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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Abrdn Smaller Companies Income Trust Plc | LSE:ASCI | London | Ordinary Share | GB0008063728 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 238.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Mgmt Invt Offices, Open-end | -31M | -32.2M | -1.4562 | -1.63 | 52.62M |
From May 2019 to May 2024
TIDMASCI
RNS Number : 2208Z
Aberdeen Smaller Co's Inc Tst PLC
17 September 2020
Aberdeen Smaller Companies Income Trust PLC
Half Yearly Financial Report for the six months to 30 June 2020
OBJECTIVE
The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.
BENCHMARK
Numis Small Cap Index excluding Investment Trusts (total return) - effective from 1 January 2020;
FTSE Small Cap Index excluding Investment Trusts (total return) - up to 31 December 2019
MANAGEMENT
The Company's alternative investment fund manager is Aberdeen Standard Fund Managers Limited ("ASFML" or "the Manager") (authorised and regulated by the Financial Conduct Authority). The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited ("AAML" or "the Investment Manager") by way of a delegation agreement in place between ASFML and AAML.
HIGHLIGHTS
Hot Features
Premium
Net asset value total Numis Smaller Companies Share price total return{A}
return{A} ex Inv Trust Index
Six months ended 30 Six months ended 30 Six months ended 30 June
June 2020 June 2020 2020
-16.9% -25.0% -21.8%
Year ended 31 December Year ended 31 December Year ended 31 December
2019: +34.4% 2019: +25.2% 2019: +57.7%
Earnings per Ordinary Discount to net asset Net gearing{A}
share (revenue) value{A}
Six months ended 30 As at 30 June 2020 As at 30 June 2020
June 2020
2.03p 13.8% 8.1%
Year ended 31 December As at 31 December 2019: As at 31 December 2019:
2019: 9.98p 8.3% 7.5%
{A} Considered to be an Alternative Performance Measure. Further details
can be found below.
30 June 31 December %
2020 2019 change
Equity shareholders' funds (GBP'000) 67,686 82,660 -18.1
Net asset value per Ordinary share 306.14p 373.86p -18.1
Share price (mid-market) 264.00p 343.00p -23.0
Discount to net asset value per
Ordinary share{A} 13.8% 8.3%
Net gearing{A} 8.1% 7.5%
Ongoing charges ratio{A} 1.24% 1.20%
{A} Considered to be an Alternative Performance Measure. Further
details can be found below.
PERFORMANCE (TOTAL RETURN)
Six months 1 year 3 years 5 years
ended ended ended ended
30 June 30 June 30 June 30 June
2020 2020 2020 2020
Share price{A} -21.8% -5.5% +24.5% +39.5%
Net asset value per Ordinary
share{A} -16.9% -5.4% +10.7% +34.3%
Composite benchmark{B} -25.0% -16.8% -19.2% +0.0%
{A} Considered to be an Alternative Performance Measure. Further
details can be found on page 34.
{B} Comprises the Numis Smaller Companies (exc Inv Trusts) from 1
January 2020 and the FTSE SmallCap Index (exc Inv Trusts) up to 31
December 2019.
Source: ASFML, Morningstar & Factset.
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Performance
The first six months of 2020 have been challenging, with global markets dominated by the development of the Covid-19 pandemic.
Both the UK markets and smaller companies have found life particularly difficult and the Numis Smaller Companies ex-Investment Trusts index, the Trust's new benchmark, returned -25% in the six month period to the end of June 2020. Our Trust performed more strongly, returning -16.9%.
Strong relative performance does not, of course, compensate for capital decline and we are disappointed to have to report such. The long term NAV performance over 3 and 5 years is, however, robust with returns of 10.7% and 34.3% respectively and the Company has out-performed its composite benchmark by 29.9% and 34.3% respectively.
The Company's share price decreased during the period by 23% but we are encouraged by the recovery we have seen since the lows of March 2020, which has seen the share price come back by 42% since that time.
The discount also widened since the year end, sitting at 30 June 2020 at 13.8%, compared to 8.3% at the end of December 2019.
Trust Gearing and Debt
The Trust has a 5 year GBP5m fixed rate loan facility and a 3 year GBP5m revolving credit facility, which expire in 2021 and 2023 respectively, of which a total of GBP7m is currently drawn down. Portfolio gearing stood at 8.1% at the end of June 2020, compared with gearing of 7.5% at the end of December 2019.
Dividend
For the first and second quarters of this year, the Board announced dividends of 2.06p each (2019 - 1.95p each), an increase on last year's equivalent figures of 5.6%. This compares to an increase in the CPI for the first six months of this year of 0.07%.
The Board has always regarded a key purpose of the Company as the generation of income for our shareholders. The economic uncertainty arising from the COVID pandemic outbreak has resulted in many quoted companies cutting or eliminating their dividends. We have added significantly to our revenue reserves over recent years and we prefer to utilise these reserves, at least this year, to alleviate the decline of dividend income elsewhere in the market which we believe to more valuable to shareholders than conservatively mirroring market improvement over time. We shall of course continue to monitor this situation each quarter although do not expect much clarity about the outlook for 2021 until the fourth quarter of this year. We may have to take a different decision, once greater clarity emerges on the outlook for 2021 and 2022.
With the news that a number of companies have cut or cancelled their dividends, the Manager has been working hard during this period to ensure that it continues to invest in companies who will continue to pay dividends or look to re-commence payment later in the year. More information on this can be found in the Manager's report.
The Company's revenue reserves remain healthy and the Board is optimistic that the Company will be able to continue to deliver attractive income to its shareholders.
The Manager
With the Country placed into lockdown in the middle of March 2020, resulting in 100% of the Manager's UK workforce working from home, the Board is pleased to advise there was no impact to the service provided by the Manager, who has kept us fully informed on their own operations as a result of working from home, as well as those of the Company's other service providers.
Both Board meetings and company engagements have continued in a virtual setting and continue to operate effectively.
AGM
At the AGM held on 26 June 2020 all resolutions were duly passed by shareholders, including the Company's five-yearly continuation vote. Access to the AGM had to be severely restricted to the minimum legal requirements in response to the Government guidance and measures in place on gatherings and social distancing due to the COVID pandemic. As the normal format of the AGM was not able to take place as planned, the Manager subsequently recorded an AGM presentation and a podcast which are available on the Company's website for shareholders to access.
The Board
It was intended that Barry Rose would leave the Board during the current financial year and that I should do the same in 2021, both of us having completed our nine year terms. The Board did not feel comfortable recruiting without being able to meet candidates in person and also felt that Board stability was important during extreme times. Accordingly, and subject to shareholder support, we intend to effect these changes in 2021 and 2022, twelve months later than planned.
Outlook
I can remember no period of greater uncertainty than that on which we are now reporting and the challenges will remain for considerable time to come. The fund manager has throughout stuck to the processes which have historically brought excellent relative performance and the Board believes that this is the best way to generate a resilient income stream in uncertain times.
Robert Lister,
Chairman
16 September 2020
INTERIM BOARD REPORT - OTHER
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company together with a description of the mitigating actions it has taken. These can be summarised under the following headings:
- Investment and Market - Investment Portfolio Management - Gearing - Income and Dividend - Operational
-
Details of these risks are provided in detail on pages 16 and 17 of the 2019 Annual Report.
In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of global markets. The outbreak of the COVID-19 virus has resulted in business disruption and stockmarket volatility across the world. The extent of the effect of the virus, including its long term impact, remains uncertain. The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will continue to review carefully the composition of the Company's portfolio and will be pro-active where necessary. In addition the Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts.
