TIDMAFMC
RNS Number : 2369J
Aberdeen Frontier Mkts Inv Co Ltd
07 September 2016
7 September 2016
ABERDEEN FRONTIER MARKETS INVESTMENT COMPANY LIMITED (FORMERLY
ADVANCE FRONTIER MARKETS FUND LIMITED)
ANNOUNCEMENT OF RESULTS FOR THE YEARED 30 JUNE 2016
INVESTMENT OBJECTIVE
The objective of Aberdeen Frontier Markets Investment Company
Limited (the "Company") is to generate long-term capital growth for
its shareholders. The Investment Manager invests predominantly in a
diversified portfolio of funds and other investment products which
derive their value from Frontier Markets. The proportion of the
portfolio invested in each component of Frontier Markets varies
according to where the Investment Manager perceives the most
attractive investment opportunities to be. Investee funds may
include closed and open-ended funds, exchange traded funds,
structured products, limited partnerships and managed accounts.
PERFORMANCE
For the year ended 30 June 2016
Net Asset Value ("NAV") per share
(in US dollar terms) -13.6%
Share price (in US dollar terms) -16.0%
As at 30 June 2016
NAV per share $0.8290
Share price (in GB pounds) GBP0.5675
Share price (in US dollars) $0.7554
Net Assets $140.5m
CHAIRMAN'S STATEMENT
On behalf of the Board, I present to you the Annual Report for
Aberdeen Frontier Markets Investment Company Limited for the
financial year ended 30 June 2016.
Markets and Performance
The performance of frontier markets over the year was largely a
tale of two halves. The initial 7-month period was particularly
weak due to investor concerns over US dollar strength and the
anticipated increase in US interest rates as well as weak commodity
prices and continued uncertainty over the state of the Chinese
economy. An improvement was observed from February onwards as
investors looked for attractively-priced opportunities to re-enter
frontier markets. However, Nigeria's significant currency
devaluation and the aftershocks of the 'Leave' campaign prevailing
in the UK's EU Referendum contributed to a volatile end to the
Company's financial year.
During the year to 30 June 2016 the Company's net asset value
per share (NAV) and share price declined by 13.6% and 16.0%
respectively compared to a decline of 12.1% in the MSCI Frontier
Markets Net Total Return Index (all figures in total return
terms).
The Investment Manager discusses the performance of the
portfolio in greater detail on pages 3 to 6 of the Annual Report
but, broadly, while underlying managers largely outperformed their
respective benchmarks, this was outweighed by exposure to
underperforming African markets including Egypt, Zambia and
Zimbabwe which was only partly offset by positive asset allocation
in Asia.
Discount
The discount to NAV at which the Company's shares trade was 8.9%
at 30 June 2016. Whilst this is marginally wider than a year
earlier, the level of discount has remained narrower than that
associated with the majority of other closed end funds focused on
emerging and frontier markets. As at 31 August 2016, the discount
to NAV was 5.2%. The Board monitors the discount on a regular basis
and, in addition to those measures outlined below, will consider
buying back shares if it is considered to be in shareholders'
interests to do so.
Dividend
The Board considers that the cash-generative nature of many
frontier companies, and the dividends into which this often
translates, is increasingly an important part of the rationale for
investing in the frontier markets asset class. The Board has been
monitoring this development over several years and, having also
noted evolving market practice elsewhere, believes that initiating
the payment of a regular dividend should enhance the marketability
of the Company's shares and help to moderate discount volatility.
In June 2016 the Company announced the introduction of a
semi-annual dividend with the base level of dividend set with
reference to the Investment Manager's calculation of the yield on
the underlying portfolio on a look through basis, less relevant
costs.
Given that the policy was only announced towards the end of the
financial year the Board is proposing to pay an initial dividend in
respect of the second half of the financial year of 1.2 cents per
share. The initial dividend will be payable on 19 December 2016,
subject to shareholder approval at the forthcoming AGM, with an
ex-dividend date of 17 November 2016. The record date will be 18
November 2016. The dividend will be paid in sterling and the
sterling dividend rate will be announced in due course.
Acquisition of Investment Manager
On 15 September 2015 it was announced that the Company's
Investment Manager, Advance Emerging Capital Limited ("AEC") had
reached an agreement with Aberdeen Asset Management PLC
("Aberdeen") whereby Aberdeen Asset Management PLC acquired 100%
ownership of AEC. The transaction subsequently received regulatory
approval from the UK Financial Conduct Authority and completed in
December 2015. The Board has closely monitored the integration of
the investment team and is satisfied that the benefits to clients
which were outlined at the time of the transaction are being
achieved. With effect from 1 June 2016, the Company appointed
Aberdeen Fund Managers Limited, a subsidiary company of Aberdeen,
as its alternative investment fund manager replacing AEC; the terms
and notice period of the investment management contract remain
unchanged.
Change of Company's Name
At an Extraordinary General Meeting held on 14 April 2016,
shareholders approved the change of the Company's name to Aberdeen
Frontier Markets Investment Company Limited. This change was
proposed as a consequence of the acquisition of the Company's
Investment Manager by Aberdeen. The Board believes that the Company
can benefit from Aberdeen's high profile, good reputation and the
additional resources available, notably in attracting additional
retail demand for the Company's shares.
Aberdeen Plans
Aberdeen has a long history in managing closed-ended funds and
provides a wealth of experience in their management and promotion.
It is pleasing to report that investors may now access low cost
investment in the Company through Aberdeen's Share Plan, Investment
Trust ISA and Investment Plan for Children. Further details may be
found in the Annual Report or via our new, branded website at:
aberdeenfrontiermarkets.co.uk.
Board Composition
Further to succession plans developed over the longer term to
manage directors' tenure, the Board has undergone significant
change in the year under review. Helen Green retired as a director
in December 2015 and was succeeded as Chair of the Audit Committee
and Management Engagement Committee by David Warr, who joined the
Board in September 2015. The Board wishes to thank Helen for her
service as well as recognise the technical skills and practical
experience which were appreciated by the other directors. David has
considerable experience in the investment funds sector and has
already proved to be a strong addition to the Board and to the
Audit Committee.
