Annual Financial Report
ABERFORTH GEARED CAPITAL & INCOME TRUST plc
Audited Final Results for the year to 31 December 2010
The following is an extract from the Company's Annual Report and Accounts for
the year to 31 December 2010. The Annual Report is expected to be posted to
shareholders on 31 January 2011. Members of the public may obtain copies from
Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its
website at www.aberforth.co.uk. The Annual Report and Accounts will shortly be
available for inspection at the FSA's document viewing facility at 25 The North
Colonnade, Canary Wharf, London E14 5HS.
FEATURES
Total Returns
Total Assets + 31.3%
Net Asset Value of Capital Shares 1 + 65.2%
Second Interim Dividend per Income Share 7.5p (+11.9%)
Total Dividend per Income Share 14.0p (+11.1%)
1 Capital Shares asset performance assumes Income Shares have a capital
entitlement of 100p each and the interest rate swap has a nil valuation.
The investment objective of Aberforth Geared Capital & Income Trust plc is to
provide Income Shareholders with a high level of income payable half yearly
with the potential for income growth and to provide Capital Shareholders with
geared capital growth.
All data throughout this Annual Report is to, or as at, 31 December 2010 as
applicable, unless otherwise stated.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
Introduction
Aberforth Geared Capital & Income Trust (AGCiT) recorded a total return on
total assets of 31.3% during 2010. Over the same period the index that
represents AGCiT's opportunity base, the RBS Hoare Govett Smaller Companies
Index (excluding Investment Companies), recorded a total return of 28.5%. The
FTSE All-Share Index, representative of the entire UK market, showed a total
return of 14.5%. It has, therefore, been another year in which AGCiT's chosen
asset class has produced a return superior to that of the broader UK stock
market.
Throughout the year the level of borrowing employed by your Company has been
consistently toward the upper end of the available facilities and this has made
a positive contribution to performance in a period of such high absolute
returns. The net asset value of a Capital Share (assuming 100p prior charge
for the Income Shares and a nil swap valuation) has risen from 320.48p on 31
December 2009 to 529.42p on 31 December 2010, an increase of 65.2%.
Dividends
The Directors have approved a second interim dividend of 7.50p per Income
Share. This represents an increase of 11.9% over the 6.70p equivalent dividend
in respect of 2009. When taken together with the first interim dividend of
6.50p, the total dividend for the year is 14.00p, an increase over the 12.60p
dividend paid in respect of 2009 of 11.1%. Earnings per Income Share for 2010
were 12.78p. The dividend payment therefore is in accord with the Board's
decision, discussed in the interim statement in July 2010, to distribute the
retained revenue reserve with the second interim dividends paid in respect of
2010 and 2011. Following the payment of the second interim dividend, the
retained revenue reserve will be £867,000, equivalent to 3.54p per Income
Share. The dividend performance of the portfolio has been robust in 2010 with
total income rising by 10.4%. Dividend growth from the underlying investments
exceeded expectations during the year and this gives some considerable
confidence for 2011.
The second interim dividend will be paid on 25 February 2011 to Income
Shareholders on the register at the close of business on 4 February 2011. The
ex-dividend date will be 2 February 2011.
Policy for 2011
AGCiT is a split level investment trust and the Directors are required either
to propose a resolution to wind-up the company on the Planned Winding-Up Date
(31 December 2011) or to put forward other proposals in relation to a
reconstruction ahead of that date. Other key dates in 2011 are 30 September
when the interest rate swap expires and 31 December when the bank facilities
expire.
At this stage, your Board is open minded as to the appropriate course of
action. A number of the factors that may influence the ultimate outcome could
change significantly between now and the fourth quarter of 2011. For example,
the structure and viability of any potential roll-over vehicle may be influenced
,amongst other things, by the lending conditions pertaining at the time and
these may be very different from those available now.
In order to arrive at more informed conclusions your Board welcomes input from
all Shareholders and in this respect I have attached at the end of this
statement an email address through which I can be contacted by any Shareholder
wishing to express a view to me directly.
In addition, your Board will actively consult with the larger Shareholders of
the Company in order to understand better their preferences. As the outcome of
these consultations and eventual Shareholders' decision remain uncertain, full
disclosures relating to the uncertainty and the implications for the
preparation of the 2010 financial statements are set out in the Directors'
Report and Note 1 to the financial statements.
It is the current expectation that any proposals that may be put forward will
include the possibility of a full cash exit for both Income and Capital
Shareholders as well as a tax efficient roll-over for Capital Shareholders.
In respect of short term investment strategy, the Directors are able to be more
explicit.
As can be deduced from the Managers' Report, the valuation characteristics of
the portfolio are considered to be most attractive at present. The smaller
company sector has recovered well from the recession of 2008/2009 and profits
growth and cash generation are robust. An analysis of AGCiT's portfolio
shows that it has an historic dividend yield of 3.3% and a dividend cover of 2.5
times. The cover is towards the higher level seen in the nine years of AGCiT's
life.
Consequently, your Board and the Managers are resolved to maintain the
borrowings towards the upper level of available facilities for as long as
practicable, and certainly over the course of the first half of the year. This
view would, of course, change were there to be a significant re-rating of the
portfolio in the short term.
Conclusion
As we commence the last year of AGCIT's planned life it is reassuring to do so
in the knowledge that your Company has a high quality portfolio trading at a
valuation that is attractive on an absolute and relative basis. The dividend
growth from portfolio companies has been robust and there are encouraging
indications that this is a sustainable trend.
Finally, I repeat my invitation to Shareholders to contact me via the email
address below.
Alastair C Dempster
Chairman
27 January 2011
alastair.dempster@aberforth.co.uk
MANAGERS' REPORT
Introduction
Small UK quoted companies performed well in 2010, with the RBS Hoare Govett
Smaller Companies Index (excluding Investment Companies) (RBS HGSC (XIC) or the
index) securing a total return of 28.5%. A good close to the year took the
index above its previous peak in total return terms, which was set on 1 June
2007. Large companies, as measured by the FTSE All-Share, achieved a 14.5%
total return. AGCiT's Total Asset Total Return was 31.3%, higher than the
return of both large companies and also of the RBS HGSC (XIC).
The strong gains enjoyed by equity markets over the past two years have been
driven by three factors.
