MURRAY INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

 

 

FINANCIAL HIGHLIGHTS

 

Net asset value total return	+16.7%		Share price total return	+23.5%
2016	+5.9%		2016	+0.1%
Benchmark total return	+18.1%		Ongoing charges	0.72%
2016	+2.2%		2016	0.76%
Earnings per share (revenue)	34.9p		Dividend per share {A}	32.75p
2016	32.0p		2016	32.25p
Discount to net asset value	-7.6%
2016	-12.3%
{A} Final dividend of 11.75p per Ordinary share is subject to shareholder approval at the Annual General Meeting.

 

 

FINANCIAL CALENDAR

 

28 September 2017	Ex-dividend date of proposed final dividend for year ended 30 June 2017
29 September 2017	Record date of proposed final dividend for year ended 30 June 2017
6 November 2017	Annual General Meeting, Glasgow (12.30pm)
9 November 2017	Payment date of proposed final dividend for year ended 30 June 2017
15 December 2017, 2 March and 1 June 2018	Record dates of interim dividends for year to 30 June 2018
12 January, 30 March and 29 June 2018	Payment dates of interim dividends for year to 30 June 2018
February 2018	Half-Yearly Report published for 6 months to 31 December 2017
September 2018	Annual Report published for year to 30 June 2018

 

 

CHAIRMAN'S STATEMENT

 

Highlights

 

- Shareholder Total Return +23.5%

- Net Asset Value Total Return +16.7%

- FTSE All-Share Index Total Return +18.1%

- Total Dividends per share increased to 32.75p (the 44^th year of consecutive increase)

 

Performance

The year under review was a good one in absolute return terms with a Net Asset Value Total Return of 16.7% after two dull previous years. This was disappointing relative to the FTSE All-Share Index, but it was a difficult year for high yield investing. The discount to NAV narrowed such that our Share Price Total Return was 23.5%.

 

In my Statement last year I noted that the coming year had a lot of hard-to-predict political change afoot in the West. If anything, that proved an understatement, with Trump and Macron overcoming their political establishments to become heads of state and a surprise general election (and result) in the UK for good measure. Perhaps it is foolhardy to suggest that at least in Germany the prospect of political continuity in the form of Merkel's re-election has actually improved of late.

 

The main economic impact of all this politics was probably the hope of Trump reflation, encouraged by his policies to stimulate economic activity, especially construction, and to favour business through cuts in taxes and reduced regulation. Equity markets and the US dollar rose on these hopes, but then stalled as the President's inability to master the legislative machinery of government, even with Republican control of both Houses, became apparent. In the UK, the economy achieved moderate growth despite political and Brexit uncertainty, as lower Sterling helped exporters and foreign earners and as British consumers continued to outspend their incomes resulting in the lowest savings ratio for 50 years. Perhaps the most promising development was the emergence of some economic momentum at last in Europe after a decade of struggle, also strengthening the Euro.

 

Your investment manager Charles Luke reports fully, below, on the portfolio. In recent years, there have been two significant changes of emphasis in the portfolio, both achieved incrementally. The first was the build-up of overseas-listed holdings. The principal reason behind this was to improve the industrial and geographical diversity of the capital and income, which proved to be a dramatic benefit in the first half of this financial year as Sterling fell sharply. The second, more recent, change has been the increase in mid and small capitalisation company holdings. Four years ago these accounted for less than 10% of the portfolio but at this financial year end were over 24%. In the latest year such additions have included Assura, Big Yellow, Croda, Manx Telecom and Workspace. Often the initial yields of these companies are lower than the existing portfolio average, but they typically have better prospects for growth than higher yielding mega caps which can be constrained by the overall economy and by high dividend payout ratios. These two significant changes illustrate the evolving routes to find the right balance that needs to be achieved between the Company's three investment objectives - high yield, growing income and capital growth. And on the narrower issue of dividends, there is a continuing trade-off between high yield, dividend growth and dividend security (possibility of a dividend cut). It is pleasing to note that in the latest year only one of our 49 holdings (Pearson) cut its dividend.

 

Dividend

The Board is recommending a final dividend of 11.75p, which makes a total for the year of 32.75p, an increase of 1.6%. If approved, this will constitute 44 years of consecutive dividend increases.

 

As expected, the income revenue in the year increased. Most of this was from growth of 7.4% in dividends received from our portfolio, benefitting from weaker Sterling and from three special dividends. The revenue account also benefitted from lower borrowing costs in currencies other than Sterling and from more income from option-writing (though this remained modest at around 7% of total revenue).

 

Given the uncertainties for many of these income gains - especially currency, where Sterling is now higher than the rate at which many of our foreign dividends were converted last year - the Board has considered it prudent to add a little to revenue reserves. These are now equivalent to approximately one year's dividend.

 

Share Capital

The Company bought back into Treasury 170,000 shares. The discount of our share price to its NAV narrowed noticeably compared to that at our previous year end which was in the immediate aftermath of the EU Referendum result.

 

Borrowings

During most of the year under review the Company's borrowings were in a mix of currencies broadly similar to our overseas holdings. At present the Board is considering a range of borrowing options which may include a tranche of fixed rate, longer duration borrowing.

 

Directors

I have been a Director for twelve years including three as Chairman, and it is now time for me to retire at the coming AGM. It has been a privilege to contribute to the direction of our Company's affairs. As announced with our interim results, Neil Rogan will succeed me. He brings a keen and diligent investment brain to the role and I commend him to shareholders.

 

Merger of Investment Manager

On 20 March 2017 your Company's investment manager Aberdeen announced its intention to merge with Standard Life. After all required approvals, that merger was consummated on 14 August 2017. Although Aberdeen is well-practised at absorbing other companies, such mergers often divert management effort to internal issues away from clients and can be disruptive for employees. Throughout this process, therefore, the Board has closely monitored the likely impact on the Company and will continue to do so as merger decisions are implemented.

 

Regulation and Costs

Another European financial directive, catchily called MiFID II, and the FCA Report on the UK investment management industry are setting the regulatory agenda. One broad thrust of this is an attempt to increase transparency on fees and other charges borne by investors. I believe that as more hard evidence on this emerges, your Company will prove to be well-placed: Aberdeen has always employed a low turnover approach to managing portfolios, and has also committed not to pass on any costs for external research services. In addition, your Board has negotiated a reduction in the management fees your Company pays, to take effect from 1 January 2018, under which Aberdeen will be entitled to an annual fee, calculated on net assets, of 0.55% up to £350m, 0.45% between £350m and £450m and 0.25% over £450m. At year end net asset value levels, this would have equated to a fall in the blended fee rate from 0.51% to 0.47%.

 

Annual General Meeting

The Annual General Meeting will be held at 12.30 pm on Monday 6 November 2017 in the Strathclyde Suite, Glasgow Royal Concert Hall, 2 Sauchiehall Street, Glasgow, G2 3NY. The Notice of Annual General Meeting is included in the published Annual Report. It is the Board's intention to hold the 2018 Annual General Meeting in Glasgow.

 

Outlook

It is hard to argue that the uncertainties in the political sphere have cleared recently, and that remains a major risk for markets in the year ahead. Economic and foreign policy construction has become more erratic with considerable scope for market surprises, especially perhaps in currencies. Financially, real interest rates are still aberrantly low and history tells us that some reversion is inevitable, although the exact path and timing are unclear. Low or even negative real interest rates are important because they encourage investors to take more risk; they distort the allocation of capital and valuation of future cashflows; they enable the improvidently-financed to survive. When rates do revert, there will be casualties. If the impact of low rates has been more obvious on financial asset prices than on economic activity, it seems likely that Central Banks will have to tread very carefully to avoid unsettling markets in their first steps back from the massive monetary experiment.

 

In the UK specifically, wage growth is again not keeping up with inflation, and that provides a serious constraint on economic growth. The Bank of England has already warned about borrowing levels and trends. For many UK-listed companies, however, domestic economic conditions are not paramount. The outcome for overall company profit growth and thus for UK dividends will be crucially dependent on overseas earnings and the level of Sterling, which has already recovered a little from its lows against the US dollar. As previously, it seems a wise way to moderate these investment risks is to focus on sustainable and growing income generated from well-financed balance sheets.

 

N A Honebon

Chairman

 

12 September 2017

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Murray Income Trust PLC (the "Company") is an approved investment trust whose Ordinary shares are listed on the premium segment of the London Stock Exchange.

 

Business Model

The Company is governed by a Board of Directors (the "Board"), all of whom are independent, and has no employees. The Board is responsible for determining the Company's investment objective and investment policy. Like other investment companies, the day-to-day investment management and administration of the Company is outsourced by the Board to an investment management group, the Aberdeen Asset Management group of companies ("Aberdeen Group"), and other third party providers. The Company has appointed Aberdeen Fund Managers Limited ("AFML", the "Manager", or "AIFM") as its alternative investment fund manager, which has in turn delegated certain responsibilities, including investment management, to Aberdeen Asset Management Limited ("AAML" or the "Investment Manager"). The Company complies with the investment policy test in Section 1158 of the Corporation Tax Act 2010 which permits the Company to operate as an investment trust.

 

Investment Objective

The Company aims for a high and growing income combined with capital growth through investment in a portfolio principally of UK equities.

 

Investment Policy and Risk Diversification

In pursuit of the Company's investment objective, the Company's investment policy is to invest in the shares of companies that have potential for real earnings and dividend growth, while at the same time providing an above-average portfolio yield. The emphasis is on the management of risk and on the absolute return from the portfolio, which is achieved by ensuring an appropriate diversification of stocks and sectors, with a high proportion of assets in strong, well-known companies. The Company makes use of borrowing facilities to enhance shareholder returns when appropriate.

 

Delivering the Investment Policy

The Company maintains a diversified portfolio of the equity securities of UK and overseas companies with an emphasis on investing in quality companies with good management, strong cash flow and a sound balance sheet, and which are generating a reliable earnings stream.

 

The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value, concentrating on quality first, then price.  Top-down investment factors are secondary in the Investment Manager's portfolio construction with diversification rather than formal controls guiding stock and sector weights.

 

The Board sets investment guidelines within which the Investment Manager must operate. The portfolio typically comprises between 30 and 70 holdings (but without restricting the Company from holding a more or less concentrated portfolio from time to time).  The Company may invest up to 100% of its gross assets in UK-listed equities and other securities and is permitted to invest up to 20% of its gross assets in other overseas-listed equities and securities. The Investment Manager may invest in any market sector however the top five holdings may not exceed 40% of the total value of the portfolio and the top three sectors represented in the portfolio may not exceed 50%. The Company invests no more than 15% of its gross assets in other listed investment companies (including investment trusts).

 

The Company may use derivatives for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy. The Investment Manager is permitted to invest in options and in structured products, provided that any structured product issued in the form of a note or bond has a minimum credit rating of "A".

 

Gearing

The Board is responsible for setting the gearing policy of the Company and for the limits on gearing. The Manager is responsible for gearing within the limits set by the Board. The Board has set its gearing limit at a maximum of 25% of NAV at the time of draw down. Gearing - borrowing money - is used selectively to leverage the Company's portfolio in order to enhance returns where this is considered appropriate. Particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy. Significant changes to gearing levels are communicated to shareholders.

