Annual Financial Report
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2010
The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested predominantly in companies listed or quoted in the United Kingdom.
Highlights
· Net asset value per share up by 34.9% in total return terms outperforming the Company's benchmark, the FTSE All-Share Index which increased by 33.2% in total return terms.
· The Board is recommending an unchanged final dividend. The total dividend for the year will amount to 10.25p (2009 - 10.25p).
For further information, please contact:-
Jeremy Whitley
Aberdeen Asset Managers Limited 0131 528 4000
Ian Massie
Aberdeen Asset Managers Limited 0131 528 4000
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
1. CHAIRMAN'S STATEMENT
Having experienced several years of disappointing performance in this Company, it is pleasing to report that, aided by stronger markets, there has been a substantial improvement for this financial year, both in absolute and relative terms. The Company's Net Asset Value per share (measured with debt priced at market value) increased from 160.45p to 201.37p. This represented an increase of 34.9% in total return terms, slightly outperforming the Company's benchmark, the FTSE All-Share Index, which increased by 33.2% in total return terms.
The year under review must be considered one of the most remarkable periods in stock market history. On 20 January 2009 the world watched President Obama's inauguration with a sense of hope and great expectation, looking for leadership after the financial turmoil of late 2008 sparked by the dramatic collapse of Lehman Brothers. But by the middle of March 2009 the Dow Jones index had plunged to levels not seen since 1997 and other markets, in particular the London Stock Exchange, followed suit. To have suggested then that, over the next nine months, the FTSE All-Share Index would rally from its nadir by nearly 50% would have been a bold prediction indeed, but that was exactly what has happened.
The stock markets' response was initially driven by early signs that both the banking system and the global economy were beginning to respond to the vast range of stimuli that had been deployed by central banks and governments to address a collapse in private consumption. As ever, credit markets were the first to show signs of improvement as the market for fixed interest securities slowly began to reopen, spreads fell and inter-bank lending markets tentatively regained confidence. Once risk appetite began to return, investors viewed high yields as no longer indicative of risk but of opportunity and the very low cost of money (for those who had access to it) as a driver of profits. As hard economic data began to emerge to support evidence of recovery, this served to reinforce an upward cycle in risk appetite, aided by increasingly confident statements of recovery and predictions of more prosperous times ahead from the corporate world.
As I reported to you last year, your Board has addressed the matter of the Manager's weak relative performance over the preceding two years and asked the Manager to conduct a fundamental review of both its investment philosophy and the practical implementation of its investment process. We are pleased with the outcome of this review. It has addressed a number of our concerns and promises to remedy others. We believe that the fruits of this exercise are already being seen in the recently improved performance relative to both the benchmark index and our peer group.
Lead Manager
In November we announced that, after many years of involvement with the management of Dunedin Income Growth Investment Trust ("DIGIT"), Stewart Methven would be stepping down as lead manager in order to take up a senior position within Aberdeen Asset Managers' ("Aberdeen") Global Equities team. I would like to take this opportunity to thank Stewart for his hard work, calmness and good humour in tumultuous market conditions. I am also delighted to welcome Jeremy Whitley as our new lead manager. He brings a wealth of experience to his current role as the Head of UK and European Equities at Aberdeen, having run the Asian-focused Edinburgh Dragon Trust for many years as well as holding senior roles in Aberdeen's highly successful Asian and Global Equities teams. Jeremy's impact on the management of the Company has already been felt and we face the future with confidence.
Dividend
This has been a most challenging time for income-orientated investors, with a large number of companies opting - or being forced - to reduce their dividend payments as the severity of the downturn has made cash conservation a priority. No clearer example of this can be seen than within the UK banking sector which, two years ago, contributed nearly 30% of the income available to investors in the FTSE All-Share Index; today that figure is less than 10%. Notwithstanding the background of widespread dividend cuts and the consequent reduction in our own income the Board is recommending a final dividend per share of 6.5p (2008/9 - 6.5p) resulting in an unchanged total dividend of 10.25p per share in respect of the year 2009/10 - this can only be achieved by the use of part of the Company's reserves in addition to its earnings of around 8.0p per share. It is proposed that the final dividend will be paid on 21 May 2010 to shareholders on the register on 23 April 2010.
After paying this year's dividend the Company will retain distributable reserves of around 7.16p per share. On the basis of its current expectations and forecasts, it remains the Board's aim, in the absence of further significant market turmoil, to maintain the level of dividend payment for the financial year 2010/11, drawing upon the reserves as necessary. The level of dividends beyond 2010/11 will depend on your Company's income, since, whilst the Board remains committed to the use of reserves to support payments if practicable, these reserves are finite.
Gearing
The Company has long believed that sensible use of modest financial gearing, whilst amplifying market movements in the shorter term, will enhance returns of both capital and income to shareholders over the long run. To this end we employ two sources of financial leverage, a long term fixed rate debenture (repayable in 2019) with a nominal value of £28.6 million; and a variable rate bank loan. Over the course of this financial year we have steadily reduced the draw down under the latter facility from £12 million at 31 January 2009 to its current level of £1.5 million. This, combined with the impact of rising equity markets, has reduced our overall gearing. With debt valued at par gearing has decreased from close to 13% at the end of the last financial year to around 8% and, on a pure equity basis, when account is taken of our small bond portfolio and cash holdings, it now stands closer to 5%.
Discount
In the past year, and in common with the experience of most investment trusts, there was a widening in the discount to Net Asset Value at which your Company's shares trade; this increased from 5.2% at the beginning of the year to 9.0% at the close. We did not undertake any share re-purchases during the year, but we are once again seeking shareholders' permission to do so and are prepared to use this measure in the light of both DIGIT's absolute level of discount and relative to those of our peer group.
The Board
The Directors have recently discussed the composition of the Board and have made a minor change. Jean Matterson, who has been on the Board of DIGIT for 13 years, and who (subject to annual re-election) will remain a Director, has relinquished her role as Senior Independent Director (SID), being replaced by John Carson. She remains Chairman of the Nomination Committee.
VAT on Management Fees
As shareholders will be aware from my previous statements, the Manager has continued to pursue the repayment by HM Revenue & Customs ("HMRC") of the VAT incurred on management fees. Given that these negotiations have taken much longer than originally expected and that no repayment has been received from HMRC, Aberdeen has agreed to make a repayment to the Company in respect of the VAT for the period 1 January 2001 to 30 September 2007. This year's results therefore recognise £573,000 representing the VAT charged on our management fees between 2001 and 2003, which is then split in accordance with the Company's accounting policy at the time of paying the VAT, with £401,000 being credited to capital and £172,000 being credited to revenue. A sum of £1,020,000 in relation to the VAT paid on fees in the years 2004 - 2007 was recognised in last year's accounts. The Manager continues to pursue with HMRC, the repayment of the VAT incurred on management fees during the period 1990 to 1996 and we should be able to recognise further sums in due course. We expect this amount to be in excess of £700,000, which will again be split between revenue and capital in accordance with the then prevailing accounting policy.
We continue to investigate the recovery of VAT paid during the so-called "dead period" between 1996 and 2001, but it is still too early to give an indication of either the chances of success or the quantum that might be recovered.
Alternative Investment Fund Manager (AIFM) Directive
Shareholders may be aware that the European Commission published the draft AIFM Directive in April 2009. Its purpose is to introduce a new authorisation and supervisory regime for all "alternative investment" fund managers within the European Union and has been called, by some, "the hedge fund directive." Remarkably, this is deemed to include the investment trust sector and, as drafted, the Directive would impose an additional (and in our view entirely superfluous) regulatory burden on this sector, with potentially adverse consequences and certainly higher costs. The Association of Investment Companies, the Manager and your Board have been making strenuous representations to ensure that any such regulation is proportionate and appropriate, particularly with regard to investment companies, pointing out, inter alia, that your Company - which has been serving its investors for nearly 140 years - should not be bracketed with hedge funds and other alternative investments and works quite satisfactorily without the imposition of yet another layer of supervision and control. The Directive has generated substantial commentary and discussion, and recent drafts suggest that at least some of our concerns may be addressed; but alternative investments and their managers are an emotive subject in the arena of European politics and it is too early to be able to predict with any confidence the outcome of the current deliberations.
