Annual Financial Report

RNS Number : 9973H

Monks Investment Trust PLC

27 June 2013

 



 THE MONKS INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

Copies of the Annual Report and Financial Statements for the year ended 30 April 2013 of The Monks Investment Trust PLC have been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM.

The Annual Report and Financial Statements for the year ended 30 April 2013 including the Notice of Annual General Meeting is also available on Monks page of the Baillie Gifford website at:

www.monksinvestmenttrust.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 30 April 2013 which require to be published by DTR 4.1 is set out on the following pages.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Baillie Gifford & Co

Company Secretaries

27 June 2013

 

CHAIRMAN'S STATEMENT

Performance

Monks continues to pursue its objective of long term capital appreciation. However, the performance of the portfolio and the change in share price have lagged behind a rise in broad stockmarket indices that has been largely driven by the search for yield rather than long term growth potential. Nevertheless, the net asset value per share did close at an all time year end high.

The Board has undertaken with the Managers a thorough review of the causes of the recent poor performance and action has been taken to address them. Tom Walsh has been appointed deputy manager to work alongside Gerald Smith and there have been changes to the stock selection process. There are encouraging signs that these are starting to bear fruit.

In the year to 30 April 2013 the net asset value total return, with borrowings at fair value, was 7.8% and the share price total return was 6.2%. While this is a positive return it compares unfavourably with the total return of 21.4% on the FTSE World Index. The second half of the Company's year was better than the first. In the first half the net asset total return was minus 5.9% and the share price total return was minus 8.0% while in the second half the figures were 14.6% and 15.4% respectively. The total return on the comparative index was 2.7% in the first half and 18.3% in the second.

The Managers' Portfolio Review contains more detail on the individual investments that made the greatest positive and negative contributions to performance. The Company was less than fully invested during much of the year and the costs of insuring against falling markets during a period when markets rose adversely affected performance relative to the comparative index, but this was not the main cause of underperformance. Stock selection was the most important factor and there were some thematic exposures, notably to Emerging Markets (and Brazil in particular), gold mining and small oil and gas exploration companies that had a particularly negative effect on performance, especially in the first half. On the positive side we had some notable successes with a number of our holdings in relatively young companies with considerable growth potential such as the Manchester-based high technology company Nanoco. This has become one of the largest positions by virtue of having more than doubled in price and there are a number of companies with similar potential that have been added to the portfolio over the year.

Earnings and Dividend

Earnings per share were 4.68p compared with 5.35p, a decrease of 12.5%. Dividend income was lower than for the previous year, largely as result of sales of higher yielding holdings on valuation grounds, and this more than offset a decline in expenses, notably interest expense which fell following the repayment of loans and the maturity of the 11% debenture in June 2012. Monks invests with the aim of achieving capital growth rather than income and all costs are charged to the Revenue Account.

The Board is recommending a final dividend of 3.45p, which together with the interim (0.50p) already paid, would make the total dividend for the year 3.95p, unchanged from the previous year.

Investment Activity

Over the course of the year there was a net disinvestment of £145.2m comprising £115.5m in net sales of equities and £29.7m in net sales of bonds. There were net purchases of equities in North America and net sales in all other regions. The proceeds of these sales were mainly used to repay debt and repurchase shares for cancellation. A total of £80.0m of debt was repaid during the year, comprising a £40m short term loan and the £40m 11% debenture on maturity.

The level of gearing is managed in various ways, including through the sale of futures and the purchase of options as well as adjustments to the level of borrowings and cash. At the start of the year the effective gearing, taking into account futures and options positions, was minus 7% of shareholders' funds. Effective gearing was moved to a neutral position in October in light of the diminished risk of a fall in markets in the near term following the commitment of the European Central Bank to use its balance sheet to support troubled eurozone countries. At the year end effective gearing was 1%.

Buybacks and Discount

During the year to 30 April 2013 £52.3m was spent on the repurchase of 15.8m shares, representing 6.2% of the shares in issue at the start of the year. Since the power to buy back shares was first granted in 1999, 147.6m shares have been bought back and cancelled, representing 38% of the share capital at the start of that period. The Board will continue to buy back shares if suitable opportunities appear.