 

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial position, performance and prospects. The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance and solvency and identified the delegated controls it has established to manage the risks and address the uncertainties:

 

Description	Mitigating Action
Investment strategy risk The Company's investment strategy requires investment in equity stockmarkets, which may lead to loss of capital. Separately, the choice of stock selection, asset allocation or level of gearing, as part of the investment strategy adopted by the Company, may result in underperformance against the Company's benchmark index and/or its peer group.	The Board seeks to manage this risk by diversifying its investments, as set out in the investment restrictions and guidelines agreed with the Manager, and on which the Company receives regular monitoring reports from the Manager. At each Board meeting, the Directors review the investment performance with the Manager by assessing relevant management information including revenue forecasts, absolute/relative performance data, attribution analysis and liquidity/risk reports. The Board holds a separate, annual meeting devoted to investment strategy, the most recent in respect of the year under review being held in February 2017.
Income and dividend risk There is a risk that the Company fails to generate sufficient income from its investment portfolio to meet its operational expenses which results in it drawing upon, rather than replenishing, its revenue reserves. This might hamper the Board's capacity to maintain or increase dividends to shareholders.	The Board monitors this risk through the review of income forecasts, provided by the Manager, at each Board meeting.
Discount risk Investment trust shares tend to trade at discounts to their underlying NAVs, although they can also trade at premia. Discounts and premia can fluctuate considerably leading to more volatile returns for shareholders.	The Board monitors the discount at which the Company's shares trade.   In order to seek to manage the impact of such discount fluctuations, where the shares are trading at a significant discount, the Company operates a programme of buying back shares into treasury. If the shares trade at a premium, the Company has the authority to issue new shares or sell shares from treasury. Whilst these measures seek to reduce volatility, it cannot be guaranteed that they will do so.
Foreign currency risk A proportion of the Company's investment portfolio is invested in overseas securities and the value of the Company's investments and the income derived from them can, therefore, be affected by movements in foreign exchange rates. In addition, the earnings of the Company's other investments may also be affected by currency movements which, indirectly, could have an impact on the Company's performance.	During the year, the Company did not hedge its foreign currency exposure. The Board keeps under review the currency impacts on both capital and income which resulted in the decision, in September 2016, to switch the Company's Sterling bank loan to partly match the currencies of the overseas-listed investments in the underlying portfolio.
Operational risk In common with most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties, including the Manager in particular, to whom responsibility for the management of the Company has been delegated under a management agreement (the "Agreement") (further details of which are set out in the Directors' Report.	The terms of the Agreement cover the necessary duties and responsibilities expected of the Manager. The Board reviews the overall performance of the Manager on a regular basis and their compliance with the Agreement formally on an annual basis.   Contracts with other third party providers, including share registrar and depositary services, are entered into after appropriate due diligence. Thereafter, each contract, and the performance of the provider, is subject to formal annual review by the Audit Committee. The security and custody of the Company's assets is the responsibility of BNP Paribas Securities Services, London Branch as depositary. The effectiveness of the internal controls at the depositary, incorporating its custodian obligations, is subject to regular reporting to the Audit Committee and the depositary presents at least annually on the Company's compliance with AIFMD. The Manager also separately monitors the depositary and provides reports to the Audit Committee.   Global assurance reports are obtained from certain third parties, including from the registrar, which are reviewed by the Audit Committee. These reports include an independent assessment of the effectiveness of risks and internal controls at the service-provider incorporating their planning for business continuity and disaster recovery scenarios, together with their policies and procedures designed to address the risks posed to the Company's operations by cyber-crime. Further details of the internal controls which are in place are set out in the Audit Committee's Report.
Regulatory risk The Company operates in a complex regulatory environment and faces a number of related risks, for example, a breach of Section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains tax on the sale of its investments. Serious breach of other regulations, such as the UKLA Listing Rules, the Companies Act, Accounting Standards or the EU Alternative Investment Fund Managers Directive, could lead to suspension from the London Stock Exchange and reputational damage.	The Board receives compliance reports from the Manager to monitor compliance with regulations.

 

An explanation of other risks relating to the Company's investment activities, specifically market price, interest rate, liquidity and credit risk, and a note of how these risks are managed, is contained in note 16 to the financial statements.

 

The principal risks associated with an investment in the Company's shares are also published monthly in the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the AIFM, both of which are available from the Company's website: murray-income.co.uk.

 

Viability Statement

The Company does not have a fixed period strategic plan but the Board does formally consider risks and strategy on at least an annual basis. The Board regards the Company, with no fixed life, as a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years (the "Review period") is an appropriate timeframe over which to report. The Board considers that this Review period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.

 

In assessing the viability of the Company over the review period the Directors have focussed upon the following factors:

 

-      the Company's principal risks and uncertainties as set out in the Strategic Report;

-      the relevance of the Company's investment objective in the current environment;

-      the demand for the Company's shares indicated by the historic level of premium and/or discount;

-      the level of income generated by the Company's portfolio as compared to its expenses;

-      the overall liquidity of the Company's investment portfolio; and

-      the renewal of the Company's £80 million loan facility in September 2017.

 

In addition, the Board has considered that significant economic or stock market volatility, or changes in regulatory uncertainty, could have an impact on its assessment of the Company's prospects and viability in the future.

 

Accordingly, taking into account the Company's current position and the potential impact of its uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report.

 

Performance, Outlook and Key Performance Indicators

A review of the Company's activities and performance during the year ended 30 June 2017, including future developments, is set out in the Chairman's Statement and in the Investment Manager's Report. These cover market background, investment activity, portfolio strategy, dividend policy, gearing and investment outlook.  A comprehensive analysis of the portfolio is provided in the published Annual Report while the full portfolio of investments is published monthly on the Company's website. The future strategic direction and development of the Company is regularly discussed as part of Board meeting agendas. The Board also considers the Investment Manager's promotional strategy for the Company, including effective communications with shareholders. At each Board meeting, the Directors consider a number of Key Performance Indicators ("KPIs") to assess the Company's success in achieving its objectives, and these are described below:

 

KPI	Description
NAV (total return) relative to the Company's benchmark	The Board considers the Company's NAV (total return), relative to the FTSE All-Share Index, to be the best indicator of performance over different time periods.  A graph showing NAV total return performance against the FTSE All-Share Index over the past five years is shown in the published Annual Report.
Share price (total return)	The figures for share price (total return) for this year and for the past three and five years, as well as for the NAV (total return) per share, are shown in the published Annual Report alongside a graph showing share price total return performance against the FTSE All-Share Index over the past 5 years. The Board also monitors share price performance relative to open-ended and closed-ended competitor products, taking account of differing investment objectives and policies pursued by those products.
Discount/premium to NAV	The discount/premium at which the Company's share price trades relative to the NAV per share is closely monitored by the Board. A graph showing the discount/premium over the last five years is shown in the published Annual Report.
Earnings and dividends per share	The Board aims to meet the 'high and growing' element of the Company's investment objective by developing revenue reserves sufficient to support the payment of a growing dividend; figures may be found in Results, in respect of earnings and dividends per share, together with the level of revenue reserves, for the current year and previous year
Ongoing charges	The Board regularly monitors the Company's operating costs and their composition with a view to limiting increases wherever possible. Ongoing charges for this year and the previous year are disclosed in Results.

 

Environmental, Social and Human Rights Issues

The Company has no employees, as Aberdeen Fund Managers Limited has been appointed Manager, and there are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Directors' Report. Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement.

 

Board Diversity

The Board recognises the importance of having a range of skilled and experienced individuals with the right knowledge in order to allow the Board to fulfil its obligations and notes that gender is only one aspect of diversity. At 30 June 2017, there were five male Directors and one female Director.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Duration

The Company does not have a fixed life.

 

N A Honebon

Chairman

 

12 September 2017

 

 

STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT

 

Background

The UK equity market finished the year to the end of June 2017 significantly higher reaching a new peak (in capital terms), in contrast to the lacklustre performance of the prior year.  The FTSE All-Share Index increased by 18.1% on a total return basis (that is with dividends reinvested) with the gains spread relatively evenly over the year.  Political news took centre stage during the period with the market successfully navigating the surprise results from the US Presidential election and the UK general election, focusing on the more robust than expected performance of the UK economy together with the reflationary and potentially business-friendly aspirations of the new US President. These factors were helped by a gentle recovery in the global macroeconomic environment.

 

The domestic economy proved to be much more resilient than expected for the first half of the Company's financial year although signs of weakness began to emerge in the second half. UK GDP increased by 1.7% over the year (compared to 2.2% in the prior year) helped by the continued expansion of the service sector.  In addition, activity was buoyed by the Monetary Policy Committee's decision following the European Union referendum result to reduce the base rate by 25 basis points to 0.25% where it has remained for the rest of the period. However, growth during 2017 so far has been markedly lower with GDP expanding by just 0.2% in the first quarter and 0.3% in the second quarter resulting from a weaker performance from the construction and manufacturing sectors. Although having traded lower for most of the period, Sterling ended the year virtually flat against the dollar but depreciated further against the euro.  As a sign of inflation picking up, the Consumer Price Index measure of inflation rose from 0.5% at the start of the period to 2.6% by the end driven by the weakness of Sterling and increased energy costs. The Bank of England currently expects GDP growth for calendar 2018 to be 1.6% but the performance of the domestic economy remains dependent on the resilience of consumer spending. This is a potential concern as higher inflation weighs down on real income at a time when consumer borrowing is significantly elevated and the savings ratio low. Although on the other hand, given the outcome of the general election, the possibility of more growth-friendly fiscal policies and a 'softer' Brexit represent potential upsides.

 

The international economic picture has generally improved reflected in the strength of the Global Composite Purchasing Managers Index which rose over the period. Although GDP growth in the United States has been volatile and the policies of the new President still remain unclear, the strength of the labour market and a brighter economic outlook prompted the Federal Reserve to raise interest rates by 75 basis points as it seeks to normalise policy.  In the Eurozone, helped by the actions of the European Central Bank to boost domestic demand and investment coupled with a weaker currency, economic growth has picked up, albeit from low levels, with the Eurozone economy expanding by 2.1% (the fastest growth since 2011) during the Company's financial year. In addition, the risks around increased political 'populism' failed to come to fruition boosting investor sentiment. Emerging markets benefited from an upturn in global trade during the period. In particular, strong Chinese demand has helped the country's trading partners and commodity exporters.  During the period, Chinese GDP growth increased by 6.9% aided by an increase in industrial output and retail sales.

 

Performance

The Company generated a positive net asset value per share total return of 16.7% in the year to 30 June 2017, compared to a rise in the FTSE All-Share Index of 18.1%.  Although disappointing that the company was not able to maintain its strong annual track record of outperforming the index on a Net Asset Value basis, the absolute increase represents a very attractive level of return.  The first half of the year proved to be a challenging period for the performance of the portfolio. The portfolio is mostly populated by holdings that combine attractive dividend yields and a relatively high degree of income security through diversified geographical earnings streams. Particularly in the first six months of the period, these characteristics did not position the portfolio well in relative terms. The reasons for this are twofold: firstly, the share prices of those companies reliant on the strength of the UK economy rebounded from an oversold position in the immediate aftermath of the European Union referendum result and secondly, companies with defensive growth characteristics underperformed and more cyclically exposed companies outperformed as interest rate and inflation expectations rose. Furthermore, our focus on higher quality, less market-sensitive companies will generally lead to underperformance in a strongly rising market, as occurred over the year.

 

However, on a total return basis, the Company's share price rose by 23.5%, outperforming the FTSE All-Share Index by 5.4%, which reflected a narrowing of the discount to Net Asset Value at which the shares traded compared to the previous year end.  During the period, the Company bought back 170,000 shares to be held in Treasury.

 

On a gross assets basis, the equity portfolio underperformed the benchmark by 1.0%.  Gearing increased returns by 1.4%.  The company maintained the level of debt at a steady rate of around £57m for most of the period. However, at the beginning of September 2016, debt was drawn down in a mixture of US dollars, euros, Swedish krona and Swiss francs, rather than Sterling, broadly matching the mix of non-UK-listed portfolio holdings.  Towards the close of the financial year, £10m of debt was repaid given the view that valuations were starting to look full.

