ABERDEEN LATIN AMERICAN INCOME FUND LIMITED

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 AUGUST 2017

Legal Entity Identifier (LEI):  549300DN623WEGE2MY04

 

STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

 

Investment Objective

The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.

 

Gearing

The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing.  The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis.  Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets.  The Company will not have any fixed, long-term borrowings.

 

Risk Diversification

The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments.  The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.

 

Management

The Company is managed by Aberdeen Private Wealth Management Limited ("APWML"), which is registered with the Jersey Financial Services Commission ("JFSC") for the conduct of fund services business.  The investment management of the Company has been delegated by APWML to Aberdeen Asset Managers Limited ("AAM").  AAM is based in London and is also a wholly-owned subsidiary of Standard Life Aberdeen plc (the "Standard Life Aberdeen Group"), a publicly-quoted company on the LSE.

 

References throughout this document to Aberdeen refer to both APWML and AAM and their responsibilities as Manager and Investment Manager respectively to the Company.

 

 

Financial Highlights

 

Ordinary share price total return			Earnings per Ordinary share (revenue)
2017	2016		2017	2016
+23.7%	+36.7%		4.77p	4.60p
Net asset value total return			Dividends per Ordinary share
2017	2016		2017	2016
+25.1%	+46.2%		3.50p	3.50p
Benchmark total return			Discount to net asset value per Ordinary share
2017	2016		2017	2016
+21.4%	+38.8%		13.3%	11.8%
Total return represents the capital return plus dividends reinvested.
Source: Aberdeen, Morningstar, Russell Mellon, Lipper & JPMorgan

 

 

STRATEGIC REPORT - CHAIRMAN'S STATEMENT

 

Overview

Latin American markets rode on a sustained and robust rally for the second year, lifted by confidence in the asset class mainly as a result of domestic economic and political changes. Donald Trump's pledge to cut US taxes and three well-signalled Federal Reserve interest rate hikes also supported markets. Most regional currencies strengthened against sterling, which continued to suffer from bouts of Brexit angst.

 

Besides a short-term market reaction to Donald Trump's surprise US presidential election victory, the only major blip on the radar occurred in May 2017, when Brazilian President Michel Temer was sucked into the vortex of a corruption scandal that threatened to upend his leadership. Temer denied any wrongdoing, rejected calls to step down, and Congress later voted against his indictment. The biggest effect of the episode was a delay to the all-important pension reform, which the administration was relying on to help reign in the country's debilitating fiscal spending. Still, all hope has not been lost - these policy proposals are back on the negotiating table and may yet come to fruition.

 

On the whole, the Temer administration's reform agenda and successes with pulling the economy out of its deepest recession ever buoyed investor sentiment, and kept Brazil's position up as one of the better performing Latin American markets during the year. Social spending was frozen for 20 years, an offer of debt-relief to states was cancelled, and the country's labour laws were overhauled. At the same time, consumer price inflation has fallen from double-digit levels of early last year to well below the official target, allowing the central bank to cut interest rates several times, contributing to the strong bond market rally

 

Similar disinflationary patterns were observed across all major South American economies, as the base effects of earlier currency weakness dissipated. Central banks of Chile, Colombia and Peru also eased monetary conditions, supporting the strong performance of the local bond markets. One notable exception in the region was Mexico, where the positive price impact of the structural reforms enacted over the last few years has faded, and inflation accelerated. The Mexican central bank had to deliver a rate hiking cycle to protect the currency and anchor inflation expectations. 

 

In equities Chile was another outperformer, despite sluggish economic growth. The stock market saw record foreign inflows amid improving consumer confidence, particularly as greater clarity emerged about the upcoming presidential elections in November. Market favourite Sebastián Piñera threw his hat in the ring and retains a solid lead over his leftist opponents, whose support base appears fragmented.

 

On the flipside, Argentina was hurt by benchmark provider MSCI's decision not to restore its status as an emerging market, in spite of President Mauricio Macri's raft of business-friendly policies. Mexico was another laggard, but the market still posted double-digit returns. Both share prices and the Peso took a beating in the lead-up to the US presidential elections, but rebounded in the second half of the review period, defying fears of US protectionism. The economy expanded, exports reached a new high and President Peña Nieto began to take a more proactive stance in NAFTA renegotiations.

 

Results and Dividends

I am pleased to report that your Company's NAV total return was 25.1% for the year ended 31 August 2017, ahead of the 21.4% rise in our composite benchmark's return. On a total return basis the Ordinary share price rose by 23.7% to 78.4p reflecting a widening in the level of discount to NAV per share which moved from 11.8% to 13.3% at the year end.

 

The earnings per Ordinary share for the year ended 31 August 2017 were 4.8p (2016: 4.6p). The Company has declared four interim dividends of 0.875p per Ordinary share in respect of the year bringing the total level of dividends to 3.5p (2016: 3.5p). Allowing for the payment of the four dividends £800,000 has been transferred to the carried forward revenue reserve.  The Board will continue to keep the level of revenue from the portfolio under careful review and intends to continue to pay an annual dividend of at least 3.5p per Ordinary share for the financial year ending 31 August 2018.  Dividends remain subject to investee company performance, the level of income from investments and currency movements.

 

As previously indicated, the Board has agreed to reinstate the company secretarial fee payable to the Manager at the level of £114,000 for the year ending 31 August 2017.  However, the Board is pleased to announce that it has secured agreement from the Manager to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.

 

Portfolio

During the year the allocation between equities and bonds was progressively adjusted with the portfolio being 50% equities and 50% bonds at the period end, as the Investment Manager continued to seek to exploit market opportunities (2016: 39% equities 61% bonds).  Subsequent to the period end the Investment Manager has continued this trend towards increasing equity exposure as economic conditions improve and the Company's revenue streams stabilise further and at the time of the writing the portfolio is approximately 52.5% equities and 47.5% bonds.

 

Share Capital Management

During the year the Company purchased for treasury 2,015,000 Ordinary shares for a total consideration of £1.45 million, at a discount to the NAV per share. Market volatility has, at times, continued to affect our ability to have a meaningful impact on the discount through the purchase of the Ordinary shares in the market and over this period the discount to NAV has widened from 11.8% to 13.3%. It remains the Board's intention, in more normal market conditions, to try to maintain a discount of around 5% over the longer term.  Subsequent to the year end a further 130,000 Ordinary shares have been purchased for treasury.  The Board will continue to make selective use of share buybacks, subject to prevailing market conditions and where to do so would be in Shareholders' interests. At the time of writing the Ordinary shares were trading at a discount of 10.8%.

 

Gearing

During the year the Company entered into a new unsecured three year £8 million multi-currency revolving facility agreement with Scotiabank (Ireland) Designated Activity Company (the "New Facility") which replaced a £10 million unsecured facility that matured in August.  The existing drawings of £6.5 million were rolled over under the New Facility.  The Board will continue to monitor the level of gearing under recommendation from the Investment Manager and in the light of market conditions.

 

Annual General Meeting

The AGM will be held at 10.00 a.m. on 7 December 2017 at the Company's registered office, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB and I look forward to meeting Shareholders on the day.

 

We are proposing to renew the Company's authority to buy back Ordinary shares subject to the United Kingdom Listing Authority's Listing Rules and Jersey law and any purchases will be at the absolute discretion of the Directors. We are also seeking to renew the authority to issue new Ordinary shares equivalent to up to 10% of the Company's existing Ordinary share capital at the AGM. Ordinary shares will only ever be issued at a premium to NAV per Ordinary share and will therefore be accretive and not disadvantageous to Ordinary Shareholders.

 

Investment Manager

The recent merger between the Investment Manager's parent company, Aberdeen Asset Management PLC, and Standard Life plc has produced the new investment arm which is Aberdeen Standard Investments. The new combined management group's investment approach will remain team-based with a strong emphasis on the fundamentals of individual companies. The equity investment process will continue to be headed by Devan Kaloo with global emerging debt continuing to be headed by Brett Diment. The Board will continue to monitor operational effects of the merger on the Company to ensure that satisfactory arrangements are in place for its effective management and successful performance.

 

Directorate

Martin Gilbert has indicated that he intends to retire from the Board at the forthcoming AGM and I would like to take this opportunity to sincerely thank him for his contribution to the Company since its launch in 2010.  The Nomination Committee is in the process of searching for a new independent non executive Director.  Shareholders will be updated in due course on the outcome of the search.

 

Outlook

A rigorous rebound since July has propelled Latin American equities to more than compensate for the May 2017 sell-off, and markets are likely to continue being supported by both local and external factors. A pick-up in global trade, a moderating US dollar and a fairly stable China could be helpful. A somewhat balanced oil and commodity prices environment would also reduce volatility. Meanwhile, the moderate growth and inflation outlook bodes well for the local bond markets, and we can expect lower or stable policy rates in the coming quarters. However, key global risks remain, not least among which is the threat of geopolitical turmoil triggered by heightened rhetoric between North Korea and the US.

 

On the continent, politics continues to take centre-stage with a host of elections anticipated for the next year. Brazil goes to the polls next October, leaving the Temer administration a quickly-diminishing window of opportunity to make its mark. Despite the overwrought headlines, the government has so far made progress in steering the economy into greener pastures and staying focused on improving the business environment. This bodes well for the future. Elsewhere, Mexico remains resilient as it asserts itself in trade negotiations with key partners in the lead-up to next July's presidential elections. In Chile, many are looking to the outcome of the November ballot for a sense of the direction in which the country will turn.

 

Within this context, your Investment Manager continues to seek out and add to the underlying portfolio with companies that have efficient operations and experienced management. The Latin American region provides appealing opportunities still because of the vast untapped potential of its growing populations with increasing disposable income. I am confident in your Manager's ongoing commitment to improve returns through due diligence and a disciplined long-term investment approach.

 

 

 

Richard Prosser

Chairman

18 October 2017

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Business Model

The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.

 

The business of the Company is that of an investment company and the Directors do not envisage any change in this activity in the foreseeable future. 

 

Investment Policy and Approach

The Company invests in:

 

-    companies listed on stock exchanges in the Latin American region;

-    Latin American securities (such as ADRs and GDRs) listed on other international stock exchanges;

-    companies listed on other international exchanges that derive significant revenues or profits from the Latin American region; and

-    debt issued by governments and companies in the Latin American region.

 

The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments.  The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.

 

Whilst the Board has provided the Investment Manager with broad investment guidelines in order to ensure a spread of risk, the Company's portfolio is not managed by reference to any benchmark and, therefore, the composition of its portfolio is not restricted by minimum or maximum country, market capitalisation or sector weightings.

 

The Company may invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in the Latin American region.

 

Derivative investments may be used for efficient portfolio management and hedging and may also be used in order to achieve the investment objective and to enhance portfolio performance.  The Company may purchase and sell derivative investments such as exchange-listed and over-the-counter put and call options on currencies, securities, fixed income, currency and interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon and enter into various interest rate and currency transactions such as swaps, caps, floors or collars or credit transactions and credit derivative instruments. The Company may also purchase derivative instruments that combine features of these instruments.  Aberdeen employs a risk management process to oversee and manage the Company's exposure to derivatives.  Aberdeen may use one or more separate counterparties to undertake derivative transactions on behalf of the Company, and may be required to pledge collateral in order to secure the Company's obligations under such contracts.  Aberdeen will assess on a continuing basis the creditworthiness of counterparties as part of its risk management process.

 

The Company may underwrite or sub-underwrite any issue or offer for sale of investments.

 

The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing.  The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis.  Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets calculated at the time of drawing.  The Company will not have any fixed, long-term borrowings.

 

The Company may also use derivative instruments for gearing purposes, in which case the investment restrictions will be calculated on the basis that the Company has acquired the securities to which the derivatives are providing exposure.

 

The Company will normally be fully invested. However, during periods in which economic conditions or other factors warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.

 

The Company invests and manages its assets, including its exposure to derivatives, with the objective of spreading risk in line with the Company's investment policy.

 

The Company may only make material changes to its investment policy (including the level of gearing set by the Board) with the approval of Ordinary Shareholders (in the form of an ordinary resolution).

 

Investment Restrictions

The minimum and maximum percentage limits set out under "Investment Policy and Approach" and "Investment Restrictions" will only be applied at the time of the relevant acquisition, trade or borrowing.  No more than 15% of the Company's or its subsidiary's gross assets will be invested in any company.

