Annual Financial Report
EP GLOBAL OPPORTUNITIES TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012
The full Annual Report and Financial Statements can be accessed via the
Company's website at www.epgot.com or by contacting the Company Secretary by
telephone on 0131 270 3800.
HIGHLIGHTS
* At 31 December 2012, our net asset value per share was 183.1p, giving a total
return for the twelve months of 10.4 per cent.
* The share price closed the year at 175.5p which was a discount of 4.2 per
cent to the net asset value per share.
* Our revenue return was 3.9p per share. The Board is pleased to recommend a
dividend of 3.9p per share.
* We continued our policy of buying in shares with a view to maintaining the
share price at close to the net asset value per share. During 2012, we bought
in 5.8 million shares at a cost of £9.7 million.
* The ongoing charges ratio was 1.1 per cent in 2012.
* During 2012 we renewed the £10 million borrowing facility with Scotiabank
Europe plc. At the year end, the equivalent of £4.3 million in Japanese yen and
US dollars had been drawn down.
FINANCIAL SUMMARY
Results for year 31 December 2012 31 December 2011 Change
Shareholders' funds £91,766,000 £95,092,000 (3.5)%
Net asset value per ordinary share 183.1p 169.9p 7.8%
("NAV")
Share price 175.5p 167.0p 5.1%
Share price discount to NAV 4.2% 1.7%
Revenue return per ordinary share* 3.9p 5.0p (22.0)%
Dividend per ordinary share 3.9p** 4.2p (7.1)%
* Based on the weighted average number of shares in issue during the year
excluding own shares held in treasury.
** Proposed final dividend for the year.
Year to Year to
31 December 2012 31 December 2011
Ordinary share Ordinary share
Year's high/low
Share price - high 181.8p 187.3p
- low 152.0p 139.5p
NAV - high 190.4p 193.9p
- low 158.6p 154.4p
Share price (discount)/premium to NAV
- high (1.9)% 2.8%
- low (10.0)% (10.8)%
Cost of running the Company
Ongoing charges* 1.1% 1.0%
*Based on total expenses, excluding finance costs and certain non-recurring
items for the year and average monthly net asset value.
PERFORMANCE RECORD
Net asset Share Share price Revenue Dividend
value per price per discount return per per
Shareholders' ordinary ordinary to net asset ordinary ordinary
funds share share value share share
Year ended
31 December
2004* £26.1m 116.4p 110.5p 5.1% 0.6p 0.4p
2005 £52.2m 156.2p 154.5p 1.1% 1.1p 0.8p
2006 £58.8m 172.8p 170.0p 1.6% 2.1p 1.8p
2007 £57.7m 177.2p 160.0p 9.7% 2.7p 2.3p
2008 £46.4m 150.4p 132.5p 11.9% 3.9p 3.1p
2009 £50.7m 175.9p 172.0p 2.2% 2.7p 2.4p
2010 £51.6m 188.2p 186.8p 0.7% 3.2p 2.8p
2011 £95.1m 169.9p 167.0p 1.7% 5.0p 4.2p
2012 £91.8m 183.1p 175.5p 4.2% 3.9p 3.9p**
* Period 13 November 2003 to 31 December 2004. The Company commenced operations
on the admission of its shares to listing on the London Stock Exchange on 15 December 2003.
** Proposed final dividend for the year.
CHAIRMAN'S STATEMENT
Results
At 31 December 2012, our net asset value per share was 183.1p, giving a total
return for the twelve months of 10.4 per cent. The total return for the FTSE
All-Share Index was 12.3 per cent and for the FTSE All-World Index was 12.0 per
cent. Although we do not monitor the Company's performance against any
benchmark, your Board does take note of the investment performance compared to
the major stock market indices.
The main reason for our performance lagging behind the FTSE All-World Index was
the Company's holdings in Japanese shares. We started the year with 23.9 per
cent of Shareholders' funds in Japan. This had a negative effect on performance
for most of the year, but the last six weeks saw a dramatic recovery in the
Japanese stock market. Although this was not sufficient to recover all of the
earlier relative underperformance, it was an encouraging sign, particularly as
our Japanese shares are still showing good value relative to values available
elsewhere.
The share price closed the year at 175.5p, an increase of 5.1 per cent over the
price at the end of 2011. At the end of 2012, the share price stood at a
discount of 4.2 per cent to the net asset value per share, compared to 1.7 per
cent at the end of 2011. We continued our policy of buying back shares with a
view to maintaining the share price at close to the net asset value per share,
and during the year, we bought back 5.8 million shares at a cost of £9.7
million.
Stock market performance
Equity markets worldwide made useful gains in 2012 and ended the year on a firm
note. The year started well as share prices recovered from a disappointing
2011. However, the recovery was cut short as problems in the Eurozone
resurfaced. Doubts about the ability of Spain and Italy to refinance borrowings
that were due to be repaid during the year raised concerns about the
possibility of a major default, or even the breakup of the Eurozone.
Expectations for economic growth globally were gradually revised downwards
because of the deflationary effect of the fiscal austerity being applied in
Europe and the moderating rate of growth in China.
By May 2012, major equity indices had given up their early gains but early June
saw the low point of the year. As the expected rate of global growth slowed, so
did the anticipated rate of inflation. This enabled a number of countries to
start lowering interest rates, as they focused more on economic growth rather
than worrying about inflation. As the second half of the year progressed, an
increasing number of central banks lowered interest rates and where rates were
already close to zero, as in the UK and US, further tranches of "quantitative
easing" (i.e., the government buying in its own bonds) were announced. Investor
sentiment improved steadily during the second half of the year.
In late July 2012, Mario Draghi, the President of the European Central Bank
("ECB"), announced that the ECB was ready to do whatever it took to preserve
the euro. While doubts lingered as to whether he would be able to deliver on
this statement, in early September 2012 policy makers in Europe agreed to an
unlimited programme of purchasing government bonds in countries requiring help,
provided they agreed to have their financial budgets approved by Brussels.
The increasingly aggressive moves to stimulate economic growth were highlighted
by the Chairman of the Federal Reserve, the US central bank, stating in October
2012, that low interest rates and further quantitative easing would continue
until US unemployment fell to 6.5 per cent, its level then being 7.8 per cent.
Completing the global picture of financial stimulus, Shinzo Abe, the new Prime
Minister of Japan elected in December 2012, announced a policy of stimulating
growth, including a policy to devalue the yen. The Japanese financial
authorities had consistently resisted full fledged reflation, even though
interest rates had been near zero for a prolonged period, and as a consequence
the yen had been a strong currency making it difficult for Japanese companies
to compete globally. The policy announcement had a dramatic effect on both the
yen, which fell sharply, and on share prices, which surged higher.
Currency markets had a significant effect on sterling-based portfolios over the
year, with sterling being the strongest major currency, gaining 3 per cent
against the euro, 5 per cent against the US dollar and 18 per cent versus the
yen. Measured in sterling, the best performing major FTSE All-World regional
share indices were those for Asia ex Japan and for Europe ex UK, with total
returns of over 17 per cent. The S&P Composite Index in the US produced a
return of 10.9 per cent in sterling terms. While the Japanese Topix Index was
one of the strongest markets in local currency terms, with a total return of
20.9 per cent, this was reduced to only 2.8 per cent when converted into
sterling.
Holding in Edinburgh Partners Limited ("Edinburgh Partners")
We reduced the value of our holding in Edinburgh Partners, our Investment
Manager, from £1.7 million to £1.45 million during the year, reflecting a
reduction in the level of Edinburgh Partners' funds under management.
Gearing
We continue to maintain a modest amount of gearing with a multi-currency
facility in place to borrow up to £10 million. At the year end, we had drawn
down the equivalent of £2.5 million in Japanese yen and £1.8 million in US
dollars. This was partially balanced by £1.6 million in cash less net
liabilities, making the Company slightly geared. The effective level of
investment in equities was 102.9 per cent of Shareholders' funds.
The Board
Ian McBean retired from your Board at the end of the year, having served as a
Director since the launch of the Company. I would like to take this opportunity
to thank Ian for his contribution to the Board. His many years of investment
experience and expertise in share analysis have been a great help to our
deliberations.
