ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC
Legal Entity Identifier (LEI): 2138003QINEGCHYGW702
Information disclosed in accordance with Section 4.1.3 of the FCA's Disclosure Guidance and Transparency Rules ("DTR")
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2021
COMPANY OVERVIEW
FINANCIAL HIGHLIGHTS
| Net asset value total return{AB} | | Share price total return{A} | | Revenue return per share | |||
| +12.5% | | | +15.6% | | | 5.14p | |
| | | | | | | | |
| 2020 | -0.8% | | 2020 | -10.6% | | 2020 | 5.58p |
| | | | | | | | |
| Dividend per share{C} | | | Dividend yield{A} | | | Discount to net asset value (fair value basis){AB} | |
| 5.52p | | | 5.5% | | | 17.9% | |
| | | | | | | | |
| 2020 | 5.44p | | 2020 | 5.9% | | 2020 | 19.3% |
| | | | | | | | |
| {A} Considered to be an Alternative Performance Measure | |||||||
| {B} Debt at fair value. | |||||||
| {C} See note 8. | |||||||
CHAIRMAN'S STATEMENT
Highlights
Looking back over the 12 month reporting period covered by this Report, it is a huge relief to have experienced a successful vaccine rollout and the strong recovery it has produced in major economies. Whilst it is clearly too soon to say we can resume life as we knew it pre-pandemic, it does give grounds for optimism that we will not have to return to the draconian measures of full lockdown. Unsurprisingly financial markets were mixed over this period as the re-opening economies and the rebound in corporate earnings produced a sharp rise in global equities, whilst the concerns that central banks would now start to increase interest rates caused bond prices to fall.
Strategy update
Although the proposed changes to the Company's investment strategy were detailed in the 30 September 2020 Annual Report, it is in this reporting period that the majority of the agreed actions have taken place, following the amendment to the investment objective and policy approved at the AGM in February 2021.
The investment objective now reads: "The Company seeks to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio." At the same time, investment and risk assumptions were re-assessed across all the asset classes and it was agreed to increase the exposure to Alternatives and Private Markets, as these areas are expected to deliver superior returns to the public equity and bond markets. Alongside these changes, the Board reinforced the aim to pay a dependable and regular (quarterly) dividend. Performance is now measured against a Total Return (defined as dividends plus change in net asset value) of 6% per annum over a rolling five year period. By changing the benchmark from one tied to interest rates, we believe the Investment Manager has greater control over the risks within the portfolio especially when we enter a period of rising interest rates. A further key part of the review included the repayment of a substantial portion of the Company's expensive £60 million 6.25% Bonds due 2031 (the "Bonds"), which was completed in November 2020.
Gearing
On 2 November 2020, the Company repurchased and cancelled 73.2% of its Bonds, to leave £16,096,000 nominal of the Bonds outstanding. The early repayment of the Bonds has benefitted the Company's cash flow by £2.7 million per annum through reduced annual interest costs and substantially lowered the structural debt. The repurchase was financed by the sale of assets from the portfolio. The cash required to purchase the Bonds coincided with the portfolio review and the subsequent re-allocation of assets which allowed the Investment Manager to undertake the exercise with minimal disruption to the balance of the portfolio.
The Company's gearing was 3.7% at 30 September 2021 as compared to 18.8% as at 30 September 2020, with the Bonds priced at fair value. The Board continues to keep the overall level of gearing under review but, in the prevailing economic environment, there is no current intention to introduce further fixed rate gearing.
Portfolio Performance
During our reporting period, which covers the year ended 30 September 2021, the Company's net asset value (NAV) total return, with debt at fair value, was 12.5%. It is pleasing to note that this return was achieved whilst absorbing the one-off cost of 1.6p per share from the early repayment of the Company's Bonds in November 2020. The Company's share price rose by 9.3% which, including income, equates to a total return of 15.6%. Whilst these returns compare favourably with the Company's revised long term performance target of 6% per annum, it should be noted that this needs to be judged over rolling five years, not over one year.
Earnings and Dividend
A major component of the proposition to investors remains a dependable and regular dividend. Total dividends paid during the year represented a yield of 5.5% based on the year end share price of 100.0 pence. The Board confirmed, as part of the strategic review, its intention to continue to pay at least the current level of dividend. In addition, to cover the period before the new Private Markets' investments start to make distributions, the Board is prepared to use its revenue reserves, which have been built up by the Company over many years, to support the dividend policy as required, which also provides shareholders with a level of comfort regarding regular income payments.
Three interim dividends of 1.38 pence per share were paid to shareholders in March, July and October 2021. The Board is declaring a fourth interim dividend of 1.38 pence per share to be paid on 20 January 2022 to shareholders on the register on 24 December 2021. The ex-dividend date is 23 December 2021. Total dividends for the year are 5.52 pence per share, 1.5% higher than the 5.44 pence per share paid in respect of the year ended 30 September 2020. After the payment of dividends during the year, £1.1m was drawn down from the Company's revenue reserves.
For the year to 30 September 2022, the Board currently intends to declare four quarterly dividends of 1.40 pence per share or 5.60p per share in total, which will be the equivalent of an increase of 1.4% on the 5.52p paid for the year under review. As in previous years, the Board intends to put to shareholders at the Annual General Meeting ("AGM") on 22 February 2022 a resolution in respect of its current policy to declare four interim dividends each year.
Discount and Treasury share policy
During the year ended 30 September 2021, the shares performed broadly in line with the NAV return. The Company's discount (calculated with debt at fair value) narrowed from 19.3% at 30 September 2020 to 17.9% at 30 September 2021. The Board is fully aware that this level of discount is inconsistent with the previously stated policy which is to seek to maintain the Company's share price discount to NAV (excluding income, with debt at fair value) at less than 5%, subject to normal market conditions. Whilst the past year cannot be described as 'normal', it does not fully excuse the wide discount that prevailed at the year end.
Throughout the year, the Company continued to buy back shares and a total of 8.0 million shares were repurchased at a cost of £7.7 million. The Board, however, feels that in order for the share buy-back to be truly effective performance improvement from the portfolio is an absolute priority, so it will continue to make some allowances for both market conditions and the changes to the portfolio that are set out in this Report. The Board will continue to monitor the discount on a daily basis and buy-back shares into treasury, or undertake share issuance if required, when it believes it is in the best interests of shareholders to do so, while also having regard to the prevailing gearing level and the composition of the Company's portfolio.
Board changes and Review
During the year the Board was delighted to announce the appointment of Alistair Mackintosh as a Director with effect from 1 May 2021. Alistair was a partner with Actis LLP, a leading investor in growth markets across Africa, Asia and Latin America, from its inception in 2004 until 2018, including serving as Chief Investment Officer for 12 years. Alistair brings considerable expertise in, and knowledge of, Private Markets including private equity, infrastructure, and real estate and I would urge our shareholders to vote in favour of his appointment at the forthcoming AGM.
As previously announced, Julian Sinclair retired from the Board on 4 June 2021. On behalf of all of the Directors, I would like to thank Julian for his considerable contribution to the Company during his six years' service. The Board and the Company's shareholders have both benefited from Julian's considerable experience in diversified asset investing; we wish him well in pursuing his other business interests. Following Julian's retirement, Tom Challenor assumed the role of Senior Independent Director.
Post these changes the Board engaged an experienced board review consultancy to undertake an evaluation of the Board, its committees and individual Directors. Assessments were undertaken by each Director and then discussed by the Board. The evaluation has helped confirm that the Company's Board has in place an appropriate balance of experience, skills, corporate knowledge and gender diversity (60% male, 40% female).
Environmental, social and governance ("ESG")
As readers of articles on sustainable investing, climate change policy and ESG will have likely concluded, there are no simple answers to embracing these factors in investments or how best to measure and monitor them. It is however very clear that these factors need to be carefully considered and active engagement with companies is required in order to help drive change. Taking account of ESG factors is now an integral part of the investment process at abrdn as well as their ongoing monitoring after investments are included in the portfolio. Equally as important the investment teams undertake constructive engagement with the management of the investments held, in both public and Private Markets, on ESG issues and related risks. More detail on the approach to ESG can be found in the comments on Socially Responsible Investment Policy in the Overview of Strategy, in the Investment Manager's Report and in Manager's ESG engagement. The Board continues to closely review the Manager's approach to, and adherence with, its ESG philosophy and policies.
Annual General Meeting
The Board is proceeding on the basis that the Company's AGM will be held in the normal format and provide shareholders with an opportunity to attend and receive a presentation from the Investment Manager as well as ask any questions that they may have. The AGM is scheduled to be held at the South Place Hotel, 3 South Place, London, EC2M 2AF, from 12.30 p.m. on Tuesday 22 February 2022, The Company may impose entry restrictions on persons wishing to attend the meeting in order to secure the health and safety of others attending the meeting.
Notwithstanding the above, shareholders are encouraged to raise any questions in advance of the AGM by email to: diversified.income@abrdn.com. Questions must be received by 8 February 2022. Any questions received will be responded to by either the Manager or the Board via the Company Secretary.
Given the uncertainty around any changes to government guidance related to COVID-19, the Company will continue to keep arrangements for the AGM under review and it is possible that these will need to change. We will keep shareholders updated of any changes through the Company's website (www.aberdeendiversified.co.uk) and announcements to the London Stock Exchange. I trust that shareholders will be understanding of this approach.
The formal Notice of AGM, which may be found on the published Annual Report, includes Resolution 11 relating to the continuation of the Company. The Board encourages shareholders to vote in favour of the Company's continuation as it believes the Investment Manager's strategy is now well positioned to deliver a regular and dependable dividend as well as potential capital growth from its genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers.
Outlook
Whilst over the short term markets face a number of headwinds including rising prices, supply chain bottlenecks, labour shortages and the prospect of higher interest rates, the Board believes the Company's strategy, to provide a dependable and regular dividend stream as well as the potential for capital growth from a broadly diversified portfolio consisting of a wide range of assets, is well positioned to deliver an attractive return to our shareholders over the medium term.
Davina Walter
Chairman
8 December 2021
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Investment Objective
With effect from the AGM on 23 February 2021, the Company's investment objective was changed to: "The Company seeks to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio."
Alongside this objective, the Board in future will use a Total Return (defined as dividends plus change in NAV) of 6% per annum over a rolling five year period against which to measure the returns from the portfolio.
Prior to 23 February 2021, the Company's investment objective was to target a total portfolio return of LIBOR plus 5.5% per annum (net of fees) over rolling five-year periods.
Investment Approach
The Company is an investment trust governed by a Board of Directors with its Ordinary shares listed on the premium segment of the London Stock Exchange. It outsources its investment management and administration to an investment management group, abrdn plc, and other third party providers. The Company does not have a fixed life, but a resolution on whether the Company should continue is put to shareholders at each Annual General Meeting.
The Company invests globally using a flexible multi-asset approach via quoted and unlisted (Private Markets) investments providing shareholders with access to the kind of diversified portfolio held by large, sophisticated global investors.
It offers an attractive investment proposition characterised by:
- a genuinely diversified portfolio with access to a wide selection of alternative asset classes;
- an attractive income with the potential to grow;
- volatility around half that of equities; and
- the broad resources of abrdn plc.
An appropriate spread of risk is sought by investing in a diversified portfolio of securities and other assets. This includes, but is not limited to:
- Private Markets, comprising private equity, private credit, real estate, infrastructure, natural resources and unlisted alternatives;
- Listed Alternatives, comprising speciality finance, royalties, and listed Private Markets and alternatives; and
- Listed Equities, comprising global equities, European green infrastructure and UK mid-cap equities;
- Fixed Income and Credit, comprising global loans, asset backed lending, and emerging/frontier market debt.
Asset allocation is flexible allowing investment in the most attractive investment opportunities at any point in time whilst always maintaining a diversified portfolio. The Company leverages off the spread of capabilities and experience within abrdn plc and may invest in funds managed by the Manager where such allocation can offer requisite exposure to certain alternative asset classes in a cost effective manner.
Investment Policy
The Manager has enhanced its investment approach to meet the requirements of the new investment objective. This has involved extending the proportion of Private Markets investments in the portfolio with new vehicles being introduced. The portfolio will also adopt a core-satellite approach.
With effect from the Company's AGM on 23 February 2021, the Company's shareholders approved a change to the Investment Policy, incorporating the following investment restrictions, at the time of investment, which the Manager must adhere to:
- no individual quoted company or transferable security exposure in the portfolio may exceed 15% of the Company's total assets, other than in treasuries and gilts;
- no other individual asset in the portfolio (including property, infrastructure, private equity, commodities and other alternative assets) may exceed 5% of the Company's total assets;
- the Company will not normally invest more than 5% of its total assets in the unlisted securities issued by any individual company; and
- no more than 15% of the Company's total assets may be invested in an individual regulated pooled investment fund.
The Company may invest in exchange-traded funds provided they are quoted on a recognised investment exchange. The Company may invest in cash and cash equivalents including money market funds, treasuries and gilts.
No more than 10% of the Company's total assets may be invested in other listed closed-ended investment companies. This restriction does not apply to investments in any such listed closed-ended investment companies which themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies.
The Company may use derivatives to enhance portfolio returns (of a capital or income nature) and for efficient portfolio management, that is, to reduce, transfer or eliminate risk in its investments, including protection against currency risks.
The Company may use gearing, in the form of borrowings and derivatives, to enhance income and capital returns over the long term. The borrowings may be in sterling or other currencies. The Company's articles of association contain a borrowing limit equal to the value of its adjusted total of capital and reserves. However, borrowings would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in a net economic equity exposure in excess of 120%.
It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.
Details of the Company's investment policy prior to 23 February 2021 may be found on pages 11 and 12 of the Company's Annual Report for the year ended 30 September 2020.
Management and Delivery of the Investment Objective
The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated to Aberdeen Standard Fund Managers Limited ("ASFML", the "AIFM" or the "Manager"). In turn, the investment management of the Company has been delegated by ASFML to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are subsidiaries of abrdn plc.
Investment Process
The Investment Manager believes that many investors could materially improve their long-run returns and/or reduce risk by having a more diversified portfolio. The Investment Manager's aim is to build a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers that will deliver an attractive return for the Company's shareholders. The Investment Manager engages all of its 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 the Investment Manager does not feel compelled to invest shareholders' capital in investments which they believe to be unattractive.
The Company's portfolio consists of investments from a wide range of asset classes, including but not limited to Private Markets (such as private equity, private credit, real estate, infrastructure, natural resources and unlisted alternatives), Listed Alternatives (such as speciality finance, royalties, and listed Private Markets and alternatives), Listed Equities (including, global equities, European green infrastructure and UK mid-cap equities) and Fixed Income and Credit (such as global loans, asset backed lending, and emerging/frontier market debt). Detailed investment research (including operational due diligence for unlisted funds managed by third parties) is carried out on each potential opportunity by specialist teams within the Investment Manager.
The weighting ascribed to each investment in the portfolio reflects the perceived attractiveness of the investment case, including the contribution to portfolio diversification. The Investment Manager also ensures that the weighting is in keeping with its overall strategic framework for the portfolio based on the return and valuation analysis of the Investment Manager's Research Institute. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining its progress in pursuing its investment policy. The primary KPIs, all of which are Alternative Performance Measures, are shown in the table below.
KPI | Description |
| Investment performance | The Board reviews the performance of the portfolio as well as the net asset value and share price for the Company over a range of time periods in light of the Company's investment objective to seek to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio. The Board also reviews NAV and share price performance in comparison to the performance of competitors in the Company's chosen peer group (see Alternative Performance Measures).
The Board also monitors the Company's income yield and compares this to the yield generated by competitors in the Company's peer group. The Board reviews the sustainability of the Company's dividend policy and regularly reviews revenue forecasts and analysis provided by the Investment Manager on the sources of portfolio income in order to monitor the extent to which dividends are covered by net earnings. The Company's performance returns may be found below.
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| Premium/discount to net asset value ("NAV") | The Board monitors the level of the Company's premium or discount to NAV and considers strategies for managing this.
Subject to normal market conditions, the prevailing gearing level and the composition of the investment portfolio, the Company will buy back its Ordinary shares where to do so remains in the best interests of all shareholders. The Company calculates and reports the NAV with debt measured at fair value and including income as this is the basis on which the Company determines the discount at which shares are repurchased. Previously, the Company reported both this basis and with the NAV with debt measured at par value and including income.
In addition, the Company has adopted a formal policy for the issuance of new shares and/or the sale of shares from treasury to meet demand for shares in the market where the Company's share price is trading at a minimum premium to its net asset value per share (calculated including income, with debt at fair value).
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| Ongoing charges | The ongoing charges ratio has been calculated in accordance with guidance issued by the Association of Investment Companies (the "AIC") as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. This includes the Company's share of costs of holdings in investment companies on a look-through basis. The Board reviews the ongoing charges and monitors the expenses incurred by the Company. The Company's ongoing charges for the year, and the previous year, are disclosed above while the basis of calculation is set out in the Alternative Performance Measures.
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Principal Risks and Uncertainties
The Board has in place a robust process to assess and monitor the principal and emerging risks of the Company. A core element of this is the Company's risk controls self-assessment ("RCSA"), which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment and plotted on a risk heat-map. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.
The RCSA, its method of preparation and the operation of the key controls in the Manager's and third party service providers' systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of the Manager's and other third party service providers' risk management processes and how these apply to the Company's business, the Manager's internal audit department presents to the Audit Committee setting out the results of testing performed in relation to the Manager's internal control processes. The Audit Committee also periodically receives presentations from the Manager's risk and compliance and internal audit teams and reviews ISAE3402 reports from the Manager and from the Company's Depositary (The Bank of New York Mellon (International) Limited). The custodian is appointed by the Company's Depositary and does not have a direct contractual relationship with the Company.
The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The Board is confident that the procedures which the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year ended 30 September 2021.
The Manager, on behalf of the Board, sought assurances from the Company's key service providers, as well as from its own operations, that they had invoked business continuity procedures and appropriate contingency arrangements to ensure that they remain able to meet their contractual obligations to the Company. Other than the reduced uncertainty created by each of COVID-19 and the UK's exit from the EU, the Audit Committee does not consider that the principal risks and uncertainties have changed materially during the year ended 30 September 2021.
In addition the Board has identified, as an emerging risk which it considers is likely to become more relevant for the Company in the future, the implications for the Company's investment portfolio of climate change; further details may be found under 'Market Risk'
Risk | Mitigating Action |
Performance riskThe Board is responsible for determining the investment policy to fulfil the Company's objectives and for monitoring the performance of the Company's Investment Manager and the strategy adopted. An inappropriate policy or strategy may lead to poor performance, dissatisfied shareholders and a lower premium or higher discount. The Company may invest in unlisted alternative investments (such as litigation finance, healthcare, insurance linked securities, infrastructure, private equity and trade finance). These types of investments are expected to have a different risk and return profile to the rest of the Company's investment portfolio. They may be relatively illiquid and it may be difficult for the Company to realise these investments over a short time period, which may have a negative impact on performance. | To manage these risks the Board reviews the Company's investment mandate and long term strategy at least annually and monitors, at each Board meeting, that appropriate limits are in place on the overall level of unlisted alternative assets and gearing. It is expected that around 55% of the Company's total assets, at the time of investment, may be invested in aggregate in unlisted alternative assets.
The Investment Manager provides the Board with an explanation of significant investment decisions, the rationale for the composition of the investment portfolio and movements in the level of gearing. The Board monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company's investment policy.
