Annual Financial Report

RNS Number : 7570N

Aurora Investment Trust PLC

16 June 2010

 



Annual Financial Report Announcement

Aurora Investment Trust plc

Year ended 28 February 2010

CHAIRMAN'S STATEMENT 

A Year of Recovery: the market rises 42%:

It was just a year ago that the financial world seemed to be coming to an end.  The UK stock market, in common with those of the rest of the world, had fallen precipitously from a high in July 2007, although most of the damage had been done in the last 6 months following the dénouement of Lehman Brothers in September 2008.  However the taxpayers rode to the rescue of the banking system and the Bank of England quenched the thirst for financial liquidity by slaking the system with squillions of gallons of money.  So order was restored to financial markets and with it a huge recovery in the level of stock markets.  The table below sets out how that evolved in the UK in the two halves of our financial year, together with the excellent recovery in our own net asset value (more of which later).

	INDEX	28-Feb-09	28-Feb-10		'10v. '09
	FTSE 100	3,830.1	5,354.5	YEAR	+39.8%
			4,908.9	1st 1/2	+28.2%
			5,354.5	2nd 1/2	+9.1%
	FTSE All-sh	1,929.8	2,736.8	YEAR	+41.8%
			2,520.7	1st 1/2	+30.6%
			2,736.8	2nd 1/2	+8.6%
	FTSE AIM	389.1	667.6	YEAR	+71.6%
			593.0	1st 1/2	+52.4%
			667.6	2nd 1/2	+12.6%
	AURORA NAV	111.9p	191.52p	YEAR	+71.2%
			162.98p	1st 1/2	+45.7%
			191.52p	2nd 1/2	+17.5%

However, before we get too carried away with the thought that all is now well, we should remind ourselves that markets remain very jittery indeed.  The recent shenanigans in markets in Europe over the Greek Euro Tragedy remind us that rescuing banks, buying up bad loans and flooding markets with money treats the symptoms, not the causes.

The Year's Results:    Net Asset Value:                                  191.52p (+71.2%)

                                     Benchmark (FTSE A-S):                     2,736.8 (+41.8%)

Having suffered the misfortune of several years of poor returns - in part of our own making and in part because of miserable stock markets, it is very pleasing to be able to report that during this last year James Barstow, our portfolio manager, produced some excellent returns.  Under any circumstances a rise in the net asset value of 71.2%, taking it up to 191.52p per share is most welcome.  Our goal, as we have so often stated, is to make money for shareholders and that we did in the year to 28^th February 2010.  Our secondary aims must be to do better than our peer group and to outperform the stock market.  Both of those subsidiary objectives were also achieved - something we haven't done for some time.  So well done, James.

The two most important of the driving forces behind these returns were the commitment to the China theme, which runs through much of the stock selection and the recovery from very depressed levels in the share prices of many financial companies.  There are three ways in which the portfolio is exposed to the growth of the Chinese, Asian and other emerging market economies, being investments in natural resources (raw materials and energy), in UK companies with significant business in these areas and in some AIM companies whose principal business is based in China.  The table below illustrates the exposure to those sectors which benefit from China specifically and to emerging economies generally.

	Investment	% NAV	2010 Gain	2010 Gain p. sh.
Raw Materials	£6,480,275	26.1%	+£3,257,691	+25.2p
Energy	£5,743,177	23.2%	+£1,924,195	+14.9p
UK Cos	£2,886,214	9.7%	+£1,169,032	+9.0p
China Cos	£5,324,050	18.0%	+£2,125,554	+16.4p
Total:	£20,433,716	77.0%	+£8,476,472	+65.5p

While it should be noted that the companies involved in the table above benefit from the growth of China's economy, most of them are geographically diversified and not wholly dependent on that country.  Direct exposure in terms of underlying sales and profits is of course much less.  It is nevertheless a big commitment and one that paid off handsomely during the course of the year.  We also ended the year with a considerable commitment to the financial sector (£5.5 million, 22.2% of NAV).  Three of our holdings (in HSBC, Standard and Chartered and Prudential) are, in part, China plays and are included in the statistics above.  The investment in financial stocks and shares showed a profit over the year of £2.4 million or 18.2p per share.  In terms of the stocks themselves and the contribution that they made to the returns during the year, the table below sets out the top five contributors to the increase in the net asset value:

Top 5 Contributors		Profit	Per share	%
Asian Citrus		+1,629,775	+12.6p	+124.5
Kazakhmys		+1,024,329	+7.9p	+158.4
GCM Resources		+695,202	+5.4p	+50.8
Barclays		+675,376	+5.2p	+81.7
Xstrata		+666,232	+5.1p	+107.3
TOTAL		+4,690,914	+36.2p

Fortunately - in a year of such dramatic recovery, there were few losers and none of any great significance when compared to the winners.  The largest loss was suffered by our holding in Gresham Computing (£0.1 million, -1.0p per share).

Shareholders' Return:             Share Price:        159.5p   (+96.9%)

                                                 Dividend:              3.45p  (-31.0%; see below)

                                                                 Discount:            16.7%   (v. 24.9%)  

As is usually the case within the investment trust sector, when asset values are rising and confidence is returning, discounts tend to fall and so it was with Aurora's shares.  The discount a year ago was a rather horrific 24.9%, reflecting the stock market mood of the moment, the illiquidity of our shares and the bumpy track record we had.  It subsequently shrank to 16.7% as the share price recovered from 81p to 159.5p, a rise of 96.9%.  The table below shows the influence of the rise in the net asset value and the fall in the discount on the share price.

Attribution of Shareholders' Return
Due to NAV change		+57.7p	+71.2%
Due to change in Discount		+20.8p
Share Price change		+78.5p	+96.9%
Dividend paid in year		+5.00p
Total Return		+83.5p	+103.1%

Even at this much lower level, the discount is still too high but I am afraid that we have not been in a position to buy back shares because we did not have insufficient reserves to do so (legal reason) and because to do so would have shrunk the liquidity of Aurora's shares even more (business reason).  We do now have enough reserves, but the issue of the size and liquidity of the Company remains; we are nevertheless giving careful thought to the discount problem, as discussed later in this statement.

