Annual Financial Report

RNS Number : 1237X

Standard Life Equity Income Tst PLC

17 November 2014

 

STANDARD LIFE EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2014

1. CHAIRMAN'S STATEMENT

Performance

In the year in which the Company was awarded the Best Investment Trust for Income Award by What Investment, I am pleased to report that the Company has delivered another year of relative outperformance. Over the reporting period the Company produced a diluted net asset value total return of 6.9% compared with the benchmark total return of 6.1%.

The Company's share price total return for the year was 6.3%. The share price represented a discount of 1.0% at the end of the year compared with the average discount for the peer group of 0.7%. At 12 November 2014 the share price was 406.8p, with the Company's shares offering a yield of 3.4%.

The revenue return per ordinary share for the year ended 30 September 2014 was 15.69p per share, representing an 11.5% increase over the return for the same period last year. The Company continues to see dividend growth in the underlying portfolio, including special dividends from easyJet, Hiscox and Lancashire.

The proportion of holdings in smaller and medium sized companies has again been increased, as shown in the table below. This change, which is now substantially complete, has helped investment performance as well as reducing the concentration risk of the top ten income contributors.

Portfolio spread	30 September 2014	30 September 2013	11 November 2011
FTSE 100	38.0%	53.1%	75.8%
FTSE 250	47.5%	42.5%	22.3%
FTSE SC/ other	14.5%	4.4%	1.9%

Dividend concentration	30 September 2014	30 September 2013	11 November 2011
Top 10 investments	34.5%	36.2%	50.3%

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

Your Company ranked 12th out of 21 peers in the UK Equity Income sector based on net asset value total return for the year ended 30 September 2014. The long term ranking against the peer group is shown in the table below:

Source: JP Morgan Cazenove, periods to 30 September 2014

UK Growth & Income Peer Group	One Year Total Return	Three Year Total Return	Five Years Total Return
SLEIT	12/21	6/21	12/20

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.

Dividends

The Board has decided to recommend a fourth quarterly dividend of 4.4p per share bringing total dividends to 14.0p per share, an increase of 4.5% on last year. Subject to shareholder approval, the fourth quarterly dividend will be paid on 19 December 2014 to shareholders on the register on 28 November 2014 with an associated ex-dividend date of 27 November 2014.

It is the Board's intention to continue to provide real growth in dividends over the long term. Since launch in 1991, the Company has achieved a real growth in income, with dividends increasing by 306%. This compares with an increase of 90% in the Retail Price Index, and a 63% increase in the Consumer Price Index over the same period.

Gearing

The Company agreed a new £25m bank facility with Scotiabank (Ireland) Limited in February 2014 with a lower margin than the previous loan. The Manager increased actual borrowings to £23m in February reflecting a positive view on the outlook for the long term prospects for the portfolio and attractive stock specific opportunities. Gearing has had a positive impact on performance in this period of 0.4%.

Shareholder Relations

The Manager has continued to engage actively with existing and potential shareholders over the period. The UK Equity Income sector is very competitive but the Board is confident that the Manager's investment strategy and the advantages of the permanent capital structure will continue to produce outperformance.

The Manager meets regularly with private client and wealth managers. The Board welcomes private investors to the Company's AGM, to be held this year on Wednesday 17 December 2014, on the 34th floor of our Manager's London office at 30 St Mary Axe, London EC3A 8EP (the Gherkin). The meeting will start at 12 noon and will include a presentation on our investments from Thomas Moore, the Portfolio Manager.

Alternative Investment Fund Manager (AIFM)

The Board appointed Standard Life Investments as its AIFM on 7 July 2014 to undertake the management of the Company under the new regulatory regime which is now in operation. A new investment management agreement has been entered into and BNP Paribas has been appointed as depositary.

Subscription Shares

During the period the Company issued 378,725 new ordinary shares at 320p per share resulting from the exercise of subscription shares. As a reminder the new shares can be taken up at 320p per subscription share by giving notice each December and June. The last exercise date will be the last business day of December 2016.

Treasury Shares

During the period the Company re-issued all of the remaining 1,707,328 ordinary shares from treasury at a premium to net asset value at prices ranging from 403.8p to 420.0p per share.

Governance and Board

Your Board has again conducted a full annual review of strategy. It has also carried out an evaluation of itself, as it is required to do, but 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.