The outcome and potential impact of Brexit remains an economic risk for the Company, principally in relation to the potential impact of Brexit on UK companies within the portfolio and on the Manager's operations. Whilst most of the portfolio holdings are UK-based companies, many have operations overseas with broad and geographically diverse earnings streams. Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit. In addition, the uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value.
The Board will continue to monitor developments as they occur.
In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end, nor are they expected to change in the second half of the financial year ended 31 December 2019.
Going Concern
In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued in September 2014, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist principally of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale.
The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and at least twelve months from the date of approval of this Half Yearly Report. Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:
- the condensed set of Financial Statements has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'
- the Interim Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year)
- the Interim Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).
The Half Yearly Financial Report for the six months to 30 June 2020 comprises the Interim Board Report and a condensed set of financial statements.
For and on behalf of the Board of Aberdeen Smaller Companies Income Trust PLC
Robert Lister,
Chairman
16 September 2020
INVESTMENT MANAGER'S REVIEW
Overview
In the half year to the end of June 2020, the Company's NAV returned -16.9% versus the benchmark return of -25.0% which was a pleasing relative performance, however it is disappointing to see negative returns. Through the period, and particularly in March where the harshest market impacts were felt, the Company has held up well on a relative basis. Long term performance remains very favourable over 3 and 5 year time periods, with 3 years NAV growth of +10.7% vs benchmark of -19.2%, and 5 year NAV growth of 34.3% vs a benchmark of 0.0%.
We started the year with the economy on a solid footing; economic growth was perhaps slowing, but still felt resilient. The unemployment rate was at a 50 year low, housing starts and global PMI's were moving higher, volatility was moderate and it the outlook was for a year of positive market returns and moderate economic expansion. There was however, likely to remain some volatility associated with further Brexit discussions and the US elections.
The first quarter of 2020 was a strong period of performance for the Trust in what were supportive market conditions. The environment changed quickly in March as we faced a combination of a global health crisis and an economic crisis. As Governments around the world implemented restrictions to slow the spread of the Covid-19 virus, we saw the quickest decline ever into a very volatile bear market. The sharp decline was followed by a very rapid recovery, as governments and central banks adopted a 'whatever it takes' approach to policy to provide support. There were signs that the global economy bottomed in mid-April; the apple mobility index data, retail sales data, manufacturing and service sector indices all turned higher in May showing that the worst of the economic decline was over. Crucially, market levels globally also recovered sharply. As economies around the world reopened, the economic consequences of social distancing were devastating. Q2 global GDP will be very weak in historic terms, with UK GDP contracting -20.4%. After a -2.2% decline in Q1, this officially put the UK in recession. From here on, much debate remains around the shape of markets, and how this may differ globally. While Monetary and fiscal policy won't solve the root of the problem, perhaps only a vaccine and complementary drugs can, but policy may well help to make the forthcoming recession shorter and less painful. The labour market will remain impacted for much longer and the damage to employment will be staggering. The UK Government's rapid response with the furlough scheme may well be a sticking plaster as the furloughed become the unemployed. There remains uncertainty about how impacted some industries will be, what structural changes this might bring, and the speed of recovery to pre-Covid levels.
In terms of style in the market, we saw the strongest performance from Quality, with Value really underperforming. This was very supportive of our investment process. In a period of high volatility and uncertainty, it was encouraging to see the market look to quality businesses for resilience. Across size categories we saw the following total return performances: FTSE 100 -16.8%, FTSE 250 -25.0%, FTSE Small Cap exc Inv Trusts -20.9%, and Numis Smaller Companies exc Inv Trusts -25.0%. Broadly the larger market cap indices have held up better, partly a sector bias as well as companies being seen as broader, perhaps more mature and resilient. Sentiment to large market cap companies is also aided by the view that the Government cannot afford to let them fail.
The companies we own are diverse with global operations. We engaged in regular dialogue with management teams over the period, which provided critical insights, and together with information from our colleagues based around the globe we were able to build a picture of what was happening in different parts of the world. At the company specific level, those who had operations deemed essential and remained open, traded well. Sectors with direct relevance to the pandemic such as technology also thrived, where they benefitted from demand for products and services for remote working. On the flip side however there are names in sectors such as travel and leisure that will remain challenged for longer. Property stocks, healthcare related companies, and food producers are examples of areas which by nature were resilient through the period, and shares held up strongly accordingly. We also saw trends accelerate around digitalisation and sustainability. The sharp recovery in markets despite the plunge in earnings estimates means the market is looking through short term impacts of the pandemic and expects earnings growth to come through in 2021.
Due to the uncertainty around the duration of lockdown and the wider ramifications, most UK companies who normally paid dividends looked to conserve cash, therefore cancelling or delaying dividend pay outs. This was often irrespective of quality and current trading. There was also industry pressure if you benefitted from government schemes, to not be paying out dividends. The FCA had also asked companies to delay reporting results, to ease pressure on people and auditors. It became normal and acceptable to cancel dividends. In the aftermath of the financial crisis, just two fifths of companies cut or cancelled pay outs. This time the majority cancelled immediately.
A smaller proportion reduced the pay out, but we were pleased to see some investments increase their dividend, highlighting their resilience and confidence in outlook. Not surprisingly discretionary special dividends have all but disappeared.
This is obviously an issue for any income focused portfolio. We are confident that the quality dynamic of our investment process will ensure we have exposure to a strong contingent of companies who continue to pay dividends though the Covid-19 crisis, or look to reinstate dividends later this year. We have analysed the sustainability of future dividends for businesses, to ensure confidence that future income stream is sustainable and strongly funded. Our focus on strong balance sheets and profitability through the cycle means we expect, where dividends have been cut or cancelled, most will reinstate the dividend to where it was pre-Covid in the next year or two.
The initial stages of Covid-19 produced an information vacuum. No one knew how long lockdown would last or what the consequences would be and many companies withdrew guidance. Visibility improved towards the end of Q2. Forecasts slowly returned to the market through the second quarter, and companies began to give guidance. It became clearer which companies were more resilient, and we were able to assess more accurately those names who could continue to pay dividends and those who would not. Across the market many companies reinstated the dividend and some even repaid furlough money to the Government, which was an encouraging sign of confidence.
This year will see the biggest hit to dividends in generations, but given the specific driver of 2020's issues, investors should look beyond this. Many companies have experienced sharp earnings declines this year, and whilst the rebasing of dividend expectations is painful in the short term, in the long run it should create sustainable income streams with better dividend cover. This resetting, together with the economic damage, means forecasts for dividends are gloomy overall in the market. Link Group dividend monitors caution that it could take until 2026 for UK dividends to return to their 2019 level. We believe, because of our process and the focus on quality, that the companies we own will fare better than this. In addition, given the strong revenue reserve of the Company, even in a tougher income environment we feel well positioned to provide a supportive income stream for our shareholders. Almost half of the companies in the portfolio paid dividends in H1 2020, which in the context of the cuts seen across the market was a strong outcome. Dividend growth in the market is likely to be more challenging near term, but our portfolio continues to focus on companies where we feel over the medium to long term there is strong dividend growth potential, driven by earnings growth.
