Annual Financial Report

RNS Number : 0807H

BMO Managed Portfolio Trust PLC

29 July 2019

 

To:                  RNS

Date:              29 July 2019

From:             BMO Managed Portfolio Trust PLC

LEI:                 213800ZA6TW45NM9YY31

Statement of Audited Results for the year ended 31 May 2019

Income shares - financial highlights

-     Annual dividend increased by 4.4% to 5.95p per Income share compared to prior year (excluding the special dividend paid in 2018).

-     Dividend yield⁽¹⁾ of 4.4% at 31 May 2019, based on dividends at the current annual rate of 5.95p per Income share, compared to the yield on the FTSE All-Share Index of 4.3%. Dividends are paid quarterly.

-     Net asset total return per Income share of +2.5% for the financial year outperforming the FTSE All-Share Index total return (-3.2%) by +5.7%.

-     Net asset value total return per Income share of +123.2% since launch on 16 April 2008, the equivalent of 7.5% compound per year. This has outperformed the FTSE All-Share Index total return +91.6%, the equivalent of 6.0% compound per year.

Growth shares - financial highlights

-     Net asset value total return per Growth share of -0.5% for the financial year outperforming the FTSE All-Share Index total return (-3.2%) by +2.7%.

-     The net asset value per Growth share has increased by +109.4% since launch on 16 April 2008, the equivalent of 6.9% compound per year. This has outperformed the FTSE All-Share Index total return +91.6%, the equivalent of 6.0% compound per year.

-     The net asset value total return per Growth share has outperformed the FTSE All-Share Index total return over one year, three years, five years, ten years and from launch to 31 May 2019.

Notes:

(1)   Dividend yield - based on dividends at the annual rate of 5.95 pence per Income share for the financial year to 31 May 2019 and the Income share price of 134.5p at 31 May 2019.

(2)   Total return - the return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the share price or NAV in the period.

Chairman's Statement

-     Net asset value total return for the financial year for both the Income shares and Growth shares outperformed the benchmark index

-     Dividend yield on the Income shares of 4.4% at 31 May 2019

-     Eighth consecutive year of dividend increases

Performance

For the Company's financial year to 31 May 2019 the NAV total return (adding dividends paid to capital performance) was 2.5% for the Income shares and -0.5% for the Growth shares, both of which outperformed the -3.2% total return for the FTSE All-Share Index, the benchmark index for both share classes.

For most equity markets the first six months of the year proved challenging due to the US Federal Reserve policy of increasing interest rates in response to a strong US economy. The FTSE All-Share Index was also affected and declined by 7.7% over this period. However, amid signs of a slowing US and global economy, the Federal Reserve paused this policy just before Christmas. Equity markets responded positively to this change and rallied strongly. Over the second six months of the financial year the FTSE All-Share rose by 4.9%. Despite this the Index ended the twelve months under review slightly lower.

The disparity of performance between the Growth and Income Portfolios which was evident in the last financial year narrowed markedly with the more defensive nature of many of the holdings in the Income Portfolio allowing it to fare better in the more difficult market conditions.

The principal contributors to the performance are identified in the Investment Manager's Review, which also includes additional information on the two investment portfolios.

Both share classes have also outperformed the benchmark over three years, five years, ten years and from launch to 31 May 2019.

Revenue and dividends

For the year ended 31 May 2019, four interim dividends have now been paid, totaling 5.95p per Income share (5.7p per Income share for the previous year, excluding the special dividend of 0.8p per Income share). The fourth interim dividend was paid after the year end on 12 July 2019.

We have been able to increase the annual dividend by 4.4%, while still adding to the revenue reserve, which is now equivalent to approximately 66% of the annual dividend cost, an important buffer for the dividend in challenging times. This is the eighth consecutive year of increase, in line with our objective. As a result, the yield on the Income shares was 4.4% on the year-end share price, compared with 4.3% for the FTSE All-Share Index.

Borrowing

The Board is responsible for the Company's gearing strategy and sets parameters within which the Investment Manager operates. Borrowings are not normally expected to exceed 20% of the total assets of the relevant Portfolio; in practice they have been modest and primarily used to enhance income in the Income Portfolio by investing in higher yielding alternative funds. At the time of writing, borrowings total £5.0 million (8.4% of net assets) in the Income Portfolio and zero in the Growth Portfolio.

Management of share premium and discount to NAV

In normal circumstances we aim to maintain the discount to NAV at which our shares trade at not more than 5%. In practice over the years the shares have generally traded close to NAV. During the year to 31 May 2019 we have been able to maintain an average premium of 0.9% for the Income shares and 0.7% for the Growth shares.

We are active in issuing shares to meet demand and equally buying back when this is appropriate. During the financial year 850,000 new Income shares and 350,000 new Growth shares were issued from the Company's block listing facilities at an average premium to NAV of 1.5%. In addition, 75,000 Growth shares were bought back for treasury at a discount to NAV of 3.6% and subsequently resold from treasury at an average premium to NAV of 1.4%.

The Board believes that the ability to issue and buy back shares is in the interests of all shareholders as it reduces the volatility in the premium or discount of the share prices to the NAVs and is seeking shareholders' approval to renew the powers to allot shares, buy back shares and sell shares from treasury at the Annual General Meeting ('AGM').

Share conversion facility

Shareholders have the opportunity to convert their Income shares into Growth shares or their Growth shares into Income shares annually subject to minimum and maximum conversion thresholds which may be reduced or increased at the discretion of the Board.

Following shareholder approval at the AGM in September 2018, the Company's Articles of Association ("Articles") were amended to enhance the operation of the conversion facility as the Board was keen to ensure it could operate whenever possible and when there was meaningful demand. At the end of October 2018, the conversion proceeded for the first time since launch, for those shareholders who had elected to do so. The ability to convert without incurring capital gains tax should be an attractive facility for shareholders who wish to do so and the next conversion date (subject to minimum and maximum thresholds) will be on 31 October 2019. Information is provided in the Annual Report and Financial Statements and full details will be provided on the Company's website (www.bmomanagedportfolio.com) from 1 August 2019.

Continuation vote

Under the terms of the Company's Articles, at the AGM in September 2018 (being the tenth AGM of the Company), the Company was required to propose an ordinary resolution to the effect that the Company should continue as an investment trust. The Board was pleased that shareholders voted overwhelmingly to approve this resolution. The requirement to put such a resolution to shareholders will next occur at the Company's AGM in 2023 and, if that is passed, at every fifth AGM thereafter.

Name change

On 9 November 2018, it was announced that it had been decided to change the Company's name to BMO Managed Portfolio Trust PLC. The Company's Manager, F&C Investment Business Limited, became part of the BMO Financial Group in 2014 and changed its name to BMO Investment Business Limited on 31 October 2018. BMO was founded over 200 years ago as Bank of Montreal and is now the eighth largest bank by assets in North America. As part of its development plans, BMO decided to rebrand F&C's savings plans to the BMO prefix. Many of the Company's shareholders invest through these savings plans and with the F&C brand changing your Board therefore resolved that continuing to align with the brand of its Manager, as well as the savings plans, avoids unnecessary confusion and ensures the Company maximises the benefits resulting from broader investment by BMO in its brand. The investment policy and process remain unchanged with Peter Hewitt as Investment Manager.

