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RNS

Annual Financial Report

Released 07:00 28-Mar-2018

RNS Number : 1433J
North American Income Trust (The)
28 March 2018
 

THE NORTH AMERICAN INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2018

 

 

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. 

 

 

STRATEGIC REPORT 

 

1.         FINANCIAL RESULTS AND PERFORMANCE

 

Financial Highlights and Summary

 




Net asset value total return

+7.1%


Share price total return

+8.8%

2017

+45.8%


2017

+56.3%





Revenue return per share

42.12p


Dividends per share

39.00p

2017

39.92p


2017

36.00p






Dividend yield{A}

3.0%




2017

2.9%




{A} Based on year end share price




 

 


31 January 2018

31 January 2017

% change

Total assets

£423,293,000

£419,674,000

+0.9

Equity shareholders' funds

£391,649,000

£379,101,000

+3.3

Share price (mid market)

1300.00p

1232.00p

+5.5

Net asset value per share{A}

1377.57p

1323.45p

+4.1

Discount (difference between share price and net asset value)

5.6%

6.9%


Net gearing{B}

3.1%

7.4%






Dividends and earnings




Revenue return per share

42.12p

39.92p

+5.5

Dividends per share (including proposed final dividend)

39.00p

36.00p

+8.3

Dividend yield (based on year end share price)

3.0%

2.9%


Dividend cover

1.08

1.11


Revenue reserves per share




Prior to payment of third interim dividend declared and proposed final dividend

48.59p

43.17p


After payment of third interim dividend declared and proposed final dividend

24.59p

21.17p






Operating costs




Ongoing charges{C}

0.98%

1.05%


{A} Including undistributed revenue.

{B} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR" (see definition of "Net Gearing" on page 68).

{C} The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses divided by the average cum income net asset value throughout the year.

 

 

 

Performance









1 year return

3 year return{A}

5 year return{A}

Total return (Capital return plus dividends reinvested)

%

%

%

Share price

+8.8

+66.7

+109.5

Net asset value per share

+7.1

+61.1

+110.6

Russell 1000 Value Index (in sterling terms)

+3.7

+46.6

+109.7

S&P 500 Index (in sterling terms)

+11.8

+59.2

+133.3

{A} Cumulative return




 

 

Dividends

 


Rate

xd date

Record date

Payment date

1st Interim dividend 2018

7.50p

13 July 2017

14 July 2017

4 August 2017

2nd Interim dividend 2018

7.50p

12 October 2017

13 October 2017

31 October 2017

3rd Interim dividend 2018

8.00p

25 January 2018

26 January 2018

16 February 2018

Proposed final dividend 2018

16.00p

10 May 2018

11 May 2018

8 June 2018


_______




Total dividends 2018

39.00p





_______




1st Interim dividend 2017

7.00p

14 July 2016

15 July 2016

5 August 2016

2nd Interim dividend 2017

7.00p

13 October 2016

14 October 2016

31 October 2016

3rd Interim dividend 2017

7.50p

19 January 2017

20 January 2017

17 February 2017

Final dividend 2017

14.50p

18 May 2017

19 May 2017

16 June 2017


_______




Total dividends 2017

36.00p





_______




 

 

2.         CHAIRMAN'S STATEMENT

 

Performance

Over the year to 31 January 2018, the Company's net asset value per share rose by 7.1% on a total return basis in sterling terms. This was ahead of the more relevant Russell 1000 Value index reference benchmark return of 3.7% but behind the S&P 500 index return of 11.8%.

 

The Company has performed strongly since the change in its mandate to active management in 2012.  For the three year period to 31 January 2018 the cumulative NAV return has been 61.1% compared to returns of 46.6% and 59.2% from the Russell 1000 and S&P 500 indices respectively.

 

Dividend

For the year ended 31 January 2018, the revenue return per Ordinary share rose by 5.5% from 39.9p to 42.1p. The Board is recommending a final dividend per Ordinary share of 16.0p, which will take the total dividends for the year to 39.0p (2017 - 36.0p), an increase of 8.3%.  The total dividend represents a yield of 3.0%, using the share price of £13.00 at the year end, compared to the 1.8% yield from the S&P 500 Index at that date.

 

This leaves an undistributed balance of £920,000 (equivalent to 3.2p 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 2012, the dividend has increased over fourfold from 9.4p and the revenue reserves have risen significantly from 5.5p per share to 24.6p (see below).

 

The proposed final dividend will be payable on 8 June 2018, to shareholders on the register on 11 May 2018. The quarterly dividends are paid in August, November, February and June each year.

 

Portfolio

As at 31 January 2018 the portfolio comprised 41 equity holdings and 7 corporate bonds with equities representing 94% of total assets.

 

Total revenue from equity holdings in the portfolio over the financial year was £12.9 million (2017 - £11.6 million).  Most of the Trust's equity holdings continued their established record of dividend growth and approximately 80% of the equity holdings raised their dividends over the past year.  Dividend growth continues to be well funded with company cash flows and we expect another year of progressive dividend payments. Furthermore, companies continue to invest in their businesses and buy back shares. Further details of the portfolio's equity income are provided in the Investment Manager's Review. 

 

During the financial year, the Company received premiums totalling £2.4 million (2017 - £3.0 million) in exchange for entering into listed stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represented 14.9% of total income (2017 - 19.2%).  As the Company's exposure to corporate bonds has decreased over recent years, interest income from investments was lower and represented 4.3% of total income (2017 - 5.8%).  Bond coupons and option premiums will 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

The Company's financial year was marked by strong economic performance and solid operating results from companies in North America.  The slowdown in the industrial and energy markets from prior years has passed and optimism in making investments slowly improved throughout the year, even accelerating as it became more evident that pro-business tax policies would be enacted.