The discount (at fair value) widened to 13.0% from 11.6% over the course of the year. The Board monitors the level of discount and has authorised the repurchase of shares when this will be of benefit to continuing shareholders as well as being in the interest of those shareholders who may need to sell some or all of their shares.

Outlook

For as long as they have been around, central banks have always had some influence on asset prices, even when they have chosen to ignore them and focus on other things, notably the rate of inflation or the level of unemployment. Since the global financial crisis began there has been a change in the means by which the major central banks seek to achieve their objectives that has greatly increased their direct intervention in financial markets. This intervention has seriously distorted asset prices and two of the most important questions are how long this will last and how it will end.

There is much talk of 'printing money' but what 'quantitative easing' comes down to is the purchase of various financial assets, notably, but not exclusively, government bonds, by central banks such as the United States Federal Reserve and the Bank of England. This intervention pushes up the price of the assets purchased. Holders of bonds have seen yields fall to historically low levels and cash in the bank yields nothing. The nineteenth century editor of the Economist Walter Bagehot quoted the saying 'John Bull can stand many things, but he cannot stand two per cent' and the same is true of today's investors. Money that in normal circumstances would be invested in government bonds or held in savings deposits has found its way into equity markets in the search for higher yielding alternatives, as well as into more exotic securities such as Rwandan government bonds.

This reallocation of funds has inflated the values of those equities with the greatest similarities to bonds. Relative to other shares many of these now look expensive and our managers believe that there is much better value to be found in companies with greater potential for long term growth in earnings. A return to more normal conditions would most likely be associated with a rise in interest rates and a reallocation of funds back into bonds and the shares of more economically sensitive or higher growth companies. The current situation may persist for some time, however, in which case we may suffer further underperformance relative to the comparative index, but our managers believe that selecting companies for their potential to deliver superior operational performance and not overpaying for perceived safety remains the best policy for delivering our objective in the long run.

We are also aware that a return to normal is only one of a number of possibilities and that, given the many economic and political hurdles that will have to be overcome for this to happen, some of the others could be much worse. We have therefore maintained some insurance against a setback in markets and exposure to markets is approximately the same as the level of shareholders' funds.

The Board

I am very pleased that Mr Karl Sternberg has agreed to join our Board with effect from 1 July 2013.   He has extensive and relevant investment experience and will, I am sure, make a valuable contribution to the Company. Mr Sternberg will be submitted for election at the AGM.

AGM

I hope shareholders will come to the Annual General Meeting, which will be held on 2 August 2013 at 11.00am at the Institute of Directors. Our manager will give a short presentation and there will be an opportunity to ask questions.

James Ferguson

18 June 2013

MANAGERS' PORTFOLIO REVIEW

As the composition of our portfolio is quite unlike that of the comparative index it has the potential to perform very differently but clearly we got some things wrong. The net asset value per share total return with borrowings at fair value in the year to 30 April 2013 of only 7.8% was disappointing during a period in which the FTSE World Index in sterling terms generated a total return of 21.4%. Falling behind the comparative index during a very strong period for the index, combined with the losses sustained in the year to 30 April 2009, mean that the five year numbers are also now poor. The net asset value total return over the five years to 30 April 2013 was only 11.2% while the total return for the comparative index was 42.6%†. This is not the first time that Monks has underperformed the FTSE World Index over a rolling five year period.

One error was being too cautious during what has turned out to be a very strong period for stockmarkets, even though it has been a pretty dismal time for the economies of the developed world, and the financial crisis that came to a head in 2008 has morphed from a problem largely in the private sector into a government debt crisis rather than gone away. Another has been to maintain a large position in Brazil, a market that has fallen by 11.3%† in sterling terms over the last five years and to have too little exposure to the US market, which has generated a total return of 64.0%† over the same period. We also held on too long to our gold mining shares and gave up too soon on our positive call on the Japanese market by allowing our options to expire rather than renewing them one more time. The most important factor, however, was stock selection.

