Acorn Income Fund Limited
Annual Financial Report
or the year ended 31 December
2017
LEI: 213800UAZN7G46AHQM67
L(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended
31 December 2017. The Report will
shortly be available via the Investment Manager’s website
https://www.premierfunds.co.uk/media/657458/acorn-income-fund-annual-report-2017.pdf
and will also be available for inspection online at
www.morningstar.co.uk/uk/NSM website.
Investment Objectives and Policy
Investment Objectives
The investment objective and policy of Acorn Income Fund Limited
(the “Company” or “Acorn”) is to provide Shareholders with high
income and also the opportunity for capital growth.
The Company’s assets comprise investments in equities and fixed
interest securities in order to achieve its investment objective.
The Company’s investments are held in two portfolios. Approximately
70% to 80% of the Company’s assets are invested in smaller
capitalised United Kingdom
companies, admitted to the Official List of the Financial Conduct
Authority (the “FCA”) and traded on the main market of the London
Stock Exchange (the “LSE”) or traded on the Alternative Investment
Market (“AIM”) at the time of investment. The Company also aims to
enhance income for Ordinary Shareholders by investing approximately
20% to 30% of the Company’s assets in high yielding instruments
which are predominantly fixed interest securities but may include
up to 15% of the Company’s overall portfolio (measured at the time
of acquisition) in high yielding investment company shares.
The proportion of the overall portfolio held in the Smaller
Companies Portfolio and the Income Portfolio varies from day to day
as the market prices of investments move. The Directors retain
discretion to transfer funds from one portfolio to the other and
generally expect between 70% to 80% of the investments to be held
in the Smaller Companies Portfolio.
While the Company’s investment policy is to spread risk by
maintaining diversified portfolios, there are no restrictions on
the proportions of either of the portfolios which may be invested
in any one geographical area, asset class or industry sector.
However, not more than 7.5% of the Company’s gross assets may be
invested in securities issued by any one company as at the time of
investment, save that (i) in respect of the Income Portfolio only,
investments may be made in other investment funds subject only to
the restriction set out in paragraph (c) of the section headed
“Investment Restrictions” below; and (ii) in respect of the Smaller
Companies Portfolio only, provided that not more than 10% of the
Company’s gross assets are invested in securities issued by any one
company at any time, the 7.5% limit may be exceeded on a short term
basis, with Board approval, where a company whose securities form
part of the Smaller Companies Portfolio issues new securities (for
example by way of a rights issue).
The Company’s capital structure is such that the underlying
value of assets attributable to the Ordinary Shares is geared
relative to the rising capital entitlements of the Preference
Shares (“ZDP Shares”). The Company’s gearing policy is not to
employ any further gearing through long-term bank borrowing. Save
with the prior sanction of ZDP Shareholders, the Company will incur
no indebtedness other than short term borrowings in the normal
course of business such as to settle share trades or borrowings to
finance the redemption of the ZDP Shares.
Investment Restrictions
For so long as required by the LSE Listing Rules in relation to
closed-ended investment companies, the Company has adopted the
following investment and other restrictions:
(a) the Company will at all times invest and manage
its assets in a way which is consistent with its objective of
spreading investment risk and in accordance with its published
investment policy;
(b) the Company will not conduct any significant
trading activity; and
(c) not more than 10% in aggregate of the
value of the total assets of the Company at the time the investment
is made will be invested in other listed closed-ended investment
funds. The Listing Rules provide an exception to this restriction
to the extent that those investment funds which have stated
investment policies to invest no more than 15% of their total
assets in other listed closed-ended investment companies.
Derivatives
The Company may invest in derivatives, money market instruments
and currency instruments including contracts for difference,
futures, forwards and options. These investments may be used for
hedging positions against movements in, for example, equity
markets, currencies and interest rates, for investment purposes and
for efficient portfolio management. The Company’s use of such
instruments for investment purposes is limited to 5 per cent of the
total assets of the Company. The Company will not use such
instruments to engage in any significant trading activity. The
Company will not maintain derivative positions should the total
underlying exposure of these positions (excluding any currency
hedges) exceed one times adjusted total capital and reserves.
Dividend Policy
The Company’s policy is to provide Ordinary Shareholders with a
high income relative to the average dividend yield of the UK
Smaller companies comprised in the Numis Smaller Companies Index ex
Investment Companies. The Company aims to pay a regular quarterly
dividend in March, June, September and December. It is intended to
distribute substantially all of the Company’s net income after
expenses and taxation, however the Company may retain a proportion
of the Company’s income in each year as a revenue reserve to assist
in providing long term stability in dividend distributions.
Dividends may be paid to holders of Ordinary Shares whenever the
financial position of the Company, in the opinion of the Directors,
justifies such payment, subject to the Company being able to
satisfy the solvency test, as defined under the Companies
(Guernsey) Law 2008. The Board is
alert to the potential for new share issuance to dilute earnings
and accordingly will have regard to the size and timing of new
share issues. The ZDP shares do not carry a right to a
dividend.
Performance Summary
for the year ended 31 December
2017
|
31/12/2017 |
31/12/2016 |
% change/return |
Total Return
Performance* |
|
|
|
Total Return on Gross
Assets*## |
|
|
17.86% |
Numis Smaller
Companies (Ex Investment Companies) Index |
22,794.71 |
19,074.80 |
19.50% |
FTSE All Share
Index |
7,265.66 |
6,424.25 |
13.10% |
FTSE Small Cap (Ex
Investment Companies) Index |
7,864.09 |
6,802.34 |
15.61% |
Share Price and NAV
Returns |
|
|
|
Ordinary
Shares |
|
|
|
Share Price |
463.50p |
359.00p |
29.11% |
NAV** |
486.84p |
407.23p |
19.55% |
IFRS
NAV# |
486.65p |
407.20p |
19.51% |
Total return on Net
Assets* |
|
|
24.17% |
Ordinary Share Price
Total Return |
|
|
34.52% |
Discount (-) Premium
(+) to NAV on Ordinary Shares |
-4.79% |
-11.84% |
|
ZDP Shares |
|
|
|
Share Price |
151.25p |
139.38p |
8.52% |
NAV** |
142.83p |
137.26p |
4.06% |
IFRS NAV |
142.97p |
137.28p |
4.14% |
Discount (-) Premium
(+) to NAV on ZDP Shares |
+5.90% |
+1.54% |
|
Other |
|
|
|
Total Assets less
Current Liabilities~ |
£108,003,413 |
£64,787,950 |
66.70% |
Package Discount (-)
Premium (+) to |
|
|
|
NAV Combined Ordinary
and ZDP Shares |
-1.77% |
-7.67% |
|
ZDP Liability** |
£30,515,004 |
£29,314,857 |
4.09% |
Net Assets** |
£77,488,409 |
£64,793,038 |
19.59% |
Gearing Level |
39.38% |
45.24% |
-12.95% |
Total Expenses Ratio
(calculated on year end Gross Assets) |
1.04% |
1.04% |
0.00% |
Ongoing Charges
(calculated on average Net Assets) |
1.53% |
1.63% |
-6.13% |
Dividends and
Earnings |
|
|
|
Revenue return per
ordinary share |
20.36p |
20.38p |
-0.10% |
Dividends declared per
ordinary share |
18.00p |
15.50p |
16.13% |
~ During the year ended 31 December
2016 the ZDP Shares were reclassified on the Statement of
Financial Position as a current liability as the maturity date was
within one year. In January 2017 the
ZDP Shares were refinanced and the life of the ZDP Shares was
extended to 28 February 2022.
* assumes dividends reinvested
** calculated in accordance with the Articles
# calculated in accordance with International Financial
Reporting Standards
# # adjusted for debt repayment and the issue of new Ordinary
Shares and ZDP Shares
Sources: Index data: Bloomberg, Total return on gross and net
assets, PFM, JP Morgan Cazenove
Company Summary
History
The Company was incorporated on 5 January
1999 and commenced its activities on 11 February 1999. The portfolio is divided into
two sub portfolios, a Smaller Companies Portfolio representing
approximately 70-80% of the total with the balance invested in an
Income Portfolio investing in fixed income securities, investment
company shares and structured investments. The Company has always
been leveraged, initially through bank debt and now through Zero
Dividend Preference Shares. In December
2016 shareholders approved the extension of the Zero
Dividend Preference Shares setting a new redemption date of
28 February 2022.
Capital Structure
Zero Dividend
Preference Shares |
21,365,221 (excluding
treasury shares) |
(1pence each) |
The ZDP Shares will have a final capital entitlement of 167.2 pence
per ZDP Share on 28 February 2022 following the extension of the
life of the existing shares from 31 January 2017, subject to there
being sufficient capital in the Company. The ZDP Shares are not
entitled to any dividends. ZDP shareholders rank ahead of the
ordinary shareholders in regards to rights as to capital. The ZDP
shareholders have the right to receive notice of all general
meetings of the Company, but do not have the right to attend or
vote unless the business of the meeting involves an alteration of
the rights attached to the ZDP Shares, in which case the holders of
ZDP Shares can attend and vote. |
|
|
Ordinary Shares
(1pence each) |
15,916,687 (excluding
treasury shares) |
|
The Ordinary Shares are entitled to participate in all dividends
and distributions of the Company. On a winding-up holders of
Ordinary Shares are entitled to participate in the distribution and
the holders of Ordinary Shares are entitled to receive notice of
and attend and vote at all general meetings of the Company. |
|
|
Treasury Shares |
As at 31 December 2017
there were 1,275,972 Ordinary and 1,712,757 ZDP Shares held in
treasury. |
|
|
Shareholder Funds |
£77.46 million as at
31 December 2017 |
(calculated in
accordance with IFRS) |
|
|
|
Market Capitalisation
of the Ordinary |
£73.77 million as at
31 December 2017 |
Shares |
|
Company Details
The Board |
The Board consists of
three independent non-executive directors (“the Directors”), Helen
Green (Chairman), Nigel Ward and David Warr. |
|
|
Investment
Manager |
Premier Asset
Management (Guernsey) Limited (“PAMG”), is a subsidiary of Premier
Asset Management Group PLC (“PAM”). PAM had approximately £6.4bn of
funds under management as at 31 December 2017. PAMG Ltd is licensed
under the provisions of the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended, by the Guernsey Financial Services
Commission to carry on controlled investment business. |
|
|
Investment
Advisers |
Premier Fund Managers
Limited (“PFM”) – the Company’s Income Portfolio is managed by Paul
Smith. |
|
|
|
Unicorn Asset
Management Limited (“Unicorn”) – the Company’s Smaller Companies
Portfolio is managed by Simon Moon and Fraser Mackersie. |
|
|
Secretary/Administrator |
Northern Trust
International Fund Administration (Guernsey) Limited. |
|
|
Corporate Broker |
Numis Securities
Limited (“Numis”) provide all corporate broking services. |
|
|
Management Fee |
0.7% per annum (Total
Assets) charged 75% to capital and 25% to revenue. Minimum annual
management fee £100,000. |
|
|
|
In addition, a
performance fee is payable at the year-end if the target set out in
Note 5 is achieved. This is charged 100% to capital. |
|
|
Registrar |
Anson Registrars
Limited |
Financial Calendar
Company’s year end |
31 December |
Annual results announced |
March/April |
Company’s half year end |
30 June |
Annual General Meeting |
20 August 2018 |
Half year results announced |
August |
Dividend payments |
At the end of March, June, September
and December |
Company Website |
https://www.premierfunds.co.uk/investors/investments/investment-trusts/acorn-income-fund |
Chairman’s Statement
Year to 31 December 2017
Dear Shareholder
Despite the political and economic uncertainties that provided a
backdrop throughout the year stock markets prospered and Acorn had
a successful year. Ordinary shareholders in Acorn enjoyed a very
satisfying return of 34.52% delivered through a 29.11% increase in
the share price and 18 pence of
dividends paid over the course of the year. Strong revenue
performance enabled the directors to bring forward the annual
dividend increase from June to March. Ordinary shareholders
benefitted from the lower accrual rate on the Zero Dividend
Preference Shares which came into play at the start of the year and
from the narrowing in the ordinary share discount to NAV which
moved from 11.84% at the start of the year to 4.79% at the year
end.
Investment Performance
Equity markets generally performed well and smaller UK companies
had a particularly successful year. The broad UK stock market
represented by the FTSE All-Share Total Return Index returned 13.1%
over the year whilst the FTSE Small Cap index (ex investment
companies) provided a total return of 15.61% and the more widely
based Numis Smaller Companies (ex investment companies) total
return index rose by 19.50%. The total return on Acorn’s gross
assets was 17.86% and on net assets 24.17%. The bull market in
bonds continued and the Merrill Lynch Sterling Non Gilts index rose
by 4.33% over the year.
The Smaller Companies Portfolio generated a return of 24.85%
over the year (before costs) which was well ahead of the Numis
index. The investment approach based on the selection of stocks
with sound earning prospects and with a distribution policy and
market valuation that provides for an above average dividend yield,
has once again proved successful and was the principal driver of
performance over the year. Given the strength of equity markets it
was to be expected that the Income Portfolio would generate a lower
level of return but this element of the overall fund provides a
useful regulator of risk and volatility.
As in previous years the Company’s broker Numis has carried out
an analysis of Acorn’s performance and volatility against funds in
the small and mid cap sectors and in the equity income sector over
the last 5 years. Acorn continues to be well placed in relation to
its peers when taking account of both risk and performance.
The strong performance triggered a performance fee which was
being accrued within the published NAVs during the course of the
year. The fee is charged at 100% to capital. This is the first
performance fee that has been paid since 31
December 2013.
Asset Allocation
Acorn’s investment advisers have remained positive on the
outlook for the UK smaller companies in which they are invested and
cautious about the outlook for bond markets. Your directors
supported these views. As a consequence asset allocation at the
start of the year was 80% to the Smaller Companies Portfolio and
20% to the Income Portfolio. Relative performance led to a gradual
increase in the allocation to the Smaller Companies Portfolio and
although this took the smaller company exposure above the top end
of the normal range neither the board nor the advisers were minded
to rebalance and at the year end the weighting was 17% in the
Income Portfolio and 83% in the Smaller Companies
Portfolio.
Zero Dividend Preference Shares
(“ZDPs”)
At the start of the year, with shareholders’ approval, the life
of the ZDP shares was extended from their original
31 January 2017 redemption date to
28 February 2022 but with the ZDPs
accruing at a rate of 3.85% from the 138p NAV on 31 January 2017 to 167.2p on redemption. Existing
shareholders were given the opportunity to elect to remain invested
or to receive 138p per share redemption price at the end of January
2017. 91.4% of ZDP shareholders elected to remain invested.
The same structure and level of gearing was maintained with a small
placing of new ZDPs at a 1.4% premium to NAV to replace those that
had been redeemed.
Share issuance and buy backs
The Company has power to issue shares at a premium to net asset
value and to buy back into Treasury or for cancellation at a
discount. These transactions are generally executed in both classes
of share in the correct ratio to maintain the capital structure.
Issues are done at a premium to the package net asset value (the
NAV of ordinary shares and ZDPs combined) and buy backs at a
discount to the package net asset value, such that the transaction
will always enhance cover for the ZDP shares and be NAV enhancing
for the ordinary shares.
In conjunction with the ZDP proposals outlined above, the
Company issued a Prospectus for the issue of new Ordinary shares
through a placing and offer for subscription that was to close in
January 2017. The proposals also
provided for new ZDPs to be issued through a placing in such number
as would preserve the ratio of ZDPs to ordinary shares. These
proposals were approved by shareholders and although market
conditions were not favourable to raising new money 5,995 new
Ordinary shares and matching ZDP shares were issued at a premium to
the package net asset value.
There were no buy backs during the course of the year.
In December 2017 with the combined
valuation of the ordinary shares and the ZDPs moving to a premium
the Company announced that it would consider issuing new shares if
demand for the shares at a premium to asset value was
sustained.
Earnings and Dividends
The first interim dividend of 4.5p was paid in March 2017. This was an increase of 12.5% on the
4.0p level dividends that had been paid over the previous three
quarters and as the increase was brought forward by a quarter it
was up 28.6% on the dividend of 3.5p that had been paid in the
first quarter of the previous year. A quarterly dividend of 4.5p
was maintained throughout the year making a total distribution for
the year of 18.0p (2016: 15.5p). Earnings per share for the year of
20.36p covered the dividend distribution by 113% and resulted in an
addition to revenue reserves. At the year-end revenue reserves were
the equivalent of 18.14p per share representing 101% of the 2017
dividend.
Auditor
During the year the board reviewed the audit arrangement as KPMG
had held the position of auditor since the Company’s inception in
1999. Although under Guernsey law
there is no requirement to change the auditor after a specified
period your directors decided to put the audit contract out to
competitive tender. KPMG was invited to enter the tender process.
After interviewing the shortlisted candidates it was decided to
retain KPMG as the board was satisfied that they brought the
required high level of expertise and resource to the audit process
and that they remained fully independent of the board. Taking
account of the administration costs involved in moving the contract
the directors concluded that reappointing KPMG was also the most
economical solution for shareholders.
Regulation
Updates in the Markets in Financial Instruments Directive
(“MiFID II”) became effective on 3 January 2018. One of the
main changes introduced by the Directive relates to investment
research. Under MiFID II, investment managers are only permitted to
receive external research from third parties when it is paid for
from a separate Research Payment Account (“RPA”) managed in
accordance with the rules of the Financial Conduct Authority
(“FCA”). Until 31 December 2017,
external investment research was paid for by the Company, funded
from commissions paid when investments were traded.
Our Investment Advisers have advised the Company that they will
meet the cost of external investment research. Transaction
commissions are likely to be incurred at a lower rate than
previously as they will not include an implicit research cost.
MiFID II is not expected to lead to a material change in returns
or overall costs for the Company.
In compliance with the new Packaged Retail and Insurance-based
Investment Products regulations which came into effect on
3 January 2018 the Company has
published a Key Information Documents (“KIDs”) which can be viewed
on the Company’s website.
Outlook
The board is encouraged by the continuing investment
opportunities to be found in the UK small cap universe. As a sector
UK smaller companies are looking moderately undervalued in
comparison with larger companies when measured on valuation metrics
such as forecast price/earnings, dividend yield and dividend cover.
Your board remains positive on the prospects for the Smaller
Companies Portfolio. Our Investment Adviser continues to hold
strong conviction that Acorn’s smaller company investments have the
potential to provide earnings and dividend growth over the longer
term.
The Company’s Investment Adviser for the Income Portfolio
remains cautious on the outlook for bond markets but is comfortable
maintaining positioning which is away from bond index exposures and
the highest rated corporate bonds which essentially track sovereign
performance. The portfolio is focused instead on exploiting
opportunities available from selective short dated bonds and
through alternative investments in the investment company sector
and structured investments.
Contact with Shareholders
Shareholders are always welcome to attend the General Meeting in
August or to contact me directly through the email address
acorn_income_fund_limited@ntrs.com.
Helen
Green
Chairman
Investment Advisers’ Report
The Smaller Companies Portfolio
During the twelve month period to 31
December 2017 the Smaller Companies portfolio generated a
total return 24.85% (2,485 basis points) before expenses -
outperforming a rise of 19.50% by the Numis Smaller Companies Index
(Ex Investment Companies).
The period under review was a positive year for Small and
Mid-Cap UK equities and the Acorn Smaller Companies portfolio
benefitted from this supportive backdrop. Pleasingly the
confidence which had started to return to the sector towards the
end of the prior year continued throughout 2017. Performance
was driven by the continued strong operational performance of our
investee companies. In contrast to market expectations
immediately following the EU referendum in 2016 it is pleasing to
report that domestically focused stocks, as well as those with more
international earnings, contributed to strong returns.
The year under review was an eventful one for the UK. In March
the government triggered ‘Article 50’, starting a two-year period
during which the terms of exit from the EU must be agreed. A few
weeks later Theresa May called a
snap general election seeking to capitalise on the Conservative’s
strong lead in the polls at the time, attempting to secure a larger
parliamentary majority and thereby establishing a strong mandate
with which to negotiate Britain’s exit from the EU. This gamble
backfired, as the Conservative Party lost its majority and was
forced into forming a minority government with the help of the
Democratic Unionist Party. As a consequence, Mrs. May now
leads a weakened government with a diminished, rather than a
strengthened negotiating position.
The backdrop of political uncertainty, weak sterling, subsequent
inflationary pressures, and an increasing interest rate environment
combined to create a tough environment for the average UK consumer.
Against such a setting it is particularly pleasing to see the
underlying portfolio, of primarily domestically focussed stocks,
outperform.
The number of holdings within the portfolio fell by one to forty
nine during the period following the addition of ten new holdings
and disposal of eleven positions. The portfolio participated
in three Initial Public Offerings (IPOs) during the period.
All three (Alpha FX, Xafinity and Sabre Insurance) ended the year
in positive territory, contributing a combined 177 bps to
performance. Of the eleven disposals, three (Lavendon,
UK Mail, Berendsen) were a result of bid approaches – the later of
which was announced during the period, adding 49 bps to
performance.
In addition to the three IPOs outlined above new positions were
also added in Polar Capital, the asset manager; Berendsen, the
linen rental business (which was subsequently subject of a bid
approach); Hollywood Bowl, the ten pin bowling operator; 4imprint,
the supplier of branded promotional goods in North America; Severfield, the leading
manufacturer of structural steelwork; Vesuvius, the supplier of
consumables to the global steel industry and Regional REIT, which
specialises in regional UK commercial property. All of
the new additions made positive contributions to performance during
the period.
Eleven positions were exited in full during the period, which
included three companies subject to successful bid approaches from
overseas buyers (two of which were announced in the prior period
but completed during the year). In addition to previously
flagged deals for UK Mail and Lavendon, Berendsen was also
approached during the year by the French firm Elis. We had
exited this position in 2015 largely as a result of yield
compression but decided to re-introduce the company to the
portfolio during the period following a sharp fall in the share
price after short term trading issues were discovered in their UK
division. The remaining disposals from the Fund were Jarvis
Securities, Photo-Me International, Morses Club, Harvey Nash, Sprue Aegis, Pendragon, Safestyle
UK and Quarto Group.
The strongest contributor to performance during the year came
from Conviviality, the alcohol retail and distribution business,
which added 266 bps to performance. Significant profits were locked
in from this investment during the period, in line with our policy
of crystallising profits from investments that have performed well
and suffered yield compression.
