Annual Financial Report

RNS Number : 2142T

Standard Life Equity Income Tst PLC

18 November 2013

 

STANDARD LIFE EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2013

1. CHAIRMAN'S STATEMENT

I am pleased to report that the investment performance of the Company for the year ended 30 September 2013 has been very strong.  The Company's diluted net asset value total return for the year was 31.4% compared with an 18.9% total return for the FTSE All Share Index and a total return of 16.8 % for the FTSE 350 High Yield Index.

Income and Dividends

The revenue return per share for the year ended 30 September 2013 rose by 4.0% to 14.07p (2012 - 13.53p). During the year the Company continued to increase the emphasis on medium sized companies, which in the long-term should improve the potential for dividend growth but in the short term will affect the portfolio yield.  These changes have lowered growth in the absolute level of earnings in this financial year. Special dividends totalling £465,000 were received from Lancashire, Hiscox and ITV during the year.

As I indicated in my statement last year the Company began paying quarterly dividends in March 2013 at a rate of 3.2p per share (ahead of the level indicated in the 2012 annual report) and this level of quarterly dividend was maintained in June and September. The Board has decided to recommend a fourth quarterly dividend of 3.8p per share bringing total dividends to 13.4p per share, an increase of 5.1% on last year. Subject to shareholder approval, the fourth quarterly dividend will be paid on 20 December 2013 to shareholders on the register on 29 November 2013 with an associated ex-dividend date of 27 November 2013.

Year ended 30/09/13	Pay Date	Amount (p) per share declared/ paid
Quarter 1	March 2013	3.2p
Quarter 2	June 2013	3.2p
Quarter 3	September 2103	3.2p
Quarter 4	December 2013	3.8p
Total		13.4p

Since launch in 1991, the Company has achieved a real growth in income, with dividends increasing by 288%. This compares with an increase of 87% in the Retail Price Index, and a 63% increase in the Consumer Price Index over the same period.

I am delighted that the Company has grown its dividend every year bar one since its start in 1991.

Performance

The improvement in relative performance that I commented upon last year has continued this year. The Manager has continued to increase the number of mid cap holdings where it has high conviction, while at the same time reducing the concentration risk of the top ten income contributors. The Board continues to be supportive of this strategy which has been implemented since 2011.

Portfolio spread	30 September 2013	30 September 2012	11 November 2011
FTSE 100	53.1%	63.3%	75.8%
FTSE 250	42.5%	35.8%	22.3%
FTSE Small Cap	4.4%	0.9%	1.9%

Dividend concentration	30 September 2013	30 September 2012	11 November 2011
Top 10 investments	36.2%	44.6%	50.3%

The long term performance of your Company against its peers is shown in the table below:

Source: JP Morgan Cazenove, periods to 30 September 2013

UK Growth & Income Peer Group	Six Months Total Return	One Year Total Return	Five Years Total Return
SLEIT	4/21	5/21	6/20
SLEIT*	3/19	4/19	4/18

* based on the peer group excluding trusts with a lower yield than the AIC UK Growth & Income sector definition

The Company's share price total return for the year ended 30 September 2013 was 37.8% and the discount was virtually eliminated over the year, ending at 0.1% after starting the year at 6.4%.

The Manager's Report provides further information on the UK economy and equity market as well as a review of the portfolio of investments and activity during the year.

Subscription Shares

As I indicated in my interim report the purpose of issuing the subscription shares was to increase the size and liquidity of the Company's share capital and reduce the ongoing charges ratio. As a reminder the new ordinary shares can be taken up at 320p per subscription share by giving notice each December and June (last exercise 31 December 2016). The Directors exercised their subscription rights on 30 June 2013.

Gearing

The Company has a £20m three year revolving loan facility at a margin of 125bps above LIBOR. This facility expires in February 2014. The all-in interest cost is approximately 1.75% per annum, and as such provides effective income gearing for the Company. Gearing has had a positive impact on NAV performance during the year and the Manager's decision to increase borrowings to £20m at the start of the second half of the financial year added further value.

Governance and Board

Your Board has again conducted a full annual review of strategy. It has also carried out an evaluation of itself, and did not feel that an external assessment was required at this time. Your Board continues to consider that the main service providers to the Company perform well and are fairly rewarded.  

After a detailed search for a new non-executive director, with the help of an external consultant, the Board announced the appointment of Mark White as a director of the Company with effect from 1 November 2013. Mark was previously joint head of JP Morgan Asset Management in Europe and chief executive of Jardine Fleming Investment Management. He is a director of a number of listed companies and the Board looks forward to Mark's contribution as a director.

Retail Distribution Review (RDR) and Marketing

The implementation of the RDR in February 2013 presents an ideal opportunity for investment trusts to communicate their benefits to a wider investor universe since independent advisers must consider the full range of investment products for clients. It is hoped that investment trusts will gain entry to the main investment platforms such as Fidelity's FundNetwork, Co-Funds and Skandia although progress to date has been slow. The investment trust industry can demonstrate a superior investment track record compared with most mutual funds, and it is hoped that our Company will in time benefit from this opportunity.

The Manager has been actively marketing the Company's ordinary shares over the last year and it is pleasing that the rating of the Company's shares has improved markedly. The Board has also hosted a lunch for wealth managers in both Edinburgh and London. Your directors received useful and encouraging feedback from those who attended. I am also pleased to report that the Company has increased its capital base through the issue of shares from treasury and the exercise of subscription shares.

