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RNS

Half Yearly Results

Released 07:00 26-Sep-2019

RNS Number : 6856N
Dunedin Income Growth Inv Tst PLC
26 September 2019
 

DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC

 

HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 31 JULY 2019

Legal Entity Identifier (LEI):  549300PPXLZPR5JTL763

 

 

 

INVESTMENT OBJECTIVE

The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.

 

BENCHMARK

The Company's benchmark is the FTSE All-Share Index (total return). Performance is measured on a net asset value total return basis over the long-term.

 

PERFORMANCE HIGHLIGHTS

 

Net asset value total return per Ordinary shareAB 


Share price total return per Ordinary shareA


FTSE All-Share Index total return

Six months ended 31 July 2019

15.8%


Six months ended 31 July 2019

16.0%


Six months ended 31 July 2019

10.6%

Year ended 31 January 2019

(3.9)%


Year ended 31 January 2019

(0.8)%


Year ended 31 January 2019

(3.8)%









Revenue return per Ordinary share


Dividend yieldA


Discount to net asset valueAB

Six months ended 31 July 2019

6.72p


As at 31 July 2019

4.5%


As at 31 July 2019

8.3%

Six months ended 31 July 2018

8.39p


As at 31 January 2019

5.1%


As at 31 January 2019

9.3%









A Considered to be an Alternative Performance Measure.

B With debt at fair value.

 

FINANCIAL HIGHLIGHTS


31 July
2019

31 January 2019

%
change

Total assets A.

£495,879,000

£471,480,000

+5.2

Equity shareholders' funds

£454,236,000

£401,731,000

+13.1

Market capitalisation

£410,478,000

£358,868,000

+14.4

Net asset value per Ordinary share

306.53p

270.90p

+13.2

Net asset value per Ordinary share with debt at fair value B

301.98p

266.83p

+13.2

Share price per Ordinary share (mid)

277.00p

242.00p

+14.5

Discount to net asset value with debt at fair value B

8.3%

9.3%


Revenue return per Ordinary share  C

6.72p

8.39p

(19.9)

Gearing - net B

7.3%

16.2%


Gearing - equity B

7.2%

8.8%


Ongoing charges B

0.59%

0.63%


A.        Defined as total assets per the Statement of Financial Position less current liabilities (before deduction of Bank Loans, Loan Notes and Debenture Stock).

B    Considered to be an Alternative Performance Measure.

C    Figure for 31 July 2019 is for six months to that date. Figure for 31 January 2019 is for the six months to 31 July 2018.

 

For further information, please contact:-

 

Scott Anderson

Aberdeen Standard Investments

0131 528 4000

 

 



HALF YEARLY BOARD REPORT - CHAIRMAN'S STATEMENT

 

Review of the Period

I am pleased to report that the Company delivered good absolute and relative returns for the six month period ended 31 July 2019. The net asset value per share ("NAV") increased by 15.8% on a total return basis, outperforming its benchmark, the FTSE All-Share Index, which produced a total return of 10.6%. The share price total return for the period was 16.0%, reflecting a slight tightening of the discount at which the Company's shares trade to the NAV. The discount at the end of the period (on a cum-income basis with borrowings stated at fair value) was 8.3%, compared to 9.3% at the beginning of the period.

 

Although the FTSE All-Share moved steadily higher over the six months, economic and political conditions remained far from smooth. Government bond yields moved sharply lower reflecting a continuing weakening of global economic data, particularly in manufacturing, as the effects of the United States' trade policy unsettled business confidence. Sterling also weakened significantly against most major currencies, due to the political uncertainty in the UK and, in the later part of the six month period, the leadership election and subsequent changes in Government. 

 

The Investment Manager has continued to execute our strategy of reducing the Company's dependence on higher yielding, lower growth companies. As we have stated in previous reports, this strategy should enhance the Company's longer term potential for both faster dividend growth and better capital performance. However, a consequence of this approach is the that the Company's revenue per share is likely to be lower this year than it was in the previous year. Our distribution policy remains to grow the dividend faster than inflation over the medium term and, with the Company's robust revenue reserves and the forecast underlying dividend growth of the companies within the portfolio, that policy remains well supported.