Post the year end, and following a trading commentary in line
with market expectations at the time of the interim results at the
end of January, the company communicated to the market with a
disappointing trading update in early March. The shares were
subsequently suspended when the company then announced it would be
unable to make a scheduled payment to HMRC. They remain
suspended following an unsuccessful attempt to raise £125m from
equity investors. We wrote down the value of our remaining
holding to zero after the suspension of the shares however we
remain in positive territory overall on this investment as a result
of active profit taking and dividend income received during our
holding period of over four and a half years.
The second largest contributor to performance was Midwich,
adding 225 bps to performance. The company, Europe’s leading
distributor of AV equipment, was added to the portfolio at IPO in
2016 at a share price of 208p and ended the year at 480p.
Another company which listed in 2016 and performed strongly during
the year was Warpaint London, a cosmetics business, which added 164
bps to performance.
Pleasingly the strong performance during the period was fairly
broad-based, with further notable contributions made by DiscoverIE
(formally Acal, 159 bps), FDM Group (154 bps), River and Mercantile
(128 bps), Somero Enterprises (127 bps), Hostelworld (111 bps),
Alpha FX (109 bps), Numis Corporation (101 bps), Macfarlane Group
(98 bps), Polar Capital (93 bps) and Gateley Holdings (93 bps).
The largest detractor from Fund performance was Quarto Group,
the publisher of illustrated books, which endured a difficult
period as weaker consumer demand for its titles and erroneous
market guidance led to significant earnings downgrades. These
issues and our concerns about the long term prospects for the
dividend payment led us to exit this position in full during the
period. Prior to disposal the company made a negative
contribution of 130 bps to performance.
We also exited our position in Safestyle Group during the
period, as the domestic double glazing market softened considerably
during the year. Prior to disposal the company made a
negative contribution to performance of 56 bps however our disposal
did crystallise a significant gain on our initial investment at IPO
at the end of 2013, when the shares listed at 100p per share.
Our average disposal price in 2017 was significantly higher at
230p, in addition dividends in excess of 45p per share we received
during the holding period.
The only other negative performer with a contribution in excess
of 50 bps was Van Elle, the
specialist piling plant hire business, which cost the portfolio 55
bps of performance. The company endured a challenging year as the
unpredictable timing of rail contracts led to forecast
downgrades. We remain supporters of the company and increased
our position by 20% during the period.
This was clearly a strong period for the portfolio and we enter
2018 in good shape. As ever our focus will remain on
identifying the very best smaller companies we can find that offer
an attractive combination of earnings growth and strong,
sustainable, growing dividend payments. Whilst we remain
mindful of a number of external factors which may cause sentiment
towards UK Small and Mid-Caps to deteriorate in the short term, we
continue to invest with a long term investment horizon.
Fraser
Mackersie and Simon Moon
Unicorn Asset Management Limited
The Income Portfolio
2017 remained a very complacent year for fixed income markets
with sovereign yields range-bound and credit spreads continuing to
grind tighter. Indeed, it is difficult to know when the extended
multi-decade bond bull market will finally come to an end. However
with yields around all-time lows and the global economy enjoying a
period of synchronised growth, they remain extremely vulnerable to
any upside surprise to growth and inflation, especially given the
fading support from global central bank policy which have supported
demand and dampened volatility.
Inflation also feels like an under-priced risk in bond markets
given the synchronised bout of global growth currently being
enjoyed and the tightness of many labour markets. This may yet
translate into improving wages which have so far been weak relative
to the recovery in economic activity. Purchasing a gilt at
any maturity now will mean locking in a return which is below the
Bank of England’s medium term inflation target of 2% and the risks
are that investors could reprice the amount of return they demand
over longer periods to account for future uncertainty over
inflation and interest rates.
Meanwhile the rich valuations at which corporate bonds trade
appear to have very limited scope to improve further and whilst the
global macro outlook is looking firmer than it has done, the
undiscerning nature of the credit rally makes us nervous – the
reach for yield comes with a disproportionate extension of risk. We
expect there to be more volatility in credit going forward as
central bank intervention reduces, sovereign bond volatility
increases and the supportive technical demand and supply dynamic
becomes more challenged. We are therefore highly selective in
choosing bonds with relatively attractive risk-return
characteristics, endeavouring to earn carry whilst controlling
downside risks.
In this environment, we are adopting a more absolute return and
are comfortable maintaining positioning which is away from bond
index exposures and allocating more to alternative investments. We
have added holdings such as investment trusts and derivative
investments, where we have seen more attractive risk-reward
characteristics. We expect the weighting of the Income Portfolio to
remain at the lower end of the normal range in the short to medium
term, whilst uncompelling bond valuations persist.
Paul
Smith
Premier Fund Managers Limited
Schedule of Principal Investments
as at 31 December 2017
|
|
|
|
Percentage of Total Assets 2017 |
Percentage of Total Assets 2016 |
Position |
Company |
Market
Value £’000 |
Percentage of Portfolio |
Smaller
Companies Portfolio |
|
|
|
|
1 |
DiscoverIE Group
plc |
3,275,287 |
3.75 |
3.01 |
- |
2 |
Macfarlane Group
plc |
2,926,000 |
3.35 |
2.69 |
2.41 |
3 |
Somero
Enterprises Inc |
2,832,000 |
3.24 |
2.60 |
2.33 |
4 |
Warpaint London
plc |
2,793,283 |
3.19 |
2.57 |
1.45 |
5 |
Clipper
Logistics plc |
2,625,000 |
3.00 |
2.41 |
3.01 |
6 |
Conviviality
Retail plc |
2,508,868 |
2.87 |
2.31 |
2.62 |
7 |
Numis
Corporation plc |
2,448,750 |
2.80 |
2.25 |
1.93 |
8 |
FDM Group
Holdings plc |
2,240,400 |
2.56 |
2.06 |
1.79 |
9 |
Secure Trust
Bank plc |
2,220,000 |
2.54 |
2.04 |
2.39 |
10 |
Park Group
plc |
2,156,250 |
2.47 |
1.98 |
1.93 |
11 |
Polar Capital
Holdings plc |
2,008,125 |
2.30 |
1.85 |
- |
12 |
Mucklow A&J
Group plc |
2,004,000 |
2.29 |
1.84 |
1.72 |
13 |
Midwich Group
plc |
1,953,000 |
2.23 |
1.79 |
1.19 |
14 |
Telecom Plus
plc |
1,916,800 |
2.19 |
1.76 |
1.55 |
15 |
Vesuvius
plc |
1,898,000 |
2.17 |
1.74 |
- |
16 |
Primary Health
Properties plc |
1,864,000 |
2.13 |
1.71 |
1.87 |
17 |
Wincanton
plc |
1,864,000 |
2.13 |
1.71 |
1.82 |
18 |
Tyman
plc |
1,806,250 |
2.07 |
1.66 |
1.45 |
19 |
Flowtech
Fluidpower plc |
1,793,000 |
2.05 |
1.65 |
1.48 |
20 |
Alumasc Group
plc |
1,782,000 |
2.04 |
1.64 |
1.77 |
|
|
44,915,013 |
51.37 |
41.27 |
|
Income Portfolio |
|
|
|
|
1 |
Bank of
America 7.75% 30/04/18 |
1,022,262 |
6.44 |
0.94 |
- |
2 |
Apq Global
Limited 3.5% CULS 30/09/24 |
537,499 |
3.39 |
0.49 |
- |
3 |
United Kingdom
2.50% IL Treasury 2020 |
510,779 |
3.22 |
0.47 |
0.55 |
4 |
St Modwen
Properties 2.875% Convertible 06/03/2019 |
501,875 |
3.16 |
0.46 |
0.31 |
5 |
HSBC 6%
29/03/2040 |
413,250 |
2.61 |
0.38 |
0.38 |
6 |
EJF Investments
Ltd |
400,000 |
2.52 |
0.37 |
- |
7 |
Burford Capital
6.5% 2022 |
385,330 |
2.43 |
0.35 |
- |
8 |
Itv 2.125%
2022 |
372,534 |
2.35 |
0.34 |
0.37 |
9 |
Tesco Personal
Finance 1.00% 2019 |
352,527 |
2.22 |
0.32 |
0.36 |
10 |
EDF 6.125%
02/06/2034 |
342,401 |
2.16 |
0.31 |
0.35 |
11 |
DW Catalyst Fund
Limited |
321,974 |
2.03 |
0.30 |
0.67 |
12 |
Heathrow 7.075%
04/08/2028 |
284,258 |
1.79 |
0.26 |
0.31 |
13 |
Spirit Issuer
5.472% 28/12/2034 |
275,000 |
1.73 |
0.25 |
0.27 |
14 |
Aviva 5.9021%
Perp - 2020 |
271,000 |
1.71 |
0.25 |
0.27 |
15 |
Telefonica
Emisiones 5.375% 02/02/18 |
270,994 |
1.71 |
0.25 |
- |
16 |
Vodafone Group
Plc 8.125% 26/11/18 |
266,040 |
1.68 |
0.25 |
- |
17 |
Fidelity
International 7.125% 2024 |
251,358 |
1.58 |
0.23 |
0.27 |
18 |
Northumbrian
Water Finance plc 6.875% 2023 |
249,625 |
1.57 |
0.23 |
0.27 |
19 |
Investec Bank
9.625% 2022 |
249,414 |
1.57 |
0.23 |
0.26 |
20 |
Firstgroup plc
8.75% 2021 |
244,042 |
1.54 |
0.22 |
0.27 |
TOTAL |
|
7,522,162 |
47.41 |
6.90 |
|
Directors’ Biographies
for the year ended 31 December
2017
Directors
The Directors for the whole year ended 2017 were as follows:
Helen
Green
Nigel
Ward
David
Warr
All three Directors of the Board are non-executive Directors and
are considered independent of the Investment Manager.
Both Helen Green and David Warr are chartered accountants and all
three have extensive non-executive director experience. Further
details of the qualifications and suitability of each of the
Director’s appointments are as follows:
Helen Foster
Green (Chair)
Helen joined the Company in January
2007 and has been Chairman of the Company since 22 August 2012. She was re-elected as Chairman of
the Company in August 2017. Helen is
a Fellow of the Institute of Chartered Accountants in England and Wales having qualified as a chartered
accountant in 1988. She has been employed by Saffery Champness, a
top 20 firm of chartered accountants, since 1984. She qualified as
a chartered accountant in 1987 and became a partner in the
London office in 1997. Since 2000
she has been based in the Guernsey
office where she is client liaison director responsible for trust
and company administration. Helen serves on the boards of both LSE
listed companies and AIM listed companies*. Helen is a resident of
Guernsey.
John Nigel
War
Nigel joined the Company in December
2011. Nigel has over 40 years experience of international
investment markets, credit and risk analysis, portfolio management,
corporate and retail banking, corporate governance, compliance and
the managed funds industry gained at Nat West, TSB Bank, Baring
Asset Management and Bank Sarasin. Nigel is a full-time
non-executive director serving on a number of company boards which
have LSE or The International Stock Exchange Listings*. He is a
founding Commissioner of the Guernsey Police Complaints Commission, an
Associate of the Institute of Financial Services, a member of the
Institute of Directors and holder of the IoD Diploma in Company
Direction. Nigel is a resident of Guernsey.
David John
Warr
David joined the Company in August
2012. David is a Fellow of the Institute of Chartered
Accountants in England and
Wales having qualified as a
chartered accountant in 1976. In 1981 David was appointed a partner
in Reads & Co. a Guernsey
based firm of chartered accountants, which he helped develop into a
more broadly based financial services business leading up to its
sale at the end of 1998. David’s experience at Reads & Co.
included audit, trust and company administration. David now acts as
a non-executive director on a number of UK listed companies* whilst
combining those responsibilities with charitable work most
noticeably as Vice-Chairman of the Guernsey Community Foundation
LBG. David is a resident of Guernsey.
*Details of the Directors’ other directorships for public
companies can be found in the Director’s Report.
Directors’ Report
for the year ended 31 December
2017
The Directors have pleasure in presenting their business review,
report and financial statements of the Company for the year ended
31 December 2017.
Principal Activities and Business
Review
The principal activity of the Company is to carry on business as
an investment company. The Directors do not envisage any change in
these activities for the foreseeable future. A description of the
activities of the Company in the period under review is given in
the Chairman’s Statement.
Business and Tax Status
The Company is a closed-ended investment company, incorporated
with limited liability in Guernsey
on 5 January 1999, registered number 34778. The Company
operates under The Companies (Guernsey) Law, 2008, (the “Law”), the
Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended and the
Authorised Closed Ended Investment Scheme Rules 2008.
The Company’s Ordinary Shares and ZDP Shares are traded on the
LSE with the Ordinary Shares having a premium listing and the ZDP
Shares having a standard listing, as defined by the LSE.
The Company’s management and administration takes place in
Guernsey and the Company has been
granted exemption from income tax within Guernsey by the Administrator of Income Tax.
It is the intention of the Directors to continue to operate the
Company so that each year this tax-exempt status is maintained.
In respect of the Criminal Finances Act 2017 which has
introduced a new corporate criminal offence (“CCO”) of ‘failing to
take reasonable steps to prevent the facilitation of tax evasion’,
the Board confirms that they are committed to zero tolerance
towards the criminal facilitation of tax evasion.
Alternative Investment Fund Managers
Directive (“AIFMD”)
The Company is an ‘Alternative Investment Fund’ (“AIF”), as
defined by the Alternative Investment Fund Managers Directive
(“AIFMD”) and is self-managed. The Company was approved as an AIF
and submitted an Article 42 Notification to the FCA under the
National Private Placement Regime on 3
August 2015.
The Directors have set a maximum gearing level for the purpose
of AIFMD of 400% for both the commitment exposure level and gross
leverage level. As at 31 December
2017 the commitment exposure level was 47% and the gross
leverage level was 43%.
Regulatory disclosures, including the Company’s Investor
Disclosure Document, are provided on the Company's website
www.premierfunds.co.uk/investors/investments/investment-trusts/acorn-income-fund.
Foreign Account Tax Compliance Act
(“FATCA”)
FATCA requires certain financial institutions outside
the United States (“US”) to pass
information about their US customers to the US tax authorities, the
Internal Revenue Service (the “IRS”). A 30% withholding tax is
imposed on the US source income and disposal of assets of any
financial institution within the scope of the legislation that
fails to comply with this requirement.
The Board of the Company has taken all necessary steps to ensure
that the Company is FATCA compliant and confirms that the Company
is registered and has been issued a Global Intermediary
Identification Number (“GIIN”) by the IRS. The Company will use its
GIIN to identify that it is FATCA compliant to all financial
counterparties.
Common Reporting Standard
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and development
(“OECD”), which has been adopted in Guernsey and which came into effect in
January 2016. The CRS has replaced
the inter-governmental agreement between the UK and Guernsey to improve international tax
compliance that had previously applied in respect of 2014 and 2015.
However, it was still necessary to submit the 2014 and 2015 reports
for the UK IGA by 30 June 2016. The
first report for CRS was made to the Director of Income Tax by
30 June 2017.
The Company is subject to Guernsey regulations and guidance on the
automatic exchange of tax information and the Board will therefore
take the necessary actions to ensure that the Company is compliant
in this regard.
Discontinuation Vote
At the Annual General Meeting held on 26
September 2016, shareholders were given the opportunity in
accordance with Article 53.1 of the Articles of incorporation of
the Company to vote for the discontinuance of the Company. The
special resolution was not carried and it was noted that the
Company would continue in its present form. The next
discontinuation resolution will be proposed at the Annual General
Meeting in 2021.
Going Concern
In the opinion of the Directors the Company has adequate
resources to continue in operational existence for the foreseeable
future. For this reason the financial statements have been prepared
on a going concern basis.
The Directors have arrived at this opinion by considering, inter
alia, the following factors:
- the Company has sufficient liquidity to meet
all ongoing expenses. The Company has net current assets of
£4,704,594 at the year end. In January
2017 the ZDP Shares were refinanced and their life was
extended to 28 February 2022. In
addition the Board regularly reviews the cash flow of the
Company and is confident that the Company will have sufficient
resources to meet all future obligations;
- both the Income and Smaller Companies
Portfolios consist substantially of listed investments which are
readily realisable and therefore the Company has sufficient
resources to meet its liquidity requirements; and
- as at 31 December
2017, the Company had no borrowings other than the ZDP
Shares which, as explained in Note 13, have a final capital
entitlement on 28 February 2022.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, published by the Financial Reporting Council in
September 2014 (the “Code”), the
Directors have assessed the prospects of the Company over the three
year period to 31 December 2020. The
Directors consider that three years is an appropriate period to
assess the viability of an investment company for the purpose of
giving assurance to Shareholders.
In determining the appropriate period of assessment the
Directors had regard to the general advice that equity investment
should be made on a medium to longer term view (perhaps 3 to 10
years) but also to evidence that the average holding time for an
equity investment is under 3 years. The Directors consider that 3
years is a sufficient investment time horizon to be relevant to
shareholders and that choosing a longer time period can present
difficulties given the lack of longer term economic visibility.
In its assessment of the viability of the Company, the Directors
have considered each of the Company’s principal risks and
uncertainties detailed in the principal risks section below (and in
Note 18) and, in particular, the impact of a significant fall in
regional equity markets on the value of the Company’s investment
portfolio. The Directors have also considered the Company’s income
and expenditure projections and the fact that the Company’s
investments comprise readily realisable securities which can be
expected to be sold to meet funding requirements if necessary. The
Directors also noted that the next discontinuation resolution will
be proposed at the annual general meeting in 2021.
Based on the Company’s processes for monitoring operating costs,
share price discount, the Manager’s compliance with the investment
objective, asset allocation, the portfolio risk profile, gearing,
counterparty exposure, liquidity risk and financial controls, the
Directors have concluded that there is a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the three year period to
31 December 2020.
Gearing Policy
The Company’s gearing policy is not to employ any gearing
through long-term bank borrowing. Save with the prior sanction of
the ZDP Shareholders the Company will not incur any indebtedness
other than short term borrowings in the normal course of business
such as to settle share trades or borrowings to finance the
redemption of the ZDP Shares.
Results and Dividends
The results attributable to Ordinary Shareholders for the period
are shown in the Statement of Comprehensive Income. The Company
made a revenue return for the year of 20.36
pence (2016: 20.38 pence) per
Ordinary Share and a capital return of 77.09
pence (2016: 6.81 pence) per Ordinary Share.
Principal Risks
The Board has an on-going process in place for identifying,
evaluating and managing the significant risks faced by the Company.
The responsibility for carrying out the risk review is undertaken
by the Risk Committee (details of the Risk Committee is shown below
in this report), which meets at least four times per year. The
results of the risk evaluations are then reported back to the
Board. The last risk assessment took place on 30 November 2017. Prior to the establishment of
the Risk Committee, the Audit Committee undertook the role of
reviewing the Company’s risk and that process of review had been in
place since the Company’s incorporation. The current process is in
line with the Association of Investment Companies (“AIC”) Code of
Corporate Governance (the “AIC Code”).
Company Risks
Risks of the Structure of the Company
and gearing
The Company’s business could be materially and adversely
affected by a number of risks. External factors to the Company may
either adversely or favourably affect the volatility and liquidity
of the Smaller Companies Portfolio and Income Portfolio (the
“Portfolios”), as well as their values. These can be caused by
economic conditions, changes to tax laws, competition and a number
of other factors.
Investors holding either Ordinary Shares or ZDP Shares should
have carefully considered whether these investments, given the
risks attached, are suitable for them.
The market value of ZDP Shares will be affected by changes in
general interest rates, with upward movements in interest rates
likely to lead to reductions in the market value of ZDP Shares
although not affecting the ultimate redemption value.
Although the holders of ZDP Shares have a priority entitlement
to the other assets of the Company (after payment of its
liabilities) on a winding-up, if the gross assets of the Company
fall to a level that is insufficient to redeem the ZDP Shares in
full, investors in the ZDP Shares would receive a lower payment
than the Fixed Capital Entitlement on the ZDP Shares repayment
date.
In certain circumstances, such as a major fall in the capital
value of the Portfolios such that the Final Capital Entitlement of
the ZDP Shares is significantly uncovered but where the Company’s
Portfolios are still generating revenue, the interests of ZDP
Shareholders and the Ordinary Shareholders may conflict. In such
circumstances, the Directors may find it impossible to meet fully,
both sets of expectations and so will need to act in a manner which
they consider to be fair and equitable to both Ordinary
Shareholders and ZDP Shareholders but having regard to the
entitlements of each class of shares.
Further risks to the ZDP Shares include the lower level of
regulatory protection than applies to premium listed shares.
The Ordinary Shares are geared by the ZDP Shares and should be
regarded as carrying above average risk since a positive Net Asset
Value (“NAV”) for the Ordinary Shareholders will be dependent upon
the Company’s assets being sufficient to meet those prior
entitlements of the holders of ZDP Shares. As a consequence of the
gearing, a decline in the value of the Company’s investment
portfolio will result in a greater percentage decline in the NAV of
the Ordinary Shares.
Ordinary Shareholders do not have a right for their shares to be
redeemed and those Ordinary Shareholders wishing to realise their
investment will be required to dispose of their shares on the stock
market.
Market liquidity in the shares of companies such as the Company
is less than market liquidity in shares issued by larger companies
traded on the LSE. There can be no guarantee that a liquid market
will exist for the Ordinary Shares or the ZDP Shares which may
prevent any holder of Ordinary Shares or ZDP Shares from disposing
of such shares at a price or at such time that they wish.
The Company’s future performance depends on the success of its
strategy, the skill and judgements of the Investment Manager and of
the Investment Advisers. The departure of key personnel of either
provider may have an adverse effect on the performance of the
Company.
The Company may use derivatives to hedge exposure to currency
risk and interest rate risk. No assurance can be given that any
hedging strategies which may be used by the Company will be
successful under all or any market conditions and, if unsuccessful,
could have an adverse effect on the Company’s financial
position.
Risk associated with investment in
other investment companies
The Income Portfolio may contain higher yielding investment
company shares (including shares of split capital investment
trusts). As a result of the gearing in some investment company
shares, any increase or decrease in the value of the investments
held by those investment companies might magnify movements in their
NAV and consequently affect the value of the Income Portfolio. In
accordance with the Listing Rules, where appropriate, the Company
makes Stock Exchange announcements detailing its holdings in
other UK listed investment companies which themselves do not have a
stated investment policy to invest no more than 15% of their gross
assets in other UK listed investment companies (including
investment trusts).