In addition, Lynne Duquemin joined as a non-executive director
of the Company in February 2016 after attending previous Board
meetings as a Board apprentice. Lynne brings over 29 years of
investment experience including her background in manager selection
and investment manager due diligence which is particularly
beneficial as the Company invests into frontier markets via both
closed and open-end funds.
Grant Wilson, having been a director of the Company since its
incorporation in 2007, stepped down as a director and Chairman of
the Company with effect from 1 March 2016 and I was privileged to
succeed him. The Board is indebted to Grant for his commitment and
service as a director since the Company's launch in 2007 and for
his leadership as Chairman.
Liquidity opportunity
The Board expects to issue to shareholders, in November 2016, a
circular for a proposed tender offer (the "tender") which will
provide shareholders with the opportunity to fully realise their
investment in the Company at the then prevailing NAV less costs,
should they wish to do so. The record date for the tender will be
30 September 2016.
This liquidity opportunity was announced in December 2012 when
the discount to NAV at which the Company's shares were trading was
significantly wider than the current discount. The Board believes
that this has successfully contributed to a meaningful reduction in
the discount since 2012 and that it will continue to support the
Company's rating over the coming years.
As noted below, and in the Investment Manager's Report, the
long-term prospects for frontier markets are compelling, and the
Board believes that shareholders will be well served by maintaining
their exposure to the Company as the directors intend to do with
their own shareholdings. I would also remind shareholders that the
directors intend to offer the same liquidity opportunity every 5
years.
Outlook
The Board remains convinced of the fundamental investment case
for the frontier markets asset class, not least due to the
opportunities now available for acquiring frontier assets at low
valuations.
The strategy employed by the Investment Manager, that of
investing in an index-agnostic fashion through well-managed funds
in attractive markets (where possible at a discount to NAV), makes
eminent sense. This approach has delivered meaningful
outperformance against the MSCI Frontier Markets Net Total Return
Index since the Company's inception with a significantly lower
level of volatility.
Supported by an enlarged infrastructure, with the additional
resources and brand recognition of Aberdeen, the Board looks
forward to the Company taking advantage of improving market
conditions across frontier markets to continue to deliver
consistent value for shareholders.
John Whittle
7 September 2016
INVESTMENT MANAGER'S REPORT
Performance review (all performance numbers quoted in this
report are in US dollar terms)
During the year to 30 June 2016 the Company's net asset value
per share (NAV) and share price declined by 13.6% and 16.0%
respectively. As a point of reference, the MSCI Frontier Markets
Net Total Return Index declined by 12.1% over the period. The
discount to NAV at which the Company's shares trade ended the
period at 8.9%, a little wider than the level of 6.3% that
prevailed a year earlier.
Figure 1: Aberdeen Frontier Markets Investment Company
Performance Report
1 Year 3 Years 5 Years
------------ ------- -------- --------
AFMC NAV -13.6% -6.2% -0.8%
------------ ------- -------- --------
AFMC Price -16.0% -4.3% 5.2%
------------ ------- -------- --------
Source: Aberdeen Fund Managers Limited, Bloomberg, all figures
in US dollar terms to 30 June 2016.
Although the Company does not benchmark itself against the MSCI
Frontier Markets Index we conduct performance attribution against
that index. In terms of relative performance, manager selection was
positive with underlying managers, on aggregate, outperforming
their benchmarks. The Company's holdings in Vietnam, Nigeria and
Kazakhstan performed notably well in relative terms, as did
selected regional funds in Africa including Africa Opportunity Fund
and Sustainable Capital Africa Consumer Fund. A small number of
holdings underperformed, including the Company's investment in East
Africa through PineBridge, Romanian closed end fund Fondul
Proprietatea and SCM Africa.
Asset allocation negatively impacted relative returns. Exposure
to a number of non-index constituent African markets proved
detrimental, notably Egypt, Zambia and Zimbabwe which lagged
broader African markets. An underweight allocation to Nigeria was
positive but was countered by an underweight in Morocco which was
the only market on the continent to record a gain. Asset allocation
in Asia was more beneficial with the Company's significant
weightings in Vietnam and Pakistan adding value. Elsewhere, a
significant overweight allocation to Romania was positive while
exposure to the Middle East was neutral with the positive
contribution from a large underweight in Kuwait offset by a
negative contribution from an off-index allocation to Saudi Arabia.
In Latin America the Company maintained a significant allocation to
Argentina but was still underweight to that market's weighting in
the MSCI Frontier Markets Index and this was a negative
contributor.
Discount movements detracted from relative performance with
several of the portfolio's larger closed ended investments
suffering from discount widening over the year including Fondul
Proprietatea, VinaCapital Vietnam Opportunity Fund and Africa
Opportunity Fund. The weighted average discount level on the closed
end funds in the portfolio was 27.3% at the end of the period, 4.7%
wider than a year earlier.
Market environment
The year to the end of June 2016 presented a challenging
environment for frontier markets. The first seven months of the
financial year were notably weak as investor sentiment continued to
focus on the same handful of issues that had dominated thinking
prior to the start of the period, namely, US dollar strength,
uncertainty over the pace of interest rates hikes in the US,
China's economic and financial health and weak commodity prices. As
a consequence, the MSCI Frontier Markets Index was down by 21.0%
between the start of the financial year and its lowest point in
late January. The subsequent months proved better for investors as
markets rallied strongly to recoup much of the prior losses with
the previous concerns abating to some extent, at least temporarily.
June, however, brought further volatility as a consequence of the
significant currency devaluation in Nigeria and the surprise result
of the UK referendum.