 

The Board remains encouraged with the Investment Manager's progress in executing this strategy, where they have continued to recycle capital into lower yielding, faster growth opportunities. As a result of the changes over the last three years, the Company's portfolio has much stronger quality characteristics, including higher returns and margins and lower levels of indebtedness. Income considered at risk has continued to decline to very low levels while the underlying rate of dividend growth for the companies held within the portfolio has increased. The portfolio's positioning continues to evolve, with mid and small cap companies now making up over 30% of the portfolio and its active share around 70%.

 

A detailed review of portfolio activity during the period is contained in the Investment Manager's Review.

 

Earnings and Dividends

Revenue earnings per share for the period were 6.72p per share, compared to 8.39p per share for the equivalent period last year. This decrease was primarily driven by the deliberate strategy, referred to above, to continue to reduce exposure to higher yielding, lower-growth companies. The level of investment income earned during the period was in line with the Manager's forecasts, with the dividend cut from Vodafone being largely offset by better than expected performance from other sources, such as Rio Tinto and BHP. The Company also received special dividends from Croda, Direct Line and Marshalls.

 

A first interim dividend in respect of the year ending 31 January 2020, of 3.0p per share (2019: 3.0p), was paid on 23 August 2019 and the Board has declared a second interim dividend of 3.0p per share (2019: 3.0p), which will be paid on 29 November 2019 to shareholders on the register on 8 November 2019.

 

It is the Board's intention to continue a policy of growing total annual dividends in real terms over the medium term. In the event of an uncovered dividend, the Company has significant revenue reserves which are available to cover any shortfall.

 

Gearing

On 30 April 2019, in accordance with the Trust Deed, the Company redeemed at par the £28.6 million 77/8% Debenture Stock 2019. The redemption was funded by the disposal of the Company's portfolio of corporate bonds that was put in place in December 2015 for this purpose. The repayment of the debenture and disposal of the bond holdings marked an important step in simplifying and clarifying the strength of the Company's balance sheet.

 

Following the redemption of the Debenture Stock, the Company's borrowings comprise the £30 million 3.99% Loan Notes 2045 and the £15 million multi-currency revolving credit facility, of which a Sterling equivalent of £11.9 million was drawn down at the period end. Equity gearing, net of cash, was 7.2% compared to 8.8% at the start of the period.

 

Discount

As stated above, the discount at the end of the period (on a cum-income basis with borrowings stated at fair value) was 8.3%, compared to 9.3% at the beginning of the period. The comparable average discounts for the UK Equity Income Sector of investment trusts were 6.1% and 4.1%.The Board notes the  narrowing of the discount relative to the wider sector and believes that the successful implementation by the Investment Manager of the investment strategy should lead to a further re-rating of the Company's shares relative to its peers.

 

During the period, the Company purchased  105,550 shares to hold in treasury, at a cost of £281,000, providing a small accretion to the NAV per share. The Board will continue to monitor the level of discount carefully and remains willing to make further use of the Company's share buy back powers when appropriate.

 

Outlook

Equity markets remain surprisingly buoyant given growing concerns over global growth and the continuing escalation of trade conflicts. In the UK, there remains a great deal of uncertainty regarding the outcome of Brexit negotiations with the EU, which combined with the likelihood of further domestic political turmoil and an economy that is increasingly showing the strains of three years of uncertainty, makes us additionally somewhat cautious. Investors, however, are increasingly reliant on the monetary support of central banks to offset these pressures on global economic performance. In such an environment, your Manager retains an increasingly cautious outlook and sees little reason to shift from a conservative focus on higher quality businesses with the prospect of better than average dividend growth, consistent with delivering your Company's strategy.

 

 

David Barron

Chairman

25 September 2019



 

 

 

HALF YEARLY BOARD REPORT - OTHER MATTERS

 

Directors' Responsibility Statement

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

 

-    The condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting';

-    The Interim Board Report (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

-    The financial statements include a fair review of the information required by DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

 

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties faced by the Company together with the mitigating actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 January 2019 and comprise the following risk categories:

 

-    Investment objectives

-    Investment strategies

-    Investment performance

-    Income/dividends

-    Financial/market

-    Gearing

-    Regulatory

-    Operational

 

The Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

 

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and derivative contract positions and regularly reviews actual exposures, cash flow projections and compliance with loan covenants.