Board changes

On 31 December 2018 the Chairman Richard Martin retired from the Board and I was pleased to accept the Board's invitation to become Chairman. I would like to thank Richard for his outstanding contribution and commitment to the Company since its launch.

Having appointed Sue Inglis as a non-executive director in July 2018 the Board was also pleased to appoint David Warnock as a non- executive director with effect from 1 January 2019. We believe that his investment experience and extensive knowledge of the industry will add considerable value to the Board. David's biographical details are set out in the Annual Report and Financial Statements, and his election will be proposed to shareholders for approval at the forthcoming AGM on 23 September 2019. Sue's appointment was approved by shareholders at the September 2018 AGM.

Myself, Alistair Stewart and David Harris were appointed at the launch of the Company and so have all now served for over eleven years. The appointment of Sue and David is part of a longer term plan to enable a 'refreshment' of the Board while ensuring continuity of knowledge and culture of the Company and further changes will be made over the next three years.

AGM

The AGM will be held at 12.30pm on Monday 23 September 2019 in the offices of BMO Global Asset Management, Exchange House, Primrose Street, London. It will be followed by a presentation from our Investment Manager, Peter Hewitt. This is a good opportunity for shareholders to meet the Board and Investment Manager and I would encourage you to attend.

Outlook

Uncertainty accompanied by sharp bouts of volatility will continue to be features for global financial markets over the coming year. Although on a medium term view the risks of a possible recession have risen, the next twelve months appear more likely to experience slowing but still positive growth underpinned by low levels of unemployment and decent real growth in consumer incomes. Corporate profits and dividend growth should also move ahead albeit at lower levels. With inflation subdued and interest rates likely to move lower in the US and remain at very low levels elsewhere there is scope for equity markets to achieve modest positive returns.

We have considered the impact of Brexit for the Company and regardless of how, or if, Brexit finally materialises we do not consider that it will have a significant impact on the operations of the Company. BMO Managed Portfolio Trust has adopted a cautious investment approach with an emphasis for both Portfolios on selecting high quality holdings managed by proven and experienced investment managers in the belief that this should serve shareholders' interests best in a particularly challenging investment environment.

Colin S McGill

Chairman

29 July 2019

Investment Manager's Review

Stockmarket Background

The past twelve months could be described as "a year of two halves" in terms of the fortunes of most major equity markets. The first part of the financial year was characterised by robust economic growth, particularly in the US as the tax cuts enacted at the start of 2018 took effect. This encouraged the Federal Reserve to continue its policy of steadily increasing interest rates. Most financial markets gave up ground over this period and as an illustration the FTSE All-Share Index declined 7.7% (in total return terms) over the six months to 30 November 2018. Then toward the end of the calendar year signs of a slowdown became evident across most regions of the global economy and quite unexpectedly at its meeting just prior to Christmas the Federal Reserve paused the policy of "normalisation" of interest rates. As the New Year unfolded it became clear that the peak of the interest rate cycle had already been reached. Equity markets responded positively to this change of policy.

Although investors remained concerned as to the prospects for growth, equity markets experienced a sharp recovery. Conversely in the second half of the Company's financial year the FTSE All-Share Index rose by 4.9%.

Most markets declined over the year with the exception of Europe which managed a very modest gain and the US which once again led global market returns with a 9.6% gain from the S&P Composite Index (sterling adjusted total return). Although the rate of growth in US corporate profits steadily slowed over the financial year it was from high levels, was well in advance of most other regions and was a key factor in the US market's positive returns. The escalating trade tensions between the US and China which resulted in tariffs being applied to a wide variety of Chinese goods imported into the US affected equity markets throughout the Asia Pacific region, including many Emerging Markets and Japan. Returns were depressed on fears that trade wars between the world's two largest economies would particularly impact companies in these regions.

The other important factor behind returns for a UK based investor was the level of sterling. For most of the period under review sterling was a volatile currency on foreign exchange markets. The machinations of the seemingly endless process of Brexit in the UK parliament were reflected directly on the value of the currency where sterling could be viewed as an instant barometer of progress or the lack of. Latterly in the final three months of the financial year, as the Brexit process appeared to reach stalemate, sterling experienced marked weakness against both the US dollar and the Euro.

Performance

For the year to 31 May 2019 the FTSE All-Share Index fell by 3.2% (in total return terms). Over the same period the NAV of the Growth Portfolio was 0.5% lower whilst that of the Income Portfolio was ahead by 2.5% (again both in total return terms). This represents the seventh consecutive financial year that the Growth Portfolio has been ahead of the FTSE All-Share Index. For the Income Portfolio, in the eleven years since the Company's shares were listed on the London Stock Exchange, it has been ahead or in line with benchmark index in nine of these years.

The disparity of performance between the Growth Portfolio and the Income Portfolio which was evident in the financial year to 31 May 2018 narrowed markedly in the financial year to 31 May 2019. In a macro environment which caused most equity markets to move lower in the first half and then recover in the early part of 2019 only to move into sharp retreat in May, the more defensive nature of holdings in the Income Portfolio allowed it to fare better.

The performance of holdings within both Portfolios is examined later in this review however changes in discounts can often be a significant factor behind the performance of investment companies. Perhaps surprisingly, given the overall uncertainty pervading financial markets and the bursts of volatility that have been experienced, discounts have remained in a remarkably tight range. The average sector discount (excluding alternatives) moved between 3.4% and 4% over the financial year and closed at 3.4%.

Growth Portfolio - Leaders and Laggards

One of the strong performers in the Growth Portfolio was, rather unexpectedly, BH Macro. The company invests in the Brevan Howard Master Fund which is a hedge fund which specialises in taking advantage of movements in interest rates, currency and bond markets. It should be viewed as a defensive holding which holds or even increases its value in a bear phase in equity markets. In the years since the financial crash the asset value has moved sideways due to the extreme low volatility in financial markets which created an adverse environment for macro styled hedge funds. However, in the past year, volatility has begun to increase and the managers have been able to construct trades with attractive pricing and return outcomes. In addition, the fees on the company were reduced and the discount has tightened which has been behind a 18% rise in the share price.

As with last year the technology theme is evident in some of the better performers. HgCapital Trust is a good example. It is a private equity trust with a focus on investing in technology enabled service companies operating throughout Europe. A key theme in their portfolio is to invest in companies which offer software services to the small and mid-sized company sector with recurring revenues and a diversified customer base. As an illustration of the growth characteristics of HgCapital Trust the top ten holdings have sales and revenue growth of 25% and 27% respectively over the last year. The trust generated a total return of 18%. Allianz Technology Trust featured as one of the best performers last year and has continued with a gain of 11% over the past year. As well as having exposure to certain of the bigger well-known technology companies the managers use their San Francisco base to gain access to and then take holdings in some of the new and emerging technology-based companies in Silicon Valley which possess exciting prospects for growth. Finsbury Growth & Income Trust has been a long time holding in the Growth Portfolio and has consistently been one of the best performing UK investment companies. The past year has proved no exception with a share price total return of 12%. The trust has only 22 holdings and very low levels of turnover from one year to the next. A key feature is the enduring exposure to companies that are owners of consumer brands like Unilever, Diageo, Mondelez and Heineken which have a global presence. All have very attractive long-term growth characteristics in terms of earnings and dividends which are consistently under appreciated by financial markets with the result that their share prices have serially outperformed.