• Early 2009 witnessed a powerful "relief rally". The valuations of a
significant number of UK businesses reflected the risk of bankruptcy. However,
a series of rights issues served to recapitalise these companies and, by
extending the investment horizon, to breathe life into their valuations.
• Despite this rally, corporate profits continued to decline through most of 2009
as revenues came under recessionary pressure. However, management teams
reacted promptly with deep restructuring programmes. Thus, when revenues
troughed late in 2009 and began to grow again in 2010, margins recovered
sharply, allowing a surprising number of businesses to exceed their previous
peak profit levels in 2010 - a remarkable feat when viewed in the context of
the global financial crisis.
• Concurrently, monetary policy has remained extremely accommodative and indeed
has proceeded to embrace the unconventional measures termed as "quantitative
easing". As central banks have made direct purchases of government debt, bond
yields have moved downwards: in the UK, for example, ten year gilt yields
declined from 4.0% to 3.4% over the course of 2010. With government bond
yields forming the risk free basis of the discount rates used to value
equities, equity valuations may be considered to have benefited.
Investment Background
However, the year under review was punctuated by bouts of concern about the
sustainability of recovery, notably in May and June, when the RBS HGSC (XIC)
declined by 10%. Some of the challenges confronting equity markets are
described in the following paragraphs.
• Western economies have depended on emerging markets in general and China in
particular as sources of demand growth through recession and the initial stages
of recovery. However, this reliance on economic imbalances can play both
ways. Inflationary pressures in the emerging world are manifest in renewed
commodity price rises. Of course, higher commodity prices apply too to Western
economies, which would also be affected should policymakers in the emerging
world move to quell the threat of inflation. Moving forward, China's
commitment to its mercantilist growth agenda will be pivotal.
• In contrast to the inflationary issues in emerging markets, the focus in the
developed world has been on the robustness of recovery and the risk of the
notorious double-dip. In the US, the recovery has seen GDP return close to its
peak level at the end of 2007. Nevertheless, there is concern about pressures
on the US consumer sector, which has driven recoveries from earlier
recessions. News on housing and employment has been mixed and has generated
considerable short term stockmarket noise. However, the extension of the Bush
administration's tax cuts provides some relief and, cliché though it is,
writing off the US consumer is dangerous.
• Europe has been the frequent focus of worries, with first Greece and then
Ireland raising questions about the viability of the single currency. The
markets were still digesting the implications of the Irish bail-out as the year
drew to a close, but it is difficult to believe that sovereign debt concerns in
the euro zone will be confined to 2010 or to Greece and Ireland. It is not all
bad news, however: the export led economies of Northern Europe - notably
Germany - are three times the size of the troubled "PIGS" and are benefiting
from the euro's 7% decline against the dollar in 2010.
• In common with many Western economies, with the notable exception to date of
the US, the UK has embraced fiscal austerity. Indeed, the coalition
government's plans for public sector retrenchment are among the most drastic
yet announced. This has polarised opinion among economists, including members
of the Bank of England's Monetary Policy Committee, between those who see a
looming inflationary threat in persistently high CPI data and those who
identify lingering deflationary forces undermining the recovery. It is too
early to judge the merits of the coalition's experiment. However, the key to
its success lies in the ability of the corporate sector to take up the strain
as the public sector deficit narrows. In this, the consumer sector may be seen
as the wild card: its proclivity to save will be influenced by its perceptions
of the success of present economic policy.
Fortunately, the UK's corporate sector is in remarkably good shape, a
characteristic shared with other Western economies. British non financial
companies have in aggregate generated cash, since the first quarter of 2002.
Thus, businesses on the whole were well prepared for the downturn. And balance
sheets have been further strengthened by cost cutting actions and the
subsequent pick-up in profitability. However, companies have not yet proved
willing to translate their financial wellbeing into the meaningful pick-up in
investment that will ease the economy's reliance on the public sector and
sustain overall economic growth. Private sector investment has recovered from
its recessionary nadir but remains well below its levels in the years leading
up to the credit crunch. So management teams now find themselves with an
intriguing question - what to do with their robust balance sheets. From the
point of view of an equity investor, this is not an unpleasant conundrum.
Investment Performance
AGCiT's 31.3% Total Return on Total Assets in 2010 was marginally higher than
the 28.5% achieved by the RBS HGSC (XIC). The following paragraphs provide some
background to 2010's performance and also draw out themes in relation to longer
term returns. The concluding section of the report, Investment Outlook, then
seeks to outline the current portfolio positioning and strategy for 2011.
• Your Managers have consistently adhered to a value investment style over the
life of AGCiT The last five years have been extremely adverse for the value
style, with markets favouring instead growth and momentum investors. This has
been less headline-grabbing than was the case during the TMT boom around the
turn of the century, but research conducted by the London Business School
suggests that the current bear market for value stocks has been as deep and
more prolonged as that experienced in 1999 and early 2000. This research shows
that value stocks within the RBS HGSC (XIC) under-performed the benchmark as a
whole by 10.8 percentage points in 2010 and by 34.0 percentage points over the
last five years. Though not insurmountable through good stock selection, this
has represented a major headwind to the value investor.
• A related impact is that of size. It may seem strange for a small cap manager
to alight on this influence, but the RBS HGSC (XIC), which represents the
bottom 10% of the total market capitalisation of the UK stockmarket, now takes
in a significant portion of the FTSE 250. Indeed, with the largest company in
the benchmark boasting a market capitalisation of £1.3bn, mid cap companies
account for over 72% of the total value of the RBS HGSC (XIC). In contrast,
AGCiT's portfolio has moved steadily more under-weight the FTSE 250 component
of the benchmark over the past five years to the extent that its exposure stood
at 45% at the end of 2010. This has proved ill-timed: the FTSE 250 has
outstripped the FTSE SmallCap by 58% over the past five years, including
out-performance of 12% in 2010.
There are several factors that may have contributed to the substantially better
returns from the "larger small" companies. A precise quantification is
difficult but your Managers maintain that they have not had to compromise in
terms of fundamentals, such as growth and profitability, when investing in the
"smaller small" companies. The more significant influence has been on a
technical level. Mid caps have benefited from rising trading volumes and
stockmarket liquidity over the past decade, as hedge funds and long-only
managers sought to diversify risk within portfolios dominated by larger
companies. In this process, "smaller small" companies were left behind,
exaggerating the customary discount that reflects their lower liquidity. It is
this widening discount, which amounted to 20% on a forward PE basis at the end
of the year, that your Managers have been seeking to exploit in reallocating
capital from "larger small" companies to "smaller small" companies.