Companies with strong ESG credentials have also shone through. High quality management teams are generally more cautionary over capital allocation, and retain strong balance sheets. Experienced management teams who have managed their businesses through downturns before have been extremely valuable. We have seen senior management pay cuts and bonuses deferred, to help support cost bases and more junior employees. This is the behaviour of management teams incentivised for the long term. Businesses have strived to protect the morale and mental health of their workforce with online support to keep people engaged, training and development programmes, and worked to support their return to work. The sense of employee loyalty generated has been impressive. The pandemic has cost lives; but businesses have sought to look after families where possible, with the employees the heart of their businesses. This theme will continue as workplaces being to adapt to new working practices, with a strong focus on quality of life improvements where possible.
While we don't take macroeconomic driven decisions or time the cycle, the past 6 months has been challenging to navigate, and we have continued to focus on company specific decision making. The pandemic has accelerated change; often we heard the phrase 'we have done 8 month's work in 3 weeks'. Strategies, business models and investments based on steady changes were thrown into chaos in a short period of time. We are mindful of the direct impacts, namely lower interest rates for longer, more government debt and pressure on profit margins. We have been having conversations with our companies around efficient capital allocation, and management of cost bases. Many companies have had to invest to position themselves strongly for the changes and challenges they face. A focus on sustainability has also increased in management strategies.
Certain sectors may see structural change. Changes in behaviour may persist; the way we work and spend our leisure time may permanently change. The furlough scheme may have kept workers in jobs in sectors where demand won't return. Commercial property already knew that online retail and flexible working were important trends for their businesses; now those trends have accelerated faster than they had planned for. A recovery to pre-Covid times will also need confidence in public health, and household finances to improve in order for demand to return, whilst balance sheets will take time to repair. All of this will create both scars and opportunities for smaller companies.
Our process has not changed, we'll see new companies emerge and new jobs replacing those destroyed by the virus. We continue to focus on identifying businesses we believe have the levers and ability to grow in a sustainable manner independent of external environments. We will be fascinated to see how businesses evolve. We have been very pleased with the amount of interaction we have had with management teams over this period, we believe even more so than in pre-Covid times.
The strong companies we own have become stronger. In difficult market environments and times when economic growth slows, quality is a characteristic that comes into even more focus. Quality businesses with healthy balance sheets, management teams with a strong pedigree, good corporate governance and strong competitive positions, means they have the ability to be resilient through more difficult periods, and even improve their positioning when peers may be struggling.
Equity Portfolio
Games Workshop continues to feature again as one of the strongest contributors to the Company's performance. The shares have had an outstanding run since the new CEO was appointed in 2016 and we believe there is still more to come. The vertically integrated business is rich with IP and exclusive product, and is increasingly internationalising. New management have made many operational improvements, sharpening price points and regularly innovate with new high quality products. An increased marketing drive, together with better customer interactions through social media, has resonated with existing customers, attracted new ones and reactivated lapsed ones.
Following the Government announcement of full lockdown restrictions, all stores, factories and workshops were closed. Trading short term was impacted, but management made the necessary changes in their warehouses to meet social distance requirements, and began to make trades sales across Europe and America. Online orders restarted in May, with stores following depending on Government guidelines. Although the business effectively stopped trading for a period, the level of customer interaction improved strongly throughout lockdown due to improvements made to customer engagement in recent years. Games Workshop are pushing more content to customers, increasing the number of articles on Warhammer.com, more videos, daily content and improved interactions with the community. They innovated with virtual vouchers to offer attractive discounts and to explore new areas of the hobby, and flexed delivery options. All of this meant that they navigated the lockdown period exceptionally well and the shares responded accordingly when they updated the market.
In early June we had a strong trading update noting that the recovery since reopening was better than expected and the management team raised guidance. Although this only in part reversed the initial Covid-19 associated downgrade, the rapid recovery reflects their loyal customer base and momentum.
The strong performance was in contrast to other retailers. Management class their product as 'leisure goods' rather than traditional retail, and recent performance shows the model is differentiated. They design and manufacture their own products and despite having 500 stores globally they are much more of a wholesaler than direct to consumer retailer. It's these characteristics of their business model that have allowed to them to survive and thrive against the Covid-19 back drop, where other 'retailers' have suffered.
During this period we saw a further licencing agreement, with Frontier Developments, for a real time strategy game based on Warhammer Age of Sigmar. The shares again reacted well, as this further demonstrates the broadening of IP monetisation, and is a high margin revenue line.
Games Workshop is a great example of our process in action. We will continue to run this winner despite the share price strength to date. We are confident that the quality of the business and the top line growth opportunity will continue to support earnings upgrades. We expect the company will return to dividend payments as the business trading normalises, and strong earnings growth in coming years will drive attractive dividend growth.
XP Power ("XPP") is a manufacturer and supplier of power converters to the industrial, semiconductor, and technology markets. Their core AC-DC product converts alternating current from the mains to direct current; this is required for virtually all electrical equipment. The market had worried XPP would see a sharp fall in revenue & profits due to Covid-19 as some of their competitors and industrials generally warned of supply chain disruptions and facility closures. XPP released a strong trading update demonstrating they were more resilient than the market feared, as demand for their products remained robust. Given the critical nature of some of their customer's products, they were able to continue to manufacture throughout the crisis. The healthcare division saw unprecedented demand and the recovery in semiconductor continued aided by structural growth drivers. Lots of credit is due to the management team who navigate their operations well in what could have been a challenging period for this sort of business. Management are investing for growth and moving into higher-voltage, higher-power applications through acquisitions and their own product development strategy. A step up in R&D spend, upgraded Enterprise Resource Planning (ERP) system and a new facility in Vietnam further support the next leg of growth. This growth will continue to fund dividend growth over coming years.
Games Workshop, and XP Power in contrast to their peers in these sectors were both rewarded for their more resilient performances. This demonstrates the benefits again of our focus on quality, and ability to identify businesses with the best models, resilient operations, and growth opportunities in their end markets.
As a beneficiary of the increase in demand for food consumption in the home, we saw a good contribution from Hilton Foods in the period. Hilton's update confirmed a benefit from increased volumes, though there was somewhat offset by increased operating costs as they worked to meet the higher demand, whilst ensuring the safety of their staff. This was clearly a period of operational pressure for management who managed demand incredibly well under the obstacles of increased safety protocols and social distancing. They also successfully adapted supply chains and fulfilled customer demands in fast changing environments, with no significant impact on sourcing or supply of raw materials. As such, all divisions and all markets traded well. Such performance is credited to the fact that Hilton is a high quality operator. Looking forward, many strategic growth channels remain, whilst their strong balance sheet and attractive cash generation will support such growth ambitions, whilst also enabling them to pay healthy growing dividends.
We saw a strong contribution from Liontrust . This year they have delivered strong monthly flows, whilst Q1 reporting was impressive given both flows and fund performance numbers. Liontrust is demonstrating that they are taking share from peers that lack the focus, brand, and investment performance they demonstrate. Fund investors do want active management and are willing to pay for it where they believe value is being added. Liontrust has an expanded range of funds with appeal to investors, and is delivering the benefits of consistently applied investment processes with strong monthly flows. During the 2(nd) half of the period we had an update from the company showing extremely resilient inflows despite the expected Covid-19 AUM hit from markets. The net inflows achieved in an extremely difficult quarter show the resilience of the business and the quality of the product offering, brand and distribution. The Sustainable Investments and Economic Advantage teams saw high levels of net inflows and investment performance remains top quartile for a majority of their funds over 1, 3 and 5 years. The shares reacted positively to the continued momentum in flows and the payment of the dividend.