We had initially planned to seek an immediate replacement, but after due
consideration decided that Shareholders would be better served by keeping costs
down and that four Directors were sufficient to conduct the affairs of your
Company. As set out in last year's Annual Report, all Directors are required to
stand for re-election by Shareholders on an annual basis.
Revenue account and dividend
The revenue per share for the year was 3.9p. This compares with 5.0p in 2011,
which benefited from a one-off rebate of part of the management fee as a result
of the merger with Anglo & Overseas. There was also some reduction in income
from shares in 2012 as a result of changes made to the portfolio. The Board has
always taken the view that the investments to be held in the portfolio are
selected entirely on where our Investment Manager finds the best value rather
than on achieving a particular level of dividend. The Board is recommending a
dividend of 3.9p per share compared to 4.2p last year. Subject to approval by
Shareholders at the Annual General Meeting, the dividend will be paid on 31 May
2013.
It is now possible for Shareholders to choose to receive dividend payments
directly into their bank accounts instead of by cheque. Shareholders wishing to
do so should contact the registrar, Computershare Investor Services PLC, whose
contact details are available in the full Annual Report and Financial
Statements.
Outlook
Equity markets ended last year in buoyant mood underpinned by global action to
stimulate economic growth. The major concerns of 2012 have moderated: Europe is
less likely to implode, the Chinese economy is expected to continue to grow at
a healthy rate, although not at the same pace as in recent years and, in the
US, a last minute compromise was reached between the President and the House of
Congress on the budget for 2013. There are still plenty of potential problems
for financial markets, from Iran's nuclear ambitions to the excessive levels of
debt in Western economies and the limitations these put on economic growth.
Despite the gains in share prices, valuations appear by no means excessive and
it is rarely wrong to take a positive view on equity markets when central banks
are in an aggressive, expansionary mode. Your Company is modestly geared, in
line with our reasonably positive view of the outlook.
Teddy Tulloch
Chairman
4 March 2013
INVESTMENT MANAGER'S REPORT AND PORTFOLIO ANALYSIS
The Company's net asset total return per share for 2012 was 10.4 per cent.
Despite many of the travails facing the global economy, at the end of 2011 it
was considered that there were a number of reasons to be optimistic about the
outlook for equity investment worldwide.
The first related to economic and political change in Europe. It was critical
that reform could take place in the periphery to allow the core, and Germany in
particular, to sanction the support mechanisms necessary to protect and
underpin the euro and, by implication, many of the major European financial
institutions. Sufficient movement had been achieved in a number of countries,
including Italy, Portugal and Greece, by the middle of 2012 to allow the
President of the European Central Bank (the "ECB"), Mario Draghi, to announce
that "Within our mandate, the ECB is ready to do whatever it takes to preserve
the euro. And believe me, it will be enough". This statement, along with the
actions taken by many European governments to restore fiscal credibility,
marked a significant turning point. This is not to suggest that the economic
issues within Europe have been fully resolved, simply that the "tail event"
probability of a potential euro exit and consequent sovereign bond default has
diminished.
Secondly, in 2010 we began to find substantial numbers of undervalued companies
in Japan. Unfortunately, shortly after increasing the Company's investment
exposure, Japan was to suffer the tragic effects of the earthquake and tsunami
in March 2011. While the operational impact varied according to location, there
was a further negative, being the financial impact, which should not be
overlooked. The repatriation of capital caused the yen to strengthen further,
creating almost impossible conditions for Japanese industry. As a consequence,
much of the progress on productivity and efficiency was eroded and companies
were forced to severely revise down their profit expectations. Since the
financial crisis began in 2007, the yen had appreciated by over 50% against the
South Korean won, making Japanese products uncompetitive relative to their
South Korean counterparts, illustrating the headwinds that Japanese companies
had already been facing in relation to some of their principal competitors.
As a consequence, for much of 2012, Japanese share prices performed poorly,
with periodic profit warnings culminating in that of Panasonic in November 2012
when the company wrote off 355 billion yen in business restructuring and
impairment losses. Whilst part of the restructuring related to the need for
business improvements, undoubtedly part was a consequence of yen strength which
had made many companies become fundamentally uncompetitive. It might be argued
that the Panasonic profits warning signalled a consensus view within Japan that
the seemingly unstoppable ascent of the yen and the economic carnage it was
causing could not continue. In December 2012, the Liberal Democratic Party,
with Mr Abe as Prime Minister, returned to power in Japan, with a landslide
general election win, on a platform of economic reform with a weaker yen one of
the central policy planks.
Since then the yen has weakened and Japanese equities have begun to recover. It
is our view that the future profit recovery in Japanese companies remains
underestimated and hence the potential investment returns are compelling.
A major feature during 2012 was the continued appreciation of share prices of
so-called "safe" companies. These companies tended to have reasonably
predictable earnings and dividend streams. Whilst these are clearly admirable
features for the investor, they nevertheless have a maximum price, from a
valuation perspective, and in a number of cases we considered these prices were
reached. As consequence, holdings such as Diageo and Heineken were sold despite
the fact that their businesses were performing in line with our forecasts.
Equally, holdings in Vodafone, China Mobile, GlaxoSmithKline and Singapore
Telecommunications were reduced for the same reason.
D.R. Horton, the US house builder, was also sold. In some ways this was a
classic example of investing in a stock when sentiment was extremely negative.
When we purchased D.R. Horton, the US housing market was characterised by a
huge inventory overhang and real concern about the banking sector and housing
related financial instruments. On the other hand, affordability was the best it
had been in half a century and the company had a balance sheet capable of
seeing it through any short-term downturn. The key question therefore was the
timing of recovery, a question which neither we nor the market could answer.
Confident in our long-term investment strategy and that we could wait for
recovery to unfold, we initiated a position. When sentiment turned, the share
price rallied and we then exited the position.
Petrobras, the Brazilian oil company, did not prove such a rewarding
investment. The major issue that became clear to us was one of execution risk.
Whilst the company has control over one of the largest deepwater oil finds in
the world, it had little experience of managing an exploration and production
programme of such magnitude. The evidence began to accumulate of cost overruns
and delays leading to a very real possibility of a destruction of shareholder
value. We took the decision that this risk outweighed the potential returns and
sold the holding.
After substantial appreciation in the Great Wall Motor Company in China, the
valuation no longer remained as compelling and the holding was reduced. On the
other hand, the valuation of Prince Frog International did look attractive to
us. The company is a leading Chinese domestic brand of child care products
ranging from lotions to shampoo and oral care. It markets its products partly
through an animation series using the Prince Frog character and has built a
distribution channel throughout China. This may be one of the higher risk
investments but it is merited on the back of the potential returns.
In Asia, we also invested in Genting Singapore, which owns and operates one of
the two casino resorts in Singapore. Long-term prospects for the resort look
positive and, provided any cash generated is successfully reinvested or
returned to shareholders, the potential returns to shareholders look to be
attractive. In Europe, the investments made were largely in areas which were
very much out of favour when economic concerns were at their most fragile.
Purchases included the Danish shipping company, A.P. Moller-Maersk, and the
Spanish IT company, Indra Sistemas, which focuses on air traffic control
systems.
In aggregate, we feel comfortable with the portfolio's current position. We
believe that the Japanese stock market may well have turned a corner and that
the excess premium attached to the appearance of "safety" in some stocks and
markets may be beginning to evaporate. In general, valuations do not look
extended and whilst there is always the possibility of short-term market
setbacks, we are of the view that the long-term outlook for equity investors
remains favourable. We believed last year that future reports would be making
more reference to encouraging trends than discussing negative historic ones,
and in the case of both Europe and Japan, we believe this is unfolding.