Currency risk
The majority of the Company’s assets and all of its liabilities
are denominated in sterling however some of the investments in the
Income Portfolio may be denominated in foreign currencies.
Generally, these exposures are hedged back to sterling and there is
unlikely to be any significant direct currency risk.
Market price risk
Since the Company invests in financial instruments, market price
risk is inherent in these investments. In order to minimise this
risk, a detailed analysis of the risk/reward relationship of each
investee company is undertaken by the Investment Advisers prior to
making investments.
Interest rate risk
The Company's investment portfolios, particularly the Income
Portfolio, include investments bearing interest at fixed rates.
Generally when interest rates rise the market prices of fixed
interest securities fall and when interest rates fall the prices of
fixed interest securities rise. The Company will therefore be
exposed to movements in interest rates. The Company has fixed rate
leverage through its ZDP Shares. In January
2017, the redemption date of the Company’s ZDP shares was
extended to 28 February 2022 at a
rate of 3.85% per annum. Replacing this leverage in 2022 might
involve the Company paying a higher accrual rate on an issue of new
ZDP Shares if interest rates have risen.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in meeting its obligations associated with its
financial liabilities that are settled by delivery of cash or
another financial asset. Some of the Company’s investments in
smaller company equities and in certain bond issues may have
relatively low levels of daily turnover such that it might take
several days or even weeks to sell a holding into the market.
Discount volatility
Being a closed-end fund, the Company’s shares may trade at a
discount or premium to their NAV. The magnitude of this discount or
premium fluctuates daily and can vary significantly. Thus, for a
given period of time, it is possible that the market price could
decrease despite an increase in the Company’s NAV.
The Directors review the discount levels regularly. The
Investment Advisers actively communicate with the Company’s major
shareholders and potential new investors, with the aim of managing
discount levels.
Brexit
The UK’s vote to leave the EU has introduced new uncertainties
and instability into the financial markets. As the process of a
major country leaving the EU has no precedent, the Board and the
Investment Manager expect an ongoing period of market uncertainty
as the implications are processed.
Company Performance
Key Performance Indicators and Analysis of Company’s
Performance
At each quarterly board meeting the Directors consider a number
of performance measures in order to assess the Company’s success in
achieving its objectives. The key areas reviewed are as
follows:
- Review of the history of the NAV.
- Receive an update on the market activity of
the Ordinary Shares and the ZDP Shares by Numis Securities Limited,
the Company’s corporate broker.
- Receive updates on the performance of both
the Income Portfolio and the Smaller Companies Portfolio from the
Investment Advisers.
- Consideration of the revenue projection.
On-going Charges and Total Expense
Ratio (the “TER”)
The annual on-going charges figure for the year was 1.53% (2016:
1.65%). This figure which has been prepared in accordance with the
recommended methodology provided by the Association of
Investment Companies and represents the annual percentage reduction
in shareholder returns as a result of recurring operational
expenses. In 2017, a performance fee amounting to £559,967 (2016:
Nil) was accrued.
The TER of the Company is calculated as a percentage of costs
against total assets at the year end and is capped at 1.5%. For
2017 the TER was 1.04% (2016: 1.04%). The calculation of costs
excludes performance fees, non-routine administration and
professional fees. The net management fee charged in 2017 was
£729,457 (2016: £623,080).
Share Price Rating and Discount
Management including information on treasury shares
At the Annual General Meeting on 15
August 2017 the Directors obtained shareholder approval to
issue up to 3,183,337 Ordinary Shares and 4,273,044 ZDP Shares,
also obtaining the necessary pre-emption waiver from the ZDP
Shareholders in respect of any new issue of ZDP Shares.
The shareholders approved renewal of the Company’s authority to
buy back Ordinary Shares and ZDP Shares up to 34.99% to facilitate
its discount management policy in respect of 14.99% of the issued
shares, and facilitate repurchases of newly issued shares into
treasury for future sale to meet market demand in respect of 20% of
the issued shares. As at 15 August
2017 5,569,248 Ordinary Shares and 7,475,690 ZDP Shares were
authorised to be purchased.
The Directors also obtained authority to sell from treasury
Ordinary Shares at a discount to the prevailing NAV per Ordinary
Share, provided that the authority conferred was limited to issues
or sales of Ordinary Shares at the same time as ZDP Shares are
issued or sold from treasury at a premium, such that, the combined
effect of the issue or sale of Ordinary Shares and the issue or
sale of ZDP Shares at a premium is that; (i) the NAV per Ordinary
Share is thereby increased; and (ii) gearing is not thereby
increased.
The Company intends to seek annual renewal of these authorities
from shareholders at each future general meeting to be held under
section 199 of the Law. In accordance with the Law, any share buy
backs will be affected by the purchase of a package of Ordinary
Shares and ZDP Shares (in a specified ratio as set out in the
Company’s Prospectus) in the market for cash at a package price
which in aggregate is at a discount to the prevailing NAVs of each
class of Share, where the Directors believe such a purchase will
enhance shareholder value. Shares which are purchased may be
cancelled or held in treasury.
Investment Management and
Administration
Management Agreement and Fees
The Board is responsible for the determination of the Company’s
investment policy and has overall responsibility for the Company’s
day-to-day activities. The Company has, however, entered into a
Management Agreement with PAMG, a wholly-owned, Guernsey incorporated subsidiary of Premier
Asset Management Group PLC.
The Manager has discretion to make minor changes to the
portfolios and also has discretion to move cash from the Smaller
Companies Portfolio to the Income Portfolio. The Manager will refer
any proposals to the Board to materially alter the split of assets
between the Income Portfolio and the Smaller Companies Portfolio.
The Board determines when any potential investment limits can be
exceeded, dividend levels and the appropriate issue size for the
ZDP Shares and hence the level of gearing.
Under separate Investment Adviser Agreements, PAMG has delegated
a number of its duties and responsibilities to PFM and Unicorn. In
relation to the Income Portfolio and Smaller Companies Portfolio
respectively, both PFM and Unicorn act as Investment Advisers who
are responsible for the identification and analysis of investments
meeting the investment objectives and strategy of the Company. PFM
and Unicorn are authorised and regulated by the FCA.
The Board keeps under review the performance of the Investment
Manager and the Investment Advisers. In the opinion of the
Directors the continuing appointment of the Investment Manager on
the terms agreed is in the interest of shareholders as a whole, due
to the experience and proven track record of the fund management
team in the chosen markets. The Directors consider the investment
performance of the Company is satisfactory relative to the markets
in which the Company invests.
A list of the top 20 holdings for each portfolio is shown in the
Schedule of Principal Investments of this report and the top 10
holdings for each portfolio is included in the monthly fund
factsheet, available on the Company’s website.
For the Company's full holdings information please refer to
Unaudited Full List of Investment Holdings Listing section.
Administration Agreement
The administration of the Company is undertaken by Northern
Trust International Fund Administration Services (Guernsey) Limited (“Northern Trust”).
Custodian
The custodian of the Company is Northern Trust (Guernsey) Limited.
Segmental Reporting
The Company has two reportable segments, being the Income
Portfolio and the Smaller Companies Portfolio. Each of these
portfolios is managed separately, entail different investment
objectives and contain investments in different products. A more
comprehensive disclosure can be found within Note 2 of the Notes to
the Financial Statements.
Corporate Governance
On 1 October 2013, the Company
became a member of the AIC, and on 19
November 2013 the Company formally resolved to adopt and
comply with the AIC Code.
The Financial Reporting Council has confirmed that an AIC member
which reports against the AIC Code and who follows the AIC
Corporate Governance Guide for Investment Companies (the “AIC
Guide”), will be meeting their Listing Rule obligations in relation
to reporting against The UK Code of Corporate Governance (the “UK
Code”).
Statement of Compliance with the UK
Code
The Board of the Company has considered the principles and
recommendations of the AIC Code by reference to the AIC Guide. The
AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Code), will provide better information
to shareholders.
Due to the Ordinary Shares having a premium listing on the LSE,
the Company must comply with Listing Rule 9.8.6(5) which requires
the Company to apply the provisions of the UK Code to the extent
that they are considered relevant to the Company. By complying with
the AIC Code the Company is meeting its obligation under the UK
Code and as such is not required to report further on issues
contained in the UK Code which are irrelevant to it. The Directors
place a high degree of importance on ensuring that high standards
of corporate governance are maintained within the Company.
The AIC Code is available for download from the AIC website:
www.theaic.co.uk.
With effect from 1 January 2012,
the Company was also required to comply with the Guernsey Financial
Services Commission Financial Sector Code of Corporate Governance
(the “Guernsey Code”). As the Company reports under the AIC Code it
is deemed to meet the Guernsey Code and the Board has undertaken to
evaluate its corporate governance compliance on an on-going
basis.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Code throughout the
year, except as set out below.
The UK Code includes provisions relating to:
- the role of the chief executive;
- executive directors’ remuneration; and
- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers these provisions are not relevant
to 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 therefore has not reported further
in respect of these provisions.
Other areas of non-compliance with the AIC Code by the Company,
and the reasons therefore, are as follows:
The Company has not appointed a Senior Independent Director.
This is not in accordance with the recommendations in principle 1
of the AIC Code but is felt to be appropriate for the size and
nature of the Company.
The non-executive Directors of the Company do not meet without
the Chairman present to appraise the Chairman’s performance. This
is not in accordance with principle 1 of the AIC Code. However, the
Company has a Chairman’s Performance Evaluation Questionnaire which
is completed by all Directors (other than the Chairman) and
analysed annually to facilitate the review of the Chairman’s
performance.
The Company does not comply with principle 3 of the AIC code; as
per the Company’s Articles of Incorporation, the Directors are not
subject to re-election by the Shareholders except in their first
year of appointment, nor are they appointed for specific terms as
required by these provisions, as this is not felt to be appropriate
for the size and nature of the Company. However, the Board has
determined in order to facilitate good corporate governance
practice in line with principle 2 of the AIC Code, each director,
subsequent to 2016, offers themselves for re-election every 3 years
until their ninth year of service. Any Director with over nine
years service shall be eligible for re-election every year
thereafter. As a result of this principle the Directors were
elected as follows:
Helen Green was re-elected in
2017, and is next eligible for re-election in 2018.
David Warr was elected in 2013,
and is next eligible for re- election in 2019.
Nigel Ward will next be eligible
for re-election in 2018.
In accordance with principle 5 of the AIC Code the following
details are of all other public Company directorships and
employment held by each director and shared directorships of any
commercial company held by two or more Directors:
Helen Green
- John Laing Infrastructure Fund Limited*
- City Natural Resources High Yield Trust
Plc*
- Landore Resources Limited**
- Aberdeen Emerging Markets Investment Company
Limited*
- UK Mortgages Limited#
David Warr
- Aberdeen Frontier Markets Investment Company
Limited**
- Breedon Group Plc**
- Hadrian’s Wall Secured Investments
Limited*
Nigel Ward
- Crystal Amber Fund Limited**
- Fair Oaks Income Fund
Limited#
- Hadrian’s Wall Secured Investments
Limited*
* Listed on the Main Market of the
LSE
** Traded on the AIM of the LSE
# Traded on the Specialist Fund
Segment of the LSE
The Company does not comply with principle 9 of the AIC Code as
it does not have a formal policy on diversity, however the Company
has established a Nomination Committee that adheres to formal terms
of reference and which is responsible for identifying any gaps on
the Company’s board that need to be filled. When considering
candidates the Board has due regard to the benefits of diversity on
the board and amongst other considerations this includes
gender.
Conflicts of Interest
None of the Directors nor any persons connected with them had a
material interest in any of the Company’s transactions,
arrangements or agreements at the date of this report and none of
the Directors has or had any interest in any transaction which is
or was unusual in its nature or conditions or significant to the
business of the Company, and which was effected by the Company
during the reporting period.
David Warr holds 63,000 Ordinary
Shares in the capital of the Company, which represented an interest
of 0.40% of the Company’s Ordinary Shares in issue as at
31 December 2017.
At the date of this report, there are no outstanding loans or
guarantees between the Company and any director.
Board Responsibilities
The Board comprises three non-executive Directors, who meet at
least quarterly to consider the affairs of the Company in a
prescribed and structured manner. All Directors are considered
independent of the Investment Manager for the purposes of the AIC
Code and Listing Rule 15.2.12A. Biographies of the Directors appear
in the Directors' Biographies section above demonstrating the wide
range of skills and experience they bring to the Board.
As at the beginning of 2016 the Chairman had served on the Board
for over nine years. The Board has taken the view that independence
is not necessarily compromised by the length of tenure on the Board
and experience can add significantly to the Board's strength. It
has therefore determined that in performing her role as Director,
the Chairman remains wholly independent.
The Directors, in the furtherance of their duties, may take
independent professional advice at the Company’s expense, which is
in accordance with principle 13 of the AIC Code. The Directors also
have access to the advice and services of the Company Secretary
through its appointed representatives who are responsible to the
Board for ensuring that the Board’s procedures are followed and
that applicable rules and regulations are complied with. To enable
the Board to function effectively and allow the Directors to
discharge their responsibilities, full and timely access is given
to all relevant information.
The Directors are requested to confirm their continuing
professional development is up to date and any necessary training
is identified during the annual performance reviews carried out and
recorded by the Nomination Committee.
Substantial Shareholdings
There were no substantial interests to be disclosed as at
24 April 2018 the latest practicable
date for disclosure in this report.
None of the Directors has a contract of service with the
Company.
Shareholder Communication
In line with principle 19 of the AIC Code the Investment
Advisers communicate with both the Chairman and Shareholders and
are available to communicate and meet with major shareholders. The
Company has also appointed Numis to liaise with all major
shareholders together with PFM and Unicorn, all of who report back
to the Board at quarterly board meetings ensuring that the Board is
fully aware of shareholder sentiment and expectation.
Director Attendance
During the year ended 31 December
2017 the number of Board meetings attended were as
follows:
|
Quarterly
Board |
Ad hoc
Board |
Committee |
meetings |
Meetings |
Meetings |
Helen Green Nigel Ward
David Warr |
4 of 4
4 of 4
4 of 4 |
4 of 4
3 of 4
4 of 4 |
10 of
10
10 of 10
10 of 10 |
Committees
The Company has established four committees: the Audit
Committee, the Nomination Committee, the Remuneration and
Management Engagement Committee and the Risk Committee (together
the “Committees”). Each Committee consists of the whole Board. Due
to the size of the Company the Board consider it would be overly
burdensome to establish separate committees that do not comprise
all of the non-executive directors of the Company. The Terms of
Reference for each committee is available on request to the
Administrator.
The Audit Committee
A full report regarding the Audit Committee can be found in the
Audit Committee Report.
Nomination Committee
In accordance with the AIC Code, a Nomination Committee has been
established. David Warr has been
appointed Chairman. The Nomination Committee meets at least once a
year in accordance with the terms of reference and reviews, inter
alia, the structure, size and composition of the Board. When the
appointment of a non-executive director is being considered the
Nomination Committee will make recommendations to the Board after
evaluating candidates from a wide range of backgrounds. Whilst
considering the composition of the Board, the Nomination Committee
will be mindful of diversity, inclusiveness
and meritocracy and, in
considering a new candidate, the Nomination Committee will apply
comparative analysis of candidates’ qualifications and experience,
applying pre-established clear, neutrally formulated and
unambiguous criteria to determine the most suitable candidate
sought for the specific position.
Other duties of the Nomination Committee are to give full
consideration to succession planning for Directors, to regularly
review the leadership needs of the non-executive Directors, ensure
non-executive Directors receive a formal letter of appointment and
to review the results of the Board’s performance evaluation
process.
Remuneration and Management Engagement
(“RME”) Committee
Nigel Ward has been appointed
Chairman of the RME Committee. The RME Committee meets at least
once a year to determine and agree with the Board the framework for
the remuneration of the Company’s Chairman, Directors and service
providers, taking into account remuneration trends and all other
factors which it deems necessary. The RME Committee also reviews
contractual terms and performance of all service providers to
ensure their satisfactory conduct and performance.
Details of the Directors’ remuneration can be found in Note
6.
Risk Committee
The Risk Committee was established on 19
November 2014. Nigel Ward has
been appointed the Chairman of the Risk Committee which will meet
at least four times per year. The Risk Committee reviews the
effectiveness of the Company’s internal controls and risk
management systems and procedures on a quarterly basis, actively
seeking to identify, manage and monitor risks such as Market,
Credit, Liquidity, Counterparty, Operational and Leverage. In doing
so the Risk Committee reviews a quarterly report from the
Investment Adviser and reviews arrangements for monitoring
investment risk. The Risk Committee also ensures that the risk
profile of the Company’s portfolios are appropriate to the size;
structure and investment strategies applied and reports its
findings and recommendations to the Board quarterly.
Internal Control and Financial
Reporting
The Board is responsible for establishing and maintaining the
Company’s systems of internal control ensuring that they are
designed to meet the particular needs of the Company and the risks
to which it is exposed, and by their very nature provide
reasonable, but not absolute, assurance against material
misstatement or loss. The key procedures which have been
established to provide effective internal control are as
follows:
Investment advice is provided by PFM and Unicorn under
Investment Adviser Agreements. The Board is responsible
for setting the overall investment policy and monitors the actions
of the Investment Advisers at regular board meetings. Both PFM and
Unicorn provide the Board with updates at each quarterly board
meeting and at any other time that the Board requests.
The administration and company secretarial duties of the Company
are performed by Northern Trust International Fund Administration
Services (Guernsey) Ltd.
Registrar duties are performed by Anson Registrars Limited.
The Custody of assets, is undertaken by Northern Trust
(Guernsey) Limited.
The duties of investment management, accounting and the custody
of assets are segregated. The procedures of the individual parties
are designed to complement one another.
The Directors of the Company clearly define the duties and
responsibilities of their agents and advisers. The appointment of
agents and advisers is conducted by the Board after consideration
of the quality of the parties involved; the Board monitors their
on-going performance and contractual arrangements. A detailed
annual review of the main service providers is undertaken by the
RME Committee and their findings are reported to the Board.
Mandates for authorisation of investment transactions and
expense payments are set out by the Board.
The Board reviews detailed financial information produced by the
Investment Advisers and the Administrator on a regular basis.
The Board is provided, on a quarterly basis, with a Compliance
Report produced by a specialist Compliance and Legal department at
PAM. The monitoring programme ensures that all activities of PFM,
for the year under review, have been in accordance with both
internal procedures and with FCA principles for firms and
individuals. The Compliance team also makes regular external visits
to both Unicorn and the Administrator, the latest visit being to
Unicorn on 6 April 2017. A visit to
Northern Trust took place in April
2016. The Secretary provides a report at each quarterly
Board meeting which highlights any areas of non-compliance with any
applicable regulations and laws. The Board has access, at all
times, to all relevant compliance personnel.
The Company does not have an internal audit department. All the
Company’s management and administration functions are delegated to
independent third parties and it is therefore felt there is no need
for the Company to have an internal audit facility.
No significant findings were found during the internal controls
review.
Packaged Retail and
Insurance-based Investment Products (“PRIIPs”)
As a listed closed-ended fund, the Company falls under the
definition of a retail investment product for PRIIPs Regulation
issued by the FCA which came into effect 1
January 2018. As such, the Company is required to
produce KIDs which are available on the Company’s website www.premierfunds.co.uk/investors/investments/investment trusts/acorn-income-fund.
Relations with Shareholders
All holders of Ordinary Shares in the Company have the right to
receive notice of, and attend and vote at the general meetings of
the Company. The holders of ZDP Shares have the right to receive
notice of all general meetings but only have the right to attend
and vote if the business of the meeting proposes a resolution which
will vary, modify or abrogate any of the special rights attached to
the ZDP Shares.
At each general meeting of the Company the Board and the
Investment Advisers are available to discuss issues affecting the
Company. This is in accordance with principle 19 of the AIC Code.
Only Ordinary Shares carry full voting rights, holders of ZDP
Shares are only entitled to vote on issues affecting their share
class. The primary responsibility for shareholder relations lies
with PFM. However, the Directors are always available to enter into
dialogue with shareholders and the Chairman is always willing to
meet major shareholders as the Company believes such communication
to be important.
Anti-Bribery and Corruption Policy
The Company has adopted a zero tolerance policy towards bribery
and is committed to carrying out business fairly, honestly and
openly.
Voting and Stewardship code
The Investment Manager is committed to the principles of the
Financial Reporting Council’s UK Stewardship Code (the ‘Code’) and
this also constitutes the disclosure of that commitment required
under the rules of the FCA (Conduct of Business Rule 2.2.3).
Signed on behalf of the Board by:
Helen
Green
Chairman
24 April 2018
Statement of Directors’ Responsibility
in Respect of the Annual Financial Report
for the year ended 31 December
2017
The Directors are responsible for preparing the Annual Financial
Report and 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 they are
required to prepare the financial statements in accordance with
International Financial Reporting Standards as issued by the IASB
and applicable law.
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 its profit or
loss for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then
apply them consistently;
- make judgements and estimates that are
reasonable, relevant and reliable;
- state whether applicable accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
- assess the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
- use the going concern basis of accounting
unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do
so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law, 2008. They are
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and 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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
The Directors confirm that they have
carried out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model,
future performance, solvency or liquidity.
Disclosure of information to
auditors
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are aware, there is
no relevant audit information of which the Company’s Auditor is
unaware; and that each Director has taken all the steps that he
ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company’s
Auditor is aware of that information.
Responsibility statement of the
Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in
accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company; and
- the Management Report (comprising the
Chairman’s Statement, the Investment Advisers’ Report, Directors’
Report and Audit Committee Report) includes a fair review of the
development and performance of the business and the position of the
issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the annual financial report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Reappointment of auditor
The Auditor, KPMG Channel Islands Limited, has expressed its
willingness to continue in office as Auditor. A resolution
proposing their reappointment will be submitted at the forthcoming
general meeting to be held pursuant to section 199 of the
Law.
Helen
Green
Chairman
24 April 2018
Audit Committee Report
for the year ended 31 December
2017
In accordance with the AIC Code an Audit Committee has been
established consisting of David
Warr, Helen Green, and
Nigel Ward. David Warr is the Chairman of the Audit
Committee.