Across the portfolio, we saw our investment in a number of defensively positioned businesses contribute positively to performance. Assura, the owner of GP practices, delivered a secure revenue and profit performance, with rent heavily secured by the government. They continued to pay dividends given their confident outlook and resilience. Chesnara, the manager of life and pensions policies, showed another strong period of performance, with the market confident they could continue to pay dividends. Kesko, the Finish food retail business and Scandinavian home improvements retailer was well positioned, with both end markets both seeing demand through the crisis. Consumers were reliant on operational strength of food retailers to fulfil their increased demand for food at home, whilst many consumers looked to DIY spend as an activity to fill spare time provided by lockdown, and the eagerness to improve living conditions when now increased time was being spent in the home and garden. AJ Bell continued to take market share through the period, with their increasing brand reputation. The strong culture of the business ensures a solid transition to work from home environments, and a support network was developed for colleagues through this period.
There were more concerns in the market for industrial exposed businesses through this period, but we were very pleased with the performance from a number of our holdings in this space. Aveva, a long term holding in the portfolio, delivered strong results, despites its exposure to the weak oil and gas end markets. Aveva provides critical software, which helps improve efficiency and productivity within their customer's assets. Their revenue model meant they saw a very resilient income stream, and the benefits of their enhanced product suite and customer base since the Schneider merger continue. Strix, the manufacturer of safety critical components for kettles and complimentary products, also had a strong trading period and paid their dividend. Operationally they adjusted for supply chain issues when the Covid pandemic first hit China, and since then have used the strength of their relationship with customers to deliver a solid performance. Lastly, Discoverie also reported a robust performance. Their focus on target end markets, where there are structural growth drivers and regulatory support meant they were able to continue to grow through these tough times.
Hollywood Bowl detracted from performance in the period. This business traded consistently well before the pandemic thanks to their strategy of constantly investing in the customer proposition. They raised some capital, which we supported, to continue to allow them to invest at the same pace post Covid19, without making large scale redundancies or compromising the offer. Bowling was subject to a delay in reopening because they had been included in 'close proximity' venues such as nightclubs and soft-play areas which was a disappointing delay. Thanks to the capital raise they have sufficient liquidity for the next 12 months. We hold the management team in high regard, they have a comprehensive opening strategy, are diversifying the business into mini golf, and we believe Covid-19 does not impact their longer term growth potential. Given the headwinds they have faced, there may not be the special dividends we had hoped for in the short term; longer term the business should return to its attractive dividend payouts.
Cineworld was a detractor from performance given the weak news flow around cinema attendance numbers particularly in the US early in 2020. We were concerned that lower revenue growth would slow the de-levering of the balance sheet, and therefore exited the holdings on quality and growth concerns early in the period.
Workspace provides flexible work space to SME's. It wasn't surprising that Covid-19 led to a significant slowdown in enquires and the need to offer the vast majority of their tenants discounts. Short term the business will be collecting a reduced percentage of the normal rent. The outlook also remains uncertain and they remain vulnerable to vacancy risk and changing working practices, which could alter space requirements. We don't yet have visibility on whether businesses will increasingly use home working to reduce costs and what the reduction in demand driven by an economic down turn might be, however both are likely to result in a decrease in office space requirements. Conversely, they could be a beneficiary of tenants looking for more flexible space rather than large permanent office solutions. For these reasons the shares fell sharply and detracted from performance, despite the payment of the dividend. Workspace customers are diversified by number and sector but without clarity about the future, the shares under performed. The business remains in a strong financial position, and the continuation of dividend payments through this period highlights their confidence in the outlook.
Fixed Income Portfolio
The Fixed Income exposure within the portfolio made a small positive contribution to performance over the period. Fixed income markets were extremely volatile over the period with the COVID-19 pandemic having a dramatic impact on these markets also. Government bond yields fell further over the period and, despite a spike in March during the worst of the crisis, the UK 10 year fell from almost 1% at the start of the period to a low of 0.17% at the end of the period. These moves were mirrored in other major markets and reflect the uncertain macro-economic backdrop, low inflation and the central bank responses in terms of extremely low policy rates and bond buying programmes. Such actions do imply that inflation risks will pick up in the future but for the time being yields appear anchored at low levels.
Credit spreads - the risk premium over government bonds - moved sharply wider in March creating some significant losses for investors in corporate bonds. Markets struggled to price in the economic impact and liquidity dried up as the crisis deepened. The responses from central banks and governments to the crisis did restore some order and spreads tightened throughout the second quarter. Investors returned to the market aggressively, emboldened perhaps by bond buying programmes such as the Bank of England's GBP10 billion scheme. Most impacted sectors in the first quarter sell off and beneficiaries in the subsequent recovery were the highest risk areas of the market. Retail, energy and transportation sectors all saw their credit spreads widen aggressively before gradually recovering. There are on-going challenges for all these sectors and credit selection will remain the key to good performance.
The fixed income portfolio was expanded over the period. Wider spreads and the greater certainty of income generation that is provided by bonds were the catalysts driving the increased allocation. Bonds issued by UK financial institutions Close Brothers and HSBC, National Grid, Scottish and Southern and Heathrow Airport were all added to the portfolio in April at attractive levels. All these issuers are investment grade and are expected to remain so for the foreseeable future and all have delivered strong returns in the market recovery. Further market volatility would allow some further expansion of the bond component.
Portfolio activity
A number of new holdings were added to the portfolio; quality growth businesses, scoring highly on our stock screening tool "The Matrix", and delivering supportive and growing income streams.
We started a new position in Primary Health Properties ("PHP"), the peer to Assura which we also hold in the portfolio. PHPs' update highlighted resilient rent collection, and continuation of dividends. Its income stream is one of most defensive in property, 90% rent backed by the Government, with average lease length of 13 years. It was trading at a 10% discount to Assura when we initiated the position. The balance sheet remains strong, and it has a 3.7% dividend yield.
We also added a holding in Target Healthcare REIT. This should prove a resilient quality business which provides income, with a dividend yield of 6.5%. Target is a property company, focused on the care home industry. Target own the assets; they are not operators so have no operating risk themselves. The market fundamentals are robust with an ageing population and care burden. Their homes are also larger asset sizes which allow operators greater economies of scale, and they can charge premium rental values due to the high quality of accommodation, which can produce better profitability for operators. 55% of their occupancy is private pay and 45% public pay. Dividend growth is linked to EPS growth. Earnings growth is supported by underlying operational improvements, as well as asset expansion.
We added positions in the bond issued by Close Brothers (CBG 2021) and a longer dated SSE (SSE LN 3.625% 22/perp) issue to the Company, taking advantage of market conditions. We also added an HSBC, 6.5%, 2024 issue and Heathrow 5.225% 2023 bonds. Along with the existing position in Barclays and SSE, we feel this gives us good diversification within the fixed income portfolio of the Company. These fixed income holdings also provide a secure income stream, particularly helpful in an environment equity dividend streams were collapsing.
We added a new position in Gateley. Recognising that the traditional broad base partner profit share models don't function effectively, Gateley was the first law firm to IPO and convert to a salary structure in 2015. The business is well diversified in service line and location. EPS is forecast to grow at 3yr Compound Annual Growth Rate (CAGR) of 6%, and we believe that this rate could double with acquisitions. Gateley exhibits many quality characteristics, is capital light, delivers high returns, and has a strong track record. Shares yield 4% with a policy to pay out 70% of earnings.