 

This broad based optimism was accompanied by rising earnings power across nearly all sectors and drove the strengthening of the labour market where unemployment has approached historical lows. This has led to some modest wage inflation for the first time in roughly a decade.  As a result we expect to see several interest rate increases through 2018, led by new Federal Reserve chairman Jerome Powell, to offset the strengthening economy and at least part of the positive impact from the tax policy.

 

Our investee companies are already highly cash generative and will largely benefit further from a lower tax burden. This combined with the ongoing strength in the economy will give them the flexibility to continue progressive dividend policies and perhaps increase those payments at a faster rate than recently. Many of these companies are also planning to increase investment in their underlying business, creating an even more visible path to long-term value creation.

 

However, we are cautious about the impact of rising materials and labour costs, and our Manager continues to focus on those companies with the strongest ability to protect margins through pricing power and increased productivity. Less controllable and forecastable is the real likelihood that companies will reinvest some of their tax savings to compete more aggressively as a means to improve their market share position. Our Manager seeks to manage carefully the Trust's exposure to those industries where competition could accelerate in such a way that impacts margins.

 

Further details can be found in the Investment Manager's Review below.

 

Gearing

The Board continues to believe that sensible use of modest financial gearing should enhance returns to shareholders over the longer term. The loan facility agreement of $51 million with State Street Bank and Trust Company expired on 21 December 2017 and was replaced with a $75 million 3 year unsecured multi-currency revolving credit loan facility with Scotiabank (Ireland) Designated Activity Company (the "new facility").  The total amount available under the new facility is $75 million of which $50 million was initially committed and drawn down. As at 31 January 2018, the amount drawn down was $45 million, representing 3.1% of net assets, which includes the offset of cash held used as collateral against open option positions.

 

Discount

The Company's share price rose by 5.5% to £13.00 and ended the year at a 5.6% discount to total net asset value, compared with a 6.9% discount at the end of the 2017 financial year. The Board continues to work with the Manager in both promoting the Company's benefits to a wider audience and through the use of selective share buybacks providing liquidity and importantly attempting to limit share price volatility. During the financial year, 214,500 shares were repurchased at a cost of £2.6 million. Since the end of October there have been no share repurchases as the discount has traded in the 3-7% range. 

 

Promotional Activity

The Board continues to promote the Company through the Manager's initiative which provides a series of savings schemes through which savers can invest in the Company in a low-cost and convenient manner (see page 64 of the 2018 published Annual Report).

 

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.

 

Investors should be aware that the PRIIPS Regulation requires the Manager, as PRIIP manufacturer, to prepare a key information document ("KID") in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available on the Manager's website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by the law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

 

Board Composition

As reported in the 2017 Half Yearly Report, Charles Park was appointed as an independent non-executive Director with effect from 13 June 2017 and stands for formal election at this forthcoming AGM.  Charles has over 25 years' investment management experience, with particular expertise on US markets and I commend his election to shareholders.

 

Management Agreement

The Board has negotiated a reduction in the management fee with the Manager.  With effect from 1 February 2018, the fee will be calculated at 0.75% of net assets up to £350 million, 0.6% between £350 million and £500 million and 0.5% over £500 million, compared to the previous rate of 0.8% of net assets.   Based on net assets of £391.6 million at 31 January 2018, the revised management fee would have equated to £2.87 million and 0.73% of net assets.

 

Investment Manager

The Board notes the completion of the merger in August 2017 between Aberdeen Asset Management PLC ("Aberdeen"), which is the parent company of the Manager, and Standard Life PLC whereby Aberdeen has become the wholly owned subsidiary of Standard Life Aberdeen plc. The new Group's investment approach will remain team-based with a strong emphasis on the fundamentals of individual companies. Co-managers Ralph Bassett and Fran Radano will maintain this investment process. The Board will continue to monitor closely any impact of this merger on the Company to ensure that satisfactory arrangements are in place for its effective management and successful performance.

 

Outlook

While valuations are near the high end of recent ranges, this is well underpinned by strong economic activity.  US real GDP growth is expected to exceed 2.5% this year with core inflation around 2%.  These are both higher than in recent years, spurred by the combination of strong demand drivers and the accelerated fiscal stimulus effects of recent U.S. tax policy changes.   As a result, we expect the Federal Reserve to intervene to restrain inflation and growth somewhat by increasing interest rates during the year while also reducing its holdings of bonds.

The political environment is likely to remain unsettled with US mid-term elections now in focus.  Nearer term, the US has re-engaged on the trade front, creating uncertainty around both input costs and the potential for export-led growth.  We believe these issues would be of even more importance were it not for the generally strong domestic demand environment.  We will remain vigilant in our desire to avoid negative impacts from these external events.

 

Bolstering a more optimistic view is the expectation that earnings of S&P 500 companies will grow during the year led by mid to high single-digit revenue growth and substantial tax reductions.  Dividend growth is likely to continue, providing a nice backdrop for our Manager as the team focusses on higher yielding quality companies. 

 

Annual General Meeting ("AGM")

The three-yearly resolution for the continuation of the Company as an investment trust will be proposed at the AGM.  In the event that the resolution is not passed, the Board must convene a General Meeting, to be held within four months after the AGM, at which a special resolution would be proposed requiring the Company to be wound up voluntarily or to approve an unitisation of the vehicle.

 

The Board believes that the prospects for North American markets continue to be positive and the Company's investment objective and policy remain attractive.  The Company has continued to deliver a yield higher than that generally available in the North American equity market and steady growth in the dividend, as well as capital growth through a portfolio of good quality companies run by strong management teams.  The Board therefore strongly recommends that shareholders vote in favour of continuation.