Figure 2: Performance of MSCI Frontier Markets Index compared
with Emerging and Developed Markets over year to 30 June 2016
See Annual Report for chart
The performance of individual frontier markets during the period
is shown in Figure 3. The usual wide dispersion of returns between
markets was in evidence with Zambia recording a loss of 41.2% while
Estonia gained 26.3%. Broadly speaking, the regions that fared
worst were those seen as being heavily reliant upon commodity or
energy exports or having weak government finances. Thus, African,
Central Asian and Middle Eastern markets struggled for much of the
period while Asia and parts of Eastern Europe generally fared
better.
In Africa, the Nigerian market fell by 36.4% with much of the
decline a result of a long overdue devaluation of the naira by the
Central Bank of Nigeria in mid-June. When the devaluation occurred,
the naira weakened by just over 30% against the US dollar, helping
to clear a backlog of foreign exchange transactions and prompting a
significant uptick in trading volumes on the Nigerian Stock
Exchange, with foreigners being material buyers as they strove to
reduce large underweight positions (despite the devaluation,
Nigeria accounted for 13.4% of the MSCI Frontier Markets Index at
the end of June). We view the devaluation as a cathartic event for
the Nigerian market in as much as it removes a great deal of short
term uncertainty. We anticipate that with this hurdle crossed,
investors will increasingly focus on the longer term opportunity
presented by low valuations, depressed earnings, compelling
demographics and the positive changes being implemented by the
Buhari administration.
Elsewhere in Africa, Moroccan stocks gained 5.1% as it remained
a bastion of economic and political stability in the region and
continued to benefit from a Euro peg and trapped domestic
liquidity. The Kenyan market fell by 11.0% but was still amongst
the better performing African markets and, despite security and
political concerns, continues to cement its position as East
Africa's commercial and industrial hub. Egyptian equities lost
23.8% with investor confidence eroding and a 12% currency
depreciation detracting from returns. In Zimbabwe, an economically
paralysing liquidity crisis contributed to a 31.9% loss. Zambia's
market also performed poorly, dropping 41.2% with the country's
economic fundamentals remaining in a precarious state and its
currency weakening sharply.
In the Middle East, all major markets declined, with lower
energy prices impacting on government finances and increasing the
focus on structural reforms.
In Eastern Europe, Romania rose by 2.2% supported by foreign
inflows attracted to the market by reasonable valuations and solid
macroeconomic fundamentals. The Ukrainian market suffered a decline
of 31.6% as the consequences of an ongoing recession, weak
currency, political instability and fragile peace with Russia
contributed to poor sentiment.
Asia was a relative bright spot but still saw markets decline.
Pakistan fared best, losing just 2.1% as economic fundamentals
improved and reasonable valuations continued to attract foreign
inflows. Index provider, MSCI, reflected the Pakistan's progress by
announcing that it would be upgraded to emerging market status from
May 2017. In Vietnam, the economy continued to gain momentum and
significant steps were taken to improve foreign access to the stock
market. Nonetheless, the market lost 7.1%. Sri Lanka was the worst
performing Asian frontier market, losing 19.3% as the country
suffered from weak investor sentiment amid unclear policy direction
and challenging government finances.
In Kazakhstan, the commodity price bust forced the authorities
to depreciate the currency by over 40%. This led to the stock
market losing 34.0% in US dollar terms despite making a small gain
in local currency terms.
In Latin America, Mauricio Macri's victory in Argentina's
presidential elections in November 2015 marked a turning point for
a country viewed as an economic and political pariah on the world
stage for much of the past decade. The new government's reforms
proved market friendly; allowing the peso to float, liberalising
trade, lowering tariffs and reducing subsidies. The long running
stand-off with debt holdouts from a previous sovereign default was
swiftly addressed and allowed Argentina to return to international
capital markets in April. Over the year the Argentine marked gained
7.3%.
Figure 3: Market returns over the year to 30 June 2016 in US
dollar terms
See Annual Report for chart
Portfolio
The Company's asset allocation at the end of the period is shown
in the Annual Report. The portfolio is shown in the Annual Report,
being composed of 34 holdings, with the top 20 investments
representing 92.1% of NAV. At year end, the Company was 70.0%
invested through open ended funds, 26.5% through closed end funds,
5.3% through individual equities while running 1.8% leverage. The
average discount to NAV at which closed end investments within the
portfolio trade was 27.3% at period end having widened somewhat
from 22.6% a year before.
The period saw a rotation in the Company's asset allocation away
from Africa and the Middle East towards Asia and Eastern Europe as
we strove to position the portfolio towards markets with healthy
economic growth, sound government finances and sensible policy
making. At the end of the period, Africa accounted for 23.1% of net
assets compared with 35.1% a year before. We made a number of full
exits during the year including Tugela African Resources and Africa
Emerging Markets Fund.
The Middle Eastern allocation stood at just 7.6% at the end of
the financial year compared with 14.0% at the start. Saudi Arabia
saw the bulk of that reduction and represented 1.2% of net assets
at year end as we chose to drastically reduce the position in EFG
Hermes Saudi Arabia Equity Fund between November 2015 and January
2016 on asset allocation grounds.
In Asia, we continued to favour Vietnam and Pakistan.
Maintaining both at close to 15% at period end, the maximum
permitted in a single country. In Vietnam we were heartened by the
progress made on addressing the issue of foreign ownership limits
on individual stocks. Pakistan, meanwhile, is home to many well
managed companies which can be purchased at reasonable valuations.
The market was buoyed by the news that index provider MSCI plans to
upgrade Pakistan to emerging market status in May 2017.
In Eastern Europe, we initiated a holding in East Capital Balkan
Fund which invests across a range of markets including Slovenia,
Romania, Serbia and Croatia. This decision reflected both an
improved view on the investment potential of the Balkans, which
offers an attractive mix of low valuations and healthy economic
growth, and our belief that this was the most appropriate vehicle
to express this view through. In our opinion, East Capital Asset
Management is one of the best resourced, experienced and respected
managers in the region and one we have known for many years. At the
end of the period, the holding was the largest in the portfolio,
accounting for 8.1% of NAV.
