Source - RNS
RNS Number : 6476I
Aberdeen Diversified I&G Trust PLC
20 June 2017
 

Aberdeen Diversified Income and Growth Trust plc

LEGAL ENTITY IDENTIFIER (LEI): 2138003QINEGCHYGW702

 

Half-Yearly Financial Report for the six months ended 31 March 2017

 

The Directors of Aberdeen Diversified Income and Growth Trust plc report the unaudited results for the six months ended 31 March 2017.

 

 

Financial Highlights

 


31 March
2017

30 September 2016

% change

Total assets{A} (£'000)

410,644

411,127

-0.1

Total equity shareholders' funds (£'000)

351,024

351,521

-0.1

Net asset value per Ordinary share - debt at par

131.45p

131.64p

-0.1

Net asset value per Ordinary share - debt at fair value{B}

123.60p

123.62p

-0.0

Share price (mid)

115.50p

111.00p

+4.1

Discount to net asset value{C}

6.5%

9.0%







Six months ended

Six months ended



31 March 2017

31 March 2016

% change

Net revenue return after taxation (£'000)

8,458

5,615

+50.6

Revenue return per share

3.17p

2.05p

+54.5





Dividends




First quarterly dividend

1.635p

1.635p

-

Second quarterly dividend

1.635p

1.635p

-

Total dividends declared in respect of the period

3.27p

3.27p

-

 

{A}        Total assets as per the Statement of Financial Position less current liabilities.

{B}        See note 10 for reconciliation.

{C}        The discount to NAV (calculated with debt at fair value) in the table above for 30 September 2016 has been calculated based on the ex-dividend NAV of 121.99 pence per share, and not the Company's NAV per share as disclosed on the Company's Statement of Financial Position and in the table above. This is because accounting standards do not permit interim quarterly dividends to be reflected in the accounts until they have been paid. As the third quarterly dividend for 2016 had gone ex-dividend in the Company's share price at 30 September 2016 as disclosed in the table above, any share rating calculated based on this ex-dividend price also needs to be calculated using an ex-dividend NAV.

 

 

Performance - total return {A}

 


Six months ended
31 March 2017

Year ended
30 September 2016

Net asset value - debt at par

+2.4%

+1.3%

Net asset value - debt at fair value

+2.7%

-0.4%

Share price

+7.2%

-10.2%


{A} Total return represents the capital return plus dividends reinvested.

 

 

Financial Calendar

 

24 March 2017

First interim dividend (1.635p per share) paid for year to 30 September 2017 to shareholders on register on 3 March 2017

 

28 April 2017

Second interim dividend (1.635p per share) paid for year to 30 September 2017 to shareholders on 7 April 2017

 

July 2017

Half-Yearly Report posted to shareholders

 

 

CHAIRMAN'S STATEMENT

 

Recent changes

The six months ended 31 March 2017 and the immediate period thereafter saw significant changes for your Company. On 11 February 2017, Aberdeen Fund Managers Limited was appointed Manager in place of BlackRock and the Company was renamed Aberdeen Diversified Income and Growth Trust plc. A discount control policy was announced on 13 February 2017 with shareholders approving the new investment objective and policy at the General Meeting held on 30 March 2017.

 

After the period end, the 20% tender offer and merger with Aberdeen UK Tracker Trust plc ("AUKT") resulted in changes to the Board of Directors and an approximate 24% net increase in shareholders' funds (see below Table).

 


31 Mar.
2016


30 Sept.
2016


31 Mar.
2017

Tender
Offer (cash out)

Merger with AUKT

(cash in)


30 Apr.
2017


31 May
2017

£m

£m

£m

£m

£m

£m

£m

361.3

351.5

351.0

(62.0)

146.2

434.3

439.7

 

Performance

Over the six months ended 31 March 2017, the Company's net asset value ("NAV") per share, with debt at fair value, rose 2.7% on a total return basis. The Company's share price ended the period at 115.5p, compared to 111.0p at 30 September 2016, resulting in a total return to shareholders over the period of 7.2%, which compares to -0.9% for the equivalent period in the prior year. The discount to NAV narrowed from 9.0%, at 30 September 2016, to 6.5% at 31 March 2017.

 

Earnings and Dividends

The Company's revenue return for the six months ended 31 March 2017 was 3.17 pence per share, compared to 2.05 pence per share in the comparable period ended 31 March 2016.

 

A first quarterly dividend of 1.635 pence per share was paid on 24 March 2017 to shareholders on the register on 3 March 2017.  A second quarterly dividend of 1.635 pence per share was paid on 28 April 2017 to shareholders on the register on 7 April 2017. This latter dividend was paid to all shareholders, pre-merger, including those who tendered shares in the tender offer described below.

 

As previously announced in the Circular to shareholders issued on 6 March 2017 (the "Circular"), the Board expects to declare third and fourth quarterly dividends for the year ending 30 September 2017 to be paid in October 2017 and January 2018 at an annual rate equivalent to at least 5.2 pence per share. This equates to a dividend yield of 4.5% based on the closing price per share of 115.5p as at 31 March 2017 which the Board believes is attractive for shareholders in the current low yield environment.

 

Tender Offer and Merger with Aberdeen UK Tracker Trust plc

Following shareholder approval obtained at the General Meeting held on 30 March 2017, and further to the Circular, the Company announced on 6 April 2017 the repurchase of 53.4m shares, representing 20% of the Company's issued share capital.

 

The Company also announced on 6 April 2017 the issue of 118.6m shares to those shareholders of AUKT electing to roll-over their shares, further to shareholder approval of the merger with AUKT.  This equated to an increase in the Company's assets of £146m. I should like to take this opportunity to welcome all former AUKT shareholders now invested in the Company.

 

Appointment of Aberdeen Fund Managers Limited and New Investment Objective and Investment Policy

On 11 February 2017, the Company appointed Aberdeen Fund Managers Limited as Manager with effect from 11 February 2017 and changed its name to Aberdeen Diversified Income and Growth Trust plc.

 

Following shareholder approval of the new Investment Objective and Investment Policy at the General Meeting on 30 March 2017, I am pleased to report that the Manager has now substantially completed the realignment of the Company's investment portfolio. Further information may be found in the Manager's Report. I would also encourage shareholders to visit the Company's website (aberdeendiversifed.co.uk) which includes a monthly factsheet with commentary on the portfolio and performance as well as a webcast from the Manager.

 

Discount management policy

The Board announced on 13 February 2017 that, in normal market conditions and subject to the prevailing gearing level and the composition of the Company's portfolio, it would implement a discount control policy to maintain the Company's share price discount to net asset value, calculated excluding income and with debt at fair value, at no wider than 5%. As at 31 March 2017 the Company's discount was 6.5% as compared to 9.0% as at 30 September 2016. No shares were bought back during the six months under review. Between 1 April 2017 and the date of this Report the Manager substantially completed the realignment of the Company's investment portfolio and, other than in connection with the tender offer referred to above, 1,900,000 shares were bought back by the Company resulting in 330,291,705 shares in issue with voting rights and an additional 35,119,169 shares held in treasury. The Board continues to monitor closely the Company's discount and will undertake buybacks where it is in shareholders' interests to do so.