To some extent, our performance can be explained by the fact that some of the best performing shares in the recent past have been those of large relatively stable companies that we do not believe have the potential to grow their earnings at an attractive rate and so do not wish to own. We have, in fact, been net sellers of our higher yielding holdings as we have seen them re-rated in the general search for yield and we are concerned that some such shares have been pushed up so far that they offer greater scope for long run capital depreciation than appreciation.

We have appointed Tom Walsh as deputy manager and have taken steps to improve our investment process. These changes are showing encouraging results. Our enhancements have focused on improving the quality of the analysis carried out before investments are purchased as well as revisiting the investment case for existing holdings. Following this review, a number of investments have been sold and the overall number of holdings in the portfolio has been reduced.

As in previous years, we have included here comments on the investments that made the largest positive and negative contributions to performance in the year to 30 April 2013. In aggregate the top ten positive contributors made a greater absolute contribution than the ten biggest detractors and we have had some very exciting results from a number of companies that suggest that they have considerable potential for further appreciation. On the negative side the main common themes have been the contributions from gold mining stocks and small oil and gas exploration companies, the latter an area where we have had some notable successes in the past.

There are also some exciting new holdings in the portfolio which have the potential to figure in the list of top positive contributors in future years. These range from Burger King (fast food) and Frontline 2012 (shipping), where we are backing proven management teams to turn around underperforming assets, to leading players in rapidly growing new industries such as Stratasys (3D printing). One of the largest new holdings is Sky Deutschland which seems set to do in Germany what BSkyB has done in the UK yet has a significantly smaller market capitalisation despite operating in a country with many more potential subscribers.

Largest positive contributors to performance

Nanoco is a manufacturer of tiny semi-conductor crystals, known as 'quantum dots', which have the potential for widespread application in television displays, LED lighting and solar panels as well as many other areas. The company's greatest distinction comes from its patented method for manufacturing these crystals in volume but without the use of the toxic metal cadmium. During the year the company signed a licensing agreement with Dow Electronic Materials under which Dow will build a manufacturing facility in South Korea to produce quantum dots using Nanoco's patented process. Dow has exclusive rights to market and sell these with Nanoco receiving royalty payments in return. Not only is this agreement a huge vote of confidence in Nanoco's technology, it takes a fledgling British university spin-out from small scale laboratory production to the sort of magnitude that could see its product move into the mainstream.

Seattle Genetics specialises in 'antibody drug conjugates'. The company's technology enables chemotherapy to specifically target cancer cells, meaning sufferers can be treated far more effectively and with less damage to the rest of their body. Since initial purchase Seattle Genetics has brought one drug to market, Adcetris. Although this drug treats a relatively rare form of cancer, over the last year the company has made good progress in demonstrating that its patented technology can be used in a much wider range of cancers.

Marine Harvest is the world's largest salmon farmer. Salmon farming has historically been a very cyclical industry with limited discipline on capacity growth resulting in substantial swings in profitability. By consolidating the industry, Marine Harvest is helping to improve discipline on capacity whilst also taking a greater share of the profit pool by acquiring expertise in processing the fish it produces. We believe the long term outlook for salmon consumption is good, as emerging market consumers catch up with developed world levels of protein consumption and the health attractions of salmon versus other meats are increasingly appreciated. The size of the holding was reduced during the year following a period of strong performance but it remains a significant position.

Seek operates an online job board covering both temporary and permanent roles, predominantly in the white collar sector. It dominates its core markets of Australia and New Zealand but also has leading positions in China, Brazil and a number of other south east Asian countries. Whilst its core markets may now be relatively mature, the strength of Seek's position here should support attractive returns for some time to come, providing funding to further strengthen its position in markets where the long term growth potential looks enormous.