The Audit Committee meets at least twice a year and, when
requested, provides advice to the Board on whether the annual
report and accounts, taken as a whole, is fair, balanced and
understandable and provides information necessary for the
shareholders to assess the Company’s performance, business model
and strategy. The Audit Committee also reviews, inter alia, the
financial reporting process and the system of internal control and
management of financial risks including understanding the current
areas of greatest financial risk and how these are managed by the
Investment Manager, reviewing the annual report and accounts,
assessing the fairness of preliminary and interim statements and
disclosures and reviewing the external audit process. The Audit
Committee is responsible for overseeing the Company’s relationship
with the external auditor (the ‘Auditor’), including
making recommendations to the Board on the appointment of the
Auditor and their remuneration.
The Audit Committee considers the nature, scope and results of
the Auditor’s work and reviews, and develops and implements a
policy on the supply of any non-audit services that are to be
provided by the Auditor. The Audit Committee annually reviews the
independence and objectivity of the Auditor and also considers the
appointment of an appropriate Auditor.
At the Audit Committee meeting on 30
November 2017 the appointment of the Auditor was considered
and the Board subsequently decided that the Auditor was
sufficiently independent and was appropriately appointed in order
to carry out the audit for the year ended 31
December 2017. During the year under review, the Auditor was
not engaged to provide any non-audit services to the Company.
The valuation of the Company’s investments, given that they
represent the majority of net assets of the Company is considered
to be a significant area of focus. In discharging its
responsibilities the Audit Committee has specifically considered
the valuation of investments as follows:
- The Board reviews the portfolio valuations
on a regular basis throughout the year and meets with the
Investment Advisers at least quarterly. It also seeks assurance
that the pricing basis is appropriate and in line with relevant
accounting standards as adopted by the Company and that the
carrying values are correct.
- The Company’s net asset value is calculated
twice weekly using a third party pricing source.
- The Audit Committee receives and reviews
reports from the Investment Advisers and the Auditor relating to
the Company’s annual financial report. The Audit Committee focuses
particularly on compliance with legal requirements, accounting
standards and the Listing Rules and ensures that an effective
system of internal financial and non-financial controls is
maintained. The ultimate responsibility for reviewing and approving
the annual financial report remains with the Board.
- The Audit Committee holds an annual meeting
to approve the Company’s annual financial report before its
publication. At a meeting held on 30
November 2017 the Audit Committee met with the Auditor to
discuss the audit plan and approach. During this meeting it was
agreed with the Auditor that the area of significant audit focus
related to the valuation of investments given that they represent
the majority of net assets of the Company. The scope of the audit
work in relation to this asset class was discussed. At the
conclusion of the audit, the Audit Committee met with the Auditor
and discussed the scope of their annual audit work and also their
audit findings.
- The Audit Committee reviews the scope and
results of the audit, its cost effectiveness together with the
independence and objectivity of the Auditor. The Audit Committee
has particular regard to any non-audit work that the Auditor may
undertake and the terms under which the Auditor may be appointed to
perform non-audit services. In order to safeguard the Auditor’s
independence and objectivity, the Audit Committee ensures that any
other advisory and/or consulting services provided by the Auditor
does not conflict with their statutory audit responsibilities.
To fulfil its responsibilities regarding the independence of the
Auditor, the Audit Committee considered:
- a report from the Auditor describing their
arrangements to identify, report and manage any conflicts of
interest; and
the extent of the non-audit services provided by the
Auditor.
To assess the effectiveness of the Auditor, the committee
reviewed:
- the Auditor’s fulfilment of the agreed audit
plan and variations from it;
- the audit findings report highlighting any
major issues that arose during the course of the audit; and
- the effectiveness and independence of the
Auditor having considered the degree of diligence and professional
scepticism demonstrated by them.
The Audit Committee is satisfied with KPMG Channel Islands
Limited’s (“KPMG”) effectiveness and independence as Auditor.
As KPMG has been previously engaged to provide the annual audit
the Board was able to rely on both; their previous experiences with
KPMG and their conduct during the current year audit.
Audit Tender
During the year the Audit Committee initiated and completed the
process of tendering the external audit of the Company for the
financial year ending December 2018.
The Audit Committee issued a request for a proposal to four firms
in September 2017 following a review
by the Audit Committee to determine which firms to invite to
tender.
The members of the Audit Committee met in November 2017 with two of the four firms who were
invited to tender following a review of the initial responses.
Following a review of the two tender presentations, the Audit
Committee members unanimously agreed to recommend the continuing
appointment of KPMG as auditors, deeming this course of action to
be in the best interests of shareholders, by virtue of the strength
of the KPMG audit team in terms of their depth, spread of knowledge
of the sector and that they remain fully independent of the
board.
The terms of reference of the Audit Committee are available from
the Administrator on request.
During the year the Audit Committee met three times and of those
meetings all Audit Committee members were in attendance.
David
Warr
Chairman of the Audit Committee
24 April 2018
Independent Auditor’s Report To The Members of Acorn Income
Fund Limited
Our opinion is
unmodified
We have audited the financial statements of Acorn Income
Fund Limited (the “Company”), which comprise the statement of
financial position as at 31 December
2017, the statements of comprehensive income, cash flows and
changes in equity for the year then ended, and notes, comprising
significant accounting policies and other explanatory
information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial
position of the Company as at 31 December
2017, and of the Company’s financial performance and the
Company’s cash flows for the year then ended;
- are prepared in accordance with
International Financial Reporting Standards (IFRS); and
- comply with the Companies (Guernsey) Law, 2008.
Basis for
opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key audit matters:
our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In
arriving at our audit opinion above, the key audit matter was as
follows (unchanged from 2016):
|
The risk |
Our response |
Valuation of investments (Financial assets designated as at fair
value through profit or loss)
£103,298,819; (2016 £87,172,262)
Refer to the Audit Committee Report, notes 1 and 10 |
Basis:
As at 31 December 2017 the Company had invested 133.4% of its
net assets in listed equities and bonds and structured notes
(together, the “investments”)
The Company’s listed investments are valued based on market
prices while its structured notes are valued based on price
quotes obtained from a third party pricing provider
Risk:
The valuation of the Company’s investments, given that it
represents the majority of the Company’s net assets is considered
to be a significant area of our audit. |
Our audit procedures included, but were not limited
to:
- Use of KPMG valuation specialist to independently
price listed investments to a third party pricing source
- For structured notes our valuation specialist
assisted us with the assessment of the quality and integrity of the
price quotes, through comparison to available quotes from
independent sources or through applying a valuation model based on
contractual terms and market data
Assessing disclosures:
We also considered the Company’s disclosures (see note 1(b)) in
relation to the use of judgements regarding valuation of
investments and the Company’s valuation policies adopted and fair
value disclosures in note 10 for compliance with IFRS
|
Our application of
materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at
£2,323,000, determined with reference to a benchmark of net assets
of £77,458,203, of which it represents approximately 3% (2016:
approximately 3%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £116,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
We have nothing to
report on going concern
We are required to report to you if we have anything
material to add or draw attention to in relation
to the directors’ statement in note 1(a) to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company’s use of that basis for a period of at least twelve months
from the date of approval of the financial statements. We
have nothing to report in this respect.
We have nothing to
report on the other information in the annual report
The directors are responsible for the other information
presented in the annual report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of
principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
- the directors’ confirmation within
viability statement that they have carried out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or
liquidity;
- the Principal Risks disclosures
describing these risks and explaining how they are being managed or
mitigated; and
- the directors’ explanation in the
viability statement as to how they have assessed the prospects of
the Company, over what period they have done so and why they
consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Corporate
governance disclosures
We are required to report to you if:
- we have identified material
inconsistencies between the knowledge we acquired during our
financial statements audit and the directors’ statement that they
consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy; or
- the section of the annual report
describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the 2016 UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to
report on other matters on which we are required to report by
exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey)
Law, 2008 requires us to report to you if, in our opinion:
- the Company has not
kept proper accounting records; or
- the financial
statements are not in agreement with the accounting records; or
- we have not received
all the information and explanations, which to the best of our
knowledge and belief are necessary for the
purpose of our audit.
Respective
responsibilities
Directors’ responsibilities
As explained more fully in their statement set out in Statement
of Directors’ Responsibility in Respect of the Annual Financial
Report, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error;
assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a
high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided
on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
We are required to report to you if we have anything material to
add or draw attention to in relation to the directors’ statement in
note 1(a) to the financial statements on the use of the going
concern basis of accounting with no material uncertainties that may
cast significant doubt over the Company’s use of that basis for a
period of at least twelve months from the date of approval of the
financial statements. We have nothing to report in this
respect.
The purpose of
this report and restrictions on its use by persons other than the
Company’s members as a body
This report is made solely to the Company’s members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law, 2008 and, in respect of any
further matters on which we have agreed to report, on terms we have
agreed with the Company. Our audit work has been undertaken so that
we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Barry T.
Ryan
For and on behalf of KPMG Channel
Islands Limited
Chartered Accountants and Recognised
Auditors, Guernsey
24 April
2018
Statement of Comprehensive Income
for the year ended 31 December
2017
|
|
|
|
|
|
|
Year
ended 31 Dec 2017 |
|
Year
ended 31 Dec 2016 |
|
|
|
Revenue |
|
Capital |
|
Total |
|
Total |
|
|
Notes |
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on financial
assets designated as at |
|
|
|
|
|
|
|
|
|
fair value through
profit or loss |
|
10 |
- |
|
14,859,164 |
|
14,859,164 |
|
3,901,649 |
Gains/(losses) on
derivative financial instruments |
|
4 |
- |
|
27,491 |
|
27,491 |
|
(465,564) |
Investment income |
|
3 |
3,848,631 |
|
- |
|
3,848,631 |
|
3,869,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income and
gains |
|
|
3,848,631 |
|
14,886,655 |
|
18,735,286 |
|
7,305,760 |
Expenses |
|
5 |
(608,585) |
|
(1,279,141) |
|
(1,887,726) |
|
(1,050,323) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on ordinary
activities before finance costs |
|
|
|
|
|
|
|
|
|
and
taxation |
|
|
3,240,046 |
|
13,607,514 |
|
16,847,560 |
|
6,255,437 |
Interest payable and
similar charges |
|
7 |
- |
|
(1,337,797) |
|
(1,337,797) |
|
(1,929,208) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on ordinary
activities before taxation |
|
|
3,240,046 |
|
12,269,717 |
|
15,509,763 |
|
4,326,229 |
Taxation on ordinary
activities |
|
|
- |
|
- |
|
- |
|
- |
Other comprehensive
income |
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income for the year |
|
|
|
|
|
|
|
|
|
attributable to
ordinary shareholders |
|
|
3,240,046 |
|
12,269,717 |
|
15,509,763 |
|
4,326,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence |
|
Pence |
|
Pence |
|
Pence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return per Ordinary
Share |
|
9 |
20.36 |
|
77.09 |
|
97.45 |
|
27.19 |
|
|
|
|
|
|
|
|
|
|
Dividend per
Ordinary Share |
|
8 |
18.00 |
|
- |
|
18.00 |
|
15.50 |
|
|
|
|
|
|
|
|
|
|
Return per ZDP
Share |
|
9 |
- |
|
6.28 |
|
6.28 |
|
9.03 |
|
|
|
|
|
|
|
|
|
|
The supplementary revenue return and capital return columns have
been prepared in accordance with the Statement of Recommended
Practice (“SORP”) issued by the Association of Investment Companies
(“AIC”).
In arriving at the results for the financial year, all amounts
above relate to continuing operations.
No operations were acquired or discontinued in the year.
The notes form an integral part of
these financial statements.
Statement of Financial Position
as at 31 December 2017
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
GBP |
|
GBP |
NON-CURRENT
ASSETS |
|
|
|
|
|
Financial assets
designated as at fair value through profit or loss |
10 |
|
103,298,819 |
|
87,172,262 |
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
|
Receivables |
11 |
|
534,936 |
|
2,242,217 |
Cash and cash
equivalents |
|
|
4,976,255 |
|
5,071,818 |
Derivative financial
instruments |
|
|
29,577 |
|
91,470 |
|
|
|
|
|
|
|
|
|
5,540,768 |
|
7,405,505 |
TOTAL
ASSETS |
|
|
108,839,587 |
|
94,577,767 |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES |
|
|
|
|
|
Derivative financial
instruments |
|
|
972 |
|
- |
Payables - due within
one year |
12 |
|
835,202 |
|
469,872 |
ZDP Shares |
13 |
|
- |
|
29,319,945 |
|
|
|
836,174 |
|
29,789,817 |
NON-CURRENT
LIABILITIES |
|
|
|
|
|
ZDP Shares |
13 |
|
30,545,210 |
|
- |
TOTAL
LIABILITIES |
|
|
31,381,384 |
|
29,789,817 |
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS |
|
|
77,458,203 |
|
64,787,950 |
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital and
premium |
14 &
18 |
|
27,633,383 |
|
27,607,889 |
Revenue reserve |
18 |
|
2,886,872 |
|
2,511,830 |
Capital reserve |
18 |
|
41,506,186 |
|
29,236,469 |
Other reserves |
15 &
18 |
|
5,431,762 |
|
5,431,762 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
EQUITY |
|
|
77,458,203 |
|
64,787,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence |
|
Pence |
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per
Ordinary Share (per Articles) |
|
|
486.84 |
|
407.23 |
Net asset value per
Ordinary Share (per IFRS) |
|
|
486.65 |
|
407.20 |
Net asset value per
ZDP Share (per Articles) |
|
|
142.83 |
|
137.26 |
Net asset value per
ZDP Share (per IFRS) |
|
|
142.97 |
|
137.28 |
The financial statements were approved by the Board of Directors
and authorised for issue on 24 April
2018 and signed on its behalf by:
Helen
Green
Chairman
The notes form an integral part of these financial
statements.
Statement of Cash Flows
for the year ended 31 December
2017
|
|
31
Dec 2017 |
|
31 Dec
2016 |
|
Notes |
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
|
|
|
Return on ordinary
activities before taxation |
|
15,509,763 |
|
4,326,229 |
Net gains on financial
assets designated as at fair value through profit or loss |
10 |
(14,859,164) |
|
(3,901,649) |
Investment income |
3 |
(3,848,631) |
|
(3,869,675) |
Interest expense |
7 |
1,337,797 |
|
1,929,208 |
Decrease/(increase) in
derivative financial assets |
|
61,893 |
|
(82,724) |
Increase/(decrease) in
derivative financial liabilities |
|
972 |
|
(141,151) |
Increase in payables
and appropriations excluding amount due to brokers |
12 |
575,330 |
|
19,984 |
Decrease/(increase) in receivables excluding accrued investment
income and due from brokers |
|
|
|
|
11 |
9,584 |
|
(9,400) |
|
|
|
|
|
|
|
|
|
|
Net cash flow used
in operating activities before investment income |
|
(1,212,456) |
|
(1,729,178) |
Investment income
received |
|
3,709,750 |
|
4,090,590 |
|
|
|
|
|
|
|
|
|
|
Net cash flow from
operating activities before taxation |
|
2,497,294 |
|
2,361,412 |
Tax paid |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
Net cash flow from
operating activities |
|
2,497,294 |
|
2,361,412 |
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
Purchase of financial
assets designated at fair value through profit or loss |
10 |
(31,758,253) |
|
(22,830,886) |
Sale of financial
assets designated at fair value through profit or loss |
|
32,327,436 |
|
24,358,328 |
|
|
|
|
|
|
|
|
|
|
Net cash flow from
investing activities |
|
569,183 |
|
1,527,442 |
|
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
Equity dividends
paid |
8 |
(2,865,004) |
|
(2,466,157) |
Treasury shares
sold |
15 |
- |
|
496,114 |
Issue of Ordinary
Shares |
14 |
25,494 |
|
- |
ZDP shares
redeemed |
13 |
(2,531,141) |
|
- |
ZDP Shares issued |
13 |
2,579,090 |
|
- |
ZDP shares sold out of
treasury |
13 |
- |
|
221,063 |
Cost of issue of ZDP
Shares |
7 |
(370,479) |
|
(1,105) |
|
|
|
|
|
|
|
|
|
|
Net cash flow used
in financing activities |
|
(3,162,040) |
|
(1,750,085) |
(Decrease)/increase
in cash and cash equivalents |
|
(95,563) |
|
2,138,769 |
Cash and cash
equivalents at beginning of year |
|
5,071,818 |
|
2,933,049 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of year |
|
4,976,255 |
|
5,071,818 |
The notes form an integral part of these financial
statements.
Statement of Changes in Equity
As at 31 December 2017
|
Share
Capital and Premium |
Revenue
Reserve |
Capital
Reserve |
Other
Reserves |
Total |
|
31 Dec 2017 |
31
Dec 2017 |
31
Dec 2017 |
31 Dec 2017 |
31 Dec 2017 |
GBP |
GBP |
GBP |
GBP |
GBP |
Balances as at 1
January 2017 |
27,607,889 |
2,511,830 |
29,236,469 |
5,431,762 |
64,787,950 |
Total
comprehensive income for the year attributable to ordinary
shareholders |
|
|
|
|
|
- |
3,240,046 |
12,269,717 |
- |
15,509,763 |
Dividends |
- |
(2,865,004) |
- |
- |
(2,865,004) |
Issue of Ordinary
Shares |
25,494 |
- |
- |
- |
25,494 |
|
|
|
|
|
|
Balances as at 31
December 2017 |
27,633,383 |
2,886,872 |
41,506,186 |
5,431,762 |
77,458,203 |
As at 31 December 2016
|
Share
Capital and Premium |
Revenue
Reserve |
Capital
Reserve |
Other
Reserves |
Total |
|
31 Dec 2016 |
31 Dec 2016 |
31 Dec 2016 |
31 Dec 2016 |
31 Dec 2016 |
GBP |
GBP |
GBP |
GBP |
GBP |
Balances as at 1
January 2016 |
27,607,889 |
1,735,911 |
28,152,316 |
4,935,648 |
62,431,764 |
Total comprehensive
income for the year attributable to ordinary shareholders |
- |
3,242,076 |
1,084,153 |
- |
4,326,229 |
Dividends |
- |
(2,466,157) |
- |
- |
(2,466,157) |
Treasury shares
sold |
- |
- |
- |
496,114 |
496,114 |
|
|
|
|
|
|
Balances as at 31
December 2016 |
27,607,889 |
2,511,830 |
29,236,469 |
5,431,762 |
64,787,950 |
The notes form an integral part of these financial
statements.
Notes to the Financial Statements
for the year ended 31 December
2017
1 ACCOUNTING POLICIES
(a) Basis of
preparation
The financial statements, which give a true and fair view, have
been prepared in accordance with International Financial Reporting
Standards (“IFRS”) issued by the International Accounting Standards
Board (“IASB”), the Association of Investment Companies (“AIC”)
Statements of Recommended Practice (“SORP”) (as revised in
November 2014) where this is
consistent with the requirements of IFRS and in compliance with the
Companies (Guernsey) Law, 2008.
All accounting policies adopted for the period are consistent with
IFRS issued by the IASB. The financial statements have been
prepared on an historical cost basis except for the measurement at
fair value of financial assets designated as at fair value through
profit or loss and derivative financial instruments.
The accounts have been prepared on a going concern basis. The
disclosure on going concern in the Report of the Directors forms
part of the financial statements.
At the reporting date of these Financial Statements, the
following standards, interpretations and amendments, which have not
been applied in these Financial Statements, were in issue but not
yet effective:
- IFRS 9 Financial Instruments (Effective 1 January 2018)
IFRS 9 'Financial Instruments' amends IAS 39. IFRS 9 specifies
how an entity should classify and measure financial assets,
including some hybrid contracts. The standard requires all
financial assets to be classified on the basis of the entity’s
business model for managing the financial assets and the
contractual cash flow characteristics of the financial asset. These
requirements improve and simplify the approach for classification
and measurement of financial assets compared with the requirements
of IAS 39. 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 requirements for financial liabilities are mostly carried
forward unchanged from IAS39. However, some changes were made to
the fair value option for financial liabilities to address the
issue of own credit risk.
The standard also results in one impairment method, replacing
the numerous impairment methods in IAS 39 that arise from the
different classification.
General approach
With the exception of purchased or originated credit impaired
financial assets, expected credit losses ("ECL") are required to be
measured through a loss allowance at an amount equal to:
- the 12-month ECL (ECL that result from those default events on
the financial instrument that are possible within 12 months after
the reporting date); or
- full lifetime ECL (ECL that result from all possible default
events over the life of the financial instrument).
It is anticipated that the application of IFRS 9 will not change
the measurement and presentation of the Company’s financial
instruments.
No new accounting standards were effected or adopted during the
year having an effect on the financial statements.
(b) Use of
estimates and judgements
The preparation of the financial statements in conformity with
IFRS requires the Directors to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
The Directors use judgements in allocating expenses between
Revenue and Capital and in ascertaining the risk disclosures
contained in Note 18. The Directors use judgements in valuing the
market value of the investments contained in Note 10.
No significant estimates have been used.
(c)
Dividend Policy
The Company aims to pay a regular quarterly dividend in March,
June, September and December. It is intended to distribute
substantially all of the Company’s net income after expenses and
taxation; however the Company may retain a proportion of the
Company’s income in each year as a revenue reserve to assist in
providing long term stability in dividend distributions.
(d) Share
Capital
Ordinary shares are classified as equity. Share capital includes
the nominal value of ordinary shares that have been issued and any
premiums received on the initial issuance of shares. Incremental
costs directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax, from the
proceeds.
When shares recognised as equity are repurchased, the amount of
the consideration paid, which includes directly attributable costs,
is recognised as a deduction from equity. Repurchased shares are
classified as treasury shares and are presented in the treasury
reserve included in other reserves in the Statement of Financial
Position. When treasury shares are sold or reissued subsequently,
the amount received is recognised as an increase in equity and the
resulting surplus or deficit on the transaction is presented within
share premium.
(e) Zero
Dividend Preference Shares
Under IAS 32, the ZDP Shares are classified as financial
liabilities and are held at amortised cost. Appropriation for the
period in respect of ZDP Shares is included in the Statement of
Comprehensive Income as a finance cost and is calculated using the
effective interest rate method (“EIR”). The costs of issue of the
ZDP shares are being amortised over the period until the ZDP shares
will be redeemed.
(f)
Taxation
The Company has been granted exemption under the Income Tax
(Exempt Bodies) (Guernsey)
Ordinance, 1989 from Guernsey Income Tax, and has elected to remain
exempt following changes to in the Guernsey tax regime. The Company paid an
annual fee of £1,200 (2016: £1,200).
(g) Capital
Reserve
The following are accounted for in this reserve:
– gains and losses on the realisation of
investments;
– expenses charged to this account in accordance
with the expenses policy below;
– increases and decreases in the valuation of the
investments held at the year-end; and
– unrealised exchange differences of a capital
nature.