Another investment company which has been held in the Portfolio for over 10 years is Jupiter European Opportunities Trust. It has been managed throughout this period by Alexander Darwall, who himself is a significant shareholder in the trust. The concentrated portfolio is focussed on medium sized and larger growth companies which happen to be based in Europe but typically have a global presence in terms of revenue. Themes amongst major holdings include digital payments, digital technologies and healthcare. This consistent approach has seen significant long-term share price performance as highlighted by a 7% gain in the past year. It has been recently announced that Alexander Darwall will be leaving Jupiter Asset Management to set up on his own and we will keep the situation under review.

A theme evident among a number of investment companies that have underperformed over the past year has been exposure to UK smaller companies. Over the long run trusts which are either specialists in this sector or have a large exposure have tended to be amongst the better performers however over the past twelve months they have lagged larger companies. Miton UK MicroCap Trust as the name suggests invests in companies at the smallest end of the UK listed company universe and has experienced an 18% decline in its share price. The prevailing mood of uncertainty in the UK has meant investors have been very cautious about prospects for the smallest companies, however, the underlying operational performance of many companies in its portfolio has been reasonable such that some very attractive valuations can be found. At some stage that should reflect in better performance. Diverse Income Trust which is also a UK investment company has less than a quarter of its portfolio invested in the FTSE100 and over half invested in companies in the FTSE SmallCap Index or the FTSE AIM Index. It has been affected by similar trends (as outlined above) and has lagged in terms of share price total return with a decline of 14%. As with Miton UK MicroCap Trust better relative performance from the UK small company sector would see a revival of the share prices of both trusts.

BlackRock Frontiers Investment Trust has had a disappointing year with a share price total return of - 11%. The cause of the performance is less about stocks in the portfolio and more that Frontier Markets have lagged more mainstream Emerging Markets, which themselves were behind the FTSE All-Share Index over the past year. This BlackRock trust is a well- resourced and well run fund which over the longer term has given a good exposure to Frontier equity markets. Over the long run this area has interesting potential and this trust is well placed to capture performance.

Events at Woodford Investment Management have been well documented in the press and the situation with respect to the holding in Woodford Patient Capital Trust is being monitored closely.

(All share prices are total return)

Income Portfolio - Leaders and Laggards

The top performer for the Income Portfolio was 3i Infrastructure (which was also one of the best performers last year). Over recent years management have shifted the strategy away from large core infrastructure holdings towards more mid-market economic infrastructure. The portfolio comprises around ten companies involved in a variety of sectors e.g. generation of electricity from landfill gas, communication towers and ground support equipment in airports. Realisations and strong portfolio growth along with a 10% increase in the regular dividend underpinned a 32% return in the share price.

In common with 3i Infrastructure four of the five best performing holdings in the Income Portfolio have a similar theme which is they are not directly exposed to listed equities. This defensive focus is well illustrated by the next best performer The Renewables Infrastructure Group. The company is 79% exposed to wind, 19% to solar and 2% to battery in terms of its generating capacity and by geography it is 72% UK with the balance in Europe. Most of the future expansion is likely to be either in Europe or in offshore wind. The company has an experienced management team and is sensibly financed through a mix of equity issuance and some gearing. The share price gained 27% over the past year. This was driven by a rising asset value and dividend which rose 2% to yield over 5% at the end of the financial year. The low risk characteristics of the company were recognised by the stock market as the share price moved from a discount to a healthy premium during the year.

Assura is a long-term owner and developer of primary care properties which are leased to General Practitioner ("GP") Partnerships across the UK, typically for 20-25 years. The GP Partnerships have 100% of their rental payments reimbursed by the NHS and these payments, which account for only 9% of payments to GP's by the NHS, have been in place since the establishment of the NHS in 1948. The properties are effectively 100% let with an index linked rent which is reviewed every three years. Assura has 6% of the market and grows by a series of small acquisitions or new developments. The company has an experienced management team and is conservatively financed with loan to value gearing of 34%. The company, whose share price rose 19%, has grown its dividend by 9% per annum over the long term and has a dividend yield of 4.3%.

The only equity-based investment company amongst the better performers is BB Healthcare Trust with a share price return of 14% last year. The company invests across the healthcare sector in biotech, diagnostics, medical technology, managed care, healthcare IT and speciality pharmaceuticals with most companies based in the US. It has a concentrated list of around 35 holdings and an unconstrained approach which has led to over half the portfolio invested in smaller and medium sized companies. The managers are Bellevue Asset Management who are experienced specialists in the healthcare sector and the company pays a dividend equal to 3.5% of year end net asset value. Prospects are exciting for future growth in this sector.

NB Private Equity Partners experienced a 14% share price return last year. It is a private equity specialist and the portfolio comprises exposure to direct private equity and debt investments mainly in smaller and medium sized companies exclusively in the US. The company makes co-investments alongside the very best private equity managers in the US and has built a record of consistent growth in asset value. It has a dividend yield of 3.9%.

Looking at the laggards Civitas Social Housing REIT declined by 14% over the past year. The company is an investor in social housing in the UK specifically the supported housing sector. It does not develop or manage properties. Civitas purchases properties from Housing Associations or Local Authorities which effectively provides them with much needed capital to build new homes. Properties are specially adapted to meet the needs of residents who live in specialist supported housing for many years or in many instances need whole life provision. Leases are typically 10-40 years with rents effectively backed by government through housing benefits. The Government Regulator of Social Housing (the "Regulator") is concerned both about the financial strength of certain Housing Associations and about the long-term inflation linked leases they have entered into. This has caused weakness in the Civitas share price. The company however has experienced no missed rents and has near 100% occupancy due to the shortage of available properties. The management team of Civitas are highly experienced in this sector and working to resolve matters with the Regulator. Meantime the asset value has risen in line with expectations and the company has raised the dividend by 6% and the yield is also over 6%.

Two of the other laggards are invested in UK equities and are either specialists or have meaningful positions in small and medium sized UK companies. These segments of the market have underperformed over the period under review in part due to the uncertainty caused by the Brexit process. Aberforth Split Level Income Trust fell by 8% as its value based style was out of favour with investors. Similarly, Perpetual Income & Growth Investment Trust also employs a value style of investment with above average exposure to smaller and medium sized UK companies. It has added to exposure to companies with a heavy bias to the domestic UK economy as they appear to be cheap. As with many value based approaches it can often take longer than anticipated for the value to be unlocked. The share price was down 11% last year.

(All share prices are total return)

Investment Strategy and Prospects

Uncertainty continues to characterise prospects for global financial markets. Although Brexit and its eventual outcome has saturation coverage in the media and would affect UK markets in the near term, over the longer run it tends to be the outlook for the fundamentals of the economy and the prospects for corporate profits and dividends that dictate the direction of markets. In a global context the tension that exists between the US and China manifest in widespread tariffs imposed by the US on Chinese imports which clearly has the potential to reduce overall global activity levels, particularly so in the Asia Pacific region. Again, predicting the outcome is difficult, however it is an issue that has the potential to impact financial markets everywhere adversely.