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Portfolio riskRisk analysis for a multi-asset portfolio needs to consider the interaction of asset classes and how these might correlate, or offset each other, under various scenarios. | The Board employs several strategies to monitor and assess that portfolio risk is appropriate. These include regular analysis of various risk metrics including asset class risk attribution, asset class returns and contributions to performance, particularly in periods of equity market stress, and how the current portfolio would perform in various forward-looking and historical scenarios. |
Gearing riskThe Company has the authority to borrow money or increase levels of market exposure through the use of derivatives and may do so when the Investment Manager is confident that market conditions and opportunities exist to enhance investment returns. However, if the investments fall in value, any borrowings will magnify the extent of this loss. | All borrowings require the approval of the Board and gearing levels are reviewed regularly by the Board and the Investment Manager. Borrowings (including the Bonds) would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in net economic equity exposure in excess of 120%.
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Income/dividend riskThe amount of dividends received will depend on the Company's underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of earnings available for distribution to shareholders.
| The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income and expenses at each meeting. |
Regulatory riskThe Company operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Following authorisation under the Alternative Investment Fund Managers Directive ("AIFMD"), the Company and its appointed AIFM are subject to the risk that the requirements of this Directive are not correctly complied with.
| The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company.
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Operational riskIn common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Manager and the Depositary. | The security of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depends on the effective operation of the systems in place with third parties. These systems are regularly tested and monitored throughout the year through their industry-standard controls reports which provide assurance on the effective operation of internal controls. The controls reports are assessed independently by their reporting accountants.
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| Market risk Market risk arises from volatility in the prices or valuation of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements.
The Company invests in global assets across a range of countries and changes in general economic and market conditions in certain countries, such as interest rates, exchange rates, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts, economic sanctions and other factors can also substantially and adversely affect the securities and, as a consequence, the Company's prospects and share price.
The risk posed by COVID-19, in driving stock market volatility and uncertainty, appears to be receding as the global economy starts to return to previous levels, although this is tempered by rising concerns over supply chain constraints and associated inflation. | The Board considers the diversification of the portfolio, asset allocation, stock selection, unlisted investments and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager.
The Board assesses climate change as an emerging risk in terms of how it develops, including how investor sentiment is evolving towards climate change within investment portfolios, and will consider how the Company may mitigate this risk, any other emerging risks, if and when they become material.
The Board engages with the Manager, at each Board meeting, to understand how climate change, represented by environmental factors as part of ESG, is a key consideration within the Manager's investment process (see Manager's approach to ESG).
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Financial risksThe Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk.
| Further details are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks. |
The Board regularly reviews emerging risks facing the Company, which are identified by a variety of means, including advice from the Company's professional advisors, the AIC, and Directors' knowledge of markets, changes and events. A failure to have in place appropriate procedures to assist in identifying emerging risks may cause reactive actions and, in the worst case, could cause the Company to become unviable or otherwise fail.
The principal risks associated with an investment in the Company's shares can be found in the pre-investment disclosure document ("PIDD") published by the AIFM, which is available from the Company's website: aberdeendiversified.co.uk.
Gearing
As at 30 September 2021, the Company had in place structural gearing in the form of £16,096,000 Bonds 6.25% 2031 (the "Bonds"). The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 20% of the net asset value at the time of draw down. The Board monitors the gearing position regularly and considers alternative financing options. On 2 November 2020, the Company repurchased and cancelled £43,904,000 principal amount of the Bonds; see note 13 to the financial statements for further information.
Board Diversity
The Board is fully supportive of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfil its obligations.
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 (the "Programme") run by abrdn on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by abrdn which regularly reports to the Board, including analysis of the effectiveness of the Programme as well as updates on the shareholder register and any changes in the composition of that register.
The purpose of the Programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports abrdn's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below and the Board maintains oversight and retains responsibility for the policy.
Socially Responsible Investment Policy
The Directors review the Manager's policy that encourages companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas. The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this should not be to the detriment of the return on the investment portfolio. Further details on the Manager's Environmental, Social and Governance ("ESG") engagement process, including a case study, can be found in Manager's ESG Approach.
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 FRC's Stewardship Code 2020 may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being an investment company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In addition, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. However, at the portfolio level, the Manager engages on environmental issues with underlying investments as part of its ESG policy.
Viability Statement
In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board conducted this review for the period up to the AGM in 2027, being a five year period from the date of shareholders' approval of this Report. The five year review period was selected because it is aligned with the medium term performance period of five years over which the Company is assessed in relation to its investment objective to seek to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio. The Board considers that this period, which is equally applicable to the Company's proposed new investment objective as outlined in the Chairman's Statement, reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.
In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:
- the principal risks and uncertainties detailed above and the steps taken to mitigate these risks;
- the relevance of the Company's investment objective and investment policy, especially in the current low yield environment, which targets a truly diversified multi-asset approach to generate highly attractive long-term income and capital returns;
- a material proportion of the Company's investment portfolio is invested in securities which are realisable within a short timescale;
- the Company's reduced cash outflows due to lower interest payments following the repurchase of the Bonds;
- the level of share buy backs carried out during the year;
- the annual continuation vote to be put to shareholders at the AGM on 22 February 2022; and
- the level of demand for the Company's shares.
The five-year review considers the Company's cash flow, cash distributions and other key financial ratios over the period. The five-year review also makes certain assumptions about the normal level of expenditure likely to occur and considers the impact on the financing facilities of the Company.
In making this assessment, the Board has considered in particular the potential longer term impact of COVID-19, in the form of a large economic shock, a period of increased stock market volatility and/or markets at depressed levels, a significant reduction in the liquidity of the portfolio or changes in investor sentiment or regulation, and how these factors might affect the Company's prospects and viability in the future. The Board undertook scenario analysis in reaching its conclusions, but recognised that the Company's operating expenses are significantly lower than its total income.
The Board has also considered a number of financial metrics, including:
- the level of current and historic ongoing charges incurred by the Company;
- the share price premium or discount to NAV;
- the level of income generated by the Company;
- future income forecasts; and
- the liquidity of the Company's portfolio.
Considering the liquidity of the portfolio and the largely fixed overheads which comprise a small percentage of net assets, the Board has concluded that, even in exceptionally stressed operating conditions, the Company would be able to meet its ongoing operating costs as they fall due.
Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report, subject to shareholders' approval of the continuation vote at each AGM, noting the level of comprehensive support given at the last AGM.
Outlook
The Board's view on the general outlook for the Company can be found in the Chairman's Statement under "Outlook" while the Investment Manager's views on the outlook for the portfolio are included in its report, which may be found below.
On behalf of the Board
Davina Walter
Chairman
8 December 2021
PROMOTING THE SUCCESS OF THE COMPANY
The Board is required to report how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 during the year under review. Under this requirement, the Directors have a duty to promote the success of the Company for the benefit of its members (shareholders) as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with the Company's stakeholders, and the impact of the Company's operations on the environment. In addition the Directors must act fairly between shareholders and be cognisant of maintaining the reputation of the Company.
The Purpose of the Company and Role of the Board
The purpose of the Company is to act as a vehicle to provide, over time, financial returns (both income and capital) to its shareholders. Investment trusts, such as the Company, are long-term investment vehicles and are typically externally managed, have no employees, and are overseen by an independent non-executive board of directors.
The Board, which during the year comprised between five and six independent non-executive Directors with a broad range of skills and experience across all major functions that affect the Company, retains responsibility for taking all decisions relating to the Company's investment objective and policy, gearing, corporate governance and strategy, and for monitoring the performance of the Company's service providers.
The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect as well as the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the key service providers.
The Company's main stakeholders are its shareholders, the Manager, investee companies and funds, service providers and the holders of the Company's Bonds.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board meetings and receives feedback on the Manager's interactions with them.
Stakeholder | How the Board Engages |
| Shareholders | Shareholders are key stakeholders and the Board places great importance on communication with them, and meets, in the absence of the Manager, with current and prospective shareholders to discuss performance and to receive shareholder feedback. The Board welcomes all shareholders' views.
Regular updates are provided to shareholders through the Annual Report, Half Yearly Report, Manager's monthly factsheets, company announcements, including daily net asset value announcements, and the Company's website. |
| Manager | The Investment Manager's Report the key investment decisions taken during the year. The Investment Manager has continued to manage the Company's assets in accordance with the mandate provided by shareholders, with the oversight of the Board.
The Board regularly reviews the Company's performance against its investment objective and the Board undertakes an annual strategy review to ensure that the Company is positioned well for the future delivery of its objective for its stakeholders.
The Board receives presentations from the Investment Manager at every Board meeting to help it to exercise effective oversight of the Investment Manager and the Company's strategy.
The Board, through the Management Engagement Committee, formally reviews the performance of the Manager at least annually. |
| Investee Companies and Funds | Responsibility for actively monitoring the activities of investee companies and funds has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.
The Board has also given discretionary powers to the Investment Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio.
The Board and Manager are committed to investing in a responsible manner and the Investment Manager integrates environmental, social and governance considerations into its research and analysis as part of the investment decision-making process. Through engagement and exercising voting rights, the Investment Manager actively works with companies to improve corporate standards, transparency and accountability. |
| Service Providers | The Board seeks to maintain constructive relationships with the Company's suppliers, either directly or through the Manager, with regular communications and meetings.
The Audit Committee conducts an annual review of the performance, terms and conditions of the Company's main service providers to ensure they are performing in line with Board expectations and providing value for money. |
| Debt Providers | On behalf of the Board, the Manager maintains a positive working relationship with Law Debenture Trust p.l.c.as trustee on behalf of the holders of the Company's Bonds, ensuring compliance with its covenants. |
Specific Examples of Stakeholder Consideration During the Year
While the importance of giving due consideration to the Company's stakeholders is not new, and is considered as part of every Board decision, the Directors were particularly mindful of stakeholder considerations during the following decisions undertaken during the year ended 30 September 2021.
Review of Company's strategy and Bonds
The Board continues to evolve its strategy to ensure that the investment proposition is delivered to shareholders and other stakeholders in line with their expectations. Further to a strategic review concluded in October 2020, the Company announced on 2 November 2020 that it had bought back a total of £43.9m of its Bonds. Further information may be found in the Chairman's Statement and in note 13 to the Financial Statements.
Independent evaluation of the Board
During July 2021, the Company engaged Lintstock Ltd to undertake an independent external evaluation of the effectiveness of the Board. Further information may be found in the Directors' Report.
Response to COVID-19
In response to COVID-19, the Company sought and received more regular reporting from the Manager on its own operations, and via the Manager on the other key service providers to the Company, that each continued to be able to meet its obligations to the Company.
STRATEGIC REPORT
HIGHLIGHTS, PERFORMANCE AND RESULTS
| | 2021 | 2020 | % change |
| Total assets less current liabilities (before deducting prior charges) | £397,782,000 | £445,770,000 | -10.8 |
| Equity shareholders' funds (Net Assets) | £382,118,000 | £386,230,000 | -1.1 |
| Market capitalisation | £309,319,000 | £290,357,000 | +6.5 |
| Ordinary share price (mid market) | 100.00p | 91.50p | +9.3 |
| Net asset value per Ordinary share (debt at fair value){AB} | 121.73p | 113.40p | +7.4 |
| Discount to net asset value on Ordinary shares (debt at fair value){AB} | 17.9% | 19.3% | |
| | | | |
| Gearing (ratio of borrowings less cash to shareholders' funds) | | | |
| Net gearing (debt at par value){A} | 2.2% | 10.7% | |
| Net gearing (debt at fair value){AB} | 3.7% | 18.8% | |
| | | | |
| Dividends and earnings per Ordinary share | | | |
| Revenue return per share | 5.14p | 5.58p | -7.9 |
| Dividends per share{C} | 5.52p | 5.44p | +1.5 |
| Dividend cover (including proposed fourth interim dividend){A} | 0.93 | 1.03 | |
| Dividend yield{A} | 5.5% | 5.9% | |
| Revenue reserves{D} | £41,009,000 | £42,142,000 | -2.7 |
| | | | |
| Ongoing charges ratio{AE} | 1.45% | 1.58% | |
| | |||
| {A} Considered to be an Alternative Performance Measure. | |||
| {B} Fair value of 6.25% Bonds 2031 £21,233,000 (2020 - £85,925,000), reflecting the repurchase and cancellation of £43,904,000 of the Bonds during the year). | |||
| {C} The figure for dividends per share reflects the years to which their declaration relates (see note 8). | |||
| {D} The revenue reserve figure does not take account of the third and fourth interim dividends paid after the year end amounting to £4,269,000 and £4,267,000 respectively (2020 - £4,317,000 and £4,262,000). | |||
| {E} Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis. The figure for 30 September 2020 has been restated in accordance with this guidance. | |||
| PERFORMANCE - TOTAL RETURN{A} | |||||
| | | | | | |
| | 31 March 2017{B} - | 31 December 2020{C} | | | |
| | 30 September 2021 | 30 September 2021 | 1 year | 3 years | 5 years |
| | % return | % return | % return | % return | % return |
| Net asset value - debt at par{A} | +14.3 | +9.9 | +6.3 | +8.3 | +17.1 |
| Net asset value - debt at fair value{A} | +21.0 | +10.5 | +12.5 | +12.8 | +24.2 |
| Share price{A} | +8.4 | +4.3 | +15.6 | -6.0 | +16.2 |
| {A} Considered to be an Alternative Performance Measure. Total return represents the capital return plus dividends reinvested. | |||||
| {B} Change of Investment Objective and Investment Policy on 31 March 2017. | |||||
| {C} Change of Investment Objective and Investment Policy on 31 December 2020. | |||||
| Source: abrdn, Morningstar and Lipper. | |||||
TEN YEAR FINANCIAL RECORD
| Year to/As at 30 September | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| Total revenue (£'000) | 21,887 | 22,382 | 23,608 | 23,120 | 23,265 | 17,961 | 23,262 | 22,106 | 20,783 | 18,878 |
| Per Ordinary share (p) | | | | | | | | | | |
| Net revenue return | 6.6 | 6.6 | 7.0 | 7.1 | 7.6 | 5.3 | 6.2 | 5.7 | 5.6 | 5.1 |
| Total return | 19.6 | 19.3 | 9.3 | (4.5) | 1.3 | 8.0 | 2.8 | 2.6 | (1.4) | 6.7 |
| Net dividends payable | 6.112 | 6.252 | 6.44 | 6.54 | 6.54 | 5.89 | 5.24 | 5.36 | 5.44 | 5.52 |
| Net asset value per Ordinary share (p) | | | | | | | | | | |
| Debt at par value | 131.4 | 144.5 | 147.5 | 136.6 | 131.6 | 132.7 | 130.3 | 128.1 | 121.7 | 123.5 |
| Debt at fair value | 125.1 | 139.3 | 143.3 | 131.0 | 123.6 | 126.4 | 124.2 | 119.9 | 113.4 | 121.7 |
| Equity shareholders' funds (£'000) | 382,535 | 418,345 | 426,865 | 374,832 | 351,521 | 436,767 | 428,129 | 413,679 | 386,230 | 382,118 |
DIVIDENDS
| | Rate | xd date | Record date | Payment date |
| First interim 2021 | 1.38p | 4 March 2021 | 5 March 2021 | 31 March 2021 |
| Second interim 2021 | 1.38p | 17 June 2021 | 18 June 2021 | 15 July 2021 |
| Third interim 2021 | 1.38p | 30 September 2021 | 1 October 2021 | 28 October 2021 |
| Fourth interim 2021 | 1.38p | 23 December 2021 | 24 December 2021 | 20 January 2022 |
| 2021 | 5.52p | | | |
| First interim 2020 | 1.36p | 5 March 2020 | 6 March 2020 | 27 March 2020 |
| Second interim 2020 | 1.36p | 18 June 2020 | 19 June 2020 | 10 July 2020 |
| Third interim 2020 | 1.36p | 24 September 2020 | 25 September 2020 | 16 October 2020 |
| Fourth interim 2020 | 1.36p | 24 December 2020 | 29 December 2020 | 22 January 2021 |
| 2020 | 5.44p | | | |
STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT
The past year has presented a uniquely risky environment due to the number of different ways that COVID-19, and governments' response to it, could have evolved. The path of the virus, the varied approach to vaccine rollout and virus management, combined with monetary and fiscal support, and the resulting implications, have led to big swings in market sentiment during the year.
However, the gradual reopening of economies across the globe, and the demand arising from the resumption of activity, as well as the acceleration of certain secular trends, has led to higher than expected earnings from many companies. Few market commentators or participants anticipated the resurgence in growth and demand that we have witnessed during the year.
Equity markets were the main beneficiaries of the resulting exuberance while credit spreads tightened delivering particularly strong returns in high yield. Despite the uncertainty around inflation and the possibility of interest rate hikes, investors have not been put off - private equity deal activity continued to increase in the first half of 2021. The technology sector has remained particularly resilient during the pandemic, attracting the majority of deal flow.
Global government bonds were extremely volatile during the year, losing considerable capital value. Expectations of interest rate hikes picked up and the timing and magnitude of changes to central bank support, worried bond investors and, latterly, concerns about the persistence of inflation affected the bond markets. Across private credit, although central banks indicated a cut back in support, appetite for the asset class increased and overall fundraising remained strong.
Within infrastructure, deal activity surged across telecoms and significant allocations were made to the energy and renewables sectors. Transport also showed signs of recovery as more investors started to take a longer-term view on passenger travel, but deal volumes were still well below the pre-pandemic highs.
In real estate, the polarisation trend looks set to last. The retail sector remains fragmented. Retail that is skewed towards grocery, value and core bulky goods started to see rising capital values - in contrast, discretionary and fashion-led retail encountered losses. Meanwhile, logistics and residential were favoured as capital continued to flow in to these sectors. Offices in prime locations have held their values so far but there has been increasing differentiation with secondary offices challenged, and risks rising.
Meanwhile, in Emerging Markets, the differentiation in the vaccine rollout and virus control policies, and latterly food price and energy inflation (which form a larger part of the inflation calculation than in Developed Markets), held back bond price progress, although this was largely offset by income.
Concerns over the troubled Chinese property developer, Evergrande, and whether the Chinese government would be able to control the impact of the possible failure of the company, caused significant volatility in stock markets during September. As of the time of writing, this seemed to be under control, and we suspect this will continue to remain the case, but are monitoring the situation closely.
A diversified, simplified strategy leading to broad-based positive performance
The Company has enjoyed a good year, with a NAV total return (including income, with debt measured at fair value) of 12.5% and a share price total return of 15.6%. This is an important step for the Company towards achieving its stated return target of 6% annualised on a five year rolling basis.
Through building a well-diversified portfolio of investments, including a substantial exposure to infrastructure and real assets, the Company has responded well to the bouts of shorter term volatility that have swept the markets during the last year. The Company has been able to take a long term view regarding how economies will evolve, supported by the breadth of research and investment capabilities across the abrdn franchise. Given the goal of delivering a suite of diversified returns due to the latitude of the mandate, pleasingly, positive returns have been generated across the majority of the portfolio.
Remaining resilient to the challenges posed by the current environment is a key aim. The investment strategy seeks to achieve diversification across asset classes within a simplified framework under four main headings: Private Markets, Fixed Income & Credit, Listed Alternatives and Listed Equities. Exposure to the broad expertise of abrdn across these asset classes, including approximately 350 Private Markets-focused investment professionals, allows the Company to allocate to best in class products, both internally and externally.
