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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| North American Income Trust (the) Plc | LSE:NAIT | London | Ordinary Share | GB00BJ00Z303 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.00 | 0.36% | 279.00 | 278.00 | 279.00 | 281.00 | 276.00 | 281.00 | 1,122,603 | 16:28:11 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 51.13M | 41.82M | 0.3000 | 9.30 | 388.86M |
From Apr 2019 to Apr 2024
TIDMNAIT
RNS Number : 8223V
North American Income Trust (The)
11 April 2019
THE NORTH AMERICAN INCOME TRUST PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT FOR THE YEARED 31 JANUARY 2019
INVESTMENT OBJECTIVE
To provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities.
FINANCIAL RESULTS AND PERFORMANCE
Financial Highlights
Hot Features
Premium
Net asset value total return{A} +4.8% Share price total return{A} +6.3%
2018 +7.1% 2018 +8.8%
Revenue return per share 50.19p Dividends per share 42.50p
2018 42.12p 2018 39.00p
Dividend yield{B} 3.2% Ongoing charges{A} 0.95%
2018 3.0% 2018 0.98%
{A} Considered to be an Alternative Performance Measure. See pages
12, 64 and 65 of the published 2019 Annual Report for more information.
{B} Calculated as the dividend for the year divided by the year
end share price.
Results Summary
31 January 2019 31 January 2018 % change
Total assets GBP436,667,000 GBP423,293,000 +3.2
Equity shareholders' funds GBP398,657,000 GBP391,649,000 +1.8
Share price (mid market) 1340.00p 1300.00p +3.1
Net asset value per share{A} 1402.22p 1377.57p +1.8
Discount (difference between
share price and net asset
value) 4.4% 5.6%
Net gearing{B} 5.7% 3.6%
Dividends and earnings
Revenue return per share 50.19p 42.12p +19.2
Dividends per share (including
proposed final dividend) 42.50p 39.00p +9.0
Dividend yield (based on year
end share price) 3.2% 3.0%
Dividend cover{B} 1.18 1.08
Revenue reserves per share
Prior to payment of third
interim dividend declared
and proposed final dividend 58.77p 48.59p
After payment of third interim
dividend declared and proposed
final dividend 32.27p 24.59p
Operating costs
Ongoing charges{B} 0.95% 0.98%
{A} Including undistributed revenue
{B} Considered to be an Alternative Performance Measure. See pages
64 and 65 of published 2019 Annual Report for further information.
Performance
1 year 3 year 5 year
return return{A} return{A}
Total return (Capital return plus dividends % % %
reinvested)
Share price{B} +6.3 +80.8 +104.6
Net asset value per share{B} +4.8 +63.6 +100.7
Russell 1000 Value Index (in sterling
terms) +2.9 +49.9 +86.4
S&P 500 Index (in sterling terms) +5.6 +59.8 +110.1
{A} Cumulative return
{B} Considered to be an Alternative Performance Measure. See page
64 of published 2019 Annual Report for more information.
Dividends
Rate xd date Record date Payment date
1st Interim dividend 8.00p 19 July 2018 20 July 2018 3 August 2018
2019
2nd Interim dividend 8.00p 4 October 2018 05 October 26 October
2019 2018 2018
3rd Interim dividend 8.50p 24 January 25 January 15 February
2019 2019 2019 2019
Proposed final dividend 18.00p 19 May 2019 10 May 2019 7 June 2019
2019
_______
Total dividends 2019 42.50p
_______
1st Interim dividend 7.50p 13 July 2017 14 July 2017 4 August 2017
2018
2nd Interim dividend 7.50p 12 October 13 October 31 October
2018 2017 2017 2017
3rd Interim dividend 8.00p 25 January 26 January 16 February
2018 2018 2018 2018
Final dividend 2018 16.00p 10 May 2018 11 May 2018 8 June 2018
_______
Total dividends 2018 39.00p
_______
CHAIRMAN'S STATEMENT
Performance
Over the year to 31 January 2019, the Company's net asset value per share rose by 4.8% on a total return basis in sterling terms. This outperformed the 2.9% return from the Russell 1000 Value Index, the Company's primary reference index, but underperformed the 5.6% return from the S&P 500 Index.
The longer term performance of the Company has been strong. Over the three and five year periods to 31 January 2019, the Company's NAV rose by 63.6% and 100.7% respectively, compared to three and five year returns of 49.9% and 86.4% respectively from the Russell 1000 Value and 59.8% and 110.1% returns respectively from the S&P 500 indices.
Dividend
For the year ended 31 January 2019, the revenue return per Ordinary share rose by 19.2% from 42.1p to 50.2p. The Board is recommending a final dividend per Ordinary share of 18.0p, which will take the total dividends for the year to 42.5p (2018 - 39.0p), an increase of 9.0%. The total dividend represents a yield of 3.2%, using the share price of GBP13.40 at the year end, compared to the 2.0% yield from the S&P 500 Index at that date.
This leaves a balance of GBP2.19 million (equivalent to 7.7p per Ordinary share), which will be added to the revenue reserve, making a further increase in this reserve and providing the Company with added flexibility for future years. Since the change of mandate in 2012, the dividend has increased more than fourfold from 9.4p to 42.5p and the revenue reserves have risen significantly from 5.5p per share to 32.3p which will provide some cushion against adverse economic circumstances.
The proposed final dividend will be payable on 7 June 2019, to shareholders on the register on 10 May 2019. The quarterly dividends are paid in August, November, February and June each year.
Portfolio
As of 31 January 2019, the portfolio was composed of 40 equity holdings and 11 corporate bonds, with equities representing 94% of total assets.
Total revenue from equity holdings in the portfolio over the financial year was GBP14.3 million (2018 - GBP12.9 million). Most of the Company's equity holdings continued their established record of dividend growth. Approximately 85% of the equity holdings raised their dividends over the past year, with a weighted average increase of approximately 9.9%. Further details of the portfolio's equity income are provided in the Manager's Review.
During the financial year, the Company received premiums totalling GBP3.9 million (2018 - GBP2.4 million) in exchange for entering into listed stock option transactions. This option income, the generation of which remains consistent with the Manager's investment process which is focused on individual companies, represented 20.5% of total income (2018 - 14.9%). As the Company's exposure to corporate bonds has decreased over recent years, interest income from investments was lower and represented 3.3% of total income (2018 - 4.3%). Bond coupons and option premiums continue to remain secondary sources of income in the belief that dividends must remain the overwhelming source of income available for distribution. Further details of the portfolio are shown below.
Market & Economic Review
Despite several periods of volatility, particularly during December 2018, major North American equity market indices recovered and moved higher over the 12-month period ended 31 January 2019, buoyed by generally upbeat economic data reports and positive corporate earnings news. This offset investors' concerns regarding rising interest rates and the trade policy of the Trump administration.
US trade policy took centre stage in the markets several times during the period under review. In mid-2018, investors began to fear that several US trading partners would impose retaliatory tariffs on imports from the US in response to the Trump administration's levies on imported steel and aluminium from Canada, Mexico, and member nations of the European Union. However, the US and Europe subsequently agreed to avert a trade war, easing worries about possible US tariffs on European car imports. At the beginning of December, the US and China announced a temporary truce in their trade war. At the date of this report, negotiations between the US and Chinese governments had not produced a permanent trade agreement.
On the economic front, the US government's estimate of gross domestic product (GDP) growth for the third quarter of 2018 was revised down 0.1% to 3.4% due to modest markdowns to consumer spending and exports. This remains above normalised growth rates for the economy, but showed a deceleration from the prior quarter where growth moved above 4%. The US Department of Labour reported that US payrolls expanded by a monthly average of roughly 232,000 over the six-month period, while the unemployment rate moved up 0.1 percentage point to 4.0% as more jobseekers entered the market. Furthermore, average hourly earnings increased 3.2% over the period.
Discount
The Company's share price rose by 3.1% to GBP13.40 and ended the year at a 4.4% discount to the net asset value, compared with a 5.6% discount at the end of the 2018 financial year. The discount had largely traded in the range of 4-8% during the financial year and there were no share buybacks either during the year or since the end of it.
Gearing
The Board believes that sensible use of modest financial gearing should enhance returns to our shareholders over the longer term. The total amount available under the Company's loan facility agreement with Scotiabank (Ireland) Designated Activity Company is $75 million, of which $50 million is drawn down. Net gearing at 31 January 2019 was GBP19.4 million (31 January 2018 - GBP12.0 million), representing 5.7% of net assets (31 January 2018 - 3.6%), which includes the offset of cash held which is used as collateral against open option positions.
Promotional Activity
The Board continues to support the Manager's investment trust promotional and investor relations programme which helps to attract and engage investors. One of the main aims of this initiative is to provide a series of savings schemes through which savers can invest in the Company in a low-cost and convenient manner and is supported by customer service and call centre teams (see pages 69 to 71 of the published 2019 Annual Report). Other areas covered by the programme include promotional campaigns, website hosting, and roadshows with the Manager, fund research and digital marketing.
Up-to-date information about the Company, including monthly factsheets, interviews with the Manager and the latest net asset value and price of the Ordinary shares, may be found on the Company's website at: www.northamericanincome.co.uk.
Board Composition
As reported in the 2018 Half Yearly Report, Guy Crawford and Archie Hunter retired from the Board on 18 September 2018. Both served this Company over many years and I thank them on behalf of shareholders for their wise counsel and the expertise that they both brought to bear in their roles as non-executive directors.
Karyn Lamont and Susannah Nicklin were appointed as non-executive directors of the Company with effect from 18 September 2018; both bring with them a wealth of experience. Karyn, a chartered accountant and a former partner of PwC, joined as Audit Committee Chairman. She has been involved with auditing for over 25 years, specialising in the financial services sector across the UK. Susannah is an investment and financial services professional with over 20 years of international experience.
