Annual Report and Accounts
EP GLOBAL OPPORTUNITIES TRUST plc
5 March 2008
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
HIGHLIGHTS
* The Company's net asset value per ordinary share increased by 2.5 per cent to
177.2p
* Share price decreased 5.9 per cent to 160.0p, ending the year at a discount
to net asset value of 9.7 per cent, compared to 1.6 per cent at the end of 2006
* The Board is recommending a 28 per cent increase in the dividend to 2.3p per
ordinary share, payable on 12 May 2008. The ex-dividend date will be 9 April
2008 and the record date will be 11 April 2008
* During the year the Board exercised its powers to buyback shares to hold in
treasury. As at 31 December 2007 the Company held 1,440,000 ordinary shares in
treasury resulting in the total number of shares in circulation being
32,558,180
* Portfolio is defensively placed with £7.8m in cash, short-term government
bonds and other net assets at the year end. This represented 13.4 per cent of
shareholders' funds. Within the investment portfolio there is an emphasis on
healthcare and telecommunication companies, where valuations are not stretched
and profits are less vulnerable to an economic downturn. We are well positioned
to take advantage of any opportunities that may occur in 2008.
* The annual general meeting of the Company will be held on 16 April 2008.
The Directors announce the annual results for the year from 1 January 2007 to
31 December 2007, which were approved by the Directors on 4 March 2008, as
follows:-
Chairman's Statement
Results
This is the fourth annual report of your Company and the fourth year that the
net asset value per share has increased. The net asset value at the end of
December 2007 was 177.2p, an increase of 2.5 per cent over the year, very
similar to the modest capital gain achieved by both the UK FTSE All-Share
index, up 2.0 per cent, and the sterling adjusted gain in the S&P Composite
index in the USA, up 1.8 per cent. The FTSE All-World index did rather better
with a gain, in sterling terms, of 8.4 per cent. The better performance of the
World index was mainly due to the strength of stock markets in the emerging
economies.
The share price closed the year at 160.0p, 5.9 per cent below the price at the
end of 2006. The discount of the share price to the net asset value per share
widened from 1.6 per cent at the end of 2006 to 9.7 per cent at the end of
2007. During the year we bought in 1,440,000 shares at a discount to the net
asset value per share as we sought to limit the divergence of the share price
to the net asset value. It is disappointing that we have not achieved a
narrower discount to net asset value given the number of shares bought in.
These shares are held in treasury and we hope to re-issue them in more
favourable market conditions when the share price is again at a premium to the
net asset value. In the meantime we will continue our policy of buying in
shares, when appropriate, at a discount to the net asset value. Buying in our
own shares at a discount should prove to be a good investment for the Company.
Stock Market Performance
It was a volatile twelve months for world markets but by the end of the year
virtually all equity markets had achieved a positive return, even if only
marginally so in the UK and USA. The Japanese stock market was the only major
market to decline over the period.
By contrast, the strong performance of emerging markets was one of the two
major themes that dominated financial markets in 2007. The strength of emerging
market economies, especially the Chinese and Indian economies, led to strong
performances for regional stock markets as well as for those sectors in Western
markets that stand to benefit from this growth. In particular, prices for
commodities such as energy, metals and food, and hence commodity related
shares, all had large rises.
The other major theme was the financial strain created by the credit crisis,
particularly in the USA and the UK. As the problems became apparent, banks
tightened their lending criteria and short term lending rates soared. Central
Banks were quick to react and pumped liquidity aggressively into the banking
system to avoid a financial melt down. The Northern Rock crisis gave a vivid
warning of the possibility of a banking disaster in the UK. While immediate
disaster was averted, the long term consequence of banks, belatedly, tightening
their lending standards will have a knock on effect on consumers. With
consumers also under pressure from rising energy and food prices, the risk of
recession had increased enormously by the year end.
While Western stock markets were little changed over the year, these results
hide a very diverse performance by different sectors within the indices.
Commodity sectors enjoyed strong bull markets, while financial, property and
many consumer related shares suffered severe bear markets. In the second half
of 2007, equity markets as a whole became increasingly driven by the theme of
strong growth in emerging economies.