 

Gearing

The Company's gearing with debt per the Condensed Statement of Financial Position, but excluding cash, against net assets was 17.0% at 31 March 2017 (30 September 2016 - 17.0%). As a result of the merger with AUKT, and after reflecting the cash outflow from the tender offer, the Company's asset base increased in April 2017 which resulted in this gearing ratio falling to 13.6% as at 31 May 2017.

 

Board Composition

Lynn Ruddick and Jimmy West retired as Directors on 6 April 2017 following completion of the Company's merger with AUKT. Lynn served as a Director for over 11 years, including as Chairman from 2009 to 2015. The Board wishes to place on record its thanks to Lynn for her valuable advice and unstinting commitment as a Director, including her leadership of the Company. Jimmy retired as Senior Independent Director after 21 years as a Director. The current Board, and former Directors, are indebted to him for the wide ranging investment company experience which he brought to Board deliberations and for his guidance in the role of Senior Independent Director.

 

At the same time, following the completion of the merger, I was delighted to welcome from AUKT Kevin Ingram, Tom Challenor and Paul Yates as Directors of the Company; Kevin succeeds Jimmy as the Company's Senior Independent Director.

 

Savings plan holders

Since April 2017, it has been possible to acquire shares in the Company via Aberdeen's Investment Plan for Children, Investment Trust Share Plan or Investment Trust ISA. Further information may be found under Investor Information in the Half-Yearly Report.

 

Outlook

This has been a period of significant change for your company.   Our new Manager brings a simple and transparent investment process to deliver our new investment objective which fully utilises the advantages of the closed ended structure.  I believe that the Company is now well positioned to offer a multi-asset approach which is attractive to current and potential investors.

 

For and on behalf of the Board

 

James M Long

Chairman

 

20 June 2017

 

 

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT

The Chairman's Statement and the Investment Manager's Report provide details of the important events which have occurred during the period and their impact on the financial statements.

 

Principal Risks and Uncertainties

The principal risks faced by the Company can be divided into various areas as follows:

 

-    Performance;

-    Gearing;

-    Income/dividend;

-    Regulatory;

-    Operational;

-    Market; and

-    Financial.

 

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements (the "Annual Report") for the year ended 30 September 2016. A detailed explanation can be found in the Strategic Report on pages 14 to 15 and in note 17 on pages 63 to 75 of the Annual Report which is available on the Company's website: aberdeendiversified.co.uk.

 

In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year ending 30 September 2017 as they were to the six months under review.

 

Going Concern

The Directors, having considered the nature and liquidity of the portfolio, the Company's investment objective and the Company's projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and at least 12 months from the date of approval of this report and is financially sound. The Company has a portfolio of investments which are considered to be mostly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. For these reasons, the Directors continue to adopt the going concern basis in preparing the financial statements.

 

Related Party Disclosures and Transactions with the AIFM and Investment Manager

Aberdeen Fund Managers Limited ("AFML") was appointed as the Company's AIFM with effect from 11 February 2017. Prior to this date, BlackRock Fund Managers Limited was the Company's AIFM.

 

AFML has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to Aberdeen Asset Managers Limited and Aberdeen Asset Management PLC which are regarded as related parties under the UKLA's Listing Rules. Details of the fees payable to AFML are set out in notes 3 and 13 to the condensed financial statements.

 

Directors' Responsibility Statement

The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

 

The Directors confirm to the best of their knowledge that:

 

-     the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standard FRS 104 'Interim Financial Reporting'; and

-     the Interim Management Report, together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.

 

This half yearly financial report has been reviewed by the Company's auditor and their report is set out below.

 

The half yearly financial report was approved by the Board on 20 June 2017 and the above responsibility statement was signed on its behalf by the Chairman.

 

For and on behalf of the Board

 

James M Long

Chairman

 

20 June 2017

 

 

INVESTMENT MANAGER'S REPORT

This Investment Manager's Report covers the period following our appointment as managers of Aberdeen Diversified Income and Growth Trust plc on 11 February 2017 up until 31 March 2017.  At the very end of the period on 30 March, shareholders approved the new investment policy enabling us to adopt a flexible, diversified multi-asset approach.  Equities remain the largest individual component of the portfolio but at a reduced weighting compared to previously. The portfolio focus has switched to income-generating alternative asset classes where we believe that attractive risk-adjusted returns can be accessed via investments managed by Aberdeen's teams in each area or by specialist funds from third party managers.

 

Our investment approach is described in detail in part 3 of the circular issued to shareholders on 6 March 2017 and the prospectus issued in connection with the proposed issue of shares relating to the reconstruction of Aberdeen UK Tracker Trust.  Both documents are available at aberdeendiversified.co.uk.  In short, our aim is to build a genuinely diversified portfolio consisting of a wide range of assets. Each of these has clear, fundamental drivers of return; in many cases, a high level of income is generated. This will enable us to deliver a portfolio return in line with the new investment objective including an attractive and sustainable dividend for shareholders.  We use all of Aberdeen's research capabilities, including specialist macro and asset class researchers, to identify appropriate investments.  The approach, which incorporates a robust risk framework, is not constrained by a benchmark mix of assets.  This flexibility ensures that we do not feel compelled to invest shareholders' capital in investments which we believe to be unattractive.  

 

During the period under review we were able to make good progress in realigning the portfolio towards our new approach.  The second phase of the programme to implement the illustrative portfolio which featured in the prospectus began after the new investment policy was approved on 30 March 2017.  This means that the investment portfolio listing features a number of holdings that have been sold to fund the purchase of new investments in the second half of the Company's fiscal year.  These legacy holdings included a sub-portfolio of higher yielding UK equity holdings, two BlackRock global equity funds, a position in gold and a sub-portfolio of corporate bonds.  At the time of writing, all of these holdings have been sold and most of the new capital raised during the reconstruction of Aberdeen UK Tracker Trust has been invested.  Details of the progress made in each major area of the portfolio are noted below.

 

Equities

In equities, where we might typically expect our exposure to account for 20 - 35% of the overall portfolio, our preferred approach is to invest via an actively managed sub-portfolio which aims to outperform the MSCI AC World Index while targeting around 85% of the volatility and 140% of the dividend yield of the index.  This sub-portfolio which usually consists of around 200 global equities is managed on our behalf by Aberdeen's Quantitative Equity team.  Stock selection focuses on companies which rank highly in a range of factors including valuation and financial strength.  The portfolio, which is shown under Low Volatility Income Strategy Equities, is well diversified by country, sector and position size.  It was funded via sales from the existing portfolio of global and UK equities, which are listed separately. These legacy holdings were sold after the end of the reporting period. At the same time, the new equity sub-portfolio was transferred into a UCITS fund, Aberdeen Smart Beta Low Volatility Global Equity Income Fund, as indicated in the prospectus.