Outlook
The price reactions in equity markets witnessed in 2018 appeared to be an adjustment of investor expectations, with fundamentals remaining broadly healthy, although decelerating. This slowing is not unexpected given where we are in the economic cycle. Market sentiment has improved since the beginning of this year but remains volatile and, whilst risks remain, there are positive developments worth highlighting. It appears that there has been some progress in US-China trade talks, and the consensus of opinion points to a compromise between the two countries being reached, though that is far from certain. Additionally, while it is still early in the year, US corporate earnings have been strong overall thus far, and the outlook for dividend growth in 2019 is encouraging.
Following market strength in January, valuations in general are no longer definitively inexpensive relative to growth expectations. However, our Manager believes that given the growth in earnings and cash flow expected from our stocks, the portfolio provides reasonably good value.
Annual General Meeting ("AGM")
At the forthcoming AGM, the Board will propose an ordinary resolution to sub-divide the existing Ordinary shares (currently with a nominal value of 25p each) into new Ordinary shares of 5p each. The Company has a large number of private investors who invest through regular savings plans and this sub-division, which will result in a lower price per share, will enable small sums to be invested regularly in a more efficient manner. Each Shareholder will hold the same proportionate interest in the Company following the completion of the share split as before. Further details of this resolution as well as the other resolutions being proposed are provided in the Directors' Report on pages 25 to 28 of the published 2019 Annual Report.
The Company's AGM will be held at 2.00 pm on 4 June 2019 at the Manager's office at 1 George Street, Edinburgh. I hope that we shall see as many shareholders as possible then.
James Ferguson
Chairman
10 April 2019
INVESTMENT MANAGER'S REVIEW
Market review
Despite numerous periods of volatility, major North American equity market indices moved higher over the 12-month period ended 31 January 2019, buoyed by generally upbeat economic data reports and positive corporate earnings news. This offset investors' concerns regarding rising interest rates and US trade policy under the administration of President Donald Trump. The Russell 1000 Value Index, the Trust's equity portfolio reference index, returned 2.9% in sterling terms over the period. Two relatively higher dividend paying sectors, utilities and real estate, posted double-digit gains and were the top performers within the index for the review period. In contrast, the more cyclical materials and industrials sectors recorded losses as the market factored in the potential for a slowing of GDP growth, which was an acute concern in late 2018. The energy sector also underperformed.
Throughout the year the markets were dominated by investors' fears over US trading partners imposing retaliatory tariffs on the US, but cooler heads have prevailed as the US and Europe agreed to avert a trade war, and at the beginning of December, the US and China announced a truce in their trade war given progress in negotiations. At this point it appears that the two countries have made progress towards reaching a trade agreement - which is in their both best interests - but given the actors involved the path to trade policy may not be a straight one.
Regarding monetary policy, the US Federal Reserve (Fed) raised its benchmark interest rate in four 25-basis point increments to a range of 2.25% to 2.50% following its policy meetings in March, June, September and December 2018. The Fed subsequently left the rate unchanged after its meeting in late January 2019. Fed Chair Jerome Powell appeared to strike a more dovish tone during a news conference following the central bank's meeting in January, stating that "the case for raising rates has weakened somewhat". The market viewed these comments positively, as Powell also noted that economic growth remained "solid". Many believe that the rate-hiking process for this cycle is now complete. Nevertheless, the Fed did refer to several risks of which we remain mindful, including sluggish inflation, slowing global growth, and the possibility of more political gridlock in Washington, DC. The Fed even left the door open for interest rate cuts should conditions warrant. This is a far cry from the more hawkish tone that the central bank had struck at the end of 2018.
Performance
The Company's portfolio outperformed its reference index, the Russell 1000 Value Index, over the 12-month period ended 31 January 2019. The net asset value in sterling total return terms gained 4.8% versus the 2.9% and 5.6% returns of the Russell 1000 Value and S&P 500 indices, respectively. The strength in the US dollar boosted sterling returns as the net asset value fell by 3.1% in local currency compared to falls of 4.8% and 2.3% from the Russell 1000 Value and S&P 500 indices, respectively. The revenue account remained in good shape, building upon the surplus established in prior years.
The outperformance of the Trust's equity portfolio relative to the Russell 1000 Value Index was due primarily to strong stock selection in the information technology, materials, financials and industrials sectors. The most notable contributors to performance among individual holdings were derivatives exchange operator CME Group, freight railway operator Union Pacific Corp., and specialty agricultural products maker Nutrien.
CME Group's results over the review period were bolstered by strength in its market data and information services unit, as well as higher access and communication fees. The company also benefited from the expansion of its international business, which generated substantial volume growth in both Europe and Asia. Union Pacific saw healthy increases in revenue and earnings for its 2018 fiscal year. The company benefited from higher freight revenue and an upturn in carloads bolstered by notable growth in industrial and premium shipments. These positive factors counterbalanced the negative impact of higher diesel fuel prices. Nutrien delivered strong results over the review period that benefited from the merger of Potash Corp. and Agrium, which formed the current company in January 2018. Consequently, management raised its earnings guidance for the full 2018 fiscal year.
Fund performance for the review period was hindered by an overweight allocation versus the reference index to the materials sector, as well as underweights to the utilities and healthcare sectors. The largest individual stock detractors included energy services provider Schlumberger Ltd., specialty apparel retailer L Brands, and commercial bank Umpqua Holdings.
Schlumberger posted generally positive quarterly results during the review period, benefiting mainly from strength in its drilling and production business units. However, shares of the company declined as oil prices dipped during the review period. Additionally, the company's business was hampered by transitory issues, with pipelines needed in the Permian Basin in western Texas and southeastern New Mexico. This has led to a slowdown for onshore oil service vendors. L Brands' quarterly results over the reporting period were hampered by weakness in its Victoria's Secret business, which offset the strong performance of its Bath & Body Works segment. Furthermore, management lowered its earnings guidance for the 2018 fiscal year. We subsequently sold the position in L Brands in December 2018. Umpqua Holdings posted a modest decline in revenue for its 2018 fiscal year attributable mainly to lower volumes in its mortgage banking business. This offset the positive impact of double-digit net interest growth for the period.
Portfolio activity
The Trust's equity investments remained consistent with our bottom-up, management-focused stock selection process. During the 12-month review period, we initiated equity positions in specialty carbon products maker Orion Engineered Carbons; commercial banks Huntington Bancshares and Umpqua Holdings; food and beverage maker Coca-Cola; paper and packaging products maker International Paper; jewellry and luxury goods retailer Tiffany & Co., pharmaceutical firm Bristol-Myers Squibb Co.; and we initiated a holding in medical device maker Medtronic.
Conversely, in addition to L Brands as previously noted, we sold our positions in Helmerich & Payne, a provider of oil and gas drilling services; Sonoco Products, a manufacturer of industrial and consumer packaging products; payroll services provider Paychex; oil and gas company ConocoPhillips; Montana-based commercial bank Glacier Bancorp; industrial gases supplier Praxair; diversified healthcare company Abbott Laboratories; and Ventas Corp., a healthcare-focused REIT.
A sector analysis chart of the portfolio can be found on page 22 of published 2019 Annual Report.
Within the Trust's corporate bond portfolio over the reporting period, we initiated positions in Continental Resources 3.80% 2024; CCO Holdings Capital Corp. 5.50% 2026; Symantec Corp. 5.00% 2025; Cheniere Corpus Christi Holdings 5.875% 2025; Conduent Finance/Xerox Business Services 10.50% 2024; Graham Holdings 5.75% 2026; Parsley Energy 5.375% 2025; Harland Clarke 6.875% 2020; Lennar 4.5% 2024; Exela Intermediate LLC 10% 2023; Centene Corp. 6.125% 2024; NRG Energy 6.25% 2024; and Diamond 6.0% 2026.
Conversely, we sold the positions in International Lease Finance Corp. 5.25% 2019; Western Digital Corp. 7.375% 2023; Prestige Brands Holdings 6.375% 2024; Continental Resources 3.8% 2024; Symantec 5% 2025; and Nationstar Mortgage LLC/Capital Corp 6.5% 2022.
We continue to work closely with Aberdeen Standard Investment's fixed income specialists to monitor credits and market conditions.
Dividend growth
The Company's holdings continue to build upon an established track record of dividend growth. In aggregate, our holdings raised their dividends by just under 10% with those that increased their dividends during the year averaging increases of 11%. There were several standouts over the 12-month review period including agricultural products maker Nutrien (formerly Potash Corp), which now has a 27% higher payout level given increased diversification and earnings stability post its merger in January 2018 with Agrium. Ohio-based bank Huntington Bancshares boosted its quarterly dividend by 27%, soft-drink and snack foods maker PepsiCo boosted its distributions by 15%, networking equipment maker Cisco Systems increased its payout by roughly 14% and diversified financial services company BB&T Corp. boosted its quarterly dividend by nearly 14%. BB&T management indicated that the increase was an initiative to pass along the benefits of the recent US tax reform legislation to shareholders.
Additionally, derivatives exchange operator CME Group declared an annual variable dividend of US$1.75 per share on top of the regular dividend of $2.80. The company uses this approach to facilitate paying out all cash that it generates during the year beyond a minimum threshold.
Outlook
We remain of the view that the price reactions in equity markets last year were a recalibration of expectations; growth rates were decelerating but fundamentals remained healthy. We view this slowing as normal and expected given where we are in the economic cycle, and indeed markets had become overly optimistic about the pace and duration of economic growth. From here we should expect only modest incremental fiscal stimulus and importantly very little monetary tightening beyond some additional balance sheet run-off. Thus as we become more pragmatic in our views for economic growth in 2019 and beyond, we are being selective with what we own as we compare the ability of companies to grow earnings and cash flow with current valuations being paid in the market.
