TIDMSLS
RNS Number : 8488X
Standard Life UK Small.Co's Tst PLC
27 February 2017
STANDARD LIFE UK SMALLER COMPANIES TRUST PLC
HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 31 DECEMBER 2016
Investment Objective
To achieve long-term capital growth by investment in UK quoted
smaller companies.
Investment Policy
The Company intends to achieve its investment objective by
investing in a diversified portfolio consisting mainly of UK quoted
smaller companies.
The portfolio will normally comprise around 60 individual
holdings representing the Investment Manager's highest conviction
investment ideas. In order to reduce risk in the Company without
compromising flexibility, no holding within the portfolio should
exceed 5% of total assets at the time of acquisition.
The Company may use derivatives for portfolio hedging purposes
(i.e. only for the purpose of reducing, transferring or eliminating
the investment risks in its investments in order to protect the
Company's portfolio).
Within the Company's Articles of Association, the maximum level
of gearing is 100% of net assets. The Directors have set parameters
of between 5% net cash and 25% net gearing (at time of drawdown)
for the level of gearing that can be employed in normal market
conditions. The Directors have delegated responsibility to the
Investment Manager, Standard Life Investments (Corporate Funds)
Limited ("Investment Manager"), for the operation of the gearing
level within the above parameters.
The Investment Manager's investment process combines asset
allocation, stock selection, portfolio construction, risk
management, and dealing. The investment process is research
intensive and is driven by the Investment Manager's distinctive
"focus on change" which recognises that different factors drive
individual stocks and markets at different times in the cycle.
For further information, please contact:
Hilda Stewart/Sara Reed
Press Office, Standard Life Investments Tel: 0131 245 3610/0131 245 2750
Evan Bruce-Gardyne
Head of Investment Companies
Standard Life Investments Tel: 0131 245 0571
HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 31 DECEMBER 2016
Financial Highlights
Total Return Performance Six months ended 31 December
2016
Diluted net asset value total return 16.7%
Share price total return 16.5%
Reference index total return 17.7%
The Company's reference index is the Numis Smaller Companies Index
(excluding Investment Companies).
Total return assumes that dividends paid to shareholders are re-invested
in shares at the time the shares are quoted ex-dividend.
Performance 31 December 30 June 2016 % change
2016
Net asset value per ordinary share
* Basic 410.17p 356.90p +14.9%
* Diluted 394.70p 345.43p +14.3%
Ordinary share price 362.75p 316.00p +14.8%
Discount of ordinary share price
to net asset value
- Basic 11.6% 11.5%
- Diluted 8.1% 8.5%
Reference index 7,308.17 6,298.17 +16.0%
Total assets (GBPm) 291.44 256.59 +13.6%
Equity shareholders' funds (GBPm) 276.27 240.63 +14.8%
Revenue return - for six months ended
Revenue return per ordinary share
- Basic 2.61p 2.46p +6.1%
- Diluted 2.46p 2.28p +7.9%
Interim dividend per ordinary share 1.50p 1.40p +7.1%
Gearing
Net gearing(1) 3.2% 3.6%
Expenses
Ongoing charges(2) 1.16% 1.13%
(1) Net gearing ratio is calculated as the total liability
component of GBP15.2m of the Convertible Unsecured Loan Stock
(CULS) less the cash invested in AAA money market funds and cash
and short term deposits, divided by net assets. The nominal value
of the CULS at 31 December 2016 was GBP15.4m.
(2) Ongoing charges ratio is calculated in accordance with
guidance issued by the AIC as the total of the investment
management fee and administrative expenses divided by the average
cum income net asset value throughout the year.
STRATEGIC REPORT
Chairman's Statement
Performance
The Company's diluted net asset value total return was 16.7% for
the six months ended 31 December 2016. This compares with a total
return of 17.7% for the Company's reference index, the Numis
Smaller Companies Index (excluding Investment Companies).
The results highlight the effect of looking at relative rather
than absolute performance. In absolute terms, the return generated
by the portfolio is higher in this period than the 15.4% increase
reported for the same period last year, but this year the
performance has not kept pace with the index against which the
Trust is regularly measured, while last year, it had significantly
outperformed. The long-term performance remains strong and is
illustrated in the table below:
6 months 1 year 3 years 5 years 10 years
Net asset value total
return (%) 16.7 5.6 27.2 122.8 223.2
Share price total return
(%) 16.5 (3.5) 15.0 115.5 258.1
Reference index total
return (%) 17.7 11.1 20.6 114.6 118.4
Peer group ranking (NAV
TR) 11/15 10/15 8/15 10/15 1/13
Sources: Thomson Reuters & Standard Life Investments
The Investment Manager's Report provides further information on
stock performance and portfolio activity during the year, as well
as the Investment Manager's outlook for smaller companies. The
Board agrees with the Manager's view that quality growth stocks
should outperform cyclical stocks over the long term.