 

The Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

On behalf of the Board

 

David Barron

Chairman

25 September 2019

 

 



INVESTMENT MANAGER'S REVIEW

 

We are pleased to report another period of progress for the Company. Since our appointment as lead managers over three years ago we have looked to increase exposure to holdings that can drive medium term capital and income growth, whilst moving away from companies with higher starting yields but lower growth prospects. This has also required us to be increasingly selective and continue to focus the portfolio's capital towards the very best businesses that we can find at attractive valuations. We are encouraged that this process has produced tangible results, with positive relative performance of the equity portfolio whilst also improving the underlying quality of the portfolio and its income growth potential.

 

Shareholders will have seen from previous reports that we have made a greater amount of changes than normal for investors with a long term investment horizon as we have been repositioning the portfolio. To put some figures behind the extent of the changes , the percentage of the portfolio invested in companies with dividends growing at over 5% per annum has almost doubled from 21% at the start of 2016 to 40%. The portfolio's active share (a measure of the deviation from the benchmark) has risen from just over 60% to around 70%. In addition, the percentage we have invested in small and mid-cap companies has increased from 15% to over 30%. Our activity has quietened somewhat from the previous two years given that the positioning is nearer where we ultimately want to be. However, the process is still not complete and with a combination of market volatility and new investment ideas coming to the fore in the past six months it has proved an opportune time for us to make further changes.

 

During the period under review we initiated new positions in ASML, Mowi, Sirius Real Estate, Smith & Nephew and WH Smith. All five of these businesses offer resilient growth prospects and, importantly, add further differentiated exposure to the portfolio.

 

ASML is a Dutch listed manufacturer of machines used in the process of printing circuits into chips used in a range of technology. Growth drivers have changed over time, from PCs to smartphones to the Internet of Things, but the key is that as technology evolves it requires increased usage of ASML's machines. It is the industry leader by some way in an industry where barriers to entry are high, ensuring that its growth opportunity and high returns are not competed away. Whilst the dividend yield is low, we are confident it can generate double digit dividend growth into the medium term and believe the shares will continue to outperform.

 

Norwegian listed Mowi is the world's largest producer of farmed salmon, supplying healthy and sustainably farmed seafood to over 70 countries. Demand for salmon is growing globally, whilst supply is constrained by regulation, meaning that the medium to long term growth outlook is promising for Mowi which has an advantage over its peers of scale and vertical integration. Cash generation is strong, underpinning a consistent and growing dividend for shareholders.

 

Sirius Real Estate is a UK listed property company which owns industrial properties on the outskirts of German cities for a range of uses, including offices and storage. It is  differentiated by the fact that its keeps many of its operations in-house, including sourcing tenants and property management, keeping costs down and helping it maintain a competitive position in the sector. Despite the challenging environment for German exporters, the company can continue to grow rents and earnings through any slowdown, helped by its diversified tenant base, and the balance sheet is strong. The valuation of the shares is undemanding and the company pays an attractive and growing dividend.

 

Smith & Nephew is a global medical device company with a new management team that has brought a sense of reinvigoration to the company, and we see good scope for the business to improve its growth profile and profitability as a result of self-help. In addition, the underlying dynamics of the market it is in are attractive, with acyclical and structurally expanding end market demand. We believe the potential upside is underappreciated by the market and expect the earnings improvement to drive a growing dividend.

 

WH Smith has transitioned over the years from being a fixture on the UK high street  to becoming primarily an international travel retailer. Despite the well documented decline of the UK high street, its flexible model allows it to keep profit and cash flow at a high level to reinvest into the expanding travel network where competition is limited, pricing power is stronger and growth is underpinned by increasing air traffic trends. The travel business has significant expansion opportunity and we believe that this will drive profit growth and, in turn, dividend growth into the long term.

 

To fund these purchases we exited four holdings: Vodafone, Unibail Rodamco Westfield ("URW"), Ultra Electronics and Brunello Cucinelli.

 

Vodafone has found its core business struggling to grow at a time when the acquisition of Liberty's German assets had increased its indebtedness. With the dividend unlikely to grow meaningfully following the recent cut, and end market conditions remaining tough, we decided to exit. URW also found its business model under pressure. Since its acquisition of Westfield, it has greater exposure to retail markets where online penetration is increasingly pressuring traditional distribution channels. At the same time it increased its leverage to fund the purchase and with a combination of deteriorating fundamentals and a weaker balance sheet we are no longer convinced in the long term investment case.