 

The Company's AGM will be held at 2.00 pm on 4 June 2018 at 1 George Street, Edinburgh.  I look forward to seeing as many shareholders as possible on the day.

 

 

James Ferguson

Chairman

27 March 2018

 

 

3.         INVESTMENT MANAGER'S REVIEW

 

Market review

Major North American equity market indices moved higher over the 12-month period ended 31 January 2018. The Russell 1000 Value index rose 3.7% in sterling terms over the review period, while the US broader-market S&P 500 index was up 11.8%. The Russell 1000 Value is used as a reference benchmark since it more appropriately reflects the objectives of the Trust, and is the industry standard for equity income funds. The strongest-performing sectors within the Russell 1000 Value Index for the period included technology, financials, materials and healthcare. Conversely, the telecommunication services, real estate and energy sectors recorded negative returns and significantly underperformed the overall market. The relatively higher dividend-paying telecommunication services and real estate sectors lost ground as US Treasury yields rose across the curve, most notably in the short and intermediate segments.

 

During the reporting period, the US Federal Reserve (Fed) raised the federal funds rate in three increments of 25 bps in March, June and December 2017, to a range of 1.25%-1.50%. Following its meeting in late January 2018, at which the central bank left its benchmark interest rate unchanged, the Fed commented that "the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2% inflation." The consensus market opinion is that the central bank remains on track for another rate hike in March. This was the final meeting with Fed Chair Janet Yellen, whose term expired on 3 February 2018, and Former Fed Governor Jerome Powell was sworn in as the new Fed Chair on 5 February.

 

On the economic front, US payrolls expanded by a monthly average of approximately176,000 during the review period, and the unemployment rate decreased 0.7 percentage point to 4.1% - its lowest level in 17 years. However, the rate of job growth was down from the average of 208,000 per month recorded over the previous 12-month period - a sign that the economy may be nearing full employment. US GDP growth ranged from 1.2% to 3.2% over the 2017 calendar year. The modest deceleration in the growth rate from 3.2% to 2.6% in the fourth quarter was attributable primarily to a downturn in private inventory investment and an increase in imports.

 

Performance

The Company's equity portfolio significantly outperformed the Russell 1000 Value Index over the 12-month period ended 31 January 2018, while underperforming the S&P 500 Index. The equity portfolio gained 7.2% in sterling terms on a gross basis before expenses versus the respective 3.7% and 11.8% sterling returns of the Russell 1000 Value and S&P 500 indices. The revenue account remained in good shape, building upon the record established in prior years.

 

The outperformance of the Trust's equity portfolio relative to the Russell 1000 Value Index for the review period was attributable primarily to both stock selection and underweight allocations to the industrials and energy sectors, as well as stock selection in healthcare. The largest individual stock contributors to performance were the absence of positions in industrial conglomerate General Electric Co. (GE), pharmaceutical firm Merck & Co., and diversified financial services company Wells Fargo & Co. GE experienced significant weakness in its energy-related businesses over the period. Furthermore, the company announced a 50% cut in its quarterly dividend in November 2017. Wells Fargo remained hampered by allegations of deceptive sales practices involving its retail banking accounts, which initially surfaced in September 2016.

 

Stock selection in the consumer staples sector and an overweight to telecommunication services weighed on the equity portfolio's performance for the review period. The most notable detractor from performance among individual holdings was brewer Molson Coors Brewing Co., which reported a year-over-year decline in revenue for the third quarter of its 2017 fiscal year. The company's results were hampered by lower volumes due to reductions in wholesale inventory contract brewing and brand volumes in the US and Canada. This was partially offset by strength in pricing and its business mix.

 

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 Praxair, a supplier of industrial gases; Helmerich & Payne, an oil and gas drilling services provider; New Jersey-based community bank Provident Financial Services; data storage services provider Iron Mountain; and specialty retailer L Brands. Conversely, we exited several of the Trust's positions following periods of strong share price performance, including jewellery retailer Tiffany & Co.; waste management services provider Republic Services; industrial automation power company Rockwell Automation; and diversified financial services company M&T Bank. We also sold the Trust's holdings in asset manager BlackRock, office products retailer Staples, technology-focused REIT Digital Realty Trust; discount retailer Target Corp.; PC chip-maker Intel Corp.; and Wisconsin-based utility company WEC Energy Group.

 

A sector analysis chart of the portfolio can be found on page 23 of the 2018 published Annual Report.

 

Within the Trust's corporate bond portfolio over the reporting period, we initiated positions in First Data Corp. 7% 01/12/23, and Prestige Brands 6.375% 01/03/24. We sold the holding in Northgroup Preferred Capital Corp. 6.375%. The portfolio's allocation to corporate bonds declined from roughly 3.7% to 2.1% of total assets over the reporting period. We continue to work closely with Aberdeen's fixed income specialists to monitor credits and market conditions with these albeit smaller weightings adding not only useful revenues but also diversity within the portfolio.

 

Dividend growth

Our portfolio holdings continue to build upon an established track record of dividend growth. Several companies announced double-digit increases over the 12-month review period. Among others, Provident Financial Services boosted its dividend by 33%. Commercial bank Regions Financial and semiconductor manufacturer Texas Instruments raised their quarterly payouts by 29% and 24% respectively. Energy services company TransCanada increased its dividend by an aggregate of 19% in two increments over the period. Railroad operator Union Pacific boosted its quarterly payout by 10%, and has paid dividends on its common stock for 118 consecutive years. Lockheed Martin Corp. boosted its quarterly dividend by 10%. Finally, in November 2017, specialty chemicals producer DowDupont initiated a quarterly dividend of US$0.38 per share-the first payout since the merger of Dow Chemical and DuPont completed on 31 August 2017.