The Manager meets regularly with private client and wealth managers. In addition, the Board is always pleased to welcome private investors to the Company's AGM, to be held this year on Wednesday 18 December 2013 at the 34^th floor of our Manager's London office at 30 St Mary Axe, London EC3A 8EP (the Gherkin). The meeting will start at 11am and will include a presentation on our investments from Thomas Moore.

Alternative Investment Fund Managers Directive (AIFMD)

The European AIFMD is almost upon us with the final implementation date being 22 July 2014. The Board has decided to appoint its Investment Manager to undertake the necessary regulatory returns, initial authorisations and registration.  Your Board will also be appointing a depositary under the new regime.

New Annual Report Requirements

Recent changes have been made to the narrative reporting requirements for annual reports and to the governance surrounding directors' remuneration.  As a result, this year's annual report includes a Strategic Report, a Remuneration Policy Report, a new format for the Directors' Remuneration Report and a number of further consequential changes.

Outlook

Rising confidence has led to an increase in corporate activity this year, and a sharp rise in public offerings and flotations. The resilience of the stock market in the face of such demands has been impressive. One support for the market is the confidence that dividend growth remains well based, with recent research suggesting that UK companies now control record amounts of net cash.

The decision to increase the allocation of your Company's portfolio to mid-sized companies has been a central contributor to the excellent performance in the net asset value of the Company over the last two years, in a competitive sector. Your Company is differentiated from many of the peer group in terms of its portfolio mix and its focus solely on companies listed in the UK.

The Board is conscious that economic uncertainties remain, and ultimately the prospect of a further rise in interest rates. We are however confident that the portfolio of your Company is well placed for the long term. Our structure as an investment trust enables us to look to use our revenue reserves when appropriate. 

Despite the volatility in the market, the UK corporate sector has proved resilient and offers attractive valuations where balance sheets and dividend cover are strong.  The Manager remains focused on the long term performance of the Company and the opportunities the market affords.

Charles Wood OBE

Chairman

15 November 2013

2. MANAGER'S REPORT

Market Review

UK equities performed well during the twelve months under review, boosted by central bank policy action and growing signs of economic recovery as the year progressed.

Equities started the period on a strong footing as investors cheered European Central Bank and Federal Reserve (Fed) monetary stimulus. Equities continued to rally towards the end of 2012, as initial concerns over the outcome of the US presidential election were allayed by a clear result. Markets stalled as the year-end US 'fiscal cliff' deadline approached, but the last-minute deal to delay spending cuts and tax increases boosted sentiment and ensured a strong start to 2013.

UK economic data remained mixed in early 2013, reflecting the economy's ongoing sluggishness. This was underlined by the widely anticipated downgrade of the UK's AAA bond rating in February by sovereign rating agency Moody's. Concerns over the Euro-zone resurfaced in March due to inconclusive Italian elections and the Cyprus bailout crisis, but these passed without unduly perturbing markets. A further challenge for markets arose in June in the form of Fed indications that it could begin to taper its quantitative easing programme. This prompted considerable volatility, although markets regained their poise in July as Fed members began to soften their language on the likely pace of withdrawal in monetary stimulus.

UK economic data turned increasingly positive as the year progressed, as strong housing and autos data were supported by very strong industrial and service sector output, signalling a sharp acceleration in economic rebound.

 

Performance

For the year to 30 September 2013, the Company's diluted net asset value total return was 31.4%, outperforming the FTSE All-Share Index total return of 18.9% (source: Thomson Datastream). Over the reporting period, the share price rose from 294p to 383p (+30.3%).

easyJet was the top contributor during the twelve months. The company has enjoyed strong pricing and robust load factors following the withdrawal of capacity by financially challenged peers. International Personal Finance also featured strongly as it enjoyed robust lending growth across many of its end markets, particularly Mexico. Howden Joinery boosted returns with the ongoing success of its new depot rollout programme and market share gains. DS Smith also outperformed after a positive investor update which highlighted better-than-expected cost savings and operational improvements from its acquisition of SCA's paper business last year.

On the downside, not holding Lloyds Banking Group detracted the most from relative returns. Seen as the most UK-focused domestic bank, its shares benefited from the improving domestic economy and the recovering housing market in particular. Petrofac also hampered returns as the company suffered from investor concerns about the viability of offshore projects across the industry. G4S was a further laggard during the period after announcing a profit warning. The company's results highlighted poor internal controls which led to the departure of the chief executive.

Activity

We initiated a new position in insurance underwriter Beazley. The company should benefit from the strength of its niche positions in various speciality areas of the industry, while its investment returns should improve as bond yields increase. We also initiated a new position in oil producer SOCO International, which confirmed further discoveries in its core areas of operation, Vietnam and offshore Congo. Unusually for such a company, the production profile and cashflows are very strong, allowing it to announce an enhanced dividend policy.

In terms of sales, we reduced our position in GlaxoSmithKline. The company continues to suffer disappointing newsflow regarding its drug development pipeline, which is likely to hamper growth prospects. In addition, we sold shares in Ladbrokes. The company has been late to exploit online gaming opportunities and its strategy to improve this area of its business has encountered delays. Elsewhere, activity largely involved sales following strong performance. We disposed of the position in Whitbread, whose increased valuation makes the stock more vulnerable to any weakening in trading. Meanwhile, we took profits in a number of other holdings including Cineworld, Marston's and Ashtead.

The net effect of our portfolio activity has been to continue to increase the Company's exposure to mid and small cap holdings that offer the prospect of superior dividend and capital growth, at the expense of large cap holdings that offer more limited growth potential. We are encouraged by signs that this approach is benefiting the Company's total return prospects, while at the same time diversifying the Company's income sources and thereby reducing its reliance on some of the largest stocks in the market.