 

For Ultra Electronics, while we were encouraged by the appointment of new CEO, we felt that we could find more compelling opportunities elsewhere that better fit our strategy, particularly given concerns over the history of weak cash generation, the poor acquisition track record and the very federal structure of the business. Italian luxury goods business Brunello Cucinelli remains a high quality business with significant growth potential, but following exceptionally strong share price performance we felt that the shares were fully valued.

 

We also sold Manx Telecom following its takeover.

 

In addition to the introductions and exits, we continued to selectively add capital to some of the existing positions where we remain confident in the investment theses, for example GlaxoSmithKline, Countryside Properties, Heineken and National Grid. We also trimmed back a number of holdings on strength, such as Amplifon, Marshalls and Tecan.

 

Performance was sound for the first half of the financial year. This was driven by  very strong returns from some of the holdings in the portfolio. For example, software company Aveva saw its share price appreciate sharply as it continued to outperform market expectations following the merger with Schneider Software. Some of the European holdings  had a notable positive influence, with French food voucher company Edenred, Italian hearing aid retailer Amplifon and Finnish elevator and escalator manufacturer Kone performing particularly well. We are pleased that there were no portfolio holdings that were materially weak over the period to detract from the strong performances mentioned above, despite the fact the external environment remains challenging . We believe this is in part due to the stringent quality criteria we place on the holdings we select, companies with resilient business models and strong balance sheets.

 

Income generation has been in line with our expectations. The dividend season was good, with companies such as Aveva, Big Yellow and Countryside Properties beating our forecasts, although offset by Vodafone's dividend reduction which we had thought likely to happen. Higher levels of volatility and a desire to implement more strategic changes have continued to present opportunities to generate option premium resulting in above average income during the period. Despite selling down some of the higher yielding names in the portfolio we  continue to generate a healthy amount of income and the Company's dividend is well underpinned.

 

A key part of the responsibility of share ownership is corporate stewardship and engagement. Addressing the governance and risk controls of the companies we hold is an aspect of investing that we embrace at Aberdeen Standard Investments and it aligns well with our long term investment horizon. The investment team takes full responsibility, with dedicated on-desk resource and helped by expert advisors within the business. In addition to the hundreds of visits each year with executive teams, we frequently engage with non-executive board members, risk officers and other relevant personnel from the companies in which we invest. How these companies identify environmental and social risks is something we analyse closely and we are increasingly finding that companies which manage these risks well and place high importance on responsible business practices are those that are setting themselves up best to produce positive long term results.

 

Looking ahead, economic conditions continue to weaken across much of the world, trade conflict remains an ongoing concern and aggregate corporate earnings performance looks likely to remain under pressure. Here in the UK, the political situation still remains challenging and at the time of writing the likelihood of either a general election or a no deal Brexit is heightened under the new prime minister. Despite this, equity markets have been remarkably buoyant, posting double digit returns since the start of the year. In continuing to support risk assets, investors hereto have favoured the likely action of central bank to loosen monetary policy over the risk of weaker profit from the corporate sector. Overall, given potentially more volatile markets ahead, we see little reason to shift from our conservative focus on high quality businesses. We remain firm in our belief that, in the long run, the underlying strength of the Company's holdings will prevail however the economic and political headwinds develop.

 

 

Ben Ritchie and Louise Kernohan

Aberdeen Asset Managers Limited

25 September 2019

 

 



INDEPENDENT REVIEW REPORT TO DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC

 

We have been engaged by the Company to review the condensed set of financial statements in the Half Yearly Financial Report for the six months ended 31 July 2019 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Statement of Cash Flows and the related explanatory notes 1 to 13. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with United Kingdom Generally Accepted Accounting Practice (including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'). The condensed set of financial statements included in this Half Yearly Financial Report has been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting'.