 

The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other investment companies admitted to the Official List of the Financial Conduct Authority, provided that this restriction does not apply to investments in any such investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed investment companies admitted to the Official List of the Financial Conduct Authority.

 

The Company may invest up to 25% of its gross assets in non-investment grade government debt issues (being debt issues rated BB+/Ba1 or lower).

 

The Company's aggregate gross exposure to derivative instruments will not exceed 50% of its gross assets.

 

The Company will not acquire securities that are unlisted or unquoted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange).  However, the Company may continue to hold securities that cease to be listed or quoted if Aberdeen considers this to be appropriate.

 

No underwriting or sub-underwriting commitment will be entered into if the aggregate of such investments would exceed 10% of the Company's net assets and no such individual investment would exceed 5% of the Company's net assets.

 

The Board has adopted a policy that the value of the Company's borrowings or derivatives (but excluding collateral held in respect of any such derivatives) will not exceed 30% the Company's net assets.

 

Duration

The Company does not have a fixed life or continuation vote.

 

Benchmark

The Company measures its performance against a composite benchmark index weighted as to 60% MSCI EM Latin America 10/40 Index and 40% JP Morgan GBI-EM Global Diversified (Latin America Carve Out) (both in sterling terms) (the "Benchmark").  The Company does not seek to replicate the Benchmark index in constructing its portfolio and the portfolio is not managed by reference to any index.  It is likely, therefore, that there will be periods when the Company's performance will be uncorrelated to any index or benchmark.

 

Key Performance Indicators (KPIs)

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy.  The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:

 

KPI	Description
Net Asset Value ("NAV") Total Return Performance versus Benchmark Index Total Return	The Board considers the Company's NAV total return figures versus the Benchmark to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The figures for this year, three years, five years and since inception are set out in the Annual Report.
Share Price Discount/Premium to NAV per Ordinary Share	The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions.  A graph showing the share price premium/(discount) relative to the NAV is also shown in the Annual Report.
Ordinary Share Price Total Return Performance	The Board also monitors the price at which the Company's shares trade relative to the Benchmark on a total return basis over time. A graph showing the total NAV return and the share price performance against the comparative index is shown in the Annual Report.
Dividends per Ordinary Share	The Board's aim is to provide shareholders with an attractive yield. Dividends paid in 2016 and 2017 are set out in the Annual Report.

 

Further commentary on the Company's performance is contained in the Chairman's Statement and Investment Manager's Review and further explanation of the terms is provided in the Glossary in the Annual Report.

 

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 condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. The Board reviews the risks and uncertainties faced by the Company in the form of a risk matrix and heat map at its annual audit committee and a summary of the principal risks are set out below.

Overview of Strategy continued

Strategic Report

 

An explanation of other risks relating to the Company's investment activities, specifically market risk including interest rate risk, foreign currency risk and other price risk, liquidity risk, credit risk, gearing risk and a note of how these risks are managed, is contained in note 14 to the financial statements.

 

Description	Mitigating Action
Investment strategy and objectives - the setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for Ordinary shares and a widening discount at which the Ordinary shares trade relative to their NAV.	The Board keeps the level of discount at which the Company's Ordinary shares trade as well as the investment objective and policy under review and the Board is updated at each Board meeting on the make up of and any movements in the Shareholder register.
Investment portfolio, investment management - investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives.	The Board sets, and monitors, its investment restrictions and guidelines, and receives regular reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines.
Financial obligations - the ability of the Company to meet its financial obligations, or increasing the level of gearing, could result in the Company becoming over-geared and therefore unable to take advantage of potential opportunities and result in a loss of value of the Company's Shares.	The Board sets a gearing limit to ensure that covenant restrictions in the Company's loan facility are not breached and the Board receives regular updates on the actual gearing levels the Company has reached from the Investment Manager together with the assets and liabilities of the Company and reviews these at each Board meeting.
Financial and Regulatory - the financial risks associated with the portfolio could result in losses to the Company. In addition, failure to comply with relevant regulation (including the Companies (Jersey) Law, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the FCA's listing rules, disclosure and prospectus rules) may have a negative impact on the Company.	The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are managed by the Investment Manager. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 14 to the financial statements. The Board relies upon Aberdeen to ensure the Company's compliance with applicable regulations and from time to time employs external advisers to advise on specific matters.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of AAM) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.	The Board receives reports from the Manager on internal controls and risk management at each Board meeting and receives assurances from its significant service providers. Further details of the internal controls which are in place are set out in the Directors' Report in the Annual Report.
Income and dividend risk - there is a risk that the portfolio could fail to generate sufficient income to meet the level of the annual dividend drawing upon, rather than replenishing, its revenue and/or capital reserves.	The Board monitors this risk through the review of income forecasts, provided by the Manager, at each Board meeting.

 

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this 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 carried out a robust assessment of the principal risks focussing upon the following factors:

 

-    The principal risks detailed in the Strategic Report;

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

-    The demand for the Company's Shares evidenced by the historical level of premium and or discount;

-    The level of income generated by the Company;

-    The liquidity of the Company's portfolio; and,

-    The flexibility of the Company's multi currency loan facility which matures in August 2020 including the financial covenants of the loans.

 

Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and 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. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, significant discount to NAV, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.

 

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares.  The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by Aberdeen on behalf of a number of investment companies under its management. The Company's financial contribution to the programme is matched by the Aberdeen.  Aberdeen's Brand team reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.

 

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfill its obligations and notes that gender is only one aspect of diversity.  At 31 August 2017, there were four male Directors on the Board.

 

Environmental, Social and Human Rights Issues

The Company has no employees as it is managed by APWML and ordinarily all activities are contracted out to third party service providers.  There are therefore no disclosures to be made in respect of employees.  The Company's socially responsible investment policy is outlined in the Annual Report.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources.

 

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles and the impact of regulatory changes (including MiFID II and Packaged Retail Investment and Insurance Products).  These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in my Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in the Investment Manager's Review.

 

For and on behalf of the Board

 

Richard Prosser

Chairman

18 October 2017

 

 

STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW

 

Performance Commentary

Latin American markets made healthy gains in the year under review, in tandem with the broader emerging market rally. Sentiment was buoyed by improving macroeconomic data, along with sluggish growth and inflation in the US. Markets largely took the US Federal Reserve's rate hikes in their strides, while their currencies strengthened against the US dollar.

 

Initially, markets and currencies were shaky, selling-off after Donald Trump's election victory in November, with Mexico faring the worst. The turn of the year saw a turnaround, driven by a more positive economic outlook. But markets tumbled again after Brazilian President Michel Temer was implicated in a corruption scandal. Temer successfully defended himself against the allegations, although the risk has not fully abated. As a result, sentiment was boosted by expectations that the path towards economic recovery would not be derailed, and markets subsequently recovered some of their poise. In addition, equities gained from the Fed's caution, which fuelled speculation that it would slow the pace of policy tightening.

 

Against this backdrop, the equity portfolio rose by 29.72% in sterling terms, outperforming the benchmark MSCI Emerging Markets Latin America 10/40 Index's 25.04% gain.

 

Brazil was the biggest contributor to relative performance in the equity portfolio, as our holdings there outperformed the wider market. Consumer stocks, in particular, performed well on a pickup in consumption. Shoemaker Arezzo was bolstered by impressive growth and expanding margins. Apparel retailers, Lojas Renner and Hering, rose on good results, while lower interest rates boosted car rental business Localiza. Also contributing positively was Bradespar, which benefited from sound operational performance and governance improvements at its main asset, iron ore miner Vale.

 

Not holding state-owned oil giant Petrobras and payments company Cielo also lifted relative returns. The former was pressured by volatile oil prices, while the latter was hurt by ongoing regulatory uncertainty. However, BRF was a major detractor, as the food company's shares suffered following a corruption investigation, as well as lower volumes domestically and margin pressures internationally.

 

The exposure to Mexico also benefited the portfolio, given the market's Trump-induced weakness before and immediately after the US election. Stock selection was also positive, with leading airport operator Asur delivering sound results on the back of healthy passenger traffic growth. Conversely, the lack of exposure to telecommunications group America Movil proved costly, as shares rebounded following better-than-expected quarterly results.

 

Also detracting was Peruvian construction company Grana Y Montero. Its shares fell after the firm was involved in corruption investigations over a project linked to former partner Odebrecht. The non-benchmark exposure to Argentina was also negative, as markets were weighed by benchmark provider MSCI's decision not to restore its emerging market status. In particular, pipe manufacturer Tenaris was a key laggard, following weak results and a pessimistic outlook on the back of the retreating oil price.

 

The bond portfolio returned 18.36% over the year, outperforming the JPM GBI-EM Global Diversified Latin America Index's return of 15.45%. Underweight exposure to the Mexican bond market and currency, which had the worst performance in the region, had the largest positive contribution to relative performance. Overweight to Brazilian long maturity bonds and to inflation linked bonds in Uruguay also significantly contributed to the outperformance, while the underweight position in Colombia and Chile and the overweight exposure to Peruvian duration had smaller positive impact.

 

It is worth noting that over the review period the Latin American index universe has expanded, as Argentina joined the benchmark in March, Uruguay's first eligible global bond was issued in June, allowing the country to join the index in August, while the weight of Chile increased substantially throughout the second quarter, as the country opened up its local bonds for international clearing. This underlines the gradual broadening and the improving liquidity of the local currency bond markets in the region.

 

Portfolio Activity

In addition to the changes mentioned in the Half Yearly Report, we introduced Mexican hotel operator Hoteles City Express, which has a solid business in a sector with good long-term growth opportunities. We also initiated BBVA Frances, a well-run and conservative Argentine lender.  Against this, we sold Brazilian cosmetics manufacturer Natura Cosmeticos to fund better opportunities elsewhere.

 

During the year we have increased our allocation to Argentinian bonds, keeping our active long position. Most recently we have rotated part of our exposure from the belly of the fixed rate curve into shorter dated monetary policy rate linked bonds, taking profits after a rally, and getting exposure to much higher short rates. In Mexico we have gradually moved from an underway duration position into an overweight one, as the inflation and rate hiking cycles ran their course, and positioned the portfolio to benefit from the upcoming fall in inflation. In Uruguay we participated in the inaugural fixed rate global bond issuance, reducing our short dated inflation linked bond exposure on the other side.

 

In Brazil, the new management team's strategy at Petrobras has been well received by the market, so too their efforts to deleverage the balance sheet.  However we are sceptical of the company's ability to deliver on its ambitious target of 2.5x net debt to EBITDA by 2018, likewise management's capacity to execute consistently in upstream and focus on efficiencies amongst ongoing political uncertainty in Brazil.  Above all, we remain wary of subpar governance standards at the state controlled oil and gas company following the Lava Jato scandal.

 

Outlook

Latin American markets appear to be on firmer ground and well-positioned to sustain their upward trajectory, supported by low inflation and accommodative policies. Risks persist, however. The increasing probability of interest rate normalisation by central banks in the US and Europe may dampen risk appetite. In the region, greater uncertainty due to upcoming elections in key markets could hurt the nascent economic recovery. 

 

In Brazil, attention now turns to the government's reform push. Improving economic growth, along with interest rate reductions due to subdued inflation is expected to boost consumption, benefiting consumer names there. However, significant slack remains in the economy after the deepest recession on record, preventing improving labour incomes translating into inflationary pressures. Similarly in Mexico, the peso's strength and tight policy could foster disinflation and help consumption remain resilient. This could benefit holdings like Femsa and Walmex. However, NAFTA renegotiations and the vagaries of President Trump could yet dent sentiment. On a broader level, firmer demand for commodities, aided by a stabilising China, will support Chile's economy, a major copper exporter, as well as the portfolio's mining stocks.

 

The improved operating environment, coupled with companies' efforts over the years to cut costs, improve efficiencies and expand margins, indicate the potential for profitability to rise even more. We remain confident in our bottom-up process, and will continue to favour quality companies with solid balance sheets and sensible management strategies, that can weather political uncertainties and benefit from the region's growth opportunities over the long-term.