• The following table is an attribution analysis, setting out the various
contributions to AGCiT's relative performance through 2010.
For the year ended 31 December 2010 Basis points
Stock selection (237)
Sector selection 544
----
Attributable to the portfolio of investments, based on mid prices 307
Movement in mid to bid price spread 17
Cash/gearing 4,077
Interest Cost (439)
Management fee (170)
Other expenses (121)
-----
Total attribution based on bid prices 3,671
-----
Note: 100 basis points = 1%. Total Attribution is the difference between the
total return of the Capital Share Net Asset Value (assuming 100p entitlement
per Income Share and a nil swap valuation) and the RBS HGSC (XIC) (i.e. Capital
Share NAV = 65.20%; RBS HGSC (XIC) = 28.49%; difference is 36.71% being 3,671
basis points).
Overall, sector selection made a strong positive contribution to relative
performance. One of the stockmarket's strongest themes over recent years, and
one that has intensified during the recovery phase, has been the
out-performance of businesses with high exposure to emerging markets, which
continued to grow while the developed markets languished. This trend has
benefited the commodity sectors and capital goods companies. The portfolio
was under-weight in commodity sectors: the companies available within the
benchmark often have valuations that are highly dependent on the resilience of
underlying commodity prices and, at an early stage of development, tend to
consume cash and in general do not have the income characteristics suitable for
the portfolio. Compensating for this positioning was the portfolio's large
over-weighting in capital goods, which benefit from similar demand drivers but
which also boast more attractive cash and income dynamics. In particular the
overweight positions in Electronic and Electrical Equipment and Industrial
Engineering were beneficial to performance in 2010. The portfolio also
benefited from underweight positions in Household Goods (Housebuilders) and
Real Estate Investment & Services (Property). In both these sectors the
managers were not attracted by the combination of the macro demand factors
driving the sectors and the stockmarket valuations attached to the constituent
companies. In addition the companies in these sectors are currently, in
general, unable to pay dividends to shareholders owing in part to their trading
performance and also to the fact that they are, in the majority asset, rather
than income, return businesses.
Stock selection made a negative contribution. This impact should be assessed
within the context of the comment on investment style made above. Within each
sector, your Managers' value investment philosophy tends to drive capital into
stocks sitting on lower valuations. This does not mean that the quality of the
underlying business or its growth prospects are ignored. It does mean that in
the trade-off of value and growth, your Managers will, as they always have,
emphasise the former. However, the stockmarket, as already described, has
preferred those businesses with higher growth profiles in the current
environment of economic uncertainty: i.e. genuine growth has attracted a
scarcity premium. This dynamic has exaggerated the "value stretch" within the
benchmark: the relatively narrow band of companies perceived to have reliable
growth prospects has seen its premium to the apparently dreary majority expand.
The strong absolute returns from AGCiT's portfolio meant that its gearing
significantly enhanced NAV performance for Capital Shareholders over 2010.
• While many of the companies in which AGCiT invests might be described as out of
fashion for the present mood of the stockmarket, their underlying performance
has been robust, consistent with the benefits of economic recovery and rapid
cost cutting previously described. A demonstration of this fundamental
progress is the portfolio's dividend experience in 2010. The following table
classifies AGCiT's seventy investee companies at the year end by their most
recent dividend action:
Band Nil IPOs Down Flat +0-10% +10-20% + >20%
No. of holdings 2 1 1 23 19 13 11
The "Nil" category includes the two companies that did not pay a dividend in
2010. These companies may be considered cyclical nil payers that will come
back to the dividend register once their profits recover. Reinstatement of
dividends is relevant to the wider small company universe and can have a
meaningful effect on aggregate reported dividend growth. Only one company cut
its dividend, which would be considered an excellent outcome even in steadier
economic conditions. The other positive aspect of the analysis is the number
of companies in the three right hand columns: forty three companies chose to
increase their dividends, some by a significant amount.
Going into recession, your Managers emphasised the tactic of being "paid to
wait" for the eventual upturn: a sustainable dividend yield can provide some
compensation in periods of difficult trading. In the event, 2009 turned out to
be the worst for dividends in the RBS HGSC (XIC)'s history. AGCiT's portfolio
fared less badly, but there were nevertheless some disappointing dividend
decisions. The turnaround encapsulated in the preceding analysis is therefore
welcome and is indicative of the rapid cost reductions implemented by
management teams last year. The dividend recovery has come earlier than your
Managers had expected at the start of 2010 and is clearly supportive of AGCiT's
income account which showed growth in total income of 10.4% in 2010.
• As described previously, the corporate sector in the UK is in a relatively
healthy position, with strong cash flows and balance sheets. These are
characteristics that are shared by the small company universe and by AGCiT's
portfolio, and that no doubt assisted company boards in deciding to increase
dividends. Entering 2011, almost 43% of the portfolio was invested in
companies with net cash on their balance sheets at the end of 2010. This
positioning hindered relative returns in 2009 as many highly geared businesses
enjoyed a powerful bounce in their share prices. However, in 2010 the impact
of balance sheet structure was less pronounced and, indeed, the share prices of
several of the indebted businesses that performed so strongly in 2009 slipped
back. Moving forward, your Managers are retaining the portfolio's bias to
strong balance sheets. This is less for defensive reasons and more as a result
of the stockmarket's current reluctance to look beyond the extremely low
returns from cash. Crucially, cash affords businesses a degree of competitive
advantage over rivals still focused on balance sheet repair and also gives
flexibility to make acquisitions or return capital to shareholders. It is not
your Managers' preference to see substantial balances of net cash reside on
balance sheets indefinitely: pressure will mount to deploy cash in a profitable
fashion for shareholders.
