Annual Financial Report

RNS Number : 4893M

F&C Managed Portfolio Trust PLC.

31 July 2017

 

To:                  RNS

Date:              31 July 2017

From:             F&C Managed Portfolio Trust plc

Results for the year ended 31 May 2017

The Board of F&C Managed Portfolio Trust plc announces the audited results of the Company for the year to 31 May 2017.

Chairman's Statement

Despite a turbulent political backdrop, this financial year has been a good one for global equity markets. Your Company has delivered strong performance, increased its annual dividend by 4.8% and net assets now exceed £120 million.

Performance

Net asset value total return

For the Company's financial year to 31 May 2017, the NAV total return (i.e. adding dividends paid to capital performance) was 24.5% for the Income shares and 26.4% for the Growth shares. This compares with the 24.5% total return for the FTSE All-Share Index, the benchmark index for both portfolios.

The Investment Company sector, as measured by the FTSE Equity Investment Instruments Index, returned 29.9%. The UK equity market moved ahead strongly, in part due to the significant decline in sterling following the EU Referendum result and also the further cut in interest rates shortly thereafter. The Investment Company sector benefitted from the substantial exposure to overseas equity markets of many investment companies. Strong local equity market returns were boosted by currency weakness when translated back into sterling, as illustrated by the total return of 33.2% in sterling terms from the MSCI All Country World Index.

The principal contributors to the performance and additional information on the Company's investment portfolios are identified in the Investment Manager's Review.

Our longer-term performance is strong. The Income shares have produced NAV total returns of 30.3% over three years and 85.3% over five years. For the Growth shares, the corresponding figures are 36.2% and 97.7%. Both shares have outperformed the benchmark over the same periods and indeed since launch.

Revenue and dividends

We have been able to increase the dividend by 4.8%, well above inflation on any realistic measure. This is the sixth consecutive year of increase, in line with our objective. As a result, the yield on the Income shares was 3.9% on the year-end share price, compared with 3.5% for the FTSE All-Share index. We were also able to add to the revenue reserve, which is now equivalent to approximately 48% of the annual dividend cost, an important buffer for the dividend in challenging times.

For the year ended 31 May 2017, four interim dividends have now been paid, totalling 5.45p per Income share (5.2p for the previous year). The fourth interim dividend was paid after the year end on 7 July 2017.

In the absence of unforeseen circumstances, your Board intends again to declare three interim dividends, each of not less than 1.25p per Income share payable in October 2017, January 2018 and April 2018. A fourth interim dividend will be paid in July 2018 when a clearer view emerges of income for the year.

Borrowing

In view of rising inflation in the UK and the prospect of tighter monetary conditions across the Atlantic, we felt it prudent to secure the current low interest rates on borrowing for a longer term. Accordingly, in February 2017 the Company entered into an unsecured loan facility agreement with The Royal Bank of Scotland plc ("RBS") for £5 million for a five year term at a fixed rate of 2.03%. This was in place of the existing £5 million unsecured revolving credit facility ("RCF"). In addition the Company also entered into a two year unsecured RCF with RBS for £2 million.

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 (8.7% of net assets) in the Income Portfolio and zero in the Growth Portfolio. 

Share capital

As part of our efforts to maintain the share price close to the NAV, we were active in both issuing and buying back shares during the year. Earlier in the year, 285,000 Growth shares were bought back at an average discount of 3.5%, while more recently, 593,537 Growth shares were resold from treasury at an average premium to NAV of 1.4%. A further 75,000 new Growth shares were issued from the Company's block listing authority at an average premium to NAV of 1.4%.

In terms of the Income shares, overall 475,000 shares were bought back at an average discount of 3.1%, again earlier in the year, while 795,000 Income shares were resold from treasury at an average premium to NAV of 1.4%.

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 2017 we have been able to maintain an average premium of 0.1% for the Income shares and an average discount of 0.4% for the Growth shares.

We will be 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 plans and conversion facility

Shareholders have the opportunity to convert their Income shares into Growth shares or their Growth shares into Income shares upon certain dates every year subject to minimum thresholds. The next opportunity will be on 19 October 2017. Information is provided in the Annual Report and Accounts and full details will be provided on the Company's website (www.fcmanagedportfolio.co.uk) from 28 July 2017.

However, since launch no conversion has yet taken place as the number of shares offered for conversion has been well below the minimum threshold. This minimum threshold is set by the Board in order to avoid incurring costs of conversion which would be disproportionate to the level of converting assets. The Board is however considering alternative cost proposals, which may allow the conversion to be more economic for converting shareholders in the future.