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half Yearly Financial Report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of half yearly financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Yearly Financial Report for the six months ended 31 July 2019 is not prepared, in all material respects, in accordance with Financial Reporting Standard 104 and Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

Edinburgh, UK

25 September 2019

 

 



CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 



Six months ended



31 July 2019



Revenue

Capital

Total


Note

£'000

£'000

£'000

Gains on investments


-

53,977

53,977

Income

2

11,543

-

11,543

Investment management fees


(337)

(505)

(842)

Administrative expenses


(447)

-

(447)

Exchange losses


-

(356)

(356)



_______

_______

_______

Net return before finance costs and tax


10,759

53,116

63,875






Finance costs


(493)

(733)

(1,226)



_______

_______

_______

Return before taxation


10,266

52,383

62,649






Taxation

3

(301)

-

(301)



_______

_______

_______

Return after taxation


9,965

52,383

62,348



_______

_______

_______






Return per Ordinary share (pence)

5

6.72

35.34

42.06






The total column of the Condensed Statement of Comprehensive Income is 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.

 

 



CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 



Six months ended



31 July 2018



Revenue

Capital

Total


Note

£'000

£'000

£'000

Gains on investments


-

12,169

12,169

Income

2

14,259

-

14,259

Investment management fees


(339)

(508)

(847)

Administrative expenses


(489)

-

(489)

Exchange losses


-

(280)

(280)



_______

_______

_______

Net return before finance costs and tax


13,431

11,381

24,812






Finance costs


(728)

(1,087)

(1,815)



_______

_______

_______

Return before taxation


12,703

10,294

22,997






Taxation

3

(180)

-

(180)



_______

_______

_______

Return after taxation


12,523

10,294

22,817



_______

_______

_______






Return per Ordinary share (pence)

5

8.39

6.89

15.28



_______

_______

_______

 

 



CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

 



As at

As at



31 July 2019

31 January 2019


Note

£'000

£'000

Non-current assets




Equity securities


486,957

437,108

Fixed interest securities


-

28,214



_______

_______

Investments at fair value through profit or loss


486,957

465,322



_______

_______

Current assets




Debtors


2,798

3,708

Cash and short-term deposits


8,382

3,548



_______

_______



11,180

7,256



_______

_______

Creditors: amounts falling due within one year




Bank loans


(11,912)

(11,427)

Debenture Stock 2019


-

(28,597)

Exchange traded options

9

(1,716)

-

Other creditors


(542)

(1,098)



_______

_______



(14,170)

(41,122)



_______

_______

Net current liabilities


(2,990)

(33,866)



_______

_______

Total assets less current liabilities


483,967

431,456





Creditors: amounts falling due after more than one year




Loan Notes 2045


(29,731)

(29,725)



_______

_______

Net assets


454,236

401,731



_______

_______

Capital and reserves




Called-up share capital


38,419

38,419

Share premium account


4,619

4,619

Capital redemption reserve


1,606

1,606

Capital reserve

6

382,504

330,402

Revenue reserve


27,088

26,685



_______

_______

Equity shareholders' funds


454,236

401,731



_______

_______





Net asset value per Ordinary share (pence)

7

306.53

270.90



_______

_______

 

 

The accompanying notes are an integral part of the financial statements.



CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Six months ended 31 July 2019











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2019


38,419

4,619

1,606

330,402

26,685

401,731

Return after taxation


-

-

-

52,383

9,965

62,348

Dividends paid

4

-

-

-

-

(9,562)

(9,562)

Buyback of Ordinary shares for treasury


-

-

-

(281)

-

(281)



_______

_______

_______

______

_______

_______

Balance at 31 July 2019


38,419

4,619

1,606

382,504

27,088

454,236



_______

_______

_______

______

_______

_______









Six months ended 31 July 2018











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 January 2018


38,419

4,619

1,606

370,634

27,106

442,384

Return after taxation


-

-

-

10,294

12,523

22,817

Dividends paid

4

-

-

-

-

(10,394)

(10,394)

Buyback of Ordinary shares for treasury


-

-

-

(2,308)

-

(2,308)



_______

_______

_______

______

_______

_______

Balance at 31 July 2018


38,419

4,619

1,606

378,620

29,235

452,499



_______

_______

_______

______

_______

_______

 

 

The accompanying notes are an integral part of the financial statements.