Dr Sandy Nairn
Edinburgh Partners Limited
4 March 2013
PORTFOLIO OF INVESTMENTS
as at 31 December 2012
% of
Net
Company Sector Country Valuation Assets
£'000
Equity investments
20 largest equity investments
Cisco Systems Technology United States 2,934 3.2
Samsung Electronics Consumer Goods South Korea 2,915 3.2
ENI Oil & Gas Italy 2,809 3.1
Japan Tobacco Consumer Goods Japan 2,764 3.0
Microsoft Technology United States 2,726 3.0
Fujitsu Technology Japan 2,723 3.0
Indra Sistemas Technology Spain 2,608 2.8
Sumitomo Mitsui Financials Japan 2,585 2.8
Mitsubishi Industrials Japan 2,533 2.8
Rio Tinto Basic Materials United Kingdom 2,519 2.7
Gazprom Oil & Gas Russia 2,510 2.7
Swire Pacific Industrials Hong Kong 2,480 2.7
Bridgestone Consumer Goods Japan 2,476 2.7
ABB Industrials Switzerland 2,472 2.7
Johnson Controls Consumer Goods United States 2,454 2.7
A.P. Moller-Maersk Industrials Denmark 2,450 2.7
Google Technology United States 2,439 2.7
Genting Singapore Consumer Services Singapore 2,436 2.6
DBS Financials Singapore 2,426 2.6
Applied Materials Technology United States 2,414 2.6
Total - 20 largest equity investments 51,673 56.3
Other equity investments
Omron Industrials Japan 2,390 2.6
HSBC Financials United Kingdom 2,386 2.6
Yamaha Motor Consumer Goods Japan 2,369 2.6
Canon Technology Japan 2,364 2.6
Deutsche Post Industrials Germany 2,342 2.5
Great Wall Motor Consumer Goods China 2,325 2.5
Illinois Tool Works Industrials United States 2,261 2.5
SanDisk Technology United States 2,253 2.5
Carnival Consumer Services United States 2,242 2.4
France Telecom Telecommunications France 2,119 2.3
Vodafone Telecommunications United Kingdom 2,107 2.3
Prince Frog Consumer Goods Hong Kong 2,067 2.3
International
Intesa San Paulo Financials Italy 2,051 2.2
Singapore Telecommunications Singapore 1,968 2.1
Telecommunications
China Mobile Telecommunications Hong Kong 1,902 2.1
Unilever Consumer Goods Netherlands 1,888 2.1
GlaxoSmithKline Health Care United Kingdom 1,874 2.0
Aviva Financials United Kingdom 1,871 2.0
Panasonic Consumer Goods Japan 1,743 1.9
Edinburgh Partners Financials (unlisted) United Kingdom 1,450 1.6
Limited
Hutchison Whampoa Industrials Hong Kong 821 0.9
Total - 41 equity investments 94,466 102.9
Cash less net liabilities (2,700) (2.9)
Net assets 91,766 100.0
The geographic distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
Of the ten largest portfolio investments as at 31 December 2012, the valuations
at the previous year end, 31 December 2011, were Cisco Systems £3,616,000;
Samsung Electronics £3,233,000; ENI £2,500,000; Japan Tobacco £2,407,000;
Microsoft £2,770,000; Fujitsu £2,646,000; and Mitsubishi £2,290,000. Indra
Sistemas, Sumitomo Mitsui and Rio Tinto were new purchases in the year ended
31 December 2012.
DISTRIBUTION OF INVESTMENTS
as at 31 December 2012 (% of investments)
% of
Sector distribution investments
Consumer Goods 22.2
Technology 21.7
Industrials 18.8
Financials 12.0
Telecommunications 8.6
Oil & Gas 5.6
Consumer Services 4.9
Basic Materials 2.7
Health Care 2.0
Financials (unlisted) 1.5
100.0
% of
Geographical distribution investments
Japan 23.2
Europe 22.5
United States 20.9
Asia Pacific 20.5
United Kingdom 12.9
100.0
The figures detailed in the geographical distribution pie chart represent the
Company's exposure to these countries or regional areas.
The geographic distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
EXTRACTS FROM THE DIRECTORS' REPORT
Business review
Status of Company
The Company is registered as a public limited company and is an investment
company within the terms of section 833 of the Companies Act 2006. The Company
has received approval from HM Revenue & Customs ("HMRC") as an authorised
investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010
for the year ended 31 December 2011. This approval is subject to there being no
subsequent enquiry under corporation tax self-assessment. The Company has been
approved as an investment trust for all previous years since its inception in
2003. In the opinion of the Directors, the Company has subsequently directed
its affairs so as to enable it to continue to qualify for such approval.
New regulations for obtaining and retaining investment trust status apply to
the Company with effect from 1 January 2012. One of the principal changes under
the new investment trust tax regime is to remove the restriction that no single
investment can represent more than 15 per cent of gross assets at the time of
its acquisition, and to replace this with a risk diversification approach;
however, the 15 per cent limit remains a restriction in the Company's
investment policy as detailed below. An application for approval as an
investment trust under the new regime has been made and accepted by HMRC.
Accordingly, the Company will be treated as an investment trust company for the
year ended 31 December 2012 and for each subsequent accounting period, subject
to there being no subsequent serious breaches of the regulations.
The Company's shares are listed on the premium segment of the Official List of
the UK Listing Authority and traded on the main market of the London Stock
Exchange.
Activities
The principal activity of the Company is to carry on business as an investment
trust.
A review of the Company's activities during the year is given in the Chairman's
Statement and in the Investment Manager's Report and Portfolio Analysis above.
Net asset valuation
The net asset value per ordinary share ("NAV") at 31 December 2012 was 183.1p
(2011: 169.9p).
Results
The results for the year are set out in the Income Statement and the
Reconciliation of Movements in Shareholders' Funds below.
Dividends
The Directors recommend the payment of a final dividend of 3.9p per ordinary
share (2011: 4.2p). Only one dividend is paid annually. Subject to approval by
Shareholders at the Annual General Meeting of the Company to be held on
25 April 2013, the final dividend will be payable on 31 May 2013 to Shareholders
on the register at the close of business on 10 May 2013. The ex-dividend date
will be 8 May 2013.
Objective
The investment objective of the Company is to provide Shareholders with an
attractive real long-term total return by investing globally in undervalued
securities. The portfolio is managed without reference to the composition of
any stock market index.
Investment Policy
The Company invests in a focused portfolio of approximately 30 to 40 securities
of issuers throughout the world, predominantly in quoted equities. The Company
may also invest in unquoted securities, which are not anticipated to exceed
10 per cent of the Company's total assets at the time of investment (excluding
shares held in Edinburgh Partners). No investment in the Company's portfolio
may exceed 15 per cent of the Company's total assets at the time of investment.
The Company has no present intention to invest in other investment companies or
funds but retains the ability to invest no more than 15 per cent of its gross
assets in other listed investment companies (including investment trusts).
The Company may also invest a substantial portion of its assets in debt
instruments, cash or cash equivalents when the Investment Manager believes
market or economic conditions make equity investment unattractive or while
seeking appropriate investment opportunities for the portfolio or to maintain
liquidity. In addition, the Company may purchase derivatives for the purposes
of efficient portfolio management.
It is intended that, from time to time, when deemed appropriate, the Company
will borrow for investment purposes up to the equivalent of 25 per cent of its
total assets. By contrast, the Company's portfolio may from time to time have
substantial holdings of debt instruments, cash or short-term deposits.
The investment objective and policy are intended to distinguish the Company
from other investment vehicles which have relatively narrow investment
objectives and which are thus constrained in their decision making and asset
allocation. The objective and policy allow the Company to be constrained in its
investment selection only by valuation and to be pragmatic in portfolio
construction by only investing in securities which Edinburgh Partners considers
to be undervalued on an absolute basis.
Investment strategy
The Company's portfolio is managed without reference to any stock market index.
Investments are selected for the portfolio only after extensive research by the
Investment Manager. The process through which an equity must pass in order to
be included in the portfolio is rigorous. Only a security where the Investment
Manager believes that the price will be significantly higher in the future will
pass the selection process. The key to successful stock selection is to
identify the long-term value of a company's shares and to have the patience to
hold the shares until that value is appreciated by other investors. Identifying
long-term value involves detailed analysis of a company's earning prospects
over a five-year time horizon. Further details of the investment strategy can
be found in the Chairman's Statement and the Investment Manager's Report and
Portfolio Analysis above.
The Company's Investment Manager is Edinburgh Partners which is an independent
specialist investment manager focusing exclusively on achieving returns for
investors based on global investment analysis of the highest quality. The
Edinburgh Partners investment team includes experienced investment
professionals with strong investment performance records who believe rigorous
fundamental research allied to patience is the basis of long-term investment
success. Each of the investment professionals has specific responsibilities for
sector and regional research in addition to their fund management role. Details
of the Investment Management Agreement are set out in the full Annual Report
and Financial Statements.
