Source - RNS
RNS Number : 8892M
Aberdeen Latin American Inc Fd Ltd
19 October 2016
 

ABERDEEN LATIN AMERICAN INCOME FUND LIMITED

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 AUGUST 2016

 

 

STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

 

Investment Objective

The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.

 

Gearing

The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing.  The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis.  Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets.  The Company will not have any fixed, long-term borrowings.

 

Risk Diversification

The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments.  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.

 

Management

The Company is managed by Aberdeen Private Wealth Management Limited ("APWML"), which is registered with the Jersey Financial Services Commission ("JFSC") for the conduct of fund services business.  The investment management of the Company has been delegated by APWML to Aberdeen Asset Managers Limited ("AAM").  AAM is based in London and is also a wholly-owned subsidiary of Aberdeen Asset Management PLC (the "Aberdeen Group"), a publicly-quoted company on the LSE.

 

References throughout this document to Aberdeen refer to both APWML and AAM and their responsibilities as Manager and Investment Manager respectively to the Company.

 

Website

Up-to-date information can be found on the Company's website - www.latamincome.co.uk

 

Financial Highlights

 

Ordinary share price total return


Earnings per Ordinary share (revenue)

+36.7%



4.60p


2015

-32.3%


2015

3.85p

Net asset value total return


Dividends per Ordinary share

+46.2%



3.50p


2015

-36.8%


2015

4.25p

Benchmark total return



Discount to net asset value per Ordinary share


+38.8%



11.8%


2015

-32.2%


2015

4.8%

Total return represents the capital return plus dividends reinvested.

Source: Aberdeen, Morningstar, Russell Mellon, Lipper & JPMorgan

 

 

STRATEGIC REPORT - CHAIRMAN'S STATEMENT

 

Overview

Latin American bond and equity prices rallied over the 12 months, largely with the help of a sharp second-half rebound. For some markets, positive political developments spurred optimism. For most others, a recovery in oil and metal commodity prices and continued monetary easing from global central banks proved supportive. Inflation has peaked and started to decline in the region, allowing central banks to end their rate hiking cycles. Meanwhile, regional currencies gained against sterling following the unexpected results of the UK's referendum on European Union membership.

 

Among the markets benefiting from a more positive political backdrop was Brazil, the Company's largest country exposure. Brazil's stock and bond markets were the region's standout performers, lifted by hopes that a new leader could rejuvenate the ailing economy. The new president Michel Temer, who took over from Dilma Rousseff, has appointed an economic team that consists of investor favourites, such as former central bank president Henrique Mierelles heading the finance ministry, and former central bank director Ilan Goldfajn governing the central bank. The team unveiled an ambitious programme of reforms aimed at strengthening the country's public finances. Consumer confidence climbed as economic activity appeared to improve, but Temer's economic team cautioned that a sustained recovery will depend on the government's ability to implement meaningful structural reforms.

 

Other countries that were lifted by a better political climate included Argentina. The pro-business Mauricio Macri won the presidential election, pledging to relax exchange controls and renegotiate with foreign creditors. Notably, its return to the global bond market after a 15-year hiatus attracted intense investor interest. In addition, since overhauling its statistical agency, the country released its first set of credible economic data in June. In Peru, market-friendly candidate Pedro Pablo Kuczynski was elected as president, with a mandate to boost infrastructure investments. The country's stockmarket also gained from a snapback in commodity prices, in particular soya bean. A sharp fall in inflation saw the bond market rally.

 

The Mexican economy was relatively resilient despite the challenging global backdrop, supported by domestic consumption. Meanwhile, the central bank tightened its monetary policy by raising rates to curb inflation and to shore up the Peso. However, the currency continued to underperform its regional peers, with concerns surrounding the outcome of the US presidential election increasingly weighing on the Peso. The government also cautiously cut its 2016 growth forecast on worries over slowing exports and plans to trim budget spending to strengthen the country's finances.

 

Similarly, the Chilean central bank downgraded its outlook for the year, warning that business sentiment could remain weak and unemployment may creep higher. On the commodity front, the country benefited as a net oil importer. While copper prices ended the year lower, losses were pared by a rally towards the period-end amid speculation that China, the world's biggest importer, may do more to stimulate growth. Domestic politics continued to focus on president Michelle Bachelet's reform efforts, which have so far yielded mixed results.

 

Results and Dividends

I am pleased to report that your Company's NAV total return was 46.2% for the year ended 31 August 2016, ahead of the 38.8% rise in our composite benchmark's return. On a total return basis the Ordinary share price rose by 36.7% to 66.63p reflecting a widening in the level of discount to NAV per share which moved from 4.8% to 11.8% at the year end.

 

The broad-based weakening of Sterling contributed positively to performance over the last quarter of the year.  The earnings per share for the year ended 31 August 2016 were 4.6p (2015: 3.85p). The Company has declared four interim dividends of 0.875p per Ordinary share in respect of the year bringing the total level of dividends to 3.5p (2015:4.25p). Allowing for the payment of the four dividends £720,000 has been transferred to the carried forward revenue reserve.  The Board will continue to keep the level of revenue from the portfolio under careful review and intends to continue to pay an annual dividend of at least 3.5p per Ordinary share for the financial year ending 31 August 2017.  Dividends remain subject to investee company performance, the level of income from investments and currency movements.

 

As part of the dividend rebasing exercise last year, Aberdeen agreed to waive its company secretarial and administration fee of £112,000 per annum, for the year ended 31 August 2015.  The waiver has remained in place for 2016.  However, in light of the signs of strengthening currencies and improved confidence in the region, the Board has agreed to reinstate the company secretarial fee at the level of £114,000 for the year ending 31 December 2017.

 

Portfolio

During the year the portfolio allocation between equities and bonds remained constant at 39% equities and 61% bonds as the Investment Manager continued to seek to exploit market opportunities.  The Manager currently expects to maintain this allocation in the near term although the allocation to equities is likely to increase over time as economic conditions improve and the Company's revenue streams stabilise further.

 

Share Capital Management

During the year the Company purchased for treasury 870,000 Ordinary shares at a discount to the NAV per share. Market volatility has, at times, continued to affect our ability to have a meaningful impact on the discount through the purchase of the Ordinary shares in the market and over this period the discount to NAV has widened from 4.8% to 11.8%. It remains the Board's intention, in more normal market conditions, to try to maintain a discount of around 5% over the longer term.  Subsequent to the year end a further 145,000 Ordinary shares have been purchased for treasury.  The Board will continue to make selective use of share buybacks, subject to prevailing market conditions and where to do so would be in Shareholders' interests. At the time of writing the Ordinary shares were trading at a discount of 12.3% following a further healthy increase in the NAV.

 

On 31 December 2015 the Company's remaining Subscription Shares expired out of the money and following the completion of the formal process laid out in the Articles, involving the appointment of an independent trustee, the Subscription Shares were formally cancelled on 15 January 2016.

 

Gearing

During the year the level of drawings under the Company's £10 million facility with Scotiabank Europe PLC was reduced to £7.5 million.  Subsequent to the period end the loan was further reduced to £6.5 million. The Board will continue to monitor the level of gearing under recommendation from the Investment Manager and in the light of market conditions.

 

Annual General Meeting

The AGM will be held at 10.00 a.m. on 8 December 2016 at the Company's registered office, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB and I look forward to meeting Shareholders on the day.

 

We are proposing to renew the Company's authority to buy back Ordinary shares subject to the United Kingdom Listing Authority's Listing Rules and Jersey law and any purchases will be at the absolute discretion of the Directors. We are also seeking to renew the authority to issue new Ordinary shares equivalent to up to 10% of the Company's existing Ordinary share capital at the AGM. Ordinary shares will only ever be issued at a premium to NAV per Ordinary share and will therefore be accretive and not disadvantageous to Ordinary Shareholders.

 

Outlook

Latin American markets posted an impressive performance over the 12 months compared to the broader emerging markets. It is, however, premature to declare an all-clear looking ahead. Volatility is likely to persist with your Manager urging caution ahead of several key events that could swing sentiment. Among them are the US Federal Reserve's next rate hike and the result of the US presidential elections in November, which could have a significant impact on Mexico because of the countries' economic linkages.

 

On the political front, leadership changes in Brazil, Argentina and Peru that promised business-friendly reforms should continue to bode well for their respective markets. While investor confidence has improved, these countries cannot afford to be complacent and must be prepared to stay the course if they want to keep the momentum going. Meanwhile, the participation of Chile, Mexico and Peru in the Trans-Pacific Partnership is also a positive development over the longer term, as trade barriers are lowered.

 

Against this backdrop, your Manager is cautiously optimistic over the region's outlook. Most importantly, the investment case in the region remains intact. Demographics, especially a burgeoning middle class, continue to serve as the compelling growth engine that drives the possibilities for businesses in Latin America. Meanwhile, currency depreciation has helped to absorb the commodities-driven terms of trade shock, and policymakers show a timely shift in focus towards public and private investments in non-commodity sectors.  While uncertainty lies ahead, the Board is confident in your Manager's disciplined investment approach, which is based on a rigorous due diligence process and a strong emphasis on corporate engagement.

 

Richard Prosser

Chairman

18 October 2016

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Business Model

The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.

 

The business of the Company is that of an investment company and the Directors do not envisage any change in this activity in the foreseeable future. 

 

Investment Policy and Approach

The Company invests in:

 

-    companies listed on stock exchanges in the Latin American region;

-    Latin American securities (such as ADRs and GDRs) listed on other international stock exchanges;

-    companies listed on other international exchanges that derive significant revenues or profits from the Latin American region; and

-    debt issued by governments and companies in the Latin American region.

 

The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments.  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.

 

Whilst the Board has provided the Investment Manager with broad investment guidelines in order to ensure a spread of risk, the Company's portfolio is not managed by reference to any benchmark and, therefore, the composition of its portfolio is not restricted by minimum or maximum country, market capitalisation or sector weightings.

 

The Company may invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in the Latin American region.

 

Derivative investments may be used for efficient portfolio management and hedging and may also be used in order to achieve the investment objective and to enhance portfolio performance.  The Company may purchase and sell derivative investments such as exchange-listed and over-the-counter put and call options on currencies, securities, fixed income, currency and interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon and enter into various interest rate and currency transactions such as swaps, caps, floors or collars or credit transactions and credit derivative instruments. The Company may also purchase derivative instruments that combine features of these instruments.  Aberdeen employs a risk management process to oversee and manage the Company's exposure to derivatives.  Aberdeen may use one or more separate counterparties to undertake derivative transactions on behalf of the Company, and may be required to pledge collateral in order to secure the Company's obligations under such contracts.  Aberdeen will assess on a continuing basis the creditworthiness of counterparties as part of its risk management process.

 

The Company may underwrite or sub-underwrite any issue or offer for sale of investments.

 

The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing.  The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis.  Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets calculated at the time of drawing.  The Company will not have any fixed, long-term borrowings.

 

The Company may also use derivative instruments for gearing purposes, in which case the investment restrictions will be calculated on the basis that the Company has acquired the securities to which the derivatives are providing exposure.

 

The Company will normally be fully invested. However, during periods in which economic conditions or other factors warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.

 

The Company invests and manages its assets, including its exposure to derivatives, with the objective of spreading risk in line with the Company's investment policy.

 

The Company may only make material changes to its investment policy (including the level of gearing set by the Board) with the approval of Ordinary Shareholders (in the form of an ordinary resolution).

 

Investment Restrictions

The minimum and maximum percentage limits set out under "Investment Policy and Approach" and "Investment Restrictions" will only be applied at the time of the relevant acquisition, trade or borrowing.  No more than 15% of the Company's gross assets will be invested in any company.

 

The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other investment companies admitted to the Official List of the Financial Conduct Authority, 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 admitted to the Official List of the Financial Conduct Authority.

 

The Company may invest up to 25% of its gross assets in non-investment grade government debt issues (being debt issues rated BB+/Ba1 or lower).

 

The Company's aggregate gross exposure to derivative instruments will not exceed 50% of its gross assets.

 

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 Aberdeen considers this to be appropriate.