 

Performance Attribution for the year ended 30 June 2017

 

		2017
		%
Net Asset Value total return for year per Ordinary share		16.7
FTSE All Share Index total return		18.1
Relative return		-1.4
Relative return		%
Stock selection (equities)
	Oil & Gas	0.2
	Basic Materials	0.3
	Industrials	-0.4
	Consumer Goods	-0.3
	Health Care	0.6
	Consumer Services	-1.4
	Telecommunications	0.3
	Utilities	-0.1
	Technology	-
	Financials	0.7
Total stock selection (equities)		-0.1
Asset allocation (equities)
	Oil & Gas	0.3
	Basic Materials	-0.5
	Industrials	-0.1
	Consumer Goods	-0.1
	Health Care	-0.2
	Consumer Services	0.5
	Telecommunications	-0.7
	Utilities	0.1
	Technology	-
	Financials	-0.2
Total asset allocation (equities)		-0.9
Cash & Options		0.1
Gearing		1.4
Administrative expenses		-0.2
Management fees		-0.6
Tax charge		-0.1
Residual effect		-1.0
Total		-1.4
Sources : Aberdeen Asset Management, Mellon & Lipper
Notes: Stock Selection - measures the effect of equity selection relative to the benchmark. Asset Allocation - measures the impact of over or underweighting each industry basket in the equity portfolio, relative to the benchmark weights. Cash & Options effect - measures the impact on relative returns of the two asset categories. Gearing effect - measures the impact on relative returns of net borrowings. Management fees & other expenses - these reduce total assets and therefore reduce performance. Recovered VAT is netted-off against the fees and expenses. Residual effect - this arises as a result of the different methodologies of calculating performance between the NAV total return, the benchmark provider Lipper and the performance attribution system. Figures in the table, including totals, may be subject to roundings.

 

Over the year, the poorest performing area of the market was the telecoms sector.  This was principally due to the disappointing performance of BT (not held in the portfolio) which suffered from accounting improprieties in its Italian business and a worsening in the outlook for its UK public sector and international corporate markets customer base. The utilities sector also performed poorly, a function of concerns around rising bond yields and greater political interference. Conversely, the mining sector performed very strongly as commodity prices rebounded on the prospect for better global growth. The banks sector also generated significant returns as the domestically-focused banks bounced back following the falls after the European Union referendum and the more international banks benefitted from higher US interest rates and an improvement in the global economy.

 

From a size perspective, in a reversal of fortune compared to the prior year, the FTSE 100 Index underperformed the Mid 250 and Small Cap indices rising by 16.9% on a total return basis compared to 22.2% and 28.5% for the Mid 250 and Small Cap indices respectively. Performance reflected the rebound in domestically-oriented companies following the sharp falls in the aftermath of the European Union referendum result.

 

Looking specifically at the Company's portfolio, stock selection and asset allocation were both marginally negative.  Within oil & gas, the underweight exposure to oil & gas producers was beneficial. Strong stock selection in the chemicals and pharmaceutical sectors aided performance. In the broad financials sector the holdings in both the real estate and investment trust companies benefited relative performance. However, in contrast, poor stock selection in media and support services was detrimental. In addition, the underweight position coupled with weak stock selection led to underperformance in the mining sector. Finally, the overweight exposure to the tobacco sector impacted performance as the sector underperformed.

 

Turning to the individual holdings, there were a number of companies that demonstrated substantial share price increases.  The two largest banks holdings, Nordea and HSBC both performed very strongly aided by an improving economic backdrop.  Strong demand for its cloud operations helped Microsoft to perform well. XP Power's exposure to recovering capital equipment markets coupled with new design wins entering production and Sterling weakness resulted in an impressive uplift in profits. The successful integration of BBA Aviation's acquisition of Landmark led its shares to perform well. Finally, continued progress from Prudential resulted in a sharp uplift in its share price.

 

On the other hand, there were two principal disappointments.  Firstly, Capita, which performed particularly poorly in the first half of the year before partly recovering. The company reported delays in client decision-making, contract issues and a weaker than expected performance in a couple of the company's trading businesses. Changes to the management team and business structure coupled with a disposal programme to improve the balance sheet have put the company on a firmer footing. The second disappointment was Pearson which issued a profit warning in January together with a reduction in its dividend for its next financial year.  The company has suffered primarily due to weakness in its North American higher education courseware business given a mix of lower enrolments and increased textbook rentals. Although trading conditions still remain challenging for Pearson, the company has taken steps to sharpen its focus and the prize for successfully negotiating the passage to a digital education company remains substantial.

 

Our expectations for a period of enhanced corporate activity were partly realised during the year.  Surprisingly, Unilever was the recipient of an approach from Kraft Heinz albeit this did not come to fruition. Wood Group announced the proposed acquisition of Amec Foster Wheeler to diversify its services and generate cost savings. Linde and Praxair agreed to a merger to create a global industrial gases leader.  Other holdings completed or announced the sales of various parts of their businesses including Capita, Hansteen, and National Grid. Assuming that business confidence does not deteriorate, with borrowing costs relatively low and Sterling weak compared to history, it would not be surprising to see further merger and acquisition activity over the next year.

 

Portfolio Activity and Structure

Turnover was a little more brisk than usual during the period as we sought to further improve the quality of the portfolio and take advantage of a number of attractively valued companies that we had identified in the mid cap area of the market.  

 

We introduced nine new companies during the year.  Three of these were modest positions in mid cap property companies: Workspace, Assura and Big Yellow. Workspace provides flexible business premises in London to smaller companies. The shares offer the potential for strong dividend growth and a significant valuation uplift from the company's development pipeline. Assura invests in primary health care properties across the UK. The company benefits from a diversified asset base, long and inflation-linked leases and an appealing dividend yield.  Big Yellow is a self-storage company which possesses a strong brand and a robust balance sheet operating in a market with attractive dynamics. In the software sector we introduced a small holding in Aveva, which provides engineering and information management systems for process industries. Attractions of the business include significant recurring revenues, long term customer relationships, a global footprint and strong cash generation allied to a very robust balance sheet. We also purchased a new holding in Croda, the specialty chemicals company, which benefits from attractive intellectual property rights and appealing growth opportunities. The company's products tend to be the active ingredient in an end-product and although relatively small in terms of cost make up a more significant share of the value-add allowing good pricing power.  Diageo was purchased for the portfolio given its strong brands, particularly in Scotch whisky, and the longer term growth potential from its exposure to Africa and India coupled with a rise in the legal drinking age population. Efforts to improve the performance of its spirits sales in the US together with further efficiency improvements provide scope for an uplift in earnings in the short term. A modest position in Manx Telecom, the small cap incumbent telecoms operator on the Isle of Man was also purchased. The company's strategy is to focus on its core business which includes mobile, fixed line and data centres but also leverage its expertise to grow off-island revenues in its 'global solutions' division. The penultimate new holding was Essentra, which supplies packaging and specialist components, and cigarette filters. We believed that weakness in the company's share price due to integration issues with an acquisition, the non-materialisation of various contracts and uncertainty regarding the tenure of the CEO provided an opportunity to act in a contrarian manner and introduce the company based on our belief that these issues were transient. The final new entrant was Novo Nordisk, the Danish pharmaceutical company with a strong focus on diabetes. Pricing pressure in the United States had led to weakness in the share price but we believed that the valuation failed to factor in the attractive long term growth potential and very robust balance sheet.

 

Conversely, we sold six companies during the year. The first company sold was Centrica due to worries about the likelihood of the success of the company's strategy to focus on the 'connected home', the high degree of competition in the downstream supply market and potential political interference. The holding in Schneider Electric was sold following a period of healthy outperformance due to a belief that the valuation no longer reflected an attractive future return. We also sold Elementis, following a sharp recovery in the company's share price, given concerns around the acquisition of SummitReheis. The holding in Verizon Communications was sold due to our increasing nervousness around elevated competition and the company making unsustainable profits in its wireless division. Land Securities was sold from the portfolio given concerns around the unfavourable property market backdrop, particularly the increase in Central London office supply and the structural changes in the retail landscape.  Finally, GKN was sold as we believed that the company had fully rebuilt its margins and offered limited future upside.

 

We increased the exposure to a number of companies with attractive valuations including BBA Aviation, as it continues to make good progress with its acquisition of its competitor Landmark and Scandinavian Tobacco Group where the company is pursuing its efficiency drive.  In addition, weakness in the share prices of Schroders and Provident Financial at the start of the period caused by the European Union referendum result provided an opportunity to top up these two holdings. After the year end, Provident Financial issued a profit warning which led to the sale of the holding given a significant deterioration in the outlook for the company. We also added to the holding in Rotork as the share price weakened in sympathy with a lower oil price.

 

The holdings in British American Tobacco and Unilever were reduced following strong performances which had led to their weights in the portfolio becoming a little too high. Furthermore, there were reductions to the holding in National Grid due to its less attractive yield and higher valuation. We also reduced the weight in Royal Dutch Shell and added to the holding in BP to manage the stock-specific income risk by reducing the reliance on the Shell dividend.

 

In addition to the trades outlined above, a number of call options were assigned in companies that had performed strongly, including Sage, HSBC, AstraZeneca, Microsoft, Nestle, Compass and Linde, leading to a marginal reduction in the exposure to these names.  Conversely, the assignment of put options led to small increases in Capita and Inmarsat.

 

These assignments were part of our broader option writing programme which continued to provide the benefit of increasing and diversifying the income available to the Company.  The income from writing options increased in percentage terms accounting for 7.4% of total income compared to 7.1% of total income during the prior year.  We continue to feel that the option writing strategy has been of benefit to the Company by increasing the level of income generated and providing a good discipline for optimising our exposure to individual holdings.

 

As long term investors we put significant effort into engagement with the companies in the portfolio to ensure that they are run in shareholders' best interests.  Examples of the subjects of our engagement during the year have included remuneration, board structure and the relevant experience of non-executive directors, succession planning, diversity, strategy and balance sheet management, risk management, and employee relations amongst other matters. These issues have been pursued through meetings with the executive management of the companies as well as the non-executives: particularly the chairs of the board, remuneration, and audit committees and other company representatives. We have also attended numerous Annual General Meetings (in many cases being the only institutional shareholder present).

 

Our aspiration in terms of portfolio construction has not changed: our aim is to build a sensibly diversified portfolio that is not dependent on any one particular economic scenario but provides broad exposure to the market as a whole while generating an above average dividend yield. Although the focus is generally on larger companies, if we can find attractively valued smaller companies with appealing attributes we will look to invest in these companies as well. The portfolio at the year end comprised 49 holdings with the overseas exposure representing 15.5% of gross assets (compared to 15.0% at the end of the prior period).

 

Income

For the financial year ended 30 June 2017, the Company witnessed an improvement in the level of income generated overall leading to an increase in the revenue return per share of 9.0% from 32.0p to 34.9p.  Income from investments increased helped by the translation benefit of weaker Sterling and there were a number of special dividends received. In total there were three special dividends (from Elementis, Aberforth Smaller Companies and Compass) that were recognized as revenue items. We believe that this recognition is appropriate given that the return of cash was from a build-up of profits generated by ongoing operations rather than a sale of assets.

 

As noted above, the income derived from writing options increased compared to the previous year and represented 7.4% of total income.  In addition, lower borrowing costs given the debt denominated in foreign currencies and the very marginal earnings enhancement from fewer shares in issue was helpful. Revenue reserves now stand at £25.4m (prior to the payment of the final dividend).