 

Fixed income

The second area where we have made notable changes to the portfolio is in fixed income where our preference is for emerging market debt (EMD) rather than corporate bonds.  In our view, the compelling gross redemption yield of over 7% available from the EMD asset class - along with helpful diversification benefits - more than compensates for the higher rate of inflation and other risks in emerging markets. The majority of the Company's EMD portfolio is invested in local currency bonds with a focus on sovereign issuers.  In many cases, these countries, where we generally see economic conditions improving, have significantly lower debt-to-GDP ratios than developed countries.   The sub-portfolio, managed on our behalf by Aberdeen's specialist team, has a broad balance between exposures to Latin America, Europe and Asia / Africa via countries such as Brazil, Poland and Indonesia.

 

We have also invested in the Aberdeen Indian Bond Fund to gain exposure to an attractive market which is benefitting from the economic reform programme of Prime Minister Modi. 

 

Similarly, we have a small holding in the Aberdeen Frontier Markets Bond Fund which currently yields in excess of 6% via investments in predominantly US Dollar bonds issued by countries in Africa, Asia and Central / South America. 

 

Alternative assets

New asset classes introduced to the portfolio have included Insurance Linked Securities (ILS), Aircraft Leasing and Healthcare Royalties.  These asset classes, which we are accessing via specialist closed-ended funds, offer attractive returns with very different drivers.  Therefore, they are valuable diversifiers within the portfolio. 

 

In ILS, Catco Reinsurance Opportunities Fund (Catco), which launched at the end of 2010, is managed by one of the leading providers of capital to the catastrophe risk-event market.  Effectively, the fund provides cover to reinsurance companies enabling them to reduce their exposure to peak perils (such as a Florida hurricane) when overall claims exceed a specified level.  Catco's contracts, which cover a very diverse range of risks, are renewed and re-priced annually.  Exposure to individual catastrophes is capped.  2016 was the worst year for losses since 2012 but, even so, Catco delivered an NAV total return to its shareholders of +8% which compares to +10% p.a. since 2010.  Importantly, this return has been delivered with low volatility and correlation to financial markets.  We also have a holding in Blue Capital Global Reinsurance which offers similar exposure.

 

Amedeo Air Four Plus (AA4), which listed in May 2015, is the largest of the UK-listed aircraft leasing vehicles.  It has a portfolio of ten wide bodied aircraft leased on 12 year terms to the Emirates and Etihad airlines.  (The portfolio consists of eight Airbus A380s - two of which are leased to Etihad - and two Boeing 777s leased to Emirates).  AA4 targets a return of 11-12% p.a. over the life of each aircraft with the key risk factors being the residual value of the aircraft at the end of the lease and airline counterparty risk.  The investment has an attractive yield of 8% with a dividend which is paid quarterly.

 

BioPharma Credit PLC (BPCR) is a fund investing in loans to pharmaceutical companies and royalties on biotechnology products.  Its managers have a long track record of delivering very strong returns from this asset class, using their specialist knowledge to provide capital to biotechnology companies at more competitive rates than bank loans or equity finance.  BPCR targets a net annual return of 8% - 9% (in line with returns from the managers' previous vehicles) and its investments are strongly cash generative which enables it to target a 4% yield in year 1 and a 7% yield thereafter.

 

The portfolio that we took on in February already had exposure to a number of asset classes and funds that we view as being attractive and where we already invest for other clients. Notable examples include Infrastructure (Foresight Solar Fund and John Laing Group), Market Place Lending (Funding Circle SME Income) and Asset Backed Securities (Blackstone/GSO Loan Financing).  We have broadened our exposure to these areas, adding new holdings in The Renewables Infrastructure Group, P2P Global Investments and Fair Oaks Income. 

 

These purchases were funded by the sale of a number of fund positions including Scottish Mortgage, Woodford Patient Capital Trust, BlackRock ASEAN Leaders Fund and BlackRock Global Corporate Bond Fund.

 

Unlisted investments

Most of the new investments highlighted above are listed closed-ended funds.  Shares in these funds trade on the London Stock Exchange on a daily basis and therefore provide an ideal way for investors to gain access to an asset class where investments are not readily realisable. As a closed-ended fund itself, Aberdeen Diversified Income and Growth Trust does not require daily liquidity in all of its investments and, to take advantage of this, we are reviewing a number of opportunities in funds which have longer investment periods.  These include investments in social infrastructure, property, trade finance, private equity and agricultural land which we expect to commit to shortly.   

 

In a similar vein, the portfolio has holdings in three longer term investments: BlackRock Infrastructure Renewable Income UK; Forward Partners I and MAS Mortgages.  (There is also a commitment to invest in Cheyne Social Property Impact Fund which has not yet been drawn.)  Even though these were made by the Company's previous manager, they fit in with our overall philosophy and approach.  We have met the managers concerned and have a clear understanding of the investment proposition in each case.  All are performing in line with expectations.  After the period end, we sold out of MAS Mortgages in order to focus on other similar investments.

 

Derivatives and hedging

As part of the investment management transfer arrangements, the previous manager closed out the derivative positions that were part of its strategy at the time.  Our current policy is only to use derivatives in order to hedge portfolio risks and for the purposes of efficient portfolio management.  In this regard, the portfolio listing includes short positions in equity index futures (FTSE100, S&P500 and Nikkei 225) to hedge the equity risk associated with the legacy assets that we acquired and which we highlighted earlier. Similarly, a long position in 10 year UK gilt futures is being used to hedge the direct impact of UK gilt yields on the valuation of the Company's 2031 Debenture. 

 

In currencies, we generally use forward contracts to hedge exposures back to sterling.  This means that NAV returns will not be unduly influenced by fluctuations in the value of the pound.  However, currency returns are an integral part of the investment thesis of our emerging market debt holdings and, in this case, we offset those currency exposures against a basket of major currencies (GBP, EUR, JPY and AUD).

 

Portfolio positioning

As we noted earlier, the period under review ended only just after the new investment policy was approved by shareholders in general meeting.  As such, the portfolio listing as at 31 March 2017 has to be viewed as 'work-in-progress'. At the time of writing, we have substantially completed the realignment of the portfolio.  New holdings include a £60m investment in asset backed securities via a dedicated pooled fund.  This fund focuses on medium-risk tranches of less liquid UK / European securities.  It is managed on our behalf by a specialist manager, TwentyFour Asset Management, and targets a return of LIBOR + 5 - 8% p.a. after fees.  The investment was funded from cash and by the sale of MAS Mortgages as noted earlier.  We have also made an investment in a global loans fund managed by Aberdeen which targets a return of LIBOR + 4 - 6% p.a. and have increased exposure to other preferred areas including insurance linked securities.