 

No underwriting or sub-underwriting commitment will be entered into if the aggregate of such investments would exceed 10% of the Company's net assets and no such individual investment would exceed 5% of the Company's net assets.

 

The Board has adopted a policy that the value of the Company's borrowings or derivatives (but excluding collateral held in respect of any such derivatives) will not exceed 30% the Company's net assets.

 

Duration

The Company does not have a fixed life or continuation vote.

 

Benchmark

The Company measures its performance against a composite benchmark index weighted as to 60% MSCI EM Latin America 10/40 Index and 40% JP Morgan GBI-EM Global Diversified (Latin America Carve Out) (both in sterling terms) (the "Benchmark").  The Company does not seek to replicate the Benchmark index in constructing its portfolio and the portfolio is not managed by reference to any index.  It is likely, therefore, that there will be periods when the Company's performance will be uncorrelated to any index or benchmark.

 

Key Performance Indicators (KPIs)

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine 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 ("NAV") Total Return Performance versus Benchmark Index Total Return

 

The Board considers the Company's NAV total return figures versus the Benchmark to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The figures for this year, three years and since inception are set out in the Annual Report.

 

Share Price Discount/Premium to NAV per Ordinary Share

The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions.  A graph showing the share price premium/(discount) relative to the NAV is also shown in the Annual Report.

 

Ordinary Share Price Total Return Performance

The Board also monitors the price at which the Company's shares trade relative to the Benchmark on a total return basis over time. A graph showing the total NAV return and the share price performance against the comparative index is shown in the Annual Report.

 

Dividends per Ordinary Share

The Board's aim is to provide shareholders with an attractive yield. Dividends paid in 2015 and 2016 are set out under Results below.

 

Further commentary on the Company's performance is contained in the Chairman's Statement and Investment Manager's Review and further explanation of the terms is provided in the Annual Report.

 

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 taken by the Board. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. The Board reviews the risks and uncertainties faced by the Company in the form of a risk matrix and heat map at its annual audit committee and a summary of the principal risks are set out below.

 

An explanation of other risks relating to the Company's investment activities, specifically market risk including interest rate risk, foreign currency risk and other price risk, liquidity risk, credit risk, gearing risk and a note of how these risks are managed, is contained in note 16 to the financial statements.

 

Description

Mitigating Action

Investment strategy and objectives - the setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for Ordinary shares and a widening discount at which the Ordinary shares trade relative to their NAV.

 

The Board keeps the level of discount at which the Company's Ordinary shares trade as well as the investment objective and policy under review and the Board is updated at each Board meeting on the make up of and any movements in the Shareholder register. 

Investment portfolio, investment management - investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives.

 

The Board sets, and monitors, its investment restrictions and guidelines, and receives regular reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines.

 

Financial obligations - the ability of the Company to meet its financial obligations, or increasing the level of gearing, could result in the Company becoming over-geared and therefore unable to take advantage of potential opportunities and result in a loss of value of the Company's Shares.

 

The Board sets a gearing limit and receives regular updates on the actual gearing levels the Company has reached from the Investment Manager together with the assets and liabilities of the Company and reviews these at each Board meeting.

Financial and Regulatory - the financial risks associated with the portfolio could result in losses to the Company. In addition, failure to comply with relevant regulation (including the Companies (Jersey) Law, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the listing rules, disclosure and prospectus rules) may have a negative impact on the Company. 

 

The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are managed by the Investment Manager. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 16 to the financial statements. The Board relies upon Aberdeen to ensure the Company's compliance with applicable regulations and from time to time employs external advisers to advise on specific concerns.

 

Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of AAM) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.

 

The Board receives reports from the Manager on internal controls and risk management at each Board meeting and receives assurances from its significant service providers. Further details of the internal controls which are in place are set out in the Directors' Report.

 

Income and dividend risk - there is a risk that the portfolio could fail to generate sufficient income to meet the level of the annual dividend drawing upon, rather than replenishing, its revenue and/or capital reserves.

The Board monitors this risk through the review of income forecasts, provided by the Manager, at each Board meeting.

 

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, 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 focussed upon the following factors:

 

-    The principal risks detailed in the Strategic Report;

-    The ongoing relevance of the Company's investment objective in the current environment;

-    The demand for the Company's Shares evidenced by the historical level of premium and or discount;

-    The level of income generated by the Company;

-    The liquidity of the Company's portfolio; and,

-    The flexibility of the Company's multi currency loan facility which matures in August 2017 including the financial covenants attaching to the loans.

 

Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid 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.

 

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 companies 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 your 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. 

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new board members.  At 31 August 2016, there were four male Directors on the Board.

 

Environmental, Social and Human Rights Issues

The Company has no employees as it is managed by APWML and ordinarily all activities are contracted out to third party service providers.  There are therefore no disclosures to be made in respect of employees.  The Company's socially responsible investment policy is outlined in the Directors' Report.

 

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.

 

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 (including MiFID II and Packaged Retail Investment and Insurance Products) and the recent 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 my Chairman's Statement  whilst the Investment Manager's views on the outlook for the portfolio are included in the Investment Manager's Review.

 

For and on behalf of the Board

 

Richard Prosser

Chairman

18 October 2016

 

 

STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW

 

Performance Commentary

Investment Manager's Review

Latin American equities delivered impressive returns over the year under review, outpacing broader emerging markets. Currency gains accounted for a sizeable part of overall returns, as sterling was battered by the UK's vote to leave the European Union, flattering most Latin American currencies.

 

Initially, Latin American markets endured a shaky start. The US Federal Reserve raised interest rates in December, triggering knee-jerk flows out of emerging markets. China's stuttering economy and a steep sell-off in mainland stocks added to jitters, along with a slump in commodities, particularly the oil price, which fell to below US$30 a barrel at one point. Markets sank to a trough in January before staging a stunning comeback, driven by encouraging political developments, particularly in Brazil, healthier risk appetite and some recovery in commodity prices.

 

Towards the period-end, gains were pared by renewed weakness in oil prices ahead of an OPEC summit and the prospect of a US rate hike. Against this backdrop, the equity portfolio rose by 53.28% (gross), beating the benchmark index's total return of 41.24%.

 

Latin American bond markets also delivered notable returns over the year under review, outpacing the broader emerging markets. Stabilization in commodities prices led to a recovery in currency valuations, which combined with weaker growth and tight monetary policies reduced inflationary pressures across the region. Consumer price growth peaked in the first quarter of 2016, and favorable base effects contributed to the subsequent deceleration in inflation. The bond portfolio returned 36.96% (gross) over the year, outperforming the benchmark performance of 34.79%.

 

Mexico contributed the most to performance. Our equity underweight position was positive, as the stockmarket rose by less than its peers, dampened by growth concerns. The economy shrank for the first time in three years, amid lacklustre industrial activity and a weak peso. Not holding some laggards, such as America Movil, which suffered regulatory and competitive pressures, also proved beneficial. Among our holdings, Kimberly Clark de Mexico proved resilient despite the slowing consumer environment.

 

Although due to its earlier structural reforms Mexico a depreciation-induced spike in inflation, the central bank nonetheless hiked rates first to offset the impacts of the Fed hike in December, then to provide support to the currency. However, the currency continued to underperform both its regional and broader emerging markets peers, as concerns about the widening current account deficit and later about the outcome of the US presidential incentivized investors to hedge their local exposure. Our underweight exposure to Mexican rates and currency was the largest source of outperformance. 

 

Also lifting returns was our overweight to Brazil, where a leadership change was cause for optimism. Suspended president Dilma Rousseff was ousted following an impeachment vote that found her guilty of manipulating the federal budget, and her vice-president, Michel Temer, was sworn into office. This gave investors hope of meaningful reform that could revitalise an economy in the doldrums.

 

Brazil was the best performing market both in terms of rates and currencies. The end of the impeachment process and the credibility of the new economic team improved policy outlook and reduced political risk, while the fall in inflation allowed market expectations to move away from further monetary policy tightening and price in a rate cutting cycle. As a result long-term bond yields declined from over 16.5% in January to below 12% by summer. At the same time the current account continued to improve, briefly turning into surplus for a first time in many years. Over the review period we have gradually increased our allocation to Brazilian bonds and currency, which had a positive contribution to the portfolio's relative performance.

 

Our Brazilian equity holdings were among the biggest contributors to positive stock selection. Banco Bradesco rebounded sharply to narrow its discount to sectoral peers. Mall operator Multiplan and shoe retailer Arezzo benefited from expectations that the consumer downturn was bottoming and a lower interest rate cycle was beginning. Fashion retailer Lojas Renner and car rental company Localiza outshone their counterparts despite tough operating conditions. BM&F Bovespa was up, partly in anticipation of a successful merger with Cetip. Conversely, the biggest detractor was the lack of exposure to state-owned oil giant Petrobras, embroiled in a corruption scandal. It rallied after the Temer administration appointed new management, and the real's appreciation cut its hefty US-dollar debt burden in local currency terms.

 

In Chile, positive stock selection was the main highlight as our holdings performed solidly. Coca Cola bottler Embotelladora Andina's results met expectations, as higher prices offset lower volumes sold, while profits received a fillip from the lower tax burden. Mall operator Parque Arauco posted healthy sales, a stable occupancy ratio and higher operating margins. It also undertook a successful capital raising to finance projects in Chile, Peru and Colombia. We exercised our rights to participate in this capital raising, given the comparative valuation advantage and the company's well-mapped development pipeline. On the macroeconomic front, first-quarter GDP growth was better than expected at 2%, but the central bank downgraded its full-year outlook, emphasising that business sentiment remained weak and unemployment was rising.

 

In Peru the outcome of the presidential elections was positive for the markets, as the left-wing candidate didn't make it to the second round, which saw the victory of the more market-friendly candidate. Inflation, which exceeded the central bank's target band throughout most of the review period, has declined slightly below 3% by the end of summer, allowing the monetary authority to end the tightening cycle after a cumulative 75bps of rate hikes. As a result long term yields have fallen from over 7.5% at the start of the year to below 6% in August, and we profited from our long rates exposure.

 

Elsewhere, Peruvian engineering company Grana y Montero was underpinned by an improved outlook and the outcome of the presidential elections. Market-friendly Pedro Pablo Kuczynski won the presidential race, pledging to improve infrastructure, lower taxes and simplify business rules. 

 

During the interim, we introduced Mexico's largest dairy company, Grupo Lala, and Peruvian cement producer, Cementos Pacasmayo, given their quality and solid prospects. Against this, we sold shares in Souza Cruz back to its parent British American Tobacco, which had raised its bid to privatise the unit.

 

Subsequently, apart from participating in Parque Arauco's capital raising, we also sold Colombian retailer Grupo Exito, owing to concerns over governance and potential future transactions.

 

In Colombia, although the recent recovery in oil prices has helped to stabilize external balances and the currency, fiscal and structural adjustments are needed to improve Colombia's longer-term outlook. Our underweight exposure had overall little impact on relative performance.

 

Uruguay initially underperformed as the economy struggled to return to growth while inflation remained high. However, the last quarter of the review period saw the currency catching up with its regional peers, helped mostly by an economic recovery of neighboring Brazil and Argentina. Our off-benchmark position in Uruguayan inflation linked bonds had an overall small positive contribution to performance.

 

Outlook

Latin American equities are likely to remain volatile. Uncertainty persists over the timing of the next US rate hike and the potential repercussions for the rest of the world. Oil prices are likely to hover around current levels, given the global glut. Weak copper prices are hurting Chile, a major copper exporter, and monetary policy easing may be needed to support growth. Encouragingly, president Bachelet appears to be prioritising reform to improve both productivity and the wider economy.

 

In Brazil, confidence appears to be returning after months of political flux, although president Temer has the arduous task of pushing much-needed fiscal reforms through Congress, as he attempts to rein in a widening budget deficit. Mexico, closely tied to the fortunes of the US, has seen its currency plumb new depths on concerns over an unfavourable result from the US presidential elections in November. Its economy is also feeling the impact of declining exports and a slowdown in services.

 

Inflation should continue to moderate in the region, allowing the central banks to start monetary easing next year. Absent a major shock to currencies, the current environment of low global yields continues to be very supportive for inflows into Latin American local bond markets.

