
Unrealised
gain/(loss)
30 September
Date of Buy Sell Settlement Amount Contracted 2017
contract Currency Currency date '000 rate GBP'000
30 August 6 December
2017 GBP EUR 2017 2,360 1.1331 111
31 August 6 December
2017 GBP AUD 2017 53,220 1.7146 2,361
31 August 6 December
2017 GBP EUR 2017 57,635 1.1331 2,553
31 August 6 December
2017 GBP JPY 2017 38,441 150.8571 2,147
31 August 6 December
2017 GBP USD 2017 80,353 1.3443 3,069
31 August 6 December
2017 GBP USD 2017 80,274 1.3443 2,991
8
September 6 December
2017 GBP EUR 2017 6,023 1.1331 212
11
September 6 December
2017 USD GBP 2017 317 1.3443 (5)
13
September 6 December
2017 USD GBP 2017 509 1.3443 (6)
18
September 6 December
2017 GBP USD 2017 694 1.3443 (7)
19
September 6 December
2017 USD GBP 2017 465 1.3443 3
25
September 6 December
2017 USD GBP 2017 296 1.3443 2
27
September 6 December
2017 USD GBP 2017 459 1.3443 -
The fair value of forward exchange contracts
is based on forward exchange rates at the Statement
of Financial Position date.
Other price risk
Other price risks (ie changes in market prices
other than those arising from interest rate or
currency risk) may affect the value of the quoted
investments.
Management of the risk
It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order
to reduce the risk arising from factors specific
to a particular sector. The allocation of assets
to international markets and the stock selection
process, as detailed in the section "Investment
Process" in the published Annual Report, both
act to reduce market risk. The Manager actively
monitors market prices throughout the year and
reports to the Board, which meets regularly in
order to review investment strategy.
Other price risk sensitivity
If market prices at the reporting date had been
10% higher or lower on investments held at fair
value while all other variables remained constant,
the return attributable to Ordinary shareholders
and equity for the year ended 30 September 2017
would have increased/decreased by GBP47,715,000
(2016 - GBP42,013,000).
Liquidity risk
This is the risk that the Company will encounter
difficulty in meeting obligations associated
with financial liabilities.
Within Within Within More than
1 year 1-3 years 3-5 years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
6.25% Bonds 2031 - - - 60,000 60,000
Interest cash
flows on 6.25%
Bonds 2031 3,750 7,500 7,500 33,750 52,500
______ ______ ______ ______ ______
3,750 7,500 7,500 93,750 112,500
______ ______ ______ ______ ______
Management of the risk
The Company's assets mostly comprise readily
realisable securities which can be sold to meet
funding commitments if necessary.
Credit risk
This is the risk that one party to a financial
instrument will fail to discharge an obligation
and cause the other party to incur a financial
loss.
Management of the risk
* where the Manager makes an investment in a bond,
corporate or otherwise, the credit ratings of the
issuer are taken into account so as to manage the
risk to the Company of default;
* investments in quoted bonds are made across a variety
of industry sectors and geographic markets so as to
avoid concentrations of credit risk;
* transactions involving derivatives are entered into
only with investment banks, the credit rating of
which is taken into account so as to minimise the
risk to the Company of default;
* investment transactions are carried out with a number
of brokers, whose credit-standing is reviewed
periodically by the Manager, 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 is mitigated by
the daily review of failed trade reports. In addition,
both stock and cash reconciliations to the
custodian's records are performed daily to ensure
discrepancies are investigated in a timely manner.
The Manager's Compliance department carries out
periodic reviews of the custodian's operations and
reports its finding to the Manager's Risk Management
Committee;
* cash is held only with reputable banks with
acceptable credit quality. It is the Manager's policy
to trade only with A- and above (Long Term rated) and
A-1/P-1 (Short Term rated) counterparties.