Earnings and Dividend
The revenue return per share for the six months ended 31
December 2016 was 2.61p (2015 - 2.46p), with underlying dividends
from investee companies increasing by 9.3% compared with the same
period last year.
The Board is proposing an interim dividend of 1.50p per share
(2015: 1.40p per share) and this will be paid on 7 April 2017 to
shareholders on the register as at 10 March 2017 with an associated
ex-dividend date of 9 March 2017.
Gearing and CULS
The Board has given the Investment Manager discretion to vary
the level of gearing between a net cash position of 5% and net
gearing of 25% of net assets, depending on the Investment Manager's
view of the outlook for smaller companies.
The Company currently has GBP15.4 million 3.5% Convertible
Unsecured Loan Stock 2018 (CULS) in issue and the Investment
Manager is able to vary net gearing by adjusting the level of cash
held by the Company. At 31 December 2016, the net gearing or
borrowing level was 3.2%.
On 10 October 2016, 378,514 Ordinary shares were issued from
treasury, following elections by holders of the CULS to convert
GBP898,071 of nominal stock.
As a reminder to holders of the CULS, these can be converted
into Ordinary shares on three remaining dates: 31 March and 30
September 2017 with the final opportunity to convert in March 2018,
at a fixed price per Ordinary share of 237.2542p.
Discount Control
The Board is committed to monitoring and controlling the
discount, primarily through market purchases but also through
tender offers. The discount at which the Company's shares trade
relative to the underlying diluted net asset value (including
income) was 8.1% at 31 December 2016. The Company's shares have
traded at an average discount of 5.8% over the 12 months to 31
December 2016.
The period-end discount compares favourably with the peer group
average discount which was 14.4% at 31 December 2016. The Board
will aim to use its 14.99% share buy-back authority, which was
approved by shareholders at the 2016 AGM, to seek to maintain a
discount level of less than 8% to diluted net asset value under
normal market conditions. Share buy-backs will only be made where
the Board believes it to be in the best interests of shareholders
as a whole and the making and timing of share buy-backs will be at
the absolute discretion of the Board.
The Company also has a tender offer mechanism in place and the
Board intends to continue to seek shareholder approval to enable it
to carry out tender offers on a discretionary basis in
circumstances where the Board believes that share buy-backs are not
sufficient to maintain the discount at an appropriate level. The
Board has concluded that as the discount policy threshold had been
adjusted to 8% from 10% that it will normally focus on controlling
the discount through regular buy-backs of shares in the market when
the discount has drifted beyond the prescribed level. During the
period, 443,818 Ordinary shares, representing 0.7% of the issued
share capital, were bought back at an average discount of 9.0%.
Shareholder relations
The Board held the AGM on Thursday, 27 October 2016 at the
Manager's office at 30 St. Mary Axe, London and intends to hold the
AGM for the current financial year at the Manager's office in
Edinburgh on Thursday, 26 October 2017.
In addition, the Board intends to hold an investor presentation
in the Manager's London office on Tuesday, 21 November 2017 and
shareholders will be sent further details in due course.
Board changes
Tim Scholefield joined the Board in February 2017 and will be
proposed for election at the AGM in October 2017. Tim has extensive
fund management experience, most recently as Head of Equities at
Baring Asset Management. I am confident that he will prove to be an
invaluable addition to the Board and I and my fellow Directors look
forward to working with him.
After over 11 years as a Director, including three years as
Chairman, I have decided that it is time for me to retire, which I
intend to do following the conclusion of the AGM in October. It has
been a privilege to have served on this Board over that time and to
have worked with Harry Nimmo and the team at Standard Life
Investments. I am delighted to be able to inform you that Allister
Langlands, who has been on the Board since July 2014 and has
chaired the Audit Committee for the last two years, will succeed me
as Chairman and I am confident that he will serve you well.
Caroline Ramsay will take over from Allister as Chair of the Audit
Committee.
Outlook
The UK and world markets are adapting to the post-Brexit
environment. Some of the more doom-laden prophesies have not come
to pass but we do not seem to be that much clearer as to what the
landscape will look like once the negotiations are all complete.
Markets remain volatile and challenging and we expect this to
remain the case until we have more clarity on what the Brexit
negotiations will mean for the economy and, more particularly, the
companies in which we invest. More comment on this can be found in
the Manager's Report. Nevertheless, the Board remains confident in
the outlook for the Company over the long term. The Investment
Manager's investment process has delivered excellent returns for
shareholders. We expect the portfolio to continue to deliver strong
earnings and dividend growth. The emphasis on risk aversion,
resilience, growth and momentum remains intact.
David Woods
Chairman
24 February 2017
STRATEGIC REPORT
Principal Risks and Uncertainties
The Board conducts a regular review of the principal risks and
uncertainties faced by the Company which the Board and the Manager
have identified and the Board sets out delegated controls designed
to manage those risks and uncertainties. Key risks within
investment strategy, including inappropriate stock selection and
gearing, are managed by the Board through a defined investment
policy, with guidelines and restrictions, and by the process of
oversight at each Board Meeting. Operational disruption, accounting
and legal risks are also covered at least annually and regulatory
compliance is reviewed at each Board Meeting.