The fourth-quarter earnings season proved to be more robust than expectations, although corporate managements seemingly erred on the side of caution for the 2019 outlook which is prudent given increased volatility globally. Exogenous risks continue to remain, with global trade negotiations at the forefront at this time. Conversely, there are some fiscal stimulus measures arising globally that may have the wherewithal to improve foreign economies and we will be watching these actions closely. The net effect of these market moves are valuations that are modestly below long-term averages while the interest rate and inflation backdrop is much more benign that it had been at the end of 2018. We will continue to manage a portfolio of high quality, cash generative companies and seek to deliver a combination of both growth and income for shareholders.
Aberdeen Asset Management Inc.**
10 April 2019
** on behalf of Aberdeen Standard Fund Managers Limited. Both companies are subsidiaries of Standard Life Aberdeen plc.
OVERVIEW OF STRATEGY
Introduction
The Company is an investment trust and its Ordinary shares are listed on the premium segment of the London Stock Exchange. The Company aims to attract long term private and institutional investors wanting to benefit from the income and growth prospects of North American companies. The Directors do not envisage any change in the Company's activity in the foreseeable future.
Investment Objective
To provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities.
Reference Index
The Board reviews performance against relevant factors, including the Russell Value Index 1000 (in sterling terms) and the S&P 500 Index (in sterling terms) as well as peer group comparisons. The aim is to provide investors with above average dividend income from predominantly US equities which means that investment performance can diverge, possibly quite materially in either direction, from these indices.
Investment Policy
The Company invests in a portfolio predominantly comprised of S&P 500 constituents. The Company may also invest in Canadian stocks and US mid and small capitalisation companies to provide for diversified sources of income. The Company may invest up to 20% of its gross assets in fixed income investments, which may include non-investment grade debt. The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.
The maximum single investment will not exceed 10% of gross assets at the time of investment and it is expected that the portfolio will contain around 50 holdings (including fixed income investments), with an absolute minimum of 35 holdings. The composition of the Company's portfolio is not restricted by minimum or maximum market capitalisation, sector or country weightings.
The Company may borrow up to an amount equal to 20% of its net assets.
Subject to the prior approval of the Board, the Company may also use derivative instruments for efficient portfolio management, hedging and investment purposes. The Company's aggregate exposure to such instruments for investment purposes (excluding collateral held in respect of any such derivatives) will not exceed 20% of the Company's net assets at the time of the relevant acquisition, trade or borrowing.
The Company does not generally intend to hedge its exposure to foreign currency. The Company will not acquire securities that are unlisted or unquoted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be listed or quoted, if appropriate.
The Company may participate in the underwriting or sub-underwriting of investments where appropriate to do so.
The Company may invest in open-ended collective investment schemes and closed-ended funds that invest in the North American region. However, the Company will not invest more than 10%, in aggregate, of the value of its gross assets in other listed investment companies (including listed investment trusts), provided that this restriction does not apply to investments in any such investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed investment companies.
The Company will normally be substantially fully invested in accordance with its investment objective but, during periods in which changes in economic conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.
Management
The Board has appointed Aberdeen Standard Fund Managers Limited ("ASFML" or "Manager") to act as the alternative investment fund manager ("AIFM" or "Manager").
The Directors are responsible for determining the investment policy and the investment objective of the Company. The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Management Inc. ("AAMI" or "Investment Manager") by way of a delegation agreement in place between ASFML and AAMI.
The Investment Manager invests in a range of North American companies, following a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value, concentrating on quality first, then price. Top-down investment factors are secondary in the Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
KPI Description
Net asset value and share The Board reviews the Company's NAV and
price performance against share price total return performance against
the reference indices the reference indices, the Russell 1000
Value and the S&P 500 (both in sterling
terms). Performance graphs and tables are
provided on pages 12 to 13 of the published
2019 Annual Report. The Board also reviews
the performance of the Company against
its peer group of investment trusts with
similar investment objectives.
Revenue return and dividend The Board monitors the Company's net revenue
yield return and dividend yield through the receipt
of detailed income forecasts. A graph showing
the dividends and yields over 5 years is
provided on page 14 of the published 2019
Annual Report.
Discount/premium to net The discount/premium relative to the net
asset value asset value per share is closely monitored
by the Board. A graph showing the share
price discount/premium relative to the
net asset value is shown on page 13 of
the published 2019 Annual Report.
Ongoing charges The Company's ongoing charges ratio (OCR)
is provided below. The Board reviews the
OCR against its peer group of investment
trusts with similar investment objectives.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions it has taken. The Board has carried out a robust assessment of these risks, which includes those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are on the Company's website. The risks and uncertainties faced by the Company are reviewed annually by the Audit Committee in the form of a risk matrix and heat map and a summary of the principal risks is set out below.
Description Mitigating Action
Market Risk
The risks facing the Company The day-to-day management of the Company's
relate to the Company's investment assets has been delegated to the Manager
activities and include market under investment guidelines determined
risk (comprising interest by the Board. The Board monitors these
rate risk and other price guidelines and receives regular reports
risk), liquidity risk and from the Manager which include performance
credit risk. The Company is reporting. The Board regularly reviews
exposed to the effect of variations these guidelines to ensure they remain
in share prices and movements appropriate.
in the US$/GBP exchange rate
due to the nature of its business. Details on financial risks, including
A fall in the market value market price, liquidity and foreign currency
of its portfolio would have risks and the controls in place to manage
an adverse effect on shareholders' these risks are provided in note 17 to
funds. Any debt securities the financial statements.
that may be held by the Company
will be affected by general
changes in interest rates
that will in turn result in
increases or decreases in
the market value of those
instruments.
Gearing Risk
Gearing is used to leverage In order to manage the level of gearing,
the Company's portfolio in the Board has set a maximum gearing ratio
order to enhance returns where of 20% of net assets. The Board receives
and to the extent this is regular updates from the Manager on the
considered appropriate to actual gearing levels the Company has
do so. Gearing has the effect reached together with the assets and
of accentuating market falls liabilities of the Company, and reviews
and market gains. The ability these as well as compliance with the
of the Company to meet its principal loan covenants at each Board
financial obligations, or meeting. As at 31 January 2019 the Company
an increase in the level of had GBP38.0 million of borrowings and
gearing, could result in the net gearing was 5.7% at the year end.
Company becoming over-geared
or unable to take advantage In addition, ASFML, as alternative investment
of potential opportunities fund manager, has set an overall leverage
and result in a loss of value limit of 2.0 X on a commitment basis
to the Company's shares. (2.5 X on a gross notional basis) and
includes updates in its reports to the
Board.
Discount volatility
Investment company shares In order to seek to minimise the impact
can trade at discounts to of share price volatility, where the
their underlying net asset shares are trading at a significant discount,
values, although they can the Company has operated a share buy
also trade at premia. back programme for a number of years.
The Board monitors the discount level
of the Company's shares and will exercise
discretion to undertake shares buy backs.
Income and Dividend Risk
The ability of the Company The Board monitors this risk through
to pay dividends and any future the regular review of detailed revenue
dividend growth will depend forecasts and considers the level of
primarily on the level of income at each meeting.
income received from its investments
(which may be affected by
currency movements, exchange
controls or withholding taxes
imposed by jurisdictions in
which the Company invests)
and the timing of receipt
of such income by the Company.
Accordingly, there is no guarantee
that the Company's dividend
income objective will continue
to be met and the amount of
the dividends paid to Ordinary
shareholders may fluctuate
and may go down as well as
up.
Regulatory Risk
The Company operates in a The Manager has implemented procedures
complex regulatory environment to ensure that the provisions of the
and faces a number of regulatory Corporation Tax Act 2010 are not breached
risks. Breaches of regulations, and the results are reported to the Board.
such as Section 1158 of the
Corporation Tax Act 2010, The Manager provides six-monthly reports
the UKLA Listing Rules, Companies to the Audit Committee on its internal
Act 2006 and the Alternative control systems, which monitors compliance
Investment Fund Managers Directive, with relevant regulations. In addition,
could lead to a number of the Board, when necessary will use the
detrimental outcomes and reputational services of its professional advisers
damage. to monitor compliance with regulatory
requirements.
The Manager and depositary provide reports
to the Audit Committee on their operations
to ensure that the regulations under
the AIFM are complied with.
Derivatives
The Company uses derivatives The risks associated with derivatives primarily to enhance the income contracts are managed within guidelines generation of the Company. set by the Board.
In addition to these risks, the outcome and potential impact of the UK Government's negotiations with the European Union on Brexit is still unclear at the date of this report. This remains an economic risk for the Company, principally in relation to the potential impact of Brexit on currency volatility and the Manager's operations. Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit.
In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end.
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Manager and regular reports are provided to the Board on promotional activities as well as an analysis of the shareholder register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Duration
The Company does not have a fixed winding-up date, but shareholders are given the opportunity to vote on the continuation of the Company every three years at the Annual General Meeting. The next continuation vote will be at the AGM in June 2021.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge in order to allow the Board to fulfil its obligations. At 31 January 2019 the Board consisted of two males and three females.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Standard Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.