 

Outlook

We remain upbeat regarding the state of the US economy and the corporate fundamental backdrop. The fourth-quarter 2017 corporate results season is off to a strong start, with sales and earnings growth for S&P 500 companies in the high-single-digit and low-double-digit ranges, respectively*. This represents notable acceleration from what we have seen over the past several quarters.  There are growing concerns in the US market that inflation may accelerate or that the Fed eventually may be too aggressive in its approach to removing liquidity and raising interest rates. Our Global Strategy team believes that US inflation should settle at approximately 2% in 2018.

 

Feedback from companies with whom we have visited suggests a balanced approach to thinking about the "windfall" from the recently enacted corporate Tax Cuts and Jobs Act of 2017 (TCJA), with many suggesting that they may pursue growth by "investing" in lower prices for their products and services. We continue to monitor this situation closely, preferring shares of companies with consistent and/or rising margins, and we intend to be cautious about aggressive attempts at price competition. However, we agree that pricing power is still hard to generate, and we seek companies that we expect to be more successful at that endeavour. In the near term, dividends appear well supported, and we believe that the secondary benefit to investors from the TCJA may be more dividend growth this year compared to 2017.

 

Separately, we believe that the tailwinds to the financials sector from rising interest rates and to segments of the industrials and technology sectors from accelerating investment are likely to provide the groundwork for solid revenue and earnings growth in 2018.

 

Whilst adhering to our investment process we continue to focus on selecting the most appropriate best ideas portfolio of high-quality, cash-generative companies that have pricing power and the ability to pass through inflation over the long run. We seek value and remain unwavering in our focus on investing in and finding quality businesses, and we continue to believe that we are well-positioned to create value for shareholders.

 

 

Aberdeen Asset Managers Inc.**

27 March 2018

 

 

*     Source: Earnings Insight, FactSet, 2 February 2018

**   on behalf of Aberdeen Fund Managers Limited.  Both companies are subsidiaries of Aberdeen Asset Management PLC

 

 

4.         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. 

Strategic Report

Overview of Strategy

 

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 Fund Managers Limited ("AFML" or "Manager") to act as the alternative investment fund manager ("AIFM").

 

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 Managers Inc. ("AAMI" or "Investment Manager") by way of a delegation agreement in place between AFML 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 price performance against the reference indices

The Board reviews the Company's NAV and share price total return performance against the reference indices, the Russell 1000 Value and the S&P 500 (both in sterling terms).  Performance graphs and tables are provided on pages 13 to 15 of the 2018 published 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 yield

The Board monitors the Company's net revenue 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 15 of the 2018 published Annual Report.

Discount/premium to net asset value

The discount/premium relative to the net 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 14 of the 2018 published 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 relate to the Company's investment activities and include market risk (comprising interest rate risk and other price risk), liquidity risk and credit risk. The Company is exposed to the effect of variations in share prices and movements in the US$/£ exchange rate due to the nature of its business.  A fall in the market value of its portfolio would have an adverse effect on shareholders' funds. Any debt securities 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.

 

The day-to-day management of the Company's assets has been delegated to the Manager under investment guidelines determined by the Board. The Board monitors these guidelines and receives regular reports from the Manager which include performance reporting.  The Board regularly reviews these guidelines to ensure they remain appropriate.

 

Details on financial risks, including market price, liquidity and foreign currency risks and the controls in place to manage these risks are provided in note 17 to the financial statements.  

Gearing Risk

Gearing is used to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing has the effect of accentuating market falls and market gains. The ability of the Company to meet its financial obligations, or an increase in the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares.

 

In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20% of net assets.  The Board receives regular updates from the Manager on the actual gearing levels the Company has reached together with the assets and liabilities of the Company, and reviews these as well as compliance with the principal loan covenants at each Board meeting.  As at 31 January 2018 the Company had £31.6 million of borrowings.

 

In addition, AFML, as alternative investment fund manager, has set an overall leverage limit of 2.0 X on a commitment basis (2.5 X on a gross notional basis) and includes updates in its reports to the Board. 

 

 

Discount volatility

Investment company shares can trade at discounts to their underlying net asset values, although they can also trade at premia.

 

In order to seek to minimise the impact of share price volatility, where the shares are trading at a significant discount, the Company has operated a share

buy-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 buybacks.

 

Income and Dividend Risk

The ability of the Company to pay dividends and any future dividend growth will depend primarily on the level of 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.

 

The Board monitors this risk through the regular review of detailed revenue forecasts and considers the level of income at each meeting.

 

Regulatory Risk

The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules, Companies Act 2006 and the Alternative Investment Fund Managers Directive, could lead to a number of detrimental outcomes and reputational damage.

 

 

The Manager has implemented procedures to ensure that the provisions of the Corporation Tax Act 2010 are not breached and the results are reported to the Board.   

 

The Manager provides six-monthly reports to the Audit Committee on its internal control systems, which monitors compliance with relevant regulations.  In addition, the Board, when necessary will use the services of its professional advisers 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 primarily to enhance the income generation of the Company.

 

The risks associated with derivatives contracts are managed within guidelines set by the Board. 

 

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 Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group.  The Aberdeen Group Head of Brand reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.

 

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

 

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 next AGM in June 2018.

 

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 2018 the Board consisted of four males and one female.  

 

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 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.

 

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.

 

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes and the changes to the pensions and savings market in the UK.  These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in their report.

 

James Ferguson

Chairman

27 March 2018

 

 

PORTFOLIO INVESTMENTS

 

Investment Portfolio - Ten Largest Equity Investments

As at 31 January 2018

 



Valuation

Total

Valuation



2018

assets

2017

Company

Industry classification

£'000

%

£'000

BB&T





BB&T is a full service bank that operates in the Southeast and Mid-Atlantic regions of the United States.