Board composition

In line with best practice, all four Directors will be standing for re-election at the AGM as all have now served on the Board for more than nine years.

We have begun to discuss the composition of the Board and intend to "refresh" the Board during the coming year prior to the 2018 AGM.

Change of Auditor

As set out in the Report of the Audit Committee, in accordance with the new EU audit rotation rules, the Audit Committee put this appointment out to tender in the current year. Following this process it is recommended that KPMG LLP be appointed as auditor for the forthcoming year to 31 May 2018 and a resolution proposing this appointment will be put to shareholders at the forthcoming AGM.

The Board would like to thank EY for their audit work and support since the launch of the Company and we are pleased that they can continue to provide tax services which may no longer be carried out by the Company's auditor.

AGM

The AGM will be held at 12.30pm on Thursday 21 September 2017 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

The level of political uncertainty experienced over the past year has been unparalleled. It is highly likely that the next twelve months and beyond will remain in a similar vein, given the inconclusive UK general election result and the complex "Brexit" negotiations ahead. In terms of investment prospects however, it is best to focus on the underlying fundamentals and in this regard evidence of a more synchronised global recovery is encouraging. Equity valuations, especially in the US, are elevated which means any setback could be meaningful.

Nonetheless the global outlook, in terms of inflation, interest rates, growth and corporate earnings for equity markets remains generally constructive. For both Portfolios our strategy will continue to emphasise investment companies with overseas exposure, with a focus on selecting the best fund managers. Allied to a cautious investment approach, this should best serve shareholders' interests amidst these uncertain times.

Richard M Martin

Chairman

28 July 2017

Investment Manager's Review

Stockmarket Background

The past twelve months have been in some respects amongst the most turbulent, volatile and uncertain for a generation. Politics has dominated the headlines and the media. Starting with Brexit last June which had not been anticipated. Then the election of President Trump in the US, an outcome which had also not been expected. Although the elections in Europe have not sprung a surprise, the calling of a general election in the UK has once again added to the uncertainty. All this and the real negotiations over the terms of Brexit and what ultimately it may mean for both the UK and Europe have yet to begin.

Conventional thinking might point to an assumption that all of the above would not be taken well by investors and that returns for the period under review could be adversely affected. The final outcome would almost certainly not have been forecast at the start of the period. Returns across most major global equity markets were not only positive, but amongst the largest in terms of magnitude for many years.

The UK stockmarket did very well over the past year, however in relative terms it lagged behind most other major equity markets when returns were translated back into sterling. The move in sterling was a big element in returns although, particularly against the dollar, most of it occurred in the first half. Strong positive returns continued to be achieved during the second six months of the financial year, particularly from European, Asian and Emerging Markets reflecting consolidating recovery, better corporate profits performance and a recognition that these regions were in relative terms more attractively valued.

Performance

For the year to 31 May 2017, the FTSE All-Share Index rose by 24.5% (in total return terms). Over the same period, the Net Asset Value of the Income Portfolio also rose by 24.5% whilst that of the Growth Portfolio recorded a gain of 26.4% (again both in total return terms). This represents the fifth consecutive financial year that the Growth Portfolio has been ahead of the FTSE All-Share Index. The Income Portfolio has only underperformed the benchmark in one of the nine financial years since launch in 2008, albeit that in this past year it recorded a return exactly in line with that of the FTSE All-Share Index.

The immediate aftermath of the Brexit vote proved quite challenging for both portfolios as trusts invested in UK equities and with a bias towards mid and small cap companies (typically amongst the best performers over the longer term) underperformed quite markedly as they were not beneficiaries of the sharp fall in the value of sterling. Concern over what Brexit might mean for the domestic economy was another factor that favoured the large global companies that tend to be found in the FTSE 100 Index. As the year wore on and the UK economy proved much more resilient than initial expectations, so mid and small cap indices reversed some of the relative underperformance of the immediate post Brexit period. This was manifest in the investment company sector by better performance from active managers, whose portfolios tend to be overweight stocks in the mid and small cap sectors and also by a stabilisation/narrowing of discounts of UK equity trusts with these characteristics.

The average sector discounts for investment companies invested mainly in equities began the period at around 7.0% but then widened sharply following the Brexit vote to over 10.0% in July. From then on, reflecting generally buoyant equity markets across the globe and unusually low levels of volatility, discounts tended to gradually tighten to end the year at 5.4%. There are only two sectors; UK Smaller Companies and Global Emerging Markets which are trading at average discounts of over 10%. Discounts in investment companies have often been viewed as indicators of risk so this could be interpreted that risks to the health of the global economy and of equity markets have lessened over the course of the past twelve months. Although the unpredictability of political events would seem to point in a different direction, as the year has worn on, the evidence of strengthening recovery from China, Asia Pacific and Europe along with the US and UK has been reflected in strong returns from many equity markets in these regions.