 

The table below shows the illustrative portfolio referred to earlier and also gives the portfolio asset class weightings at the end of May. 

 


Prospectus

End


Illustrative

May 2017


Portfolio

Portfolio

Listed Equity

25%

23%

Private Equity

4%

1%

Real Assets

3%

-

Property

8%

1%

Infrastructure

8%

6%

Global Loans

10%

9%

High Yield

-

1%

Asset-Backed Securities

11%

15%

Emerging Market Debt

12%

21%

Absolute Return

6%

6%

Insurance Linked

4%

4%

Special Opportunities

8%

5%

Government Bonds

-

2%

Cash

1%

6%


_________

_________


100%

100%


_________

_________

 

The final stage of the portfolio realignment will involve initiating the longer term investments in private equity, real assets, property, infrastructure and trade finance mentioned earlier.  These will be funded from cash and reductions in other asset classes as required.  In the meantime, encouraging newsflow from most emerging markets has prompted us to increase our EMD exposure.  The IMF is expecting emerging market growth to accelerate to 4.6% y/y this year and 4.8% y/y in 2018, outpacing most advanced economies by an accelerating margin.  On an encouraging note, China, which often has an important bearing on emerging market performance, registered first quarter GDP growth of 6.9% y/y. 

 

Compared to the interest rates available on cash or developed market government bonds, most of the asset classes listed in the table above produce very attractive dividend yields.  However, it should be noted that new fund investments which have been made in areas such as equities, loans and Asset-Backed Securities will accrue income on their investments within each fund which will then be paid to the Company on a quarterly or half yearly basis.  Under current accounting conventions, income earned on these fund investments in the current financial year but declared by the fund as a dividend after the Company's reporting period ends on 30th September cannot be included in this year's revenue account.  This is a timing effect which will require the Company to use a small amount of its revenue reserves in order to pay dividends at the targeted rate in the current financial year.  Overall, on current forecasts, the yield on the portfolio is in excess of 4.5% and is sufficient, we currently anticipate, for the Company to be able to pay a dividend fully covered by revenues in 2017/18.

 

Outlook

Looking ahead, our strategic view is that the tailwinds which have boosted economic growth and the performance of investment markets since the early 1980s - improving demographics, increasing global trade and rising debt levels - have now turned into headwinds.  Working age populations are now declining in most major economies; 'populist' policies are seen as a threat to global trade and the debt burdens which triggered the global financial crisis have not yet been fully addressed. These deflationary forces point to an era of sluggish growth in personal incomes in many developed markets. With government bond yields in most developed markets close to historically low levels, investment markets are likely to deliver lower returns than they have historically and anyone extrapolating from the past is likely to be disappointed.

 

In the shorter-term our base case economic view is generally supportive for equities and other risk assets. There has been an improving growth trend, most notably in the US which has the potential to be boosted by President Trump's plans for corporate tax reduction and fiscal stimulus. Central banks remain supportive in Europe and Japan.  In China, we believe that government policies will continue to prioritise growth.

 

As ever, there are a number of clouds on the horizon which temper this broadly positive base case. In the US, the Trump-led administration failed to secure its first policy reform, in healthcare, which calls into question its ability to enact fiscal policy stimulus.  In Europe, uncertainty comes largely from Brexit and rising populist political pressures, as Prime Minister Theresa May can clearly affirm. In China, it is unclear how levels of credit growth, which seem to be unsustainable, might be normalised.  In investment markets, equity indices are, in most cases, at all-time highs and valuations look stretched. 

 

Both the challenging long-term investment environment and the heightened near-term political risks reinforce the importance of having a diversified portfolio. We continue to see attractions in a range of asset classes with different return drivers - for example, in asset backed securities and global loans which benefit from modestly rising interest rates - and hence are not excessively exposed to the performance of equity markets or any other asset class.

 

 

Mike Brooks

Tony Foster

Aberdeen Asset Managers Limited

Investment Manager

 

20 June 2017

 



 

PORTFOLIO ANALYSIS

TEN LARGEST EQUITY INVESTMENTS AND LARGEST FIXED INCOME INVESTMENTS

As at 31 March 2017






At


31 March


2017


%

BlackRock Impact World Equity Fund

4.8

Global equity fund


iShares Gold Trust

4.2

Gold fund


Blackstone/GSO Loan Financing

3.3

Diversified exposure to senior secured loans via CLO securities


BlackRock Emerging Markets Equity Income Fund

2.7

Emerging market equity fund


Funding Circle SME Income Fund

2.6

Smaller company lending fund


MAS Mortgage Holdings{A}

2.5

Investments in UK buy-to-let mortgages


Lloyds Banking Group

1.9

UK bank


Blue Capital Global Reinsurance Fund

1.5

Catastrophe risk insurance


Foresight Solar Fund

1.4

Renewable infrastructure fund


RELX

1.4

Scientific, legal and business publishing



 

 

LARGEST FIXED INCOME INVESTMENTS (INCLUDED WITHIN TOP 10 OVERALL PORTFOLIO HOLDINGS)

As at 31 March 2017




At


31 March


2017


%

Aberdeen Global - Indian Bond Fund{B}

4.1

Diverse portfolio of Indian bonds


UK Treasury 2% 07/09/25

2.5

UK government bond


All percentages reflect the value of the holding as a percentage of total investments at 31 March 2017 and 30 September 2016. Together, the ten largest equity investments represent 26.3% of the Company's portfolio (30 September 2016 - 26.1%).

 

{A}        Unquoted holding.

{B}        Denotes Aberdeen managed products.

 



 

INVESTMENT PORTFOLIO - LOW VOLATILITY INCOME STRATEGY EQUITIES

As at 31 March 2017






Valuation



2017

Company

Sector

£'000

Wal-Mart Stores

Consumer Services

1,762

HP

Technology

1,752

Consolidated Edison

Utilities

1,743

Welltower

Financials

1,741

Itochu

Industrials

1,680

Valero Energy

Oil & Gas

1,653

Duke Energy

Utilities

1,641

Koninklijke Ahold Delhaize

Consumer Services

1,629

Verizon Communications

Telecommunication Services

1,591

HSBC

Financials

1,565

Top ten investments


16,756

CLP

Utilities

1,425

Subaru

Consumer Goods

1,423

Ford Motor Co

Consumer Goods

1,370

JM Smucker

USA

Consumer Goods

1,302

0.4

BOC Hong Kong

Financials

1,296

Sumitomo Corp

Industrials

1,295

KLA-Tencor

Technology

1,253

Target Corp

Consumer Services

1,210

Cisco Systems

Technology

1,100

CenturyLink

Telecommunication Services

1,093

Top twenty investments

29,523

Other Equities - Low Volatility Income Strategy (179)