Argentina accounted for 10.4% of NAV at year end. We were
pleased to see positive political change and a return to rational
policy making from the new Macri administration with the stock
market responding positively. Our core holding in the market,
Advance Copernico Argentina Equity Fund performed admirably during
the period, gaining 13.8% compared with 7.3% from MSCI
Argentina.
Direct equity positions accounted for 5.3% of NAV at year end.
We added several positions to the portfolio, utilising the
flexibility to invest directly where the market is inaccessible
through funds. Thus, an allocation was made to Sri Lanka through
holding company John Keells, which offers diversified exposure to
the key growth segments of the Sri Lankan economy (leisure, retail,
food, financial services and gaming). It is the largest stock on
the Colombo exchange with high quality management, strong corporate
governance and a high level of transparency. In a similar vein,
positions in Morocco and Lebanon were initiated through Maroc
Telecom in the former and Blom Bank in the latter. We believe both
companies possess attractive long term growth potential and operate
in markets that benefit from strong fundamentals but are difficult
to access through third party funds.
Market outlook
The rationale for investing in frontier markets today is little
changed from when the Company was launched almost a decade ago.
Premium economic growth continues to be driven by long term trends
in demographics and consumption. Markets remain uncorrelated to
each other and the asset class is therefore likely to continue
delivering returns that are less volatile than investors expect.
Frontier equity markets remain woefully underrepresented in global
indices relative to their economic significance, being home to 31%
of the world's population and accounting for 9% of global GDP but
with a weighting that is equivalent to just 0.2% of the MSCI World
Index (Source: Renaissance Capital, June 2016). Off such a low
base, we believe there is scope for the asset class to grow
significantly over the long term. For now though, it remains an
inefficient and somewhat overlooked asset class, providing
opportunities for active stock pickers to identify mispriced
companies.
One tenet of the rationale that has changed materially is
valuation. Frontier market equities have suffered a material
de-rating from a trailing price to earnings ratio of 19.0x in 2009
to just 10.6x at present (Source: Bloomberg). Accompanying the low
valuation is an attractive dividend yield that talks to the
unlevered and cash generative nature of many frontier corporates.
This has been a consistent feature of the asset class over time.
Such inexpensive valuations have been reached through a combination
of resilient earnings and uninspiring market performance. In a
world where both growth (in GDP or corporate earnings) and yield
are scarce, we believe investors will, in the years to come, be
willing to pay higher valuations for frontier assets than they are
today.
Your portfolio has changed materially over the years, reflecting
the active way in which we invest. At present we believe it to be
extremely well positioned, concentrated in well-structured funds
managed by talented stock pickers in attractive markets, often at a
discount to net asset value. We believe this simple strategy,
executed well, will deliver attractive risk adjusted returns for
investors over the coming years from an asset class that is
brimming with potential.
Aberdeen Fund Managers Limited
7 September 2016
PRINCIPAL RISKS AND UNCERTAINTIES
Together with the issues discussed in the Chairman's Statement
and the Investment Manager's Report, the Board considers that the
main risks and uncertainties faced by the Company fall into the
following categories:
(i) General market risks associated with the Company's
investments
Changes in economic conditions, interest rates, foreign exchange
rates and inflationary pressures, industry conditions, competition,
political and diplomatic events, tax, environmental and other laws
and other factors can substantially and either adversely or
favourably affect the value of the securities in which the Company
invests and, therefore, the Company's performance and
prospects.
The Company's investments are subject to normal market
fluctuations and the risks inherent in the purchase, holding or
selling of securities, and there can be no assurance that
appreciation in the value of those investments will occur. There
can be no guarantee that any realisation of an investment will be
on a basis which necessarily reflects the Company's valuation of
that investment for the purposes of calculating the net asset
value.
(ii) Risks associated with Frontier Markets
The Company invests in Frontier Markets which involves certain
risks and special considerations not typically associated with
investing in other more established economies or securities
markets. Such risks may include (a) the risk of nationalisation or
expropriation of assets or confiscatory taxation; (b) social,
economic and political uncertainty including war and revolution;
(c) dependence on exports and the corresponding importance of
international trade and commodities prices; (d) less liquidity of
securities markets; (e) currency exchange rate fluctuations; (f)
potentially higher rates of inflation (including hyper-inflation);
(g) controls on foreign investment and limitations on repatriation
of invested capital and a fund manager's ability to exchange local
currencies for US dollars; (h) a higher degree of governmental
involvement and control over the economies; (i) government
decisions to discontinue support for economic reform programmes and
imposition of centrally planned economies; (j) differences in
auditing and financial reporting standards which may result in the
unavailability of material information about economics and issuers;
(k) less extensive regulatory oversight of securities markets; (l)
longer settlement periods for securities transactions; (m) less
stringent laws regarding the fiduciary duties of officers and
directors and protection of investors; and (n) certain consequences
regarding the maintenance of portfolio securities and cash with
sub-custodians and securities depositories in frontier markets.
(iii) Liquidity of the portfolio
The underlying investee funds selected by the Investment Manager
may have significant investments in smaller to medium sized
companies of a less seasoned nature whose securities are traded in
an "over-the-counter" market. These "secondary" securities often
involve significantly greater risks than the securities of larger,
better-known companies, due to shorter operating histories,
potentially lower credit ratings and, if they are not listed
companies, a potential lack of liquidity in their securities. As a
result of lower liquidity and greater share price volatility of
these "secondary" securities, there may be a disproportionate
effect on the value of the investee funds and, indirectly, on the
value of the Company's portfolio.
The fact that the Company may invest in funds that are not
traded on investment exchanges or do not permit frequent
redemptions including funds that may have "lock-up" periods or
"gates", or otherwise do not permit redemptions for significant
periods of time, means that an investment in the Ordinary shares of
the Company may be a relatively illiquid investment.
As a result of liquidation or redemption of a holding in a fund,
limited partnership or other investment vehicle, or due to the
creation of an illiquid investment or receipt of an illiquid asset
in lieu of an existing holding, the Company's portfolio may contain
illiquid assets.