Outlook
Despite the significant rally in markets during 2009 from what were extremely distressed levels, we still face an extended period of uncertainty. Whilst we believe that the worst of the banking crisis has passed, the authorities now need to manage the cost of socialising those losses and the unwinding of the many special measures taken to support the wider global economy.
As we have already seen in Iceland and the Baltic States, those countries with substantial budget and current account deficits and with already high levels of national debt relative to GDP will not be able to sustain such a position going forward. In many cases, liabilities have moved from specific banks to individual countries and investor concerns have shifted likewise. Governments and central banks now face the daunting challenge of unwinding a myriad of special actions, from car scrappage schemes to near zero interest rates to special liquidity provisions for banks and quantitative easing, without derailing the nascent signs of recovery.
A best case outlook for the UK economy in the medium term comprises modest growth as government spending is reduced and private consumption restrained through higher taxation. Whilst the outlook for the UK economy is a challenging one, it should be remembered that the recent fall in the value of sterling has improved the competitive position of British companies and, as the largest economy in Europe outwith the Euro currency, our Government has at its disposal a wider range of economic levers than those available to the likes of Ireland and Greece, whose interest and exchange rates are set elsewhere.
Your Company seeks to invest in good quality, principally UK listed companies, many of which have a significant international dimension. These companies possess strong balance sheets, robust business models and good potential for dividend and earnings growth over the medium term as they gain from competitive advantage at home or faster economic growth abroad. Hence we feel relatively well placed for the challenges ahead.
Annual General Meeting
The Company's Annual General Meeting takes place in Dundee, on 19 May 2010, and I look forward to seeing as many of you there as possible. The Board is also proposing to hold an investor presentation on 29 June in London. If you are interested in attending these events, please complete the enclosed prepaid reply card, or contact the Company Secretary at the registered office or by email at company.secretary@invtrusts.co.uk.
John Scott
Chairman
24 March 2010
2. MANAGER'S REVIEW
The year ending January 2010 was as tumultuous a year for investors as the 12 months that preceded it. The precipitous declines of the first few months of the year turned into one of the biggest market rallies since records began. For the investor this sharp turn in sentiment posed just as challenging an environment as the previous two years had with their significant market falls.
Markets have now stabilised at levels that were last reached just before Lehman Brothers went into bankruptcy. The significant rally has provided investors with opportunities both to make great profits, from the purchase of stock priced at distressed levels, and to look extremely foolish, by exiting investments at levels that would shortly be shown to be very low. We have made our fair share of decisions that would fall into both camps over 2009/10 but what we think is most important is the logic and reasoning behind those decisions and the implications for both future returns and the Company's ability to generate income, in order to support its dividend paying capacity.
Our investment process is based on taking a long term approach, doing our own research, investing in what we consider to be good quality businesses, trying to buy them as cheaply as we can and building sensibly diversified portfolios. While quality is a subjective concept, and few fund managers will write about investing in poor quality businesses, it is something that we take very seriously and monitor very closely. For us good quality is about companies with strong business models, good long term prospects for growth, robust balance sheets, honest and capable management teams and operations that we can understand and value. We also want to invest in businesses that can combine these qualities with the ability to pay out, and sustain, either significant absolute levels of dividend or high levels of dividend growth.
Performance
On an absolute basis, performance during the year was strong. In total return terms the Company's NAV rose by 34.9%, outperforming the 33.2% rise in the FTSE All-Share. The impact of the Company's gearing structure was favourable as on a gross asset basis the Company underperformed the benchmark marginally over the year, by 1.8%, delivering a return of 31.5%. The performance of the equity component was better, underperforming by just 0.2% as performance was held back by the holding in bonds (designed to sterilise the impact of the debenture), the Company's holdings in cash and its put protection. Performance improved as the year went on and the second half was much stronger than the first as some of the changes we made to the portfolio began to bear fruit. In the second half of the year the Company outperformed its benchmark by 2% on a gross asset basis, having underperformed by 3.5% in the first half of the year.
Most pleasingly, the engine room of performance for the Company came from a number of our investments doing well for all the right reasons; as they demonstrated the resilience of their business models and future growth prospects they were rewarded with strong rises in their share prices. These include companies such as Mothercare, Whitbread, Prudential, Weir Group and Rolls Royce, which all contributed large amounts of value to the portfolio and which we believe are well positioned to deliver much more in future years.
The Company also benefited from merger & acquisition activity over the year, which in aggregate was more modest than in the past but nonetheless helpful to performance as acquirers looked to gain from the same attractive business prospects that we had also identified. The main example of this was Centrica's acquisition of Venture Production, the North Sea oil & gas business, which yielded the Company a substantial profit on its original investment. We also benefited from takeover approaches from private equity for BPP, the professional education company, and for Care UK, the nursing home operator.
The Company also benefited from what we consider to be the sensible approach that we adopt to portfolio construction. We build the portfolio with reference to the Company's income and growth requirements rather than with reference solely to a company's size, which is how the benchmark is constructed. This resulted in us having more modest holdings in some of the larger FTSE companies that lagged the strong index rise, such as GlaxoSmithKline, Royal Dutch Shell and Vodafone. We like all these businesses but we do not believe that their prospects merit the same weightings in the portfolio as they carry in the benchmark.
The most significant contributor to our underperformance, on a gross assets basis, was our very large underweight position in mining stocks. This cost the Company 4% of relative performance over the year. There are three key factors why we are underweight the sector. First, the quality of many of the companies in the sector does not meet our strict requirements as they either produce a single commodity which makes them vulnerable to changes in price that they cannot control, we may have some concerns over aspects of their corporate governance or they have uncomfortably high levels of debt. Secondly, many of these companies have very low dividend yields. It would be difficult, given the current need for income, for us to have a large position in a sector that distributes so little. Finally, we also consider that, at the current time, many of these companies have extremely full valuations that are likely to limit future returns to investors. Given these concerns and the Company's mandate for income as well as growth we are happy to maintain this position.
At a stock level Centrica, National Grid Transco and British American Tobacco (BAT) all contributed to our relative underperformance over the year as they lagged the strong performance of the wider market. However, for all three, it was a year of good operational progress, Centrica completed several key acquisitions to strengthen their upstream positioning, National Grid continued to integrate their US acquisition Keyspan and made important developments in their regulatory frameworks, while BAT continued its steady organic volume growth and cost cutting programmes. All three remain core long term holdings for us. Indeed, we have added more on relative weakness during 2009/10 and we believe that they will be important contributors to both future relative performance and dividend payments for your Company.
Portfolio Activity
The principal changes to the portfolio have been focused on achieving two aims: to enhance the overall quality of the portfolio (both at the company level and in terms of the overall diversification and balance of the Company) while maintaining and, if possible, improving its income generating capability.
Having subscribed to the Barclays issuance of convertible notes in November 2008, and having seen the shares stage a dramatic recovery from their lows of March 2009, we began to exit our position over the course of April and May. This was driven principally by concerns over whether we really understood what was going on behind the scenes, given the company's vast balance sheet and heavy reliance on investment banking revenues, as well as by the ordinary shares' lack of meaningful dividend.
We also exited our modest holding in Legal & General partly on capital concerns, partly on worries over their ability to maintain their dividend payments and partly because we felt that it was not adding a great deal to the balanced exposures of the portfolio, given that we also held insurers Aviva and Prudential.
