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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Acorn Income Fund Ld | LSE:AIF | London | Ordinary Share | GB0004829437 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 367.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Acorn Income Fund Limited
Annual Financial Report
or the year ended 31 December 2017
LEI: 213800UAZN7G46AHQM67
L(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance with DTR 6.3.5, released its Annual
Financial Report for the year ended
31 December 2017. The Report will shortly be available via the Investment
Manager's website https://www.premierfunds.co.uk/media/657458/
acorn-income-fund-annual-report-2017.pdf and will also be available for
inspection online at www.morningstar.co.uk/uk/NSM website.
Investment Objectives and Policy
Investment Objectives
The investment objective and policy of Acorn Income Fund Limited (the "Company"
or "Acorn") is to provide Shareholders with high income and also the
opportunity for capital growth.
The Company's assets comprise investments in equities and fixed interest
securities in order to achieve its investment objective. The Company's
investments are held in two portfolios. Approximately 70% to 80% of the
Company's assets are invested in smaller capitalised United Kingdom companies,
admitted to the Official List of the Financial Conduct Authority (the "FCA")
and traded on the main market of the London Stock Exchange (the "LSE") or
traded on the Alternative Investment Market ("AIM") at the time of investment.
The Company also aims to enhance income for Ordinary Shareholders by investing
approximately 20% to 30% of the Company's assets in high yielding instruments
which are predominantly fixed interest securities but may include up to 15% of
the Company's overall portfolio (measured at the time of acquisition) in high
yielding investment company shares.
The proportion of the overall portfolio held in the Smaller Companies Portfolio
and the Income Portfolio varies from day to day as the market prices of
investments move. The Directors retain discretion to transfer funds from one
portfolio to the other and generally expect between 70% to 80% of the
investments to be held in the Smaller Companies Portfolio.
While the Company's investment policy is to spread risk by maintaining
diversified portfolios, there are no restrictions on the proportions of either
of the portfolios which may be invested in any one geographical area, asset
class or industry sector. However, not more than 7.5% of the Company's gross
assets may be invested in securities issued by any one company as at the time
of investment, save that (i) in respect of the Income Portfolio only,
investments may be made in other investment funds subject only to the
restriction set out in paragraph (c) of the section headed "Investment
Restrictions" below; and (ii) in respect of the Smaller Companies Portfolio
only, provided that not more than 10% of the Company's gross assets are
invested in securities issued by any one company at any time, the 7.5% limit
may be exceeded on a short term basis, with Board approval, where a company
whose securities form part of the Smaller Companies Portfolio issues new
securities (for example by way of a rights issue).
The Company's capital structure is such that the underlying value of assets
attributable to the Ordinary Shares is geared relative to the rising capital
entitlements of the Preference Shares ("ZDP Shares"). The Company's gearing
policy is not to employ any further gearing through long-term bank borrowing.
Save with the prior sanction of ZDP Shareholders, the Company will incur no
indebtedness other than short term borrowings in the normal course of business
such as to settle share trades or borrowings to finance the redemption of the
ZDP Shares.
Investment Restrictions
For so long as required by the LSE Listing Rules in relation to closed-ended
investment companies, the Company has adopted the following investment and
other restrictions:
(a) the Company will at all times invest and manage its assets in a way which
is consistent with its objective of spreading investment risk and in accordance
with its published investment policy;
(b) the Company will not conduct any significant trading activity; and
(c) not more than 10% in aggregate of the value of the total assets of the
Company at the time the investment is made will be invested in other listed
closed-ended investment funds. The Listing Rules provide an exception to this
restriction to the extent that those investment funds which have stated
investment policies to invest no more than 15% of their total assets in other
listed closed-ended investment companies.
Derivatives
The Company may invest in derivatives, money market instruments and currency
instruments including contracts for difference, futures, forwards and options.
These investments may be used for hedging positions against movements in, for
example, equity markets, currencies and interest rates, for investment purposes
and for efficient portfolio management. The Company's use of such instruments
for investment purposes is limited to 5 per cent of the total assets of the
Company. The Company will not use such instruments to engage in any significant
trading activity. The Company will not maintain derivative positions should the
total underlying exposure of these positions (excluding any currency hedges)
exceed one times adjusted total capital and reserves.
Dividend Policy
The Company's policy is to provide Ordinary Shareholders with a high income
relative to the average dividend yield of the UK Smaller companies comprised in
the Numis Smaller Companies Index ex Investment Companies. The Company aims to
pay a regular quarterly dividend in March, June, September and December. It is
intended to distribute substantially all of the Company's net income after
expenses and taxation, however the Company may retain a proportion of the
Company's income in each year as a revenue reserve to assist in providing long
term stability in dividend distributions. Dividends may be paid to holders of
Ordinary Shares whenever the financial position of the Company, in the opinion
of the Directors, justifies such payment, subject to the Company being able to
satisfy the solvency test, as defined under the Companies (Guernsey) Law 2008.
The Board is alert to the potential for new share issuance to dilute earnings
and accordingly will have regard to the size and timing of new share issues.
The ZDP shares do not carry a right to a dividend.
Performance Summary
for the year ended 31 December 2017
31/12/2017 31/12/2016 % change/
return
Total Return Performance*
Total Return on Gross Assets*## 17.86%
Numis Smaller Companies (Ex Investment 22,794.71 19,074.80 19.50%
Companies) Index
FTSE All Share Index 7,265.66 6,424.25 13.10%
FTSE Small Cap (Ex Investment Companies) 7,864.09 6,802.34 15.61%
Index
Share Price and NAV Returns
Ordinary Shares
Share Price 463.50p 359.00p 29.11%
NAV** 486.84p 407.23p 19.55%
IFRS NAV# 486.65p 407.20p 19.51%
Total return on Net Assets* 24.17%
Ordinary Share Price Total Return 34.52%
Discount (-) Premium (+) to NAV on Ordinary -4.79% -11.84%
Shares
ZDP Shares
Share Price 151.25p 139.38p 8.52%
NAV** 142.83p 137.26p 4.06%
IFRS NAV 142.97p 137.28p 4.14%
Discount (-) Premium (+) to NAV on ZDP +5.90% +1.54%
Shares
Other
Total Assets less Current Liabilities GBP108,003,413 GBP64,787,950 66.70%
Package Discount (-) Premium (+) to
NAV Combined Ordinary and ZDP Shares -1.77% -7.67%
ZDP Liability** GBP30,515,004 GBP29,314,857 4.09%
Net Assets** GBP77,488,409 GBP64,793,038 19.59%
Gearing Level 39.38% 45.24% -12.95%
Total Expenses Ratio (calculated on year 1.04% 1.04% 0.00%
end Gross Assets)
Ongoing Charges (calculated on average Net 1.53% 1.63% -6.13%
Assets)
Dividends and Earnings
Revenue return per ordinary share 20.36p 20.38p -0.10%
Dividends declared per ordinary share 18.00p 15.50p 16.13%
During the year ended 31 December 2016 the ZDP Shares were reclassified on
the Statement of Financial Position as a current liability as the maturity date
was within one year. In January 2017 the ZDP Shares were refinanced and the
life of the ZDP Shares was extended to 28 February 2022.
* assumes dividends reinvested
** calculated in accordance with the Articles
# calculated in accordance with International Financial Reporting Standards
# # adjusted for debt repayment and the issue of new Ordinary Shares and ZDP
Shares
Sources: Index data: Bloomberg, Total return on gross and net assets, PFM, JP
Morgan Cazenove
Company Summary
History
The Company was incorporated on 5 January 1999 and commenced its activities on
11 February 1999. The portfolio is divided into two sub portfolios, a Smaller
Companies Portfolio representing approximately 70-80% of the total with the
balance invested in an Income Portfolio investing in fixed income securities,
investment company shares and structured investments. The Company has always
been leveraged, initially through bank debt and now through Zero Dividend
Preference Shares. In December 2016 shareholders approved the extension of the
Zero Dividend Preference Shares setting a new redemption date of 28 February
2022.
Capital Structure
Zero Dividend Preference 21,365,221 (excluding treasury shares)
Shares
(1pence each)
The ZDP Shares will have a final capital entitlement of
167.2 pence per ZDP Share on 28 February 2022 following
the extension of the life of the existing shares from 31
January 2017, subject to there being sufficient capital
in the Company. The ZDP Shares are not entitled to any
dividends. ZDP shareholders rank ahead of the ordinary
shareholders in regards to rights as to capital. The ZDP
shareholders have the right to receive notice of all
general meetings of the Company, but do not have the
right to attend or vote unless the business of the
meeting involves an alteration of the rights attached to
the ZDP Shares, in which case the holders of ZDP Shares
can attend and vote.
Ordinary Shares (1pence each) 15,916,687 (excluding treasury shares)
The Ordinary Shares are entitled to participate in all
dividends and distributions of the Company. On a
winding-up holders of Ordinary Shares are entitled to
participate in the distribution and the holders of
Ordinary Shares are entitled to receive notice of and
attend and vote at all general meetings of the Company.
Treasury Shares As at 31 December 2017 there were 1,275,972 Ordinary and
1,712,757 ZDP Shares held in treasury.
Shareholder Funds GBP77.46 million as at 31 December 2017
(calculated in accordance
with IFRS)
Market Capitalisation of the GBP73.77 million as at 31 December 2017
Ordinary
Shares
Company Details
The Board The Board consists of three independent non-executive
directors ("the Directors"), Helen Green (Chairman),
Nigel Ward and David Warr.
Investment Manager Premier Asset Management (Guernsey) Limited ("PAMG"), is
a subsidiary of Premier Asset Management Group PLC
("PAM"). PAM had approximately GBP6.4bn of funds under
management as at 31 December 2017. PAMG Ltd is licensed
under the provisions of the Protection of Investors
(Bailiwick of Guernsey) Law, 1987, as amended, by the
Guernsey Financial Services Commission to carry on
controlled investment business.
Investment Advisers Premier Fund Managers Limited ("PFM") - the Company's
Income Portfolio is managed by Paul Smith.
Unicorn Asset Management Limited ("Unicorn") - the
Company's Smaller Companies Portfolio is managed by Simon
Moon and Fraser Mackersie.
Secretary/Administrator Northern Trust International Fund Administration
(Guernsey) Limited.
Corporate Broker Numis Securities Limited ("Numis") provide all corporate
broking services.
Management Fee 0.7% per annum (Total Assets) charged 75% to capital and
25% to revenue. Minimum annual management fee GBP100,000.
In addition, a performance fee is payable at the year-end
if the target set out in Note 5 is achieved. This is
charged 100% to capital.
Registrar Anson Registrars Limited
Financial Calendar
Company's year end 31 December
Annual results announced March/April
Company's half year end 30 June
Annual General Meeting 20 August 2018
Half year results announced August
Dividend payments At the end of March, June, September and December
Company Website https://www.premierfunds.co.uk/investors/investments/
investment-trusts/acorn-income-fund
Chairman's Statement
Year to 31 December 2017
Dear Shareholder
Despite the political and economic uncertainties that provided a backdrop
throughout the year stock markets prospered and Acorn had a successful year.
Ordinary shareholders in Acorn enjoyed a very satisfying return of 34.52%
delivered through a 29.11% increase in the share price and 18 pence of
dividends paid over the course of the year. Strong revenue performance enabled
the directors to bring forward the annual dividend increase from June to March.
Ordinary shareholders benefitted from the lower accrual rate on the Zero
Dividend Preference Shares which came into play at the start of the year and
from the narrowing in the ordinary share discount to NAV which moved from
11.84% at the start of the year to 4.79% at the year end.
Investment Performance
Equity markets generally performed well and smaller UK companies had a
particularly successful year. The broad UK stock market represented by the
FTSE All-Share Total Return Index returned 13.1% over the year whilst the FTSE
Small Cap index (ex investment companies) provided a total return of 15.61% and
the more widely based Numis Smaller Companies (ex investment companies) total
return index rose by 19.50%. The total return on Acorn's gross assets was
17.86% and on net assets 24.17%. The bull market in bonds continued and the
Merrill Lynch Sterling Non Gilts index rose by 4.33% over the year.
The Smaller Companies Portfolio generated a return of 24.85% over the year
(before costs) which was well ahead of the Numis index. The investment approach
based on the selection of stocks with sound earning prospects and with a
distribution policy and market valuation that provides for an above average
dividend yield, has once again proved successful and was the principal driver
of performance over the year. Given the strength of equity markets it was to be
expected that the Income Portfolio would generate a lower level of return but
this element of the overall fund provides a useful regulator of risk and
volatility.
As in previous years the Company's broker Numis has carried out an analysis of
Acorn's performance and volatility against funds in the small and mid cap
sectors and in the equity income sector over the last 5 years. Acorn continues
to be well placed in relation to its peers when taking account of both risk and
performance.
The strong performance triggered a performance fee which was being accrued
within the published NAVs during the course of the year. The fee is charged at
100% to capital. This is the first performance fee that has been paid since 31
December 2013.
Asset Allocation
Acorn's investment advisers have remained positive on the outlook for the UK
smaller companies in which they are invested and cautious about the outlook for
bond markets. Your directors supported these views. As a consequence asset
allocation at the start of the year was 80% to the Smaller Companies Portfolio
and 20% to the Income Portfolio. Relative performance led to a gradual increase
in the allocation to the Smaller Companies Portfolio and although this took the
smaller company exposure above the top end of the normal range neither the
board nor the advisers were minded to rebalance and at the year end the
weighting was 17% in the Income Portfolio and 83% in the Smaller Companies
Portfolio.
Zero Dividend Preference Shares ("ZDPs")
At the start of the year, with shareholders' approval, the life of the ZDP
shares was extended from their original 31 January 2017 redemption date to 28
February 2022 but with the ZDPs accruing at a rate of 3.85% from the 138p NAV
on 31 January 2017 to 167.2p on redemption. Existing shareholders were given
the opportunity to elect to remain invested or to receive 138p per share
redemption price at the end of January 2017. 91.4% of ZDP shareholders elected
to remain invested. The same structure and level of gearing was maintained with
a small placing of new ZDPs at a 1.4% premium to NAV to replace those that had
been redeemed.
Share issuance and buy backs
The Company has power to issue shares at a premium to net asset value and to
buy back into Treasury or for cancellation at a discount. These transactions
are generally executed in both classes of share in the correct ratio to
maintain the capital structure. Issues are done at a premium to the package net
asset value (the NAV of ordinary shares and ZDPs combined) and buy backs at a
discount to the package net asset value, such that the transaction will always
enhance cover for the ZDP shares and be NAV enhancing for the ordinary shares.
In conjunction with the ZDP proposals outlined above, the Company issued a
Prospectus for the issue of new Ordinary shares through a placing and offer for
subscription that was to close in January 2017. The proposals also provided for
new ZDPs to be issued through a placing in such number as would preserve the
ratio of ZDPs to ordinary shares. These proposals were approved by
shareholders and although market conditions were not favourable to raising new
money 5,995 new Ordinary shares and matching ZDP shares were issued at a
premium to the package net asset value.
There were no buy backs during the course of the year.
In December 2017 with the combined valuation of the ordinary shares and the
ZDPs moving to a premium the Company announced that it would consider issuing
new shares if demand for the shares at a premium to asset value was sustained.
Earnings and Dividends
The first interim dividend of 4.5p was paid in March 2017. This was an increase
of 12.5% on the 4.0p level dividends that had been paid over the previous three
quarters and as the increase was brought forward by a quarter it was up 28.6%
on the dividend of 3.5p that had been paid in the first quarter of the previous
year. A quarterly dividend of 4.5p was maintained throughout the year making a
total distribution for the year of 18.0p (2016: 15.5p). Earnings per share for
the year of 20.36p covered the dividend distribution by 113% and resulted in an
addition to revenue reserves. At the year-end revenue reserves were the
equivalent of 18.14p per share representing 101% of the 2017 dividend.
Auditor
During the year the board reviewed the audit arrangement as KPMG had held the
position of auditor since the Company's inception in 1999. Although under
Guernsey law there is no requirement to change the auditor after a specified
period your directors decided to put the audit contract out to competitive
tender. KPMG was invited to enter the tender process. After interviewing the
shortlisted candidates it was decided to retain KPMG as the board was satisfied
that they brought the required high level of expertise and resource to the
audit process and that they remained fully independent of the board. Taking
account of the administration costs involved in moving the contract the
directors concluded that reappointing KPMG was also the most economical
solution for shareholders.
Regulation
Updates in the Markets in Financial Instruments Directive ("MiFID II") became
effective on 3 January 2018. One of the main changes introduced by the
Directive relates to investment research. Under MiFID II, investment managers
are only permitted to receive external research from third parties when it is
paid for from a separate Research Payment Account ("RPA") managed in accordance
with the rules of the Financial Conduct Authority ("FCA"). Until 31 December
2017, external investment research was paid for by the Company, funded from
commissions paid when investments were traded.
Our Investment Advisers have advised the Company that they will meet the cost
of external investment research. Transaction commissions are likely to be
incurred at a lower rate than previously as they will not include an implicit
research cost.
MiFID II is not expected to lead to a material change in returns or overall
costs for the Company.
In compliance with the new Packaged Retail and Insurance-based Investment
Products regulations which came into effect on 3 January 2018 the Company has
published a Key Information Documents ("KIDs") which can be viewed on the
Company's website.
Outlook
The board is encouraged by the continuing investment opportunities to be found
in the UK small cap universe. As a sector UK smaller companies are looking
moderately undervalued in comparison with larger companies when measured on
valuation metrics such as forecast price/earnings, dividend yield and dividend
cover. Your board remains positive on the prospects for the Smaller Companies
Portfolio. Our Investment Adviser continues to hold strong conviction that
Acorn's smaller company investments have the potential to provide earnings and
dividend growth over the longer term.
The Company's Investment Adviser for the Income Portfolio remains cautious on
the outlook for bond markets but is comfortable maintaining positioning which
is away from bond index exposures and the highest rated corporate bonds which
essentially track sovereign performance. The portfolio is focused instead on
exploiting opportunities available from selective short dated bonds and through
alternative investments in the investment company sector and structured
investments.
Contact with Shareholders
Shareholders are always welcome to attend the General Meeting in August or to
contact me directly through the email address
acorn_income_fund_limited@ntrs.com.
Helen Green
Chairman
Investment Advisers' Report
The Smaller Companies Portfolio
During the twelve month period to 31 December 2017 the Smaller Companies
portfolio generated a total return 24.85% (2,485 basis points) before expenses
- outperforming a rise of 19.50% by the Numis Smaller Companies Index (Ex
Investment Companies).
The period under review was a positive year for Small and Mid-Cap UK equities
and the Acorn Smaller Companies portfolio benefitted from this supportive
backdrop. Pleasingly the confidence which had started to return to the sector
towards the end of the prior year continued throughout 2017. Performance was
driven by the continued strong operational performance of our investee
companies. In contrast to market expectations immediately following the EU
referendum in 2016 it is pleasing to report that domestically focused stocks,
as well as those with more international earnings, contributed to strong
returns.
The year under review was an eventful one for the UK. In March the government
triggered 'Article 50', starting a two-year period during which the terms of
exit from the EU must be agreed. A few weeks later Theresa May called a snap
general election seeking to capitalise on the Conservative's strong lead in the
polls at the time, attempting to secure a larger parliamentary majority and
thereby establishing a strong mandate with which to negotiate Britain's exit
from the EU. This gamble backfired, as the Conservative Party lost its majority
and was forced into forming a minority government with the help of the
Democratic Unionist Party. As a consequence, Mrs. May now leads a weakened
government with a diminished, rather than a strengthened negotiating position.
The backdrop of political uncertainty, weak sterling, subsequent inflationary
pressures, and an increasing interest rate environment combined to create a
tough environment for the average UK consumer. Against such a setting it is
particularly pleasing to see the underlying portfolio, of primarily
domestically focussed stocks, outperform.