(iv) Foreign exchange risks
The Company is exposed to foreign exchange risks which affect
both the performance of its investee funds and also the value of
the Company's holdings against the Company's base currency, the US
dollar. Currency exposures are not hedged by the Company.
Management or mitigation of the above risks
Risk Management or mitigation of
risk
--------------------------- --------------------------------------
General market risks These risks are largely a consequence
associated with of the Company's investment
the Company's investments strategy but the Investment
Manager attempts to mitigate
such risks by maintaining an
appropriately diversified portfolio
by number of holdings, fund
structure, geographic focus,
investment style and market
capitalisation focus.
Liquidity, risk and exposure
measures are produced on a
monthly basis and monitored
against internal limits.
--------------------------- --------------------------------------
Frontier Markets
--------------------------- --------------------------------------
Liquidity of the
portfolio
---------------------------
Foreign exchange
risks
--------------------------- --------------------------------------
The investment management of the Company has been delegated to
the Company's Investment Manager. The Investment Manager's
investment process takes into account the material risks associated
with the Company's portfolio and the markets and holdings in which
the Company is invested. The Board monitors the portfolio and the
performance of the Investment Manager at regular Board
meetings.
(v) Internal risks
Poor allocation of the Company's assets to both markets and
investee funds by the Investment Manager, poor governance,
compliance or administration, could result in shareholders not
making acceptable returns on their investment in the Company.
Management or mitigation of internal risks
The Board monitors the performance of the Investment Manager and
the other key service providers at regular Board meetings. The
Investment Manager provides reports to the Board on compliance
matters and the Administrator provides reports to the Board on
compliance and other administrative matters. The Board has
established various committees to ensure that relevant governance
matters are addressed by the Board.
The management or mitigation of internal risks is described in
further detail in the corporate governance statement in the Annual
Report.
The Directors are aware that there is now an additional
uncertainty to those outlined above. The United Kingdom decision in
the EU referendum held on 23 June 2016 to leave the EU may
introduce potentially significant new uncertainties and instability
in financial markets as the United Kingdom negotiates the terms of
its exit from the EU.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing financial statements
for each financial year which give a true and fair view of the
state of affairs of the Company as at the end of the year and of
the profit or loss for the year and are in accordance with The
Companies (Guernsey) Law, 2008. In preparing these accounts, the
directors are required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgements and estimates which are reasonable and prudent;
-- State whether applicable International Financial Reporting
Standards ("IFRS") as adopted by the European Union 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 ensuring that proper
accounting records are kept which disclose with reasonable accuracy
at any time the financial position of the Company and enable them
to ensure that the accounts have been properly prepared in
accordance with The Companies (Guernsey) Law, 2008. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
In accordance with The Companies (Guernsey) Law, 2008, there is
no relevant audit information of which the Company's auditor is
unaware. The directors also confirm that they have taken all steps
they ought to have taken as directors to make themselves aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
The financial statements are published on the Company's website
(website address: www.aberdeenfrontiermarkets.co.uk) and on the
Investment Manager's website (website address:
www.aberdeen-asset.com). The maintenance and integrity of the
Investment Manager's website, so far as it relates to the Company,
is the responsibility of the Investment Manager. The work carried
out by the auditor does not involve consideration of the
maintenance and integrity of these websites and accordingly, the
auditor accepts no responsibility for any changes that have
occurred to the financial statements since they were initially
presented on these websites. Visitors to the websites need to be
aware that legislation in Guernsey governing the preparation and
dissemination of the financial statements may differ from
legislation in their jurisdiction.
The directors confirm that to the best of their knowledge and
belief the annual report and accounts taken as a whole, is fair,
balanced and understandable and provides the information necessary
to assess the Company's position and performance, business model
and strategy.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 JUNE 2016
2016 2015
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Losses on investments - (20,189) (20,189) - (19,811) (19,811)
Capital losses
on currency movements - (38) (38) - (76) (76)
----------- ----------- ----------- -------- ----------- -----------
Net investment
losses - (20,227) (20,227) - (19,887) (19,887)
Investment income 915 - 915 2,797 - 2,797
----------- ----------- ----------- -------- ----------- -----------
Total income/(loss) 915 (20,227) (19,312) 2,797 (19,887) (17,090)
Investment management
fees (554) (1,107) (1,661) (669) (1,363) (2,032)
Other expenses (771) - (771) (816) - (816)
----------- ----------- ----------- -------- ----------- -----------
Net (loss)/profit
from operations
before finance
costs and taxation (410) (21,334) (21,744) 1,312 (21,250) (19,938)
Finance costs (119) (227) (346) (136) (268) (404)
Net (loss)/profit
before taxation (529) (21,561) (22,090) 1,176 (21,518) (20,342)
Taxation (61) - (61) (237) - (237)
----------- ----------- ----------- -------- ----------- -----------
Net (loss)/profit
after taxation (590) (21,561) (22,151) 939 (21,518) (20,579)
----------- ----------- ----------- -------- ----------- -----------
(Loss)/earnings
per ordinary share (0.35c) (12.72c) (13.07c) 0.55c (12.70c) (12.14c)
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared under IFRS as adopted
by the European Union. The revenue and capital columns, including
the revenue and capital earnings per share data, are supplementary
information prepared under guidance published by the Association of
Investment Companies. The Company does not have any income or
expenses that are not included in the profit/(loss) for the year
and therefore the "Net Profit/(loss) after taxation" is also the
total comprehensive income for the year, as defined by IAS 1
(revised).