Although the performance since launch some thirteen years ago has been absolutely satisfactory and relatively good - the net asset value has risen by 95.9% (FTSE A-s Index by 26.9%) - it has been far too bumpy a ride for shareholders.  The Board of Directors has spent some time deliberating the reasons behind the volatility of the net asset value over the years - a feature that more short-term orientated investors do not like.  While I cannot promise that it will not continue, we hope we understand the causes and can mitigate them in the future, namely that the characteristics of a concentrated portfolio with big exposures to certain sectors and companies tend to mean that we do well on the upside and poorly on the downside; we have undoubtedly been guilty of overstaying our welcome in certain areas that have done particularly well but which have subsequently fallen from grace.

The net income earned this year has suffered in part because the portfolio generated less income than it did a year ago and in part because last year we received a one off VAT repayment from HMRC, following the successful case brought against it in the European Court of Justice.  As a consequence of the VAT repayment we were able to pay a special dividend of 1.75p, which will not be repeated this year; the total of the two payments amounted to 5p (3.25p final and 1.75p special).  This year the Board is recommending a final dividend of 3.45p, 31% lower than the two dividends paid a year ago but 6.2% higher than last year's final dividend.

Annual General Meeting:   12 noon, 28 July 2010 at 145-157 St John Street, EC1

The Annual General Meeting will be held at 12 noon on Wednesday, 28 July at the offices of Cavendish Administration at 145-157 St John Street (nearest tube station: Farringdon).  I do urge as many shareholders as possible to attend.  It is the occasion when the Board of Directors meet with shareholders and account for the years activities.  It gives you a chance to air you views and concerns and for us a chance to discuss them with you.

Your Directors quite understand that it is not possible for all shareholders to attend the AGM (indeed we would be rather short of space should you choose to do so!).  We are, however, keen to understand the views of as many shareholders as possible; I would ask those who are not able to attend but would like to communicate with the Board to contact me - or indeed others of the Directors - and we will arrange either a meeting or a telephone call.  On page 21 of the annual report you will see a list of the major shareholders and you will notice that it has changed somewhat over the past year.  It is important for any board of directors to appraise itself of the (often) different views of its major shareholders so that it can be aware of each of them and, by knowing them, act as best it can in the interests of the shareholders as a whole.

Aurora, an investment trust with a difference:

Aurora is a small but rather special investment trust.  Its shares are not an investment for everyone but by its very nature it will appeal to some investors.  I thought I would take this opportunity to describe it, its peculiarities, its pluses and its minuses.  The following are five of its own characteristics:

·      Themes based investment:  Unlike most investment funds in this day and age that are pigeon holed with a singular investment style (top down, bottom up, value, momentum, etc), we try to incorporate all these disciplines into the management of the portfolio.  However our starting point is top down - identifying themes from which to select the reasonably valued stocks and shares of well managed companies. 

By and large we select blue chip stocks (large companies) to back our themes but we do also invest in smaller companies with particular exposure to the themes.  We do not invest in themes or stocks just because they are part of our benchmark index, frightened lest we underperform it.

·      Long-term:  It is an investment trust where the portfolio is genuinely managed on a long-term basis.  As a consequence we tend to ride the ups and downs of the themes we identify.  Some of the themes, of course, go ex-growth as circumstances change and we have to move on from them.

·      Conviction investment:  We tend to have very concentrated portfolios in terms of both the themes (sectors) and the stocks we invest in.  That too exacerbates the ups and downs of our net asset value.

·      Income:  While the clear objective is that of achieving capital gains - making money for shareholders - we believe that income has a value to shareholders and we aim to grow the dividend by at least the rate of inflation.

·      Management shareholding:  Unlike most investment trust companies, the portfolio manager has a significant shareholding in the Company (owning, at the date of this statement, circa 6½% of the Company's shares).  Furthermore it is the only portfolio he manages and he focuses his entire efforts on it; he is not involved in asset gathering.

The most important characteristic of any investment trust is its management, the people actually involved with looking after it.  In this respect James Barstow is the key figure.  He is an experienced, enthusiastic and imaginative investor and unquestionably does things differently from other portfolio managers.  However he cannot do it all on his own - no one can - and he is ably assisted by Stephen Wood who advises and helps him. Stephen, also an experienced investor, has quite different attributes and provides an excellent foil for James's exuberance.  And finally there is the Board of Directors of which James is a member.  I can say that of all the many, many investment trust boards that I have worked with over the last 40 plus years, we spend more time on investment than most I have worked with - an increasingly difficult task in this day and age of red taped governance.

Having said all of that, these characteristics are no guarantee of consistently good returns and we have been through two poor patches in the 13 years since the Company was launched - the latter one having been particularly poor.  We have made mistakes - who hasn't? - but our long-term focus and our concentrated portfolios have meant that the mistakes were particularly painful in the short-term.  We have been slow to take advantage of big profits and we have invested in too many concept stocks.  It has all resulted in a bumpy ride - far too bumpy for the liking of many investors, particularly those with shorter term horizons.

As an illustration of this, we have produced a chart (below) which shows the volatility of the net asset value and the share price over its life.  It illustrates that the market itself (in the shape of the FTSE All-share Index, our benchmark) has been pretty volatile but we have been rather more so.  However it also illustrates that - over the life of the Trust to date - it has made money and has done quite a bit better than the stock market (NAV + 96%; stock market +27%).

(See chart in Annual Report)

One of the problems about inconsistent returns - even if they are good over the long-term - is that the share price suffers even greater volatility on the back of the net asset value volatility.  In good times there are more buyers than sellers and investors pay up for our shares but in bad times some of them become sellers at lower valuations.  The fact that the share price tends to perform better in good times and worse in bad times than the net asset value (see above) demonstrates the added volatility of the share price.  The longer a shareholder remains a shareholder, the less important discount changes are but the facts of the matter are that, in this day and age of much shorter investment time horizons, some investors don't like volatility; Aurora shareholders have experienced both volatile asset values and volatile discounts, which may well account for the high discounts obtaining in difficult times.