74,807

Total Equities - Low Volatility Income Strategy

104,329

 



 

INVESTMENT PORTFOLIO - UK AND GLOBAL EQUITIES

As at 31 March 2017







Company

Sector

UK Equities


Lloyds Banking Group

Financials

RELX

Consumer Services

BlackRock Throgmorton Trust

Financials

Unilever

Consumer Goods

BAE Systems

Industrials

GlaxoSmithKline

Health Care

BP

Oil & Gas

AstraZeneca

Health Care

Royal Dutch Shell 'B'

Oil & Gas

Intercontinental Hotels

Consumer Services

British American Tobacco

Consumer Goods

Elementis

Basic Materials

Caithness Petroleum

Oil & Gas

Total UK equities


Global Equities


BlackRock Impact World Equity Fund


BlackRock Emerging Markets Equity Income Fund


Total Global Equities


Total Equities


 



 

INVESTMENT PORTFOLIO - ALTERNATIVES

As at 31 March 2017




Net assets


2017

Company

%

Private Equity


Forward Partners 1

1.3


_________

Total Private Equity

1.3


_________

Property


iShares II UK Property UCITS ETF

1.2


_________

Total Property

1.2


_________

Infrastructure


Foresight Solar Fund

1.5

BlackRock Infrastructure Renewable Income Fund

1.3

John Laing

1.1

Renewables Infrastructure

0.9


_________

Total Infrastructure

4.8


_________

Asset Backed Securities


Blackstone/GSO Loan Financing

3.4

MAS Mortgage Holdings

2.6

Fair Oaks Income Fund

2,850

0.8


_________

Total Asset Backed Securities

6.8


_________

Insurance-Linked Securities


Blue Capital Global Reinsurance Fund

1.5

CATCo Reinsurance Opportunities Fund

0.6

CATCo Reinsurance Opportunities Fund 'C'

0.4


_________

Total Insurance-Linked Securities

2.5


_________

Special Opportunities


Funding Circle SME Income Fund

2.7

BioPharma Credit

1.4

Amedeo Air Four Plus

0.6

P2P Global Investments

0.6


_________

Total Special Opportunities

5.2


_________

Commodities


iShares Gold Trust

4.4


_________

Total Commodities

4.4


_________

Total Alternatives

26.3


_________

 

 



 

INVESTMENT PORTFOLIO - BONDS


As at 31 March 2017





Net assets


2017

Company

%

High Yield Bonds


NB Distressed Debt Extended Life

0.9

Aroundtown Property 3% 05/05/20 Conv

0.1

Orange 5.875% VAR 28/02/49

0.1

Telefonica Europe 5.875% VAR Perp

0.1

Allied Irish Bank 4.125% VAR 26/11/25

0.1

Matterhorn Telecom 3.875% 01/05/22

0.1

UPCB Finance IV 4% 15/01/27

0.1

Trinseo OP/Trinseo Finance 6.375% 01/05/22

0.1

UBS 7% VAR Perp

0.1

ProGroup 5.125% 01/05/22

0.1

Top ten investments

1.8

SoftBank 4.75% 30/07/25

0.1

Altice 7.25% 15/05/22

0.1

LGE HoldCo VI 7.125% 15/05/24

0.1

PSPC Escrow Corp 6% 01/02/23

298

0.1

Pfleiderer 7.875% 01/08/19

0.1

Telecom Italia Finance 7.75% 24/01/33

0.1

BNP Paribas 7.375% VAR Perp

0.1

Virgin Media Receivables 5.5% 15/09/24

0.1

Swissport Investments 6.75% 15/12/21

0.1

Wind Acquisition Finance 7% 23/04/21

0.1

Top twenty investments

2.6

Other High Yield Bonds (64)

2.8

Total High Yield Bonds

5.4

Emerging Market Bonds


Aberdeen Global - Indian Bond Fund{A}

4.3

Brazil (Fed Rep of) 10% 01/01/27

1.4

Aberdeen Global - Frontier Markets Bond Fund{A}

1.4

Turkey (Rep of) 10.7% 17/02/21

1.4

Poland (Rep of) 2.5% 25/07/26

1.1

Indonesia (Rep of) 9% 15/03/29

0.8

Russia (Fed of) 7.05% 19/01/28

0.7

South Africa (Rep of) 10.5% 21/12/26

0.7

South Africa (Rep of) 6.25% 31/03/36

0.7

Mexico Bonos Desarr Fix Rt 10% 05/12/24

0.6

Top ten investments

13.1

VimpelCom 7.748% 02/02/21

0.6

Malaysia (Govt of) 4.378% 29/11/19

0.5

Yasar Holdings 8.875% 06/05/20

0.5

Mexico Bonos Desarr Fix Rt 8% 11/06/20

0.4

Indonesia (Rep of) 8.375% 15/03/34

0.4

Malaysia (Govt of) 4.498% 15/04/30

0.4

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

0.3

Dominican Republic 6.85% 27/01/45

0.3

Paraguay (Rep of) 6.1% 11/08/44

0.3

Malaysia (Govt of) 4.048% 30/09/21

0.3

Top twenty investments

17.2

Other Emerging Market Bonds (10)

1.8

Total Emerging Market Bonds

19.0

UK Government Bonds


UK Treasury 2% 07/09/25

2.6

Total UK Government Bonds

2.6

Total Fixed Income

27.0

{A} Denotes Aberdeen managed products.


 

 

INVESTMENT PORTFOLIO


As at 31 March 2017




Net assets


2017


%

Total investments

103.8


_________

Cash and cash equivalents

12.9

Forward contracts

0.3

6.25% Bonds 2031

(17.0)

Other net liabilities

(0.1)


_________

_________

Net assets

351,024

100.0


_________

_________

 

 

BLACKROCK INCOME STRATEGIES TRUST PLC: BLACKROCK MANAGER'S REPORT FOR THE PERIOD FROM 1 OCTOBER 2016 TO 10 FEBRUARY 2017

 



Share


NAV{A}

price

Cumulative performance

%

%

October

(0.3)

(4.5)

November

(2.1)

0.2

December

2.9

2.4

January

(1.2)

1.3

1-10 February

2.7

2.5


_________

_________

Total

2.0

1.9


_________

_________

{A} With debt at par.



 

The positive performance experienced during this period was driven largely by developed market equity exposure as markets reacted positively to a synchronized improvement in global growth.