Kone is one of the world's leading lift and elevator manufacturers, operating in a global market that has grown strongly over the last decade but remains dominated by just a few companies. The lift industry has proved remarkably resilient over the years, benefiting from relatively high barriers to entry for new competitors, rational behaviour from existing market participants and the high proportion of profits derived from maintenance contracts rather than initial installations. This resilience has been reflected in Kone's results, even as global economic growth has faltered recently. With the company now well established in key emerging markets, we see potential for many more years of growth, with profitability aided by the shift in its revenue base towards maintenance contracts as recent installations mature.

The Biotech Growth Trust is an investment trust that invests in emerging biotechnology companies, most of which are listed in the United States. The resurgence in performance by the biotechnology sector that was observed in last year's annual report has continued in the latest financial year as further progress has been made in delivering the potential promised for so long by this area of medicine. Such success is demonstrated by estimates that 6 of the 10 best-selling drugs worldwide in 2012 were originally developed by biotech companies and the further progress of a number of drugs through clinical trials. In addition to this investment trust, we continue to hold a number of direct holdings in the biotechnology area. Following a period of very strong performance we reduced the size of the holding, but it remains one of our larger positions.

Fuchs Petrolub is the world's largest independent lubricant supplier with a particular focus on specialist lubricants, where it is the market leader. Although specialist lubricants is a far smaller market than commodity lubricants, where large integrated oil companies tend to dominate, it has proved to be a more attractive market over the last decade, enjoying steady growth in volumes and pricing. As Fuchs has grown it has strengthened its advantage over smaller independent competitors whilst tightening its relationships with major customers. Whilst growth is never likely to be explosive, we think the combination of this strong competitive position and steady underlying growth in demand for specialist lubricants places the company in a strong position for long term profit growth.

Alnylam Pharmaceuticals is developing a new class of innovative medicines based on a breakthrough discovery in biology known as RNA interference, or RNAi. This approach attempts to treat genetically defined diseases by addressing the behaviour of the defective genes that cause the disorder. Although development of the technology remains in its relatively early stages, the last year has seen a number of positive clinical developments moving potential drugs into late stage development and closer to final approval.

TUI Travel is Europe's largest package holiday company, operating under brands such as Thomson and First Choice. Part of the investment case for TUI Travel rested on the proposition that its majority shareholder, TUI AG, might make a bid for the remaining portion that it does not own. During the year, TUI AG did indeed make an approach for the company. Although the approach was not on terms that we found attractive, it did have a positive effect on TUI Travel's share price, taking it to a level which we felt increasingly reflected the attractions of its operations. Consequently we decided to sell the holding.

Angie's List is a US-based on-line home services review network. Members pay a subscription fee to gain access to a website that contains reviews of plumbers, electricians and other such service providers in their local area. Reviews can only be made by subscribing members and service providers are only allowed to advertise themselves on the site if they have sufficiently high average ratings. In this way, customers feel they are better able to rely on the reviews that they read and know that the promotions they are offered through the site come from reputable tradesmen. The business has been loss-making whilst it expands across the United States but Angie's List looks to be nearing the tipping point at which its revenues can materially outstrip costs, moving the company into profitability.

Largest negative contributors to performance

Falkland Oil & Gas is an oil and gas exploration company searching to the south and east of the Falkland Islands. The area the company is exploring has many of the ingredients necessary for the formation of large hydrocarbon deposits but it is large and almost completely unexplored. During the year the company drilled two exploration wells which, while confirming the presence of hydrocarbons in the area, sadly did not strike commercial oil. These well results and the decision of a leading US exploration and production company to co-invest in the licence area add weight to the theory that large commercial reserves might exist there. The company's limited financial resources, however, mean that the failure to discover oil early on had a substantial negative effect on the share price. We reduced the size of the holding prior to the announcement of the results of the second exploration well but it remains a holding.

Aggreko is the leading global provider of rented power generation and temperature control equipment. For many years Aggreko has successfully grown its operations, positioning itself as the leading provider of temporary power solutions for a wide range of customers including major sports events and utility companies and benefiting from the growing gap between power demand and supply in fast-growing emerging markets. In the last year, the combination of the general slowdown in global economic growth and a number of very profitable contracts coming to an end has provided a headwind for the company that it has struggled to overcome. After so many years of exceeding expectations, the unexpected slowdown in profit growth was not well received and resulted in a sharp decline in the company's share price. During the year we reduced the size of holding.