In an attempt to contain the level of the discount, we have bought back shares over the course of the life of the Company.  We started out with 15,107,250; today we have 12,952,250, having bought back 2,155,000 or 14.2% of the original issue.  The stock market value of Aurora at the end of our year amounted just over £20 million, making it a very small investment trust company and, as I mentioned earlier, not a suitable investment for many large institutional investors with a short time horizon and therefore a need for instant liquidity.  However there are investors who make commitments to funds our size and it is to them that we may offer something special.

We must however deal with the two volatilities to make our shares appealing.  Shrinking the size of the Company even further will make it unappealing to an even wider range of investors.  It is something that the Board has spent a lot of time on, learning from the mistakes of the last few years and imposing some disciplines on our risk management in order to avoid overstaying our welcome where we have made a lot of money, cutting our losses when we make mistakes and investing large amounts in stocks yet to turn profitable.  We aim to capture more of the upside on a permanent basis and lower the downside.  If we do succeed in that we will find more investors being interested in becoming shareholders on a long-term basis and that in turn will both lower the discount and reduce its volatility.  In other words, adopting the fable of the Grand Old Duke of York, having marched the troops to the top of the hill, let's try to keep them there!  Providing that we can succeed in that objective, there will be demand for the company's shares, market derived (as opposed to company derived) liquidity will return and a much lower discount will generally obtain.

Outlook:

We have a continuation vote coming up in two years time and so it is over that period that I will focus this assessment of the outlook.  Shareholders were good enough to extend the life of the Company in 2007 - on its tenth anniversary and they will have to reassess the prospects in 2012.

It is in my opinion very difficult to assess the prospects for stock markets.  The fact is that much of the world is awash with liquidity but short of credit and that makes it difficult for economies to grow and companies to prosper.  There exists a view amongst many investors that the world can go to hell in a handcart but that at the same time companies can continue to grow their profits and dividends and share prices can continue rise.  I am afraid that it is wishful thinking and the proponents of such logic are merely guilty of Mandy Rice-Daviesisms.  A lot has been done by governments to address the crises but they themselves are wounded animals as the current sovereign debt crisis so clearly illustrates.

Time alone will tell how the various policies and their remedies will work out but I think it fair to surmise two things:

·      The economies and stock markets of many areas of the world will continue to struggle but some will prosper;

·      Volatility will continue to be one of the key characteristics of stock markets globally.

Having said that, the most important aspect of our prospects over the next two years lies in our own hands.  Understanding these two points (above) and adhering to the lessons we have learnt from the past should help guide the investment of our portfolio and hopefully produce good returns for shareholders.  James outlines the themes behind the management of the portfolio which focuses on the difficulty that the UK economy faces, the need to invest in those companies with exposure to those economies elsewhere which are able to grow (notably China but not exclusively) and to those sectors which are going to prosper in this very changed world that we live in.  It isn't going to be easy but I do believe we are on the right track; so we should be able to produce good returns for shareholders.

Alex Hammond-Chambers

Chairman

16 June 2010

MANAGER'S REVIEW AND OUTLOOK

Suffering as I do from the occasional bout of superstition, I approached, twelve months ago, the onset of this Company's thirteenth year since launch with a certain degree of fear and trepidation, against a miserable background of tumbling markets. I did not have to worry for long. Six days into the new financial year the nadir was reached - a level which I very much hope will not be revisited.

After two long years of being pummelled by bad news, I must confess that my reactions to the news of the introduction of Quantitative Easing, as part of the largest policy blitz in history, were slower than they should have been. Then I realised that, from the point of view of a stock market investor, the monetary taps had certainly been turned on to their maximum limit at a time when the market was extremely oversold. A study of the VIX (index of volatility) was enough to convince me that a strong rebound was in prospect. WHOOPEE!

Furthermore, I concluded that the investment cycle had changed its orientation from being defensive in nature in favour of investments possessing future growth potential. Savers in profusion were set to avail themselves of the higher yields pertaining in the market from both fixed interest and equity investments at a time of low interest rates for an extended period of time. Accordingly, my morale soared.

A volcano may have been spewing from the North a plume of ash over much of the continent, but for the whole year it would appear that a huge dark shadow of gloom, emanating from ongoing worries about the scale of government deficits, obscured the vision of many, resulting from the catastrophic demise of the two former prestigious Scottish banks and two building societies. At such a time, brimming with ever increasing confidence, I gave much consideration to, but cast aside, the cautionary words of the Cassandras.

I set out to take advantage of some unbelievable bargains. Certainly last autumn, as the first signs of global recovery started to appear, the UK market remained undervalued in my opinion with considerable upside potential still in prospect.

The overall result has, I hope, brought a smile once more to the faces of shareholders. Although the Board often criticises me for excess optimism, I must confess that even in my wildest dreams I never contemplated for a single moment during the past twelve months that, when I came to write this year's Report, the company's NAV would be approaching a new record high.

Since then, a combination of BP's disastrous oil spillage, the enormity of the Prudential rights issue and the threat of a 40% windfall tax on Australian mining profits have brought about a sharp setback in the market.  Mrs Merkel's recent announcement that the euro is in danger (a fact which most of us knew from the outset) and threats from North Korea have added considerably to investors' worries.

Returning to the sequential actions of the last year, in March 2009 I made full use of the full overdraft facility. First, I bought two new holdings of fixed interest investments producing unbelievable mouth watering double digit yields. I refer to Royal Sun 8.5%, and Amlin 6.5%; both these companies currently enjoy my required feature of strong relative pricing power.

If the former is a very staid company with a sound balance sheet, the latter is superbly managed with total outstanding debt even lower than the annual profit which has recently been announced. Since these investments not only produced a large net addition to the income stream, with interest rates at their current low levels, but also contained the prospect for making excellent capital gains, I managed to sleep soundly at night once more (after rather too lengthy a gap I might add!). Later I made two additions to the current holding of C& G 11.75% (cumulative) PIBS on an even higher yield basis.

To benefit from a leveraged financial play which was not a bank - a sector which I feared would take a long time to recover - I then made an addition to the existing holding of Man Group.  This is a company whose image, and accordingly share price, but not balance sheet, had been greatly tarnished by its investment in Madoff funds, but one which I consider to be very professionally managed in general. In my opinion, it was a classic example of being one of the strongest companies in its sector and therefore likely to benefit at such times of turmoil at the expense of its weaker competitors.