Principal risks
The Board considers that the following are the principal risks associated with
investing in the Company: investment and strategy risk, discount volatility
risk, market risk, liquidity risk, credit risk, interest rate risk, foreign
currency risk, gearing risk, regulatory risk, operational risk and financial
risk. An explanation of these risks and how they are managed and the policy and
practice with regards to financial instruments are contained in note 19 below.
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objective. The Key Performance
Indicators used to measure progress and performance of the Company over time
are established industry measures and are as follows:
• Net asset value per ordinary share.
• Share price.
• Share price premium/(discount) to net asset value per ordinary share.
• Revenue return per ordinary share.
• Ongoing charges.
The Financial Summary above provides information for the years ended
31 December 2012 and 31 December 2011 on the Key Performance Indicators noted above.
Current and future developments
A review of the main features of the year ended 31 December 2012 and the
outlook for the coming year can be found in the Chairman's Statement and the
Investment Manager's Report and Portfolio Analysis above. The Board's main
focus is on the investment return and approach. Attention is paid to the
integrity and success of the investment approach and on factors which may have
an impact on this approach. Due regard is paid to the promotion of the Company
including communication with Shareholders and other external parties. The Board
is regularly updated on wider investment trust industry issues. Detailed papers
are presented to the Board which lead to extensive discussion on development
and strategy.
Gearing
The Company has a £10 million secured multi-currency revolving credit facility
with Scotiabank Europe PLC. As at 31 December 2012, £4.3 million had been drawn
down under this facility, as detailed in note 12 below.
The use of gearing can cause both gains and losses in the net asset value of
the Company to be magnified, as explained more fully in note 19 below.
Social, environmental and ethical policy
The Company seeks to invest in companies that are well managed, with high
standards of corporate governance. The Board believes this creates the proper
conditions to enhance long-term value for Shareholders. The Company adopts a
positive approach to corporate governance and engagement with companies in
which it invests.
In pursuit of the above objective, the Board believes that proxy voting is an
important part of the corporate governance process and considers seriously its
obligation to manage the voting rights of companies in which it is invested,
for which it has delegated responsibility to the Investment Manager. It is the
policy of the Company to vote, as far as is practicable, at all shareholder
meetings of investee companies. The Company follows the relevant applicable
regulatory and legislative requirements in the UK, with the guiding principles
being to make proxy voting decisions which favour proposals that will lead to
maximising Shareholder value while avoiding any conflicts of interest. To this
end, voting decisions are taken on a case-by-case basis, with the key issues on
which the Investment Manager focuses being corporate governance, including
disclosure and transparency, board composition and independence, control
structures, remuneration and social and environmental issues.
The Company itself has no employees and all the Directors are non-executive.
The day-to-day management of the Company's business has been delegated to the
Company's Investment Manager, Edinburgh Partners, which has an Environmental,
SRI and Corporate Governance ("ESG") policy in place. The ESG policy statement,
which can be found on the website at www.edinburghpartners.com, describes the
manner in which the principles of the UK Stewardship Code are incorporated
within the investment process.
Share capital
At 31 December 2012, the Company's issued share capital comprised 64,509,642
ordinary shares, of which 14,381,917 ordinary shares were held in treasury. At
general meetings of the Company, one vote is attached to each ordinary share in
issue. Own shares held in treasury do not carry voting rights. The total voting
rights of the Company at 31 December 2012 were 50,127,725 ordinary shares.
As at 1 March 2013, the Company's issued share capital comprised 64,509,642
ordinary shares, of which 14,831,917 ordinary shares were held in treasury. The
total voting rights of the Company at 1 March 2013 were 49,677,725 ordinary
shares.
Issue of shares
On 11 October 2005, the Company applied for a block listing of 1,300,000
ordinary shares. As at 31 December 2012, and at the date of this report a
balance of 745,830 shares may be issued under this block listing.
No shares were issued during the year.
Purchase of shares
During the year ended 31 December 2012, the Company purchased in the market
5,840,000 ordinary shares (with a nominal value of £58,400) for treasury, at a
total cost of £9,706,000. This represented 9.05 per cent of the issued share
capital at 31 December 2011. During the year, no shares were purchased for
cancellation.
The total number of own shares held in treasury as at 31 December 2012,
including those shares bought back in prior accounting periods, totalled
14,381,917 ordinary shares. The Board has not set a limit on the number of
shares that can be held in treasury at any one time. The maximum number of own
shares held in treasury during the year was 14,381,917 ordinary shares (with a
nominal value of £143,819) representing 22.29 per cent of the issued share
capital at the time they were held in treasury.
Subsequent to the year end and up to 1 March 2013, a further 450,000 ordinary
shares (with a nominal value of £4,500) have been purchased for treasury
representing 0.70 per cent of the issued share capital at 31 December 2012, at
a total cost of £843,000.
Sale of shares from treasury
No shares were sold from treasury during the year.
Going concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Business
Review above. In addition, notes 19 and 20 to the financial statements include
the Company's objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments; and
its risk exposure. The Company's principal risks are investment and strategy
risk, discount volatility risk, market risk, liquidity risk, credit risk,
interest rate risk, foreign currency risk, gearing risk, regulatory risk,
operational risk and financial risk. The Company's assets consist principally
of a diversified portfolio of listed equity shares, which in most circumstances
are realisable within a short period of time and exceed its liabilities by a
significant amount. The Company has a £10 million secured multi-currency
revolving credit facility with Scotiabank Europe PLC. As at 31 December 2012,
£4.3 million had been drawn down under this facility, as detailed in note 12
below.
After due consideration, the Directors have concluded that the Company has
adequate resources to continue in operational existence for the foreseeable
future. For this reason, they have adopted the going concern basis in preparing
the financial statements.
MANAGEMENT REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO
THE ANNUAL REPORT AND FINANCIAL STATEMENTS
Management report
Listed companies are required by the FSA's Disclosure and Transparency Rules
(the "Rules") to include a management report within their annual report and
financial statements.
The information required to be included in the management report for the
purpose of these Rules is included in the Chairman's Statement, the Investment
Manager's Report and Portfolio Analysis and the Business Review contained in
the Directors' Report. Therefore no separate management report has been
included.
Statement of Directors' responsibilities in relation to the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each
financial period. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
â— select suitable accounting policies and then apply them consistently;
â— make judgements and estimates that are reasonable and prudent;
â— state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
â— prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006 and include the information required by the Listing Rules of the FSA.
They have general responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Company and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Directors' Remuneration Report and Corporate
Governance Statement that comply with that law and those regulations.
The Directors, to the best of their knowledge, state that:
â— the financial statements, prepared in accordance with UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit of the Company; and
â— the Chairman's Statement, the Investment Manager's Report and Portfolio
Analysis and the Directors' Report include a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
The Directors confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditor is unaware; and each Director
has taken all the steps that ought to have been taken as a Director to make
himself aware of any relevant audit information and to establish that the
Company's Auditor is aware of that information.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Teddy Tulloch
Chairman
4 March 2013
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2011 and 31 December 2012
but is derived from those accounts. Statutory accounts for the year ended 31
December 2011 have been delivered to the Registrar of Companies, and those for
the year ended 31 December 2012 will be delivered in due course. The Auditor
has reported on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the Auditor drew attention by way
of emphasis without qualifying their report and (ii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006. The text of
the Auditor's report can be found in the Company's full Annual Report and
Financial Statements at www.epgot.com.
INCOME STATEMENT
for the year ended 31 December 2012
2012 2011
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on 8 - 6,089 6,089 - (12,273) (12,273)
investments at fair
value
Foreign exchange gains - 487 487 - (296) (296)
/(losses) on capital
items
Income 2 3,379 - 3,379 3,625 - 3,625
Investment management 3 (660) - (660) (432) - (432)
fee
Other expenses 4 (351) - (351) (273) - (273)
Net return before 2,368 6,576 8,944 2,920 (12,569) (9,649)
finance costs and
taxation
Finance costs
Interest payable and (97) - (97) (99) - (99)
related charges
Net return before 2,271 6,576 8,847 2,821 (12,569) (9,748)
taxation
Taxation 5 (189) - (189) (181) - (181)
Net return after 2,082 6,576 8,658 2,640 (12,569) (9,929)
taxation
pence pence pence pence pence pence
Return per ordinary 7 3.9 12.3 16.2 5.0 (23.9) (18.9)
share
All revenue and capital items in the above statement derive from continuing
operations.