 



CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

 


Six months ended

Six months ended


31 July 2019

31 July 2018


£'000

£'000

Operating activities



Net return before finance costs and taxation

63,875

24,812

Adjustments for:



Gains on investments

(53,977)

(12,169)

Currency losses

356

280

Increase in accrued dividend income

(503)

(898)

Decrease/(increase) in accrued interest income

855

(83)

Stock dividends included in dividend income

(175)

(615)

Amortisation of fixed income book cost

154

284

(Increase)/decrease in other debtors excluding tax

(213)

12

Increase in other creditors

408

222

Net tax paid

(618)

(342)


_______

_______

Net cash inflow from operating activities

10,162

11,503




Investing activities



Purchases of investments

(39,887)

(115,264)

Sales of investments

74,665

119,714


_______

_______

Net cash from investing activities

34,778

4,450


_______

_______




Financing activities



Interest paid

(1,786)

(1,796)

Dividends paid

(9,562)

(10,394)

Buyback of Ordinary shares for treasury

(281)

(2,238)

Repayment of Debenture Stock

(28,600)

-


_______

_______

Net cash used in financing activities

(40,229)

(14,428)


_______

_______

Increase in cash and cash equivalents

4,711

1,525


_______

_______




Analysis of changes in cash and cash equivalents during the period



Opening balance

3,548

5,983

Effect of exchange rate fluctuations on cash held

123

(71)

Increase in cash as above

4,711

1,525


_______

_______

Closing balance

8,382

7,437


_______

_______

 

 

The accompanying notes are an integral part of the financial statements.

 

 

 

 

 

 



NOTES TO THE FINANCIAL STATEMENTS

 

FOR THE SIX MONTHS ENDED 31 JULY 2019

 

1.

Accounting policies


Basis of preparation


The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting' and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that status as an investment trust will be maintained.




The half yearly financial statements have been prepared using the same accounting policies applied as the preceding annual financial statements, which were prepared in accordance with Financial Reporting Standard 102.

 

2.

Income





Six months ended

Six months ended



31 July 2019

31 July 2018



£'000

£'000


Income from investments




UK dividend income

7,895

9,652


Overseas dividend income

2,804

2,421


Fixed income

104

511


Stock dividends

175

615



10,978

13,199






Other income




Income from traded options

553

1,060


Interest income

12

-



565

1,060



_______

_______


Total income

11,543

14,259



_______

_______

 

3.

Taxation


The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the estimated annual tax rate expected for the full financial year. The estimated annual corporation tax rate used for the year to 31 January 2020 is an effective rate of 19%. This is in line with the current corporation tax rate of 19%.

 

4.

Ordinary dividends on equity shares





Six months ended

Six months ended



31 July 2019

31 July 2018



£'000

£'000


Third interim dividend 2019 of 3.000p (2018 - 2.575p)

4,449

3,854


Final dividend 2019 of 3.450p (2018 - 4.375p)

5,113

6,540



_______

_______



9,562

10,394



_______

_______






A first interim dividend in respect of the year ending 31 January 2020 of 3.00p per Ordinary share (2019 - 3.00p) was paid on 23 August 2019 to shareholders on the register on 2 August 2019. The ex-dividend date was 1 August 2019.

 

5.

Returns per share





Six months ended

Six months ended



31 July 2019

31 July 2018



p

p


Revenue return

6.72

8.39


Capital return

35.34

6.89



_______

_______


Total return

42.06

15.28



_______

_______






The returns per share are based on the following:





Six months ended

Six months ended



31 July 2019

31 July 2018



£'000

£'000


Revenue return

9,965

12,523


Capital return

52,383

10,294



_______

_______


Total return

62,348

22,817



_______

_______


Weighted average number of Ordinary shares

148,236,960

149,329,893



__________

__________

 

6.

Capital reserves


The capital reserve reflected in the Condensed Statement of Financial Position at 31 July 2019 includes gains of £112,025,000 (31 January 2019 - gains of £56,687,000) which relate to the revaluation of investments held at the reporting date.

 

7.

Net asset value


Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 102. The analysis of equity shareholders' funds on the face of the Condensed Statement of Financial Position does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the period end, adjusted to reflect the deduction of the Debenture Stock and the Loan Notes at par. A reconciliation between the two sets of figures is as follows:







31 July 2019

31 January 2019


Net assets attributable (£'000)

454,236

401,731


Number of Ordinary shares in issue at the period end A.