The number of holdings within the portfolio fell by one to forty nine during
the period following the addition of ten new holdings and disposal of eleven
positions. The portfolio participated in three Initial Public Offerings (IPOs)
during the period. All three (Alpha FX, Xafinity and Sabre Insurance) ended
the year in positive territory, contributing a combined 177 bps to
performance. Of the eleven disposals, three (Lavendon, UK Mail, Berendsen)
were a result of bid approaches - the later of which was announced during the
period, adding 49 bps to performance.
In addition to the three IPOs outlined above new positions were also added in
Polar Capital, the asset manager; Berendsen, the linen rental business (which
was subsequently subject of a bid approach); Hollywood Bowl, the ten pin
bowling operator; 4imprint, the supplier of branded promotional goods in North
America; Severfield, the leading manufacturer of structural steelwork;
Vesuvius, the supplier of consumables to the global steel industry and Regional
REIT, which specialises in regional UK commercial property. All of the new
additions made positive contributions to performance during the period.
Eleven positions were exited in full during the period, which included three
companies subject to successful bid approaches from overseas buyers (two of
which were announced in the prior period but completed during the year). In
addition to previously flagged deals for UK Mail and Lavendon, Berendsen was
also approached during the year by the French firm Elis. We had exited this
position in 2015 largely as a result of yield compression but decided to
re-introduce the company to the portfolio during the period following a sharp
fall in the share price after short term trading issues were discovered in
their UK division. The remaining disposals from the Fund were Jarvis
Securities, Photo-Me International, Morses Club, Harvey Nash, Sprue Aegis,
Pendragon, Safestyle UK and Quarto Group.
The strongest contributor to performance during the year came from
Conviviality, the alcohol retail and distribution business, which added 266 bps
to performance. Significant profits were locked in from this investment during
the period, in line with our policy of crystallising profits from investments
that have performed well and suffered yield compression.
Post the year end, and following a trading commentary in line with market
expectations at the time of the interim results at the end of January, the
company communicated to the market with a disappointing trading update in early
March. The shares were subsequently suspended when the company then announced
it would be unable to make a scheduled payment to HMRC. They remain suspended
following an unsuccessful attempt to raise GBP125m from equity investors. We
wrote down the value of our remaining holding to zero after the suspension of
the shares however we remain in positive territory overall on this investment
as a result of active profit taking and dividend income received during our
holding period of over four and a half years.
The second largest contributor to performance was Midwich, adding 225 bps to
performance. The company, Europe's leading distributor of AV equipment, was
added to the portfolio at IPO in 2016 at a share price of 208p and ended the
year at 480p. Another company which listed in 2016 and performed strongly
during the year was Warpaint London, a cosmetics business, which added 164 bps
to performance.
Pleasingly the strong performance during the period was fairly broad-based,
with further notable contributions made by DiscoverIE (formally Acal, 159 bps),
FDM Group (154 bps), River and Mercantile (128 bps), Somero Enterprises (127
bps), Hostelworld (111 bps), Alpha FX (109 bps), Numis Corporation (101 bps),
Macfarlane Group (98 bps), Polar Capital (93 bps) and Gateley Holdings (93
bps).
The largest detractor from Fund performance was Quarto Group, the publisher of
illustrated books, which endured a difficult period as weaker consumer demand
for its titles and erroneous market guidance led to significant earnings
downgrades. These issues and our concerns about the long term prospects for
the dividend payment led us to exit this position in full during the period.
Prior to disposal the company made a negative contribution of 130 bps to
performance.
We also exited our position in Safestyle Group during the period, as the
domestic double glazing market softened considerably during the year. Prior to
disposal the company made a negative contribution to performance of 56 bps
however our disposal did crystallise a significant gain on our initial
investment at IPO at the end of 2013, when the shares listed at 100p per
share. Our average disposal price in 2017 was significantly higher at 230p, in
addition dividends in excess of 45p per share we received during the holding
period.
The only other negative performer with a contribution in excess of 50 bps was
Van Elle, the specialist piling plant hire business, which cost the portfolio
55 bps of performance. The company endured a challenging year as the
unpredictable timing of rail contracts led to forecast downgrades. We remain
supporters of the company and increased our position by 20% during the period.
This was clearly a strong period for the portfolio and we enter 2018 in good
shape. As ever our focus will remain on identifying the very best smaller
companies we can find that offer an attractive combination of earnings growth
and strong, sustainable, growing dividend payments. Whilst we remain mindful
of a number of external factors which may cause sentiment towards UK Small and
Mid-Caps to deteriorate in the short term, we continue to invest with a long
term investment horizon.
Fraser Mackersie and Simon Moon
Unicorn Asset Management Limited
The Income Portfolio
2017 remained a very complacent year for fixed income markets with sovereign
yields range-bound and credit spreads continuing to grind tighter. Indeed, it
is difficult to know when the extended multi-decade bond bull market will
finally come to an end. However with yields around all-time lows and the global
economy enjoying a period of synchronised growth, they remain extremely
vulnerable to any upside surprise to growth and inflation, especially given the
fading support from global central bank policy which have supported demand and
dampened volatility.
Inflation also feels like an under-priced risk in bond markets given the
synchronised bout of global growth currently being enjoyed and the tightness of
many labour markets. This may yet translate into improving wages which have so
far been weak relative to the recovery in economic activity. Purchasing a gilt
at any maturity now will mean locking in a return which is below the Bank of
England's medium term inflation target of 2% and the risks are that investors
could reprice the amount of return they demand over longer periods to account
for future uncertainty over inflation and interest rates.
Meanwhile the rich valuations at which corporate bonds trade appear to have
very limited scope to improve further and whilst the global macro outlook is
looking firmer than it has done, the undiscerning nature of the credit rally
makes us nervous - the reach for yield comes with a disproportionate extension
of risk. We expect there to be more volatility in credit going forward as
central bank intervention reduces, sovereign bond volatility increases and the
supportive technical demand and supply dynamic becomes more challenged. We are
therefore highly selective in choosing bonds with relatively attractive
risk-return characteristics, endeavouring to earn carry whilst controlling
downside risks.
In this environment, we are adopting a more absolute return and are comfortable
maintaining positioning which is away from bond index exposures and allocating
more to alternative investments. We have added holdings such as investment
trusts and derivative investments, where we have seen more attractive
risk-reward characteristics. We expect the weighting of the Income Portfolio to
remain at the lower end of the normal range in the short to medium term, whilst
uncompelling bond valuations persist.
Paul Smith
Premier Fund Managers Limited
Schedule of Principal Investments
as at 31 December 2017
Percentage Percentage
of Total of Total
Assets Assets
2017 2016
Position Company Market Percentage
Value GBP of
'000 Portfolio
Smaller Companies Portfolio
1 DiscoverIE Group plc 3,275,287 3.75 3.01 -
2 Macfarlane Group plc 2,926,000 3.35 2.69 2.41
3 Somero Enterprises Inc 2,832,000 3.24 2.60 2.33
4 Warpaint London plc 2,793,283 3.19 2.57 1.45
5 Clipper Logistics plc 2,625,000 3.00 2.41 3.01
6 Conviviality Retail plc 2,508,868 2.87 2.31 2.62
7 Numis Corporation plc 2,448,750 2.80 2.25 1.93
8 FDM Group Holdings plc 2,240,400 2.56 2.06 1.79
9 Secure Trust Bank plc 2,220,000 2.54 2.04 2.39
10 Park Group plc 2,156,250 2.47 1.98 1.93
11 Polar Capital Holdings plc 2,008,125 2.30 1.85 -
12 Mucklow A&J Group plc 2,004,000 2.29 1.84 1.72
13 Midwich Group plc 1,953,000 2.23 1.79 1.19
14 Telecom Plus plc 1,916,800 2.19 1.76 1.55
15 Vesuvius plc 1,898,000 2.17 1.74 -
16 Primary Health Properties plc 1,864,000 2.13 1.71 1.87
17 Wincanton plc 1,864,000 2.13 1.71 1.82
18 Tyman plc 1,806,250 2.07 1.66 1.45
19 Flowtech Fluidpower plc 1,793,000 2.05 1.65 1.48
20 Alumasc Group plc 1,782,000 2.04 1.64 1.77
44,915,013 51.37 41.27
Income Portfolio
1 Bank of America 7.75% 30/04/18 1,022,262 6.44 0.94 -
2 Apq Global Limited 3.5% CULS 30/ 537,499 3.39 0.49 -
09/24
3 United Kingdom 2.50% IL Treasury 510,779 3.22 0.47 0.55
2020
4 St Modwen Properties 2.875% 501,875 3.16 0.46 0.31
Convertible 06/03/2019
5 HSBC 6% 29/03/2040 413,250 2.61 0.38 0.38
6 EJF Investments Ltd 400,000 2.52 0.37 -
7 Burford Capital 6.5% 2022 385,330 2.43 0.35 -
8 Itv 2.125% 2022 372,534 2.35 0.34 0.37
9 Tesco Personal Finance 1.00% 352,527 2.22 0.32 0.36
2019
10 EDF 6.125% 02/06/2034 342,401 2.16 0.31 0.35
11 DW Catalyst Fund Limited 321,974 2.03 0.30 0.67
12 Heathrow 7.075% 04/08/2028 284,258 1.79 0.26 0.31
13 Spirit Issuer 5.472% 28/12/2034 275,000 1.73 0.25 0.27
14 Aviva 5.9021% Perp - 2020 271,000 1.71 0.25 0.27
15 Telefonica Emisiones 5.375% 02/ 270,994 1.71 0.25 -
02/18
16 Vodafone Group Plc 8.125% 26/11/ 266,040 1.68 0.25 -
18
17 Fidelity International 7.125% 251,358 1.58 0.23 0.27
2024
18 Northumbrian Water Finance plc 249,625 1.57 0.23 0.27
6.875% 2023
19 Investec Bank 9.625% 2022 249,414 1.57 0.23 0.26
20 Firstgroup plc 8.75% 2021 244,042 1.54 0.22 0.27
TOTAL 7,522,162 47.41 6.90
Directors' Biographies
for the year ended 31 December 2017
Directors
The Directors for the whole year ended 2017 were as follows:
Helen Green
Nigel Ward
David Warr
All three Directors of the Board are non-executive Directors and are considered
independent of the Investment Manager.
Both Helen Green and David Warr are chartered accountants and all three have
extensive non-executive director experience. Further details of the
qualifications and suitability of each of the Director's appointments are as
follows:
Helen Foster Green (Chair)
Helen joined the Company in January 2007 and has been Chairman of the Company
since 22 August 2012. She was re-elected as Chairman of the Company in August
2017. Helen is a Fellow of the Institute of Chartered Accountants in England
and Wales having qualified as a chartered accountant in 1988. She has been
employed by Saffery Champness, a top 20 firm of chartered accountants, since
1984. She qualified as a chartered accountant in 1987 and became a partner in
the London office in 1997. Since 2000 she has been based in the Guernsey office
where she is client liaison director responsible for trust and company
administration. Helen serves on the boards of both LSE listed companies and AIM
listed companies*. Helen is a resident of Guernsey.
John Nigel War
Nigel joined the Company in December 2011. Nigel has over 40 years experience
of international investment markets, credit and risk analysis, portfolio
management, corporate and retail banking, corporate governance, compliance and
the managed funds industry gained at Nat West, TSB Bank, Baring Asset
Management and Bank Sarasin. Nigel is a full-time non-executive director
serving on a number of company boards which have LSE or The International Stock
Exchange Listings*. He is a founding Commissioner of the Guernsey Police
Complaints Commission, an Associate of the Institute of Financial Services, a
member of the Institute of Directors and holder of the IoD Diploma in Company
Direction. Nigel is a resident of Guernsey.
David John Warr
David joined the Company in August 2012. David is a Fellow of the Institute of
Chartered Accountants in England and Wales having qualified as a chartered
accountant in 1976. In 1981 David was appointed a partner in Reads & Co. a
Guernsey based firm of chartered accountants, which he helped develop into a
more broadly based financial services business leading up to its sale at the
end of 1998. David's experience at Reads & Co. included audit, trust and
company administration. David now acts as a non-executive director on a number
of UK listed companies* whilst combining those responsibilities with charitable
work most noticeably as Vice-Chairman of the Guernsey Community Foundation LBG.
David is a resident of Guernsey.
*Details of the Directors' other directorships for public companies can be
found in the Director's Report.
Directors' Report
for the year ended 31 December 2017
The Directors have pleasure in presenting their business review, report and
financial statements of the Company for the year ended 31 December 2017.
Principal Activities and Business Review
The principal activity of the Company is to carry on business as an investment
company. The Directors do not envisage any change in these activities for the
foreseeable future. A description of the activities of the Company in the
period under review is given in the Chairman's Statement.
Business and Tax Status
The Company is a closed-ended investment company, incorporated with limited
liability in Guernsey on 5 January 1999, registered number 34778. The Company
operates under The Companies (Guernsey) Law, 2008, (the "Law"), the Protection
of Investors (Bailiwick of Guernsey) Law, 1987 as amended and the Authorised
Closed Ended Investment Scheme Rules 2008.
The Company's Ordinary Shares and ZDP Shares are traded on the LSE with the
Ordinary Shares having a premium listing and the ZDP Shares having a standard
listing, as defined by the LSE.
The Company's management and administration takes place in Guernsey and the
Company has been granted exemption from income tax within Guernsey by the
Administrator of Income Tax. It is the intention of the Directors to continue
to operate the Company so that each year this tax-exempt status is maintained.
In respect of the Criminal Finances Act 2017 which has introduced a new
corporate criminal offence ("CCO") of 'failing to take reasonable steps to
prevent the facilitation of tax evasion', the Board confirms that they are
committed to zero tolerance towards the criminal facilitation of tax evasion.
Alternative Investment Fund Managers Directive ("AIFMD")
The Company is an 'Alternative Investment Fund' ("AIF"), as defined by the
Alternative Investment Fund Managers Directive ("AIFMD") and is self-managed.
The Company was approved as an AIF and submitted an Article 42 Notification to
the FCA under the National Private Placement Regime on 3 August 2015.
The Directors have set a maximum gearing level for the purpose of AIFMD of 400%
for both the commitment exposure level and gross leverage level. As at 31
December 2017 the commitment exposure level was 47% and the gross leverage
level was 43%.
Regulatory disclosures, including the Company's Investor Disclosure Document,
are provided on the Company's website www.premierfunds.co.uk/investors/
investments/investment-trusts/acorn-income-fund.
Foreign Account Tax Compliance Act ("FATCA")
FATCA requires certain financial institutions outside the United States ("US")
to pass information about their US customers to the US tax authorities, the
Internal Revenue Service (the "IRS"). A 30% withholding tax is imposed on the
US source income and disposal of assets of any financial institution within the
scope of the legislation that fails to comply with this requirement.
The Board of the Company has taken all necessary steps to ensure that the
Company is FATCA compliant and confirms that the Company is registered and has
been issued a Global Intermediary Identification Number ("GIIN") by the IRS.
The Company will use its GIIN to identify that it is FATCA compliant to all
financial counterparties.
Common Reporting Standard
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and development ("OECD"), which has been adopted in
Guernsey and which came into effect in January 2016. The CRS has replaced the
inter-governmental agreement between the UK and Guernsey to improve
international tax compliance that had previously applied in respect of 2014 and
2015. However, it was still necessary to submit the 2014 and 2015 reports for
the UK IGA by 30 June 2016. The first report for CRS was made to the Director
of Income Tax by 30 June 2017.
The Company is subject to Guernsey regulations and guidance on the automatic
exchange of tax information and the Board will therefore take the necessary
actions to ensure that the Company is compliant in this regard.
Discontinuation Vote
At the Annual General Meeting held on 26 September 2016, shareholders were
given the opportunity in accordance with Article 53.1 of the Articles of
incorporation of the Company to vote for the discontinuance of the Company. The
special resolution was not carried and it was noted that the Company would
continue in its present form. The next discontinuation resolution will be
proposed at the Annual General Meeting in 2021.
Going Concern
In the opinion of the Directors the Company has adequate resources to continue
in operational existence for the foreseeable future. For this reason the
financial statements have been prepared on a going concern basis.
The Directors have arrived at this opinion by considering, inter alia, the
following factors:
- the Company has sufficient liquidity to meet all ongoing expenses. The
Company has net current assets of GBP4,704,594 at the year end. In January 2017
the ZDP Shares were refinanced and their life was extended to 28 February 2022.
In addition the Board regularly reviews the cash flow of the Company and is
confident that the Company will have sufficient resources to meet all future
obligations;
- both the Income and Smaller Companies Portfolios consist substantially of
listed investments which are readily realisable and therefore the Company has
sufficient resources to meet its liquidity requirements; and
- as at 31 December 2017, the Company had no borrowings other than the ZDP
Shares which, as explained in Note 13, have a final capital entitlement on 28
February 2022.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code,
published by the Financial Reporting Council in September 2014 (the "Code"),
the Directors have assessed the prospects of the Company over the three year
period to 31 December 2020. The Directors consider that three years is an
appropriate period to assess the viability of an investment company for the
purpose of giving assurance to Shareholders.
In determining the appropriate period of assessment the Directors had regard to
the general advice that equity investment should be made on a medium to longer
term view (perhaps 3 to 10 years) but also to evidence that the average holding
time for an equity investment is under 3 years. The Directors consider that 3
years is a sufficient investment time horizon to be relevant to shareholders
and that choosing a longer time period can present difficulties given the lack
of longer term economic visibility.
In its assessment of the viability of the Company, the Directors have
considered each of the Company's principal risks and uncertainties detailed in
the principal risks section below (and in Note 18) and, in particular, the
impact of a significant fall in regional equity markets on the value of the
Company's investment portfolio. The Directors have also considered the
Company's income and expenditure projections and the fact that the Company's
investments comprise readily realisable securities which can be expected to be
sold to meet funding requirements if necessary. The Directors also noted that
the next discontinuation resolution will be proposed at the annual general
meeting in 2021.
Based on the Company's processes for monitoring operating costs, share price
discount, the Manager's compliance with the investment objective, asset
allocation, the portfolio risk profile, gearing, counterparty exposure,
liquidity risk and financial controls, the Directors have concluded that there
is a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three year period
to 31 December 2020.
Gearing Policy
The Company's gearing policy is not to employ any gearing through long-term
bank borrowing. Save with the prior sanction of the ZDP Shareholders the
Company will not incur any indebtedness other than short term borrowings in the
normal course of business such as to settle share trades or borrowings to
finance the redemption of the ZDP Shares.
Results and Dividends
The results attributable to Ordinary Shareholders for the period are shown in
the Statement of Comprehensive Income. The Company made a revenue return for
the year of 20.36 pence (2016: 20.38 pence) per Ordinary Share and a capital
return of 77.09 pence (2016: 6.81 pence) per Ordinary Share.
Principal Risks
The Board has an on-going process in place for identifying, evaluating and
managing the significant risks faced by the Company. The responsibility for
carrying out the risk review is undertaken by the Risk Committee (details of
the Risk Committee is shown below in this report), which meets at least four
times per year. The results of the risk evaluations are then reported back to
the Board. The last risk assessment took place on 30 November 2017. Prior to
the establishment of the Risk Committee, the Audit Committee undertook the role
of reviewing the Company's risk and that process of review had been in place
since the Company's incorporation. The current process is in line with the
Association of Investment Companies ("AIC") Code of Corporate Governance (the
"AIC Code").
Company Risks
Risks of the Structure of the Company and gearing
The Company's business could be materially and adversely affected by a number
of risks. External factors to the Company may either adversely or favourably
affect the volatility and liquidity of the Smaller Companies Portfolio and
Income Portfolio (the "Portfolios"), as well as their values. These can be
caused by economic conditions, changes to tax laws, competition and a number of
other factors.