The Directors have adopted a robust framework of internal
controls, which is designed to monitor the principal risks and
uncertainties facing the Company and provide a monitoring system to
enable the Directors to mitigate these risks as far as
possible.
The major risks associated with the Company are:
-- Investment and market risk: The Company is exposed to the
effect of variations in share prices due to the nature of its
business. A fall in the value of its investment portfolio will have
an adverse effect on the value of shareholders' funds.
Regular reports are received from the Manager on stock
selection, sector allocation, gearing and market outlook.
Investment performance is received in detail and discussed with the
Manager at each Board Meeting.
-- Capital structure and gearing risk: The Company's capital
structure, as at 31 December 2016, consisted of equity share
capital comprising 67,355,750 Ordinary 25p shares and GBP15,378,741
nominal amount of Convertible Unsecured Loan Stock 2018. There were
also 4,271,425 Ordinary shares of 25p held in treasury. The effect
of gearing should be beneficial in rising markets but could
adversely affect returns to shareholders in falling markets. The
Manager is able to increase or decrease the Company's level of net
gearing by holding a lower or higher cash balance subject to the
Company's investment policy which requires that gearing should
remain between 5% net cash and 25% net gearing at the time of
drawdown.
-- Revenue and dividend risk: In view of the Company's
investment objective, which is to generate long-term capital growth
by investment in UK quoted smaller companies, the Manager aims to
strike a balance more in favour of capital growth than revenue
return. In normal circumstances, the Board intends to pay a
dividend commensurate with the year's income.
The Board receives regular updates as to the progress made by
the Manager in generating a revenue return and the consequent level
of the Company's anticipated dividend.
-- Regulatory risk: The Company operates in a complex regulatory
environment and faces a number of regulatory risks. A breach of
Section 1158 of the Corporation Tax Act 2010 would result in the
Company being subject to capital gains tax on portfolio
investments. Breaches of other regulations, including (but not
restricted to) the Companies Act 2006, the FCA Listing Rules, the
FCA Disclosure and Transparency Rules, the Market Abuse Regulation,
the Foreign Account Tax Compliance Act and the Common Reporting
Standard, could lead to a number of detrimental outcomes and
reputational damage. Breaches of controls by service providers to
the Company, could also lead to reputational damage or loss.
There is also a regulatory risk in ensuring compliance with the
Alternative Investment Fund Managers Directive (AIFMD). In
accordance with the requirements of the AIFMD, the Company
appointed Standard Life Investments (Corporate Funds) Limited as
its Alternative Investment Fund Manager (AIFM) and BNP Paribas
Securities Services as its Depositary.
The Board receives regular reporting from the AIFM and the
Depositary to ensure both are meeting their regulatory
responsibilities in relation to the Company.
-- Supplier risk: in common with most investment trusts, the
Company has no employees. The Company therefore relies upon
services provided by third parties, including the Manager in
particular, to whom responsibility for the management of the
Company has been delegated under an Investment Management
Agreement.
-- Geopolitical risk: The Company is exposed to the effects of
geopolitical instability or change, as this could have an adverse
effect on Stock Markets. The Board and the Manager regularly review
and discuss current geopolitical issues and seek appropriate expert
advice, when necessary, in relation to managing any impacts on the
Company.
Going Concern
The factors which have an impact on Going Concern are set out in
the Going Concern section of the Directors' Report in the Company's
Annual Report and Financial Statements to 30 June 2016. As at 31
December 2016, there have been no significant changes to these
factors. The Company had no bank borrowings at 31 December 2016.
The Directors are mindful of the principal risks and uncertainties
disclosed above. The Directors have reviewed the revenue forecast
for the years ending 30 June 2017 and 30 June 2018 and have
considered the liability profile of the GBP15.4 million Convertible
Unsecured Loan Stock which matures in 2018. As a result, the
Directors believe that the Company has adequate financial resources
to continue its operational existence for the foreseeable future.
Accordingly, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the interim
accounts.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with applicable laws and
regulations. The Directors confirm that to the best of their
knowledge -
-- the condensed set of Financial Statements have been prepared
in accordance with the Accounting Standards Board's statement
"Half-Yearly Financial Reports"; and
-- the Interim Management Report includes a fair review of the
general conditions required by 4.2.7R and 4.2.8R of the Financial
Conduct Authority's Disclosure and Transparency Rules.
The Half-Yearly Financial Report, for the six months ended 31
December 2016, comprises an Interim Management Report, in the form
of the Chairman's Statement, the Directors' Responsibility
Statement and a condensed set of Financial Statements, which has
not been audited or reviewed by the auditors pursuant to the APB
guidance on Review of Interim Financial Information.
For and on behalf of the Directors of Standard Life UK Smaller
Companies Trust plc.