Outlook

Recent market action has highlighted the correlation between government bonds and some of the large-cap defensive sectors that are widely held in traditional income portfolios. As bonds have sold off, so have many of these bond-like areas of the equity market. By contrast, accelerating economic momentum has increased the attractions of more cyclical areas of the market. 

This market environment further underlines the benefit to shareholders of the action taken to reduce the Company's reliance on some of the largest stocks in the market. Improving UK economic data is set to benefit more economically sensitive sectors such as Travel and Leisure, Retail, Housebuilders and Industrials, all of which are represented in the portfolio. As signs of a pick-up begin to emerge, we are encouraged by the number of stocks with the potential to surprise the market positively in the months ahead. Given a combination of improving corporate earnings, strong balance sheets and good levels of dividend cover, weremain positive on the outlook for the Company.

Thomas Moore

Standard Life Investments

15 November 2013

Relative Performance Attribution*	%
Stock Selection	9.6
Gearing	3.1
Interest	-0.3
Expenses	-0.5
Total	11.9
* based upon capital return  (excluding effect of current year revenue)

Top 5 Stock Level Contributors	Average position relative to FTSE All-Share Index  (%)	Contribution (%)
easyJet	2.4	1.6
International Personal Finance	1.9	1.0
Howden Joinery	1.9	1.0
DS Smith	2.8	0.9
BT	2.5	0.7
Bottom 5 Stock Level Contributors	Average Position relative to FTSE All-Share Index (%)	Contribution (%)
Lloyds Banking Group	-1.2	-0.6
Petrofac	1.5	-0.4
G4S	0.5	-0.3
esure	0.5	-0.2
Arm Holdings	-0.6	-0.2

3.    FINANCIAL HIGHLIGHTS

	Year to 30 September 2013
Share price total return		37.8%
Increase in total dividends		5.1%
Net asset value total return (diluted)		31.4%
Benchmark total return		18.9%
The benchmark is the FTSE All-Share Index Total return assumes that the dividends paid to shareholders are re-invested in ordinary shares at the time the ordinary shares are quoted ex-dividend.

 

	At 30 September 2013	At 30 September 2012	% change
Capital
Net asset value per ordinary share 1       Basic      Diluted	395.2p 383.3p	314.2p 314.2p	25.8% 22.0%
Ordinary share price	383.0p	294.0p	30.3%
Subscription share price	89.0p	28.0p	217.9%
Benchmark return	3,443.9	2,998.9	14.8%
Discount of ordinary share price to net asset value      Basic      Diluted	-3.1% -0.1%	-6.4% -6.4%
Total assets	£172.2m	£135.3m	27.3%
Shareholders' funds	£151.8m	£119.3m	27.2%
Ordinary shares in issue	38,419,941	37,959,305	1.2%
Gearing
Gearing	12.7%	5.7%
Earnings and Dividends Revenue return per ordinary share (undiluted) Total dividends for the year Dividend yield	14.07p 13.40p 3.5%	13.53p 12.75p 4.3%	4.0% 5.1%
Expenses Ongoing charges	0.97%	0.99%

^1.      The net asset value per ordinary share is based on the audited net assets at the year end date and includes undistributed net income at that date.

4.         STRATEGIC REPORT

Introduction

This Strategic Report is intended to provide information about the Company's strategy and business needs, its performance and results for the year, and the information and measures which the Directors use to assess, direct and oversee Standard Life Investments (the "Manager") in the management of the Company's activities.

The Company carries on business as an investment trust.  Investment trusts are collective investment vehicles constituted as closed-ended public limited companies.  The Company is managed by a board of non-executive directors and the management of the Company's investments is delegated to the Manager.

The Board

The Board currently consists of a non-executive Chairman, Mr. C.A. Wood, OBE and four non-executive Directors.   As at 30 September 2013, the Board consisted of three men and one woman. Mr White was appointed to the Board on 1 November 2013 and as a result the Board currently consists of four men and one woman.  As the Company is an investment trust, all of its activities are outsourced and it does not have any employees. 

Strategy and Business Model

The objective of the Company is to provide shareholders with an above average income from their equity investment while also providing real growth in capital and income.

The Directors intend to achieve the investment objective by investing in a diversified portfolio consisting mainly of quoted UK equities which will normally comprise between 50 and 70 individual equity holdings.

In order to reduce risk in the Company without compromising flexibility:

·      no holding within the portfolio will exceed 10% of aggregate net assets; and

·      the top ten holdings within the portfolio will not exceed 50% of net assets

The Company may invest in convertible preference shares, convertible loan stocks, gilts and corporate bonds.

The Directors have set parameters of between 5% net cash and 15% net gearing for the level of gearing that can be employed. The Directors have delegated responsibility to the Manager for the operation of the gearing level within the above parameters.

The Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management and dealing. The investment process is research intensive and is driven by the Manager's distinctive 'Focus on Change' which recognises that different factors drive individual stocks and markets at different times in the cycle. This flexible but disciplined investment process ensures that the Manager has the opportunity to perform in different market conditions.

Performance

In the year ended 30 September 2013, the Company's net asset value total return was 31.4%, outperforming the FTSE All Share Index total return of 18.9%. Further details on future trends and factors that may impact on the future performance of the Company are included in the Chairman's Statement and the Manager's Report.

Results and Dividend

Details of the Company's results are shown in the Financial Highlights.

The total revenue return attributable to Ordinary shareholders for the year ended 30 September 2013 amounted to £5,361,000 (2012: £5,136,000).