Credit risk exposure
In summary, compared to the amounts in the Statement
of Financial Position, the maximum exposure to
credit risk at 30 September 2017 was as follows:
2017 2016
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Securities at fair
value through profit
or loss 477,150 152,262 420,128 131,680
Current assets
Other debtors 280 280 4,443 4,443
Accrued income 2,333 2,333 1,904 1,904
Derivatives 13,449 13,449 2,652 2,652
Cash and short term
deposits 3,627 3,627 2,203 2,203
______ ______ ______ ______
496,839 171,951 431,330 142,882
______ ______ ______ ______
None of the Company's financial assets is secured
by collateral or other credit enhancements and
none of the Company's financial assets are past
due or impaired (2016 - GBP10,727,000).
18. Fair value hierarchy
FRS 102 requires an entity to classify fair value
measurements using a fair value hierarchy that
reflects the significance of the inputs used
in making the measurements. The fair value hierarchy
has the following levels:
Level 1 - Quoted prices in active markets for
identical instruments
A financial instrument is regarded as quoted
in an active market if quoted prices are readily
and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory
agency, and those prices represent actual and
regularly occurring market transactions on an
arm's length basis. The Company does not adjust
the quoted price for these instruments.
Level 2 - Valuation techniques using observable
inputs
This category includes instruments valued using
quoted prices for similar instruments in markets
that are considered less than active; or other
valuation techniques where all significant inputs
are directly or indirectly observable from market
data.
Valuation techniques used for non-standardised
financial instruments such as over-the-counter
derivatives, include the use of comparable recent
arm's length transactions, reference to other
instruments that are substantially the same,
discounted cash flow analysis, option pricing
models and other valuation techniques commonly
used by market participants making the maximum
use of market inputs and relying as little as
possible on entity specific inputs.
Level 3 - Valuation techniques using significant
unobservable inputs
This category includes all instruments where
the valuation technique includes inputs not based
on observable data and the unobservable inputs
could have a significant impact on the instrument's
valuation.
This category also includes instruments that
are valued based on quoted prices for similar
instruments where significant entity determined
adjustments or assumptions are required to reflect
differences between the instruments and instruments
for which there is no active market. The investment
manager considers observable data to be that
market data that is readily available, regularly
distributed or updated, reliable and verifiable,
not proprietary, and provided by independent
sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within
which the fair value measurement is categorised
in its entirety is determined on the basis of
the lowest level input that is significant to
the fair value measurement. For this purpose,
the significance of an input is assessed against
the fair value measurement in its entirety. If
a fair value measurement uses observable inputs
that require significant adjustment based on
unobservable inputs, that measurement is a Level
3 measurement.
Assessing the significance of a particular input
to the fair value measurement in its entirety
requires judgement, considering factors specific
to the asset or liability.
The financial assets and liabilities measured
at fair value in the Statement of Financial Position
are grouped into the fair value hierarchy at
the reporting date as follows:
Level Level Level Total
1 2 3
As at 30 September 2017 GBP'000 GBP'000 GBP'000 GBP'000
Financial assets/(liabilities)
at fair value through profit
or loss
Equity investments 94,441 216,967 13,480 324,888
Loan investments - 43,293 - 43,293
Fixed interest instruments - 108,783 186 108,969
Forward currency contracts
- financial assets - 13,449 - 13,449
Forward currency contracts
- financial liabilities - (18) - (18)
_______ _______ _______ _______
Net fair value 94,441 382,474 13,666 490,581
_______ _______ _______ _______
Level Level Level Total
1 2 3
As at 30 September 2016 GBP'000 GBP'000 GBP'000 GBP'000
Financial assets/(liabilities)
at fair value through profit
or loss
Equity investments 274,079 - 13,121 287,200
Fixed interest instruments 28,895 102,785 - 131,680
Option - financial assets - 1,398 - 1,398
Option - financial liabilities - (3,952) - (3,952)
Forward currency contracts
- financial assets - 507 - 507