Socially Responsible Investment Policy
The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of corporate governance. It believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver long term growth on its investments for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board does formally consider risks and strategy on at least an annual basis. The Board considers the Company to be a long term investment vehicle but for the purposes of this Viability Statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have focused upon the following factors:
- The principal risks detailed in the strategic report above and the steps taken to mitigate these risks;
- The ongoing relevance of the Company's investment objective in the current environment; - The Company is invested in readily realisable listed securities;
- The level of revenue surplus generated by the Company and its ability to achieve the dividend policy. The Company has continued to deliver dividend growth whilst building up revenue reserves which can be used to top up the dividend in tougher times;
- The level of gearing is closely monitored;
- The availability of loan facilities. The Company has a loan facility of $75 million in place until December 2020; and
- The liquidity of the Company's portfolio and the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values.
As an investment trust with a North American mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise.
Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
James Ferguson
Chairman
10 April 2019
PORTFOLIO INVESTMENTS
Investment Portfolio - Ten Largest Equity Investments
As at 31 January 2019
Valuation Total Valuation
2019 assets 2018
Company Industry classification GBP'000 % GBP'000
Chevron
Chevron is an integrated
energy company. The company
has operations drilling
for crude oil and natural Oil, Gas &
gas as well as refining Consumable
and selling it. Fuels 21,789 5.0 15,867
Cisco Systems
Cisco Systems Inc. designs,
manufactures, and sells
Internet Protocol (IP)-
based networking and
other products related
to the communications
and information technology
industry and provides
services associated with
these products and their Communications
use. Equipment 17,975 4.1 14,606
BB&T
BB&T is a full service
bank that operates in
the Southeast and Mid-Atlantic
regions of the United
States. Banks 16,694 3.8 17,853
Johnson & Johnson
Johnson & Johnson manufactures
health care products
and provides related
services for the consumer,
pharmaceutical, and medical
devices and diagnostics
markets. Pharmaceuticals 15,175 3.5 7,774
Procter & Gamble
Procter & Gamble company
manufactures and markets
consumer products globally. Household Products 14,667 3.4 13,964
Philip Morris
Philip Morris International
Inc., through its subsidiaries,
manufactures and sells
cigarettes and other
tobacco products. Tobacco 13,997 3.2 14,327
Regions Financial
Regions Financial is
a full service bank that
operates in the southern
portion of the United
States. Banks 12,685 2.9 11,494
Verizon Communication
Verizon Communications
Inc., through its subsidiaries,
provides communications,
information, and entertainment
products and services
to consumers, businesses, Diversified
and governmental agencies Telecommunication
worldwide. Services 12,557 2.9 7,605
Texas Instruments
Texas Instruments operates
as a semiconductor design
and manufacturing company.
The Company develops
analog ICs and embedded Semiconductors
processors, serving customers & Semiconductor
worldwide. Equipment 11,481 2.6 7,712
Umpqua
Umpqua Holdings Corp
is the holding company
for Umpqua Bank, an Oregon
state-chartered Bank.
Umpqua Bank is engaged
primarily in the business
of commercial and retail
banking and the delivery
of retail brokerage services.
The bank provides asset
management, mortgage
banking and other financial
services to corporate,
institutional and individual
customers. Banks 11,424 2.6 -
Ten largest equity investments 148,444 34.0
Investment Portfolio - Other Equity Investments
As at 31 January 2019
Valuation Total Valuation
2019 assets 2018
Company Industry classification GBP'000 % GBP'000
Genuine Parts Distributors 11,382 2.6 8,050
CME Group Capital Markets 11,086 2.5 16,189
Union Pacific Road and Rail 10,883 2.5 9,388
Diversified
Telecommunication
Telus Services 10,655 2.5 10,618
Pfizer Pharmaceuticals 10,327 2.4 16,930
DowDuPont Chemicals 10,227 2.3 14,350
Molson Coors Brewing Beverages 10,127 2.3 11,817
Energy Equipment
Schlumberger & Services 10,082 2.3 5,950
Huntington Bancshares Banks 10,065 2.3 -
Bristol-Myers Squib Pharmaceuticals 9,946 2.3 -
Twenty largest equity
investments 253,224 58.0
Nutrien Chemicals 9,848 2.3 11,042
Oil, Gas & Consumable
TransCanada Fuels 9,704 2.2 10,549
Gilead Sciences Biotechnology 9,580 2.2 5,893
Thrifts & Mortgage
Provident Financial Finance 9,392 2.2 9,251
Coca-Cola Beverages 9,147 2.1 -
Aerospace &
Lockheed Martin Defense 8,809 2.0 6,238
Royal Bank of Canada Banks 8,684 2.0 8,150
Equity Real
Estate Investment
Iron Mountain Trusts (REITs) 8,484 1.9 7,390
Orion Engineered Carbons Chemicals 8,390 1.9 -
Nucor Metals and Mining 8,380 1.9 6,592
Thirty largest equity
investments 343,642 78.7
Meredith Media 8,251 1.9 9,302
Microsoft Software 7,939 1.8 13,362
CMS Energy Multi-Utilities 7,927 1.8 8,182
American International Insurance 7,723 1.8 6,742
Textiles, Apparel
Tapestry & Luxury Goods 7,357 1.7 8,270
Tiffany & Co Specialty Retail 6,745 1.5 -
Health Care
Equipment &
Medtronic Supplies 6,719 1.5 -
Containers &
Intl Paper Co Packaging 5,409 1.2 -
Pepsico Beverages 4,283 1.0 8,460
Canadian Western Bank Banks 4,257 1.0 11,091
Forty largest equity
investments 410,252 93.9
Total equity investments 410,252 93.9
Other Investments
As at 31 January 2019
Valuation Total Valuation
2019 assets 2018
Company Industry classification GBP'000 % GBP'000
============================== ========================== ========== ======= ==========
CCO Holdings Capital 5.5%
01/05/26 Media 1,513 0.3 -
HCA 5.875% 15/02/26 Healthcare Services 1,475 0.3 1,110
Cheniere Corpus Christi Oil, Gas & Consumable
5.875% 31/03/25 Fuels 1,192 0.3 -
Parsley Energy Finance
5.375% 15/01/25 Exploration & Production 1,138 0.3 -
Lennar 4.5% 30/04/24 Construction 973 0.2 -
NRG Energy 6.25% 01/05/24 Electric 908 0.2 -
Graham Holdings 5.75% Diversified Consumer
01/06/26 Services 851 0.2 -
Harland Clarke Holdings
6.875% 01/03/20 IT Services 830 0.2 -
Centene Corp 6.125% 15/02/24 Health Insurance 798 0.2 -
Diamond 1 Fin Diamond
2 6.02% 15/06/26 Technology 776 0.2 -
Exela Intermed 10% 15/07/23 Technology 763 0.2 -
============================== ========================== ========== ======= ==========
Total other investments 11,217 2.6
========================================================== ========== ======= ==========
Total equity investments 410,252 93.9
========================================================== ========== ======= ==========
Total investments 421,469 96.5
========================================================== ========== ======= ==========
Net current assets(A) 15,198 3.5
========================================================== ========== ======= ==========
Total assets(A) 436,667 100.0
---------------------------------------------------------- ---------- ------- ----------
(A) Excluding bank loans
of GBP38,010,000.
Geographical Analysis
As at 31 January 2019
Equity Fixed interest Total
Country % % %
Canada 7.9 - 7.9
USA 89.4 2.7 92.1
_______ _______ _______
97.3 2.7 100.0
_______ _______ _______
GOING CONCERN
The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Company has a credit facility in place which is available until December 2020. The Board considers that the Company has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.
FINANCIAL STATEMENTS
Statement of Comprehensive Income
Year ended 31 January Year ended 31 January
2019 2018
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net gains on investments 11 - 7,901 7,901 - 13,851 13,851
Net currency (losses)/gains 3 - (1,603) (1,603) - 2,243 2,243
Income 4 19,033 - 19,033 16,137 - 16,137
Investment management fee 5 (875) (2,038) (2,913) (910) (2,126) (3,036)
Administrative expenses 7 (852) - (852) (739) - (739)
______ ______ _____ ______ ______ _____
Return before finance costs
and taxation 17,306 4,260 21,566 14,488 13,968 28,456
Finance costs 6 (345) (806) (1,151) (280) (652) (932)
______ ______ _____ ______ ______ _____
Return before taxation 16,961 3,454 20,415 14,208 13,316 27,524
Taxation 8 (2,692) 657 (2,035) (2,196) 359 (1,837)
______ ______ _____ ______ ______ _____
Return after taxation 14,269 4,111 18,380 12,012 13,675 25,687
______ ______ _____ ______ ______ _____
Return per share (pence) 10 50.19 14.46 64.65 42.12 47.96 90.08
______ ______ _____ ______ ______ _____
The total column of this statement represents the profit and loss account
of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Proposed final dividend
The Board is proposing a final dividend of 18.00p per share (GBP5,117,000), making a total dividend of 42.50p per share (GBP12,225,000) for the year to 31 January 2019 which, if approved, will be payable on 7 June 2019 (see note 9). For the year ended 31 January 2018, the final dividend was 16.00p per share (GBP4,549,000) making a total dividend of 39.00p per share (GBP11,092,000).