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2016
2016 2015
$'000 $'000
Non-current assets
Investments designated as
fair value through profit
or loss 142,990 164,982
--------- ---------
Current assets
Other receivables 758 1,388
Cash and cash equivalents 1,524 5,573
--------- ---------
2,282 6,961
--------- ---------
Total assets 145,272 171,943
--------- ---------
Current liabilities
Loans payable 4,500 9,000
Other payables 298 318
---------
4,798 9,318
--------- ---------
Total assets less current
liabilities 140,474 162,625
--------- ---------
Capital and reserves attributable
to equity holders
Share premium account 88,788 88,788
Share purchase reserve - 82,319
Capital reserve 50,854 (9,904)
Revenue reserve 832 1,422
Total Equity 140,474 162,625
--------- ---------
Net assets per ordinary share
(US cents) 82.90c 95.97c
Exchange rate GBP/USD (mid
market) 0.7512 0.6368
Net assets per ordinary share
(pence) 62.27p 61.11p
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2016
Share Share Capital Revenue Total
premium purchase reserve reserve
account reserve
$'000 $'000 $'000 $'000 $'000
Opening equity 88,788 82,319 (9,904) 1,422 162,625
Transfer between
reserves - (82,319) 82,319 - -
Loss for the
year - - (21,561) (590) (22,151)
Closing equity 88,788 - 50,854 832 140,474
--------- ---------- --------- --------- ---------
FOR THE YEARED 30 JUNE 2015
Share Share Capital Revenue Total
premium purchase reserve reserve
account reserve
$'000 $'000 $'000 $'000 $'000
Opening equity 88,788 82,319 11,614 483 183,204
(Loss)/profit
for the year - - (21,518) 939 (20,579)
Closing equity 88,788 82,319 (9,904) 1,422 162,625
--------- ---------- --------- --------- ---------
STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2016
2016 2015
$'000 $'000
Operating activities
Cash inflow from investment
income and bank interest 953 2,648
Cash outflow from management
expenses (2,437) (4,881)
Cash inflow from disposal
of investments 40,807 53,001
Cash outflow from purchase
of investments (38,433) (49,965)
Cash outflow from foreign
exchange costs (37) (76)
Cash outflow from taxation (61) (237)
---------
Net cash flow provided by
operating activities 792 490
--------- ---------
Financing activities
Proceeds from bank borrowings - 2,500
Repayments of bank borrowings (4,500) -
Finance charges and interest
paid (341) (271)
--------- ---------
Net cash flow (used in)/from
financing activities (4,841) 2,229
--------- ---------
Net (decrease)/increase in
cash and cash equivalents (4,049) 2,719
--------- ---------
Cash and cash equivalents
opening balance 5,573 2,854
Cash (outflow)/inflow (4,049) 2,719
--------- ---------
Cash and cash equivalents
balance at 30 June 1,524 5,573
--------- ---------
NOTES
1. ACCOUNTING POLICIES
Basis of Preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (IFRS),
approved by the International Accounting Standards Board and as
adopted by the European Union.
The financial statements give a true and fair view of the state
of affairs of the Company as at the end of the year and of the
profit or loss for the year and are in accordance with The
Companies (Guernsey) Law, 2008.
Under IFRS, the Statement of Recommended Practice (SORP) issued
by the Association of Investment Companies has no formal status,
but the Company has taken the guidance of the SORP into account to
the extent that it is deemed appropriate and compatible with IFRS
and the Company's circumstances.
The particular accounting policies adopted are described
below:
(a) Accounting Convention
The accounts are prepared under the historical cost convention,
except for the measurement at fair value of investments.
(b) Investments
As the Company's business is investing in financial assets with
a view to profiting from their total return in the form of
increases in fair value, financial assets are designated as fair
value through profit or loss on initial recognition in accordance
with International Accounting Standard (IAS) 39. These investments
are recognised on the trade date of their acquisition. At this
time, fair value is the cost of investment.
After initial recognition such investments are valued at fair
value which is determined by reference to:
(i) market bid price for investments quoted on recognised stock exchanges;
(ii) net asset value per individual investee funds'
administrators for unquoted open-ended funds; and
(iii) by using other valuation techniques to establish fair
value for any other unquoted investments.
Investments are derecognised on the trade date of their
disposal. Gains or losses are recognised in the capital column of
the Statement of Comprehensive Income.
(c) Income from Investments
Dividend income from ordinary shares and units in open-ended
funds deemed equivalent to ordinary shares is accounted for on the
basis of ex-dividend dates. Income from fixed interest shares and
securities is accounted for on an accruals basis using the
effective interest method. Special dividends are assessed on their
individual merits and are credited to the capital column of the
Statement of Comprehensive Income if the substance of the payment
is a return of capital; with this exception all other investment
income is taken to the revenue column of the Statement of
Comprehensive Income. Bank interest receivable is accounted for on
a time apportionment basis.
(d) Capital Reserves
Profits and losses on disposals of investments and gains and
losses on revaluation of investments held are allocated to the
capital reserve via the capital column of the Statement of
Comprehensive Income.
(e) Revenue Reserves
The balance of all items allocated to the revenue column of the
Statement of Comprehensive Income in each year is transferred to
the Company's revenue reserves. Any dividends paid by the Company
would also be allocated against the revenue reserves of the
Company.
(f) Investment Management Fees
Two thirds of the basic investment management fee is allocated
to the capital column of the Statement of Comprehensive Income. The
entirety of any performance fee is allocated to the capital column
of the Statement of Comprehensive Income. Fees allocated to the
capital column are taken to the capital reserve.
(g) Foreign Currency
The Company's shares were issued in US dollars and the majority
of the Company's investments are priced in US dollars and this is
considered to be the functional currency of the Company. Therefore,
it is the Company's policy to present the accounts in US dollars.
The Company's shares are traded in Sterling on AIM.
Assets and liabilities held in currencies other than US dollars
are translated into US dollars at the market rates of exchange
prevailing at the reporting date. Currency gains and losses arising
on retranslating investments are allocated to the capital column of
the Statement of Comprehensive Income. All other currency gains and
losses are allocated to the capital or revenue columns of the
Statement of Comprehensive Income depending on the nature of the
transaction.
(h) Finance costs
Finance costs include interest payable and direct loan costs. In
line with the Company's policy for investment management fees, two
thirds of finance costs are allocated to the capital column of the
Statement of Comprehensive Income. Fees allocated to the capital
column are taken to the capital reserve. Loan arrangement costs are
amortised over the term of the loan on an effective interest rate
basis.