Banks

17,853

4.2

16,154

Pfizer





Pfizer Inc. discovers, develops, manufactures, and sells healthcare products worldwide.

Pharmaceuticals

16,930

4.0

16,393

CME Group





CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities.

Diversified Financial Services

16,189

3.8

14,436

Chevron





Chevron is an integrated energy company.  The company has operations drilling for crude oil and natural gas as well as refining and selling it.

Oil, Gas & Consumable Fuels

15,867

3.7

15,931

Cisco Systems





Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP)-based networking and other products related to the communications and information techology industry and provide services associated with these products and their use.

Communications Equipment

14,606

3.5

10,378

DowDuPont (formerly Dow Chemical)





DowDuPont operates as a holding company. Through its subsidiaries, it produces agricultural chemicals, material science, and specialty chemical products.

Chemicals

14,350

3.4

16,115

Philip Morris





Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products.

Tobacco

14,327

3.4

11,079

Proctor & Gamble





The Proctor & Gamble Company manufactures and markets consumer products globally.

Household Products

13,964

3.3

6,963

Microsoft





Microsoft manufactures and licenses software products for operating systems, applications, software development and internet services.

Software

13,362

3.2

12,847

Molson Coors Brewing





Molson Coors Brewing Co. brews beers through breweries in the United States, Canada and Europe.

Beverages

11,817

2.8

9,590

Ten largest equity investments


149,265

35.3


 

 

Investment Portfolio - Other Equity Investments

As at 31 January 2018












Valuation

Total

Valuation



2018

assets

2017

Company

Industry classification

£'000

%

£'000

Qwest 7.25% 15/10/35

Telecommunications

2,557

0.6

2,867

International Lease Finance Corp 6.25% 15/05/19

Diversified Financial Services

1,763

0.4

2,062

Western Digital Corp 7.375% 01/04/23

Computer Hardware and Storage

1,535

0.3

1,753

HCA 5.875% 15/02/26

Healthcare Facilities

1,110

0.3

1,243

First Data 7.0% 01/12/23

Consumer Finance

817

0.2

-

Nationstar 6.5% 01/06/22

Diversified Financial Services

714

0.2

798

Prestige Brands 6.375% 01/03/24

Specialty Pharmaceutical

153

-

653

Total other investments


8,649

2.0


Total equity investments


397,944

94.0


Total investments


406,593

96.0


Net current assets{A}


16,700

4.0


Total assets{A}


423,293

100.0


{A} Excluding bank loans of £31,644,000.

 

 

Geographical Analysis

As at 31 January 2018

 


2018

2017


Fixed



Fixed


Equity

interest

Total

Equity

interest

Total

%

%

%

%

%

%

12.7

-

12.7

8.0

0.4

8.4

85.2

2.1

87.3

88.7

2.9

91.6


_______

_______

_______

_______

_______

_______


97.9

2.1

100.0

96.7

3.3

100.0


_______

_______

_______

_______

_______

_______

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. 

 

Company law requires the Directors to prepare financial statements for each financial year.  Under that law they are required to prepare the financial statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.  In preparing these financial statements, the Directors are required to: 

select suitable accounting policies and then apply them consistently; 

 

-     make judgements and estimates that are reasonable and prudent; 

-     state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 

-     assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

-     use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. 

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge: 

 

-     the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and 

-     the strategic report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face. 

 

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. 

 

For and on behalf of the The North American Income Trust plc

 

James Ferguson

Chairman

 

27 March 2018

 

 



FINANCIAL STATEMENTS

 

Statement of Comprehensive Income

 



Year ended 31 January 2018

Year ended 31 January 2017



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Net gains on investments

11

-

13,851

13,851

-

115,514

115,514

Net currency gains/(losses)

3

-

2,243

2,243

-

(4,359)

(4,359)

Income

4

16,137

-

16,137

15,563

-

15,563

Investment management fee

5

(910)

(2,126)

(3,036)

(819)

(1,910)

(2,729)

Administrative expenses

7

(739)

-

(739)

(725)

-

(725)



______

______

_____

______

______

_____

Return before finance costs and taxation


14,488

13,968

28,456

14,019

109,245

123,264









Finance costs

6

(280)

(652)

(932)

(295)

(688)

(983)



______

______

_____

______

______

_____

Return before taxation


14,208

13,316

27,524

13,724

108,557

122,281









Taxation

8

(2,196)

359

(1,837)

(2,173)

520

(1,653)



______

______

_____

______

______

_____

Return after taxation


12,012

13,675

25,687

11,551

109,077

120,628



______

______

_____

______

______

_____









Return per share (pence)

10

42.12

47.96

90.08

39.92

376.92

416.84



______

______

_____

______

______

_____









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 16.00p per share (£4,549,000), making a total dividend of 39.00p per share (£11,092,000) for the year to 31 January 2018 which, if approved, will be payable on 8 June 2018 (see note 9).


For the year ended 31 January 2017, the final dividend was 14.50p per share (£4,154,000) making a total dividend of 36.00p per share (£10,327,000).