In the mining sector we sold out of our holding in Anglo American and reinvested the proceeds into building a new position in BHP Billiton. Anglos had abolished their dividend and sought to repair their balance sheet after the dramatic decline in metals prices in the second half of 2008. Moreover, we felt that, not only did BHP retain healthy dividend paying capacity, its very strong balance sheet and well diversified asset base, with extremely strong positions in iron ore and copper and a fast growing oil & gas business, left it positioned as the best quality mining company in the world.
The real estate sector was another area where we made changes, consolidating our holding in British Land into our existing position in Land Securities. Again the aim here was to concentrate our holdings into a company that we feel is best placed to grow both capital and dividends, over the medium to long term, given its strong balance sheet, well covered dividend and a property portfolio with a heavier weighting to London and the South East, which we believe will be the best performing part of the UK real estate market.
Elsewhere we sold out of Wolseley after a very frustrating period. Operational performance had deteriorated substantially, as building activity contracted far beyond our expectations, and the balance sheet began to come under severe pressure. Our urges to the company to consider an equity capital raising were ignored and so, reluctantly, we decided to exit, believing that this was the only way for the business to avoid falling into the hands of the banks. Frustratingly, less than two months later, the company announced a major rights issue and the shares recovered quite substantially.
Tomkins was another business which we had owned for some time and which had found life very tough going with its principal exposures to global automotive production and US construction. Again both markets proved to be much worse than we had expected. However, the company possessed a strong balance sheet and a very capable management team, who executed a number of sensible disposals and some extensive restructuring. As the share price recovered, during the later part of the year and mindful that the company had cut its dividend payout, we gradually exited.
Last year's annual report highlighted the problems that had befallen BT Group as a result of the failings in their global services division and the issues facing their pension scheme. As management executed their turnaround strategy in global services, and with the recovery in markets calming fears over the pension deficit, we took advantage of a recovery in the share price to exit our holding.
With the money raised during the year from disposals we sought to add to existing holdings where we felt the quality of business model was high, the balance sheet strong and the prospects for dividend distribution robust. As a result we increased our holdings in Centrica, National Grid, Rolls Royce, Provident Financial, Tesco and BAT. All of these companies have business models that we consider to be relatively immune to the vagaries of the economic cycle, are prudently financed, have strong management teams and credible strategies for above average long term profit growth that we believe will be translated into superior dividend generation for shareholders.
However, the year was not solely about exits and consolidating positions. We initiated a holding in John Wood Group, the oil & gas services business. It is a company that we have followed for a long time, which has a strong balance sheet, good management and is well placed to benefit from both increased activity in the industry, as a result of what are likely to be structurally higher oil and gas prices in the long run, and from exploration and production being conducted in increasingly challenging parts of the world. While it is not a high yielding stock today we consider that it has good prospects for dividend growth over the longer term. We also invested in Pearson, attracted by its very strong position in education publishing, which we feel has great potential for growth over the long run as global education standards rise. The business possesses a strong balance sheet, is cash generative, has broad international exposure and pays a high level of dividend that we also consider has good prospects for growth.
A number of changes were made to the small cap holdings in the portfolio. We initiated a holding in Chloride, one of the world's leading companies in the provision of secure power technology, and Care UK, the leading UK nursing home operator. On the sell side, we exited fit out contractor T.Clarke and news distribution to aviation services provider John Menzies. The rationale for these moves was to diversify the portfolio's exposure away from pure economic cyclical exposure through investing in businesses with strong structural growth prospects.
We increased our exposure to European-listed companies modestly by starting a position in Roche, the Swiss pharmaceutical company, which is, arguably, the highest quality of all the large global businesses in this industry. Unlike many of its peer group, Roche is not burdened by upcoming patent expiries and benefits from a strong pipeline of new products and a portfolio that competes in areas that are much tougher for generic manufacturers to enter. While Roche does not currently offer a dividend yield comparable to some of its UK peers it does offer the prospect of material and sustainable growth over the long run.
Throughout the year we undertook a number of transactions in the traded options markets to take advantage of the premiums available. This was a relatively successful strategy which brought some welcome income into the Company's revenue account. In addition we also took out two put options on the FTSE 100 index in order to protect the geared portion of the Company from any sharp and prolonged decline in value. Although on the face of it this may not have appeared a successful strategy, given that, on their expiry, the market was above the exercise price on both counts, it should be viewed more as an insurance policy, in case such an event were to occur. We will continue to use this strategy to protect the portfolio whenever we deem such insurance to be trading at a sufficiently cheap value.
Outlook
We expect the road ahead to be a bumpy one. Economic growth in western countries is likely to be lower in future years than it has been in the past. Governments and central banks will have to handle, very carefully, the need to constrain indebtedness, unwind the many special measures taken while, at the same time, not dashing the nascent signs of recovery or letting inflation take hold. In such conditions predictions are certain to be folly and instead we need to concentrate on the parts of the portfolio that we can control, reviewing our holdings closely, making sure they retain their good quality traits and making sure we have the right balance of exposures within the portfolio. In terms of income generation the portfolio has stabilised after a difficult few years. We will continue to seek to balance income payments today with future growth both in terms of income and in terms of the capital value of our investments. We remain cautiously optimistic looking ahead to next year and beyond.
Jeremy Whitley
Aberdeen Asset Managers Limited
24 March 2010
3. BUSINESS REVIEW
The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006. A review of the Company's activities is given in the Chairman's Statement and the Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business and recommended dividend. The Board has adopted a matrix of the key risks that affect its business. Like most other companies, the present economic conditions represent the greatest challenge, and risk, to the Company. Beyond this the major risks associated with the Company are detailed in note 19 to the Financial Statements. Other risks include:
· Performance risk: A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The NAV performance relative to the Index and the underlying stock weightings in the portfolio against the Index weightings are monitored closely by the Board.
· Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company operates a share buyback programme which is reviewed on a continuing basis.
· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.