We also added a new position in Tatton Asset Management and have been topping it up over the period. Tatton is a founder run Discretionary Fund Management business and is an independent challenger low cost model with very good investment performance. The offer addresses the market and regulator's concerns about fee levels and transparency, through its simple and competitive fee structure. With a capital light model, and clear opportunity to grow revenues we believe the 19% forecast EPS CAGR is likely to be driven further upwards. We have confidence this business can deliver a strongly growing dividend.
We exited the small residual in Robert Walters, with a view that lower economic growth globally would be a challenging environment for them to succeed. This was a company we feared would also not be in a position to pay their dividend in 2020.
We also exited the residual in Cineworld, with potential site closures looking increasingly likely due to the impact of Coronavirus. Cash generation was becoming increasingly challenged where forced closures were likely, making the balance sheet position look more stretched, and the dividend less likely to be paid.
ESG
ESG is embedded in all our research and investment decisions. ASI has a well-resourced ESG investment team, with whom we work closely. When analysing the ESG credentials of business, we are looking for both risks and opportunities. As a long term shareholder many companies are keen to engage with us, where we can use our in-house ESG expertise to help provide them with advice. The large AUM we manage in UK smaller companies delivers us excellent engagement opportunities with management teams, and the ability to help those companies to improve both their ESG qualities but also how they demonstrate those to the market. Where we can help a company to improve their ESG credentials, this is beneficial as it may lead to a higher stock rating, and can also reduce the risk of that investment. ESG is at the core of our process, and fits strongly within the Quality aspect of our investment style.
We engaged with Intermediate Capital ("ICG") on a number of ESG topics. Diversity is high on their agenda, with gender diversity one of their strategic drivers and our meeting reinforced to us how important this is to the management team. Through increasing accessibility with policies and initiatives, they hope to increase diversity whilst broadening the talent pool in what is a highly competitive industry. ICG have a robust framework, ensuring full ESG integration within investment decisions. This helps their position in responsible investing, whilst minimising any risk to the brand reputation from negative media associated with portfolio companies. They look to lead the sector in their attitude towards climate change risks in their investments, and are implementing 20-30 year scenarios looking long term. Their latest Annual Report should help to share some of the positive steps they are making in their work on ESG.
The management of MJ Gleeson have been actively engaged with us for advice as ESG specialists. We have explored the key material risk and opportunities for the sector, such as health and safety, labour management, environmental impact and build quality, and highlighted links to strategy, KPIs, risk management and executive remuneration. Management will look to engage with ESG scoring providers such as MSCI & Sustainalytics to understand what they would require for disclosure to improve their ratings. They are doing positive things internally, but want to understand how best to communicate with shareholders on ESG. It's positive to see the company taking these steps and being pro-active to discuss them with us as a trusted shareholder.
Outlook
It's clear that recessionary times are coming globally. The UK economy will suffer materially and unemployment will be at unprecedented levels. Whilst government pledges to do what it can with areas like VAT cuts & stamp duty changes, we are yet to see how demand returns and what shape the recovery will be. This recession will certainly be more Main Street than Wall Street; stock markets have already recovered to high levels whilst the scenes on the high street, consumer spending and potential unemployment levels remain gloomy. There is a risk now there is a disconnect between some stock market valuations and the outlook for economic growth.
The effects of Covid19 will be deep and widespread. Poorly capitalised companies and those with limited runway are at risk of failure as the support schemes end. Other risks in the market going forward come from a second wave of infections, the US elections in November and escalating US/China trade wars. Currently there is little evidence of a meaningful second wave post the lifting of lockdowns across Asia and Europe, with breakouts being controlled at local level. In the event of true second wave, most countries are now better placed to manage it in terms of healthcare capacity and treatment. The news on a vaccine is also promising although that might not be this year. The US elections are close to call so will become a bigger focus next quarter, whilst Trump may well see negativity towards China as his best chance of winning.
More generally we feel that economic cycles will be shorter, sharper & more volatile. The last bull market was extended and settled. The market has had a strong bounce so we fear valuations aren't braced for further bad news. There are many risks in the current environment but also opportunities for smaller companies.
As far as the outlook for dividends for the names we hold in the portfolio we are optimistic our income will fare better than the broader market given our Quality Growth focus, and the evidence we are seeing directly from investments to date. We were pleased that almost half the companies in the portfolio paid dividends during this challenging period.
Our investment focus continues to be driven by stock specific decision making, identifying quality growth businesses. In tougher economic times and with volatility and uncertainty likely in markets, we look to invest in businesses that have the quality aspect to prove resilient. Our process identifies smaller companies who have a number of growth levers to pull, allowing them the ability to grow and gain market share even when facing external headwinds and where peers may be struggling.
We are pleased to have delivered relative outperformance over this challenging period, adding to the attractive long term track record of the Company. The recent fall in market driven by Covid is however disappointing for shareholder returns. With a strong revenue reserve and a strong proportion of investments paying or likely to return to paying dividends, we are also confident that we can deliver a resilient income outcome for our shareholders this year and looking forwards.
Aberdeen Asset Managers Limited
16 September 2020
Distribution of Assets and Liabilities
As at 30 June 2020
As at 30 June 2020
Valuation at Movement during the period Valuation at
31 December (Losses)/ 30 June
2019 Purchases Sales gains 2020
GBP'000 % GBP'000 GBP'000 GBP'000 GBP'000 %
Listed investments
Equity investments 87,930 106.4 9,460 (12,185) (38,567) 71,008 104.9
Corporate bonds 878 1.1 1,250 - 9 2,137 3.2
_______ _______ _______ _______ _______ _______ _______
88,808 107.5 10,710 (12,185) (38,558) 73,145 108.1
_______ _______ _______ _______ _______ _______ _______
Current assets 1,074 1.3 1,803 2.6
Other current liabilities (235) (0.3) (273) (0.4)
Loans (6,987) (8.5) (6,989) (10.3)
_______ _______ _______ _______
Net assets 82,660 100.0 67,686 100.0
_______ _______ _______ _______
Net asset value per
Ordinary share 373.86p 306.14p
_______ _______
Condensed Statement of Comprehensive Income
Six months ended
30 June 2020
(unaudited)
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
(Losses)/gains on investments
at fair value - (14,188) (14,188)
Currency losses - - -
Income
Dividend income 2 705 - 705
Interest income from investments 2 31 - 31
Other income 2 2 - 2
_________ _________ _________
738 (14,188) (13,450)
_________ _________ _________
Expenses
Investment management fee (78) (183) (261)
Other administrative expenses (184) - (184)
Finance costs (28) (65) (93)
_________ _________ _________
Profit/(loss) before tax 448 (14,436) (13,988)
_________ _________ _________
Taxation 3 - - -
_________ _________ _________
Profit/(loss) attributable to
equity holders 448 (14,436) (13,988)
_________ _________ _________
Return per Ordinary share (pence) 5 2.03 (65.29) (63.26)
_________ _________ _________
The total column of this statement represents the Company's Statement
of Comprehensive Income, prepared in accordance with IFRS. The
supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies
(AIC). All items in the above statement derive from continuing
operations.
The Company does not have any income or expense that is not included
in profit for the period, and therefore the "Profit/(loss) attributable
to equity holders" is also the "Total comprehensive income attributable
to equity holders" as defined in IAS 1 (revised).
The accompanying notes are an integral part of these condensed
financial statements.