Statement of Financial Position
As at As at
31 January 31 January
2019 2018
Notes GBP'000 GBP'000
Non-current assets
Investments at fair value through
profit or loss 11 421,469 406,593
______ ______
Current assets
Debtors and prepayments 12 2,772 620
Cash and short term deposits 18,593 19,636
______ ______
21,365 20,256
______ ______
Creditors: amounts falling due within
one year
Other creditors 13 (6,167) (3,556)
Bank loan 14 (38,010) (31,644)
______ ______
(44,177) (35,200)
______ ______
Net current liabilities (22,812) (14,944)
Net assets 398,657 391,649
______ ______
Capital and reserves
Called-up share capital 15 7,108 7,108
Share premium account 48,467 48,467
Capital redemption reserve 15,452 15,452
Capital reserve 310,920 306,809
Revenue reserve 16,710 13,813
______ ______
Equity shareholders' funds 398,657 391,649
______ ______
Net asset value per share (pence) 16 1,402.22 1,377.57
______ ______
Statement of Changes in Equity
For the year ended 31 January
2019
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 January 2019 7,108 48,467 15,452 306,809 13,813 391,649
Return after taxation - - - 4,111 14,269 18,380
Dividends paid (see note
9) - - - - (11,372) (11,372)
_____ ______ ______ ______ ______ ______
Balance at 31 January 2019 7,108 48,467 15,452 310,920 16,710 398,657
_____ ______ ______ ______ ______ ______
For the year ended 31 January
2018
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 January 2018 7,161 48,467 15,399 295,709 12,365 379,101
Buyback of Ordinary shares
for cancellation (53) - 53 (2,575) - (2,575)
Return after taxation - - - 13,675 12,012 25,687
Dividends paid (see note
9) - - - - (10,564) (10,564)
_____ ______ ______ ______ ______ ______
Balance at 31 January 2018 7,108 48,467 15,452 306,809 13,813 391,649
_____ ______ ______ ______ ______ ______
The revenue reserve represents the amount of the Company's reserves
distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.
Statement of Cashflows
Year ended Year ended
31 January 2019 31 January 2018
Notes GBP'000 GBP'000
Operating activities
Net return before taxation 20,415 27,524
Adjustments for:
Net gains on investments (7,901) (13,851)
Net losses/(gains) on foreign
exchange transactions 1,603 (2,243)
Increase/(decrease) in dividend
income receivable (214) 25
Decrease in fixed interest
income receivable 11 31
(Decrease)/increase in derivatives (443) 531
(Increase)/decrease in other
debtors (7) 3
(Decrease)/increase in other
creditors (65) 17
Tax on overseas income (2,132) (1,831)
Amortisation of fixed income
book cost 26 22
_______ ______
Net cash inflow from operating
activities 11,293 10,228
Investing activities
Purchases of investments (164,763) (111,969)
Sales of investments 159,036 128,593
_______ ______
Net cash flow from investing
activities (5,727) 16,624
Financing activities
Equity dividends paid 9 (11,372) (10,564)
Buyback of Ordinary shares
for cancellation - (2,575)
Drawdown/(repayment) of loan 3,510 (4,394)
_______ ______
Net cash used in financing
activities (7,862) (17,533)
_______ ______
(Decrease)/increase in cash
and cash equivalents (2,296) 9,319
_______ ______
Analysis of changes in cash and cash
equivalents during the year
Opening balance 19,636 12,609
Effect of exchange rate fluctuation
on cash held 3 1,253 (2,292)
(Decrease)/increase in cash
as above (2,296) 9,319
_______ ______
Closing balance 18,593 19,636
_______ ______
Notes to the Financial Statements
For the year ended 31 January 2019
1. Principal activity
The Company is a closed-end investment company, registered
in Scotland No. SC005218, with its Ordinary shares being listed
on the London Stock Exchange.
2. Accounting policies
A summary of the principal accounting policies, all of which,
unless otherwise stated, have been consistently applied throughout
the year and the preceding year is set out below.
(a) Basis of preparation and going concern
The financial statements have been prepared in accordance
with Financial Reporting Standard 102 and with the Statement
of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued in November
2014 and updated in February 2018 with consequential amendments.
The financial statements are prepared in sterling which
is the functional currency of the Company and rounded to
the nearest GBP'000. They have also been prepared on a
going concern basis and on the assumption that approval
as an investment trust will continue to be granted.
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company have
adequate resources to continue in operational existence
for the foreseeable future. Thus they continue to adopt
the going concern basis of accounting in preparing the
financial statements. Further detail is included in the
Directors' Report (unaudited) on page 26 of the published
2019 Annual Report.
(b) Income
Income from investments, including taxes deducted at source,
is included in revenue by reference to the date on which
the investment is quoted ex dividend. Special dividends
are credited to capital or revenue, according to the circumstances.
Fixed returns on debt securities are recognised on a time
apportionment basis so as to reflect the effective yield
on the debt securities.
Interest receivable from cash and short-term deposits and
interest payable is accrued to the end of the year.
(c) Expenses
All expenses are accounted for on an accruals basis and
are charged to the Statement of Comprehensive Income. Expenses
are charged against revenue except as follows:
* transaction costs on the acquisition or disposal of
investments are charged to capital in the Statement
of Comprehensive Income;
* expenses are charged to capital where a connection
with the maintenance or enhancement of the value of
the investments can be demonstrated. In this respect,
the investment management fee is allocated 30% to
revenue and 70% to capital to reflect the Company's
investment policy and prospective income and capital
growth.
(d) Taxation
The tax payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported
in the Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible
in other years and it further excludes items that are never
taxable or deductible (see note 8 for a more detailed explanation).
The Company has no liability for current tax.
Deferred taxation is provided on all timing differences,
that have originated but not reversed at the Statement
of Financial Position date, where transactions or events
that result in an obligation to pay more or a right to
pay less tax in future have occurred at the Statement of
Financial Position date, measured on an undiscounted basis
and based on enacted tax rates. This is subject to deferred
tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from
which the future reversal of the underlying timing differences
can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as
stated in the financial statements which are capable of
reversal in one or more subsequent periods.
Owing to the Company's status as an investment trust company,
and the intention to continue to meet the conditions required
to obtain approval for the foreseeable future, the Company
has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
(e) Investments
All purchases and sales of investments are recognised on
the trade date, being the date the Company commits to purchase
or sell the investment. Investments are initially recognised
and subsequently re-measured at fair value in the Statement
of Comprehensive Income.
(f) Borrowings
Monies borrowed to finance the investment objectives of
the Company are stated at the amount of the net proceeds
immediately after issue plus cumulative finance costs less
cumulative payments made in respect of the debt. The finance
costs of such borrowings are accounted for on an accruals
basis using the effective interest rate method and are
charged 30% to revenue and 70% to capital to reflect the
Company's investment policy and prospective income and
capital growth.
(g) Dividends payable
Interim and final dividends are recognised in the period
in which they are paid.
(h) Nature and purpose of reserves
Share premium account
The balance classified as share premium includes the premium
above nominal value from the proceeds on issue of any equity
capital comprising Ordinary shares of 25p.
Capital redemption reserve
The capital redemption reserve is used to record the amount
equivalent to the nominal value of any of the Company's
own shares purchased and cancelled in order to maintain
the Company's capital.
Capital reserve
This reserve reflects any gains or losses on realisation
of investments in the period along with any changes in
fair values of investments held that have been recognised
in the Statement of Comprehensive Income. The costs of
share buybacks are also deducted from this reserve.
Revenue reserve
This reserve reflects all income and costs which are recognised
in the revenue column of the Statement of Comprehensive
Income. The revenue reserve represents the amount of the
Company's reserves distributable by way of dividend.
(i) Foreign currency
Assets and liabilities in foreign currencies are translated
at the rates of exchange ruling on the Statement of Financial
Position date. Transactions involving foreign currencies
are converted at the rate ruling on the date of the transaction.
Gains and losses on the realisation of foreign currencies
are recognised in the Statement of Comprehensive Income
and are then transferred to the capital reserve.
(j) Traded options
The Company may enter into certain derivative contracts
(e.g. options). Option contracts are accounted for as separate
derivative contracts and are therefore shown in other assets
or other liabilities at their fair value. The initial fair
value is based on the initial premium which is received/paid
on inception. The premium is recognised in the revenue
column over the life of the contract period. Losses realised
on the exercise of the contracts are recorded in the capital
column of the Statement of Comprehensive Income.
In addition, the Company may enter into derivative contracts
to manage market risk and gains or losses arising on such
contracts are recorded in the capital column of the Statement
of Comprehensive Income.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash at banks.
(l) Significant estimates and judgements
Disclosure is required of judgements and estimates made
by management in applying the accounting policies that
have a significant effect on the financial statements.
There are no significant estimates of judgement which impact
these financial statements.
2019 2018
3. Net currency gains/(losses) GBP'000 GBP'000
Gains/(losses) on cash held 1,253 (2,292)
(Losses)/gains on bank loans (2,856) 4,535
_______ ______
(1,603) 2,243
_______ ______
2019 2018
4. Income GBP'000 GBP'000
Income from overseas listed investments
Dividend income 13,374 12,225
REIT income 895 723
Interest income from investments 619 688
_______ ______
14,888 13,636
_______ ______
Other income from investment activity
Traded option premiums 3,909 2,402
Deposit interest 236 99
_______ ______
4,145 2,501
Total income 19,033 16,137
_______ ______
During the year, the Company was entitled to premiums totalling
GBP3,909,000 (2018 - GBP2,402,000) in exchange for entering
into option contracts. At the year end there were 8 (2018 -
8) open positions, valued at a liability of GBP118,000 (2018
- liability of GBP561,000) as disclosed in note 13. Losses
realised on the exercise of derivative transactions are disclosed
in note 11.
2019 2018
Revenue Capital Total Revenue Capital Total
5. Investment management GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
fee
Investment management
fee 875 2,038 2,913 910 2,126 3,036
_______ ______ _______ ______ _______ ______
Management services are provided by Aberdeen Standard Fund
Managers Limited ("ASFML"). With effect from 1 February 2018,
the annual management fee has been charged at 0.75% of net
assets up to GBP350 million, 0.6% between GBP350 million and
GBP500 million, and 0.5% over GBP500 million, payable quarterly.