 

 

Aberdeen Asset Managers Limited

18 October 2017

 

 

STRATEGIC REPORT - RESULTS

 

Financial Highlights
	31 August 2017	31 August 2016	% change
Total assets (£'000)	62,670	55,963	12.0
Total equity shareholders' funds (net assets) (£'000)	56,170	48,463	15.9
Market capitalisation (£'000)	48,704	42,745	13.9
Ordinary share price (mid market)	78.38p	66.63p	17.6
Net asset value per Ordinary share	90.40p	75.54p	19.7
Discount to net asset value per Ordinary share	13.29%	11.80%
Net gearing {A}	10.58%	14.39%
Dividends and earnings
Total return per Ordinary share	18.00p	24.04p
Earnings per Ordinary share (revenue)	4.77p	4.60p	3.7
Dividends per Ordinary share	3.50p	3.50p
Dividend cover	1.36 times	1.31 times
Revenue reserves{B} (£'000)	2,080	1,281
Operating costs
Ongoing charges ratio{C}	1.98%	2.01%
{A}        Calculated in accordance with AIC guidance "Gearing Disclosures post Retail Distribution Review".
{B}        Excludes payment of fourth interim dividend of 0.875p (2016 - 0.875p) per Ordinary share equating to £543,000 (2016 - £561,000).
{C}        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. Details of a cap on the ongoing charges ratio can be found in the Chairman's Statement and notes 6 and 16 to the financial statements.

 

 

Performance (total return)

 

	1 year	3 year	5 year	Since launch{A}
	% return	% return	% return	% return
Ordinary share price	+23.7	+14.5	+10.7	+11.9
Net asset value	+25.1	+15.5	+19.0	+27.3
Benchmark	+21.4	+14.1	+19.6	+23.9
Total return represents the capital return plus dividends reinvested.
{A} Launch date 16 August 2010.

 

 

Dividends

 

	Rate	xd date	Record date	Payment date
1st interim 2017	0.875p	15 December 2016	16 December 2017	30 January 2017
2nd interim 2017	0.875p	27 April 2017	28 April 2017	12 May 2017
3rd interim 2017	0.875p	6 July 2017	7 July 2017	28 July 2017
4th interim 2017	0.875p	5 October 2017	6 October 2017	27 October 2017
	______
Total dividends 2017	3.500p
	______
	Rate	xd date	Record date	Payment date
1st interim 2016	0.875p	17 December 2015	18 December 2015	29 January 2016
2nd interim 2016	0.875p	21 April 2016	22 April 2016	29 April 2016
3rd interim 2016	0.875p	7 July 2016	8 July 2016	29 July 2016
4th interim 2016	0.875p	6 October 2016	7 October 2016	28 October 2016
	______
Total dividends 2016	3.500p
	______

 

 

INVESTMENT PORTFOLIO

 

Ten Largest Equity Investments

As at 31 August 2017

 

			Valuation	Total	Valuation
			2017	assets	2016
Company	Sector	Country	£'000	%{A}	£'000
Banco Bradesco ADR
A leading Brazilian bank with a good quality loan portfolio, it has benefited from robust growth in retail lending.	Banks	Brazil	2,326	3.7	1,927
Itau Unibanco Holdings ADR
Brazil's largest privately-owned bank, it is strongly capitalised and well positioned with decent growth and asset quality.	Banks	Brazil	2,155	3.4	1,829
Lojas Renner{B}
The second largest clothing retailer in Brazil.	Retailing	Brazil	1,548	2.5	1,302
Ambev{B}
Latin America's largest producer of beer and the sole distributor of Pepsi products in Brazil.	Food, Beverage & Tobacco	Brazil	1,536	2.4	1,047
Fomento Economico Mexicano ADR
Fomento Economico Mexicano participates in beverages through Coca-Cola FEMSA, the largest bottler of Coca-Cola products globally. The company also participates in small-format stores through FEMSA Comercio which includes 12,800 Oxxo convenience stores and more recent developments into pharmacies and gas stations.	Food, Beverage & Tobacco	Mexico	1,288	2.1	929
Grupo Financiero Banorte
Mexico's third largest bank in terms of assets and the largest and only locally owned Mexican bank, well positioned to continue growing and strengthening its competitive position to benefit from this underpenetrated market.	Banks	Mexico	1,266	2.0	1,008
Grupo Aeroportuario Sureste ADR
It operates 9 airports in south east Mexico with a 50 year concession, expiring in 2048, including Cancun, its primary airport, which accounts for 70% of its traffic. In 2012 the business also won a bidding process to operate an airport in Puerto Rico.	Transportation	Mexico	1,256	2.0	1,028
Multiplan Empreendimentos NPV{B}
Brazil's leading mall developer and operator, owner of a solid portfolio of high quality malls.	Real Estate	Brazil	1,194	1.9	1,037
Wal-Mart De Mexico
Wal-Mart De Mexico is the largest retailer in Mexico, Costa Rica, El Salavdor, Honduras, Guatemala and Nicaragua with over 3,000 stores. It retails, food, clothing and a variety of other merchandise.	Food & Staples Retailing	Mexico	1,103	1.8	780
Vale ADR
Vale is one of the world's largest, fully-integrated, natural resources companies. Based in Brazil, the company produces iron-ore, manganese, alloys, gold, nickel, copper, aluminium, potash and numerous other minerals. In addition to its mining assets, Vale also owns and operates railways and maritime terminals.	Materials	Brazil	1,075	1.7	337
Top ten equity investments			14,747	23.5
Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.
{A}        Total assets less current liabilities (before deducting prior charges).
{B}        Held in Subsidiary.

 

 

Investment Portfolio - Other Investments

As at 31 August 2017

 

			Valuation	Total	Valuation
			2017	assets	2016
Company	Sector	Country	£'000	%{A}	£'000
Ultrapar Participacoes ADR	Energy	Brazil	1,037	1.7	908
S.A.C.I. Falabella{B}	Retailing	Chile	1,001	1.6	600
Bradespar{B}	Materials	Brazil	958	1.5	211
Arezzo Industria e Comercio{B}	Consumer Durables & Apparel	Brazil	901	1.4	589
Embotelladora Andina 'A' Pref{B}	Food, Beverage & Tobacco	Chile	867	1.4	697
B3 Brasil Bolsa Balco{B}{C}	Diversified Financials	Brazil	753	1.2	567
Banco Santander-Chile ADR	Banks	Chile	742	1.2	646
Brazil Foods Sponsored ADR	Food, Beverage & Tobacco	Brazil	658	1.0	855
Localiza Rent A Car{B}	Transportation	Brazil	644	1.0	450
WEG{B}	Capital Goods	Brazil	630	1.0	401
Top twenty equity investments			22,938	36.5
Arca Continental	Food, Beverage & Tobacco	Mexico	611	1.0	401
Parque Arauco{B}	Real Estate	Chile	541	0.9	378
Grupo Bancolombia	Banks	Columbia	503	0.8	434
Odontoprev{B}	Health Care Equipment & Services	Brazil	499	0.8	370
Tenaris ADR	Energy	Argentina	494	0.8	523
Cementos Pacasmayo	Materials	Peru	474	0.8	326
TOTVS{B}	Software & Services	Brazil	424	0.7	304
Wilson, Sons{B}	Transportation	Brazil	413	0.7	387
Iguatemi Empressa de Shopping{B}	Real Estate	Brazil	393	0.6	313
Linx	Telecommunication Services	Brazil	376	0.6	-
Top thirty equity investments			27,666	44.2
Valid Solucoes{B}	Commercial & Professional Services	Brazil	363	0.6	215
Grupo Financiero Santander	Banks	Mexico	340	0.5	250
BBVA Banco Frances	Banks	Argentina	326	0.5	0
Grupo Lala	Food, Beverage & Tobacco	Mexico	311	0.5	177
Cia Hering Com	Retailing	Brazil	309	0.5	223
Hoteles City Express	Consumer Services	Mexico	261	0.4	-
Itau Unibanco	Banks	Brazil	256	0.4	65
Kimberly-Clark de Mexico	Household & Personal Products	Mexico	249	0.4	203
BRF	Food, Beverage & Tobacco	Brazil	174	0.3	-
Itausa Investimentos Itau	Diversified Financials	Brazil	132	0.2	-
Top forty equity investments			30,387	48.5
Ultrapar Participacoes	Energy	Brazil	120	0.2	-
Grana Y Montero	Capital Goods	Peru	119	0.2	255
Banco Bradesco	Banks	Brazil	85	0.1	-
Fossal	Materials	Peru	4	-	-
Total equity investments			30,715	49.0
Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.
{A}        Total assets less current liabilities (before deducting prior charges).
{B}        Held in Subsidiary.
{C}        Previously BM&F Bovespa

 

 

Investment Portfolio - Bonds
As at 31 August 2017
			Valuation	Total	Valuation
			2017	assets	2016
Issue	Sector	Country	£'000	%{C}	£'000
Brazil (Fed Rep of) 10% 01/01/25{A}	Government Bonds	Brazil	6,197	9.9	5,656
Colombia (Rep of) 9.85% 28/06/27	Government Bonds	Columbia	3,990	6.4	4,771
Mexico (United Mexican States) 8.5% 18/11/38	Government Bonds	Mexico	2,483	3.9	846
Uruguay (Rep of) 5% 14/09/18	Government Bonds	Uruguay	2,171	3.4	5,046
Mex Bonos Desarr Fix Rt 10% 20/11/36	Government Bonds	Mexico	2,089	3.3	-
Brazil (Fed Rep of) 10% 01/01/21{A}	Government Bonds	Brazil	1,798	2.9	1,204
Uruguay (Rep of) 9.875% 20/06/22	Government Bonds	Uruguay	1,790	2.9	-
Brazil (Fed Rep of) 10% 01/01/27{A}	Government Bonds	Brazil	1,698	2.7	-
Peru (Rep of) 6.95% 12/08/31	Government Bonds	Peru	1,397	2.2	1,259
Mex Bonos Desarr Fix Rt 10% 05/12/24	Government Bonds	Mexico	1,364	2.2	-
			_______	_____
Top ten Bonds			24,977	39.8
Brazil (Fed Rep of) 10% 01/01/18{A}	Government Bonds	Brazil	1,168	1.9	1,235
Mexico (United Mexican States) 7.5% 03/06/27	Government Bonds	Mexico	1,089	1.7	1,504
Uruguay (Rep of) 4.25% 05/04/27	Government Bonds	Uruguay	820	1.3	1,007
Argentina (Rep of) 15.5% 17/10/26	Government Bonds	Argentina	788	1.3	-
Peru (Rep of) 6.95% 12/08/31	Government Bonds	Peru	677	1.1	610
Argentina (Rep of) Frn 21/06/20	Government Bonds	Argentina	661	1.1	-
Petroleos Mexicanos 7.19% 12/09/24	Bonds	Mexico	270	0.4	510
Mexico (United Mexican States) 7.75% 13/11/42	Government Bonds	Mexico	164	0.3	169
Bonos De Tesoreria 6.35% 12/08/28	Government Bonds	Peru	90	0.1	-
Peru (Rep of) 6.15% 12/08/32	Government Bonds	Peru	62	0.1	-
			_______	_____
Total value of Bonds			30,766	49.1
			_______	_____
Total value of equity investments			30,715	49.0
			_______	_____
Total value of portfolio investments			61,481	98.1
			_______	_____
Other net assets held in subsidiary			340	0.5
			_______	_____
Total investments			61,821	98.6
			_______	_____
Net current assets{B}			849	1.4
			_______	_____
Total assets{C}			62,670	100.0
			_______	_____
Portfolio investments reflect consolidated investee holdings of the Company and its Subsidiary.
{A}        Held in Subsidiary.
{B}        Excluding bank loans of £6,500,000 (2016 - £7,500,000)
{C}        Total assets less current liabilities (before deducting prior charges).

 

 

DIRECTORS' REPORT

The Directors present their Report and the audited financial statements for the year ended 31 August 2017.

 

Status

The Company is registered with limited liability in Jersey as a closed-ended investment company under the Companies (Jersey) Law 1991 with registered number 106012.  In addition, the Company is constituted and regulated as a collective investment fund under the Collective Investments Funds (Jersey) Law 1988. The Company has no employees and makes no political or charitable donations.

 

The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account and it is the Directors' intention that the Company should continue to be a qualifying investment.

 

Results and Dividends

Details of the Company's results and dividends are shown under Strategic Report - Results above.

 

Management Arrangements

The Company has an agreement (the "Management Agreement") with APWML for the provision of management services, details of which are shown in notes 5 and 6 to the financial statements.