Investment Performance
As a bull market moves into its later stages, the countries or sectors that
have been leading the bull market tend to become increasingly popular. Other
areas are neglected, putting pressure on short term and momentum investors to
follow this trend and as a result to reinforce it. An inevitable consequence is
that valuations in the favoured areas become increasingly stretched. The
decline in share prices once reality reasserts itself can be very severe, as it
was after the "dot-com" boom in technology shares in the late 1990s.
Our investment manager, Edinburgh Partners, has a well defined investment
philosophy based on value, investing only in shares which it considers to be
undervalued on an absolute basis. The investment policy inevitably becomes more
defensive in the later stages of a bull market, when valuations of the "in
fashion" shares become stretched. This led to a low level of investment, by our
investment manager, in the increasingly expensively rated emerging market
shares in 2007. This was the prime reason why overall investment performance
did not match that of the FTSE All-World index. After three years of
outperforming the World index, this was always a distinct possibility, as was
discussed in last year's Chairman's Statement. It in no way dents my confidence
that the investment policy pursued by our investment manager will provide
excellent long term results.
Revenue Account
The revenue account has again shown a healthy increase. After tax, revenue per
share was 2.7p, a 29 per cent rise over the level for the previous year. The
Board is pleased to recommend a 28 per cent increase in the dividend to 2.3p
per share. Subject to Shareholders' approval at the annual general meeting, the
dividend will be paid on 12 May 2008.
The improvement in the revenue account is the result of the strict investment
philosophy of focusing on value. The best long term value has been in shares
with relatively high dividend yields. However, it is also part of that
investment policy not to let income considerations drive the investment
decisions. If our Manager finds more attractive value appearing in lower
yielding securities, the yield on our portfolio will decline. If necessary we
will reduce the level of our own dividend rather than compromise the investment
philosophy.
Option in Edinburgh Partners
Your Company holds an option over 71,294 shares in Edinburgh Partners. The
option is exercisable at a price of £3 at any time up to 15 December 2008. The
value placed on the option was raised in June 2007 to £900,000 and, after due
consideration, your Board decided to leave the value unchanged at the year end.
This is equivalent to 2.8p per EP Global Opportunities Trust plc ordinary
share.
Edinburgh Partners' business continued to grow rapidly in 2007. Funds under
Management reached £3.2bn, up from £1.6bn at the end of 2006. This is a
phenomenal performance for a company which commenced trading just over four
years ago. Another important milestone was reached as Edinburgh Partners turned
profitable during the year. In placing a value on the option, the level of
funds under management as well as the level of profitability of Edinburgh
Partners was taken into account.
Outlook
As 2007 drew to a close, the risk of a recession in the US, and the
consequential drag this would have on other economies, was becoming more
apparent. Interest rates were starting to be reduced but inflationary pressure
was making it difficult for them to be reduced rapidly. Share prices that had
held up were looking increasingly vulnerable and this has been borne out with
the equity market falls seen in the early part of 2008. It still seems too
early to buy into those that have fallen, even though their valuations have
become more attractive.
Our own portfolio is defensively placed with £7.8m in cash, short-term
government bonds and other net assets at the year end. This represented 13.4
per cent of shareholders' funds. Within the investment portfolio there is an
emphasis on healthcare and telecommunication companies, where valuations are
not stretched and profits are less vulnerable to an economic downturn. We are
well positioned to take advantage of any opportunities that may occur in 2008.