Investors holding either Ordinary Shares or ZDP Shares should have carefully
considered whether these investments, given the risks attached, are suitable
for them.
The market value of ZDP Shares will be affected by changes in general interest
rates, with upward movements in interest rates likely to lead to reductions in
the market value of ZDP Shares although not affecting the ultimate redemption
value.
Although the holders of ZDP Shares have a priority entitlement to the other
assets of the Company (after payment of its liabilities) on a winding-up, if
the gross assets of the Company fall to a level that is insufficient to redeem
the ZDP Shares in full, investors in the ZDP Shares would receive a lower
payment than the Fixed Capital Entitlement on the ZDP Shares repayment date.
In certain circumstances, such as a major fall in the capital value of the
Portfolios such that the Final Capital Entitlement of the ZDP Shares is
significantly uncovered but where the Company's Portfolios are still generating
revenue, the interests of ZDP Shareholders and the Ordinary Shareholders may
conflict. In such circumstances, the Directors may find it impossible to meet
fully, both sets of expectations and so will need to act in a manner which they
consider to be fair and equitable to both Ordinary Shareholders and ZDP
Shareholders but having regard to the entitlements of each class of shares.
Further risks to the ZDP Shares include the lower level of regulatory
protection than applies to premium listed shares.
The Ordinary Shares are geared by the ZDP Shares and should be regarded as
carrying above average risk since a positive Net Asset Value ("NAV") for the
Ordinary Shareholders will be dependent upon the Company's assets being
sufficient to meet those prior entitlements of the holders of ZDP Shares. As a
consequence of the gearing, a decline in the value of the Company's investment
portfolio will result in a greater percentage decline in the NAV of the
Ordinary Shares.
Ordinary Shareholders do not have a right for their shares to be redeemed and
those Ordinary Shareholders wishing to realise their investment will be
required to dispose of their shares on the stock market.
Market liquidity in the shares of companies such as the Company is less than
market liquidity in shares issued by larger companies traded on the LSE. There
can be no guarantee that a liquid market will exist for the Ordinary Shares or
the ZDP Shares which may prevent any holder of Ordinary Shares or ZDP Shares
from disposing of such shares at a price or at such time that they wish.
The Company's future performance depends on the success of its strategy, the
skill and judgements of the Investment Manager and of the Investment Advisers.
The departure of key personnel of either provider may have an adverse effect on
the performance of the Company.
The Company may use derivatives to hedge exposure to currency risk and interest
rate risk. No assurance can be given that any hedging strategies which may be
used by the Company will be successful under all or any market conditions and,
if unsuccessful, could have an adverse effect on the Company's financial
position.
Risk associated with investment in other investment companies
The Income Portfolio may contain higher yielding investment company shares
(including shares of split capital investment trusts). As a result of the
gearing in some investment company shares, any increase or decrease in the
value of the investments held by those investment companies might magnify
movements in their NAV and consequently affect the value of the Income
Portfolio. In accordance with the Listing Rules, where appropriate, the Company
makes Stock Exchange announcements detailing its holdings in other UK listed
investment companies which themselves do not have a stated investment policy to
invest no more than 15% of their gross assets in other UK listed investment
companies (including investment trusts).
Currency risk
The majority of the Company's assets and all of its liabilities are denominated
in sterling however some of the investments in the Income Portfolio may be
denominated in foreign currencies. Generally, these exposures are hedged back
to sterling and there is unlikely to be any significant direct currency risk.
Market price risk
Since the Company invests in financial instruments, market price risk is
inherent in these investments. In order to minimise this risk, a detailed
analysis of the risk/reward relationship of each investee company is undertaken
by the Investment Advisers prior to making investments.
Interest rate risk
The Company's investment portfolios, particularly the Income Portfolio, include
investments bearing interest at fixed rates. Generally when interest rates rise
the market prices of fixed interest securities fall and when interest rates
fall the prices of fixed interest securities rise. The Company will therefore
be exposed to movements in interest rates. The Company has fixed rate leverage
through its ZDP Shares. In January 2017, the redemption date of the Company's
ZDP shares was extended to 28 February 2022 at a rate of 3.85% per annum.
Replacing this leverage in 2022 might involve the Company paying a higher
accrual rate on an issue of new ZDP Shares if interest rates have risen.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in
meeting its obligations associated with its financial liabilities that are
settled by delivery of cash or another financial asset. Some of the Company's
investments in smaller company equities and in certain bond issues may have
relatively low levels of daily turnover such that it might take several days or
even weeks to sell a holding into the market.
Discount volatility
Being a closed-end fund, the Company's shares may trade at a discount or
premium to their NAV. The magnitude of this discount or premium fluctuates
daily and can vary significantly. Thus, for a given period of time, it is
possible that the market price could decrease despite an increase in the
Company's NAV.
The Directors review the discount levels regularly. The Investment Advisers
actively communicate with the Company's major shareholders and potential new
investors, with the aim of managing discount levels.
Brexit
The UK's vote to leave the EU has introduced new uncertainties and instability
into the financial markets. As the process of a major country leaving the EU
has no precedent, the Board and the Investment Manager expect an ongoing period
of market uncertainty as the implications are processed.
Company Performance
Key Performance Indicators and Analysis of Company's Performance
At each quarterly board meeting the Directors consider a number of performance
measures in order to assess the Company's success in achieving its objectives.
The key areas reviewed are as follows:
- Review of the history of the NAV.
- Receive an update on the market activity of the Ordinary Shares and the
ZDP Shares by Numis Securities Limited, the Company's corporate broker.
- Receive updates on the performance of both the Income Portfolio and the
Smaller Companies Portfolio from the Investment Advisers.
- Consideration of the revenue projection.
On-going Charges and Total Expense Ratio (the "TER")
The annual on-going charges figure for the year was 1.53% (2016: 1.65%). This
figure which has been prepared in accordance with the recommended methodology
provided by the Association of Investment Companies and represents the annual
percentage reduction in shareholder returns as a result of recurring
operational expenses. In 2017, a performance fee amounting to GBP559,967 (2016:
Nil) was accrued.
The TER of the Company is calculated as a percentage of costs against total
assets at the year end and is capped at 1.5%. For 2017 the TER was 1.04% (2016:
1.04%). The calculation of costs excludes performance fees, non-routine
administration and professional fees. The net management fee charged in 2017
was GBP729,457 (2016: GBP623,080).
Share Price Rating and Discount Management including information on treasury
shares
At the Annual General Meeting on 15 August 2017 the Directors obtained
shareholder approval to issue up to 3,183,337 Ordinary Shares and 4,273,044 ZDP
Shares, also obtaining the necessary pre-emption waiver from the ZDP
Shareholders in respect of any new issue of ZDP Shares.
The shareholders approved renewal of the Company's authority to buy back
Ordinary Shares and ZDP Shares up to 34.99% to facilitate its discount
management policy in respect of 14.99% of the issued shares, and facilitate
repurchases of newly issued shares into treasury for future sale to meet market
demand in respect of 20% of the issued shares. As at 15 August 2017 5,569,248
Ordinary Shares and 7,475,690 ZDP Shares were authorised to be purchased.
The Directors also obtained authority to sell from treasury Ordinary Shares at
a discount to the prevailing NAV per Ordinary Share, provided that the
authority conferred was limited to issues or sales of Ordinary Shares at the
same time as ZDP Shares are issued or sold from treasury at a premium, such
that, the combined effect of the issue or sale of Ordinary Shares and the issue
or sale of ZDP Shares at a premium is that; (i) the NAV per Ordinary Share is
thereby increased; and (ii) gearing is not thereby increased.
The Company intends to seek annual renewal of these authorities from
shareholders at each future general meeting to be held under section 199 of the
Law. In accordance with the Law, any share buy backs will be affected by the
purchase of a package of Ordinary Shares and ZDP Shares (in a specified ratio
as set out in the Company's Prospectus) in the market for cash at a package
price which in aggregate is at a discount to the prevailing NAVs of each class
of Share, where the Directors believe such a purchase will enhance shareholder
value. Shares which are purchased may be cancelled or held in treasury.
Investment Management and Administration
Management Agreement and Fees
The Board is responsible for the determination of the Company's investment
policy and has overall responsibility for the Company's day-to-day activities.
The Company has, however, entered into a Management Agreement with PAMG, a
wholly-owned, Guernsey incorporated subsidiary of Premier Asset Management
Group PLC.
The Manager has discretion to make minor changes to the portfolios and also has
discretion to move cash from the Smaller Companies Portfolio to the Income
Portfolio. The Manager will refer any proposals to the Board to materially
alter the split of assets between the Income Portfolio and the Smaller
Companies Portfolio. The Board determines when any potential investment limits
can be exceeded, dividend levels and the appropriate issue size for the ZDP
Shares and hence the level of gearing.
Under separate Investment Adviser Agreements, PAMG has delegated a number of
its duties and responsibilities to PFM and Unicorn. In relation to the Income
Portfolio and Smaller Companies Portfolio respectively, both PFM and Unicorn
act as Investment Advisers who are responsible for the identification and
analysis of investments meeting the investment objectives and strategy of the
Company. PFM and Unicorn are authorised and regulated by the FCA.
The Board keeps under review the performance of the Investment Manager and the
Investment Advisers. In the opinion of the Directors the continuing appointment
of the Investment Manager on the terms agreed is in the interest of
shareholders as a whole, due to the experience and proven track record of the
fund management team in the chosen markets. The Directors consider the
investment performance of the Company is satisfactory relative to the markets
in which the Company invests.
A list of the top 20 holdings for each portfolio is shown in the Schedule of
Principal Investments of this report and the top 10 holdings for each portfolio
is included in the monthly fund factsheet, available on the Company's website.
For the Company's full holdings information please refer to Unaudited Full List
of Investment Holdings Listing section.
Administration Agreement
The administration of the Company is undertaken by Northern Trust International
Fund Administration Services (Guernsey) Limited ("Northern Trust").
Custodian
The custodian of the Company is Northern Trust (Guernsey) Limited.
Segmental Reporting
The Company has two reportable segments, being the Income Portfolio and the
Smaller Companies Portfolio. Each of these portfolios is managed separately,
entail different investment objectives and contain investments in different
products. A more comprehensive disclosure can be found within Note 2 of the
Notes to the Financial Statements.
Corporate Governance
On 1 October 2013, the Company became a member of the AIC, and on 19 November
2013 the Company formally resolved to adopt and comply with the AIC Code.
The Financial Reporting Council has confirmed that an AIC member which reports
against the AIC Code and who follows the AIC Corporate Governance Guide for
Investment Companies (the "AIC Guide"), will be meeting their Listing Rule
obligations in relation to reporting against The UK Code of Corporate
Governance (the "UK Code").
Statement of Compliance with the UK Code
The Board of the Company has considered the principles and recommendations of
the AIC Code by reference to the AIC Guide. The AIC Code, as explained by the
AIC Guide, addresses all the principles set out in the UK Code, as well as
setting out additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Code), will provide better information to shareholders.
Due to the Ordinary Shares having a premium listing on the LSE, the Company
must comply with Listing Rule 9.8.6(5) which requires the Company to apply the
provisions of the UK Code to the extent that they are considered relevant to
the Company. By complying with the AIC Code the Company is meeting its
obligation under the UK Code and as such is not required to report further on
issues contained in the UK Code which are irrelevant to it. The Directors place
a high degree of importance on ensuring that high standards of corporate
governance are maintained within the Company.
The AIC Code is available for download from the AIC website: www.theaic.co.uk.
With effect from 1 January 2012, the Company was also required to comply with
the Guernsey Financial Services Commission Financial Sector Code of Corporate
Governance (the "Guernsey Code"). As the Company reports under the AIC Code it
is deemed to meet the Guernsey Code and the Board has undertaken to evaluate
its corporate governance compliance on an on-going basis.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Code throughout the year, except as set out
below.
The UK Code includes provisions relating to:
- the role of the chief executive;
- executive directors' remuneration; and
- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in the UK Code, the
Board considers these provisions are not relevant to the Company, being an
externally managed investment company. In particular, all of the Company's day
to day management and administrative functions are outsourced to third parties.
As a result, the Company has no executive directors, employees or internal
operations. The Company therefore has not reported further in respect of these
provisions.
Other areas of non-compliance with the AIC Code by the Company, and the reasons
therefore, are as follows:
The Company has not appointed a Senior Independent Director. This is not in
accordance with the recommendations in principle 1 of the AIC Code but is felt
to be appropriate for the size and nature of the Company.
The non-executive Directors of the Company do not meet without the Chairman
present to appraise the Chairman's performance. This is not in accordance with
principle 1 of the AIC Code. However, the Company has a Chairman's Performance
Evaluation Questionnaire which is completed by all Directors (other than the
Chairman) and analysed annually to facilitate the review of the Chairman's
performance.
The Company does not comply with principle 3 of the AIC code; as per the
Company's Articles of Incorporation, the Directors are not subject to
re-election by the Shareholders except in their first year of appointment, nor
are they appointed for specific terms as required by these provisions, as this
is not felt to be appropriate for the size and nature of the Company. However,
the Board has determined in order to facilitate good corporate governance
practice in line with principle 2 of the AIC Code, each director, subsequent to
2016, offers themselves for re-election every 3 years until their ninth year of
service. Any Director with over nine years service shall be eligible for
re-election every year thereafter. As a result of this principle the Directors
were elected as follows:
Helen Green was re-elected in 2017, and is next eligible for re-election in
2018.
David Warr was elected in 2013, and is next eligible for re- election in 2019.
Nigel Ward will next be eligible for re-election in 2018.
In accordance with principle 5 of the AIC Code the following details are of all
other public Company directorships and employment held by each director and
shared directorships of any commercial company held by two or more Directors:
Helen Green
- John Laing Infrastructure Fund Limited*
- City Natural Resources High Yield Trust Plc*
- Landore Resources Limited**
- Aberdeen Emerging Markets Investment Company Limited*
- UK Mortgages Limited#
David Warr
- Aberdeen Frontier Markets Investment Company Limited**
- Breedon Group Plc**
- Hadrian's Wall Secured Investments Limited*
Nigel Ward
- Crystal Amber Fund Limited**
- Fair Oaks Income Fund Limited#
- Hadrian's Wall Secured Investments Limited*
* Listed on the Main Market of the LSE
** Traded on the AIM of the LSE
# Traded on the Specialist Fund Segment of the LSE
The Company does not comply with principle 9 of the AIC Code as it does not
have a formal policy on diversity, however the Company has established a
Nomination Committee that adheres to formal terms of reference and which is
responsible for identifying any gaps on the Company's board that need to be
filled. When considering candidates the Board has due regard to the benefits of
diversity on the board and amongst other considerations this includes gender.
Conflicts of Interest
None of the Directors nor any persons connected with them had a material
interest in any of the Company's transactions, arrangements or agreements at
the date of this report and none of the Directors has or had any interest in
any transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was effected by the
Company during the reporting period.
David Warr holds 63,000 Ordinary Shares in the capital of the Company, which
represented an interest of 0.40% of the Company's Ordinary Shares in issue as
at 31 December 2017.
At the date of this report, there are no outstanding loans or guarantees
between the Company and any director.
Board Responsibilities
The Board comprises three non-executive Directors, who meet at least quarterly
to consider the affairs of the Company in a prescribed and structured manner.
All Directors are considered independent of the Investment Manager for the
purposes of the AIC Code and Listing Rule 15.2.12A. Biographies of the
Directors appear in the Directors' Biographies section above demonstrating the
wide range of skills and experience they bring to the Board.
As at the beginning of 2016 the Chairman had served on the Board for over nine
years. The Board has taken the view that independence is not necessarily
compromised by the length of tenure on the Board and experience can add
significantly to the Board's strength. It has therefore determined that in
performing her role as Director, the Chairman remains wholly independent.
The Directors, in the furtherance of their duties, may take independent
professional advice at the Company's expense, which is in accordance with
principle 13 of the AIC Code. The Directors also have access to the advice and
services of the Company Secretary through its appointed representatives who are
responsible to the Board for ensuring that the Board's procedures are followed
and that applicable rules and regulations are complied with. To enable the
Board to function effectively and allow the Directors to discharge their
responsibilities, full and timely access is given to all relevant information.
The Directors are requested to confirm their continuing professional
development is up to date and any necessary training is identified during the
annual performance reviews carried out and recorded by the Nomination
Committee.
Substantial Shareholdings
There were no substantial interests to be disclosed as at 24 April 2018 the
latest practicable date for disclosure in this report.
None of the Directors has a contract of service with the Company.
Shareholder Communication
In line with principle 19 of the AIC Code the Investment Advisers communicate
with both the Chairman and Shareholders and are available to communicate and
meet with major shareholders. The Company has also appointed Numis to liaise
with all major shareholders together with PFM and Unicorn, all of who report
back to the Board at quarterly board meetings ensuring that the Board is fully
aware of shareholder sentiment and expectation.
Director Attendance
During the year ended 31 December 2017 the number of Board meetings attended
were as follows:
Quarterly Ad hoc
Board Board Committee
meetings Meetings Meetings
Helen Green 4 of 4 4 of 4 10 of 10
Nigel Ward 4 of 4 3 of 4 10 of 10
David Warr 4 of 4 4 of 4 10 of 10
Committees
The Company has established four committees: the Audit Committee, the
Nomination Committee, the Remuneration and Management Engagement Committee and
the Risk Committee (together the "Committees"). Each Committee consists of the
whole Board. Due to the size of the Company the Board consider it would be
overly burdensome to establish separate committees that do not comprise all of
the non-executive directors of the Company. The Terms of Reference for each
committee is available on request to the Administrator.
The Audit Committee
A full report regarding the Audit Committee can be found in the Audit Committee
Report.
Nomination Committee
In accordance with the AIC Code, a Nomination Committee has been established.
David Warr has been appointed Chairman. The Nomination Committee meets at least
once a year in accordance with the terms of reference and reviews, inter alia,
the structure, size and composition of the Board. When the appointment of a
non-executive director is being considered the Nomination Committee will make
recommendations to the Board after evaluating candidates from a wide range of
backgrounds. Whilst considering the composition of the Board, the Nomination
Committee will be mindful of diversity, inclusiveness and meritocracy
and, in considering a new candidate, the Nomination Committee will apply
comparative analysis of candidates' qualifications and experience, applying
pre-established clear, neutrally formulated and unambiguous criteria to
determine the most suitable candidate sought for the specific position.
Other duties of the Nomination Committee are to give full consideration to
succession planning for Directors, to regularly review the leadership needs of
the non-executive Directors, ensure non-executive Directors receive a formal
letter of appointment and to review the results of the Board's performance
evaluation process.
Remuneration and Management Engagement ("RME") Committee
Nigel Ward has been appointed Chairman of the RME Committee. The RME Committee
meets at least once a year to determine and agree with the Board the framework
for the remuneration of the Company's Chairman, Directors and service
providers, taking into account remuneration trends and all other factors which
it deems necessary. The RME Committee also reviews contractual terms and
performance of all service providers to ensure their satisfactory conduct and
performance.
Details of the Directors' remuneration can be found in Note 6.
Risk Committee
The Risk Committee was established on 19 November 2014. Nigel Ward has been
appointed the Chairman of the Risk Committee which will meet at least four
times per year. The Risk Committee reviews the effectiveness of the Company's
internal controls and risk management systems and procedures on a quarterly
basis, actively seeking to identify, manage and monitor risks such as Market,
Credit, Liquidity, Counterparty, Operational and Leverage. In doing so the Risk
Committee reviews a quarterly report from the Investment Adviser and reviews
arrangements for monitoring investment risk. The Risk Committee also ensures
that the risk profile of the Company's portfolios are appropriate to the size;
structure and investment strategies applied and reports its findings and
recommendations to the Board quarterly.