(h)
Expenses
All expenses are accounted for on an accruals basis and are
recognised in profit or loss. Expenses are charged to the capital
reserve where a connection with the maintenance or enhancement of
the value of the investments can be demonstrated.
75% of the Company’s management fee and 100% financing costs are
charged to the capital reserve in line with the Board’s expected
long-term split of returns between income and capital gains from
the investment portfolio.
100% of any performance fee, commissions paid and the
appropriation in respect of ZDP Shares is charged to the capital
reserve.
All other expenses are charged through the revenue reserve.
(i)
Investment income
Interest income and distributions receivable are accounted for
on an accruals basis. Interest income relates only to interest on
bank balances. Bond income is accounted for using the EIR basis.
Dividends are recognised on the ex-dividend date. Investment income
is treated as a revenue item, except for special dividends of a
capital nature which are treated as a capital item, in the
Statement of Comprehensive Income.
(j)
Foreign currency translation
The currency of the primary economic environment in which the
Company operates (the functional currency) is Great British Pounds
(“GBP”) which is also the presentational currency.
Transactions denominated in foreign currencies are translated
into GBP at the rate of exchange ruling at the date of the
transaction.
Monetary assets and liabilities, other than investments,
denominated in foreign currencies at the reporting date are
translated to the functional currency at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on
translation are recognised in profit or loss in the Statement of
Comprehensive Income. Foreign exchange differences relating to
investments are taken to the capital reserve. Realised and
unrealised foreign exchange differences on non-capital assets or
liabilities are taken to profit or loss in the Statement of
Comprehensive Income in the period in which they arise.
(k) Cash and
cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits and short term, highly liquid investments readily
convertible to known amounts of cash and subject to an
insignificant risk of change in value. For the purposes of the
Statement of Cash Flows, cash and cash equivalents consist of cash,
deposits at bank and money market deposits with a maturity of less
than 3 months.
(l)
Investments
All investments have been designated as financial assets at
“fair value through profit or loss”. Investments are initially
recognised on the date of purchase at fair value, with transaction
costs recognised in profit or loss in the Statement of
Comprehensive Income. Unrealised gains and losses on movement in
fair value of investments are recognised in profit or loss in the
Statement of Comprehensive Income. Investments are derecognised on
the date of sale. Gains and losses on the sale of investments,
which is the difference between its initial cost and sale value,
will be taken to the profit or loss in the Statement of
Comprehensive Income in the period in which they arise. For
investments actively traded in organised financial markets, fair
value is determined by reference to Stock Exchange quoted market
bid prices as at the close of business on the reporting date.
For investments not actively traded, the Directors will consider
where practical, multiples used in recent transactions in
comparable stocks. Where there are no comparable listed or unlisted
stocks the Directors will take into consideration the performance
of the stock, maturity date and finance arrangements to determine
the fair value.
(m) Derivatives
Derivatives consist of forward exchange contracts which are
initially measured at fair value and any directly attributable
transaction costs are recognised in profit or loss in the Statement
of Comprehensive Income as incurred. Subsequent to initial
recognition, derivatives are measured at fair value, and changes
therein are generally recognised in profit or loss in the Statement
of Comprehensive Income. Derivatives contracts in a receivable
position (positive fair value) are reported as financial assets at
fair value through profit or loss. Derivatives contracts in a
payable position (negative fair value) are reported as financial
liabilities at fair value through profit or loss.
(n) Trade date
accounting
All “regular way” purchases and sales of financial assets are
recognised on the “trade date”, i.e. the date that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the timeframe generally established by
regulation or convention in the market place.
(o) Segmental
reporting
The Company retains two Investment Advisers, Unicorn Asset
Management Limited and Premier Fund Managers Limited for the
Smaller Companies Portfolio and Income Portfolio respectively. As
the Board reviews the performance of each portfolio separately and
decides on the allocation of resources based on this performance,
the Board, as chief operating decision maker, has determined that
the Company has two reportable segments (2016: two).
The Board is charged with setting the Company’s investment
strategy in accordance with the Prospectus. They have delegated the
day to day implementation of this strategy to its Investment
Advisers but retain responsibility to ensure that adequate
resources of the Company are directed in accordance with their
decisions. The investment decisions of the Investment Advisers are
reviewed on a regular basis to ensure compliance with the policies
and legal responsibilities of the Board. The Investment Advisers
have been given full authority to act on behalf of the Company,
including the authority to purchase and sell securities and other
investments on behalf of the Company and to carry out other actions
as appropriate to give effect thereto. Whilst the Investment
Advisers may make the investment decisions on a day to day basis
regarding the allocation of funds to different investments, any
changes to the investment strategy or major allocation decisions
have to be approved by the Board, even though they may be proposed
by the Investment Advisers. The Board, therefore, retains full
responsibility as to the major allocation decisions made on an
ongoing basis. The Investment Advisers will always act under the
terms of the Prospectus.
The key measure of performance used by the Board to assess the
Company’s performance and to allocate resources is the total return
on the Company’s net asset value (“NAV”), as calculated under IFRS,
and therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
financial statements.
The schedule of principal investments held as at the year-end
are presented in the Schedule of Principal Investments section.
(p)
Offsetting
Financial assets and liabilities are offset and the net amount
is reported in the Statement of Financial Position when there is
currently a legally and contractually enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or realise the asset and settle the liability
simultaneously. A current legally and contractually enforceable
right to offset must not be contingent on a future event.
Furthermore, it must be legally and contractually enforceable in
(i) the normal course of business; (ii) the event of default; and
(iii) the event of insolvency or bankruptcy of the Company and all
of the counterparties.
2 OPERATING SEGMENTS
The Company has two reportable segments, being the Income
Portfolio and the Smaller Companies Portfolio. Each of these
portfolios is managed separately as they entail different
investment objectives and strategies and contain investments in
different products.
For each of the portfolios, the Board reviews investment
management reports on a quarterly basis. The objectives and
principal investment products of the respective reportable segments
are as follows:
Segment |
Investment objectives and principal
investments products |
Income Portfolio |
To maximise income
through investments in sterling denominated fixed interest
securities including corporate bonds, preference and permanent
interest bearing shares, convertibles, reverse convertibles,
debentures and other similar securities. |
Smaller Companies
Portfolio |
To maximise income and
capital growth through investments in smaller capitalised UK
companies. |
Information regarding the results of each reportable segment
follows. Performance is measured based on the increase in value of
each portfolio, as included in the investment management reports
that are reviewed by the Board.
Segmental information is measured on the same basis as those
used in the preparation of the Company’s financial statements.
|
|
|
|
|
|
Smaller |
|
|
|
|
|
|
|
|
Income |
|
Companies |
|
|
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
Unallocated |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
31
December 2017 |
|
|
|
|
|
|
|
|
|
External
revenues: |
|
|
|
|
|
|
|
|
|
Net gains
on financial assets designated as at fair value |
|
|
|
|
|
|
|
through
profit or loss |
|
|
778,843 |
|
14,080,321 |
|
- |
|
14,859,164 |
Gains on
derivative financial instruments |
27,491 |
|
- |
|
- |
|
27,491 |
Bank
interest |
|
|
- |
|
- |
|
2,019 |
|
2,019 |
Dividend
income |
|
|
129,263 |
|
3,296,888 |
|
- |
|
3,426,151 |
Bond
income |
|
|
420,461 |
|
- |
|
- |
|
420,461 |
Total
income and gains |
|
|
1,356,058 |
|
17,377,209 |
|
2,019 |
|
18,735,286 |
Expenses |
|
|
|
- |
|
- |
|
(1,887,726) |
|
(1,887,726) |
Interest
payable and similar charges |
|
- |
|
- |
|
(1,337,797) |
|
(1,337,797) |
Total
comprehensive income for the period attributable |
|
|
|
|
|
|
|
to
shareholders |
|
|
1,356,058 |
|
17,377,209 |
|
(3,223,504) |
|
15,509,763 |
|
|
|
|
|
|
Smaller |
|
|
|
|
|
|
|
|
Income |
|
Companies |
|
|
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
Unallocated |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
31
December 2017 |
|
|
|
|
|
|
|
|
|
Financial
assets designated as at fair value through |
|
|
|
|
|
|
|
profit or
loss |
|
|
15,862,279 |
|
87,436,540 |
|
- |
|
103,298,819 |
Receivables |
|
|
|
277,100 |
|
257,836 |
|
- |
|
534,936 |
Derivative
financial instruments |
|
29,577 |
|
- |
|
- |
|
29,577 |
Cash and
cash equivalents |
|
2,058,116 |
|
2,918,139 |
|
- |
|
4,976,255 |
Total
assets |
|
|
18,227,072 |
|
90,612,515 |
|
- |
|
108,839,587 |
Derivative
financial instruments |
|
972 |
|
- |
|
- |
|
972 |
Payables |
|
|
|
- |
|
- |
|
835,202 |
|
835,202 |
Total
current liabilities |
|
|
972 |
|
- |
|
835,202 |
|
836,174 |
|
|
|
|
|
|
Smaller |
|
|
|
|
|
|
|
|
Income |
|
Companies |
|
|
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
Unallocated |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
31
December 2016 |
|
|
|
|
|
|
|
|
|
External
revenues: |
|
|
|
|
|
|
|
|
|
Net gains
on financial assets designated as at fair value |
|
|
|
|
|
|
|
through
profit or loss |
|
|
954,587 |
|
2,947,062 |
|
- |
|
3,901,649 |
Losses on
derivative financial instruments |
(465,564) |
|
- |
|
- |
|
(465,564) |
Bank
interest |
|
|
- |
|
- |
|
2,365 |
|
2,365 |
Dividend
income |
|
|
146,359 |
|
3,071,816 |
|
- |
|
3,218,175 |
Bond
income |
|
|
649,135 |
|
- |
|
- |
|
649,135 |
Total
income and gains |
|
|
1,284,517 |
|
6,018,878 |
|
2,365 |
|
7,305,760 |
Expenses |
|
|
|
- |
|
- |
|
(1,050,323) |
|
(1,050,323) |
Interest
payable and similar charges |
|
- |
|
- |
|
(1,929,208) |
|
(1,929,208) |
Total
comprehensive income for the year attributable |
|
|
|
|
|
|
|
to
shareholders |
|
|
1,284,517 |
|
6,018,878 |
|
(2,977,166) |
|
4,326,229 |
|
|
|
|
|
|
Smaller |
|
|
|
|
|
|
|
|
Income |
|
Companies |
|
|
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
Unallocated |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
31
December 2016 |
|
|
|
|
|
|
|
|
|
Financial
assets designated as at fair value through |
|
|
|
|
|
|
|
profit or
loss |
|
|
15,171,128 |
|
72,001,134 |
|
- |
|
87,172,262 |
Receivables |
|
|
|
219,640 |
|
2,022,577 |
|
- |
|
2,242,217 |
Derivative
financial instruments |
|
91,470 |
|
- |
|
- |
|
91,470 |
Cash and
cash equivalents |
|
2,406,640 |
|
2,665,178 |
|
- |
|
5,071,818 |
Total
assets |
|
|
17,888,878 |
|
76,688,889 |
|
- |
|
94,577,767 |
Payables |
|
|
|
- |
|
- |
|
469,872 |
|
469,872 |
Total
current liabilities |
|
|
- |
|
- |
|
469,872 |
|
469,872 |
Geographical information
In presenting information on the basis of geographical segments,
segment revenue is based on the domicile countries of the investees
and counterparties to derivative transactions. The table below
excludes net gains on financial assets designated at fair value
through profit or loss and gains or losses on derivative
instruments.
|
|
|
|
|
|
|
|
|
Other |
|
Rest
of |
|
|
|
|
|
UK |
|
Guernsey |
|
Jersey |
|
Europe |
|
the
world |
|
Total |
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
31
December 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
External revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue |
|
3,277,389 |
|
198,415 |
|
- |
|
109,224 |
|
263,603 |
|
3,848,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Rest
of |
|
|
|
|
|
UK |
|
Guernsey |
|
Jersey |
|
Europe |
|
the
world |
|
Total |
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
31
December 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
External revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue |
|
3,307,930 |
|
177,633 |
|
- |
|
224,460 |
|
159,652 |
|
3,869,675 |
The Company did not hold any non-current assets during the year
other than financial instruments (2016: £nil).
Major customers
The Company regards its shareholders as customers. The Company’s
only shareholder with a holding greater than 10% at the year end
was HSBC Issuer Services Common Depositary Nominee (UK) Limited
(2016: The Company’s only shareholder with a holding greater than
10% at the year end was HSBC Issuer Services Common Depositary
Nominee (UK) Limited).
3
INVESTMENT INCOME
|
|
|
|
Year
ended |
|
Year
ended |
|
|
|
|
31
December 2017 |
|
31
December 2016 |
|
|
|
|
GBP |
|
GBP |
Bank interest |
|
|
|
2,019 |
|
2,365 |
Dividend income |
|
|
|
3,426,151 |
|
3,218,175 |
Bond income |
|
|
|
420,461 |
|
649,135 |
|
|
|
|
3,848,631 |
|
3,869,675 |
4
GAINS/(LOSSES) ON DERIVATIVE FINANCIAL INSTRUMENT
|
|
|
|
Year
ended |
|
Year
ended |
|
|
|
|
31
December 2017 |
|
31
December 2016 |
|
|
|
|
GBP |
|
GBP |
Unrealised
(loss)/gain on forward foreign currency contracts |
(62,888) |
|
223,875 |
Realised
gain/(loss) on forward foreign currency contracts |
90,379 |
|
(689,439) |
|
|
|
|
27,491 |
|
(465,564) |
5
EXPENSES
|
|
|
Year ended 31 Dec 2017 |
Year ended 31 Dec 2016 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
GBP |
GBP |
GBP |
GBP |
GBP |
GBP |
Manager's
fee* |
|
182,364 |
547,093 |
729,457 |
155,770 |
467,310 |
623,080 |
Administrator's fee*** |
|
91,485 |
- |
91,485 |
91,911 |
- |
91,911 |
Registrar's fee |
|
26,535 |
- |
26,535 |
16,340 |
- |
16,340 |
Directors'
fees |
|
95,731 |
- |
95,731 |
78,307 |
- |
78,307 |
Custody
fees |
|
39,892 |
- |
39,892 |
23,452 |
- |
23,452 |
Audit fees |
|
|
30,400 |
- |
30,400 |
32,782 |
- |
32,782 |
Directors'
and Officers' insurance |
8,745 |
- |
8,745 |
3,428 |
- |
3,428 |
Annual
fees |
|
32,351 |
- |
32,351 |
29,756 |
- |
29,756 |
Performance fee** |
|
- |
559,967 |
559,967 |
- |
- |
- |
Commissions and charges paid |
- |
172,081 |
172,081 |
- |
120,414 |
120,414 |
Legal and
professional fees |
26,716 |
- |
26,716 |
5,267 |
- |
5,267 |
Broker
fees |
|
37,785 |
- |
37,785 |
40,412 |
- |
40,412 |
Sundry
costs |
|
15,234 |
- |
15,234 |
35,284 |
- |
35,284 |
Loss/(gain) on foreign exchange |
21,347 |
- |
21,347 |
(50,110) |
- |
(50,110) |
|
|
|
608,585 |
1,279,141 |
1,887,726 |
462,599 |
587,724 |
1,050,323 |
Manager’s fee
* The Company has entered into a Management Agreement with
Premier Asset Management (Guernsey) Limited, a wholly-owned,
Guernsey incorporated subsidiary
of Premier Asset Management Limited. The Investment Manager
receives a management fee of 0.7% per annum of total assets
(subject to a minimum of £100,000) calculated monthly and payable
quarterly in arrears, out of which it pays fees to the Investment
Advisers. The Investment Manager is also paid a shareholder
communication and support fee, currently £3,100 for the twelve
months from 1 April 2017 to
31 March 2018. Please refer to Note
1(h) for details on how expenses are charged to the capital reserve
and revenue account. The Management Agreement may be terminated by
either party on 12 months’ written notice. The Company has entered
into an agreement with the Investment Manager for the provision of
AIFM reporting services for a fee of £19,450 per annum from
1 September 2017.
Performance fee
**The Investment Manager is also potentially entitled to a
performance fee equal to 15% of any excess of the NAV per Ordinary
Share (together with any dividends paid) over the higher of the
first benchmark or the second benchmark. The first benchmark is the
NAV per share immediately following the tender in January 2007 increasing at 10% per annum
compound. The second benchmark is the highest NAV per Ordinary
Share as of the last calculation day in any preceding financial
period commencing after completion of the tender in January 2007 in respect of which a performance
fee has been paid compounded at 10% per annum. A performance fee
amounting to £559,967 was accrued for the year ended 31 December 2017 (2016: Nil).
Administrator’s fee
***The Company entered into an Administration Agreement with
Northern Trust International Fund Administration Services
(Guernsey) Limited on 1 April 2015. The Company shall pay the
Administrator a fee of 12 basis points per annum on the net assets
between £0 – £100 million, 10 basis points per annum on the net
assets between £100 million – £150 million and 8 basis points per
annum on the net assets over £150 million subject to a minimum of
£7,000 per month. The Administration Agreement may be terminated by
either party on ninety days notice.
6 DIRECTORS’
REMUNERATION
Under their terms of appointment, each Director is paid a fee of
£25,000 per annum by the Company, except for the Chairman, who
receives £35,000 per annum.
A special resolution was passed on 20
December 2016 for the new Articles of Incorporation which
included that the ordinary remuneration of the Directors shall not
exceed in aggregate of £200,000 per annum. During the Remuneration
and Management Engagement Committee on 28
November 2016, a recommendation was made to the Board to
increase Director Fees as follows:
Chairman of
Board:
£25,000 + £10,000
Chairman of Audit Committee:
£25,000 + £7,500
Chairman of Risk
Committee:
£25,000 + £5,000
The proposal was approved at a board meeting
on 6 February 2017 and became
effective from 1 February 2017.
7 INTEREST PAYABLE AND
SIMILAR CHARGES
|
|
|
|
Year ended 31 Dec 2017 |
|
|
|
|
Revenue |
Capital |
Total |
|
|
|
|
GBP |
GBP |
GBP |
Appropriation in respect of ZDP shares |
- |
1,177,318 |
1,177,318 |
ZDP issue
costs (2022) |
|
|
- |
160,479 |
160,479 |
|
|
|
|
- |
1,337,797 |
1,337,797 |
|
|
|
|
Year ended 31 Dec 2016 |
|
|
|
|
Revenue |
Capital |
Total |
|
|
|
|
GBP |
GBP |
GBP |
Appropriation in respect of ZDP shares |
- |
1,622,138 |
1,622,138 |
Amortisation of ZDP issue costs |
|
- |
97,070 |
97,070 |
ZDP issue
costs (2022) |
|
|
- |
210,000 |
210,000 |
|
|
|
|
- |
1,929,208 |
1,929,208 |
8
DIVIDENDS IN RESPECT OF ORDINARY SHARES
|
|
|
Year ended |
|
Year ended |
|
|
|
31 Dec 2017 |
|
31 Dec 2016 |
|
|
|
|
|
Pence |
|
|
|
Pence |
|
|
|
GBP |
|
per
share |
|
GBP |
|
per
share |
First
interim payment |
|
716,251 |
|
4.50 |
|
556,873 |
|
3.50 |
Second
interim payment |
716,251 |
|
4.50 |
|
636,428 |
|
4.00 |
Third
interim payment |
|
716,251 |
|
4.50 |
|
636,428 |
|
4.00 |
Fourth
interim payment |
|
716,251 |
|
4.50 |
|
636,428 |
|
4.00 |
|
|
|
2,865,004 |
|
18.00 |
|
2,466,157 |
|
15.50 |
Refer to Dividend’s Policy section above for further
details.
9
EARNINGS PER SHARE
Ordinary Shares
The total return per Ordinary Share (per IFRS) is based on the
total gain on ordinary activities for the year attributable to
Ordinary Shareholders of £15,509,763 (2016: gain of £4,326,229) and
on 15,916,178 (2016: 15,908,774) shares, being the weighted average
number of shares in issue during the year. There are no dilutive
instruments and therefore basic and diluted gains per share are
identical.
The revenue return per Ordinary Share (per IFRS) is based on the
revenue return on ordinary activities for the year attributable to
Ordinary Shareholders of £3,240,046 (2016: £3,242,076) and on
15,916,178 (2016: 15,908,774) shares, being the weighted average
number of shares in issue during the year. There are no dilutive
instruments and therefore basic and diluted gains per share are
identical.
The capital return per Ordinary Share (per IFRS) is based on the
capital return on ordinary activities for the year attributable to
Ordinary Shareholders of £12,269,717 (2016: capital return of
£1,084,153) and on 15,916,178 (2016: 15,908,774) shares, being the
weighted average number of shares in issue during the year. There
are no dilutive instruments and therefore basic and diluted gains
per share are identical.
ZDP shares
The return per ZDP Share is based on the appropriation in
respect of ZDP Shares, the amortisation of ZDP Share issue costs
and ZDP Share issue costs totalling £1,337,797 (2016: £1,929,208)
and on 21,306,025 (2016: 21,355,157) shares, being the weighted
average number of ZDP Shares in issue during the year.
10 FINANCIAL ASSETS
DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
GBP |
|
GBP |
INVESTMENTS |
|
|
|
|
|
|
|
Opening
portfolio cost |
|
|
|
|
69,405,067 |
|
67,722,601 |
Purchases
at cost |
|
|
|
|
31,758,253 |
|
22,830,886 |
Sales |
|
|
|
|
|
|
|
|
- proceeds |
|
|
|
|
|
(30,490,860) |
|
(26,194,906) |
- realised
gains on sales |
|
|
|
|
8,328,032 |
|
7,745,792 |
- realised
losses on sales |
|
|
|
|
(2,438,901) |
|
(2,699,306) |
Closing
book cost |
|
|
|
|
76,561,591 |
|
69,405,067 |
Unrealised
appreciation on investments |
|
|
29,091,144 |
|
20,697,555 |
Unrealised
depreciation on investments |
|
|
(2,353,916) |
|
(2,930,360) |
Fair value |
|
|
|
|
|
103,298,819 |
|
87,172,262 |
|
|
|
|
|
|
|
|
|
Realised
gains on sales |
|
|
|
|
8,328,032 |
|
7,745,792 |
Realised
losses on sales |
|
|
|
|
(2,438,901) |
|
(2,699,306) |
Increase/(decrease) in unrealised appreciation on investments |
|
8,393,589 |
|
(1,497,809) |
Decrease
in unrealised depreciation on investments |
576,444 |
|
352,972 |
Net
gains on financial assets designated as at fair value through
profit or loss |
14,859,164 |
|
3,901,649 |
As at 31 December 2017, the
closing fair value of investments comprised £87,436,540
(Dec 2016: £72,001,134) of Smaller
Companies Portfolio, £15,862,279 (Dec
2016: £15,171,128) of Income Portfolio. The Market value of
open Futures totalled £10,387 (Dec
2016: £132,661). Refer to Unaudited Full List of Investment
Holdings Listing section for further details.