Monitoring Performance - Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. Below are the main key performance indicators (KPIs) which have been identified by the Board for determining the progress of the Company:
|
|
Year ended 31 January 2010 |
|
Net asset value |
198.80p (valuing debt at market value) |
|
FTSE All-Share Index |
2660.49 |
|
Discount |
9.0% (valuing debt at market value) |
|
Share price |
177.0p |
|
Total expense ratio |
0.78% |
In addition the Directors also consider net asset value total return, share price total return, dividend levels and revenue return per Ordinary share when reviewing KPIs
4. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report & accounts and the financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
For Dunedin Income Growth Investment Trust PLC
Rory Macnamara
Audit Committee Chairman
24 March 2010
INCOME STATEMENT
|
|
|
Year ended 31 January 2010 |
Year ended 31 January 2009 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains/(losses) on investments |
9 |
- |
66,718 |
66,718 |
- |
(142,934) |
(142,934) |
|
Currency gains |
|
- |
31 |
31 |
- |
26 |
26 |
|
Income |
2 |
14,251 |
- |
14,251 |
19,998 |
- |
19,998 |
|
Investment management fee |
3 |
(447) |
(671) |
(1,118) |
(542) |
(812) |
(1,354) |
|
VAT recoverable on investment management fees |
|
172 |
401 |
573 |
306 |
714 |
1,020 |
|
Administrative expenses |
4 |
(893) |
- |
(893) |
(804) |
- |
(804) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
13,083 |
66,479 |
79,562 |
18,958 |
(143,006) |
(124,048) |
|
|
|
|
|
|
|
|
|
|
Finance costs |
5 |
(955) |
(1,433) |
(2,388) |
(1,181) |
(1,771) |
(2,952) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities before taxation |
|
12,128 |
65,046 |
77,174 |
17,777 |
(144,777) |
(127,000) |
|
|
|
|
|
|
|
|
|
|
Taxation |
6 |
(83) |
- |
(83) |
(77) |
- |
(77) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities after taxation |
|
12,045 |
65,046 |
77,091 |
17,700 |
(144,777) |
(127,077) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return per Ordinary share (pence): |
8 |
7.99 |
43.16 |
51.15 |
11.72 |
(95.84) |
(84.12) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|||
|
The column of this statement headed "Total" represents the profit and loss account of the Company. |
|||||||
|
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
BALANCE SHEET
|
|
|
As at |
As at |
|
|
|
31 January 2010 |
31 January 2009 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
9 |
328,928 |
272,729 |
|
|
|
_________ |
_________ |
|
Current assets |
|
|
|
|
Loans and receivables |
10 |
2,470 |
5,227 |
|
Cash and short term deposits |
17 |
566 |
5,199 |
|
AAA Money Market funds |
17 |
2,386 |
- |
|
|
|
_________ |
_________ |
|
|
|
5,422 |
10,426 |
|
|
|
_________ |
_________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Bank loan |
11 |
(1,500) |
(12,000) |
|
Other creditors |
11 |
(767) |
(744) |
|
|
|
_________ |
_________ |
|
|
|
(2,267) |
(12,744) |
|
|
|
_________ |
_________ |
|
Net current assets/(liabilities) |
|
3,155 |
(2,318) |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
332,083 |
270,411 |
|
|
|
|
|
|
Creditors: amounts falling due after more than one year |
12 |
(28,480) |
(28,467) |
|
|
|
_________ |
_________ |
|
Net assets |
|
303,603 |
241,944 |
|
|
|
_________ |
_________ |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
13 |
38,419 |
38,419 |
|
Share premium account |
|
4,543 |
4,543 |
|
Capital redemption reserve |
|
1,606 |
1,606 |
|
Capital reserve |
14 |
238,444 |
173,398 |
|
Revenue reserve |
|
20,591 |
23,978 |
|
|
|
_________ |
_________ |
|
Equity Shareholders' funds |
|
303,603 |
241,944 |
|
|
|
_________ |
_________ |
|
Adjusted net asset value per Ordinary share (pence): |
18 |
201.37 |
160.45 |
|
|
|
_________ |
_________ |
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
|
For the year ended 31 January 2010 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2009 |
|
38,419 |
4,543 |
1,606 |
173,398 |
23,978 |
241,944 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
65,046 |
12,045 |
77,091 |
|
Dividends paid |
7 |
- |
- |
- |
- |
(15,432) |
(15,432) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2010 |
|
38,419 |
4,543 |
1,606 |
238,444 |
20,591 |
303,603 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 31 January 2009 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2008 |
|
38,919 |
4,543 |
1,106 |
320,332 |
21,780 |
386,680 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
(144,777) |
17,700 |
(127,077) |
|
Dividends paid |
7 |
- |
- |
- |
- |
(15,502) |
(15,502) |
|
Purchase of own shares |
13 |
- |
- |
- |
(2,157) |
- |
(2,157) |
|
Cancellation of treasury shares |
13 |
(500) |
- |
500 |
- |
- |
- |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2009 |
|
38,419 |
4,543 |
1,606 |
173,398 |
23,978 |
241,944 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||
CASH FLOW STATEMENT
|
|
|
Year ended |
Year ended |
||
|
|
|
31 January 2010 |
31 January 2009 |
||
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
|
Net cash inflow from operating activities |
15 |
|
12,545 |
|
17,821 |
|
|
|
|
|
|
|
|
Servicing of finance |
|
|
|
|
|
|
Interest paid |
|
|
(2,366) |
|
(3,022) |
|
|
|
|
|
|
|
|
Taxation |
|
|
|
|
|
|
Overseas withholding tax paid |
|
|
(83) |
|
(77) |
|
|
|
|
|
|
|
|
Financial investment |
|
|
|
|
|
|
Purchases of investments |
|
(56,446) |
|
(47,253) |
|
|
Sales of investments |
|
70,004 |
|
58,359 |
|
|
|
|
_______ |
|
_______ |
|
|
Net cash inflow from financial investment |
|
|
13,558 |
|
11,106 |
|
|
|
|
|
|
|
|
Equity dividends paid |
7 |
|
(15,432) |
|
(15,502) |
|
|
|
|
_______ |
|
_______ |
|
Net cash inflow before use of liquid resources and financing |
|
|
8,222 |
|
10,326 |
|
|
|
|
|
|
|
|
Net cash outflow from management of liquid resources |
|
|
(2,386) |
|
- |
|
|
|
|
_______ |
|
_______ |
|
Net cash inflow before financing |
|
|
5,836 |
|
10,326 |
|
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
Repayment of loans |
|
(10,500) |
|
(6,000) |
|
|
Purchase of own shares |
|
- |
|
(2,157) |
|
|
|
|
_______ |
|
_______ |
|
|
Net cash outflow from financing |
|
|
(10,500) |
|
(8,157) |
|
|
|
|
_______ |
|
_______ |
|
(Decrease)/increase in cash |
|
|
(4,664) |
|
2,169 |
|
|
|
|
_______ |
|
_______ |
|
Reconciliation of net cash flow to movements in net funds |
|
|
|
|
|
|
(Decrease)/increase in cash as above |
|
|
(4,664) |
|
2,169 |
|
Net change in liquid resources |
|
|
2,386 |
|
- |
|
Exchange movements |
|
|
31 |
|
26 |
|
|
|
|
_______ |
|
_______ |
|
Movement in net funds in the period |
|
|
(2,247) |
|
2,195 |
|
Opening net funds |
|
|
5,199 |
|
3,004 |
|
|
|
|
_______ |
|
_______ |
|
Closing net funds |
|
|
2,952 |
|
5,199 |
|
|
|
|
_______ |
|
_______ |
NOTES
|
1. |
Accounting policies |
|
|
|
(a) |
Basis of preparation and going concern |
|
|
|
The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The Directors believe this is appropriate for the reasons outlined in the Directors' Report in the full report and accounts. |
|
|
|
|
|
|
|
The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP). |
|
|
|
|
|
|
|
The Company adopted the extended disclosure requirements within FRS 29 for accounting periods beginning on or after 1 January 2009. The extended disclosure requirements introduced a fair value hierarchy and this is disclosed in note 20. |
|
|
|
|
|
|
(b) |
Revenue, expenses and interest payable |
|
|
|
Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on AAA rated money market funds and short term deposits and expenses are accounted for on an accruals basis. Income from underwriting commission is recognised as earned. Interest payable is calculated on an effective yield basis. |
|
|
|
|
|
|
|
Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long-term in the form of revenue and capital respectively (see note 3). |
|
|
|
|
|
|
(c) |
Investments |
|
|
|
Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement. |
|
|
|
|
|
|
(d) |
Dividends payable |
|
|
|
Interim and final dividends are recognised in the period in which they are paid. |
|
|
|
|
|
|
(e) |
Capital reserves |
|
|
|
Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. |
|
|
|
|
|
|
|
The ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer be made to the capital redemption reserve. |
|
|
|
|
|
|
(f) |
Taxation |
|
|
|
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets being recognised only if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Temporary differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. |
|
|
|
|
|
|
|
Owing to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
|
(g) |
Foreign currency |
|
|
|
The Company receives a proportion of its investment income in foreign currency. These amounts are translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. |
|
|
|
|
|
|
(h) |
Traded options |
|
|
|
The Company may enter into certain derivatives (e.g. options). Option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value i.e. market value adjusted for the amortisation of transaction expenses. The premium received and fair value changes in the open position are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Income Statement.