Teddy Tulloch
Chairman
4 March 2008
INCOME STATEMENT (UNAUDITED)
1 January 2007 to 1 January 2006 to
31 December 2007 31 December 2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on - 1,083 1,083 - 5,321 5,321
investments at
fair value
Foreign exchange - (153) (153) - (121) (121)
losses on capital
items
Income from 1,725 - 1,725 1,485 - 1,485
investments
Income receivable 1 - 1 32 - 32
and other income
Investment (410) - (410) (413) - (413)
management fee
Other expenses (254) - (254) (253) - (253)
Net return before 1,062 930 1,992 851 5,200 6,051
finance costs and
taxation
Interest payable (5) - (5) - - -
and similar
charges
Net return before 1,057 930 1,987 851 5,200 6,051
taxation
Taxation (141) - (141) (154) - (154)
Net return after 916 930 1,846 697 5,200 5,897
taxation
Return per 2.7p 2.8p 5.5p 2.1p 15.3p 17.4p
ordinary
share *
* The revenue return per ordinary share is based on earnings of £916,000 (2006:
£697,000) and on 33,601,801 (2006: 33,850,326) ordinary shares being the
weighted average number of ordinary shares, excluding shares held in treasury,
in issue during the year. The capital return per ordinary share is based on net
capital gains of £930,000 (2006: £5,200,000) and on 33,601,801 (2006:
33,850,326) ordinary shares being the weighted average number of ordinary
shares, excluding shares held in treasury, in issue during the year.
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 2.3p per ordinary share (2006: 1.8p) is
proposed. This is subject to the approval of shareholders at the annual general
meeting on 16 April 2008 and will be payable on 12 May 2008 to shareholders on
the register at the close of business on 11 April 2008. The ex-dividend date
will be 9 April 2008. Based on 32,413,180 ordinary shares, being the current
number of ordinary shares in issue, excluding shares held in treasury the total
dividend payment will amount to £746,000.
BALANCE SHEET (UNAUDITED)
As at As at
31 December 2007 31 December 2006
£'000 £'000
Fixed asset investments:
Investments at fair value through profit or 53,952 57,574
loss
Current assets:
Debtors 222 139
Cash at bank and short term deposits 3,931 1,275
4,153 1,414
Creditors - amounts falling due within one 400 223
year
Net current assets 3,753 1,191
Net assets 57,705 58,765
Capital and reserves:
Called-up share capital 340 340
Capital redemption reserve 1 1
Share premium account 17,991 17,991
Special reserve 20,506 20,506
Own shares held in treasury (2,294) -
Capital reserve 20,118 19,188
Revenue reserve 1,043 739
Total shareholders' funds 57,705 58,765
Net asset value per ordinary share 177.2p 172.8p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (UNAUDITED)
Share Capital Share Special Own Capital Revenue Total
shares
capital redemption premium reserve held in reserve reserve
treasury
reserve account
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Year ended 31
December 2007
At 31 340 1 17,991 20,506 - 19,188 739 58,765
December 2006
Net return - - - - - 930 916 1,846
after
taxation for
the year
Dividends - - - - - - (612) (612)
paid
Share - - - - (2,294) - - (2,294)
purchase
costs
31 December 340 1 17,991 20,506 (2,294) 20,118 1,043 57,705
2007
Year ended 31
December 2006
At 31 334 1 17,099 20,506 - 13,988 313 52,241
December 2005
Net return - - - - - 5,200 697 5,897
after
taxation for
the year
Dividends - - - - - - (271) (271)
paid
Shares issued 6 - 894 - - - - 900
Share issue - - (2) - - - - (2)
costs
31 December 340 1 17,991 20,506 - 19,188 739 58,765
2006
SUMMARISED STATEMENT OF CASH FLOW (UNAUDITED)
1 January 2007 1 January 2006
to 31 December 2007 to 31 December 2006
£'000 £'000
Net cash inflow from operating 1,111 871
activities
Servicing of finance (5) -
Income tax paid (177) (163)
Capital expenditure and financial
investment
Purchases of investments (33,463) (30,717)
Sales of investments 38,168 28,306
Exchange gains/(losses) on settlement 15 (27)
Net cash inflow/(outflow) from 4,720 (2,438)
investing activities
Net cash inflow/(outflow) before equity 5,649 (1,730)
dividend and financing
Equity dividend paid (612) (271)
Financing
Proceeds of share issues - 900
Expenses of share issues - (8)
Ordinary shares purchased and held in (2,213) -
treasury
Net cash (outflow)/ inflow from (2,213) 892
financing
Increase/(decrease) in cash 2,824 (1,109)
Notes to this announcement:
This financial information has been prepared in accordance with applicable law
and Accounting Standards in the United Kingdom and with the Statement of
Recommended Practice "Financial Statements of Investment Companies" issued in
January 2003 and revised in December 2005.