 

The UK equity exposure was particularly profitable where positive stock fundamentals were a key driver of performance. Elementis contributed strongly as the new management team continue to drive operational improvements and announced a material acquisition to build scale in their personal care business. Sky performed well after receiving a bid in December from 21st Century Fox at a significant premium to the share price. Despite offering a lower dividend yield than the market, we were attracted to Sky's cash generative business and vast customer base, giving the benefits of scale to invest in new content and services, attributes that were clearly undervalued by the market. Our flexibility to invest in international holdings contributed positively, with Altria benefitting from a combination of currency and continued positive trends in the underlying business. Elsewhere there were strong performances from holdings in Intercontinental Hotels, Carnival, Wolseley, Aggreko and Shire. On the negative side, BT fell after the company quantified that the impact of a known fraud issue in Italy was substantially worse than forecast. In addition, the company highlighted a weaker revenue performance in some of its UK business. Consequently, the cash flow prospects of the telecoms giant were reduced.

 

Outside of the UK, our more cyclical overseas exposures also helped generate returns particularly across Japanese and European stock markets. Fixed income exposures detracted with emerging market debt reacting negatively to expectations of rate hikes in the United States following the expectation for a change in policy direction leading to higher interest rates. Gold also hurt performance as investor demand for 'safe-haven' assets declined. Within alternatives, the positive performance came from a range of sustainable income and private market exposures.

 

There were few significant changes to the composition of the portfolio during the period as headline asset allocation continued to lean towards developed markets within equities and corporate bonds within our fixed income holdings. After serving well as a diversifying asset throughout 2016, we reduced our gold positions in the expectation of greater uncertainty of the price of precious metals going into 2017. 

 

Adam Ryan

BlackRock Investment Management (UK) Limited

 

20 June 2017

 

 

ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 



Six months ended



 31 March 2017



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Gains on investments


-

18,746

18,746

Foreign exchange losses


-

(13,183)

(13,183)

Income

2

9,563

-

9,563

Investment management fee

3

56

104

160

Administrative expenses


(388)

(267)

(655)



_________

_________

_________

Net return before finance costs and taxation


9,231

5,400

14,631






Finance costs


(671)

(1,257)

(1,928)



_________

_________

_________

Net return on ordinary activities before taxation


8,560

4,143

12,703






Taxation on ordinary activities

4

(102)

-

(102)



_________

_________

_________

Return attributable to equity shareholders


8,458

4,143

12,601



_________

_________

_________






Return per share (pence)

5

3.17

1.55

4.72



_________

_________

_________






The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company. There has been no other comprehensive income during the period, accordingly, the return attributable to equity shareholders is equivalent to the total comprehensive income for the period.

All revenue and capital items in the above statement derive from continuing operations.

 

 

ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (Cont'd)

 



Six months ended



 31 March 2016



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Gains on investments


-

2,525

2,525

Foreign exchange losses


-

(8,830)

(8,830)

Income

2

6,994

-

6,994

Investment management fee

3

(262)

(486)

(748)

Administrative expenses


(403)

(16)

(419)



_________

_________

_________

Net return before finance costs and taxation


6,329

(6,807)

(478)






Finance costs


(699)

(1,298)

(1,997)



_________

_________

_________

Net return on ordinary activities before taxation


5,630

(8,105)

(2,475)






Taxation on ordinary activities

4

(15)

-

(15)



_________

_________

_________

Return attributable to equity shareholders


5,615

(8,105)

(2,490)



_________

_________

_________






Return per share (pence)

5

2.05

(2.95)

(0.90)



_________

_________

_________

 

 



ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

 



As at

As at



31 March
2017

30 September 2016



(unaudited)

(audited)


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss


364,383

420,128



_________

_________

Current assets




Debtors and prepayments


3,161

6,347

Derivative financial instruments


1,132

2,652

Collateral pledged with brokers


-

11,497

Cash and cash equivalents


45,380

2,203



_________

_________



49,673

22,699



_________

_________





Creditors: amounts falling due within one year




Bank overdraft


-

(18,084)

Derivative financial instruments


-

(9,758)

Collateral received from brokers


-

(770)

Other creditors


(3,412)

(3,088)



_________

_________



(3,412)

(31,700)



_________

_________

Net current assets/(liabilities)


46,261

(9,001)



_________

_________

Total assets less current liabilities


410,644

411,127





Non-current liabilities




6.25% Bonds 2031

7

(59,620)

(59,606)



_________

_________

Net assets


351,024

351,521



_________

_________

Capital and reserves




Called-up share capital

8

72,778

72,778

Capital redemption reserve


15,563

15,563

Capital reserve


228,214

224,071

Revenue reserve


34,469

39,109



_________

_________

Equity shareholders' funds


351,024

351,521



_________

_________





Net asset value per share (pence)

10



Bonds at par value


131.45

131.64



_________

_________

Bonds at fair value


123.60

123.62



_________

_________

 

 



ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Six months ended 31 March 2017










Capital






Share

redemption

Capital

Revenue




capital

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000

At 30 September 2016


72,778

15,563

224,071

39,109

351,521

Return on ordinary activities after taxation


-

-

4,143

8,458

12,601

Dividends paid

6

-

-

-

(13,098)

(13,098)



_______

_______

_______

_______

_______

At 31 March 2017


72,778

15,563

228,214

34,469

351,024



_______

_______

_______

_______

_______








Six months ended 31 March 2016










Capital






Share

redemption

Capital

Revenue




capital

reserve

reserve

reserve

Total



£'000

£'000

£'000

£'000

£'000

At 30 September 2015


72,778

15,563

249,811

36,680

374,832

Purchase of own shares to treasury

8

-

-

(2,106)

-

(2,106)

Issue of own shares from treasury

8

-

-

270

-

270

Return on ordinary activities after taxation


-

-

(8,105)

5,615

(2,490)

Tender offer costs


-

-

(8)

-

(8)

Dividends paid

6

-

-

-

(9,252)

(9,252)



_______

_______

_______

_______

_______

At 31 March 2016


72,778

15,563

239,862

33,043

361,246



_______

_______

_______

_______

_______

 

 



ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

 


Six months ended

Six months ended


31 March 2017

31 March 2016


£'000

£'000

Operating activities



Net return/(loss) on ordinary activities before finance costs and taxation

14,631

(478)

Adjustments for:



Dividend income

(4,629)

(4,170)

Fixed interest income

(2,416)

(1,354)

Interest income

(2)

(17)

Dividends received

4,165

3,753

Fixed interest income received

2,192

1,539

Interest received

2

18

Gains on investments

(18,746)

(2,525)

Decrease/(increase) in other debtors

11

(5,941)

(Decrease)/increase in accruals

(1,412)

1,085

Stock dividends included in investment income

(67)

-

Amortisation of fixed income book cost

1,586

231

Forward contracts

763

8,285

Net movement in collateral balances

10,727

9,405

Taxation withheld

9

17


_______

_______

Net cash flow from operating activities

6,814

9,848




Investing activities{A}



Purchases of investments

(280,480)

(221,073)

Sales of investments

349,950

237,426


_______

_______

Net cash flow from investing activities

69,470

16,353




Financing activities



Purchase of own shares to treasury

-

(2,106)

Shares issued from treasury

-

270

Interest paid

(1,925)

(1,963)

Tender offer costs

-

(8)

Equity dividends paid (note 6)

(13,098)

(9,252)


_______

_______

Net cash flow used in financing activities

(15,023)

(13,059)


_______

_______

Increase in cash and cash equivalents

61,261

13,142


_______

_______

Analysis of changes in cash and cash equivalents during the period



Opening balance

(15,881)

14,678

Increase in cash and cash equivalents as above

61,261

13,142


_______

_______

Closing balance

45,380

27,820


_______

_______




{A} In a change to presentation, the purchases and sales of investments are now being classified as investing activities. Previously theses had been classified as operating activities. This reclassification in the above Statement of Cashflows has no impact on net assets, the Statement of Comprehensive Income or the Statement of Financial Position.