Private markets
During the year, the Company increased from 25% to 44% Private Markets' exposure. As described earlier, we invested its capital into a number of different Private Markets opportunities that we believe will deliver growth and/or cash flows for the Company. This was principally through investments in Private Credit (Mount Row Credit Fund II and PIMCO Private Income Fund), diversified Private Markets (Aberdeen Global Private Markets Fund), Infrastructure (additional investment into existing funds, and a new investment in the Pan European Infrastructure Fund), Private Equity (Secondary Opportunities Fund IV and Bonaccord Capital Partners), and Royalties (additional investment into Healthcare Royalty Partners IV).
Performance was pleasing from most sub-asset classes, but was driven mostly by Infrastructure and Private Equity. Performance was broad-based, but there were particular contributors which we outline in case studies. Burford Opportunity Fund was a large positive driver as a healthcare insurance related case in the United States was concluded in its favour, triggering a sizeable payout for the Company.
The Pan European Infrastructure Fund holding also made a large positive contribution to performance. The investment, which was identified by abrdn's network, involved buying part of an existing portfolio of well-performing UK ports, and a water supply and treatment utility, at a sizeable discount to the portfolio's inherent value. This uplift has been further enhanced, since purchase, as an unsolicited offer was received for the ports business.
The heightened demand for Private Markets investments is symptomatic of the struggle to generate differentiated performance in listed markets and forms part of the reason why we believe the Company is well placed to generate long term attractive returns for shareholders, which may not be easily accessed elsewhere.
In the future, we expect to increase further the proportion of the Company's portfolio in Private Market investments as these specialist managers identify attractive opportunities which can be funded from the Company's liquid assets.
We anticipate that there will be £39 million of additional net investments into the current Private Market investments over the next 12 months. After this, future investments will broadly balance capital returned, resulting in a consistent Private Markets exposure.
New Private Markets investments made during the year
Aberdeen Standard Secondary Opportunity Fund IV
The Aberdeen Standard Secondary Opportunity Fund IV ("SOF IV") investment was made to ensure a pipeline of mature private equity assets was purchased by the Company. Prior to this, there had been an ad-hoc series of co-investments made alongside the abrdn Private Equity team (Komodo & Maj IV/V), but given the strong performance and attractive pipeline, the decision was made to formalise this.
SOF IV completed its fund raising (reaching $556m) in June and is successfully investing these funds. The team's ability to find attractive niche opportunities has meant that performance to date has been strong, with a 70% return on investments made to date.
Top drivers of performance were Project Hyde Park and Project Jordan. Project Hyde Park, already valued at 170% above its purchase price, comprises a diversified portfolio of interests in European and US funds with tech-enabled portfolio exposures which was originally purchased at a double digit discount to its inherent value. Project Jordan was a complex deal to acquire a portfolio of five US holdings in the resilient business services sector at an attractive valuation, which have seen recent uplifts as portfolio companies perform ahead of pre-Covid budgets.
Looking ahead, the team are seeing an increased pipeline of diversified opportunities after a lull in 2020 and expect 2021 to be a record year for transaction volumes.
Healthcare Royalty Partners IV ("HCR IV")
HCR IV invests in healthcare royalty streams primarily in the US. The royalties provide income from drug sales, tied to the life of the underlying product's patent. The fund has made investments in a wide range of royalty streams, including a treatment for migraines and an inhaler therapy for chronic obstructive pulmonary disease. Performance to date has been strong at the most recent valuation point, driven by a third party acquiring one of the underlying treatment patent owners at a price significantly above its inherent value.
HCR had planned on aggregating its funds into a single vehicle listed on a public stockmarket, which would have generated a large capital return to the Company due to the nature of the valuation methodologies used and changes to the capital structure. However, this planned flotation was delayed as market conditions turned unfriendly and the desired valuation would not have been met. Whilst we are happy with the income generated from this ongoing investment, the potential flotation could happen, which may yet result in a profitable sale for the Company.
Aberdeen Standard Global Private Markets Fund ("GPMF")
The Aberdeen Global Private Markets Fund is a diversified private market fund, investing across the major private market asset classes. The investment was made to provide immediate diversified private markets exposure as we wait for the Company's pipeline of Private Market commitments to draw down capital.
Performance to date has been strong:
- a total contribution of +0.42% to performance over the year under review;
- the main driver of performance has been the Private Equity portfolio, in particular the US Venture Capital portfolio from where we have seen the successful IPO of several investments, including:
- a popular cryptocurrency exchange
- a fast-growing FX focussed fintech company
- an online gaming universe; and
- the infrastructure programme also continued to deliver consistent performance, with the large European focused core fund generating above target returns
GPMF continues to diversify its portfolio with two new co-investments within Real Estate in the Chinese Logistics sector added over the last six months. The Private Credit portfolio in India continues to navigate any COVID related headwinds with minimal losses.
Bonaccord Capital Partners
Bonaccord Capital Partners targets investment in alternative asset management companies. These provide a steady stream of income returns from management fees. There is the potential for additional income depending on the performance of the underlying investment portfolio.
There is also the prospect of long-term capital appreciation, over and above income, driven by the growth of these businesses.
PIMCO Private Income Fund
PIMCO's Private Income Fund seeks to deploy capital fluidly across credit sectors and over economic cycles with a balance of income distribution and capital appreciation.
We expect the Private Income Fund to combine PIMCO's significant credit market presence, research capabilities and macroeconomic views, to create a differentiated private credit strategy, supported by proprietary analytical tools and sound management practice.
Investcorp Mount Row Credit II
Investcorp is recognised as one of Europe's core leveraged loan managers, having been active in the market for over 15 years.
Mount Row II offers the opportunity to access the European senior secured loan market with consistent cash returns, strong relative value and limited volatility from a well-diversified fund of defensive assets. The fund also offers efficient deployment via the secondary market, together with reinvesting capital throughout the investment period.
Fixed Income & Credit
Fixed Income & Credit was the primary funding source for the Private Market investment drawdowns, reducing from 35% to 26% of the portfolio during the year. The reduction principally came from Emerging Market Debt and Asset Backed Securities ("ABS"), followed by Global Loans. An ABS issues a series of bonds with different credit ratings which are backed by pools of assets such as corporate loans, mortgages or credit card debt. Owners of the highest-rated bonds are less likely to experience defaults but receive the lowest return while owners of lower rated bonds benefit from the highest potential return but are also the first to experience losses when defaults occur.
Similar to Private Markets, performance was broad-based, deriving from ABS, including Junior ABS, as well as from Emerging Market Bonds and Global Loans. Contribution to returns was led by Blackstone Loan Financing, described in more detail below, and TwentyFour Asset Backed Opportunities. TwentyFour, which invests in UK and European residential mortgage backed securities and collateralised loan obligations, made money from both capital appreciation of these assets, and from income. Performance was supported by the improving economic outlook, and therefore creditworthiness of borrowers, a benign credit environment, and positive investor flows into the asset class given its floating rate nature (affording inbuilt inflation protection).
Blackstone Loan Financing
The company invests in the most junior tranches of collateralised loan obligations (CLOs) which offer double digit expected returns in return for taking the first loss on any underlying loan defaults. Investors were well rewarded for taking the risk, and the company returned c. 24% during the period, contributing 0.84% to the Company's performance, principally delivering income, but also some capital appreciation.
We felt confident taking this risk due to our conviction that there was a backdrop of helpful monetary and fiscal policy, coupled with the rapid resumption of economic growth, meaning that credit markets were well supported. During the period, default rates have been driven down to very low levels, and at the same time cash flows have been sustained. Looking ahead, we believe that this backdrop for the leveraged loan market will remain positive due to healthy corporate earnings, stable interest coverage and relatively low levels of expected defaults.
Listed Alternatives
The proportion of the portfolio in Listed Alternatives reduced from 22% to 19% over the year as we sold holdings to fund certain Private Market investments. The principal funding source was the proceeds from our investment in Alternative Credit Investments which was bought by a private investor at a significant price above its inherent value in March. This 'take-private' transaction was one of several, either completed or announced, that the Company's shareholders benefited from as part of the Listed Alternatives exposure during the period.
Other take-private transactions that the Company benefitted from included KKR's purchase of John Laing, and Blackstone/ AGP's bid for GCP Student Living.
Listed equity
We lowered the proportion of the portfolio in Listed Equity investments during the year, moving from 14% to 13%, reflecting the increased funding requirement for Private Market investments. However, this included reaching a low of 9% in November 2020, which was reversed later in the year, as the scale of fiscal spending promises around the world, but notably in the United States, pointed to expectations of three years of above trend global growth.
Performance was driven by both passive and active strategies. The ASI UK Mid-Cap Fund performed well from the point of investment in December 2020. This investment was made in order to benefit from growth opportunities in UK markets, one of our favoured equity markets over the long term due to its undervaluation by comparison to other markets, coupled with the economic growth anticipated as discussed previously.
The transition outlined in the last Annual Report is nearing completion
During the last year the portfolio has undergone a planned transition to invest in a greater proportion of Private Markets assets. This transition is nearing completion, and at 30 September 2021, Private Markets made up 44% of the portfolio, an increase from 25% at 30 September 2020. This was predominantly funded by a decrease in Fixed Income & Credit where we reduced exposure to Emerging Market Debt and Asset Backed Securities.
We were encouraged with the progress made with investing capital into Private Markets, which speaks to the origination capabilities of abrdn's private market platforms which are able to source deals and manage investments for clients.
ESG factors as part of risk management
ESG considerations form a key part of our investment analysis and decision making when making new investments. In Private Markets we consider the following ESG factors: environment, social capital, human capital, business models and leadership & governance. These factors are considered throughout the investment process from the point of idea generation, through to portfolio construction, implementation, monitoring and risk management. Key issues are identified and scored over time through the use of our systematic ESG analysis framework (based on the Sustainable Accounting Standards Board Framework) which identifies key materiality issues by sector. Investments are then scored across operational and governance dimensions which encompass elements including climate change, labour management, corporate behaviour and corporate governance.
The Company's forecast revenue return versus dividends per share
As we have moved through the first stage of the transition, we have made use of the Company's revenue reserves to cover the planned slight shortfall in income received versus dividends paid out this year. Revenue reserves are a feature of investment companies which allow them to withhold a proportion of annual income which can be drawn on in the future, as required. As the Private Markets portfolio grows and matures, we anticipate income to move to surplus in 2023, and then continue to grow from 2024 onwards. We continue to expect a diversified stream of income generation.
Outlook
We expect global growth to slow from here, and although we believe we are past the peak of the recovery, growth will remain high on a relative basis. The growth generated by the sudden reopening of economies, as well as the supportive policy backdrop, is resulting in higher inflation than anticipated, but we still believe that this inflation will be transitory in Developed Markets. The same is true for many Emerging Markets, some of which have been forced to raise interest rates, but we believe that their vaccination roll out is progressing well and that inflation will also be transitory there as well.
Turning to monetary policy, whilst we expect a less accommodative stance, particularly from the US Federal Reserve which has been key, we believe that it remains supportive, and that fiscal policy will take over in terms of market support in the long run.
While there remains doubt over how economies may evolve, including the impact of the emerging omicron variant of COVID-19, we consider that the Company is well positioned for this uncertain environment owing to the public private multi-asset nature of the investment policy. Firstly, this allows the Company to access Private Markets investments that have the potential to deliver returns in excess of those available from public markets. Secondly, there is the potential for capital growth, which we believe will continue to be available in certain Listed Equities markets. Finally, there is the income generation capability that we expect to be available from holdings in Fixed Income & Credit and Listed Alternatives.
Given the high level of cash available to be invested in Private Markets (also known as 'dry powder'), we expect private equity to remain a highly competitive environment. However, the specialist managers working on behalf of the Company have a history of targeting selected direct and indirect opportunities to capture the growth potential. In addition, several of our portfolios are reaching harvest stage (Maj IV and Komodo), so a high level of dry powder in the industry is a positive for exit valuations.
Investor appetite for infrastructure remains healthy, especially for social and economic infrastructure with long-term, inflation-linked contracts providing yield and inflation protection. In addition, as the world goes through the energy transition, demand for climate and renewable infrastructure is ever increasing, remaining supportive of investment opportunities in this space.
In Private Credit, as government economic support starts to taper, we believe that there will be opportunities for private financing as companies potentially face a slightly tighter lending environment. However, the quality of deals is vital and focus should be on assets offering good risk/reward balance and downside protection.
Within real estate, the Company is well positioned to capture the trend of dislocation in the office market, and tailwinds for residential markets with the investment in the Aberdeen European Residential Opportunities Fund. The focus on any further investments in this sector remains on assets with the highest conviction and long-term securely contracted income. We maintain a forensic approach to seeking value in favoured markets.
The exposure to Emerging Market Debt will benefit shareholders, both in terms of income distributions, but also from capital returns. This follows on from Central Banks resisting the urge to bring in measures to slow down the economy as inflation concerns abate and economies begin to function more normally following completion of the vaccine roll out.
At the same time the Company has a good degree of protection if we move into an inflationary environment, although this is not our base case. The Company has a reasonably high weighting to infrastructure and real estate assets, both within its Private Markets and Listed Alternatives exposures. The cash flows of these assets are often inflation linked, and contracted either directly or indirectly to government. In addition, the portfolio is exposed to floating rate credit instruments across Private Markets, Fixed Income & Credit, and to a lesser extent, Listed Alternative assets.
Concurrently, the specialist investments in vehicles such as HCR IV and Burford will continue to be driven by factors unrelated to the business cycle and economic climate. We feel that the Company is well positioned for the current environment, and insulated to a certain degree from what we would consider to be less likely, but plausible scenarios.
Nalaka De Silva, Head of Private Markets Solutions
Jennifer Mernagh, Investment Director
Nic Baddeley, Investment Manager
8 December 2021
PORTFOLIO
| TEN LARGEST INVESTMENTS | ||
| | At | At |
| | 30 September | 30 September |
| | 2021 | 2020 |
| | % of Total investments | % of Total investments |
| TwentyFour Asset Backed Opportunities Fund | 6.8 | 14.9 |
| Investments in mortgages, SME loans originated in Europe | | |
| Aberdeen Standard Global Private Markets Fund{A} | 4.4 | - |
| Multi-strategy private markets exposure | | |
| Neuberger Berman CLO Income Fund | 4.0 | - |
| Floating-rate exposure to securitised non-investment grade corporate bonds | | |
| SL Capital Infrastructure II{AB} | 3.8 | 4.7 |
| European economic infrastructure | | |
| Burford Opportunity Fund{B} | 3.3 | 3.3 |
| Diverse portfolio of litigation finance investments initiated by Burford Capital | | |
| Aberdeen Property Secondaries Partners II{AB} | 3.2 | 3.2 |
| Realisation of value from property funds which are in run-off | | |
| Aberdeen European Residential Opportunities Fund{AB} | 3.1 | 2.6 |
| Conversion of commercial property into residential | | |
| ASI UK Mid-Cap Equity{A} | 2.8 | - |
| An actively managed mid-cap strategy, focused on bottom-up stock selection | | |
| Healthcare Royalty Partners IV{B} | 2.8 | 0.2 |
| Invests in healthcare royalty streams primarily in the US | | |
| BioPharma Credit | 2.6 | 2.7 |
| Provides capital to the life sciences industry via loans backed by royalties on product sales | | |
| {A} Denotes abrdn plc managed products | | |
| {B} Unlisted holdings | | |
|
| PRIVATE MARKETS INVESTMENTS | |||
| | Valuation | Total Investments | Valuation | |
| | 2021 | 2021 | 2020 | |
| Company | £'000 | % | £'000 | |
| Private Equity | | | | |
| Truenoord Co-Investment{B} | 8,011 | 2.0 | 6,812 | |
| Bonaccord Capital Partners I-A{B} | 6,274 | 1.6 | - | |
| Aberdeen Standard Secondary Opportunities Fund IV{AB} | 5,478 | 1.4 | 2,805 | |
| HarbourVest International Private Equity VI{B} | 3,020 | 0.8 | 2,796 | |
| Maj Invest Equity 4{B} | 2,806 | 0.7 | 2,262 | |
| Maj Invest Equity 5{B} | 1,785 | 0.4 | 828 | |
| Mesirow Financial Private Equity IV{B} | 1,272 | 0.3 | 1,451 | |
| HarbourVest VIII Buyout Fund{B} | 353 | 0.1 | 529 | |
| Dover Street VII{B} | 235 | 0.1 | 252 | |
| Mesirow Financial Private Equity III{B} | 214 | 0.1 | 371 | |
| Top ten holdings | 29,448 | 7.5 | | |
| Other holdings | 261 | 0.1 | | |
| Total Private Equity | 29,709 | 7.6 | | |
| Real Estate | | | | |
| Aberdeen Property Secondaries Partners II{AB} | 12,568 | 3.2 | 13,425 | |
| Aberdeen European Residential Opportunities Fund{AB} | 11,869 | 3.1 | 11,248 | |
| Cheyne Social Property Impact Fund{B} | 5,196 | 1.3 | 6,073 | |
| Total Real Estate | 29,633 | 7.6 | | |
| Infrastructure | | | | |
| SL Capital Infrastructure II{AB} | 14,745 | 3.8 | 20,264 | |
| Aberdeen Global Infrastructure Partners II (USD){AB} | 9,705 | 2.5 | 6,899 | |
| BlackRock Renewable Income - UK{B} | 8,055 | 2.1 | 7,809 | |
| Aberdeen Global Infrastructure Partners II (AUD){AB} | 5,949 | 1.5 | 4,785 | |
| Andean Social Infrastructure Fund I{AB} | 5,886 | 1.5 | 1,629 | |
| Pan European Infrastructure Fund{B} | 4,352 | 1.1 | - | |
| Total Infrastructure | 48,692 | 12.5 | | |
| Natural Resources | | | | |
| Agriculture Capital Management Fund II{B} | 3,575 | 0.9 | 3,636 | |
| Total Natural Resources | 3,575 | 0.9 | | |
| Private Credit | | | | |
| Mount Row Credit Fund II{B} | 9,850 | 2.5 | - | |
| PIMCO Private Income Fund Offshore Feeder I LP{B} | 7,416 | 1.9 | - | |
| Total Private Credit | 17,266 | 4.4 | | |
| Other | | | | |
| Aberdeen Standard Global Private Markets Fund{AB} | 17,251 | 4.4 | - | |
| Burford Opportunity Fund{B} | 12,794 | 3.3 | 14,092 | |
| Healthcare Royalty Partners IV{B} | 10,779 | 2.8 | 940 | |
| Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPI{B} | 1,305 | 0.3 | 3,405 | |
| Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI{B} | 1,058 | 0.3 | 4,396 | |
| Blue Capital Alternative Income{B} | 46 | - | 280 | |
| Total Other | 43,233 | 11.1 | | |
| Total Private Markets | 172,108 | 44.1 | | |
| {A} Denotes abrdn plc managed products | | | | |
| {B} Unlisted holdings | | | | |
| LISTED ALTERNATIVES | |||
| |
| Total Investments |
|
| | 2021 | 2021 | 2020 |
| Company | £'000 | % | £'000 |
| Listed Alternatives | | | |
| BioPharma Credit | 10,071 | 2.6 | 11,608 |
| Greencoat UK Wind | 5,751 | 1.5 | 4,426 |
| 3I Infrastructure | 4,771 | 1.2 | 1,563 |
| Honeycomb Investment Trust | 4,769 | 1.2 | 4,517 |
| HICL Infrastructure | 3,876 | 1.0 | 8,317 |
| Round Hill Music Royalty Fund | 3,644 | 1.0 | - |
| Tufton Oceanic Assets | 3,444 | 0.9 | 2,661 |
| NextEnergy Solar Fund | 2,957 | 0.7 | - |
| Greencoat Renewables | 2,798 | 0.7 | 3,332 |
| GCP Asset Backed Income Fund | 2,761 | 0.7 | 3,015 |
| Top ten holdings | 44,842 | 11.5 | |
| Other holdings | 34,212 | 8.7 | |
| Total Listed Alternatives | 79,054 | 20.2 | |
|
| FIXED INCOME & CREDIT INVESTMENTS | |||
| | Valuation | Total Investments | Valuation | |
| | 2021 | 2021 | 2020 | |
| Company | £'000 | % | £'000 | |
| Structured Credit | | | | |
| TwentyFour Asset Backed Opportunities Fund | 26,708 | 6.8 | 63,837 | |
| Neuberger Berman CLO Income Fund | 15,499 | 4.0 | - | |
| Blackstone/GSO Loan Financing | 6,878 | 1.7 | 6,504 | |
| Aberdeen Standard Alpha - Global Loans Fund{A} | 5,042 | 1.3 | 10,347 | |
| Fair Oaks Income Fund | 1,971 | 0.5 | 1,433 | |
| Marble Point Loan Financing | 1,460 | 0.4 | 1,918 | |
| Total Structured Credit | 57,558 | 14.7 | | |
| Emerging Market Debt | | | | |
| Aberdeen Standard SICAV I - Frontier Markets Bond Fund{A} | 5,974 | 1.5 | 9,735 | |
| Country | | | | |
| Mexico (United Mexican States) 6.5% 09/06/22 | 2,056 | 0.5 | 3,703 | |
| Brazil (Fed Rep of) 10% 01/01/27 | 1,952 | 0.5 | 2,950 | |
| Russian Federation 6.9% 23/05/29 | 1,932 | 0.5 | 2,953 | |
| Mexico Bonos Desarr Fix Rt 10% 05/12/24 | 1,895 | 0.5 | 1,140 | |
| Colombia (Rep of) 10% 24/07/24 | 1,287 | 0.3 | 1,797 | |
| Indonesia (Rep of) 8.375% 15/03/34 | 1,265 | 0.3 | 1,604 | |
| Indonesia (Rep of) 8.125% 15/05/24 | 1,224 | 0.3 | 1,783 | |
| Brazil (Fed Rep of) 10% 01/01/25 | 1,107 | 0.3 | 1,383 | |
| South Africa (Rep of) 8% 31/01/30 | 1,067 | 0.3 | 2,061 | |
| South Africa (Rep of) 8.75% 31/01/44 | 1,040 | 0.3 | 980 | |
| Top ten holdings | 14,825 | 3.8 | | |
| Other holdings | 19,241 | 5.0 | | |
| Total Emerging Market Debt | 40,040 | 10.3 | | |
| Total Fixed Income & Credit | 97,598 | 25.0 | | |
| {A} Denotes abrdn plc managed products | | | | |
| LISTED EQUITIES | |||
| | Valuation | Total Investments | Valuation |
| | 2021 | 2021 | 2020 |
| Company | £'000 | % | £'000 |
| UK Equities | | | |
| ASI UK Mid-Cap Equity{A} | 10,895 | 2.8 | - |
| Core Growth Sustainable Equity sleeve | 30,188 | 7.8 | |
| European Green Infrastructure sleeve | 603 | 0.1 | |
| Total Equities | 41,686 | 10.7 | |
| {A} Denotes abrdn plc managed products | | | |
MANAGER'S ESG ENGAGEMENT
The Manager does not judge the suitability of an investment from an ESG perspective on a purely binary basis. Instead, a dynamic approach is taken, investing in companies where the greatest alignment to mitigating the risks can be seen or pursued further through their commitment to improving their ESG profile. The Manager believes in active engagement with its investments and potential investments: from providing initial guidance on suitable metrics through to holding the company to account for delivering on its promises. It is through this filter that the Manager is comfortable investing in, for example, sectors such as mining and oil & gas, subject to the belief that a company is taking the necessary action to address the energy transition. The Manager has high expectations for these companies given that many commodities are necessary for the transition to a low carbon future.