 

The weakness in Sterling following the EU referendum result has been helpful given that around 40% of the Company's income is denominated in non-Sterling currencies.  However, the dividend outlook remains challenging with higher than average payout ratios in aggregate. Current consensus forecasts for the UK equity market as a whole suggest dividend growth of 5.2% for calendar 2018 which may turn out to be optimistic.

 

Outlook

Equity market performance over the last year has been strong helped by an improvement in the global growth dynamic, generally market-friendly political outcomes and the maintenance of low interest rates. From here the balance of risk probably lies to the downside with the prospect of rising interest rates impacting on an increased corporate and personal debt burden, heightened geopolitical risks and the evolving policies of the US president. For the UK the principal factor is the outcome of and uncertainty caused by the negotiations to leave the European Union.  In an environment where in general equity valuations appear full and a broadly positive outlook is already priced in we feel that it makes sense to be cautious.  However, we continue to believe that in the long run the underlying strength of our holdings will outweigh the broader economic backdrop hence our focus on identifying those companies that possess the best possible balance of diversified earnings streams, robust balance sheets and superior business models that trade at attractive valuations.

 

Charles Luke

Aberdeen Asset Managers Limited

Investment Manager

 

12 September 2017

 

 

DIRECTORS' REPORT

 

Status

The Company, which was incorporated in 1923, is registered as a public limited company in Scotland under number SC012725 and is an investment company within the meaning of Section 833 of the Companies Act 2006.

 

The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 July 2012.  The Directors are of the opinion that the Company has conducted its affairs during the year ended 30 June 2017 so as to enable it to comply with the ongoing requirements for investment trust status.

 

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

 

Capital Structure

At 30 June 2017, the Company had 67,022,458 fully paid Ordinary shares of 25p each (2016 - 67,192,458 Ordinary shares) with voting rights in issue and an additional 1,571,000 (2016 - 1,401,000) shares in treasury. During the year ended 30 June 2017, 170,000 Ordinary shares, equivalent to 0.3% of the Company's issued share capital excluding treasury shares as at 30 June 2016, were bought back into treasury.

 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends.  On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may be applied from time to time by law (for example, insider trading law).

 

Results and Dividends

The financial statements for the year ended 30 June 2017 indicate a total gain attributable to equity shareholders for the year of £88,982,000 (2016 - £27,143,000).

 

The final dividend for the year ended 30 June 2016, of 11.25p per Ordinary share, was paid to shareholders on 3 November 2016. The first, second and third interim dividends, each of 7.0p per Ordinary share, for the year ended 30 June 2017, were paid to shareholders on 13 January 2017, 31 March 2017 and 30 June 2017, respectively.

 

The Directors now recommend a final dividend for the year ended 30 June 2017 of 11.75p per Ordinary share, payable to shareholders on 9 November 2017. The ex-dividend date is 28 September 2017 and the record date is 29 September 2017. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

 

Dividends are paid by means of three interim dividends, normally in January, April and June, and a final dividend in November, after approval by shareholders at the Annual General Meeting. Further information on dividends is contained in the Chairman's Statement.

 

Manager and Company Secretary

AFML has been appointed by the Company, under a management agreement ("MA") to provide investment management, risk management, administration and company secretarial services as well as promotional activities.  The Company's portfolio is managed by AAML by way of a group delegation agreement in place between AFML and AAML.  In addition, AFML has sub-delegated promotional activities to Aberdeen Asset Managers Limited ("AAM") and administrative and secretarial services to Aberdeen Asset Management PLC.

 

A monthly fee is payable to AFML at the rate of one-twelfth of 0.55% on the first £400 million of net assets, 0.45% on the next £150 million of net assets and 0.25% on the excess over £550 million. With effect from 1 January 2018, AFML will be entitled to a monthly fee of one-twelfth of 0.55% on the first £350m of net assets, 0.45% on net assets between £350m and £450m and 0.25% on any net assets in excess of £450m. The value of any investments in unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the Aberdeen Group is the operator, manager or investment adviser, is deducted from net assets when calculating the fee. The investment management fee is chargeable 50% to revenue and 50% to capital. There is no performance fee. A secretarial fee of £75,000 per annum (plus applicable VAT) is payable to Aberdeen Asset Management PLC, which is chargeable 100% to revenue.  An annual fee equivalent to 0.075% of gross assets (calculated at 30 September each year) is paid to AAML to cover promotional activities undertaken on behalf of the Company. The management, secretarial and promotional activity fees paid to Aberdeen Group companies during the year ended 30 June 2017 are shown in notes 3 and 4 to the financial statements. 

 

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, this statement describes how the Company applies the main principles identified in the UK Corporate Governance Code published in April 2016 (the "UK Code") and which first applies to the Company's year ended 30 June 2017. The UK Code is available on the Financial Reporting Council's ("the FRC") website: frc.org.uk.

 

The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance as published in July 2016 ("the AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("the AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. The AIC Code and AIC Guide are available on the AIC's website: theaic.co.uk

 

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.

 

The Board confirms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below.

 

The UK Code includes provisions relating to:

-      the role of the chief executive (A.1.2);

-      executive directors' remuneration (D.1.1 and D.1.2); and

-      the need for an internal audit function (C.3.6).

 

For the reasons set out in the AIC Guide and UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. In relation to the role of the senior independent director, UK Code provision A.4.2, the Board notes that the Company was in compliance during the year under review, with further information provided below regarding the position of David Woods subsequent to the year end.

 

The full text of the Company's Statement of Corporate Governance can be found on its website: murray-income.co.uk.

 

Directors

The Board consists of a non-executive Chairman and five non-executive Directors, all of whom held office throughout the year under review. David Woods held the office of Senior Independent Director throughout the year under review.

 

The names and biographies of each of the Directors in the published Annual Report which indicate their range of experience as well as length of service. Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper stewardship of the Company.

 

The Directors attended Board and Committee meetings during the year ended 30 June 2017 as follows (with their eligibility to attend the relevant meeting in brackets):

 

Director	Board Meetings Attended	Audit, Nomination, Management Engagement and Remuneration Committee Meetings Attended (A)
N A Honebon	9 (9)	10 (10)
D E Woods	7 (9)	8 (8)
J C Park	9 (9)	10 (10)
D A Cameron	8 (9)	9 (9)
N A H Rogan	9 (9)	10 (10)
M W Balfour	9 (9)	9 (9)

 

Notes:

(A) Committees of the Board may not involve all Directors

 

All of the Directors will retire at the AGM. Neil Honebon has indicated that he will not stand for re-election as a Director. Mike Balfour, Donald Cameron, Jean Park, Neil Rogan and David Woods will retire and, being eligible, seek individual re-election as Directors at the AGM.

 

Following the merger of Aberdeen Asset Management PLC and Standard Life plc in August 2017, David Woods and Mike Balfour no longer qualify as independent Directors under the Listing Rules as a director is not considered independent if he or she serves on the board of more than one investment trust managed by the same group. David Woods is a non-executive director of Standard Life UK Smaller Companies Trust PLC ("SLSC") and Mike Balfour is a director of  Standard Life Investments Property Income Trust Limited both of which are managed by a subsidiary of Standard Life Aberdeen plc. David Woods will retire from the board of SLSC in October 2017, and accordingly has also temporarily stepped back from his role as Senior Independent Director of the Company from 14 August 2017, but will resume the appointment following his retirement from the SLSC board in October 2017.

 

Even taking account of David Woods' and Mike Balfour's appointments, the remaining Directors are independent of the AIFM and therefore a majority of the Board is independent of the Manager. Furthermore, the Board believes that each Director remains free of any relationship which could materially interfere with the exercise of his or her judgement on issues of strategy, performance, resources and standards of conduct and confirms that, following formal performance evaluations, the individuals' performance continues to be effective and demonstrates time commitment to the role. The Board therefore has no hesitation in recommending the re-election as Directors of the Company of Mike Balfour, Donald Cameron, Jean Park, Neil Rogan, and David Woods, at the forthcoming AGM.

 

The Company's Statement of Corporate Governance includes further information on the operation of the Board, including the matters reserved to the Board for consideration, Board independence, the annual performance of the Directors and the recruitment process for new Directors.

 

Directors' Insurance and Indemnities

The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Furthermore, each Director of the Company is entitled to be indemnified out of the assets of the Company to the extent permitted by law against all costs, charges, losses, expenses and liabilities incurred by them in the actual or purported execution and/or discharge of their duties and/or the exercise or purported exercise of their powers and/or otherwise in relation to or in connection with their duties, powers or office. These rights are included in the Articles of Association of the Company and the Company has granted indemnities to each Director on this basis.

 

Management of Conflicts of Interest and Anti-Bribery Policy

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his/her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his/her wider duties is affected. Each Director is required to notify the Company Secretaries of any potential, or actual, conflict situations which will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

 

No Director has a service contract with the Company although Directors are issued with letters of appointment upon taking up office.

 

The Board takes a zero tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Aberdeen Group also takes a zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

 

Board Committees

The Board has appointed a number of Committees as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website and from the Company Secretaries on request. Further information on the functioning of the Board Committees may be found in the Statement of Corporate Governance published on the Company's website.

 

Audit Committee

The Audit Committee's Report may be found in the published Annual Report.

 

Management Engagement Committee

The terms and conditions of the Company's agreement with the Manager are considered by the Management Engagement Committee which comprises the whole Board and was chaired during the year by Neil Honebon.

 

In monitoring the performance of the Manager, the Committee considers the investment record of the Company over the short term and longer term, taking into account both its performance against the benchmark index and peer group investment trusts and open-ended funds. The Committee also reviews the management processes, risk control mechanisms and promotional activities of the Manager. As a result of these reviews, the Directors consider the continuing appointment of the Manager to be in the interests of shareholders because the Aberdeen Group has the investment management, promotional and associated secretarial and administrative skills required for the effective operation of the Company.

 

Nomination Committee

All appointments to the Board of Directors are considered by the Nomination Committee which comprises the whole Board and was chaired during the year by Neil Honebon.

 

The Committee's overriding priority in appointing new Directors to the Board is to identify the candidate with the optimal range of skills and experience to complement the existing Directors. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new Directors.

 

Remuneration Committee

Directors' remuneration is considered by the Remuneration Committee which comprises the whole Board and was chaired during the year by David Woods. Further information may be found in the Directors' Remuneration Report in the published Annual Report.

 

Accountability and Audit

The responsibilities of the Directors and the Auditor, in connection with the financial statements, appear in the published Annual Report.

 

The Directors who held office at the date of this Report each confirm that, so far as he or she is aware, there is no relevant audit information of which the Company's Auditor is unaware, and that he or she has taken all the steps that he or she could reasonably be expected to have taken as a Director in order to make him or her aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. Additionally there have been no important events since the year end which warrant disclosure.

 

The Directors have reviewed the level of non-audit services provided by the Auditor during the year, together with the Auditor's procedures in connection with the provision of such services, and remain satisfied that the Auditor's objectivity and independence is being safeguarded.

 

Substantial Interests

At 30 June 2017, the following interests over 3% in the issued Ordinary share capital of the Company have been disclosed in accordance with the requirements of the UK Listing Authority's Disclosure and Transparency Rules:

 

Shareholder	Number of shares held	% held
Aberdeen Asset Managers Limited Retail Plans	12,333,532	18.4
Rathbones	4,788,369	7.1
Speirs & Jeffrey	4,294,240	6.4
Hargreaves Lansdown	3,752,393	5.6
Alliance Trust Savings	3,606,308	5.4
Brewin Dolphin	2,081,913	3.1

 

As at the date of approval of this Report, no changes to the above interests had been notified to the Company.