 

That said, an improving political climate across Latin America has resulted in an increased focus on structural reforms, particularly reducing debt and increasing productivity. This augurs well for the long-term economic potential and fundamentals for the region, albeit with necessary, and painful, adjustments over the short term. Amid the current backdrop, we are confident about our holdings, given their quality, prudent management and good long-term prospects. We continue to focus on picking and holding stocks with good fundamentals, and taking advantage of volatility to add to our preferred companies at attractive valuations, or trim those that appear overvalued.

 

Aberdeen Asset Managers Limited

18 October 2016

 

 

STRATEGIC REPORT - RESULTS

 

Financial Highlights









31 August 2016

31 August 2015

%
change

Total assets (£'000)

55,963

44,520

25.7

Total equity shareholders' funds (net assets) (£'000)

48,463

35,872

35.1

Market capitalisation (£'000)

42,745

34,163

25.1

Ordinary share price (mid market)

66.63p

52.50p

26.9

Net asset value per Ordinary share

75.54p

55.17p

36.9

Discount to net asset value per Ordinary share

11.80%

4.84%


Net gearing {A}

14.39%

21.77%






Dividends and earnings




Total return per Ordinary share

24.04p

-33.22p


Earnings per Ordinary share (revenue)

4.60p

3.85p

19.5

Dividends per Ordinary share

3.50p

4.25p


Dividend cover

1.31 times

0.91 times


Revenue reserves{B} (£'000)

1,281

658






Operating costs




Ongoing charges ratio{C}

2.01%

1.89%


{A}      Calculated in accordance with AIC guidance "Gearing Disclosures post Retail Distribution Review".

{B}      Excludes payment of fourth interim dividend of 0.875p (2015 - 1.25p) per Ordinary share equating to £561,000 (2015 - £813,000).

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

 

 

Performance (total return)

 


1 year

3 year

Since launch{A}


% return

% return

% return

Ordinary share price

+36.7

-6.1

-9.5

Net asset value

+46.2

+2.0

+1.8

Benchmark

+38.8

+6.0

+2.1

Total return represents the capital return plus dividends reinvested.




{A} Launch date 16 August 2010.




 

 

Dividends

 


Rate

xd date

Record date

Payment date

1st interim 2016

0.875p

17 December 2015

18 December 2015

29 January 2016

2nd interim 2016

0.875p

21 April 2016

22 April 2016

29 April 2016

3rd interim 2016

0.875p

7 July 2016

8 July 2016

29 July 2016

4th interim 2016

0.875p

6 October 2016

7 October 2016

28 October 2016


______




Total dividends 2016

3.500p





______










Rate

xd date

Record date

Payment date

1st interim 2015

1.000p

18 December 2014

19 December 2014

30 January 2015

2nd interim 2015

1.000p

2 April 2015

7 April 2015

30 April 2015

3rd interim 2015

1.000p

16 July 2015

17 July 2015

31 July 2015

4th interim 2015

1.250p

8 October 2015

9 October 2015

30 October 2015


______




Total dividends 2015

4.250p





______




 

 

INVESTMENT PORTFOLIO

 

Ten Largest Equity Investments

As at 31 August 2016

 




Valuation

Total

Valuation




2016

assets

2015

Company

Sector

Country

£'000

%{A}

£'000

Banco Bradesco ADR






A leading Brazilian bank with a good quality loan portfolio, it has benefited from robust growth in retail lending.

Banks

Brazil

1,927

3.4

1,191

Itau Unibanco Holdings ADR






Brazil's largest privately-owned bank, it is strongly capitalised and well positioned with decent growth and asset quality.

Banks

Brazil

1,829

3.3

1,016

Lojas Renner{B}






The second largest clothing retailer in Brazil.

Retailing

Brazil

1,302

2.3

714

Ambev{B}






Latin America's largest producer of beer and the sole distributor of Pepsi products in Brazil.

Food, Beverage & Tobacco

Brazil

1,047

1.9

654

Multiplan Empreendimentos NPV{B}






Brazil's leading mall developer and operator, owner of a solid portfolio of high quality malls.

Real Estate

Brazil

1,037

1.9

542

Grupo Aeroportuario Sureste ADR






It operates 9 airports in south east Mexico with a 50 year concession, expiring in 2048, including Cancun, its primary airport, which accounts for 70% of its traffic. In 2012 Asur also won a bidding process to operate an airport in Puerto Rico.

Transportation

Mexico

1,028

1.8

497

Grupo Financiero Banorte






Mexico's third largest bank in terms of assets and the largest and only locally owned Mexican bank, well positioned to continue growing and strengthening its competitive position to benefit from this underpenetrated market.

Banks

Mexico

1,008

1.8

796

Fomento Economico Mexicano ADR






Fomento Economico Mexicano participates in beverages through Coca-Cola FEMSA, the largest bottler of Coca-Cola products globally. The company also participates in small-format stores through FEMSA Comercio which includes 12,800 Oxxo convenience stores and more recent developments into pharmacies and gas stations.

Food, Beverage & Tobacco

Mexico

929

1.7

984

Ultrapar Participacoes ADR






Brazilian fuels and chemicals company with defensive qualities. It has strengthened its distribution network with its acquisition of the Texaco-brand of gasoline stations in Brazil.

Energy

Brazil

908

1.6

589

Brazil Foods Sponsored ADR






Brazil Foods is a vertically integrated food producer selling poultry, pork and processed food, among others. It is the leading player in the majority of its markets, especially in the poultry segment where it is the leading producer globally.

Food, Beverage & Tobacco

Brazil

855

1.5

                631

Top ten equity investments



11,870

21.2


Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.

{A}        Total assets less current liabilities (before deducting prior charges)

{B}        Held in Subsidiary.

 

 

Investment Portfolio - Other Investments

As at 31 August 2016

 




Valuation

Total

Valuation




2016

assets

2015

Company

Sector

Country

£'000

%{A}

£'000

Wal-Mart De Mexico

Food & Staples Retailing

Mexico

780

1.4

590

Embotelladora Andina 'A' Pref{B}

Food, Beverage & Tobacco

Chile

697

1.2

535

Banco Santander-Chile ADR

Banks

Chile

646

1.2

550

S.A.C.I. Falabella{B}

Retailing

Chile

600

1.1

372

Arezzo Industria e Comercio{B}

Consumer Durables & Apparel

Brazil

589

1.1

374

BM&Fbovespa{B}

Diversified Financials

Brazil

567

1.0

331

Tenaris ADR

Energy

Argentina

523

0.9

475

Localiza Rent A Car{B}

Transportation

Brazil

450

0.8

161

Grupo Bancolombia

Banks

Columbia

434

0.8

318

Arca Continental

Food, Beverage & Tobacco

Mexico

401

0.7

194

Top twenty equity investments



17,557

31.4


WEG{B}

Capital Goods

Brazil

401

0.7

267

Wilson, Sons{B}

Transportation

Brazil

387

0.7

321

Parque Arauco{B}

Real Estate

Chile

378

0.7

286

Odontoprev{B}

Health Care Equipment & Services

Brazil

370

0.7

255

Vale Pref ADR

Materials

Brazil

350

0.6

260

Vale ADR

Materials

Brazil

337

0.6

679

Natura Cosmeticos{B}

Household & Personal Products

Brazil

332

0.6

327

Cementos Pacasmayo

Materials

Peru

326

0.6

                     -

Iguatemi Empressa de Shopping{B}

Real Estate

Brazil

313

0.5

124

TOTVS{B}

Software & Services

Brazil

304

0.5

243

Top thirty equity investments



21,055

37.6


Grana Y Montero

Capital Goods

Peru

255

0.5

202

Grupo Financiero Santander

Banks

Mexico

250

0.4

152

Cia Hering Com

Retailing

Brazil

223

0.4

155

Valid Solucoes{B}

Commercial & Professional Services

Brazil

215

0.4

240

Bradespar{B}

Materials

Brazil

211

0.4

146

Kimberly-Clark de Mexico

Household & Personal Products

Mexico

203

0.4

328

Grupo Lala

Food, Beverage & Tobacco

Mexico

177

0.3

22

Itau Unibanco

Banks

Brazil

65

0.1

                     -

Total equity investments



22,654

40.5


Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.

{A}        Total assets less current liabilities (before deducting prior charges)

{B}        Held in Subsidiary.

 

 

Investment Portfolio - Bonds






As at 31 August 2016









Valuation

Total

Valuation




2016

assets

2015

Issue

Sector

Country

£'000

%{B}

£'000

Brazil (Fed Rep of) 10% 01/01/25{A}

Government Bonds

Brazil

5,656

10.1

3,725

Uruguay (Rep of) 5% 14/09/18

Government Bonds

Uruguay

5,046

9.0

4,806

Colombia (Rep of) 9.85% 28/06/27

Government Bonds

Columbia

4,771

8.5

3,774

Brazil (Fed Rep of) 10% 01/01/17{A}

Government Bonds

Brazil

4,032

7.2

4,486

Mexico (United Mexican States) 8% 07/12/23

Government Bonds

Mexico

2,329

4.2

2,331

Mexico (United Mexican States) 7.5% 03/06/27

Government Bonds

Mexico

1,504

2.7

1,867

Brazil (Fed Rep Of) 10% 01/01/27{A}

Government Bonds

Brazil

1,436

2.6

-

Peru (Rep of) 6.95% 12/08/31 REGS

Government Bonds

Peru

1,259

2.2

967

Brazil (Fed Rep of) 10% 01/01/18{A}

Government Bonds

Brazil

1,235

2.2

891

Brazil (Fed Rep of) 10% 01/01/21{A}

Government Bonds

Brazil

1,204

2.1

831

Uruguay (Rep of) 4.25% 05/04/27

Government Bonds

Uruguay

1,007

1.8

753

Mexico (United Mexican States) 8.5% 18/11/38

Government Bonds

Mexico

846

1.5

-

Peru (Rep of) 6.95% 12/08/31

Government Bonds

Peru

610

1.1

469

Petroleos Mexicanos 7.19% 12/09/24

Bonds

Mexico

510

0.9

-

Peru (Rep of) 7.84% 12/08/20

Government Bonds

Peru

290

0.5

511

Mexico (United Mexican States) 4.5% 22/11/35

Government Bonds

Mexico

198

0.3

177

Mexico (United Mexican States) 7.75% 13/11/42

Government Bonds

Mexico

169

0.3

-

Total value of Bonds



32,102

57.2


Total value of equity investments



22,654

40.5


Total value of portfolio investments



54,756

97.7


Other net assets held in subsidiary



421

0.9


Total investments



55,177

98.6


Net current assets{B}



786

1.4


Total assets{C}



55,963

100.0


Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.

{A}        Held in Subsidiary.

{B}        Excluding bank loans of £7,500,000 (2015 - £8,648,000)

{C}        Total assets less current liabilities (before deducting prior charges)

 

 

DIRECTORS' REPORT

The Directors present their Report and the audited financial statements for the year ended 31 August 2016.

 

Status

The Company is registered with limited liability in Jersey as a closed-ended investment company under the Companies (Jersey) Law 1991 with registered number 106012.  In addition, the Company is constituted and regulated as a collective investment fund under the Collective Investments Funds (Jersey) Law 1988. The Company has no employees and makes no political or charitable donations

 

The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account and it is the Directors' intention that the Company should continue to be a qualifying investment.

 

The Company is a member of the Association of Investment Companies ("AIC").

 

Results and Dividends

Details of the Company's results and dividends are shown under Results.

 

Management Arrangements

The Company has an agreement (the "Management Agreement") with APWML for the provision of management services, details of which are shown in notes 5 and 6 to the financial statements.

 

Under the Management Agreement, Aberdeen is entitled to both a management fee and a company secretarial and administration fee. APWML has agreed to waive the company secretarial and administration fee of £112,000 for the year ended 31 August 2016 (the fee was also waived for the year ended 31 August 2015). This waiver constituted a smaller related party transaction for the purpose of LR 11.1.10 R of the Financial Conduct Authority's Listing Rules. In light of the improvement in the Company's revenue account the Board has agreed to reinstate the company secretarial and administration fee for the year ending 31 August 2017.