Condensed Statement of Comprehensive Income
(Continued)
Six months ended Year ended
30 June 2019 31 December 2019
(unaudited) (audited)
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on investments
at fair value - 10,297 10,297 - 19,661 19,661
Currency losses - (10) (10) - (12) (12)
Income
Dividend income 2 1,546 - 1,546 2,700 - 2,700
Interest income from
investments 2 22 - 22 46 - 46
Other income 2 5 - 5 8 - 8
_______ _______ _______ _______ _______ _______
1,573 10,287 11,860 2,754 19,649 22,403
_______ _______ _______ _______ _______ _______
Expenses
Investment management
fee (80) (186) (266) (163) (380) (543)
Other administrative
expenses (194) - (194) (314) - (314)
Finance costs (33) (76) (109) (61) (142) (203)
_______ _______ _______ _______ _______ _______
Profit/(loss) before
tax 1,266 10,025 11,291 2,216 19,127 21,343
_______ _______ _______ _______ _______ _______
Taxation 3 (8) - (8) (10) - (10)
_______ _______ _______ _______ _______ _______
Profit/(loss) attributable
to equity holders 1,258 10,025 11,283 2,206 19,127 21,333
_______ _______ _______ _______ _______ _______
Return per Ordinary share
(pence) 5 5.69 45.34 51.03 9.98 86.51 96.49
_______ _______ _______ _______ _______ _______
Condensed Balance Sheet
As at As at As at
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Equities 71,008 72,600 87,930
Convertible preference shares - 936 -
Corporate bonds 2,137 881 878
Preference shares - 3,514 -
____________ ____________ ____________
Securities at fair value 73,145 77,931 88,808
____________ ____________ ____________
Current assets
Cash 1,582 2,166 780
Other receivables 221 611 294
____________ ____________ ____________
1,803 2,777 1,074
____________ ____________ ____________
Current liabilities
Bank loan (2,000) (2,000) (2,000)
Trade and other payables (273) (250) (235)
____________ ____________ ____________
(2,273) (2,250) (2,235)
____________ ____________ ____________
Net current (liabilities)/assets (470) 527 (1,161)
____________ ____________ ____________
Total assets less current
liabilities 72,675 78,458 87,647
Non-current liabilities
Bank loan (4,989) (4,985) (4,987)
____________ ____________ ____________
Net assets 67,686 73,473 82,660
____________ ____________ ____________
Share capital and reserves
Called-up share capital 11,055 11,055 11,055
Share premium account 11,892 11,892 11,892
Capital redemption reserve 2,032 2,032 2,032
Capital reserve 39,650 44,984 54,086
Revenue reserve 3,057 3,510 3,595
____________ ____________ ____________
Equity shareholders' funds 67,686 73,473 82,660
____________ ____________ ____________
Net asset value per Ordinary
share (pence) 6 306.14 332.31 373.86
____________ ____________ ____________
The accompanying notes are an integral part of these condensed
financial statements.
Condensed Statement of Changes in Equity
Six months ended 30 June
2020 (unaudited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2019 11,055 11,892 2,032 54,086 3,595 82,660
(Loss)/profit for the
period - - - (14,436) 448 (13,988)
Dividends paid in the
period - - - - (986) (986)
______ ______ ______ ______ ______ ______
As at 30 June 2020 11,055 11,892 2,032 39,650 3,057 67,686
______ ______ ______ ______ ______ ______
Six months ended 30 June
2019 (unaudited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2018 11,055 11,892 2,032 34,959 3,114 63,052
Profit for the period - - - 10,025 1,258 11,283
Dividends paid in the
period - - - - (862) (862)
______ ______ ______ ______ ______ ______
As at 30 June 2019 11,055 11,892 2,032 44,984 3,510 73,473
______ ______ ______ ______ ______ ______
Year ended 31 December
2019 (audited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2018 11,055 11,892 2,032 34,959 3,114 63,052
Profit for the year - - - 19,127 2,206 21,333
Dividends paid in the
year - - - - (1,725) (1,725)
______ ______ ______ ______ ______ ______
As at 31 December 2019 11,055 11,892 2,032 54,086 3,595 82,660
______ ______ ______ ______ ______ ______
The accompanying notes are an integral part of these condensed financial
statements.
Condensed Cash Flow Statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Dividend income received 823 1,381 2,730
Interest income received 2 4 47
Other income received - - 8
Investment management fee paid (276) (254) (523)
Other cash expenses (204) (167) (308)
___________ ___________ ___________
Cash generated from operations 345 964 1,954
Interest paid (91) (100) (194)
Overseas taxation suffered (9) (15) (10)
___________ ___________ ___________
Net cash inflows from operating
activities 245 849 1,750
___________ ___________ ___________
Cash flows from investing activities
Purchases of investments (10,642) (12,645) (23,291)
Sales of investments 12,185 11,763 20,987
___________ ___________ ___________
Net cash inflows/(outflows) from
investing activities 1,543 (882) (2,304)
___________ ___________ ___________
Cash flows from financing activities
Equity dividends paid (986) (862) (1,725)
___________ ___________ ___________
Net cash outflows from financing
activities (986) (862) (1,725)
___________ ___________ ___________
Net increase/(decrease) in cash
and cash equivalents 802 (895) (2,279)
___________ ___________ ___________
Analysis of changes in cash and cash equivalents
during the period
Opening balance 780 3,071 3,071
Currency losses - (10) (12)
Increase/(decrease) in cash and
cash equivalents as above 802 (895) (2,279)
___________ ___________ ___________
Cash and cash equivalents at
the end of the period 1,582 2,166 780
___________ ___________ ___________
The accompanying notes are an integral part of these condensed
financial statements.
NOTES TO THE ACCOUNTS
1. Accounting policies
Basis of preparation. The condensed financial statements have
been prepared in accordance with International Financial Reporting
Standards ('IFRS') 34 - 'Interim Financial Reporting', as adopted
by the International Accounting Standards Board ('IASB'), and
interpretations issued by the International Financial Reporting
Interpretations Committee ('IFRIC') of the IASB. They have
been prepared using the same accounting policies applied for
the year ended 31 December 2019 financial statements, which
received an unqualified audit report.
The financial statements have been prepared on a going concern
basis. In accordance with the Financial Reporting Council's
guidance on 'Going Concern and Liquidity Risk' the Directors
have undertaken a review of the Company's assets which principally
consist of equity shares in companies listed on the London
Stock Exchange.
2. Income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
Income from investments
Dividend income from UK equity
securities 573 1,212 2,086
Dividend income from overseas
equity securities 27 215 355
Property income distribution 105 119 259
___________ ___________ ___________
705 1,546 2,700
Interest income from investments 31 22 46
___________ ___________ ___________
736 1,568 2,746
Other income ___________ ___________ ___________
Bank interest 2 5 8
___________ ___________ ___________
Total revenue income 738 1,573 2,754
___________ ___________ ___________
3. Taxation. The tax expense reflected in the Condensed Statement
of Comprehensive Income represents irrecoverable withholding
tax suffered on overseas dividend income.
4. Dividends. The following table shows the revenue for each period
less the dividends declared in respect of the financial period
to which they relate.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
Profit attributable 448 1,258 2,206
Dividends declared (911){A} (862){B} (1,825){C}
___________ ___________ ___________
(463) 396 381
___________ ___________ ___________
{A} Dividends declared relate to first two interim dividends
(both 2.06p each) declared in respect of the financial year
2020.
{B} Dividends declared relate to first two interim dividends
(both 1.95p each) declared in respect of the financial year
2019.
{C} Dividends declared relate to the four interim dividends
declared in respect of the financial year 2019 totalling 8.25p.