 

Going Concern

The Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate.  The Company's assets consist of a diverse portfolio of listed equity shares nearly all of which, in most circumstances, are realisable within a very short timescale. The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report.

 

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants. On 23 September 2015, the Company entered into a two-year multi-currency revolving loan facility ("the Facility") with The Royal Bank of Scotland PLC (the "Bank") for up to £80m of which the equivalent of £47.1m had been drawn down as at 30 June 2017.

 

The Company has received agreement from the Bank to extend the Facility's expiry from 23 September 2017 to 22 December 2017 and remains in negotiation with the Bank over renewal of the Facility. At this stage the Company has not received confirmation that the Facility will be renewed but, if acceptable terms are available from the Bank, other banking institutions, or any alternative, the Company would expect to continue to access a long term debt facility. However, should terms not be forthcoming, any outstanding borrowing would be repaid through the proceeds of equity sales or replaced via other borrowing arrangements.

 

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the AIFM which has sub-delegated that authority to the Investment Manager.

 

The full text of the Company's response to the Stewardship Code may be found on the Company's website.

 

Socially Responsible Investment Policy

The Board is aware of its duty to act in the best interests of the Company. As an investment trust, the Company has no direct social, environmental or community responsibilities. However, the Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and the Board, therefore, ensures that they take regular account of the social, environment and ethical factors, which may affect the performance or value of the Company's investments.

 

Relations with Shareholders

The Directors place great importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up-to-date information on the Company through its website, murray-income.co.uk, or via the Aberdeen Group's Customer Services Department. The Company responds to letters from shareholders.

 

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or the Aberdeen Group) in situations where direct communication is required and representatives from the Board offer to meet with major shareholders on an annual basis in order to gauge their views. The Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds, as appropriate, on behalf of the Board.

 

In addition, members of the Board accompany the Manager when undertaking a series of meetings with institutional shareholders.

 

The Notice of AGM included within the Annual Report is normally sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Investment Manager at the Company's AGM.

 

Annual General Meeting ("AGM")

Among the resolutions being put at the AGM of the Company to be held on 6 November 2017, the following resolutions will be proposed:

 

Amendment to Articles of Association

Resolution 12, which is an Ordinary Resolution, will be put to the AGM to increase the annual limit on aggregate fees payable by the Company to the Directors under Article 103. The Directors wish to make provision in the event that the Board composition were to expand in number in the future, and/or fees required to be increased, and are proposing that an aggregate annual limit of £250,000 (or such other amount as may from time to time be determined by Ordinary Resolution of the Company) be approved by shareholders, replacing the current limit of £200,000.

 

Authority to allot shares and disapply pre-emption rights

Ordinary Resolution No. 13 in the Notice of AGM will renew the authority to allot the unissued share capital up to an aggregate nominal amount of £837,780 (equivalent to approximately 3.3m Ordinary shares, or 5 per cent of the Company's existing issued share capital on the date of approval of this Report (excluding treasury shares)). Such authority will expire on the date of the AGM in 2018 or on 31 December 2018, whichever is earlier. This means that the authority will require to be renewed at the next AGM.

 

When shares are to be allotted for cash, Section 561 of the Companies Act 2006 (the "Act") provides that existing shareholders have pre-emption rights and that the new shares to be issued, or sold from treasury, must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares or sell from treasury otherwise than by a pro rata issue to existing shareholders. Special Resolution No. 14 will, if passed, give the Directors power to allot for cash or sell from treasury equity securities up to an aggregate nominal amount of £1,675,571 (equivalent to approximately 6.6m Ordinary shares, or 10 per cent of the Company's existing issued share capital on the date of approval of this Report, as if Section 561 of the Act does not apply). This authority will also expire on the date of the AGM in 2018 or on 31 December 2018, whichever is earlier. This authority will not be used in connection with a rights issue by the Company.

 

The Directors intend to use the authority given by Resolutions 13 and 14 to allot shares or sell shares from treasury and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in general meeting. It is the intention of the Board that any issue of shares or any re-sale of treasury shares would only take place at a price not less than 0.5% above the NAV per share prevailing at the date of sale. It is also the intention of the Board that sales from treasury would only take place when the Board believes that to do so would assist in the provision of liquidity to the market. The Directors recommend that shareholders vote in favour of Resolutions 13 and 14.

 

Purchase of the Company's own Ordinary Shares

At the AGM held on 1 November 2016, shareholders approved the renewal of the authority permitting the Company to repurchase its Ordinary shares.

 

The Directors wish to renew the authority given by shareholders at the previous AGM. A share buy-back facility enhances shareholder value by acquiring shares at a discount to NAV as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to NAV per share, should result in an increase in the NAV per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the NAV per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the AGM.

 

Under the current Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of (i) 105% of the average of the middle market quotations for the shares over the five business days immediately preceding the date of purchase and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p per share. Shares which are purchased under this authority will either be cancelled or held as treasury shares. Special Resolution No. 15 in the Notice of AGM will renew the authority to purchase in the market a maximum of 14.99% of shares in issue at the date of signing this Report (amounting to approximately 10.1m Ordinary shares). Such authority will expire on the date of the AGM in 2018, or on 31 December 2018, whichever is earlier. This means in effect that the authority will have to be renewed at the next AGM, or earlier, if the authority has been exhausted. The Directors recommend that shareholders vote in favour of Resolution No. 15. No dividends may be paid on any shares held in treasury and no voting rights will attach to such shares. The benefit of the ability to hold treasury shares is that such shares may be resold. This should give the Company greater flexibility in managing its share capital, and improve liquidity in its shares.

 

Recommendation

The Directors believe that the resolutions to be proposed at the AGM are in the best interests of the Company and its shareholders as a whole, and recommend that shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial shareholdings totalling 67,982 Ordinary shares, representing 0.1% of the issued Ordinary share capital of the Company.

 

By Order of the Board

 

N A Honebon

Chairman

 

12 September 2017

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under the law they have elected to prepare the financial statements in accordance with UK Accounting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

 

In preparing these financial statements, the Directors are required to:

 

-         select suitable accounting policies and then apply them consistently;

-         make judgments and estimates that are reasonable and prudent; and

-         state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that to the best of our knowledge:

 

-         the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

-         that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

-         the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

 

For and on behalf of the Board of Murray Income Trust PLC

 

N A Honebon

Chairman

 

12 September 2017

 

 

STRATEGIC REPORT - RESULTS

 

Financial Highlights

 

	30 June 2017	30 June 2016	% change
Total assets (£'000)	623,588	570,036	+9.4
Equity shareholders' funds (£'000)	576,462	515,036	+11.9
Net asset value per Ordinary share	860.1p	766.5p	+12.2
Market capitalisation (£'000)	532,829	451,533	+18.0
Share price of Ordinary share (mid-market)	795.0p	672.0p	+18.3
Discount to net asset value on Ordinary shares	(7.6%)	(12.3%)
Gearing (ratio of borrowing to shareholders' funds)
Net gearing{A}	3.7%	8.7%
Dividends and earnings
Revenue return per share	34.9p	32.0p	+9.1
Dividends per share{B}	32.75p	32.25p	+1.6
Dividend cover	1.07 times	0.99 times
Revenue reserves (£'000){C}	25,354	28,276
Operating costs
Ongoing charges ratio{D}	0.72%	0.76%
{A}        Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".
{B}        The figures for dividends per share reflect the years in which they were earned (see note 7).
{C}        The revenue reserve figure does not take account of the proposed final dividend amounting to £7,875,000 (2016 - third interim and final dividends amounting to £4,705,000 and £7,559,000 respectively).
{D}        Ongoing charges ratio 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.

 

 

Performance (total return)

 

	1 year return	3 year return	5 year return
	%	%	%
Share price	+23.5	+16.5	+54.8
Net asset value per Ordinary share	+16.7	+20.9	+63.8
Source: Aberdeen Asset Managers Limited/Morningstar

 

 

Dividends

 

	Rate	XD date	Record date	Payment date
1st interim 2017	7.00p	15 December 2016	16 December 2016	13 January 2017
2nd interim 2017	7.00p	2 March 2017	3 March 2017	31 March 2017
3rd interim 2017	7.00p	1 June 2017	2 June 2017	30 June 2017
Proposed final 2017	11.75p	28 September 2017	29 September 2017	9 November 2017
	______
Total dividends 2017	32.75p
	______

 

 

Ten Year Financial Record

 

Year end 30 June	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Income (£'000)	22,390	19,790	18,257	21,844	22,688	23,566	23,926	25,476	24,838	26,667
	_____	_____	_____	_____	_____	_____	_____	_____	_____	_____
Per Ordinary share (p)
Net revenue return	29.3	28.1	25.4	30.9	30.6	31.1	30.5	33.1	32.0	34.9
Dividends{A}	27.00	27.75	28.00	28.75	29.75	30.75	31.25	32.00	32.25	32.75
Net asset value	619.9	455.4	547.9	671.5	649.6	734.6	805.2	757.1	766.5	860.1
	_____	_____	_____	_____	_____	_____	_____	_____	_____	_____
Shareholders' funds (£'000)	400,536	294,570	354,425	434,406	425,458	492,878	547,652	515,888	515,036	576,462
	_____	_____	_____	_____	_____	_____	_____	_____	_____	_____
{A}The figures for dividends per share reflect the years to which their declaration relates and not the years they were paid.

 

 

MURRAY INCOME TRUST PLC

 

Statement of Comprehensive Income

 

		Year ended 30 June 2017			Year ended 30 June 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	10	-	69,251	69,251	-	6,899	6,899
Currency (losses)/gains		-	(2,022)	(2,022)	-	150	150
Income	3	26,667	-	26,667	24,838	-	24,838
Investment management fees	4	(1,419)	(1,419)	(2,838)	(1,302)	(1,302)	(2,604)
Administrative expenses	5	(1,136)	-	(1,136)	(1,145)	-	(1,145)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities before finance costs and tax		24,112	65,810	89,922	22,391	5,747	28,138
Finance costs	6	(241)	(241)	(482)	(328)	(328)	(656)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities before tax		23,871	65,569	89,440	22,063	5,419	27,482
Tax expense	8	(458)	-	(458)	(339)	-	(339)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities after tax		23,413	65,569	88,982	21,724	5,419	27,143
		_______	_______	_______	_______	_______	_______
Return per Ordinary share (pence)	9	34.9	97.8	132.7	32.0	8.0	40.0
		_______	_______	_______	_______	_______	_______
The total column of this statement represents the profit and loss account of the Company. The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of the financial statements.

 

 

MURRAY INCOME TRUST PLC

 

Statement of Financial Position

 

		As at	As at
		30 June 2017	30 June 2016
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	10	595,367	553,527
		___________	___________
Current assets
Other debtors and receivables	11	3,301	7,203
Cash and short term deposits		25,801	10,270
		___________	___________
		29,102	17,473
		___________	___________
Creditors: amounts falling due within one year
Other payables	12	(881)	(964)
Bank loans	12	(47,126)	(55,000)
		___________	___________
		(48,007)	(55,964)
		___________	___________
Net current liabilities		(18,905)	(38,491)
		___________	___________
Net assets		576,462	515,036
		___________	___________
Share capital and reserves
Called-up share capital	13	17,148	17,148
Share premium account		24,020	24,020
Capital redemption reserve		4,997	4,997
Capital reserve	14	504,943	440,595
Revenue reserve		25,354	28,276
		___________	___________
Equity shareholders' funds		576,462	515,036
		___________	___________
Net asset value per Ordinary share (pence)	15	860.1	766.5
		___________	___________

 

 

MURRAY INCOME TRUST PLC

 

Statement of Changes in Equity

 

For the year ended 30 June 2017
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2016		17,148	24,020	4,997	440,595	28,276	515,036
Return on ordinary activities after tax		-	-	-	65,569	23,413	88,982
Buyback of Ordinary shares for treasury		-	-	-	(1,221)	-	(1,221)
Dividends paid	7	-	-	-	-	(26,335)	(26,335)
		______	______	______	______	______	______
Balance at 30 June 2017		17,148	24,020	4,997	504,943	25,354	576,462
		______	______	______	______	______	______
For the year ended 30 June 2016
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2015		17,148	24,020	4,997	441,383	28,340	515,888
Return on ordinary activities after tax		-	-	-	5,419	21,724	27,143
Buyback of Ordinary shares for treasury		-	-	-	(6,207)	-	(6,207)
Dividends paid	7	-	-	-	-	(21,788)	(21,788)
		______	______	______	______	______	______
Balance at 30 June 2016		17,148	24,020	4,997	440,595	28,276	515,036
		______	______	______	______	______	______
The accompanying notes are an integral part of the financial statements.