 

The Directors review the terms of the Management Agreement on a regular basis and have confirmed that, due to the investment skills, experience and commitment of Aberdeen, in their opinion the continuing appointment of APWML, on the terms agreed, is in the interests of Shareholders as a whole.

 

Share Capital

As at 31 August 2016 there were 64,152,824 Ordinary shares and 2,420,000 Ordinary shares held in treasury.  Details of changes to the Company's shares in issue during the year are provided in 'Your Company's Share Capital History' in the Annual Report.

 

The Final Subscription Date for the Company's Subscription Shares was 31 December 2015. In accordance with the terms of the Articles of Association, a trustee was appointed over the remaining Subscription Shares whose conversion rights were not exercised. The outstanding Subscription Shares were not exercised by the Trustee as the Trustee considered that the exercise of the Subscription Share rights and sale of the resulting Ordinary shares in the market would not generate sufficient net proceeds of sale for distribution to the holders of the Subscription Shares. Consequently the remaining Subscription Shares have now been converted automatically into Deferred shares which have been repurchased by the Company for a nominal consideration and cancelled.

 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

 

Risk Management

Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 16 to the financial statements.

 

Directors

The current Directors, Richard Prosser, Martin Adams, George Baird and Martin Gilbert, together with Jeremy Arnold who retired from the Board on 10 December 2015, were the only Directors in office during the period. 

 

The Directors' beneficial holdings are disclosed in the Directors' Remuneration Report.  No Director has a service contract with the Company.  The Directors' interests in contractual arrangements with the Company are as shown in note 18 to the financial statements.  Details of the Directors retiring by rotation at the Annual General Meeting are disclosed in the Statement of Corporate Governance.

 

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, has applied the principles identified in the UK Corporate Governance Code (published in September 2014 and effective for financial years commencing on or after 1 October 2014) for the year ended 31 August 2016. The UK Corporate Governance Codes are available on the Financial Reporting Council's website: frc.org.uk.

 

The Board has considered the principles and recommendations of the AIC Code of Corporate Governance for Jersey-domiciled member companies as published in February 2015 (AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company. Both the AIC Code and the AIC Guide are available on the AIC's website: theaic.co.uk.

 

The Company has complied throughout the accounting period with the relevant provisions contained within the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

 

-    the role of the chief executive (A.1.2);

-    executive directors' remuneration (D.2.1 and D.2.2);

-    the need for a Senior Independent Director; and,

-    and the need for an internal audit function (C.3.5).

 

For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Corporate Governance Statement can be found on the Company's website, latamincome.co.uk.

 

Directors have attended Board and Committee meetings during the year ended 31 August 2016 as follows (with their eligibility to attend the relevant meeting in brackets):

 


 

Board

Audit

Committee

 

MEC

Nomination

Committee

R Prosser

4 (4)

2 (2)

1 (1)

1 (1)

M Adams

3 (4)

1 (2)

0 (1)

0 (1)

J Arnold*

1 (1)

1 (1)

1 (1)

1 (1)

G Baird

4 (4)

2 (2)

1 (1)

1 (1)

M Gilbert**

2 (4)

N/A

N/A

0 (1)

 

* Mr Arnold retired on 10 December 2015

**Mr Gilbert is not a member of the Audit Committee or Management Engagement Committee

 

Policy on Tenure

The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only. The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis. In accordance with corporate governance best practice, Directors who have served for more than nine years or who are non-independent will voluntarily offer themselves for re-election on an annual basis in the future. 

 

The Board has a schedule of matters reserved to it for decision and the requirement for Board approval on these matters is communicated directly to the senior staff of Aberdeen. Such matters include strategy, gearing, treasury and dividend policy. Full and timely information is provided to the Board to enable the Directors to function effectively and to discharge their responsibilities. The Board also reviews the financial statements, performance and revenue budgets.

 

The Board has put in place necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self-evaluation and a performance evaluation of the Board as a whole. For the year to 31 August 2016 this was undertaken using detailed questionnaires followed by one-on-one discussions. The Board also reviewed the Chairman's and Directors' other commitments and is satisfied that the Chairman and other Directors are capable of devoting sufficient time to the Company.  Accordingly, the Board has no hesitation in recommending to Shareholders the reappointment of Mr Gilbert and Mr Prosser who are each due to retire at the forthcoming AGM and submit themselves for re-election.

 

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access which every Director has to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

 

Board Committees

Under the United Kingdom Listing Authority's Listing Rules, where an investment company has only non-executive directors, the UK Code principles relating to directors' remuneration do not apply. Accordingly, the Board has not appointed a separate remuneration committee. The remuneration of the Directors has been set in order to attract individuals of a calibre appropriate to the future development of the Company.  The Company's policy on Directors' remuneration, together with details of the remuneration of each Director, is detailed in the Directors' Remuneration Report.

 

Audit Committee

The Report of the Audit Committee is contained in the Annual Report.

 

Management Engagement Committee ("MEC")

The Board has appointed a MEC which comprises three independent Directors, Mr R Prosser (Chairman), Mr M Adams and Mr G Baird. The function of this Committee is to review performance and to ensure that the Manager and the Investment Manager comply with the terms of the Management Agreement and that the provisions of the agreement follow industry practice and remain competitive and in the best interest of Shareholders as a whole.  The Committee remains satisfied that the continuing appointment of Aberdeen on the terms agreed is in the interests of Shareholders as a whole. The key factors taken into account in reaching this decision are the investment skills, experience and commitment and performance record of Aberdeen. The Management Agreement may be terminated by either party by giving not less than 12 months' notice in writing.

 

Nomination Committee

Appointments to the Board of Directors are considered by the Nominations Committee which comprises the entire Board and whose Chairman is Mr R Prosser.  Possible new Directors are identified against the requirements of the Company's business and the need to have a balanced Board.  Every Director is entitled to receive appropriate training as deemed necessary.  The Board's overriding priority when appointing new Directors to the Board will be to identify the candidate with the best range of skills and experience to complement existing Directors. 

 

The Articles of Association require that all Directors shall submit themselves for election by Shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves to re-election.  Mr Gilbert is Chief Executive of Aberdeen Asset Management PLC and under the United Kingdom Listing Authority's Listing Rules is subject to annual re-election by Shareholders. Accordingly, at the AGM of the Company to be held on 8 December 2016, Mr Gilbert will submit himself for re-election. The Nomination Committee resolved that Mr Prosser will also stand for re-election at the AGM consistent with the re-election process. The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all Directors contribute effectively

 

Diversity

Since launch in 2010, the Company has not appointed any new Directors to the Board. The Board's overriding priority when it becomes necessary to appoint new Directors to the Board will be to identify the candidate with the best range of skills and experience to complement the existing Directors. The Board recognises the benefits of diversity in the composition of the Board. When Board positions become available in the future as a result of retirement or resignation, the Company will ensure that a diverse group of candidates is considered.

 

Going Concern

In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.  The Company's assets consist of a diverse portfolio of listed equities, equity-related investments and fixed income investments which in most circumstances are realisable within a very short timescale. 

 

The Company has a £10 million multi currency loan facility with Scotiabank Europe plc which is due to mature in August 2017.  Closer to the time the Directors will review options to replace the facility with Scotia. However, at this stage it is too early to confirm that the facility will be renewed. If acceptable terms are available from the existing bankers, or any alternative, the Company expects to continue to access a similarly sized facility. However, should the Board decide not to replace the facility any outstanding borrowing would be repaid through the proceeds of equity and/or bond sales.

 

The Company has considerable financial resources and, as a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite uncertainties in the economic outlook.

 

The Directors are mindful of the principal risks and uncertainties disclosed above and have reviewed forecasts detailing revenue and liabilities and the Directors believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report.  Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements of the Company as at the date of the approval of this report.

 

Internal Controls and Risk Management

The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management.  The Board has prepared its own risk register which identifies potential risks both major and minor relating to: strategy; investment management; Shareholders; marketing; gearing; regulatory and financial obligations; third party service providers and the Board.  The Board considers the potential cause and possible impact of these risks as well as reviewing the controls in place to mitigate these potential risks.  A risk is rated by having a likelihood and an impact rating and the residual risk is plotted on a "heat map" and is reviewed regularly.

 

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness.  The Financial Reporting Council's Guidance (the FRC Guidance), assists Directors in applying section C.2 of the UK Code. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company.  This process has been in place for the period under review and up to the date of approval of this Annual Report and financial statements, and is regularly reviewed by the Board and accords with the guidance. The Board has reviewed the effectiveness of the system of internal control.  In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.  The significant risks faced by the Company, are detailed in the Strategic Report.

 

The key components designed to provide effective internal control are outlined below:

 

-      Aberdeen prepares monthly forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

-      the Board and Aberdeen have agreed clearly defined investment criteria, specified levels of authority and exposure limits; reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with Aberdeen as appropriate;

-      as a matter of course Aberdeen's compliance department continually reviews its' operations;

-      written agreements are in place which specifically define the roles and responsibilities of the Manager and other third-party service providers and the Committee reviews, where relevant, ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations; The Board has reviewed the  exceptions arising from the Manager's ISAE3402 for the year to 30 June 2016;

-      at its October 2016 meeting, the Audit Committee members carried out an annual assessment of internal controls for the year ended 31 August 2016 by considering documentation from Aberdeen, including the internal audit and compliance functions and taking account of events since 31 August 2016.  The results of the assessment were then reported to the Directors at the Board meeting which followed; and,

-      the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at Aberdeen, has decided to place reliance on Aberdeen's systems and internal audit procedures.

 

Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed.  Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.

 

Substantial Interests

The Company has been advised that the following Shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 August 2016:

 



Shareholder

Number

Of shares

held

%

held

1607 Capital Partners

6,635,428

10.3

Aberdeen Retail Plans

6,421,241

10.0

City of London Investment Management

6,064,812

9.5

Hargreaves Lansdown, stockbrokers

5,735,998

8.9

Alder Investment Management

2,387,632

3.7

CCLA Investment Management

2,350,000

3.7

Aberdeen Private Wealth Management

2,152,500

3.4

Barclays Stockbrokers

1,997,225

3.1

Charles Stanley

1,953,386

3.0

Philip J Milton Stockbrokers

1,951,306

3.0

 

On 13 September 2016, City of London notified the Company that its holding had increased to 6,665,854 Ordinary shares (10.4%).  On 18 October 2016, 1607 Capital Partners notified the Company that it percentage holding had decreased to 9.9%. There have been no other significant changes notified in respect of the above holdings between 31 August 2016 and 18 October 2016. 

 

Alternative Investment Fund Managers Directive ("AIFMD")

On 14 July 2014, the Jersey Financial Services Commission granted the Company a certificate of exemption from the application of the Alternative Investment Funds (Jersey) Regulations 2012 to any marketing it may carry out within any EU member state.

 

APWML, as the Company's non-EEA alternative investment fund manager, also notified the UK Financial Conduct Authority ("FCA") in accordance with the requirements of the UK National Private Placement Regime for inclusion of the Company on the UK register as a non-EEA alternative investment fund being marketed in the UK.

 

In addition, in accordance with Article 23 of the AIFMD and Rule 3.2.2 of the FCA FUND Sourcebook, APWML is required to make available certain disclosures for potential investors in the Company and these are available on the Company's website: latamincome.co.uk.

 

Special Business at the Annual General Meeting

 

Directors' Authority to Allot Relevant Securities

There are no provisions under Jersey law which confer rights of pre-emption upon the issue or sale of any class of shares in the Company.  However, as the Ordinary shares are traded on the LSE and have a premium listing, the Company is required to offer pre-emption rights to its Shareholders and the Articles of Association reflect this.  Ordinary shares will only be issued at a premium to the prevailing NAV per Ordinary share and, therefore, will not be disadvantageous to existing Ordinary Shareholders. 