I will be retiring from the Board at the AGM in December. Richard Burns will be appointed as chairman after the conclusion of the AGM and I wish the Company much continued success. I am delighted to welcome Jeremy Tigue as a director of the Company, appointed on 1 October 2014. He is the former lead fund manager of Foreign & Colonial Investment Trust, a former board member of the AIC and is an experienced director of a number of listed investment companies. The Board looks forward to Jeremy's contribution as a

director.

Outlook

Concerns about global economic growth and corporate earnings, and the prospect of winding down the great monetary experiment, increased as our year ended. They have been clearly reflected in the recent weakness and increased volatility of markets.

For the year now finished, the Company has again outperformed the All Share Index, after a setback in the middle quarters. At the annual strategy meeting, the Board confirmed its intention to continue with the current strategy and re-affirmed its confidence in the Manager. Over the last three years your Company has gradually rebalanced the portfolio to reduce the weighting in FTSE100 holdings, developing greater exposure to selected medium sized companies. This has broadened the diversification of the portfolio which is expected to lead to relatively stronger growth in dividend income. Your Company remains focused solely on companies listed in the UK.

I wish to congratulate Thomas Moore, our Investment Manager, for his awards during the year. As noted above, the Company was awarded Best Investment Trust for Income Award from What Investment. Mr Moore also received recognition in other quarters, with an award from the Investment Adviser 100 Club.

This is my last Statement as Chairman of your Company. I would particularly like to thank Gordon Humphries, Thomas Moore and our management team for their commitment and hard work on our behalf. Finally I am delighted that the Board is recommending the appointment of Richard Burns as my successor. He has formidable experience in the industry. I would like to thank him and my other colleagues on the Board for their interest and active support.

Charles Wood OBE

Chairman

14 November 2014

2. MANAGER'S REPORT

 

Market Review

UK equities, measured by the FTSE All-Share Index, performed reasonably well during the period, registering a total return of 6.1%, as investors responded to evidence of gradual economic recovery in the US and UK.

Global monetary conditions remained highly supportive throughout the period as central banks continued to run loose monetary policy in order to ensure that economic recovery is fully entrenched. Investors closely monitored the language of US Federal Reserve chair Janet Yellen and Bank of England Governor Mark Carney for any signs of a shift in monetary policy towards stimulus withdrawal. In the absence of inflationary pressures, both central bankers emphasised the priority of getting the economy operating at full capacity before tighter monetary conditions would be adopted.

Investor concerns around looming change in the monetary policy cycle caused a general sense of caution as the period ended. This nervousness was further compounded by geo-political tensions in Ukraine, the Middle East and Hong Kong. Investor de-risking caused a sharp sell-off in UK equities as well as a rotation within the market away from domestically-orientated cyclical stocks towards more defensive stocks.

Performance

For the year to 30 September 2014, the Company's diluted net asset value total return was 6.9%, outperforming the FTSE All-Share Index total return of 6.1%. Over the reporting period, the share price

rose from 383p to 394p.

The Company outperformed the market during the period through a combination of the success of some of our high conviction smaller and medium sized company holdings and the avoidance of various poorly performing large company stocks. Overall this reflects the benefit of our index-agnostic approach, which allows us to focus on identifying the strongest ideas across the market, regardless of market capitalisation.

The Company benefited strongly from its holdings in two specialist financial companies, Close Brothers and Beazley. In both cases, the market responded favourably to evidence of strong growth in niche markets and the increasingly strong growth in dividends.

Performance also benefited from holdings in home improvement companies Safestyle, Tyman and Howden Joinery, all of which are strongly positioned to benefit from the ongoing improvement in the housing market and consumer confidence.

As well as the positive impact of its holdings in smaller and medium sized companies, the Company's performance benefited from avoiding shares in several under-performing large companies, most notably supermarket chain Tesco, which suffered from weak trading, heightened price competition and an accounting scandal. Not holding any GlaxoSmithKline shares also helped the Company's relative performance as the business struggled to cope with aggressive competition in some of its key drugs, at the same time as new product development proved disappointing.

Neither Shire nor AstraZeneca were held by the Company and both companies received takeover approaches during the period. The bids were partly motivated by the potential tax inversion benefit for US companies acquiring overseas companies.This detracted from relative performance during the period, although both takeover approaches have subsequently collapsed. The underweight position in Royal Dutch Shell also hurt relative performance, as the market responded favourably to the new CEO's turnaround plan.