 

Under the Management Agreement, Aberdeen is entitled to both a management fee and a company secretarial and administration fee. The secretarial and administration fee of £112,000 was waived for the years ended 31 August 2015 and 2016.   The Board has agreed to reinstate the company secretarial fee payable to the Manager at the level of £114,000 for the year ending 31 August 2017.  The Manager has agreed to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.

 

The Directors review the terms of the Management Agreement on a regular basis and have confirmed that, due to the investment skills, experience and commitment of Aberdeen, in their opinion the continuing appointment of APWML, on the terms agreed, is in the interests of Shareholders as a whole.

 

Share Capital

As at 31 August 2017 there were 62,137,824 Ordinary shares and 4,435,000 Ordinary shares held in treasury.  Details of changes to the Company's shares in issue during the year are provided in 'Your Company's Share Capital History' in the Annual Report.

 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary 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.

 

Risk Management

Details of the principal risks and uncertainties and KPIS are disclosed in the Strategic Report. Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 14 to the financial statements.

 

Directors

The current Directors, Richard Prosser, Martin Adams, George Baird and Martin Gilbert were the only Directors in office during the period. 

 

The Directors' beneficial holdings are disclosed in the Directors' Remuneration Report.  No Director has a service contract with the Company.  The Directors' interests in contractual arrangements with the Company are as shown in note 16 to the financial statements.  Details of the Directors retiring by rotation at the Annual General Meeting on 7 December 2017 are disclosed below under Policy on Tenure.  Mr Gilbert has indicated that he intends to retire from the Board at the forthcoming AGM and will not be seeking re-election.

 

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, has applied the principles identified in the UK Corporate Governance Code (published in April 2016) for the year ended 31 August 2017. The UK Corporate Governance Codes are available on the Financial Reporting Council's website: frc.org.uk.

 

The Company is a member of the Association of Investment Companies (AIC).  The Board has considered the principles and recommendations of the AIC Code of Corporate Governance for Jersey-domiciled member companies (AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company. Both the AIC Code and the AIC Guide are available on the AIC's website: theaic.co.uk.

 

The Company has complied throughout the accounting period with the relevant provisions contained within the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

 

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

-    executive directors' remuneration (D.2.1 and D.2.2);

-    the need for a Senior Independent Director; and,

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

 

For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance 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. The full text of the Company's Corporate Governance Statement can be found on the Company's website, latamincome.co.uk.

 

Directors have attended Board and Committee meetings during the year ended 31 August 2017 as follows (with their eligibility to attend the relevant meeting in brackets):

 

	Board	Audit Committee	MEC	Nomination Committee
R Prosser	5 (5)	2 (2)	1 (1)	2 (2)
M Adams	5 (5)	2 (2)	1 (1)	2 (2)
G Baird	5 (5)	2 (2)	1 (1)	2 (2)
M Gilbert**	2 (5)	n/a	n/a	0 (2)

**Mr Gilbert is not a member of the Audit Committee or Management Engagement Committee

 

Policy on Tenure

The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only. The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis. In accordance with corporate governance best practice, Directors who have served for more than nine years or who are non-independent will voluntarily offer themselves for re-election on an annual basis in the future. 

 

The Board has a schedule of matters reserved to it for decision and the requirement for Board approval on these matters is communicated directly to the senior staff of Aberdeen. Such matters include strategy, gearing, treasury and dividend policy. Full and timely information is provided to the Board to enable the Directors to function effectively and to discharge their responsibilities. The Board also reviews the financial statements, performance and revenue budgets.

 

The Board has put in place necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self-evaluation and a performance evaluation of the Board as a whole. For the year to 31 August 2017 this was undertaken using detailed questionnaires followed by one-on-one discussions. The Board also reviewed the Chairman's and Directors' other commitments and is satisfied that the Chairman and other Directors are capable of devoting sufficient time to the Company.  Accordingly, the Board has no hesitation in recommending to Shareholders the reappointment of Mr Gilbert and Mr Prosser who are each due to retire at the forthcoming AGM and submit themselves for re-election.

 

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access which every Director has to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

 

Board Committees

Under the United Kingdom Listing Authority's Listing Rules, where an investment company has only non-executive directors, the UK Code principles relating to directors' remuneration do not apply. Accordingly, the Board has not appointed a separate remuneration committee. The remuneration of the Directors has been set in order to attract individuals of a calibre appropriate to the future development of the Company.  The Company's policy on Directors' remuneration, together with details of the remuneration of each Director, is detailed in the Directors' Remuneration Report in the Annual Report.

 

Audit Committee

The Report of the Audit Committee is below.

 

Management Engagement Committee ("MEC")

The Board has appointed a MEC which comprises three independent Directors, Mr R Prosser (Chairman), Mr M Adams and Mr G Baird. The function of this Committee is to review performance and to ensure that the Manager and the Investment Manager comply with the terms of the Management Agreement and that the provisions of the agreement follow industry practice and remain competitive and in the best interest of Shareholders as a whole.  The Committee remains satisfied that the continuing appointment of Aberdeen on the terms agreed is in the interests of Shareholders as a whole. The key factors taken into account in reaching this decision are the investment skills, experience and commitment and performance record of Aberdeen. The Management Agreement may be terminated by either party by giving not less than 12 months' notice in writing.

Directors' Report continued

 

Nomination Committee

Appointments to the Board of Directors are considered by the Nominations Committee which comprises the entire Board and whose Chairman is Mr R Prosser.  Possible new Directors are identified against the requirements of the Company's business and the need to have a balanced Board.  Every Director is entitled to receive appropriate training as deemed necessary.  The Board's overriding priority when appointing new Directors to the Board will be to identify the candidate with the best range of skills and experience to complement existing Directors. 

 

The Articles of Association require that all Directors shall submit themselves for election by Shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves to re-election.  Mr Gilbert is Co-Chief Executive of Standard Life Aberdeen plc and under the United Kingdom Listing Authority's Listing Rules is subject to annual re-election by Shareholders. However, at the AGM of the Company to be held on 7 December 2017, Mr Gilbert has indicated that he will retire from the Board and does not intend to seek re-election. The Nomination Committee has resolved that Mr Baird will stand for re-election at the AGM consistent with the re-election process. The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all Directors contribute effectively

 

The Committee is in the process of conducting a search for a new non executive Director and will update shareholders in due course on the outcome of this process.

 

Diversity

Since launch in 2010, the Company has not appointed any new Directors to the Board. The Board's overriding priority for the current search for a new Director is to identify the candidate with the best range of skills and experience to complement the existing Directors. The Board recognises the benefits of diversity in the composition of the Board. When Board positions become available in the future as a result of retirement or resignation, the Company will ensure that a diverse group of candidates is considered.

 

Going Concern

In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.  The Company's assets including those of its subsidiary consist of a diverse portfolio of listed equities, equity-related investments and fixed income investments exposed to the Latin American market which in most circumstances are realisable within a very short timescale. 

 

The Company has considerable financial resources and, as a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite uncertainties in the economic outlook.

 

The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report and have reviewed forecasts detailing revenue and liabilities and the Directors 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.  Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements of the Company as at the date of the approval of this report.

 

Internal Controls and Risk Management

The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management.  The Board has prepared its own risk register which identifies potential risks both major and minor relating to: strategy; investment management; Shareholders; marketing; gearing; regulatory and financial obligations; third party service providers and the Board.  The Board considers the potential cause and possible impact of these risks as well as reviewing the controls in place to mitigate these potential risks.  A risk is rated by having a likelihood and an impact rating and the residual risk is plotted on a "heat map" and is reviewed regularly.

 

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness.  The Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial Business Reporting published in September 2014 (the FRC Guidance), assists Directors in applying section C.2 of the UK Code. The Board confirms that there is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company.  This process has been in place for the period under review and up to the date of approval of this Annual Report and financial statements, and is regularly reviewed by the Board and accords with the guidance. The Board has reviewed the effectiveness of the system of internal control.  In particular, it has reviewed and updated the process for identifying and evaluating the principal risks affecting the Company and policies by which these risks are managed.  The principal  risks and uncertainties faced by the Company are detailed in the Strategic Report.

 

The key components designed to provide effective internal control are outlined below:

 

-    Aberdeen prepares monthly forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

-    the Board and Aberdeen have agreed clearly defined investment criteria, specified levels of authority and exposure limits; reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with Aberdeen as appropriate;

-    as a matter of course Aberdeen's compliance department continually reviews its' operations;

-    written agreements are in place which specifically define the roles and responsibilities of the Manager and other third-party service providers and the Committee reviews, where relevant, periodic ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations; the Board has reviewed the  exceptions arising from the Manager's ISAE3402 for the year to 30 June 2017 which were not considered to be directly relevant to the Company; the Board is made aware by the Manager of relevant exceptions in ISAE3402 reporting from key third party service providers as part of the Manager's third party service provider oversight regime.

-    at its October 2017 meeting, the Audit Committee members carried out an annual assessment of internal controls for the year ended 31 August 2017 by considering documentation from Aberdeen, including the internal audit and compliance functions and taking account of events since 31 August 2017.  The results of the assessment were then reported to the Directors at the Board meeting which followed; and,

-    the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at Aberdeen, has decided to place reliance on Aberdeen's systems and internal audit procedures.

 

Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed.  Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.

 

Substantial Interests

The Company has been advised that the following Shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 August 2017:

 

Shareholder	Number of shares held	% held
City of London Investment	7,627,985	12.3
Aberdeen Retail Plans	6,743,060	10.9
1607 Capital Partners	5,747,427	9.3
Hargreaves Lansdown, stockbrokers	5,375,379	8.7
CCLA Investment Management	2,350,000	3.8
Raymond James Investment Services	2,229,792	3.6
Philip J Milton Stockbrokers	1,993,638	3.2
Barclays Stockbrokers	1,899,543	3.1
Alliance Trust Savings	1,870,412	3.0

 

On 13 October 2017 City of London Investment notified the Company that its holding had decreased to 7,127,985 Ordinary shares (11.5%).  There have been no other significant changes notified in respect of the above holdings between 31 August 2017 and 18 October 2017.

 

Alternative Investment Fund Managers Directive ("AIFMD")

On 14 July 2014, the Jersey Financial Services Commission granted the Company a certificate of exemption from the application of the Alternative Investment Funds (Jersey) Regulations 2012 to any marketing it may carry out within any EU member state.  APWML, as the Company's non-EEA alternative investment fund manager, also notified the UK Financial Conduct Authority ("FCA") in accordance with the requirements of the UK National Private Placement Regime for inclusion of the Company on the UK register as a non-EEA alternative investment fund being marketed in the UK.

 

In addition, in accordance with Article 23 of the AIFMD and Rule 3.2.2 of the FCA FUND Sourcebook, APWML is required to make available certain disclosures for potential investors in the Company and these are available on the Company's website: latamincome.co.uk.

 

Special Business at the Annual General Meeting

Directors' Authority to Allot Relevant Securities

There are no provisions under Jersey law which confer rights of pre-emption upon the issue or sale of any class of shares in the Company.  However, as the Ordinary shares are traded on the LSE and have a premium listing, the Company is required to offer pre-emption rights to its Shareholders and the Articles of Association reflect this.  Ordinary shares will only be issued at a premium to the prevailing NAV per Ordinary share and, therefore, will not be disadvantageous to existing Ordinary Shareholders. 

Directors' Report continued

Governance

 

Unless previously disapplied by special resolution, in accordance with the Listing Rules of the Financial Conduct Authority, the Company is required to first offer any new shares or securities (or rights to subscribe for, or to convert or exchange into, shares) proposed to be issued for cash to Shareholders in proportion to their holdings in the Company.  In order to provide for such share issues, your Board is therefore also proposing that an annual disapplication of the pre-emption rights is given to the Directors so that they may issue shares as and when appropriate.  Accordingly, Resolution 7, a Special Resolution, proposes a disapplication of the pre-emption rights in respect of 10% of the shares in issue, set to expire on the earlier of eighteen months from the date of the resolution or at the conclusion of the Annual General Meeting to be held in 2018.

 

Purchase of the Company's Securities

In the past the Company has quoted the aim of its discount management policy as being to try to maintain the price at which the Ordinary shares trade relative to their NAV at a discount of no more that 5%. As stated in the Chairman's Statement, during the year under review the Company bought back 2,015,000 Ordinary shares for treasury at a total cost of £1,454,000. Subsequent to the period end a further 130,000 Ordinary shares have been purchased for treasury at a cost of £102,000. 