 

Unless previously disapplied by special resolution, in accordance with the Listing Rules of the Financial Conduct Authority, the Company is required to first offer any new shares or securities (or rights to subscribe for, or to convert or exchange into, shares) proposed to be issued for cash to Shareholders in proportion to their holdings in the Company.  In order to provide for such share issues, your Board is therefore also proposing that an annual disapplication of the pre-emption rights is given to the Directors so that they may issue shares as and when appropriate.  Accordingly, Resolution 7, a Special Resolution, proposes a disapplication of the pre-emption rights in respect of 10% of the shares in issue, set to expire on the earlier of eighteen months from the date of the resolution or at the conclusion of the Annual General Meeting to be held in 2017.

 

Purchase of the Company's Securities

In the past the Company has quoted the aim of its discount management policy as being to try to maintain the price at which the Ordinary shares trade relative to their NAV at a discount of no more that 5%. As stated in the Chairman's Statement, during the year under review the Company bought back 870,000 Ordinary shares for treasury at a total cost of £394,000. Subsequent to the period end a further 145,000 Ordinary shares have been purchased for treasury at a cost of £103,000. 

 

Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing exclusive of income NAV per Ordinary share (as last calculated) where the Directors believe such purchases will enhance Shareholder value and are likely to assist in narrowing any discount to NAV at which the Ordinary shares may trade. 

 

Resolution 6, a Special Resolution, will be proposed to renew the Directors' authority to make market purchases of the Ordinary shares in accordance with the provisions of the Listing Rules of the Financial Conduct Authority. The Company will seek authority to purchase up to a maximum of 9,594,772 Ordinary shares (representing 14.99 per cent. of the current issued Ordinary share capital excluding treasury shares).  The authority being sought shall expire at the conclusion of the Annual General Meeting in 2017 unless such authority is renewed prior to that time.  Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly, or the Ordinary shares will be held in treasury, in accordance with the authority previously conferred by Shareholders.

 

The Companies (Jersey) Law 1991 allows companies to either cancel shares or hold them in treasury following a buy-back.  These powers give Directors additional flexibility and the Board considers that it is in the interest of the Company that such powers be available, including the power to hold treasury shares.  Any future sales of Ordinary shares from treasury will only be undertaken at a premium to the prevailing NAV per Ordinary share for the benefit of all Shareholders.

 

Reappointment of Independent Auditor

Our auditor, Ernst & Young LLP, has indicated its willingness to remain in office.  The Directors will place a Resolution before the Annual General Meeting to re-appoint them as independent auditor for the ensuing year, and to authorise the Directors to determine their remuneration.

 

Recommendation

Your Board considers Resolutions 6 and 7 to be in the best interests of the Company and its members as a whole.  Accordingly, your Board recommends that Ordinary Shareholders should vote in favour of Resolutions 6 and 7 to be proposed at the Annual General Meeting, as they intend to do in respect of their own beneficial shareholdings amounting to 199,550 Ordinary shares.

 

Directors' & Officers Liability Insurance

Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.

 

Relations with Shareholders

The Directors place a great deal of importance on communication with Shareholders.  The Chairman welcomes feedback from all Shareholders and meets periodically with the largest Shareholders to discuss the Company.  The Annual Report and financial statements are widely distributed to other parties who have an interest in the Company's performance.  Shareholders and investors may obtain up to date information on the Company through Aberdeen's freephone information service and the Company's website: latamincome.co.uk.

 

The Board's policy is to communicate directly with Shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or Aberdeen) in situations where direct communication is required and representatives from the Board meet periodically with major Shareholders.

 

The Notice of the Annual General Meeting included within the Annual Report and financial statements is ordinarily sent out at least 20 working days in advance of the meeting.  All Shareholders have the opportunity to put questions to the Board or Aberdeen, either formally at the Company's Annual General Meeting or informally following the meeting.  The Company Secretary is available to answer general Shareholder queries at any time throughout the year.  The Directors are keen to encourage dialogue with Shareholders and the Chairman welcomes direct contact from Shareholders. 

 

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.

 

The full text of the Company's response to the Stewardship Code may be found on the Company's website.

 

Socially Responsible Investment Policy

The Board is aware of its duty to act in the best interests of the Company. As an investment company, the Company has no direct social, environmental or community responsibilities. However, the Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and the Board, therefore, ensures that they take regular account of the social, environment and ethical factors, which may affect the performance or value of the Company's investments.

 

For and on behalf of the Board

 

Aberdeen Private Wealth Management Limited

Secretary

18 October 2016

 

1st Floor, Sir Walter Raleigh House

48 - 50 Esplanade, St Helier

Jersey JE2 3QB

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

 

The Companies (Jersey) Law 1991 requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles.  The financial statements of the Company are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.  In preparing these financial statements, the Directors should:

 

-    select suitable accounting policies and then apply them consistently;

-    make judgments and estimates that are reasonable;

-    specify which generally accepted accounting principles have been adopted in their preparation;

-    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

-    assess whether the Annual Report and financial statements, taken as a whole, is 'fair, balanced and understandable'.

 

The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure & Transparency Rules of the UK Listing Authority which, with regard to Corporate Governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the UK Corporate Governance Code applicable to the Company.

 

Declaration

The Directors listed in the Directors' Report, being the persons responsible, hereby confirm to the best of their knowledge:

 

-    that the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the International Accounting Standards Board give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

-    that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

-    the Strategic Report, including the Chairman's Statement and the Investment Manager's Review, include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

 

For and on behalf of the Board

 

Richard Prosser

Chairman

18 October 2016

 

1st Floor, Sir Walter Raleigh House

48 - 50 Esplanade, St Helier

Jersey JE2 3QB

 

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

 

 

STATEMENT OF COMPREHENSIVE INCOME

 



Year ended 31 August 2016

Year ended 31 August 2015



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Income








Income from investments

4

3,544

-

3,544

3,170

-

3,170

Gains/(losses) on financial assets held at fair value through profit or loss


-

13,984

13,984

-

(23,179)

(23,179)

Currency losses


-

(1,222)

(1,222)

-

(706)

(706)

Gains on forward foreign currency contracts


-

132

132

-

23

23



_______

_______

_______

_______

_______

_______



3,544

12,894

16,438

3,170

(23,862)

(20,692)



_______

_______

_______

_______

_______

_______

Expenses








Investment management fee

5

(181)

(271)

(452)

(223)

(335)

(558)

Other operating expenses

6

(322)

-

(322)

(342)

-

(342)



_______

_______

_______

_______

_______

_______

Profit/(loss) before finance costs and taxation


3,041

12,623

15,664

2,605

(24,197)

(21,592)

Finance costs

7

(40)

(60)

(100)

(42)

(64)

(106)



_______

_______

_______

_______

_______

_______

Profit/(loss) before taxation


3,001

12,563

15,564

2,563

(24,261)

(21,698)

Taxation


(27)

-

(27)

(45)

-

(45)



_______

_______

_______

_______

_______

_______

Profit/(loss) for the year


2,974

12,563

15,537

2,518

(24,261)

(21,743)



_______

_______

_______

_______

_______

_______









Earnings per Ordinary share (pence)

9

4.60

19.44

24.04

3.85

(37.07)

(33.22)



_______

_______

_______

_______

_______

_______









The profit/(loss) for the year is also the comprehensive income for the year.

The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

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

 

 



BALANCE SHEET

 



As at

As at



31 August

31 August



2016

2015


Notes

£'000

£'000

Non-current assets




Investments held at fair value through profit or loss

10

55,177

43,565



_______

_______

Current assets




Cash


524

838

Forward foreign currency contracts


86

64

Other receivables

11

338

386



_______

_______

Total current assets


948

1,288



_______

_______

Total assets


56,125

44,853





Current liabilities




Bank loan

12

(7,500)

(8,648)

Forward foreign currency contracts


(21)

(196)

Other payables


(141)

(137)



_______

_______

Total current liabilities


(7,662)

(8,981)



_______

_______

Net assets


48,463

35,872



_______

_______

Equity capital and reserves




Equity capital

13

65,936

65,936

Capital reserve

14

(18,754)

(30,722)

Revenue reserve


1,281

658



_______

_______

Equity Shareholders' funds


48,463

35,872



_______

_______





Net asset value per Ordinary share (pence)

15

75.54

55.17



_______

_______

 

 



STATEMENT OF CHANGES IN EQUITY

 

Year ended 31 August 2016








Stated

Capital

Revenue




capital

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

Balance at 1 September 2015


65,936

(30,722)

658

35,872

Profit for the year


-

12,563

2,974

15,537

Dividends paid

8

-

(154)

(2,351)

(2,505)

Purchase of own shares to be held in treasury


-

(441)

-

(441)



_______

_______

_______

_______

Balance at 31 August 2016


65,936

(18,754)

1,281

48,463



_______

_______

_______

_______







Year ended 31 August 2015








Stated

Capital

Revenue




capital

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

Balance at 1 September 2014


65,936

(6,129)

922

60,729

(Loss)/profit for the year


-

(24,261)

2,518

(21,743)

Dividends paid

8

-

-

(2,782)

(2,782)

Purchase of own shares to be held in treasury


-

(332)

-

(332)



_______

_______

_______

_______

Balance at 31 August 2015


65,936

(30,722)

658

35,872



_______

_______

_______

_______

 

 

CASH FLOW STATEMENT

 


Year ended

Year ended


31 August 2016

31 August 2015


£'000

£'000

Dividend income

338

515

Fixed interest income

1,116

1,029

Income from Subsidiary

2,302

1,939

Investment management fee paid

(442)

(634)

Other paid expenses

(276)

(461)


_______

_______

Cash generated from operating activities before finance costs and taxation

3,038

2,388

Interest paid

(99)

(107)

Withholding taxes paid

(25)

(42)


_______

_______

Net cash inflow from operating activities

2,914

2,239




Cash flows from investing activities



Purchases of investments

(3,940)

(12,786)

Proceeds from sales of investments

6,027

14,584


_______

_______

Net cash inflow from investing activities

2,087

1,798




Cash flows from financing activities



Equity dividends paid

(2,505)

(2,782)

Repurchase of own shares

(441)

(315)

Loan drawn down

7,500

 -

Loan repaid

(9,157)

(85)


_______

_______

Net cash outflow from financing activities

(4,603)

(3,182)


_______

_______

Net increase in cash

398

855

Foreign exchange

(712)

(750)

Cash at start of year

838

733


_______

_______

Cash and cash equivalents at end of year

524

838


_______

_______

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

For the year ended 31 August 2016



1.

Principal activity


The Company is a closed-ended investment company incorporated in Jersey, and its shares are traded on the London Stock Exchange and are listed in the premium segment of the Financial Conduct Authority's Official List. The Company's principal activity is investing in Latin American securities.




The principal activity of its Delaware incorporated subsidiary, Aberdeen Latin American Income Fund LLC ("Subsidiary") is similar in all relevant respects to that of its Jersey parent.

 

2.

Accounting policies


(a)

Basis of preparation



The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 August 2016.






The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by International Accounting Standards Board (IASB). The financial statements have been prepared on a historical-cost basis, except for financial assets and financial liabilities held at fair value through profit or loss.






The Company's financial statements are presented in sterling, which is also the functional currency as it is the currency in which shares are issued and expenses are generally paid. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.






Where presentational guidance set out in the Statement of Recommended Practice ("SORP"): 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC"), is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP issued in November 2014.






Significant judgements



The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates which requires management to exercise its judgement in the process of applying the accounting policies.






Assessment as investment entity



Entities which meet the definition of an investment entity are required to fair value subsidiaries through profit or loss rather than consolidate them. An investment entity meets the definition of an investment entity if it satisfies the following three criteria:



(i) an entity obtains funds from one or more investors for the purpose of providing those investors with investment services; the Company provides investment services and has several investors who pool funds to gain access to these services and investment opportunities which they might not be able to as individuals.



(ii) an entity commits to its investors that its business purpose is to investment solely for capital appreciation, investment income, or both; the Company's investment objective is to provide Ordinary Shareholders with a total return, with an above average yield, primarily through investing in Latin American securities.



(iii) an entity measures and evaluates the performance of substantially all of its investments on a fair value basis; the Company has elected to measure and evaluate the performance of all of its investments on a fair value basis. The fair value basis is used to present the Company's performance in its communication with the market and the primary measurement attribute to evaluate performance of all of its investments and to make investment decisions.