The above financial information does not constitute statutory financial
statements as defined in Section 240 of the Companies Act 1985. The comparative
financial information is based on the statutory financial statements for the
year ended 31 December 2006, on which the auditors, Ernst & Young LLP, gave an
unqualified report, and which have been delivered to the Registrar of Companies
and did not contain a statement required under Section 237 (2) or (3) of the
Companies Act 1985.
The results for the year ended 31 December 2007 will be circulated to
shareholders in the form of an Annual Report, copies of which will be available
at the Company's registered office, and which will be filed with the Registrar
of Companies.
1. Income
As at 31 December 2007 As at 31 December 2006
£'000 £'000
Income from investments:
UK net dividend income 414 394
Overseas dividends 1,155 1,062
Fixed interest 21 -
Deposit funds 135 29
1,725 1,485
Other income:
Bank interest 1 32
1,726 1,517
Total income comprises:
Dividends 1,704 1,485
Interest 22 32
1,726 1,517
2. Net asset value per share
The net asset value per ordinary share is based on net assets at 31 December
2007 of £57,705,000 (2006: £58,765,000) and on 32,558,180 (2006: 33,998,180)
ordinary shares being the number of ordinary shares, excluding shares held in
treasury, in issue at the year end.
3. Status of the Company
It is the intention of the Directors to conduct the affairs of the Company so
that it satisfies the conditions for approval as an investment trust company
set out in Section 842 of the Income and Corporations Taxes Act 1988.
20 LARGEST EQUITY INVESTMENTS
As at 31 December 2007
Company Industrial Country Valuation % of net
Classification assets
£'000
Equity Investments
Vodafone Mobile United 2,160 3.7
Telecommunications Kingdom
KPN Fixed Line Netherlands 2,127 3.7
Telecommunications
Sanofi-Aventis Pharmaceuticals & France 1,943 3.4
Biotechnology
Gazprom Oil & Gas Producers Russia 1,933 3.3
E.On Gas, Water & Multi Germany 1,924 3.3
Utilities
Novartis Pharmaceuticals & Switzerland 1,900 3.3
Biotechnology
Roche Holdings Pharmaceuticals & Switzerland 1,821 3.2
Biotechnology
GlaxoSmithKline Pharmaceuticals & United 1,816 3.1
Biotechnology Kingdom
Belgacom Fixed Line Belgium 1,635 2.8
Telecommunications
TeliaSonera Fixed Line Sweden 1,616 2.8
Telecommunications
ConocoPhillips Oil & Gas Producers United 1,596 2.8
States
Dell Technology & Hardware United 1,575 2.7
Equipment States
Johnson & Johnson Pharmaceuticals & United 1,539 2.7
Biotechnology States
Intesa Sanpaola Banks Italy 1,509 2.6
ENI Oil & Gas Producers Italy 1,507 2.6
General Electric Machinery United 1,486 2.6
States
Telefonica Fixed Line Spain 1,468 2.5
Telecommunications
SK Telecom Fixed Line Korea 1,424 2.5
Telecommunications
Lagardere Media France 1,315 2.3
Royal Bank of Banks United 1,314 2.3
Scotland Kingdom
Total - Top 20 equity investments 33,608 58.2
DISTRIBUTION OF INVESTMENTS
As at 31 December 2007
Sector distribution as at 31 December 2007 % of
net
assets
Telecommunications 18.1
Healthcare 17.6
Financials 14.6
Cash, fixed interest and other net assets 13.4
Technology 11.0
Oil & gas 8.7
Industrials 4.6
Consumer services 4.0
Utilities 3.3
Consumer goods 3.1
Unlisted 1.6
100.0
Geographical distribution as at 31 December 2007 % of
net
assets
Europe 44.0
USA 23.8
Cash, fixed interest and other net assets 13.4
UK 12.7
Japan 3.6
Asia Pacific 2.5
100.0
Enquiries:
Sandy Nairn}
Kenneth Greig} Edinburgh Partners Limited, telephone: 0131 270 3800
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