 

 

MURRAY INCOME TRUST PLC

 

Statement of Cash Flows

 

		Year ended	Year ended
		30 June 2017	30 June 2016
	Notes	£'000	£'000
Net return before finance costs and taxation		89,922	28,138
Increase/(decrease) in accrued expenses		11	(33)
Overseas withholding tax		(529)	(405)
Dividends income	3	(24,686)	(22,982)
Dividends received		23,977	22,928
Interest income	3	(8)	(46)
Interest received		6	46
Interest paid		(473)	(659)
Gains on investments	10	(69,251)	(6,899)
Foreign exchange losses on loans		2,126	-
Decrease in other debtors		4,683	66
Stock dividends included in investment income	3	(1,186)	(1,095)
		_______	_______
Net cash inflow from operating activities		24,592	19,059
Investing activities
Purchases of investments		(72,302)	(49,539)
Sales of investments		100,797	50,871
		_______	_______
Net cash inflow from investing activities		28,495	1,332
Financing activities
Dividends paid	7	(26,335)	(21,788)
Buyback of Ordinary shares	13	(1,221)	(6,207)
Repayment of bank loans		(10,000)	-
		_______	_______
Net cash outflow from financing activities		(37,556)	(27,995)
		_______	_______
Increase/(decrease) in cash		15,531	(7,604)
		_______	_______
Analysis of changes in cash during the year
Opening balance		10,270	17,874
Increase/(decrease) in cash as above		15,531	(7,604)
		_______	_______
Closing balance		25,801	10,270
		_______	_______

 

 

MURRAY INCOME TRUST PLC

 

Notes to the Financial Statements

Year Ended 30 June 2017

 

1.	Principal activity
	The Company is a closed-end investment company, registered in Scotland No 012725, with its Ordinary shares being listed on the London Stock Exchange.

 

2.	Accounting policies
	(a)	Basis of preparation
		The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in January 2017 with consequential amendments. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. 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.
	(b)	Income
		Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Where the Company has elected to receive dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as revenue and any residual amount is recognised as capital. Provision is made for any dividends not expected to be received. Special dividends are credited to capital or revenue, according to the circumstances. Dividend revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately within the Statement of Comprehensive Income.
		Interest receivable from cash and short-term deposits and interest payable is accrued to the end of the year.
	(c)	Expenses
		All expenses are accounted for on an accruals basis. All expenses are charged through the revenue column of the Statement of Comprehensive Income except as follows:
		- transaction costs on the acquisition or disposal of investments are recognised as a capital item in the Statement of Comprehensive Income.
		- expenses are charged as a capital item in the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 50% to revenue and 50% to capital to reflect the Company's investment policy and prospective income and capital growth.
	(d)	Taxation
		The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.
		Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date.
		Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
		The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year, based on the marginal basis.
	(e)	Valuation of investments
		All investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included in the net return for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.
	(f)	Cash and cash equivalents
		Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of change in value.
	(g)	Borrowings
		Short-term borrowings, which comprise interest bearing bank loans and overdrafts are recognised initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest method. The finance costs, being the difference between the net proceeds of borrowings and the total amount of payments that require to be made in respect of those borrowings, accrue evenly over the life of the borrowings and are allocated 50% to revenue and 50% to capital.
	(h)	Traded options
		The Company may enter into certain derivative contracts (eg options) to gain exposure to the market. The option contracts are classified as fair value through profit or loss, held for trading, and accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value ie market value. The premium received on the open position is recognised over the life of the option in the revenue column of the Statement of Comprehensive Income along with fair value changes in the open position which occur due to the movement in underlying securities. Losses realised on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income as they arise. Where the Company enters into derivative contracts to manage market risk, gains or losses arising on such contracts are recorded in the capital column of the Statement of Comprehensive Income.
	(i)	Segmental reporting
		The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.
	(j)	Nature and purpose of reserves
		Capital redemption reserve
		The capital redemption reserve arose when Ordinary shares were redeemed, at which point an amount equal to the par value of the Ordinary share capital was transferred from the Statement of Comprehensive Income to the capital redemption reserve.
		Capital reserve
		This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences. Additionally, expenses, including finance costs, are charged to this reserve in accordance with (c) above. The cost of share buybacks to be held in treasury are also deducted from this reserve.
		Revenue reserve
		This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
	(k)	Treasury shares
		When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve.
	(l)	Dividends payable
		Dividends are recognised from the date on which they are approved by Shareholders. Interim dividends are recognised when paid.
	(m)	Foreign currency
		Transactions in foreign currencies are converted to Sterling at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are translated into Sterling at rates of exchange ruling at the Statement of Financial Position date. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital or revenue item depending on the nature of the underlying item.

 

		2017	2016
3.	Income	£'000	£'000
	Income from investments
	UK dividends (all listed)	18,874	17,551
	Property income dividends	291	263
	Overseas dividends (all listed)	4,335	4,073
	Stock dividends	1,186	1,095
		_______	_______
		24,686	22,982
		_______	_______
	Other income
	Deposit interest	8	46
	Underwriting income	-	41
	Traded option premiums	1,973	1,769
		_______	_______
		1,981	1,856
		_______	_______
	Total income	26,667	24,838
		_______	_______
	During the year, the Company received premiums totalling £1,973,000 (2016 - £1,769,000) in exchange for entering into derivative transactions. At the year end there were no open positions (2016 - same).

 

		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Management fee	1,419	1,419	2,838	1,302	1,302	2,604
		______	______	______	______	______	______
	The management fee is based on 0.55% for net assets up to £400 million, 0.45% on the next £150 million of net assets and 0.25% for funds over £550 million, calculated and paid monthly. The fee is allocated 50% to revenue and 50% to capital. The management agreement is terminable on three months' notice. The total of the fees paid and payable during the year to 30 June 2017 was £2,838,000 (2016 - £2,604,000) and the balance due to AFML at the year end was £244,000 (2016 - £225,000).
	Under the terms of the management agreement, the value of the Company's investments in commonly managed funds is excluded from the calculation of the management fee. The Company held one such commonly managed fund, Dunedin Smaller Companies Investment Trust PLC, at the year end which was valued at £4,020,000 (2016 - £3,226,000).
	Following a review, a revision of the management fee arrangements has been agreed by the Company and the Manager. With effect from 1 January 2018, the management fee will be based on 0.55% for net assets up to £350 million, 0.45% on the next £100 million of net assets and 0.25% for funds over £450 million, calculated and paid monthly.

 

		2017	2016
5.	Administrative expenses	£'000	£'000
	Shareholders' services{A}	558	571
	Directors' remuneration	157	143
	Secretarial fees{B}	90	90
	Auditor's remuneration:
	- fees payable to the Company's auditor for the audit of the Company's annual accounts	22	22
	Non-audit services
	- fees payable to the Company's auditor and its associates for iXBRL tagging services	2	2
	Other expenses	307	317
		_______	_______
		1,136	1,145
		_______	_______
	{A}        Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £480,000 (2016 - £481,000) was paid to Aberdeen Asset Managers Limited ("AAML") under a delegation agreement with AFML to cover promotional activities during the year. There was £120,000 (2016 - £120,000) due to AAML in respect of these promotional activities at the year end.
	{B}        Payable to AFML, balance outstanding £23,000 (2016 - £23,000) at the year end.
	With the exception of Auditor's remuneration for the statutory audit, all of the expenses above, including fees for non-audit services, include irrecoverable VAT where applicable.  For the Auditor's remuneration for the statutory audit irrecoverable VAT amounted to £4,000 (2016 - £4,000).

 

		Revenue	Capital	Total	Revenue	Capital	Total
6.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loans	241	241	482	328	328	656
		______	______	______	_____	______	______

 

		2017	2016
7.	Ordinary dividends on equity shares	£'000	£'000
	Third interim 2016 of 7.00p (2015 - 7.00p)	4,705	4,770
	Final 2016 of 11.25p (2015 - 11.00p)	7,554	7,496
	First interim 2017 of 7.00p (2016 - 7.00p)	4,692	4,770
	Second interim 2017 of 7.00p (2016 - 7.00p)	4,692	4,752
	Third interim 2017 of 7.00p	4,692	-
		_______	_______
		26,335	21,788
		_______	_______
	The proposed final dividend for 2017 has not been included as a liability in these financial statements as it was not payable until after the reporting date. The proposed final dividend for 2017 is subject to approval by shareholders at the Annual General Meeting.
	Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £23,413,000 (2016 - £21,724,000).
		2017	2016
		£'000	£'000
	Three interim dividends of 7.00p each (2016 - 7.00p)	14,076	14,227
	Proposed final dividend of 11.75p (2016 - 11.25p)	7,875	7,559
		_______	_______
		21,951	21,786
		_______	_______
	The amount reflected above for the cost of the proposed final dividend for 2017 is based on 67,022,458 Ordinary shares, being the number of Ordinary shares in issue at the date of this Report.

 

			2017			2016
			Revenue	Capital	Total	Revenue	Capital	Total
8.	Tax expense		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Overseas tax suffered	727	-	727	543	-	543
		Overseas tax reclaimable	(269)	-	(269)	(204)	-	(204)
			_______	_______	______	_______	_______	_______
		Total tax charge for the year	458	-	458	339	-	339
			_______	_______	______	_______	_______	_______
	(b)	Factors affecting the tax charge for the year
		The tax assessed for the year is lower than the standard rate of corporation tax rate of 19.75% (2016 - 20%). The differences are explained as follows:
			2017			2016
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Net profit on ordinary activities before taxation	23,871	65,569	89,440	22,063	5,419	27,482
		Return on ordinary activities multiplied by the standard rate of corporation tax of 19.75% (2016 - 20%)	4,715	12,950	17,665	4,413	1,084	5,497
		Effects of:
		Non-taxable UK dividends	(3,728)	-	(3,728)	(3,510)	-	(3,510)
		Non-taxable stock dividends	(234)	-	(234)	(219)	-	(219)
		Non-taxable overseas dividends	(856)	-	(856)	(815)	-	(815)
		Expenses not deductible for tax purposes	1	-	1	-	-	-
		Movement in unutilised loan relationships	45	48	93	58	66	124
		Movement in unutilised management expenses	54	280	334	73	260	333
		Movement in income taxable in different periods	3	-	3	-	-	-
		Gains on investments not taxable	-	(13,278)	(13,278)	-	(1,410)	(1,410)
		Overseas tax payable	458	-	458	339	-	339
			_______	_______	_______	_______	_______	_______
		Total tax charge	458	-	458	339	-	339
			_______	_______	_______	_______	_______	_______
	(c)	Factors that may affect future tax charges
		No provision for deferred tax has been made in the current or prior accounting period.
		The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.
		At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £61,224,000 (2016 - £58,898,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised.