The Company meets the definition of an investment entity, and, therefore, all investments in subsidiaries are recorded at fair value through profit or loss.






New and amended standards and interpretations



There were no new or amended standards adopted by the Company during the year.






Standards issued but not yet effective



At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:



IFRS Annual Improvements 2012 to 2014 (effective 1 July 2016)



IFRS 9 Financial Instruments (effective 1 January 2018, revised, early adoption permitted)



IFRS 15 Revenue from contracts with customers (effective 1 January 2018)






The Company intends to adopt the standards in the reporting period when they become effective and will carry out an assessment of their impact on the Company's financial results, revised presentations to the Primary Financial Statements and additional disclosures.





(b)

Income



Dividend income from equity investments is recognised on the ex-dividend date. Dividend income from equity investments where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Where the Company has elected to receive dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Special dividends are credited to capital or revenue according to their circumstances.






The fixed returns on debt instruments are recognised using the effective interest rate method.





(c)

Expenses and interest payable



All expenses, with the exception of interest, which is recognised using the effective interest method, are accounted for on an accruals basis. Expenses are charged to the revenue column of the Statement of Comprehensive Income except as follows:



costs incidental to the issue of new shares as defined in the prospectus are charged to capital;



expenses resulting from the acquisition or disposal of an investment are charged to the capital column of the Statement of Comprehensive Income; and



expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The Company charges 60% of investment management fees and finance costs to capital, in accordance with the Board's estimate of expected long-term return in the form of capital gains and income respectively from the investment portfolio of the Company.





(d)

Taxation



Profits arising in the Company for the year ended 31 August 2016 will be subject to Jersey income tax at the rate of 0% (2015 - 0%).






Investment income and capital gains are subject to withholding tax deducted at the source of the income. The Company presents the withholding tax separately from the gross investment income in the Statement of Comprehensive Income under taxation.





(e)

Investments held at fair value through profit or loss



Purchases of investments are recognised on a trade-date basis and designated upon initial recognition as held at fair value through profit or loss. All investments are considered to form part of a group of financial assets and subsequently measured on a fair value basis, in accordance with the Company's documented investment strategy, and information about the Company is provided internally on that basis. These investments also include inflation-linked bonds which are considered to be compound financial instruments. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. Sales of investments are also recognised on a trade date basis.






Changes in the value of investments held at fair value through profit or loss, gains and losses on disposal and related transaction costs are recognised in the Statement of Comprehensive Income.





(f)

Fair value measurement



Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is derived from unadjusted quoted bid prices in active markets, with the exception of inflation-linked bonds whose quoted bid prices are adjusted for indexation arising from the movement of the consumer prices index for the relevant country of issue of the bond. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.





(g)

Cash and cash equivalents



Cash comprises cash at banks and short-term deposits.





(h)

Other receivables and payables



Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their recoverable amount. Other payables are non interest bearing and are stated at their payable amount.





(i)

Nature and purpose of reserves



Capital reserve



This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences.






Additionally, expenses, including finance costs, are charged to this reserve in accordance with (c) above.






When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the capital reserve. Should these shares be sold subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve.






Revenue reserve



This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income less dividends which have been paid.





(j)

Foreign currency



Monetary assets and liabilities are converted into sterling at the rate of exchange ruling at the Balance Sheet date. Transactions during the period involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as a currency gain or loss.





(k)

Bank loans



Monies borrowed to finance the investment objectives of the Company are stated at the amount of the net proceeds immediately after the issue plus cumulative finance costs less cumulative payments made in respect of the debt. The finance cost of such borrowings is allocated to years over the term of the debt at a constant rate on the carrying amount and is charged 40% to revenue and 60% to capital reserves to reflect the Company's investment policy and estimated prospective income and capital growth.






Borrowings are held at amortised cost using the effective interest rate method.





(l)

Intercompany balances



The net income generated in the Subsidiary is transferred to the Company via an intercompany balance on a periodic basis.





(m)

Derivative financial instruments



The Company uses forward foreign exchange contracts to manage currency risk arising from investment activity.






Derivatives are measured at fair value calculated by reference to forward exchange rates for contracts with similar maturity profiles.






Changes in the fair value of derivatives are recognised in the Statement of Comprehensive Income as revenue or capital depending on their nature.

 

3.

Segmental reporting


The Company is engaged in a single segment of business. For management purposes, the Company is organised into one main operating segment, which invests in equity securities, debt instruments and related derivatives. 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.




The following table analyses the Company's income, including income of the Subsidiary on a look-through basis, by geographical location. The basis for attributing the income is the place of incorporation of the instrument's investment, however, where the Company invests in ADR designated securities the underlying geographic location is considered to be the basis.







2016

2015



£'000

£'000


Argentina

15

19


Brazil

1,691

1,673


Chile

54

66


Columbia

331

257


Mexico

426

445


Peru

139

129


Uruguay

888

581



_______

_______



3,544

3,170



_______

_______






The Company's income by investment type is derived 15% (2015 - 26%) from equities, 85% (2015 - 74%) from bonds.

 



 2016

 2015

4.

Income from investments

£'000

£'000


Dividend income

356

490


Fixed interest income

1,654

1,284


Income from Subsidiary

1,534

1,396



_______

_______



3,544

3,170



_______

_______






The Company receives income from its Subsidiary and there are no significant restrictions on the transfer of funds to or from the Subsidiary.

 

5.

Investment management fee


The Company has an agreement with APWML for the provision of management services. Portfolio management services have been delegated by APWML to AAM.




The management fee is based on an annual rate of 1% of the NAV of the Company, valued monthly. The agreement is terminable on one year's notice. The balance due to APWML at the year end was £47,000 (2015 - £37,000). Investment management fees are charged 40% to revenue and 60% to capital.

 



 2016

 2015

6.

Other operating expenses

£'000

£'000


Directors' fees

71

85


Promotional activities

32

48


Auditor's remuneration:




- fees payable for the audit of the annual accounts

30

29


Legal and advisory fees

14

-


Custodian and overseas agents' charges

61

69


Broker fees

30

30


Stock exchange fees

17

13


Registrar's fees

17

21


Printing

15

19


Other

35

28



_______

_______



322

342



_______

_______




The Company has an agreement with AAM for the provision of promotional activities. The total fees incurred under the agreement during the year were £32,000 (2015 - £48,000), of which £5,000 (2015 - £8,000) was due to AAM PLC at the year end.




The Company's management agreement with APWML provides for the provision of company secretarial and administration services. This agreement has been sub-delegated to AAM which is entitled to an annual fee of £114,000 which is set to increase annually in line with any increase in the UK retail prices index, however, APWML waived its entitlement to a fee during the year to 31 August 2016 (2015 - same). A balance of £nil was due to the Company by APWML at the year end (2015 - £95,000 due to the Company from APWML).

 



 2016

 2015



Revenue

Capital

Total

Revenue

Capital

Total

7.

Finance costs

£'000

£'000

£'000

£'000

£'000

£'000


Interest on bank loans

40

60

100

42

64

106



_______

_______

_______

_______

_______

_______

 



 2016

 2015

8.

Dividends on equity shares

£'000

£'000


Distributions to equity holders in the period:




Fourth interim dividend for 2015 - 1.25p (2014 - 1.25p) per Ordinary share

812

820


First interim dividend for 2016 - 0.875p (2015 - 1.00p) per Ordinary share

567

656


Second interim dividend for 2016 - 0.875p (2015 - 1.00p) per Ordinary share

564

655


Third interim dividend for 2016 - 0.875p (2015 - 1.00p) per Ordinary share

562

651



_______

_______



2,505

2,782



_______

_______






The fourth interim dividend for the year of 0.875p per Ordinary share has not been included as a liability in these financial statements as it was announced and paid after 31 August 2016.

 

9.

Earnings per Ordinary share


The basic earnings or loss per Ordinary share is based on the profit for the year of £15,537,000 (2015 - loss of £21,743,000) and on 64,626,472 (2015 - 65,451,577 ) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.




The basic earnings or loss per Ordinary share detailed above can be further analysed between revenue return and capital return as follows:






2016

2015


Basic

Revenue

Capital

Total

Revenue

Capital

Total


Profit/(loss) (£'000)

2,974

12,563

15,537

2,518

(24,261)

(21,743)


Weighted average number of Ordinary shares in issue ('000)



64,626



65,452


Return per Ordinary share (pence)

4.60

19.44

24.04

3.85

(37.07)

(33.22)

 



Year ended

Year ended

10.

Investments held at fair value through profit or loss

31 August 2016

31 August 2015


(a)

Company

£'000

£'000



Quoted equities

13,165

10,348



Quoted bonds

18,540

16,476



Investment in Subsidiary

23,472

16,741




_______

_______



Closing valuation

55,177

43,565




_______

_______








Investment in Subsidiary





The Company holds 100% of the share capital of its Subsidiary. The Company meets the definition of an investment entity, therefore it does not consolidate its Subsidiary but recognises it as an investment at fair value through profit or loss. The Company receives income from its Subsidiary and there are no significant restrictions on the transfer of funds to or from the Subsidiary.





(b)

Transaction costs



During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. The total costs were as follows:







Year ended

Year ended




31 August 2016

31 August 2015




£'000

£'000



Purchases

4

3



Sales

4

6




_______

_______




8

9




_______

_______

 



2016

2015

11.

Other receivables

£'000

£'000


Accrued income

332

278


Prepayments

6

108



_______

_______



338

386



_______

_______

 

12.

Bank loan


The Company has a £10 million (2015 - £10 million) unsecured revolving multi currency loan facility with Scotiabank Europe plc. At the year end £7,500,000 was drawn down (2015 - US$13,300,000, equivalent to £8,648,000) under the facility, fixed to 19 September 2016 at an all-in rate of 1.23238%.




On 19 September 2016 £6,500,000 was drawn down under this facility and fixed to 19 October 2016 at an all-in rate of 1.22294%.




Under the terms of the loan facilities the Borrower must not permit adjusted NAV coverage to be less than 4.00 to 1.00. Adjusted NAV is defined as total net assets less, inter alia, the aggregate of all excluded assets, excluded assets being, without double counting, the value of any unquoted assets, all investments issued by a single issuer in excess of 15% of total NAV, all Brazilian and Mexican bonds in excess of 25%, any MSCI Industry category in excess of 25% and cash, and any shortfall in cash, equities and investment Grade bonds below 70%.




The Directors are of the opinion that there is no significant difference between the carrying value and fair value of the bank loan due to its short term nature.

 



2016

2015

13.

Stated capital

Number

£'000

Number

£'000


Issued and fully paid - Ordinary shares






Balance brought forward

65,022,824

65,389

65,582,674

65,389


Ordinary shares bought back in the period

(870,000)

 -

(560,000)

 -


Subscription shares exercised in the period

 -

 -

150

 -


Deferred shares redeemed in the period

 -

547

 -

 -



_______

_______

_______

_______


Balance carried forward

64,152,824

65,936

65,022,824

65,389



_______

_______

_______

_______







2016

2015



Number

£'000

Number

£'000


Issued and fully paid - Subscription shares






Balance brought forward

10,420,986

547

10,421,136

547


Subscription shares exercised in the period

 -

 -

(150)

 -


Subscription shares converted to deferred shares and redeemed in the period

(10,420,986)

(547)

 -

 -



_______

_______

_______

_______


Balance carried forward

 -

 -

10,420,986

547



_______

_______

_______

_______









2016

2015



Number

£'000

Number

£'000


Issued and fully paid - Treasury shares






Balance brought forward

1,550,000

 -

990,000

 -


Ordinary shares bought back in the period

870,000


560,000

 -



_______

_______

_______

_______


Balance carried forward

2,420,000

 -

1,550,000

 -



_______

_______

_______

_______









2016

2015



Number

£'000

Number

£'000


Issued and fully paid - Deferred shares






Balance brought forward

 -

 -

 -

 -


Subscription shares converted in the period

10,420,986

547

 -

 -


Deferred shares redeemed in the period

(10,420,986)

(547)

 -

 -



_______

_______

_______

_______


Balance carried forward

 -

 -

 -

 -



_______

_______

_______

_______








Stated capital

66,572,824

65,936

76,993,810

65,936



_______

_______

_______

_______








The Company's Ordinary shares have no par value. The number of Ordinary shares authorised for issue is unlimited.