David Woods
Chairman
24 February 2017
MANAGER'S REPORT
In absolute terms the Net Asset Value (NAV) Total Return of the
Trust for the six months to 31 December 2016 was 16.7%, while the
share price total return was 16.5%. Given the political backdrop
against which this return needs to be assessed, this is a
creditable return. However, it does not quite compare to the total
return of the UK smaller companies sector, as represented by the
Numis Smaller Companies Index (excluding Investment Companies), of
17.7%. Over the same period, the total return of the FTSE100 Index
of the largest UK listed companies was 12.0%. Standard Life
Investments has managed the Trust since September 2003 and the
Trust share price at that time was 47.75p. Between then and the end
of the current period, the Trust's share price total return is
829%. This compares with the total return on our reference index of
354% and the total return of the FTSE-All Share Index of 197%.
Equity markets
The second half of 2016 was a period of steady recovery from the
excess of pessimism in the aftermath of the Referendum on Europe.
The reality is that apart from a few travel and airline stocks
impacted by weaker Sterling, the UK economy has been robust and
even strengthened towards the year end and this includes the
consumer sector. This was even before, what I see as, the rather
unnecessary base rate cut in October. Markets then weakened as
investors obsessed about the lack of clarity in Brexit
negotiations. The Trump election win in the US was generally a
boost to markets, particularly US Smallcaps. Smaller companies
caught up a lot of the lost ground from the immediate aftermath of
the Brexit vote in the six weeks following the US election day.
Bid activity has accelerated. At the very start of the period,
there was the takeover of ARM Holdings by SoftBank in LargeCaps.
There have been nine significant bids for smaller listed companies
in the period in question of which seven have come from overseas
based acquirers presumably taking advantage of the weakness of
Sterling. The targets have tended to be lowly rated shares.
The Trust did not hold any of the stocks that were in receipt of
bids.
Corporate Profits and trading statements in the period have
generally been satisfactory. Exceptions have been in engineering
and aerospace (Senior, Laird, Cobham) and one or two airlines
(Easyjet) and out-sourcers (Mitie). In consumer stocks results have
generally been satisfactory.
Performance
The period in question saw performance driven by macro events
rather than underlying trading and prospects of individual
companies. This has been unhelpful. In particular, the rally in
Mining stocks and heavy UK exposure has been bad for the Trust's
relative performance against the reference index. Mining stocks
have recovered dramatically and have been given a late year boost
by Trump's victory and pronouncements on infrastructure spend. UK
orientated businesses, particularly real estate and financials
generally performed poorly. The Trust was light in both these
sectors. The more overseas exposure, the better the performance of
the share was the rule, with exporters doing best. The oil &
gas sector recovered strongly following OPEC agreeing on reducing
production, particularly after Russia agreed to add to the
cuts.
Against that backdrop, individual stocks within the portfolio
have delivered impressive returns and the five leading performers
in the period have been as follows:-
Fevertree Drinks (3.7% weighting, +58%). This phenomenal success
story managed to beat expectations again and again as they
revolutionise the mixer drink market as the premium category
expands.
Accesso Technologies (2.7% weighting, +31%). The company is the
world leader in "queuing technologies" through smart phones for
visitor attractions and continued to roll out with key customer
Merlin.
CVS Group (3.2% weighting, +42%) is the UK chain of vets that is
consolidating the UK market and is expanding into the Netherlands.
Its recent trading statement was strong.
JD Sports Fashion (3.1% weighting, +38%) marches forward with
its international expansion plans. Ath-leisure clothing continues
to gain momentum across markets. There is also evidence that its
foray into outdoor-wear may be starting to pay off.
Sanne Group (3.4 % weighting, +49%) is the ambitious specialist
fund administration company which acquired a significant funds
administration business based in Mauritius in an earnings enhancing
deal.
Avoiding the poor performers and those companies issuing profit
warnings, such as Laird, Mediclinic, NCC and Mitie, proved helpful
in the period.
Not owning four Mining stocks, Vedanta, Kaz Minerals, Evraz and
Ferrexpro cost the Trust 2.2% of relative performance. Not owning
the strongly performing Electrocomponents was also negative. There
were three smaller holdings that issued profit warnings in the
period. Novae Group, was hit by underwriting losses, Motorpoint,
misjudged the impact of Brexit, and Eckoh, whose joint venture with
West Corp started more slowly than previously anticipated.
Dealing and Activity
The five largest additions to the existing portfolio were as
follows:-
Hilton Food Group (1.7% weighting). This is a meatpacking
business which operates on an "open book" basis with supermarkets
around the world from the UK to Australia. It is another
founder-run business. They recently announced business wins in
Portugal.
Ricardo (1.6%) is an auto engineering consultancy that has been
around for one hundred years. It specialises in emissions and fuel
efficiency and has exposure to the new areas of autonomous
vehicles. The business is well diversified by client, geography and
segment.