 

		2017		2016
9.	Return per Ordinary share	£'000	p	£'000	p
	Returns are based on the following figures:
	Revenue return	23,413	34.9	21,724	32.0
	Capital return	65,569	97.8	5,419	8.0
		_______	_______	_______	_______
	Total return	88,982	132.7	27,143	40.0
		_______	_______	_______	_______
	Weighted average number of Ordinary shares in issue		67,062,118		67,867,787
			_________		_________

 

		2017	2016
10.	Investments	£'000	£'000
	Held at fair value through profit or loss:
	Opening valuation	553,527	547,339
	Opening investment holdings gains	(148,930)	(133,099)
		_______	_______
	Opening book cost	404,597	414,240
	Movements during the year:
	Purchases at cost	73,386	50,160
	Sales - proceeds	(100,797)	(50,871)
	Sales - gains/(losses)	27,025	(8,932)
		_______	_______
	Closing book cost	404,211	404,597
	Closing investment holdings gains	191,156	148,930
		_______	_______
	Closing valuation	595,367	553,527
		_______	_______
		2017	2016
	The portfolio valuation:	£'000	£'000
	UK equities	502,967	467,464
	Overseas equities	92,400	86,063
		_______	_______
	Total	595,367	553,527
		_______	_______
		2017	2016
	Gains/(losses) on investments	£'000	£'000
	Gains/(losses) based on book cost	27,025	(8,932)
	Net movement in investment holdings gains	42,226	15,831
		_______	_______
		69,251	6,899
		_______	_______
	The Company may write and purchase both exchange traded and over the counter derivative contracts as part of its investment policy. The Company pledges collateral greater than the market value of the traded options in accordance with standard commercial practice. At 30 June 2017, financial assets were pledged with Credit Suisse. The liability of collateral held at the year end was £nil as no open positions existed (2016 - same). The collateral position is monitored on a daily basis, which then determines if further assets are required to be pledged over and above those already pledged.
	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified at fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows:
		2017	2016
		£'000	£'000
	Purchases	312	272
	Sales	57	42
		_______	_______
		369	314
		_______	_______

 

		2017	2016
11.	Other debtors and receivables	£'000	£'000
	Prepayments and accrued income	3,301	7,203
		_______	_______

 

		2017	2016
12.	Creditors: amounts falling due within one year	£'000	£'000
	Other creditors	522	503
	Amounts due to brokers	359	461
	Bank loans	47,126	55,000
		_______	_______
		48,007	55,964
		_______	_______
	At 30 June 2017 the Company had drawn down £47,126,000 (30 June 2016 - £55,000,000) of an £80,000,000 multi-currency unsecured revolving bank credit facility with The Royal Bank of Scotland PLC, which is committed to the Company until 15 September 2017. Under the terms of the agreement, advances from the facility may be made for periods of up to six months or for such longer periods agreed by the lender. With effect from 6 September 2016 the Company has drawn down the loan in four foreign currencies; Swiss Francs, Euros, Swedish Krona and US Dollars. An equivalent of £10,000,000 was repaid on 6 June 2017.
	As at 30 June 2017, the Company had drawn down the following amounts from the facility, all with a maturity date of 10 July 2017:
	- Swiss Franc 19,226,000 at an all-in rate of 0.5%
	- Euro 12,884,000 at an all-in rate of 0.5%
	- Swedish Krona 131,255,000 at an all-in rate of 0.5%
	- US Dollar 10,881,000 at an all-in rate of 1.596%
	At the date this Report was approved, the Company had drawn down the following amounts from the facility, all with a maturity date of 22 September 2017:
	- Swiss Franc 19,226,000 at an all-in rate of 0.5%
	- Euro 12,884,000 at an all-in rate of 0.5%
	- Swedish Krona 131,255,000 at an all-in rate of 0.5%
	- US Dollar 10,881,000 at an all-in rate of 1.74151%
	Financial covenants contained within the loan agreement provide, inter alia, that borrowings to net assets must not exceed 30% (30 June 2017 - 8.2%; 30 June 2016 - 10.7%) and that net assets must exceed £225 million (30 June 2017 - £576 million; 30 June 2016 - £515 million). All financial covenants were met during the year and also during the period from the year end to the date of this report.

 

		2017		2016
13.	Called-up share capital	Shares	£'000	Shares	£'000
	Allotted, called-up and fully-paid
	Ordinary shares of 25p each: publicly held	67,022,458	16,756	67,192,458	16,798
	Ordinary shares of 25p each: held in treasury	1,571,000	392	1,401,000	350
		_________	_______	_________	_______
		68,593,458	17,148	68,593,458	17,148
		_________	_______	_________	_______
	During the year there were 170,000 Ordinary shares repurchased (2016 - 950,000) to be held in treasury by the Company at a total cost of £1,221,000 (2016 - £6,207,000) representing 0.2% (2016 - 1.4%) of called-up share capital. The Company's policy relating to the purchase of its own Ordinary shares is detailed in the Directors' Report.

 

		2017	2016
14.	Capital reserve	£'000	£'000
	At 1 July 2016	440,595	441,383
	Movement in investment holding gains	42,226	15,831
	Gains/(losses) on realisation of investments at fair value	27,025	(8,932)
	Currency (losses)/gains	(2,022)	150
	Finance costs of bank loan	(241)	(328)
	Buyback of shares	(1,221)	(6,207)
	Investment management fees	(1,419)	(1,302)
		_______	_______
	At 30 June 2017	504,943	440,595
		_______	_______

 

15.	Net asset value per share
	The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows:
		2017	2016
	Net asset value attributable (£'000)	576,462	515,036
	Number of Ordinary shares in issue (note 13)	67,022,458	67,192,458
	Net asset value per share (p)	860.1	766.5

 

16.	Financial instruments
	Risk management
	The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments, other than derivatives, comprise securities and other investments, cash balances, liquid resources, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, subject to Board approval, for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy.
	As at 30 June 2017 there were no open positions in derivatives transactions (2016 - same).
	Risk management framework
	The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
	AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.
	The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
	The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").
	The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described in the committees' terms of reference.
	Risk management
	The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk.
	In order to mitigate risk, the investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The Attribution Analysis, detailing the allocation of assets and the stock selection, is shown in the Performance Attribution table in the Investment Manager's Report. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. Current strategy is detailed in the Chairman's Statement in the sections headed "Performance", "Dividend" and "Outlook" and in the Investment Manager's Report in the sections headed "Background", "Performance", "Portfolio Activity and Structure", "Income" and "Outlook".
	The Board has agreed the parameters for net gearing/cash, which was 3.7% of net assets as at 30 June 2017 (2016 - 8.7%). The Manager's policies for managing these risks are summarised below and have been applied throughout the current and previous year. The numerical disclosures in the tables listed below exclude short-term debtors and creditors.
	Market risk
	The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective as set out in the Business Model section of the Overview of Strategy. Adherence to investment guidelines and to investment and borrowing powers set out in the management agreement mitigates the risk of exposure to any particular security or issuer. Further information on the investment portfolio is set out in the Investment Manager's Report.
	Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. It is the Board's policy to hold equity investments in the portfolio in a broad spread of sectors in order to reduce the risk arising from factors specific to a particular sector. A summary of investment changes during the year under review is included above, alongside an analysis of the equity portfolio by sector.
	Interest rate risk
	Interest rate movements may affect:
	- the level of income receivable on cash deposits;
	- interest payable on the Company's variable rate borrowings; and
	- the fair value of any investments in fixed interest rate securities.
	Management of the risk
	The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. Details of the bank loan and interest rates applicable can be found in note 12.
	The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates.
	Financial assets
	The interest rate risk of the portfolio of financial assets at the reporting date was as follows:
					Floating rate			Non-interest bearing
					2017		2016	2017			2016
					£'000		£'000	£'000			£'000
	Danish Krone				17		-	17,408			2,946
	Euro				292		126	5,003			12,581
	Sterling				25,158		9,943	502,967			467,464
	Swedish Krona				22		-	25,139			16,972
	Swiss Francs				205		132	29,421			29,827
	US Dollars				107		69	15,429			23,737
					_______		_______	_______			_______
	Total				25,801		10,270	595,367			553,527
					_______		_______	_______			_______
	The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
	The non-interest bearing assets represent the equity element of the portfolio.
	Financial liabilities
	The Company has borrowings by way of a loan facility, details of which are in note 12. The fair value of this loan has been calculated at £47,126,000 as at 30 June 2017 (2016 - £55,000,000). The fair value of the loan equates to the cost as the loans are rolled over on a regular basis.
	Interest rate sensitivity
	The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant in the case of instruments that have floating rates.
	If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit before tax for the year ended 30 June 2017 and net assets would decrease/increase by £213,000 (2016 - decrease/increase by £447,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances and borrowings.
	Foreign currency risk
	A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Statement of Financial Position can be affected by movements in exchange rates.
	Management of the risk
	The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. It is not the Company's policy to hedge this currency risk but the Board keeps under review the currency returns in both capital and income.
	Foreign currency risk exposure by currency of denomination excluding other debtors and receivables and other payables falling due within one year:
		30 June 2017				30 June 2016
			Net	Total					Net		Total
			monetary	currency					monetary		currency
		Investments	liabilities	exposure		Investments			liabilities		exposure
		£'000	£'000	£'000		£'000			£'000		£'000
	Danish Krone	17,408	17	17,425		2,946			-		2,946
	Euro	5,003	(11,021)	(6,018)		12,581			126		12,707
	Swedish Krona	25,139	(11,958)	13,181		16,972			-		16,972
	Swiss Francs	29,421	(15,251)	14,170		29,827			132		29,959
	US Dollars	15,429	(8,270)	7,159		23,737			69		23,806
		_______	_______	_______		_______			_______		_______
	Total	92,400	(46,483)	45,917		86,063			327		86,390
		_______	_______	_______		_______			_______		_______
	Foreign currency sensitivity
	The following table details the impact on the Company's net assets to a 10% decrease (in the context of a 10% increase the figures below should all be read as negative) in Sterling against the foreign currencies in which the Company has exposure. The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.
									2017		2016
									£'000		£'000
	Danish Krone								1,743		295
	Euro								(602)		1,271
	Swedish Krona								1,318		1,697
	Swiss Francs								1,417		2,996
	US Dollars								716		2,381
	Total								4,592		8,640
	Other price risk
	Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
	Management of the risk
	It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to international markets and the stock selection process, as detailed in the section "Investment Process" in the published Annual Report, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.
	Other price risk sensitivity
	If market prices at the reporting date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders and equity for the year ended 30 June 2017 would have increased/decreased by £59,537,000 (2016 - £55,353,000).
	Liquidity risk
	This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
								Within		Within
								3 months		3 months
								2017		2016
								£'000		£'000
	Bank loans							47,126		55,000
	Interest cash flows on bank loans							28		46
								_______		_______
								47,154		55,046
								_______		_______
	Management of the risk
	The Company's assets comprise readily realisable securities which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of committed loan and overdraft facilities.
	As at 30 June 2017 the Company utilised £47,126,000 (2016 - £55,000,000) of a £80,000,000 multi-currency revolving bank credit facility, which is committed until 15 September 2017. Interest is charged at a variable rate based on ICE LIBOR plus a margin of 0.5% for the Swiss Franc, Euro and Swedish Krona loans and ICE STIBOR plus a margin of 0.5% for the US Dollar loan (2016 - LIBOR plus margin of 0.5% on Sterling loan) for the relevant period of the advance. As at 30 June 2017 the rate on the Swiss Franc, Euro and Swedish Krona loans was 0.5% and the rate on the US Dollar loan was 1.596% (2016 - 1.01092% on Sterling loan) and the loan rolled over on 10 July 2017 (2016 - rolled on 22 July 2016). The aggregate of all future interest payments at the rate ruling at 30 June 2017 and the redemption of the loan amounted to £47,154,000 (2016 - £55,046,000).
	Credit risk
	This is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
	Management of the risk
	The risk is mitigated by the Investment Manager reviewing the credit ratings of counterparties. The risk attached to dividend flows is mitigated by the Investment Manager's research of potential investee companies. The Company's custodian bank is responsible for the collection of income on behalf of the Company and its performance is reviewed by the Board on a regular basis. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. The maximum credit risk at 30 June 2017 is £28,425,000 (30 June 2016 - £12,185,000) consisting of £2,624,000 (2016 - £1,915,000) of dividends receivable from equity shares and £25,801,000 (2016 - £10,270,000) in cash held.
	None of the Company's financial assets are past due or impaired (2016 - £nil).