 

 



Statement of Financial Position

 



As at

As at



31 January 2018

31 January 2017


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

11

406,593

410,344



________

________

Current assets




Debtors and prepayments

12

620

3,940

Cash and short term deposits


19,636

12,609



________

________



20,256

16,549



________

________

Creditors: amounts falling due within one year




Other creditors

13

(3,556)

(7,219)

Bank loan

14

(31,644)

(40,573)



________

________



(35,200)

(47,792)



________

________

Net current liabilities


(14,944)

(31,243)



________

________

Net assets


391,649

379,101



________

________

Capital and reserves




Called-up share capital

15

7,108

7,161

Share premium account


48,467

48,467

Capital redemption reserve


15,452

15,399

Capital reserve


306,809

295,709

Revenue reserve


13,813

12,365



________

________

Equity shareholders' funds


391,649

379,101



________

________





Net asset value per share (pence)

16

1,377.57

1,323.45



________

________

 

 



Statement of Changes in Equity

 

For the year ended 31 January 2018









Share

Capital





Share

premium

redemption

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2017

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


_____

______

______

______

______

______








 For the year ended 31 January 2017









Share

Capital





Share

premium

redemption

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2016

7,499

48,467

15,061

198,866

10,751

280,644

Buyback of Ordinary shares for cancellation

(338)

-

338

(12,234)

-

(12,234)

Return after taxation

-

-

-

109,077

11,551

120,628

Dividends paid (see note 9)

-

-

-

-

(9,937)

(9,937)


_____

______

______

______

______

______

Balance at 31 January 2017

7,161

48,467

15,399

295,709

12,365

379,101


_____

______

______

______

______

______








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 2018

31 January 2017


Notes

£'000

£'000

Operating activities




Net return before finance costs and taxation


28,456

123,264

Adjustments for:




Net gains on investments


(13,851)

(115,514)

Net (gains)/losses on foreign exchange transactions


(2,243)

4,359

Decrease in dividend income receivable


25

58

Decrease/(increase) in fixed interest income receivable


31

(5)

Increase/(decrease) in derivatives


531

(36)

Decrease in other debtors


3

7

Increase in other creditors


21

84

Tax on overseas income


(1,831)

(1,655)

Amortisation of fixed income book cost


22

54



______

______

Net cash flow from operating activities


11,164

10,616





Investing activities




Purchases of investments


(111,969)

(123,367)

Sales of investments


128,593

144,469



______

______

Net cash flow from investing activities


16,624

21,102





Financing activities




Interest paid


(936)

(986)

Equity dividends paid

9

(10,564)

(9,937)

Buyback of Ordinary shares for cancellation


(2,575)

(13,050)

Repayment of loan


(4,394)

(8,133)



______

______

Net cash used in financing activities


(18,469)

(32,106)

Increase/(decrease) in cash and cash equivalents


9,319

(388)



______

______

Analysis of changes in cash and cash equivalents during the year



Opening balance


12,609

11,685

Effect of exchange rate fluctuation on cash held


(2,292)

1,312

Increase/(decrease) in cash as above


9,319

(388)



______

______

Closing balance


19,636

12,609



______

______

 

 



Notes to the Financial Statements

For the year ended 31 January 2018

 

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 January 2017 with consequential amendments. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'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 27 of the 2018 published 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 recognised upfront. The premium received and fair value changes in the open position which occur due to the movement in underlying securities are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income as they arise.






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.

 



2018

2017

3.

Net currency gains/(losses)

£'000

£'000


(Losses)/gains on cash held

(2,292)

1,312


Gains/(losses) on bank loans

4,535

(5,671)



______

______



2,243

(4,359)



______

______

 



2018

2017

4.

Income

£'000

£'000


Income from overseas listed investments




Dividend income

12,225

11,086


REIT income

723

575


Interest income from investments

688

902



______

______



13,636

12,563



______

______


Other income from investment activity




Traded option premiums

2,402

2,981


Deposit interest

99

19



______

______



2,501

3,000



______

______


Total income

16,137

15,563



______

______






During the year, the Company was entitled to premiums totalling £2,402,000 (2017 - £2,981,000) in exchange for entering into derivative transactions. This figure includes a mark to market on derivative contracts open at each year end. At the year end there were 8 (2017 - 1) open positions, valued at a liability of £561,000 (2017 - liability of £30,000) as disclosed in note 13. Losses realised on the exercise of derivative transactions are disclosed in note 11.

 



2018

2017



Revenue

Capital

Total

Revenue

Capital

Total

5.

Investment management fee

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fee

910

2,126

3,036

819

1,910

2,729



______

______

______

______

______

______










Management services are provided by Aberdeen Fund Managers Limited ("AFML"). The fee is calculated at an annual rate of 0.8% of gross assets after deducting current liabilities and borrowings and excluding commonly managed funds, payable quarterly. The balance due at the year end was £790,000 (2017 - £762,000). The fee is allocated 30% (2017 - 30%) to revenue and 70% (2017 - 70%) to capital.




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.

 



2018

2017



Revenue

Capital

Total

Revenue

Capital

Total

6.

Finance costs

£'000

£'000

£'000

£'000

£'000

£'000


Interest on bank loans

280

652

932

295

688

983



______

______

______

______

______

______

 



2018

2017

7.

Administrative expenses

£'000

£'000


Directors' fees

100

84


Registrar's fees

60

60


Custody and bank charges

25

31


Secretarial fees

108

105


Auditor's remuneration (excl. irrecoverable VAT):




- fees payable to the Company's auditor for the audit of the annual accounts

16

16


Contribution to the Investment Trust Initiative

213

213


Printing, postage and stationery

28

29


Fees, subscriptions and publications

45

43


Professional fees

77

60


Depositary charges

48

44


Other expenses

19

40



______

______



739

725



______

______






Secretarial and administration services are provided by Aberdeen Fund Managers Limited ("AFML") 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 £108,000 (2017 - £105,000). The balance due at the year end was £18,000 (2017 - £18,000).




During the year £213,000 (2017 - £213,000) was paid to AFML in respect of promotional activities for the Company through Aberdeen's Investment Trust Initiative and the balance due at the year end was £18,000 (2017 - £18,000).