The total column of this statement is the profit and loss account of the
Company. The revenue and capital return columns are prepared under guidance
published by the Association of Investment Companies ("AIC").
A separate Statement of Total Recognised Gains and Losses has not been prepared
as all such gains and losses are included in the Income Statement.
Dividend information
A final dividend for the year of 3.9p per ordinary share (2011: 4.2p) has been
recommended. Subject to Shareholder approval, this dividend will be payable on
31 May 2013 to Shareholders on the register at the close of business on 10 May
2013. The ex-dividend date will be 8 May 2013. Based on 49,677,725 ordinary
shares, being the number of ordinary shares in issue (excluding shares held in
treasury) on 1 March 2013, the total dividend payment will amount to
£1,937,000. In accordance with FRS 21, dividends are accounted for in the period
in which they are paid. Further information on dividend distributions can be
found in note 6 of these financial statements.
The notes form part of these financial statements.
BALANCE SHEET
as at 31 December 2012
2012 2011
Note £'000 £'000
Fixed asset investments:
Investments at fair value through profit or 8 94,466 98,550
loss
Current assets:
Debtors 10 214 975
Cash at bank and short-term deposits 2,165 908
2,379 1,883
Creditors - amounts falling due within one
year:
Creditors 11 769 506
Loans 12 4,310 4,835
5,079 5,341
Net current liabilities (2,700) (3,458)
Net assets 91,766 95,092
Capital and reserves:
Called-up share capital 13 645 645
Capital redemption reserve 14 14
Special reserve 72,615 82,321
Capital reserve 15,212 8,636
Revenue reserve 3,280 3,476
Total Shareholders' funds 91,766 95,092
pence pence
Net asset value per ordinary share 15 183.1 169.9
These financial statements were approved and authorised for issue by the Board
of Directors of EP Global Opportunities Trust plc on 4 March 2013 and were
signed on its behalf by:
Teddy Tulloch
Chairman
Registered in Scotland No. 259207
The notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2012
Capital Share
Share redemption premium Special Capital Revenue
capital reserve account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Year ended 31 December
2012
At 31 December 2011 645 14 - 82,321 8,636 3,476 95,092
Share purchases for - - - (9,706) - - (9,706)
treasury
Net return after - - - - 6,576 2,082 8,658
taxation for the year
Dividends paid - - - - - (2,278) (2,278)
At 31 December 2012 645 14 - 72,615 15,212 3,280 91,766
Year ended 31 December
2011
At 31 December 2010 327 14 17,991 10,486 21,205 1,597 51,620
Issue of new shares on 318 - 59,025 - - - 59,343
merger with Anglo &
Overseas
Share purchases for - - - (8,094) - - (8,094)
treasury
Sale of shares from - - 291 2,635 - - 2,926
treasury
Cancellation of share - - (77,307) 77,307 - - -
premium
Share premium - - - (13) - - (13)
cancellation expenses
Net return after - - - - (12,569) 2,640 (9,929)
taxation for the year
Dividends paid - - - - - (761) (761)
At 31 December 2011 645 14 - 82,321 8,636 3,476 95,092
The issue of new shares on the merger with Anglo & Overseas of £59,343,000
detailed above consisted of the transfer of investments of £58,005,000 and cash
of £1,338,000.
The cancellation of the share premium account was approved by the Court of
Session on 19 August 2011 and £77,307,000 was transferred to the special reserve.
The notes form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 31 December 2012
2012 2011
Note £'000 £'000
Operating activities:
Investment income received 3,472 3,449
Investment management fees paid (667) (354)
Administration fees paid (78) (74)
Other expenses paid (225) (213)
Net cash inflow from operating activities 16 2,502 2,808
Servicing of finance (94) (88)
Taxation (192) (109)
Capital expenditure and financial investment:
Purchases of investments (35,857) (25,069)
Sales of investments 46,690 22,903
Exchange gains/(losses) on settlement 78 (43)
Net cash inflow/(outflow) from investing 10,911 (2,209)
activities
Net cash inflow before equity dividend and 13,127 402
financing
Equity dividend paid 6 (2,278) (761)
Financing:
Cash received in relation to merger with Anglo & - 1,338
Overseas
Shares sold from treasury - 2,926
Shares purchased for treasury (9,476) (7,916)
Expenses incurred on share premium cancellation - (13)
Net cash outflow from financing (9,476) (3,665)
Increase/(decrease) in cash 17 1,373 (4,024)
The notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
1. Accounting policies
Accounting convention
The financial statements are prepared on a going concern basis in accordance
with the Companies Act 2006, UK Generally Accepted Accounting Practice ("UK
GAAP") and with the AIC Statement of Recommended Practice issued in January
2009 relating to the Financial Statements of Investment Trust Companies and
Venture Capital Trusts. All of the Company's activities are continuing.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. The Company primarily invests
in listed companies.
Income recognition
Dividend and other investment income is included as revenue on the ex-dividend
date. Deposit interest and underwriting commission receivable is included on an
accruals basis.
Dividends are accounted for in accordance with Financial Reporting Standard No. 16:
Current Taxation on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from
overseas companies are shown gross of withholding tax.
Management expenses and finance costs
All management expenses and finance costs are accounted for on an accruals
basis. All operating expenses and finance costs are charged through the revenue
account in the Income Statement except costs that are incidental to the
acquisition or disposal of investments, which are charged to the capital
account in the Income Statement. Transaction costs are included within the
gains and losses on investment sales, as disclosed in the Income Statement.
Investments
All investments held by the Company are classified as 'fair value through
profit or loss'. Investments are initially recognised at cost, being the fair
value of the consideration given.
After initial recognition, investments are measured at fair value, with changes
in the fair value of investments and impairment of investments recognised in
the Income Statement and allocated to capital. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the Balance Sheet date, without adjustment for
transaction costs necessary to realise the asset. Unlisted investments will be
valued by the Directors at fair value, using the guidelines on valuation
published by the International Private Equity and Venture Capital Association.
This represents the Directors' view of the amount for which an asset could be
exchanged between knowledgeable willing parties in an arm's length transaction.
This does not assume that the underlying business is saleable at the reporting
date or that its current shareholders have any intention to sell their holding
in the near future.
Foreign currency
The functional and reporting currency of the Company is sterling because that
is the currency of the primary economic environment in which the Company
operates.
Transactions denominated in foreign currencies are converted to sterling at the
actual exchange rate as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at
the rate of exchange at the Balance Sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of the transaction is included
as an exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is of a capital or revenue nature.
Taxation
The charge for taxation is based on the net revenue for the year and takes into
account taxation deferred or accelerated because of timing differences between
the treatment of certain items for accounting and taxation purposes. Full
provision for deferred taxation is made under the liability method, without
discounting, on all timing differences that have arisen but not been reversed
by the Balance Sheet date, unless such provision is not permitted by Financial
Reporting Standard No. 19: "Deferred Tax". Deferred tax assets are only
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the underlying timing differences can
be deducted. Timing differences are differences arising between the Company's
taxable profits and its results as stated in the financial statements which are
capable of reversal in one or more subsequent periods.
Dividends payable to Shareholders
In accordance with Financial Reporting Standard No. 21: "Events after the
Balance Sheet Date", final dividends are recognised as a liability in the
period in which they have been approved by Shareholders in a general meeting.
Interim dividends are recognised as a liability in the period in which they
have been declared and paid.
Loans
All loans are initially recognised at the sterling equivalent amortised cost,
being the fair value of the consideration received. After initial recognition,
the loans are revalued using exchange rates at the appropriate date, with the
gain or loss being recognised in the capital reserve.
Own shares held in treasury
From time to time the Company buys back shares and holds them in treasury for
potential sale at a later date or for cancellation. In accordance with
Financial Reporting Standard No. 25: "Financial Instruments: Disclosure and
Presentation", the consideration paid and received for these shares is
accounted for in Shareholders' funds and, in accordance with the AIC Statement
of Recommended Practice issued in January 2009, the cost has been allocated to
the Company's special reserve. The cost of shares re-issued from treasury is
calculated by taking the average cost of shares held in treasury at the time of
re-issue.