Internal Control and Financial Reporting
The Board is responsible for establishing and maintaining the Company's systems
of internal control ensuring that they are designed to meet the particular
needs of the Company and the risks to which it is exposed, and by their very
nature provide reasonable, but not absolute, assurance against material
misstatement or loss. The key procedures which have been established to provide
effective internal control are as follows:
Investment advice is provided by PFM and Unicorn under
Investment Adviser Agreements. The Board is responsible for setting the overall
investment policy and monitors the actions of the Investment Advisers at
regular board meetings. Both PFM and Unicorn provide the Board with updates at
each quarterly board meeting and at any other time that the Board requests.
The administration and company secretarial duties of the Company are performed
by Northern Trust International Fund Administration Services (Guernsey) Ltd.
Registrar duties are performed by Anson Registrars Limited.
The Custody of assets, is undertaken by Northern Trust (Guernsey) Limited.
The duties of investment management, accounting and the custody of assets are
segregated. The procedures of the individual parties are designed to complement
one another.
The Directors of the Company clearly define the duties and responsibilities of
their agents and advisers. The appointment of agents and advisers is conducted
by the Board after consideration of the quality of the parties involved; the
Board monitors their on-going performance and contractual arrangements. A
detailed annual review of the main service providers is undertaken by the RME
Committee and their findings are reported to the Board.
Mandates for authorisation of investment transactions and expense payments are
set out by the Board.
The Board reviews detailed financial information produced by the Investment
Advisers and the Administrator on a regular basis.
The Board is provided, on a quarterly basis, with a Compliance Report produced
by a specialist Compliance and Legal department at PAM. The monitoring
programme ensures that all activities of PFM, for the year under review, have
been in accordance with both internal procedures and with FCA principles for
firms and individuals. The Compliance team also makes regular external visits
to both Unicorn and the Administrator, the latest visit being to Unicorn on 6
April 2017. A visit to Northern Trust took place in April 2016. The Secretary
provides a report at each quarterly Board meeting which highlights any areas of
non-compliance with any applicable regulations and laws. The Board has access,
at all times, to all relevant compliance personnel.
The Company does not have an internal audit department. All the Company's
management and administration functions are delegated to independent third
parties and it is therefore felt there is no need for the Company to have an
internal audit facility.
No significant findings were found during the internal controls review.
Packaged Retail and Insurance-based Investment Products ("PRIIPs")
As a listed closed-ended fund, the Company falls under the definition of a
retail investment product for PRIIPs Regulation issued by the FCA which came
into effect 1 January 2018. As such, the Company is required to
produce KIDs which are available on the Company's website
www.premierfunds.co.uk/investors/investments/investment trusts/
acorn-income-fund.
Relations with Shareholders
All holders of Ordinary Shares in the Company have the right to receive notice
of, and attend and vote at the general meetings of the Company. The holders of
ZDP Shares have the right to receive notice of all general meetings but only
have the right to attend and vote if the business of the meeting proposes a
resolution which will vary, modify or abrogate any of the special rights
attached to the ZDP Shares.
At each general meeting of the Company the Board and the Investment Advisers
are available to discuss issues affecting the Company. This is in accordance
with principle 19 of the AIC Code. Only Ordinary Shares carry full voting
rights, holders of ZDP Shares are only entitled to vote on issues affecting
their share class. The primary responsibility for shareholder relations lies
with PFM. However, the Directors are always available to enter into dialogue
with shareholders and the Chairman is always willing to meet major shareholders
as the Company believes such communication to be important.
Anti-Bribery and Corruption Policy
The Company has adopted a zero tolerance policy towards bribery and is
committed to carrying out business fairly, honestly and openly.
Voting and Stewardship code
The Investment Manager is committed to the principles of the Financial
Reporting Council's UK Stewardship Code (the 'Code') and this also constitutes
the disclosure of that commitment required under the rules of the FCA (Conduct
of Business Rule 2.2.3).
Signed on behalf of the Board by:
Helen Green
Chairman
24 April 2018
Statement of Directors' Responsibility in Respect of the Annual Financial
Report
for the year ended 31 December 2017
The Directors are responsible for preparing the Annual Financial Report and
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with International Financial Reporting Standards as
issued by the IASB and applicable law.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In preparing
these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable, relevant and reliable;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
- assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and 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.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors confirm that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Directors' Report
confirm that, so far as they are aware, there is no relevant audit information
of which the Company's Auditor is unaware; and that each Director has taken all
the steps that he ought to have taken as a director to make himself aware of
any relevant audit information and to establish that the Company's Auditor is
aware of that information.
Responsibility statement of the Directors in respect of the annual financial
report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
- the Management Report (comprising the Chairman's Statement, the Investment
Advisers' Report, Directors' Report and Audit Committee Report) includes a fair
review of the development and performance of the business and the position of
the issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the annual financial report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
Reappointment of auditor
The Auditor, KPMG Channel Islands Limited, has expressed its willingness to
continue in office as Auditor. A resolution proposing their reappointment will
be submitted at the forthcoming general meeting to be held pursuant to section
199 of the Law.
Helen Green
Chairman
24 April 2018
Audit Committee Report
for the year ended 31 December 2017
In accordance with the AIC Code an Audit Committee has been established
consisting of David Warr, Helen Green, and Nigel Ward. David Warr is the
Chairman of the Audit Committee.
The Audit Committee meets at least twice a year and, when requested, provides
advice to the Board on whether the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides information necessary
for the shareholders to assess the Company's performance, business model and
strategy. The Audit Committee also reviews, inter alia, the financial reporting
process and the system of internal control and management of financial risks
including understanding the current areas of greatest financial risk and how
these are managed by the Investment Manager, reviewing the annual report and
accounts, assessing the fairness of preliminary and interim statements and
disclosures and reviewing the external audit process. The Audit Committee is
responsible for overseeing the Company's relationship with the external auditor
(the 'Auditor'), including making recommendations to the Board on the
appointment of the Auditor and their remuneration.
The Audit Committee considers the nature, scope and results of the Auditor's
work and reviews, and develops and implements a policy on the supply of any
non-audit services that are to be provided by the Auditor. The Audit Committee
annually reviews the independence and objectivity of the Auditor and also
considers the appointment of an appropriate Auditor.
At the Audit Committee meeting on 30 November 2017 the appointment of the
Auditor was considered and the Board subsequently decided that the Auditor was
sufficiently independent and was appropriately appointed in order to carry out
the audit for the year ended 31 December 2017. During the year under review,
the Auditor was not engaged to provide any non-audit services to the Company.
The valuation of the Company's investments, given that they represent the
majority of net assets of the Company is considered to be a significant area of
focus. In discharging its responsibilities the Audit Committee has specifically
considered the valuation of investments as follows:
- The Board reviews the portfolio valuations on a regular basis throughout
the year and meets with the Investment Advisers at least quarterly. It also
seeks assurance that the pricing basis is appropriate and in line with relevant
accounting standards as adopted by the Company and that the carrying values are
correct.
- The Company's net asset value is calculated twice weekly using a third
party pricing source.
- The Audit Committee receives and reviews reports from the Investment
Advisers and the Auditor relating to the Company's annual financial report. The
Audit Committee focuses particularly on compliance with legal requirements,
accounting standards and the Listing Rules and ensures that an effective system
of internal financial and non-financial controls is maintained. The ultimate
responsibility for reviewing and approving the annual financial report remains
with the Board.
- The Audit Committee holds an annual meeting to approve the Company's
annual financial report before its publication. At a meeting held on 30
November 2017 the Audit Committee met with the Auditor to discuss the audit
plan and approach. During this meeting it was agreed with the Auditor that the
area of significant audit focus related to the valuation of investments given
that they represent the majority of net assets of the Company. The scope of the
audit work in relation to this asset class was discussed. At the conclusion of
the audit, the Audit Committee met with the Auditor and discussed the scope of
their annual audit work and also their audit findings.
- The Audit Committee reviews the scope and results of the audit, its cost
effectiveness together with the independence and objectivity of the Auditor.
The Audit Committee has particular regard to any non-audit work that the
Auditor may undertake and the terms under which the Auditor may be appointed to
perform non-audit services. In order to safeguard the Auditor's independence
and objectivity, the Audit Committee ensures that any other advisory and/or
consulting services provided by the Auditor does not conflict with their
statutory audit responsibilities.
To fulfil its responsibilities regarding the independence of the Auditor, the
Audit Committee considered:
- a report from the Auditor describing their arrangements to identify,
report and manage any conflicts of interest; and
the extent of the non-audit services provided by the Auditor.
To assess the effectiveness of the Auditor, the committee reviewed:
- the Auditor's fulfilment of the agreed audit plan and variations from it;
- the audit findings report highlighting any major issues that arose during
the course of the audit; and
- the effectiveness and independence of the Auditor having considered the
degree of diligence and professional scepticism demonstrated by them.
The Audit Committee is satisfied with KPMG Channel Islands Limited's ("KPMG")
effectiveness and independence as Auditor.
As KPMG has been previously engaged to provide the annual audit the Board was
able to rely on both; their previous experiences with KPMG and their conduct
during the current year audit.
Audit Tender
During the year the Audit Committee initiated and completed the process of
tendering the external audit of the Company for the financial year ending
December 2018. The Audit Committee issued a request for a proposal to four
firms in September 2017 following a review by the Audit Committee to determine
which firms to invite to tender.
The members of the Audit Committee met in November 2017 with two of the four
firms who were invited to tender following a review of the initial responses.
Following a review of the two tender presentations, the Audit Committee members
unanimously agreed to recommend the continuing appointment of KPMG as auditors,
deeming this course of action to be in the best interests of shareholders, by
virtue of the strength of the KPMG audit team in terms of their depth, spread
of knowledge of the sector and that they remain fully independent of the board.
The terms of reference of the Audit Committee are available from the
Administrator on request.
During the year the Audit Committee met three times and of those meetings all
Audit Committee members were in attendance.
David Warr
Chairman of the Audit Committee
24 April 2018
Independent Auditor's Report To The Members of Acorn Income Fund Limited
Our opinion is unmodified
We have audited the financial statements of Acorn Income Fund Limited (the
"Company"), which comprise the statement of financial position as at 31
December 2017, the statements of comprehensive income, cash flows and changes
in equity for the year then ended, and notes, comprising significant accounting
policies and other explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the Company as at
31 December 2017, and of the Company's financial performance and the Company's
cash flows for the year then ended;
- are prepared in accordance with International Financial Reporting
Standards (IFRS); and
- comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities are described below.
We have fulfilled our ethical responsibilities under, and are independent of
the Company in accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit evidence we
have obtained is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters. In
arriving at our audit opinion above, the key audit matter was as follows
(unchanged from 2016):
The risk Our response
Valuation of Basis: Our audit procedures
investments As at 31 December 2017 the included, but were not
(Financial assets Company had invested 133.4% limited to:
designated as at of its net assets in listed - Use of KPMG valuation
fair value through equities and bonds and specialist to independently
profit or loss) structured notes (together, price listed investments to a
the "investments") third party pricing source
GBP103,298,819; - For structured notes our
(2016 GBP87,172,262) The Company's listed valuation specialist assisted
investments are valued us with the assessment of the
Refer to the Audit based on market prices quality and integrity of the
Committee Report, while its structured notes price quotes, through
notes 1 and 10 are valued based on price comparison to available
quotes obtained from a quotes from independent
third party pricing sources or through applying a
provider valuation model based on
contractual terms and market
data
Risk:
The valuation of the Assessing disclosures:
Company's investments, We also considered the
given that it represents Company's disclosures (see
the majority of the note 1(b)) in relation to the
Company's net assets is use of judgements regarding
considered to be a valuation of investments and
significant area of our the Company's valuation
audit. policies adopted and fair
value disclosures in note 10
for compliance with IFRS
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at GBP2,323,000,
determined with reference to a benchmark of net assets of GBP77,458,203, of which
it represents approximately 3% (2016: approximately 3%).
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding GBP116,000, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
We have nothing to report on going concern
We are required to report to you if we have anything material to add or draw
attention to in relation to the directors' statement in note 1(a) to the
financial statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the Company's
use of that basis for a period of at least twelve months from the date of
approval of the financial statements. We have nothing to report in this
respect.
We have nothing to report on the other information in the annual report
The directors are responsible for the other information presented in the annual
report together with the financial statements. Our opinion on the financial
statements does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we
have nothing material to add or draw attention to in relation to:
- the directors' confirmation within viability statement that they have
carried out a robust assessment of the principal risks facing the Company,
including those that would threaten its business model, future performance,
solvency or liquidity;
- the Principal Risks disclosures describing these risks and explaining how
they are being managed or mitigated; and
- the directors' explanation in the viability statement as to how they have
assessed the prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
- we have identified material inconsistencies between the knowledge we
acquired during our financial statements audit and the directors' statement
that they consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy; or
- the section of the annual report describing the work of the Audit
Committee does not appropriately address matters communicated by us to the
Audit Committee.
We are required to report to you if the Corporate Governance Statement does not
properly disclose a departure from the eleven provisions of the 2016 UK
Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
- the Company has not kept proper accounting records; or
- the financial statements are not in agreement with the accounting
records; or
- we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out in Statement of Directors'
Responsibility in Respect of the Annual Financial Report, the directors are
responsible for: the preparation of the financial statements including being
satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; assessing
the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern basis
of accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
the financial statements.
A fuller description of our responsibilities is provided
on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
We are required to report to you if we have anything material to add or draw
attention to in relation to the directors' statement in note 1(a) to the
financial statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the Company's
use of that basis for a period of at least twelve months from the date of
approval of the financial statements. We have nothing to report in this
respect.
The purpose of this report and restrictions on its use by persons other than
the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008 and, in respect of any
further matters on which we have agreed to report, on terms we have agreed with
the Company. Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company
and the Company's members, as a body, for our audit work, for this report, or
for the opinions we have formed.
Barry T. Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors, Guernsey
24 April 2018
Statement of Comprehensive Income
for the year ended 31 December 2017
Year ended Year ended
31 Dec 2017 31 Dec 2016
Revenue Capital Total Total
Notes GBP GBP GBP GBP
Net gains on financial assets
designated as at
fair value through profit or loss 10 - 14,859,164 14,859,164 3,901,649
Gains/(losses) on derivative financial 4 - 27,491 27,491 (465,564)
instruments
Investment income 3 3,848,631 - 3,848,631 3,869,675
Total income and gains 3,848,631 14,886,655 18,735,286 7,305,760
Expenses 5 (608,585) (1,279,141) (1,887,726) (1,050,323)
Return on ordinary activities before
finance costs
and taxation 3,240,046 13,607,514 16,847,560 6,255,437
Interest payable and similar charges 7 - (1,337,797) (1,337,797) (1,929,208)
Return on ordinary activities before 3,240,046 12,269,717 15,509,763 4,326,229
taxation
Taxation on ordinary activities - - - -
Other comprehensive income - - - -
Total comprehensive income for the
year
attributable to ordinary shareholders 3,240,046 12,269,717 15,509,763 4,326,229
Pence Pence Pence Pence
Return per Ordinary Share 9 20.36 77.09 97.45 27.19
Dividend per Ordinary Share 8 18.00 - 18.00 15.50
Return per ZDP Share 9 - 6.28 6.28 9.03
The supplementary revenue return and capital return columns have been prepared
in accordance with the Statement of Recommended Practice ("SORP") issued by the
Association of Investment Companies ("AIC").
In arriving at the results for the financial year, all amounts above relate to
continuing operations.
No operations were acquired or discontinued in the year.
The notes form an integral part of these financial statements.
Statement of Financial Position
as at 31 December 2017
31 Dec 2017 31 Dec
2016
GBP GBP
NON-CURRENT ASSETS
Financial assets designated as at fair value 10 103,298,819 87,172,262
through profit or loss
CURRENT ASSETS
Receivables 11 534,936 2,242,217
Cash and cash equivalents 4,976,255 5,071,818
Derivative financial instruments 29,577 91,470
5,540,768 7,405,505
TOTAL ASSETS 108,839,587 94,577,767
CURRENT LIABILITIES
Derivative financial instruments 972 -
Payables - due within one year 12 835,202 469,872
ZDP Shares 13 - 29,319,945
836,174 29,789,817
NON-CURRENT LIABILITIES
ZDP Shares 13 30,545,210 -
TOTAL LIABILITIES 31,381,384 29,789,817
NET ASSETS 77,458,203 64,787,950
EQUITY
Share capital and premium 14 & 18 27,633,383 27,607,889
Revenue reserve 18 2,886,872 2,511,830
Capital reserve 18 41,506,186 29,236,469
Other reserves 15 & 18 5,431,762 5,431,762
TOTAL EQUITY 77,458,203 64,787,950
Pence Pence
Net asset value per Ordinary Share (per Articles) 486.84 407.23
Net asset value per Ordinary Share (per IFRS) 486.65 407.20
Net asset value per ZDP Share (per Articles) 142.83 137.26
Net asset value per ZDP Share (per IFRS) 142.97 137.28
The financial statements were approved by the Board of Directors and authorised
for issue on 24 April 2018 and signed on its behalf by:
Helen Green
Chairman
The notes form an integral part of these financial statements.
Statement of Cash Flows
for the year ended 31 December 2017
31 Dec 2017 31 Dec 2016
Notes GBP GBP
Operating activities
Return on ordinary activities before taxation 15,509,763 4,326,229
Net gains on financial assets designated as at fair 10 (14,859,164) (3,901,649)
value through profit or loss
Investment income 3 (3,848,631) (3,869,675)
Interest expense 7 1,337,797 1,929,208
Decrease/(increase) in derivative financial assets 61,893 (82,724)
Increase/(decrease) in derivative financial 972 (141,151)
liabilities
Increase in payables and appropriations excluding 12 575,330 19,984
amount due to brokers
Decrease/(increase) in receivables excluding accrued
investment income and due from brokers 11 9,584 (9,400)
Net cash flow used in operating activities before (1,212,456) (1,729,178)
investment income
Investment income received 3,709,750 4,090,590
Net cash flow from operating activities before 2,497,294 2,361,412
taxation
Tax paid - -
Net cash flow from operating activities 2,497,294 2,361,412
Investing activities
Purchase of financial assets designated at fair value 10 (31,758,253) (22,830,886)
through profit or loss
Sale of financial assets designated at fair value 32,327,436 24,358,328
through profit or loss
Net cash flow from investing activities 569,183 1,527,442
Financing activities
Equity dividends paid 8 (2,865,004) (2,466,157)
Treasury shares sold 15 - 496,114
Issue of Ordinary Shares 14 25,494 -
ZDP shares redeemed 13 (2,531,141) -
ZDP Shares issued 13 2,579,090 -
ZDP shares sold out of treasury 13 - 221,063
Cost of issue of ZDP Shares 7 (370,479) (1,105)
Net cash flow used in financing activities (3,162,040) (1,750,085)
(Decrease)/increase in cash and cash equivalents (95,563) 2,138,769
Cash and cash equivalents at beginning of year 5,071,818 2,933,049
Cash and cash equivalents at end of year 4,976,255 5,071,818
The notes form an integral part of these financial statements.
Statement of Changes in Equity
As at 31 December 2017
Share Revenue Capital Other Reserves Total
Capital and Reserve Reserve
Premium
31 Dec 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017
2017
GBP GBP GBP GBP GBP
Balances as at 1 January 2017 27,607,889 2,511,830 29,236,469 5,431,762 64,787,950
Total comprehensive income
for the year attributable to - 3,240,046 12,269,717 - 15,509,763
ordinary shareholders
Dividends - (2,865,004) - - (2,865,004)
Issue of Ordinary Shares 25,494 - - - 25,494
Balances as at 31 December 27,633,383 2,886,872 41,506,186 5,431,762 77,458,203
2017
As at 31 December 2016
Share Revenue Capital Other Reserves Total
Capital and Reserve Reserve
Premium
31 Dec 31 Dec 31 Dec 31 Dec 2016 31 Dec 2016
2016 2016 2016
GBP GBP GBP GBP GBP
Balances as at 1 January 2016 27,607,889 1,735,911 28,152,316 4,935,648 62,431,764
Total comprehensive income - 3,242,076 1,084,153 - 4,326,229
for the year attributable to
ordinary shareholders
Dividends - (2,466,157) - - (2,466,157)
Treasury shares sold - - - 496,114 496,114
Balances as at 31 December 27,607,889 2,511,830 29,236,469 5,431,762 64,787,950
2016
The notes form an integral part of these financial statements.