The Company's holding in consumer credit business International Personal Finance detracted from performance due to regulatory uncertainty and potential economic weakness in Central and Eastern Europe.

The holding in oil services firm Petrofac impacted performance due to operational problems in its Integrated Energy Services business, which offset progress elsewhere.

 

Activity

During the twelve month period, the Company started a new position in software company MicroFocus, which is a highly cash generative business that has a strong track record of migrating legacy IT systems onto modern platforms.

The Company acquired a new position in defence company Cobham, whose strong market position has helped underpin an enviable track record of unbroken dividend growth, while there is also the prospect that the market will turn its attention to higher growth parts of the business, which are likely to attract a valuation premium.

The Company built a position in chemicals company Synthomer, where market conditions appear to be bottoming out, and there is also scope for the valuation to respond to a potential increased dividend pay-out.

The Company reduced its holding in Vodafone, whose underlying earnings trends are under pressure from weak pricing trends in its core European markets, limiting the potential for rapid dividend growth.

The Company sold its long-standing and successful position in easyJet, where industry capacity additions have the potential to suppress pricing and yields going forward. The Company also sold out of its position in industrial business Rolls-Royce, whose high valuation left it vulnerable to any potential disappointments on trading.

Outlook

Despite increased volatility towards the end of the period, we remain confident in the outlook for the Company on the basis of a number of factors.

First, the Company's index-agnostic approach allows the portfolio to focus on our highest conviction ideas across the market. At a time of increased dispersion between sectors, this provides the flexibility to avoid areas of the market that may be at risk.

Second, we view the recent sharp decline in commodity prices and bond yields as providing an effective monetary stimulus to an already improving economic situation on both sides of the Atlantic.

Third, the rush into many large company stocks for their bond-like characteristics has stretched valuations, despite the same companies often experiencing deteriorating fundamentals, making such stocks vulnerable to underperformance. In contrast, the sharp sell-off in many domestically orientated,  medium sized company stocks, in spite of ongoing improvement in their underlying fundamentals, has provided the Company with an opportunity to add to various attractively positioned stocks at lower valuations.

The Company remains focused on stocks that offer the strongest dividend growth potential. This continues to point us away from large companies and towards small and medium sized companies that tend to have stronger balance sheets and many more years of growth ahead of them. Whether or not the overall market makes progress in the year ahead is uncertain, particularly in the context of ongoing geo-political tensions. This said, we remain very confident about the outlook for earnings and dividends of the stocks in which the Company is invested, which we expect to provide a solid underpinning to the Company's total return prospects as the year progresses.

Thomas Moore

Portfolio Manager

Standard Life Investments

14 November 2014

Relative Performance Attribution*	%
Stock Selection	1.52
Gearing	0.42
Interest	-0.47
Expenses	-0.45
Total	1.02
* based upon capital return  (excluding effect of current year revenue) for the year ended 30 September 2014

Top 5 Stock Level Contributors	Relative Position (%)1	Contribution (%)
Tesco2	-1.2	0.7
Safestyle	1.2	0.7
GlaxoSmithKline3	-2.9	0.4
Close Brothers	2.2	0.4
Beazley	1.5	0.4
Bottom 5 Stock Level Contributors	Relative Position (%)1	Contribution (%)
Shire2	-1.0	-0.8
Astrazeneca2	-2.4	-0.7
Royal Dutch Shell3	-5.6	-0.7
Petrofac3	1.4	-0.5
International Personal Finance	1.9	-0.5

¹ based on average position for the year ended 30 September 2014

² Stocks not held by the Company

³ Stocks sold during the year by the Company

3.    FINANCIAL HIGHLIGHTS

	Year to 30 September 2014
Share price total return		6.3%
Increase in total dividends		4.5%
Net asset value total return (diluted)		6.9%
Benchmark total return		6.1%
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 2014	At 30 September 2013	% change
Capital
Net asset value per ordinary share       Basic      Diluted	411.0p 397.9p	395.2p 383.3p	4.0% 3.8%
Ordinary share price	394.0p	383.0p	2.9%
Subscription share price	86.5p	89.0p	-2.8%
Benchmark return	3,533.9	3,443.9	2.6%
Discount of ordinary share price to net asset value      Basic      Diluted	-4.1% -1.0%	-3.1% -0.1%
Total assets	£190.4m	£172.2m	10.6%
Shareholders' funds	£166.5m	£151.8m	9.7%
Ordinary shares in issue	40,505,994	38,419,941	5.4%
Gearing
Gearing	13.2%	12.7%
Earnings and Dividends Revenue return per ordinary share Total dividends for the year Dividend yield	15.69p 14.00p 3.6%	14.07p 13.40p 3.5%	11.5% 4.5%
Expenses Ongoing charges	0.94%	0.97%