 

 

Notes to the Financial Statements

For the period ended 31 March 2017

 

1.

Accounting policies -



Basis of accounting



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






The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.

 



Six months ended

Six months ended



31 March 2017

31 March 2016

2.

Income

£'000

£'000


Income from investments




UK listed dividends

1,869

3,131


Overseas listed dividends

2,693

1,039


Stock dividends

67

-


Fixed interest income

2,416

1,354



_______

_______



7,045

5,524



_______

_______


Other income




Interest

2

17


Derivative income

2,506

1,453


Other income

10

-



_______

_______



2,518

1,470



_______

_______


Total income

9,563

6,994



_______

_______

 



Six months ended

Six months ended



31 March 2017

31 March 2016



Revenue

Capital

Total

Revenue

Capital

Total

3.

Investment management fee

£'000

£'000

£'000

£'000

£'000

£'000


BlackRock Fund Managers Limited

241

448

689

262

486

748


Aberdeen Fund Managers Limited

(297)

(552)

(849)

-

-

-



_____

_____

_____

_____

_____

_____


Total

(56)

(104)

(160)

262

486

748



_____

_____

_____

_____

_____

_____










With effect from 11 February 2017, Aberdeen Fund Managers Limited has been appointed as the Company's Alternative Investment Fund Manager in place of BlackRock Fund Managers Limited.




For the period to 10 February 2017 the investment management fee was levied at a rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans) and was allocated 35% to the revenue column and 65% to the capital column of the Statement of Comprehensive Income.




Following their appointment as Alternative Investment Fund Manager on 11 February 2017 through to the end of the period, Aberdeen agreed to waive any entitlement to management fees. Additionally, this waiver will continue to be in place for a period of six months from the date of the change of the investment objective and policy, being 30 March 2017. The sums shown above for Aberdeen reflect sums paid by Aberdeen to the Company, being the amount equal to six months management fees payable to BlackRock (in line with the notice period clause) calculated at the rate of 0.4 per cent. per annum of the gross assets of the Company as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement).




Following completion of the waiver period, the investment management fee to be levied by Aberdeen will be at the following tiered levels:


- 0.50% per annum in respect of the first £300 million of the net asset value (with debt at fair value);


- 0.45% per annum in respect of the balance of the net asset value (with debt at fair value).




The Company will also receive rebates with regards to underlying investments in other funds managed by the Manager (where an investment management fee is charged by the Manager on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Manager which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at the Manager's lowest institutional fee rate. To avoid double charging, such investments will be excluded from the overall management fee calculation.

 

4.

Taxation


The taxation charge for the period represents withholding tax suffered on overseas dividend income.




The Company does not apply the marginal method of allocation of tax relief.

 



Six months ended

Six months ended



 31 March 2017

 31 March 2016

5.

Return per Ordinary share

p

p


Revenue return

3.17

2.05


Capital return

1.55

(2.95)



_______

_______


Total return

4.72

(0.90)



_______

_______


The figures above are based on the following:









Six months ended

Six months ended



 31 March 2017

 31 March 2016



£'000

£'000


Revenue return

8,458

5,615


Capital return

4,143

(8,105)



_______

_______


Total return

12,601

(2,490)



_______

_______


Weighted average number of shares in issue{A}

267,037,282

274,440,234



___________

___________


{A} Calculated excluding shares held in treasury.



 



Six months ended

Six months ended



31 March 2017

31 March 2016

6.

Dividends

£'000

£'000


Third interim dividend for 2016 - 1.635p (2015 - 1.67p)

4,366

4,583


Fourth interim dividend for 2016 - 1.635p (2015 - 1.70p)

4,366

4,669


First interim dividend for 2017 - 1.635p

4,366

-



_______

_______



13,098

9,252



_______

_______






For the financial year to 30 September 2017, the Board declared a first interim dividend of 1.635p, which was paid to shareholders on 24 March 2017. For the financial year to 30 September 2016, the Board declared a first interim dividend of 1.635p and, with a payment date of 8 April 2016, this has not been included in the table above. The cost of that dividend was £4,478,000.




The Board has declared a second interim dividend of 1.635p per share (2016 - 1.635p), which was paid on 28 April 2017 to shareholders on the register as at 7 April 2017; the ex-dividend date was 6 April 2017. The total cost of this dividend, based on 267,037,282 shares in issue was £4,366,000 (2016 - £4,443,000).

 

7.

Non-current liabilities - 6.25% Bonds 2031





As at

As at



31 March 2017

30 September 2016



£'000

£'000


Balance at beginning of period

59,606

59,579


Amortisation of discount and issue expenses

14

27



_______

_______


Balance at end of period

59,620

59,606



_______

_______






The Company has in issue £60 million Bonds 2031 which was issued at 99.343%. The Bonds have been accounted for in accordance with accounting standards, which require any discount or issue costs to be amortised over the life of the bonds. The Bonds are secured by a floating charge over all of the assets of the Company.




Under the covenants relating to the Bonds, the Company is to ensure that, at all times, the aggregate principal amount outstanding in respect of monies borrowed by the Company does not exceed an amount equal to its share capital and reserves.




The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 31 March 2017 of 134.33p (30 September 2016 - 135.02p) per Bond was £80,599,000 (30 September 2016 - £81,010,000).

 

8.

Called-up share capital


During the period the Company made no repurchases of its own Ordinary shares (2016 - repurchased 1,730,000 Ordinary shares at a cost of £2,106,000 including expenses). Shares bought back in the 2016 period were placed in treasury.




During the period the Company made no issues of its own Ordinary shares from treasury (2016 - 200,000 Ordinary shares issued for a consideration of £270,000).




At the end of the period there were 267,037,282 (30 September 2016 - 267,037,282) Ordinary shares in issue and 24,075,000 (30 September 2016 - 24,075,000) shares held in treasury.

 

9.

