Aberdeen Diversified Income & Growth

Half Yearly Financial Report
RNS Number : 4023B
Aberdeen Diversified I&G Trust PLC
10 June 2021
 

ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

LEGAL ENTITY IDENTIFIER (LEI): 2138003QINEGCHYGW702

 

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2021

 

The Directors of Aberdeen Diversified Income and Growth Trust plc report the unaudited results for the six months ended 31 March 2021.

 

PERFORMANCE HIGHLIGHTS

 

NAV total return {AB}


Share price total return {A}

Six months ended 31 March 2021


Six months ended 31 March 2021

+2.8%



+6.8%


Year ended 30 September 2020

-0.8%



Year ended 30 September 2020

-10.6%







Dividend yield {A}


Revenue return per Ordinary share

As at 31 March 2021



Six months ended 31 March 2021

5.8%



2.79p


As at 30 September 2020

5.9%



Six months ended 31 March 2020

2.46p


 

{A} Considered to be an Alternative Performance Measure.

{B} With debt at fair value.





 

FINANCIAL HIGHLIGHTS

 


31 March 2021

30 September 2020

% change

Total assets {A}

£374,726,000

£445,770,000

-15.9

Equity shareholders' funds (Net Assets)

£359,076,000

£386,230,000

-7.0

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

113.85p

113.40p

+0.4

Ordinary share price (mid market)

95.00p

91.50p

+3.8

Share price discount to net asset value - debt at fair value {B}

16.56%

19.31%


Net gearing - debt at fair value {B}

2.94%

18.84%


Ongoing charges ratio {B}

0.79%

0.84%


{A} Total assets as per the Statement of Financial Position less current liabilities. A significant proportion of the decrease in total assets during the period was due to the partial repayment of 6.25% Bonds 2031 (further details can be found in note 7)

{B} Considered to be an Alternative Performance Measure.






Six months ended

Six months ended



31 March 2021

31 March 2020

% change

Net revenue return after taxation

£8,754,000

£7,893,000

+10.9

Revenue return per share

2.79p

2.46p

+13.5





Dividends




First interim dividend

1.38p

1.36p

+1.5

Second interim dividend

1.38p

1.36p

+1.5

Total dividends declared in respect of the period

2.76p

2.72p

+1.5

 

 

 

 

 

FINANCIAL CALENDAR

 

Payment dates of quarterly dividends

31 March 2021
15 July 2021
28 October 2021
20 January 2022



Financial year end

30 September 2021



Expected announcement of results for year ending 30 September 2021

December 2021



Annual General Meeting (London)

February 2022

 

 

OVERVIEW

 

CHAIRMAN'S STATEMENT

 

Introduction

I would like to begin my Statement by saying that I hope that all of our shareholders and their families, as well as those reading this Report, have remained safe and well as we gradually emerge from the most recent lockdown.  It is now a full year since the Board has been able to meet in person and our managers likewise are working remotely; nonetheless it has been a busy period of evolution for the Company.  Looking back to March 2020 I do not believe anyone correctly predicted how the global pandemic would unfold, or indeed would we have believed them if they had guessed correctly, but it was clear that there would be huge consequences for global economies and substantial adjustments required to global growth estimates. 

 

Strategy

Following the substantial revisions to growth assumptions in the early part of 2020, and recognising the Company's disappointing performance since the current mandate was adopted in March 2017, the Board and the Manager undertook a comprehensive review of the Company's investment strategy and the ability to provide income and growth, as its name suggests.  This review was detailed in the 30 September 2020 Annual Report. However the six month period to 31 March 2021, which this report covers, includes the majority of the agreed actions. 

 

The key building block to deliver the returns expected by our shareholders was the clarification of the investment objective, approved by shareholders at the February 2021 AGM, so that it now reads as follows:   "The Company seeks to provide income and capital appreciation over the long term through investment in a globally diversified multi-asset portfolio."  Alongside this objective, the Board will in future use a Total Return (defined as dividends plus change in net asset value) of 6% per annum over a rolling five year period against which to measure the returns from the portfolio.  This will be a challenging target going forward given the returns that have been assumed from a broad base of asset classes. However, the Investment Manager believes that this total return is achievable based on its recent strategic asset allocation analysis and the changes to the investment portfolio, which have now largely been implemented.

 

Portfolio Performance

Over the six month period ended 31 March 2021, the Company's net asset value per share, with debt at fair value and including income ("NAV"), rose by 2.8% on a total return basis, noting that this result includes the one-off cost of 1.6p per share reflecting the early repayment of 73% of the Company's 6.25% Bonds due 2031 (see 'Gearing').  The Company's share price closed the period under review at 95.0 pence, compared to 91.5 pence at 30 September 2020, resulting in an increase of 3.8% whilst the total return (assuming dividends are reinvested) was 6.8%.

 

Over the 12 months ended 31 March 2021, the Company's NAV total return, with debt at fair value, was 15.2% while the Company's share price total return was 11.6%.  Whilst these returns compare favourably with the Company's revised performance target of 6% per annum, it should be noted that this needs to be judged over rolling five years, not over one year.

 

Dividend

A major component of our investor proposition is offering a dependable and regular dividend.  The Company's revenue return for the six months ended 31 March 2021 was 2.79 pence per share (2020 - 2.46 pence). For the year to 30 September 2021, a first interim dividend of 1.38 pence (2020 - 1.36 pence) per share was paid to shareholders on 31 March 2021. The Board declared on 10 June 2021 a second interim dividend per share of 1.38 pence (2020 - 1.36 pence) to be paid on 15 July 2021 to shareholders on the register on 18 June 2021 with an ex-dividend date of 17 June 2021.  On an annualised basis, a quarterly dividend of 1.38 pence per share is equivalent to a dividend yield of 5.8% based on the period end share price of 95.0p.

 

Share buybacks and Treasury shares policy

During the period, the Company bought back 7.2 million shares into treasury at a cost of £6.9 million. The Company's discount (calculated with debt at fair value) narrowed from 17.2% at 30 September 2020 to 15.5% at 31 March 2021. The Board will continue to monitor the discount on a daily basis and buy-back shares into treasury, or undertake share issuance if required, when it believes it is in the best interests of shareholders, whilst also having regard to the prevailing gearing level and the composition of the Company's portfolio.

 

In the event of the share price trading at a premium to the NAV per share, Ordinary shares can be re-issued out of treasury less expensively than new Ordinary shares can be issued. Although shares may be held in treasury indefinitely the Board is mindful of the total number of shares held and has, therefore, decided to adopt a new policy (the "Policy") such that, in the event that the number of treasury shares represents more than 10% of the Company's issued share capital (excluding treasury shares) at the end of any financial year, the Company will cancel a proportion of its treasury shares such that the remaining balance will equal 7.5% of the issued share capital (excluding treasury shares). The Company cancelled 27,659,068 Ordinary shares from treasury on 31 March 2021 to leave its issued share capital at the period end, and at the date of approval of this Report, as comprising 310,092,838 shares with voting rights and an additional 27,659,068 shares in treasury, equivalent to 8.9% of the total.

 

Board

The Board was delighted to announce on 30 April 2021 the appointment of Alistair Mackintosh as a Director with effect from 1 May 2021. Alistair was a partner with Actis LLP, a leading investor in growth markets across Africa, Asia and Latin America, from its inception in 2004 until 2018, including serving as Chief Investment Officer for 12 years. Alistair brings to the Company considerable expertise in, and knowledge of, private markets including private equity, infrastructure, and real estate.