148,187,119

148,292,669


Net asset value per Ordinary share

306.53p

270.90p


A.Excluding shares held in treasury









31 July 2019

31 January 2019


Adjusted net assets

£'000

£'000


Net assets attributable (as above)

454,236

401,731


Unamortised Debenture Stock premium and issue expenses

-

(3)


Unamortised Loan Notes issue expenses

(269)

(275)



_______

_______


Adjusted net assets attributable

453,967

401,453



_______

_______


Number of Ordinary shares in issue at the period end A.

148,187,119

148,292,669



__________

__________


Adjusted net asset value per Ordinary share

306.35p

270.72p


A. Excluding shares held in treasury.

_______

_______







31 July 2019

31 January 2019


Net assets - debt at fair value

£'000

£'000


Net assets attributable

454,236

401,731


Amortised cost Debenture Stock

-

(43,496)


Amortised cost Loan Notes

29,731

(3,708)


Market value Debenture Stock

-

(28,969)


Market value Loan Notes

(36,468)

(35,391)



_______

_______


Net assets attributable

447,499

290,167



_______

_______


Number of Ordinary shares in issue at the period end B.

148,187,119

148,292,669



__________

__________


Net asset value per Ordinary share - debt at fair value

301.98p

266.83p



_______

_______







31 July 2019

31 January 2019


Net assets - debt at fair value - adjusted A.

£'000

£'000


Net assets attributable

454,236

401,731


Amortised cost Debenture Stock

-

28,597


Amortised cost Loan Notes

29,731

29,725


Market value Debenture Stock

-

(28,969)


Market value Loan Notes

(36,468)

(35,391)



_______

_______


Net assets attributable

447,499

395,693



_______

_______


Number of Ordinary shares in issue at the period end B.

148,187,119

148,292,669



_______

_______


Net asset value per Ordinary share - debt at fair value

301.98p

266.83p



_______

_______


Less: 3rd interim dividend 2019

-

(3.00)p



_______

_______


Net asset value per Ordinary share - debt at fair value - adjusted A.

301.98p

263.83p



_______

_______






A.    Cum-income NAV with debt at fair value, adjusted to exclude the third interim dividend for the year ended 31 January 2019 which went ex-dividend on 31 January 2019 but was not paid until 22 February 2019 due to the difference in recognition of dividends payable on an ex-dividend date basis under AIC reporting guidelines and upon payment under accounting standards.


B.       Excluding shares held in treasury.

 

8.

Transaction costs


During the period 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 Condensed Statement of Comprehensive Income. The total costs were as follows:







Six months ended

Six months ended



31 July 2019

31 July 2018



£'000

£'000


Purchases

164

509


Sales

24

36



_______

_______



188

545



_______

_______

 

9.

Fair value hierarchy


FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications:




Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.


Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.


Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.




The financial assets and liabilities measured at fair value in the Condensed 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 July 2019

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

486,957

-

-

486,957




______

______

______

______


Total


486,957

-

-

486,957




______

______

______

______


Financial liabilities at fair value through profit or loss






Derivatives

c)

(1,716)

-

-

(1,716)




______

______

______

______


Net fair value


485,241

-

-

485,241




______

______

______

______











Level 1

Level 2

Level 3

Total


As at 31 January 2019

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

437,108

-

-

437,108


Quoted bonds

b)

-

28,214

-

28,214




______

______

______

______


Total


437,108

28,214

-

465,322




______

______

______

______


Financial liabilities at fair value through profit or loss






Derivatives

c)

-

-

-

-




______

______

______

______


Net fair value


437,108

28,214

-

465,322




______

______

______

______









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. Bonds included in Fair Value Level 2 are Corporate Bonds. Investments categorised as Level 2 are not considered to trade in active markets.





c)

Derivatives



The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and has been included in Fair Value Level 1. At 31 July 2019 there were 7 open positions amounting to a liability of £1,716,000 (31 January 2019 - nil).

 

10.

Transactions with the Manager


The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services.