5. Return per Ordinary share
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
p p p
Revenue return 2.03 5.69 9.98
Capital return (65.29) 45.34 86.51
___________ ___________ ___________
Net return (63.26) 51.03 96.49
___________ ___________ ___________
The returns per Ordinary share are based on the following figures:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
Revenue return 448 1,258 2,206
Capital return (14,436) 10,025 19,127
___________ ___________ ___________
Net return (13,988) 11,283 21,333
___________ ___________ ___________
Weighted average number of
shares in issue 22,109,765 22,109,765 22,109,765
___________ ___________ ___________
6. Net asset value per Ordinary share. The net asset value per
Ordinary share and the net asset values attributable to Ordinary
shareholders at the period end calculated in accordance with
the Articles of Association were as follows:
As at As at As at
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Attributable net assets (GBP'000) 67,686 73,473 82,660
Number of Ordinary shares in
issue 22,109,765 22,109,765 22,109,765
Net asset value per Ordinary
share (p) 306.14 332.31 373.86
7. Transaction costs. During the period expenses were incurred
in acquiring or disposing of investments classified as fair
value. These have been expensed through capital and are included
within (losses)/gains on investments at fair value in the Condensed
Statement of Comprehensive Income. The total costs were as
follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
Purchases 41 55 98
Sales 9 7 15
___________ ___________ ___________
50 62 113
___________ ___________ ___________
8. Analysis of changes
in net debt
At At
31 December Currency Cash Non-cash 30 June
2019 differences flows movements 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short
term deposits 780 - 802 - 1,582
Debt due within
one year (2,000) - - - (2,000)
Debt due after
more than one
year (4,987) - - (2) (4,989)
__________ __________ ________ ________ ________
(6,207) - 802 (2) (5,407)
__________ __________ ________ ________ ________
At At
31 December Currency Cash Non-cash 30 June
2018 differences flows movements 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short
term deposits 3,071 (10) (895) - 2,166
Debt due within
one year (2,000) - - - (2,000)
Debt due after
more than one
year (4,983) - - (2) (4,985)
__________ __________ ________ ________ ________
(3,912) (10) (895) (2) (4,819)
__________ _________ ________ ________ ________
At 31 Currency Cash Non-cash At 31 December
December
2018 differences flows movements 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short
term deposits 3,071 (12) (2,279) - 780
Debt due within
one year (2,000) - - - (2,000)
Debt due after
more than one
year (4,983) - - (4) (4,987)
__________ __________ ________ ________ ________
(3,912) (12) (2,279) (4) (6,207)
__________ __________ ________ ________ ________
A statement reconciling the movement in net funds to the net
cash flow has not been presented as there are no differences
from the above analysis.
9. Fair value hierarchy. Under IFRS 13 'Fair Value Measurement'
an entity is required to classify fair value measurements using
a fair value hierarchy that reflects the significance of the
inputs used in making measurements. The fair value hierarchy
has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2: inputs other than quoted prices included within Level
1 that are observable for the assets or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices);
and
Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial assets measured at fair value in the Condensed
Balance Sheet are grouped into the fair value hierarchy as
follows:
Level Level Level Total
1 2 3
At 30 June 2020 (unaudited) Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value
through profit or loss
Quoted equities a) 71,008 - - 71,008
Quoted bonds b) - 2,137 - 2,137
_______ _______ _______ _______
71,008 2,137 - 73,145
_______ _______ _______ _______
Level Level Level Total
1 2 3
At 30 June 2019 (unaudited) Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value
through profit or loss
Quoted equities a) 72,600 - - 72,600
Quoted bonds b) - 5,331 - 5,331
_______ _______ _______ _______
72,600 5,331 - 77,931
_______ _______ _______ _______
Level Level Level Total
1 2 3
At 31 December 2019 (audited) Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair value
through profit or loss
Quoted equities a) 87,930 - - 87,930
Quoted bonds b) - 878 - 878
_______ _______ _______ _______
87,930 878 - 88,808
_______ _______ _______ _______
a) Quoted equities. The fair value of the Company's investments
in quoted equities has been determined by reference to their
quoted bid prices at the reporting date. Quoted equities included
in Fair Value Level 1 are actively traded on recognised stock
exchanges.
b) Quoted bonds. The fair value of the Company's investments
in quoted convertibles, bonds and preference shares has been
determined by reference to their quoted bid prices at the reporting
date. Investments categorised as Level 2 are not considered
to trade in active markets.
There have been no transfers of assets between levels of the
fair value hierarchy during any of the periods covered in this
Report.
10. Related party transactions. There were no related party transactions
during the period.
11. Transactions with the Manager. The Company has agreements
with Aberdeen Standard Fund Managers Limited ("ASFML" or "the
Manager") for the provision of investment management, secretarial,
accounting and administration and promotional activities.
The management fee is calculated at an annual rate of 0.75%
of the net assets of the Company, calculated and paid monthly.
During the period GBP261,000 (30 June 2019 - GBP266,000; 31
December 2019 - GBP543,000) of investment management fees
were payable to the Manager, with a balance of GBP85,000 (30
June 2019 - GBP92,000; 31 December 2019 - GBP100,000) being
payable to ASFML at the period end. There were no commonly
managed funds held in the portfolio during the period to 30
June 2020 (30 June 2019 and 31 December 2019 - none). The
management fee is chargeable as follows:- 30% to revenue and
70% to capital.
During the period expenses of GBP22,000 (30 June 2019 - GBP32,000;
31 December 2019 - GBP39,000) were payable to the Manager
in connection with the promotion of the Company. The balance
outstanding at the period end was GBP11,000 (30 June 2019
- GBP32,000; 31 December 2019 - GBP33,000).
12. Segmental information. The Company is engaged in a single
segment of business, which is to invest in equity securities
and debt instruments. All of the Company's activities are
interrelated, and each activity is dependent on the others.
Accordingly, all significant operating decisions are based
on the Company as one segment.
13. Publication of non-statutory accounts. The financial information
contained in this Half Yearly Financial Report does not constitute
statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the six
months ended 30 June 2020 and 30 June 2019 has not been audited.
The information for the year ended 31 December 2019 has been
extracted from the latest published audited financial statements
which have been filed with the Registrar of Companies. The
report of the auditors on those accounts contained no qualification
or statement under Section 498 (2), (3) or (4) of the Companies
Act 2006.
14. This Half Yearly Financial Report was approved by the Board
on 15 September 2020.
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
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the Company's
current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in
the applicable financial framework. The Company's applicable financial
framework includes IFRS and the AIC SORP. The Directors assess the
Company's performance against a range of criteria which are viewed
as particularly relevant for closed-end investment companies.
Total return. NAV and share price total returns show how the NAV
and share price has performed over a period of time in percentage
terms, taking into account both capital returns and dividends paid
to shareholders. NAV total return involves investing the net dividend
in the NAV of the Company with debt at fair value on the date on
which that dividend goes ex-dividend. Share price total return involves
reinvesting the net dividend in the share price of the Company on
the date on which that dividend goes ex-dividend.
The tables below provide information relating to the NAV and share
price of the Company on the dividend reinvestment dates during the
six months ended 30 June 2020 and the year ended 31 December 2019.