 

Julian Sinclair, reflecting a significant change in his executive responsibilities, retired from the Board on 4 June 2021. On behalf of all of the Directors, I should like to recognise Julian's considerable contribution to the Company during his six years' service which encompassed the transition to the current Investment Manager, Aberdeen Standard Investments, in March 2017. The Board and the Company's shareholders have both benefited from Julian's considerable experience in diversified asset investing as well as from his wider commercial acumen; we wish him well in pursuing his other business interests. It was agreed by the Board that Tom Challenor would assume the role of Senior Independent Director on Julian's retirement.

 

Gearing

On 2 November 2020, the Company repurchased and cancelled 73.2% of its £60 million 6.25% Bonds due 2031 (the "Bonds"), to leave £16,096,000 nominal of the Bonds outstanding at 31 March 2021. The Company's gearing was 2.9% at 31 March 2021 as compared to 18.8% at 30 September 2020, with the Bonds at fair value. The Board continues to keep the overall level of gearing under review but, in the prevailing economic environment, there is no current intention to introduce further fixed rate gearing.

 

Outlook

With still so much uncertainty surrounding the short term outlook, the Board believes the Company's revised strategy, to provide a regular and dependable dividend as well as potential capital growth from a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers, will deliver an attractive return to our shareholders over the medium term. 

 

As set out in the Manager's Report, the Company continues to assess environmental, social and governance ("ESG") factors when both considering investments and monitoring them after any purchase.

 

Finally, for those shareholders seeking income, the Company's revenue reserves of almost two years of the present dividend should provide a level of reassurance regarding regular dividend payments. 

 

Shareholder communications

The Board encourages shareholders to visit the Company's website (aberdeendiversified.co.uk) for regular podcasts and monthly factsheets published by the Manager, or by subscribing via social media including twitter.com/AberdeenTrusts and linked-in.com/company/aberdeen-standard-investment-trusts

 

For and on behalf of the Board

Davina Walter

Chairman

 

9 June 2021

 

 

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT

 

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

 

Principal Risks and Uncertainties

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

 

·      Performance;

·      Portfolio;

·      Gearing;

·      Income/dividend;

·      Regulatory;

·      Operational;

·      Market; and

·      Financial.

 

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements (the "Annual Report") for the year ended 30 September 2020; a detailed explanation can be found in the Strategic Report on pages 13 to 16 of the Annual Report which is available on the Company's website: aberdeendiversified.co.uk.

 

The key uncertainty affecting the operations of the Company during the period stemmed from the Covid-19 pandemic and its impact on the operations of the Company's portfolio holdings. The Manager will continue to review the composition of the Company's portfolio and to be pro-active in taking investment decisions as necessary. Separately, Covid-19 has the potential to disrupt the suppliers of services to the Company including the Manager and other key third parties. These services have continued to be supplied without interruption during the period, and thereafter, and the Board receives regular reports from the Manager on these business continuity arrangements.

 

In the view of the Board, with the exception of Covid-19, there have not been any changes to the fundamental nature of these risks since the previous Annual Report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year ending 30 September 2021 as they were to the six months under review.

 

Going Concern

The Financial Statements of the Company have been prepared on a going concern basis, however there is a material uncertainty in respect of the passing of the continuation vote given the factors described in Note 1 to the financial statements. The Directors have assessed the financial position of the Company with particular focus on the impact of Covid-19, as outlined above and in the Chairman's Statement. While the longer term effects of the global pandemic on the Company remain unknown, the Board takes comfort from the Manager's construction of an actively managed portfolio of diversified assets which is designed to provide both a level of resilience in the face of shorter term volatility and the potential for an attractive return when the economic recovery materialises.

 

The Company repurchased 73.2% of its £60 million 6.25% Bonds due 2031 (the "Bonds") during November 2020. This substantial deleveraging has alleviated the cost of servicing the Bonds and the Company is benefiting from improved net cash flow as a result.

 

The forecast projections and actual performance are reviewed on a regular basis throughout the period and the Directors believe that this is the appropriate basis and that the Company is financially sound with adequate resources to continue in operational existence for the foreseeable future (being a period of twelve months from the date that these financial statements were approved). The Company is able to meet all of its liabilities from its assets, including its ongoing operating expenses.

 

Related Party Disclosures and Transactions with the Alternative Investment Fund Manager and Investment Manager

 

Aberdeen Standard Fund Managers Limited ("ASFML") has been appointed as the Company's Alternative Investment Fund Manager ("AIFM").

 

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

 

Directors' Responsibility Statement

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

 

The Directors confirm to the best of their knowledge that:

 

·      the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standard FRS 104 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and return of the Company for the period ended 31 March 2021; and

 

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

 

This Half-Yearly Financial Report has been reviewed by the Company's auditor, PricewaterhouseCoopers LLP, and their report is set out below.

 

The Half-Yearly Financial Report was approved by the Board and the above Director's Responsibility Statement was signed on its behalf by the Chairman.

 

For and on behalf of the Board

Davina Walter

Chairman

 

9 June 2021

 

 

INVESTMENT MANAGER'S REPORT

 

Evolution of the Company's investment portfolio

2020 posed many challenges for investment portfolios, and the impact of the Covid-19 pandemic continues to be wide-reaching. The Investment Manager completed a review of the Company's portfolio in early 2021 to provide a more solid foundation for generating income and delivering capital appreciation over the long term.

 

One of the more material changes in the portfolio was the implementation of an increased private markets exposure. The ambition is to bring the overall private markets exposure to 45-55% of the portfolio. This increase should enable the Company to gain additional income by harvesting returns from holding assets which are less frequently traded and where value is created over time. We completed the majority of this re-alignment during the six months ended 31 March 2021 (the "Period").

 

Over the Period, the portfolio was also substantially deleveraged with 73% of the outstanding Bonds 2031 being repurchased following the Board's review. As a result of alleviating the cost of servicing this debt, the Company will benefit both from increased distributable cash, as the portfolio evolves to the new asset allocation, and volatility is reduced against the listed assets held. As markets continue to be erratic and volatile, the Company has a core portfolio that has been simplified to be more defensive in the near term and to provide growth over the longer term. We were pleased to deliver a positive total return of 2.8% over the past six months whilst undergoing this shift in strategic direction.

 

The performance target changed as a result of the Board's completion of its strategic review in late 2020 and is now total return (defined as dividends plus change in net asset value) of 6% per annum over a rolling five year period against which returns from the portfolio may be measured.

 

Simplification of the Strategy

Over the Period, the portfolio has been streamlined to create a better balance of income and growth across four areas of activity or risk premia: Listed Equities, Listed Fixed Income and Credit, Listed Alternatives and Private Markets. Within these four asset classes, investments are selected to provide income and/or growth within the portfolio construction of each area.

 

Why is the Company taking advantage of private markets?

Private Markets offer a broad range of opportunities. These can be categorised into five main areas of activity: Private Equity (including Venture Capital), Infrastructure, Value-add Real Estate, Natural Resources and Private Credit. Given the importance of income to the Company's shareholders, the tilt of the private markets portfolio will be towards Private Credit and Infrastructure. However, longer-term growth will be supported by investing across the Private Markets spectrum.

 

Private Equity

Private Equity is the ownership of interests in private companies that require capital for growth, management buyouts or turnaround situations across multiple sectors and markets. Typically private equity investments are expected to provide long-term capital growth. Skilled managers in the space can create idiosyncratic growth over and above long-term sector growth expectations. The Company can invest in these high growth opportunities, capturing the excess return available and growing the portfolio NAV. 