Investment Company Sector

The past year has been one of strong growth for the broad investment company sector. Total assets have grown to over £150 billion an increase of 27% on the previous year. The substantial rise in global equity markets was a key driver, however so was new issuance, which for the year to 31 May 2017 was nearly £10 billion, an increase of 44% on the previous year. 72% of new issuance came in the area of alternative investment companies with £2.75 billion in infrastructure and renewable trusts and a further £2.25 billion in various property related vehicles. The common theme for most alternative investment companies is that the underlying assets they hold tend to be illiquid (which is why a closed end investment fund is the optimal structure), have little sensitivity to the direction of equity markets and offer high and consistent dividend yields. This has proven very attractive to investors at a time when yields on equities and especially bonds have been driven down to historically low levels and has been behind the high and growing level of issuance. It is likely the issuance from alternatives will continue for some time.

Gearing - Income Portfolio

During the second half of the financial year the Income Portfolio took on £5 million of gearing from The Royal Bank of Scotland at an all-in cost of just over 2% p.a. fixed for five years. The rationale for this was to enhance the revenue generating ability of the Income Portfolio. From an investment standpoint the objective is to hold certain investment companies in the alternatives sector which have little exposure to the equity market, possess low levels of volatility and have the characteristics of high and sustainable dividend yields, with the prospect of some growth. Holdings include: Civitas Social Housing REIT, GCP Infrastructure Investments, Renewables Infrastructure Group, Sequoia Economic Infrastructure, GCP Asset Backed Income and Impact Healthcare REIT.

Growth Portfolio - Leaders and Laggards

The two strongest performers in the Growth Portfolio were Polar Capital Technology Trust and Allianz Technology Trust, both gaining over 70%. Both of these trusts have outstanding long term records and are a good way for the Growth Portfolio to gain exposure to the secular growth characteristics represented by the dynamic US technology sector. The next two best performers are both managed by Baillie Gifford. Monks Investment Trust rose by 68% whilst Scottish Mortgage Investment Trust was ahead by 53%. Although both trusts employ a growth focussed investment strategy, the latter is more concentrated with a bias towards technology companies whilst the former is more diversified by number and nature of holdings. Special mention should also be made of River & Mercantile UK Micro Cap Investment Company which recorded a 45% gain due primarily to outstanding stock selection.

Two holdings which underperformed over the year were Sanditon Investment Trust which fell 6% and BH Macro which rose 4%. Both funds are defensive in nature and are held to provide an element of protection for the portfolio in a market setback. That they lagged a sharply rising equity market is not unexpected. Woodford Patient Capital Trust was down 4%. The fund is not a mainstream play on UK equities as it comprises a portfolio of private early stage and listed early growth companies, mainly spin outs from UK universities. Given the nature of these companies it will take time for them to come through and no doubt there will be failures along the way. However many of the underlying portfolio companies have made good progress and there is reason to believe that for the patient investor there will be significant upside potential.

Income Portfolio - Leaders and Laggards

Two of the leading performers were trusts which specialise in overseas private equity investments. NB Private Equity Partners delivered a 58% return whilst Princess Private Equity Holding gained 59%. Both funds also significantly benefitted from sterling devaluation against the dollar and the Euro. The former concentrates mainly in the US and offers a 4% dividend yield, whilst the latter is more global in its approach and has a dividend yield of over 5%. As with many private equity trusts both experienced a welcome narrowing of the discount between the share price and the asset value over the period.

The common theme of other strong performers was exposure to overseas equity markets where good local currency gains were further enhanced by sterling weakness. Examples include JPMorgan Global Emerging Markets Income Trust which rose 46%, The Bankers Investment Trust which was ahead by 38% and Murray International Trust which was up by 39%.

When equity markets have such a strong year, the laggards in the portfolio would tend to come from trusts which are not invested in equities. GCP Infrastructure Investments delivered a steady dividend yield of over 6% but only experienced a 10% rise in its share price. Similar trends were evident with Carador Income which rose 14% and CQS New City High Yield Fund which was ahead by 15%. Dividends were maintained at a high level although the capital performance could not keep pace with equity market returns.

(All share prices are total return)

Investment Strategy and Prospects

Given what has taken place over the past year, first with the unexpected result in the EU Referendum, then with the unexpected result in the US Presidential election, it is difficult to believe the magnitude of positive returns that have been achieved by equity markets. Political events have dominated the media and have served to confuse as it is the economic fundamentals which tend to determine the direction of financial markets. In this regard the fundamentals in terms of growth, inflation, interest rates and ultimately corporate profits and dividends came through much better than had been anticipated a year ago.