Core beliefs: Assessing Risk, Enhancing Value
There are three core principles which underpin the Investment Manager's integrated ESG approach. Firstly, ESG factors can materially impact financial returns and the long term success of the investment strategy. Secondly, by integrating ESG factors into investment decisions the Investment Manager generates a better understanding of how well companies are managing ESG risks and opportunities and this insight supports better decision making. Finally, active engagement with company management teams is central to enhancing value and a standard part of the Investment Manager's ongoing stewardship programme.
Responsible Investing - Integration of ESG into the Investment Manager's Process
"By embedding ESG factors into the active equity investment process, we aim to reduce risk, enhance potential value for investors and foster companies that can contribute positively to the world." abrdn
Financial Returns | ESG factors can be financially material - the level of consideration they are given in a company will ultimately have an impact on corporate performance, either positively or negatively. Those companies that take their ESG responsibilities seriously tend to outperform those that do not. |
Fuller Insight | Systematically assessing a company's ESG risks and opportunities alongside other financial metrics allows the Investment Manager to make better investment decisions. |
Corporate Advancement | Informed and constructive engagement helps foster better companies, protecting and enhancing the value of the Company's investments. |
"We believe that the market systematically undervalues the importance of ESG factors. We believe that in-depth ESG analysis is part of both fundamental company research and portfolio construction and will lead to better client outcomes." abrdn
Researching Companies: Deeper Company Insights for Better Investor Outcomes
The Investment Manager's portfolio managers, sector analysts, ESG equity analysts and central ESG Investment Team collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company. The central ESG team also produces research into specific themes (e.g. labour relations or climate change), sectors (e.g. forestry) and ESG topics to understand and highlight best practice.
Global Networks: Working Together on Climate Change
The Investment Manager is a signatory to the UN Principles for Responsible Investment and actively collaborates on ESG issues with global asset managers and asset owners. Climate change is a particular area of focus because the physical and transition risks related to climate change have the potential to be financially material for many companies. The Investment Manager has been actively involved in initiatives such as Climate Action100+ and Institutional Investors Group on Climate Change ("IIGCC") Net Zero Framework and also supports the Task Force on Climate Related Disclosures ("TCFD") which aims to strengthen climate related reporting globally.
Portfolio Management Team
ESG House Score
- Responsibility of ESG analyst
- Based on quantitative data
- Incorporates abrdn's views on materiality and sector specific risks
- Uses wide range of data sources including MSCI, Trucost, voting analysis and abrdn's investment insights
- Aims to be forward looking
ESG Investment Team
- Global insights
- Thematic research
- Co-ordination across asset classes
Equity ESG Quality Score
- Responsibility of portfolio manager and sector analysts
- Based on fundamental bottom up analysis of individual companies by on-desk analysts
- Assesses the ESG quality of companies
- Reflective of equity analyst expertise
- Incorporates engagement with companies on ESG issues
Portfolio Managers & Sector Analysts | All of the Investment Manager's equity portfolio managers and sector analysts seek to engage actively with companies to gain insight into their specific risks and provide a positive ongoing influence on their corporate strategy for governance, environmental and social impact. |
ESG Equity Analysts | The Investment Manager has dedicated and highly experienced ESG equity analysts located across the UK, US, Asia and Australia. Working as part of individual investment teams, rather than as a separate department, these specialists are integral to pre-investment due diligence and post-investment ongoing company engagement. They are also responsible for taking thematic research produced by the central ESG Investment Team, interpreting and translating it into actionable insights and engagement programmes for its regional investment strategies. |
ESG Investment Team | This central team of more than 20 experienced specialists based in Edinburgh and London provides ESG consultancy and insight for all asset classes. Taking a global approach both identifies regions, industries and sectors that are most vulnerable to ESG risks and identifies those that can take advantage of the opportunities presented. Working with portfolio managers, the team is key to the Investment Manager's active stewardship approach of using shareholder voting and corporate engagement to drive positive change. |
Listed Equities
ESG Research Process: Introduction
The Investment Manager employs around 150 equity professionals globally. A systematic and globally-applied approach to evaluating stocks allows the Investment Manager to compare companies consistently on their ESG credentials - both regionally and against their peer group. The Investment Manager uses a combination of external and proprietary in-house quantitative scoring techniques to complement and cross-check analyst-driven ESG assessments. ESG analysis is peer-reviewed within the equities team, and ESG factors impacting both sectors and stocks are discussed as part of the formal sector reviews.
ESG House Score
The ESG House Score is produced by the ESG Equity Analysts. The ESG House Score framework has two main pillars which include detailed operational and governance metrics. The underlying key performance indicators are weighted according to how material they are for each sector and country and populated from proprietary and external data sources such as MSCI and Trucost. The scores are standardised to allow the Investment Manager to see how individual companies rank in a global context. These scores complement the fundamental analysis of the equity analysts and the ranking of companies from Laggards to Best in Class.
Equity ESG Quality Score
The Investment Manager's equity sector analysts have a fully integrated approach to ESG analysis. Within the equity investment process, every company is given a proprietary Quality Rating which has five components: industry analysis, business model analysis, analysis of the company's moat or competitive advantage, consideration of ESG factors, assessment of management and analysis of financials. In considering the ESG Quality Score the analyst considers these key questions:
- Which ESG issues are relevant for this company, how material are they, and how are they being addressed?
- What is the assessment of the quality of this company's governance, ownership structure and management?
- Are incentives and key performance indicators aligned with the company's strategy and the interests of shareholders?
Having considered the regional universe and peer group in which the company operates, the Investment Manager's equity team then allocates it an ESG Quality rating between one and five (see below). This is applied across every stock that the Investment Manager covers globally. To be considered 'best in class', the management of ESG factors must be a material part of the company's core business strategy; management must provide excellent disclosure of data on key risk; management must also have clear policies and strong governance structures, among other criteria.
Working with Companies: Staying Engaged, Driving Change
The Investment Manager continuously monitors and actively engages with the companies in which it invests to maintain ESG focus and improvement. This stewardship of client's assets consists of four interconnected and equally important activities by the Investment Manager to monitor, contact, engage and act.
The Investment Manager actively and regularly engages with the management teams of companies in which they are invested in order to share examples of best practice seen in other companies and to effect positive change. The Investment Manager also actively engages with management teams to explain voting decisions at company annual general meetings.
The Investment Manager's engagement extends beyond the company's management team and can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company's clients.
Priorities for engagement are established by the use of the ESG House Score, in combination with bottom-up research insights from investment teams across asset classes, and areas of thematic focus from our company-level stewardship activities. What gets measured gets managed, so the Investment Manager strongly encourages companies to set clear targets or key performance indicators on all material ESG risks.
Monitor | Contact | Engage | Act |
Ongoing due diligence | Frequent dialogue | Exercise rights | Consider all options |
DIRECTORS' REPORT
The Directors present their report and the audited financial statements for the year ended 30 September 2021.
Results and Dividends
The financial statements for the year ended 30 September 2021 may be found below. The Company's revenue return was 5.14p per share for the year ended 30 September 2021 (2020 - 5.58p).
First, second and third interim dividends, each of 1.38p per Ordinary share, were paid on 27 March 2021, 10 July 2021 and 16 October 2021, respectively.
The Directors are declaring a fourth interim dividend of 1.38p per Ordinary share payable on 20 January 2022 to shareholders on the register on 24 December 2021. The ex-dividend date is 23 December 2021. The Company intends to pay four interim dividends each year and, in line with corporate governance best practice, a resolution in respect of this dividend policy will be put to shareholders at each Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company in Scotland under number SC3721 and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 September 2021 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure and Voting rights
The issued Ordinary share capital at 30 September 2021 consisted of 309,318,738 Ordinary shares (2020 - 317,330,238) with voting rights and 28,433,068 Ordinary shares (2020 - 48,080,636) held in treasury. The Company cancelled 27,659,068 treasury shares on 31 March 2021. A total of 8,011,500 Ordinary shares were bought back into treasury during the year ended 30 September 2021 (2020 - 5,651,467). A total of 141,379 Ordinary shares were bought back into treasury between 1 October 2021 and the date of approval of this Annual Report resulting in 309,177,359 Ordinary shares in issue, with voting rights, and 28,574,447 Ordinary shares in treasury.
In the event of the share price trading at a premium to the NAV per share, Ordinary shares can be re-issued out of treasury less expensively than new Ordinary shares can be issued. Although shares may be held in treasury indefinitely the Board is mindful of the total number of shares held and has, therefore, decided to adopt a policy (the "Policy") such that, in the event that the number of treasury shares represents more than 10% of the Company's issued share capital (excluding treasury shares) at the end of any financial year, the Company will cancel a proportion of its treasury shares such that the remaining balance will equal 7.5% of the issued share capital (excluding treasury shares). The Company cancelled 27,659,068 Ordinary shares from treasury on 31 March 2021 to leave its issued share capital at the year end comprising 309,318,738 shares with voting rights and an additional 28,433,068 shares in treasury, equivalent to 9.2% of the total, excluding treasury shares. As the treasury shares represented 9.2%, which is less than 10% of the Company's issued share capital (excluding treasury shares) at the date of approval of this Report, no additional treasury shares were cancelled on 30 September 2021.
Each Ordinary share (excluding treasury shares) holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
On 2 November 2020, the Company bought back and cancelled £43,904,000 of its 6.25% Bonds 2031, at a price of £67,654,000 to leave £16,096,000 at 30 September 2021.
Management Agreement
The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML"), a wholly-owned subsidiary of abrdn plc, as its alternative investment fund manager.
ASFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between ASFML and AAML. In addition, ASFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML.
The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the first £300 million of NAV and 0.45% of NAV in excess of £300 million. In calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The value of any investments in ETFs, unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the abrdn plc group is the operator, manager or investment adviser, is deducted from net assets. Details of the management fee charged during the year are included in note 4 to the financial statements.
The management agreement has in place a six months' notice period. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors' Report, may be found below.
|
|
Board |
| Management |
|
| Davina Walter(A) | 4 (4) | - (-) | 2 (2) | 3 (3) |
| Tom Challenor | 4 (4) | 2 (2) | 2 (2) | 3 (3) |
| Trevor Bradley | 4 (4) | 2 (2) | 2 (2) | 2 (3) |
| Anna Troup | 4 (4) | 2 (2) | 2 (2) | 3 (3) |
| Alistair Mackintosh(B) | 2 (2) | 1 (1) | 1 (1) | 1 (1) |
| Julian Sinclair(C) | 3 (3) | 2 (2) | 2 (2) | 1 (1) |
Notes:
(A) Davina Walter, as Chairman of the Board, is not a member of the Audit Committee
(B) appointed a Director on 1 May 2021
(C) resigned as a Director on 4 June 2021 Directors
As at 30 September 2021, the Board comprised five non-executive Directors (2020 - five).
The Directors attended scheduled meetings of the Board and Board Committees during the year ended 30 September 2021 as set out in the table (with their eligibility to attend the relevant meetings in brackets). The Directors meet more regularly when business needs require. In addition, there were ad hoc Committee meetings when not all Directors were required to attend.
The names, biographies and contribution of each of the current Directors are shown on the Company's website and indicate their range of skills and experience as well as their length of service.
Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.
Alistair Mackintosh was appointed a Director on 1 May 2021 and Julian Sinclair retired as a Director on 4 June 2021. In line with best practice in corporate governance, all Directors offer themselves for election or re-election at the AGM. Alistair Mackintosh, being eligible, offers himself for election as a Director of the Company. Davina Walter, Tom Challenor, Trevor Bradley and Anna Troup each retire and, being eligible, each submits themselves for re-election at the AGM. The Board believes that all current Directors remain, and all Directors during the year ended 30 September 2021 were, and continue to be, independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that each Director demonstrates commitment to the role and their performance remains effective which supports their individual contribution to the role.
The Board therefore recommends, for approval by shareholders, the resolution for the election of Alistair Mackintosh and the resolutions for the individual re-election as Directors at the AGM of each of Davina Walter, Tom Challenor, Trevor Bradley and Anna Troup.
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chairman also engages with major shareholders and ensures that all Directors understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and acts as an intermediary for other Directors, when necessary. Working closely with the Nomination Committee, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have. Tom Challenor succeeded Julian Sinclair as Senior Independent Director on 4 June 2021.
Board Committees
The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report is contained in the published Annual Report.
Management Engagement Committee
The Management Engagement Committee consists of all the Directors and was chaired by Davina Walter throughout the year. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Committee on an annual basis. The Committee also keeps under review the resources of abrdn plc, together with its commitment to the Company and its investment trust business. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's key third party suppliers, by undertaking peer comparisons and reviewing reports from the Manager and the Depositary.
The Board conducts a formal annual evaluation of the performance of, and contractual relationship with, the Manager and those third parties appointed by the Manager. The evaluation includes consideration of the investment strategy and process of the Manager, noting performance against the benchmark over the long term and the quality of the support that the Company receives from the Manager. Having regard to the strategic review which the Board had concluded in the first quarter of the Company's financial year, the Board confirms that it is satisfied that the continuing appointment of the Manager, on the terms agreed, is in the interests of shareholders as a whole.
Nomination Committee
The Nomination Committee consists of all the Directors and was chaired by Davina Walter throughout the year. The Committee reviews the effectiveness of the Board, succession planning, Board appointments, appraisals, training and the remuneration policy. As stated in the Directors' Remuneration Report, the Nomination Committee determines the level of Directors' fees and there is no separate Remuneration Committee.
An external evaluation was undertaken in July 2021 by Lintstock Ltd, an independent external board evaluation service provider which has no other connection with the Company.
Assisted by Lintstock, the Board has assessed that it had in place the appropriate balance of skills, experience, length of service and knowledge of the Company while recognising the advantages of diversity. Details of the individual contribution provided by each Director during the year are set out in the published Annual Report.
Potential new Directors are identified against the requirements of the Company's business and the need to have a balance of skills, experience, independence, diversity and knowledge of the Company within the Board.
Directors' and Officers' Liability Insurance
The Company's Articles of Association indemnify each of the Directors out of the assets of the Company against any liabilities incurred by them as a Director of the Company in defending proceedings, or in connection with any application to the court in which relief is granted. In addition, the Directors have been granted qualifying indemnity provisions by the Company which are currently in force. Directors' and Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has an actual or potential conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to prevent or manage any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.
Going Concern
The Financial Statements of the Company have been prepared on a going concern basis. This conclusion is consistent with the Company's longer term Viability Statement.
The Directors are mindful of the principal risks and uncertainties disclosed above, including the ongoing disruption caused by COVID-19, and have reviewed forecasts detailing revenue and liabilities. The Directors are satisfied that: the Company is able to meet all of its liabilities from its assets, including its ongoing charges, so possesses sufficient resources to continue in operational existence for the foreseeable future and at least 12 months from the date of approval of this Annual Report; the Company is financially sound; and the Company's key third party service providers had in place appropriate business continuity plans and had, and will, be able to maintain service levels despite the ongoing impact of COVID-19.
Whilst the Company is obliged to hold a continuation vote at the 2022 AGM, as ordinary resolution 11, the Directors do not believe this should automatically trigger the adoption of a basis other than going concern in line with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.