 

In addition to organic growth, the Company can grow capital via opportunities in the private equity secondary market. When a seller is looking to exit a private equity investment before maturity, the lack of market depth and complexity of the transaction means the assets may be acquired at a discount to NAV. The Company has made investments in this area via a secondary opportunities fund which specifically targets this strategy and via a buyout of positions in several private equity funds in the US.

 

Private Equity made a material contribution to returns during the Period, providing 1.4% towards the total return of the Company. The Burford Opportunity Fund, which is a litigation finance fund, contributed 0.85% to performance as a result of the positive resolution of six cases related to insurance claims in the US.

 

Infrastructure

The Infrastructure sector covers investments in the essential assets that support domestic and regional economies such as roads, schools, hospitals, transportation assets, energy generation and supply and communication assets. Typically these investments should be stable and non-cyclical, with attractive yields linked to inflation. The stability of the income derives from the long-term nature of contracts, which are typically made with low-risk counterparties (e.g. state or national governments) in regulated sectors.

 

In addition to garnering the steady income from assets such as solar farms and trains in the UK, the Company invests in infrastructure managers that develop and build assets, which can grow the value of capital as well. The Company has benefited from the development of toll roads in the US, and the building of a stadium in Australia, with the future development pipeline including the construction of a new port in Colombia.

 

Infrastructure contributed to returns during the period, providing 0.8% towards the total return of the Company.

 

Value-add Real Estate

Investment in Real Estate is the development or improvement of commercial buildings, residential property, and mixed-use and special purpose facilities. Value-add real estate investments are typically made in assets that are already producing income and aiming to amplify this income by making physical changes to the building to increase its attractiveness and utility, justifying higher rents.

 

Returns can also come from changing the use of a building. The Company has existing commitments in this particular part of the sector through investment in a fund which purchases office buildings in European cities and redevelops the space into residential units, which command a higher sale or rental price per square foot.

 

Natural Resources

Natural Resources investments embrace timber, agriculture, fisheries, and physical commodities such as minerals. Investments in this space typically generate a steady income when mature and enjoy natural inflation hedging. Within this sector, the Company is invested in farmland via a fund that aims to add value to existing space by converting crops to organic and redeveloping low-value plots to increase income. 

 

Private Credit

Private Credit investment involves lending to businesses for projects. There are various categories of senior debt which include senior asset-backed loans, subordinated debt, speciality finance and special situations funding. Private Credit investments can be higher-yielding and lower risk than their similarly rated public corporate bonds; this is called the illiquidity premium, which compensates investors for the long-term illiquid nature of the debt. Another advantage is that since private lenders have the opportunity to negotiate directly with borrowers, the recovery rate in the event of default can be higher in the private markets due to the specifically structured debt and robust covenants that exist to cover perceived risks. The Company can make investments in this space and is seeking shortly to complete several fund commitments which should continue to support the Company's dividend in future years.

 

How are Listed Equities contributing to the growth of the Company?

Listed equities allow the Company to gain access to growth opportunities delivered by the earnings growth and dividends of companies listed on stock exchanges globally.  These investments allow the Company to continue to grow its assets to maintain a solid base from which to deliver its dividend.

 

During the first quarter ended 31 December 2020, the Company sold entirely its holding in the Multi-Factor Global Equity Income Fund. The proceeds were invested into individual equities, (see Investment Portfolio - Equities, below), across developed markets to take advantage of the expected reflation of economies globally, as a result of significant fiscal and monetary stimulus in response to Covid-19. This has been particularly so in the US following the Democratic clean sweep in the recent presidential elections. Concurrent with this has been the anticipation of the lifting of social restrictions as a result of a successful vaccination effort.

 

The Investment Manager has also invested in a global equity fund that tilts towards more sustainable companies that are less carbon-intensive, a fund that invests in mid-cap UK growth equities (featured as a case study later in this Report), a FTSE 100 Index Future, one of the more cyclically exposed global markets, and finally a portfolio of European infrastructure companies that are likely to benefit from the move to decarbonise the economy.

 

Listed equities made a material contribution to returns during the period, providing 1.6% towards the NAV total return of the Company.

 

What income can Listed Fixed Income and Credit provide in this low-interest-rate environment?

Listed Fixed Income and Credit investments provide a return by assuming the credit risk of different types of borrowers.  Within the portfolio, it is possible to access investments that are structured in such a way as to make the risk of default lower than it would ordinarily be.

 

Asset Backed Securities

The Company can invest in asset-backed securities ("ABS"), which offer a higher yield and lower expected defaults in comparison with similarly rated corporate credit.  An ABS issues a series of bonds with different credit ratings which are backed by pools of assets such as corporate loans, mortgages or credit card debt. Owners of the highest-rated bonds are less likely to experience defaults but receive the lowest return while owners of lower rated bonds benefit from the highest potential return but are also the first to experience losses when defaults occur.

 

The complexity of these structures can also lead to mispricing, which the Company has sought to take advantage of.

 

These assets made a material contribution to returns during the Period, providing 1.4% towards the NAV total return of the Company.  Particular contributors were the Blackstone GSO Loan Financing Fund and the TwentyFour Asset-Backed Opportunities Fund, which is featured as a case study below.

 

Emerging Market Debt

The Company also invests in emerging market sovereign debt, both local currency and US dollar-denominated.  The local currency exposure is hedged to dampen the volatility of returns.  Lending to emerging market countries provides a higher yield as these countries often have higher rates of interest (given the higher risks) than developed market countries.

 

While in the past the risk of default has been higher, the evolution of central banks towards more disciplined monetary policy, the development of the local currency market, which means that countries are in control of their debt servicing, combined with China's economic might, which makes Asian emerging market countries more resilient, means that, while the default risk remains, it is less than it might have been historically.  Nevertheless, the remaining credit and currency risk can lead to volatility within markets. Hence we choose to actively manage these exposures. Each country in the investment universe is reviewed every six weeks, focusing on the key drivers for each market, what changes are expected versus what is currently priced into the market, in addition to a review of other macro and micro data.  Currency risk is hedged in a cost effective way, using related developed market currencies.

 

These assets were return-neutral during the Period, however, as income was offset by price and currency moves.

 

What are Listed Alternatives, and how do they generate income for the portfolio?

Listed alternatives allow the Company to gain exposure to less liquid alternative assets in a liquid format. One of the most recognisable examples is a Real Estate Investment Trust, which allows investors to access property assets (such as social housing and private rented accommodation) in a liquid format. Listed alternatives extend beyond real estate though and can include social and renewable infrastructure and more esoteric assets like music and healthcare royalties, shipping, and marketplace lending, where the latter refers to peer-to-peer lending via online platforms connecting investors and borrowers.

 

These investments can offer attractive yields and the potential for capital appreciation. Importantly, the income derived from these investments is typically backed by assets that pay out a stream of cash flows that have tended to be relatively durable over time.

 

Prices of these securities vary and can often trade at a different level to the underlying net asset value of the vehicle. This can allow the Company to extract value where we see opportunities presented by pricing discrepancies. Whilst there is some cross-over in terms of underlying asset type between the Private Markets part of the Company, the underlying listed alterative assets themselves are different, allowing the Company to gain exposure that can't be achieved elsewhere in the portfolio.

 

These assets made a material contribution to returns during the period, providing 1.1% toward the NAV total return of the Company.  There is significant diversification within this part of the portfolio's asset allocation, and as a result, the return generation is spread fairly evenly across these assets.