MMX11 is a hybrid instrument that confers on holders the right to receive a fixed income per ton of iron ore shipped from Port Sudeste in Brazil, part of the empire of energy and mining magnate Eike Batista. The fortunes of this instrument are intrinsically linked to those of Mr Batista's empire, which has fallen on harder times as the wider Brazilian economy has faltered. The MMX11 royalty securities have, therefore, failed to deliver the returns we expected on purchase, with the potential for matters to deteriorate further should one of his other companies fail. As a result of these concerns we decided to sell the holding and were in the process of selling at the year end.

Chariot Oil & Gas is an oil exploration company with licences to explore offshore Namibia. Although the region remains unproven we took comfort from recent investment in it by Petrobras, BP and one of the world's leading seismic survey companies. Furthermore, the scale of the oil reserves being targeted, meant that a single discovery could have a very dramatic impact on the value of the company. Unfortunately neither of the wells drilled during the last year was successful. With the company's small scale and its most recent drilling results limiting its ability to fund further exploration in the area we decided to sell the holding.

Eldorado Gold is a Canadian gold mining company with operations in a number of countries, including China, Turkey and Greece. The company has performed poorly during the last year. Some of this has been due to factors outwith management control, such as the declining price of gold and civil disturbances around its Greek mines, however other elements suggest poor management execution. In light of Eldorado's operational failings and a more benign outlook for the global economy that appears to make gold a less attractive asset class in the medium term we decided to sell the holding during the year.

Peugeot manufactures and sells cars and light commercial vehicles under the Peugeot and Citroen brands. For many years this has been a challenged company in a challenged industry, however a new CEO was appointed in 2009 who appeared to be doing sensible things to cut costs, increase labour productivity and improve pricing discipline. We have had some success in investing in out of favour companies in the past and felt that such self-help, when combined with wider industry capacity reductions across Europe, might present a substantial turnaround opportunity. Unfortunately things at the company deteriorated rather than improved during the year, with greater involvement by the French government raising questions over management's ability to take the tough decisions necessary for Peugeot's turnaround. As a result we sold the holding.

Borders & Southern Petroleum is an oil exploration company exploring for oil in the waters to the south east of the Falkland Islands. As discussed above there remains a substantial prospect of large discoveries being made in this region, however during the past year the company's second well failed to achieve its objective and had to be abandoned. This left Borders & Southern without the funds to continue exploration and with little to show for its efforts. We therefore decided to sell the holding.

Credit Suisse 0% Swap Rate Linked Note 2017 is a bond issued by Credit Suisse, the redemption amount of which is linked to long term interest rates prevailing when it matures in 2017. Its value prior to maturity is determined by a number of factors notably the credit quality of Credit Suisse, the market expectation for long term interest rates in 2017, the level of short term interest rates and the volatility of long term interest rates. During the year the combined effect of changes in these various factors resulted in a significant fall in its market value. It remains a holding and provides a hedge against a rise in UK interest rates.

Semafo is a West African focused gold miner, with its largest asset in Burkina Faso. The company has suffered a series of disappointments over the last year, including a substantial downgrade to estimates of the reserve quality in its largest mine, rapid cost inflation and a reduction to medium term production guidance. The holding was sold during the year.

Gulf Keystone Petroleum is an oil and gas exploration and production company focused on exploration in the Kurdistan region of Iraq. The company has already proven the existence of substantial oil deposits in its licence area but for a number of years has been subject to litigation from a third party who claims ownership rights over these assets. Whilst the claim has been strenuously denied by the company the continuation of this litigation has been unhelpful for sentiment, as was the recent decision by the Executive Chairman to transfer effectively all of his shareholding in the company (c.£17m) to an unnamed third party. We decided to sell the holding and were in the process of selling at the year end.