With this in mind what are the prospects for the coming year?

Once again in the UK, politics take centre stage. An inconclusive General Election result has bequeathed a Government that is fragile at best and with the imminent onset of Brexit negotiations it appears that, for the UK, there will be a protracted period of uncertainty which if events went awry have the potential to upset financial markets. With an unpredictable President it appears similar sentiments could affect the US. In comparison, Europe and Asia Pacific appear almost as an oasis of calm.

Using recent years as a guide, perhaps all of this uncertainty serves to obscure what is going on in underlying economies and by focussing on key trends in the fundamentals will allow a better analysis of prospects for financial markets. In this regard the potential for all the aforementioned uncertainty to weaken sterling further and for the fragile government to reverse austerity and embark on a programme of more stimulus would likely support equity markets. However, neither is guaranteed and meantime it is clear the UK is slowing with higher inflation squeezing the all-important consumer such that real incomes are under pressure. Encouragingly, the US recovery continues, although the timing of a boost from the promised tax cuts of President Trump remains unclear. Meantime the Federal Reserve continues its policy of trying to normalise interest rates by moving them higher. Europe is at last experiencing stronger growth with both inflation and interest rates at low levels and Asia Pacific is benefitting from stimulus measures taken by the Chinese government and as such is experiencing stronger growth also.

Over the last few years global markets have been led by the US which has performed strongly. Valuations in the US, where the forward P/E of the S&P Composite is 17x are elevated, and robust earnings growth, which is being delivered, is needed to justify current levels. Europe on the other hand is also beginning to achieve strong corporate earnings growth. It has taken a very long time in Europe, however recovery is genuine and equity market valuations are, whilst not cheap, attractive on a relative basis. Similarly growth is improving and valuations are reasonable in Asia Pacific and Emerging Markets. In the case of the latter, there are signs that a long period of underperformance is drawing to a close. Which leaves the UK, where investor sentiment is adverse and confidence is low and yet large global companies based in the UK could benefit from the synchronised recovery evident internationally and any further weakness in sterling. This would benefit primarily the FTSE 100 Index. For UK mid and small cap companies the environment could become more challenging.

An important element of the long term investment strategy for F&C Managed Portfolio Trust is to maintain exposure to sectors which offer genuine secular growth opportunities such as technology, biotechnology and healthcare. This is achieved through holdings in investment companies such as Polar Capital Technology Trust, Allianz Technology Trust, Biotech Growth Trust, BB Biotech, BB Healthcare and Worldwide Healthcare Trust. Over the long term, the returns from investment companies exposed to these sectors has been exceptional and looking ahead the opportunity for holdings in these sectors continues to be exciting.

There may well be setbacks and with volatility at such low levels, when these occur they could be both sharp and uncomfortable. That said, the global outlook remains constructive for equity markets. In terms of investment strategy, further progress from current levels is likely to be driven by earnings growth and not multiple expansion and in this regard that should favour Europe, Asia Pacific and Emerging Markets over the more highly rated US market. Prospects for the UK are less certain although the present political difficulties have not prevented the FTSE All-Share Index moving to a new all-time high. The preference is for investment companies with an overseas bias and then identifying investment managers who have a clear disciplined style with proven long term performance records. It is the intention to exercise considerable caution with strategy and investment selections but to remain fully invested in both portfolios.

Peter Hewitt

Investment Manager

F&C Investment Business Limited

28 July 2017

Income Statement (audited)

Year to 31 May 2017

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	22,555	22,555
Foreign exchange gains		-	3	3
Income		3,167	-	3,167
Investment management and performance fee		(219)	(554)	(773)
Other expenses		(461)	-	(461)
Return on ordinary activities before finance      costs and tax		2,487	22,004	24,491
Finance costs		(19)	(30)	(49)
Return on ordinary activities before tax		2,468	21,974	24,442
Tax on ordinary activities	5	(17)	-	(17)
Return attributable to shareholders		2,451	21,974	24,425
Return per Income share	3	5.89p	21.35p	27.24p
Return per Growth share	3	-	38.71p	38.71p

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 (audited)

Year to 31 May 2016

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(6,051)	(6,051)
Foreign exchange gains		-	2	2
Income		2,797	-	2,797
Investment management and performance fee		(177)	(418)	(595)
Other expenses		(415)	-	(415)
Return on ordinary activities before finance      costs and tax		2,205	(6,467)	(4,262)
Finance costs		(8)	(20)	(28)
Return on ordinary activities before tax		2,197	(6,487)	(4,290)
Tax on ordinary activities		(11)	-	(11)
Return attributable to shareholders		2,186	(6,487)	(4,301)
Return per Income share	3	5.62p	(11.18)p	(5.56)p
Return per Growth share	3	-	(6.72)p	(6.72)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.