James Fisher (1.4%). This transport and resources orientated
engineering group is in decent growth markets that have visibility.
Its bolt-on acquisition strategy is sound and earnings
enhancing.
Diploma (1.2%). The company is a specialist distributor of
seals, laboratory and telecoms equipment. It operates
internationally and, historically, has made earnings enhancing
"bolt on" acquisitions most years while operating in a growth niche
market where there is less competition.
Novae (1.1%). This is a Lloyds underwriter with some interesting
specialist niches such as cybercrime, on a low rating.
Unfortunately shortly after investing in the company, it announced
what we considered to be very poor loan-loss numbers, such that we
reviewed our investment thesis. The holding has been sold since the
period end.
One wholly new holding was added to the portfolio, that of ECO
Animal Health. It is the owner of an antibiotic (Aivlosin) mainly
for pigs and poultry for multiple indications. A particularly
positive attribute is the short duration of Aivlosin, meaning it
breaks down quickly in the body. Growth and international expansion
is rapid, particularly in the USA and China.
Following the Brexit vote our stock selection matrix has been
steering the new purchases towards businesses with significant
overseas exposure. Larger follow-on purchases include Hill &
Smith in infrastructure construction safety equipment with
substantial US exposure, Midwich the distributor of visual display
units and 4imprint in US orientated sales promotion materials. UK
exposed Workspace (work centres) and Domino's Pizza UK &
Ireland were also bought.
Our key sales were:-
Seven holdings were sold in their entirety. Four were in
companies at the larger end of the spectrum which had been in the
portfolio for many years and had mostly made outstanding returns
for the Trust. These were Shaftesbury in retail London property,
Computacenter, Victrex (high performance polymers) and Halma
(safety electronics).
Three smaller holdings with poor matrix scores were also sold.
They were Solid State and Sprue Aegis in electricals and Lookers,
the car dealer. Other significant sales included Rightmove,
Moneysupermarket and Dunelm, these three also being large long-term
profitable transactions.
Outlook
It looks as though the UK economy has confounded the pessimists
who expected an immediate decline in business confidence in the
wake of the UK's Referendum decision last year. It feels as though
a significant proportion of the public, in particular, are relaxed
about the prospects of even a hard Brexit outcome. Certainly there
have been no wholesale reductions in corporate earnings forecasts
with a rough balance of upgrades and downgrades.
The end of March should signify the firing of the starting gun
for the exit negotiations to begin as Theresa May and her
Government trigger Article 50 of the Lisbon Treaty. It is only then
that any real shape to the outcome starts to develop. My thinking
is that the negotiations will take all of the two years permitted.
This takes us into 2019. It is only some time after the
implementation of the withdrawal treaty that the full impact can be
properly assessed.
Our prognosis on the oil price is that it will remain in a
trading range of $30 to $60 for a number of years. A similar
pattern may become apparent in industrial minerals although gold
may firm up in this rather uncertain period.
The UK has moved back to the top of the list in terms of GDP
growth over the next year. The Christmas period has actually been
reasonably good for consumer spending. Some industrial companies
have seen weaker trading. Several major corporations have
disappointed badly recently, including Next, Pearson and British
Telecom.
Within Europe the economic outlook remains uncertain. A European
Union without the UK is a weaker entity and a number of its leaders
are likely to face re-election challenges, particularly from the
political right. Many small European nations, particularly in North
Europe were counting on the UK as a counterweight to the might of
Germany. The Italian banking industry is still fragile even after
recent reforms. The Euro may yet have to face up to further crises
if Greece and other peripheral economies can't or won't mend their
ways.
The holdings within the Trust however are showing remarkable
resilience. Fully 55% of the constituents of the Trust have
recorded significant earnings forecast increases looking 24 months
out. This is the most predictive factor on the back-testing of our
matrix stock selection system. I am struggling to remember a
previous period when the profile of earnings revisions has been
this good. Companies scoring particularly highly on this measure
include Fevertree Drinks, Headlam (carpet distribution), JD Sports
Fashion, Midwich, CVS Group (Vets) and Cranswick (Pork Products).
This makes me feel particularly optimistic about the Trust's
portfolio as long as markets concentrate on the actual operating
performances of companies rather than obsessing about macro
conditions.
Our process remains unchanged. Our emphasis on risk aversion,
resilience, growth and momentum still feels right for the future.
Caution should be the watch-word however. The surprisingly good
out-turn of smaller companies since the Referendum on the EU may
wilt if there is any sign of real weakness in the UK economy.
Smaller Company investing should be viewed as a long-term
investment and we believe that patient investors will be rewarded
in the longer term. Our stable process has been seasoned by fully
four economic cycles. I remain very optimistic about the long-term
performance of the Trust.