4.  BUSINESS REVIEW

Introduction

This Business Review is intended to provide information about the Company's strategy and business needs, its results for the year, and the information and measures which the Directors use to assess, direct and oversee Standard Life Investments (Corporate Funds) Limited (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 governance of the Company is the responsibility of a board of non-executive Directors. The management of the Company's investments and the day to day operation of the Company is delegated to the Manager.

The Board

The Board is responsible for setting strategy, investment policy and guidelines and monitoring performance against those criteria. The Board consists wholly of non-executive Directors. The Chairman is Mr Charles Wood OBE and as at 30 September 2014 other Board members were Mr Richard Burns, Ms Josephine Dixon, Mr Keith Percy and Mr Mark White. Mr Jeremy Tigue was appointed on 1 October 2014. As indicated in the Chairman's Statement, Mr Wood is retiring at the AGM and will be succeeded as Chairman by Mr Richard Burns. As at 30 September 2014, the Board consisted of four men and one woman. Following the appointment of Mr Tigue, the Board currently consists of five men and one woman. As the Company is an investment trust, all of its activities are outsourced and it does not have any employees.

Investment Objective

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.

Business Model and Investment Policy

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.

Manager's Investment Process

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.

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 2014 amounted to £6,214,000 (2012: £5,361,000).

Three quarterly dividends of 3.20 pence per share each were paid to eligible shareholders on 21 March 2014, 27 June 2014 and 26 September 2014 (2013 - three quarterly dividends of 3.20 pence each) and the Directors are now recommending to shareholders that a fourth quarterly dividend of 4.40 pence (2013 -

fourth quarterly dividend of 3.80 pence) be paid on 19 December 2014 to shareholders on the share register as at the close of business on 28 November 2014. The ex-dividend date is 27 November 2014.

Dividends are paid on a quarterly basis, in March, June, September and December.

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 over various time periods and against similar funds.

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties facing the Company which the Board and the Manager have identified and the Board sets out delegated controls designed to manage those risks and uncertainties. Key risks within investment strategy, including inappropriate stock selection and gearing, are managed by the Board through a defined investment policy, with guidelines and restrictions, and by the process of oversight at each Board meeting. Operational disruption, accounting and legal risks are also covered at least annually and regulatory compliance is reviewed at each Board meeting.

The Directors have adopted a robust framework of internal controls which is designed to monitor the principal risks and uncertainties facing the Company and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible.

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 the share prices of the companies in which it invests. A fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds.

·    Currency risk: The Company invests in companies the shares of which are sterling denominated. These companies often have significant global activity and in some circumstances distribute profit in currencies other than sterling. As a result, the Company can be exposed to currency risk when it receives dividends in currencies other than sterling. The current policy is not to hedge this risk. This policy is kept under constant review.

·    Capital structure and gearing risk: The Company's capital structure at 30 September 2014 consisted of equity share capital comprising Ordinary shares, Subscription shares and debt in the form of a £25 million sterling revolving credit facility (the "bank facility") with Scotiabank (Ireland) Limited. 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 Scotiabank (Ireland) Limited. The Company self certifies compliance with the Ioan covenants to the bank on a monthly basis.

·    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 and the current policy is considered by the Directors to be appropriate. 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 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 was fully implemented with effect from 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.  In accordance with the requirements of the Alternative Investment Fund Managers ('AIFM') Directive, the Company has appointed Standard Life Investments (Corporate Funds) Limited as its AIFM and BNP Paribas Securities Services as its Depositary. The Board has put in place controls in the form of regular reporting from the AIFM and the depositary to ensure both are meeting their regulatory responsibilities in relation to the Company.