Balance Sheet (audited)

As at 31 May 2017

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		61,863	61,770	123,633
Current assets
Debtors		189	48	237
Cash at bank and on deposit		773	2,691	3,464
		962	2,739	3,701
Creditors
Amount falling due within one year		(171)	(688)	(859)
Net current assets		791	2,051	2,842
Creditors
Amounts falling due in more than one year		(5,000)	-	(5,000)
Net assets		57,654	63,821	121,475
Capital and reserves
Called-up share capital		4,254	3,435	7,689
Share premium		21,839	18,879	40,718
Capital redemption reserve		-	182	182
Special reserve		18,873	17,190	36,063
Capital reserves		10,865	24,135	35,000
Revenue reserve		1,823	-	1,823
Shareholders' Funds		57,654	63,821	121,475
Net asset value per share (pence)	6	136.93p	185.78p

Balance Sheet (audited)

As at 31 May 2016

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		48,262	49,051	97,313
Current assets
Debtors		161	28	189
Cash at bank and on deposit		762	1,005	1,767
		923	1,033	1,956
Creditors
Amount falling due within one year		(1,141)	(142)	(1,283)
Net current (liabilities)/assets		(218)	891	673
Net assets		48,044	49,942	97,986
Capital and reserves
Called-up share capital		4,254	3,428	7,682
Share premium		21,685	18,546	40,231
Capital redemption reserve		-	182	182
Special reserve		18,532	16,733	35,265
Capital reserves		1,973	11,053	13,026
Revenue reserve		1,600	-	1,600
Shareholders' Funds		48,044	49,942	97,986
Net asset value per share (pence)	6	114.98p	147.02p

Cash Flow Statement (audited)

Year to 31 May 2017

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(624)	(589)	(1,213)
Dividends received		2,373	812	3,185
Interest received Interest paid		14 (87)	3 -	17 (87)
Net cash inflow from operating activities		1,676	226	1,902
Investing activities
Purchases of investments		(11,594)	(5,871)	(17,465)
Sales of investments		7,650	6,530	14,180
Net cash flows from investing activities		(3,944)	659	(3,285)
Net cash flows before financing activities		(2,268)	885	(1,383)
Financing activities Equity dividends paid		(2,228)	-	(2,228)
Proceeds from issuance of new shares Sale of shares from treasury Shares purchased to be held in treasury Loan drawn down		12 1,074 (579) 4,000	144 1,075 (418) -	156 2,149 (997) 4,000
Net cash flows from financing activities		2,279	801	3,080
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		11 762	1,686 1,005	1,697 1,767
Cash and cash equivalents at the end of the year		773	2,691	3,464
Represented by: Cash at bank and short term deposits		773	2,691	3,464

Cash Flow Statement (audited)

Year to 31 May 2016

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(500)	(495)	(995)
Dividends received		2,029	725	2,754
Interest received Interest paid		22 (16)	8 (12)	30 (28)
Net cash inflow from operating activities		1,535	226	1,761
Investing activities
Purchases of investments		(9,703)	(8,606)	(18,309)
Sales of investments		1,682	2,035	3,717
Net cash flows from investing activities		(8,021)	(6,571)	(14,592)
Net cash flows before financing activities		(6,486)	(6,345)	(12,831)
Financing activities Equity dividends paid		(1,910)	-	(1,910)
Proceeds from issuance of new shares Sale of shares from treasury Shares purchased to be held in treasury Loan repaid		9,118 - (848) (500)	8,159 400 (872) (1,400)	17,277 400 (1,720) (1,900)
Net cash flows from financing activities		5,860	6,287	12,147
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		(626) 1,388	(58) 1,063	(684) 2,451
Cash and cash equivalents at the end of the year		762	1,005	1,767
Represented by: Cash at bank and short term deposits		762	1,005	1,767

Statement of Changes in Equity (audited)