 

Building on Strong Foundations of Income

Income is an important feature of the Company's objective and providing investors with a reliable dividend over the long term is a key tenet of the portfolio. As described above, the portfolio has evolved to capture income and growth opportunities over the long term across listed and private markets. Historically, there may have been concerns around the reliability of the income. This risk has been reduced via the evolved portfolio construction across a diverse range of global investments including social and economic infrastructure (such as schools, hospitals, energy generation assets), alternative financing, with healthcare royalties as an example, coupled with more traditional types of debt investments embracing loans and bonds issued by companies and governments in countries around the world.

 

These strong foundations of income generation derived from genuine economic activity rather than leverage or speculative trading are what make the Company's income characteristics unique amongst its peers. As a result, the income streams are designed to be more consistent to and seek to provide a covered dividend over the coming years. This strong feature is often difficult to find in the market, and we hope that investors will continue to support the Company as we seek to deliver this income over the long term.

 

ESG Integration

Understanding Environmental, Social and Governance ("ESG") risks and opportunities, alongside other financial metrics, helps us make better investments. We call this ESG integration and it occurs throughout the Manager's investment process for the Company.

 

Asset allocation

This relates to how we form our view of the return potential of different asset classes. It informs how we construct portfolios to give the best risk-adjusted returns for our clients. Asset allocation decisions and ESG are closely linked, as changes associated with ESG issues shape the way we allocate capital. This also creates an opportunity to direct capital to where the challenges are particularly pressing, such as climate change.

 

Risk management

We use scenario analysis to provide a framework that can help identify risks associated with climate change, such as flooding, hurricanes and wildfires. The results of such a process can be useful to portfolio managers, improving their understanding of how portfolios may behave in such extreme scenarios. Scenario analysis also allows us to work with clients on risk-mitigation strategies.

 

Implementation

When implementing an investment idea, we consider the characteristics of each stock and bond to reflect the preferences of different investors. In addition, we have a company-wide policy of excluding companies with exposure to controversial weapons (specifically cluster munitions and anti-personnel landmines) - this applies to all funds managed by ASI.

 

Stewardship of listed securities

We are committed to always acting in the best interests of our clients. We believe in active, constructive engagement. For both active and passive strategies, we vote all shares globally wherever we have voting authority. When engaging with companies from an ESG perspective, our goal is to understand how they are managing ESG risks. We are proud signatories to the Principles of Responsible Investment. When engaging with companies on ESG issues, we do so based on the principles set out by the UN Global Compact on human rights, labour, the environment and anti-corruption.

 

Direct, Co-investments and Credit in Private Markets

When we directly own assets, are directly investing in a company, or are providing private credit to, we seek to understand the specific ESG risks and opportunities associated with that investment, how they are managed and  where appropriate, how they are mitigated.

 

Indirect investments in Private Markets

When we invest in new funds, our due diligence process includes consideration of the underlying ESG risks and opportunities and how they are managed. Where applicable, we would look to understand a manager's specific ESG policy, the rigour with which it is applied and embedded into the process before and after the investment.  Once invested, we will continue to engage with our underlying fund managers and direct holdings on these and other issues ensuring effective ongoing monitoring and management.

 

Nalaka De Silva

Jennifer Mernagh

Aberdeen Asset Managers Limited

Investment Manager

 

9 June 2021

 

 

INVESTMENT CASE STUDIES

 

Twenty Four Asset-Backed Opportunities Fund (9.2% of NAV)

TwentyFour Asset Backed Opportunities Fund is a sub-fund of an open-ended investment company.  It invests in a diversified portfolio of the UK and European asset-backed securities, backed by assets including leveraged loans, residential and commercial mortgages, auto loans, and consumer receivables.  Asset-backed securities can offer investors an attractive level of return in comparison to similarly rated corporate credit.  They can offer materially higher yields and greater structural protection for a similar level of credit risk.  In addition, asset-backed securities are typically floating-rate, meaning that the yield they provide investors moves in line with interest rates.  This can protect from interest rate rises

 

UK Equities: ASI UK Mid-Cap Equity Fund (2.6% of NAV)

We favour UK equities, associated with a constructive view on equities in general combined with relatively attractive valuations seen for UK equities in particular.  Headwinds from Brexit are abating and the impact is increasingly well understood, which could encourage international investors to re-engage with the market.  We also favour cyclical equities, recognising the anticipated multi-year reflation of the global economy due to the significant fiscal and monetary support provided, particularly in the US, and as governments vaccinate against Covid-19 and economies reopen.  As part of this view, the Company invests in the open-ended ASI UK Mid-Cap Equity Fund.  The managers of this fund aim to pick shares in companies that will become the large companies of tomorrow.  The team focuses on quality companies that exhibit growth and momentum characteristics to deliver returns at lower volatility than the reference benchmark index.

 

Healthcare Royalty IV (1.0% of NAV)

HCR IV invests in healthcare royalty streams primarily in the US. Healthcare royalty income streams are typically structured as a percentage of the revenue generated by licensed intellectual property. The percentage received is usually linked to when in the product's clinical development the investment was made. The royalties are tied to the life of the underlying product's patent, generally provide quarterly cash payments, and return capital over the life of the investment. Given the nature of the underlying products, the cash flows are non-cyclical and the investments are usually hold-to-maturity strategies, meaning investors are not reliant on capital market conditions to exit. HCR IV has a portfolio of diversified royalties covering multiple therapeutic categories, including epilepsy, respiratory, gastroenterology, and endocrinology conditions.

 

BlackRock Renewable Income UK (2.3% of the NAV)

BlackRock Renewable Income UK holds a portfolio of 48 renewable power projects including onshore wind (46%), offshore wind (17%), and solar (26%), located throughout the UK. The investment pipeline also includes battery storage facilities. The investments are made following a buy-and-hold strategy with a 25+ year horizon, providing a long-term stream of inflation-linked cash flows. Throughout the coronavirus impacted period of the last 12 months, availability levels and energy production of the projects have remained high, illustrating the resilience of these types of assets. While there is linkage to wider energy market conditions for power prices, carbon and gas pricing is increasingly pressured by carbon taxes and tariffs, increasing the demand for renewable energy. The average net cash yield since inception has been 7.1%.

 

 

PORTFOLIO

 

TEN LARGEST EQUITY INVESTMENTS

As at 31 March 2021




At

At


31 March

30 September


2021

2020


%

%

TwentyFour Asset Backed Opportunities Fund

9.2

14.9

Investments in mortgages, SME loans originated in Europe



Neuberger Berman CLO Income Fund

4.2

-

Floating-rate exposure to securitised non-investment grade corporate credit



Aberdeen Standard Global Private Markets Fund{AB}

4.1

-

Multi-strategy private markets exposure



SL Capital Infrastructure II{AB}

3.5

4.7

European economic infrastructure



Aberdeen Property Secondaries Partners II{AB}

3.5

3.2

Realisation of value from property funds which are in run-off



Aberdeen European Residential Opportunities Fund{AB}

3.3

2.6

Conversion of commercial property into residential



Burford Opportunity Fund{B}

3.2

3.3

Diverse portfolio of litigation finance investments initiated by Burford Capital



BioPharma Credit

2.9

2.7

Provides capital to the life sciences industry via loans backed by royalties on product sales



Aberdeen Standard Alpha - Global Loans Fund{A}

2.8

2.4

Portfolio of senior secured loans and corporate bonds



ASI UK Mid-Cap Equity{A}

2.6

-

An actively managed mid-cap strategy, focused on bottom-up stock selection



{A} Denotes Standard Life Aberdeen managed products



{B} Unlisted holdings



 