Use of estimates
The preparation of the financial statements requires the Company to make
judgements, estimates and assumptions that affect amounts reported for assets
and liabilities as at the Balance Sheet date and the amounts reported for
revenues and expenses during the year. The nature of estimation means that the
actual outcomes could differ from those estimates, possible significantly. The
judgements relate to the unlisted investment where there is no appropriate
market price.
2. Income
2012 2011
£'000 £'000
Income from investments:
UK net dividend income* 802 994
Overseas dividend income 2,571 2,627
Interest on liquidity funds 6 4
3,379 3,625
Total income comprises:
Dividends 3,379 3,625
3,379 3,625
* Includes income of £214,000 (2011: £107,000) from the unlisted investment in
Edinburgh Partners.
3. Investment management fee
2012 2011
£'000 £'000
Investment management fee 660 432
The investment management fee is paid quarterly in arrears, at the rate of
0.75 per cent per annum of the market capitalisation of the issued ordinary shares
(excluding treasury shares) of the Company up to £100,000,000 and at a rate of
0.65 per cent per annum of the market capitalisation which exceeds this amount.
At 31 December 2012 there was £164,000 outstanding (2011: £171,000).
The Investment Manager, as part of the Company's merger with Anglo & Overseas,
agreed to reduce its management fee payable by the Company on a one-off basis
by £236,000 in the year ended 31 December 2011.
In addition, the Investment Manager received an administration fee of £79,000
as detailed in note 4 (2011: £75,000). At 31 December 2012 there was £20,000
outstanding (2011: £19,000). From 1 January 2013, the administration fee
increased to £120,000 per annum. The administration fee now incorporates a
number of costs previously paid directly by the Company to an external service
provider.
In addition to the investment management fee, in the year ended 31 December
2012, the Investment Manager received £25,000 (2011: £nil) for marketing
related services. Previously, fees for marketing related services were paid
directly by the Company to external service providers. At 31 December 2012,
there was £6,000 outstanding (2011: £nil) in relation to marketing related
services. This cost is included in other expenses as detailed in note 4 of
these financial statements.
4. Other expenses
2012 2011
£'000 £'000
Administration fees 79 75
Auditor's remuneration (excluding VAT) for:
Audit 18 18
Taxation services 6 -*
Directors' remuneration 89 67
Other 159 113
351 273
* An amount of £35,000 (excluding VAT) was paid to the Auditor, Ernst & Young
LLP, for non-audit services in the year ended 31 December 2011 in relation to
the merger with Anglo & Overseas. As part of the merger agreement, Anglo &
Overseas agreed to pay any merger costs incurred by the Company and, as a
consequence, this cost is not detailed within these financial statements.
5. Taxation
a) Analysis of charge in year 2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current tax:
Overseas tax suffered 189 - 189 181 - 181
189 - 189 181 - 181
b) The current taxation charge for the year ended 31 December 2012 is lower
than the theoretical rate of Corporation Tax in the UK of 24.5 per cent (2011:
26.5 per cent) (NB The standard rate of Corporation Tax was 26 per cent to 31
March 2012 and 24 per cent from 1 April 2012). Previously it had been 28 per
cent to 31 March 2011. The differences are explained below:
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before 2,271 6,576 8,847 2,821 (12,569) (9,748)
taxation
Theoretical tax at UK 556 1,611 2,167 748 (3,331) (2,583)
Corporation Tax rate of
24.5 per cent (2011:
26.5 per cent)
Effects of:
- UK dividends that are (196) - (196) (263) - (263)
not taxable
- Foreign dividends (523) - (523) (518) - (518)
that are not taxable
- Non-taxable - (1,611) (1,611) - 3,344 3,344
investment (gains)/
losses
- Unrelieved excess 163 - 163 33 (13) 20
expenses
- Overseas tax suffered 189 - 189 181 - 181
189 - 189 181 - 181
At 31 December 2012 the Company had unrelieved losses of £1,275,000
(31 December 2011: £511,000). It is unlikely that the Company will generate
sufficient taxable income in the future to use these expenses to reduce future
tax charges and therefore no deferred tax asset has been recognised.
In addition, due to the Company's status as an investment trust and the
intention to continue meeting the conditions required to obtain approval as an
investment trust in the foreseeable future, the Company has not provided
deferred tax on any capital gains and losses arising on the revaluation or
disposal of investments.
6. Dividends
2012 2011
£'000 £'000
Declared and paid
2011 final dividend of 4.2p per ordinary share paid in May 2012
(2010: interim dividend of 2.8p paid in March 2011) 2,278 761
2,278 761
Net revenue return after taxation 2,082 2,640
Proposed
2012 final dividend of 3.9p (2011: final dividend of 4.2p) 1,937 2,313
per ordinary share
1,937 2,313
The Directors recommend a final dividend for the year of 3.9p per ordinary
share (2011: final dividend of 4.2p). Subject to approval by Shareholders at
the Annual General Meeting to be held on 25 April 2013, this dividend will be
payable on 31 May 2013 to Shareholders on the register at the close of business
on 10 May 2013. The ex-dividend date will be 8 May 2013. Based on 49,677,725
ordinary shares, being the number of ordinary shares in issue (excluding shares
held in treasury) at 1 March 2013, the total dividend payment will amount to
£1,937,000.
7. Return per ordinary share
2012 2011
Net Ordinary Per Net Ordinary Per
return shares* share return shares* share
£'000 pence £'000 pence
Revenue return after 2,082 53,395,020 3.9 2,640 52,641,529 5.0
taxation
Capital return after 6,576 53,395,020 12.3 (12,569) 52,641,529 (23.9)
taxation
Total return 8,658 53,395,020 16.2 (9,929) 52,641,529 (18.9)
* Weighted average number of ordinary shares, excluding shares held in
treasury, in issue during the year.
8. Investments
2012 2011
£'000 £'000
Listed investments 93,016 96,850
Unlisted investments 1,450 1,700
94,466 98,550
2012 2011
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of investment portfolio
movements
Opening book cost 214 107,542 107,756 47,963
Opening investment holding gains/ 1,486 (10,692) (9,206) 3,349
(losses)
Opening valuation 1,700 96,850 98,550 51,312
Movements in the year:
Purchases at cost - 35,850 35,850 83,081
Sales - proceeds - (46,023) (46,023) (23,570)
- realised (losses)/gains on sales - (2,613) (2,613) 282
(Decrease)/increase in investment (250) 8,952 8,702 (12,555)
holding gains/(losses)
Closing valuation 1,450 93,016 94,466 98,550
Closing book cost 214 94,756 94,970 107,756
Closing investment holding gains/ 1,236 (1,740) (504) (9,206)
(losses)
Closing valuation 1,450 93,016 94,466 98,550
2012 2011
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of capital gains and losses
Realised (losses)/gains on sales - (2,613) (2,613) 282
(Decrease)/increase in investment (250) 8,952 8,702 (12,555)
holding gains/(losses)
(Losses)/gains on investments (250) 6,339 6,089 (12,273)
The unlisted investment is the 71,294 shares in Edinburgh Partners.
For the year ended 31 December 2011, the purchases at cost of £83,081,000
detailed above include investments of £58,005,000 transferred to the Company as
a result of the merger with Anglo & Overseas at fair value.
Fair value hierarchy
In accordance with Financial Reporting Standard No. 29: "Financial Instruments:
Disclosures", the Company must disclose the fair value hierarchy of financial
instruments.
All of the Company's financial instruments fall into level 1, being valued at
quoted prices in active markets, except its investment in Edinburgh Partners
which falls into level 3 and is valued using an unquoted price that is derived
from inputs that are not based on observable market data. A reconciliation of
the fair value movements of level 3 investments is shown in the unlisted column
of the table above.
Transaction costs
During the year the Company incurred transaction costs of £59,000 (2011:
£44,000) and £64,000 (2011: £28,000) on purchases and sales of investments
respectively. These amounts are included in gains/(losses) on investments at
fair value, as disclosed in the Income Statement above.
9. Significant holdings
The Company had no holdings of 3 per cent or more of the share capital of any
portfolio companies.