Harry Nimmo
Head of Smaller Companies
Standard Life Investments
24 February 2017
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
31 December 2016 (unaudited) 31 December 2015 (unaudited)
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net gains on investments
held at fair value - 39,230 39,230 - 34,283 34,283
Currency gains/(losses) - 1 1 - (6) (6)
Income 2 2,493 - 2,493 2,292 - 2,292
Investment management
fee (297) (891) (1,188) (291) (872) (1,163)
Administrative expenses (335) (16) (351) (261) - (261)
---------- ---------- ---------- ---------- ---------- ----------
Net return before
finance costs and
taxation 1,861 38,324 40,185 1,740 33,405 35,145
Finance costs (93) (277) (370) (110) (331) (441)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary
activities before
taxation 1,768 38,047 39,815 1,630 33,074 34,704
Taxation 3 (6) - (6) - - -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary
activities after
taxation 1,762 38,047 39,809 1,630 33,074 34,704
---------- ---------- ---------- ---------- ---------- ----------
Basic return per
ordinary share 5 2.61p 56.45p 59.06p 2.46p 49.92p 52.38p
---------- ---------- ---------- ---------- ---------- ----------
Diluted return per
ordinary share 5 2.46p 51.60p 54.06p 2.28p 44.77p 47.05p
---------- ---------- ---------- ---------- ---------- ----------
The total column of this statement represents the profit and
loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been
prepared as all gains or losses are recognised in the Condensed
Statement of Comprehensive Income.
All revenue and capital items in the above statement derive from
continuing operations.
The accompanying notes are an integral part of the financial
statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Six months ended 31 December 2016 (unaudited)
Share Equity
Share premium component Special Capital Revenue
capital account CULS 2018 reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 June
2016 17,907 19,805 1,470 32,645 162,300 6,502 240,629
Return on ordinary
activities after
taxation - - - - 38,047 1,762 39,809
Buyback of Shares
into Treasury - - - (1,544) - - (1,544)
Issue of Ordinary
Shares from Treasury
from
conversion of 3.5%
Convertible Unsecured
Loan Stock 2018 - - - 883 - - 883
Dividends paid (see
note 4) - - - - - (3,503) (3,503)
--------- --------- ----------- --------- --------- --------- ---------
Balance at 31 December
2016 17,907 19,805 1,470 31,984 200,347 4,761 276,274
--------- --------- ----------- --------- --------- --------- ---------
Six months ended 31 December 2015 (unaudited)
Share Equity
Share premium component Special Capital Revenue
capital account CULS 2018 reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 June
2015 17,907 19,805 1,470 40,558 157,204 5,832 242,776
Return on ordinary
activities after
taxation - - - - 33,074 1,630 34,704
Buyback of Shares
from tender offer - - - (11,337) - - (11,337)
Issue of Ordinary
Shares from Treasury
from
conversion of 3.5%
Convertible Unsecured
Loan Stock 2018 - - - 1,544 - - 1,544
Dividends paid (see
note 4) - - - - - (2,902) (2,902)
--------- --------- ----------- --------- --------- --------- ---------
Balance at 31 December
2015 17,907 19,805 1,470 30,765 190,278 4,560 264,785
--------- --------- ----------- --------- --------- --------- ---------
CONDENSED STATEMENT OF FINANCIAL POSITION
As at As at
31 December
2016 30 June 2016
(unaudited) (audited)
Notes GBP'000 GBP'000
Non-current assets
Investments held at fair value
through profit or loss 285,636 248,945
------------- --------------
Current assets
Debtors and prepayments 357 1,280
Investments in AAA Money Market
funds 6,358 7,231
Cash and short term deposits 23 6
------------- --------------
6,738 8,517
Creditors: amounts falling due
within one year
Other creditors (933) (874)
-------------
Net current assets 5,805 7,643
------------- --------------
Total assets less current liabilities 291,441 256,588
------------- --------------
Non-current liabilities
3.5% Convertible Unsecured Loan
Stock 2018 (15,167) (15,959)
-------------
Net assets 276,274 240,629
------------- --------------
Capital and reserves
Called-up share capital 17,907 17,907
Share premium account 19,805 19,805
Equity component of Convertible
Unsecured Loan Stock 2018 1,470 1,470
Special reserve 31,984 32,645
Capital reserve 200,347 162,300
Revenue reserve 4,761 6,502
-------------
Equity shareholders' funds 276,274 240,629
------------- --------------
Basic net asset value per ordinary
share 8 410.17p 356.90p
------------- --------------
Diluted net asset value per ordinary
share 8 394.70p 345.43p
------------- --------------
CONDENSED STATEMENT OF CASH FLOWS
Six months Six months
ended ended
31 December 31 December
2016 2015
(unaudited) (unaudited)
GBP'000 GBP'000
Net return on ordinary activities
before finance costs and taxation 40,185 35,145
Adjustment for:
Gains on investments (39,230) (34,283)
Currency (gains)/losses (1) 6
Decrease in accrued income 932 548
Increase in other debtors (7) (3)
Increase in other creditors 64 633
Net overseas tax (6) -
------------- -------------
Net cash inflow from operating activities 1,937 2,046
Investing activities
Net cash inflow from investing activities 2,539 8,009
Financing activities
Interest paid (285) (346)
Equity dividends paid (3,503) (2,902)
Net cash inflow from management of
liquid resources 873 4,508
Buyback of Shares (1,544) (11,337)
------------- -------------
Increase/(decrease) in cash and short
term deposits 17 (22)
------------- -------------
Analysis of changes in cash during
the period
Opening cash and short term deposits 6 27
Increase/(decrease) in cash and short
term deposits as above 17 (22)
-------------
Closing cash and short term deposits 23 5
------------- -------------
Notes to the Financial Statements
1. Accounting policies
Basis of accounting
The condensed financial statements have been prepared in
accordance with Financial Reporting Standard 104 (Interim Financial
Reporting) and with the Statement of Recommended Practice for
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts'. They have also been prepared on a going concern
basis and on the assumption that approval as an investment trust
will continue to be granted.