• M&A activity within the RBS HGSC (XIC) in 2010 picked up from the depressed
levels of 2009, but, with 16 deals completed, was still some way short of the
50 per annum average over the preceding five years. However, the average deal
size rose markedly and, entering 2011, a number of deals were awaiting
completion. Echoing previous cycles, the predators have frequently been large
American companies, which typically trade on higher valuations than their
smaller UK peers and, at the current time, benefit from the weakness of
sterling. The conditions for a further recovery in M&A and de-equitisation in
general are in place. As already noted, companies are under pressure to
utilise their strong balance sheets. Moreover, the gap between the cost of
debt and the cost of equity is wide: at the end of 2010, the BBB sterling 5-7
year corporate bond yield stood at 5%, whereas the portfolio's prospective
ratio of pre tax and interest profit to enterprise value was 13%. Valuations
within the small company universe are attractive, particularly down the scale
of market capitalisations. This has led to often exaggerated bid premiums to
prevailing stockmarket valuations but it has also invited some opportunistic
approaches. So, while the scope for more M&A ought to be of relative advantage
to AGCiT as it has been in the past, your Managers are mindful of balancing the
short term fillip to relative performance against the intrinsic value of the
underlying businesses.
Investment Outlook
From a top down perspective, it is not difficult to identify a series of
challenges to the current recovery in developed economies. The process of
deleveraging underway is inherently deflationary. Policy makers thus confront
a tricky balancing act as demand from the public sector is reduced and the
willingness of the private sector to take up the slack is still unclear.
Complicating matters is the experiment with the unconventional tool of
quantitative easing, whose effectiveness is compromised by a transmission
mechanism, the banking system, whose focus remains on balance sheet repair.
Furthermore, unlike previous recoveries, there is the emerging markets
dimension: China in particular has played a crucial role in fostering recovery
to date and will remain a key influence on demand in Western economies.
Intriguingly, in the face of these challenges, 2010 drew to a close with a
series of more positive economic data releases in the US. These coincided with
renewed strength in industrial commodity prices and with a marked change in
sentiment within major government bond markets. For illustration, ten year
treasury yields in the US, which had declined steadily through most of the
year, rose from 2.4% to 3.3% through the fourth quarter. The majority of this
increase was driven by higher real yields, rather than by expectations of
increased inflation, which can be interpreted as an indication of stronger real
economic growth. While such a development perhaps says more about where bond
yields themselves had got to, the implications for equities are more positive:
the increase in the risk free rate is offset by the prospect of a more robust
outlook for growth.
However, it is helpful to bear in mind that AGCiT invests in businesses rather
than economies. The corporate sectors in many developed markets are in robust
health, both in absolute terms and relative to the other parts of the economy.
This is certainly the case in the UK and, most relevantly, in the small company
universe. The range of companies available to AGCiT during this upturn is very
different from those that populated the benchmark in the recovery from the
recession in the early 1990s. The intervening "hollowing-out" of UK industry
has left a collection of survivors with international-facing businesses:
roughly half of the revenues generated by portfolio companies in 2010 came from
outside the UK.
The corporate sector is in a fascinating position at the current time. In
simple terms, it has two choices. The first, no doubt favoured by policy
makers, is to take the strain from the public sector, using its balance sheets
and cash flows to invest for future growth. The second is to sit tight,
enjoying the current period of margin expansion, allowing balance sheets to
strengthen further and participating, one way or the other, in renewed
de-equitisation. While the merits of these can be debated, perhaps the most
important point is that companies do have a choice: either scenario could be
supportive of good returns for equity investors.
Of course, the probability of good returns is enhanced by attractive starting
valuations. AGCiT's portfolio would seem well positioned, as the table below
suggests.
31 December 2010 31 December 2009
Characteristics AGCiT RBS HGSC (XIC) AGCiT RBS HGSC (XIC)
Number of companies 70 430 61 448
Weighted average market £458m £696m £347m £619m
capitalisation
Price earnings ratio (historic) 11.8x 13.7x 8.4x 11.2x
Dividend yield (historic) 3.3% 2.4% 4.2% 2.7%
Dividend cover (historic) 2.5x 3.0x 2.9x 3.3x
AGCiT's portfolio ended the year on a historic dividend yield of 3.3%. The
decline from last year's 4.2% was driven by a rise in the portfolio's value
over the twelve months and by trading activity. Working in the opposite
direction was the positive dividend experience described previously. This ought
to be supportive of portfolio dividend growth in 2011.
The historic PE ratio was 14% below that of the RBS HGSC (XIC) at the end of
the year. In absolute terms, AGCiT's PE of 11.8x compares with an average of
12.1x and, given that profits are still recovering, might be considered low at
this stage of the cycle. However, with the presently low levels of return from
cash, PE ratios struggle to capture the crucial cash dynamic previously
described in this report. The EV/EBITA (i.e. enterprise value to profit before
interest, tax and amortisation), which is your Managers' key valuation metric
in the investment process, adds some colour.
Actual Forecast Forecast
EV/EBITA 2009 2010 2011
AGCiT 9.5x 8.8x 7.5x
The table above sets out the EV/EBITA progression for the year end portfolio.
There are two factors driving the decline in the ratio: first, profits are
expected to grow; and, second, the enterprise value is anticipated to decline
as retained cash flows reduce debt or increase cash. These low valuations,
underpinned as they are by strong cash generation at present levels of
profitability, might offer some downside protection in the event of a
deterioration in trading conditions, or if, indeed, growth forecasts simply
prove too ambitious.
However, low absolute and relative valuations have not necessarily served AGCiT
well over recent years. The key question is what can translate these
attractive valuations into improved relative investment performance going
forward. Though timing is near impossible to call, your Managers identify
three factors worthy of consideration.
• As described in the Investment Performance section of this report, the
influences of style and size have acted as headwinds to AGCiT's relative
performance over the last five years. This is unusual in a longer term
context, as the following analysis, based on data from the London Business
School, demonstrates:
Total return pa 5 years 10 years 20 years Since 1955
RBS HGSC * +7.5% +7.8% +11.1% +15.5%
Value component +1.8% +11.1% +13.3% +19.4%
Small component +5.0% +8.6% +11.3% +17.4%
* Extended RBS HGSC (XIC) from 1980 & HGSC for prior dates
In terms of both depth and duration, the present bear market for value
stocks and small stocks within the benchmark is without precedent over the last
55 years. Your Managers - biased as they are by their value investment
philosophy - contend that over the medium term the odds are that the present
style and size headwinds will swing to become tailwinds.