Notes to the Financial Statements
for the year ended 31 December 2017
1 ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements, which give a true and fair view, have been prepared
in accordance with International Financial Reporting Standards ("IFRS") issued
by the International Accounting Standards Board ("IASB"), the Association of
Investment Companies ("AIC") Statements of Recommended Practice ("SORP") (as
revised in November 2014) where this is consistent with the requirements of
IFRS and in compliance with the Companies (Guernsey) Law, 2008. All accounting
policies adopted for the period are consistent with IFRS issued by the IASB.
The financial statements have been prepared on an historical cost basis except
for the measurement at fair value of financial assets designated as at fair
value through profit or loss and derivative financial instruments.
The accounts have been prepared on a going concern basis. The disclosure on
going concern in the Report of the Directors forms part of the financial
statements.
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, which have not been applied in these Financial
Statements, were in issue but not yet effective:
- IFRS 9 Financial Instruments (Effective 1 January 2018)
IFRS 9 'Financial Instruments' amends IAS 39. IFRS 9 specifies how an entity
should classify and measure financial assets, including some hybrid contracts.
The standard requires all financial assets to be classified on the basis of the
entity's business model for managing the financial assets and the contractual
cash flow characteristics of the financial asset. These requirements improve
and simplify the approach for classification and measurement of financial
assets compared with the requirements of IAS 39. The standard applies a
consistent approach to classifying financial assets and replaces the numerous
categories of financial assets in IAS 39, each of which had its own
classification criteria.
The requirements for financial liabilities are mostly carried forward unchanged
from IAS39. However, some changes were made to the fair value option for
financial liabilities to address the issue of own credit risk.
The standard also results in one impairment method, replacing the numerous
impairment methods in IAS 39 that arise from the different classification.
General approach
With the exception of purchased or originated credit impaired financial assets,
expected credit losses ("ECL") are required to be measured through a loss
allowance at an amount equal to:
- the 12-month ECL (ECL that result from those default events on the financial
instrument that are possible within 12 months after the reporting date); or
- full lifetime ECL (ECL that result from all possible default events over the
life of the financial instrument).
It is anticipated that the application of IFRS 9 will not change the
measurement and presentation of the Company's financial instruments.
No new accounting standards were effected or adopted during the year having an
effect on the financial statements.
(b) Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS requires
the Directors to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The Directors use judgements in allocating expenses between Revenue and Capital
and in ascertaining the risk disclosures contained in Note 18. The Directors
use judgements in valuing the market value of the investments contained in Note
10.
No significant estimates have been used.
(c) Dividend Policy
The Company aims to pay a regular quarterly dividend in March, June, September
and December. It is intended to distribute substantially all of the Company's
net income after expenses and taxation; however the Company may retain a
proportion of the Company's income in each year as a revenue reserve to assist
in providing long term stability in dividend distributions.
(d) Share Capital
Ordinary shares are classified as equity. Share capital includes the nominal
value of ordinary shares that have been issued and any premiums received on the
initial issuance of shares. Incremental costs directly attributable to the
issue of new ordinary shares or options are shown in equity as a deduction, net
of tax, from the proceeds.
When shares recognised as equity are repurchased, the amount of the
consideration paid, which includes directly attributable costs, is recognised
as a deduction from equity. Repurchased shares are classified as treasury
shares and are presented in the treasury reserve included in other reserves in
the Statement of Financial Position. When treasury shares are sold or reissued
subsequently, the amount received is recognised as an increase in equity and
the resulting surplus or deficit on the transaction is presented within share
premium.
(e) Zero Dividend Preference Shares
Under IAS 32, the ZDP Shares are classified as financial liabilities and are
held at amortised cost. Appropriation for the period in respect of ZDP Shares
is included in the Statement of Comprehensive Income as a finance cost and is
calculated using the effective interest rate method ("EIR"). The costs of issue
of the ZDP shares are being amortised over the period until the ZDP shares will
be redeemed.
(f) Taxation
The Company has been granted exemption under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989 from Guernsey Income Tax, and has elected to remain
exempt following changes to in the Guernsey tax regime. The Company paid an
annual fee of GBP1,200 (2016: GBP1,200).
(g) Capital Reserve
The following are accounted for in this reserve:
- gains and losses on the realisation of investments;
- expenses charged to this account in accordance with the expenses policy
below;
- increases and decreases in the valuation of the investments held at the
year-end; and
- unrealised exchange differences of a capital nature.
(h) Expenses
All expenses are accounted for on an accruals basis and are recognised in
profit or loss. Expenses are charged to the capital reserve where a connection
with the maintenance or enhancement of the value of the investments can be
demonstrated.
75% of the Company's management fee and 100% financing costs are charged to the
capital reserve in line with the Board's expected long-term split of returns
between income and capital gains from the investment portfolio.
100% of any performance fee, commissions paid and the appropriation in respect
of ZDP Shares is charged to the capital reserve.
All other expenses are charged through the revenue reserve.
(i) Investment income
Interest income and distributions receivable are accounted for on an accruals
basis. Interest income relates only to interest on bank balances. Bond income
is accounted for using the EIR basis. Dividends are recognised on the
ex-dividend date. Investment income is treated as a revenue item, except for
special dividends of a capital nature which are treated as a capital item, in
the Statement of Comprehensive Income.
(j) Foreign currency translation
The currency of the primary economic environment in which the Company operates
(the functional currency) is Great British Pounds ("GBP") which is also the
presentational currency.
Transactions denominated in foreign currencies are translated into GBP at the
rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities, other than investments, denominated in foreign
currencies at the reporting date are translated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in profit or loss in the Statement of
Comprehensive Income. Foreign exchange differences relating to investments are
taken to the capital reserve. Realised and unrealised foreign exchange
differences on non-capital assets or liabilities are taken to profit or loss in
the Statement of Comprehensive Income in the period in which they arise.
(k) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short term, highly liquid investments readily convertible to known amounts of
cash and subject to an insignificant risk of change in value. For the purposes
of the Statement of Cash Flows, cash and cash equivalents consist of cash,
deposits at bank and money market deposits with a maturity of less than 3
months.
(l) Investments
All investments have been designated as financial assets at "fair value through
profit or loss". Investments are initially recognised on the date of purchase
at fair value, with transaction costs recognised in profit or loss in the
Statement of Comprehensive Income. Unrealised gains and losses on movement in
fair value of investments are recognised in profit or loss in the Statement of
Comprehensive Income. Investments are derecognised on the date of sale. Gains
and losses on the sale of investments, which is the difference between its
initial cost and sale value, will be taken to the profit or loss in the
Statement of Comprehensive Income in the period in which they arise. For
investments actively traded in organised financial markets, fair value is
determined by reference to Stock Exchange quoted market bid prices as at the
close of business on the reporting date.
For investments not actively traded, the Directors will consider where
practical, multiples used in recent transactions in comparable stocks. Where
there are no comparable listed or unlisted stocks the Directors will take into
consideration the performance of the stock, maturity date and finance
arrangements to determine the fair value.
(m) Derivatives
Derivatives consist of forward exchange contracts which are initially measured
at fair value and any directly attributable transaction costs are recognised in
profit or loss in the Statement of Comprehensive Income as incurred. Subsequent
to initial recognition, derivatives are measured at fair value, and changes
therein are generally recognised in profit or loss in the Statement of
Comprehensive Income. Derivatives contracts in a receivable position (positive
fair value) are reported as financial assets at fair value through profit or
loss. Derivatives contracts in a payable position (negative fair value) are
reported as financial liabilities at fair value through profit or loss.
(n) Trade date accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date", i.e. the date that the entity commits to purchase or sell the
asset. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of the asset within the timeframe generally
established by regulation or convention in the market place.
(o) Segmental reporting
The Company retains two Investment Advisers, Unicorn Asset Management Limited
and Premier Fund Managers Limited for the Smaller Companies Portfolio and
Income Portfolio respectively. As the Board reviews the performance of each
portfolio separately and decides on the allocation of resources based on this
performance, the Board, as chief operating decision maker, has determined that
the Company has two reportable segments (2016: two).
The Board is charged with setting the Company's investment strategy in
accordance with the Prospectus. They have delegated the day to day
implementation of this strategy to its Investment Advisers but retain
responsibility to ensure that adequate resources of the Company are directed in
accordance with their decisions. The investment decisions of the Investment
Advisers are reviewed on a regular basis to ensure compliance with the policies
and legal responsibilities of the Board. The Investment Advisers have been
given full authority to act on behalf of the Company, including the authority
to purchase and sell securities and other investments on behalf of the Company
and to carry out other actions as appropriate to give effect thereto. Whilst
the Investment Advisers may make the investment decisions on a day to day basis
regarding the allocation of funds to different investments, any changes to the
investment strategy or major allocation decisions have to be approved by the
Board, even though they may be proposed by the Investment Advisers. The Board,
therefore, retains full responsibility as to the major allocation decisions
made on an ongoing basis. The Investment Advisers will always act under the
terms of the Prospectus.
The key measure of performance used by the Board to assess the Company's
performance and to allocate resources is the total return on the Company's net
asset value ("NAV"), as calculated under IFRS, and therefore no reconciliation
is required between the measure of profit or loss used by the Board and that
contained in the financial statements.
The schedule of principal investments held as at the year-end are presented in
the Schedule of Principal Investments section.
(p) Offsetting
Financial assets and liabilities are offset and the net amount is reported in
the Statement of Financial Position when there is currently a legally and
contractually enforceable right to offset the recognised amounts and there is
an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously. A current legally and contractually enforceable right
to offset must not be contingent on a future event. Furthermore, it must be
legally and contractually enforceable in (i) the normal course of business;
(ii) the event of default; and (iii) the event of insolvency or bankruptcy of
the Company and all of the counterparties.
2 OPERATING SEGMENTS
The Company has two reportable segments, being the Income Portfolio and the
Smaller Companies Portfolio. Each of these portfolios is managed separately as
they entail different investment objectives and strategies and contain
investments in different products.
For each of the portfolios, the Board reviews investment management reports on
a quarterly basis. The objectives and principal investment products of the
respective reportable segments are as follows:
Segment Investment objectives and principal investments products
Income Portfolio To maximise income through investments in sterling
denominated fixed interest securities including corporate
bonds, preference and permanent interest bearing shares,
convertibles, reverse convertibles, debentures and other
similar securities.
Smaller Companies To maximise income and capital growth through investments in
Portfolio smaller capitalised UK companies.
Information regarding the results of each reportable segment follows.
Performance is measured based on the increase in value of each portfolio, as
included in the investment management reports that are reviewed by the Board.
Segmental information is measured on the same basis as those used in the
preparation of the Company's financial statements.
Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2017
External revenues:
Net gains on financial assets designated as
at fair value
through profit or 778,843 14,080,321 - 14,859,164
loss
Gains on derivative financial instruments 27,491 - - 27,491
Bank interest - - 2,019 2,019
Dividend income 129,263 3,296,888 - 3,426,151
Bond income 420,461 - - 420,461
Total income and 1,356,058 17,377,209 2,019 18,735,286
gains
Expenses (1,887,726) (1,887,726)
- -
Interest payable and similar (1,337,797) (1,337,797)
charges - -
Total comprehensive income for the period
attributable
to shareholders 1,356,058 17,377,209 (3,223,504) 15,509,763
Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2017
Financial assets designated as at fair value
through
profit or loss 15,862,279 87,436,540 - 103,298,819
Receivables 277,100 257,836 534,936
-
Derivative financial 29,577 - 29,577
instruments -
Cash and cash equivalents 2,058,116 2,918,139 - 4,976,255
Total assets 18,227,072 90,612,515 - 108,839,587
Derivative financial 972 - - 972
instruments
Payables - - 835,202 835,202
Total current 972 - 835,202 836,174
liabilities
Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2016
External revenues:
Net gains on financial assets designated as
at fair value
through profit or 954,587 2,947,062 - 3,901,649
loss
Losses on derivative financial instruments (465,564) - - (465,564)
Bank interest - - 2,365 2,365
Dividend income 146,359 3,071,816 - 3,218,175
Bond income 649,135 - - 649,135
Total income and 1,284,517 6,018,878 2,365 7,305,760
gains
Expenses - - (1,050,323) (1,050,323)
Interest payable and similar - - (1,929,208) (1,929,208)
charges
Total comprehensive income for the year
attributable
to shareholders 1,284,517 6,018,878 (2,977,166) 4,326,229
Smaller
Income Companies
Portfolio Portfolio Unallocated Total
GBP GBP GBP GBP
31 December 2016
Financial assets designated as at fair value
through
profit or loss 15,171,128 72,001,134 - 87,172,262
Receivables 219,640 2,022,577 - 2,242,217
Derivative financial 91,470 - - 91,470
instruments
Cash and cash equivalents 2,406,640 2,665,178 - 5,071,818
Total assets 17,888,878 76,688,889 - 94,577,767
Payables - - 469,872 469,872
Total current - - 469,872 469,872
liabilities
Geographical information
In presenting information on the basis of geographical segments, segment
revenue is based on the domicile countries of the investees and counterparties
to derivative transactions. The table below excludes net gains on financial
assets designated at fair value through profit or loss and gains or losses on
derivative instruments.
Other Rest of
UK Guernsey Jersey Europe the world Total
GBP GBP GBP GBP GBP GBP
31 December 2017
External revenues
Total Revenue 3,277,389 198,415 - 109,224 263,603 3,848,631
Other Rest of
UK Guernsey Jersey Europe the world Total
GBP GBP GBP GBP GBP GBP
31 December 2016
External revenues
Total Revenue 3,307,930 177,633 - 224,460 159,652 3,869,675
The Company did not hold any non-current assets during the year other than
financial instruments (2016: GBPnil).
Major customers
The Company regards its shareholders as customers. The Company's only
shareholder with a holding greater than 10% at the year end was HSBC Issuer
Services Common Depositary Nominee (UK) Limited (2016: The Company's only
shareholder with a holding greater than 10% at the year end was HSBC Issuer
Services Common Depositary Nominee (UK) Limited).
3 INVESTMENT INCOME
Year ended Year ended
31 December 31 December
2017 2016
GBP GBP
Bank interest 2,019 2,365
Dividend 3,426,151 3,218,175
income
Bond income 420,461 649,135
3,848,631 3,869,675
4 GAINS/(LOSSES) ON DERIVATIVE FINANCIAL INSTRUMENT
Year ended Year ended
31 December 31 December
2017 2016
GBP GBP
Unrealised (loss)/gain on forward foreign currency (62,888) 223,875
contracts
Realised gain/(loss) on forward foreign currency contracts 90,379 (689,439)
27,491 (465,564)
5 EXPENSES
Year ended 31 Dec 2017 Year ended 31 Dec 2016
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Manager's fee* 182,364 547,093 729,457 155,770 467,310 623,080
Administrator's fee 91,485 - 91,485 91,911 - 91,911
***
Registrar's fee 26,535 - 26,535 16,340 - 16,340
Directors' fees 95,731 - 95,731 78,307 - 78,307
Custody fees 39,892 - 39,892 23,452 - 23,452
Audit 30,400 - 30,400 32,782 - 32,782
fees
Directors' and Officers' 8,745 - 8,745 3,428 - 3,428
insurance
Annual fees 32,351 - 32,351 29,756 - 29,756
Performance fee** - 559,967 559,967 - -
-
Commissions and charges - 172,081 172,081 120,414 120,414
paid -
Legal and professional fees 26,716 - 26,716 5,267 - 5,267
Broker fees 37,785 - 37,785 40,412 - 40,412
Sundry costs 15,234 - 15,234 35,284 - 35,284
Loss/(gain) on foreign 21,347 - 21,347 (50,110) - (50,110)
exchange
608,585 1,279,141 1,887,726 462,599 587,724 1,050,323
Manager's fee
* The Company has entered into a Management Agreement with Premier Asset
Management (Guernsey) Limited, a wholly-owned, Guernsey incorporated subsidiary
of Premier Asset Management Limited. The Investment Manager receives a
management fee of 0.7% per annum of total assets (subject to a minimum of GBP
100,000) calculated monthly and payable quarterly in arrears, out of which it
pays fees to the Investment Advisers. The Investment Manager is also paid a
shareholder communication and support fee, currently GBP3,100 for the twelve
months from 1 April 2017 to 31 March 2018. Please refer to Note 1(h) for
details on how expenses are charged to the capital reserve and revenue account.
The Management Agreement may be terminated by either party on 12 months'
written notice. The Company has entered into an agreement with the Investment
Manager for the provision of AIFM reporting services for a fee of GBP19,450 per
annum from 1 September 2017.
Performance fee
**The Investment Manager is also potentially entitled to a performance fee
equal to 15% of any excess of the NAV per Ordinary Share (together with any
dividends paid) over the higher of the first benchmark or the second benchmark.
The first benchmark is the NAV per share immediately following the tender in
January 2007 increasing at 10% per annum compound. The second benchmark is the
highest NAV per Ordinary Share as of the last calculation day in any preceding
financial period commencing after completion of the tender in January 2007 in
respect of which a performance fee has been paid compounded at 10% per annum. A
performance fee amounting to GBP559,967 was accrued for the year ended 31
December 2017 (2016: Nil).
Administrator's fee
***The Company entered into an Administration Agreement with Northern Trust
International Fund Administration Services (Guernsey) Limited on 1 April 2015.
The Company shall pay the Administrator a fee of 12 basis points per annum on
the net assets between GBP0 - GBP100 million, 10 basis points per annum on the net
assets between GBP100 million - GBP150 million and 8 basis points per annum on the
net assets over GBP150 million subject to a minimum of GBP7,000 per month. The
Administration Agreement may be terminated by either party on ninety days
notice.
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each Director is paid a fee of GBP25,000 per
annum by the Company, except for the Chairman, who receives GBP35,000 per annum.
A special resolution was passed on 20 December 2016 for the new Articles of
Incorporation which included that the ordinary remuneration of the Directors
shall not exceed in aggregate of GBP200,000 per annum. During the Remuneration
and Management Engagement Committee on 28 November 2016, a recommendation was
made to the Board to increase Director Fees as follows:
Chairman of Board: GBP25,000 + GBP10,000
Chairman of Audit Committee: GBP25,000 + GBP7,500
Chairman of Risk Committee: GBP25,000 + GBP5,000
The proposal was approved at a board meeting on 6 February 2017 and became
effective from 1 February 2017.
7 INTEREST PAYABLE AND SIMILAR CHARGES
Year ended 31 Dec 2017
Revenue Capital Total
GBP GBP GBP
Appropriation in respect of ZDP shares - 1,177,318 1,177,318
ZDP issue costs - 160,479 160,479
(2022)
- 1,337,797 1,337,797
Year ended 31 Dec 2016
Revenue Capital Total
GBP GBP GBP
Appropriation in respect of ZDP shares - 1,622,138 1,622,138
Amortisation of ZDP issue - 97,070 97,070
costs
ZDP issue costs - 210,000 210,000
(2022)
- 1,929,208 1,929,208
8 DIVIDS IN RESPECT OF ORDINARY SHARES
Year ended Year ended
31 Dec 2017 31 Dec 2016
Pence Pence
GBP per share GBP per share
First interim 716,251 4.50 556,873 3.50
payment
Second interim payment 716,251 4.50 636,428 4.00
Third interim 716,251 4.50 636,428 4.00
payment
Fourth interim 716,251 4.50 636,428 4.00
payment
2,865,004 18.00 2,466,157 15.50
Refer to Dividend's Policy section above for further details.