The half-year financial statements have been prepared using the
same accounting policies as the preceding annual accounts.
2. Income
Six months ended Six months ended
31 December 2016 31 December
GBP'000 2015
GBP'000
Income from investments
UK dividend income 2,142 1,931
REIT income 173 162
Overseas dividend income 161 172
------------------ -----------------
2,476 2,265
Interest income
Interest from AAA Money
Market funds 17 27
------------------ -----------------
17 27
------------------ -----------------
Total income 2,493 2,292
------------------ -----------------
3. Taxation
The taxation expenses reflected in the Condensed Statement of
Comprehensive Income is based on management's best estimate of the
weighted annual corporation tax rate expected for the full
financial year. The estimated annual tax rate used for the year to
30 June 2017 is 20.00%.
4. Dividends
Six months ended Six months ended
31 December 31 December
2016 2015
GBP'000 GBP'000
----------------- -----------------
Ordinary dividend on equity shares:
2016 final dividend of 5.20p per
share (2015 - 4.40p) 3,503 2,902
3,503 2,902
----------------- -----------------
5. Return per share
Six months ended Six months ended
31 December 31 December
2016 2015
Basic return per share p p
----------------- -----------------
Revenue return 2.61 2.46
Capital return 56.45 49.92
Total return 59.06 52.38
----------------- -----------------
Weighted average number of Ordinary
shares 67,399,608 66,253,317
----------------- -----------------
The figures above are based on the following:
Six months ended Six months ended
31 December 31 December
2016 2015
GBP'000 GBP'000
Revenue return 1,762 1,630
Capital return 38,047 33,074
Total return 39,809 34,704
----------------- -----------------
Six months ended Six months ended
31 December 31 December
2016 2015
Diluted return per share p p
----------------- -----------------
Revenue return 2.46 2.28
Capital return 51.60 44.77
Total return 54.06 47.05
----------------- -----------------
Weighted average number of Ordinary
shares 74,091,411 74,281,580
----------------- -----------------
The figures above are based on the
following:
Six months ended Six months ended
31 December 31 December
2016 2015
GBP'000 GBP'000
Revenue return 1,823 1,691
Capital return 38,230 33,256
----------------- -----------------
Total return 40,053 34,947
----------------- -----------------
The calculation of the diluted total, revenue and capital
returns per ordinary share are carried out in accordance with
Financial Reporting Standard 22, "Earnings per Share". For the
purpose of calculating total, revenue and capital returns per
Ordinary share, the number of Ordinary shares used is the weighted
average number used in the basic calculation plus the number the
number of Ordinary shares deemed to be issued for no consideration
on exercise of all Convertible Unsecured Loan Stock 2018 (CULS).
The calculations indicate that the exercise of CULS would result in
an increase in the weighted average number of Ordinary shares of
6,691,803 (31 December 2015 - 8,028,263) to 74,091,411 (31 December
2015 - 74,281,580) Ordinary shares.
Where dilution occurs, the net returns are adjusted for items
relating to the CULS. Total earnings for the period are tested for
dilution. Once dilution has been determined individual revenue and
capital earnings are adjusted. CULS finance costs for the period
and unamortised issues expenses are reversed.
6. Capital reserve
The capital reserve reflected in the Condensed Statement of
Financial Position at 31 December 2016 includes unrealised gains of
GBP117,425,000 (30 June 2016 - GBP87,267,000) which relate to the
revaluation of investments held at the reporting date and realised
gains of GBP82,922,000 (30 June 2015 - GBP75,033,000).
7. Transaction costs
During the period, expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or
loss. These have been expensed through capital and are included
within gains on investments in the Condensed Statement of
Comprehensive Income. The total costs were as follows:
Six months ended Six months ended
31 December 31 December
2016 2015
GBP'000 GBP'000
Purchases 152 72
Sales 21 31
173 103
----------------- -----------------
8. Net asset value
Total shareholders' funds have been calculated in accordance
with the provisions of applicable accounting standards. The
analysis of total shareholders' funds on the face of the Condensed
Statement of Financial Position reflects the rights, under the
Articles of Association of the Ordinary shareholders on a return of
assets.