The reason the Federal Reserve paused its policy of "normalising" interest rates and indeed may consider a cut in interest rates later this year is evidence that growth is slowing. Both the US and China are experiencing slowing growth rates whilst in Europe and Japan growth is still positive but at very modest levels. Inflation, despite record low unemployment in the US and UK and a definite pick up in real wage growth, remains stubbornly low across all developed economies. A move to higher levels which would require interest rates to be increased is some way off. Bond markets are very cautious as to prospects with the yield curve in the US close to being inverted which often is viewed as a precursor to recession. That may happen in the medium term and meantime must be watched closely, however the next twelve months seems set for positive growth. Indeed there are indications that the activity levels are stabilising both in the US and Europe.

In terms of corporate profits, growth rates have slowed materially, especially in the US when the substantial cut in business tax rates in 2018 fuelled very strong growth. That said both in the US and Europe they remain positive but lower levels of profits and dividend growth appear likely over the next twelve months against a background of buoyant levels of employment and strong consumer expenditure. Looking to the medium term, the risks of recession have begun to rise which would be exacerbated if the ongoing tensions between China and the US were to worsen.

The above is a moderately positive backdrop for equity markets. Valuations outside the US are below long-term averages whilst in the US the forward P/E ratio of the S&P Composite Index at 16x is about the same as a year ago which is slightly above the long-term average.

This reflects superior corporate earnings growth from US companies over a prolonged period. This better relative earnings performance from US companies when compared to European counterparts is likely to continue. In broad terms the environment remains constructive for moderate progress in equity markets however the risk of further bouts of volatility, similar to that experienced last Autumn, which can be both sharp and uncomfortable for investors has increased. In particular, the sensitivity of investors to the interest rate policy of the Federal Reserve is a key factor in determining the direction of global equity markets. For the UK the uncertainty of Brexit can be added to the mix. Eventually, should that be resolved, there is considerable scope for strong performance from UK equities as valuations are well below long term averages.

In terms of long-term investment strategy, the case for exposure to sectors which offer secular growth characteristics remains in place. When inflation is subdued, interest rates low and growth moderate then investment companies focussed on sectors such as technology, healthcare and biotechnology should prosper. That may change in the future but for the current financial year trusts with these attributes are well placed. Examples of these would be Monks Investment Trust, Allianz Technology Trust, HgCapital Trust, Syncona, Worldwide Healthcare Trust, Polar Capital Technology Trust, Scottish Mortgage Investment Trust and Edinburgh Worldwide Investment Trust. These trusts are all holdings in the Growth Portfolio. It is harder to include them in the Income Portfolio as these types of holdings either do not pay dividends or have very low dividend yields. However, where certain trusts with these growth characteristics do have a reasonable dividend yield they are included in the Income Portfolio. Examples are BB Healthcare Trust, BB Biotech, Monks Investment Trust and new holding HBM Healthcare Investments.

As the chances of recession and a possible bear phase in equity markets have begun to rise it seemed appropriate to introduce a more defensive element to the Growth Portfolio which would be vulnerable to a setback in these circumstances. A small group of "portfolio protectors" have been built up including BH Macro, RIT Capital Partners, Personal Assets Trust, Capital Gearing Trust and Ruffer Investment Company which provide a degree of protection in the event of a market pull back. The Income Portfolio has a number of "alternative" investment companies i.e. not invested in equity markets, which have higher dividend yields and which give the Portfolio more defensive characteristics. Though there are risks, which have increased over the last year, on balance prospects for equity market returns remain positive.

Peter Hewitt

Investment Manager

BMO Investment Business Limited

29 July 2019

Income Statement

Year to 31 May 2019

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(880)	(880)
Foreign exchange losses		-	(8)	(8)
Income		3,655	-	3,655
Investment management and performance fees		(252)	(940)	(1,192)
Other expenses		(495)	-	(495)
Return on ordinary activities before finance      costs and tax		2,908	(1,828)	1,080
Finance costs		(44)	(65)	(109)
Return on ordinary activities before tax		2,864	(1,893)	971
Tax on ordinary activities	5	(24)	-	(24)
Return attributable to shareholders		2,840	(1,893)	947
Return per Income share	3	6.59p	(3.47p)	3.12p
Return per Growth share	3	-	(1.12)p	(1.12)p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Income Statement

Year to 31 May 2018

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	6,558	6,558
Foreign exchange losses		-	(1)	(1)
Income		3,905	-	3,905
Investment management and performance fees		(249)	(849)	(1,098)
Other expenses		(476)	-	(476)
Return on ordinary activities before finance      costs and tax		3,180	5,708	8,888
Finance costs		(44)	(66)	(110)
Return on ordinary activities before tax		3,136	5,642	8,778
Tax on ordinary activities		(27)	-	(27)
Return attributable to shareholders		3,109	5,642	8,751
Return per Income share	3	7.32p	(3.42p)	3.90p
Return per Growth share	3	-	20.45p	20.45p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Balance Sheet

As at 31 May 2019

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		61,321	68,943	130,264
Current assets
Debtors		292	47	339
Cash at bank and on deposit		1,256	4,571	5,827
		1,548	4,618	6,166
Creditors
Amount falling due within one year		(241)	(191)	(432)
Net current assets		1,307	4,427	5,734
Creditors
Amounts falling due in more than one year		(5,000)	(257)	(5,257)
Net assets		57,628	73,113	130,741
Capital and reserves
Called-up share capital		4,372	3,563	7,935
Share premium		23,703	21,417	45,120
Capital redemption reserve		30	186	216
Special reserve		19,066	17,117	36,183
Capital reserves		7,919	30,830	38,749
Revenue reserve		2,538	-	2,538
Shareholders' Funds		57,628	73,113	130,741
Net asset value per share (pence)	6	131.81p	205.17p

Balance Sheet

As at 31 May 2018

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		61,255	69,911	131,166
Current assets
Debtors		260	62	322
Cash at bank and on deposit		1,905	3,197	5,102
		2,165	3,259	5,424
Creditors
Amount falling due within one year		(170)	(645)	(815)
Net current assets		1,995	2,614	4,609
Creditors
Amounts falling due in more  than one year		(5,000)	-	(5,000)
Net assets		58,250	72,525	130,775
Capital and reserves
Called-up share capital		4,306	3,517	7,823
Share premium		22,597	20,408	43,005
Capital redemption reserve		-	182	182
Special reserve		19,371	17,190	36,561
Capital reserves		9,414	31,228	40,642
Revenue reserve		2,562	-	2,562
Shareholders' Funds		58,250	72,525	130,775
Net asset value per share (pence)	6	135.29p	206.23p