 

Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing exclusive of income NAV per Ordinary share (as last calculated) where the Directors believe such purchases will enhance Shareholder value and are likely to assist in narrowing any discount to NAV at which the Ordinary shares may trade. 

 

Resolution 6, a Special Resolution, will be proposed to renew the Directors' authority to make market purchases of the Ordinary shares in accordance with the provisions of the Listing Rules of the Financial Conduct Authority. The Company will seek authority to purchase up to a maximum of 9,294,972 Ordinary shares (representing 14.99 per cent. of the current issued Ordinary share capital excluding treasury shares).  The authority being sought shall expire at the conclusion of the Annual General Meeting in 2018 unless such authority is renewed prior to that time.  Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly, or the Ordinary shares will be held in treasury, in accordance with the authority previously conferred by Shareholders.

 

The Companies (Jersey) Law 1991 allows companies to either cancel shares or hold them in treasury following a buy-back.  These powers give Directors additional flexibility and the Board considers that it is in the interest of the Company that such powers be available, including the power to hold treasury shares.  Any future sales of Ordinary shares from treasury will only be undertaken at a premium to the prevailing NAV per Ordinary share for the benefit of all Shareholders. The Directors monitor the level of shares held in treasury and whilst there are no upper limits on the number of shares that can be held in treasury consideration will be given to cancelling treasury shares if the number becomes excessively high compared to the issues share capital.

 

Reappointment of Independent Auditor

Our auditor, Ernst & Young LLP, has indicated its willingness to remain in office.  The Directors will place a Resolution before the Annual General Meeting to re-appoint them as independent auditor for the ensuing year, and to authorise the Directors to determine their remuneration.

 

Recommendation

Your Board considers Resolutions 6 and 7 to be in the best interests of the Company and its members as a whole.  Accordingly, your Board recommends that Ordinary Shareholders should vote in favour of Resolutions 6 and 7 to be proposed at the Annual General Meeting, as they intend to do in respect of their own beneficial shareholdings amounting to 164,000 Ordinary shares.

 

Directors' & Officers Liability Insurance

Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.

 

Relations with Shareholders

The Directors place a great deal of importance on communication with Shareholders.  The Chairman welcomes feedback from all Shareholders and meets periodically with the largest Shareholders to discuss the Company.  The Annual Report and financial statements are 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 Aberdeen's freephone information service and the Company's website: latamincome.co.uk.

 

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 Aberdeen) in situations where direct communication is required and representatives from the Board meet periodically with major Shareholders.

 

The Notice of the Annual General Meeting included within the Annual Report and financial statements is ordinarily sent out at least 20 working days in advance of the meeting.  All Shareholders have the opportunity to put questions to the Board or Aberdeen, either formally at the Company's Annual General Meeting or informally following the meeting.  The Company Secretary is available to answer general Shareholder queries at any time throughout the year.  The Directors are keen to encourage dialogue with Shareholders and the Chairman welcomes direct contact from Shareholders. 

 

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 Manager 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 company, 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.

 

For and on behalf of the Board

 

Aberdeen Private Wealth Management Limited

Secretary

18 October 2017

 

1st Floor, Sir Walter Raleigh House

48 - 50 Esplanade, St Helier

Jersey JE2 3QB

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

The Companies (Jersey) Law 1991 requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles.  The financial statements of the Company 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 should:

 

-    select suitable accounting policies and then apply them consistently;

-    make judgments and estimates that are reasonable;

-    specify which generally accepted accounting principles have been adopted in their preparation;

-    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

-    assess whether the Annual Report and financial statements, taken as a whole, is 'fair, balanced and understandable'.

 

The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure & Transparency Rules of the UK Listing Authority which, with regard to Corporate Governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the UK Corporate Governance Code applicable to the Company.

 

Declaration

The Directors listed in the Directors' Report, being the persons responsible, hereby confirm to the best of their knowledge:

 

-    that the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the International Accounting Standards Board 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, including the Chairman's Statement and the Investment Manager's Review, 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

 

Richard Prosser

Chairman

18 October 2017

 

1st Floor, Sir Walter Raleigh House

48 - 50 Esplanade, St Helier

Jersey JE2 3QB

 

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

 

 

STATEMENT OF COMPREHENSIVE INCOME

 

		Year ended 31 August 2017			Year ended 31 August 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Income
Income from investments	4	3,772	-	3,772	3,544	-	3,544
Gains on financial assets held at fair value through profit or loss		-	9,016	9,016	-	13,984	13,984
Currency losses		-	(183)	(183)	-	(1,222)	(1,222)
(Losses)/gains on forward foreign currency contracts		-	(65)	(65)	-	132	132
		_______	_______	_______	_______	_______	_______
		3,772	8,768	12,540	3,544	12,894	16,438
		_______	_______	_______	_______	_______	_______
Expenses
Investment management fee	5	(233)	(349)	(582)	(181)	(271)	(452)
Other operating expenses	6	(443)	-	(443)	(322)	-	(322)
		_______	_______	_______	_______	_______	_______
Profit before finance costs and taxation		3,096	8,419	11,515	3,041	12,623	15,664
Finance costs		(36)	(54)	(90)	(40)	(60)	(100)
		_______	_______	_______	_______	_______	_______
Profit before taxation		3,060	8,365	11,425	3,001	12,563	15,564
Taxation		(46)	-	(46)	(27)	-	(27)
		_______	_______	_______	_______	_______	_______
Profit for the year		3,014	8,365	11,379	2,974	12,563	15,537
		_______	_______	_______	_______	_______	_______
Earnings per Ordinary share (pence)	8	4.77	13.23	18.00	4.60	19.44	24.04
		_______	_______	_______	_______	_______	_______
The profit for the year is also the comprehensive income for the year.
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these financial statements.

 

 

BALANCE SHEET

 

		As at	As at
		31 August	31 August
		2017	2016
	Notes	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	9	61,821	55,177
		_______	_______
Current assets
Cash		653	524
Forward foreign currency contracts		56	86
Other receivables		473	338
		_______	_______
Total current assets		1,182	948
		_______	_______
Total assets		63,003	56,125
Current liabilities
Bank loan	10	(6,500)	(7,500)
Forward foreign currency contracts		(13)	(21)
Other payables		(320)	(141)
		_______	_______
Total current liabilities		(6,833)	(7,662)
		_______	_______
Net assets		56,170	48,463
		_______	_______
Equity capital and reserves
Equity capital	11	65,936	65,936
Capital reserve	12	(11,846)	(18,754)
Revenue reserve		2,080	1,281
		_______	_______
Equity Shareholders' funds		56,170	48,463
		_______	_______
Net asset value per Ordinary share (pence)	13	90.40	75.54
		_______	_______

 

 

STATEMENT OF CHANGES IN EQUITY

 

Year ended 31 August 2017
		Stated	Capital	Revenue
		capital	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000
Balance at 1 September 2016		65,936	(18,754)	1,281	48,463
Profit for the year		-	8,365	3,014	11,379
Dividends paid	7	-	-	(2,215)	(2,215)
Purchase of own shares to be held in treasury		-	(1,457)	-	(1,457)
		_______	_______	_______	_______
Balance at 31 August 2017		65,936	(11,846)	2,080	56,170
		_______	_______	_______	_______
Year ended 31 August 2016
		Stated	Capital	Revenue
		capital	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000
Balance at 1 September 2015		65,936	(30,722)	658	35,872
Profit for the year		-	12,563	2,974	15,537
Dividends paid	7	-	(154)	(2,351)	(2,505)
Purchase of own shares to be held in treasury		-	(441)	-	(441)
		_______	_______	_______	_______
Balance at 31 August 2016		65,936	(18,754)	1,281	48,463
		_______	_______	_______	_______

 

 

CASH FLOW STATEMENT

 

	Year ended	Year ended
	31 August 2017	31 August 2016
	£'000	£'000
Dividend income	515	338
Fixed interest income	1,465	1,116
Income from Subsidiary	1,407	1,332
Investment management fee paid	(576)	(442)
Other paid expenses	(408)	(276)
	_______	_______
Cash generated from operating activities before finance costs and taxation	2,403	2,068
Interest paid	(89)	(99)
Withholding taxes paid	(46)	(25)
	_______	_______
Net cash inflow from operating activities	2,268	1,944
Cash flows from investing activities
Purchases of investments	(12,957)	(3,940)
Proceeds from sales of investments	12,510	6,027
	_______	_______
Net cash (outflow)/inflow from investing activities	(447)	2,087
Cash flows from financing activities
Equity dividends paid	(2,215)	(2,505)
Repurchase of own shares	(1,437)	(441)
Capital returned from Subsidiary	3,209	970
Loan drawn down	-	7,500
Loan repaid	(1,000)	(9,157)
	_______	_______
Net cash outflow from financing activities	(1,443)	(3,633)
	_______	_______
Net increase in cash	378	398
Foreign exchange	(249)	(712)
Cash at start of year	524	838
	_______	_______
Cash and cash equivalents at end of year	653	524
	_______	_______

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.	Principal activity
	The Company is a closed-ended investment company incorporated in Jersey, and its shares are traded on the London Stock Exchange and are listed in the premium segment of the Financial Conduct Authority's Official List. The Company's principal activity is investing in Latin American securities.
	The principal activity of its Delaware incorporated subsidiary, Aberdeen Latin American Income Fund LLC ("Subsidiary") is similar in all relevant respects to that of its Jersey parent.

 