9 EARNINGS PER SHARE
Ordinary Shares
The total return per Ordinary Share (per IFRS) is based on the total gain on
ordinary activities for the year attributable to Ordinary Shareholders of GBP
15,509,763 (2016: gain of GBP4,326,229) and on 15,916,178 (2016: 15,908,774)
shares, being the weighted average number of shares in issue during the year.
There are no dilutive instruments and therefore basic and diluted gains per
share are identical.
The revenue return per Ordinary Share (per IFRS) is based on the revenue return
on ordinary activities for the year attributable to Ordinary Shareholders of GBP
3,240,046 (2016: GBP3,242,076) and on 15,916,178 (2016: 15,908,774) shares, being
the weighted average number of shares in issue during the year. There are no
dilutive instruments and therefore basic and diluted gains per share are
identical.
The capital return per Ordinary Share (per IFRS) is based on the capital return
on ordinary activities for the year attributable to Ordinary Shareholders of GBP
12,269,717 (2016: capital return of GBP1,084,153) and on 15,916,178 (2016:
15,908,774) shares, being the weighted average number of shares in issue during
the year. There are no dilutive instruments and therefore basic and diluted
gains per share are identical.
ZDP shares
The return per ZDP Share is based on the appropriation in respect of ZDP
Shares, the amortisation of ZDP Share issue costs and ZDP Share issue costs
totalling GBP1,337,797 (2016: GBP1,929,208) and on 21,306,025 (2016: 21,355,157)
shares, being the weighted average number of ZDP Shares in issue during the
year.
10 FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 Dec 2017 31 Dec 2016
GBP GBP
INVESTMENTS
Opening portfolio 69,405,067 67,722,601
cost
Purchases at cost 31,758,253 22,830,886
Sales
- (30,490,860) (26,194,906)
proceeds
- realised gains on 8,328,032 7,745,792
sales
- realised losses (2,438,901) (2,699,306)
on sales
Closing book cost 76,561,591 69,405,067
Unrealised appreciation on investments 29,091,144 20,697,555
Unrealised depreciation on investments (2,353,916) (2,930,360)
Fair 103,298,819 87,172,262
value
Realised gains on 8,328,032 7,745,792
sales
Realised losses on (2,438,901) (2,699,306)
sales
Increase/(decrease) in unrealised appreciation on 8,393,589 (1,497,809)
investments
Decrease in unrealised depreciation on investments 576,444 352,972
Net gains on financial assets designated as at fair value 14,859,164 3,901,649
through profit or loss
As at 31 December 2017, the closing fair value of investments comprised GBP
87,436,540 (Dec 2016: GBP72,001,134) of Smaller Companies Portfolio, GBP15,862,279
(Dec 2016: GBP15,171,128) of Income Portfolio. The Market value of open Futures
totalled GBP10,387 (Dec 2016: GBP132,661). Refer to Unaudited Full List of
Investment Holdings Listing section for further details.
IFRS 13 requires the fair value of investments to be disclosed by the source of
inputs using a three-level hierarchy as detailed below:
Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1);
Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly (as prices) or indirectly (derived from
prices) (Level 2);
Inputs for the asset or liability that are not based on observable market data
(unobservable inputs) (Level 3).
Details of the value of each classification are listed in the table below.
Values are based on the market value of the investment as at the reporting
date:
Financial assets designated as at fair value through profit or loss
31 Dec 2017 31 Dec 2017 31 Dec 2016 31 Dec 2016
Market Market Market Market
value value value value
% GBP % GBP
Level 1 85.93 88,768,979 84.53 73,688,748
Level 2 13.75 14,207,406 15.47 13,483,142
Level 3 0.32 322,434 0.00 372
Total 100.00 103,298,819 100.00 87,172,262
Bonds and structured investments are priced by reference to market quotations
which incorporate assessment of yield, maturity and the instrument's terms and
conditions.
The following table is a reconciliation of investments the Company held during
the years ended 31 Dec 2017 and 31 Dec 2016 at fair value using unobservable
inputs (Level 3):
31 Dec 2017 31 Dec 2016
Market value Market
value
GBP GBP
Balance at 1 January 372 51,173
Transfer from Level 1 to Level 3 321,974 -
Unrealised gain/(loss) on investments 88 (50,801)
Balance at 31 December 322,434 372
For investments categorised in Level 3 as at 31 December 2017, the below
details the valuation methodologies used:
Petromena AS 10.85% 2014 - The bonds are in default and are priced from a
Bloomberg bond valuation model.
Silverdell plc - The stock is suspended and is valued at zero. The Investment
Adviser does not expect any return of capital.
DW Catalyst Fund - The stock is suspended as the company has been placed in
liquidation, following a vote by shareholders, to enable its assets to be sold
and the proceeds distributed to shareholders. At 31 December 2017 two
distributions had been made with at least two further distributions expected.
The investment DW Catalyst is valued by reference to the net asset value
estimate announced by the company's directors adjusted for distributions
already made and then applying a discount to allow for realization costs. The
discount selected was 7% giving a value for the holding of GBP321,974. If the
discount level adopted was increased to 9% this would result in a reduction in
Acorn's year end NAV per share of 0.0089% and if the discount adopted was
reduced to 5% this would result in an increase in Acorn's year end NAV per
share of 0.0089%.
Derivative financial assets and liabilities designated as at fair value through
profit or loss
31 Dec 2017 31 Dec 2017 31 Dec 2016 31 Dec 2016
Market value Market Market Market
value value value
% GBP % GBP
Level 2 derivative financial assets 100.00 29,577 100.00 91,470
Level 2 derivative financial 100.00 972 - -
liabilities
It is the Company's policy to recognise all the transfers into the levels and
transfers out of the levels at the end of the reporting year. Transfers into
each level shall be disclosed and discussed separately from transfer out of
each level.
There was a transfer from Level 1 to Level 3 during the year for DW Catalyst
Fund.
There was no transfer from Level 1 to Level 2 during the year.
The derivative financial instruments held by the Company have been classified
as Level 2. This is in accordance with the fair value hierarchy. The Company
uses widely recognised valuation models for determining fair value of
derivative financial instruments that use only observable market data and
require little management judgement and estimation.
11 RECEIVABLES
31 Dec 2017 31 Dec
2016
GBP GBP
Due from - 1,836,578
brokers
Prepayments 8,103 17,687
Accrued investment income 526,833 387,952
534,936 2,242,217
12 PAYABLES
31 Dec 2017 31 Dec
2016
GBP GBP
Accrued expenses 86,979 99,992
Trade 188,256 159,880
creditors
Performance 559,967 -
fee
ZDP issue costs (2022) - 210,000
835,202 469,872
13 ZDP SHARES
31 Dec 2017 31 Dec
2016
GBP GBP
ZDP Share entitlement 30,545,210 29,319,945
The above entitlement comprises the following:
21,357,174 ZDP Shares issued to date up to 31 Dec 2016 22,989,154 -
21,189,384 ZDP Shares issued to date up to 31 Dec 2015 - 22,768,091
1,842,207 ZDP Shares issued during the year up to 31 December 2,579,090 -
2017
1,834,160 ZDP Shares redeemed during the year up to 31 December (2,531,141) -
2017
167,790 ZDP shares sold out of treasury during the year to 31 Dec - 221,063
2016
ZDP Premium (30,206) (13,501)
Appropriation in respect of ZDP Shares 7,508,107 6,339,204
ZDP value (calculated in accordance with the Articles) 30,515,004 29,314,857
ZDP issue - (105,483)
costs
Issue costs amortised - 97,070
Add back ZDP Premium 30,206 13,501
ZDP value (calculated in accordance 30,545,210 29,319,945
with IFRS)
The fair value of the ZDP Shares as at 31 December 2017 was GBP32,314,897 (31
December 2016: GBP29,767,929).
The ZDP shares are classified under Level 1 (2016: level 1) based on unadjusted
quoted prices in active markets. Since valuations are based on quoted prices
that are readily and regularly available in an active market, the valuation
does not entail a significant degree of judgement.
A Continuation Offer was made to ZDP Shareholders whereby such holders were
given an opportunity to either receive their 2017 Final Capital Entitlement of
138p or to continue their investment in the existing ZDP Shares.
Following the proposals, 19,523,014 ZDP Shares were elected for the
Continuation Offer with a further 1,842,207 New ZDP Shares being issued through
an Initial Placing at 140.0p which represented a premium of 1.4% to the opening
NAV per New ZDP Share.
1,834,160 ZDP Shares were elected for Redemption at their 2017 Final Capital
Entitlement of 138p.
ZDP Shares carry no entitlement to income distributions to be made by the
Company. The ZDP Shares will not pay dividends but have a final capital
entitlement at the end of their life on 28 February 2022 of 167.2 pence
following the extension of the life of the existing ZDP Shares from 31 January
2017.
The ZDP shares were classified on the Statement of Financial Position as a
current liability for the year ended 31 December 2016 as the maturity date (31
January 2017) was within one year before extension of their life to 28 February
2022.
It should be noted that the predetermined capital entitlement of a ZDP Share is
not guaranteed and is dependent upon the Company's gross assets being
sufficient on 28 February 2022 to meet the final capital entitlement of ZDP
Shares.
Under the Articles of Incorporation, the Company is obliged to redeem all of
the ZDP Shares on 28 February 2022 (if such redemption has not already been
effected).
The number of authorised ZDP Shares is 50,000,000. The number of issued ZDP
Shares is 21,365,221 (31 Dec 2016: 21,357,174). The non-amortisation of the ZDP
Shares in line with the Articles has the effect of increasing the NAV per
Ordinary Share by 0.19 pence.
14 SHARE CAPITAL AND PREMIUM
Authorised GBP
Ordinary Shares of 1p each unlimited
Issued Number of
Shares
The issue of Ordinary Shares took place as follows:
Ordinary Shares 11 Feb 1999 29,600,002
Tender offer 17 Jan 2007 (20,660,212)
Purchase of treasury shares - Year ended 31 December 2011 (215,000)
Placing - Year ended 31 December 2013 6,438,339
Purchase of treasury shares - Year ended 31 December 2013 (1,756,000)
Shares sold out of Treasury - Year ended 31 December 2013 1,971,000
Issue of shares - Year ended 31 2,500,205
December 2014
Buyback of Ordinary Shares - Year ended 31 December 2014 (2,650,000)
Shares sold out of Treasury - Year ended 31 December 2014 390,000
Buyback of Ordinary Shares - Year ended 31 December 2015 (150,002)
Shares sold out of Treasury - Year ended 31 December 2015 317,360
Shares sold out of Treasury - Year ended 31 December 2016 125,000
Number of shares in issue at 31 15,910,692
December 2016
Issue of shares 5,995
Number of shares in issue at 31 15,916,687
December 2017
Issued and fully paid capital as at 31 December 2017 GBP197,106
Share Share Total
Capital Premium
31 Dec 2017 31 Dec 2017 31 Dec 2017
GBP GBP GBP
Opening share capital and 171,867
premium 27,436,022 27,607,889
Issue of ordinary Shares 25,239 255 25,494
Closing share capital and 197,106 27,436,277 27,633,383
premium
The Ordinary Shares (excluding treasury shares) are entitled to participate in
all dividends and distributions of the Company. On a winding-up holders of
Ordinary Shares are entitled to participate in the distribution and the holders
of Ordinary Shares are entitled to receive notice of and attend and vote at all
general meetings of the Company.
The issued and fully paid capital as at 31 December 2017 was GBP197,106 (31
December 2016: GBP171,867).
15 OTHER RESERVES
Treasury Reserve
31 Dec 2017 31 Dec 2016
GBP GBP
Balance as at 1 (4,568,238) (5,064,352)
January
Treasury shares sold during - 496,114
the year
Balance as at 31 December (4,568,238) (4,568,238)
The other reserves presented on the Statement of Financial Position comprise
the treasury reserve of (GBP4,568,238) and special reserve of GBP10,000,000
totalling GBP5,431,762.
31 Dec 2017 31 Dec 2016
No. Shares No. Shares
Balance as at 1 1,275,972 1,400,972
January
Treasury shares sold during (125,000)
the year -
Balance as at 31 December 1,275,972 1,275,972
A Special reserve of GBP10,000,000 was created on the cancellation of part of the
Company's Share premium account.
16 RELATED PARTIES
Premier Asset Management (Guernsey) Limited is the Company's Investment Manager
and operates under the terms of the Management Agreement in force which
delegates its authority over the Company's investment portfolios.
GBP729,457 (2016: GBP623,080) of costs were incurred by the Company with this
related party in the year, of which GBP188,256 (2016: GBP159,880) was due to this
related party as at 31 December 2017.
During the year ended 31 December 2017, GBP559,967 (31 December 2016: GBPNil) was
charged as performance fees of which, GBP559,967 (31 December 2016: GBPNil)
remained payable at year end.
Directors' remuneration is disclosed in Note 6.
David Warr holds 63,000 (31 Dec 2016: 63,000) Ordinary Shares in the capital of
the Company, which represented an interest of 0.40% (31 Dec 2016: 0.40%) of the
Company's Ordinary Shares in issue as at 31 December 2017.
17 FINANCIAL INSTRUMENTS
The Company's main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Company's
operations;
(b) Investments in listed entities, receivables and payables;
(c) ZDP Shares; and
(d) Derivative financial instruments.
18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The following table details the categories of financial assets and liabilities
held by the Company at the reporting date:
31 Dec 2017 31 Dec 2016
GBP GBP
Financial Assets
Financial assets designated as at fair value through profit 103,298,819 87,172,262
or loss
Derivative financial assets 29,577 91,470
Total financial assets at fair value through profit 103,328,396 87,263,732
or loss
Loans and receivables
Cash and receivables 4,976,255 5,071,818
Receivables 526,833 2,224,530
Total assets 108,831,484 94,560,080
31 Dec 2017 31 Dec 2016
GBP GBP
Financial liabilities
Financial liabilities at fair value through profit
or loss:
Derivative financial 972 -
liabilities
Total financial liabilities at fair value through 972
profit or loss -
Financial liabilities measured at
amortised cost
ZDP Shares 30,545,210 29,319,945
Payables 835,202 469,872
Total Financial liabilities measured at amortised 31,380,412 29,789,817
cost
Total liabilities excluding net assets attributable to holders 31,381,384 29,789,817
of Ordinary Shares
Loans and receivables presented above represents cash and cash equivalents,
balances due from brokers and other receivables (excluding prepayments) as
detailed in the Statement of Financial Position.
Financial liabilities measured at amortised cost presented above represents
accrued expenses and ZDP Shares as detailed in the Statement of Financial
Position.
Derivative financial assets and liabilities presented above represent forward
foreign exchange contracts. Unrealised gains and losses on movement in fair
value are recognised in the Statement of Comprehensive Income.
The main risks arising from the Company's financial instruments are market
price risk, credit risk, liquidity risk, interest rate risk and foreign
exchange risk. The Board regularly reviews and agrees policies for managing
each of these risks and these are summarised in notes 18(a) to 18(e).
(a) Market Price Risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments held. It represents the potential loss the Company might
suffer through holding market positions in the face of price movements. The
Investment Advisers actively monitor market prices and report to the Board as
to the appropriateness of the prices used for valuation purposes. The
Investment Advisers also attempt to minimise market price risk by undertaking a
detailed analysis of the risk/reward relationship of each investee company
prior to any investment being made.
Unicorn monitors the industry concentration exposure for the Smaller Companies
Portfolio.
Details of the Company's Investment Objective and Policy are given inside the
front cover of this Report.
Price sensitivity
The following details the Company's sensitivity to a 15% increase and decrease
in the market prices, with 15% being the sensitivity rate used when reporting
price risk internally to key management personnel and representing management's
assessment of the possible change in market prices.
At 31 December 2017, if market prices had been 15% higher with all the other
variables held constant, the return attributable to shareholders for the year
would have been GBP15,494,823 (2016: GBP13,075,839) greater, due to the increase in
the fair value of financial assets at fair value through profit or loss. This
would represent an increase in Net Assets of 20.00% (2016: 20.18%).
If market prices had been 15% lower with all the other variables held constant,
the return attributable to shareholders for the year would have been GBP
15,494,823 (2016: GBP13,075,839) lower, due to the decrease in the fair value of
financial assets at fair value through profit or loss. This would represent a
decrease in Net Assets of 20.00% (2016: 20.18%).
(b) Credit Risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company. The
Directors receive financial information on a regular basis which is used to
identify and monitor risk. It is the Company's policy not to invest, at the
time of investment, more than 10% of the Company's gross assets in any one
smaller company equity, more than 7.5% in any one fixed interest security and
more than 20% in any one investment company or fund.
The Company has no significant concentration of credit risk, with exposure
spread over a large number of counterparties. At 31 December 2017 the Company's
largest exposure to a single investment was GBP3,275,287 (2016: GBP2,850,000),
3.01% (2016: 3.01%) of total assets.
Investors should be aware that the prospective returns to Shareholders mirror
the returns under the quoted securities held or entered into by the Company and
that any default by an issuer of any such quoted security held by the Company
would have a consequential adverse effect on the ability of the Company to pay
some or all of the entitlement to its Shareholders. Such a default might, for
example, arise on the insolvency of an issuer of a quoted security.
The Company's financial assets exposed to credit risk are as follows:
31 Dec 2017 31 Dec 2016
GBP GBP
Financial assets designated as at fair value through
profit or loss
(fixed income securities 14,529,840 13,350,853
only)
Cash and cash equivalents 4,976,255 5,071,818
Interest, dividends and other 526,833 2,206,843
receivables
Derivatives financial 29,577 91,470
instruments
20,062,505 20,720,984
The credit ratings of the bonds, as rated by Moody's Investor Services Inc
("Moodys") were:
Rating 31 Dec 2017 31 Dec 2016
Aa 4.47% 3.43%
A 19.58% 12.54%
Baa 24.51% 26.66%
Ba 5.97% 5.30%
B 0.00% 2.59%
Other Sourced 10.36% 10.47%
Ratings
No ratings 35.11% 39.01%
available
The cash and cash equivalents were held with Northern Trust (Guernsey) Limited,
a fully owned subsidiary of The Northern Trust Company, which at the year ended
31 December 2017 held a credit rating, as rated by Moody's, of Aa2 (31 Dec
2016: Aa2) . The long gilt future is held with J.P. Morgan who at the year
ended 31 December 2017 held a credit rating, as rated by Moody's, of Aa2 (31
Dec 2016: Aa2). The Investment Adviser for the Income Portfolio selects
investments having regard to their potential return and the credit risk
associated with them. The Investment Adviser carries out its own assessment of
credit risk and the rating provided by a credit rating agency is just one of
the factors taken into account. The absence of a rating is not necessarily a
reflection on credit risk. The Board reviews the whole portfolio at quarterly
board meetings.
(c) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting its obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Company's main
financial commitments are its ongoing operating expenses.
The ZDP Shares will not pay dividends but will have a final capital entitlement
at the end of their life on 28 February 2022 of 167.2 pence. It should be noted
that the predetermined capital entitlement of the 2022 ZDP Shares is not
guaranteed and is dependent upon the Company's gross assets being sufficient on
28 February 2022 to meet the final capital entitlement of the ZDP Shares.
The Investment Advisers ensure that the Company has sufficient liquid resources
available to fulfil its operational plans and to meet its financial obligations
as they fall due. This is monitored by carrying out a solvency calculation on a
quarterly basis by reference to management accounts and revenue projections.
The Board will approve a Solvency Certificate resolution prior to declaring any
interim distributions.
The Board intends to monitor the financial position of the Company to ensure
that it has sufficient liquid resources available to fulfil its obligation upon
maturity of the ZDP Shares.