Dividend Share
Six months ended 30 June 2020 rate NAV price
31 December 2019 N/A 373.86p 343.00p
2 January 2020 2.40p 374.10p 341.50p
2 April 2020 2.06p 253.97p 216.00p
30 June 2020 N/A 306.14p 264.00p
________ ________
Total return -16.9% -21.8%
________ ________
Dividend Share
Year ended 31 December 2019 rate NAV price
31 December 2018 N/A 285.18p 224.00p
3 January 2019 1.95p 282.14p 225.50p
4 April 2019 1.95p 319.23p 270.50p
4 July 2019 1.95p 334.38p 288.50p
3 October 2019 1.95p 312.35p 273.50p
31 December 2019 N/A 373.86p 343.00p
________ ________
Total return +34.4% 57.7%
________ ________
Discount to Net Asset Value per Ordinary share . The amount by
which the market price per Ordinary share of 264.00p (31 December
2019 - 343.00p) is lower than the net asset value per Ordinary share
of 306.14p (31 December 2019 - 373.86p), expressed as a percentage
of the net asset value per Ordinary share.
Net gearing. Net gearing measures the total borrowings of GBP6,989,000
(31 December 2019 - GBP6,987,000) less cash and cash equivalents
of GBP1,509,000 (31 December 2019 - GBP780,000) divided by shareholders'
funds of GBP67,686,000 (31 December 2019 - GBP82,660,000), expressed
as a percentage. Under AIC reporting guidance cash and cash equivalents
includes net amounts due to brokers at the period end of GBP73,000
(31 December 2019 - GBPnil) as well as cash of GBP1,582,000 (31
December 2019 - GBP780,000).
Ongoing charges. The ongoing charges ratio has been calculated
in accordance with guidance issued by the AIC as the total of investment
management fees and administrative expenses and expressed as a percentage
of the average net asset values with debt at fair value throughout
the year. The ratio for 30 June 2020 is based on forecast ongoing
charges for the year ending 31 December 2020.
30 June 31 December
2020 2019
Investment management fees (GBP'000) 515 543
Administrative expenses (GBP'000) 361 314
Less: non-recurring charges (GBP'000) (22) -
________ ________
Ongoing charges (GBP'000) 854 857
________ ________
Average net assets (GBP'000) 68,878 71,351
________ ________
Ongoing charges ratio 1.24% 1.20%
________ ________
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations, which
includes amongst other things, financing and transaction costs.
ABERDEEN SMALLER COMPANIES INCOME TRUST
Ten Largest Investments
As at 30 June 2020
Assura Aveva Group
Assura is a long-term investor One of the world's leading engineering,
and developer of primary care property, design and information management
working with general practitioners, software providers to the process,
health professionals and National plant and marine industries.
Health Services to deliver patient Aveva's world-leading technology
care. was originally developed and
spun out of Cambridge University
and today the business operates
in 46 countries around the world.
discoverIE Group XP Power
discoverIE Group is a supplier A power solutions business that
of niche electronic products, manufacturing designs and manufactures power
customs designed and built electronics convertors used by customers
to industrial and medical companies to ensure their electronic equipment
across Europe and South Africa. can function both safely and
efficiently. With over 5,000
different products, XP Power
can provide a full value add
capability to its customers.
Liontrust Asset Management Intermediate Capital Group
UK based asset manager, managing Global alternative asset manager
assets across a range of asset in private debt, credit and equity.
classes.
Games Workshop Hilton Food Group
Global retailer of hobbyist products, Global food producer, with a
selling through own retail stores, specialism in sourcing, preparing
online, and through trade partners. and packaging food products in
Owner of the IP of Warhammer. particular meat and fish protein.
Telecom Plus Morgan Sindall
Reseller of telecom and utilities UK leading business in construction
service, under the Utility Warehouse and regeneration work.
brand.
Investment Portfolio - Equity
As at 30 June 2020
Valuation Total
2020 portfolio
Company Sector Classification GBP'000 %
Real Estate Investment
Assura Trusts 3,580 4.9
Software & Computer
Aveva Group Services 3,431 4.7
Electronic & Electrical
discoverIE Group Equipment 3,315 4.5
Electronic & Electrical
XP Power Equipment 3,288 4.5
Liontrust Asset Management Financial Services 2,966 4.1
Intermediate Capital Group Financial Services 2,882 3.9
Games Workshop Leisure Goods 2,666 3.6
Hilton Food Group Food Producers 2,488 3.4
Telecom Plus Fixed Line Telecommunications 2,415 3.3
Construction & Building
Morgan Sindall Materials 2,091 2.9
Ten largest investments 29,122 39.8
Software & Computer
Softcat Services 2,086 2.9
Real Estate Investment
Unite Group Trusts 2,080 2.9
AJ Bell Financial Services 2,053 2.8
Victrex Chemicals 1,965 2.7
Ultra Electronics Aerospace & Defence 1,855 2.5
Hollywood Bowl Travel & Leisure 1,807 2.5
Chesnara Life Insurance 1,682 2.3
Real Estate Investment
Safestore Holdings Trusts 1,670 2.3
Moneysupermarket Media 1,634 2.2
Electronic & Electrical
Strix Group Equipment 1,492 2.0
Twenty largest investments 47,446 64.9
Software & Computer
FDM Services 1,445 2.0
Close Brothers Banks 1,414 1.9
Kesko{A} Food & Drug Retailers 1,307 1.8
Pharmaceuticals &
Dechra Pharmaceuticals Biotechnology 1,307 1.8
Diploma Support Services 1,287 1.8
Real Estate Investment
Sirius Real Estate Services 1,279 1.7
Household Goods &
MJ Gleeson Home Construction 1,220 1.7
Fisher (James) & Sons Industrial Transportation 1,202 1.6
Tatton Asset Management Financial Services 1,107 1.5
Marshalls Construction & Materials 1,019 1.4
Thirty largest investments 60,033 82.1
Midwich Support Services 1,013 1.4
Alpha Financial Markets
Cons Support Services 1,003 1.4
Greggs Food & Drug Retailers 959 1.3
Real Estate Investment
Target Health Care Trusts 958 1.3
Real Estate Investment
Primary Health Properties Trusts 944 1.3
4Imprint Group Media 822 1.1
Forterra Construction & Materials 796 1.1
Real Estate Investment
Savills Services 776 1.0
Pharmaceuticals &
Abcam Biotechnology 762 1.0
Paypoint Support Services 706 1.0
Forty largest investments 68,772 94.0
Real Estate Investment
Workspace Group Trusts 668 0.9
Somero Enterprises Industrial Engineering 593 0.8
Gateley Holdings Support Services 535 0.8
Rathbone Brothers Financial Services 440 0.6
Total Equity Investments 71,008 97.1
{A} All investments are listed on the London Stock Exchange (sterling
based), except those marked, which are listed on overseas exchanges
based in sterling.
Investment Portfolio - Other Investments
As at 30 June 2020
Valuation Total
2020 portfolio
Company GBP'000 %
Corporate Bonds
Barclays Bank 9% Perp{A} 500 0.7
Close Brothers 3.875%{A} 411 0.6
Heathrow Funding 5.225%{A} 368 0.5
HSBC Holdings 6.5%{A} 322 0.4
SSE 3.625% Var{A} 300 0.4
SSE 3.875% Var Perp{A} 236 0.3
_______ _______
Total Corporate Bonds 2,137 2.9
_______ _______
Total Investments 73,145 100.0
_______ _______
{A} All investments are listed on the London Stock Exchange (Sterling
based).
For further information please contact:-
Company Secretary
Aberdeen Standard Investments
Tel: 0131 372 2200
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END
IR EASNKFAPEEFA
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
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