2.	Accounting policies
	(a)	Basis of preparation
		The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 August 2017.
		The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by International Accounting Standards Board (IASB). The financial statements have been prepared on a historical-cost basis, except for financial assets and financial liabilities held at fair value through profit or loss.
		The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and, for the above reasons, they continue to adopt the going concern basis in preparing the financial statements.
		The Company's financial statements are presented in sterling, which is also the functional currency as it is the currency in which shares are issued and expenses are generally paid. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.
		Where presentational guidance set out in the Statement of Recommended Practice ("SORP"): 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC"), is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP issued in January 2017.
		Significant accounting judgements, estimates and assumptions
		The preparation of financial statements in conformity with IFRS requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies.
		Management have identified two such areas in preparing the financial statements being the application of IFRS 10 'Consolidated Financial Statements' and valuation technique used to derive the fair value of the Company's subsidiary for financial reporting purposes.
		Application of IFRS 10: Assessment of investment entity
		One of the key areas for consideration has been the application of IFRS 10 'Consolidated Financial Statements' including the Amendments, 'Investment entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (Investment Entity Amendments). The amendments require entities that meet the definition of an investment entity to fair value certain subsidiaries through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement, rather than consolidate their results. However, entities which are not themselves investment entities and provide investment related services to the Company will continue to be consolidated.
		Entities which meet the definition of an investment entity are required to fair value subsidiaries through profit or loss rather than consolidate them. An investment entity meets the definition of an investment entity if it satisfies the following three criteria:
		(i) an entity obtains funds from one or more investors for the purpose of providing those investors with investment services; the Company provides investment services and has several investors who pool funds to gain access to these services and investment opportunities which they might not be able to as individuals.
		(ii) an entity commits to its investors that its business purpose is to investment solely for capital appreciation, investment income, or both; the Company's investment objective is to provide Ordinary Shareholders with a total return, with an above average yield, primarily through investing in Latin American securities.
		(iii) an entity measures and evaluates the performance of substantially all of its investments on a fair value basis; the Company has elected to measure and evaluate the performance of all of its investments on a fair value basis. The fair value basis is used to present the Company's performance in its communication with the market and the primary measurement attribute to evaluate performance of all of its investments and to make investment decisions.
		The Company meets the definition of an investment entity, and, therefore, all investments in subsidiaries are recorded at fair value through profit or loss.
		Fair value of the Subsidiary
		The Directors conclude that the net asset value of the wholly owned Subsidiary is the best estimate of fair value for financial reporting purposes based on the composition of the Subsidiary's balance sheet and the other reasons disclosed in note 9(a).
		New and amended standards and interpretations
		There were no new or amended standards adopted by the Company during the year.
		Standards issued but not yet effective
		At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:
		IFRS 9 Financial Instruments (effective 1 January 2018, revised, early adoption permitted)
		IFRS 15 Revenue from contracts with customers (effective 1 January 2018)
		The Company will adopt the Standards and Interpretations in the reporting period when they become effective and following an assessment the Board concludes that the adoption of these Standards and Interpretations in future periods will not materially impact the Company's financial results in the period of initial application although there will be revised presentations to the Financial Statements and additional disclosures. In forming this opinion the Board specifically notes the fundamental rewrite of accounting rules for financial instruments under IFRS 9 and introduces a new classification model for financial assets that is more principles-based than the current requirements under IAS 39 Financial Instruments: Recognition and Measurement. Financial assets are classified according to their contractual cash flow characteristics and the business models under which they are held. Instruments will be classified either at amortised cost, the newly established measurement category fair value through other comprehensive income or fair value through profit of loss. The Company's portfolio includes a relatively small exposure to corporate bonds, which have contractual cash flows and the Board have determined it will be appropriate to continue to classify these securities at fair value through profit or loss as even though the Company will collect contractual cash flows while it holds these securities as it is only incidental and not integral to achieving the investment objective, which is to provide investors with a total return. In further considering the business model, the Board is mindful that the Manager manages and evaluates the performance of the Company on a fair value basis and is compensated based on the fair value of assets managed rather than contractual cash flows collected. Following an assessment, the Company concludes that IFRS 15 will not have a significant impact on the financial statements.
	(b)	Income
		Dividend income from equity investments is recognised on the ex-dividend date. Dividend income from equity investments where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Where the Company has elected to receive dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Special dividends are credited to capital or revenue according to their circumstances.
		The fixed returns on debt instruments are recognised using the effective interest rate method.
	(c)	Expenses and interest payable
		All expenses, with the exception of interest, which is recognised using the effective interest method, are accounted for on an accruals basis. Expenses are charged to the revenue column of the Statement of Comprehensive Income except as follows:
		costs incidental to the issue of new shares as defined in the prospectus are charged to capital;
		expenses resulting from the acquisition or disposal of an investment are charged to the capital column of the Statement of Comprehensive Income; and
		expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The Company charges 60% of investment management fees and finance costs to capital, in accordance with the Board's estimate of expected long-term return in the form of capital gains and income respectively from the investment portfolio of the Company.
	(d)	Taxation
		Profits arising in the Company for the year ended 31 August 2017 will be subject to Jersey income tax at the rate of 0% (2016 - 0%).
		Investment income and capital gains are subject to withholding tax deducted at the source of the income. The Company presents the withholding tax separately from the gross investment income in the Statement of Comprehensive Income under taxation.
	(e)	Investments held at fair value through profit or loss
		Purchases of investments are recognised on a trade-date basis and designated upon initial recognition as held at fair value through profit or loss. All investments are considered to form part of a group of financial assets and subsequently measured on a fair value basis, in accordance with the Company's documented investment strategy, and information about the Company is provided internally on that basis. These investments also include inflation-linked bonds which are considered to be compound financial instruments. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. Sales of investments are also recognised on a trade date basis.
		Changes in the value of investments held at fair value through profit or loss, gains and losses on disposal and related transaction costs are recognised in the Statement of Comprehensive Income.
	(f)	Fair value measurement
		Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is derived from unadjusted quoted bid prices in active markets, with the exception of inflation-linked bonds whose quoted bid prices are adjusted for indexation arising from the movement of the consumer prices index for the relevant country of issue of the bond. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
	(g)	Cash and cash equivalents
		Cash comprises cash at banks and short-term deposits.
	(h)	Other receivables and payables
		Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their recoverable amount. Other payables are non interest bearing and are stated at their payable amount.
	(i)	Nature and purpose of reserves
		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.
		When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the capital reserve. Should these shares be sold 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.
		Revenue reserve
		This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income less dividends which have been paid.
	(j)	Foreign currency
		Monetary assets and liabilities are converted into sterling at the rate of exchange ruling at the Balance Sheet date. Transactions during the period involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as a currency gain or loss.
	(k)	Bank loans
		Monies borrowed to finance the investment objectives of the Company are stated at the amount of the net proceeds immediately after the issue plus cumulative finance costs less cumulative payments made in respect of the debt. The finance cost of such borrowings is allocated to years over the term of the debt at a constant rate on the carrying amount and is charged 40% to revenue and 60% to capital reserves to reflect the Company's investment policy and estimated prospective income and capital growth.
		Borrowings are held at amortised cost using the effective interest rate method.
	(l)	Intercompany balances
		The net income generated in the Subsidiary is transferred to the Company via an intercompany balance on a periodic basis.
	(m)	Derivative financial instruments
		The Company may use forward foreign exchange contracts to manage currency risk arising from investment activity.
		Derivatives are measured at fair value calculated by reference to forward exchange rates for contracts with similar maturity profiles.
		Changes in the fair value of derivatives are recognised in the Statement of Comprehensive Income as revenue or capital depending on their nature.

 

3.	Segmental reporting
	The Company is engaged in a single segment of business. For management purposes, the Company is organised into one main operating segment, which invests in equity securities, debt instruments and related derivatives. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.
	The following table analyses the Company's income, including income derived from the Subsidiary's investments, by geographical location. The basis for attributing the income is the place of incorporation of the instrument's investment, however, where the Company invests in ADR designated securities the underlying geographic location is considered to be the basis.
		2017	2016
		£'000	£'000
	Argentina	212	15
	Brazil	1,791	1,691
	Chile	66	54
	Columbia	314	331
	Mexico	665	426
	Peru	160	139
	Uruguay	564	888
		_______	_______
		3,772	3,544
		_______	_______
	The Company's income (including that of its Subsidiary on a look-through basis) is derived 20% (2016 - 15%) from equities, 80% (2016 - 85%) from bonds.

 

		2017	2016
4.	Income from investments	£'000	£'000
	Dividend income	518	356
	Fixed interest income	1,683	1,654
	Income from Subsidiary	1,571	1,534
		_______	_______
		3,772	3,544
		_______	_______
	The Company owns 100% of the share capital of its Subsidiary. The Company receives income from its Subsidiary and there are no significant restrictions on the transfer of funds to or from the Subsidiary. During the year net revenue of £1,571,000 (2016 - £1,534,000) was generated by the Subsidiary.

 

5.	Investment management fee
	The Company has an agreement with APWML for the provision of management services. Portfolio management services have been delegated by APWML to AAM.
	The management fee is based on an annual rate of 1% of the NAV of the Company, valued monthly. The agreement is terminable on one year's notice. The balance due to APWML at the year end was £52,000 (2016 - £47,000). Investment management fees are charged 40% to revenue and 60% to capital.

 

		2017	2016
6.	Other operating expenses	£'000	£'000
	Directors' fees	75	71
	Promotional activities	36	32
	Secretarial and administration fee	114	-
	Auditor's remuneration:
	- fees payable for the audit of the annual accounts	33	30
	Legal and advisory fees	2	14
	Custodian and overseas agents' charges	64	61
	Broker fees	30	30
	Stock exchange fees	19	17
	Registrar's fees	19	17
	Printing	17	15
	Other	34	35
		_______	_______
		443	322
		_______	_______
	The Company has an agreement with AAM for the provision of promotional activities. The total fees incurred under the agreement during the year were £36,000 (2016 - £32,000), of which £6,000 (2016 - £5,000) was due to AAM PLC at the year end.
	The Company's management agreement with APWML provides for the provision of company secretarial and administration services. This agreement has been sub-delegated to Aberdeen Asset Managers Limited. APWML is entitled to an annual fee of £114,000 which increases annually in line with any increase in the UK Retail Price Index. A balance of £28,500 (2016 -N/A) was due to APWML at the year end. APWML waived its entitlement to a fee during the year to 31 August 2016.
	The Manager has agreed to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.

 

		2017	2016
7.	Dividends on equity shares	£'000	£'000
	Distributions to equity holders in the period:
	Fourth interim dividend for 2016 -0.875p (2015 - 1.25p) per Ordinary share	561	812{A}
	First interim dividend for 2017 - 0.875p (2016 - 0.875p) per Ordinary share	558	567
	Second interim dividend for 2017 - 0.875p (2016 - 0.875p) per Ordinary share	550	564
	Third interim dividend for 2017 - 0.875p (2016 - 0.875p) per Ordinary share	546	562
		_______	_______
		2,215	2,505
		_______	_______
	{A}Part paid from capital reserves (£154,000) due to insufficient revenue reserves available at the time.
	The fourth interim dividend for the year of 0.875p per Ordinary share has not been included as a liability in these financial statements as it was announced and paid after 31 August 2017.

 

8.	Earnings per Ordinary share
	The basic earnings or loss per Ordinary share is based on the profit for the year of £11,379,000 (2016 - £15,537,000) and on 63,208,980 (2016 - 64,626,472) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
	The basic earnings per Ordinary share detailed above can be further analysed between revenue return and capital return as follows:
		2017			2016
	Basic	Revenue	Capital	Total	Revenue	Capital	Total
	Profit (£'000)	3,014	8,365	11,379	2,974	12,563	15,537
	Weighted average number of Ordinary shares in issue ('000)			63,209			64,626
	Return per Ordinary share (pence)	4.77	13.23	18.00	4.60	19.44	24.04

 

				Year ended	Year ended
9.	Investments held at fair value through profit or loss			31 August 2017	31 August 2016
	(a)		Company	£'000	£'000
			Quoted equities	16,599	13,165
			Quoted bonds	19,904	18,540
			Investment in Subsidiary	25,318	23,472
				_______	_______
			Closing valuation	61,821	55,177
				_______	_______
			Investment in Subsidiary
			The Company holds 100% of the share capital of its Subsidiary. The Company meets the definition of an investment entity, therefore it does not consolidate its Subsidiary but recognises it as an investment at fair value through profit or loss. The fair value of the Subsidiary is based on its net assets which comprises investments held at fair value, cash, income receivable and other receivables/payables. The Company receives income from its Subsidiary and there are no significant restrictions on the transfer of funds to or from the Subsidiary.
	(b)		Transaction costs
			During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. The total costs were as follows:
				Year ended	Year ended
				31 August 2017	31 August 2016
				£'000	£'000
			Purchases	4	4
			Sales	3	4
				_______	_______
				7	8
				_______	_______

 

10.	Creditors: amounts falling due within one year
	Bank loan
	During the year the Company entered into a new £8 million (2016 - £10 million) three year unsecured revolving multi-currency loan facility with Scotiabank (Ireland) Designated Activity Company expiring on 15 August 2020. At the year end £6,500,000 was drawn down (2016 - £7,500,000) under the facility, fixed to 15 September 2017 at an all-in rate of 1.32544%.
	At the date this Report was approved, £6,500,000 was drawn down under this facility and fixed to 16 November 2017 at an all-in rate of 1.37544%.
	Under the terms of the loan facilities the Company's borrowings must not exceed 25% of adjusted NAV. Adjusted NAV is defined as total net assets less, inter alia, the aggregate of all excluded assets, excluded assets being, without double counting, the value of any unquoted assets, all investments issued by a single issuer in excess of 15% of total NAV, all Brazilian and Mexican bonds in excess of 30%, any MSCI Industry category in excess of 25% and cash, and any shortfall in cash, equities and investment Grade bonds below 70%.
	The Directors are of the opinion that there is no significant difference between the carrying value and fair value of the bank loan due to its short term nature.

 

		2017		2016
11.	Stated capital	Number	£'000	Number	£'000
	Issued and fully paid - Ordinary shares
	Balance brought forward	64,152,824	65,936	65,022,824	65,389
	Ordinary shares bought back in the period	(2,015,000)	-	(870,000)	-
	Deferred shares redeemed in the period	-	-	-	547
		_______	_______	_______	_______
	Balance carried forward	62,137,824	65,936	64,152,824	65,936
		_______	_______	_______	_______
		2017		2016
		Number	£'000	Number	£'000
	Issued and fully paid - Subscription shares
	Balance brought forward	-	-	10,420,986	547
	Subscription shares converted to deferred shares and redeemed in the period	-	-	(10,420,986)	(547)
		_______	_______	_______	_______
	Balance carried forward	-	-	-	-
		_______	_______	_______	_______
		2017		2016
		Number	£'000	Number	£'000
	Issued and fully paid - Treasury shares
	Balance brought forward	2,420,000	-	1,550,000	-
	Ordinary shares bought back in the period	2,015,000	-	870,000	-
		_______	_______	_______	_______
	Balance carried forward	4,435,000	-	2,420,000	-
		_______	_______	_______	_______
		2017		2016
		Number	£'000	Number	£'000
	Issued and fully paid - Deferred shares
	Balance brought forward	-	-	-	-
	Subscription shares converted in the period	-	-	10,420,986	547
	Deferred shares redeemed in the period	-	-	(10,420,986)	(547)
		_______	_______	_______	_______
	Balance carried forward	-	-	-	-
		_______	_______	_______	_______
	Stated capital	66,572,824	65,936	66,572,824	65,936
		_______	_______	_______	_______
	The Company's Ordinary shares have no par value. The number of Ordinary shares authorised for issue is unlimited.
	During the year ended 31 August 2017, 2,015,000 (2016 - 870,000) Ordinary shares were bought back at a total cost of £1,457,000 (2016 - £441,000) including expenses. All of these shares were placed in treasury (2016 - same). Shares held in treasury consisting of 4,435,000 (2016 - 2,420,000) Ordinary shares represent 6.66% (2016 - 3.64%) of the Company's total issued share capital at 31 August 2017.
	The Ordinary shares are entitled to all of the capital growth in the Company's assets and to all the income from the Company that is resolved to be distributed.