Three quarterly dividends of 3.20 pence per share each were paid to eligible shareholders on 22 March 2013, 28 June 2013 and 27 September 2013 (2012 - one interim dividend of 3.75 pence) and the Directors are now recommending to shareholders that a fourth quarterly dividend per share of 3.80 pence (2012 - final dividend of 9.00 pence) be paid on 20 December 2013 to shareholders on the share register as at the close of business on 29 November 2013. The ex-dividend date is 27 November 2013.

From 2013, dividends are being paid on a quarterly basis, in March, June and September, with a fourth quarterly dividend being paid in December.  This benefits shareholders' cash flow and brings the Company into line with the approach taken by a number of its peers.

An outline of the Company's performance, market background, investment activity and portfolio strategy during the year under review, as well as the Manager's investment outlook, is provided in the Manager's Report.

Monitoring Performance - Key Performance Indicators

The key performance indicators (KPIs) shown below have been identified by the Directors to determine the progress of the Company and a record of these measures, with comparatives, is disclosed in the Financial Highlights.

·      Net asset value total return relative to the Company's benchmark (FTSE ALL-Share Index total return)

·      Share price (capital return)

·      Premium or Discount to net asset value

At each Board meeting, the Directors consider a number of performance measures, including the KPIs and attribution analysis to assess the Company's success in achieving its investment objective.

The Board considers the performance measures both over various time periods and against similar funds.

Principal Risks and Uncertainties

The Directors regularly review the principal risks which they have identified and the Directors have set out delegated controls designed to manage those risks. Key risks within investment and strategy, for example inappropriate stock selection or gearing, are managed through investment policy, guidelines and restrictions and by the process of oversight at each Board meeting.

The principal risks and uncertainties which give rise to specific risks which are associated with the Company, as identified by the Directors, are as follows:

·      Objective and Strategy risk: the Company and its investment objective become unattractive to investors. The Directors review regularly the Company's investment objective and investment policy in light of investor sentiment and monitor closely whether the Company should continue in its present form. The Directors, through the Manager, hold regular discussions with major shareholders. A resolution to continue the Company in its present form will be next considered at the Annual General Meeting ("AGM") in 2016 and every fifth subsequent AGM.

·      Resource risk: In common with most investment trusts, the Company has no employees. The Company therefore relies upon services provided by third parties. This particularly includes the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement. The Directors review the performance of the Manager on a regular basis.

·      Investment and market risk: The Company is exposed to the effect of variations in security prices due to the nature of its business. A fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds.

·      Capital structure and gearing risk: The Company's capital structure at 30 September 2013 consisted of equity share capital comprising Ordinary shares, Subscription shares and debt in the form of a revolving credit facility with the Royal Bank of Scotland plc for up to £20m. In rising markets, the effect of the borrowings would be beneficial but in falling markets the gearing effect would adversely affect returns to shareholders. The Manager is able to increase or decrease the gearing level by repaying or drawing down periodically from the bank facility subject to Directors' overall restrictions on gearing. The bank facility is subject to regular monitoring by the Royal Bank of Scotland plc and covenants are supplied quarterly to the bank by the Company.

·      Income and dividend risk: In view of the Company's investment objective, to provide for shareholders an above average income from their equity investment, the Manager is required to strike a balance more in favour of income return over capital growth. The Directors have adopted an accounting policy which permits 70% of the aggregate of the finance costs and investment management fees to be charged to the capital account within the Income Statement as opposed to the revenue account. This policy is reviewed regularly by the Directors in light of the expected long term split of returns between income and capital. The Directors receive frequent updates as to the progress made by the Manager towards the achievement of the income requirements of the Company's investment objective.

·      Regulatory risk: The Company operates in a regulated environment and faces a number of regulatory risks. A breach of Sections 1158-1159 of the Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988) would result in the Company being subject to capital gains tax on any portfolio investment gains. Breaches of other regulations, including the UKLA Listing Rules or the UKLA Disclosure and Transparency Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Manager and Company Secretary could also lead to reputational damage or loss.

There is also a further regulatory risk in ensuring compliance with the Alternative Investment Fund Managers Directive ("AIFMD") which came into force in the United Kingdom in July 2013 and is due to be fully implemented by 22 July 2014. The AIFMD introduces a new authorisation and supervisory regime for all investment trust fund managers and investment companies in the European Union. This is likely to create some additional regulatory costs for the Company.

·      Financial instruments and derivatives risk: further information relating to these risks may be found in Note 16 to the Financial Statements.

Social, Community, Employee Responsibilities and Environmental Policy

As an investment trust, the Company has no direct social community, employee or environmental responsibilities. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and accordingly no requirement to separately report in this area as the management of the portfolio has been delegated to the Manager. The Manager engages with the Company's underlying investee companies in relation to their corporate governance practices and in developing their policies on social, community and environmental matters and further information may be found in the Statement of Corporate Governance.  In light of the nature of the Company's business there are no relevant human rights issues and the Company does not have a human rights policy.

Bank Facilities

The Company has agreed a £20m revolving Sterling bank facility ("the facility") with the Royal Bank of Scotland plc. During the year, funds were periodically repaid or drawn down from the facility as determined by the Manager. As at 30 September 2013, £20m was drawn down. Additional information may be found in the "Gearing" section of the Chairman's Statement.

Charles Wood OBE

Chairman

15 November 2013

5. GOING CONCERN

After enquiry, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments, and the ability of the Company to meet all of its liabilities and ongoing expenses. Accordingly it is reasonable for the Financial Statements to continue to be prepared on a going concern basis.

 

6.      STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under 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:

-      select suitable accounting policies and then apply them consistently;

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

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

The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

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

The Directors are also responsible for ensuring that the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model and strategy.