Substantial Interests
As at 30 September 2021, the following interests over 3% in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:
| Shareholder | Number of shares held | % held (B) |
| abrdn Retail Plans(A) | 32,445,344 | 10.5 |
| Interactive Investor(A) | 28,807,510 | 9.3 |
| Hargreaves Lansdown(A) | 22,091,720 | 7.1 |
| abrdn | 20,684,093 | 6.7 |
| 1607 Capital Partners | 14,809,888 | 4.8 |
| Investec Wealth & Investment | 12,038,104 | 3.9 |
| Charles Stanley | 10,199,588 | 3.3 |
| Brewin Dolphin | 9,742,412 | 3.2 |
| Smith & Williamson Wealth Management | 9,282,143 | 3.0 |
(A) Non-beneficial interest
(B) Based on 309,318,738 Ordinary shares in issue (excluding treasury shares) as at 30 September 2021
Relations with Shareholders
The Directors place great importance on communication with shareholders and regularly meet with current and prospective shareholders to discuss performance, including in the absence of the Manager. The Board receives quarterly investor relations updates from the Manager. Significant changes to the shareholder register, as well as shareholder feedback, are discussed by the Directors at each Board meeting.
Regular updates are provided to shareholders through the Annual Report, Half Yearly Report, monthly factsheets and daily net asset value announcements, all of which are available through the Company's website at: aberdeendiversified.co.uk. The Annual Report is also 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 its website or via abrdn Investment Trusts Customer Services Department.
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 abrdn) in situations where direct communication is required and representatives from the Board offer to meet with major shareholders on an annual basis in order to gauge their views. The Company Secretary acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds, as appropriate, on behalf of the Board.
In addition, in relation to institutional shareholders, members of the Board may either accompany the Manager or conduct meetings in the absence of the Manager.
The Company's Annual General Meeting ordinarily provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Investment Manager. The Notice of AGM included within the Annual Report is normally sent out at least 20 working days in advance of the meeting.
Criminal Finances Act 2017
The Criminal Finances Act 2017 introduced a corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.
Accountability and Audit
The responsibilities of the Directors and the auditor in connection with the financial statements appear in the published Annual Report.
Each Director confirms that, so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Annual General Meeting
The Annual General Meeting will be held at 12.30 p.m. on Tuesday 22 February 2022 at the South Place Hotel, 3 South Place, London, EC2M 2AF. The Notice of the Meeting is included in the published Annual Report. Resolutions including the following business will be proposed:
Continuation of the Company (Resolution 11)
In accordance with Article 175 of the Articles of Association of the Company adopted by shareholders on 23 February 2021, the Directors are required to propose an ordinary resolution at each AGM and annually thereafter, that the Company continue as an investment trust. Accordingly, the Directors are proposing, as ordinary resolution 11, that the Company continues as an investment trust and recommend that shareholders support the continuation of the Company.
Allotment of Shares (Resolution 12)
Resolution 12 will be proposed as an ordinary resolution to confer an authority on the Directors, in substitution for any existing authority, to allot up to 10% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (up to a maximum aggregate nominal amount of £7.7m based on the number of Ordinary shares in issue as at the date of this Report) in accordance with Section 551 of the Companies Act 2006. The authority conferred by this resolution will expire at the next Annual General Meeting of the Company or, if earlier, 31 March 2023 (unless previously revoked, varied or extended by the Company in general meeting).
The Directors consider that the authority proposed to be granted by resolution 12 is necessary to retain flexibility.
Limited Disapplication of Pre-emption Provisions (Resolution 13)
Resolution 13 will be proposed as a special resolution and seeks to give the Directors power to allot Ordinary shares or to sell Ordinary shares held in treasury (see below) (i) by way of a rights issue (subject to certain exclusions); (ii) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportion to their shareholdings (subject to certain exclusions); and (iii) to persons other than existing shareholders for cash up to a maximum aggregate nominal amount representing 10% of the Company's issued Ordinary share capital as at the date of the passing of the resolution (up to an aggregate nominal amount of £7.7m based on the number of Ordinary shares in issue as at the date of this Report), without first being required to offer such shares to existing shareholders pro rata to their existing shareholding.
This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2023 (unless previously revoked, varied or extended by the Company in general meeting).
The Company may buy back and hold shares in treasury and then sell them at a later date for cash rather than cancelling them. Such sales are required to be on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued Ordinary share capital on a non pre-emptive basis, resolution 13 will also give the Directors power to sell Ordinary shares held in treasury on a non pre-emptive basis, subject always in both cases to the limitations noted above. Pursuant to this power, Ordinary shares would only be issued for cash, and treasury shares would only be sold for cash, at a premium to the net asset value per share (calculated after the deduction of prior charges at market value). Treasury shares are explained in more detail under the heading "Market Purchase of the Company's own Ordinary Shares" below.
Market Purchase of the Company's own Ordinary Shares
(Resolution 14)
Resolution 14 will be proposed as a special resolution to authorise the Company to make market purchases of its own Ordinary shares. The Company may do either of the following things in respect of its own Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury:
- sell such shares (or any of them) for cash (or its equivalent); or
- ultimately cancel the shares (or any of them).
Treasury shares may be resold quickly and cost effectively. The Directors therefore intend to continue to take advantage of this flexibility as they deem appropriate. Treasury shares also enhance the Directors' ability to manage the Company's capital base. No dividends will be paid on treasury shares and no voting rights attach to them.
The maximum aggregate number of Ordinary shares which may be purchased pursuant to the authority is 14.99% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (approximately 46.3 million Ordinary shares). The minimum price which may be paid for an Ordinary share is 25p (exclusive of expenses). The maximum price (exclusive of expenses) which may be paid for the shares is the higher of a) 5% above the average of the middle market quotations of the Ordinary shares (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase; and b) the higher of the price of the last independent trade and the highest current independent bid on the main market for the Ordinary shares.
This authority, if conferred, will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 31 March 2023 (unless previously revoked, varied or extended by the Company in general meeting) and will be exercised only if it would result in an increase in net asset value per Ordinary share for the remaining shareholders and if it is in the best interests of shareholders as a whole.
Holding General Meetings on not less than 14 days' clear notice (Resolution 15)
Under the Companies Act 2006, the notice period for all general meetings of the Company is 21 clear days' notice. Annual general meetings will always be held on at least 21 clear days' notice but shareholders can approve a shorter notice period for other general meetings. Resolution 15, which is a special resolution, seeks the authority from shareholders for the Company to be able to hold general meetings (other than Annual General Meetings) on not less than 14 clear days' notice. The approval will be effective until the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on not less than 14 days' clear notice.
The Board believes that it is in the best interests of Shareholders to have the ability to call meetings on not less than 14 clear days' notice should an urgent matter arise. The Directors do not intend to hold a general meeting on less than 21 clear days' notice unless immediate action is required.
Recommendation
The Directors consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders and recommend that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 270,047 Ordinary shares, representing 0.08% of the issued share capital (excluding treasury shares).
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
1 George Street
Edinburgh EH2 2LL
8 December 2021
STATEMENT OF CORPORATE GOVERNANCE
Aberdeen Diversified Income and Growth Trust plc (the "Company") is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk, and is applicable for the Company's year ended 30 September 2021.
The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.
The Board confirms that, during the year, the Company has complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except for those provisions relating to:
- the role and responsibility of the chief executive;
- executive directors' remuneration; and
- the requirement for an internal audit function.
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.
Information on how the Company has applied the AIC Code, the UK Code, the Companies Act 2006 and the FCA's DTR 7.2.6 is provided in the Directors' Report and Audit Committee's Report as follows:
- the composition and operation of the Board and its Committees;
- the Board's policy on diversity;
- the Company's approach to internal control and risk management is detailed;
- the contractual arrangements with, and annual assessment of, the Manager;
- the Company's capital structure and voting rights;
- the substantial interests disclosed in the Company's shares;
- the rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association. There are no agreements between the Company and its Directors concerning compensation for loss of office; and
- the powers to issue or buy back the Company's ordinary shares, which are sought annually, and any amendments to the Company's Articles of Association require a special resolution (75% majority) to be passed by shareholders.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
1 George Street
Edinburgh
EH2 2LL
8 December 2021
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website but not for any information on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
- the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
- in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and
- the Strategic Report and Directors' Report 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.
On behalf of the Board,
Davina Walter
Chairman
8 December 2021
STATEMENT OF COMPREHENSIVE INCOME
| | | Year ended 30 September 2021 | Year ended 30 September 2020 | ||||
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Gains/(losses) on investments | 10 | - | 22,879 | 22,879 | - | (25,724) | (25,724) |
| Foreign exchange gains | | - | 6,839 | 6,839 | - | 6,924 | 6,924 |
| Income | 3 | 18,878 | - | 18,878 | 20,783 | - | 20,783 |
| Investment management fees | 4 | (528) | (791) | (1,319) | (536) | (803) | (1,339) |
| Administrative expenses | 5 | (917) | (63) | (980) | (826) | (11) | (837) |
| Net return/(loss) before finance costs and taxation | 17,433 | 28,864 | 46,297 | 19,421 | (19,614) | (193) | |
| | | | | | | | |
| Finance costs | 6 | (563) | (24,595) | (25,158) | (1,516) | (2,273) | (3,789) |
| Net return/(loss) before taxation | | 16,870 | 4,269 | 21,139 | 17,905 | (21,887) | (3,982) |
| | | | | | | | |
| Taxation | 7 | (871) | 500 | (371) | (65) | (370) | (435) |
| Return/(loss) attributable to equity shareholders | 15,999 | 4,769 | 20,768 | 17,840 | (22,257) | (4,417) | |
| | | | | | | | |
| Return/(loss) per Ordinary share (pence) | 9 | 5.14 | 1.53 | 6.67 | 5.58 | (6.96) | (1.38) |
| | |||||||
| 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 year, accordingly, the return/(loss) attributable to equity shareholders is equivalent to the total comprehensive income/(loss) for the year. | |||||||
| All revenue and capital items in the above statement derive from continuing operations. | |||||||
| The accompanying notes are an integral part of these financial statements. | |||||||
STATEMENT OF FINANCIAL POSITION
| | | As at | As at |
| | | 30 September 2021 | 30 September 2020 |
| | Note | £'000 | £'000 |
| Non-current assets | | | |
| Investments at fair value through profit or loss | 10 | 390,446 | 428,859 |
| Deferred taxation asset | 7 | 2,655 | 2,113 |
| | | 393,101 | 430,972 |
| Current assets | | | |
| Debtors | 11 | 1,234 | 2,287 |
| Derivative financial instruments | | 332 | 777 |
| Cash and cash equivalents | | 7,201 | 17,413 |
| | | 8,767 | 20,477 |
| | | | |
| Creditors: amounts falling due within one year | | | |
| Derivative financial instruments | | (3,249) | (4,776) |
| Other creditors | 12 | (837) | (903) |
| | | (4,086) | (5,679) |
| Net current assets | | 4,681 | 14,798 |
| Total assets less current liabilities | | 397,782 | 445,770 |
| | | | |
| Non-current liabilities | | | |
| 6.25% Bonds 2031 | 13 | (15,664) | (59,540) |
| Net assets | | 382,118 | 386,230 |
| | | | |
| Capital and reserves | | | |
| Called-up share capital | 14 | 91,352 | 91,352 |
| Share premium account | | 116,556 | 116,556 |
| Capital redemption reserve | | 26,629 | 26,629 |
| Capital reserve | 15 | 106,572 | 109,551 |
| Revenue reserve | | 41,009 | 42,142 |
| Equity shareholders' funds | | 382,118 | 386,230 |
| | | | |
| Net asset value per Ordinary share (pence) | 16 | | |
| Bonds at par value | | 123.54 | 121.71 |
| Bonds at fair value | | 121.73 | 113.40 |
STATEMENT OF CHANGES IN EQUITY
| For the year ended | | | | | | | |
| | | | Share | Capital | | | |
| | | Share | premium | redemption | Capital | Revenue | |
| | | capital | account | reserve | reserve | reserve | Total |
| | Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 October 2020 | | 91,352 | 116,556 | 26,629 | 109,551 | 42,142 | 386,230 |
| Return after taxation | | - | - | - | 4,769 | 15,999 | 20,768 |
| Ordinary shares purchased for treasury | 14 | - | - | - | (7,748) | - | (7,748) |
| Dividends paid | 8 | - | - | - | - | (17,132) | (17,132) |
| Balance at 30 September 2021 | | 91,352 | 116,556 | 26,629 | 106,572 | 41,009 | 382,118 |
| | | | | | | | |
| | | | | | | | |
| For the year ended | | | | | | | |
| | | | Share | Capital | | | |
| | | Share | premium | redemption | Capital | Revenue | |
| | | capital | account | reserve | reserve | reserve | Total |
| | Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 October 2019 | | 91,352 | 116,556 | 26,629 | 137,509 | 41,633 | 413,679 |
| Return after taxation | | - | - | - | (22,257) | 17,840 | (4,417) |
| Ordinary shares purchased for treasury | 14 | - | - | - | (5,701) | - | (5,701) |
| Dividends paid | 8 | - | - | - | - | (17,331) | (17,331) |
| Balance at 30 September 2020 | | 91,352 | 116,556 | 26,629 | 109,551 | 42,142 | 386,230 |
| | | | | | | | |
| The accompanying notes are an integral part of these financial statements. | |||||||
STATEMENT OF CASH FLOWS
| | | Year ended | Year ended |
| | | 30 September 2021 | 30 September 2020 |
| | Note | £'000 | £'000 |
| Operating activities | | | |
| Net return/(loss) before finance costs and taxation | | 46,297 | (193) |
| Adjustments for: | | | |
| Dividend income | | (15,857) | (14,853) |
| Fixed interest income | | (3,006) | (5,929) |
| Interest income | | 1 | 1 |
| Other income | | (14) | - |
| Dividends received | | 15,964 | 10,911 |
| Fixed interest income received | | 3,414 | 6,732 |
| Interest received | | (1) | (1) |
| Other income received | | 14 | - |
| Unrealised (gains)/losses on forward contracts | | (1,082) | 7,193 |
| Foreign exchange losses | | 205 | 51 |
| (Gains)/losses on investments | | (22,879) | 25,724 |
| Decrease in other debtors | | 12 | 10 |
| (Decrease)/increase in accruals | | (329) | 253 |
| Corporation tax paid | | (382) | (143) |
| Taxation withheld | | (237) | (229) |
| Net cash flow from operating activities | | 22,120 | 29,527 |
| | | | |
| Investing activities | | | |
| Purchases of investments | | (181,599) | (101,549) |
| Sales of investments | | 243,544 | 108,475 |
| Net cash flow from investing activities | | 61,945 | 6,926 |
| | | | |
| Financing activities | | | |
| Purchase of own shares to treasury | | (7,748) | (5,701) |
| Repurchase of bonds | 13 | (67,654) | - |
| Interest paid | | (1,533) | (3,752) |
| Equity dividends paid | 8 | (17,137) | (17,345) |
| Net cash flow used in financing activities | | (94,072) | (26,798) |
| (Decrease)/increase in cash and cash equivalents | | (10,007) | 9,655 |
| | | | |
| Analysis of changes in cash and cash equivalents during the year | | | |
| Opening balance | | 17,413 | 7,809 |
| Foreign exchange | | (205) | (51) |
| (Decrease)/increase in cash and cash equivalents as above | (10,007) | 9,655 | |
| Closing balance | | 7,201 | 17,413 |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2021
| 1. | Principal activity. The Company is a closed-end investment company, registered in Scotland No SC003721, with its Ordinary shares having a premium listing on the London Stock Exchange. |
| 2. | Accounting policies | |
| | (a) | Basis of preparation. The financial statements have been prepared in accordance with Financial Reporting Standard 102, the Companies Act 2006 and the Association of Investment Companies ("AIC") Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the "SORP") issued in April 2021. 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.
|
| | | Whilst the Company is obliged to hold a continuation vote at the 2022 AGM, the Directors do not believe this should automatically trigger the adoption of a basis other than going concern in line with the AIC SORP which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.
|
| | | The Directors considered a number of factors in determining unanimously that shareholders should vote in favour of continuation and have engaged in discussions with a number of shareholders with their advisers in reaching that conclusion. These matters included:
|
| | | - the strategic review and changes to the future investment strategy of the Company; |
| | | - the stability and diversity of the Company's shareholder register and the type of shareholder on the register; and |
| | | - the buy-back of the majority of the Company's issued debt instruments in November 2020 and the positive impact this has on the Company's cash flow. |
| | |
Based on this assessment the Directors have made the assumption that the continuation vote will pass, however recognise that the outcome of the vote is not yet known given the Company's share price compared with its net asset value per share.
|
| | | The Directors are satisfied that: the Company is able to meet all of its liabilities from its assets, including its ongoing charges, so possesses sufficient resources to continue in operational existence for the foreseeable future and at least 12 months from the date of approval of this Annual Report; the Company is financially sound; and the Company's key third party service providers had in place appropriate business continuity plans and had, and will, be able to maintain service levels despite the ongoing impact of COVID-19. |
| | | A substantial proportion of the Company's assets are invested in equity shares in companies and fixed interest securities listed on recognised stock exchanges and in most circumstances, including in the current market environment, are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews cash flow projections and compliance with banking covenants, including the headroom available. On 2 November 2020 the Company repurchased 73.2% of its Bonds which substantially reduced the level of gearing and interest costs payable in the future. Having taken these factors into account as well as the impact of COVID-19 and having assessed the principal risks and other matters set out in the Viability Statement, the Directors believe that, after making enquiries, the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. Based on their assessment and considerations above, the Directors have concluded that the financial statements of the Company should continue to be prepared on a going concern basis and the financial statements have been prepared accordingly. Further detail is included in the Directors' Report (unaudited).
|
| | | The financial statements are presented in sterling (rounded to the nearest £'000), which is the Company's functional and presentation currency. The Company's performance is evaluated and its liquidity is managed in sterling. Therefore sterling is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.
|
| | | Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which require Directors to exercise judgement in the process of applying the accounting policies. The areas where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the financial statements are the determination of the fair value of unlisted investments, as disclosed in note 2(e).
|
| | (b) | Income. Dividend income receivable on equity shares is recognised on the ex-dividend date. Dividend income on equity shares where no ex-dividend date is quoted is 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. Dividend income is presented gross of any non-recoverable withholding taxes, which are disclosed separately in the Statement of Comprehensive Income. |
| | |
Distributions of non-recallable capital received from unlisted holdings during their investment phase, which have been funded through profits being generated, are allocated to revenue in alignment with the nature of the underlying source of income and in accordance with guidance in the AIC SORP. |
| | |
The fixed returns on debt instruments are recognised using the time apportioned accruals basis and the discount or premium on acquisition is amortised or accreted on a straight line basis. Interest income is accounted for on an accruals basis. Underwriting commission is recognised when the issue underwritten closes.
|
| | (c) | Expenses. All expenses are recognised on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income except as follows:
|
| | | - expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed in note 10; |
| | | - the Company charged, during the year under review, 60% of investment management fees and finance costs to capital, in accordance with the Board's view at that time of the expected long term return in the form of capital gains and income respectively from the investment portfolio of the Company. |
| | |
In accordance with the investment management agreement, where applicable, an amount equivalent to the management fee received by the Manager on the underlying holding which is managed by the Group in the normal course of business, is either removed from or offset against the management fee payable by the Company to ensure that no double counting occurs.
|
| | (d) | Taxation. The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.
|
| | | Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date.
|
| | | The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year. The SORP recommends that the benefit of that tax relief should be allocated to capital and a corresponding charge made to revenue. The Company does not apply the marginal method of allocation of tax relief as any allocation of tax relief between capital and revenue would have no impact on shareholders' funds. Had this allocation been made, the charge to revenue and corresponding credit to capital for the year ended 30 September 2021 would have been £1,698,000 (2020 - £1,641,000). |
| | (e) | Investments. The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis.