• Through the recession, profits growth naturally became more difficult to find.
The valuations of companies capable of consistent growth therefore attained a
scarcity premium. This premium has been sustained through the early stages of
recovery as markets have continued to fret about the fragility of the upturn
and the threat of a double-dip. If, however, the recovery holds, the "need" to
pay up for growth might reasonably be considered to diminish. This might be
accompanied by a lengthening of the market's investment horizon, easing the
present extreme aversion to perceived illiquidity and focusing attention on
neglected "smaller small" companies. In these circumstances, cheaper and
smaller stocks might enjoy a re-rating.
• Through the mid 1990s, the stockmarket's focus was on large companies that were
getting larger through mega mergers. Small companies as a consequence
languished. The trigger that set off a twelve year period of out-performance
by the RBS HGSC (XIC) was M&A: with stockmarket investors reluctant to venture
into the small company world, other corporates and private equity houses
stepped up to exploit the valuation opportunities. And, as noted previously,
the conditions for a renewed phase of M&A would appear to be in place.
Ultimately, the precise catalyst for a change in the stockmarket's appetite is
difficult to identify in advance. For your Managers, as value investors, the
key point is that the portfolio is demonstrably cheap in relation both to its
own history and to the benchmark. This value advantage has been achieved by
investing in a collection of sound and profitable businesses that have been
overlooked owing to their size or inability to generate serial upgrades to
their earnings estimates. Thus, in your Managers' judgement, there has been
little compromise in terms of the quality required in securing the portfolio's
valuation characteristics. The investment principles by which the portfolio
has been constructed are essentially the same as those that have driven AGCiT's
successful long term record.
Wrapped around this investment philosophy has been the capital structure of
AGCiT. The trust has been consistently geared over its life and this has both
benefited and hindered NAV returns to capital shareholders depending on the
period examined. The most recent experience has been positive given the
significant returns from the opportunity base in 2009 and 2010. The immediate
intention in this final year of AGCiT's planned life is to maintain the gearing
given the attractive valuation characteristics described above.
Aberforth Partners LLP
Managers
27 January 2011
DIRECTORS' RESPONSIBILITY STATEMENT
DECLARATION
Each of the Directors confirm to the best of their knowledge that:
(i) the financial statements, which have been prepared in accordance with
applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
(ii) the Annual Report includes 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 it faces. A summary of the principal
risks are set out below.
On behalf of the Board
Alastair C Dempster
Chairman
27 January 2011
PRINCIPAL RISKS AND RISK MANAGEMENT
The Company's financial instruments comprise its investment portfolio, cash
balances, borrowing facility, interest rate swap, Income Shares, debtors and
creditors that arise directly from its operations such as sales and purchases
awaiting settlement and accrued income. The Directors have established an
ongoing process for identifying, evaluating and managing the key risks faced by
the Company. This process was in operation during the year and continues in
place up to the date of this report. As the Company's investments consist of
small UK quoted companies, the principal risks facing the Company are market
related and an explanation of these risks and how they are managed is set out
below.
The main risks that the Company faces from its financial instruments are:
(i) interest rate risk, being the risk that the interest receivable/payable and
the market value of investment holdings may fluctuate because of changes in
market interest rates;
(ii) liquidity risk is the risk that the Company will encounter difficulty
raising funds to meet its cash commitments as they fall due. Liquidity risk may
result from either the inability to sell financial instruments quickly at their
fair values or from the inability to generate cash inflows as required;
(iii) credit risk is the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company; and
(iv) market price risk, being the risk that the market value of investment
holdings will fluctuate as a result of changes in market prices caused by
factors other than interest rate or currency rate movement.
The Company's financial instruments are all denominated in sterling and
therefore the Company is not directly exposed to any significant currency risk.
However, it is recognised that most investee companies, whilst listed in the
UK, will be exposed to global economic conditions and currency fluctuations.
(i) Interest rate risk
The Company has a bank debt facility amounting to £34.3m with the Bank of
Scotland which it utilises on a regular and consistent basis. Interest rate
fluctuations on £30m of borrowings are managed through an interest rate swap
agreement with Bank of Scotland which produces an effective total fixed
interest rate of 6.47%. Borrowings in excess of £30m are not covered by an
interest rate swap agreement and are exposed to fluctuations in UK market
interest rates. If LIBOR and bank base rate had increased by 1% the impact on
profit or loss and therefore Shareholders' equity would have been negative
£1,200 (2009: negative £29,500). If LIBOR and bank base rate had decreased by
0.5% the impact on profit or loss and therefore Shareholders' equity would have
been positive £600 (2009: positive £14,750). The Company has no exposure to
movements in LIBOR in respect of the £30 million referred to above, as it has
been matched with a swap transaction. The calculations are based on the drawn
down loan facility as at the respective Balance Sheet dates which may not be
representative of the actual drawn down loan facility during the year. When the
Company decides to hold cash balances, all balances are held on variable rate
bank accounts yielding rates of interest linked to bank base rate, which as at
31 December 2010 was 0.5% (2009: 0.5%). The Company's policy is to hold cash in
variable rate bank accounts and not usually to invest in fixed rate securities.
The Company's investment portfolio is not directly exposed to interest rate
risk.
(ii) Liquidity risk
The Company's assets comprise mainly readily realisable equity securities
which, if necessary, can be sold to meet any funding requirements though short
term funding flexibility can typically be achieved through the use of the bank
debt facility. The Company's current liabilities all have a remaining
contractual maturity of less than three months with the exception of the Bank
of Scotland facility.
(iii) Credit risk
The Company invests in UK equities traded on the London Stock Exchange and
investment transactions are carried out with a large number of FSA regulated
brokers with trades typically undertaken on a delivery versus payment basis.
Cash at bank is held with reputable banks with acceptable external credit
ratings. The investment portfolio assets of the Company are held by The
Northern Trust Company, the Company's custodian, in a segregated account. In
the event of the bankruptcy or insolvency of Northern Trust the Company's
rights with respect to the securities held by the custodian may be delayed or
limited. The Board monitors the Company's risk by reviewing Northern Trust's
internal control report.