 

		2017	2016
12.	Capital reserve	£'000	£'000
	At beginning of year	(18,754)	(30,722)
	Payment of dividend	-	(154)
	Currency losses	(183)	(1,222)
	Forward foreign currency contracts (losses)/gains	(65)	132
	Movement in investment holdings fair value gains	9,956	16,102
	Loss on sales of investments	(940)	(2,118)
	Capitalised expenses	(403)	(331)
	Purchase of own shares to be held in treasury	(1,457)	(441)
		_______	_______
	At end of year	(11,846)	(18,754)
		_______	_______

 

13.	Net asset value per Ordinary share
	The basic net asset value per Ordinary share is based on a net asset value of £56,170,000 (2016 - £48,463,000) and on 62,137,824 (2016 - 64,152,824) Ordinary shares, being the number of Ordinary shares issued and outstanding at the year end.

 

14.

Risk management policies and procedures

The Company, and through its Subsidiary, invests in equities and sovereign bonds for the long term so as to achieve its objective. In pursuing its investment objective, the Company is exposed to a variety of financial risks that could result in a reduction in the Company's net assets and a reduction in the revenue available for distribution by way of dividends.

The Directors conclude that it is appropriate to present the financial risk disclosures of the Company and its wholly owned Subsidiary in combination as this accurately reflects how the Company uses its Subsidiary to carry out its investment activities, including those relating to portfolio allocation and risk management.

These financial risks of the Company and its Subsidiary are market risk (comprising market price risk, currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of these risks, are set out below. The Board of Directors is responsible for the Company's risk management. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

The Board determines the objectives, policies and processes for managing the risks that are set out below, under the relevant risk category and relies upon Aberdeen's system of internal controls. The policies for the management of each risk are unchanged from the previous accounting period.

(a)

Market risk

The fair value of a financial instrument held by the Company and its Subsidiary may fluctuate due to changes in market prices. Market risk comprises - market price risk (see note 14(b)), currency risk (see note 14(c)) and interest rate risk (see note 14(d)). The Investment Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(b)

Market price risk

Market price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted investments.

Management of the risk

The Board of Directors monitors the risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the Investment Manager's compliance with the Company's objectives, and is directly responsible for oversight of the investment strategy and asset allocation.

Concentration of exposure to market price risk

A geographical analysis of the Company's and its Subsidiary's combined investment portfolio is shown in the Annual Report. This shows the significant amounts invested in Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Accordingly, there is a concentration of exposure to those countries, though it is recognised that an investment's country of domicile or of listing does not necessarily equate to its exposure to the economic conditions in that country.

Market price sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and the equity to an increase or decrease of 10% (2016 - 10%) in the fair value of the Company's and its Subsidiary's investments. This level of change is considered to be reasonably possible based on observation of past and current market conditions. The sensitivity analysis is based on the Company's and its Subsidiary's investments at each balance sheet date and the investment management fees for the year ended 31 August 2017, with all other variables held constant.

2017

2017

2016

2016

Increase

Decrease

Increase

Decrease

in fair value

in fair value

in fair value

in fair value

£'000

£'000

£'000

£'000

Statement of Comprehensive Income - return after tax

Revenue return

(25)

25

(22)

22

Capital return

6,111

(6,111)

5,443

(5,443)

_______

_______

_______

_______

Impact on total return after tax for the year and net assets

6,086

(6,086)

5,421

(5,421)

_______

_______

_______

_______

(c)

Currency risk

Most of the Company's and its Subsidiary's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency, and in which it reports its results). As a result, movements in exchange rates may affect the sterling value of those items.

Management of the risk

The Investment Manager manages the Company's exposure to foreign currencies and reports to the Board on a regular basis.

The Investment Manager also manages the risk to the Company and its Subsidiary of the foreign currency exposure by considering the effect on the Company's NAV and income of a movement in the exchange rates to which the Company's and Subsidiary's assets, liabilities, income and expenses and those of its Subsidiary are exposed.

Income denominated in foreign currencies is converted into sterling on receipt. The Company and its Subsidiary do not use financial instruments to mitigate currency exposure in the period between the time that income is included in the financial statements and its receipt.

Foreign currency exposure

The table below shows, by currency, the split of the Company and Subsidiary's non-sterling monetary assets and investments that are denominated in currencies other than sterling. The exposure is shown on a look through basis.

ARS

BRL

CLP

COP

MXN

PEN

UYU

USD

2017

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Debtors (due from brokers, dividends and other receivables)

79

328

-

59

170

8

95

122

Cash

-

8

7

-

4

-

-

42

Creditors (due to brokers, accruals and other creditors)

-

(66)

-

-

(132)

(28)

-

(5)

_____

_____

_____

_____

_____

_____

_____

_____

Total foreign currency exposure on net monetary items

79

270

7

59

42

(20)

95

159

Investments at fair value through profit or loss

2,268

29,821

3,152

4,493

11,599

2,225

4,781

3,142

_____

_____

_____

_____

_____

_____

_____

_____

Total net foreign currency exposure

2,347

30,091

3,159

4,552

11,641

2,205

4,876

3,301

_____

_____

_____

_____

_____

_____

_____

_____

ARS

BRL

CLP

COP

MXN

PEN

UYU

USD

2016

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Debtors (due from brokers, dividends and other receivables)

-

281

-

70

90

76

136

29

Cash

-

65

-

-

20

-

-

86

Creditors (due to brokers, accruals and other creditors)

-

-

-

-

(20)

-

-

-

_____

_____

_____

_____

_____

_____

_____

_____

Total foreign currency exposure on net monetary items

-

346

-

70

90

76

136

115

Investments at fair value through profit or loss

523

27,582

1,676

5,204

8,374

2,159

6,053

3,185

_____

_____

_____

_____

_____

_____

_____

_____

Total net foreign currency exposure

523

27,928

1,676

5,274

8,464

2,235

6,189

3,300

_____

_____

_____

_____

_____

_____

_____

_____

Foreign currency sensitivity

The sensitivity of the total return after tax for the year and the net assets in regard to the movements in the Company's and its Subsidiary's foreign currency financial assets and financial liabilities and the exchange rates for the £/Argentine Peso (ARS), £/Brazilian Real (BRL), £/Chilean Peso (CLP), £/Colombian Peso (COP), £/Mexican Peso (MXN), £/Peruvian Nuevo Sol (PEN), £/Uruguayan Peso (UYU) and £/US Dollar USD) are set out below:

It assumes the following changes in exchange rates:

£/Argentine Peso +/-60% (2016 +/- 123%) (maximum downside risk 100%)

£/Brazilian Real +/-9% (2016 +/-15%)

£/Chilean Peso +/-18% (2016 +/-13%)

£/Columbian Peso +/-19% (2016 +/-29%)

£/Mexican Peso +/-6% (2016 +/-20%)

£/Peruvian Nuevo Sol +/-12% (2016 +/-2%)

£/Uruguayan Peso +/-7% (2016 +/-8%)

£/US Dollar +/-22% (2016 +/-15%)

These percentages have been determined based on the average market volatility in exchange rates in the previous 3 years and using the Company's and its Subsidiary's foreign currency financial assets and financial liabilities held at each balance sheet date.

For 2017, if sterling had strengthened against the currencies shown, this would have had the following effect, with a weakening of sterling having an equal and opposite effect:

ARS

BRL

CLP

COP

MXN

PEN

UYU

USD

2017

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Statement of Comprehensive Income - return after tax

Revenue return

(47)

(30)

-

(11)

(10)

(1)

(7)

(27)

Capital return

(1,361)

(2,679)

(569)

(854)

(688)

(264)

(335)

(699)

_____

_____

_____

_____

_____

_____

_____

_____

Impact on total return after tax for the year and net assets

(1,408)

(2,708)

(569)

(865)

(698)

(265)

(341)

(726)

_____

_____

_____

_____

_____

_____

_____

_____

For 2016, if sterling had strengthened against the currencies shown, this would have had the following effect, with a weakening of sterling having an equal and opposite effect:

ARS

BRL

CLP

COP

MXN

PEN

UYU

USD

2016

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Statement of Comprehensive Income - return after tax

Revenue return

-

(42)

-

(20)

(18)

(2)

(11)

(4)

Capital return

(523)

(4,147)

(218)

(1,509)

(1,675)

(43)

(484)

(491)

_____

_____

_____

_____

_____

_____

_____

_____

Impact on total return after tax for the year and net assets

(523)

(4,189)

(218)

(1,529)

(1,693)

(45)

(495)

(495)

_____

_____

_____

_____

_____

_____

_____

_____

The above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently.

Foreign exchange contracts

The following forward contracts were outstanding at the Balance Sheet date:

Unrealised

gain/(loss)

31 August

Buy

Sell

Settlement

Amount

Contracted

2017

Date of contract

Currency

Currency

date

'000

rate

£'000

10 July 2017

GBP

USD

13 October 2017

2,146

1.2904

(1)

10 July 2017

MXN

GBP

13 October 2017

2,464

23.1535

42

19 July 2017

GBP

MXN

13 October 2017

636

23.1535

(1)

24 July 2017

USD

GBP

13 October 2017

61

1.2904

1

04 August 2017

USD

GBP

13 October 2017

778

1.2904

10

07 August 2017

GBP

USD

13 October 2017

55

1.2904

(1)

08 August 2017

GBP

USD

13 October 2017

53

1.2904

-

15 August 2017

COP

USD

22 November 2017

204

1.2920

3

15 August 2017

USD

PEN

22 November 2017

2,182

1.2920

(10)

18 August 2017

GBP

USD

13 October 2017

410

1.2904

-

Unrealised

gain/(loss)

31 August

Buy

Sell

Settlement

Amount

Contracted

2016

Date of contract

Currency

Currency

date

'000

rate

£'000

08 July 2016

MXN

GBP

17 October 2016

3,068

24.8467

(20)

12 July 2016

USD

GBP

17 October 2016

114

1.3111

1

21 July 2016

USD

GBP

17 October 2016

272

1.3111

2

08 July 2016

GBP

USD

17 October 2016

3,523

1.3111

37

22 August 2016

GBP

USD

17 October 2016

404

1.3111

(1)

17 August 2016

USD

BRL

23 November 2016

1,525

1.3120

-

17 August 2016

USD

PEN

23 November 2016

2,195

1.3120

46

The fair value of forward exchange contracts is based on forward exchange rates at the Balance Sheet date.

A sensitivity analysis of foreign currency contracts is not presented as the Directors conclude that these are not significant given the short duration of the contracts and expected volatility of the respective foreign exchange rates over the term of the contracts.

(d)

Interest rate risk

Interest rate risk is the risk that arises from fluctuating interest rates. Interest rate movements may affect:

the fair value of the investments in fixed interest rate securities;

the level of income receivable on cash deposits;

interest payable on the Company's variable interest rate borrowings.

The interest rate risk applicable to a bond is dependent on the sensitivity of its price to interest rate changes in the market. The sensitivity depends on the bond's time to maturity, and the coupon rate of the bond.

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 decisions.

Financial assets

The Company and its Subsidiary hold fixed rate government bonds with prices determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the relevant government's fiscal position, short-term interest rates and international market comparisons. The Investment Manager takes all these factors into account when making investment decisions. Each quarter the Board reviews the decisions made by the Investment Manager and receives reports on each market in which the Company and its Subsidiary invest together with economic updates.