|
| | | Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange.
|
| | | Unlisted investments, including those in Limited Partnerships ("LPs") are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines - Edition 2018. |
| | | The Company's investments in LPs are subject to the terms and conditions of the respective investee's offering documentation. The investments in LPs are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or General Partner of the LP and adjusted by the Directors in consultation with the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses including carried interest amounts of the investees and the underlying investments held by each LP are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of LPs reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company.
|
| | | Gains and losses arising from changes in fair value are treated in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.
|
| | (f) | Borrowings. Borrowings are measured initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest rate method. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and have been charged 40% to revenue and 60% to capital in the Statement of Comprehensive Income up to 30 September 2021 to reflect the Company's investment policy and prospective income and capital growth.
|
| | | The Company has treated the £23,750,000 premium paid to repurchase the 6.25% Bonds 2031 early by recognising it as a finance cost in the capital column of the Statement of Comprehensive Income. This is in line with guidance contained within the AIC SORP published in April 2021 and differs from the presentation in the half yearly report to 31 March 2021 where it was treated as a change in equity in the Statement of Changes in Equity. Further details can be found in note 6 and in note 13.
|
| | (g) | Nature and purpose of reserves |
| | | Called up share capital. The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. This reserve is not distributable.
|
| | | Capital redemption reserve. The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. This reserve is not distributable.
|
| | | 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) and (f) above. The capital reserve is distributable to the extent unrealised gains/losses arising from unlisted investments are excluded.
|
| | | Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
|
| | (h) | Valuation of derivative financial instruments. Derivatives are classified as fair value through profit or loss - held for trading. Derivatives are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value. The gain or loss on re-measurement is taken to the Statement of Comprehensive Income. The sources of the return under the derivative contract are allocated to the revenue and capital column of the Statement of Comprehensive Income in alignment with the nature of the underlying source of income and in accordance with guidance in the AIC SORP.
|
| | (i) | Dividends payable. Dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends are recognised in the financial statements in the period in which they are paid.
|
| | (j) | Foreign currency. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses arising from a change in exchange rates subsequent to the date of a transaction are included as a currency gain or loss in revenue or capital in the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature.
|
| | (k) | Treasury shares. When the Company purchases the Company's equity share capital to be held as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from the capital reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and any resulting surplus on the transaction is transferred to the share premium account and any resulting deficit is transferred from the capital reserve.
|
| | (l) | Cash and cash equivalents. Cash comprises cash in hand and demand deposits. Cash equivalents includes bank overdrafts repayable on demand and short term, highly liquid, investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value.
|
| | (m) | Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided. |
| 3. | Income | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Income from investments | | |
| | UK listed dividends | 3,876 | 4,353 |
| | Overseas listed dividends | 5,523 | 4,709 |
| | Unquoted Limited Partnership income | 6,230 | 3,880 |
| | Stock dividends | 228 | 1,911 |
| | Fixed interest income | 3,006 | 5,929 |
| | | 18,863 | 20,782 |
| | | | |
| | Other income | | |
| | Interest | 1 | 1 |
| | Other income | 14 | - |
| | | 15 | 1 |
| | Total income | 18,878 | 20,783 |
| 4. | Investment management fees | | |||||
| | | 2021 | 2020 | ||||
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Investment management fee | 528 | 791 | 1,319 | 536 | 803 | 1,339 |
| | | | | | | | |
| | The investment management fee has been levied by ASFML at the following tiered levels:
| ||||||
| | - 0.50% per annum in respect of the first £300 million of the net asset value (with the 6.25% Bonds 2031 at fair value); and | ||||||
| | - 0.45% per annum in respect of the balance of the net asset value (with the 6.25% Bonds 2031 at fair value).
| ||||||
| | The Company also receives rebates in respect of underlying investments in other funds managed by the Group (where an investment management fee is charged by the Group 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 are charged at the Manager's lowest institutional fee rate. To avoid double charging, such investments are excluded from the overall management fee calculation.
| ||||||
| | At the year end, an amount of £111,000 (2020 - £428,000) was outstanding in respect of management fees due by the Company. | ||||||
| 5. | Administrative expenses | | ||||||
| | | 2021 | 2020 | |||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| | Directors' remuneration | 161 | - | 161 | 169 | - | 169 | |
| | Custody fees | 38 | - | 38 | 74 | - | 74 | |
| | Depositary fees | 45 | - | 45 | 47 | - | 47 | |
| | Shareholders' services{A} | 263 | - | 263 | 202 | - | 202 | |
| | Registrar's fees | 56 | - | 56 | 55 | - | 55 | |
| | Transaction costs | - | 27 | 27 | - | 11 | 11 | |
| | Legal and professional fees | 82 | - | 82 | 77 | - | 77 | |
| | Auditor's remuneration: | | | | | | | |
| | - statutory audit | 55 | - | 55 | 44 | - | 44 | |
| | - other non-audit services | | | | | | | |
| | | review of Bond compliance certificate | 4 | - | 4 | 4 | - | 4 |
| | | review of Half-yearly Report | 16 | - | 16 | 14 | - | 14 |
| | Other expenses | 197 | 36 | 233 | 140 | - | 140 | |
| | | 917 | 63 | 980 | 826 | 11 | 837 | |
| | | |||||||
| | {A} Includes registration, savings scheme and other wrapper administration and promotional expenses, of which £260,000 (2020 - £200,000) was payable to ASFML to cover promotional activities during the year. There was £110,000 (2020 - £150,000) due to ASFML in respect of these promotional activities at the year end. | |||||||
| 6. | Finance costs | | |||||
| | | 2021 | 2020 | ||||
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | 6.25% Bonds 2031 | 555 | 24,583 | 25,138 | 1,515 | 2,272 | 3,787 |
| | Bank interest | 8 | 12 | 20 | 1 | 1 | 2 |
| | | 563 | 24,595 | 25,158 | 1,516 | 2,273 | 3,789 |
| | | | | | | | |
| | The charge above for 6.25% Bonds 2031 includes a fee of £105,000 which was incurred in relation to consultancy advice on the early repayment of a portion of these bonds and the premium paid above amortised cost of £23,750,000. | ||||||
| 7. | Taxation | 2021 | 2020 | ||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | ||
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| (a) | Analysis of charge for the year | | | | | | | ||
| | Current UK tax | 437 | - | 437 | 107 | - | 107 | ||
| | Double taxation relief | (70) | - | (70) | (107) | - | (107) | ||
| | Corporation tax prior year adjustment{A} | 318 | - | 318 | (66) | - | (66) | ||
| | Overseas tax suffered | 186 | 41 | 227 | 131 | 110 | 241 | ||
| | Current tax charge for the year | 871 | 41 | 912 | 65 | 110 | 175 | ||
| | Movement in deferred tax asset | - | (541) | (541) | - | 260 | 260 | ||
| | Total tax charge for the year | 871 | (500) | 371 | 65 | 370 | 435 | ||
| | | ||||||||
| | {A} Adjustment in 2021 relates to tax payable upon the reclassification on income as taxable which had previously considered to be non-taxable. | ||||||||
| | | ||||||||
| (b) | Factors affecting the tax charge for the year. The tax assessed for the year is lower than the standard rate of corporation tax of 19.0% (2020 - same). The differences are explained as follows: | ||||||||
| | | | |||||||
| | | 2021 | 2020 | ||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | ||
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| | Net return before taxation | 16,870 | 4,269 | 21,139 | 17,905 | (21,887) | (3,982) | ||
| | | | | | | | | ||
| | Net return before taxation multiplied by the standard rate of corporation tax of 19.0% (2020 - same) | 3,205 | 811 | 4,016 | 3,402 | (4,159) | (757) | ||
| | Effects of: | | | | | | | ||
| | Non taxable (gains)/losses on investments held at fair value through profit or loss | - | (4,553) | (4,553) | - | 6,254 | 6,254 | ||
| | Exchange gains not taxable | - | (1,094) | (1,094) | - | (2,683) | (2,683) | ||
| | Non taxable UK dividend income | (480) | - | (480) | (383) | - | (383) | ||
| | Non taxable overseas dividend income | (591) | - | (591) | (1,276) | - | (1,276) | ||
| | Disallowable expenses | - | 4,524 | 4,524 | 4 | 3 | 7 | ||
| | Overseas tax suffered | 186 | 42 | 228 | 131 | 110 | 241 | ||
| | Double taxation relief | (69) | - | (69) | (106) | - | (106) | ||
| | Corporation tax prior year adjustment | 318 | - | 318 | (66) | - | (66) | ||
| | Utilisation of excess management expenses | - | (1,387) | (1,387) | - | (1,056) | (1,056) | ||
| | Effect of not applying the marginal method of allocation of tax relief | (1,698) | 1,698 | - | (1,641) | 1,641 | - | ||
| | Movement in deferred tax asset | - | (541) | (541) | - | 260 | 260 | ||
| | | 871 | (500) | 371 | 65 | 370 | 435 | ||
| | | | | | | | | ||
| (c) | Factors that may affect future tax charges. As at 30 September 2021, the Company has recognised a deferred tax asset of £2,655,000 (2020 - £2,113,000) as it is considered likely that accumulated unrelieved management expenses and loan relationship deficits of £13,059,000 (2020 - £22,389,000) will be extinguished in future years. In arriving at the amount recognised, the Company has estimated the future levels of taxable income forecast to be generated and the utilisation of management expenses. | ||||||||
| 8. | Ordinary dividends on equity shares | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Third interim dividend for 2020 - 1.36p (2019 - 1.34p) | 4,317 | 4,342 |
| | Fourth interim dividend for 2020 - 1.36p (2019 - 1.34p) | 4,255 | 4,300 |
| | First interim dividend for 2021 - 1.38p (2020 - 1.36p) | 4,285 | 4,352 |
| | Second interim dividend for 2021 - 1.38p (2020 - 1.36p) | 4,275 | 4,337 |
| | | 17,132 | 17,331 |
| | | | |
| | Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 and 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £15,999,000 (2020 - £17,840,000). | ||
| | | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | First interim dividend for 2021 - 1.38p (2020 - 1.36p) | 4,285 | 4,352 |
| | Second interim dividend for 2021 - 1.38p (2020 - 1.36p) | 4,275 | 4,337 |
| | Third interim dividend for 2021 - 1.38p (2020 - 1.36p) | 4,269 | 4,317 |
| | Fourth interim dividend for 2021 - 1.38p{A} (2020 - 1.36p) | 4,267 | 4,262 |
| | | 17,096 | 17,268 |
| | {A} The amount reflected above for the cost of the fourth interim dividend for 2021 is based on 309,177,359 Ordinary shares, being the number of Ordinary shares in issue, excluding shares held in treasury, at the date of this Report. | ||
| 9. | Return per Ordinary share | | |
| | | 2021 | 2020 |
| | | p | p |
| | Revenue return | 5.14 | 5.58 |
| | Capital return | 1.53 | (6.96) |
| | Total return | 6.67 | (1.38) |
| | | | |
| | The figures above are based on the following: | | |
| | | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Revenue return | 15,999 | 17,840 |
| | Capital return | 4,769 | (22,257) |
| | Total return | 20,768 | (4,417) |
| | | | |
| | Weighted average number of shares in issue{A} | 311,534,668 | 319,818,316 |
| | {A} Calculated excluding shares held in treasury. | | |
| 10. | Investments | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Held at fair value through profit or loss | | |
| | Opening valuation | 428,859 | 458,522 |
| | Opening investment holdings losses | 17,375 | 10,202 |
| | Opening book cost | 446,234 | 468,724 |
| | Movements during the year: | | |
| | Purchases at cost | 182,048 | 105,254 |
| | Sales - proceeds | (243,196) | (109,114) |
| | Sales - losses | (3,042) | (18,551) |
| | Accretion of fixed income book cost | (144) | (79) |
| | Closing book cost | 381,900 | 446,234 |
| | Closing investment holdings gains/(losses) | 8,546 | (17,375) |
| | Closing valuation of investments | 390,446 | 428,859 |
| | | | |
| | | 2021 | 2020 |
| | The portfolio valuation | £'000 | £'000 |
| | UK equities | 113,609 | 174,403 |
| | Overseas equities | 44,148 | 62,141 |
| | Fixed interest | 40,040 | 64,760 |
| | Loan investments | 20,541 | 10,347 |
| | Unlisted holdings | 172,108 | 117,208 |
| | | 390,446 | 428,859 |
| | | | |
| | | 2021 | 2020 |
| | Gains/(Losses) on investments | £'000 | £'000 |
| | Realised losses | (3,042) | (18,551) |
| | Net movement in investment holdings gains/(losses) | 25,921 | (7,173) |
| | | 22,879 | (25,724) |
| | | | |
| | The Company received £243,196,000 (2020 - £109,114,000) from investments sold in the period. The book cost of these investments when they were purchased was £246,238,000 (2020 - £127,665,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of investments. | ||
| |
Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within losses on investments in the Statement of Comprehensive Income. The total costs were as follows: | ||
| | | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Purchases | 155 | 154 |
| | Sales | 181 | 35 |
| | | 336 | 189 |
| | | | |
| | The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. | ||
| |
Substantial holdings. At the year end the Company held more than 3% of a share class in the following investees: | ||
| | | | |
| | | | % of |
| | Investee | Class | Class |
| | Aberdeen Standard SICAV I - Multi-factor Global Equity Income Fund{A} | Z QInc | 100 |
| | Aberdeen Global Infrastructure Partners II | AUD | 11 |
| | Aberdeen Global Infrastructure Partners II | USD | 11 |
| | Aberdeen Standard Alpha - Global Loans Fund{A} | Z Inc | 6 |
| | Aberdeen Standard SICAV I - Frontier Markets Bond Fund | I MInc | 31 |
| | Aberdeen European Residential Opportunities Fund | B | 6 |
| | Aberdeen Property Secondaries Partners II | A-1 | 21 |
| | Aberdeen Standard Global Private Markets Fund | GBP Acc | 7 |
| | Andean Social Infrastructure Fund I | USD | 13 |
| | Bonaccord Capital Partners I-A | USD | 7 |
| | Blue Capital Alternative Income Fund | USD | 5 |
| | Burford Opportunity Fund | USD | 8 |
| | Cheyne Social Property Impact Fund | GBP | 3 |
| | Maj Equity Fund 4 | DKK | 3 |
| | Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI | B | 3 |
| | Markel CATCo Reinsurance Fund Ltd - LDAF 2019 Liq{B} | B | 3 |
| | Neuberger Berman Investment Funds | Inc | 12 |
| | Secondary Opportunities Fund | USD | 10 |
| | SL Capital Infrastructure II | EUR | 4 |
| | TwentyFour Asset Backed Opportunities Fund{C} | I-1 | 20 |
| |
The registered addresses for investment holdings where the Company holds greater than 20% of their net assets attributable are as follows: | ||
| | {A} 35a Avenue John F Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg | ||
| | {B} Crawford House, 50 Cedar Avenue, Hamilton HM11, Bermuda | ||
| | {C} Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY | ||
| 11. | Debtors | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Amounts due from brokers | 335 | 682 |
| | Prepayments and accrued income | 852 | 1,450 |
| | Taxation recoverable | 47 | 47 |
| | Corporation tax recoverable | - | 108 |
| | | 1,234 | 2,287 |
| 12. | Creditors: amounts falling due within one year | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | Amounts due to brokers | 221 | - |
| | Interest on 6.25% Bonds 2031 | 55 | 208 |
| | Corporation tax payable | 195 | - |
| | Other creditors | 366 | 695 |
| | | 837 | 903 |
| 13. | Creditors: amounts falling due after more than one year | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | 6.25% Bonds 2031{A} | | |
| | Balance at beginning of year | 59,540 | 59,503 |
| | Amortisation of discount and issue expenses | 28 | 37 |
| | Repurchase of bonds | (43,904) | - |
| | Balance at end of year | 15,664 | 59,540 |
| | | ||
| | {A} The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 30 September 2021 was 131.9155p, a total of £21,233,000 (2020 - 143.2082p, total of £85,925,000). | ||
| | | ||
| | At the year end the Company had in issue £16,096,000 (2020 - £60,000,000) Bonds 2031 which were issued at 99.343%. During the period, the Company repurchased £43,904,000 bonds at a cost of £67,654,000. The Company has treated the £23,750,000 premium paid to repurchase the 6.25% Bonds 2031 early by recognising it as a finance cost in the capital column of the Statement of Comprehensive Income. The Bonds have been accounted for in accordance with FRS 102, 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 required 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. All covenants were met during the year and also during the period from the year end to the date of this Report. | ||
| 14. | Called up share capital | | | | |
| | | Ordinary | Treasury | Total | |
| | | shares | shares | shares | |
| | | (number) | (number) | (number) | £'000 |
| | Allotted, called up and fully paid | | | | |
| | Ordinary shares of 25p each | | | | |
| | At 1 October 2020 | 317,330,238 | 48,080,636 | 365,410,874 | 91,352 |
| | Shares cancelled from treasury | - | (27,659,068) | (27,659,068) | - |
| | Shares purchased for treasury | (8,011,500) | 8,011,500 | - | - |
| | At 30 September 2021 | 309,318,738 | 28,433,068 | 337,751,806 | 91,352 |
| | | | | | |
| | During the year 8,011,500 (2020 - 5,651,467) Ordinary shares of 25p each were purchased to be held in treasury at a cost of £7,748,000 (2020 - £5,701,000). There were no Ordinary shares of 25p issued from treasury during the year (2020 - same). | ||||
| |
Since the year end 141,379 Ordinary shares of 25p each have been purchased to be held in treasury by the Company for a total cost of £141,000. | ||||
| 15. | Capital reserve | | |
| | | 2021 | 2020 |
| | | £'000 | £'000 |
| | At 1 October | 109,551 | 137,509 |
| | Movement in investment holding gains/(losses) | 25,921 | (7,173) |
| | Losses on realisation of investments at fair value | (3,042) | (18,551) |
| | Foreign exchange gains | 6,839 | 6,924 |
| | Transaction and other costs | (63) | (11) |
| | Finance costs | (24,595) | (2,273) |
| | Purchase of own shares to treasury | (7,748) | (5,701) |
| | Investment management fees | (791) | (803) |
| | Overseas tax suffered | (41) | (110) |
| | Deferred tax | 541 | (260) |
| | At 30 September | 106,572 | 109,551 |
| 16. | Net asset value per Ordinary share. The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows: | ||
| | | | |
| | Debt at par | 2021 | 2020 |
| | Net asset value attributable (£'000) | 382,118 | 386,230 |
| | Number of Ordinary shares in issue excluding treasury (note 14) | 309,318,738 | 317,330,238 |
| | Net asset value per share (p) | 123.54 | 121.71 |
| | | | |
| | Debt at fair value | £'000 | £'000 |
| | Net asset value attributable | 382,118 | 386,230 |
| | Add: Amortised cost of 6.25% Bonds 2031 | 15,664 | 59,540 |
| | Less: Market value of 6.25% Bonds 2031 | (21,233) | (85,925) |
| | | 376,549 | 359,845 |
| | | | |
| | Number of Ordinary shares in issue excluding treasury (note 14) | 309,318,738 | 317,330,238 |
| | Net asset value per share (p) | 121.73 | 113.40 |
| 17. | Financial instruments | |||||||||||||||||||||
| | Risk management. The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments, other than derivatives, comprise securities and other investments, cash balances, liquid resources, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, subject to Board approval, for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy. | |||||||||||||||||||||
| |
As at 30 September 2021 there were 33 open positions in derivatives transactions (2020 - 12). | |||||||||||||||||||||
| |
Risk management framework. The directors of Aberdeen Standard Fund Managers Limited ("ASFML") collectively assume responsibility for ASFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
| |||||||||||||||||||||
| | ASFML is a fully integrated member of abrdn plc (the "Group"), which provides a variety of services and support to ASFML in the conduct of its business activities, including the oversight of the risk management framework for the Company. ASFML has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). ASFML has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.