During the year ended 31 August 2016, 870,000 (2015 - 560,000) Ordinary shares were bought back at a total cost of £441,000 (2015 - £332,000) including expenses. All of these shares were placed in treasury (2015 - same). Shares held in treasury consisting of 2,420,000 (2015 - 1,550,000) Ordinary shares represent 3.64% (2015 - 2.33%) of the Company's total issued share capital at 31 August 2016.




In August 2010, 52,106,185 Ordinary shares were allotted and issued to investors at a price of 100p per Ordinary share. In addition 5,210,618 Subscription shares were issued on the basis of 1 Subscription share for every 10 Ordinary shares. Under the terms of the Aberdeen subscription share agreement, Aberdeen was allotted and issued a further 5,210,618 Subscription shares, which were fully paid at a price of £0.105 per Subscription share. Expenses associated with the issue amounted to £1,138,000 and these costs were deducted from the proceeds of the issue.




The Ordinary shares are entitled to all of the capital growth in the Company's assets and to all the income from the Company that is resolved to be distributed.




31 December 2015 was the final conversion date for all remaining unexercised Subscription shares. In accordance with the terms and conditions of issue, all of the remaining Subscription shares lapsed, were converted to deferred shares and were subsequently redeemed at nominal consideration on 15 January 2016.

 



2016

2015

14.

Capital reserve

£'000

£'000


At beginning of year

(30,722)

(6,129)


Payment of dividend

(154)

-


Currency losses

(1,222)

(706)


Forward foreign currency contracts gains

132

23


Movement in investment holdings fair value gains/(losses)

16,102

(19,970)


Loss on sales of investments

(2,118)

(3,209)


Capitalised expenses

(331)

(399)


Purchase of own shares to be held in treasury

(441)

(332)



_______

_______


At end of year

(18,754)

(30,722)



_______

_______

 

15.

Net asset value per Ordinary share


The basic net asset value per Ordinary share is based on a net asset value of £48,463,000 (2015 - £35,872,000) and on 64,152,824 (2015 - 65,022,824) Ordinary shares, being the number of Ordinary shares issued and outstanding at the year end.

 

16.

Risk management policies and procedures


The Company, and through its Subsidiary, invests in equities and sovereign bonds for the long term so as to achieve its objective. In pursuing its investment objective, the Company is exposed to a variety of financial risks that could result in a reduction in the Company's net assets and a reduction in the revenue available for distribution by way of dividends.




These financial risks are market risk (comprising market price risk, currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of these risks, are set out below. The Board of Directors is responsible for the Company's risk management. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.




The Board determines the objectives, policies and processes for managing the risks that are set out below, under the relevant risk category and relies upon Aberdeen's system of internal controls. The policies for the management of each risk are unchanged from the previous accounting period.




(a)

Market risk



The fair value of a financial instrument held by the Company and its Subsidiary may fluctuate due to changes in market prices. Market risk comprises - market price risk (see note 16(b)), currency risk (see note 16(c)) and interest rate risk (see note 16(d)). The Investment Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.





(b)

Market price risk



Market price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted investments.






Management of the risk



The Board of Directors monitors the risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the Investment Manager's compliance with the Company's objectives, and is directly responsible for oversight of the investment strategy and asset allocation.






Concentration of exposure to market price risk



A geographical analysis of the Company's and its Subsidiary's combined investment portfolio is shown in the Annual Report. This shows the significant amounts invested in Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Accordingly, there is a concentration of exposure to those countries, though it is recognised that an investment's country of domicile or of listing does not necessarily equate to its exposure to the economic conditions in that country.






Market price sensitivity



The following table illustrates the sensitivity of the return after taxation for the year and the equity to an increase or decrease of 10% (2015 - 10%) in the fair value of the Company's and its Subsidiary's investments. This level of change is considered to be reasonably possible based on observation of past and current market conditions. The sensitivity analysis is based on the Company's and its Subsidiary's investments at each balance sheet date and the investment management fees for the year ended 31 August 2016, with all other variables held constant.







2016

2016

2015

2015




Increase

Decrease

Increase

Decrease




in fair value

in fair value

in fair value

in fair value




£'000

£'000

£'000

£'000



Statement of Comprehensive Income - return after tax







Revenue return

(22)

22

(17)

17



Capital return

 

5,443

(5,443)

4,289

(4,289)




_______

_______

_______

_______



Impact on total return after tax for the year and net assets

5,421

(5,421)

4,272

(4,272)




_______

_______

_______

_______









(c)

Currency risk








Management of the risk



The Investment Manager manages the Company's exposure to foreign currencies and reports to the Board on a regular basis.






The Investment Manager also manages the risk to the Company and its Subsidiary of the foreign currency exposure by considering the effect on the Company's NAV and income of a movement in the exchange rates to which the Company's and Subsidiary's assets, liabilities, income and expenses and those of its Subsidiary are exposed.






Income denominated in foreign currencies is converted into sterling on receipt. The Company and its Subsidiary does not use financial instruments to mitigate currency exposure in the period between the time that income is included in the financial statements and its receipt.






Foreign currency exposure



The table below shows, by currency, the split of the Company and Subsidiary's non-sterling monetary assets and investments that are denominated in currencies other than sterling. The exposure is shown on a look through basis.







ARS

BRL

CLP

COP

MXN

PEN

UYU

USD



2016

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Debtors (due from brokers, dividends and other receivables)

-

281

-

70

90

76

136

29



Cash

-

65

-

-

20

-

-

86



Creditors (due to brokers, accruals and other creditors)

-

-

-

-

(20)

-

-

-




_____

_____

_____

_____

_____

_____

_____

_____



Total foreign currency exposure on net monetary items

-

346

-

70

90

76

136

115



Investments at fair value through profit or loss

523

27,582

1,676

5,204

8,374

2,159

6,053

3,185




_____

_____

_____

_____

_____

_____

_____

_____



Total net foreign currency exposure

523

27,928

1,676

5,274

8,464

2,235

6,189

3,300




_____

_____

_____

_____

_____

_____

_____

_____















ARS

BRL

CLP

COP

MXN

PEN

UYU

USD



2015

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Debtors (due from brokers, dividends and other receivables)

-

276

5

56

75

8

126

2



Cash

-

15

-

-

7

-

-

555



Creditors (due to brokers, accruals and other creditors)

-

-

-

-

(163)

-

-

(8,651)




_____

_____

_____

_____

_____

_____

_____

_____



Total foreign currency exposure on net monetary items

-

291

5

56

(81)

8

126

(8,094)



Investments at fair value through profit or loss

475

19,495

1,744

4,299

9,427

2,148

5,558

-




_____

_____

_____

_____

_____

_____

_____

_____



Total net foreign currency exposure

475

19,786

1,749

4,355

9,346

2,156

5,684

(8,094)




_____

_____

_____

_____

_____

_____

_____

_____














Foreign currency sensitivity



The sensitivity of the total return after tax for the year and the net assets in regard to the movements in the Company's and its Subsidiary's foreign currency financial assets and financial liabilities and the exchange rates for the £/Argentine Peso (ARS), £/Brazilian Real (BRL), £/Chilean Peso (CLP), £/Colombian Peso (COP), £/Mexican Peso (MXN), £/Peruvian Nuevo Sol (PEN), £/Uruguayan Peso (UYU) and £/US Dollar USD) are set out below:






It assumes the following changes in exchange rates:



£/Argentine Peso +/-123% (2015 +/- 94%) (maximum downside risk 100%)



£/Brazilian Real +/-15% (2015 +/-74%)



£/Chilean Peso +/-13% (2015 +/-40%)



£/Columbian Peso +/-29% (2015 +/-64%)



£/Mexican Peso +/-20% (2015 +/-23%)



£/Peruvian Nuevo Sol +/-2% (2015 +/-20%)



£/Uruguayan Peso +/-8% (2015 +/-28%)



£/US Dollar +/-15% (2015 +/-3%)






These percentages have been determined based on the average market volatility in exchange rates in the previous 3 years and using the Company's and its Subsidiary's foreign currency financial assets and financial liabilities held at each balance sheet date.






For 2016, if sterling had strengthened against the currencies shown, this would have had the following effect, with a weakening of sterling having an equal and opposite effect:







ARS

BRL

CLP

COP

MXN

PEN

UYU

USD



2016

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Statement of Comprehensive Income - return after tax











Revenue return

-

(40)

-

(20)

(18)

-

(10)

4



Capital return

(523)

(4,189)

(218)

(1,530)

(1,693)

(44)

(494)

495




_____

_____

_____

_____

_____

_____

_____

_____



Impact on total return after tax for the year and net assets

(523)

(4,229)

(218)

(1,550)

(1,711)

(44)

(504)

499




_____

_____

_____

_____

_____

_____

_____

_____














For 2015, if sterling had strengthened against the currencies shown, this would have had the following effect, with a weakening of sterling having an equal and opposite effect: 















ARS

BRL

CLP

COP

MXN

PEN

UYU

USD



2015

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Statement of Comprehensive Income - return after tax











Revenue return

(18)

(1,239)

(26)

(165)

(102)

(26)

(163)

-



Capital return

(447)

(14,642)

(699)

(2,788)

(2,149)

(431)

(1,592)

242




_____

_____

_____

_____

_____

_____

_____

_____



Impact on total return after tax for the year and net assets

(465)

(15,881)

(725)

(2,953)

(2,251)

(457)

(1,755)

242




_____

_____

_____

_____

_____

_____

_____

_____














The above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently.






Foreign exchange contracts



The following forward contracts were outstanding at the Balance Sheet date:












Unrealised









gain/(loss)









31 August




Buy

Sell

Settlement

Amount

Contracted

2016



Date of contract

Currency

Currency

date

'000

rate

£'000



08 July 2016

MXN

GBP

17 October 2016

3,068

24.8467

(20)



12 July 2016

USD

GBP

17 October 2016

114

1.3111

1



21 July 2016

USD

GBP

17 October 2016

272

1.3111

2



08 July 2016

GBP

USD

17 October 2016

3,523

1.3111

37



22 August 2016

GBP

USD

17 October 2016

404

1.3111

(1)



17 August 2016

USD

BRL

23 November 2016

1,525

1.3120

-



17 August 2016

USD

PEN

23 November 2016

2,195

1.3120

46


















Unrealised









gain/(loss)









31 August




Buy

Sell

Settlement

Amount

Contracted

2015



Date of contract

Currency

Currency

date

'000

rate

£'000



10 July 2015

MXN

GBP

16 October 2015

3,133

24.5443

(163)



10 July 2015

GBP

USD

16 October 2015

4,851

1.5533

(32)



21 July 2015

USD

GBP

16 October 2015

245

1.5537

2



13 August 2015

GBP

USD

16 October 2015

27

1.5614

 -



19 August 2015

BRL

USD

24 November 2015

7,062

3.5685

61



19 August 2015

PEN

USD

24 November 2015

7,578

3.3270

1



21 August 2015

GBP

USD

16 October 2015

120

1.5688

(1)












The fair value of forward exchange contracts is based on forward exchange rates at the Balance Sheet date.





(d)

Interest rate risk



Interest rate risk is the risk that arises from fluctuating interest rates. 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 interest rate borrowings.






The interest rate risk applicable to a bond is dependent on the sensitivity of its price to interest rate changes in the market. The sensitivity depends on the bond's time to maturity, and the coupon rate of the bond.






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 decisions.






Financial assets



The Company and its Subsidiary hold fixed rate government bonds with prices determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the relevant government's fiscal position, short-term interest rates and international market comparisons. The Investment Manager takes all these factors into account when making investment decisions. Each quarter the Board reviews the decisions made by the Investment Manager and receives reports on each market in which the Company and its Subsidiary invest together with economic updates.






Returns from bonds are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds. This means that if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date. However, over the life of a bond the market price at any given time will depend on the market environment at that time. Therefore, a bond sold before its redemption date is likely to have a different price to its purchase price and a profit or loss may be incurred.






Financial liabilities



The Company primarily finances its operations through use of equity and bank borrowings.