The next step I took was to review the prospects for growth around the world. It did not take long for me to conclude that the outlook for the UK, European and Japanese economies was lacklustre in the extreme, and therefore to be avoided as far as is feasible for a UK growth oriented trust. The prospects for the US economy, on account of the high level of indebtedness amongst consumers and government alike, looked rather unappetising also, but one must never forget how resilient the Americans are at times of economic difficulty; they have proved it several times in the past to the astonishment of many.

By contrast, the outlook for the main Asian economies appeared to be relatively very attractive. All debate over whether de-coupling (by which is meant differential in the growth rate of GDP) has or has not taken place ended many months ago, despite their export trade to Developed nations being currently only a shadow of its former self.

Since one of the main aspects of our investment policy is to invest in companies exposed to faster growing economies than that of the UK, I decided to accentuate this feature in order to improve the likely returns from the portfolio. Accordingly, I disposed of rather staid UK oriented companies, such as Scottish & Southern Electricity, Drax and United Utilities without a moment's regret.

I remain a firm believer that the global economy is still enjoying the early years of the fourth commodity super-cycle in history - such is the enormous need for investment in infrastructure expenditure amongst the Emerging nations of China (whilst demographics permit) and India in particular, not to mention many others, such as Brazil and Russia. I therefore made use of these proceeds and continued to add to the exposure to the mining sector. I bought new holdings in Randgold and Medusa (gold in the Philippines) and also Rio Tinto once more, as well as adding to the holdings in Antofagasta, Kazakhmys and Xstrata, on account of the derisory ratings accorded to them by the market.

Readers of the previous Report may remember that I firmly predicted that this super-cycle had only been interrupted and not terminated.  The sector was one of the top performers during the twelve months, trouncing the oil sector, to which the portfolio remains underweight.  These two sectors produced gains of 120% and 23% respectively during the year.  Indeed I have made the point in the past that the vast bulk of oil is bought and consumed by the nations likely to remain on a slow growth path, by contrast the vast bulk of metals are bought by the rapidly growing Emerging economies. Moreover, in my view, it takes even longer to extract metals than oil from the ground, once the deposit has been identified, on account of the greater environmental issues involved.

Sadly, another, this time unwanted, prediction came to pass.  The holding in Venture Production was taken from us when institutions put up little resistance and succumbed to a meagre offer from Centrica. I used the proceeds to buy new holdings in Premier Oil and Tullow and to add to the holding in Standard Chartered.

At the moment, however, in this rapidly changing and unpredictable world I can see only three certainties. These are: the eventual onset of death, the inevitability of rising taxation in the UK and the rise of the Renmimbi against Sterling over the next few years.  As I have no intention of investing in funeral parlours or taxation consultancies, I am left to consider  how to profit from the revaluation of the Renmimbi at a time when it is not possible for a foreigner to make a deposit in that currency. My solution was to purchase holdings in purely domestic Chinese companies, which neither import nor export, but which are well positioned to benefit from future growth.

I therefore added to the existing holding in Asian Citrus, an extremely well managed and cash generative operator of large orange groves in China, encompassing no less than 100 square kilometres, indeed the largest orange producer in China; its profits are set to rise rapidly. The three components of rising profits are:- a production profile of tonnage which is set to double every 3.5 years for the next decade, as ever more young trees increase their production. Secondly, a rising proportion of sales to the growing supermarket industry realising 40% extra revenue per tonne than the price obtained from wholesalers at little extra cost (wax). In addition, the company is preparing to commence production and sales of blended orange juice at high margins, utilising mainly the smaller and less valuable fruit.  The combination of these factors will provide a potent cocktail of profit and dividend growth.

My second major Chinese investment, West China Cement, is a play on the government's move to boost infrastructure spending in the hinterland economy as part of its carefully planned regional policy to open up new areas of industrial development. The intention is to retain 750m farmers in situ and discourage them from seeking higher levels of remuneration in the glitzy cities of Hong Kong, Shanghai or Beijing. Even at a time of severe tightening of bank credit to companies based in the more developed coastal provinces, it is most unlikely that this regional policy spending will be curtailed.

Under the chairmanship of an ex Tarmac senior director, this company has expanded its production capacity in recent years at an almost unbelievable pace.  Its size is now already twice that of the entire UK capacity, or half that of the state of California. Not only do all seven plants possess the requisite reserves of limestone sufficient for 30 years production but their fuel efficiency and level of pollution controls are in line with best Western standards.

Since cement is very expensive to transport, the company's strategy has been to dominate the southern-most rather mountainous states of Shaanxi Province with high market shares, which currently range from 70 to 90%.  Some 70% of its revenues are derived from 3-5 year government contracts to supply cement for the construction of the local sections of new high speed rail lines and motorways in their territory.

Having been assured that the bulk of the remaining 30% of output is consumed by the agricultural industry, I can therefore remain reasonably confident that current levels of revenue will persist for several more years. It is also worthy of mention that there are certainly no signs of any property bubble in this relatively backward area.

Although this has been a most profitable investment, the best is yet to come! This is certainly a company which has all the attributes which Mr Buffett would require, namely a secure franchise, high barriers to entry, high margins and strong cash flows sufficient to repay all debt within a year of cessation of capex.  The company had the intention to obtain a full listing on the Hong Kong exchange at the end of May, but, despite flourishing trading conditions, the date of this listing has been postponed until the autumn on account of stock market turbulence.  No cement company listed there has a P/E multiple of less than 10 times by contrast to the current rating of 4 times.

A smaller new investment is China Shoto, a company which is a leading manufacturer of backup batteries for the mobile telecom industry. It will benefit not only from the continuing rollout of 2G  phones throughout the lesser developed regions but also from the introduction of 3G to a mere 150 (!) of the larger cities this year. Furthermore, the company is starting to export to both India and Brazil.  The current rating may be paltry, but in my view the prospects are very exciting.

Pure Circle is a new entrant in the huge sweetener industry. From the plant stevia, which is externally sourced from ten countries, it extracts then refines molecules which are 200 times sweeter than normal sugar. The most important feature of the product, Reb A, is that it contains zero calories. Already to date there have been 105 different product launches in 80 countries across the globe in food, e.g. confectionary, ice cream and baked products, as well as in soft drinks.