| |||||||||||||||||||||
| | The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Audit Committee of the Group's Board of Directors and to the Group's CEO. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
| |||||||||||||||||||||
| | The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the CEO of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD").
| |||||||||||||||||||||
| | The Group's corporate governance structure is supported by several committees to assist the board of directors of ASFML, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described in the committees' terms of reference.
| |||||||||||||||||||||
| | Risk management. The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk. | |||||||||||||||||||||
| |
In order to mitigate risk, the investment strategy is to select investments for their fundamental value. Asset selection is therefore based on disciplined accounting, market and sector analysis. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular asset class. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. Current strategy is detailed in the Chairman's Statement and in the Investment Manager's Report. | |||||||||||||||||||||
| |
The Board has agreed the parameters for net gearing/cash, which was 2.2% of net assets as at 30 September 2021 (2020 - 10.7%). The Manager's policies for managing these risks are summarised below and have been applied throughout the current and previous year. The numerical disclosures in the tables listed below exclude short-term debtors and creditors. | |||||||||||||||||||||
| |
Market risk. The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective. Adherence to investment guidelines and to investment and borrowing powers set out in the management agreement mitigates the risk of exposure to any particular security or issuer. Further information on the investment portfolio is set out in the Investment Manager's Report.
| |||||||||||||||||||||
| | Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. It is the Board's policy to hold investments in the portfolio in a broad spread of asset classes in order to reduce the risk arising from factors specific to a particular asset class. | |||||||||||||||||||||
| |
Interest rate risk. Interest rate movements may affect:
| |||||||||||||||||||||
| | - the level of income receivable on cash deposits; and | |||||||||||||||||||||
| | - the fair value of any investments in fixed interest rate securities.
| |||||||||||||||||||||
| | Management of the risk. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. Details of the 6.25% Bonds 2031 and interest rate applicable can be found in note 13.
| |||||||||||||||||||||
| | The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates. | |||||||||||||||||||||
| |
Financial assets. The interest rate risk of the portfolio of financial assets at the reporting date was as follows: | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | | 2021 | 2020 | |||||||||||||||||||
| | | Within | More than | | Within | More than | | |||||||||||||||
| | | 1 year | 1 year | Total | 1 year | 1 year | Total | |||||||||||||||
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||
| | Exposure to fixed interest rates | | | | | | | |||||||||||||||
| | Fixed interest investments | 4,386 | 29,680 | 34,066 | 3,404 | 51,621 | 55,025 | |||||||||||||||
| | Exposure to floating interest rates | | | | | | | |||||||||||||||
| | Fixed interest investments{A} | - | 5,974 | 5,974 | - | 9,735 | 9,735 | |||||||||||||||
| | Loan investments{A} | - | 20,541 | 20,541 | - | 10,347 | 10,347 | |||||||||||||||
| | Cash and cash equivalents | 7,201 | - | 7,201 | 17,413 | - | 17,413 | |||||||||||||||
| | | 11,587 | 56,195 | 67,782 | 20,817 | 71,703 | 92,520 | |||||||||||||||
| | {A} Variable distributions received from investment holdings, which have an underlying portfolio of fixed interest securities. | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | Financial liabilities. The Company has borrowings by way of a bond issue, held at amortised cost of £15,664,000 (2020 - £59,540,000) details of which are in note 13. The fair value of this loan has been calculated at £21,233,000 as at 30 September 2021 (2020 - £85,925,000). | |||||||||||||||||||||
| |
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 Statement of Financial Position date; and | |||||||||||||||||||||
| | - changes in fair value of investments for the year, based on revaluing fixed rate financial assets and liabilities at the Statement of Financial Position 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 30 September 2021 would increase/decrease by £36,000 (2020 - increase/decrease £87,000). This is attributable to the Company's exposure to interest rates on its floating rate cash balances at 30 September 2021. | |||||||||||||||||||||
| |
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 and floating rate financial assets, which have an exposure to fixed interest securities, at the year ended 30 September 2021 of £60,581,000 (2020 - £75,107,000) would result in a decrease of £291,000 (2020 - £946,000). 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 30 September 2021 would result in an increase of £297,000 (2020 - £631,000). | |||||||||||||||||||||
| |
Foreign currency risk. A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Statement of Financial Position can be affected by movements in exchange rates. | |||||||||||||||||||||
| |
Management of the risk. The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company has entered into derivative transactions, in the form of forward foreign currency contracts, to ensure that exposure to foreign denominated investments and cashflows is appropriately hedged. | |||||||||||||||||||||
| | Foreign currency risk exposure by currency of denomination excluding other debtors and receivables and other payables falling due within one year: | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | | 30 September 2021 | 30 September 2020 | |||||||||||||||||||
| | | | Net | Total | | Net | Total | |||||||||||||||
| | | | monetary | currency | | monetary | currency | |||||||||||||||
| | | Investments | items | exposure | Investments | items | exposure | |||||||||||||||
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||
| | US Dollar | 128,398 | (2,552) | 125,846 | 152,720 | (2,633) | 150,087 | |||||||||||||||
| | Euro | 61,334 | 249 | 61,583 | 60,156 | (994) | 59,162 | |||||||||||||||
| | Other | 51,640 | 1,057 | 52,697 | 58,956 | 1,363 | 60,319 | |||||||||||||||
| | | 241,372 | (1,246) | 240,126 | 271,832 | (2,264) | 269,568 | |||||||||||||||
| | | | | | | | | |||||||||||||||
| | Foreign currency sensitivity. The following table details the impact on the Company's net assets to a 10% decrease (in the context of a 10% increase the figures below should all be read as negative) in sterling against the foreign currencies in which the Company has exposure. The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. This sensitivity excludes forward foreign currency contracts entered into for hedging short term cash flows. | |||||||||||||||||||||
| | | | | |||||||||||||||||||
| | | 2021 | 2020 | |||||||||||||||||||
| | | £'000 | £'000 | |||||||||||||||||||
| | US Dollar | 12,585 | 15,009 | |||||||||||||||||||
| | Euro | 6,158 | 5,916 | |||||||||||||||||||
| | Other | 5,270 | 6,032 | |||||||||||||||||||
| | | 24,013 | 26,957 | |||||||||||||||||||
| | Forward foreign currency contracts. The following forward foreign currency contracts were outstanding at the Statement of Financial Position date: | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | | | | | | | Unrealised | |||||||||||||||
| | | | | | | | gain/(loss) | |||||||||||||||
| | | | | | | | 30 September | |||||||||||||||
| | | Buy | Sell | Settlement | Amount | Contracted | 2021 | |||||||||||||||
| | Date of contract | Currency | Currency | date | '000 | rate | £'000 | |||||||||||||||
| | 1 September 2021 | JPY | GBP | 9 December 2021 | 16,161 | 150.3681 | 137 | |||||||||||||||
| | 1 September 2021 | GBP | EUR | 9 December 2021 | 63,954 | 1.1619 | 43 | |||||||||||||||
| | 1 September 2021 | GBP | NZD | 9 December 2021 | 9,172 | 1.9558 | 18 | |||||||||||||||
| | 7 September 2021 | USD | GBP | 9 December 2021 | 819 | 1.3485 | 19 | |||||||||||||||
| | 13 September 2021 | JPY | GBP | 9 December 2021 | 1,855 | 150.3681 | 20 | |||||||||||||||
| | 13 September 2021 | GBP | NZD | 9 December 2021 | 646 | 1.9558 | 3 | |||||||||||||||
| | 14 September 2021 | EUR | GBP | 9 December 2021 | 327 | 1.1619 | 2 | |||||||||||||||
| | 15 September 2021 | EUR | GBP | 9 December 2021 | 3,224 | 1.1619 | 15 | |||||||||||||||
| | 15 September 2021 | USD | GBP | 9 December 2021 | 592 | 1.3485 | 15 | |||||||||||||||
| | 16 September 2021 | USD | GBP | 9 December 2021 | 2,092 | 1.3485 | 52 | |||||||||||||||
| | 20 September 2021 | USD | GBP | 9 December 2021 | 252 | 1.3485 | 4 | |||||||||||||||
| | 20 September 2021 | USD | GBP | 9 December 2021 | 77 | 1.3485 | 1 | |||||||||||||||
| | 23 September 2021 | USD | GBP | 9 December 2021 | 138 | 1.3485 | 3 | |||||||||||||||
| | | | | | | | 332 | |||||||||||||||
| | 1 September 2021 | GBP | AUD | 9 December 2021 | 14,660 | 1.8662 | (40) | |||||||||||||||
| | 1 September 2021 | GBP | SEK | 9 December 2021 | 8,983 | 11.7898 | (50) | |||||||||||||||
| | 1 September 2021 | GBP | NOK | 9 December 2021 | 9,256 | 11.7781 | (151) | |||||||||||||||
| | 1 September 2021 | GBP | CAD | 9 December 2021 | 9,161 | 1.7084 | (169) | |||||||||||||||
| | 1 September 2021 | GBP | USD | 9 December 2021 | 114,704 | 1.3485 | (2,584) | |||||||||||||||
| | 2 September 2021 | GBP | USD | 9 December 2021 | 150 | 1.3485 | (4) | |||||||||||||||
| | 7 September 2021 | EUR | GBP | 9 December 2021 | 785 | 1.1619 | (1) | |||||||||||||||
| | 13 September 2021 | GBP | EUR | 9 December 2021 | 912 | 1.1619 | (7) | |||||||||||||||
| | 13 September 2021 | GBP | NOK | 9 December 2021 | 611 | 11.7781 | (10) | |||||||||||||||
| | 13 September 2021 | GBP | SEK | 9 December 2021 | 900 | 11.7898 | (10) | |||||||||||||||
| | 13 September 2021 | GBP | AUD | 9 December 2021 | 1,889 | 1.8662 | (13) | |||||||||||||||
| | 13 September 2021 | GBP | CAD | 9 December 2021 | 756 | 1.7084 | (19) | |||||||||||||||
| | 13 September 2021 | GBP | EUR | 9 December 2021 | 3,063 | 1.1619 | (21) | |||||||||||||||
| | 13 September 2021 | GBP | USD | 9 December 2021 | 1,056 | 1.3485 | (28) | |||||||||||||||
| | 16 September 2021 | GBP | JPY | 9 December 2021 | 279 | 150.3681 | (1) | |||||||||||||||
| | 16 September 2021 | GBP | EUR | 9 December 2021 | 436 | 1.1619 | (4) | |||||||||||||||
| | 16 September 2021 | GBP | USD | 9 December 2021 | 2,625 | 1.3485 | (65) | |||||||||||||||
| | 17 September 2021 | GBP | USD | 9 December 2021 | 320 | 1.3485 | (7) | |||||||||||||||
| | 21 September 2021 | GBP | USD | 9 December 2021 | 1,262 | 1.3485 | (19) | |||||||||||||||
| | 28 September 2021 | GBP | USD | 9 December 2021 | 6,084 | 1.3485 | (46) | |||||||||||||||
| | | | | | | | (3,249) | |||||||||||||||
| | | | | | | | | |||||||||||||||
| | | | | | | | Unrealised | |||||||||||||||
| | | | | | | | gain/(loss) | |||||||||||||||
| | | | | | | | 30 September | |||||||||||||||
| | | Buy | Sell | Settlement | Amount | Contracted | 2020 | |||||||||||||||
| | Date of contract | Currency | Currency | date | '000 | rate | £'000 | |||||||||||||||
| | 3 September 2020 | GBP | NOK | 9 December 2020 | 14,598 | 12.0993 | 331 | |||||||||||||||
| | 3 September 2020 | JPY | GBP | 9 December 2020 | 11,869 | 136.3636 | 423 | |||||||||||||||
| | 10 September 2020 | USD | GBP | 9 December 2020 | 3,083 | 1.2933 | 23 | |||||||||||||||
| | 15 September 2020 | USD | GBP | 9 December 2020 | 73 | 1.2933 | - | |||||||||||||||
| | | | | | | | 777 | |||||||||||||||
| | 3 September 2020 | GBP | AUD | 9 December 2020 | 21,056 | 1.8041 | (179) | |||||||||||||||
| | 3 September 2020 | GBP | CAD | 9 December 2020 | 14,583 | 1.7271 | (106) | |||||||||||||||
| | 3 September 2020 | GBP | EUR | 9 December 2020 | 67,535 | 1.1012 | (1,158) | |||||||||||||||
| | 3 September 2020 | GBP | NZD | 9 December 2020 | 14,379 | 1.9567 | (124) | |||||||||||||||
| | 3 September 2020 | GBP | SEK | 9 December 2020 | 14,299 | 11.5658 | (28) | |||||||||||||||
| | 3 September 2020 | GBP | USD | 9 December 2020 | 121,677 | 1.2933 | (3,180) | |||||||||||||||
| | 18 September 2020 | GBP | USD | 9 December 2020 | 402 | 1.2933 | (1) | |||||||||||||||
| | | | | | | | (4,776) | |||||||||||||||
| | | | | | | | | |||||||||||||||
| | The fair value of forward exchange contracts is based on forward exchange rates at the Statement of Financial Position date. | |||||||||||||||||||||
| |
Other price risk. Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. | |||||||||||||||||||||
| |
Management of the risk. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to international markets and the stock selection process, as detailed in the section "Investment Policy and Investment Process", both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. | |||||||||||||||||||||
| |
Other price risk sensitivity. If market prices at the reporting date had been 10% higher or lower on investments held at fair value while all other variables remained constant, the return attributable to Ordinary shareholders and equity for the year ended 30 September 2021 would have increased/decreased by £32,834,000 (2020 - £35,229,000). | |||||||||||||||||||||
| |
Liquidity risk. This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. | |||||||||||||||||||||
| | | | | | | | | |||||||||||||||
| | | | Within | Within | Within | More than | | |||||||||||||||
| | | | 1 year | 1-3 years | 3-5 years | 5 years | Total | |||||||||||||||
| | | | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||
| | 6.25% Bonds 2031 | | - | - | - | 16,096 | 16,096 | |||||||||||||||
| | Interest cash flows on 6.25% Bonds 2031 | 1,006 | 2,012 | 2,012 | 6,036 | 11,066 | ||||||||||||||||
| | | | 1,006 | 2,012 | 2,012 | 22,132 | 27,162 | |||||||||||||||
| | | | | | | | | |||||||||||||||
| | Management of the risk. The Company's assets comprise sufficient readily realisable securities which can be sold to meet funding commitments if necessary. | |||||||||||||||||||||
| |
Credit risk. This is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. | |||||||||||||||||||||
| |
Management of the risk | |||||||||||||||||||||
| | - where the Manager makes an investment in a bond, corporate or otherwise, the credit ratings of the issuer are taken into account so as to manage the risk to the Company of default; | |||||||||||||||||||||
| | - investments in quoted bonds are made across a variety of industry sectors and geographic markets so as to avoid concentrations of credit risk; | |||||||||||||||||||||
| | - transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default; | |||||||||||||||||||||
| | - investment transactions are carried out with a number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; | |||||||||||||||||||||
| | - the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports. In addition, both stock and cash reconciliations to the custodian's records are performed daily to ensure discrepancies are investigated in a timely manner. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee; and | |||||||||||||||||||||
| | - cash is held only with reputable banks with acceptable credit quality. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. | |||||||||||||||||||||
| |
Credit risk exposure. In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 30 September 2021 and 30 September 2020 was as follows: | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | | 2021 | 2020 | |||||||||||||||||||
| | | Balance | Maximum | Balance | Maximum | |||||||||||||||||
| | | Sheet | exposure | Sheet | exposure | |||||||||||||||||
| | | £'000 | £'000 | £'000 | £'000 | |||||||||||||||||
| | Non-current assets | | | | | |||||||||||||||||
| | Securities at fair value through profit or loss | 390,446 | 60,581 | 428,859 | 75,107 | |||||||||||||||||
| | | | | | | |||||||||||||||||
| | Current assets | | | | | |||||||||||||||||
| | Other debtors | 90 | 90 | 187 | 187 | |||||||||||||||||
| | Amounts due from brokers | 335 | 335 | 682 | 682 | |||||||||||||||||
| | Accrued income | 813 | 813 | 1,418 | 1,418 | |||||||||||||||||
| | Derivatives | 332 | 332 | 777 | 777 | |||||||||||||||||
| | Cash and short term deposits | 7,201 | 7,201 | 17,413 | 17,413 | |||||||||||||||||
| | | 399,217 | 69,352 | 449,336 | 95,584 | |||||||||||||||||
| | | | | | | |||||||||||||||||
| | None of the Company's financial assets are secured by collateral or other credit enhancements and none of the Company's financial assets are past due or impaired (2020 - £nil). | |||||||||||||||||||||
| | Credit ratings. The following table provides a credit rating profile using Standard and Poor's credit ratings for the bond portfolio at 30 September 2021 and 30 September 2020: | |||||||||||||||||||||
| | | | | |||||||||||||||||||
| | | 2021 | 2020 | |||||||||||||||||||
| | | £'000 | £'000 | |||||||||||||||||||
| | A | 995 | 3,105 | |||||||||||||||||||
| | A- | 1,026 | 2,217 | |||||||||||||||||||
| | AA- | 265 | - | |||||||||||||||||||
| | B | 719 | 1,834 | |||||||||||||||||||
| | B- | 317 | 1,030 | |||||||||||||||||||
| | BB | 2,857 | 5,108 | |||||||||||||||||||
| | BB- | 3,489 | 5,000 | |||||||||||||||||||
| | BBB+ | 5,088 | 7,746 | |||||||||||||||||||
| | BBB | 467 | 4,760 | |||||||||||||||||||
| | BBB- | 2,434 | - | |||||||||||||||||||
| | Non-rated | 22,383 | 33,960 | |||||||||||||||||||
| | | 40,040 | 64,760 | |||||||||||||||||||
| | | | | |||||||||||||||||||
| | Whilst a substantial proportion of the fixed interest portfolio does not have a rating provided by a recognised credit ratings agency, the Manager undertakes an ongoing review of their suitability for inclusion within the portfolio. | |||||||||||||||||||||
| |
Fair value hierarchy. FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: | |||||||||||||||||||||
| | Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. | |||||||||||||||||||||
| | Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (ie as prices) or indirectly (ie derived from prices). | |||||||||||||||||||||
| | Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | |||||||||||||||||||||
| | 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 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 30 September 2021 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||||
| | Financial assets/(liabilities) at fair value through profit or loss | | | | | |||||||||||||||||
| | Equity investments | 131,049 | 26,708 | 172,108 | 329,865 | |||||||||||||||||
| | Loan investments | - | 20,541 | - | 20,541 | |||||||||||||||||
| | Fixed interest instruments | - | 40,040 | - | 40,040 | |||||||||||||||||
| | Forward currency contracts - financial assets | - | 332 | - | 332 | |||||||||||||||||
| | Forward currency contracts - financial liabilities | - | (3,249) | - | (3,249) | |||||||||||||||||