Cash Flow Statement

Year to 31 May 2019

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(624)	(984)	(1,608)
Dividends received		2,574	1,002	3,576
Interest received Interest paid		9 (102)	20 -	29 (102)
Net cash inflow from operating activities		1,857	38	1,895
Investing activities
Purchases of investments		(5,607)	(7,408)	(13,015)
Sales of investments		5,068	7,758	12,826
Net cash flows from investing activities		(539)	350	(189)
Net cash flows before financing activities		1,318	388	1,706
Financing activities Equity dividends paid		(2,864)	-	(2,864)
Proceeds from issuance of new shares Share conversion - Income to Growth Share conversion - Growth to Income Sale of shares from treasury Shares purchased to be held in treasury		1,129 (305) 73 - -	746 305 (73) 157 (149)	1,875 - - 157 (149)
Net cash flows from financing activities		(1,967)	986	(981)
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		(649) 1,905	1,374 3,197	725 5,102
Cash and cash equivalents at the end of the year		1,256	4,571	5,827
Represented by: Cash at bank and short term deposits		1,256	4,571	5,827

Cash Flow Statement

Year to 31 May 2018

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(664)	(730)	(1,394)
Dividends received		2,860	963	3,823
Interest received Interest paid		4 (102)	7 -	11 (102)
Net cash inflow from operating activities		2,098	240	2,338
Investing activities
Purchases of investments		(15,258)	(7,307)	(22,565)
Sales of investments		15,354	5,962	21,316
Net cash flows from investing activities		96	(1,345)	(1,249)
Net cash flows before financing activities		2,194	(1,105)	1,089
Financing activities Equity dividends paid		(2,370)	-	(2,370)
Proceeds from issuance of new shares Sale of shares from treasury		708 600	1,611  -	2,319  600
Net cash flows from financing activities		(1,062)	1,611	549
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		1,132 773	506 2,691	1,638 3,464
Cash and cash equivalents at the end of the year		1,905	3,197	5,102
Represented by: Cash at bank and short term deposits		1,905	3,197	5,102

Statement of Changes in Equity

Year to 31 May 2019

Income Shares	Share capital £000	Share premium account £000	Capital redemption reserve £000	Special reserve £000	Capital reserves £000	Revenue reserve £000	Total shareholders' funds £000
As at 31 May 2018	4,306	22,597	-	19,371	9,414	2,562	58,250
Increase in share capital in issue, net of share issuance expenses	85	1,044	-	-	-	-	1,129
Share conversion	(13)	62	24	(305)	-	-	(232)
Cancellation of deferred shares	(6)	-	6	-	-	-	-
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	646	646
Transfer of capital from Income to Growth portfolio	-	-	-	-	(646)	-	(646)
Dividends paid	-	-	-	-	-	(2,864)	(2,864)
Return attributable to shareholders	-	-	-	-	(849)	2,194	1,345
As at 31 May 2019	4,372	23,703	30	19,066	7,919	2,538	57,628
Growth Shares
As at 31 May 2018	3,517	20,408	182	17,190	31,228	-	72,525
Increase in share capital in issue, net of share issuance expenses	34	712	-	-	-	-	746
Shares sold from treasury	-	8	-	149	-	-	157
Shares purchased from treasury	-	-	-	(149)	-	-	(149)
Share conversion	13	289	3	(73)	-	-	232
Cancellation of deferred shares	(1)	-	1	-	-	-	-
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(646)	(646)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	646	-	646
Return attributable to shareholders	-	-	-	-	(1,044)	646	(398)
As at 31 May 2019	3,563	21,417	186	17,117	30,830	-	73,113

Total Company

As at 31 May 2018	7,823	43,005	182	36,561	40,642	2,562	130,775
Increase in share capital in issue, net of share issuance expenses	119	1,756	-	-	-	-	1,875
Shares sold from treasury	-	8	-	149	-	-	157
Shares purchased for treasury	-	-	-	(149)	-	-	(149)
Share conversion	-	351	27	(378)	-	-	-
Cancellation of deferred shares	(7)	-	7	-	-	-	-
Dividends paid	-	-	-	-	-	(2,864)	(2,864)
Return attributable to shareholders	-	-	-	-	(1,893)	2,840	947
As at 31 May 2019	7,935	45,120	216	36,183	38,749	2,538	130,741

Statement of Changes in Equity

Year to 31 May 2018

Income Shares	Share capital £000	Share premium account £000	Capital redemption reserve £000	Special reserve £000	Capital reserves £000	Revenue reserve £000	Total shareholders' funds £000
As at 31 May 2017	4,254	21,839	-	18,873	10,865	1,823	57,654
Increase in share capital in issue, net of share issuance expenses	52	656	-	-	-	-	708
Shares sold from treasury	-	102	-	498	-	-	600
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	631	631
Transfer of capital from Income to Growth portfolio	-	-	-	-	(631)	-	(631)
Dividends paid	-	-	-	-	-	(2,370)	(2,370)
Return attributable to shareholders	-	-	-	-	(820)	2,478	1,658
As at 31 May 2018	4,306	22,597	-	19,371	9,414	2,562	58,250
Growth Shares
As at 31 May 2017	3,435	18,879	182	17,190	24,135	-	63,821
Increase in share capital in issue, net of share issuance expenses	82	1,529	-	-	-	-	1,611
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(631)	(631)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	631	-	631
Return attributable to shareholders	-	-	-	-	6,462	631	7,093
As at 31 May 2018	3,517	20,408	182	17,190	31,228	-	72,525
Total Company
As at 31 May 2017	7,689	40,718	182	36,063	35,000	1,823	121,475
Increase in share capital in issue, net of share issuance expenses	134	2,185	-	-	-	-	2,319
Shares sold from treasury	-	102	-	498	-	-	600
Dividends paid	-	-	-	-	-	(2,370)	(2,370)
Return attributable to shareholders	-	-	-	-	5,642	3,109	8,751
As at 31 May 2018	7,823	43,005	182	36,561	40,642	2,562	130,775

Principal Risks and Uncertainties

Most of the Company's principal risks and uncertainties that could threaten the achievement of its objective, strategy, future performance, liquidity and solvency are market related and comparable to those of other investment companies investing primarily in listed securities.

In accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. These significant risks, emerging risks, and other risks including Brexit, are regularly reviewed by the Audit Committee and the Board. They have also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

Whilst there are ongoing uncertainties regarding Brexit, the Board does not consider that any related outcome will have a significant impact on the operations of the Company.

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach, are described below.

Market Risk. The Company's assets consist mainly of listed closed-ended investment companies and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.

Mitigation: The Board regularly considers the composition and diversification of the Income Portfolio and the Growth Portfolio and considers individual stock performance together with purchases and sales of investments.  Investments and markets are discussed with the Investment Manager on a regular basis.

Investment Risk. Incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/premium and the use of gearing could all lead to poor returns for shareholders including impacting the capacity to pay dividends.

Mitigation: The investment strategy and performance against peers and the benchmark are considered by the Board at each meeting and reviewed with the Investment Manager. The Board is responsible for setting the gearing range within which the Manager may operate and gearing is discussed at every meeting and related covenant limits are closely monitored. The Income Portfolio and Growth Portfolio are diversified and comprise listed closed-end investment companies and their composition are reviewed regularly by the Board. BMO GAM's Investment Risk team provide oversight on investment risk management. The Board regularly considers ongoing charges and a discount/premium management policy has operated since the launch of the Company. Underlying dividends from investee companies and the dividend paying capacity of the Company are closely monitored.