10. Debtors
2012 2011
£'000 £'000
Due from brokers - 667
Dividends receivable 187 280
Prepayments and accrued income 16 20
Taxation recoverable 11 8
214 975
11. Creditors: amounts falling due within one year
2012 2011
£'000 £'000
Due to brokers - 7
Other creditors and accruals 769 499
769 506
12. Loans
2012 2011
£'000 £'000
Revolving credit facility - US dollar 1,784 1,866
- Japanese yen 2,526 2,969
4,310 4,835
The Company has a £10,000,000 secured multi-currency revolving credit facility
with Scotiabank Europe PLC. As at 31 December 2012 £4,310,000 (2011:
£4,835,000) had been drawn down under this facility. Interest on any amounts
drawn down under this facility were chargeable at a margin of 1.10 (2011: 1.20)
per cent per annum above the British Bankers' Association Interest Settlement
Rate at the time of draw down.
The principal financial covenants of the facility are that the adjusted asset
coverage shall not be less than 4:1 and net assets shall not fall below
£25,000,000. The Company has entered into a security deed with Scotiabank Europe
PLC, whereby Scotiabank Europe PLC has a full title guarantee and continuing
security to the assets of the Company for the discharge of its liabilities. The
financial covenants were met in the year ended 31 December 2012. The facility
was extended for a further year on 11 January 2013 at a margin of 1.10 per cent
per annum above the British Bankers' Association Interest Settlement Rate at
the time of draw down.
13. Share capital
Number Number
of shares 2012 of shares 2011
Ordinary 1p £'000 Ordinary 1p £'000
Allotted, called up and fully
paid:
At 1 January 64,509,642 645 32,654,180 327
Issued on merger with Anglo & - - 31,855,462 318
Overseas
At 31 December 64,509,642 645 64,509,642 645
Duration of the Company
The Company does not have a termination date or the requirement for any
periodic continuation vote.
14. Own shares held in treasury
Details of own shares purchased for and sold from treasury are shown below:
2012 2011
Number of Number of
shares shares
At 1 January 8,541,917 5,223,700
Shares purchased for treasury 5,840,000 4,968,217
Shares sold from treasury - (1,650,000)
At 31 December 14,381,917 8,541,917
During the year ended 31 December 2012, 5,840,000 shares were purchased for
treasury at a cost of £9,706,000. No shares were sold from treasury.
15. Net asset value per ordinary share
The net asset value per ordinary share, calculated in accordance with the
Articles of Association, is as follows:
2012 2011
pence pence
Ordinary share 183.1 169.9
The net asset value per ordinary share is based on net assets of £91,766,000
(2011: £95,092,000) and on 50,127,725 (2011: 55,967,725) ordinary shares, being
the number of ordinary shares, excluding shares held in treasury, in issue at
the year end.
16. Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
2012 2011
£'000 £'000
Net return before finance costs and taxation 8,944 (9,649)
Net (gains)/losses on capital items (6,576) 12,569
Increase in creditors 37 74
Decrease/(increase) in debtors and accrued income 97 (186)
Net cash inflow from operating activities 2,502 2,808
17. Reconciliation of net cash flow to movement in net debt
2012 2011
£'000 £'000
Increase/(decrease) in cash for the year 1,373 (4,024)
Realised exchange gains/(losses) 409 (253)
1,782 (4,277)
Net (debt)/funds at 1 January (3,927) 350
Net debt at 31 December (2,145) (3,927)
At Exchange At
1 January Cash gains/ 31 December
2012 flows (losses) 2012
£'000 £'000 £'000 £'000
Cash at bank 908 1,373 (116) 2,165
Loans (4,835) - 525 (4,310)
(3,927) 1,373 409 (2,145)
At Exchange At
1 January Cash gains/ 31 December
2011 flows (losses) 2011
£'000 £'000 £'000 £'000
Cash at bank 350 468 90 908
Loans - (4,492) (343) (4,835)
350 (4,024) (253) (3,927)
18. Analysis of financial assets and liabilities
Interest rate and currency profile
The interest rate and currency profile of the Company's financial assets and
liabilities were:
2012 2011
Cash Cash
No flow No flow
interest interest interest interest
rate rate risk rate rate risk
exposure exposure Total exposure exposure Total
£'000 £'000 £'000 £'000 £'000 £'000
Equity shares
US dollar 22,233 - 22,233 20,202 - 20,202
Japanese yen 21,947 - 21,947 22,729 - 22,729
Euro 13,817 - 13,817 20,475 - 20,475
Sterling 12,207 - 12,207 20,132 - 20,132
Hong Kong dollar 9,595 - 9,595 6,758 - 6,758
Singapore dollar 6,830 - 6,830 5,021 - 5,021
South Korean won 2,915 - 2,915 3,233 - 3,233
Swiss franc 2,472 - 2,472 - - -
Danish krone 2,450 - 2,450 - - -
Cash at bank and
short-term deposits
US dollar - 56 56 - 480 480
Sterling - 2,109 2,109 - 284 284
Hong Kong dollar - - - - 144 144
Debtors
US dollar 2 - 2 19 - 19
Japanese yen 74 - 74 - - -
Euro 7 - 7 278 - 278
Sterling 86 - 86 604 - 604
Singapore dollar 41 - 41 70 - 70
Swiss franc - - - 4 - 4
Norwegian krone 4 - 4 - - -
Short-term creditors
US dollar (6) - (6) (4) - (4)
Japanese yen (7) - (7) (6) - (6)
Sterling (756) - (756) (489) - (489)
Hong Kong dollar - - - (7) - (7)
Loans
US dollar - (1,784) (1,784) - (1,866) (1,866)
Japanese yen - (2,526) (2,526) - (2,969) (2,969)
93,911 (2,145) 91,766 99,019 (3,927) 95,092
At 31 December 2012 the Company had no financial liabilities other than the
short-term creditors and loans as stated above (2011: £nil). All financial
assets and liabilities of the Company are held at fair value.
19. Risk analysis
Risks
The principal risks the Company faces are:
- Investment and strategy risk
- Discount volatility risk
- Market risk
- Liquidity risk
- Credit risk
- Interest rate risk
- Foreign currency risk
- Gearing risk
- Regulatory risk
- Operational risk
- Financial risk
The Investment Manager monitors the financial risks affecting the Company on an
ongoing basis within the policies and guidelines determined by the Board. The
Directors receive financial information, which is used to identify and monitor
risk, quarterly. The Company may enter into derivative contracts to manage risk
but has not done so to date. A description of the principal risks the Company
faces is detailed below.
Investment and strategy risk
There can be no guarantee that the objective of the Company will be achieved.
The Investment Manager meets regularly with the Board to discuss the portfolio
performance and strategy. The Board receives quarterly reports from the
Investment Manager detailing all portfolio transactions and any other
significant changes in the market or stock outlooks.
Discount volatility risk
The Board recognises that it is in the long-term interests of Shareholders to
reduce discount volatility and believes that the prime driver of discounts over
the longer term is investment performance. The Company is permitted to employ
gearing, a process whereby funds are borrowed principally for the purpose of
purchasing securities should the Board feel that it is appropriate to do so.
The use of gearing can magnify discount volatility.
The Board actively monitors the discount at which the Company's shares trade,
and is committed to using its powers to allot or repurchase the Company's
ordinary shares with a view to maintaining the middle market price at which the
shares trade at close to the net asset value most recently published by the
Company (taking into account the effect on the net asset value per ordinary
share of any rights to which the shares are trading ex-dividend).
The Board's commitment to allot or repurchase ordinary shares is subject to it
being satisfied that any offer to allot or purchase shares is in the best
interests of Shareholders of the Company as a whole, the Board having the
requisite authority pursuant to the Articles of Association and relevant
legislation to allot or purchase shares, and all other applicable legislative
and regulatory provisions.
During the year ended 31 December 2012 the Company bought back 5,840,000 (2011:
4,968,217) ordinary shares into treasury.
During the year ended 31 December 2012 the Company sold nil (2011: 1,650,000)
ordinary shares from treasury.
Market risk
The Company is exposed to market price risk due to fluctuations in the market
prices of its investments. Market price risk arises mainly from uncertainty
about future prices of financial instruments used in the Company's business. It
represents the potential loss the Company might suffer through holding market
positions in the face of price movements. The Investment Manager monitors the
prices of financial instruments held by the Company on an ongoing basis.