 

INVESTMENT PORTFOLIO - ALTERNATIVES








As at 31 March 2021





Valuation

Valuation

Valuation


At 31 March

2021

At 31 March

2021

At 30 September


2020

Company/Fund

£'000

%

£'000

BioPharma Credit

10,542

2.9

11,608

International Public Partnerships

7,181

2.0

9,408

John Laing Group

5,987

1.6

5,991

Greencoat UK Wind

5,772

1.6

4,426

Honeycomb Investment Trust

4,744

1.3

4,517

HICL Infrastructure

4,641

1.3

8,317

PRS REIT

3,712

1.0

4,030

Sequoia Economic Infrastructure Income

3,708

1.0

1,299

Residential Secure Income

3,443

1.0

3,338

GCP Asset Backed Income Fund

3,181

0.9

3,015

GCP Infrastructure

2,913

0.8

-

Tufton Oceanic Assets

2,884

0.8

2,661

Round Hill Music Royalty Fund

2,792

0.8

-

Greencoat Renewables

2,773

0.8

3,332

Supermarket Income REIT

2,727

0.8

2,664

Aquila European Renewables

2,233

0.6

2,543

Cordiant Digital Infrastructure

1,873

0.5

-

Triple Point Social Housing

1,835

0.5

4,171

Civitas Social Housing

1,833

0.5

-

The Renewables Infrastructure Group

1,829

0.5

2,458

3I Infrastructure

1,598

0.4

1,563

Gresham House Storage Fund

930

0.3

-

CATCo Reinsurance Opportunities Fund

919

0.3

1,259

SME Credit Realisation Fund

645

0.2

837

Foresight Solar Fund

532

0.1

-

NextEnergy Solar Fund

158

-

-

Blue Capital Reinsurance Holdings{B}

25

-

25

Cordiant Digital Infrastructure (Subshare)

5

-

-

Total Alternatives

81,415

22.5


{B} Unlisted holdings




 

 

INVESTMENT PORTFOLIO - PRIVATE MARKETS








As at 31 March 2021





Valuation

Valuation

Valuation


At 31 March

At 31 March

At 30 September


2021

2021

2020

Company/Fund

£'000

%

£'000

Private Equity




Truenoord Co-Investment{B}

6,874

1.9

6,812

Aberdeen Standard Secondary Opportunities Fund IV{AB}

3,512

1.0

2,805

Maj Invest Equity 4{B}

2,699

0.8

2,262

HarbourVest International Private Equity VI{B}

2,389

0.7

2,796

Mesirow Financial Private Equity IV{B}

1,126

0.3

1,451

Maj Invest Equity 5{B}

1,079

0.3

828

HarbourVest VIII Buyout Fund{B}

374

0.1

529

Mesirow Financial Private Equity III{B}

322

0.1

371

Dover Street VII{B}

245

0.1

252

HarbourVest VIII Venture Fund{B}

145

-

177

HarbourVest International Private Equity V{B}

23

-

44

Total Private Equity

18,788

5.3


Infrastructure




SL Capital Infrastructure II{AB}

12,884

3.5

20,264

Aberdeen Global Infrastructure Partners II (USD){AB}

9,065

2.5

6,899

BlackRock Renewable Income - UK{B}

8,300

2.3

7,809

Andean Social Infrastructure Fund I{AB}

5,375

1.5

1,629

Aberdeen Global Infrastructure Partners II (AUD){AB}

4,941

1.4

4,785

Pan European Infrastructure Fund{B}

3,787

1.1

-

Total Infrastructure

44,352

12.3


Real Estate




Aberdeen Property Secondaries Partners II{AB}

12,543

3.5

13,425

Aberdeen European Residential Opportunities Fund{AB}

11,740

3.3

11,248

Cheyne Social Property Impact Fund{B}

6,171

1.7

6,073

Total Real Estate

30,454

8.5


Natural Resources




Agriculture Capital Management Fund II{B}

3,677

1.0

3,636

Total Natural Resources

3,677

1.0


Other




Aberdeen Standard Global Private Markets Fund{AB}

14,963

4.1

-

Burford Opportunity Fund{B}

11,583

3.2

14,092

Healthcare Royalty Partners IV{B}

3,403

0.9

940

Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPI{B}

1,852

0.5

3,405

Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI{B}

1,190

0.3

4,396

Blue Capital Alternative Income{B}

133

-

280

Total Other

33,124

9.0


Total Private Markets

130,395

36.1


{A} Denotes Standard Life Aberdeen managed products




{B} Unlisted holdings




 

 

INVESTMENT PORTFOLIO - EQUITIES




As at 31 March 2021





Valuation

Valuation

Valuation


At 31 March

2021

At 31 March

2021

At 30 September


2020

Company

£'000

%

£'000

UK Equities




ASI UK Mid-Cap Equity{A}

9,342

2.6

-





Core Growth Sustainable Equity




Apple

1,031

0.3

-

Microsoft

822

0.2

-

Amazon.Com

574

0.2

-

Alphabet

404

0.1

-

Facebook

329

0.1

-

Tesla

248

0.1

-

JPMorgan Chase

248

0.1

-

Johnson & Johnson

240

0.1

-

Tencent

222

-

-

Samsung Electronics

219

-

-

Top ten holdings

4,337

1.2


Other holdings

22,413

6.2


Total Core Growth Sustainable Equity sleeve

26,750

7.4


European Green Infrastructure




Schneider Electric

560

0.2

-

Enel

452

0.1

-

RWE

438

0.1

-

Iberdrola

392

0.1

-

Vestas Wind Systems

390

0.1

-

Alstom

382

0.1

-

Orsted

362

0.1

-

Prologis

338

0.1

-

Siemens Energy

332

0.1

-

Infineon Technologies

320

0.1

-

Top ten holdings

3,966

1.1


Other holdings

1,124

0.3

-

Total European Green Infrastructure sleeve

5,090

1.4


Total Equities

41,182

11.4


{A} Denotes Standard Life Aberdeen managed products




 

 

INVESTMENT PORTFOLIO - FIXED INCOME & CREDIT





As at 31 March 2021




Valuation

Valuation


At 31 March

2021

At 31 March

2021


Company/Fund

£'000

%

£'000

Structured Credit




TwentyFour Asset Backed Opportunities Fund

33,231

9.2

Neuberger Berman CLO Income Fund

15,185

4.2

Aberdeen Standard Alpha - Global Loans Fund{A}

10,019

2.8

Blackstone/GSO Loan Financing

7,266

2.0

Fair Oaks Income Fund

1,839

0.5

Marble Point Loan Financing

1,695

0.5

1,918

Total Structured Credit

69,235

19.2


Emerging Market Debt




Aberdeen Standard SICAV I - Frontier Markets Bond Fund{A}

5,689

1.6

Country



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

2,075

0.6

Mexico (United Mexican States) 6.5% 09/06/22

2,045

0.6

Russian Federation 6.9% 23/05/29

1,847

0.5

South Africa (Rep of) 8% 31/01/30

1,328

0.4

Indonesia (Rep of) 8.125% 15/05/24

1,266

0.3

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

1,177

0.3

Brazil (Fed Rep of) 10% 01/01/25

1,111

0.3

Mexico Bonos Desarr Fix Rt 8.5% 18/11/38

1,058

0.3

Indonesia (Rep of) 7% 15/05/22

1,011

0.3

Poland (Rep of) 2.5% 25/04/24

1,002

0.3

Top ten holdings

13,920

3.9

Other holdings

19,401

5.3


Total Emerging Market Debt

39,010

10.8


Total Fixed Income & Credit

108,245

30.0


{A} Denotes Standard Life Aberdeen managed products

 