Directors' Responsibility Statement

Each Director confirms, to the best of his or her knowledge, that:

-      the Financial Statements have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit;

-      the Directors' Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and that

-      the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model and strategy.

For and on behalf of the Board of Standard Life Equity Income Trust PLC

Charles Wood, OBE

Chairman

15 November 2013

 

INCOME STATEMENT 

For the year ended 30 September

			2013										2012
			Revenue		Capital				Total		Revenue		Capital		Total
	Notes			£'000	£'000				£'000		£'000		£'000		£'000
Net gains/(losses) on investments at fair value		9		-	33,671				33,671		-		17,278		17,278
Currency gains				-	1				1		-		-		-
Income		2		6,107	-				6,107		5,780		-		5,780
Investment management fee		3		(303)	(707)				(1,010)		(252)		(587)		(839)
Administrative expenses		4		(329)	-				(329)		(275)		-		(275)
NET RETURN BEFORE FINANCE COSTS AND TAXATION				5,475	32,965				38,440		5,253		16,691		21,944
Finance costs		5		(92)	(216)				(308)		(93)		(216)		(309)
RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION				5,383	32,749				38,132		5,160		16,475		21,635
Taxation			6	(22)	-				(22)		(24)		-		(24)
RETURN ON ORDINARY ACTIVITIES AFTER TAXATION				5,361	32,749				38,110		5,136		16,475		21,611
RETURN PER ORDINARY SHARE
Basic			8	14.07p	85.94p				100.01p		13.53p		43.41p		56.94p
Diluted				13.88p	84.79p				98.67p		n/a		n/a		n/a
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
No operations were acquired or discontinued in the year.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

 

BALANCE SHEET

As at 30 September

		2013		2012
	Notes	£'000	£'000	£'000	£'000
FIXED ASSETS
Investments designated at fair value through profit or loss	9		170,081		125,203
CURRENT ASSETS
Debtors	10	1,423		1,950
Money market funds		643		8,130
Cash and short term deposits		96		32
		2,162		10,112
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan	11	(20,000)		(15,000)
Other creditors	11	(406)		(1,042)
		(20,406)		(16,042)
NET CURRENT LIABILITIES			(18,244)		(5,930)
NET ASSETS			151,837		119,273
CAPITAL AND RESERVES
Called-up share capital	12		10,033		9,943
Share premium account			21,576		20,457
Capital redemption reserve			12,615		12,615
Capital reserve			102,772		69,697
Revenue reserve			4,841		6,561
EQUITY SHAREHOLDERS' FUNDS			151,837		119,273
NET ASSET VALUE PER ORDINARY SHARE	13
Basic			395.20p		314.20p
Diluted			383.34p		n/a

The financial statements were approved by the Board of Directors and authorised for issue on 15 November 2013 and were signed on its behalf by:

C.A.Wood OBE Chairman

The accompanying notes are an integral part of the financial statements.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 September 2013

					Share	Share				Capital	Capital	Revenue
				capital		premium				redemption	reserve	reserve
						account				reserve			Total
		Notes			£'000	£'000				£'000	£'000	£'000	£'000
Balance at 30 September 2012					9,943	20,457				12,615	69,697	6,561	119,273
Issue of ordinary shares on conversion of subscription shares					90	1,064				-	-	-	1,154
Issue of ordinary shares from treasury				12	-	55				-	326	-	381
Return on ordinary activities after taxation					-	-				-	32,749	5,361	38,110
Dividends paid				7	-	-				-	-	(7,081)	(7,081)
BALANCE AT 30 SEPTEMBER 2013					10,033	21,576				12,615	102,772	4,841	151,837
For the year ended 30 September 2012
						Share				Capital
					Share	premium				redemption	Capital	Revenue
					capital	account				reserve	reserve	reserve	Total
					£'000	£'000				£'000	£'000	£'000	£'000
Balance at 30 September 2011					9,942	20,441				12,615	53,222	6,202	102,422
Issue of ordinary shares on conversion of subscription shares				12	1	16				-	-	-	17
Return on ordinary activities after taxation					-	-				-	16,475	5,136	21,611
Dividends paid				7	-	-				-	-	(4,777)	(4,777)
BALANCE AT 30 SEPTEMBER 2012					9,943	20,457				12,615	69,697	6,561	119,273

Following the adoption of revised Articles of Association on 18 December 2012, both the revenue reserve and the realised capital profits of the capital reserve are distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT

For the Year ended 30 September

					2013			2012
	Notes				£'000		£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES		14				4,842			4,586
NET CASH OUTFLOW FROM SERVICING OF FINANCE						(307)			(313)
FINANCIAL INVESTMENT
Purchases of investments				(72,202)				(48,312)
Sales of investments				60,789				48,156
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT						(11,413)			(156)
EQUITY DIVIDENDS PAID						(7,081)			(4,777)
						(13,959)			(660)
MANAGEMENT OF OTHER LIQUID RESOURCES
Purchase of money market funds				(43,683)				(31,633)
Sale of money market funds				51,170				32,313
NET CASH INFLOW FROM MANAGEMENT OF OTHER LIQUID RESOURCES						7,487			680
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING						(6,472)			20
FINANCING
Proceeds from exercise of subscription shares				1,154				17
Proceeds from issue of ordinary shares from treasury				381				-
Drawdown of loan				5,000				-
NET CASH INFLOW FROM FINANCING						6,535			17
INCREASE IN CASH						63			37
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
Increase in cash as above				63				37
Net change in other liquid resources				(7,487)				(680)
Drawdown of loan				(5,000)				-
Currency movements				1				-
MOVEMENT IN NET DEBT IN YEAR						(12,423)			(643)
Opening net debt						(6,838)			(6,195)
CLOSING NET DEBT		15				(19,261)			(6,838)

The accompanying notes are an integral part of the financial statements.  