 



2018

2017



Revenue

Capital

Total

Revenue

Capital

Total

8.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









UK corporation tax

359

(359)

-

520

(520)

-



Overseas tax suffered

1,831

-

1,831

1,653

-

1,653



Prior year adjustment

6

-

6

-

-

-




______

______

______

______

______

______



Total tax charge for the year

2,196

(359)

1,837

2,173

(520)

1,653




______

______

______

______

______

______











(b)

Factors affecting the tax charge for the year



The UK  corporation tax rate was reduced from 20% to 19% with effect from 1 April 2017 giving an effective standard rate of 19.17% (2017 - standard rate of 20%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below:







2018

2017




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Net profit before taxation

14,208

13,316

27,524

13,724

108,557

122,281












Corporation tax at 19.17% (2017 - 20%)

2,724

2,553

5,277

2,745

21,711

24,456



Effects of:









Non-taxable overseas dividends

(2,344)

-

(2,344)

(2,217)

-

(2,217)



Irrecoverable overseas withholding tax

1,831

-

1,831

1,653

-

1,653



Double taxation relief

-

-

-

(8)

-

(8)



Tax effect of expenses double taxation relief

(21)

-

(21)

-

-

-



Excess management expenses

-

173

173

-

-

-



Non-taxable gains on investments

-

(2,655)

(2,655)

-

(23,103)

(23,103)



Non-taxable currency gains/(losses)

-

(430)

(430)

-

872

872



Prior year adjustment

6

-

6

-

-

-




______

______

______

______

______

______



Total tax charge

2,196

(359)

1,837

2,173

(520)

1,653




______

______

______

______

______

______











(c)

Provision for deferred taxation



No provision for deferred taxation has been made in the current year due to the Company fully utilising the losses brought forward from the previous year (2017 - £nil). 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.

 



2018

2017

9.

Dividends

£'000

£'000


Amounts recognised as distributions to equity holders in the year:




3rd interim dividend for 2017 - 7.5p per share (2016 - 7.0p)

2,149

2,114


Final dividend for 2017 - 14.5p per share (2016 - 13.0p)

4,146

3,789


1st interim dividend for 2018 - 7.5p per share (2017 - 7.0p)

2,137

2,023


2nd interim dividend for 2018 - 7.5p per share (2017 - 7.0p)

2,132

2,002


Dividend refunds written off

-

9



______

______



10,564

9,937



______

______






The proposed third interim dividend was unpaid at the year end and the final dividend for 2018 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 £12,012,000 (2017 - £11,551,000).





2018

2017



£'000

£'000


1st interim dividend for 2018 - 7.5p per share (2017 - 7.0p)

2,137

2,023


2nd interim dividend for 2018 - 7.5p per share (2017 - 7.0p)

2,132

2,002


3rd interim dividend for 2018 - 8.0p per share (2017 - 7.5p)

2,274

2,148


Proposed final dividend for 2018 - 16.0p per share (2017 - 14.5p)

4,549

4,154



______

______



11,092

10,327



______

______






The cost of the proposed final dividend for 2018 is based on 28,430,504 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this report.

 



2018

2017

10.

Return per Ordinary share

£'000

p

£'000

p


Based on the following figures:






Revenue return

12,012

42.12

11,551

39.92


Capital return

13,675

47.96

109,077

376.92



______

______

______

______


Total return

25,687

90.08

120,628

416.84



______

______

______

______


Weighted average number of Ordinary shares in issue


28,514,542


28,938,839




__________


__________

 



2018

2017

11.

Investments

£'000

£'000


Fair value through profit or loss:




Opening fair value

410,344

312,983


Opening investment holdings gains

(132,009)

(50,718)



______

______


Opening book cost

278,335

262,265


Purchases at cost

107,758

129,625


Sales - proceeds

(125,338)

(147,724)


Sales - realised gains{A}

44,474

34,223


Amortisation of fixed income book cost

(22)

(54)



______

______


Closing book cost

305,207

278,335


Closing investment holdings gains

101,386

132,009



______

______


Closing fair value

406,593

410,344



______

______


Listed on overseas stock exchanges

406,593

410,344



______

______







2018

2017


Gains/(losses) on investments

£'000

£'000


Realised gains on sales{A}

44,474

34,223


Movement in investment holdings gains

(30,623)

81,291



______

______



13,851

115,514



______

______






{A} Includes losses realised on the exercise of traded options of £2,492,000 (2017 - £873,000) 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 £2,402,000 (2017 - £2,981,000) 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:







2018

2017



£'000

£'000


Purchases

68

123


Sales

130

165



______

______



198

288



______

______

 



2018

2017

12.

Debtors: amounts falling due within one year

£'000

£'000


Dividends receivable

391

416


Interest receivable

183

214


Other debtors and prepayments

46

49


Amount due from brokers

-

3,255


Taxation recoverable

-

6



______

______



620

3,940



______

______

 



2018

2017

13.

Creditors: amounts falling due within one year

£'000

£'000


Amounts due to brokers

2,047

6,258


Investment management fee payable

790

762


Traded option contracts

561

30


Interest payable

36

40


Other creditors

122

129



______

______



3,556

7,219



______

______

 



2018

2017

14.

Bank loans

£'000

£'000


Repayable within one year:




Uncommitted facility

31,644

-


Fixed facility of US$51,045,000

-

40,573



______

______


Total

31,644

40,573



______

______






The Company agreed a US$75 million three year uncommitted multi-currency revolving loan facility with Scotiabank on 21 December 2017. US$45 million was drawn down at 31 January 2018 at an all-in interest rate of 2.5325% and matured on 20 February 2018. At the date of this Report the Company had drawn down US$45 million at an all-in interest rate of 2.79707%.




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 2017 the Company had a US$71 million three year loan facility with State Street, of which US$51 million was drawn down at a fixed rate of 2.18%. The remaining US$20 million balance of the facility was uncommitted and undrawn. The loan facility with State Street was repaid on its expiry date, 21 December 2017.

 



2018

2017

15.