The table below details the residual contractual undiscounted maturities of
financial liabilities:
As at 31 December 2017 As at 31 December 2016
1-3 months Over 1 year 1-3 months Over 1 year
GBP GBP GBP GBP
Financial liabilities including
derivatives
Payables - due within one 835,202 469,872
year - -
Derivative financial 972
instruments - - -
ZDP Share 35,722,650 29,472,900
entitlement - -
836,174 35,722,650 29,942,772 -
(d) Interest Rate Risk
The Company could hedge interest rate risk using various different methods.
The following table details the Company's exposure to interest rate risks. It
includes the Company's assets and liabilities at fair values, categorised by
the earlier of contractual re-pricing or maturity date measured by the carrying
value of the assets and liabilities:
As at 31 December 2017:
Less than Non-interest
1 month Fixed interest Bearing Total
GBP GBP GBP GBP
Financial Assets
Financial assets at fair value through
profit or loss on
initial recognition - 14,529,840 88,768,979 103,298,819
Cash and cash equivalents 4,976,255 4,976,255
- -
Interest, dividends and other receivables - 526,833 526,833
-
Derivative financial - 29,577 29,577
instruments -
Total Financial 4,976,255 14,529,840 89,325,389 108,831,484
Assets
Financial
Liabilities
Derivative financial - 972 972
instruments -
Payables - 835,202 835,202
-
ZDP Share - 30,545,210 30,545,210
entitlement -
Total Financial Liabilities - 30,545,210 836,174 31,381,384
Total Interest sensitivity 4,976,255 (16,015,370)
gap
As at 31 December 2016:
Less than Non-interest
1 month Fixed Bearing Total
interest
GBP GBP GBP GBP
Financial Assets
Financial assets at fair value through
profit or loss on
initial recognition - 13,350,853 73,821,409 87,172,262
Cash and cash equivalents 5,071,818 - - 5,071,818
Interest, dividends and other receivables - - 2,224,530 2,224,530
Derivative Financial - - 91,470 91,470
instruments
Total Financial 5,071,818 13,350,853 76,137,409 94,560,080
Assets
Financial
Liabilities
Payables - - 469,872 469,872
ZDP Share - 29,319,945 - 29,319,945
entitlement
Total Financial Liabilities - 29,319,945 469,872 29,789,817
Total Interest sensitivity 5,071,818 (15,969,092)
gap
Interest rate sensitivity takes account of the effect of interest rate
movements on cash balances. Interest rate risk does not affect the cash flows
of the fixed interest securities but does affect the fair value and as such
this sensitivity has been reflected in the market price risk disclosures at
Note 18(a).
Interest rate sensitivity
If interest rates had been 25 basis points higher and all other variables were
held constant, the Company's return attributable to Ordinary Shareholders for
the year ended 31 December 2017 would have increased by approximately GBP12,441
(2016: GBP12,680) or 0.011% (2016: 0.013%) of Total Assets, due to an increase in
the amount of interest receivable on the bank balances.
If interest rates had been 25 basis points lower and all other variables were
held constant, the Company's return attributable to Ordinary Shareholders for
the year ended 31 December 2016 would have decreased by approximately GBP12,441
(2016: GBP12,680) or 0.011% (2016: 0.013%) of Total Assets, due to a decrease in
the amount of interest receivable on the bank balances.
(e) Foreign Exchange Risk
Forward currency transactions are used to hedge the foreign currency exposure
in bonds, other investments and cash balances held within the Income Portfolio.
The purpose of the hedge is to protect the Company's assets from a decline in
value that might arise from the depreciation of a foreign currency against
Sterling.
At 31 December 2017, the Company's holdings in derivatives translated into GBP
were as specified below:
Notional
amount of Fair value
Contracts assets
Type of contract Expiration Underlying outstanding GBP
Forward January Purchased EUR 1,738,570 10,431
2018
Forward January Purchase 1,060,026 19,146
2018 USD
Forward January Sold EUR (430,000) (972)
2018
28,605
At 31 December 2016, the Company's holdings in derivatives translated into GBP
were as specified below:
Notional
amount of Fair value
contracts assets
Expiration Underlying outstanding GBP
Forward January Purchased EUR 1,670,000 79,144
2017
Forward January Purchased USD 2,150,000 12,326
2017
91,470
Exchange rate exposures are managed by minimising the amount of foreign
currency held at any one time and entering into forward exchange contracts.
The following table sets out the Company's total exposure to foreign currency
risk and the net exposure to foreign currencies of the monetary assets and
liabilities:
31 December 2017
Monetary Monetary Forward
Assets Liabilities FX Net
Contracts exposure
GBP GBP GBP GBP
Euro - (1,161,930) 9,632
1,171,562
US Dollar - (783,312) 8,278
791,590
Australian Dollar 14 - - 14
31 December 2016
Monetary Monetary Forward
Assets Liabilities FX Net
Contracts exposure
GBP GBP GBP GBP
Euro 1,476,958 - (1,425,944) 51,014
US Dollar 1,926,026 - (1,739,387) 186,639
Australian Dollar 15 - - 15
Amounts in the above table are based on the carrying value of monetary assets
and liabilities and the underlying principal amount of forward currency
contracts.
(f) Capital Management
The principal investment objectives of the Company are to provide shareholders
with a high income and also the opportunity for capital growth.
The Company's investments are held in two portfolios. The Company's assets
comprise investments in equities and fixed interest and other income-bearing
securities in order to achieve its investment objectives. Approximately 70%-80%
of the portfolio are invested in smaller capitalised United Kingdom companies,
admitted to the Official List of the Financial Conduct Authority (the "FCA")
and traded on the London Stock Exchange (the "LSE") or traded on the AIM at the
time of investment. The Company also aims to further enhance income for
Shareholders by investing approximately 20%-30% of its assets in high yielding
securities which will be predominantly fixed income securities (including
corporate bonds, preference and permanent interest bearing shares, convertible
and reverse convertible bonds and debentures) but may include up to 15% of the
portfolio (measured at time of acquisition) in high yielding investment company
shares.
As the Company's Ordinary Shares are traded on the LSE, the Ordinary Shares may
trade at a discount or premium to their Net Asset Value per Share on occasion.
However, the Directors and the Investment Manager monitor the discount on a
regular basis and can use share buy backs to manage the discount.
The Company monitors capital on the basis of the carrying amount of equity as
presented on the face of the Statement of Financial Position. Capital for the
reporting periods under review is summarised as follows:
GBP
Distributable reserves 8,318,634
Share capital and share premium 27,633,383
Non distributable reserves 41,506,186
Total 77,458,203
The distributable reserves comprises the revenue reserve and other reserves.
The other reserves presented on the Statement of Financial Position comprise
the treasury reserve and special reserve as detailed in Note 15. The special
reserve of GBP10,000,000 was created on the cancellation of part of the Company's
share premium account. The non distributable reserves comprise the capital
reserve.
(g) Dividend levels
Dividends paid on the Company's Ordinary Shares rely on receipt of interest
payments and dividends from the securities in which the Company invests. The
Company's revenue levels are monitored on a regular basis by the Board and the
Investment Advisers.
19 SUBSEQUENT EVENTS
These Financial Statements were approved for issue by the Board on 24 April
2018. Subsequent events have been evaluated until this date.
A dividend of 4.95p was declared on 7 February 2018 and was paid to ordinary
shareholders on 29 March 2018.
Unaudited Full List of Investment Holdings Listing
Percentage
Company Nominal Valuation of Total
Holdings GBP Assets
2017
Smaller Companies Portfolio
DiscoverIE Group plc 884,615 3,275,287 3.01
Macfarlane Group 3,800,000 2,926,000 2.69
Somero Enterprises inc 960,000 2,832,000 2.60
Warpaint London plc 1,188,631 2,793,283 2.57
Clipper Logistics plc 625,000 2,625,000 2.41
Conviviality Retail plc 628,002 2,508,868 2.31
Numis Corporation plc 750,000 2,448,750 2.25
FDM Group Holdings plc 240,000 2,240,400 2.06
Secure Trust Bank plc 125,000 2,220,000 2.04
Park Group plc 2,500,000 2,156,250 1.98
Polar Capital Holdings plc 375,000 2,008,125 1.85
Mucklow A&J Group plc 400,000 2,004,000 1.84
Midwich Group plc 390,600 1,953,000 1.79
Telecom Plus plc 160,000 1,916,800 1.76
Vesuvius plc 325,000 1,898,000 1.74
Primary Health Properties plc 1,600,000 1,864,000 1.71
Wincanton plc 800,000 1,864,000 1.71
Tyman plc 500,000 1,806,250 1.66
Flowtech Fluidpower plc 1,100,000 1,793,000 1.65
Alumasc Group plc 1,100,000 1,782,000 1.64
Card Factory plc 600,000 1,770,000 1.63
Palace Capital plc 539,763 1,754,230 1.61
Dairy Crest Group plc 300,000 1,729,500 1.59
Amino Technologies plc 900,000 1,710,000 1.57
River & Mercantile Group plc 474,460 1,684,333 1.55
Hill & Smith Holdings plc 125,000 1,673,750 1.54
James Halstead plc 375,000 1,658,438 1.52
Hollywood Bowl Group Plc 800,000 1,622,000 1.49
Hostelworld Group plc 425,000 1,615,000 1.48
Castings plc 360,030 1,586,832 1.46
Regional Reit Ltd 1,550,000 1,573,250 1.45
4imprint Group plc 85,000 1,538,500 1.41
Ocean Wilson Holdings Limited 140,610 1,525,619 1.40
Gateley Holdings plc 885,000 1,504,500 1.38
Brewin Dolphin Holdings plc 380,000 1,479,720 1.36
BBA Aviation plc 420,000 1,468,740 1.35
Chesnara plc 376,911 1,467,126 1.35
Xafinity plc 750,000 1,436,250 1.32
Manx Telecom plc 750,000 1,432,500 1.32
Alpha FX Group plc 292,108 1,387,513 1.27
Sabre Insurance Group plc 513,383 1,387,418 1.27
RPS Group plc 500,000 1,355,000 1.24
Braemar Shipping Services plc 500,000 1,315,000 1.21
Epwin Group plc 1,572,727 1,301,432 1.20
Headlam Group plc 223,995 1,291,331 1.19
Greene King plc 200,000 1,110,000 1.02
Severfield plc 1,400,000 1,071,000 0.98
Van Elle Holdings plc 1,200,000 1,043,999 0.96
Lower & Bonar plc 1,908,250 1,016,142 0.93
Xafinity Group Holdings 57,692 12,404 0.01
Silverdell plc 3,090,546 - -
TOTAL 87,436,540 80.33
Percentage
Company Nominal Valuation of Total
Holdings GBP Assets
2017
Income Portfolio
Bank of America 7.75% 30/04/18 1,000,000 1,022,262 0.94
Apq Global Limited 3.5% CULS 30/09/24 100 537,499 0.49
United Kingdom 2.50% IL Treasury 2020 140,000 510,779 0.47
St Modwen Properties 2.875% 06/03/19 500,000 501,875 0.46
HSBC 6% 29/03/2040 300,000 413,250 0.38
EJF Investments Ltd 400,000 400,000 0.37
Burford Capital 6.5% 2022 350,000 385,330 0.35
Itv 2.125% 2022 400,000 372,534 0.34
Tesco Personal Finance 1.00% 2019 300,000 352,527 0.32
EDF 6.125% 6/2034 250,000 342,401 0.31
DW Catalyst Fund Limited 53,359 321,974 0.30
Heathrow 7.075% 04/08/2028 200,000 284,258 0.26
Spirit Issuer 5.472% 28/12/2034 250,000 275,000 0.25
Aviva 5.9021% Perp - 2020 250,000 271,000 0.25
Telefonica Emisiones 5.375% 02/02/18 270,000 270,994 0.25
Vodafone Group Plc 8.125% 26/11/18 250,000 266,040 0.24
Fidelity International 7.125% 2024 200,000 251,358 0.23
Northumbrian Water Finance plc 6.875% 2023 200,000 249,625 0.23
Investec Bank 9.625% 200,000 249,414 0.23
2022
Firstgroup plc 8.75% 200,000 244,042 0.22
2021
Phoenix Group, 6.625% 18/12/2025 200,000 238,600 0.22
F&C Global Smaller Companies CULS 3.5% 170,909 237,136 0.22
France Telecom 8.125% 150,000 230,487 0.21
2028
Credit Agricole SA 8.125% 2033 - 18 300,000 230,164 0.21
Sse plc 6.25% 2038 150,000 226,294 0.21
Thames Water Utilities 4.00% 2025 200,000 225,587 0.21
Tesco Property Finance 5.4111% 2044 195,262 225,556 0.21
Anheuser-Busch Inbev 9.75% 2024 150,000 222,250 0.20
Imperial Brands Finance Plc 7.750% 24/06/19 200,000 219,223 0.20
SG Issuer 0.00% 07/09/2021 300,000 217,934 0.20
AT&T 4.25% 2043 200,000 216,722 0.20
Unite Group plc 6.125% 200,000 213,806 0.20
2020
Pepsi 2.5% 2022 200,000 212,274 0.20
Hadrian's Wall Secured Investment Limited 220,000 211,200 0.19
Workspace Group Plc 6.00% 09/10/19 200,000 210,612 0.19
Citigroup 7.625% 03/04/2018 205,000 208,506 0.19
Everything Everywhere 4.375% 2019 200,000 208,016 0.19
Barclays plc 8% Perp - 200,000 204,165 0.19
20
Royal Bank Of Canada 0.00% 2018 200,000 203,720 0.19
Investec Bank 0.00% 11/01/2021 200,000 200,978 0.19
Helical Bar Jersey 4.00% 2019 convertible 200,000 200,750 0.19
National Australia Bank 0.875% 26/06/2020 200,000 198,948 0.18
Finmeccanica Spa 4.50% 2021 200,000 198,450 0.18
BPCE SA 2.75% 2026 -21 200,000 189,312 0.17
JPMorgan Structured Programme 0.00% 17/03/2021 200,000 187,420 0.17
South Eastern Power Networks 3.053% 2023 100,000 183,307 0.17
HSBC Holdings 6.25% 2018 200,000 179,855 0.17
Old Mutual 8.00% 2021 150,000 174,552 0.16
RL Finance Bonds plc 6.125% 2043 150,000 172,622 0.16
Kelda Finance (No 3) plc 5.75% 2020 150,000 161,495 0.15
Wells Fargo 1.375% 6/2022 150,000 148,843 0.14
British Telecoms 5.75% 100,000 128,335 0.12
2028
3i Group 6.875% 2023 100,000 122,250 0.11
PhoenixLife 7.25% pp 105,000 116,251 0.11
Mitchells & Butlers Finance 5.574% 2030 96,846 113,308 0.10
BAE Systems 4.125% 2022 100,000 111,157 0.10
Verizon Communications 2.45% 2022 150,000 108,692 0.10
Gli Finance Limited Red Zdp 2019 Npv 104,006 108,166 0.10
Morrison (WM) Supermarkets 3.50% 2026 100,000 107,919 0.10
Whitbread Group 3.375% 2025 100,000 105,401 0.10
Real Estate Credit Pref Shs NPV 60,000 100,350 0.09
Tetragon Financial Group Ltd 10,000 100,166 0.09
City Natural Resources High Yield Trust Plc 3.5% 100,000 98,250 0.09
30/09/2018
Edinburgh Dragon Trust 3.50% 2018 87,574 98,083 0.09
Supermarket Income REIT plc 90,000 90,000 0.08
Natwest Bank plc 9% 50,000 85,125 0.08
Nationwide Building Society 10.25% 500 78,563 0.07
SQN Asset Finance Income Fund Limited 85,294 76,338 0.07
UK Mortgages Limited 85,000 76,075 0.07
The Royal Bank of Scotland Group Plc 4.015% 100,000 73,370 0.07
Aberforth Split Level Income Plc ZDPs 66,992 72,687 0.07
Petromena AS 10.85% 2014 82,990 460 0.00
Bond futures
Fut. Long Gilt Icf Mar18 - 13,300 0.01
Fut. Msci Asia Eux Mar18 - (2,913) 0.00
15,862,279 14.57
TOTAL 103,298,819 94.90
Glossary
Cover
The Cover on the ZDP Shares measures the amount by which the final redemption
value of the ZDP Shares is covered by the total assets of the Company allowing
for all prior ranking liabilities and the accrual of expenses to capital over
the remaining period to the redemption of the ZDP Shares. The calculation used
in this report is for non-cumulative cover and represents a fraction where the
numerator is equal to the gross assets of the Company less current liabilities
(other than debt and liabilities to ZDP Shareholders) less the Company's
revenue reserves and the denominator is the aggregate amount payable to ZDP
Shareholders on the repayment date plus any other borrowing plus the cumulative
management fee charged to capital over the remaining period to the repayment
date. The full definition of the calculation is set out in the Company's
Prospectus that can be found on the Company's website.
Cover Test
A required Cover of not less than 2.0 times.
Discount/Premium
If the share price of an investment company is lower than the NAV per share,
the shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is usually
expressed as a percentage of the NAV per share. If the share price is higher
than the NAV per share, the shares are said to be trading at a premium.
Gearing
Also known as leverage. Gearing is introduced when a company borrows money or
issues prior ranking share classes such as ZDP Shares, to buy additional
investments. The objective is to enhance returns to ordinary shareholders but
there is the risk of the opposite effect if the additional investments fall in
value.
Yield
The annual interest payments on a fixed-interest security, or the annual
dividends on an equity (less any withholding tax) expressed as a percentage of
the current market value of the security.
Net Asset Value ("NAV")
NAV is the assets attributable to Ordinary Shareholders expressed as an amount
per individual share. Within this report two different methods are used for
calculating NAV. One using the accounting standards specified by International
Financial Reporting Standards ("IFRS") and one which has been calculated in
accordance with the Company's Articles of Association. The latter is the method
which would be used to calculate the amount due to Ordinary Shareholders on the
winding up of the Company. However, the Financial Statements are prepared in
accordance with IFRS. Where the IFRS method has been used it will be indicated.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMS")
the Board has considered what APMs are included in the annual report and
accounts which require further clarification. An APM is defined as a financial
measure of historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in the
applicable financial reporting framework. The APM included in the annual report
and accounts, which is unaudited and outside the scope of IFRS is deemed to be
Net Assets calculated in accordance with the Articles.
Ordinary Shares NAV per ZDP Shares NAV per
Share Share
(pence) (pence)
Net Assets (per 77,488,409 486.84 ZDP value (per 30,515,004 142.83
Articles) Articles)
ZDP Premium (30,206) (0.19) ZDP premium 30,206 0.14
Net Assets (per 77,458,203 486.65 ZDP value (per 30,545,210 142.97
IFRS) IFRS)
Total Return
The combined effect of any dividends paid, together with the rise or fall in
the share price or NAV. Total return statistics enable the investor to make
performance comparisons between companies with different dividend policies. Any
dividends (after tax) received by a shareholder are assumed to have been
reinvested in either additional shares of the Company at the time the shares go
ex-dividend (the share price total return) or in the assets of the Company at
its NAV per share (the NAV total return).