Notes to the Financial Statements
For the year ended 30 September 2013
1.		Accounting policies
		(a)		Basis of accounting
				The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009).
				They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The Directors believe this is appropriate for the reasons outlined in the Directors' Report.
				All values are rounded to the nearest thousand pounds (£000) except where indicated otherwise.
		(b)		Valuation of investments
				The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 along with some other securities.
				Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
		(c)		Money market funds
				The money market funds are used by the Company to provide additional short term liquidity. As they are not listed on a recognised exchange and due to their short term nature, they are recognised in the financial statements as a current asset and are included at fair value through profit or loss.
		(d)		Income
				Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on short term deposits is accounted for on an accruals basis.
		(e)		Expenses and interest payable
				Expenses are accounted for on an accruals basis. Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see notes 3 and 5).
				Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.
		(f)		Dividends payable
				In accordance with FRS21, dividends that are declared and approved by the Company after the Balance Sheet date are not recognised as a liability of the Company at the Balance Sheet date.
		(g)		Capital reserves
				Gains or losses on realisation of investments and changes in fair values of investments are included within the capital reserve. The capital element of the management fee along with any associated irrecoverable VAT and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.
		(h)		Taxation
				Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Temporary differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods.
				Owing to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
2.	Income
					2013	2012
					£'000	£'000
	Income from investments
	Franked investment income				4,858	5,088
	Overseas and unfranked investment income				1,095	535
	Stock dividends				129	105
					6,082	5,728
	Other income
	Money market interest				25	39
	Underwriting commission				-	13
					25	52
	Total income				6,107	5,780

 

3.	Investment management fee
		2013	2012
		£'000	£'000
	Charged to revenue reserve	303	252
	Charged to capital reserve	707	587
		1,010	839
	The Company has an agreement with Standard Life (Corporate Funds) Limited for the provision of management services. The contract is terminable by either party on not less than six months notice.
	The fee is based on 0.65% of total assets, payable quarterly in arrears and is chargeable 30% to revenue and 70% to capital (see note 1(e)).

4.	Administrative expenses
					2013		2012
					£'000		£'000
	Directors' fees				91		104
	Fees payable to the Company's Auditor (excluding VAT):
	- for the audit of the annual financial statements				20		20
	Professional fees				29		12
	Other expenses				189		139
					329		275
	With the exception of fees payable to the Company's auditor, irrecoverable VAT has been included under the relevant expense line above. Irrecoverable VAT on fees payable to the Company's auditor is included within other expenses.
5.	Finance costs
				2013		2012
				£'000		£'000
	On bank loans and overdrafts:
	Charged to revenue reserve			92		93
	Charged to capital reserve			216		216
				308		309
	Finance costs are chargeable 30% to revenue and 70% to capital (see note 1(e)).

6.	Taxation
				2013	2012
				£'000	£'000
	(a)	Analysis of charge for the year
		Overseas withholding tax		22	24
	(b)	Factors affecting current tax charge for the year
		The corporation tax rate was 24% until 31 March 2013 and 23% from 1 April 2013 giving an effective rate of 23.5%. The tax assessed for the year is lower than that resulting from applying the standard rate of corporation tax in the UK.
		A reconciliation of the Company's current tax charge is set out below:
		Total return on ordinary activities before taxation		38,132	21,635
		Return on ordinary activities at the UK standard rate of corporation tax 23.5% (2012 - 25%)		8,961	5,409
		Effects of:
		Gains on investments not taxable		(7,913)	(4,320)
		Non-taxable income		(1,387)	(1,408)
		Excess management expenses and loan relationship debit expenses		339	319
		Overseas withholding tax		22	24
		Total taxation		22	24
		At 30 September 2013, the Company had unutilised management expenses and loan relationship losses of £15,672,000 (2012-£14,233,000). No deferred tax asset has been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be suitable taxable profits from which the future reversal of the deferred tax asset could be deducted.

7.	Dividends on Ordinary shares
		2013		2012
		£'000		£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2012 of 9.00p per share (2011 - 8.85p)	3,416		3,359
	First quarterly dividend for 2013 of 3.20p per share (2012 - nil)	1,218		-
	Second quarterly dividend for 2013 of 3.20p per share (2012 - nil)	1,218		-
	Third quarterly dividend for 2013 of 3.20p per share (2012 - nil)	1,229		-
	Interim dividend for 2012 of 3.75p per share	-		1,423
	Return of unclaimed dividends	-		(5)
		7,081		4,777
	The proposed fourth quarterly dividend for 2013 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £5,361,000 (2012 - £5,136,000).
		2013		2012
		£'000		£'000
	First quarterly dividend for 2013 of 3.20p per share (2012 - nil)	1,218		-
	Second quarterly dividend for 2013 of 3.20p per share (2012 - nil)		1,218	-
	Third quarterly dividend for 2013 of 3.20p per share (2012 - nil)		1.229	-
	Interim dividend for 2012 of 3.75p per share		-	1,423
	Proposed fourth quarterly dividend for 2013 of  3.80p per share (2012 - 9.00p)		1,473	3,416
		5,138		4,839
	Subsequent to the year end the Company has issued a further 350,000 Ordinary shares from Treasury; therefore the amounts reflected above for the cost of the proposed fourth quarterly dividend for 2013 are based on 38,769,941 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this report.