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

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

As noted above, the Company has agreed a bank facility with Scotiabank (Ireland) Limited. During the year, funds were periodically repaid or drawn down from the facility as determined by the Manager. As at 30 September 2014, £23m was drawn down. Additional information may be found in the "Gearing" section of the Chairman's Statement.

Future Strategy

The Board and Manager intend to maintain the strategic policies set out above for the year ending 30 September 2015 as it is believed that these are in the best interest of shareholders.

Charles Wood OBE

Chairman

14 November 2014

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 Strategic Report, 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 Strategic 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

14 November 2014

INCOME STATEMENT 

For the year ended 30 September

			2014										2013
			Revenue		Capital				Total		Revenue		Capital		Total
	Notes			£'000	£'000				£'000		£'000		£'000		£'000
Net gains on investments at fair value		9		-	6,706				6,706		-		33,671		33,671
Currency (losses)/ gains				-	(4)				(4)		-		1		1
Income		2		7,084	-				7,084		6,107		-		6,107
Investment management fee		3		(373)	(870)				(1,243)		(303)		(707)		(1,010)
Administrative expenses		4		(353)	-				(353)		(329)		-		(329)
NET RETURN BEFORE FINANCE COSTS AND TAXATION				6,358	5,832				12,190		5,475		32,965		38,440
Finance costs		5		(118)	(276)				(394)		(92)		(216)		(308)
RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION				6,240	5,556				11,796		5,383		32,749		38,132
Taxation			6	(26)	-				(26)		(22)		-		(22)
RETURN ON ORDINARY ACTIVITIES AFTER TAXATION				6,214	5,556				11,770		5,361		32,749		38,110
RETURN PER ORDINARY SHARE
Basic			8	15.69p	14.03p				29.72p		14.07p		85.94p		100.01p
Diluted				15.12p	13.52p				28.64p		13.88p		84.79p		98.67p
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

		2014		2013
	Notes	£'000	£'000	£'000	£'000
FIXED ASSETS
Investments designated at fair value through profit or loss	9		188,277		170,081
CURRENT ASSETS
Debtors	10	1,103		1,423
Money market funds		959		643
Cash and short term deposits		54		96
		2,116		2,162
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan	11	(23,000)		(20,000)
Other creditors	11	(921)		(406)
		(23,921)		(20,406)
NET CURRENT LIABILITIES			(21,805)		(18,244)
NET ASSETS			166,472		151,837
CAPITAL AND RESERVES
Called-up share capital	12		10,127		10,033
Share premium account			24,084		21,576
Capital redemption reserve			12,615		12,615
Capital reserve			113,900		102,772
Revenue reserve			5,746		4,841
EQUITY SHAREHOLDERS' FUNDS			166,472		151,837
NET ASSET VALUE PER ORDINARY SHARE	13
Basic			410.98p		395.20p
Diluted			397.87p		383.34p

The financial statements were approved by the Board of Directors and authorised for issue on 14 November 2014 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 2014

					Share	Share				Capital	Capital	Revenue
				capital		premium				redemption	reserve	reserve
						account				reserve			Total
		Notes			£'000	£'000				£'000	£'000	£'000	£'000
Balance at 30 September 2013					10,033	21,576				12,615	102,772	4,841	151,837
Issue of ordinary shares on conversion of subscription shares					94	1,117				-	-	-	1,211
Issue of ordinary shares from treasury				12	-	1,391				-	5,572	-	6,963
Return on ordinary activities after taxation					-	-				-	5,556	6,214	11,770
Dividends paid				7	-	-				-	-	(5,309)	(5,309)
BALANCE AT 30 SEPTEMBER 2014					10,127	24,084				12,615	113,900	5,746	166,472
For the year ended 30 September 2013
						Share				Capital
					Share	premium				redemption	Capital	Revenue
					capital	account				reserve	reserve	reserve	Total
					£'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				12	90	1,064				-	-	-	1,154
Issue of ordinary shares from treasury					-	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

The revenue and capital reserves represent the amount of the Company's reserves distributable by way of dividend. The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT

For the Year ended 30 September

					2014			2013
	Notes				£'000		£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES		14				5,856			4,842
NET CASH OUTFLOW FROM SERVICING OF FINANCE						(390)			(307)
FINANCIAL INVESTMENT
Purchases of investments				(83,562)				(72,202)
Sales of investments				72,509				60,789
NET CASH OUTFLOW FROM FINANCIAL INVESTMENT						(11,053)			(11,413)
EQUITY DIVIDENDS PAID						(5,309)			(7,081)
						(10,896)			(13,959)
MANAGEMENT OF LIQUID RESOURCES
Purchase of money market funds				(58,626)				(43,683)
Sale of money market funds				58,310				51,170
NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID RESOURCES						(316)			7,487
NET CASH (OUTFLOW) BEFORE FINANCING						(11,212)			(6,472)
FINANCING
Proceeds from exercise of subscription shares				1,211				1,154
Proceeds from issue of ordinary shares from treasury				6,963				381
Repayment of loan				(20,000)				-
Drawdown of loan				23,000				5,000
NET CASH INFLOW FROM FINANCING						11,174			6,535
(DECREASE)/INCREASE IN CASH						(38)			63
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
(Decrease)/Increase in cash as above				(38)				63
Net change in liquid resources				316				(7,487)
Drawdown of loan				(3,000)				(5,000)
Currency movements				(4)				1
MOVEMENT IN NET DEBT IN YEAR						(2,726)			(12,423)
Opening net debt						(19,261)			(6,838)
CLOSING NET DEBT		15				(21,987)			(19,261)

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

Notes to the Financial Statements
For the year ended 30 September 2014
1.		Accounting policies
		(a)			Basis of accounting
					The financial statements have been prepared in accordance with the Companies Act 2006, 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, "Events after the balance sheet date" 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
							2014								2013
							£'000								£'000
			Income from investments
			Franked investment income
			Ordinary dividends				5,146								4,799
			Special dividends				456								59
												5,602				4,858
			Overseas and unfranked investment income
			Ordinary dividends									896				690
			Special dividends									534				405
												1,430				1,095
			Stock dividends									25				129
												7,057				6,082
			Other income
			Money market interest									17				25
			Underwriting commission									10				-
												27				25
			Total income									7,084				6,107
3.	Investment management fee
											2014		2013
											£'000		£'000
	Charged to revenue reserve										373		303
	Charged to capital reserve										870		707
											1,243		1,010
	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
				2014	2013
				£'000	£'000
	Directors' fees			106	91
	Fees payable to the Company's Auditor (excluding VAT):
	- for the audit of the annual financial statements			21	20
	Professional fees			29	29
	Other expenses			197	189
				353	329
	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
		2014	2013
		£'000	£'000
	On bank loans and overdrafts:
	Charged to revenue reserve	118	92
	Charged to capital reserve	276	216
		394	308
	Finance costs are chargeable 30% to revenue and 70% to capital (see note 1(e)).

6.	Taxation
				2014	2013
				£'000	£'000
	(a)	Analysis of charge for the year
		Overseas withholding tax		26	22
	(b)	Factors affecting current tax charge for the year
		The corporation tax rate was 23% until 31 March 2014 and 21% from 1 April 2014 giving an effective rate of 22%. 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		11,796	38,132
		Return on ordinary activities at the UK standard rate of corporation tax 22% (2013 - 23.5%)		2,595	8,961
		Effects of:
		Gains on investments not taxable		(1,475)	(7,913)
		Non-taxable income		(1,513)	(1,387)
		Excess management expenses and loan relationship debit expenses		393	339
		Overseas withholding tax		26	22
		Total taxation		26	22
		At 30 September 2014, the Company had unutilised management expenses and loan relationship losses of £17,456,000 (2013 - £15,672,000). 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
					2014		2013
					£'000		£'000
	Amounts recognised as distributions to equity holders in the year:
	Fourth quarterly dividend for 2013 of 3.80p per share (2012 - 9.00p)				1,473		3,416
	First quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)				1,269		1,218
	Second quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)				1,271		1,218
	Third quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)				1,296		1,229
					5,309		7,081
	The proposed fourth quarterly dividend for 2014 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 £6,214,000 (2013 - £5,361,000).
		2014				2013
		£'000				£'000
	First quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)	1,269				1,218
	Second quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)		1,271			1,218
	Third quarterly dividend for 2014 of 3.20p per share (2013 - 3.20p)		1,296			1,229
	Proposed final dividend for 2014 of  4.40p per share (2013 - 3.80p)		1,782			1,473
				5,618		5,138