(iv) Market price risk
The Company's investment portfolio is exposed to market price fluctuations
which are monitored by the investment managers in pursuance of the investment
objective. Further information on the investment portfolio is set out in the
Managers' Report. No derivative or hedging instruments are utilised to
specifically manage market price risk. If the investment portfolio valuation
fell by 20% at 31 December 2010 the impact on profit or loss and therefore
Shareholders' equity would have been negative £22.5m (2009: negative £18.7m).
If the investment portfolio valuation rose by 20% at 31 December 2010 the
impact on profit or loss and therefore Shareholders' equity would have been
positive £22.5m (2009: positive £18.7m). The calculations are based on the
portfolio valuation as at the respective Balance Sheet dates and are not
representative of the year as a whole. The fair value of the financial
instruments held as at 31 December 2010 approximately equates to the carrying
value. The fair value of the Income Shares is based on the quoted market price
of 112.50p whilst the carrying value reflects the projected final capital
entitlement of 100p per Income Share. The fair value of the interest swap is
based on the 0.75 year (2009: 1.75 year) bid swap rate supplied by the Bank of
Scotland. The investment portfolio consists of listed investments valued at
their bid prices, which represents their fair value. The Company is a split
capital investment trust. In the Directors' opinion the Income Shares and
Capital Shares are in aggregate the true equity of the Company although the
Income Shares must be disclosed as a "financial liability" due to the existence
of a contractual obligation on the Company to repay to Income Shareholders upon
liquidation, a pre-determined amount.
Additional risks faced by the Company, together with the approach taken by the
Board towards them, have been summarised as follows:
(i) Investment objective - is to provide Income Shareholders with a high level
of income payable half yearly with the potential for income growth and to
provide Capital Shareholders with geared capital growth. The performance of the
investment portfolio may in short periods not achieve this objective. However,
the Board's aim is to achieve the investment objective whilst managing risk by
ensuring the investment portfolio is managed appropriately.
(ii) Investment policy - a risk facing the Company is inappropriate sector and
stock selection leading to a failure in achieving the investment objective. The
Managers have a clearly defined investment philosophy and manage a diversified
portfolio, investing only in shares of companies that are considered capable of
meeting the Company's objective. Furthermore, performance against the index of
the Investment Universe and the peer group is regularly monitored by the Board.
The Company may also be affected by events or developments in the economic
environment generally, for example, inflation or deflation, recession and
movements in interest rates.
(iii) Share price volatility - the Capital Shares can trade at a discount or
premium to their underlying net asset value. The highly geared nature of the
Company makes the share price of the Capital Shares more volatile than other
less highly geared Investment Trusts. The Directors have decided a share buy-in
policy is not appropriate for the Company after taking into account factors
such as the planned wind-up date of the Company and the anticipated natural
dissipation of the Capital Share discount prior to the planned wind-up date.
(iv) Regulatory risk - breach of regulatory rules could lead to suspension of
the Company's share price listing, financial penalties or a qualified audit
report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to
the Company being subject to capital gains tax. The Board receives quarterly
compliance reports from the Secretaries to monitor compliance with regulations.
(v) Operational/Financial risk - failure of the Managers' accounting systems or
those of other third party service providers could lead to an inability to
provide accurate reporting and monitoring, or potentially lead to the
misappropriation of assets. The Board reviews regular reports on the internal
controls of the Managers and other key third party providers.
(vi) Gearing risk - the Board believes that the Company has a relatively
high-risk profile in the context of the investment trust industry. This belief
arises from the Company employing a significant level of gearing to increase
its yield and to provide the potential for a growing level of dividend income
and the potential for geared capital appreciation. The Board intends that the
Company remain geared throughout its life.
Some mitigating factors in the Company's risk profile include the facts that
the Company:
• has a relatively simple capital structure;
• invests only in a diversified portfolio of small UK quoted companies; and
• outsources all of its main operational activities to recognised,
well-established firms.
Investment in small companies is generally perceived to carry more risk than
investment in large companies. While this is reasonable when comparing
individual companies, it is much less so when comparing the volatility of
returns from diversified portfolios of small and large companies. The Board
believes that the Company's portfolio is diversified. In addition, since
returns from small and large companies are not perfectly correlated, there is
an opportunity for investors to reduce overall risk by holding portfolios of
both small and large companies together. In summary, the Board regularly
considers risks associated with the Company, the measures in place to monitor
them and the possibility of any other risks that may arise.
INVESTMENT PORTFOLIO
Thirty Largest Investments as at 31 December 2010
No. Company £'000 Total Business Activity
1 Spirax-Sarco Engineering 5,204 4.6 Engineering
2 RPC Group 4,030 3.6 Plastic packaging
3 JD Sports Fashion 3,953 3.5 Retailing - sports
goods & clothing
4 Bodycote 2,902 2.6 Engineering - heat
treatment
5 e2v technologies 2,878 2.6 Electronic
components &
subsystems
6 Beazley 2,825 2.5 Lloyds insurer
7 Holidaybreak 2,658 2.3 Education &
holiday services
8 RPS Group 2,486 2.2 Energy &
environmental
consulting
9 Dunelm Group 2,439 2.2 Homewares retailer
10 UMECO 2,341 2.1 Supply chain
management &
advanced composite
materials
------ ----
Top Ten Investments 31,716 28.2
11 Phoenix IT Group 2,312 2.1 IT services &
disaster recovery
12 Morgan Crucible Co 2,234 2.0 Engineer - ceramic
& carbon materials
13 Tullett Prebon 2,197 1.9 Inter dealer
broker
14 Greggs 2,180 1.9 Retailing - baked
products &
sandwiches
15 Huntsworth 2,111 1.9 Public relations
16 Dialight 2,093 1.9 LED based lighting
solutions
17 Low & Bonar 2,089 1.9 Manufacture of
industrial
textiles
18 Domino Printing Sciences 2,082 1.8 Industrial
printers & inks
19 Galliford Try 2,059 1.8 Housebuilding &
construction
services
20 Brown (N.) Group 2,009 1.8 Catalogue retailer
------ ----