8.	Return per Ordinary share
	Basic	2013		2012
		£'000	p	£'000	p
	Revenue return	5,361	14.07	5,136	13.53
	Capital return	32,749	85.94	16,475	43.41
	Total return	38,110	100.01	21,611	56.94
	Weighted average number of Ordinary shares in issueA		38,105,315		37,956,373
	Diluted
	Revenue return	5,361	13.88	n/a	n/a
	Capital return	32,749	84.79	n/a	n/a
	Total return	38,110	98.67	n/a	n/a
	Number of dilutive shares		516,765		n/a
	Diluted shares in issue		38,622,080		n/a
	The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with Financial Reporting Standard No. 22, "Earnings per Share". For the purposes of calculating diluted total, revenue and capital returns per Ordinary share, the number of Ordinary shares is the weighted average used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all Subscription shares by reference to the average share price of the Ordinary shares during the period.
	There was no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares at 30 September 2012.
	A Calculated excluding shares held in Treasury.

9.	Investments
			2013	2012
			£'000	£'000
	Fair value through profit or loss
	Opening book cost		111,643	108,582
	Opening fair value gains/(losses) on investments held		13,560	(354)
	Opening fair value		125,203	108,228
	Movements in the year:
	Purchases at cost		71,476	49,038
	Sales	- proceeds	(60,269)	(49,341)
		- realised gains on sales	10,383	3,364
	Current year fair value gains on investments held		23,288	13,914
	Closing fair value		170,081	125,203
	Closing book cost		133,233	111,643
	Closing fair value gains on investments held		36,848	13,560
	Closing fair value		170,081	125,203
	Gains on investments held at fair value through profit or loss
	Gains on sales		10,383	3,364
	Increase in fair value gains on investments held		23,288	13,914
			33,671	17,278
	Transaction costs
	During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
			2013	2012
			£'000	£'000
	Purchases		386	278
	Sales		84	74
	Total		470	352

10.	Debtors: amounts falling due within one year		2013	2012
		£'000		£'000
	Amounts due from brokers	675		1,195
	Net dividends and interest receivable	690		692
	Other debtors	58		63
		1,423		1,950

11.	Creditors: amounts falling due within one year
		2013	2012
		£'000	£'000
	Bank loan	20,000	15,000
	Other creditors
	Amounts due to brokers	-	726
	Investment management fee payable	282	219
	Sundry creditors	124	97
		406	1,042
	As at 30 September 2013, the Company had drawn down £20 million (2012 - £15 million) of the £20 million loan facility arranged with The Royal Bank of Scotland plc, £15 million at an interest rate of 1.74% per annum maturing on 31 October 2013 and £5 million at an interest rate of 1.74% per annum maturing on 9 October 2013. Subsequent to the year end, the £5 million loan was rolled over from 9 October to 31 October 2013 at an interest rate of 1.73% and on 31 October 2013 the loans were combined and £20 million was rolled to 29 November 2013 at an interest rate of 1.74%.

12.	Called up share capital
					2013	2012
			£'000		£'000
	Issued and fully paid:
	Ordinary shares of 25p each
	Opening balance of 37,959,305 (2012 - 37,954,058) Ordinary shares				9,490		9,489
	Issue of 360,636 (2012 - 5,247) Ordinary shares on conversion of subscription shares				90		1
	Issue of 100,000 (2012 - nil) Ordinary shares from Treasury				25		-
	Closing balance of 38,419,941 (2012 - 37,959,305) Ordinary shares				9,605		9,490
	Subscription shares of 0.01p each
	Opening balance of 7,557,134 (2012 - 7,562,381) Subscription shares				1		1
	Conversion of 360,636 (2012 - 5,247) Subscription shares into Ordinary shares				-		-
	Closing balance of 7,196,498 (2012 - 7,557,134) Subscription shares				1		1
	Treasury shares
	Opening balance of 1,807,328 (2012 - 1,807,328) Treasury shares				452		452
	Issue of 100,000 (2012 - nil) Ordinary shares from Treasury				(25)		-
	Closing balance of 1,707,328 (2012 - 1,807,328) Treasury shares				427		452
					10,033		9,943
	On 17 December 2010 the Company issued 7,585,860 Subscription shares of 0.01p each by way of a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares.  Each Subscription share confers the right, but not the obligation, to subscribe for one Ordinary share on any subscription date, being the final business day of June and December in each year commencing June 2011 and finishing on the last business day of December in 2016, after which the rights under the Subscription shares will lapse.  The conversion price has been determined as being 320p.
	During the year, shareholders have exercised their right to convert 360,636 (2012 - 5,247) Subscription shares into ordinary shares for a total consideration of £1,154,000 (2012 - £17,000).
	During the year, 100,000 (2012 - nil) Ordinary shares were issued from Treasury for a total consideration of £381,000 (2012 - nil).
	There were no shares repurchased during the year. The total shares held in Treasury is 1,707,328. Shares held in Treasury represents 4.3% of the Company's total issued share capital at 30 September 2013 (2012 - 4.5%). The number of Subscription shares in issue at 30 September 2013 is 7,196,498 (2012 - 7,557,134).
	Subsequent to the year end the Company has issued a further 350,000 Ordinary shares from Treasury for a total consideration of £1,418,000.
13.	Net asset value per share
	The net asset value per share and the net assets attributable to Ordinary shares at the end of the year calculated in accordance with the Articles of Association were as follows:
	Basic
		2013		2012
	Total shareholders' funds (£'000)	151,837		119,273
	Number of Ordinary shares in issue at year endA	38,419,941		37,959,305
	Net asset value per share	395.2p		314.2p
	Diluted
	Total shareholders' funds assuming exercise of Subscription shares (£'000)	174,866		n/a
	Number of potential Ordinary shares in issue at year endA	45,616,439		n/a
	Net assets per share	383.3p		n/a
	The diluted net asset value per Ordinary share has been calculated in accordance with guidelines issued by the Association of Investment Companies and assumes that all outstanding Subscription shares were converted into Ordinary shares at the year end.
	There was no dilutive effect on net revenue or net capital per share arising from the exercise of the Subscription shares at 30 September 2012.
	A Excludes shares in issue held in Treasury.