Year to 31 May 2017

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 2016	4,254	21,685	-	18,532	1,973	1,600	48,044
Shares sold from treasury	-	154	-	920	-	-	1,074
Shares purchased for treasury	-	-	-	(579)	-	-	(579)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	516	516
Transfer of capital from Income to Growth portfolio	-	-	-	-	(516)	-	(516)
Dividends paid	-	-	-	-	-	(2,228)	(2,228)
Return attributable to shareholders	-	-	-	-	9,408	1,935	11,343
As at 31 May 2017	4,254	21,839	-	18,873	10,865	1,823	57,654
Growth Shares
As at 31 May 2016	3,428	18,546	182	16,733	11,053	-	49,942
Increase in share capital in issue, net of share issuance expenses	7	133	-	-	-	-	140
Shares sold from treasury	-	200	-	875	-	-	1,075
Shares purchased for treasury	-	-	-	(418)	-	-	(418)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(516)	(516)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	516	-	516
Return attributable to shareholders	-	-	-	-	12,566	516	13,082
As at 31 May 2017	3,435	18,879	182	17,190	24,135	-	63,821
Total Company
As at 31 May 2016	7,682	40,231	182	35,265	13,026	1,600	97,986
Increase in share capital in issue, net of share issuance expenses	7	133	-	-	-	-	140
Shares sold from treasury	-	354	-	1,795	-	-	2,149
Shares purchased for treasury	-	-	-	(997)	-	-	(997)
Dividends paid	-	-	-	-	-	(2,228)	(2,228)
Return attributable to shareholders	-	-	-	-	21,974	2,451	24,425
As at 31 May 2017	7,689	40,718	182	36,063	35,000	1,823	121,475

Statement of Changes in Equity (audited)

Year to 31 May 2016

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 2015	3,469	13,346	-	19,380	6,320	1,324	43,839
Increase in share capital in issue, net of share issuance expenses	785	8,339	-	-	-	-	9,124
Shares purchased for treasury	-	-	-	(848)	-	-	(848)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	438	438
Transfer of capital from Income to Growth portfolio	-	-	-	-	(438)	-	(438)
Dividends paid	-	-	-	-	-	(1,910)	(1,910)
Return attributable to shareholders	-	-	-	-	(3,909)	1,748	(2,161)
As at 31 May 2016	4,254	21,685	-	18,532	1,973	1,600	48,044
Growth Shares
As at 31 May 2015	2,884	10,927	182	17,197	13,201	-	44,391
Increase in share capital in issue, net of share issuance expenses	544	7,619	-	-	-	-	8,163
Shares sold from treasury	-	-	-	408	(8)	-	400
Shares purchased for treasury	-	-	-	(872)	-	-	(872)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(438)	(438)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	438	-	438
Return attributable to shareholders	-	-	-	-	(2,578)	438	(2,140)
As at 31 May 2016	3,428	18,546	182	16,733	11,053	-	49,942
Total Company
As at 31 May 2015	6,353	24,273	182	36,577	19,521	1,324	88,230
Increase in share capital in issue, net of share issuance expenses	1,329	15,958	-	-	-	-	17,287
Shares sold from treasury	-	-	-	408	(8)	-	400
Shares purchased for treasury	-	-	-	(1,720)	-	-	(1,720)
Dividends paid	-	-	-	-	-	(1,910)	(1,910)
Return attributable to shareholders	-	-	-	-	(6,487)	2,186	(4,301)
As at 31 May 2016	7,682	40,231	182	35,265	13,026	1,600	97,986

Principal Risks

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. It has also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

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:  An explanation of these risks and the way in which they are managed are contained in the notes to the accounts.  The Board regularly considers the composition and diversification of the Income Portfolio and the Growth portfolio 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.

Mitigation: The investment strategy, performance against peers and the benchmark, and gearing are reviewed with the Investment Manager at each Board meeting. The Income Portfolio and Growth Portfolio are diversified and comprise listed closed-ended investment companies and their composition are reviewed regularly with the Board. The Board regularly considers ongoing charges and a discount 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. 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 Depositary is specifically liable for loss of the Company's securities and cash held in custody.

Operational. Failure of F&C 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 F&C and receives regular internal control and risk reports from the Manager which includes oversight of third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice.  The Manager now benefits from the long-term financial strength and policies of its owner, Bank of Montreal, and through its stated commitment to the future of F&C's investment trust management business.  The Manager continues to strengthen its Risk, Compliance and Internal Control functions as part of the integration of its operations with Bank of Montreal including IT security. F&C has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust ("State Street") and supervision of such third party service providers, including IFDS who administer the F&C savings plans, has been maintained by F&C. This includes the review of IT security and cyber threat.

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 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 closed-end investment trust, whose shares are not subject to redemptions by shareholders.

·      Subject to shareholder continuation votes, the first of which will be in 2018 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 the formal agreement with the Custodian and Depositary.