(i) Financial liabilities
The Company's financial liabilities include borrowings and other
payables. Financial liabilities are recognised when the Company
becomes a party to the contractual provisions of the financial
instrument, and are measured initially at fair value adjusted for
transaction costs. A financial liability is derecognised when it is
extinguished, discharged, cancelled or expires. Financial
liabilities are measured subsequently at amortised cost using the
effective interest method.
(j) Cash and Cash Equivalents
Cash and Cash Equivalents in the Statement of Cash Flows
comprise cash held at the bank or by the custodian.
(k) Operating segments
IFRS 8, 'Operating segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes. The Board, as a whole,
has been determined as constituting the chief operating decision
maker of the Company. The Board has considered the requirements of
the standard and is of the view that the Company is engaged in a
single segment of business, which is to generate long-term capital
growth for its shareholders by investing in a diversified portfolio
of funds and other investment products which derive their value
from frontier markets.
The Board of directors is responsible for ensuring that the
Company's investment objective is followed. The day-to-day
implementation of this has been delegated to the Investment Manager
but the Board retains responsibility for the overall direction of
the Company. The Board reviews the investment decisions of the
Investment Manager at regular Board meetings. The Investment
Manager has been given full authority to make investment decisions
on behalf of the Company in accordance with the investment
objective.
(l) Unconsolidated structured entities
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
administrative tasks only and the relevant activities are directed
by means of contractual arrangements. A structured entity often has
some or all of the following features or attributes; (a) restricted
activities, (b) a narrow and well-defined objective, such as to
provide investment opportunities for investors by passing on risks
and rewards associated with the assets of the structured entity to
investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support
and (d) financing in the form of multiple contractually linked
instruments to investors that create concentrations of credit or
other risks.
The Company holds shares, units or partnership interests in the
funds or investment products held in the Company's portfolio. The
Company does not consider its investments in listed funds to be
structured entities but does consider its investments in unlisted
funds to be investments in structured entities because the voting
rights in such entities are limited to administrative tasks and are
not the dominant factor in deciding who controls those
entities.
Changes in fair value of investments, including structured
entities, are included in the Statement of Comprehensive
Income.
(m) New standards, Interpretations and amendments
There are no new standards, interpretations or amendments which
became effective during the year.
At the date of approval of these financial statements, the
following standard, which has not been applied in these financial
statements, was in issue but not yet effective:
-- IFRS 9, 'Financial instruments', effective for annual periods
beginning on or after 1 January 2018, specifies how an entity
should classify and measure financial assets and liabilities,
including some hybrid contracts. The standard improves and
simplifies the approach for classification and measurement of
financial assets compared with the requirements of IAS 39. Most of
the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward unchanged. The standard
applies a consistent approach to classifying financial assets and
replaces the numerous categories of financial assets in IAS 39,
each of which had its own classification criteria.
The Board is currently considering the impact of the above
standard.
(n) Critical accounting estimates and judgements in applying
accounting policies
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates are continually
evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Actual results could differ
from such estimates. These financial statements have been prepared
on a going concern basis which the directors of the Company believe
to be appropriate.
The most critical judgements and estimates that management has
made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognised
in the financial statements are the functional currency of the
Company (see note 1(g)) and the fair value estimation of financial
assets designated as at fair value through profit or loss (see
notes 1(b) and 18).
(o) Going concern
As described in the Directors' Report in the Annual Report, the
directors have adopted the going-concern basis in preparing the
financial statements.
2. INVESTMENT INCOME
2016 2015
Income from investments: $'000 $'000
Dividends from investments 915 2,797
Total investment income 915 2,797
------- -------
3. INVESTMENT MANAGEMENT 2016 2015
FEES AND OTHER
EXPENSES
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Investment management
fees - basic 554 1,107 1,661 669 1,337 2,006
Performance fee* - - - - 26 26
-------- -------- ------ -------- -------- ------
Total Investment
management fees 554 1,107 1,661 669 1,363 2,032
-------- -------- ------ -------- -------- ------
Administration
fees 164 - 164 221 - 221
Directors' fees 177 - 177 170 - 170
Depository and
custody fees 129 - 129 126 - 126
Legal fees 42 - 42 67 - 67
Broker fees 37 - 37 40 - 40
Registrar's fees 39 - 39 34 - 34
Auditor's fees 28 - 28 32 - 32
Nominated Adviser
fees 30 - 30 32 - 32
Promotion 14 - 14 - - -
Other expenses 111 - 111 94 - 94
-------- -------- ------ -------- -------- ------
Total other expenses 771 - 771 816 - 816
-------- -------- ------ -------- -------- ------
Total expenses 1,325 1,107 2,432 1,485 1,363 2,848
-------- -------- ------ -------- -------- ------
Further details on the management agreement are provided in the
directors' report in the Annual Report. The Company has agreed to
pay a fee to Aberdeen Asset Managers Limited for the provision of
promotional activities with the first such fee covering the period
from April 2016 to March 2017. The total fees payable in respect of
the period from 1 April 2016 to 30 June 2016 were $14,000 (2015:
nil) all of which was outstanding at the year end.
The Company's ongoing charges for the year ended 30 June 2016
calculated in accordance with the AIC methodology were 1.67% (2015:
1.64%). The ongoing charges figure does not include performance
fees or finance costs.
*There was no performance fee payable in respect of the year
ended 30 June 2016 (2015: nil). The charge of $26,000 for the year
ended 30 June 2015 relates to the performance fee payable for the
year ended 30 June 2014.
4. FINANCE COSTS
In accordance with directors' expectations of the split of
future returns being mostly of a capital nature, two thirds of
finance costs are charged as capital items in the Statement of
Comprehensive Income.
2016 2015
-------- --------
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
-------- -------- ------ -------- -------- ------
Facility costs
and arrangement
fees 97 44 141 49 98 147
Interest charges 22 182 204 87 170 257
-------- -------- ------ -------- -------- ------
Total finance
costs 119 226 345 136 268 404
-------- -------- ------ -------- -------- ------
5. DIRECTORS' FEES
The fees paid or accrued were $176,868 (2015: $169,191). There
were no other emoluments. Full details of the fees of each director
are given in the Directors' Remuneration Report in the Annual
Report.