Previously, the fee was calculated at an annual rate of 0.8%
of gross assets after deducting current liabilities and borrowings
and excluding commonly managed funds, payable quarterly. Net
assets equals gross assets after deducting current liabilities
and borrowings and excluding commonly managed funds. The balance
due to ASFML at the year end was GBP735,000 (2018 - GBP790,000).
The fee is allocated 30% to revenue and 70% to capital (2018
- same).
The management agreement between the Company and the Manager
is terminable by either party on three months' notice. In the
event of a resolution being passed at the AGM to wind up the
Company the Manager shall be entitled to three months' notice
from the date the resolution was passed. In the event of termination
on not less than the agreed notice period, compensation is
payable in lieu of the unexpired notice period.
2019 2018
Revenue Capital Total Revenue Capital Total
6. Finance costs GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest on bank
loans 345 806 1,151 280 652 932
_______ ______ _______ ______ _______ ______
2019 2018
7. Administrative expenses GBP'000 GBP'000
Directors' fees 113 100
Registrar's fees 60 60
Custody and bank charges 26 25
Secretarial fees 112 108
Auditor's remuneration (excluding irrecoverable
VAT):
- fees payable to the Company's auditor
for the audit of the annual accounts 17 16
Promotional activities 211 213
Printing, postage and stationery 26 28
Fees, subscriptions and publications 47 45
Professional fees 127 77
Depositary charges 50 48
Other expenses 63 19
_______ ______
852 739
_______ ______
Secretarial and administration services are provided by Aberdeen
Standard Fund Managers Limited ("ASFML") under an agreement
which is terminable on three months' notice. The fee is payable
monthly in advance and based on an index-linked annual amount
of GBP112,000 (2018 - GBP108,000). The balance due at the year
end was GBP28,000 (2018 - GBP18,000).
During the year GBP211,000 (2018 - GBP213,000) was paid to
ASFML in respect of promotional activities for the Company
and the balance due at the year end was GBP18,000 (2018 - GBP18,000).
2019 2018
Revenue Capital Total Revenue Capital Total
8. Taxation GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Analysis of charge
for the year
UK corporation
tax 657 (657) - 359 (359) -
Overseas tax
suffered 2,035 - 2,035 1,831 - 1,831
Prior year adjustment - - - 6 - 6
_______ ______ _______ ______ _______ ______
Total tax charge
for the year 2,692 (657) 2,035 2,196 (359) 1,837
_______ ______ _______ ______ _______ ______
(b) Factors affecting the tax charge for the year
The UK corporation tax rate is 19.00% (2018 - effective
rate of 19.17%). The tax charge for the year is lower than
the corporation tax rate. The differences are explained
below:
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net profit before
taxation 16,961 3,454 20,415 14,208 13,316 27,524
_______ ______ _______ ______ _______ ______
Corporation tax
at 19.00% (2018
- 19.17%) 3,223 656 3,879 2,724 2,553 5,277
Effects of:
Non-taxable overseas
dividends (2,541) - (2,541) (2,344) - (2,344)
Irrecoverable
overseas withholding
tax 2,035 - 2,035 1,831 - 1,831
Other non-taxable
income - (47) (47) - - -
Expenses not
deductible for
tax purposes 1 - 1 - - -
Tax effect of
expenses double
taxation relief (26) - (26) (21) - (21)
Excess management
expenses - (116) (116) - 173 173
Non-taxable gains
on investments - (1,454) (1,454) - (2,655) (2,655)
Non-taxable currency
gains/(losses) - 304 304 - (430) (430)
Prior year adjustment - - - 6 - 6
_______ ______ _______ ______ _______ ______
Total tax charge 2,692 (657) 2,035 2,196 (359) 1,837
_______ ______ _______ ______ _______ ______
(c) Provision for deferred taxation
No provision for deferred tax has been made in the current
or prior accounting year. The Company has not provided
for deferred tax on capital gains or losses arising on
the revaluation or disposal of investments as it is exempt
from tax on these items because of its status as an investment
trust company.
At the period end, after offset against income taxable
on receipt, there is a potential deferred tax asset of
GBP65,000 (2018 - GBP169,000) in relation to surplus management
expenses. It is unlikely that the fund will generate sufficient
taxable profits in the future to utilise these amounts
and therefore no deferred tax asset has been recognised.
2019 2018
9. Dividends GBP'000 GBP'000
Amounts recognised as distributions to equity
holders in the year:
3rd interim dividend for 2018 - 8.0p per
share (2017 - 7.5p) 2,274 2,149
Final dividend for 2018 - 16.0p per share
(2017 - 14.5p) 4,550 4,146
1st interim dividend for 2019 - 8.0p per
share (2018 - 7.5p) 2,274 2,137
2nd interim dividend for 2019 - 8.0p per
share (2018 - 7.5p) 2,274 2,132
_______ ______
11,372 10,564
_______ ______
The proposed third interim dividend was unpaid at the year
end and the final dividend for 2019 is subject to approval
by shareholders at the Annual General Meeting. Accordingly,
neither has been included as a liability in these financial
statements.
The table below sets out the total dividends paid and proposed
in respect of the financial year, which is the basis on which
the requirements of Sections 1158-1159 of the Corporation Tax
Act 2010 are considered. The revenue available for distribution
by way of dividend for the year is GBP14,269,000 (2018 - GBP12,012,000).
2019 2018
GBP'000 GBP'000
1st interim dividend for 2019 - 8.0p per
share (2018 - 7.5p) 2,274 2,137
2nd interim dividend for 2019 - 8.0p per
share (2018 - 7.5p) 2,274 2,132
3rd interim dividend for 2019 - 8.5p per
share (2018 - 8.0p) 2,417 2,274
Proposed final dividend for 2019 - 18.0p
per share (2018 - 16.0p) 5,117 4,549
_______ ______
12,082 11,092
_______ ______
The cost of the proposed final dividend for 2019 is based on
28,430,504 Ordinary shares in issue, being the number of Ordinary
shares in issue at the date of this report.
2019 2018
10. Return per Ordinary share GBP'000 p GBP'000 p
Based on the following figures:
Revenue return 14,269 50.19 12,012 42.12
Capital return 4,111 14.46 13,675 47.96
_______ ______ _______ ______
Total return 18,380 64.65 25,687 90.08
_______ ______ _______ ______
Weighted average number
of Ordinary shares in issue 28,430,504 28,514,542
_________ _________
2019 2018
11. Investments GBP'000 GBP'000
Fair value through profit or loss:
Opening fair value 406,593 410,344
Opening investment holdings gains (101,386) (132,009)
_______ ______
Opening book cost 305,207 278,335
Purchases at cost 167,882 107,758
Sales - proceeds (160,881) (125,338)
Sales - realised gains{A} 49,394 44,474
Amortisation of fixed income book cost (26) (22)
_______ ______
Closing book cost 361,576 305,207
Closing investment holdings gains 59,893 101,386
_______ ______
Closing fair value 421,469 406,593
_______ ______
Listed on overseas stock exchanges 421,469 406,593
_______ ______
2019 2018
Gains/(losses) on investments GBP'000 GBP'000
Realised gains on sales{A} 49,394 44,474
Movement in investment holdings gains (41,493) (30,623)
_______ ______
7,901 13,851
_______ ______
{A} Includes losses realised on the exercise of traded options
of GBP2,518,000 (2018 - GBP2,492,000) which are reflected in
the capital column of the Statement of Comprehensive Income
in accordance with accounting policy 2(j). Premiums received
from traded options totalled GBP3,909,000 (2018 - GBP2,402,000)
per note 4.
Transaction costs
During the year expenses were incurred in acquiring or disposing
of investments classified as fair value through profit or loss.
These have been expensed through capital and are included within
gains on investments in the Statement of Comprehensive Income.
The total costs were as follows:
2019 2018
GBP'000 GBP'000
Purchases 68 68
Sales 122 130
_______ ______
190 198
_______ ______
The above transaction costs are calculated in line with the
AIC SORP. The transaction costs in the Company's Key Information
Document are calculated on a different basis and in line with
the PRIIPs regulations.
2019 2018
12. Debtors: amounts falling due within one GBP'000 GBP'000
year
Dividends receivable 605 391
Interest receivable 172 183
Other debtors and prepayments 53 46
Amount due from brokers 1,845 -
Taxation recoverable 97 -
_______ ______
2,772 620
_______ ______
2019 2018
13. Creditors: amounts falling due within one GBP'000 GBP'000
year
Amounts due to brokers 5,166 2,047
Investment management fee payable 735 790
Traded option contracts 118 561
Interest payable 33 36
Other creditors 115 122
_______ ______
6,167 3,556
_______ ______
2019 2018
14. Bank loan GBP'000 GBP'000
Repayable within one year:
Bank loan 38,010 31,644
_______ ______
The Company agreed a US$75 million three year uncommitted multi-currency
revolving loan facility with Scotiabank on 21 December 2017.
US$50 million was drawn down at 31 January 2019 at an all-in
interest rate of 3.4780% and matured on 22 February 2019. At
the date of this Report the Company had drawn down US$50 million
at an all-in interest rate of 3.46563%.
The terms of the loan facility contain covenants that gross
borrowings should not exceed 35% of adjusted net assets and
the net asset value shall not at any time be less than US$200
million.
At 31 January 2018 the Company had a US$75 million three year
loan facility with Scotiabank, of which US$45 million was drawn
down at an all-in interest rate of 2.5325% and matured on 20
February 2018.
2019 2018
15. Called-up share capital GBP'000 GBP'000
Allotted, called-up and fully paid:
Opening balance 7,108 7,161
Shares bought back for cancellation during
the year - (53)
_______ ______
28,430,504 (2018 - 28,430,504) Ordinary
shares of 25p each 7,108 7,108
_______ ______
During the year no Ordinary shares were bought back (2018 -
214,500 bought back for cancellation at a total cost of GBP2,575,000).