The management fee is calculated and charged, on a monthly basis, at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum on amounts over £425 million of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 40% to revenue and 60% to capital. During the period £842,000 (31 July 2018 - £847,000) of investment management fees were payable to the Manager, with a balance of £146,000 (31 July 2018 - £143,000) being due at the period end. There were no commonly managed funds held in the portfolio during the six months to 31 July 2019 (2018 - none).




The management agreement may be terminated by either party on not less than six months' written notice. On termination by the Company on less than the agreed notice period the Manager would be entitled to receive fees which would otherwise have been due up to that date.




The Manager also receives a separate promotional activities fee which is based on a current annual amount of £310,000 plus VAT payable quarterly in arrears. During the period £186,000 (31 July 2018 - £186,000) of fees were payable to the Manager, with a balance of £124,000 (31 July 2018 - £31,000) being due at the period end.

 

11.

Segmental information


The Company is engaged in a single segment of business, which is to invest mainly in equity securities. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

 

12.

The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 31 July 2019 and 31 July 2018 has not been audited.




The information for the year ended 31 January 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006.




The auditor has reviewed the financial information for the six months ended 31 July 2019 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

 

13.

This Half Yearly Financial Report was approved by the Board on 25 September 2019.

 



 

ALTERNATIVE PERFORMANCE MEASURES ("APMs")

Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.


Total return

Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.


The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 31 July 2019 and the year ended 31 January 2019 and the total return for the periods.






Dividend


Share

Six months ended 31 July 2019

rate

NAV

price

31 January 2019

3.000p

263.83p

242.00p

2 May 2019

3.450p

287.09p

264.00p

31 July 2019

N/A

301.98p

277.00p



_______

_______

Total return


+15.8%

+16.0%



_______

_______






Dividend


Share

Year ended 31 January 2019

rate

NAV A.

price

31 January 2018

N/A

290.57p

243.50p

1 February 2018

2.575p

285.03p

256.00p

3 May 2018

4.375p

282.72p

253.00p

2 August 2018

3.000p

290.12p

257.00p

1 November 2018

3.000p

265.44p

242.00p

31 January 2019

3.000p

263.83p

242.00p



_______

_______

Total return


(3.9)%

(0.8)%



_______

_______

 

A.        2019 Cum-income NAV with debt at fair value, adjusted to exclude the third interim dividend for the year ended 31 January 2019 which went ex-dividend on 31 January 2019 but was not paid until 22 February 2019 due to the difference in recognition of dividends payable on an ex-dividend date basis under AIC reporting guidelines and upon payment under accounting standards.


Discount to net asset value per share with debt at fair value

The discount is the amount by which the share price of 277.00p (31 January 2019 - 242.00p) is lower than the net asset value per share with debt at fair value of 301.98p (31 January 2019 - 266.83p), expressed as a percentage of the net asset value with debt at fair value.


Dividend yield

Dividend yield is calculated using the Company's historic annual dividend of 12.45p per Ordinary share divided by the share price at 31 July 2019 of 277.00p (31 January 2019 - 242.00p) expressed as a percentage.


Net gearing

Net gearing measures the total borrowings of £41,643,000 (31 January 2019 - £69,749,000) less cash and cash equivalents of £8,382,000 (31 January 2019 - £4,635,000) divided by shareholders' funds of £454,236,000 (31 January 2019 - £401,731,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due and to brokers at the period end as well as cash and short term deposits.


Equity gearing

Equity gearing is calculated as the amount by which the total value of equity securities of £486,957,000 (31 January 2019 - £437,108,000) exceeds shareholders' funds of £454,236,000 (31 January 2019 - £401,731,000), expressed as a percentage of shareholder funds.


Ongoing charges

Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 31 July 2019 is based on forecast ongoing charges for the year ending 31 January 2020.




 


31 July

31 January

 


2019

2019

 

Investment management fees (£'000)

1,723

1,669

 

Administrative expenses (£'000)

866

942

 

Less: non-recurring charges (£'000)

(6)

(11)

 


_______

_______

 

Ongoing charges (£'000)

2,583

2,600

 


_______

_______

 

Average net assets (£'000)

437,172

412,064

 


_______

_______

 

Ongoing charges ratio

0.59%

0.63%

 


_______

_______

 




 

The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which amongst other things, includes the cost of borrowings and transaction costs.

 

 

By order of the Board

25 September 2019

 

Please note that past performance is not necessarily a guide to the future and 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

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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