In addition, the Company may enter into derivative contracts to manage market risk and gains or losses arising on such contracts are recorded in the capital column of the Income Statement. |
|
|
|
2010 |
2009 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK listed - franked |
11,622 |
17,818 |
|
|
UK listed - unfranked |
1,018 |
614 |
|
|
Overseas listed - unfranked |
1,060 |
795 |
|
|
Scrip dividends |
- |
76 |
|
|
|
_______ |
_______ |
|
|
|
13,700 |
19,303 |
|
|
|
_______ |
_______ |
|
|
Other income |
|
|
|
|
Interest from AAA rated money market funds |
- |
24 |
|
|
Deposit interest |
3 |
158 |
|
|
Income on derivatives |
409 |
336 |
|
|
Income from stock lending |
(3) |
59 |
|
|
Underwriting commission |
142 |
118 |
|
|
|
_______ |
_______ |
|
|
|
551 |
695 |
|
|
|
_______ |
_______ |
|
|
Total income |
14,251 |
19,998 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
During the year, the Company received premiums totalling £436,000 (2009 - £425,000) in exchange for entering into derivative transactions. This also includes a mark to market on derivative contracts. All derivatives utilised were based on individual FTSE 100 stocks. At the year end there were 5 open positions, valued at £77,000 (2009 - £89,000). |
||
|
|
|
2010 |
2009 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3. |
Investment management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Investment management fee |
447 |
671 |
1,118 |
542 |
812 |
1,354 |
|
|
|
_______ |
_______ |
_______ |
_______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
The management fee paid to Aberdeen Asset Managers Limited (the "Manager") for the year ended 31 January 2010 is calculated, on a monthly basis, at 0.45% on the first £225 million, 0.35% on the next £200 million and 0.25% on amounts over £425 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 40% to revenue and 60% to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2010 (2009 - none). |
||||||
|
|
|
2010 |
2009 |
|
|
4. |
Administrative expenses |
£'000 |
£'000 |
|
|
|
Directors' fees |
98 |
98 |
|
|
|
Auditors' remuneration (excluding irrecoverable VAT): |
|
|
|
|
|
- |
fees payable to the Company's auditor for the audit of the annual accounts |
16 |
15 |
|
|
- |
fees payable to the Company's auditor and its associates for other services: |
|
|
|
|
- |
interim review |
5 |
4 |
|
|
Investor Relations/Marketing Initiative |
329 |
339 |
|
|
|
Registrar's fees |
91 |
73 |
|
|
|
Printing and postage |
46 |
41 |
|
|
|
Irrecoverable VAT |
80 |
88 |
|
|
|
Other expenses |
228 |
146 |
|
|
|
|
_______ |
_______ |
|
|
|
|
893 |
804 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
A payment of £329,000 (2009 - £339,000) was made to the Manager in respect of marketing and promotion of the Company. |
|||
|
|
|
2010 |
2009 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
5. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loan interest |
49 |
74 |
123 |
275 |
412 |
687 |
|
|
Debenture Stock - repayable after 5 years |
901 |
1,351 |
2,252 |
901 |
1,351 |
2,252 |
|
|
Amortised Debenture Stock premium and issue expenses |
5 |
8 |
13 |
5 |
8 |
13 |
|
|
|
_______ |
_______ |
______ |
______ |
______ |
______ |
|
|
|
955 |
1,433 |
2,388 |
1,181 |
1,771 |
2,952 |
|
|
|
_______ |
_______ |
______ |
______ |
______ |
______ |
|
|
|
2010 |
2009 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
(a) |
Analysis of charge for the year |
||||||
|
|
|
Corporation tax at 28% (2009 - 28.33%) |
261 |
- |
261 |
- |
- |
- |
|
|
|
Double taxation relief |
(261) |
- |
(261) |
- |
- |
- |
|
|
|
Overseas tax suffered |
114 |
- |
114 |
104 |
- |
104 |
|
|
|
Overseas tax reclaimable |
(31) |
- |
(31) |
(27) |
- |
(27) |
|
|
|
|
_______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
Current tax charge for the year |
83 |
- |
83 |
77 |
- |
77 |
|
|
|
|
_______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
||||||
|
|
(b) |
Factors affecting the tax charge for the year |
||||||
|
|
|
The tax assessed for the year is lower than the rate of corporation tax rate of 28% (2009 - effective rate of 28.33%). The effective rate for 2009 was calculated using a rate of 30% until 31 March 2008 and 28% from 1 April 2008. The differences are explained below: |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
2009 |
||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Return on ordinary activities before taxation |
12,128 |
65,046 |
77,174 |
17,777 |
(144,777) |
(127,000) |
|
|
|
|
_______ |
_______ |
______ |
______ |
______ |
______ |
|
|
|
Corporation tax at 28% (2009 - 28.33%) |
3,396 |
18,213 |
21,609 |
5,037 |
(41,015) |
(35,978) |
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
Non-taxable UK dividends |
(3,254) |
- |
(3,254) |
(5,047) |
- |
(5,047) |
|
|
|
Non-taxable stock dividends |
(57) |
- |
(57) |
(103) |
- |
(103) |
|
|
|
Capital (gains)/losses on investments not taxable |
- |
(18,681) |
(18,681) |
- |
40,493 |
40,493 |
|
|
|
Income taxable in different years |
3 |
- |
3 |
2 |
- |
2 |
|
|
|
Overseas taxes |
(179) |
- |
(179) |
77 |
- |
77 |
|
|
|
Non-taxable overseas dividends |
(116) |
- |
(116) |
- |
- |
- |
|
|
|
Expenses not deductible for tax purposes |
- |
- |
- |
4 |
- |
4 |
|
|
|
Non utilised management expenses |
290 |
468 |
758 |
107 |
522 |
629 |
|
|
|
|
_______ |
_______ |
______ |
______ |
______ |
______ |
|
|
|
Current tax charge |
83 |
- |
83 |
77 |
- |
77 |
|
|
|
|
_______ |
_______ |
______ |
______ |
______ |
______ |
|
|
|
|
||||||
|
|
(c) |
Factors that may affect future tax charges |
||||||
|
|
|
The Company has not recognised a deferred tax asset of £104,288,000 (2009 - £102,263,000) arising as a result of surplus management expenses and loan relationship losses. These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. |
||||||
|
|
|
2010 |
2009 |
|
7. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Final dividend for the year ended 31 January 2009 - 6.50p (2008 - 6.50p) paid 22 May 2009 |
9,796 |
9,849 |
|
|
Interim dividend for the year ended 31 January 2010 - 3.75p (2009 - 3.75p) paid 9 October 2009 |
5,651 |
5,653 |
|
|
Return of unclaimed dividends |
(15) |
- |
|
|
|
_______ |
_______ |
|
|
Dividends paid in the period |
15,432 |
15,502 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis upon which the requirements of Section 842 Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £12,045,000 (2009 - £17,700,000). |
||
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
|
£'000 |
£'000 |
|
|
Interim dividend for the year ended 31 January 2010 - 3.75p (2009 - 3.75p) |
5,651 |
5,653 |
|
|
Proposed final dividend of 6.50p (2009 - 6.50p) for the year ended 31 January 2010 |
9,796 |
9,796 |
|
|
|
_______ |
_______ |
|
|
|
15,447 |
15,449 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
There have been no shares bought back since the year end and the proposed final dividend for 2010 is based on the latest share capital of 150,706,187 Ordinary shares. |
||
|
|
|
2010 |
2009 |
||
|
8. |
Return per Ordinary share |
£'000 |
p |
£'000 |
p |
|
|
Revenue return |
12,045 |
7.99 |
17,700 |
11.72 |
|
|
Capital return |
65,046 |
43.16 |
(144,777) |
(95.84) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total return |
77,091 |
51.15 |
(127,077) |
(84.12) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Weighted average number of Ordinary shares in issue |
150,706,187 |
|
151,058,809 |
|
|
|
|
Listed |
Listed |
|
|
|
|
2010 |
2009 |
|
|
9. |
Investments: listed at fair value through profit or loss |
£'000 |
£'000 |
|
|
|
Opening fair value |
272,729 |
425,578 |
|
|
|
Opening investment holding losses/(gains) |
64,237 |
(26,971) |
|
|
|
Opening book cost |
336,966 |
398,607 |
|
|
|
Purchases at cost |
56,446 |
47,174 |
|
|
|
Sales |
- proceeds |
(66,965) |
(57,089) |
|
|
|
- realised losses |
(28,004) |
(51,557) |
|
|
Loss on traded option contracts |
(697) |
(169) |
|
|
|
|
_______ |
_______ |
|