Custody Risk. Safe custody of the Company's assets may be compromised through control failures by the Custodian.

Mitigation: The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Custodian's internal controls reports are also reviewed by the Manager and key points reported to the Audit Committee. The Board also receives periodic updates from the Custodian on its own cyber-security controls. The Depositary is specifically liable for loss of the Company's securities and cash held in custody.

Operational Risk. Failure of BMO GAM as the Company's main service provider or disruption to its business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring, leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence. External cyber attacks could cause such failure or could lead to the loss or sabotage of data.

Mitigation: The Board meets regularly with the management of BMO GAM and its Business Risk team to review internal control and risk reports. This includes oversight of third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice.  BMO GAM has a business continuity plan in place to ensure that it is able to respond quickly and effectively to an unplanned event that could affect the continuity of its business. The Manager continues to benefit from the long-term financial strength and policies of its parent company, Bank of Montreal. BMO GAM has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust Company ("State Street") and supervision of such third party service providers, including DST Financial Services who administer the BMO savings plans, has been maintained by BMO GAM. This includes the review of IT security and heightened cyber threats.

Viability Assessment and Statement

In accordance with the UK Corporate Governance Code, the Board is required to assess the future prospects for the Company and has considered that a number of characteristics of the Company's business model and strategy were relevant to this assessment:

·      The Company's investment objective and policy, which are subject to regular Board monitoring, means that the Company is invested principally in two diversified portfolios of listed closed-end investment companies and the level of borrowing is restricted.

·      These investments are principally in listed securities which are traded in the UK or another Regulated Exchange and which are expected to be readily realisable.

·      The Company is a listed closed-end investment company, whose shares are not subject to redemptions by shareholders.

·      Subject to shareholder continuation votes, the next of which will be at the AGM in 2023 and five yearly thereafter, the Company's business model and strategy is not time limited.

Also relevant were a number of aspects of the Company's operational arrangements:

·      The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Custodian and Depositary.

·      The fixed term borrowing facility, which remains available until February 2022, is subject to a formal agreement, including financial covenants with which the Company complied in full during the year.

In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance and solvency, including the impact of a significant fall in equity markets on the Company's investment portfolios.  These risks, their mitigations and the processes for monitoring them are set out above within Principal Risks and Uncertainties and in the Report of the Audit Committee and in the notes to the financial statements within the Annual Report and Financial Statements.

The Directors have also considered:

·      The level of ongoing charges incurred by the Company which are modest and predictable and (at 31 May 2019) excluding the performance fee, total 1.08% and 1.01% of average net assets for the Income shares and Growth shares respectively.

·      Future revenue and expenditure projections.

·      Its ability to meet liquidity requirements given the Company's investment portfolios consist principally of listed investment companies which can be realised if required.

·      The ability to undertake share buybacks if required.

·      Whether the Company's objective and policy continue to be relevant to investors.

·      The Company has no employees, with only non-executive Directors and consequently does not have redundancy or other employment-related liabilities or responsibilities.

·      The uncertainties regarding Brexit and the UK's related ongoing negotiations to leave the EU.

These matters were assessed over a three year period to July 2022, and the Board will continue to assess viability over three year rolling periods, taking account of severe but plausible scenarios.  A rolling three year period represents the horizon over which the Directors believe they can form a reasonable expectation of the Company's prospects, although they do have due regard to viability over the longer term.

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to July 2022.

Responsibility Statement of the Directors in Respect of the Annual Financial Report and Financial Statements under the Disclosure Guidance and Transparency Rules

We confirm that to the best of our knowledge:

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

·      the Strategic Report and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face; and

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

On behalf of the Board

Colin S McGill

Chairman

29 July 2019

Notes

1.   The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 29 July 2019, have been prepared on a going concern basis and in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, Financial Reporting Standards ("FRS 102") and the Statement of Recommended Practice (''SORP'') "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the Association of Investment Companies (''AIC''). The audited financial statements for the Company comprise the Income Statement and the total columns of the Balance Sheet, the Cash Flow Statement, the Statement of Changes in Equity and the Company totals shown in the notes to the financial statements.

2.   Segmental analysis

            The Company carries on business as an investment trust and manages two separate portfolios of assets: the Income Portfolio and the Growth Portfolio.

            The Company's Income Statement can be analysed as follows. This has been disclosed to assist shareholders' understanding, but this analysis is additional to that required by FRS 102:

Year ended 31 May 2019

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments	-	(465)	(465)	-	(415)	(415)	-	(880)	(880)
Foreign exchange losses	-	(8)	(8)	-	-	-	-	(8)	(8)
Income	2,635	-	2,635	1,020	-	1,020	3,655	-	3,655
Investment management and   performance fees	(159)	(311)	(470)	(93)	(629)	(722)	(252)	(940)	(1,192)
Other expenses	(217)	-	(217)	(278)	-	(278)	(495)	-	(495)
Return on ordinary activities before finance costs and tax	2,259	(784)	1,475	649	(1,044)	(395)	2,908	(1,828)	1,080
Finance costs	(44)	(65)	(109)	-	-	-	(44)	(65)	(109)
Return on ordinary activities before tax	2,215	(849)	1,366	649	(1,044)	(395)	2,864	(1,893)	971
Tax on ordinary activities	(21)	-	(21)	(3)	-	(3)	(24)	-	(24)
Return  #	2,194	(849)	1,345	646	(1,044)	(398)	2,840	(1,893)	947

Year ended 31 May 2018

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on       investments	-	(512)	(512)	-	7,070	7,070	-	6,558	6,558
Foreign exchange losses	-	(1)	(1)	-	-	-	-	(1)	(1)
Income	2,920	-	2,920	985	-	985	3,905	-	3,905
Investment management and performance fees	(161)	(241)	(402)	(88)	(608)	(696)	(249)	(849)	(1,098)
Other expenses	(216)	-	(216)	(260)	-	(260)	(476)	-	(476)
Return on ordinary activities before finance costs and tax	2,543	(754)	1,789	637	6,462	7,099	3,180	5,708	8,888
Finance costs	(44)	(66)	(110)	-	-	-	(44)	(66)	(110)
Return on ordinary activities before tax	2,499	(820)	1,679	637	6,462	7,099	3,136	5,642	8,778
Tax on ordinary activities	(21)	-	(21)	(6)	-	(6)	(27)	-	(27)
Return  #	2,478	(820)	1,658	631	6,462	7,093	3,109	5,642	8,751

# Any net revenue return attributable to the Growth Portfolio is transferred to the Income Portfolio and a corresponding transfer of an identical amount of capital is made from the Income Portfolio to the Growth Portfolio and accordingly the whole return in the Growth Portfolio is capital.  Refer to the Statement of Changes in Equity.