 

 

INVESTMENT PORTFOLIO - NET ASSETS SUMMARY









As at 31 March 2021






Valuation

Net assets

Valuation

Net assets


At 31 March

At 31 March

At 30 September

At 30 September


2021

2021

2020

2020


£'000

%

£'000

%

Total investments

361,237

100.6

428,859

111.1

Cash and cash equivalents

10,619

3.0

18,095

4.7

Forward contracts

(104)

-

(3,999)

(1.0)

6.25% Bonds 2031

(15,650)

(4.4)

(59,540)

(15.5)

Other net assets

2,974

0.8

2,815

0.7

Net assets

359,076

100.0

386,230

100.0

 

 

FINANCIAL STATEMENTS

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

 



Six months ended



 31 March 2021



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Losses on investments


-

(1,761)

(1,761)

Foreign exchange gains


-

9,892

9,892

Income

2

10,235

-

10,235

Investment management fee

3

(264)

(395)

(659)

Administrative expenses


(445)

(9)

(454)

Net return/(loss) before finance costs and taxation


9,526

7,727

17,253






Finance costs


(352)

(529)

(881)

Net return/(loss) before taxation


9,174

7,198

16,372






Taxation

4

(420)

445

25

Return/(loss) attributable to equity shareholders


8,754

7,643

16,397






Return/(loss) per share (pence)

5

2.79

2.44

5.23






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

The accompanying notes are an integral part of these condensed financial statements.

 

 

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

 



Six months ended



 31 March 2020



Revenue

Capital

Total


Notes

£'000

£'000

£'000

Losses on investments


-

(55,306)

(55,306)

Foreign exchange gains


-

10,187

10,187

Income

2

9,460

-

9,460

Investment management fee

3

(281)

(421)

(702)

Administrative expenses


(471)

(6)

(477)

Net return/(loss) before finance costs and taxation


8,708

(45,546)

(36,838)






Finance costs


(758)

(1,137)

(1,895)

Net return/(loss) before taxation


7,950

(46,683)

(38,733)






Taxation

4

(57)

(359)

(416)

Return/(loss) attributable to equity shareholders


7,893

(47,042)

(39,149)






Return/(loss) per share (pence)

5

2.46

(14.65)

(12.19)






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

The accompanying notes are an integral part of these condensed financial statements.

 

 

CONDENSED STATEMENT OF FINANCIAL POSITION 

 



As at

As at



31 March 2021

30 September 2020



(unaudited)

(audited)


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss


361,237

428,859

Deferred taxation asset

4

2,599

2,113



363,836

430,972





Current assets




Debtors and prepayments


4,132

2,287

Derivative financial instruments


1,711

777

Cash and short term deposits


19,545

17,413



25,388

20,477





Creditors: amounts falling due within one year




Derivative financial instruments


(1,815)

(4,776)

Other creditors


(12,683)

(903)



(14,498)

(5,679)

Net current assets


10,890

14,798

Total assets less current liabilities


374,726

445,770





Non-current liabilities




6.25% Bonds 2031

7

(15,650)

(59,540)

Net assets


359,076

386,230





Capital and reserves




Called-up share capital

9

91,352

91,352

Share premium account


116,556

116,556

Capital redemption reserve


26,629

26,629

Capital reserve


86,500

109,551

Revenue reserve


38,039

42,142

Equity shareholders' funds


359,076

386,230





Net asset value per share (pence)

10



- with Bonds at par value


115.78

121.71

- with Bonds at fair value


113.85

113.40





The accompanying notes are an integral part of these condensed financial statements.

 

 

CONDENSED STATEMENT OF CHANGES IN EQUITY

 

Six months ended 31 March 2021











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

At 30 September 2020


91,352

116,556

26,629

109,551

42,142

386,230

Ordinary shares purchased for treasury

9

-

-

-

(6,944)

-

(6,944)

Return after taxation


-

-

-

7,643

8,754

16,397

Repurchase of bonds premium

7

-

-

-

(23,750)

-

(23,750)

Dividends paid

6

-

-

-

-

(12,857)

(12,857)

At 31 March 2021


91,352

116,556

26,629

86,500

38,039

359,076

















Six months ended 31 March 2020











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total



£'000

£'000

£'000

£'000

£'000

£'000

At 30 September 2019


91,352

116,556

26,629

137,509

41,633

413,679

Ordinary shares purchased for treasury

9

-

-

-

(3,391)

-

(3,391)

(Loss)/return after taxation


-

-

-

(47,042)

7,893

(39,149)

Dividends paid

6

-

-

-

-

(12,995)

(12,995)

At 31 March 2020


91,352

116,556

26,629

87,076

36,531

358,144









The accompanying notes are an integral part of these condensed financial statements. 

 


 

CONDENSED STATEMENT OF CASH FLOWS

 


Six months ended

Six months ended


31 March 2021

31 March 2020


£'000

£'000

Operating activities



Net return/(loss) before finance costs and taxation

17,253

(36,838)

Adjustments for:



Dividend income

(8,769)

(5,883)

Fixed interest income

(1,465)

(3,574)

Interest income

(1)

(3)

Dividends received

6,457

5,010

Fixed interest income received

1,813

4,148

Interest received

1

3

Unrealised (gain)/loss on forward contracts

(3,896)

5,361

Foreign exchange losses/(gains)

266

(71)

Losses on investments

1,761

55,306

Increase in other debtors

(32)

(22)

Decrease in accruals

(188)

(24)

Corporation tax paid

(86)

(101)

Taxation withheld

(120)

(141)

Net cash flow from operating activities

12,994

23,171




Investing activities



Purchases of investments

(93,880)

(69,269)

Sales of investments and return of capital

171,765

88,477

Net cash flow from investing activities

77,885

19,208




Financing activities



Purchase of own shares to treasury

(6,944)

(3,391)

Repurchase of bond

(67,654)

-

Interest paid

(1,021)

(1,876)

Equity dividends paid (note 6)

(12,862)

(13,008)

Net cash flow used in financing activities

(88,481)

(18,275)

Increase in cash and cash equivalents

2,398

24,104




Analysis of changes in cash and cash equivalents during the period



Opening balance

17,413

7,809

Foreign exchange

(266)

71

Increase in cash and cash equivalents as above

2,398

24,104

Closing balance

19,545

31,984




The accompanying notes are an integral part of these condensed financial statements.

 

 

NOTES TO THE FINANCIAL STATEMENTS

For the period ended 31 March 2021

 

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' issued in April 2021 and with the Disclosure Transparency Rules issued by the Financial Reporting Council. Given the Company's portfolio comprises a significant proportion of "Level 1" and "Level 2" assets (listed on recognisable exchanges and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate. The condensed financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted by HMRC and that the annual continuation vote will be passed at the Company's Annual General Meeting. Additionally, a number of factors have been considered by the Directors when assessing the basis of preparation including performance of the Company against its benchmark and the Company's share price compared with its net asset value per share. Although progress has been and continues to be made in relation to these factors following implementation of the Company's revised strategy, at the present time, there remains uncertainty in relation to the outcome of the continuation vote, therefore a material uncertainty exists which may cast significant doubt about the Company's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern. Annual financial statements are prepared under Financial Reporting Standard 102.


 

The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements. There have been no new standards, amendments or interpretations effective for the first time for this interim period that require a change in accounting policies.