8.	Return per Ordinary share
	Basic	2014		2013
		£'000	p	£'000	p
	Revenue return	6,214	15.69	5,361	14.07
	Capital return	5,556	14.03	32,749	85.94
	Total return	11,770	29.72	38,110	100.01
	Weighted average number of Ordinary shares in issueA		39,609,718		38,105,315
	Diluted
	Revenue return	6,214	15.12	5,361	13.88
	Capital return	5,556	13.52	32,749	84.79
	Total return	11,770	28.64	38,110	98.67
	Number of dilutive shares		1,483,865		516,765
	Diluted shares in issue		41,093,583		38,622,080
	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.
	A Calculated excluding shares held in Treasury.

9.	Investments
			2014		2013
			£'000		£'000
	Fair value through profit or loss
	Opening book cost		133,233		111,643
	Opening fair value gains on investments held		36,848		13,560
	Opening fair value		170,081		125,203
	Movements in the year:
	Purchases at cost		83,692		71,476
	Sales	- proceeds	(72,202)		(60,269)
		- realised gains	10,207		10,383
	Current year fair value (losses)/gains on investments held		(3,501)		23,288
	Closing fair value		188,277		170,081
	Closing book cost		154,930		133,233
	Closing fair value gains on investments held		33,347		36,848
	Closing fair value		188,277		170,081
	Gains on investments held at fair value through profit or loss
	Gains on sales		10,047		10,383
	Gains on special dividends		160		-
	(Decrease)/increase in fair value gains on investments held		(3,501)		23,288
			6,706		33,671
	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:
				2014	2013
				£'000	£'000
	Purchases			397	386
	Sales			77	84
	Total			474	470

10.	Debtors: amounts falling due within one year		2014		2013
		£'000			£'000
	Amounts due from brokers	368			675
	Net dividends and interest receivable	654			690
	Other debtors	81			58
				1,103	1,423

11.	Creditors: amounts falling due within one year
		2014	2013
		£'000	£'000
	Bank loan	23,000	20,000
	Other creditors
	Amounts due to brokers	130	-
	Investment management fee payable	623	282
	Sundry creditors	168	124
		921	406
	During the year, the Company entered into a new three year £25 million revolving credit facility with Scotiabank (Ireland) Limited, replacing the £20 million loan facility with The Royal Bank of Scotland plc. As at 30 September 2014, the Company had drawn down £23 million (2013 - £20 million) of the £25 million loan facility arranged with Scotiabank (Ireland) Limited, £20 million maturing on 22 October 2014 and £3 million maturing on 27 October 2014 both at a fixed interest rate of 1.66%.  Subsequent to the year end, the £20 million loan was rolled over from 22 October 2014 to 24 November 2014 at an interest rate of 1.6532% and the £3 million loan was rolled over from 27 October 2014 to 27 November 2014 at an interest rate of 1.6560%.

12.		Called up share capital
				2014		2013
			£'000		£'000
		Issued and fully paid:
		Ordinary shares of 25p each
		Opening balance of 38,419,941 (2013 - 37,959,305) Ordinary shares		9,605			9,490
		Issue of 378,725 (2013 - 360,636) Ordinary shares on conversion of Subscription shares		94			90
		Issue of 1,707,328 (2013 - 100,000) Ordinary shares from Treasury		427			25
		Closing balance of 40,505,994 (2013 - 38,419,941) Ordinary shares		10,126			9,605
		Subscription shares of 0.01p each
		Opening balance of 7,196,498 (2013 - 7,557,134) Subscription shares		1			1
		Conversion of 378,725 (2013 - 360,636) Subscription shares into Ordinary shares		-			-
		Closing balance of 6,817,773 (2013 - 7,196,498) Subscription shares		1			1
		Treasury shares
		Opening balance of 1,707,328 (2013 - 1,807,328) Treasury shares		427			452
		Issue of 1,707,328 (2013 - 100,000) Ordinary shares from Treasury		(427)			(25)
		Closing balance of nil (2013 - 1,707,328) Treasury shares		-			427
				10,127			10,033
	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 378,725 (2013 - 360,636) Subscription shares into ordinary shares for a total consideration of £1,211,000 (2013 - £1,154,000).
	During the year, 1,707,328 (2013 - 100,000) Ordinary shares were issued from Treasury for a total consideration of £6,963,000 (2013 - £381,000).
	There were no shares repurchased during the year. The total shares held in Treasury is nil (2013 - 1,707,328 shares held in Treasury representing 4.3% of the Company's total issued share capital at 30 September 2013). The number of Subscription shares in issue at 30 September 2014 is 6,817,773 (2013 - 7,196,498).