Obesity is a huge health problem which is now receiving the attention of many health authorities around the globe. For example, all carbonated soft drinks, unless zero calorie, have recently been banned from sale within US schools. Accordingly, as a 'first mover', this company may be on the verge of causing a revolution in the gigantic sweetener business.

Outlook

As mentioned earlier, the outlook for GDP growth in the UK economy provides no reason to get excited, hence the diversification of country exposure in the portfolio.  I do not think that the Bank of England's recent forecasts for growth are at all realistic. The recovery from a financial crisis always takes much longer than for normal recessions.  Interest rates will therefore have to stay low for several years; moreover the policy of Quantitative Easing is likely to be extended.

The financing of growth both for companies and house buyers will be difficult against a background where some £500 bn. still has to be withdrawn from the British banking system.  The new administration is already planning rises in taxation and severe reductions in public expenditure.  Unemployment will remain high. Accordingly, despite low interest rates and the ongoing shortage of accommodation, the prospects of a nationwide bout of rising house prices as a confidence booster remains a mere pipedream.

Moreover, trade with Europe is likely to remain sluggish in the medium term. The fundamental flaws in the structure of the too hastily constructed euro are being savagely exposed daily in the marketplace in Athens, soon to be followed elsewhere I suspect. Once more history will be repeated and economics will eventually triumph over politics.

Long standing shareholders may remember that in 1998 I wrote that the euro as a concept had as much chance of being a commercial success as a three legged cat's prospects for successfully swimming the English Channel.  How gratified I now feel when I recently read in the Financial Times an article by Sam Brittan, one of the former most ardent proponents of the euro.  He swallowed his pride and described it as a project twenty years ahead of its time.  Thank goodness few paid attention to his views in the past otherwise the UK would be enjoying youth unemployment of Spanish proportions!

Despite the foregoing, and the recent sharp setback in markets, I can assure shareholders that my morale is high. I feel confident that the portfolio has little exposure to the slow growth economies of the UK and Europe. Instead it is invested in companies such as BTG, which I expect to perform strongly later this year as well as other companies with strong growth potential, some of which have already been mentioned. In addition, I have high hopes that GCM Resources will soon be granted permission to mine its vast Bangladesh coal deposit.

Finally, it is worth noting that China is set to become the second largest economy in the world this year, at a time when there is concern about an end to its rapid growth phase.  However,  I wish to repeat the sage words of one of the PRC representatives at Beijing.

'The government will keep the economy expanding at a rapid pace.  Whereas the US economy can be likened to a limousine which, when it applies the brakes sharply, screeches to a halt; thereafter the driver sits admiring the view. By contrast, the Chinese economy has certain similarities with a motorbike. It often travels much faster, but, if the brakes are applied too savagely, the driver ends in pain in the gutter'.

In conclusion, I would once again like to take this opportunity to thank the Company's loyal and sometimes long-suffering shareholders for their continuing support and suggest that, against such a background, I feel confident that the portfolio will prosper in years to come.

M J Barstow                                                                                    

16 June 2010

BUSINESS REVIEW

INVESTMENT POLICY

The Company's objectives are pursued through investments in securities, the majority of which are listed on the London Stock Exchange, predominantly comprising equities but allowing exposure to fixed interest and equity related securities. In general the portfolio is weighted towards the larger rather than smaller capitalised stocks.  A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK. 

In pursuing this policy, the Manager takes into account the following considerations:

Distribution of the portfolio relative to the benchmark

An element of risk is inherent in investment undertaken on a selective basis.  The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities.   However, notwithstanding these important disciplines of diversification to mitigate risk, it should be noted that the nature of the portfolio has always been one with quite a short list of holdings, often referred to as "conviction investing".  

The benchmark is the FTSE All-Share Index, which is an index of over 700 of the largest capitalised stocks quoted on the London market.  This Index is not only representative of the UK economy but also includes a significant degree of international exposure, because the London Stock Exchange has become the stock market of choice for many of the emerging world's largest companies and, furthermore, many of the largest stocks are multinational companies with the majority of their revenues derived outside the UK.  Therefore the Manager can achieve the aim of exposure to fast-growing economies while investing selectively in stocks quoted on the London market.  However, the Manager makes no attempt to replicate the benchmark and the weightings of the portfolio to particular sectors may differ significantly from those of the benchmark. 

A performance fee is payable to the Manager only if the benchmark is beaten and a NAV is achieved that is greater than the NAV at the time when the previous performance fee was paid.  This incentivises the Manager to seek to achieve a superior distribution in the portfolio to that of the benchmark.

Risk diversification

At 28 February 2010 the Company's investments were spread across 40 holdings and across 8 main sectors.

The Board does not believe that it should normally or continuously impose prescriptive limits on the Manager regarding the geographic breakdown or distribution by sector of the portfolio.  However, these matters are a subject of repeated discussion between the Board and the Manager and from time to time particular informal limits are agreed between them. 

The Company can and sometimes does hold large positions in certain stocks.  However, the Company, as an investment trust, is prohibited from creating a holding at the time of investment that represents more than 15% of the portfolio in any company.  Furthermore, it does not hold more than 15% of the portfolio in other investment trusts.   

Gearing Policy

The Company is usually geared to a moderate degree.  Borrowings are limited by the articles to a maximum of 30% of NAV.  The Board has adopted a policy whereby under normal circumstances borrowings are to be kept to within approximately 20% of the Company's NAV, but with the flexibility to rise for limited periods.  This flexibility is considered desirable to avoid the possibility of forced sales in adverse market conditions.

The Board keeps the level of gearing and the extent, if any, of borrowing in foreign currencies under close review. 

Hedging

The Company does not use derivatives to hedge market or currency exposure.

OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIs)

The Company's principal investment objective is to achieve capital growth.  The Company's success in attaining its objectives is measured by reference to KPIs as follows:

a)     The Company seeks to achieve a positive total return over the long-term.  To measure its success, the Board compares shareholders' returns from owning the shares (share price appreciation and dividends) over one and five years and since launch to the return on an appropriate gilt-edged security (without reinvestment of dividends or interest).  The Board considers long-term performance to be of greater importance than short-term and that the five-year comparison is the Company's Primary KPI.   

b)    The Company's Benchmark is the FTSE All-Share Index, against which the Net Asset Value (NAV) return (capital only) is compared.  After achieving the goal of making absolute returns for shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark.

c)     The Company also seeks to outperform other companies that it considers to be its Peer Group.  The Company's one and five year NAV returns are therefore compared with those of the AIC UK Growth Sector Size Weighted Average.

d)    The Company seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Total Expense Ratio) are reasonable.