IFRS 13 requires the fair value of investments to be disclosed
by the source of inputs using a three-level hierarchy as detailed
below:
Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (Level 2);
Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
Details of the value of each classification are listed in the
table below. Values are based on the market value of the investment
as at the reporting date:
Financial assets designated as at fair
value through profit or loss
|
|
31 Dec
2017 |
|
31 Dec
2017 |
|
31 Dec
2016 |
|
31 Dec
2016 |
|
|
Market
value |
|
Market
value |
|
Market
value |
|
Market
value |
|
|
% |
|
GBP |
|
% |
|
GBP |
Level 1 |
|
85.93 |
|
88,768,979 |
|
84.53 |
|
73,688,748 |
Level 2 |
|
13.75 |
|
14,207,406 |
|
15.47 |
|
13,483,142 |
Level 3 |
|
0.32 |
|
322,434 |
|
0.00 |
|
372 |
Total |
|
100.00 |
|
103,298,819 |
|
100.00 |
|
87,172,262 |
Bonds and structured investments are priced by reference to
market quotations which incorporate assessment of yield, maturity
and the instrument’s terms and conditions.
The following table is a reconciliation of investments the
Company held during the years ended 31 Dec
2017 and 31 Dec 2016 at fair
value using unobservable inputs (Level 3):
|
|
|
31 Dec
2017 |
31 Dec
2016 |
|
|
|
Market
value |
Market
value |
|
|
|
GBP |
GBP |
Balance at
1 January |
|
372 |
51,173 |
Transfer
from Level 1 to Level 3 |
321,974 |
- |
Unrealised
gain/(loss) on investments |
88 |
(50,801) |
Balance at
31 December |
|
322,434 |
372 |
For investments categorised in Level 3 as at 31 December 2017, the below details the valuation
methodologies used:
Petromena AS 10.85% 2014 – The bonds are in default and are
priced from a Bloomberg bond valuation model.
Silverdell plc – The stock is suspended and is valued at zero.
The Investment Adviser does not expect any return of capital.
DW Catalyst Fund – The stock is suspended as the company has
been placed in liquidation, following a vote by shareholders, to
enable its assets to be sold and the proceeds distributed to
shareholders. At 31 December
2017 two distributions had been made with at least two
further distributions expected.
The investment DW Catalyst is valued by reference to the net
asset value estimate announced by the company’s directors adjusted
for distributions already made and then applying a discount to
allow for realization costs. The discount selected was 7% giving a
value for the holding of £321,974. If the discount level adopted
was increased to 9% this would result in a reduction in Acorn’s
year end NAV per share of 0.0089% and if the discount adopted was
reduced to 5% this would result in an increase in Acorn’s year end
NAV per share of 0.0089%.
Derivative financial assets and
liabilities designated as at fair value through profit or loss
|
|
|
31 Dec
2017 |
31 Dec
2017 |
|
31 Dec
2016 |
31 Dec
2016 |
|
|
|
Market
value |
Market
value |
|
Market
value |
Market
value |
|
|
|
% |
GBP |
|
% |
GBP |
Level 2
derivative financial assets |
100.00 |
29,577 |
|
100.00 |
91,470 |
Level 2
derivative financial liabilities |
100.00 |
972 |
|
- |
- |
It is the Company’s policy to recognise all the transfers into
the levels and transfers out of the levels at the end of the
reporting year. Transfers into each level shall be disclosed and
discussed separately from transfer out of each level.
There was a transfer from Level 1 to Level 3 during the year for
DW Catalyst Fund.
There was no transfer from Level 1 to Level 2 during the
year.
The derivative financial instruments held by the Company have
been classified as Level 2. This is in accordance with the fair
value hierarchy. The Company uses widely recognised valuation
models for determining fair value of derivative financial
instruments that use only observable market data and require little
management judgement and estimation.
11 RECEIVABLES
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
Due from brokers |
|
|
|
|
|
- |
|
1,836,578 |
Prepayments |
|
|
|
|
|
8,103 |
|
17,687 |
Accrued
investment income |
|
|
526,833 |
|
387,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534,936 |
|
2,242,217 |
|
|
|
|
|
|
|
|
|
12 PAYABLES
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
Accrued
expenses |
|
|
|
|
86,979 |
|
99,992 |
Trade creditors |
|
|
|
|
|
188,256 |
|
159,880 |
Performance fee |
|
|
|
|
|
559,967 |
|
- |
ZDP issue
costs (2022) |
|
|
|
- |
|
210,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835,202 |
|
469,872 |
|
|
|
|
|
|
|
|
|
13 ZDP SHARES
|
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
ZDP Share
entitlement |
|
|
|
|
30,545,210 |
|
29,319,945 |
|
|
|
|
|
|
|
|
|
|
The above
entitlement comprises the following: |
|
|
|
21,357,174
ZDP Shares issued to date up to 31 Dec 2016 |
22,989,154 |
|
- |
21,189,384
ZDP Shares issued to date up to 31 Dec 2015 |
- |
|
22,768,091 |
1,842,207
ZDP Shares issued during the year up to 31 December 2017 |
2,579,090 |
|
- |
1,834,160
ZDP Shares redeemed during the year up to 31 December 2017 |
(2,531,141) |
|
- |
167,790
ZDP shares sold out of treasury during the year to 31 Dec 2016 |
- |
|
221,063 |
ZDP Premium |
|
|
|
|
|
|
(30,206) |
|
(13,501) |
Appropriation in respect of ZDP Shares |
|
7,508,107 |
|
6,339,204 |
|
|
|
|
|
|
|
|
|
|
ZDP value
(calculated in accordance with the Articles) |
30,515,004 |
|
29,314,857 |
ZDP issue costs |
|
|
|
|
|
|
- |
|
(105,483) |
Issue
costs amortised |
|
|
|
|
- |
|
97,070 |
|
|
|
|
|
|
|
|
|
|
Add back
ZDP Premium |
|
|
|
|
30,206 |
|
13,501 |
ZDP value
(calculated in accordance with IFRS) |
|
30,545,210 |
|
29,319,945 |
|
|
|
|
|
|
|
|
|
|
The fair value of the ZDP Shares as at 31
December 2017 was £32,314,897 (31
December 2016: £29,767,929).
The ZDP shares are classified under Level 1 (2016: level 1)
based on unadjusted quoted prices in active markets. Since
valuations are based on quoted prices that are readily and
regularly available in an active market, the valuation does not
entail a significant degree of judgement.
A Continuation Offer was made to ZDP Shareholders whereby such
holders were given an opportunity to either receive their 2017
Final Capital Entitlement of 138p or to continue their investment
in the existing ZDP Shares.
Following the proposals, 19,523,014 ZDP Shares were elected for
the Continuation Offer with a further 1,842,207 New ZDP Shares
being issued through an Initial Placing at 140.0p which represented
a premium of 1.4% to the opening NAV per New ZDP Share.
1,834,160 ZDP Shares were elected for Redemption at their 2017
Final Capital Entitlement of 138p.
ZDP Shares carry no entitlement to income distributions to be
made by the Company. The ZDP Shares will not pay dividends but have
a final capital entitlement at the end of their life on
28 February 2022 of 167.2 pence following the extension of the life
of the existing ZDP Shares from 31 January
2017.
The ZDP shares were classified on the Statement of Financial
Position as a current liability for the year ended 31 December 2016 as the maturity date
(31 January 2017) was within one year
before extension of their life to 28
February 2022.
It should be noted that the predetermined capital entitlement of
a ZDP Share is not guaranteed and is dependent upon the Company’s
gross assets being sufficient on 28 February
2022 to meet the final capital entitlement of ZDP
Shares.
Under the Articles of Incorporation, the Company is obliged to
redeem all of the ZDP Shares on 28 February
2022 (if such redemption has not already been effected).
The number of authorised ZDP Shares is 50,000,000. The number of
issued ZDP Shares is 21,365,221 (31 Dec
2016: 21,357,174). The non-amortisation of the ZDP Shares in
line with the Articles has the effect of increasing the NAV per
Ordinary Share by 0.19 pence.
14 SHARE CAPITAL AND
PREMIUM
Authorised |
|
|
|
|
|
GBP |
Ordinary
Shares of 1p each |
|
|
|
unlimited |
Issued |
|
|
|
|
|
Number
of |
|
|
|
|
|
|
Shares |
The
issue of Ordinary Shares took place as follows: |
|
|
Ordinary
Shares |
|
|
|
11 Feb
1999 |
29,600,002 |
Tender
offer |
|
|
|
17 Jan
2007 |
(20,660,212) |
Purchase
of treasury shares - Year ended 31 December 2011 |
|
(215,000) |
Placing -
Year ended 31 December 2013 |
|
|
6,438,339 |
Purchase
of treasury shares - Year ended 31 December 2013 |
|
(1,756,000) |
Shares
sold out of Treasury - Year ended 31 December 2013 |
|
1,971,000 |
Issue of
shares - Year ended 31 December 2014 |
|
|
2,500,205 |
Buyback of
Ordinary Shares - Year ended 31 December 2014 |
|
(2,650,000) |
Shares
sold out of Treasury - Year ended 31 December 2014 |
|
390,000 |
Buyback of
Ordinary Shares - Year ended 31 December 2015 |
|
(150,002) |
Shares
sold out of Treasury - Year ended 31 December 2015 |
|
317,360 |
Shares
sold out of Treasury - Year ended 31 December 2016 |
|
125,000 |
Number of
shares in issue at 31 December 2016 |
|
|
15,910,692 |
Issue of
shares |
|
|
|
|
5,995 |
Number of
shares in issue at 31 December 2017 |
|
|
15,916,687 |
Issued and
fully paid capital as at 31 December 2017 |
|
£197,106 |
|
|
|
|
|
Share
Capital |
Share
Premium |
Total |
|
|
|
|
|
31 Dec
2017 |
31 Dec
2017 |
31 Dec
2017 |
|
|
|
|
|
GBP |
GBP |
GBP |
Opening
share capital and premium |
|
|
171,867 |
27,436,022 |
27,607,889 |
Issue of
ordinary Shares |
|
|
25,239 |
255 |
25,494 |
Closing
share capital and premium |
|
|
197,106 |
27,436,277 |
27,633,383 |
The Ordinary Shares (excluding treasury shares) are entitled to
participate in all dividends and distributions of the Company. On a
winding-up holders of Ordinary Shares are entitled to participate
in the distribution and the holders of Ordinary Shares are entitled
to receive notice of and attend and vote at all general meetings of
the Company.
The issued and fully paid capital as at 31 December 2017 was £197,106 (31 December 2016: £171,867).
15 OTHER
RESERVES
Treasury Reserve
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
GBP |
|
GBP |
Balance as
at 1 January |
|
|
(4,568,238) |
|
(5,064,352) |
Treasury
shares sold during the year |
|
- |
|
496,114 |
Balance as
at 31 December |
|
(4,568,238) |
|
(4,568,238) |
The other reserves presented on the Statement of Financial
Position comprise the treasury reserve of (£4,568,238) and special
reserve of £10,000,000 totalling £5,431,762.
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
No.
Shares |
|
No.
Shares |
Balance as
at 1 January |
|
|
1,275,972 |
|
1,400,972 |
Treasury
shares sold during the year |
|
- |
|
(125,000) |
Balance as
at 31 December |
|
1,275,972 |
|
1,275,972 |
A Special reserve of £10,000,000 was created on the cancellation
of part of the Company’s Share premium account.
16 RELATED
PARTIES
Premier Asset Management (Guernsey) Limited is the Company’s Investment
Manager and operates under the terms of the Management Agreement in
force which delegates its authority over the Company’s investment
portfolios.
£729,457 (2016: £623,080) of costs were incurred by the Company
with this related party in the year, of which £188,256 (2016:
£159,880) was due to this related party as at 31 December 2017.
During the year ended 31 December
2017, £559,967 (31 December
2016: £Nil) was charged as performance fees of which,
£559,967 (31 December 2016: £Nil)
remained payable at year end.
Directors’ remuneration is disclosed in Note 6.
David Warr holds 63,000
(31 Dec 2016: 63,000) Ordinary Shares
in the capital of the Company, which represented an interest of
0.40% (31 Dec 2016: 0.40%) of the
Company’s Ordinary Shares in issue as at 31
December 2017.
17 FINANCIAL
INSTRUMENTS
The Company’s main financial instruments comprise:
(a) Cash and cash equivalents that arise
directly from the Company’s operations;
(b) Investments in listed entities,
receivables and payables;
(c) ZDP Shares; and
(d) Derivative financial
instruments.
18 FINANCIAL RISK
MANAGEMENT OBJECTIVES AND POLICIES
The following table details the categories of financial assets
and liabilities held by the Company at the reporting date:
|
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
|
GBP |
|
GBP |
Financial Assets |
|
|
|
|
|
|
|
|
Financial
assets designated as at fair value through profit or loss |
|
103,298,819 |
|
87,172,262 |
Derivative
financial assets |
|
|
|
|
29,577 |
|
91,470 |
Total
financial assets at fair value through profit or loss |
|
|
103,328,396 |
|
87,263,732 |
Loans
and receivables |
|
|
|
|
|
|
|
|
Cash and
receivables |
|
|
|
|
|
4,976,255 |
|
5,071,818 |
Receivables |
|
|
|
|
|
|
526,833 |
|
2,224,530 |
Total
assets |
|
|
|
|
|
108,831,484 |
|
94,560,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Dec
2017 |
|
31 Dec
2016 |
|
|
|
|
|
|
|
GBP |
|
GBP |
Financial liabilities |
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit or loss: |
|
|
|
|
|
Derivative
financial liabilities |
|
|
|
|
972 |
|
- |
Total
financial liabilities at fair value through profit or loss |
|
|
972 |
|
- |
Financial liabilities measured at amortised cost |
|
|
|
|
|
|
ZDP Shares |
|
|
|
|
|
|
30,545,210 |
|
29,319,945 |
Payables |
|
|
|
|
|
|
835,202 |
|
469,872 |
Total
Financial liabilities measured at amortised cost |
|
|
31,380,412 |
|
29,789,817 |
Total
liabilities excluding net assets attributable to holders of
Ordinary Shares |
31,381,384 |
|
29,789,817 |
Loans and receivables presented above represents cash and cash
equivalents, balances due from brokers and other receivables
(excluding prepayments) as detailed in the Statement of Financial
Position.
Financial liabilities measured at amortised cost presented above
represents accrued expenses and ZDP Shares as detailed in the
Statement of Financial Position.
Derivative financial assets and liabilities presented above
represent forward foreign exchange contracts. Unrealised gains and
losses on movement in fair value are recognised in the Statement of
Comprehensive Income.
The main risks arising from the Company’s financial instruments
are market price risk, credit risk, liquidity risk, interest rate
risk and foreign exchange risk. The Board regularly reviews and
agrees policies for managing each of these risks and these are
summarised in notes 18(a) to 18(e).
(a) Market
Price Risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss the Company might suffer through holding market positions in
the face of price movements. The Investment Advisers actively
monitor market prices and report to the Board as to the
appropriateness of the prices used for valuation purposes. The
Investment Advisers also attempt to minimise market price risk by
undertaking a detailed analysis of the risk/reward relationship of
each investee company prior to any investment being made.
Unicorn monitors the industry concentration exposure for the
Smaller Companies Portfolio.
Details of the Company’s Investment Objective and Policy are
given inside the front cover of this Report.
Price sensitivity
The following details the Company’s sensitivity to a 15%
increase and decrease in the market prices, with 15% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management’s assessment of
the possible change in market prices.
At 31 December 2017, if market
prices had been 15% higher with all the other variables held
constant, the return attributable to shareholders for the year
would have been £15,494,823 (2016: £13,075,839) greater, due to the
increase in the fair value of financial assets at fair value
through profit or loss. This would represent an increase in Net
Assets of 20.00% (2016: 20.18%).
If market prices had been 15% lower with all the other variables
held constant, the return attributable to shareholders for the year
would have been £15,494,823 (2016: £13,075,839) lower, due to the
decrease in the fair value of financial assets at fair value
through profit or loss. This would represent a decrease in Net
Assets of 20.00% (2016: 20.18%).
(b) Credit
Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. The Directors receive financial information on a
regular basis which is used to identify and monitor risk. It is the
Company's policy not to invest, at the time of investment, more
than 10% of the Company's gross assets in any one smaller company
equity, more than 7.5% in any one fixed interest security and more
than 20% in any one investment company or fund.
The Company has no significant concentration of credit risk,
with exposure spread over a large number of counterparties. At
31 December 2017 the Company’s
largest exposure to a single investment was £3,275,287 (2016:
£2,850,000), 3.01% (2016: 3.01%) of total assets.
Investors should be aware that the prospective returns to
Shareholders mirror the returns under the quoted securities held or
entered into by the Company and that any default by an issuer of
any such quoted security held by the Company would have a
consequential adverse effect on the ability of the Company to pay
some or all of the entitlement to its Shareholders. Such a default
might, for example, arise on the insolvency of an issuer of a
quoted security.
The Company’s financial assets exposed to credit risk are as
follows:
|
|
|
|
|
|
|
31 Dec
2017 |
|
31
Dec 2016 |
|
|
|
|
|
|
|
GBP |
|
GBP |
Financial
assets designated as at fair value through profit or loss |
|
|
|
|
(fixed
income securities only) |
|
|
|
|
14,529,840 |
|
13,350,853 |
Cash and
cash equivalents |
|
|
|
|
4,976,255 |
|
5,071,818 |
Interest,
dividends and other receivables |
|
|
|
526,833 |
|
2,206,843 |
Derivatives financial instruments |
|
|
|
|
29,577 |
|
91,470 |
|
|
|
|
|
|
|
20,062,505 |
|
20,720,984 |
The credit ratings of the bonds, as rated by Moody’s Investor
Services Inc (“Moodys”) were:
Rating |
|
|
|
|
|
|
31 Dec
2017 |
|
31
Dec 2016 |
|
|
|
|
|
|
|
|
|
|
Aa |
|
|
|
|
|
|
4.47% |
|
3.43% |
A |
|
|
|
|
|
|
19.58% |
|
12.54% |
Baa |
|
|
|
|
|
|
24.51% |
|
26.66% |
Ba |
|
|
|
|
|
|
5.97% |
|
5.30% |
B |
|
|
|
|
|
|
0.00% |
|
2.59% |
Other
Sourced Ratings |
|
|
|
|
|
10.36% |
|
10.47% |
No ratings
available |
|
|
|
|
|
35.11% |
|
39.01% |
The cash and cash equivalents were held with Northern Trust
(Guernsey) Limited, a fully owned
subsidiary of The Northern Trust Company, which at the year ended
31 December 2017 held a credit
rating, as rated by Moody’s, of Aa2 (31 Dec
2016: Aa2) . The long gilt future is held with J.P. Morgan
who at the year ended 31 December
2017 held a credit rating, as rated by Moody’s, of Aa2
(31 Dec 2016: Aa2). The Investment
Adviser for the Income Portfolio selects investments having regard
to their potential return and the credit risk associated with them.
The Investment Adviser carries out its own assessment of credit
risk and the rating provided by a credit rating agency is just one
of the factors taken into account. The absence of a rating is not
necessarily a reflection on credit risk. The Board reviews the
whole portfolio at quarterly board meetings.
(c)
Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting its obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Company’s main financial commitments are its
ongoing operating expenses.
The ZDP Shares will not pay dividends but will have a final
capital entitlement at the end of their life on 28 February 2022 of 167.2
pence. It should be noted that the predetermined capital
entitlement of the 2022 ZDP Shares is not guaranteed and is
dependent upon the Company’s gross assets being sufficient on
28 February 2022 to meet the final
capital entitlement of the ZDP Shares.
The Investment Advisers ensure that the Company has sufficient
liquid resources available to fulfil its operational plans and to
meet its financial obligations as they fall due. This is monitored
by carrying out a solvency calculation on a quarterly basis by
reference to management accounts and revenue projections. The Board
will approve a Solvency Certificate resolution prior to declaring
any interim distributions.
The Board intends to monitor the financial position of the
Company to ensure that it has sufficient liquid resources available
to fulfil its obligation upon maturity of the ZDP Shares.
The table below details the residual contractual undiscounted
maturities of financial liabilities:
|
|
|
|
As at 31 December 2017 |
As at 31 December 2016 |
|
|
|
|
1-3
months |
|
Over 1
year |
1-3
months |
|
Over 1
year |
|
|
|
|
GBP |
|
GBP |
GBP |
|
GBP |
Financial liabilities including derivatives |
|
|
|
|
|
|
Payables -
due within one year |
|
835,202 |
|
- |
469,872 |
|
- |
Derivative
financial instruments |
|
972 |
|
- |
- |
|
- |
ZDP Share
entitlement |
|
|
- |
|
35,722,650 |
29,472,900 |
|
- |
|
|
|
|
836,174 |
|
35,722,650 |
29,942,772 |
|
- |
(d) Interest
Rate Risk
The Company could hedge interest rate risk using various
different methods.