|
|
Closing book cost |
297,746 |
336,966 |
|
|
|
Closing investment holdings gains/(losses) |
31,182 |
(64,237) |
|
|
|
|
_______ |
_______ |
|
|
|
Closing fair value |
328,928 |
272,729 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
|
Gains/(losses) on investments |
£'000 |
£'000 |
|
|
|
Realised losses on sales |
(28,004) |
(51,557) |
|
|
|
Loss on traded option contracts |
(697) |
(169) |
|
|
|
Change in investment holdings gains/(losses) |
95,419 |
(91,208) |
|
|
|
|
_______ |
_______ |
|
|
|
|
66,718 |
(142,934) |
|
|
|
|
_______ |
_______ |
|
|
|
Transaction costs |
|
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within losses on investments in the Income Statement. The total costs were as follows: |
|||
|
|
|
2010 |
2009 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Purchases |
241 |
215 |
|
|
|
Sales |
73 |
76 |
|
|
|
|
_______ |
_______ |
|
|
|
|
314 |
291 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
|
Stock lending details |
£'000 |
£'000 |
|
|
|
Maximum aggregate value of securities on loan during the year |
- |
92,268 |
|
|
|
Fee income (gross) from stock lending during the year |
- |
59 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Stock lending arrangements were suspended during the year ended 31 January 2009. |
|||
|
|
|
2010 |
2009 |
|
10. |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Amounts due from stockbrokers |
- |
3,039 |
|
|
Net dividends and interest receivable |
760 |
1,020 |
|
|
Tax recoverable |
91 |
54 |
|
|
VAT recoverable |
1,593 |
1,020 |
|
|
Other loans and receivables |
26 |
94 |
|
|
|
_______ |
_______ |
|
|
|
2,470 |
5,227 |
|
|
|
_______ |
_______ |
|
11. |
Creditors: amounts falling due within one year |
|||
|
|
(a) |
Bank loan |
||
|
|
|
The Company has an agreement (which expires 31 July 2010) with Royal Bank of Scotland plc to provide a loan facility for up to £5,000,000 (2009 - £30,000,000). At 31 January 2010 £1,500,000 (2009 - £12,000,000) was drawn down. On 18 March 2010 the loan was rolled over at a rate of 2.499%. The covenant that gross borrowings should not exceed 30% of adjusted assets has been met throughout the year and up to the date this report was signed. |
||
|
|
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
(b) |
Other creditors |
£'000 |
£'000 |
|
|
|
Debenture Stock and bank loan interest |
578 |
569 |
|
|
|
Traded option contracts |
77 |
89 |
|
|
|
Sundry creditors |
112 |
86 |
|
|
|
|
_______ |
_______ |
|
|
|
|
767 |
744 |
|
|
|
|
_______ |
_______ |
|
|
|
2010 |
2009 |
|
12. |
Creditors: amounts falling due after more than one year |
£'000 |
£'000 |
|
|
7⅞% Debenture Stock 2019 (issued in 1997) |
28,600 |
28,600 |
|
|
Unamortised Debenture Stock premium and issue expenses |
(120) |
(133) |
|
|
|
_______ |
_______ |
|
|
Amortised cost of Debenture Stock |
28,480 |
28,467 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
The 7⅞% Debenture Stock is due to be redeemed at par on 30 April 2019 and interest is payable in half-yearly instalments in April and October. The Debenture Stock is secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Debenture Stock Trust Deed that total borrowings should not be greater than adjusted capital and reserves throughout the year and up to the date this report was signed. |
||
|
|
|
||
|
|
The market value of the Debenture Stock as at 31 January 2010 was £32,480,000 (2009 - £33,965,000), the value being calculated per the disclosure in note 19. The effect on the net asset value of deducting the Debenture Stock at market value rather than at par is disclosed in note 18. |
||
|
|
|
2010 |
2009 |
|
13. |
Called-up share capital |
£'000 |
£'000 |
|
|
Allotted, called up and fully paid: |
|
|
|
|
150,706,187 (2009 - 150,706,187) Ordinary shares of 25p each - equity |
37,676 |
37,676 |
|
|
|
|
|
|
|
Treasury shares: |
|
|
|
|
2,971,748 (2009 - 2,971,748) Ordinary shares of 25p each - equity |
743 |
743 |
|
|
|
_______ |
_______ |
|
|
|
38,419 |
38,419 |
|
|
|
_______ |
_______ |
|
|
|
||
|
|
During the year there were no Ordinary shares repurchased (2009 - 1,026,007 at a cost of £2,157,000 including expenses), and no treasury shares cancelled (2009 - 2,000,000). |
||
|
|
|
2010 |
2009 |
|
14. |
Capital reserve |
£'000 |
£'000 |
|
|
At 31 January 2009 |
173,398 |
320,332 |
|
|
Net losses on sales of investments during the year |
(28,004) |
(51,557) |
|
|
Movement in investment holdings gains during the year |
95,419 |
(91,208) |
|
|
Loss on traded option contracts |
(697) |
(169) |
|
|
Purchase of own shares |
- |
(2,157) |
|
|
Currency gains |
31 |
26 |
|
|
Finance costs of borrowings (note 5) |
(1,433) |
(1,771) |
|
|
Investment management fee |
(671) |
(812) |
|
|
VAT recoverable on management fees |
401 |
714 |
|
|
|
_______ |
_______ |
|
|
At 31 January 2010 |
238,444 |
173,398 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Included in the total above are investment holdings gains at the year end of £31,182,000 (2009 - losses £64,237,000) |
||
|
15. |
Reconciliation of net return before finance costs and |
2010 |
2009 |
|
|
taxation to net cash inflow from operating activities |
£'000 |
£'000 |
|
|
Net return on ordinary activities before finance costs and taxation |
79,562 |
(124,048) |
|
|
Adjustment for: |
|
|
|
|
(Gains)/losses on investments |
(66,718) |
142,934 |
|
|
Currency (gains) |
(31) |
(26) |
|
|
Decrease in accrued income |
260 |
7 |
|
|
Increase in other debtors |
(542) |
(1,100) |
|
|
Increase in other creditors |
14 |
54 |
|
|
|
_______ |
_______ |
|
|
|
12,545 |
17,821 |
|
|
|
_______ |
_______ |
|
|
|
Equity |
|
Equity |
|
|
|
|
share capital |
|
share capital |
|
|
|
|
(including premium) |
Debenture stock |
(including premium) |
Debenture stock |
|
|
|
2010 |
2010 |
2009 |
2009 |
|
16. |
Analysis of changes in financing during the year |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Opening balance at 31 January 2009 |
42,962 |
28,467 |
43,462 |
28,454 |
|
|
Movement in unamortised Debenture Stock discount and issue expenses |
- |
13 |
- |
13 |
|
|
Cancellation of treasury shares |
- |
- |
(500) |
- |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Closing balance at 31 January 2010 |
42,962 |
28,480 |
42,962 |
28,467 |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
The ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, should a transfer be made to the capital redemption reserve. |
||||
|
|
|
|
|
Amortisation |
|
|
|
|
At |
|
of issue |
At |
|
|
|
31 January |
|
expenses |
31 January |
|
|
|
2009 |
Cash flow |
and premium |
2010 |
|
17. |
Analysis of changes in net debt |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash and short term deposits |
5,199 |
(4,633) |
- |
566 |
|
|
AAA Money Market funds |
- |
2,386 |
- |
2,386 |
|
|
Debt due within one year |
(12,000) |
10,500 |
- |
(1,500) |
|
|
Debt due after more that one year |
(28,467) |
- |
(13) |
(28,480) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Net debt |
(35,268) |
8,253 |
(13) |
(27,028) |
|
|
|
_______ |
_______ |
_______ |
_______ |
|
18. |
Net asset value per share |
||
|
|
Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the year end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is as follows: |
||
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
Equity shareholders' funds |
£303,603,000 |
£241,944,000 |
|
|
Adjusted net assets |
£303,483,000 |
£241,811,000 |
|
|
Number of equity shares in issue at year end ª |
150,706,187 |
150,706,187 |
|
|
|
|
|
|
|
Equity shareholders' funds per share |
201.45p |
160.54p |
|
|
Less: Unamortised Debenture Stock premium and issue expenses |
(0.08p) |
(0.09p) |
|
|
|
_______ |
_______ |
|
|
Adjusted net asset value per share |
201.37p |
160.45p |
|
|
ª excluding shares held in treasury |
_______ |
_______ |
|
|
|
|
|
|
|
The net asset value per share at 31 January 2010, adjusted to include the Debenture Stock at market value rather than at par is 198.80p (2009 - 156.89p). |