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
		2014	2013
	Total shareholders' funds (£'000)	166,472	151,837
	Number of Ordinary shares in issue at year endA	40,505,994	38,419,941
	Net asset value per share	410.98p	395.20p
	Diluted
	Total shareholders' funds assuming exercise of Subscription shares (£'000)	188,289	174,866
	Number of potential Ordinary shares in issue at year endA	47,323,767	45,616,439
	Net assets per share	397.87p	383.34p
	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.
	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
		2014	2013
		£'000	£'000
	Net return before finance costs and taxation	12,190	38,440
	Adjustments for:
	Net gains on investments at fair value	(6,706)	(33,671)
	Net currency losses/ (gains)	4	(1)
	Decrease in accrued income	36	2
	(Increase)/decrease in other debtors	(3)	1
	Increase in other creditors	381	90
	Net overseas tax paid	(46)	(19)
	Net cash inflow from operating activities	5,856	4,842

15.	Analysis of changes in net debt
		At 30 September	Cashflow	Currency movements	At 30 September
		2013			2014
		£'000	£'000	£'000	£'000
	Cash at bank and in hand	96	(38)	(4)	54
	Money market funds	643	316	-	959
	Bank loan	(20,000)	(3,000)	-	(23,000)
	Net debt	(19,261)	(2,722)	(4)	(21,987)

	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 2014											Years		%			£000		£000
			Assets
			Money Market funds											-		0.53			-		959
			Cash deposits											-		-			-		54
			Total assets											-		0.50			-		1,013
			Liabilities
			Bank loans											0.1		1.66			23,000		-
			Total liabilities											0.1		1.66			23,000		-
			As at 30 September 2013
			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		-
			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 2014 or 30 September 2013 that had a maturity date. As detailed in note 11, the £20m and £3m loans drawn down had maturity dates of 22 October 2014 and 27 October 2014, respectively, at the Balance Sheet date. (2013: £5m on 9 October 2013; £15m on 31 October 2013).
			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 2014 would increase / decrease by £220,000 (2013: increase / decrease by £193,000). 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. The Company can be exposed to currency risk when it receives dividends in currencies other than sterling. The current policy is not to hedge this risk but this policy is kept under constant review by the Board.
			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 2014 would have increased/decreased by £18,828,000 (2013 - increase/decrease of £17,008,000). 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 AAA money market funds are held only with reputable banks.
			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:
								2014											2013
									Balance Sheet £'000					Maximum exposure £'000			Balance Sheet £'000			Maximum exposure £'000
			Current assets
			Debtors						1,103					1,103			1,423			1,423
			Money Market funds (indirect exposure)						959					959			643			643
			Cash and short term deposits						54					54			96			96
									2,116					2,116			2,162			2,162
			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 £23,000,000 (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 2014 and 30 September 2013 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 13.2% of net assets (2013 - 12.7%)
		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 2014 there was an underwriting commitment of £2,200,000 (2013 - £500,000).This commitment was in relation to a placing by Assura Group. Subsequent to the year end, the Company was allocated £1,315,000 of shares in the placing.

Additional notes

This Annual Financial Report is not the Company's statutory accounts.  The statutory accounts for the year ended 30 September 2013 have been delivered to the Registrar of Companies.   The statutory accounts for the years ended 30 September 2013 and 30 September 2014 received an audit report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006. 

The statutory accounts for the financial year ended 30 September 2014 have been approved and audited but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which will be held at 12.00 noon on 17 December 2014 at the offices of Standard Life Investments, 30 St Mary Axe, London EC3A 8EP.

The Annual Report will be posted to shareholders in November 2014 and copies will be available from the Manager or by download from the Company's webpage hosted by the Manager (www.standardlifeinvestments.com/its).

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

For Standard Life Equity Income Trust PLC

Maven Capital Partners UK LLP, Secretaries

For Further Information please contact:

Standard Life Investments - Gordon Humphries, Head of Investment Companies - Tel. [phone]

 

END

 

 

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