Called-up share capital

£'000

£'000


Allotted, called-up and fully paid:




Opening balance

7,161

7,499


Shares bought back for cancellation during the year

(53)

(338)



______

______


28,430,504 (2017 - 28,645,004) Ordinary shares of 25p each

7,108

7,161



______

______






During the year the Company bought back for cancellation 214,500 (2017 - 1,352,730) Ordinary shares of 25p each for a total cost of £2,575,000 (2017 - total cost of £12,234,000).

 

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:



2018

2017


Net assets attributable

£391,649,000

£379,101,000


Number of Ordinary shares in issue

28,430,504

28,645,004


Net asset value per share

1,377.57p

1,323.45p

 

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 and fair value changes in respect of options written in the year was £2,402,000 (2017 - £2,981,000). Positions closed during the year realised a loss of £2,492,000 (2017 - £873,000). The largest position in derivative contracts held during the year at any given time was £561,000 (2017 - £758,000). The Company had 8 (2017 - 1) open positions in derivative contracts at 31 January 2018 valued at a liability of £561,000 (2017 - £30,000) as disclosed in note 13.




The Board has delegated the risk management function to the Manager under the terms of its management agreement with AFML (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 AFML collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.




AFML is a fully integrated member of Standard Life Aberdeen plc (referred to as "the Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to AAML, which is responsible for ensuring 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 Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the co-Chief Executive Officers of the Group. The Risk Division achieves its objective through embedding the Risk management Framework throughout the organisation using the Group's operational risk management system ("SWORD").




The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's co-Chief Executive Officers 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 Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described 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 2018 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 fixed

interest rate

rate

rate

bearing



At 31 January 2018

Years

%

£'000

£'000

£'000



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)

-




______

______

______

______

______












Weighted








average








period for

Weighted



Non-




which

average

Fixed

Floating

interest




rate is fixed

interest rate

rate

rate

bearing



At 31 January 2017

Years

%

£'000

£'000

£'000



Assets








Sterling

-

-

-

132

-



US Dollar

10.96

6.76

12,145

12,374

363,925



Canadian Dollar

-

-

1,590

103

32,684




______

______

______

______

______



Total assets



13,735

12,609

396,609




______

______

______

______

______



Liabilities








Bank loan - US$51,045,000

0.46

2.18

(40,573)

-

-




______

______

______

______

______



Total liabilities



(40,573)

-

-




______

______

______

______

______











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 2018 would decrease/increase by £120,000 (2017 - increase/decrease by £126,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.






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 63 of the 2018 published Annual Report, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. 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 2018 would have increased/decreased by £40,659,000 (2017 - increase/decrease of £41,034,000) 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 2018 was as follows:











2018


2017





Statement of


Statement of





Financial

Maximum

Financial

Maximum




Position

exposure

Position

exposure




£'000

£'000

£'000

£'000



Non-current assets







Quoted bonds

8,649

8,649

13,735

13,735










Current assets







Amount due from brokers

-

-

3,255

3,255



Dividends receivable

391

391

416

416



Interest receivable

183

183

214

214



Taxation recoverable

-

-

6

6



Other debtors and prepayments

46

46

49

49



Cash and short term deposits

19,636

19,636

12,609

12,609




______

______

______

______




28,905

28,905

30,284

30,284




______

______

______

______










None of the Company's financial assets is secured by collateral or other credit enhancements.






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 Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. This has not resulted in any reclassifications in levelling and the prior year comparative has been disclosed under the new hierarchy. 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 1

Level 2

Level 3

Total


As at 31 January 2018

 

Note

£'000

£'000

£'000

£'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




______

______

______

______











Level 1

Level 2

Level 3

Total


As at 31 January 2017

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

396,609

-

-

396,609


Quoted bonds

b)

-

13,735

-

13,735




______

______

______

______




396,609

13,735

-

410,344




______

______

______

______


Financial liabilities at fair value through profit or loss







Derivatives

c)

-

(30)

-

(30)




______

______

______

______


Net fair value


396,609

13,705

-

410,314




______

______

______

______









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. At 31 January 2017 the Company held over the counter options which were fair valued using a marked-to-market model and were classed as Level 2.

 

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 2018 published 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.




With effect from 1 February 2018, the Board and the Manager have agreed a new basis for calculating the Company's management fees payable to AFML. The annual management fee will be charged on gross assets after deducting current liabilities and borrowings and excluding commonly managed funds (Net Assets), on a tiered basis. The annual management fee will be charged at 0.75% of Net Assets up to £350 million, 0.6% of Net Assets between £350 million and £500 million, and 0.5% of Net Assets above £500 million.

 

21.

Alternative performance measures


Total return is considered to be an alternative performance measure.  NAV total return involves investing the same net dividend in the NAV of the Company 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 price of the Company on the dividend reinvestment dates during the years ended 31 January 2018 and 31 January 2017.





 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


 Share


2017

 rate

 NAV

 price


31 January 2016

N/A

935.55p

815.00p


12 May 2016

13.00p

1,002.14p

892.00p


14 July 2016

7.00p

1,162.65p

1,029.00p


13 October 2016

7.00p

1,232.07p

1,093.00p


19 January 2017

7.50p

1,327.79p

1,239.50p


31 January 2017

N/A

1,323.45p

1,232.00p



______

______

______


Total return


45.8%

56.3%



______

______

______

 

 

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 2018. The statutory accounts for the year ended 31 January 2018 received an audit report which was unqualified.

 

The statutory accounts for the financial year ended 31 January 2018 were approved by the Directors on 27 March 2018 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 2018 at 1 George Street, Edinburgh EH2 2LL.

 

The Annual Report will be posted to shareholders in April 2018 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 company news service from the London Stock Exchange
 
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Annual Financial Report - RNS