Top Twenty Investments 53,082 47.2
21 Wilmington Group 1,999 1.8 Information &
training for
professional
business market
22 Keller Group 1,964 1.7 Ground engineering
services
23 Micro Focus International 1,960 1.7 Software -
development &
testing
24 Collins Stewart 1,928 1.7 Stockbroker &
private client
fund manager
25 KCOM Group 1,881 1.7 Telecommunications
services
26 Smiths News 1,827 1.6 Newspaper
distribution
27 Castings 1,754 1.6 Engineering -
automotive
castings
28 BBA Aviation 1,751 1.6 Aviation -
fuelling &
maintenance
29 Microgen 1,634 1.4 Workflow &
financial services
software
30 Halfords Group 1,611 1.4 Retailing - car &
cycling
accessories
----- ----
Top Thirty Investments 71,391 63.4
Other Investments 41,307 36.6
------ -----
Total Investments 112,698 100.0
------- -----
The Income Statement, Balance Sheet, Reconciliation of Movements in
Shareholders' Funds, and Summary Cash Flow Statement are set out below: -
INCOME STATEMENT
(Audited)
For the year ended 31 December 2010
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Realised gains/(losses) on sales - 8,028 8,028 - (6,862) (6,862)
Increase in fair value - 16,220 16,220 - 30,700 30,700
------- ------- ------- ------- ------- -------
Gains on investments - 24,248 24,248 - 23,838 23,838
Dividend income 4,192 - 4,192 3,761 150 3,911
Interest income 1 - 1 31 - 31
Other income 8 - 8 13 - 13
Investment management fee (231) (538) (769) (177) (412) (589)
Other expenses (244) (382) (626) (233) (285) (518)
------- ------- ------- ------- ------- -------
Net return before finance costs and
taxation 3,726 23,328 27,054 3,395 23,291 26,686
Finance costs: interest (595) (416) (1,011) (602) (1,286) (1,888)
------- ------- ------- ------- ------- -------
3,131 22,912 26,043 2,793 22,005 24,798
Finance costs on Income Shares (3,234) - (3,234) (3,087) - (3,087)
------- ------- ------- ------- ------- -------
Return on ordinary activities before tax (103) 22,912 22,809 (294) 22,005 21,711
Tax on ordinary activities - - - - - -
------- ------- ------- ------- ------- -------
Return attributable to shareholders (103) 22,912 22,809 (294) 22,005 21,711
===== ===== ===== ===== ===== =====
Returns per share
Income Share 12.78p - 12.78p 11.40p - 11.40p
------- ------- ------- ------- ------- -------
Capital Share - 218.21p 218.21p - 209.57p 209.57p
------- ------- ------- ------- ------- -------
NOTES
1. The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. All revenue and
capital items in the above statement derive from continuing operations. No
operations were acquired or discontinued in the period. A Statement of Total
Recognised Gains and Losses is not required as all gains and losses of the
Company have been reflected in the above statement.
2. The calculations of revenue return per Income Share are based on net
revenue on ordinary activities before distributions of £3.131 million (2009: £
2.793 million) and on 24.5 million Income Shares (2009: 24.5 million). The
calculations of capital return per Capital Share are based on net capital
profits of £22.912 million (2009: profits of £22.005 million) and on 10.5
million Capital Shares (2009: 10.5 million).
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(Audited)
For the year ended 31 December 2010
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Shareholders'
funds as at
31 December 105 50 9,674 21,830 2,808 34,467
2009
Return
attributable
to - - - 22,912 (103) 22,809
shareholders
---------- ---------- ---------- ---------- ---------- ----------
Shareholders'
funds as at
31 December 105 50 9,674 44,742 2,705 57,276
2010
====== ====== ====== ====== ====== ======
For the year ended 31 December 2009
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Shareholders'
funds as at
31 December 105 50 9,674 (175) 3,102 12,756
2008
Return
attributable
to - - - 22,005 (294) 21,711
shareholders
---------- ---------- ---------- ---------- ---------- ----------
Shareholders'
funds as at
31 December 105 50 9,674 21,830 2,808 34,467
2009
====== ====== ====== ====== ====== ======
BALANCE SHEET
(Audited)
As at 31 December 2010
31 31
December December
2010 2009
£'000 £'000
Fixed Assets: Investments
Investments at fair value through profit or
loss 112,698 93,514
------- -------
Current assets
Debtors 310 421
Cash at bank 5 1
------- -------
315 422
------- -------
Creditors (amounts falling due within one
year) (55,737) (46)
------- -------
Net current (liabilities)/assets (55,422) 376
------- -------
Total assets less current liabilities 57,276 93,890
Creditors (amounts falling due after more than
one year) - (59,423)
------- -------
TOTAL NET ASSETS 57,276 34,467
====== ======
Capital and reserves: Equity interests
Called up share capital:
Capital shares 105 105
Reserves:
Capital redemption reserve 50 50
Special reserve 9,674 9,674
Capital reserve 44,742 21,830
Revenue reserve 2,705 2,808
------- -------
TOTAL EQUITY 57,276 34,467
====== ======
Net Asset Values:
- per Income Share (Income Shares are
classified as financial liabilities) 109.71p 104.75p
- per Capital Share 522.82p 317.17p
NOTE
The Company had 24.5 million Income Shares and 10.5 million Capital Shares in
issue as at 31 December 2010 and 31 December 2009.
SUMMARY CASH FLOW STATEMENT
(Audited)
For the year ended 31 December 2010
2010 2009
£'000 £'000
CASH FLOW STATEMENT
Net cash inflow from operating activities 3,202 3,233
------- -------
Returns on investment and servicing of finance
Dividends paid (3,234) (3,087)
Interest and similar finance costs paid (1,977) (2,006)
------- -------
Net cash outflow from returns
on investment and servicing of finance (5,211) (5,093)
------- -------
Capital expenditure and financial investment
Payments to acquire investments (28,423) (24,392)
Receipts from sales of investments 33,211 25,239
------- -------
Net cash inflow from capital
expenditure and financial investments 4,788 847
------- -------
Net cash inflow/(outflow) before financing activities 2,779 (1,013)
------- -------
Financing activities
Loans (repaid)/drawn down (2,775) 1,150
------- -------
Net cash (outflow)/inflow from financing activities (2,775) 1,150
------- -------
Change in cash during the period 4 137
====== ======
Reconciliation of change in cash
to movement in net debt
Change in cash during the period 4 137
Loans repaid/(drawn down) 2,775 (1,150)
Change in fair valuation of interest rate swap 974 120
Amortisation of issue costs during the period (9) (10)
------- -------
Change in net debt 3,744 (903)
Opening net debt (59,422) (58,519)
------- -------
Closing net debt (55,678) (59,422)
====== ======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES - BASIS OF ACCOUNTING
The accounts have been prepared in accordance with UK generally accepted
accounting practice (UK GAAP) and the AIC’s Statement of Recommended
Practice “Financial Statements of Investment Trust Companies and Venture
Capital Trusts†issued in January 2009.The total column of the Income
Statement is the profit and loss account of the Company. All revenue and
capital items in the Income Statement are derived from continuing operations.