The following table details the Company’s exposure to interest
rate risks. It includes the Company’s assets and liabilities at
fair values, categorised by the earlier of contractual re-pricing
or maturity date measured by the carrying value of the assets and
liabilities:
As at 31
December 2017:
|
|
|
|
Less
than |
|
|
|
Non-interest |
|
|
|
|
|
|
1
month |
|
Fixed
interest |
|
Bearing |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Financial
assets at fair value through profit or loss on |
|
|
|
|
|
|
|
initial
recognition |
|
|
- |
|
14,529,840 |
|
88,768,979 |
|
103,298,819 |
Cash and
cash equivalents |
|
4,976,255 |
|
- |
|
- |
|
4,976,255 |
Interest,
dividends and other receivables |
- |
|
- |
|
526,833 |
|
526,833 |
Derivative
financial instruments |
|
- |
|
- |
|
29,577 |
|
29,577 |
Total
Financial Assets |
|
|
4,976,255 |
|
14,529,840 |
|
89,325,389 |
|
108,831,484 |
Financial Liabilities |
|
|
|
|
|
|
|
|
|
Derivative
financial instruments |
|
- |
|
- |
|
972 |
|
972 |
Payables |
|
|
|
- |
|
- |
|
835,202 |
|
835,202 |
ZDP Share
entitlement |
|
|
- |
|
30,545,210 |
|
- |
|
30,545,210 |
Total
Financial Liabilities |
|
- |
|
30,545,210 |
|
836,174 |
|
31,381,384 |
Total
Interest sensitivity gap |
|
4,976,255 |
|
(16,015,370) |
|
|
|
|
As at 31
December 2016:
|
|
|
|
Less
than |
|
|
|
Non-interest |
|
|
|
|
|
|
1
month |
|
Fixed
interest |
|
Bearing |
|
Total |
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Financial
assets at fair value through profit or loss on |
|
|
|
|
|
|
|
initial
recognition |
|
|
- |
|
13,350,853 |
|
73,821,409 |
|
87,172,262 |
Cash and
cash equivalents |
|
5,071,818 |
|
- |
|
- |
|
5,071,818 |
Interest,
dividends and other receivables |
- |
|
- |
|
2,224,530 |
|
2,224,530 |
Derivative
Financial instruments |
|
- |
|
- |
|
91,470 |
|
91,470 |
Total
Financial Assets |
|
|
5,071,818 |
|
13,350,853 |
|
76,137,409 |
|
94,560,080 |
Financial Liabilities |
|
|
|
|
|
|
|
|
|
Payables |
|
|
|
- |
|
- |
|
469,872 |
|
469,872 |
ZDP Share
entitlement |
|
|
- |
|
29,319,945 |
|
- |
|
29,319,945 |
Total
Financial Liabilities |
|
- |
|
29,319,945 |
|
469,872 |
|
29,789,817 |
Total
Interest sensitivity gap |
|
5,071,818 |
|
(15,969,092) |
|
|
|
|
Interest rate sensitivity takes account of the effect of
interest rate movements on cash balances. Interest rate risk does
not affect the cash flows of the fixed interest securities but does
affect the fair value and as such this sensitivity has been
reflected in the market price risk disclosures at Note 18(a).
Interest rate sensitivity
If interest rates had been 25 basis points higher and all other
variables were held constant, the Company’s return attributable to
Ordinary Shareholders for the year ended 31
December 2017 would have increased by approximately £12,441
(2016: £12,680) or 0.011% (2016: 0.013%) of Total Assets, due to an
increase in the amount of interest receivable on the bank
balances.
If interest rates had been 25 basis points lower and all other
variables were held constant, the Company’s return attributable to
Ordinary Shareholders for the year ended 31
December 2016 would have decreased by approximately £12,441
(2016: £12,680) or 0.011% (2016: 0.013%) of Total Assets, due to a
decrease in the amount of interest receivable on the bank
balances.
(e) Foreign Exchange Risk
Forward currency transactions are used to hedge the foreign
currency exposure in bonds, other investments and cash balances
held within the Income Portfolio. The purpose of the hedge is to
protect the Company’s assets from a decline in value that might
arise from the depreciation of a foreign currency against
Sterling.
At 31 December 2017, the Company’s
holdings in derivatives translated into GBP were as specified
below:
|
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
amount
of |
|
Fair
value |
|
|
|
|
|
|
|
Contracts |
|
assets |
Type of
contract |
|
Expiration |
|
Underlying |
|
outstanding |
|
GBP |
|
|
|
|
|
|
|
|
|
|
Forward |
|
|
January
2018 |
|
Purchased
EUR |
1,738,570 |
|
10,431 |
Forward |
|
|
January
2018 |
|
Purchase
USD |
|
1,060,026 |
|
19,146 |
Forward |
|
|
January
2018 |
|
Sold
EUR |
|
(430,000) |
|
(972) |
|
|
|
|
|
|
|
|
|
28,605 |
At 31 December 2016, the Company’s
holdings in derivatives translated into GBP were as specified
below:
|
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
amount
of |
|
Fair
value |
|
|
|
|
|
|
|
contracts |
|
assets |
|
|
|
Expiration |
|
Underlying |
|
outstanding |
|
GBP |
|
|
|
|
|
|
|
|
|
|
Forward |
|
|
January
2017 |
|
Purchased
EUR |
1,670,000 |
|
79,144 |
Forward |
|
|
January
2017 |
|
Purchased
USD |
2,150,000 |
|
12,326 |
|
|
|
|
|
|
|
|
|
91,470 |
Exchange rate exposures are managed by minimising the amount of
foreign currency held at any one time and entering into forward
exchange contracts.
The following table sets out the Company’s total exposure to
foreign currency risk and the net exposure to foreign currencies of
the monetary assets and liabilities:
31
December 2017 |
|
|
|
|
|
|
|
|
|
|
|
Monetary |
|
Monetary |
|
Forward |
|
|
|
|
|
Assets |
|
Liabilities |
|
FX
Contracts |
|
Net
exposure |
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
Euro |
|
|
1,171,562 |
|
- |
|
(1,161,930) |
|
9,632 |
US Dollar |
|
|
791,590 |
|
- |
|
(783,312) |
|
8,278 |
Australian
Dollar |
|
14 |
|
- |
|
- |
|
14 |
|
|
|
|
|
|
|
|
|
|
31
December 2016 |
|
|
|
|
|
|
|
|
|
|
|
Monetary |
|
Monetary |
|
Forward |
|
|
|
|
|
Assets |
|
Liabilities |
|
FX
Contracts |
|
Net
exposure |
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
Euro |
|
|
1,476,958 |
|
- |
|
(1,425,944) |
|
51,014 |
US Dollar |
|
|
1,926,026 |
|
- |
|
(1,739,387) |
|
186,639 |
Australian
Dollar |
|
15 |
|
- |
|
- |
|
15 |
Amounts in the above table are based on the carrying value of
monetary assets and liabilities and the underlying principal amount
of forward currency contracts.
(f) Capital Management
The principal investment objectives of the Company are to
provide shareholders with a high income and also the opportunity
for capital growth.
The Company’s investments are held in two portfolios. The
Company’s assets comprise investments in equities and fixed
interest and other income-bearing securities in order to achieve
its investment objectives. Approximately 70%–80% of the portfolio
are invested in smaller capitalised United Kingdom companies, admitted to the
Official List of the Financial Conduct Authority (the “FCA”) and
traded on the London Stock Exchange (the “LSE”) or traded on the
AIM at the time of investment. The Company also aims to further
enhance income for Shareholders by investing approximately 20%–30%
of its assets in high yielding securities which will be
predominantly fixed income securities (including corporate bonds,
preference and permanent interest bearing shares, convertible and
reverse convertible bonds and debentures) but may include up to 15%
of the portfolio (measured at time of acquisition) in high yielding
investment company shares.
As the Company’s Ordinary Shares are traded on the LSE, the
Ordinary Shares may trade at a discount or premium to their Net
Asset Value per Share on occasion. However, the Directors and the
Investment Manager monitor the discount on a regular basis and can
use share buy backs to manage the discount.
The Company monitors capital on the basis of the carrying amount
of equity as presented on the face of the Statement of Financial
Position. Capital for the reporting periods under review is
summarised as follows:
|
|
|
|
GBP |
Distributable reserves |
|
|
8,318,634 |
Share
capital and share premium |
|
27,633,383 |
Non
distributable reserves |
|
41,506,186 |
Total |
|
|
|
77,458,203 |
The distributable reserves comprises the revenue reserve and
other reserves. The other reserves presented on the Statement of
Financial Position comprise the treasury reserve and special
reserve as detailed in Note 15. The special reserve of £10,000,000
was created on the cancellation of part of the Company’s share
premium account. The non distributable reserves comprise the
capital reserve.
(g) Dividend levels
Dividends paid on the Company’s Ordinary Shares rely on receipt
of interest payments and dividends from the securities in which the
Company invests. The Company’s revenue levels are monitored on a
regular basis by the Board and the Investment Advisers.
19 SUBSEQUENT
EVENTS
These Financial Statements were approved for issue by the Board
on 24 April 2018. Subsequent events
have been evaluated until this date.
A dividend of 4.95p was declared on 7
February 2018 and was paid to ordinary shareholders on
29 March 2018.
Unaudited Full List of Investment
Holdings Listing
|
|
|
|
Percentage of Total Assets 2017 |
Company |
|
Nominal
Holdings |
Valuation
GBP |
Smaller Companies
Portfolio |
|
|
|
|
DiscoverIE Group
plc |
|
884,615 |
3,275,287 |
3.01 |
Macfarlane
Group |
|
3,800,000 |
2,926,000 |
2.69 |
Somero
Enterprises inc |
|
960,000 |
2,832,000 |
2.60 |
Warpaint London
plc |
|
1,188,631 |
2,793,283 |
2.57 |
Clipper
Logistics plc |
|
625,000 |
2,625,000 |
2.41 |
Conviviality
Retail plc |
|
628,002 |
2,508,868 |
2.31 |
Numis
Corporation plc |
|
750,000 |
2,448,750 |
2.25 |
FDM Group
Holdings plc |
|
240,000 |
2,240,400 |
2.06 |
Secure Trust
Bank plc |
|
125,000 |
2,220,000 |
2.04 |
Park Group
plc |
|
2,500,000 |
2,156,250 |
1.98 |
Polar Capital
Holdings plc |
|
375,000 |
2,008,125 |
1.85 |
Mucklow A&J
Group plc |
|
400,000 |
2,004,000 |
1.84 |
Midwich Group
plc |
|
390,600 |
1,953,000 |
1.79 |
Telecom Plus
plc |
|
160,000 |
1,916,800 |
1.76 |
Vesuvius
plc |
|
325,000 |
1,898,000 |
1.74 |
Primary Health
Properties plc |
|
1,600,000 |
1,864,000 |
1.71 |
Wincanton
plc |
|
800,000 |
1,864,000 |
1.71 |
Tyman plc |
|
500,000 |
1,806,250 |
1.66 |
Flowtech
Fluidpower plc |
|
1,100,000 |
1,793,000 |
1.65 |
Alumasc Group
plc |
|
1,100,000 |
1,782,000 |
1.64 |
Card Factory
plc |
|
600,000 |
1,770,000 |
1.63 |
Palace Capital
plc |
|
539,763 |
1,754,230 |
1.61 |
Dairy Crest
Group plc |
|
300,000 |
1,729,500 |
1.59 |
Amino
Technologies plc |
|
900,000 |
1,710,000 |
1.57 |
River &
Mercantile Group plc |
|
474,460 |
1,684,333 |
1.55 |
Hill & Smith
Holdings plc |
|
125,000 |
1,673,750 |
1.54 |
James Halstead
plc |
|
375,000 |
1,658,438 |
1.52 |
Hollywood Bowl
Group Plc |
|
800,000 |
1,622,000 |
1.49 |
Hostelworld
Group plc |
|
425,000 |
1,615,000 |
1.48 |
Castings
plc |
|
360,030 |
1,586,832 |
1.46 |
Regional Reit
Ltd |
|
1,550,000 |
1,573,250 |
1.45 |
4imprint Group
plc |
|
85,000 |
1,538,500 |
1.41 |
Ocean Wilson
Holdings Limited |
|
140,610 |
1,525,619 |
1.40 |
Gateley Holdings
plc |
|
885,000 |
1,504,500 |
1.38 |
Brewin Dolphin
Holdings plc |
|
380,000 |
1,479,720 |
1.36 |
BBA Aviation
plc |
|
420,000 |
1,468,740 |
1.35 |
Chesnara
plc |
|
376,911 |
1,467,126 |
1.35 |
Xafinity
plc |
|
750,000 |
1,436,250 |
1.32 |
Manx Telecom
plc |
|
750,000 |
1,432,500 |
1.32 |
Alpha FX Group
plc |
|
292,108 |
1,387,513 |
1.27 |
Sabre Insurance
Group plc |
|
513,383 |
1,387,418 |
1.27 |
RPS Group
plc |
|
500,000 |
1,355,000 |
1.24 |
Braemar Shipping
Services plc |
|
500,000 |
1,315,000 |
1.21 |
Epwin Group
plc |
|
1,572,727 |
1,301,432 |
1.20 |
Headlam Group
plc |
|
223,995 |
1,291,331 |
1.19 |
Greene King
plc |
|
200,000 |
1,110,000 |
1.02 |
Severfield
plc |
|
1,400,000 |
1,071,000 |
0.98 |
Van Elle
Holdings plc |
|
1,200,000 |
1,043,999 |
0.96 |
Lower &
Bonar plc |
|
1,908,250 |
1,016,142 |
0.93 |
Xafinity Group
Holdings |
|
57,692 |
12,404 |
0.01 |
Silverdell
plc |
|
3,090,546 |
- |
- |
|
|
|
|
|
TOTAL |
|
|
87,436,540 |
80.33 |
|
|
|
|
Percentage of Total Assets 2017 |
Company |
|
Nominal
Holdings |
Valuation
GBP |
Income
Portfolio |
|
|
|
|
Bank
of America 7.75% 30/04/18 |
1,000,000 |
1,022,262 |
0.94 |
Apq
Global Limited 3.5% CULS 30/09/24 |
100 |
537,499 |
0.49 |
United Kingdom 2.50% IL Treasury 2020 |
140,000 |
510,779 |
0.47 |
St
Modwen Properties 2.875% 06/03/19 |
500,000 |
501,875 |
0.46 |
HSBC 6%
29/03/2040 |
|
300,000 |
413,250 |
0.38 |
EJF
Investments Ltd |
400,000 |
400,000 |
0.37 |
Burford Capital 6.5% 2022 |
350,000 |
385,330 |
0.35 |
Itv 2.125%
2022 |
|
400,000 |
372,534 |
0.34 |
Tesco Personal Finance 1.00% 2019 |
300,000 |
352,527 |
0.32 |
EDF
6.125% 6/2034 |
250,000 |
342,401 |
0.31 |
DW Catalyst Fund
Limited |
|
53,359 |
321,974 |
0.30 |
Heathrow 7.075% 04/08/2028 |
200,000 |
284,258 |
0.26 |
Spirit Issuer 5.472% 28/12/2034 |
250,000 |
275,000 |
0.25 |
Aviva 5.9021% Perp - 2020 |
250,000 |
271,000 |
0.25 |
Telefonica Emisiones 5.375% 02/02/18 |
270,000 |
270,994 |
0.25 |
Vodafone Group Plc 8.125% 26/11/18 |
250,000 |
266,040 |
0.24 |
Fidelity International 7.125% 2024 |
200,000 |
251,358 |
0.23 |
Northumbrian Water Finance plc 6.875% 2023 |
200,000 |
249,625 |
0.23 |
Investec Bank
9.625% 2022 |
|
200,000 |
249,414 |
0.23 |
Firstgroup plc
8.75% 2021 |
|
200,000 |
244,042 |
0.22 |
Phoenix Group, 6.625% 18/12/2025 |
200,000 |
238,600 |
0.22 |
F&C Global Smaller Companies CULS 3.5% |
170,909 |
237,136 |
0.22 |
France Telecom
8.125% 2028 |
|
150,000 |
230,487 |
0.21 |
Credit Agricole SA 8.125% 2033 - 18 |
300,000 |
230,164 |
0.21 |
Sse plc 6.25%
2038 |
|
150,000 |
226,294 |
0.21 |
Thames Water Utilities 4.00% 2025 |
200,000 |
225,587 |
0.21 |
Tesco Property Finance 5.4111% 2044 |
195,262 |
225,556 |
0.21 |
Anheuser-Busch Inbev 9.75% 2024 |
150,000 |
222,250 |
0.20 |
Imperial Brands Finance Plc 7.750% 24/06/19 |
200,000 |
219,223 |
0.20 |
SG
Issuer 0.00% 07/09/2021 |
300,000 |
217,934 |
0.20 |
AT&T 4.25%
2043 |
|
200,000 |
216,722 |
0.20 |
Unite Group plc
6.125% 2020 |
|
200,000 |
213,806 |
0.20 |
Pepsi 2.5%
2022 |
|
200,000 |
212,274 |
0.20 |
Hadrian's Wall Secured Investment Limited |
220,000 |
211,200 |
0.19 |
Workspace Group Plc 6.00% 09/10/19 |
200,000 |
210,612 |
0.19 |
Citigroup 7.625% 03/04/2018 |
205,000 |
208,506 |
0.19 |
Everything Everywhere 4.375% 2019 |
200,000 |
208,016 |
0.19 |
Barclays plc 8%
Perp - 20 |
|
200,000 |
204,165 |
0.19 |
Royal Bank Of Canada 0.00% 2018 |
200,000 |
203,720 |
0.19 |
Investec Bank 0.00% 11/01/2021 |
200,000 |
200,978 |
0.19 |
Helical Bar Jersey 4.00% 2019 convertible |
200,000 |
200,750 |
0.19 |
National Australia Bank 0.875% 26/06/2020 |
200,000 |
198,948 |
0.18 |
Finmeccanica Spa 4.50% 2021 |
200,000 |
198,450 |
0.18 |
BPCE SA 2.75%
2026 -21 |
|
200,000 |
189,312 |
0.17 |
JPMorgan Structured Programme 0.00% 17/03/2021 |
200,000 |
187,420 |
0.17 |
South Eastern Power Networks 3.053% 2023 |
100,000 |
183,307 |
0.17 |
HSBC
Holdings 6.25% 2018 |
200,000 |
179,855 |
0.17 |
Old
Mutual 8.00% 2021 |
150,000 |
174,552 |
0.16 |
RL
Finance Bonds plc 6.125% 2043 |
150,000 |
172,622 |
0.16 |
Kelda Finance (No 3) plc 5.75% 2020 |
150,000 |
161,495 |
0.15 |
Wells Fargo 1.375% 6/2022 |
150,000 |
148,843 |
0.14 |
British Telecoms
5.75% 2028 |
|
100,000 |
128,335 |
0.12 |
3i Group 6.875%
2023 |
|
100,000 |
122,250 |
0.11 |
PhoenixLife
7.25% pp |
|
105,000 |
116,251 |
0.11 |
Mitchells & Butlers Finance 5.574% 2030 |
96,846 |
113,308 |
0.10 |
BAE
Systems 4.125% 2022 |
100,000 |
111,157 |
0.10 |
Verizon Communications 2.45% 2022 |
150,000 |
108,692 |
0.10 |
Gli
Finance Limited Red Zdp 2019 Npv |
104,006 |
108,166 |
0.10 |
Morrison (WM) Supermarkets 3.50% 2026 |
100,000 |
107,919 |
0.10 |
Whitbread Group 3.375% 2025 |
100,000 |
105,401 |
0.10 |
Real
Estate Credit Pref Shs NPV |
60,000 |
100,350 |
0.09 |
Tetragon Financial Group Ltd |
10,000 |
100,166 |
0.09 |
City
Natural Resources High Yield Trust Plc 3.5% 30/09/2018 |
100,000 |
98,250 |
0.09 |
Edinburgh Dragon Trust 3.50% 2018 |
87,574 |
98,083 |
0.09 |
Supermarket Income REIT plc |
90,000 |
90,000 |
0.08 |
Natwest Bank plc 9% |
50,000 |
85,125 |
0.08 |
Nationwide Building Society 10.25% |
500 |
78,563 |
0.07 |
SQN
Asset Finance Income Fund Limited |
85,294 |
76,338 |
0.07 |
UK Mortgages
Limited |
|
85,000 |
76,075 |
0.07 |
The
Royal Bank of Scotland Group Plc 4.015% |
100,000 |
73,370 |
0.07 |
Aberforth Split Level Income Plc ZDPs |
66,992 |
72,687 |
0.07 |
Petromena AS
10.85% 2014 |
|
82,990 |
460 |
0.00 |
|
|
|
|
|
|
|
|
|
|
Bond
futures |
|
|
|
Fut.
Long Gilt Icf Mar18 |
- |
13,300 |
0.01 |
Fut.
Msci Asia Eux Mar18 |
- |
(2,913) |
0.00 |
|
|
|
|
|
|
|
|
15,862,279 |
14.57 |
TOTAL |
|
|
103,298,819 |
94.90 |
Glossary
Cover
The Cover on the ZDP Shares measures the amount by which the
final redemption value of the ZDP Shares is covered by the total
assets of the Company allowing for all prior ranking liabilities
and the accrual of expenses to capital over the remaining period to
the redemption of the ZDP Shares. The calculation used in this
report is for non-cumulative cover and represents a fraction where
the numerator is equal to the gross assets of the Company less
current liabilities (other than debt and liabilities to ZDP
Shareholders) less the Company’s revenue reserves and the
denominator is the aggregate amount payable to ZDP Shareholders on
the repayment date plus any other borrowing plus the cumulative
management fee charged to capital over the remaining period to the
repayment date. The full definition of the calculation is set out
in the Company’s Prospectus that can be found on the Company’s
website.
Cover Test
A required Cover of not less than 2.0 times.
Discount/Premium
If the share price of an investment company is lower than the
NAV per share, the shares are said to be trading at a discount. The
size of the discount is calculated by subtracting the share price
from the NAV per share and is usually expressed as a percentage of
the NAV per share. If the share price is higher than the NAV per
share, the shares are said to be trading at a premium.
Gearing
Also known as leverage. Gearing is introduced when a company
borrows money or issues prior ranking share classes such as ZDP
Shares, to buy additional investments. The objective is to enhance
returns to ordinary shareholders but there is the risk of the
opposite effect if the additional investments fall in value.
Yield
The annual interest payments on a fixed-interest security, or
the annual dividends on an equity (less any withholding tax)
expressed as a percentage of the current market value of the
security.
Net Asset Value (“NAV”)
NAV is the assets attributable to Ordinary Shareholders
expressed as an amount per individual share. Within this report two
different methods are used for calculating NAV. One using the
accounting standards specified by International Financial Reporting
Standards (“IFRS”) and one which has been calculated in accordance
with the Company’s Articles of Association. The latter is the
method which would be used to calculate the amount due to Ordinary
Shareholders on the winding up of the Company. However, the
Financial Statements are prepared in accordance with IFRS. Where
the IFRS method has been used it will be indicated.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMS") the Board has considered what APMs are included
in the annual report and accounts which require further
clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The APM included in
the annual report and accounts, which is unaudited and outside the
scope of IFRS is deemed to be Net Assets calculated in accordance
with the Articles.