3.   Return per share

      The return per share is as follows:

Year ended 31 May 2019	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	2,194	(849)	1,345	646	(1,044)	(398)
Transfer of net income from       Growth to Income Portfolio	646	-	646	(646)	-	(646)
Transfer of capital from Income    to Growth Portfolio	-	(646)	(646)	-	646	646
Return attributable to       shareholders	2,840	(1,495)	1,345	-	(398)	(398)
Return per share	6.59p	(3.47p)	3.12p	-	(1.12p)	(1.12p)
Weighted average number of shares in issue during the year (excluding shares held in treasury)		43,089,136			35,541,265

Year ended 31 May 2018	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	2,478	(820)	1,658	631	6,462	7,093
Transfer of net income from       Growth to Income Portfolio	631	-	631	(631)	-	(631)
Transfer of capital from Income    to Growth Portfolio	-	(631)	(631)	-	631	631
Return attributable to       shareholders	3,109	(1,451)	1,658	-	7,093	7,093
Return per share	7.32p	(3.42p)	3.90p	-	20.45p	20.45p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		42,451,199			34,687,229

4.      Dividends

						2019
						Income shares Total
Dividends on Income shares		Register Date		Payment Date		£'000
Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2018
- fourth interim dividend of 1.80p per Income share - special dividend of 0.8p per Income share		29 June 2018 29 June 2018		13 July 2018 13 July 2018		775 344
For the year ended 31 May 2019
- first interim dividend of 1.35p per Income share		14 September 2018		5 October 2018		581
- second interim dividend of 1.35p per Income share		14 December 2018		11 January 2019		580
- third interim dividend of 1.35p per Income share		22 March 2019		12 April 2019		584
						2,864
Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.90p per Income share*			21 June 2019	12 July 2019		831

* Based on 43,720,705  Income shares in issue at the record date of 21 June 2019.

The fourth interim dividend of 1.90p per Income share per Income share was paid on 12 July 2019 to shareholders on the register on 21 June 2019, with an ex-dividend date of 20 June 2019.

The Growth shares do not carry an entitlement to receive dividends.

5.      (a) Tax on ordinary activities

    Year ended 31 May 2019

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Current tax charge for the year (all irrecoverable overseas tax) being taxation on ordinary activities	21	-	21	3	-	3	24	-	24

 (b) Reconciliation of tax charge

		2019
		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Return/(loss) on ordinary activities before tax:		1,366	(395)	971
Corporation tax at standard rate of 19 per cent		260	(75)	185
Effects of:
Losses on investments not taxable		90	79	169
Overseas tax suffered		21	3	24
Non taxable UK dividend income		(241)	(174)	(415)
Non taxable overseas dividend income		(217)	(16)	(233)
Expenses not utilised		108	186	294
Current year tax charge (note 5 (a))		21	3	24

6.      The net asset value per Income share is calculated on net assets of £57,628,000 (2018: £58,250,000), divided by 43,720,705 (2018: 43,055,035) Income shares, being the number of Income shares in issue at the year end (excluding shares held in treasury).

The net asset value per Growth share is calculated on net assets of £73,113,000 (2018: £72,525,000), divided by 35,634,929 (2018: 35,167,037) Growth shares, being the number of Growth shares in issue at the year end (excluding shares held in treasury). 

7.      During the year, the Company issued 850,000 (2018: 520,000) Income shares from the block listing facility for net proceeds of £1,129,000 (2018: (£708,000) and resold out of treasury nil (2018: 430,000) Income shares, receiving net proceeds of £nil (2018: £600,000). At 31 May 2019, the Company held no Income shares in treasury (2018: nil).

During the year, valid conversion notices were received to convert 242,448 Income shares. These were converted into 155,064 Growth shares in accordance with the Company's Articles and by reference to the ratio of the relative underlying net asset values of the Growth shares and Income shares on the conversion date.

The Company's Articles allow for Deferred shares to be allotted as part of the share conversion to ensure that the conversion does not result in a reduction of the aggregate par value of the Company's issued share capital. 242,448 Deferred shares - Income of £0.0237601 each were issued as part of the share conversion in the current year. The Deferred shares were subsequently repurchased by the Company for nil consideration (as they have no economic value) as authorised by shareholders at the 2018 AGM.

8.      During the year, the Company issued 350,000 (2018: 815,000) Growth shares from the block listing facility receiving net proceeds of £746,000 (2018: £1,611,000). During the year, the Company bought back 75,000 (2018: nil) Growth shares for treasury at a cost of £149,000 (2018: nil) and resold out of treasury 75,000 (2018: nil) Growth shares, receiving net proceeds of £157,000 (2018: £nil). At 31 May 2019, the Company held no Growth shares in treasury (2018: nil). 

During the year, valid conversion notices were received to convert 37,172 Growth shares. These were converted into 58,118 Income shares in accordance with the Company's Articles and by reference to the ratio of the relative underlying net asset values of the Growth shares and Income shares on the conversion date.

The Company's Articles allow for Deferred shares to be allotted as part of the share conversion to ensure that the conversion does not result in a reduction of the aggregate par value of the Company's issued share capital. 37,172 Deferred shares - Growth of £0.0237601 each were issued as part of the share conversion in the current year. The Deferred shares were subsequently repurchased by the Company for nil consideration (as they have no economic value) as authorised by shareholders at the 2018 AGM.

9.      Financial instruments

The Company's financial instruments comprise its investment portfolios, cash balances, bank borrowings and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective.

Listed and quoted fixed asset investments held are valued at fair value.

The fair value of the financial assets and liabilities of the Company at 31 May 2019 and 31 May 2018 is not materially different from their carrying value in the financial statements.

The main risks that the Company faces arising from its financial instruments are:

(i)       market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)      interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii)      foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates;

(iv)     credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v)      liquidity risk, being the risk that the Company may not be able to liquidate its investments quickly or otherwise raise funds to meet financial commitments.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity and debt investment. The Portfolios are managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders.

Interest rate risk

Floating rate

When the Company retains cash balances the majority of the cash is held in variable rate bank accounts yielding rates of interest linked to the UK base rate which was 0.75% at 31 May 2019 (2018: 0.5%). There are no other assets which are directly exposed to floating interest rate risk.

Fixed rate

Movement in market interest rates will affect the market value of fixed interest investments. Neither the Income Portfolio or the Growth Portfolio hold any fixed interest investments.

The Company has a £5 million fixed rate loan with an interest rate of 2.03% per annum.

Foreign currency risk

The Company may invest in overseas securities which give rise to currency risks.  At 31 May 2019, the Income Portfolio had Swiss Franc denominated investments valued at £3,393,000 (2018: £1,873,000) and a Euro denominated investment valued at £1,698,000 (2018: £1,737,000).

As the remainder of the Company's investments and all other assets and liabilities are denominated in sterling there is no other direct foreign currency risk.  However, although the Company's performance is measured in sterling and the Company's investments (other than the above) are denominated in sterling a proportion of their underlying assets are quoted in currencies other than sterling. Therefore movements in the rates of exchange between sterling and other currencies may affect the market price of the Company's investment portfolios and therefore the market price risk includes an element of currency exposure.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the Balance Sheet date.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's Custodian. Bankruptcy or insolvency of the Custodian may cause the Company's rights with respect to securities held by the Custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the Custodian's internal control reports.

The credit risk on liquid funds is controlled because the counterparties are banks with acceptable credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.  The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given that the Company's listed and quoted securities are considered to be readily realisable.