The Investment Manager actively monitors market and economic data and reports
to the Board, which considers investment policy on a regular basis. The net
asset value per ordinary share of the Company is issued daily to the London
Stock Exchange and is also available on the Company's website www.epgot.com.
Details of the Company's investment portfolio as at 31 December 2012 are
disclosed above.
If the investment portfolio valuation fell by 1 per cent from the amount
detailed in the financial statements as at 31 December 2012 it would have the
effect, with all other variables held constant, of reducing the total return
before taxation and therefore net assets by £945,000 (2011: £986,000). An
increase of 1 per cent in the investment portfolio valuation would have an
equal and opposite effect on the total return before taxation and net assets.
Liquidity risk
The Company's policy with regard to liquidity is to ensure continuity of
funding. Short-term flexibility is achieved through cash management.
The Company's assets comprise mainly of readily realisable securities which can
be sold freely to meet funding requirements if necessary. Securities listed on
a recognised stock exchange have been valued at bid prices and exchange rates
ruling at the close of business on 31 December 2012. In certain circumstances,
the market prices at which investments are valued may not represent the
realisable value of those investments, taking into account both the size of the
Company's holding and the frequency with which such investments are traded.
Credit risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the Balance Sheet date. The Company's listed investments are held
on its behalf by The Bank of New York Mellon acting as the Company's custodian.
Bankruptcy or insolvency of the custodian may cause the Company's rights with
respect to securities held by the custodian to be delayed. The Board monitors
the Company's risk by reviewing the custodian's internal controls reports.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered on its obligations before any transfer of cash or
securities away from the Company is completed.
Cash is only held at banks and in money market funds that have been identified
by the Board as reputable and of high credit quality.
The maximum exposure to credit risk as at 31 December 2012 was £96,845,000
(2011: £100,433,000). The calculation is based on the Company's credit risk
exposure as at 31 December 2012 and this may not be representative of the year
as a whole.
None of the Company's assets are past due or impaired.
Interest rate risk
The Company's assets and liabilities, excluding short-term debtors and
creditors, may comprise financial instruments which include investments in
fixed interest securities.
Details of the Company's interest rate exposure as at 31 December 2012 are
disclosed in note 18 of these financial statements.
The majority of the Company's assets were non-interest bearing as at
31 December 2012. Surplus cash is invested in liquidity funds.
The Company has a £10,000,000 secured multi-currency revolving credit facility
with Scotiabank Europe PLC. As at 31 December 2012, £4,310,000 (2011:
£4,835,000) had been drawn down incurring an average interest rate of 1.4164
(2011: 1.4743) per cent per annum.
If interest rates had reduced by 0.25 per cent (2011: 0.25 per cent) from those
obtained as at 31 December 2012 it would have the effect, with all other
variables held constant, of increasing the total return before taxation and
therefore net assets on an annualised basis by £5,000 (2011: increasing the
total return before taxation and net assets by £10,000 on an annualised basis).
If there had been an increase in interest rates of 0.25 per cent (2011: 0.25
per cent) there would have been an equal and opposite effect in the total
return before taxation and net assets. The calculations are based on cash at
bank, short-term deposits and the revolving credit facility as at 31 December
2012 and these may not be representative of the year as a whole.
The maturity profile of the Company's financial liabilities is as follows:
As at As at
31 December 31 December
2012 2011
£'000 £'000
In one year or less 4,323 4,845
In more than one, but not more than two years - -
In more than two, but not more than five years - -
4,323 4,845
Foreign currency risk
The base currency of the Company is sterling. The international nature of the
Company's investment activities gives rise to a currency risk which is inherent
in the performance of its overseas investments. The Company's overseas income
is also subject to currency fluctuations.
It is not the Company's policy to hedge this risk on a continuous basis.
Details of the Company's foreign currency risk exposure as at 31 December 2012
are disclosed in note 18 of these financial statements.
If sterling had strengthened by 1 per cent against all other currencies on
31 December 2012, with all other variables held constant, it would have the effect
of reducing the total return before taxation and net assets by £781,000 (2011:
£746,000). If sterling had weakened by 1 per cent against all other currencies
there would have been an equal and opposite effect on the total return before
taxation and net assets.
Gearing risk
Gearing is used to enhance long-term returns to Shareholders. The Company is
permitted to employ gearing should the Board feel it appropriate to do so up to
a maximum of 25 per cent of total assets.
The use of gearing is likely to lead to volatility in the net asset value per
ordinary share, meaning that a relatively small movement either down or up in
the value of the Company's total investments may result in a magnified movement
in the same direction of the net asset value per ordinary share. The greater
the level of gearing, the greater the level of risk and likely fluctuation in
the share price.
The Company's gearing, which is a secured multi-currency revolving credit
facility, is disclosed in note 12 of these financial statements.
As a result of entering into this facility, the Company is exposed to interest
rate risk due to fluctuations in the prevailing market rates.
Regulatory risk
Failure to qualify under the terms of sections 1158 and 1159 of the Corporation
Tax Act 2010 may lead to the Company being subject to capital gains tax. A
breach of the rules of the London Stock Exchange may result in censure by the
Financial Services Authority ("FSA") and/or the Company's suspension from
listing.
The Board has agreed service levels with the Secretary and Investment Manager
which include active and regular review of compliance with these requirements.
These checks are reviewed at each Board Meeting.
Operational risk
There are a number of operational risks associated with the fact that third
parties undertake the Company's administration and custody. The main risk is
that third parties may fail to ensure that statutory requirements such as
Companies Act and London Stock Exchange requirements are met.
The Board regularly receives and reviews management information on third
parties which the Secretary compiles. In addition, each of the third parties
provides a copy of its report on internal controls (ISAE 3402, SSAE 16, SAS 70
or equivalent) to the Board each year.
Financial risk
Inappropriate accounting policies or failure to comply with current or new
accounting standards may lead to a breach of regulations.
The Investment Manager employs independent administrators to prepare all
financial statements and meets with the independent auditor at least once a
year to discuss all financial matters including appropriate accounting polices.
The Company is a member of the AIC, a trade body intended to promote investment
trusts which also develops best practice for all of its members.
The Board undertakes an annual assessment and review of all the risks stated
above together with a review of any new risks which may have arisen during the
year. These risks are formalised within the Company's risk assessment matrix.
20. Capital management policies
The Company's objective is to provide Shareholders with an attractive real
long-term total return by investing globally in undervalued securities. The
portfolio is managed without reference to the comparison of any stock market
index. In pursuing this objective, the Board has a responsibility for ensuring
the Company's ability to continue as a going concern. This involves the ability
to: issue and buyback share capital within limits set by the Shareholders in
general meeting; borrow monies in the short and long-term; and pay dividends to
Shareholders out of current year revenue earnings as well as out of brought
forward revenue reserves.
The Company's capital comprises:
2012 2011
£'000 £'000
Called-up share capital 645 645
Capital redemption reserve 14 14
Special reserve 72,615 82,321
Capital reserve 15,212 8,636
Revenue reserve 3,280 3,476
Total Shareholders' funds 91,766 95,092
The Company's objectives for managing capital are the same as the previous year
and have been complied with throughout the year.
21. Transactions with the Investment Manager
Information with respect to transactions with the Investment Manager is
provided in note 3 of these financial statements and in the Directors' Report
in the full Annual Report and Financial Statements.
Information with respect to income received on the unlisted investment held by
the Company in Edinburgh Partners is provided in note 2 of these financial
statements.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at The Bonham Hotel,
35 Drumsheugh Gardens, Edinburgh EH3 7RN on Thursday, 25 April 2013 at 12.00 noon.
DIRECTORS
Teddy Tulloch (Chairman)
Richard Burns
David Hough
Giles Weaver
All of the Directors are non-executive and independent of the Investment Manager.
INVESTMENT MANAGER
Edinburgh Partners Limited
27-31 Melville Street
Edinburgh
EH3 7JF
National Storage Mechanism
A copy of the full Annual Report and Financial Statements will shortly be
submitted to the National Storage Mechanism ("NSM") and will be available for
inspection at the NSM, which is situated at:
www.morningstar.co.uk/uk/NSM
Enquiries:
Sandy Nairn
Kenneth Greig
Edinburgh Partners Limited
Tel: 0131 270 3800
The Company's registered office address is:
27-31 Melville Street
Edinburgh
EH3 7JF
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
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