The Board has also sought to achieve a dividend rising in line with inflation, although this is not defined as a KPI.

PERFORMANCE

Since its launch the management of the Company's investments has been contracted to Mars Asset Management Limited, which is regulated by the FSA.  The principal participant in the management of the Company's investments is James Barstow (managing director).  Mr Barstow reports in detail upon the Company's activities in his Review and Outlook.    

The Company's performance relative to the KPIs described above was as follows:

(a) Performance of share price vs. gilt edged security

	Year ended 28 February 2010	Five years ended 28 February 2010	Since launch (1997)
Share price and dividends	+103.1%	(16.5%)	+95.4 %
Treasury 6.25% stock 2010 and interest	+1.3 %	+25.9 %	+133.6 %

The Company has outperformed the 6.25% gilt in the current period but not over five years or since launch. 

(b) Performance of NAV vs. Benchmark

	Year ended 28 February 2010	Five years ended 28 February 2010	Since launch (1997)
Net Asset Value per share	+71.2%	(16.7%)	+ 95.9%*
Benchmark	+41.8%	+9.7%	+26.9%

All NAV figures are for capital-only performance

*by reference to a starting value of 97.78p (net of launch expenses).

The Company has achieved this objective since launch and during the year ended 28 February 2010, but over the five years ended on that date it did not achieve outperformance of the Benchmark KPI.

(c) Performance vs. Peer Group

	Year ended 28 February 2010	Five years ended 28 February 2010
Net Asset Value per share	+71.2%	(16.7%)
AIC UK Growth Sector	+54.8%	+34.33%

The Company has achieved this objective over one year, but not over five years.

(d) Total Expense Ratio

	Year ended 28 February 2010	Year ended 29 February 2009
Total Expense Ratio	1.81%	1.77%

The ratio is calculated excluding finance costs but including operating expenses charged to capital and applied to the average NAV of the year.  (The figure for 2009 excludes the favourable effect of the VAT reclaim).

 Increase in dividend

The Company has succeeded in achieving a steady increase in the level of dividend paid.  This performance has been maintained during the year ended 28 February 2010 and a dividend of 3.45p per share is recommended, representing an increase of 6.2% over 2009.  

The Company was also able to pay a special dividend in 2009, having received additional income during the year ended 28 February 2009 in the form of a recovery of VAT formerly paid.  This special factor was not repeated in 2010.

REVENUE RESULT AND DIVIDEND

The Group's revenue profit after tax for the period amounted to £563,345 (2009: profit £879,243). 

At the Annual General Meeting on 28 July 2010 a resolution will be proposed to approve a final dividend of 3.45p (2009: 3.25p) per ordinary share, absorbing £446,852 (2009: £420,948 plus special dividend absorbing £226,664).  The final dividend will be paid on 6 August 2010 to shareholders on the register at 25 June 2010; the ordinary shares will go ex-dividend on 23 June 2010.  In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 28 February 2010.

RISK ANALYSIS

The Board considers that the principal risks faced by the shareholders of the Company fall into two categories:

External Risks

Poor performance in the UK and/or world economies; poor corporate profits and dividends. 

Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc.  The Board does not consider, however, that short-term volatility represents a risk for the long-term shareholder that the Company seeks to avoid, since it regards long-term performance to be of primary importance.

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.  

Poor control of borrowing, including borrowing at excessive rates of interest relative to likely returns and borrowing excessive amounts leading to the breach of covenants and possible enforced sales of assets at disadvantageous prices.

Poor governance, compliance or administration, including particularly the risk of loss of S1159 (formerly S842) status.

All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

RISK CONTROLS

External risks

Information on the mitigation of risk by diversification and by control of gearing and hedging is given in the Investment Policy section above.

Further details concerning currency risks, liquidity risks and interest rate risks are given in note 19 on page 45.

Internal risks

The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance on pages 24 to 28.

FIVE YEAR SUMMARY

The following data are all expressed as pence per share.  NAV figures are all calculated at bid prices. They are shown both as previously published and as adjusted by adding back the final dividend for each year.  

Year	NAV	Dividend in respect of year	Special dividend	Share price (mid market)
2006	244.98	2.95		215.5
2007	246.88	3.10		222.5
2008	203.04	3.15		181.0
2009	111.86	3.25	1.75	81.0
2010	191.52	3.45		159.5

*The dividend in respect of the year is no longer shown as a liability at year end under IFRS.

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law in the United Kingdom requires the directors to prepare financial statements for each financial year which 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.  The directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS) and have also elected to prepare financial statements for the Company on the same basis.  The financial statements are prepared in accordance with the Companies Act 2006, IFRS and, in the case of the Group, Article 4 of the EU's IAS Regulation.

In preparing these financial statements, the directors are required to:

·       select suitable accounting policies and then apply them consistently;

·       make judgements and estimates which are reasonable and prudent;

·       follow applicable International accounting standards as adopted by the European Union; and

·       prepare the financial statements on the going concern basis, unless it is inappropriate to assume the Company will continue.

The directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of 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 website used by the Company.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

STATEMENT UNDER THE DISCLOSURE & TRANSPARENCY RULES 4.1.12

The directors each confirm to the best of their knowledge that:

(a)            the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)           this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

A Hammond-Chambers

Chairman

16 June 2010

CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

FOR THE YEAR ENDED 28 FEBRUARY 2010

Year ended 28 February 2010

Year ended 28 February 2009

	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Gains on investments designated at fair value through profit or loss	-	10,539	10,539		-	(12,643)	(12,643)
Exchange differences on overdraft	-	-	-		-	(8)	(8)
Realised gains of trading subsidiary at fair value through profit or loss	76	-	76		129	-	129
Investment income	815	-	815		876	-	876
Interest on VAT recovered	-	-	-		49	-	49
Total income	891	10,539	11,430		1,054	(12,651)	(11,597)
Investment management fees	(94)	(94)	(188)		(80)	(80)	(160)
Recovery of VAT on management fees	-	-	-		124	243	367
Other expenses	(199)	-	(199)		(217)	-	(217)
Profit/(loss) before finance costs and tax	598	10,445	11,043		881	(12,488)	(11,607)
Finance costs	(43)	(43)	(86)		(14)	(14)	(28)
Profit/(loss) before tax	555	10,402	10,957		867	(12,502)	(11,635)
Tax	9	-	9		12	-	12
Profit/(loss) and total comprehensive income for the year	564	10,402	10,966		879	(12,502)	(11,623)
Earnings per share	4.35p	80.31p	84.66p		6.76	(96.20p)	(89.44p)

The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the AIC.  As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income.  The amount of the Company's profit for the financial year was £10,885,975 (2009: loss £11,756,451)

All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the period.  All revenue is attributable to the equity holders of the parent company.  There are no minority interests. 

The Board recommends a final dividend of 3.45p per share (see note 8) out of the Company's revenue profit of 3.74p per share

Company no. 03300814

CONSOLIDATED BALANCE SHEET

AT 28 FEBRUARY 2010

	2010		2009
	£'000		£'000
NON-CURRENT ASSETS
Investments designated at fair value through profit or loss	29,659		14,242
CURRENT ASSETS
Sales for future settlement	-		91
Other receivables	86		95
Cash and cash equivalents	101		908
	187		1,094
TOTAL ASSETS	29,846		15,336
CURRENT LIABILITIES:
Purchases for future settlement	-		123
Other payables	82		50
Bank overdraft	4,958		675
	5,040		848
TOTAL ASSETS LESS CURRENT LIABILITIES	24,806		14,488
EQUITY
Called up share capital	3,598		3,598
Capital redemption reserve	179		179
Share premium account	10,997		10,997
Gains on disposal	11,290		11,382
Investment holding losses	(1,345)		(11,839)
Revenue reserve	87		171
TOTAL EQUITY	24,806		14,488
Net assets per ordinary share	191.52p		111.86p

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 28 FEBRUARY 2010

2010
	Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity	3,598	179	10,997	11,382	(11,839)	171	14,488
Total comprehensive income/(loss) for the year	-	-	-	(92)	10,494	564	10,966
Dividends paid	-	-	-	-	-	(648)	(648)
Closing equity	3,598	179	10,997	11,290	(1,345)	87	24,806

2009
	Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	£,000	£'000	£,000	£,000	£,000	£,000
Opening equity	3,777	-	10,997	15,067	(1,923)	(300)	27,618
Total comprehensive income/(loss) for the year	-	-	-	(2,586)	(9,916)	879	(11,623)
Dividends paid	-	-	-	-	-	(408)	(408)
Purchase of own shares	(179)	179	-	(1,099)	-	-	(1,099)
Closing equity	3,598	179	10,997	11,382	(11,839)	171	14,488

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 28 FEBRUARY 2010

	2010		2009
	£'000		£'000
NET CASH FLOW FROM OPERATING ACTIVITIES
Cash inflow from investment income and interest	824		927
Cash inflow from held for trading current asset investments	164		41
Cash outflow from management expenses	(355)		(403)
Cash inflow from reclaim of VAT expense	-		367
Payments to acquire non-current asset investments	(13,272)		(13,813)
Receipts on disposal of non-current asset investments	8,274		15,422
Tax recovered	9		26
NET CASH FLOW FROM OPERATING ACTIVITIES	(4,356)		2,567
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own shares	-		(1,099)
Dividends paid	(648)		(408)
Increase/(decrease) in bank borrowings	4,283		(392)
Interest paid	(86)		(74)
NET CASH FLOW FROM FINANCING ACTIVITIES	3,549		(1,973)
(DECREASE)/INCREASE IN CASH	(807)		594
Cash and cash equivalents at beginning of year	908		322
(Decrease)/increase in cash	(807)		594
Currency translation difference	-		(8)
Cash and cash equivalents at end of year	101		908

COMPANY BALANCE SHEET

AT 28 FEBRUARY 2010

	2010		2009
	£'000		£'000
NON-CURRENT ASSETS
Investments designated at fair value through profit or loss	29,659		14,242
Investment in subsidiary	9		141
	29,668		14,383
CURRENT ASSETS
Sales for future settlement	-		3
Other receivables	86		95
Cash and cash equivalents	92		855
	178		953
TOTAL ASSETS	29,846		15,336
CURRENT LIABILITIES:
Purchases for future settlement	-		123
Bank overdraft	4,958		675
Other payables	82		50
	5,040		848
TOTAL ASSETS LESS CURRENT LIABILITIES	24,806		14,488
EQUITY
Called up share capital	3,598		3,598
Capital redemption reserve	179		179
Share premium account	10,997		10,997
Gains on disposal	11,290		11,382
Investment holding losses	(2,062)		(12,635)
Revenue reserve	804		967
TOTAL EQUITY	24,806		14,488

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 28 FEBRUARY 2010

2010
	Share capital	Capital  redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity	3,598	179	10,997	11,382	(12,635)	967	14,488
Total comprehensive income/(loss) for the year	-	-	-	(92)	10,573	485	10,966
Dividends paid	-	-	-	-	-	(648)	(648)
Closing equity	3,598	179	10,997	11,290	(2,062)	804	24,806

2009
	Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity	3,777	-	10,997	15,067	(2,853)	630	27,618
Total comprehensive income/(loss) for the year	-	-	-	(2,586)	(9,782)	745	(11,623)
Dividends paid	-	-	-	-	-	(408)	(408)
Purchase of own shares	(179)	179	-	(1,099)	-	-	(1,099)
Closing equity	3,598	179	10,997	11,382	(12,635)	967	14,488

COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 28 FEBRUARY 2010

	2010		2009
	£'000		£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES
Cash inflow from investment income and interest	820		922
Cash outflow from management expenses	(355)		(403)
Cash inflow from reclaim of VAT expense	-		367
Payments to acquire non-current asset investments	(13,272)		(13,813)
Receipts on disposal of non-current asset investments	8,274		15,422
Tax recovered	9		26
NET CASH INFLOW FROM OPERATING ACTIVITIES	(4,524)		2,521
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease/ (Increase) in investment in subsidiary	212		(6)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own shares	-		(1,099)
Dividends paid	(648)		(408)
Increase/(decrease) in bank borrowings	4,283		(392)
Interest paid	(86)		(74)
NET CASH FLOW FROM FINANCING ACTIVITIES	3,549		(1,973)
(DECREASE) / INCREASE IN CASH	(763)		542
Cash and cash equivalents at beginning of year	855		321
(Decrease) / Increase in cash	(763)		542
Currency translation difference	-		(8)
Cash and cash equivalents at end of year	92		855

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     ACCOUNTING POLICIES

   Basis of Accounting

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.  

Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies" issued in January 2009 has no formal status, but the Group has taken the guidance of the SORP into account to the extent that is appropriate and compatible with IFRS. 

The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated.  The particular accounting policies adopted are described below:

(a)            Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments.

(b)                      Basis of Consolidation

The Group accounts consolidate the accounts of the Company and of its subsidiary AIT Trading Limited ("AIT"), both drawn up to 28 or 29 February each year.  As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income.  The amount of the Company's profit for the financial year, before consolidation adjustments, is £10,885,975 (2009: loss £11,756,451).

(c)            Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit and loss on initial recognition in accordance with IAS 39.  At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment. 

After initial recognition such investments are valued at fair value.  For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Income Statement.  All purchases and sales of investments are accounted for on a trade date basis.     

The investment of the Company in AIT is valued at cost less impairment.  

(d)            Income from Investments

Investment income from ordinary shares is accounted for on the basis of ex-dividend dates.  Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income.  Income from gilts and bank interest receivable is accounted for on an accruals basis using the effective yield.

(e)            Capital Reserves

The Company is precluded by its Articles from making any distribution of capital profits by way of dividend.  Realised profits and losses on disposals of investments are taken to the gains on disposal account.  Unrealised revaluation movements are taken to the investment holding losses account via the capital column of the Statement of Comprehensive Income.

(f)            Investment Management Fees, Finance Costs and Other Costs

Finance costs and monthly management fees are allocated between capital and revenue according to the Board's expected long-term split of returns between capital gains and income; one-half of these costs are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Performance-related fees are charged to gains on disposal via the capital column of the Statement of Comprehensive Income.  Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital.  Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.     

(g)            Taxation

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. 

Deferred income taxes are calculated using the liability method on temporary differences.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.  In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.  Deferred tax liabilities are always provided for in full.  Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity.

 (h)          Foreign currency

The currency of the primary economic environment in which the Group companies operate (the functional currency) is pounds sterling ("Sterling"), which is also the presentational currency of the Group.  Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date.  At each balance sheet date, monetary items and non-monetary assets and liabilities, which are fair valued and which are denominated in foreign currencies, are retranslated at the closing rates of exchange.   Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature.  Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate.

(i)          Cash and cash equivalents   

Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank and overdrafts and does not include loans, long term debt or bank overdrafts that are akin to long term debt.

(j)          Dividends payable to equity shareholders

Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid, or have been approved by shareholders in the case of a final dividend.

2.          ORDINARY DIVIDENDS

				2010		2009
				£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year 2009 at 3.25p (2008: 3.15p)				648		408
Dividends not reflected in the financial statements:
Proposed final dividend for the year 2010 at 3.45p (2009: 3.25p and special dividend at 1.75p)				447		648

3.         EARNINGS PER SHARE

Earnings per share are based on the profit of £10,965,467 (2009: loss £11,622,457) attributable to the weighted average of 12,952,250 (2009: 12,995,045) ordinary shares of 25p in issue during the year, excluding shares held in Treasury.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue profit of £563,345 (2009: £879,243); capital earnings per share are based on the net capital profit of £10,402,122 (2009: loss £12,501,700), attributable to 12,952,250 (2009: 12,995,045) ordinary shares of 25p.

4..        SUBSIDIARY

             The Company has an investment in AIT Trading Limited, a wholly owned subsidiary registered in England and Wales, which comprised two ordinary shares of £1 each.  AIT undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit.  The profit before tax of AIT for the year was £79,494 (2009: profit £133,994).  The net deficit of AIT at the Balance Sheet date was £716,696 (2009: net deficit £796,191).  No dividend was paid from AIT to the Company (2009: £nil).

During the year the Company advanced interest-free short-term loans to AIT to finance its trading operations.  At 28 February 2010 the amount outstanding was £725,625 (2009: £937,625).

	2009	Movement	2010
	£'000	£'000	£'000
Loan to AIT	937	(212)	725
Provision for impairment	(796)	80	(716)
Net investment	141	(132)	9

5.         NET ASSETS PER ORDINARY SHARE

The figure for net assets per ordinary share is based on £24,806,111 (2009: £14,448,254) divided by 12,952,250 (2009: 12,952,250) voting ordinary shares in issue at 28 February 2010, excluding shares held in Treasury.

6.         RELATED PARTY TRANSACTIONS

Details of transactions with AIT Trading Limited are set out above.

Details of the management, administration and secretarial contracts can be found in the Directors' Report.  As disclosed in that Report, Mr Barstow is a director both of the Company and of the Manager.  Fees payable to the Manager are detailed in the Consolidated statement of comprehensive income.  Other payables include accruals of a monthly management fee of £18,317 (2009: £8,978) and an administration fee of £3,587 (2009: £1,721).  No performance fee was accrued (2009: £Nil).  All figures include VAT. 

7.         FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2010 is derived from the statutory accounts for 2010, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2009 have been delivered to the registrar of companies.  The auditors have reported on the 2010 and 2009 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006 or Section 237(2) or (3) of the Companies Act 1985.

The Annual Report for the year ended 28 February 2010 was approved on 16 June 2010.  It will be posted to shareholders and will be made available on the Manager's website at www.marsassetmanagement.co.uk

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FSA.

8.         ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 28 July 2010 at 12.00 noon at 145-157 St. John Street, London, EC1V 4RU.

16 June 2010

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

Tel: [phone]

 

END

 

 

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