Capital reserve


The capital reserve reflected in the Condensed Statement of Financial Position at 31 March 2017 includes gains of £22,232,000 (30 September 2016 - gains of £27,929,000), which relate to the revaluation of investments held at the reporting date.

 



As at

As at

10.

Net asset value per share

31 March 2017

30 September 2016


Debt at par




Net assets attributable (£'000)

351,024

351,521


Number of Ordinary shares in issue

267,037,282

267,037,282


Net asset value

131.45p

131.64p






Debt at fair value

£'000

£'000


Net assets attributable per Statement of Financial Position

351,024

351,521


Add: Amortised cost of 6.25% Bonds 2031

59,620

59,606


Less: Market value of 6.25% Bonds 2031

(80,599)

(81,010)



_______

_______



330,045

330,117



_______

_______


 

Number of Ordinary shares in issue

 

267,037,282

 

267,037,282


Net asset value

123.60p

123.62p

 

11.

Transaction costs 


During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:







Six months ended

Six months ended



31 March 2017

31 March 2016



£'000

£'000


Purchases

122

199


Sales

63

85



_______

_______



185

284



_______

_______

 

12.

Fair value hierarchy


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




Level 1 - Quoted prices in active markets for identical instruments


A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The Company does not adjust the quoted price for these instruments.




Level 2 - Valuation techniques using observable inputs


This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.




Valuation techniques used for non-standardised financial instruments such as over-the-counter derivatives, include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.




Level 3 - Valuation techniques using significant unobservable inputs


This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation.




This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The investment manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.




The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.




Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.




The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:





Level 1

Level 2

Level 3

Total


As at 31 March 2017

£'000

£'000

£'000

£'000


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






Equity investments

223,876

51,939

13,825

289,640


Fixed interest instruments

9,029

65,714

-

74,743


Forward currency contracts - financial assets

-

1,643

-

1,643


Forward currency contracts - financial liabilities

-

(511)

-

(511)


Futures - financial assets

-

625

-

625



_______

_______

_______

_______


Net fair value

232,905

119,410

13,825

366,140



_______

_______

_______

_______









Level 1

Level 2

Level 3

Total


As at 30 September 2016

£'000

£'000

£'000

£'000


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






Equity investments

274,079

-

13,121

287,200


Fixed interest instruments

28,895

102,785

-

131,680


Option - financial assets

-

1,398

-

1,398


Option - financial liabilities

-

(3,952)

-

(3,952)


Forward currency contracts - financial assets

-

507

-

507


Forward currency contracts - financial liabilities

-

(875)

-

(875)


Futures - financial liabilities

-

(1,600)

-

(1,600)


Total return swaps - financial assets

-

747

-

747


Total return swaps - financial liabilities

-

(3,145)

-

(3,145)


FX swaps - financial liabilities

-

(96)

-

(96)


Credit default swap

-

-

(90)

(90)


BlackRock's Institutional Cash Series plc - Sterling Liquidity Fund

1,248

-

-

1,248



_______

_______

_______

_______


Net fair value

304,222

95,769

13,031

413,022



_______

_______

_______

_______








Level 3 Financial assets at fair value through profit or loss


Opening fair value


Purchases including calls (at cost)


Disposals and return of capital


Total gains or losses included in gains/(losses) on investments in the Statement of Comprehensive Income:


- assets disposed of during the year


- assets held at the end of the year



_______

_______


Closing balance

13,825

13,031






Level 3 valuation techniques used by the Company for unquoted investments are fair value using International Private Equity and Venture Capital Valuation Guidelines). The Level 3 equity investments comprise MAS Mortgage Holdings and Forward Partners.




There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 March 2017 and 30 September 2016.




For all other assets and liabilities (i.e. those not included in the hierarchy table) carrying value approximates to fair value.

 

13.

Related party disclosures


Transactions with the Manager


With effect from 11 February 2017, Aberdeen Fund Managers Limited ('Aberdeen') has been appointed as the Company's Alternative Investment Fund Manager in place of BlackRock Fund Managers Limited ('BlackRock').




The investment management fee to be levied by Aberdeen (post waiver) will be at the following tiered levels, payable monthly in arrears:


-       0.50% per annum in respect of the first £300 million of the net asset value (with debt at fair value);


-       0.45% per annum in respect of the balance of the net asset value (with debt at fair value).




The Company will also receive rebates with regards to underlying investments in other funds managed by Aberdeen (where an investment management fee is charged by Aberdeen on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by Aberdeen which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at Aberdeen's lowest institutional fee rate. To avoid double charging, such investments will be excluded from the overall management fee calculation.




The table below details all investments held at 31 March 2017 that were managed by Aberdeen. For the period to 31 March 2017 no fees were levied in respect of these funds.





Value



31 March



2017



£'000


Aberdeen Global - Indian Bond Fund

14,995


Aberdeen Global - Frontier Markets Bond Fund

4,987



_______



19,982



_______





As detailed in note 3, no investment management fees were charged by the Manager in the period due to a waiver currently being in place. The Manager also agreed to pay to the Company an amount equal to six months management fees payable to BlackRock (in line with notice period clause) calculated at the rate of 0.4 per cent. per annum of the gross assets of the Company as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement).

 

14.

Segmental information


The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

 

15.

Subsequent events


Following the period end, the Company has gone through two significant events:




Tender Offer to existing shareholders


A tender offer of 20% of Ordinary shares was completed on the 10th April 2017, where 53,407,456 Ordinary shares were tendered at a price calculated as 116.1597p per share. The total cash settlement amounted to £62,037,965.




Merger with Aberdeen UK Tracker Trust plc ('AUKT')


On 10 April 2017 the Company acquired £146.2 million of the net assets of AUKT in cash and, in consideration, the Company issued 118,561,879 new Ordinary shares to entitled former shareholders of AUKT.




Subsequent to the Tender Offer and Merger there has been 1,900,000 Ordinary shares repurchased by the Company to be held in treasury, at a cost of £2,222,000. At the date of this Report there were 365,410,874 Ordinary shares in issue, comprising 330,291,705 shares with voting rights and an additional 35,119,169 shares held in treasury.

 

16.

Half-Yearly Report


The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 September 2016 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The interim accounts have been prepared using the same accounting policies as the preceding annual accounts.




Ernst & Young LLP has reviewed the financial information for the six months ended 31 March 2017 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

 

17.

This Half-Yearly Report was approved by the Board and authorised for issue on 20 June 2017.

 

 



INDEPENDENT AUDITOR'S REVIEW

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Statement of Cash Flows and related notes 1 to 16. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with United Kingdom Generally Accepted Accounting Practice. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with Financial Reporting Council's Standard, FRS 104 "Interim Financial Reporting".

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

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

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 31 March 2017 is not prepared, in all material respects, in accordance with Financial Reporting Council's Standard, FRS 104 "Half-Yearly Financial Reports" and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Ernst & Young LLP

London

 

20 June 2017

 


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