Forward currency contracts
- financial liabilities - (875) - (875)
Futures - financial liabilities - (1,600) - (1,600)
Total return swaps - financial
assets - 747 - 747
Total return swaps - financial
liabilities - (3,145) - (3,145)
FX swaps - financial liabilities - (96) - (96)
Credit default swap - - (90) (90)
BlackRock's Institutional
Cash Series plc - Sterling
Liquidity Fund 1,248 - - 1,248
_______ _______ _______ _______
Net fair value 304,222 95,769 13,031 413,022
_______ _______ _______ _______
As at As at
30 30
September September
2017 2016
Level 3 Financial assets at fair value GBP'000 GBP'000
through profit or loss
Opening fair value 13,031 (321)
Purchases including calls (at cost) 9,340 12,468
Disposals and return of capital (9,202) 2
Total gains or losses included in
gains/(losses) on investments in the
Statement of Comprehensive Income:
- assets disposed of during the year 571 25
- assets held at the end of the year (74) 857
_______ _______
Closing balance 13,666 13,031
_______ _______
The fair value of Level 3 financial assets has
been determined by reference to primary valuation
techniques described in note 2(e) of these financial
statements. The Level 3 equity investments comprise
the following;
MRTCP I LP
Forward Partners 1 LP
Maj Equity Fund 4
TrueNoord Co-Investment II LP
Maj Equity Fund V
Agriculture Capital ACM Fund II
During the year fixed interest instruments valued
at GBP186,000 (2016 - GBP133,000) were transferred
from Level 2 to Level 3. There were no other
transfers between levels for financial assets
and financial liabilities during the period recorded
at fair value as at 30 September 2017 and 30
September 2016.
For all other assets and liabilities (i.e. those
not included in the hierarchy table) carrying
value approximates to fair value.
19. Related party disclosures
Directors' fees and interests
Fees payable during the year to the Directors
and their interests in shares of the Company
are considered to be related party transactions
and are disclosed within the Directors' Remuneration
Report in the published Annual Report. The balance
of fees due to Directors at the year end was
GBPnil (2016 - GBPnil).
Transactions with the Manager
Up to 10 February 2017, BlackRock Fund Managers
Limited ('BlackRock') were appointed as the
Company's Alternative Investment Fund Manager
("AIFM"). During this period the investment
management fee was levied at a rate of 0.4%
per annum of the Company's total assets less
current liabilities (excluding loans).
With effect from 11 February 2017, Aberdeen
Fund Managers Limited ("Aberdeen") was appointed
as the Company's AIFM in place of BlackRock.
The investment management fee to be levied by
Aberdeen (post waiver) will be at the following
tiered levels, payable monthly in arrears:
* 0.50% per annum in respect of the first GBP300
million of the net asset value (with debt at fair
value);
* 0.45% per annum in respect of the balance of the net
asset value (with debt at fair value).
The Company will also receive rebates with regards
to underlying investments in other funds managed
by Aberdeen (where an investment management
fee is charged by Aberdeen on that fund) in
the normal course of business to ensure that
no double counting occurs. Any investments made
in funds managed by Aberdeen which themselves
invest directly into alternative investments
including, but not limited to, infrastructure
and property will be charged at Aberdeen's lowest
institutional fee rate. To avoid double charging,
such investments will be excluded from the overall
management fee calculation.
The table below details all investments held
at 30 September 2017 that were managed by Aberdeen.
For the period to 30 September 2017 no fees
were levied in respect of these funds.
30 September
2017
GBP'000
Aberdeen Global - Smart Beta Low Volatility
Global Equity Income Fund 113,511
Aberdeen Alpha Global Loans Fund 43,293
Aberdeen Global - Indian Bond Fund 19,497
Aberdeen Global - Frontier Markets
Bond Fund 9,812
Aberdeen European Residential Opportunities
Fund 3,100
Aberdeen Property Secondaries Partners
II 2,545
______
191,758
______
As detailed in note 4, no investment management
fees were charged by the Manager in the year
due to a waiver being in place. The Manager
also agreed to pay to the Company an amount
equal to six months management fees payable
to BlackRock (in line with notice period clause)
calculated at the rate of 0.4% per annum of
the gross assets of the Company as at 10 February
2017 (being the date of termination of the BlackRock
Investment Management Agreement). At the year
end, an amount of GBPnil (2016 - GBP656,000)
was outstanding in respect of management fees.