·      The fixed term borrowing facility, which remains available until February 2022, and the revolving credit facility which remains available until February 2019, is also subject to a formal agreement, including financial covenants with which the Company complied in full with 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 in the Report of the Audit Committee and in Notes 17 to 22 to the accounts within the Annual Report. The Directors have also considered:

·      the level of ongoing charges incurred by the Company which are modest and predictable and total 1.12% and 1.08% 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 consists principally of listed investment companies which can be realised if required,

·      the ability to undertake share buybacks if required,

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

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

These matters were assessed over a three year period to July 2020, 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 2020.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year to 31 May 2017, of which this statement of results is an extract, have been prepared in accordance with applicable UK Generally Accepted Accounting Practice, including FRS 102 give a true and fair view of the assets, liabilities, financial position, net return and cash flows of the Company;

·      The Strategic Report and the Report of the Directors within the Annual Report to 31 May 2017 includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces;

·      Taken as a whole, the Annual Report and Accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company;

·      The Annual Report includes details of related party transactions; and

·      Having assessed the principal risks and other matters discussed in connection with the Viability Statement, it is appropriate to adopt the going concern basis in preparing the financial statements.

On behalf of the Board

Richard M. Martin

Chairman

28 July 2017

Notes (audited)

1.   The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 28 July 2017, have been prepared 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 2017

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	-	9,654	9,654	-	12,901	12,901	-	22,555	22,555
Foreign exchange gains	-	3	3	-	-	-	-	3	3
Income	2,341	-	2,341	826	-	826	3,167	-	3,167
Investment management and        performance fees	(146)	(219)	(365)	(73)	(335)	(408)	(219)	(554)	(773)
Other expenses	(225)	-	(225)	(236)	-	(236)	(461)	-	(461)
Return on ordinary activities before finance costs and tax	1,970	9,438	11,408	517	12,566	13,083	2,487	22,004	24,491
Finance costs	(19)	(30)	(49)	-	-	-	(19)	(30)	(49)
Return on ordinary activities before tax	1,951	9,408	11,359	517	12,566	13,083	2,468	21,974	24,442
Tax on ordinary activities	(16)	-	(16)	(1)	-	(1)	(17)	-	(17)
Return  #	1,935	9,408	11,343	516	12,566	13,082	2,451	21,974	24,425

Year ended 31 May 2016

	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	-	(3,725)	(3,725)	-	(2,326)	(2,326)	-	(6,051)	(6,051)
Foreign exchange gains	-	2	2	-	-	-	-	2	2
Income	2,085	-	2,085	712	-	712	2,797	-	2,797
Investment management and        performance fees	(116)	(176)	(292)	(61)	(242)	(303)	(177)	(418)	(595)
Other expenses	(206)	-	(206)	(209)	-	(209)	(415)	-	(415)
Return on ordinary activities before finance costs and tax	1,763	(3,899)	(2,136)	442	(2,568)	(2,126)	2,205	(6,467)	(4,262)
Finance costs	(6)	(10)	(16)	(2)	(10)	(12)	(8)	(20)	(28)
Return on ordinary activities before tax	1,757	(3,909)	(2,152)	440	(2,578)	(2,138)	2,197	(6,487)	(4,290)
Tax on ordinary activities	(9)	-	(9)	(2)	-	(2)	(11)	-	(11)
Return  #	1,748	(3,909)	(2,161)	438	(2,578)	(2,140)	2,186	(6,487)	(4,301)

# 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 2017	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,935	9,408	11,343	516	12,566	13,082
Transfer of net income from       Growth to Income Portfolio	516	-	516	(516)	-	(516)
Transfer of capital from Income    to Growth Portfolio	-	(516)	(516)	-	516	516
Return attributable to       shareholders	2,451	8,892	11,343	-	13,082	13,082
Return per share	5.89p	21.35p	27.24p	-	38.71p	38.71p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		41,646,802			33,793,152

Year ended 31 May 2016	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,748	(3,909)	(2,161)	438	(2,578)	(2,140)
Transfer of net income from       Growth to Income Portfolio	438	-	438	(438)	-	(438)
Transfer of capital from Income    to Growth Portfolio	-	(438)	(438)	-	438	438
Return attributable to      shareholders	2,186	(4,347)	(2,161)	-	(2,140)	(2,140)
Return per share	5.62p	(11.18p)	(5.56p)	-	(6.72p)	(6.72p)
Weighted average number of shares in issue during the year (excluding shares held in treasury)		38,891,707			31,829,730

4.       Dividends

		2017
		Income shares Total
Dividends on Income shares		£'000
Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2016
- fourth interim dividend of 1.60p per Income share		669
For the year ended 31 May 2017
- first interim dividend of 1.25p per Income share		519
- second interim dividend of 1.25p per Income share		520
- third interim dividend of 1.25p per Income share		520
		2,228
Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.70p per Income share*		716

* Based on 42,105,035  Income Shares in issue at the record date of 16 June 2017.