 


Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires Directors to exercise their judgement in the process of applying the accounting policies. The area where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the financial statements is the determination of the fair value of unlisted investments (Level 3 assets in the Fair Value Hierarchy table in note 12) and the recognition of a deferred tax asset, details of which can be found in note 4.

 

2.

Income





Six months ended

Six months ended



31 March 2021

31 March 2020



£'000

£'000


Income from investments




UK listed dividends

2,003

1,472


Overseas listed dividends

3,000

2,605


Unquoted/LP income

3,538

756


Stock dividends

228

1,050


Fixed interest income

1,465

3,574



10,234

9,457






Other income




Interest

1

3


Total income

10,235

9,460

 

3.

Investment management fee

 








Six months ended

Six months ended



31 March 2021

31 March 2020



Revenue

Capital

Total

Revenue

Capital

Total



£'000

£'000

£'000

£'000

£'000

£'000


Investment management fee

264

395

659

281

421

702










The investment management fee is levied by ASFML at the following tiered levels and allocated 60% to capital and 40% to revenue, in line with the Company's expected long-term returns:


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


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

 


At the period end, an amount of £327,000 (31 March 2020 - £219,000) was outstanding in respect of management fees due by the Company.


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

 

4.

Taxation


The taxation charge for the period represents withholding tax suffered on overseas dividend income and fixed interest income and applicable corporation tax.


The Company has a deferred tax asset of £2,599,000 as it is considered likely that accumulated unrelieved management expenses and loan relationship deficits will be extinguished in future years. In arriving at the amount recognised, the Company has taken account of current year and future levels of taxable income forecast to be generated.


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

 

5.

Return per Ordinary share





Six months ended

Six months ended



 31 March 2021

 31 March 2020



p

p


Revenue return

2.79

2.46


Capital return

2.44

(14.65)


Total return

5.23

(12.19)






The figures above are based on the following:









Six months ended

Six months ended



 31 March 2021

 31 March 2020



£'000

£'000


Revenue return

8,754

7,893


Capital return

7,643

(47,042)


Total return

16,397

(39,149)






Weighted average number of shares in issue{A}

313,377,395

321,017,437


{A} Calculated excluding shares held in treasury.



 

6.

Dividends





Six months ended

Six months ended



31 March 2021

31 March 2020



£'000

£'000


Third interim dividend for 2020 - 1.36p (2019 - 1.34p)

4,317

4,342


Fourth interim dividend for 2020 - 1.36p (2019 - 1.34p)

4,255

4,301


First interim dividend for 2021 - 1.38p (2020 - 1.36p)

4,285

4,352



12,857

12,995






On 1 September 2020, the Board declared a third interim dividend of 1.36 pence per share which was paid on 16 October 2020 to shareholders on the register on 25 September 2020. On 17 December 2020, the Board declared a fourth interim dividend of 1.36 pence per share which was paid on 22 January 2021 to shareholders on the register on 29 December 2020. On 23 February 2021, the Board declared a first interim dividend of 1.38 pence per share (2020 - 1.36p) which was paid on 31 March 2021 to shareholders on the register on 5 March 2021.


Subsequent to the period end, the Board declared a second interim dividend of 1.38p per share (2020 - 1.36p), which will be paid on 15 July 2021 to shareholders on the register as at 18 June 2021. The total cost of this dividend, based on 309,772,738 as the number of shares in issue, excluding treasury shares, as at the date of this Report, will be £4,275,000 (2020 - £4,317,000).

 

7.

Non-current liabilities - 6.25% Bonds 2031





Six months ended

Year ended



31 March 2021

30 September 2020



£'000

£'000


Balance at beginning of period

59,540

59,503


Amortisation of discount and issue expenses

14

37


Repurchase of bonds

(43,904)


Balance at end of period

15,650

59,540






The Company has in issue £16,196,000 Bonds 2031 which were issued at 99.343%. During the period, the Company repurchased £43,904,000 bonds at a cost of £67,654,000. The bonds have been accounted for in accordance with accounting standards, which require any discount or issue costs to be amortised over the life of the bonds. The bonds are secured by a floating charge over all of the assets of the Company with interest paid in March and September each year.


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


The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 31 March 2021 of 134.44p (30 September 2020 - 143.21p) per bond was £21,640,000 (30 September 2020 - £85,925,000).

 

8.

Analysis of changes in net debt

 







At

Currency


Non-cash

At



30 September 2020

differences

Cash flows

movements

31 March 2021



£000

£000

£000

£000

£000


Cash and cash equivalents

17,413

(266)

2,398

-

19,545


Forward contracts

(3,999)

3,895

-

-

(104)


Debt due after one year

(59,540)

-

43,904

(14)

(15,650)


Total

(46,126)

3,629

46,302

(14)

3,791

















At

Currency


Non-cash

At



30 September 2019

differences

Cash flows

movements

31 March 2020



£000

£000

£000

£000

£000


Cash and cash equivalents

7,809

16,004

8,171

-

31,984


Forward contracts

3,195

(5,361)

-

-

(2,166)


Debt due after one year

(59,503)

-

-

(19)

(59,522)


Total

(48,499)

10,643

8,171

(19)

(29,704)

 

9.

Called-up share capital. During the period the Company purchased 7,192,500 Ordinary shares to be held in treasury (year ended 30 September 2020 - 5,651,467 Ordinary shares purchased to be held in treasury) at a cost of £6,944,000 (year ended 30 September 2020 - £5,701,000) including expenses.


 

On 31 March 2021, the Company cancelled 27,659,068 Ordinary shares from treasury.


 

At the end of the period there were 310,137,738 (30 September 2020 - 317,330,238) Ordinary shares in issue and 27,614,068 (30 September 2020 - 48,080,636) shares held in treasury.

 

10.

Net asset value per share





As at

As at



31 March 2021

30 September 2020


Debt at par




Net asset value attributable (£'000)

359,076

386,230


Number of Ordinary shares in issue excluding treasury

310,137,738

317,330,238


Net asset value per share (p)

115.78

121.71






Debt at fair value

£'000

£'000


Net asset value attributable

359,076

386,230


Add: Amortised cost of 6.25% Bonds 2031

15,650

59,540


Less: Market value of 6.25% Bonds 2031

(21,640)

(85,925)



353,086

359,845






Number of Ordinary shares in issue excluding treasury

310,137,738

317,330,238


Net asset value per share (p)

113.85

113.40

 

 

11.

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







Six months ended

Six months ended



31 March 2021

31 March 2020



£'000

£'000


Purchases

59

149


Sales

30

31



89

180

 

12.

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


Level 1 - Quoted prices in active markets for identical instruments. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The Company does not adjust the quoted price for these instruments.


Level 2 - Valuation techniques using observable inputs. This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.


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


Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation.


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


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


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


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







Level 1

Level 2

Level 3

Total


As at 31 March 2021

£'000

£'000

£'000

£'000







124,055

57,758

130,395

312,208


-

39,010

-

39,010


-

10,019

-

10,019


-

1,711

-

1,711


-

(1,815)

-

(1,815)


Net fair value

124,055

106,683

130,395

361,133







Level 1

Level 2

Level 3

Total


As at 30 September 2020

£'000

£'000

£'000

£'000







109,124

125,953

117,208

352,285


-

64,760

-

64,760


1,467

10,347

-

11,814


-

777

-

777


-

(4,776)

-

(4,776)


Net fair value

110,591

197,061

117,208

424,860









 As at

 As at




 31 March 2021

 30 September 2020


Level 3 Financial assets at fair value through profit or loss



£'000

£'000




117,208

108,238




29,404

25,895




(13,470)

(15,886)


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






1,369

(10,142)




(4,116)

9,103


Closing balance



130,395

117,208







The Company's holdings in unlisted investments are classified as Level 3. Unquoted investments, including those in Limited Partnerships ("LPs") are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines.