Ordinary
Shares |
|
|
NAV
per Share (pence) |
|
|
ZDP Shares |
|
|
|
NAV
per Share (pence) |
|
|
|
|
|
|
|
|
|
|
|
Net Assets (per
Articles) |
77,488,409 |
|
486.84 |
|
|
ZDP value (per
Articles) |
|
30,515,004 |
|
142.83 |
ZDP Premium |
(30,206) |
|
(0.19) |
|
|
ZDP premium |
|
30,206 |
|
0.14 |
Net Assets (per
IFRS) |
77,458,203 |
|
486.65 |
|
|
ZDP value (per
IFRS) |
|
30,545,210 |
|
142.97 |
Total Return
The combined effect of any dividends paid, together with the
rise or fall in the share price or NAV. Total return statistics
enable the investor to make performance comparisons between
companies with different dividend policies. Any dividends (after
tax) received by a shareholder are assumed to have been reinvested
in either additional shares of the Company at the time the shares
go ex-dividend (the share price total return) or in the assets of
the Company at its NAV per share (the NAV total return).
Directors, Advisers and Contacts
Directors
Helen Foster Green (Chairman)
John Nigel Ward
David John Warr
Shareholders are welcome to contact the Chairman directly by
emailing her at: Acorn_Income_Fund Limited@ntrs.com
Investment Manager
Premier Asset Management (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Tel: 01483 306090
Contact: Nigel Sidebottom
Investment Adviser – Smaller
Companies Portfolio
Unicorn Asset Management Limited
Preacher’s Court
The Charterhouse
Charterhouse Square
London EC1M 6AU
Tel: 0207 2530889
Contact: Simon Moon
Investment Adviser – Income
Portfolio
Premier Fund Managers Limited
Eastgate Court
High Street
Guildford GU1 3DE
Tel: 01483 306090
Contact: Nigel Sidebottom
Administrator and Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Email: Team_Acorn@ntrs.com
Custodian
Northern Trust (Guernsey)
Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3DA
Corporate Broker
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
Tel: 0207 2601000
Independent Auditors
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port Guernsey
GY1 1WR
Registrar
Anson Registrars Limited
PO Box 426
Anson House
Havilland Street
St Peter Port
Guernsey GY1 3WX
Tel: 01481 722260
Email: registrars@anson-group.com
Company’s Registered
Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Company Details
Company Number: 34778
GIIN Number: CY0IXM.99999.SL.831
Ordinary Shares
ISIN: GB0004829437
Ticker: AIF
ZDP Shares
ISIN: GG00BYMS7X48
Ticker: AIFZ
Notice of Class Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt about the contents of
this document or the action you should take, you should consult
immediately your stockbroker, bank manager, solicitor, accountant
or other financial adviser, authorised under the Financial Services
and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of your ZDP Shares
in Acorn Income Fund Limited, please send this document and Form of
Proxy, as soon as possible, to the purchaser or transferee or to
the stockbroker, bank or other agent through whom the sale or
transfer was effected for transmission to the purchaser or
transferee.
Acorn Income Fund Limited
(Company No.
34778)
NOTICE OF CLASS MEETING
Notice is hereby given that a Class Meeting of holders of ZDP
Shares of Acorn Income Fund Limited (the "Company") will be
held at the offices of Northern Trust International Fund
Administration Services (Guernsey)
Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey, Channel
Islands on 20 August 2018 at
11am.
Resolution on
Form of Proxy |
Agenda |
|
Business to be proposed as an
Ordinary Resolution: |
|
|
1. |
THAT the holders of the ZDP Shares
hereby sanction and consent to the passing and carrying into
effect, as an ordinary resolution of the Company, of Resolution 8
contained in the notice of annual general meeting of the Company
dated 24 April 2018 and any variation or abrogation and/or deemed
variation or abrogation of the rights attached to the ZDP Shares
which will, or may, result from the passing and carrying into
effect of such resolution. |
|
Any Other Business |
By Order of the Board
For and on behalf of
Northern Trust International Fund
Administration
Services (Guernsey) Limited
Secretary
24 April 2018
Notes:
1 A member
entitled to attend and to speak and vote at the meeting is entitled
to appoint one or more proxies to speak and vote instead of them. A
proxy need not be a member of the Company. Completion and return of
the Class Meeting Form of Proxy will not preclude members from
attending or voting at the meeting, if they so wish.
2 More than one
proxy may be appointed provided each proxy is appointed to exercise
the rights attached to different shares.
3 To be valid
the Class Meeting Form of Proxy, together with the power of
attorney or other authority, if any, under which it is executed (or
a notarially certified copy of such power of authority) must be
deposited with the Registrar: Anson Registrars, Limited, PO Box
426, Anson House, Havilland Street,
St Peter Port, Guernsey GY1 3WX no
later than 11am on 15 August 2018 or not less than forty-eight (48)
hours before the time for holding any adjourned meeting. A Class
Meeting Form of Proxy is enclosed with this notice.
4 All persons
recorded on the register of members as holding ZDP Shares in the
Company as at 11a.m. on 15 August 2018 or, if the meeting is adjourned,
as at 48 hours before the time of any adjourned meeting, shall be
entitled to attend and vote (either in person or by proxy) at the
meeting and shall be entitled to one vote per share held.
5 The quorum
for the Class Meeting is two persons present in person or by proxy
and holding at least one third of the issued ZDP Shares at the date
of the Meeting. If the meeting is not quorate, it will be adjourned
to the same time and place fourteen clear days later, whereupon one
person holding ZDP Shares and present in person or by proxy shall
form the quorum.
6 Where there
are joint registered holders of any ZDP Shares, such persons shall
not have the right of voting individually in respect of such shares
but shall elect one of their number to represent them and to vote
whether in person or by proxy in their name. In default of such
election, the person whose name stands first on the register of ZDP
Members shall alone be entitled to vote.
7 On a poll,
votes may be given either personally or by proxy and a holder of
ZDP Shares entitled to more than one vote need not use all their
votes or cast all the votes he uses in the same way.
8 Any
corporation which is a member may by resolution of its directors or
other governing body, authorise such person as it thinks fit to act
as its representative at this meeting. Any person so authorised
shall be entitled to exercise on behalf of the corporation which he
represents the same powers (other than to appoint a proxy) as the
corporation could exercise if it were an individual member of the
Company.
9 Pursuant to
the Articles, every member (being an individual) present in person
or by proxy or (being a corporation) present by a duly authorised
representative shall have one vote on a show of hands, subject to
any special voting powers or restrictions, and one vote per ZDP
Share on a poll (other than the Company itself where it holds its
own shares as treasury shares), subject to any special voting
powers or restrictions.
10 As at 24 April 2018 (being the last practicable date
prior to the publication of this Notice) the total number of votes
exercisable by holders of ZDP Shares is 21,365,221.
11 Capitalised terms used
in this Notice of Class Meeting but not defined shall bear the same
meanings as set out in the Company's Articles of Incorporation.
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt about the contents of
this document or the action you should take, you should consult
immediately your stockbroker, bank manager, solicitor, accountant
or other financial adviser, authorised under the Financial Services
and Markets Act 2000 (as amended).
If you have sold or otherwise transferred all of your Shares in
Acorn Income Fund Limited please send this document and Form of
Proxy, as soon as possible, to the purchaser or transferee or to
the stockbroker, bank or other agent through whom the sale or
transfer was effected for transmission to the purchaser or
transferee.
Acorn Income Fund Limited
(Company No.
34778)
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 2018 Annual General Meeting of
Acorn Income Fund Limited (the "Company") will be held at
the offices of Northern Trust International Fund Administration
Services (Guernsey) Limited,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, Channel
Islands on 20 August 2018 at
11.15am.
Resolution on
Form of Proxy |
Agenda |
|
Business to be proposed as
Ordinary Resolutions: |
|
|
1. |
To receive and adopt the Annual
Financial Report for the year ended 31 December 2017. |
|
|
2. |
To re-appoint KPMG Channel Islands
Limited as Auditor to the Company until the conclusion of the next
Annual General Meeting. |
|
|
3. |
To authorise the Directors to
determine the Auditor’s remuneration. |
|
|
4. |
To re-elect Helen Foster Green as a
Director of the Company. |
|
|
5. |
To re-elect John Nigel Ward as a
Director of the Company. |
|
|
6. |
To receive and approve the Company’s
Dividend Policy as contained within the Annual Financial Report of
the Company for the year ended 31 December 2017. |
|
Special Business to be proposed as Ordinary
Resolutions: |
7. |
THAT, the Directors of the Company be and are hereby
generally and unconditionally authorised in accordance with the
Articles to issue new Ordinary Shares in the Company PROVIDED
THAT:
(i) such powers shall be limited to issue up to
1,591,668 new Ordinary Shares (approximately 10% of the issued
Ordinary Shares, excluding treasury shares, as at the date of this
Notice); and
(ii) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be held
in 2019 unless such authority is renewed, varied or revoked by the
Company in general meeting (save that the Company may, at any time
before such expiry, make an offer or agreement which would or might
require ZDP Shares to be issued after such expiry and the Directors
may issue ZDP Shares after such expiry in pursuance of such offer
or agreement as if the authority conferred hereby had not
expired). |
|
|
|
|
8. |
THAT, subject to and conditional upon the passing of the
proposed resolution of the Class Meeting of ZDP Members convened
for 20 August 2018 at 11.00 am, the Directors of the Company be and
are hereby generally and unconditionally authorised in accordance
with the Articles to issue new ZDP Shares in the Company
PROVIDED THAT:
(i) such powers shall be limited to issue
up to 2,136,522 new ZDP Shares (approximately 10% of the issued ZDP
Shares, excluding treasury shares, as at the date of this Notice)
in circumstances where the Cover Test is met or Cover is maintained
or is otherwise increased, in each case, immediately following such
issue; and
(ii) the authority hereby conferred shall expire
at the conclusion of the annual general meeting of the Company to
be held in 2019 unless such authority is renewed, varied or revoked
by the Company in general meeting (save that the Company may, at
any time before such expiry, make an offer or agreement which would
or might require ZDP Shares to be issued after such expiry and the
Directors may issue ZDP Shares after such expiry in pursuance of
such offer or agreement as if the authority conferred hereby had
not expired).
Special Business to be proposed as Special
Resolutions: |
9. |
THAT, the
Directors be and are hereby empowered (pursuant to Resolution 7 or
otherwise) to issue and sell from treasury up to 2,867,640 Ordinary
Shares for cash otherwise than pro rata to existing Ordinary
Members at:
(i) a price equal to or greater than the
prevailing Net Asset Value per Ordinary Share; or
(ii) a discount to the prevailing Net Asset Value
per Ordinary Share in circumstances where ZDP Shares are issued at
the same time at a premium to Net Asset Value such that the
combined effect of the issue or sale of Ordinary Shares at a
discount to the prevailing Net Asset Value per Ordinary Share and
the issue of ZDP Shares at a premium to Net Asset Value is that (i)
Net Asset Value per Ordinary Share is thereby increased; and (ii)
gearing is not thereby increased,
PROVIDED THAT the authority hereby conferred shall expire at
the conclusion of the annual general meeting of the Company to be
held in 2019 unless such authority is renewed, varied or revoked by
the Company in general meeting (save that the Company may at any
time before such expiry make an offer or agreement which might
require Ordinary Shares to be issued or sold after such expiry and
the Directors may issue or sell Ordinary Shares after such expiry
in pursuance of such offer or agreement as if the authority
conferred hereby had not expired).
|
|
|
10. |
THAT, the
Company be generally and, subject as hereinafter appears,
unconditionally authorised in accordance with section 315 of the
Companies Law to make market acquisitions (within the meaning of
section 316 of the Companies Law) of its issued Ordinary Shares,
PROVIDED THAT:
(i) the maximum aggregate number of
Ordinary Shares hereby authorised to be purchased shall be
2,385,911 Ordinary Shares;
(ii) the minimum price (exclusive of expenses)
payable by the Company for each Ordinary Share shall be £0.01;
(iii) the maximum price (exclusive of expenses) payable by
the Company for each Ordinary Share shall be the higher of (a) an
amount equal to 105% of the average value of an Ordinary Share for
the five business days prior to the day the purchase is made and
(b) the higher of the price of the last independent trade and the
highest independent bid at the time of the purchase for any number
of Ordinary Shares on the trading venue where the trade is carried
out;
(iv) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be held
in 2019 unless such authority is varied, revoked or renewed prior
to such time; and
(v) the Company may make a contract to purchase
Ordinary Shares under the authority hereby conferred prior to the
expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority and may make an
acquisition of Ordinary Shares pursuant to any such contract. |
11. |
THAT, the
Company be generally and, subject as hereinafter appears,
unconditionally authorised in accordance with section 315 of the
Companies Law to make market acquisitions (within the meaning of
section 316 of the Companies Law) of its issued ZDP Shares,
PROVIDED THAT:
(i) the maximum aggregate number of ZDP
Shares hereby authorised to be purchased shall be 3,202,646 ZDP
Shares;
(ii) the minimum price (exclusive of expenses)
payable by the Company for each ZDP Share shall be £0.01;
(iii) the maximum price (exclusive of expenses) payable by
the Company for each ZDP Share shall be the higher of (a) an amount
equal to 105% of the average value of a ZDP Share for the five
business days prior to the day the purchase is made and (b) the
higher of the price of the last independent trade and the highest
independent bid at the time of the purchase for any number of ZDP
Shares on the trading venue where the trade is carried out;
(iv) the authority hereby conferred shall expire at the
conclusion of the annual general meeting of the Company to be held
in 2019 unless such authority is varied, revoked or renewed prior
to such time; and
(v) the Company may make a contract to purchase
ZDP Shares under the authority hereby conferred prior to the expiry
of such authority which will or may be executed wholly or partly
after the expiration of such authority and may make an acquisition
of ZDP Shares pursuant to any such contract. |
Any Other business
By Order of the Board
For and on behalf of
Northern Trust International Fund
Administration
Services (Guernsey) Limited
Secretary
24 April 2018
Notes:
1 A member entitled to attend and to speak and
vote at the meeting is entitled to appoint one or more proxies to
speak and vote instead of them. A proxy need not be a member of the
Company. Completion and return of the Form of Proxy will not
preclude members from attending or voting at the meeting, if they
so wish.
2 More than one proxy may be appointed
provided each proxy is appointed to exercise the rights attached to
different shares.
3 To be valid the Form of Proxy, together with
the power of attorney or other authority, if any, under which it is
executed (or a notarially certified copy of such power of
authority) must be deposited with the Registrar: Anson Registrars,
Limited, PO Box 426, Anson House,
Havilland Street, St Peter Port, Guernsey GY1 3WX no later than 11.15am on 15 August
2018 or not less than forty-eight (48) hours before the time
for holding any adjourned meeting. A Form of Proxy is enclosed with
this Notice.
4 All persons recorded on the register of
members as holding Ordinary Shares in the Company as at
11.15 a.m. on 15 August 2018 or, if the meeting is adjourned,
as at 48 hours before the time of any adjourned meeting, shall be
entitled to attend and vote (either in person or by proxy) at the
meeting and shall be entitled to one vote per share held.
5 The quorum for the Annual General Meeting is
one or more members present in person or by proxy and holding 5% or
more of the voting rights available at such meeting. If the meeting
is not quorate, it will be adjourned to the same time and place
fourteen clear days later, whereupon such member or members who
shall attend in person or by proxy at any such adjourned meeting
shall form the quorum.
6 Where there are joint registered holders of
any Ordinary Shares such persons shall not have the right of voting
individually in respect of such shares but shall elect one of their
number to represent them and to vote whether in person or by proxy
in their name. In default of such elections, the person whose name
stands first on the register of Ordinary Members shall alone be
entitled to vote.
7 On a poll, votes may be given either
personally or by proxy and a member entitled to more than one vote
need not use all his votes or cast all the votes he uses in the
same way.
8 Any corporation which is a member may by
resolution of its directors or other governing body, authorise such
person as it thinks fit to act as its representative at this
meeting. Any person so authorised shall be entitled to exercise on
behalf of the corporation which he represents the same powers
(other than to appoint a proxy) as the corporation could exercise
if it were an individual member of the Company.
9 Pursuant to the Articles, every member
(being an individual) present in person or by proxy or (being a
corporation) present by a duly authorised representative shall have
one vote on a show of hands, subject to any special voting powers
or restrictions, and one vote per Ordinary Share on a poll (other
than the Company itself where it holds its own shares as treasury
shares), subject to any special voting powers or restrictions.
10 As at 24 April 2018
(being the last practicable date prior to the publication of this
Notice) the total number of votes exercisable by holders of
Ordinary Shares is 15,916,687.
11 Capitalised terms used in this Notice of Annual
General Meeting but not defined shall bear the same meanings
as
set out in the Company's Articles of Incorporation.
Explanatory Notes to the
Resolutions
Ordinary Business:
Resolution 1 - To receive and adopt the Annual Report
and Financial Statements
The Annual Report and Financial Statements for the year ended
31 December 2017 will be presented to
the Annual General Meeting (the “AGM”). These Financial Statements
accompanied this Notice of Meeting and members will be given an
opportunity to ask questions at the AGM.
Resolutions 2 - Re-appointment of auditors
Resolution 2 relates to the re-appointment of KPMG Channel
Islands Limited as the Company’s independent auditors to hold
office until the next AGM of the Company.
Resolution 3 - To authorise the Directors to determine
the Auditor’s remuneration.
Resolution 4 - To re-elect Helen Green as a Director of the
Company.
To re-elect Helen Green as a
Director of the Company in accordance with the Company’s policy on
Directors’ tenure, which is that in order to facilitate good
corporate governance practice in line with principle 2 of the AIC
Code, each Director will offer themselves for re-election every 3
years until their ninth year of service and any Director with over
nine years’ service shall be eligible for re-election every year
thereafter.
The Board believes it is in the Company’s best interest that
Helen Green be re-elected due to her
extensive experience as a chartered accountant and also as a
non-executive director, having served on the boards of a number of
other investment companies admitted to the Official List of the FCA
(see further details contained within the Annual Accounts).
Resolution 5 - To re-elect John Nigel Ward as a Director of the
Company.
To re-elect John Nigel Ward as a
Director of the Company in accordance with the Company’s policy on
Directors’ tenure, which is that in order to facilitate good
corporate governance practice in line with section B.7.1 of the UK
Corporate Governance Code, each Director will offer themselves for
re-election every year after their ninth year of service and shall
be eligible for re-election every year thereafter.
The Board believes it is in the Company’s best interest that
John Nigel Ward be re-elected due to
his extensive experience as a non-executive director, having served
on the boards of a number of other investment companies admitted to
the Official List of the LSE (see further details contained within
the Annual Accounts).
Resolution 6 – To receive and approve the Company’s
Dividend Policy
The Dividend Policy is outlined in the Annual Financial Report
and will be presented at the AGM for approval.
Special Business to be proposed as
Ordinary Resolutions:
The Company's existing authorities to issue new shares, sell
shares from treasury and make market purchases of shares expire at
the forthcoming AGM.
Resolution 7 - Authority to issue Ordinary
shares
Resolution 7 will authorise the directors to issue up to
1,591,668 new Ordinary Shares (being approximately 10% of the
issued Ordinary Shares at the date of this document, excluding
treasury shares).
Resolution 8 – Authority to issue ZDPs
Resolution 8 will authorise the directors to issue up to
2,136,522 new ZDP Shares (being approximately 10% of the issued ZDP
Shares at the date of this document, excluding treasury shares),
such authority being conditional on the prior approval of such
issuance at the Class Meeting of holders of Zero Dividend
Preference shares to be held immediately prior to the AGM.
The resolution provides that new ZDPs will only be issued if the
Cover Test is met (see the Glossary of the Annual Report for
explanation of Cover Test) or if the cover immediately following
the issue is either maintained or increased.
Special Business to be proposed as
Ordinary Resolutions:
Resolution 9 – Authority to dis-apply pre-emption rights
in certain circumstances on the issue or sale from treasury of new
Ordinary Shares and to issue or sell new Ordinary Shares at less
than Net Asset Value.
When Ordinary Shares are to be allotted for cash, the Articles
provide that existing Ordinary Members have pre-emption rights such
that the new Ordinary Shares must be offered first to such members
in proportion to their existing holding of Ordinary Shares.
However, members can, by special resolution, authorise the
Directors to allot Ordinary Shares otherwise than by a pro rata
issue to existing members.
In addition, under the Listing Rules, the issue of new Ordinary
Shares (including sales of treasury shares) at prices representing
a discount to NAV per Ordinary Share, other than on a pre-emptive
basis, is only permitted if Members have authorised such
issues.
Accordingly, resolution 9 will give the Company authority to
dis-apply pre-emption rights when issuing or selling from treasury
new Ordinary Shares provided the new Ordinary Shares are issued or
sold at a premium to NAV per Ordinary Share or, if sold at a
discount to NAV per Ordinary Share, only in those circumstances
where ZDP Shares are issued at the same time at a premium to Net
Asset Value so that:
(i) Net Asset Value per Ordinary Share is thereby
increased; and
(ii) gearing is not thereby increased.
The power to dis-apply pre-emption rights and to issue Ordinary
Shares at less than Net Asset Value (subject to the provisos stated
above) will be limited to 2,867,640 new Ordinary Shares in
aggregate. This figure represents the aggregate of 1,591,668
Ordinary Shares proposed to be authorised for issued under
resolution 7 and 1,275,972 Ordinary Shares held in treasury at the
date of this document. This power will expire (unless renewed) at
the annual general meeting in 2019.
The Board recognises that this pre-emption waiver is beyond the
10% typically sought by investment companies, but believes that it
is appropriate as it should give the Company greater flexibility in
managing its share capital and, importantly for the Company as a
relatively small entity, provides the potential for improved
liquidity in its shares.
Resolutions 10 and 11 – Authority to
buy back Ordinary Shares and ZDP Shares
The Company is seeking authority under resolutions 10 and 11 to
make market acquisitions of up to 14.99% of the issued ordinary and
ZDP shares, at the date of this document, to facilitate its
discount management policy.
RECOMMENDATION
The Board considers the resolutions to be proposed at the
forthcoming Annual General Meeting to be in the best interest of
the members as a whole and recommends that members vote in favour
of the resolutions to be proposed at the forthcoming Annual General
Meeting.