Directors, Advisers and Contacts
Directors
Helen Foster Green (Chairman)
John Nigel Ward
David John Warr
Shareholders are welcome to contact the Chairman directly by emailing her at:
Acorn_Income_Fund Limited@ntrs.com
Investment Manager
Premier Asset Management (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01483 306090
Contact: Nigel Sidebottom
Investment Adviser - Smaller Companies Portfolio
Unicorn Asset Management Limited
Preacher's Court
The Charterhouse
Charterhouse Square
London EC1M 6AU
Tel: 0207 2530889
Contact: Simon Moon
Investment Adviser - Income Portfolio
Premier Fund Managers Limited
Eastgate Court
High Street
Guildford GU1 3DE
Tel: 01483 306090
Contact: Nigel Sidebottom
Administrator and Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Email: Team_Acorn@ntrs.com
Custodian
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3DA
Corporate Broker
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Tel: 0207 2601000
Independent Auditors
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port Guernsey
GY1 1WR
Registrar
Anson Registrars Limited
PO Box 426
Anson House
Havilland Street
St Peter Port
Guernsey GY1 3WX
Tel: 01481 722260
Email: registrars@anson-group.com
Company's Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Company Details
Company Number: 34778
GIIN Number: CY0IXM.99999.SL.831
Ordinary Shares
ISIN: GB0004829437
Ticker: AIF
ZDP Shares
ISIN: GG00BYMS7X48
Ticker: AIFZ
Notice of Class Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are
in any doubt about the contents of this document or the action you should take,
you should consult immediately your stockbroker, bank manager, solicitor,
accountant or other financial adviser, authorised under the Financial Services
and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of your ZDP Shares in Acorn
Income Fund Limited, please send this document and Form of Proxy, as soon as
possible, to the purchaser or transferee or to the stockbroker, bank or other
agent through whom the sale or transfer was effected for transmission to the
purchaser or transferee.
Acorn Income Fund Limited
(Company No. 34778)
NOTICE OF CLASS MEETING
Notice is hereby given that a Class Meeting of holders of ZDP Shares of Acorn
Income Fund Limited (the "Company") will be held at the offices of Northern
Trust International Fund Administration Services (Guernsey) Limited, Trafalgar
Court, Les Banques, St Peter Port, Guernsey, Channel Islands on 20 August 2018
at 11am.
Resolution on
Form of Proxy Agenda
Business to be proposed as an Ordinary Resolution:
1. THAT the holders of the ZDP Shares hereby sanction and consent
to the passing and carrying into effect, as an ordinary
resolution of the Company, of Resolution 8 contained in the
notice of annual general meeting of the Company dated 24 April
2018 and any variation or abrogation and/or deemed variation
or abrogation of the rights attached to the ZDP Shares which
will, or may, result from the passing and carrying into effect
of such resolution.
Any Other Business
By Order of the Board
For and on behalf of
Northern Trust International Fund Administration
Services (Guernsey) Limited
Secretary
24 April 2018
Notes:
1 A member entitled to attend and to speak and vote at the meeting is
entitled to appoint one or more proxies to speak and vote instead of them. A
proxy need not be a member of the Company. Completion and return of the Class
Meeting Form of Proxy will not preclude members from attending or voting at the
meeting, if they so wish.
2 More than one proxy may be appointed provided each proxy is
appointed to exercise the rights attached to different shares.
3 To be valid the Class Meeting Form of Proxy, together with the power
of attorney or other authority, if any, under which it is executed (or a
notarially certified copy of such power of authority) must be deposited with
the Registrar: Anson Registrars, Limited, PO Box 426, Anson House, Havilland
Street, St Peter Port, Guernsey GY1 3WX no later than 11am on 15 August 2018 or
not less than forty-eight (48) hours before the time for holding any adjourned
meeting. A Class Meeting Form of Proxy is enclosed with this notice.
4 All persons recorded on the register of members as holding ZDP
Shares in the Company as at 11a.m. on 15 August 2018 or, if the meeting is
adjourned, as at 48 hours before the time of any adjourned meeting, shall be
entitled to attend and vote (either in person or by proxy) at the meeting and
shall be entitled to one vote per share held.
5 The quorum for the Class Meeting is two persons present in person or
by proxy and holding at least one third of the issued ZDP Shares at the date of
the Meeting. If the meeting is not quorate, it will be adjourned to the same
time and place fourteen clear days later, whereupon one person holding ZDP
Shares and present in person or by proxy shall form the quorum.
6 Where there are joint registered holders of any ZDP Shares, such
persons shall not have the right of voting individually in respect of such
shares but shall elect one of their number to represent them and to vote
whether in person or by proxy in their name. In default of such election, the
person whose name stands first on the register of ZDP Members shall alone be
entitled to vote.
7 On a poll, votes may be given either personally or by proxy and a
holder of ZDP Shares entitled to more than one vote need not use all their
votes or cast all the votes he uses in the same way.
8 Any corporation which is a member may by resolution of its directors
or other governing body, authorise such person as it thinks fit to act as its
representative at this meeting. Any person so authorised shall be entitled to
exercise on behalf of the corporation which he represents the same powers
(other than to appoint a proxy) as the corporation could exercise if it were an
individual member of the Company.
9 Pursuant to the Articles, every member (being an individual) present
in person or by proxy or (being a corporation) present by a duly authorised
representative shall have one vote on a show of hands, subject to any special
voting powers or restrictions, and one vote per ZDP Share on a poll (other than
the Company itself where it holds its own shares as treasury shares), subject
to any special voting powers or restrictions.
10 As at 24 April 2018 (being the last practicable date prior to the
publication of this Notice) the total number of votes exercisable by holders of
ZDP Shares is 21,365,221.
11 Capitalised terms used in this Notice of Class Meeting but not
defined shall bear the same meanings as set out in the Company's Articles of
Incorporation.
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are
in any doubt about the contents of this document or the action you should take,
you should consult immediately your stockbroker, bank manager, solicitor,
accountant or other financial adviser, authorised under the Financial Services
and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of your Shares in Acorn Income
Fund Limited please send this document and Form of Proxy, as soon as possible,
to the purchaser or transferee or to the stockbroker, bank or other agent
through whom the sale or transfer was effected for transmission to the
purchaser or transferee.
Acorn Income Fund Limited
(Company No. 34778)
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 2018 Annual General Meeting of Acorn Income
Fund Limited (the "Company") will be held at the offices of Northern Trust
International Fund Administration Services (Guernsey) Limited, Trafalgar Court,
Les Banques, St Peter Port, Guernsey, Channel Islands on 20 August 2018 at
11.15am.
Resolution on Agenda
Form of Proxy
Business to be proposed as Ordinary Resolutions:
1. To receive and adopt the Annual Financial Report for the year
ended 31 December 2017.
2. To re-appoint KPMG Channel Islands Limited as Auditor to the
Company until the conclusion of the next Annual General Meeting.
3. To authorise the Directors to determine the Auditor's
remuneration.
4. To re-elect Helen Foster Green as a Director of the Company.
5. To re-elect John Nigel Ward as a Director of the Company.
6. To receive and approve the Company's Dividend Policy as contained
within the Annual Financial Report of the Company for the year
ended 31 December 2017.
Special Business to be proposed as Ordinary Resolutions:
7. THAT, the Directors of the Company be and are hereby generally
and unconditionally authorised in accordance with the Articles to
issue new Ordinary Shares in the Company PROVIDED THAT:
(i) such powers shall be limited to issue up to 1,591,668 new
Ordinary Shares (approximately 10% of the issued Ordinary Shares,
excluding treasury shares, as at the date of this Notice); and
(ii) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be
held in 2019 unless such authority is renewed, varied or revoked
by the Company in general meeting (save that the Company may, at
any time before such expiry, make an offer or agreement which
would or might require ZDP Shares to be issued after such expiry
and the Directors may issue ZDP Shares after such expiry in
pursuance of such offer or agreement as if the authority
conferred hereby had not expired).
8. THAT, subject to and conditional upon the passing of the proposed
resolution of the Class Meeting of ZDP Members convened for 20
August 2018 at 11.00 am, the Directors of the Company be and are
hereby generally and unconditionally authorised in accordance
with the Articles to issue new ZDP Shares in the Company PROVIDED
THAT:
(i) such powers shall be limited to issue up to 2,136,522 new
ZDP Shares (approximately 10% of the issued ZDP Shares, excluding
treasury shares, as at the date of this Notice) in circumstances
where the Cover Test is met or Cover is maintained or is
otherwise increased, in each case, immediately following such
issue; and
(ii) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be
held in 2019 unless such authority is renewed, varied or revoked
by the Company in general meeting (save that the Company may, at
any time before such expiry, make an offer or agreement which
would or might require ZDP Shares to be issued after such expiry
and the Directors may issue ZDP Shares after such expiry in
pursuance of such offer or agreement as if the authority
conferred hereby had not expired).
Special Business to be proposed as Special Resolutions:
9. THAT, the Directors be and are hereby empowered (pursuant to
Resolution 7 or otherwise) to issue and sell from treasury up to
2,867,640 Ordinary Shares for cash otherwise than pro rata to
existing Ordinary Members at:
(i) a price equal to or greater than the prevailing Net Asset
Value per Ordinary Share; or
(ii) a discount to the prevailing Net Asset Value per Ordinary
Share in circumstances where ZDP Shares are issued at the same
time at a premium to Net Asset Value such that the combined effect
of the issue or sale of Ordinary Shares at a discount to the
prevailing Net Asset Value per Ordinary Share and the issue of ZDP
Shares at a premium to Net Asset Value is that (i) Net Asset Value
per Ordinary Share is thereby increased; and (ii) gearing is not
thereby increased,
PROVIDED THAT the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be held
in 2019 unless such authority is renewed, varied or revoked by the
Company in general meeting (save that the Company may at any time
before such expiry make an offer or agreement which might require
Ordinary Shares to be issued or sold after such expiry and the
Directors may issue or sell Ordinary Shares after such expiry in
pursuance of such offer or agreement as if the authority conferred
hereby had not expired).
10. THAT, the Company be generally and, subject as hereinafter
appears, unconditionally authorised in accordance with section 315
of the Companies Law to make market acquisitions (within the
meaning of section 316 of the Companies Law) of its issued
Ordinary Shares, PROVIDED THAT:
(i) the maximum aggregate number of Ordinary Shares hereby
authorised to be purchased shall be 2,385,911 Ordinary Shares;
(ii) the minimum price (exclusive of expenses) payable by the
Company for each Ordinary Share shall be GBP0.01;
(iii) the maximum price (exclusive of expenses) payable by the
Company for each Ordinary Share shall be the higher of (a) an
amount equal to 105% of the average value of an Ordinary Share for
the five business days prior to the day the purchase is made and
(b) the higher of the price of the last independent trade and the
highest independent bid at the time of the purchase for any number
of Ordinary Shares on the trading venue where the trade is carried
out;
(iv) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be held
in 2019 unless such authority is varied, revoked or renewed prior
to such time; and
(v) the Company may make a contract to purchase Ordinary Shares
under the authority hereby conferred prior to the expiry of such
authority which will or may be executed wholly or partly after the
expiration of such authority and may make an acquisition of
Ordinary Shares pursuant to any such contract.
11. THAT, the Company be generally and, subject as hereinafter
appears, unconditionally authorised in accordance with section
315 of the Companies Law to make market acquisitions (within
the meaning of section 316 of the Companies Law) of its issued
ZDP Shares, PROVIDED THAT:
(i) the maximum aggregate number of ZDP Shares hereby
authorised to be purchased shall be 3,202,646 ZDP Shares;
(ii) the minimum price (exclusive of expenses) payable by
the Company for each ZDP Share shall be GBP0.01;
(iii) the maximum price (exclusive of expenses) payable by the
Company for each ZDP Share shall be the higher of (a) an amount
equal to 105% of the average value of a ZDP Share for the five
business days prior to the day the purchase is made and (b) the
higher of the price of the last independent trade and the
highest independent bid at the time of the purchase for any
number of ZDP Shares on the trading venue where the trade is
carried out;
(iv) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be
held in 2019 unless such authority is varied, revoked or
renewed prior to such time; and
(v) the Company may make a contract to purchase ZDP Shares
under the authority hereby conferred prior to the expiry of
such authority which will or may be executed wholly or partly
after the expiration of such authority and may make an
acquisition of ZDP Shares pursuant to any such contract.
Any Other business
By Order of the Board
For and on behalf of
Northern Trust International Fund Administration
Services (Guernsey) Limited
Secretary
24 April 2018
Notes:
1 A member entitled to attend and to speak and vote at the meeting is
entitled to appoint one or more proxies to speak and vote instead of them. A
proxy need not be a member of the Company. Completion and return of the Form of
Proxy will not preclude members from attending or voting at the meeting, if
they so wish.
2 More than one proxy may be appointed provided each proxy is appointed to
exercise the rights attached to different shares.
3 To be valid the Form of Proxy, together with the power of attorney or
other authority, if any, under which it is executed (or a notarially certified
copy of such power of authority) must be deposited with the Registrar: Anson
Registrars, Limited, PO Box 426, Anson House, Havilland Street, St Peter Port,
Guernsey GY1 3WX no later than 11.15am on 15 August 2018 or not less than
forty-eight (48) hours before the time for holding any adjourned meeting. A
Form of Proxy is enclosed with this Notice.
4 All persons recorded on the register of members as holding Ordinary Shares
in the Company as at 11.15 a.m. on 15 August 2018 or, if the meeting is
adjourned, as at 48 hours before the time of any adjourned meeting, shall be
entitled to attend and vote (either in person or by proxy) at the meeting and
shall be entitled to one vote per share held.
5 The quorum for the Annual General Meeting is one or more members present
in person or by proxy and holding 5% or more of the voting rights available at
such meeting. If the meeting is not quorate, it will be adjourned to the same
time and place fourteen clear days later, whereupon such member or members who
shall attend in person or by proxy at any such adjourned meeting shall form the
quorum.
6 Where there are joint registered holders of any Ordinary Shares such
persons shall not have the right of voting individually in respect of such
shares but shall elect one of their number to represent them and to vote
whether in person or by proxy in their name. In default of such elections, the
person whose name stands first on the register of Ordinary Members shall alone
be entitled to vote.
7 On a poll, votes may be given either personally or by proxy and a member
entitled to more than one vote need not use all his votes or cast all the votes
he uses in the same way.
8 Any corporation which is a member may by resolution of its directors or
other governing body, authorise such person as it thinks fit to act as its
representative at this meeting. Any person so authorised shall be entitled to
exercise on behalf of the corporation which he represents the same powers (other than to appoint a proxy) as the corporation could exercise if it were an individual member of the Company. 9 Pursuant to the Articles, every member (being an individual) present in person or by proxy or (being a corporation) present by a duly authorised representative shall have one vote on a show of hands, subject to any special voting powers or restrictions, and one vote per Ordinary Share on a poll (other than the Company itself where it holds its own shares as treasury shares), subject to any special voting powers or restrictions. 10 As at 24 April 2018 (being the last practicable date prior to the publication of this Notice) the total number of votes exercisable by holders of Ordinary Shares is 15,916,687. 11 Capitalised terms used in this Notice of Annual General Meeting but not defined shall bear the same meanings as set out in the Company's Articles of Incorporation. Explanatory Notes to the Resolutions Ordinary Business: Resolution 1 - To receive and adopt the Annual Report and Financial Statements The Annual Report and Financial Statements for the year ended 31 December 2017 will be presented to the Annual General Meeting (the "AGM"). These Financial Statements accompanied this Notice of Meeting and members will be given an opportunity to ask questions at the AGM. Resolutions 2 - Re-appointment of auditors Resolution 2 relates to the re-appointment of KPMG Channel Islands Limited as the Company's independent auditors to hold office until the next AGM of the Company. Resolution 3 - To authorise the Directors to determine the Auditor's remuneration. Resolution 4 - To re-elect Helen Green as a Director of the Company. To re-elect Helen Green as a Director of the Company in accordance with the Company's policy on Directors' tenure, which is that in order to facilitate good corporate governance practice in line with principle 2 of the AIC Code, each Director will offer themselves for re-election every 3 years until their ninth year of service and any Director with over nine years' service shall be eligible for re-election every year thereafter. The Board believes it is in the Company's best interest that Helen Green be re-elected due to her extensive experience as a chartered accountant and also as a non-executive director, having served on the boards of a number of other investment companies admitted to the Official List of the FCA (see further details contained within the Annual Accounts). Resolution 5 - To re-elect John Nigel Ward as a Director of the Company. To re-elect John Nigel Ward as a Director of the Company in accordance with the Company's policy on Directors' tenure, which is that in order to facilitate good corporate governance practice in line with section B.7.1 of the UK Corporate Governance Code, each Director will offer themselves for re-election every year after their ninth year of service and shall be eligible for re-election every year thereafter. The Board believes it is in the Company's best interest that John Nigel Ward be re-elected due to his extensive experience as a non-executive director, having served on the boards of a number of other investment companies admitted to the Official List of the LSE (see further details contained within the Annual Accounts). Resolution 6 - To receive and approve the Company's Dividend Policy The Dividend Policy is outlined in the Annual Financial Report and will be presented at the AGM for approval. Special Business to be proposed as Ordinary Resolutions: The Company's existing authorities to issue new shares, sell shares from treasury and make market purchases of shares expire at the forthcoming AGM. Resolution 7 - Authority to issue Ordinary shares Resolution 7 will authorise the directors to issue up to 1,591,668 new Ordinary Shares (being approximately 10% of the issued Ordinary Shares at the date of this document, excluding treasury shares). Resolution 8 - Authority to issue ZDPs Resolution 8 will authorise the directors to issue up to 2,136,522 new ZDP Shares (being approximately 10% of the issued ZDP Shares at the date of this document, excluding treasury shares), such authority being conditional on the prior approval of such issuance at the Class Meeting of holders of Zero Dividend Preference shares to be held immediately prior to the AGM. The resolution provides that new ZDPs will only be issued if the Cover Test is met (see the Glossary of the Annual Report for explanation of Cover Test) or if the cover immediately following the issue is either maintained or increased. Special Business to be proposed as Ordinary Resolutions: Resolution 9 - Authority to dis-apply pre-emption rights in certain circumstances on the issue or sale from treasury of new Ordinary Shares and to issue or sell new Ordinary Shares at less than Net Asset Value. When Ordinary Shares are to be allotted for cash, the Articles provide that existing Ordinary Members have pre-emption rights such that the new Ordinary Shares must be offered first to such members in proportion to their existing holding of Ordinary Shares. However, members can, by special resolution, authorise the Directors to allot Ordinary Shares otherwise than by a pro rata issue to existing members. In addition, under the Listing Rules, the issue of new Ordinary Shares (including sales of treasury shares) at prices representing a discount to NAV per Ordinary Share, other than on a pre-emptive basis, is only permitted if Members have authorised such issues. Accordingly, resolution 9 will give the Company authority to dis-apply pre-emption rights when issuing or selling from treasury new Ordinary Shares provided the new Ordinary Shares are issued or sold at a premium to NAV per Ordinary Share or, if sold at a discount to NAV per Ordinary Share, only in those circumstances where ZDP Shares are issued at the same time at a premium to Net Asset Value so that: (i) Net Asset Value per Ordinary Share is thereby increased; and (ii) gearing is not thereby increased. The power to dis-apply pre-emption rights and to issue Ordinary Shares at less than Net Asset Value (subject to the provisos stated above) will be limited to 2,867,640 new Ordinary Shares in aggregate. This figure represents the aggregate of 1,591,668 Ordinary Shares proposed to be authorised for issued under resolution 7 and 1,275,972 Ordinary Shares held in treasury at the date of this document. This power will expire (unless renewed) at the annual general meeting in 2019. The Board recognises that this pre-emption waiver is beyond the 10% typically sought by investment companies, but believes that it is appropriate as it should give the Company greater flexibility in managing its share capital and, importantly for the Company as a relatively small entity, provides the potential for improved liquidity in its shares. Resolutions 10 and 11 - Authority to buy back Ordinary Shares and ZDP Shares The Company is seeking authority under resolutions 10 and 11 to make market acquisitions of up to 14.99% of the issued ordinary and ZDP shares, at the date of this document, to facilitate its discount management policy. RECOMMENDATION The Board considers the resolutions to be proposed at the forthcoming Annual General Meeting to be in the best interest of the members as a whole and recommends that members vote in favour of the resolutions to be proposed at the forthcoming Annual General Meeting. END
(END) Dow Jones Newswires
April 25, 2018 02:00 ET (06:00 GMT)
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