The Company has a revolving multi-currency facility, details of which are disclosed in note 12.






The Board actively monitors its bank borrowings. A decision on whether to roll over its existing borrowings will be made prior to their maturity dates, taking into account the Company's policy of not having any fixed, long-term borrowings.






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.






Interest rate exposure



The exposure at 31 August of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates - when the interest rate is due to be re-set.







2016

2015




Within


Within





one year

Total

one year

Total




£'000

£'000

£'000

£'000



Exposure to floating interest rates







Cash

524

524

838

838



Borrowings under loan facility

(7,500)

(7,500)

(8,648)

(8,648)




_______

_______

_______

_______



Total net exposure to interest rates

(6,976)

(6,976)

(7,600)

(7,600)




_______

_______

_______

_______










The Company does not have any fixed interest rate exposure to cash or bank borrowings at 31 August 2016 (2015 - nil). Interest receivable and finance costs are at the following rates:



interest received on cash balances, or paid on bank overdrafts, is at a margin below LIBOR or its foreign currency equivalent (2015 - same).



interest paid on borrowings under the loan facility was at a margin above LIBOR. The weighted average interest rate of these at 31 August 2016 was 1.23238%.






Interest rate sensitivity



A sensitivity analysis demonstrates the sensitivity of the Company's results for the year to a reasonably possible change in interest rates, with all other variables held constant.






The sensitivity of the profit/(loss) for the year is the effect of the assumed change in interest rates on:



the net interest income for the year, based on the floating rate financial assets held at the Balance Sheet date; and



changes in fair value of investments for the year, based on revaluing fixed rate financial assets and liabilities at the Balance Sheet date.






If interest rates had been 50 basis points higher or lower and all other variables were held constant, the Company's net interest for the year ended 31 August 2016 would decrease/increase by £35,000 (2015 - £39,000). This is attributable to the Company's exposure to interest rates on its floating rate cash balances and bank loan.






If interest rates had been 50 basis points higher and all other variables were held constant, a change in fair value of the Company's fixed rate financial assets at the year ended 31 August 2016 would result in a decrease of £742,000 (2015 - £610,000). If interest rates had been 50 basis points lower and all other variables were held constant, a change in fair value of the Company's fixed rate financial assets at the year ended 31 August 2016 would result in an increase of £774,000 (2015 - £637,000).





(e)

Liquidity risk



This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.






Management of the risk



The majority of the Company's and its Subsidiary's assets are investments in quoted bonds and equities that are readily realisable. The Company's level of borrowings is subject to regular review.






The Company's investment policy allows the Investment Manager to determine the maximum amount of the Company's resources that should be invested in any one company.






Liquidity risk exposure



The remaining contractual maturities of the financial liabilities at 31 August 2016, based on the earliest date on which payment can be required are as follows:








Due






Due

between

Due





within

3 months

after





3 months

and 1 year

1 year

Total



31 August 2016

£'000

£'000

£'000

£'000



Creditors: amounts falling due within one year







Borrowings under the loan facility (including interest)

(7,504)

-

-

(7,504)



Amounts due on forward foreign currency contracts

(21)

-

-

(21)



Amounts due to brokers and accruals

(137)

-

-

(137)




_______

_______

_______

_______




(7,662)

-

-

(7,662)




_______

_______

_______

_______












Due






Due

between

Due





within

3 months

after





3 months

and 1 year

1 year

Total



31 August 2015

£'000

£'000

£'000

£'000



Creditors: amounts falling due within one year







Borrowings under the loan facility (including interest)

(8,650)

-

-

(8,650)



Amounts due on forward foreign currency contracts

(196)

-

-

(196)



Amounts due to brokers and accruals

(135)

-

-

(135)




_______

_______

_______

_______




(8,981)

-

-

(8,981)




_______

_______

_______

_______





(f)

Credit risk



The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company or its Subsidiary suffering a loss.






Management of the risk



Investment transactions are carried out with a number of brokers, whose credit-standing is reviewed regularly by Aberdeen, 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 or its Subsidiary is mitigated by the review of failed trade reports on a daily basis. In addition, the administrator carries out both cash and stock reconciliations to the custodians' records on a daily basis to ensure discrepancies are detected on a timely basis.






Cash is held only with reputable banks with high quality external credit ratings. None of the Company's or its Subsidiary's financial assets have been pledged as collateral.






Credit risk exposure



In summary, compared to the amounts included in the Balance Sheet, the maximum exposure to credit risk at 31 August was as follows:







2016

2015




Balance

Maximum

Balance

Maximum




Sheet

exposure

Sheet

exposure




£'000

£'000

£'000

£'000



Non-current assets







Bonds at fair value through profit or loss{A}

32,102

32,102

26,411

26,411










Current assets







Cash

524

524

838

838



Other receivables

338

338

386

386



Forward foreign currency contracts

86

86

64

64




_______

_______

_______

_______




33,050

33,050

27,699

27,699




_______

_______

_______

_______










{A}Includes quoted bonds held by the Company and its Subsidiary on a look-through basis. For more detail on these bonds refer to the Annual Report.






None of the Group's financial assets are secured by collateral or other credit enhancements and none are past their due date or impaired.






Credit ratings



The table below provides a credit rating profile using Standard and Poors credit ratings for the bond portfolio at 31 August 2016 and 31 August 2015:







2016

2015




£'000

£'000



A

5,556

5,198



A-

2,159

1,478



BB

13,563

-



BBB

10,824

9,333



BBB+

-

9,933



Non-rated

-

469




_______

_______




32,102

26,411




_______

_______






At 31 August 2015 the Standard and Poors credit ratings agency did not provide a rating for the Peruvian bonds held by the Company and were accordingly categorised as non-rated in the table above. As at 31 August 2016 they now attach an A- credit rating to the Peruvian bonds held by the Company.   

 

17.

Capital management policies and procedures


The Company's capital management objectives are:


to ensure that it will be able to continue as a going concern; and


to maximise the income and capital return to its Equity Shareholders through equity capital and debt.




The Company's capital at 31 August 2016 comprises its equity capital and reserves that are shown in the Balance Sheet at a total of £48,463,000 (2015 - £35,872,000). As at 31 August 2016 gross debt as a percentage of net assets stood at 15.5% (2015 - 24.1%).




The Board, with the assistance of Aberdeen, 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 account of Aberdeen's views on the market;


the need to buy back Ordinary shares for cancellation or treasury, which takes account of the difference between the net asset value per share and the share price (ie. the level of share price discount);


the need for new issues of Ordinary shares, including issues from treasury; and


the extent to which distributions from reserves may be made.




The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

 

18.

Related party transactions


Fees payable during the year to the Directors are disclosed within the Directors' Remuneration Report in the Annual Report and in note 6.




Mr R Prosser is a group director of Estera Group (formerly known as Appleby Group) and a director of its wholly-owned trust company, Estera Trust (Jersey) Limited (formerly known as Appleby Trust (Jersey) Limited).




Mr M J Gilbert is a director of Aberdeen Asset Management PLC, of which APWML is a subsidiary. Management, promotional activities and secretarial, administration and custody services are provided by APWML with details of transactions during the year and balances outstanding at the year end disclosed in notes 5 and 6. Mr Gilbert does not draw a fee for providing his services as a Director of the Company.




Under its management agreement with the Company, APWML is entitled to receive both a management fee and a company secretarial and administration fee. APWML has agreed to waive its company secretarial and administration fee of £114,000, for the year ended 31 August 2016 (2015 - waived). This waiver constitutes a smaller related party transaction for the purpose of LR 11.1.10 R of the Financial Conduct Authority's Listing Rules. The Board has agreed to reinstate the company secretarial and administration fee at the level of £114,000 for the year ending 31 August 2017.



The Company owns 100% of the share capital of its Subsidiary. During the year net revenue of £1,534,000 (2015 - £1,396,000) and capital gains of £7,498,000 (2015 - losses of £9,741,000 ) were generated by the Subsidiary and balances outstanding at the year end were £21,757,000 (2015 - £24,058,000).




The Company had in place a Subscription share and lock-in agreement with APWML dated 14 July 2010 which provided for the purchase by APWML of 5,210,618 Subscription shares issued by the Company on the basis of 1 Subscription share for every 10 Ordinary shares, which were allotted and issued in August 2010. The rights attached to the Subscriptions shares expired on 31 December 2015.

 

19.

Controlling party


The Company has no immediate or ultimate controlling party.

 

20.

Fair value hierarchy


IFRS 13 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 classified 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 levels:




-

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


-

Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie. as prices) or indirectly (ie. derived from prices); and


-

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).





Financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments) or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and amounts due under the loan facility).




The financial assets and liabilities measured at fair value in the Balance Sheet grouped into the fair value hierarchy at 31 August 2016 as follows:










Level 1

Level 2

Total



Note

£'000

£'000

£'000


Financial assets/(liabilities) at fair value through profit or loss






Quoted equities

a)

13,165

-

13,165


Quoted bonds

b)

-

18,540

18,540


Investment in Subsidiary

c)

-

23,472

23,472




_______

_______

_______




13,165

42,012

55,177


Forward foreign currency contracts

d)

-

86

86


Forward foreign currency contracts

d)

-

(21)

(21)




_______

_______

_______


Net fair value


13,165

42,077

55,242




_______

_______

_______










Level 1

Level 2

Total


As at 31 August 2015

Note

£'000

£'000

£'000


Financial assets/(liabilities) at fair value through profit or loss






Quoted equities

a)

10,348

-

10,348


Quoted bonds

b)

-

16,476

16,476


Investment in Subsidiary

c)

-

16,741

16,741




_______

_______

_______




10,348

33,217

43,565


Forward foreign currency contracts

d)

-

64

64


Forward foreign currency contracts

d)

-

(196)

(196)




_______

_______

_______


Net fair value


10,348

33,085

43,433




_______

_______

_______








There were no assets for which significant unobservable inputs (Level 3) were used in determining fair value during the years ended 31 August 2016 and 31 August 2015.  For the years ended 31 August 2016 and 31 August 2015 there were no transfers between any levels.




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 Level 1 quoted bonds has been determined by reference to their quoted bid prices in active markets. The fair value of Level 2 quoted bonds has been determined by reference to their quoted bid prices which are adjusted for indexation arising from the movement of the consumer prices index within the country of their incorporation.


c)

Investment in Subsidiary



The Company's investment in its Subsidiary is categorised in Fair Value Level 2 as its fair value has been determined by reference to the Subsidiary's net asset value at the reporting date. The net asset value is predominantly made up of quoted equities traded on recognised stock exchanges and quoted bonds in Fair Value Levels 1 and 2.


d)

Forward foreign currency contracts



The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

 

21.

Subsequent events


Subsequent to the Balance Sheet date, the Company purchased a further 145,000 Ordinary shares to be held in treasury for a total cost of £103,000.

 

22.

Alternative Performance Measures


The table below provides information relating to the underlying net asset values ("NAV") and share prices of the Company on the dividend reinvestment dates during the years ended 31 August 2016 and 31 August 2015.





2016


2015



Dividend


Share


Dividend


Share



Rate

NAV

Price


Rate

NAV

Price


Date

(pence)

(pence)

(pence)

Date

(pence)

(pence)

(pence)


8 October 2015

1.25

54.33

48.75

1 October 2014

1.25

80.95

72.88


17 December 2015

0.875

51.41

46.00

18 December 2014

1.00

72.34

66.00


21 April 2016

0.875

61.85

54.00

2 April 2015

1.00

70.56

63.38


7 July 2016

0.875

71.90

62.25

16 July 2015

1.00

64.28

56.75

 

 

The Annual General Meeting will be held at 10.00 a.m. on 8 December 2016 at 1st Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB.

 

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 and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

 

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2016 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The annual audited accounts will be delivered to the Jersey Financial Services Commission in due course.

 

The audited Annual Report and financial statements will be posted in November. Copies may be obtained during normal business hours from the Company's Registered Office, Aberdeen Private Wealth Management Limited, 1st Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB or from the Company's website, www.latamincome.co.uk*.

 

* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

By Order of the Board

Aberdeen Private Wealth Management Limited

Secretary

18 October 2016


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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