 

17.	Fair value hierarchy
	FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.The fair value hierarchy has the following levels:
	Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date;
	Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly; and
	Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
	The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
	For the year ended 30 June 2017
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	595,367	-	-	595,367
			_______	_______	_______	_______
	Net fair value		595,367	-	-	595,367
			_______	_______	_______	_______
	For the year ended 30 June 2016
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	553,527	-	-	553,527
			_______	_______	_______	_______
	Net fair value		553,527	-	-	553,527
			_______	_______	_______	_______
	a) Quoted equities
	The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.
	All other financial assets and liabilities of the Company are included in the Statement of Financial Position at their book value which in the opinion of the Directors is not materially different from their fair value.

 

18.	Related party transactions and transactions with the Manager
	Fees payable during the year to the Directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report in the published Annual Report. The balance of fees due to Directors at the year end was £nil (2016 - £nil).
	The Company has agreements with AFML for the provision of management, secretarial, accounting and administration services and promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 4 and 5. Details of a future revision in the management fee arrangements are contained in note 4.

 

19.	Capital management policies and procedures
	The investment objective of the Company is to achieve a high and growing income combined with capital growth through investment in a portfolio principally of UK equities.
	The capital of the Company consists of debt, comprising bank loans, and equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis.   This review includes:
	- the planned level of gearing which takes into account the Investment Manager's views on the market;
	- the level of equity shares in issue;
	- the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
	At the year end financial covenants contained within the loan agreement provide, inter alia, that borrowings to net assets must not exceed 30% and that the net assets must exceed £225 million. As noted in greater detail in note 12 all financial covenants were met during the year and also during the period from the year end to the date of this report.

 

20.     Final dividend

If approved by shareholders at the Annual General Meeting on 6 November 2017, the proposed final dividend of 11.75p per share will be paid on 9 November 2017 to holders of Ordinary shares on the register at the close of business on 29 September 2017. The relevant ex-dividend date is 28 September 2017.

 

21.     Annual General Meeting

The Annual General Meeting will be held on 6 November 2017 at 12.30 pm at Glasgow Royal Concert Hall,

2 Sauchiehall St, Glasgow G2 3NY.

 

The figures and financial information for the year ended 30 June 2017 are compiled from an extract of the latest financial statements of the Company and do not constitute the statutory financial statements for that year. Those accounts included the report of the Auditor which was unqualified, did not contain a statement under either section 498(2) or (3) of the Companies Act 2006 and have not yet been delivered to the Registrar of Companies. The figures and financial information for the year ended 30 June 2016 are compiled from an extract of the latest published financial statements of the Company and do not constitute the statutory financial statements for that year; those financial statements have been delivered to the Registrar of Companies and included the report of the Auditor which was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006. The 30 June 2017 accounts will be filed with the Registrar of Companies in due course.

 

The annual results will be circulated to shareholders in the form of an Annual Report, copies of which will be available shortly from the Company's registered office, 7^th Floor, 40 Princes Street, Edinburgh EH2 2BY and from the Company's website at murray-income.co.uk*.

 

*Neither the Company's website nor the content of any website accessible from hyperlinks on that website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

 

 

By Order of the Board

 

ABERDEEN ASSET MANAGEMENT PLC

Secretaries

 

12 September 2017

 

 

MURRAY INCOME TRUST PLC

 

Summary of Investment Changes during the year

 

Summary of Gross Assets

 

	Valuation				Valuation
	30 June 2016		Transactions	Gains/(losses)	30 June 2017
	£'000	%	£'000	£'000	£'000	%
Equities
United Kingdom	467,464	82.0	(16,505)	52,008	502,967	80.7
Denmark	2,946	0.5	12,922	1,540	17,408	2.8
France	7,799	1.4	(9,309)	1,510	-	-
Germany	4,782	0.8	(1,636)	1,857	5,003	0.8
Sweden	16,972	3.0	-	8,167	25,139	4.0
Switzerland	29,827	5.2	(1,611)	1,205	29,421	4.7
United States	23,737	4.2	(11,272)	2,964	15,429	2.5
	_______	_______	_______	_______	_______	_______
Total investments	553,527	97.1	(27,411)	69,251	595,367	95.5
	_______	_______	_______	_______	_______	_______
Other net assets{A}	16,509	2.9	11,712	-	28,221	4.5
	_______	_______	_______	_______	_______	_______
Total assets	570,036	100.0	(15,699)	69,251	623,588	100.0
	_______	_______	_______	_______	_______	_______
{A} Excluding borrowings.

 

 

Summary of Net Assets

 

	As at		As at
	30 June 2016		30 June 2017
	£'000	%	£'000	%
Equities	553,527	107.5	595,367	103.3
Other net assets	16,509	3.2	28,221	4.9
Borrowings	(55,000)	(10.7)	(47,126)	(8.2)
	_______	_______	_______	_______
Equity shareholders' funds	515,036	100.0	576,462	100.0
	_______	_______	_______	_______

 

 

MURRAY INCOME TRUST PLC

 

Twenty Largest Investments

As at 30 June 2017

 

		Valuation	Total	Valuation
		2017	assets	2016
Investment		£'000	%	£'000
1 (1)	Unilever
Unilever is a global consumer goods company supplying food, home and personal care products. The company has a portfolio of strong brands including: Dove, Knorr, Axe and Persil. Over half of the company's sales are to developing and emerging markets.		28,179	4.5	31,710
2 (2)	British American Tobacco
British American Tobacco manufactures and markets cigarettes and other tobacco products, including cigars and roll-your-own tobacco. The group sells over 200 brands in approximately 180 countries. Key brands include: Dunhill, Kent, Pall Mall and Lucky Strike. Strong cashflow is an attractive characteristic of the tobacco industry.		27,845	4.5	30,317
3 (3)	GlaxoSmithKline
GlaxoSmithKline is a research-based pharmaceutical group that also develops, manufactures and markets vaccines, prescription and over-the-counter medicines, as well as health-related consumer products. The group specialises in treatments for respiratory, central nervous system, gastro-intestinal and genetic disorders.		27,640	4.4	27,116
4 (4)	AstraZeneca
AstraZeneca researches, develops, produces and markets pharmaceutical products. The company's operations are focused on six therapeutic areas: Cardiovascular, Oncology, Respiratory, Neuroscience, Inflammation and Infection. The company's product pipeline offers a number of interesting opportunities.		25,418	4.1	25,060
5 (10)	Prudential
Prudential is an insurance company with substantial operations in the UK, USA and across Asia.  Early mover advantage in Asia has provided the company with a number of market leading positions giving the opportunity to capitalise on a fast growing market.		22,629	3.6	16,152
6 (6)	Roche Holdings
Listed in Switzerland, Roche develops and manufactures pharmaceutical and diagnostic products with particular strengths in the areas of oncology, cardiovascular and respiratory diseases. The company benefits from a strong product pipeline and limited near-term patent exposure.		21,134	3.4	21,171
7 (12)	HSBC Holdings
HSBC group is one of the world's largest banking and financial services institutions. Its international network comprises more than 5,000 offices in 80 countries worldwide. The diversity of HSBC's business and exposure to faster growing regions of the world should enable it to deliver superior long-term growth.		20,821	3.3	15,616
8 (-)	Nordea Bank
Nordea Bank is a financial services group listed in Sweden that provides banking services, financial solutions and related advisory services. It attracts deposits and offers credit, investment banking, securities trading and insurance products to individuals, companies, institutions and the public sector.		19,284	3.1	12,221
9 (16)	BP
BP is one of the world's largest petroleum and petrochemicals groups. Its main activities are: exploration and production of crude oil and natural gas; refining, marketing, supply and transportation of petroleum products.		19,166	3.1	13,471
10 (18)	Aberforth Smaller Companies Trust
Aberforth Smaller Companies is an investment trust with a diversified portfolio of small UK quoted companies. The trust has an attractive yield and benefits from substantial revenue reserves.		17,861	2.9	12,977
Top ten investments		229,977	36.9
11 (8)	Vodafone
Vodafone is an international mobile telecommunications company providing mobile voice, data and fixed line communications. The group has around 450m customers and operates in more than 30 countries worldwide including an extensive emerging markets portfolio.		17,642	2.8	18,444
12 (9)	Compass Group
Compass is a leading contract catering and food service company.  The company benefits from underlying growth in outsourcing, together with the potential for further margin improvement and growth from its emerging markets operations.  The company demonstrates strong cashflow characteristics.		17,574	2.8	17,508
13 (5)	Royal Dutch Shell
Royal Dutch Shell is engaged in all phases of the petroleum industry, from exploration to processing and distribution. It has strong positions in oil products marketing and LNG, globally. The group operates in over 130 countries.		17,542	2.8	23,156
14 (7)	Imperial Brands
Imperial Brands is an international tobacco company that manufactures and markets a range of cigarettes, tobacco, rolling papers and cigars.  The company's recent transaction to acquire certain assets of Lorillard and Reynolds in the United States provides an additional avenue for growth over the long term.		16,829	2.7	19,781
15 (20)	Microsoft
Microsoft develops, manufactures, licenses, sells and supports software products. The company, listed in the USA, offers operating systems software, server application software, business and consumer applications software, software development tools, and internet and intranet software.		15,429	2.5	12,249
16 (17)	BHP Billiton
BHP Billiton is the world's largest diversified resources group with a global portfolio of high quality assets. Core activities comprise the production and distribution of minerals, mineral products and petroleum.		15,347	2.5	13,388
17 (-)	BBA Aviation
BBA Aviation provides flight support and aftermarket services and systems. Flight support services include refuelling, cargo handling, ground handling and other services. Aftermarket services include overhaul of jet engines and supply of aircraft parts.		15,032	2.4	9,079
18 (14)	Sage Group
Sage Group is a software publishing business which develops, publishes and distributes accounting and payroll software. It also maintains a registered user database which provides a market for their related products and services, including computer forms, software support contracts, program upgrades and training.		14,592	2.3	15,118
19 (19)	Inmarsat
Inmarsat operates a global communications satellite system which provides voice and high-speed data services. Customers include major corporations from the maritime, media, oil and gas, construction and aeronautical industries, as well as governments and aid agencies.		13,514	2.2	12,696
20 (-)	Close Brothers
Close Brothers is a specialist financial services group which provides loans, trades securities and provides advice and investment management solutions to a wide range of clients.		13,174	2.1	9,891
Top twenty investments		386,652	62.0
The value of the 20 largest investments represents 62.0% (2016 - 65.3%) of total assets.
The figures in brackets denote the position at the previous year end. (-) not previously in 20 largest investments.