The Company's liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and procedures in place. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses which are settled in accordance with suppliers stated terms. The Company has a £5 million fixed term loan, maturing 10 February 2022 with The Royal Bank of Scotland International Limited. It also had a £2 million revolving credit facility agreement which expired on 10 February 2019 and was not renewed. As at 31 May 2019, £5 million of the fixed term loan was drawn down (2018: £5 million). The interest rate on the fixed rate loan, which is fully drawn, is 2.03% per annum.

10.    Subject to certain minimum and maximum thresholds which may be set by the Board of BMO Managed Portfolio Trust PLC from time to time, shareholders have the right to convert their Income shares into Growth shares and/or their Growth shares into Income shares upon certain dates, the next of which will be on 31 October 2019 and then annually or close to annually thereafter (subject to the Articles of Association of the Company). Under current law, such conversions will not be treated as disposals for UK capital gains tax purposes. The Conversion notice period commences on 1 August 2019 and full details will be provided on the Company's website and in the Company's Annual Report and Financial Statements.

11.    The Company's investment objective and policy which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested principally in listed securities. The Company retains title to all assets held by its Custodian and has agreements relating to its borrowing facilities with which it has complied during the year. Cash is only held with banks approved and regularly reviewed by the Manager.

The Directors believe, in light of the control and review processes and bearing in mind the nature of the Company's business and assets and revenue and expenditure projections, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

12.    The Board of Directors (the "Board") is considered a related party.  There are no transactions with the Board other that aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report within the Annual Report and Financial Statements.  The beneficial interests of the Directors in the Income shares and Growth shares of the Company are disclosed in the Annual Report and Financial Statements.  There are no outstanding balances with the Board at the year end.

Ms S P Inglis is also a non-executive director of The Bankers Investment Trust.  The Income Portfolio has a holding of 173,047 shares in this company valued at £1,528,000 at 31 May 2019.

Transactions between the Company and the Manager are detailed in the notes to the financial statements in the Annual Report and Financial Statements.  The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a related party.

13.    This statement was approved by the Board on 29 July 2019. It is not the Company's full statutory accounts in terms of Section 434 of the Companies Act 2006. The statutory annual report and financial statements for the year ended 31 May 2019 has been approved and audited and received an unqualified audit report and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report. This will be sent to shareholders in early August and will be available for inspection at 6^th Floor, Quartermile 4, 7a Nightingale Way, Edinburgh, the registered office of the Company. 

The full Annual Report and Financial Statements are available on the Company's website www.bmomanagedportfolio.com 

The audited financial statements for the year to 31 May 2019 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 23 September 2019.

Alternative Performance Measures ("APMs")

The Company uses the following Alternative Performance Measures ("APMs"):

Discount/premium - the share price of an investment company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the net asset value (NAV) per share of the underlying assets less liabilities of the Company. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers of shares than buyers. Shares trading at a price above NAV per share are deemed to be at a premium usually indicating there are more buyers of shares than sellers.

31 May 2019				31 May 2018
		Income	Growth			Income	Growth
		shares	shares			shares	shares
Net asset value per share	(a)	131.81p	205.17p			135.29p	206.23p
Share price	(b)	134.50p	206.00p			138.00p	209.00p
+Premium/-discount (c = (b-a)/(a))	(c)	+2.0%	+0.4%			+2.0%	+1.3%

Ongoing charges - all operating costs incurred and expected to be incurred in future and that are payable by the Company, expressed as a proportion of the average net assets of the Company over the reporting year. The costs of buying and selling investments are excluded, as are interest costs, taxation, non-recurring costs and the costs of buying back or issuing shares. Ongoing charges of the Company's underlying investments have not been included.

Ongoing charges calculation				31 May 2019
		Income Portfolio (excluding performance fee)	Income Portfolio (including performance fee)		Growth Portfolio (excluding performance fee)	Growth Portfolio (including performance fee)
		£'000	£'000		£'000	£'000
Total expenditure		614	614		743	743
Performance fee		-	73		-	257
Less non-recurring cost		(2)	(2)		(8)	(8)
Total	(a)	612	685		735	992
Average daily net assets	(b)	56,481	56,481		72,738	72,738
Ongoing charges (c=a/b)	(c)	1.08%	1.21%		1.01%	1.36%

				31 May 2018
		Income Portfolio (excluding performance fee)	Income Portfolio (including performance fee)		Growth Portfolio (excluding performance fee)	Growth Portfolio (including performance fee)
		£'000	£'000		£'000	£'000
Total expenditure		618	618		701	701
Performance fee		-	n/a		-	255
Less non-recurring cost		-	-		(10)	(10)
Total	(a)	618	618		691	946
Average daily net assets	(b)	57,783	57,783		67,865	67,865
Ongoing charges (c=a/b)	(c)	1.07%	1.07%		1.02%	1.40%

The Key Information Document on the Company's website contains a measure of costs calculated in accordance with EU PRIIPs regulations. In addition to the costs included with the Company's ongoing charges figure set out above, the cost of the Company's borrowings are also included together with costs incurred in the period within underlying investee funds and portfolio transaction costs expressed as a proportion of the average daily NAV of the Company over the period.

Total return - the return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the share price or NAV in the period. The dividends are assumed to have been re-invested in the form of shares or net assets, respectively, on the date on which the shares were quoted ex-dividend.

The effect of reinvesting these dividends on the respective ex-dividend dates and the share price total returns and NAV total returns are shown below.

	31 May 2019					31 May 2018
		Income shares	Growth shares			Income Shares	Growth Shares
NAV per share at start of financial year		135.29p	206.23p			136.93p	185.78p
NAV per share at end of financial year		131.81p	205.17p			135.29p	206.23p
Change in the year		-2.6%	-0.5%			-1.2%	11.0%
Impact of dividend reinvestments†		5.1%	n/a			4.2%	n/a
NAV total return for the year		2.5%	-0.5%			3.0%	11.0%

†     During the year to 31 May 2019 dividends totalling 6.65p went ex dividend with respect to the Income shares. During the year to 31 May 2018 the equivalent figure was 5.6p.

	31 May 2019					31 May 2018
		Income shares	Growth shares				Income Shares	Growth Shares
Share price per share at start of financial year		138.0p	209.0p				140.0p	189.0p
Share price per share at end of financial year		134.5p	206.0p				138.0p	209.0p
Change in the year		-2.5%	-1.4%				-1.4%	10.6%
Impact of dividend reinvestment†		5.0%	n/a				4.1%	n/a
Share price total return for the year		2.5%	-1.4%				2.7%	10.6%

†     During the year to 31 May 2019 dividends totalling 6.65p went ex dividend with respect to the Income shares. During the year to 31 March 2018 the equivalent figure was 5.6p.

Yield - the total annual dividend expressed as a percentage of the year-end share price.

31 May 2019			31 May 2018
Annual dividend	(a)	5.95p		5.7p(1)
Income share price	(b)	134.5p	138.0p
Yield (c = a/b)	(c)	4.4%	4.1%
(1)   Excluding the special dividend of 0.8p per Income share.

For further information, please contact:

Peter Hewitt, BMO Investment Business Limited  0131 718 1244

Ian Ridge, BMO Investment Business Limited     0131 718 1010

 

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