 

14.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
		2013	2012
		£'000	£'000
	Net return before finance costs and taxation	38,440	21,944
	Adjustments for:
	Net gains on investments at fair value	(33,671)	(17,278)
	Net currency gains	(1)	-
	Decrease/(increase) in accrued income	2	(84)
	Decrease in other debtors	1	8
	Increase in other creditors	90	32
	Net overseas tax paid	(19)	(36)
	Net cash inflow from operating activities	4,842	4,586

15.	Analysis of changes in net debt
		At 30 September	Cashflow	Currency movements	At 30 September
		2012			2013
		£'000	£'000	£'000	£'000
	Cash at bank and in hand	32	63	1	96
	Money market funds	8,130	(7,487)	-	643
	Bank loan	(15,000)	(5,000)	-	(20,000)
	Net debt	(6,838)	(12,424)	1	(19,261)

16.		Financial instruments
		Risk management
		The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities.
		The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.
		The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.
(i)	Market risk
		The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices.
		This market risk comprises three elements - interest rate risk, currency risk and other price risk.
		Interest rate risk
		Interest rate movements may affect:
		- the fair value of the investments in fixed interest rate securities;
		- the level of income receivable on cash deposits;
		- interest payable on the Company's variable rate borrowings.
		The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
		It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio.
		Interest rate profile
		The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:
									Weighted average period for which rate is fixed				Weighted average interest rate				Fixed rate		Floating rate
		As at 30 September 2013										Years		%			£000		£000
		Assets
		Money Market funds										-		0.49			-		643
		Cash deposits										-		-			-		96
		Total assets										-		0.43			-		739
		Liabilities
		Bank loans										0.1		1.74			20,000		-
		Total liabilities										0.1		1.74			20,000		-
		As at 30 September 2012
		Assets
		Money Market funds										-		0.58			-		8,130
		Cash deposits										-		-			-		32
		Total assets										-		0.58			-		8,162
		Liabilities
		Bank loans										0.1		1.77			15,000		-
		Total liabilities										0.1		1.77			15,000		-
		The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans.
		The floating rate assets consist of Money Market Funds and cash deposits on call earning interest at prevailing market rates.
		All financial liabilities are measured at amortised cost.
		Maturity profile
		The Company did not hold any assets at 30 September 2013 or 30 September 2012 that had a maturity date. As detailed in note 11, the £5m and £15m loans drawn down had maturity dates of 09 October 2013 and 31 October 2013, respectively, at the Balance Sheet date. (2012: 31 October 2012).
		Interest rate sensitivity
		The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
		If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's :
		- profit for the year ended 30 September 2013 would increase / decrease by £193,000 (2012: increase / decrease by £68,000). This is mainly attributable to the Company's exposure to interest rates on its fixed rate borrowings and floating rate cash balances.
		Currency risk
		All of the Company's investments are in Sterling and therefore this risk is not seen as material.
		Other price risk
		Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
		It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.  The investments held by the Company are listed on the London Stock Exchange.
		Other price risk sensitivity
		If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders and equity for the year ended 30 September 2013 would have increased/decreased by £17,008,000 (2012 - increase/decrease of £12,520,000). This is based on the Company's equity portfolio held at each year end.
(ii)		Liquidity risk
		This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
		Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 11).
(iii)			Credit risk
		This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
		The risk is not significant, and is managed as follows:
		- where the investment manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;
		- investment transactions are carried out with a large number of brokers, whose credit-standing and credit rating is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;
		- cash and money invested in money market funds are held only with reputable banks with high quality external credit enhancements.
		None of the Company's financial assets are secured by collateral or other credit enhancements.
		Credit risk exposure
		In summary, compared to the amount in the Balance Sheet, the maximum exposure to credit risk at 30 September was as follows:
												2013					2012
							Balance Sheet £'000					Maximum exposure £'000			Balance Sheet £'000			Maximum exposure £'000
		Current assets
		Debtors					1,423					1,423			1,950			1,950
		Money Market funds (indirect exposure)					643					643			8,130			8,130
		Cash and short term deposits					96					96			32			32
							2,162					2,162			10,112			10,112
		None of the Company's financial assets is past due or impaired.
		Fair values of financial assets and financial liabilities
		The fair value of borrowings is not materially different to the accounts value in the financial statements of £20,000,000 (note 11).

17. Fair Value hierarchy
FRS 29 'Financial Instruments:Disclosures', requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or  liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The quoted equities and money market funds held by the Company at 30 September 2013 and 30 September 2012 were all Level 1.

18.	Capital management policies and procedures
	The Company's capital management objectives are:
	-	to ensure that the Company will be able to continue as a going concern; and
	-	to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 15% of net assets. At the year end the Company had gearing of 12.7% of net assets (2012 - 5.7%)
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period any year end positions are presented in the Balance Sheet.
19.	Contingent liabilities
	As at 30 September 2013 there was an underwriting liability of £500,000 (2012 - nil).

 

END

 

 

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