 

The Company's investments in LPs are subject to the terms and conditions of the respective investee's offering documentation. The investments in LPs are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or General Partner of the LPs and adjusted by the Directors in consultation with the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses including carried interest amounts of the investees and the underlying investments held by each LP are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of LPs reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company.

 

13.

Related party disclosures



Transactions with the Manager. The investment management fee is levied by ASFML at the following tiered levels, payable monthly in arrears: 


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


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


During the period, the Manager charged the Company £100,000 (2020 - £100,000) in respect of promotional activities carried out on the Company's behalf. 


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


The table below details all investments held at 31 March 2021 that were managed by the Group.






31 March 2021



£'000


Aberdeen Standard Global Private Markets Fund{B}

14,963


SL Capital Infrastructure II{B}

12,884


Aberdeen Property Secondaries Partners II{C}

12,543


Aberdeen European Residential Opportunities Fund{B}

11,740


Aberdeen Standard Alpha - Global Loans Fund{A}

10,019


ASI UK Mid-Cap Equity{A}

9,342


Aberdeen Global Infrastructure Partners II (USD){D}

9,065


Aberdeen Standard SICAV I - Frontier Markets Bond Fund{C}

5,689


Andean Social Infrastructure Fund I{B}

5,375


Aberdeen Global Infrastructure Partners II (AUD){D}

4,941


Aberdeen Standard Secondary Opportunities Fund IV{C}

3,512



100,073


{A} The Company is invested in a share class which is not subject to a management charge from the Group. 


{B} The value of this holding is removed from the management fee calculation to ensure that no double counting occurs.


{C} An amount equivalent to the management fee received by the Manager on the underlying is offset against the management fee payable by the Company to ensure that no double counting occurs.


{D} The invested capital commitment is removed from the management fee calculation to ensure that no double counting occurs.

 

14.

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

 

15.

Half-Yearly Report. The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 September 2020 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The interim accounts have been prepared using the same accounting policies as the preceding annual accounts.

 


PricewaterhouseCoopers LLP has reviewed the financial information for the six months ended 31 March 2021 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.



16.

This Half-Yearly Report was approved by the Board and authorised for issue on 9 June 2021.

 

 

ALTERNATIVE PERFORMANCE MEASURES





Alternative Performance Measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.

 

Total return. NAV and share price total returns show how the NAV and share price have performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves reinvesting the net dividend in the NAV of the Company on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.

 

The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 31 March 2021 and 31 March 2020 and total returns.







Dividend

NAV

NAV

Share

2021

rate

(debt at par)

(debt at fair value)

price

30 September 2020

N/A

121.71p

113.40p

91.50p

24 December 2020

1.36p

116.25p

113.95p

99.10p

4 March 2021

1.38p

114.52p

112.52p

92.60p

31 March 2021

N/A

115.78p

113.85p

95.00p

Total return


-2.6%

+2.8%

+6.8%







Dividend

NAV

NAV

Share

2020

rate

(debt at par)

(debt at fair value)

price

30 September 2019

N/A

128.08p

119.90p

108.00p

24 December 2019

1.34p

127.09p

119.69p

111.50p

5 March 2020

1.36p

125.17p

116.81p

108.00p

31 March 2020

N/A

111.98p

103.72p

90.20p

Total return


-10.7%

-11.5%

-14.4%






Share price discount to net asset value per Ordinary share - debt at fair value. The discount is the amount by which the Ordinary share price of 95.00p (30 September 2020 - 91.50p) is lower than the net asset value per Ordinary share - debt at fair value of 113.85p (30 September 2020 - 113.40p), expressed as a percentage of the net asset value - debt at fair value. The Board considers this to be the most appropriate measure of the Company's discount.






Dividend yield. The annualised dividend per Ordinary share divided by the share price, expressed as a percentage.









As at

As at




31 March 2021

30 September 2020

Annualised dividend{A}



5.48p

5.44p

Share price



95.00p

91.50p

Dividend yield



5.8%

5.9%

{A} 31 March 2021 includes total dividends declared in respect of the period to 31 March 2021 of 2.76p plus the third and fourth interim dividends declared in respect of the year ended 30 September 2020 totalling 2.72p. 30 September 2020 includes total dividends declared in respect of the year ended 30 September 2020.






Net gearing - debt at fair value. Net gearing with debt at fair value measures the total borrowings of £21,640,000 (30 September 2020 - £59,540,000) less cash and cash equivalents of £10,619,000 (30 September 2020 - £18,095,000) divided by shareholders' funds of £359,076,000 (30 September 2020 - £386,230,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to brokers at the period end of £8,926,000 (30 September 2020 - due from brokers - £682,000), in addition to cash and short term deposits per the Statement of Financial Position of £19,545,000 (30 September 2020 - £17,413,000).

 

Ongoing charges. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 31 March 2021 is based on forecast ongoing charges for the year ending 30 September 2021.









31 March 2021

30 September 2020




£

£

Investment management fees



1,288,000

1,339,000

Administrative expenses



857,000

837,000

Less: non-recurring charges{A}



(54,000)

(10,000)

Ongoing charges



2,091,000

2,166,000






Average net assets with debt at fair value



354,706,000

362,978,000






Ongoing charges ratio (excluding look-through costs)



0.59%

0.60%

Look-through costs{B}



0.20%

0.24%

Ongoing charges ratio (including look-through costs)



0.79%

0.84%

{A} Professional services considered unlikely to recur.

{B} Costs associated with holdings in collective investment schemes as defined by the Committee of European Securities Regulators' guidelines on the methodology for the calculation of the ongoing charges figure, issued on 1 July 2010.






The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes financing and transaction costs. This can be found within the literature library section of the Company's website: aberdeendiversified.co.uk.

 

INDEPENDENT AUDITOR'S REVIEW

 

Report on the interim financial statements

 

Our conclusion

We have reviewed Aberdeen Diversified Income and Growth Trust plc's interim financial statements in the Half Yearly Report of Aberdeen Diversified Income and Growth Trust plc for the 6 month period ended 31 March 2021 (the "period").

 

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with FRS 104 "Interim Financial Reporting" issued by the Financial Reporting Council and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

 

·   the Condensed Statement of Financial Position as at 31 March 2021;

·   the Condensed Statement of Comprehensive Income for the period then ended;

·   the Condensed Statement of Cash Flows for the period then ended;

·   the Condensed Statement of Changes in Equity for the period then ended; and

·   the explanatory notes to the interim financial statements.

 

The interim financial statements included in the Half Yearly Report have been prepared in accordance with FRS 104 "Interim Financial Reporting" issued by the Financial Reporting Council and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Emphasis of Matter - Going concern

Without modifying our opinion on the interim financial statements, we have considered the adequacy of the disclosure made in Note 1 to the condensed financial statements concerning the Company's ability to continue as a going concern. The matters explained in more detail within Note 1 indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

 

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Company is applicable law and United Kingdom Accounting Standards (UK Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and the Republic of Ireland".

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

The Half Yearly Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Yearly Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. Our responsibility is to express a conclusion on the interim financial statements in the Half Yearly Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.

 

We have read the other information contained in the Half Yearly Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

PricewaterhouseCoopers LLP
Chartered Accountants

Edinburgh

 

9 June 2021

 

 

END

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