16. Net asset value per equity share
The net asset value per share and the net assets attributable
to the Ordinary shareholders at the year end were as follows:
2019 2018
Net assets attributable GBP398,657,000 GBP391,649,000
Number of Ordinary shares in issue 28,430,504 28,430,504
Net asset value per share 1,402.22p 1,377.57p
17. Financial instruments and risk management
The Company's investment activities expose it to various types
of financial risk associated with the financial instruments
and markets in which it invests. The Company's financial instruments,
other than derivatives, comprise securities and other investments,
cash balances, loans and debtors and creditors that arise directly
from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income.
Subject to Board approval, the Company also has the ability
to enter into derivative transactions, in the form of traded
options, for the purpose of enhancing income returns and portfolio
management. During the year, the Company entered into certain
derivative contracts. As disclosed in note 4, the premium received
in respect of options written in the year was GBP3,909,000
(2018 - GBP2,402,000). Positions closed during the year realised
a loss of GBP2,518,000 (2018 - GBP2,492,000). The largest position
in derivative contracts held during the year at any given time
was GBP440,000 (2018 - GBP561,000). The Company had 8 (2018
- 8) open positions in derivative contracts at 31 January 2019
valued at a liability of GBP118,000 (2018 - GBP561,000) as
disclosed in note 13.
The Board has delegated the risk management function to the
Manager under the terms of its management agreement with ASFML
(further details which are included under note 5). The Board
regularly reviews and agrees policies for managing each of
the key financial risks identified with the Manager. The types
of risk and the Manager's approach to the management of each
type of risk, are summarised below. Such an approach has been
applied throughout the year and has not changed since the previous
accounting period. The numerical disclosures exclude short-term
debtors and creditors.
Risk management framework
The directors of ASFML collectively assume responsibility for
ASFML's obligations under the AIFMD including reviewing investment
performance and monitoring the Company's risk profile during
the year.
ASFML is a fully integrated member of the Standard Life Aberdeen
plc group of companies (referred to as "the Group"), which
provides a variety of services and support to ASFML in the
conduct of its business activities, including in the oversight
of the risk management framework for the Company. The AIFM
has delegated the day to day administration of the investment
policy to Aberdeen Asset Managers Limited, which is responsible
for ensuring that the Company is managed within the terms of
its investment guidelines and the limits set out in FUND 3.2.2R
(details of which can be found on the Company's website). The
AIFM has retained responsibility for monitoring and oversight
of investment performance, product risk and regulatory and
operational risk for the Company.
The AIFM conducts its risk oversight function through the operation
of the Group's risk management processes and systems which
are embedded within the Group's operations. The Group's Risk
Division supports management in the identification and mitigation
of risks and provides independent monitoring of the business.
The Division includes Compliance, Business Risk, Market Risk,
Risk Management and Legal. The team is headed up by the Group's
Head of Risk, who reports to the Chief Executive Officer of
the Group. The Risk Division achieves its objective through
embedding the Risk Management Framework throughout the organisation
using the Group's operational risk management system ("SHIELD").
The Group's Internal Audit Department is independent of the
Risk Division and reports directly to the Group's Chief Executive
Officer and the Audit Committee of the Group's Board of Directors.
The Internal Audit Department is responsible for providing
an independent assessment of the Group's control environment.
The Group's corporate governance structure is supported by
several committees to assist the board of directors of Standard
Life Aberdeen plc, its subsidiaries and the Company to fulfil
their roles and responsibilities. The Group's Risk Division
is represented on all committees, with the exception of those
committees that deal with investment recommendations. The specific
goals and guidelines on the functioning of those committees
are described on the committees' terms of reference.
Risk management
The main risks the Company faces from its financial instruments
are (i) market risk (comprising interest rate risk, currency
risk and price risk), (ii) liquidity risk and (iii) credit
risk.
The Board regularly reviews and agrees policies for managing
each of these risks. The Manager's policies for managing these
risks are summarised below and have been applied throughout
the year. The numerical disclosures exclude short-term debtors
and creditors, other than for currency disclosures.
(i) Market risk
The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in
market prices. This market risk comprises three elements
- interest rate risk, currency risk and other price risk.
Interest rate risk
Interest rate movements may affect:
- the fair value of the investments in fixed interest rate
securities;
- the level of income receivable on cash deposits;
- interest payable on the Company's variable rate borrowings.
Management of the risk
The possible effects on fair value and cash flows that
could arise as a result of changes in interest rates are
taken into account when making investment and borrowing
decisions.
The Board reviews on a regular basis the values of the
fixed interest rate securities.
The Board imposes borrowing limits to ensure gearing levels
are appropriate to market conditions and reviews these
on a regular basis. Borrowings comprise fixed rate, revolving
and uncommitted facilities. Details of borrowings at 31
January 2019 are shown in note 14.
Interest risk profile
The interest rate risk profile of the portfolio of financial
instruments at the Statement of Financial Position date
was as follows:
Weighted
average
period for Weighted Non-
which average Fixed Floating interest
rate is interest rate rate bearing
fixed rate
At 31 January Years % GBP'000 GBP'000 GBP'000
2019
Assets
Sterling - - - 2,110 -
US Dollar 5.87 6.07 11,217 13,863 376,951
Canadian Dollar - - - 2,620 33,301
_______ ______ _______
Total assets 11,217 18,593 410,252
_______ ______ _______
Liabilities
Bank loan -
US$50,000,000 0.06 3.48 - (38,010) -
_______ ______ _______
Total liabilities - (38,010) -
_______ ______ _______
Weighted
average
period for Weighted Non-
which average Fixed Floating interest
rate is interest rate rate bearing
fixed rate
At 31 January Years % GBP'000 GBP'000 GBP'000
2018
Assets
Sterling - - - 61 -
US Dollar 8.47 6.78 8,649 18,105 346,494
Canadian Dollar - - - 1,470 51,450
_______ ______ _______
Total assets 8,649 19,636 397,944
_______ ______ _______
Liabilities
Bank loan -
US$45,000,000 0.05 2.53 - (31,644) -
_______ ______ _______
Total liabilities - (31,644) -
_______ ______ _______
The weighted average interest rate is based on the current
yield of each asset, weighted by its market value. The
weighted average interest rate on bank loans is based on
the interest rate payable, weighted by the total value
of the loans. The maturity date of the Company's loan is
disclosed in note 14.
The floating rate assets consist of cash deposits at prevailing
market rates.
The non-interest bearing assets represent the equity element
of the portfolio.
Short-term debtors and creditors have been excluded from
the above tables.
Interest rate sensitivity
The sensitivity analyses below have been determined based
on the exposure to interest rates for both derivative and
non-derivative instruments at the Statement of Financial
Position date and the stipulated change taking place at
the beginning of the financial year and held constant throughout
the reporting period in the case of instruments that have
floating rates.
The rate of interest on the loan is the percentage rate
per annum which is the aggregate of the applicable margin,
adjusted LIBOR Offered Rate and mandatory cost if any.
If interest rates had been 100 basis points higher or lower
(based on current parameter used by Manager's Investment
Risk Department on risk assessment) and all other variables
were held constant, the Company's revenue return for the
year ended 31 January 2019 would decrease/increase by GBP194,000
(2018 - decrease/increase by GBP120,000). This is mainly
attributable to the Company's exposure to interest rates
on its floating rate cash and loan balances.
In the opinion of the Directors, the above sensitivity
analyses are not representative of the year as a whole,
since the level of exposure changes frequently as part
of the interest rate risk management process used to meet
the Company's objectives. The risk parameters used will
also fluctuate depending on the current market perception.
Foreign currency risk
The Company's portfolio is invested mainly in US quoted
securities and the Statement of Financial Position can
be significantly affected by movements in foreign exchange
rates.
Management of the risk
It is not the Company's policy to hedge this risk on a
continuing basis but the Company may, from time to time,
match specific overseas investment with foreign currency
borrowings. A significant proportion of the Company's borrowings,
as detailed in note 14, are denominated in foreign currency.
Foreign currency risk exposure by currency denomination
is detailed under Interest Risk Profile.
The revenue account is subject to currency fluctuation
arising on overseas income. The Company does not hedge
this currency risk.
Foreign currency sensitivity
There is no sensitivity analysis included as the Company's
significant foreign currency financial instruments are
in the form of equity investments, and they have been included
within the other price risk sensitivity analysis so as
to show the overall level of exposure.
Price risk
Price risks (ie changes in market prices other than those
arising from interest rate or currency risk) may affect
the value of the quoted investments.
Management of the risk
It is the Board's policy to hold an appropriate spread
of investments in the portfolio in order to reduce the
risk arising from factors specific to a particular country
or sector. The allocation of assets to international markets
and the stock selection process, as detailed on page 68
of the published 2019 Annual Report, both act to reduce
market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets
regularly in order to review investment strategy. The investments
held by the Company are listed on various stock exchanges.
Price risk sensitivity
If market prices at the Statement of Financial Position
date had been 10% higher or lower while all other variables
remained constant, the return attributable to Ordinary
shareholders for the year ended 31 January 2019 would have
increased/decreased by GBP42,147,000 (2018 - increase/decrease
of GBP40,659,000) and equity reserves would have increased/decreased
by the same amount.
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty
in meeting obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not considered to be significant as the
Company's assets comprise mainly readily realisable securities,
which can be sold to meet funding commitments if necessary.
Short-term flexibility is achieved through the use of the
loan facility (note 14).
(iii) Credit risk
This is failure of the counterparty to a transaction to
discharge its obligations under that transaction that could
result in the Company suffering a loss.