No operations were acquired or discontinued in the period. The same accounting
policies used for the year to 31 December 2009 have been applied for the year
to 31 December 2010.
The Company continues to adopt the going concern basis in the preparation of
the financial statements. The Directors considered the implications of the
proximity to the planned winding-up date of 31 December 2011 in determining
the most appropriate basis of preparing the financial statements and concluded
that as a number of realistic alternatives to a wind-up exist and the
continuation of the Company remains a viable option, and also taking into
account the future expected cash flows and resources of the Company, it is
reasonable to continue to prepare the financial statements on a going concern
basis. As set out in the Chairman’s Statement it is the Directors’ intention
to put proposals to shareholders later in 2011 for the continuation,
reconstruction or winding-up of the Company. The validity of the going concern
basis depends on the Directors proposing the continuation of the Company and such
a continuation vote being passed by shareholders. This condition indicates the
existence of a material uncertainty which may cast significant doubt on the
ability of the Company to continue as a going concern. The Directors, having
considered the investment outlook, the objectives of both classes of
shareholder, potential sources of funding to refinance the Company’s bank debt
facility and the future cash flows of the Company, are satisfied that it is
appropriate to prepare the financial statements on a going concern basis. If
at some point in the future any proposals for the continuation of the Company
were not approved by shareholders or the Directors concluded no realistic
alternative to a wind-up existed then adjustments would be required to
reclassify all assets as current, and a provision for further liabilities,
including liquidation costs, would be made. In the Directors' opinion the
impact of these adjustments on the financial statements is not expected to be
significant.
2. FINANCE COSTS
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on base rate 11 25 36 20 48 68
loans/overdraft
Interest on LIBOR loans 584 1,365 1,949 582 1,358 1,940
Change in fair valuation - (974) (974) - (120) (120)
of interest rate swap
--------- --------- --------- --------- --------- ---------
Total interest costs 595 416 1,011 602 1,286 1,888
======== ======== ======== ======== ======== ========
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Second interim dividend 1,642 - 1,642 1,642 - 1,642
for the year ended 31
December 2009 of 6.7p
(2009: 6.7p)
First interim dividend 1,592 - 1,592 1,445 - 1,445
for the year ended 31
December 2010 of 6.5p
(2009: 5.9p)
--------- --------- --------- --------- --------- ---------
Total distribution costs 3,234 - 3,234 3,087 - 3,087
======== ======== ======== ======== ======== ========
A second interim dividend for the year ended 31 December 2010 of 7.5p will be
paid to Income Shareholders on 25 February 2011.
3. RETURNS PER SHARE
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return on ordinary (103) 22,912 22,809 (294) 22,005 21,711
activities
Add back dividends 3,234 - 3,234 3,087 - 3,087
on Income Shares
--------- --------- --------- --------- --------- ---------
Earnings 3,131 22,912 26,043 2,793 22,005 24,798
attributable to
shareholders
======== ======== ======== ======== ======== ========
Number of Income
Shares 24,500,000 - 24,500,000 -
Number of Capital
Shares - 10,500,000 - 10,500,000
Returns per share 12.78p 218.21p 11.40p 209.57p
4. NET ASSET VALUE PER SHARE
Total net assets have been calculated in accordance with the provisions of
Financial Reporting Standard 4. Income Shares are classified as financial
liabilities and are carried on the balance sheet at their fair value of 100p
each which results in a total fair valuation of the Income Shares of £
24,500,000. This valuation does not reflect the rights of the Income Shares
under the Articles of Association on a return of assets. Set out below is a
reconciliation of Capital and Income share net asset values in accordance with
the Articles.
2010 2009
Capital Income Capital Income
Shares Shares Total Shares Shares Total
£'000 £'000 £'000 £'000 £'000 £'000
Net assets per 57,276 - 57,276 34,467 - 34,467
Balance Sheet
Revenue reserve (2,705) 2,705 - (2,808) 2,808 -
Capital entitlement
of Income Shares as
at 31 March 2011 - 24,500 24,500 - 24,500 24,500
Capital entitlement
not yet transferred
to Income
Shareholders 325 (325) - 1,644 (1,644) -
--------- --------- --------- --------- --------- ---------
Net assets per 54,896 26,880 81,776 33,303 25,664 58,967
Articles
======== ======== ======== ======== ======== ========
Number of Income
Shares - 24,500,000 - 24,500,000
Number of Capital
Shares 10,500,000 - 10,500,000 -
NAV per share 522.82p 109.71p 317.17p 104.75p
5. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2010 2009
£'000 £'000
Loan facility 175 -
LIBOR loan facility 30,000 -
Less: unamortised issue costs (9) -
Income shares 24,500 -
Interest rate swap 1,017 -
Other creditors 54 46
--------- ---------
Total 55,737 46
======== ========
6. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2010 2009
£'000 £'000
Loan facility - 2,950
LIBOR loan facility - 30,000
Less: unamortised issue costs - (18)
Income shares - 24,500
Interest rate swap - 1,991
--------- ---------
Total - 59,423
======== ========
7. FURTHER INFORMATION
The foregoing do not comprise Statutory Accounts (as defined in section 434(3)
of the Companies Act 2006) of the Company. The statutory accounts for the year
to 31 December 2009, which contained an unqualified Report of the Auditors ,
have been lodged with the Registrar of Companies and did not contain a
statement required under section 498(2) or (3) of the Companies Act 2006.
Certain statements in this announcement are forward looking statements. By
their nature, forward looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to
differ materially from those expressed or implied by those statements. Forward
looking statements regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the future.
Accordingly, undue reliance should not be placed on forward looking statements.
Contact: John Evans or David Ross - Aberforth Partners LLP - 0131 220 0733
Aberforth Partners LLP, Secretaries - 27 January 2011
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