||
|
|
|
||
|
|
The movements during the year of the assets attributable to the Ordinary shares were as follows: |
||
|
|
|
|
|
|
|
|
2010 |
2009 |
|
|
|
£'000 |
£'000 |
|
|
Opening adjusted net assets |
241,811 |
386,534 |
|
|
Capital return for the year |
65,046 |
(144,777) |
|
|
Revenue on ordinary activities after taxation |
12,045 |
17,700 |
|
|
Dividends appropriated in the year |
(15,432) |
(15,502) |
|
|
Movement in unamortised Debenture Stock premium and issue expenses |
13 |
13 |
|
|
Purchase of own shares |
- |
(2,157) |
|
|
|
_______ |
_______ |
|
|
Closing adjusted net assets |
303,483 |
241,811 |
|
|
|
_______ |
_______ |
|
19. |
Financial instruments |
||||||||||||
|
|
The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts and futures and options for the purpose of managing currency and market risks arising from the Company's activities. |
||||||||||||
|
|
|
||||||||||||
|
|
During the year, the Company entered into certain derivative contracts. Positions closed during the year realised a loss of £697,000 (2009 - £169,000). As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £436,000 (2009- £425,000). The largest position in derivative contracts held during the year at any given time was £110,000 (2009 - £103,000). The Company had 5 open positions in derivative contracts at 31 January 2010 valued at £77,000 (2009 - £89,000). Also at 31 January 2010 the Company held a FTSE 100 Put option valued at £62,000 (2009- £Nil) which will expire in March 2010. |
||||||||||||
|
|
|
||||||||||||
|
|
Risk management |
||||||||||||
|
|
The Manager has a dedicated investment management process, which ensures that the investment policy is followed. Stock selection procedures are in place based on active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee. |
||||||||||||
|
|
|
||||||||||||
|
|
The Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models. During the past year these have highlighted both the highest market volatility on record and an increased correlation in equity share price movements. |
||||||||||||
|
|
|
||||||||||||
|
|
Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee. |
||||||||||||
|
|
|
||||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. |
||||||||||||
|
|
|
||||||||||||
|
|
The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures. |
||||||||||||
|
|
|
||||||||||||
|
|
(i) Market risk |
||||||||||||
|
|
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. |
||||||||||||
|
|
|
||||||||||||
|
|
Interest rate risk |
||||||||||||
|
|
Interest rate movements may affect: |
||||||||||||
|
|
- the fair value of the investments in fixed interest rate securities; |
||||||||||||
|
|
- the level of income receivable on cash deposits; and |
||||||||||||
|
|
- interest payable on the Company's variable rate borrowings. |
||||||||||||
|
|
|
||||||||||||
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
||||||||||||
|
|
|
||||||||||||
|
|
Interest risk profile |
||||||||||||
|
|
The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows: |
||||||||||||
|
|
|
Weighted |
|
|
|
||||||||
|
|
|
average |
|
|
|
||||||||
|
|
|
period for |
Weighted |
|
|
||||||||
|
|
|
which |
average |
Fixed |
Floating |
||||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
||||||||
|
|
At 31 January 2010 |
Years |
% |
£'000 |
£'000 |
||||||||
|
|
Assets |
|
|
|
|
||||||||
|
|
Sterling |
15.13 |
6.98 |
8,389 |
2,952 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Total assets |
- |
- |
8,389 |
2,952 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Liabilities |
|
|
|
|
||||||||
|
|
Bank loans |
0.08 |
2.47 |
(1,500) |
- |
||||||||
|
|
Debenture Stock |
9.25 |
7.87 |
(28,480) |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Total liabilities |
- |
- |
(29,980) |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
Weighted |
|
|
|
||||||||
|
|
|
average |
|
|
|
||||||||
|
|
|
period for |
Weighted |
|
|
||||||||
|
|
|
which |
average |
Fixed |
Floating |
||||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
||||||||
|
|
At 31 January 2009 |
Years |
% |
£'000 |
£'000 |
||||||||
|
|
Assets |
|
|
|
|
||||||||
|
|
Sterling |
17.30 |
5.13 |
2,725 |
5,199 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Total assets |
- |
- |
2,725 |
5,199 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Liabilities |
|
|
|
|
||||||||
|
|
Bank loans |
0.02 |
1.86 |
(12,000) |
- |
||||||||
|
|
Debenture Stock |
10.25 |
7.87 |
(28,467) |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
Total liabilities |
- |
- |
(40,467) |
- |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
|
|
|
|
||||||||
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's borrowings are shown in notes 11 and 12 to the financial statements. |
||||||||||||
|
|
|
||||||||||||
|
|
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates. |
||||||||||||
|
|
|
||||||||||||
|
|
The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables. All financial liabilities are measured at amortised cost. |
||||||||||||
|
|
|
||||||||||||
|
|
Interest rate sensitivity |
||||||||||||
|
|
The sensitivity analysis below has been determined based on the exposure to interest rates at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. |
||||||||||||
|
|
|
||||||||||||
|
|
If interest rates had been 100 basis points higher and all other variables were held constant, the Company's profit before tax for the year ended 31 January 2010 would increase by £30,000 (2009 - increase by £52,000) and had interest rates been 100 basis points lower the converse would apply. This is attributable to the Company's exposure to interest rates on its floating rate cash balances. The Company holds no financial instruments that will have an equity reserve impact. |
||||||||||||
|
|
|
||||||||||||
|
|
In the opinion of the Directors, the sensitivity analysis is not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. |
||||||||||||
|
|
|
||||||||||||
|
|
Foreign currency risk |
||||||||||||
|
|
A small proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Balance Sheet can be affected by movements in exchange rates and it is the Company's policy not to hedge this risk. |
||||||||||||
|
|
|
||||||||||||
|
|
The revenue account is subject to currency fluctuations arising on dividends paid in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk. |
||||||||||||
|
|
|
||||||||||||
|
|
Foreign currency risk exposure by currency of denomination: |
||||||||||||
|
|
|
31 January 2010 |
31 January 2009 |
||||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
||||||
|
|
|
|
monetary |
currency |
|
monetary |
Currency |
||||||
|
|
|
Investments |
assets |
exposure |
Investments |
assets |
Exposure |
||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
Euro |
18,737 |
- |
18,737 |
13,219 |
28 |
13,247 |
||||||
|
|
Sterling |
310,191 |
(25,325) |
284,866 |
259,510 |
(30,813) |
228,697 |
||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
Total |
328,928 |
(25,325) |
303,603 |
272,729 |
(30,785) |
241,944 |
||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
||||||
|
|
|
||||||||||||
|
|
The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual stocks in these markets. |
||||||||||||
|
|
|
||||||||||||
|
|
Foreign currency sensitivity |
||||||||||||
|
|
There is no sensitivity analysis included as the Board believes the amount exposed to foreign currency denominated monetary assets to be immaterial. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure. |
||||||||||||
|
|
|
||||||||||||
|
|
Other price risk |
||||||||||||
|
|
Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. |
||||||||||||
|
|
|
||||||||||||
|
|
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges in the UK and Europe. |
||||||||||||
|
|
|
||||||||||||
|
|
Other price risk sensitivity |
||||||||||||
|
|