Subsequent to the year end, on 14 December 2017,
the Company acquired an investment in Aberdeen
Global Infrastructure Partners II LP from Aberdeen
Asset Management PLC. Further details of the
transaction can be found in note 23. Aberdeen
Asset Management PLC is part of the same group
as the Company's investment manager, Aberdeen
Fund Managers Limited, and is therefore deemed
a related party under the Listing Rules. The
acquisition amounts to a smaller related party
transaction under Listing Rule 11.1.10R.
20. Capital management policies and procedures
The investment objective of the Company is to
target a total portfolio return of LIBOR (London
Interbank Offered Rate) plus 5.5% per annum
(net of fees) over rolling five-year periods.
The capital of the Company consists of debt,
comprising bonds, and equity, comprising issued
capital, reserves and retained earnings. The
Company manages its capital to ensure that it
will be able to continue as a going concern
while maximising the return to shareholders
through the optimisation of the debt and equity
balance.
The Board 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 into
account the Investment Manager's views on the
market;
- the level of equity shares in issue;
- the extent to which revenue in excess of that
which is required to be distributed should be
retained.
The Company's objectives, policies and processes
for managing capital are unchanged from the
preceding accounting period.
At the year end a covenant relating to the bonds
issue provide that the Company is to ensure
that, at all times, the aggregate principal
amount outstanding in respect of monies borrowed
by the Company does not exceed an amount equal
to its share capital and reserves. As noted
in greater detail in note 13 this covenant was
met during the year and also during the period
from the year end to the date of this report.
The Company is not subject to any other externally
imposed capital requirements.
21. Commitments and contingent liabilities
At 30 September 2017 the Company had commitments
of GBP90,855,000 of which GBP63,609,000 remained
outstanding (2016 - GBP18,006,000). Further
details are given below. There were no contingent
liabilities as at 30 September 2017 (2016 -
nil).
Undrawn commitments
30 September
2017
GBP'000
MRTCP I LP 19,091
Aberdeen Property Secondaries Partners
II 14,712
Aberdeen European Residential Opportunities
Fund 10,614
Cheyne Social Housing 8,500
Agriculture Capital ACM Fund II 4,333
Maj Equity Fund V 2,497
TrueNoord Co-Investment II LP 2,325
Maj Equity Fund 4 1,028
Forward Partners 1 LP 509
______
63,609
______
22. 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 30
September 2017 and 30 September 2016.
Dividend NAV NAV Share
rate (debt (debt at price
at par) fair value)
2017 p p p p
5 January 2017 1.635 129.46 121.92 108.00
2 March 2017 1.635 130.44 122.82 113.88
6 April 2017 1.635 129.56 122.43 114.00
31 August 2017 1.310 132.33 125.33 118.50
Dividend NAV NAV Share
rate (debt (debt at price
at par) fair value)
2016 p p p p
31 December 2015 1.700 138.86 133.88 135.00
10 March 2016 1.635 129.48 123.47 120.50
23 June 2016 1.635 128.80 122.86 118.25
15 September 2016 1.635 128.90 121.37 112.50
23. Subsequent events
The Company entered into a sale and purchase
agreement on 14 December 2017 to acquire in
its entirety the interest of Aberdeen Asset
Management PLC in Aberdeen Global Infrastructure
Partners II LP. This interest is being acquired
for A$5.5 million (GBP3.1million) and includes
further capital commitments to the Fund of A$17.3million
and US$2.7million (GBP11.8million).
In addition, on 1 November 2017, the Company
made a commitment of US$33,000,000 to Markel
CATCo Reinsurance Fund Ltd.
Additional Notes to Annual Financial Report
The Annual General Meeting will be held at 11.30am on 2 March 2018 at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ.
The Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under S498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for the year ended 30 September 2016 which have been delivered to the Registrar of Companies. The accounts for the year ended 30 September 2017 will be filed with the Registrar of Companies in due course.
The Annual Report will be posted to shareholders in January 2018 and copies will be available from the registered office of the Company and on the Company's website at - www.aberdeendiversified.co.uk *
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
16 January 2018
* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFAFWMFASESF
(END) Dow Jones Newswires
January 17, 2018 02:00 ET (07:00 GMT)
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