Returns from bonds are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds. This means that if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date. However, over the life of a bond the market price at any given time will depend on the market environment at that time. Therefore, a bond sold before its redemption date is likely to have a different price to its purchase price and a profit or loss may be incurred.

Financial liabilities

The Company primarily finances its operations through use of equity and bank borrowings.

The Company has a revolving multi-currency facility, details of which are disclosed in note 12.

The Board actively monitors its bank borrowings. A decision on whether to roll over its existing borrowings will be made prior to their maturity dates, taking into account the Company's policy of not having any fixed, long-term borrowings.

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.

Interest rate exposure

The exposure at 31 August of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates - when the interest rate is due to be re-set.

2017

2016

Within

Within

one year

Total

one year

Total

£'000

£'000

£'000

£'000

Exposure to floating interest rates

Cash

653

653

524

524

Borrowings under loan facility

(6,500)

(6,500)

(7,500)

(7,500)

________

________

________

________

Total net exposure to interest rates

(5,847)

(5,847)

(6,976)

(6,976)

________

________

________

________

The Company does not have any fixed interest rate exposure to cash or bank borrowings at 31 August 2017 (2016 - nil). Interest receivable and finance costs are at the following rates:

interest received on cash balances, or paid on bank overdrafts, is at a margin below LIBOR or its foreign currency equivalent (2016 - same).

interest paid on borrowings under the loan facility was at a margin above LIBOR. The weighted average interest rate of these at 31 August 2017 was 1.220264%.

Interest rate sensitivity

A sensitivity analysis demonstrates the sensitivity of the Company's results for the year to a reasonably possible change in interest rates, with all other variables held constant.

The sensitivity of the profit/(loss) for the year is the effect of the assumed change in interest rates on:

the net interest income for the year, based on the floating rate financial assets held at the Balance Sheet date; and

changes in fair value of investments for the year, based on revaluing fixed rate financial assets and liabilities at the Balance Sheet date.

If interest rates had been 50 basis points higher or lower and all other variables were held constant, the Company's net interest for the year ended 31 August 2017 would decrease/increase by £29,000 (2016 - £35,000). This is attributable to the Company's exposure to interest rates on its floating rate cash balances and bank loan.

If interest rates had been 50 basis points higher and all other variables were held constant, a change in fair value of the Company's fixed rate financial assets at the year ended 31 August 2017 of £30,766,000 (2016 - £32,102,000) would result in a decrease of £880,000 (2016 - £742,000). If interest rates had been 50 basis points lower and all other variables were held constant, a change in fair value of the Company's fixed rate financial assets at the year ended 31 August 2017 would result in an increase of £923,000 (2016 - £774,000).

(e)

Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Management of the risk

The majority of the Company's and its Subsidiary's assets are investments in quoted bonds and equities that are actively traded. The Company's level of borrowings is subject to regular review.

The Company's investment policy allows the Investment Manager to determine the maximum amount of the Company's resources that should be invested in any one company.

Liquidity risk exposure

The remaining contractual maturities of the financial liabilities at 31 August 2017, based on the earliest date on which payment can be required are as follows:

Due

Due

between

Due

within

3 months

after

3 months

and 1 year

1 year

Total

31 August 2017

£'000

£'000

£'000

£'000

Creditors: amounts falling due within one year

Borrowings under the loan facility (including interest)

(6,504)

-

-

(6,504)

Amounts due on forward foreign currency contracts

(13)

-

-

(13)

Amounts due to brokers and accruals

(316)

-

-

(316)

________

________

________

________

(6,833)

-

-

(6,833)

________

________

________

________

Due

Due

between

Due

within

3 months

after

3 months

and 1 year

1 year

Total

31 August 2016

£'000

£'000

£'000

£'000

Creditors: amounts falling due within one year

Borrowings under the loan facility (including interest)

(7,504)

-

-

(7,504)

Amounts due on forward foreign currency contracts

(21)

-

-

(21)

Amounts due to brokers and accruals

(137)

-

-

(137)

________

________

________

________

(7,662)

-

-

(7,662)

________

________

________

________

(f)

Credit risk

The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company or its Subsidiary suffering a loss.

Management of the risk

Investment transactions are carried out with a number of brokers, whose credit-standing is reviewed regularly by Aberdeen, and limits are set on the amount that may be due from any one broker; the risk of counterparty exposure due to failed trades causing a loss to the Company or its Subsidiary is mitigated by the review of failed trade reports on a daily basis. In addition, the administrator carries out both cash and stock reconciliations to the custodians' records on a daily basis to ensure discrepancies are detected on a timely basis.

Cash is held only with reputable banks with high quality external credit ratings. None of the Company's or its Subsidiary's financial assets have been pledged as collateral.

Credit risk exposure

In summary, compared to the amounts included in the Balance Sheet, the maximum exposure to credit risk at 31 August was as follows:

2017

2016

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

£'000

£'000

£'000

Non-current assets

Bonds at fair value through profit or loss{A}

30,766

30,766

32,102

32,102

Current assets

Cash

653

653

524

524

Other receivables

473

473

338

338

Forward foreign currency contracts

56

56

86

86

________

________

________

________

31,948

31,948

33,050

33,050

________

________

________

________

{A}Includes quoted bonds held by the Company and its Subsidiary on a look-through basis. For more detail on these bonds refer to Investment Portfolio - Bonds above.

None of the Group's financial assets are secured by collateral or other credit enhancements and none are past their due date or impaired.

Credit ratings

The table below provides a credit rating profile using Standard and Poors credit ratings for the bond portfolio at 31 August 2017 and 31 August 2016:

2017

2016

£'000

£'000

A

7,459

5,556

A-

2,136

2,159

BB

10,861

13,563

BBB

8,771

10,824

Non-rated

1,539

-

________

________

30,766

32,102

________

________

At 31 August 2017 the Standard and Poors credit ratings agency did not provide a rating for the Argentinian bonds or the Peruvian corporate bond held by the Company and were accordingly categorised as non-rated in the table above.

 

15.	Capital management policies and procedures
	The Company's capital management objectives are:
	to ensure that it will be able to continue as a going concern; and
	to maximise the income and capital return to its Equity Shareholders through equity capital and debt.
	The Company's capital at 31 August 2017 comprises its equity capital and reserves that are shown in the Balance Sheet at a total of £56,170,000 (2016 - £48,463,000). As at 31 August 2017 gross debt as a percentage of net assets stood at 11.6% (2016 - 15.5%).
	The Board, with the assistance of Aberdeen, 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 account of Aberdeen's views on the market;
	the need to buy back Ordinary shares for cancellation or treasury, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount);
	the need for new issues of Ordinary shares, including issues from treasury; and
	the extent to which distributions from reserves may be made.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

 

16.	Related party transactions
	Fees payable during the year to the Directors are disclosed within the Directors' Remuneration Report in the Annual Report.
	Mr Prosser is a group director of Estera Group (formerly known as Appleby Group) and a director of its wholly-owned trust company, Estera Trust (Jersey) Limited (formerly known as Appleby Trust (Jersey) Limited).
	Mr Gilbert is a director of Standard Life Aberdeen plc, of which APWML is a subsidiary. Management, promotional activities and secretarial, administration and custody services are provided by APWML with details of transactions during the year and balances outstanding at the year end disclosed in notes 5 and 6. Mr Gilbert does not draw a fee for providing his services as a Director of the Company.
	Under the terms of the management agreement with the Company, APWML is entitled to receive both a management fee and a company secretarial and administration fee. The company secretarial and administration fee is based on an annual amount of £114,000 (31 August 2016 - waived), increasing annually in line with any increases in the UK Retail Prices Index, payable quarterly in arrears. During the period £85,500 (31 August 2016 - N/A) were payable with £28,500 (31 August 2016 - N/A) outstanding at the period end. APWML agreed to waive its company secretarial and administration fee of £114,000, for the year ended 31 August 2016. This waiver constitutes a smaller related party transaction for the purpose of LR 11.1.10 R of the Financial Conduct Authority's Listing Rules.
	The Manager has agreed to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%.
	The Company owns 100% of the share capital of its Subsidiary. The Company receives income from its Subsidiary and there are no significant restrictions on the transfer of funds to or from the Subsidiary. During the year the Subsidiary transferred £4,616,000 (2016 - £2,301,000) to the Company by way of income and capital returns and at 31 August 2017 the amount due to the Company by its Subsidiary was £17,141,000 (2016 - £21,757,000).

 

17.	Controlling party
	The Company has no immediate or ultimate controlling party.

 

18.	Fair value hierarchy
	IFRS 13 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 Company has classified 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: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	-	Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
	-	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	Financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments and forward currency contracts) or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and amounts due under the loan facility).
	The financial assets and liabilities measured at fair value in the Balance Sheet grouped into the fair value hierarchy at 31 August 2017 as follows:
				Level 1	Level 2	Total
			Note	£'000	£'000	£'000
	Financial assets/(liabilities) at fair value through profit or loss
	Quoted equities		a)	16,599	-	16,599
	Quoted bonds		b)	-	19,904	19,904
	Investment in Subsidiary		c)	-	25,318	25,318
				16,599	45,222	61,821
	Forward foreign currency contracts		d)	-	56	56
	Forward foreign currency contracts		d)	-	(13)	(13)
				_______	_______	_______
	Net fair value			16,599	45,265	61,864
				_______	_______	_______
				Level 1	Level 2	Total
	As at 31 August 2016		Note	£'000	£'000	£'000
	Financial assets/(liabilities) at fair value through profit or loss
	Quoted equities		a)	13,165	-	13,165
	Quoted bonds		b)	-	18,540	18,540
	Investment in Subsidiary		c)	-	23,472	23,472
				13,165	42,012	55,177
	Forward foreign currency contracts		d)	-	86	86
	Forward foreign currency contracts		d)	-	(21)	(21)
				_______	_______	_______
	Net fair value			13,165	42,077	55,242
				_______	_______	_______
	There were no assets for which significant unobservable inputs (Level 3) were used in determining fair value during the years ended 31 August 2017 and 31 August 2016.  For the years ended 31 August 2017 and 31 August 2016 there were no transfers between any levels.
	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.
	b)	Quoted bonds
		The fair value of the Company's investments in Level 1 quoted bonds has been determined by reference to their quoted bid prices in active markets. The fair value of Level 2 quoted bonds has been determined by reference to their quoted bid prices which are adjusted for indexation arising from the movement of the consumer prices index within the country of their incorporation.
	c)	Investment in Subsidiary
		The Company's investment in its Subsidiary is categorised in Fair Value Level 2 as its fair value has been determined by reference to the Subsidiary's net asset value at the reporting date. The net asset value is predominantly made up of quoted equities traded on recognised stock exchanges (2017 - 55.8%; 2016 - 40.4%) and quoted bonds (2017 - 42.9%; 2016 - 57.8%) in Fair Value Levels 1 and 2 respectively.
	d)	Forward foreign currency contracts
		The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

 

19.	Subsequent events
	Subsequent to the Balance Sheet date, the Company purchased a further 130,000 Ordinary shares to be held in treasury for a total cost of £102,000.

 

20.	Alternative Performance Measures
	The table below provides information relating to the underlying net asset values ("NAV") and share prices of the Company on the dividend reinvestment dates during the years ended 31 August 2017 and 31 August 2016.
	2017				2016
		Dividend		Share		Dividend		Share
		Rate	NAV	Price		Rate	NAV	Price
	Date	(pence)	(pence)	(pence)	Date	(pence)	(pence)	(pence)
	6 October 2016	0.875	79.28	68.63	8 October 2015	1.250	54.33	48.75
	15 December 2016	0.875	73.42	64.00	17 December 2015	0.875	51.41	46.00
	27 April 2017	0.875	82.26	72.88	21 April 2016	0.875	61.85	54.00
	6 July 2017	0.875	81.09	71.13	7 July 2016	0.875	71.90	62.25

 

The Annual General Meeting will be held at 10.00 a.m. on 7 December 2017 at 1^st Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB.

 

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.

 

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The Annual Report and financial statements will be delivered to the Jersey Financial Services Commission in due course.

 

The audited Annual Report and financial statements will be posted in November. Copies may be obtained during normal business hours from the Company's Registered Office, Aberdeen Private Wealth Management Limited, 1^st Floor, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB or from the Company's website, latamincome.co.uk*.

 

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

 

By Order of the Board

Aberdeen Private Wealth Management Limited

Secretary

18 October 2017