These rights are reflected in the net asset value and the net
asset value per share attributable to Ordinary shareholders at the
period end.
Six months ended Year ended
31 December 2016 30 June 2016
Basic net asset value per share
Total shareholders' funds (GBP'000) 276,274 240,629
Number of Ordinary shares in issue
at the period end (excluding shares
held in treasury) 67,355,750 67,421,054
----------------- -------------
Net asset value per share 410.17p 356.90p
----------------- -------------
Diluted net asset value per share
Total shareholders' funds (GBP'000) 291,441 256,588
Number of Ordinary shares in issue
at the period end (excluding shares
held in treasury) 73,837,718 74,281,549
----------------- -------------
Net asset value per share 394.70p 345.43p
----------------- -------------
In October 2016 the Company issued 378,514 Ordinary shares from
Treasury (31 December 2015 - 669,513 Ordinary shares from Treasury)
following receipt of elections to convert GBP898,071 (31 December
2015 -GBP1,588,511) nominal amount of 3.5% Convertible Unsecured
Loan Stock 2018.
During the six months ended 31 December 2016 the Company
repurchased 443,818 Ordinary shares to Treasury (31 December 2015 -
Nil) at a cost of GBP1,544,000 (31 December 2015 - GBP Nil).
As at 31 December 2016 there were 67,355,750 Ordinary shares in
issue (30 June 2016 - 67,421,054). There are also 4,271,425
Ordinary shares (30 June 2016 - 4,206,121) held in Treasury.
The diluted net asset value per Ordinary share as at 31 December
2016 has been calculated on the assumption that 15,378,741 (30 June
2016 - 16,276,812) 3.5% Convertible Unsecured Loan Stock 2018 are
converted at 237.25p per share, giving a total of 73,837,718 (30
June 2016 - 74,281,549) Ordinary shares. Where dilution occurs, the
net assets are adjusted for items relating to the convertible loan
stock.
Net asset value per share - debt converted
In accordance with the Company's understanding of the current
methodology adopted by the AIC, convertible financial instruments
are deemed to be 'in the money' if the cum income (debt at fair
value) net asset value (NAV) exceeds the conversion price of
237.25p per share. In such circumstances a net asset value is
produced and disclosed assuming the convertible debt is fully
converted. At 31 December 2016 the cum income (debt at fair value)
NAV was 410.17p (30 June 2016 - 356.90p) and thus the CULS 2018
were 'in the money'.
9. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
shall have the following classifications:
Class A: quoted prices for identical instruments in active
markets;
Class B: prices of recent transactions for identical
instruments; and
Class C: valuation techniques using observable and unobservable
market data.
All of the Company's investments are in quoted equities (30 June
2016 - same) that are actively traded on recognised stock
exchanges, with their fair value being determined by reference to
their quoted bid prices at the reporting date. The total value of
the investments (31 December 2016 - GBP285,636,000; 30 June 2016 -
GBP248,945,000) has therefore been deemed as Class A.
The Company's CULS are actively traded on a recognised stock
exchange. The fair value of the CULS
(31 December 2016 - GBP22,299,000; 30 June 2016 - GBP21,404,000)
has therefore been deemed Class A.
10. Transaction with the Manager
The Company has an agreement with Standard Life Investments
(Corporate Funds) Limited ('SLI') for the provision of management
services. During the six months ended 31 December 2016 the
management fee paid to SLI was charged applying the rate of 0.85%
to the first GBP250m of total assets, reduced to 0.65% on total
assets above this threshold. The contract is terminable by either
party on six months (previously twelve months) notice.
During the period GBP1,187,000 (31 December 2015 - GBP1,163,000)
of investment management fees were earned by the Manager, with a
balance of GBP599,000 (31 December 2015 - GBP1,163,000) due to
SLI.
SLI also receive fees for secretarial and administrative
services at (i) GBP110,000 per annum and (ii) 0.02 percent of the
net asset value of the Company in excess of GBP70,000,000 (the net
asset value of the Company being as shown in the annual accounts of
the Company) to a maximum of GBP150,000 exclusive of VAT.
During the period GBP91,000 (31 December 2015 - GBP97,000) of
fees were earned by SLI. The balance due to SLI at the period end
was GBP46,000 (31 December 2015 - GBP89,000).
11. Half-Yearly Report
The financial information in this report does not constitute
statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the year ended 30
June 2016 has been extracted from the latest published audited
financial statements which have been filed with the Registrar of
Companies. The report of the auditors on those accounts contained
no qualification or statement under Section 498 (2), (3) or (4) of
the Companies Act 2006. The interim accounts have been prepared
using the same accounting policies as the preceding annual
accounts.
12. This Half-Yearly Report was approved by the Board on 24 February 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRGDDGBDBGRS
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