6. TAXATION
The Company is resident for tax purposes in Guernsey.
The Company is exempt from Guernsey income tax under the Income
Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and 1992 and was
charged an annual exemption fee of GBP1,200 (2015: GBP1,200) during
the year.
During the year, the Company suffered foreign withholding tax on
income from investments totalling in aggregate $61,271 (2015:
$237,451).
7. LOSS PER ORDINARY SHARE
Loss per share is based on the net loss of $22,150,000 (2015:
loss of $20,579,000) attributable to the weighted average of
169,460,000 (2015: 169,460,000) ordinary shares of no par value in
issue during the year to 30 June 2016.
Supplementary information is provided as follows: revenue per
share is based on the net revenue loss of $590,000 (2015: profit of
$939,000) and capital loss per share is based on the net capital
loss of $21,560,000 (2015: net capital loss of $21,518,000)
attributable to the above ordinary shares.
8. LOANS PAYABLE
Since 8 April 2016, the Company has had in place a US$6 million
revolving loan facility with Investec Bank plc. Under the terms of
the facility the Company may draw down loans of, in aggregate, up
to US$6 million (2015:US$9 million). The rate of interest on each
loan is calculated at LIBOR plus a margin of 3.25% per annum. An
arrangement fee was payable at the commencement of the facility and
a commitment fee calculated at the rate of 1.20% per annum is
payable on any undrawn amounts. The loan is secured through a
charge on the Company's assets (including its investments). The
loan expires on 8 April 2017 unless renewed. Prior to 8 April 2016,
the Company had a US$9 million facility on materially the same
terms as the current facility. At 30 June 2016, the Company has
borrowings of US$4.5 million from the loan facility with
US$1.5million unutilised.
9. SHARE PURCHASE RESERVE
2016 2015
$'000 $'000
Opening balance 82,319 82,319
Transfer to capital reserve (82,319) -
Balance at 30 June - 82,319
--------- -------
During the period following the Board's decision to initiate the
regular payment of dividends, the balance on the share purchase
reserve has been transferred to the Company's capital reserve to
simplify the presentation of the Company's distributable
reserves.
10. CAPITAL RESERVE
Disposal of investments
2016 2015
$'000 $'000
Opening balance (19,280) (23,561)
(Losses)/gains from disposal of
investments (5,408) 4,844
Realised gains on capital distributions 717 1,163
Other capital receipts/(charges) 396 (19)
Investment management fees charged
to capital (1,107) (1,363)
Finance charge to capital (227) (268)
Foreign exchange losses (37) (76)
Balance at 30 June (24,946) (19,280)
--------- ---------
Investments held
2016 2015
$'000 $'000
Opening balance 9,376 35,175
Movement on valuation of investments
held (15,894) (25,799)
Balance at 30 June (6,518) 9,376
--------- ---------
Capital reserve
2016 2015
$'000 $'000
Opening balance (9,904) 11,614
Loss for the year (21,561) (21,518)
Transfer from share purchase reserve 82,319 -
--------- ---------
Capital reserve balance at 30 June 50,854 (9,904)
--------- ---------
Losses on investments (per statement of comprehensive
income)
2016 2015
$'000 $'000
(Losses)/gains on disposal of investments (4,295) 5,988
Movement on valuation of investments
held (15,894) (25,799)
(20,189) (19,811)
--------- ---------
11. NET ASSETS PER ORDINARY SHARE
Net assets per ordinary share of $0.8290 (2015: $0.9597) is
based on net assets of $140,474,000 (2015: $162,625,000) divided by
169,460,000 (2015: 169,460,000) ordinary shares in issue at the
Statement of Financial Position date.
12. RELATED PARTY TRANSACTIONS
Details of the management contract can be found in the
Directors' Report in the Annual Report. Fees payable to the
Investment Manager are detailed in note 3. Other payables include
accruals of basic management fees of $136,707 (2015: $162,630) and
a performance fee provision of $nil (2015: $nil).
The directors' fees are disclosed in note 5 and the Directors'
Remuneration Report in the Annual Report.
13. DIVIDEND
In June 2016 the Company announced the introduction of a
dividend with the base level of dividend set with reference to the
Investment Manager's calculation of the yield on the underlying
portfolio, less relevant costs.
The Board is proposing to pay an initial dividend in respect of
the second half of the financial year of 1.2 cents per share.
Subject to shareholder approval at the forthcoming AGM the initial
dividend will be payable on 19 December 2016 to shareholders on the
register at the close of business on 18 November 2016. The dividend
will be paid in sterling and the sterling dividend rate will be
announced in due course.
The dividend will be paid from the Company's distributable
reserves
14. POST BALANCE SHEET EVENTS
There have been no post balance sheet events other than as
disclosed in the Annual Report.
15. FINANCIAL INFORMATION
The financial information in this announcement is derived from
the audited financial statements for the year ended 30 June
2016.
The Annual Report for the year ended 30 June 2016 was approved
by the Board of directors on 7 September 2016. It is available on
the Company's website www.aberdeenfrontiermarkets.co.uk and will be
posted to shareholders. It will also be available from the
registered office of the Company.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of Aberdeen Frontier Markets
Investment Company Limited will be held at 11 New Street, St Peter
Port, Guernsey at 3:00 p.m. on 12 December 2016.
Registered office
11 New Street
St Peter Port
Guernsey
GY1 2PF
Enquiries:
Aberdeen Fund Managers Limited (Investment Manager to Aberdeen
Frontier Markets Investment Company Limited)
Andrew Lister / Bernard Moody Tel: +44 (0)20 7618 1440
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett Tel: +44 (0)20 7383 5100
Numis Securities Limited (Nominated Broker)
David Benda Tel: +44 (0) 20 7260 1275
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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