If market prices (excluding the FTSE 100 Put option which has a market value of £62,000) at the Balance Sheet date had been 10% higher while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 31 January 2010 would have increased by £32,889,000 (2009 - increase of £27,273,000) and equity reserves would have increased by the same amount. Had market prices been 10% lower the converse would apply. |
||||||||||||
|
|
|
||||||||||||
|
|
(ii) Liquidity risk |
||||||||||||
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
||||||||||||
|
|
|
||||||||||||
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise Debenture Stock and a revolving facility. The Debenture Stock provides secure long-term funding while short term flexibility is achieved through the borrowing facility. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of less than 30% at all times. Details of borrowings at the 31 January 2010 are shown in notes 11 and 12. |
||||||||||||
|
|
|
||||||||||||
|
|
Liquidity risk is not considered to be significant as the Company's assets comprise mainly cash and listed securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note. |
||||||||||||
|
|
|
||||||||||||
|
|
Liquidity risk exposure |
||||||||||||
|
|
At 31 January 2010 and 31 January 2009 the amortised cost of the Company's Debenture Stock was £28,480,000 and £28,467,000 respectively. This is due to be redeemed at par on 30 April 2019. At 31 January 2010 and 31 January 2009 the Company's bank loans, amounted to £1,500,000 and £12,000,000, respectively. The facility is committed until 31 July 2010. |
||||||||||||
|
|
|
||||||||||||
|
|
(iii) Credit risk |
||||||||||||
|
|
This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
||||||||||||
|
|
|
||||||||||||
|
|
The Company considers credit risk not to be significant as it is actively managed as follows: |
||||||||||||
|
|
- investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; |
||||||||||||
|
|
- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held; |
||||||||||||
|
|
- the risk of counterparty exposure due to stock lending is mitigated by the review of collateral positions provided daily by the various counterparties involved; |
||||||||||||
|
|
- cash is held only with reputable banks whose credit ratings are monitored on a regular basis. |
||||||||||||
|
|
|
||||||||||||
|
|
None of the Company's financial assets is secured by collateral or other credit enhancements. |
||||||||||||
|
|
|
||||||||||||
|
|
Credit risk exposure |
||||||||||||
|
|
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 January was as follows: |
||||||||||||
|
|
|
2010 |
2009 |
||||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
||||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
||||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||
|
|
Current assets |
|
|
|
|
||||||||
|
|
Fixed interest securities |
8,389 |
8,389 |
2,725 |
2,725 |
||||||||
|
|
Debtors and prepayments |
2,470 |
2,470 |
5,227 |
5,227 |
||||||||
|
|
Cash and short term deposits |
2,952 |
2,952 |
5,199 |
5,199 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
13,811 |
13,811 |
13,151 |
13,151 |
||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||
|
|
|
||||||||||||
|
|
None of the Company's financial assets is past due or impaired. |
||||||||||||
|
|
|
||||||||||||
|
|
Fair values of financial assets and financial liabilities |
||||||||||||
|
|
The fair value of borrowings has been calculated at £33,980,000 as at 31 January 2010 (2009 - £45,965,000) compared to an accounts value in the financial statements of £30,100,000 (2009 - £40,600,000) (note 11). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. All other assets and liabilities of the Company are included in the Balance Sheet at fair value. |
||||||||||||
|
20. |
Fair value hierarchy |
|||||
|
|
The Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels: |
|||||
|
|
|
|||||
|
|
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
|||||
|
|
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
|||||
|
|
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
|||||
|
|
|
|||||
|
|
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 January 2010 as follows: |
|||||
|
|
|
|||||
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
Quoted equities |
a) |
320,477 |
- |
- |
320,477 |
|
|
Quoted bonds |
b) |
8,389 |
- |
- |
8,389 |
|
|
Derivatives |
c) |
62 |
|
- |
62 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Total |
|
328,928 |
- |
- |
328,928 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
Derivatives |
c) |
(77) |
- |
- |
(77) |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
328,851 |
- |
- |
328,851 |
|
|
|
|
_______ |
_______ |
_______ |
_______ |
|
|
a) Quoted equities |
|||||
|
|
The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
|||||
|
|
|
|||||
|
|
b) Quoted bonds |
|||||
|
|
The fair value of the Company's investments in corporate quoted bonds has been determined by reference to their quoted bid prices at the reporting date. |
|||||
|
|
|
|||||
|
|
c) Derivatives |
|||||
|
|
The fair value of the Company's investments in derivatives has been determined using observable market inputs on an exchange traded basis and therefore have been classed as Level 1. |
|||||
|
21. |
Contingent asset |
|
|
On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT. HMRC has announced its intention not to appeal against this ruling to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company will be processed by HMRC in due course. |
|
|
|
|
|
The Company has accepted the Manager's offer to refund £1,020,000 and £573,000 to the Company, representing all VAT charged on investment management fees for the period 1 January 2004 to 31 October 2007 and an estimate for the period 1 January 2001 to 31 December 2003, respectively. The former amount was included in the financial statements for the year ended 31 January 2009 and the latter amount has now been included in the financial statements for the year ended 31 January 2010. Both amounts have been allocated to revenue and capital respectively, in accordance with the accounting policy of the Company for the periods in which the VAT was charged. The amount for earlier periods and the timescale for receipt are at present uncertain and the Company has therefore taken no account in these financial statements of any such repayment. |
|
|
|
|
|
The Manager is at present awaiting HMRC's confirmation of the amounts to be received for the period from 1990 to 1996. The timing of this payment is not certain, although we would expect the total amount, covering this earlier period, to be in excess of £700,000 which will, once again, be split in accordance with the prevailing accounting policy. |
|
|
|
|
|
The Company has not been charged VAT on its investment management fees from 1 November 2007. |
|
22. |
Capital management policies and procedures |
|
|
The Company's capital management objectives are: |
|
|
- to ensure that the Company will be able to continue as a going concern; and |
|
|
- to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt. |
|
|
|
|
|
The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. |
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements. |
23. The financial information for the year ended 31 January 2010 has been extracted from the Annual Report and Accounts of the Company which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified. We expect to deliver the 2010 statutory accounts to the Registrar of Companies following the Company's Annual General Meeting which will be held at Discovery Point, Dundee on Wednesday 19 May 2010 at 12 noon.
24. The Annual Report and Accounts will be posted to shareholders mid April 2010 and copies will be available from the registered office of the Manager and on the Company's website, www.dunedinincomegrowth.co.uk.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
This information is provided by RNS
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