| | Net fair value | 131,049 | 84,372 | 172,108 | 387,529 | |||||||||||||||||
| | | | | | | |||||||||||||||||
| | | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| | As at 30 September 2020 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||||
| | Financial assets/(liabilities) at fair value through profit or loss | | | | | |||||||||||||||||
| | Equity investments | 109,124 | 125,953 | 117,208 | 352,285 | |||||||||||||||||
| | Loan investments | 1,467 | 10,347 | - | 11,814 | |||||||||||||||||
| | Fixed interest instruments | - | 64,760 | - | 64,760 | |||||||||||||||||
| | Forward currency contracts - financial assets | - | 777 | - | 777 | |||||||||||||||||
| | Forward currency contracts - financial liabilities | - | (4,776) | - | (4,776) | |||||||||||||||||
| | Net fair value | 110,591 | 197,061 | 117,208 | 424,860 | |||||||||||||||||
| | | |||||||||||||||||||||
| | | Year ended | Year ended | |||||||||||||||||||
| | | 30 September 2021 | 30 September 2020 | |||||||||||||||||||
| | Level 3 Financial assets at fair value through profit or loss | £'000 | £'000 | |||||||||||||||||||
| | Opening fair value | 117,208 | 108,238 | |||||||||||||||||||
| | Purchases including calls (at cost) | 65,762 | 25,895 | |||||||||||||||||||
| | Disposals and return of capital | (20,175) | (15,886) | |||||||||||||||||||
| | Transfers from level 1 | - | - | |||||||||||||||||||
| | Transfers from level 2 | - | - | |||||||||||||||||||
| | Total gains or losses included in losses on investments in the Statement of Comprehensive Income: | | | |||||||||||||||||||
| | - assets disposed of during the year | 2,448 | (10,142) | |||||||||||||||||||
| | - assets held at the end of the year | 6,865 | 9,103 | |||||||||||||||||||
| | Closing balance | 172,108 | 117,208 | |||||||||||||||||||
| | | | | |||||||||||||||||||
| | The fair value of Level 3 financial assets has been determined by reference to primary valuation techniques described in note 2(e) of these financial statements. The Level 3 equity investments comprise the following: | |||||||||||||||||||||
| | | | | |||||||||||||||||||
| | | Year ended | Year ended | |||||||||||||||||||
| | | 30 September 2021 | 30 September 2020 | |||||||||||||||||||
| | | £'000 | £'000 | |||||||||||||||||||
| | Aberdeen European Residential Opportunities Fund | 11,869 | 11,248 | |||||||||||||||||||
| | Aberdeen Global Infrastructure Partners II (AUD) | 5,949 | 4,785 | |||||||||||||||||||
| | Aberdeen Global Infrastructure Partners II (USD) | 9,705 | 6,899 | |||||||||||||||||||
| | Aberdeen Property Secondaries Partners II | 12,568 | 13,425 | |||||||||||||||||||
| | Aberdeen Standard Global Private Markets Fund | 17,251 | - | |||||||||||||||||||
| | Aberdeen Standard Secondary Opportunities Fund IV | 5,478 | 2,805 | |||||||||||||||||||
| | Agriculture Capital Management Fund II | 3,575 | 3,636 | |||||||||||||||||||
| | Andean Social Infrastructure Fund I | 5,886 | 1,629 | |||||||||||||||||||
| | BlackRock Renewable Income - UK | 8,055 | 7,809 | |||||||||||||||||||
| | Blue Capital Alternative Income | 46 | 280 | |||||||||||||||||||
| | Bonaccord Capital Partners I-A | 6,274 | - | |||||||||||||||||||
| | Burford Opportunity Fund | 12,794 | 14,092 | |||||||||||||||||||
| | Cheyne Social Property Impact Fund | 5,196 | 6,073 | |||||||||||||||||||
| | Dover Street VII | 235 | 252 | |||||||||||||||||||
| | HarbourVest International Private Equity V | 51 | 44 | |||||||||||||||||||
| | HarbourVest International Private Equity VI | 3,020 | 2,796 | |||||||||||||||||||
| | HarbourVest VIII Buyout Fund | 353 | 529 | |||||||||||||||||||
| | HarbourVest VIII Venture Fund | 210 | 177 | |||||||||||||||||||
| | Healthcare Royalty Partners IV | 10,779 | 940 | |||||||||||||||||||
| | Maj Invest Equity 4 | 2,806 | 2,262 | |||||||||||||||||||
| | Maj Invest Equity 5 | 1,785 | 828 | |||||||||||||||||||
| | Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI | 1,058 | 4,396 | |||||||||||||||||||
| | Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPI | 1,305 | 3,405 | |||||||||||||||||||
| | Mesirow Financial Private Equity III | 214 | 371 | |||||||||||||||||||
| | Mesirow Financial Private Equity IV | 1,272 | 1,451 | |||||||||||||||||||
| | Mount Row Credit Fund II | 9,850 | - | |||||||||||||||||||
| | Pan European Infrastructure Fund | 4,352 | - | |||||||||||||||||||
| | PIMCO Private Income Fund Offshore Feeder I LP | 7,416 | - | |||||||||||||||||||
| | SL Capital Infrastructure II | 14,745 | 20,264 | |||||||||||||||||||
| | Truenoord Co-Investment | 8,011 | 6,812 | |||||||||||||||||||
| | | 172,108 | 117,208 | |||||||||||||||||||
| | | | | |||||||||||||||||||
| | There were no transfers between levels for financial assets and financial liabilities during the years ended 30 September 2021 and 30 September 2020. | |||||||||||||||||||||
| | For all other assets and liabilities (i.e. those not included in the hierarchy table) carrying value approximates to fair value with the exception of the 6.25% Bonds 2031. The basis of their fair value is detailed in note 13. | |||||||||||||||||||||
| 19. | Related party transactions and transactions with the Manager | |
| | Related party transactions - Directors' fees and interests. Fees payable during the year to the Directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report in the published Annual Report. The balance of fees due to Directors at the year end was £Nil (2020 - £13,000). | |
| |
Transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of management services. The investment management fee is levied by ASFML 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); and | |
| | - 0.45% per annum in respect of the balance of the net asset value (with debt at fair value). | |
| |
Details of transactions during the year and balances outstanding at the year end are disclosed in note 4.
| |
| | In accordance with the investment management agreement, where applicable, an amount equivalent to the management fee received by the Manager on the underlying holding which is managed by the Group in the normal course of business, is either removed from or offset against the management fee payable by the Company to ensure that no double counting occurs. Any investments made in funds managed by the Group which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at the Group'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 30 September 2021 that were managed by the Group. For the period to 30 September 2021 no fees were levied in respect of these funds. | |
| | | |
| | | 30 September 2021 |
| | | £'000 |
| | Aberdeen Standard Global Private Markets Fund{B} | 17,251 |
| | SL Capital Infrastructure II{B} | 14,745 |
| | Aberdeen Property Secondaries Partners II{C} | 12,568 |
| | Aberdeen European Residential Opportunities Fund{B} | 11,869 |
| | ASI UK Mid-Cap Equity{A} | 10,895 |
| | Aberdeen Global Infrastructure Partners II (USD){D} | 9,705 |
| | Aberdeen Standard SICAV I - Frontier Markets Bond Fund{C} | 5,974 |
| | Aberdeen Global Infrastructure Partners II (AUD){D} | 5,949 |
| | Andean Social Infrastructure Fund I{B} | 5,886 |
| | Aberdeen Standard Secondary Opportunities Fund IV{C} | 5,478 |
| | Aberdeen Standard Alpha - Global Loans Fund{A} | 5,042 |
| | | 105,362 |
| | | |
| | {A} The Company is invested in a share class which is not subject to a management charge from the Group. | |
| | {B} The value of this holding is removed from the management fee calculation to ensure that no double counting occurs. | |
| | {C} An amount equivalent to the management fee received by the Manager on the underlying is offset against the management fee payable by the Company to ensure that no double counting occurs. | |
| | {D} The invested capital commitment is removed from the management fee calculation to ensure than no double counting occurs. | |
| | | |
| | The Company also has an agreement with ASFML for the provision of secretarial, accounting and administration services and promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in note 4 and note 5 on page. | |
| 20. | Capital management policies and procedures. The current investment objective of the Company is to seek to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio. |
| |
The capital of the Company consists of debt (comprising Bonds) and equity (comprising issued capital, reserves and retained earnings). The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. |
| |
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: |
| | - the planned level of gearing which takes into account the Investment Manager's views on the market (net gearing at the reporting period end is disclosed in their Investment Manager's Report and the calculation basis is set out on the Alternative Performance Measures); |
| | - the level of equity shares in issue; and |
| | - the revenue account, shareholder distributions and the extent to which the balance is either accretive or dilutive of the revenue reserves. |
| |
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. |
| |
At the year end a covenant relating to the issue of the Bonds provides that 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. This covenant was met during the year and also during the period from the year end to the date of this report. The Company is not subject to any other externally imposed capital requirements. |
| 21. | Analysis of changes in net debt | | | | | |
| | | At | | | | At |
| | | 1 October | Currency |
| Non-cash | 30 September 2021 |
| | | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Cash and cash equivalents | 17,413 | 5,411 | (15,623) | - | 7,201 |
| | Forward contracts | (3,999) | 1,082 | - | - | (2,917) |
| | Debt due after one year | (59,540) | - | 43,904 | (28) | (15,664) |
| | Total | (46,126) | 6,493 | 28,281 | (28) | (11,380) |
| | | | | | | |
| | | At | | | | At |
| | | 1 October | Currency |
| Non-cash | 30 September 2020 |
| | | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Cash and cash equivalents | 7,809 | 17,459 | (7,855) | - | 17,413 |
| | Forward contracts | 3,195 | (7,194) | - | - | (3,999) |
| | Debt due after one year | (59,503) | - | - | (37) | (59,540) |
| | Total | (48,499) | 10,265 | (7,855) | (37) | (46,126) |
| 22. | Commitments and contingent liabilities. At 30 September 2021 the Company had commitments of £275,385,000 of which £80.158,000 remained outstanding (2020 - £81,078,000). Further details are given below. There were no contingent liabilities as at 30 September 2021 (2020 - £nil). | |
| | | |
| | | Undrawn commitments |
| | | 30 September 2021 |
| | | £'000 |
| | Aberdeen Standard Secondary Opportunities Fund IV | 15,004 |
| | Andean Social Infrastructure Fund I | 11,448 |
| | SL Capital Infrastructure II | 11,259 |
| | Bonaccord Capital Partners I-A | 8,915 |
| | Healthcare Royalty Partners IV | 8,141 |
| | ASI Hark III | 7,416 |
| | Burford Opportunity Fund | 6,600 |
| | Aberdeen Global Infrastructure Partners II (AUD) | 6,315 |
| | Aberdeen Property Secondaries Partners II | 1,275 |
| | Aberdeen European Residential Opportunities Fund | 1,190 |
| | Maj Equity 5 | 773 |
| | Agriculture Capital Management Fund II | 511 |
| | Maj Equity 4 | 398 |
| | Pan-European Infrastructure Fund I | 276 |
| | Dover Street VII | 164 |
| | HarbourVest International Private Equity VI | 153 |
| | Mesirow Financial Private Equity IV | 148 |
| | Mesirow Financial Private Equity III | 70 |
| | HarbourVest VIII Buyout Fund | 65 |
| | HarbourVest International Private Equity V | 28 |
| | HarbourVest VIII Venture Fund | 7 |
| | Aberdeen Global Infrastructure Partners II (USD) | 2 |
| | | 80,158 |
| | | |
| | | Undrawn commitments |
| | | 30 September 2020 |
| | | £'000 |
| | Healthcare Royalty Partners IV | 18,301 |
| | Andean Social Infrastructure Fund I | 16,559 |
| | Aberdeen Standard Secondary Opportunities Fund IV | 16,455 |
| | Aberdeen Global Infrastructure Partners II (AUD) | 8,357 |
| | Burford Opportunity Fund | 7,809 |
| | SL Capital Infrastructure II | 5,960 |
| | Aberdeen European Residential Opportunities Fund | 2,644 |
| | Aberdeen Property Secondaries Partners II | 1,363 |
| | Maj Equity 5 | 1,306 |
| | Agriculture Capital Management Fund II | 927 |
| | Maj Equity 4 | 445 |
| | TrueNoord Co-Investment | 201 |
| | Mesirow Financial Private Equity IV | 193 |
| | Dover Street VII | 171 |
| | HarbourVest International Private Equity VI | 161 |
| | Mesirow Financial Private Equity III | 98 |
| | HarbourVest VIII Buyout Fund | 67 |
| | HarbourVest International Private Equity V | 30 |
| | Aberdeen Global Infrastructure Partners II (USD) | 23 |
| | HarbourVest VIII Venture Fund | 8 |
| | | 81,078 |
| |
| |
| ALTERNATIVE PERFORMANCE MEASURES | ||||||||
| | ||||||||
| Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.
| ||||||||
| Total return. NAV and share price total returns show how the NAV and share price have performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.
| ||||||||
| The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the years ended 30 September 2021 and 30 September 2020 and total returns. | ||||||||
| | | | | | ||||
| | | | NAV | | ||||
|
| Dividend | NAV | (debt at fair value) | Share | ||||
| 30 September 2020 | N/A | 121.71p | 113.40p | 91.50p | ||||
| 24 December 2020 | 1.36p | 116.25p | 113.95p | 99.10p | ||||
| 4 March 2021 | 1.38p | 114.52p | 112.52p | 92.60p | ||||
| 17 June 2021 | 1.38p | 119.60p | 117.68p | 100.40p | ||||
| 30 September 2021 | 1.38p | 123.54p | 121.73p | 100.00p | ||||
| Total return | | +6.3% | +12.5% | +15.6% | ||||
| | | | | | ||||
| | | | NAV | | ||||
|
| Dividend | NAV | (debt at fair value) | Share | ||||
| 30 September 2019 | N/A | 128.08p | 119.90p | 108.00p | ||||
| 24 December 2019 | 1.34p | 127.09p | 119.77p | 111.50p | ||||
| 5 March 2020 | 1.36p | 125.17p | 116.81p | 108.00p | ||||
| 18 June 2020 | 1.36p | 117.76p | 109.31p | 96.60p | ||||
| 24 September 2020 | 1.36p | 118.20p | 109.88p | 89.20p | ||||
| 30 September 2020 | N/A | 121.71p | 113.40p | 91.50p | ||||
| Total return | | -0.7% | -0.8% | -10.6% | ||||
| | | | | | ||||
| Net asset value per Ordinary share - debt at fair value | ||||||||
| The net asset value per Ordinary share with debt at fair value is calculated as follows: | ||||||||
| | ||||||||
| | As at | As at | ||||||
| | 30 September 2021 | 30 September 2020 | ||||||
| | £'000 | £'000 | ||||||
| Net asset value attributable | 382,118 | 386,230 | ||||||
| Add: Amortised cost of 6.25% Bonds 2031 | 15,664 | 59,540 | ||||||
| Less: Market value of 6.25% Bonds 2031 | (21,233) | (85,925) | ||||||
| | 376,549 | 359,845 | ||||||
| | | | ||||||
| Number of Ordinary shares in issue excluding treasury shares | 309,318,738 | 317,330,238 | ||||||
| | | | ||||||
| Net asset value per share (p) | 121.73 | 113.40 | ||||||
| | | | ||||||
| Discount to net asset value per Ordinary share - debt at fair value. The discount is the amount by which the Ordinary share price is lower than the net asset value per Ordinary share - debt at fair value, expressed as a percentage of the net asset value - debt at fair value. The Board considers this to be the most appropriate measure of the Company's discount. | ||||||||
| | | | | | ||||
| | | | 30 September 2021 | 30 September 2020 | ||||
| Net asset value per Ordinary share (p) | a | | 121.73 | 113.40 | ||||
| Share price (p) | b | | 100.00 | 91.50 | ||||
| Discount | (a-b)/a | | 17.9% | 19.3% | ||||
| | | | | | ||||
| Dividend cover. Revenue return per Ordinary share divided by dividends declared for the year per Ordinary share expressed as a ratio. | ||||||||
| | ||||||||
| | | | 30 September 2021 | 30 September 2020 | ||||
| Revenue return per Ordinary share (p) | a | | 5.14 | 5.58 | ||||
| Dividends declared (p) | b | | 5.52 | 5.44 | ||||
| Dividend cover | a/b | | 0.93 | 1.03 | ||||
| | | | | | ||||
| Dividend yield. The annual dividend per Ordinary share divided by the share price, expressed as a percentage. | ||||||||
| | | | | | ||||
| | | | 30 September 2021 | 30 September 2020 | ||||
| Dividend per Ordinary share (p) | a | | 5.52 | 5.44 | ||||
| Share price (p) | b | | 100.00 | 91.50 | ||||
| Dividend yield | a/b | | 5.5% | 5.9% | ||||
| | | | | | ||||
| Net gearing - debt at par value. Net gearing with debt at par value measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end, in addition to cash and short term deposits. | ||||||||
| | | | |
| ||||
| | | 30 September 2021 | 30 September 2020 |
| ||||
| Borrowings (£'000) | a | 15,664 | 59,540 |
| ||||
| Cash (£'000) | b | 7,201 | 17,413 |
| ||||
| Amounts due to brokers (£'000) | c | 221 | - |
| ||||
| Amounts due from brokers (£'000) | d | 335 | 682 |
| ||||
| Shareholders' funds (£'000) | e | 382,118 | 386,230 |
| ||||
| Net gearing | (a-b+c-d)/e | 2.2% | 10.7% |
| ||||
| | | | |
| ||||
| Net gearing - debt at fair value. Net gearing with debt at fair value measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the year end, in addition to cash and short term deposits per the Statement of Financial Position. | ||||||||
| | | | |
| ||||
| | | 30 September 2021 | 30 September 2020 |
| ||||
| Borrowings (£'000) | a | 21,233 | 85,925 |
| ||||
| Cash (£'000) | b | 7,201 | 17,413 |
| ||||
| Amounts due to brokers (£'000) | c | 221 | - |
| ||||
| Amounts due from brokers (£'000) | d | 335 | 682 |
| ||||
| Shareholders' funds (£'000) | e | 376,549 | 359,845 |
| ||||
| Net gearing | (a-b+c-d)/e | 3.7% | 18.8% |
| ||||
| | | | |
| ||||
| Ongoing charges. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. | ||||||||
| | | | ||||||
| | 2021 | 2020 | ||||||
| | £ | £ | ||||||
| Investment management fees | 1,319,000 | 1,339,000 | ||||||
| Administrative expenses | 980,000 | 837,000 | ||||||
| Less: non-recurring charges{A} | (69,500) | (10,000) | ||||||
| Ongoing charges | 2,229,500 | 2,166,000 | ||||||
| | | | ||||||
| Average net assets with debt at fair value | 361,834,000 | 362,978,000 | ||||||
| | | | ||||||
| Ongoing charges ratio (excluding look-through costs) | 0.62% | 0.60% | ||||||
| Look-through costs{B} | 0.83% | 0.98% | ||||||
| Ongoing charges ratio (including look-through costs) | 1.45% | 1.58% | ||||||
| | ||||||||
| {A} Professional services considered unlikely to recur. | ||||||||
| {B} Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis. The figure for 30 September 2020 has been restated in accordance with this guidance. | ||||||||
| | ||||||||
| The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes financing and transaction costs. This can be found within the literature library section of the Company's website: aberdeendiversified.co.uk. | ||||||||
Additional Notes to the Annual Financial Report
The Annual Report will be posted to shareholders in January 2022 and copies will be available from the registered office of the Company and on the Company's website at - www.aberdeendiversified.co.uk *
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
8 December 2021
* Neither 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.
END
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