Management of the risk
* where the Manager makes an investment in a bond,
corporate or otherwise, the credit ratings of the
issuer are taken into account so as to manage the
risk to the Company of default;
* investments in quoted bonds are made across a variety
of industry sectors so as to avoid concentrations of
credit risk;
* transactions involving derivatives are entered into
only with investment banks, the credit rating of
which is taken into account so as to minimise the
risk to the Company of default;
* investment transactions are carried out with a number
of brokers, whose credit-standing is reviewed
periodically by the Manager, and limits are set on
the amount that may be due from any one broker;
* the risk of counterparty exposure due to failed
trades causing a loss to the Company is mitigated by
the review of failed trade reports on a daily basis.
In addition, both stock and cash reconciliations to
the custodian's records are performed on a daily
basis to ensure discrepancies are investigated on a
timely basis. The Manager's Compliance department
carries out periodic reviews of the custodian's
operations and reports its finding to the Manager's
Risk Management Committee;
* cash is held only with reputable banks with
acceptable credit quality. It is the Manager's policy
to trade only with A- and above (Long Term rated) and
A-1/P-1 (Short Term rated) counterparties.
Credit risk exposure
In summary, compared to the amounts in the Statement of
Financial Position, the exposure to credit risk at 31 January
2019 was as follows:
2019 2018
Statement Statement
of of
Financial Maximum Financial Maximum
Position exposure Position exposure
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Quoted bonds 11,217 11,217 8,649 8,649
Current assets
Amount due from brokers 1,845 1,845 - -
Dividends receivable 605 605 391 391
Interest receivable 172 172 183 183
Taxation recoverable 97 97 - -
Other debtors and
prepayments 53 53 46 46
Cash and short term
deposits 18,593 18,593 19,636 19,636
_______ ______ _______ ______
32,582 32,582 28,905 28,905
_______ ______ _______ ______
None of the Company's financial assets is secured by collateral
or other credit enhancements.
Credit ratings
The table below provides a credit rating profile using
Standard and Poors credit ratings for the quoted preference
shares and bonds at 31 January 2019 and 31 January 2018:
2019 2018
GBP'000 GBP'000
B+ 830 1,824
B 763 817
BB+ 2,622 153
BB 2,421 -
BB- 3,805 -
BBB- 776 5,855
_______ ______
11,217 8,649
_______ ______
Fair values of financial assets and financial liabilities
The book value of cash at bank and bank loans and overdrafts
included in these financial statements approximate to fair
value because of their short-term maturity. Investments
held as dealing investments are valued at fair value. The
carrying values of fixed asset investments are stated at
their fair values, which have been determined with reference
to quoted market prices. For all other short-term debtors
and creditors, their book values approximate to fair values
because of their short-term maturity.
18. Capital management policies and procedures
The investment objective of the Company is to provide investors
with above average dividend income and long term capital growth
through active management of a portfolio consisting predominately
of S&P 500 US equities.
The capital of the Company consists of bank borrowings and
equity comprising issued capital, reserves and retained earnings.
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return
to shareholders through the optimisation of the debt and equity
balance.
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes:
* the planned level of gearing which takes into account
the Investment Manager's views on the market;
* the level of equity shares in issue; and
* the extent to which revenue in excess of that which
is required to be distributed should be retained.
The Company's objectives, policies and processes for managing
capital are unchanged from the preceding accounting period.
Details of the Company's gearing facilities and financial covenants
are detailed in note 14 of the financial statements.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance
of the inputs used in making the measurements. The fair value
hierarchy has the following classifications:
Level 1: unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: inputs other than quoted prices included within Level
1 that are observable (ie developed using market data) for
the asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (ie for which market data
is unavailable) for the asset or liability.
The financial assets and liabilities measured at fair value
in the Statement of Financial Position are grouped into the
fair value hierarchy at the reporting date as follows:
Level Level Level Total
1 2 3
As at 31 January 2019 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair
value through profit or
loss
Quoted equities a) 410,252 - - 410,252
Quoted bonds b) - 11,217 - 11,217
_______ ______ _______ ______
410,252 11,217 - 421,469
_______ ______ _______ ______
Financial liabilities at
fair value through profit
or loss
Derivatives c) - (118) - (118)
_______ ______ _______ ______
Net fair value 410,252 11,099 - 421,351
_______ ______ _______ ______
Level Level Level Total
1 2 3
As at 31 January 2018 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at fair
value through profit or
loss
Quoted equities a) 397,944 - - 397,944
Quoted bonds b) - 8,649 - 8,649
_______ ______ _______ ______
397,944 8,649 - 406,593
_______ ______ _______ ______
Financial liabilities at
fair value through profit
or loss
Derivatives c) - (561) - (561)
_______ ______ _______ ______
Net fair value 397,944 8,088 - 406,032
_______ ______ _______ ______
a) Quoted equities
The fair value of the Company's investments in quoted equities
has been determined by reference to their quoted bid prices
at the reporting date. Quoted equities included in Fair
Value Level 1 are actively traded on recognised stock exchanges.
b) Quoted bonds
The fair value of the Company's investments in quoted bonds
has been determined by reference to their quoted bid prices
at the reporting date. Investments categorised as Level
2 are not considered to trade in active markets.
c) Derivatives
The Company's investment in exchange traded options have
been fair valued using quoted prices and have been classified
as Level 2 as they are not considered to trade in active
markets.
20. Related party transactions
Directors' fees and interests
Fees payable during the year to the Directors and their interests
in shares of the Company are disclosed within the Directors'
Remuneration Report on page 35 of the published 2019 Annual
Report.
Transactions with the Manager
The Company has an agreement with the Manager for the provision
of investment management, secretarial, accounting and administration
and promotional activity services.
Details of transactions during the year and balances outstanding
at the year end are disclosed in notes 5 and 7.
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the
Company's current, historical or future performance, financial
position or cash flows, other than financial measures defined or
specified in the applicable financial framework. The Company's
applicable financial framework includes FRS 102 and the AIC SORP.
The Directors assess the Company's performance against a range
of criteria which are viewed as particularly relevant for closed-end
investment companies.
Total return
Total return is considered to be an alternative performance measure.
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking
into account both capital returns and dividends paid to shareholders.
NAV total return involves investing the same net dividend in the
NAV of the Company with debt at fair value on the date on which
that dividend was earned. Share price total return involves reinvesting
the net dividend in the month that the share price goes ex-dividend.
The tables below provide information relating to the NAVs and share
prices of the Company on the dividend reinvestment dates during
the years ended 31 January 2019 and 31 January 2018 and total return
for the years.
Dividend Share
2019 rate NAV price
31 January 2018 N/A 1,377.57p 1,300.00p
10 May 2018 16.00p 1,351.36p 1,272.50p
19 July 2018 8.00p 1,430.65p 1,350.00p
4 October 2018 8.00p 1,466.17p 1,365.00p
24 January 2019 8.50p 1,380.38p 1,320.00p
31 January 2019 N/A 1,402.22p 1,340.00p
Total return +4.8% +6.3%
Dividend Share
2018 rate NAV price
31 January 2017 N/A 1,323.45p 1,232.00p
18 May 2017 14.50p 1,254.71p 1,158.50p
13 July 2017 7.50p 1,307.61p 1,191.00p
12 October 2017 7.50p 1,360.06p 1,262.00p
25 January 2018 8.00p 1,375.36p 1,317.50p
31 January 2018 N/A 1,377.57p 1,300.00p
Total return +7.1% +8.8%
Dividend cover
Revenue return per share of 50.19p (2018 - 42.12p) divided by dividends
per share of 42.50p (2018 - 39.00p) expressed as a ratio.
Net gearing
Net gearing measures the total borrowings of GBP38,010,000 (31
January 2018 - GBP31,644,000) less cash and cash equivalents of
GBP15,272,000 (31 January 2018 - GBP17,589,000) divided by shareholders'
funds of GBP398,657,000 (31 January 2018 - GBP391,649,000), expressed
as a percentage. Under AIC reporting guidance cash and cash equivalents
includes amounts due and to brokers at the year end as well as
cash and short term deposits. These balances can be found in notes
12 and 13 below.
Ongoing charges
Ongoing charges is considered to be an alternative performance
measure. The ongoing charges ratio has been calculated in accordance
with guidance issued by the AIC which is defined as the total of
investment management fees and administrative expenses and expressed
as a percentage of the average net asset values with debt at fair
value throughout the year.
2019 2018
Investment management fees (GBP'000) 2,913 3,036
Administrative expenses (GBP'000) 852 739
_______ _______
Ongoing charges (GBP'000) 3,765 3,775
_______ _______
Average net assets{A} (GBP'000) 396,330 383,371
_______ _______
Ongoing charges ratio 0.95% 0.98%
_______ _______
{A} During both years net asset values with debt at fair value
equated to net asset value with debt at amortised cost due to the
short-term nature of the bank loans.
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations.
ADDITIONAL NOTES TO THE ANNUAL FINANCIAL REPORT
This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 January 2019. The statutory accounts for the year ended 31 January 2019 received an audit report which was unqualified.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 January 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the financial year ended 31 January 2019 were approved by the Directors on 10 April 2019 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 2.00 pm on 4 June 2019 at 1 George Street, Edinburgh EH2 2LL.
The Annual Report will be posted to shareholders in April 2019 and additional copies will be available from the Manager (Investor Helpline - Tel. 0808 00 0040) or by download from the Company's webpage
(www.northamericanincome.co.uk)
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
For The North American Income Trust plc
Aberdeen Asset Management PLC, Secretaries
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR URANRKAASAAR
(END) Dow Jones Newswires
April 11, 2019 02:00 ET (06:00 GMT)
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