The fourth interim dividend of 1.70p per Income share, was paid on 7 July 2016 to shareholders on the register on 16 June 2017, with an ex-dividend date of 17 June 2017.

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

5.       (a) Tax on ordinary activities

    Year ended 31 May 2017

	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	16	-	16	1	-	1	17	-	17

 (b) Reconciliation of tax charge

		2017
		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Return on ordinary activities before tax:		11,359	13,083	24,442
Corporation tax at standard rate of 19.83 per cent		2,253	2,595	4,848
Effects of:
Gains on investments not taxable		(1,915)	(2,559)	(4,474)
Overseas tax suffered		16	1	17
Non taxable UK dividend income		(230)	(145)	(375)
Non taxable overseas dividend income		(194)	(19)	(213)
Expenses not utilised		86	128	214
Current year tax charge (note 5 (a))		16	1	17

6.       The net asset value per Income share is calculated on net assets of £57,654,000 (2016: £48,044,000), divided by 42,105,035 (2016: 41,785,035) 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 £63,821,000 (2016: £49,942,000), divided by 34,352,037 (2016: 33,968,500) 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 bought back 475,000 (2016: 750,000) Income shares to be held in treasury, at a cost of £579,000 (2016: £848,000) and resold out of treasury 795,000 (2016: nil) Income shares, receiving net proceeds of £1,074,000 (2016: £nil). No Income shares were issued during the year (2016: 7,845,099 Income shares; net proceeds of £9,124,000). At 31 May 2017, the Company held 430,000 Income shares in treasury (2016: 750,000).

8.       During the year, the Company bought back 285,000 (2016: 583,537) Growth shares to be held in treasury at a cost of £418,000 (2016: £872,000) and resold 593,537 (2016: 275,000) Growth shares out of treasury receiving net proceeds of £1,075,000 (2016: £400,000). The Company issued 75,000 (2016: 5,437,194) Growth shares during the year receiving net proceeds of £140,000 (2016: £8,163,000).  At 31 May 2017, the Company held no Growth shares in treasury (2016: 308,537). 

9.   Financial Instruments

The Company's financial instruments comprise its investment portfolio, 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 2017 and 31 May 2016 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 portfolio is 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 0.25 per cent at 31 May 2017 (2016: 0.5 per cent). There are no other assets which are directly exposed to floating interest rate risk. The cost of the Company's revolving credit facility from The Royal Bank of Scotland is linked to LIBOR but was not drawn down at 31 May 2017 (2016: LIBOR 0.51 per cent).

Fixed rate

The Income Portfolio holds fixed interest investments.  Movements in market interest rates will affect the market value of fixed interest investments. 

               The Growth Portfolio does not hold any fixed interest investments.

The Income Portfolio 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 2017, the Income Portfolio had US dollar denominated investments valued at £511,000 (2016: £1,654,000), a Swiss Franc denominated investment valued at £1,627,000 (2016: £1,276,000) and a Euro denominated investment valued at £1,760,000 (2016: £1,140,000).

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 they have 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 investment 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 investment 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 £7 million term and revolving loan facility agreement with The Royal Bank of Scotland. The facility has two elements: a £5 million five year fixed term loan, maturing 10 February 2022, and a £2 million revolving loan credit agreement. As at 31 May 2017, £5 million of the fixed term loan was drawn down (2016: n/a). The interest rate on the fixed rate loan, which is fully drawn, is 2.03% per annum. The revolving credit facility was not drawn down at 31 May 2017 (2016: £1 million).

10.     Subject to certain minimum and maximum thresholds which may be set by the Board of F&C Managed Portfolio Trust plc ("the Board") from time to time, shareholders have the opportunity 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 19 October 2017 and then annually or close to annually thereafter (subject to the articles of association of the Company). The Conversion notice period commences on 28 July 2017 and full details are provided on the Company's website and in the Company's Annual Report and Accounts.

 11.    These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited Annual Report and Accounts for the year ended 31 May 2017 will be sent to shareholders shortly, and will be available for inspection at Quartermile 4, 7a Nightingale Way, Edinburgh, the registered office of the Company.  The full Annual Report and Accounts will be available on the Company's website www.fcmanagedportfolio.co.uk 

The audited accounts for the year to 31 May 2017 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 21 September 2017.

For further information, please contact:

Peter Hewitt, F&C Investment Business Limited   0131 718 1244

Ian Ridge, F&C Investment Business Limited        0131 718 1010

 

END

 

 

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