Gerald Smith

Baillie Gifford & Co

18 June 2013

DISTRIBUTION OF ASSETS*

at 30 April 2013

 

		At 30 April 2013		At 30 April 2012
		Total Assets %	Effective Exposure* %	Total Assets %	Effective Exposure* %
Equities:	North America	28.2	29.3	21.2	25.4
	United Kingdom	23.4	22.8	24.6	21.6
	Emerging Markets	18.9	18.4	23.1	19.2
	Continental Europe	14.6	13.9	13.4	8.8
	Japan	5.7	5.9	6.4	11.4
	Developed Asia	1.9	2.0	1.5	1.8
		92.7	92.3	90.2	88.2
Bonds:		4.5	4.7	6.3	7.6
Net liquid assets		2.8	3.0	3.5	4.2
		100.0	100.0	100.0	100.0

* The effective exposure takes into account the exposure of derivative holdings which may differ substantially from their market value. The Company's derivative holdings include sales of index futures and purchases of index call options.

THIRTY LARGEST EQUITY HOLDINGS at 30 April 2013
			2013		2012
Name	Region	Business	Value £'000	% of total assets	Value £'000
IP Group	United Kingdom	Venture fund	40,774	3.8	34,741
Nanoco Group	United Kingdom	Semiconductor technology	22,963	2.2	9,586
Seadrill	Continental Europe	Contract drilling services	22,091	2.1	29,597
Sky Deutschland	Continental Europe	German pay television subscription          services company	21,202	2.0	-
Seek	Developed Asia	Online recruitment	20,699	1.9	12,678
Samsung Electronics	Emerging Markets	Electronic goods	20,494	1.9	17,492
Kone	Continental Europe	Lifts	20,213	1.9	13,561
Fuchs Petrolub	Continental Europe	Lubricant manufacturer	17,982	1.7	8,600
Seattle Genetics	North America	Biotechnology	17,423	1.6	8,928
Digital Garage	Japan	Web solution provider and business                incubator	17,307	1.6	12,256
Odontoprev	Emerging Markets	Health care providers and services	15,840	1.5	18,935
Kunlun Energy Company	Emerging Markets	Oil and gas exploration and production	15,647	1.5	13,461
Harley-Davidson	North America	Motorcycle manufacturer	14,789	1.4	13,578
Doric Nimrod Air Two	United Kingdom	Aircraft leasing	14,640	1.4	12,480
Taiwan Semicon Manufacturing	Emerging Markets	Semiconductor manufacturer	14,561	1.4	11,216
Novozymes	Continental Europe	Enzyme producer	14,360	1.4	10,441
Rolls Royce Group	United Kingdom	Engine manufacturer	14,306	1.3	10,435
First Republic Bank	North America	Banking	14,302	1.3	11,921
TJX	North America	Clothing store	14,161	1.3	15,360
IMAX	North America	Designs and manufactures digital     imaging and sound technologies	13,593	1.3	-
Solera Holdings	North America	Transactional software	13,541	1.3	10,131
The Biotech Growth Trust	United Kingdom	Biotechnology investment trust	13,489	1.3	16,181
Genus	United Kingdom	Agricultural services	13,343	1.3	13,897
MercadoLibre	Emerging Markets	Online trading	13,197	1.2	15,463
IHS	North America	Information services	12,895	1.2	12,812
IG Group	United Kingdom	Spread betting	12,885	1.2	11,033
Petrofac	United Kingdom	Oilfield services company	12,851	1.2	16,528
McDonald's	North America	Fast food restaurants	12,607	1.2	15,117
Sun Art Retail Group	Emerging Markets	Retail hypermarkets	12,420	1.2	11,357
Dragon Oil	Emerging Markets	Oil and gas exploration and production	12,240	1.1	13,905
			496,815	46.7	401,690

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

MANAGEMENT FEE ARRANGEMENTS

Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less than 6 months' notice. The fee in respect of each quarter is 0.1125% of the total assets less current liabilities. The management fee is levied on all assets, including holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co; however, the class of shares in OEICs held by the Company does not attract a management fee.  The details of the management fee are as follows:

	2013 £'000		2012 £'000
Investment management fee	4,648		5,087

PRINCIPAL RISKS AND UNCERTAINTIES

As an investment trust, the Company invests in equities and makes other investments so as to secure its investment objective of capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to a variety of risks that cause short term variation in the Company's net assets and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent reduction in the Company's net assets rather than to minimise the short term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board reviews and agrees policies for managing these risks and the Company's Investment Manager both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolio are shown below and in note 9 in the Annual Report. Details of derivative financial instruments open at the balance sheet date are shown below.

Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the currency in which a company's share price is quoted is not necessarily the one in which it earns its profits.

The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the share price of the company is quoted.

Foreign currency borrowings and forward currency contracts are used periodically to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objectives.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 30 April 2013	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Loans and debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	350,543	33,345	-	-	(1,692)	382,196
Euro	94,834	90	-	-	121	95,045
Japanese yen	60,876	-	-	-	457	61,333
Brazilian real	35,827	(217)	-	-	661	36,271
Other overseas currencies	217,717	81	-	-	(59)	217,739
Total exposure to currency risk	759,797	33,299	-	-	(512)	792,584
Sterling	275,971	5,292	-	(79,679)	(7,941)	193,643
	1,035,768	38,591	-	(79,679)	(8,453)	986,227

*    Includes non-monetary assets of £44,000.

At 30 April 2012	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Loans and debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	256,812	10,080	(47,596)	-	(10,821)	208,475
Euro	93,634	18,154	(21,709)	-	3,075	93,154
Japanese yen	72,360	-	(14,241)	-	923	59,042
Brazilian real	87,004	5,159	(20,204)	-	9,030	80,989
Other overseas currencies	274,171	217	-	-	2,333	276,721
Total exposure to currency risk	783,981	33,610	(103,750)	-	4,540	718,381
Sterling	324,899	5,909	106,836	(159,647)	(6,659)	271,338
	1,108,880	39,519	3,086	(159,647)	(2,119)	989,719

*    Includes non-monetary assets of £43,000.

Currency Risk Sensitivity

At 30 April 2013, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2012.

	2013 £'000		2012 £'000
US dollar	19,110		10,424
Euro	4,752		4,658
Japanese yen	3,067		2,952
Brazilian real	1,813		4,049
Other overseas currencies	10,887		13,836
	39,629		35,919

Interest Rate Risk

Interest rate movements may affect directly:

• the fair value of the investments in fixed interest rate securities;

• the level of income receivable on cash deposits;

• the fair value of derivative instruments linked to interest rates;

• the fair value of the Company's fixed-rate borrowings; and

• the interest payable on any variable rate borrowings which the Company may take out.

Interest rate movements may also impact upon the market value of the Company's investments other than its fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. 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 decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments. The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

Movements in interest rates, to the extent that they affect the fair value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).

The interest rate risk profile of the Company's financial assets and liabilities at 30 April is shown below.

Financial assets	2013			2012
	Fair value £'000	Weighted average interest rate	Weighted average period until maturity	Fair value £'000	Weighted average interest rate	Weighted average period until maturity
Fixed rate:
UK bonds	-	-	-	1,194	8.5%	15 years
European bonds	1,075	54.2%	2 years	10,641	12.6%	5 years
US bonds	10,088	9.9%	14 years	11,407†	0.4%	3 years
UK swap rate linked note*	4,600	7.2%	4 years	4,291	7.2%	5 years
Floating rate:
European bonds (interest rate linked to Euro LIBOR)	5,670	26.4%	3 years	5,272	21.4%	3 years
Brazilian bonds (interest rate linked to Brazilian CPI)	-	-	-	20,211	9.2%	33 years
UK swap rate linked note*	6,482	n/a	4 years	10,124	n/a	5 years
Fixed interest collective investment schemes:
US dollar denominated funds	20,421	3.5%	n/a	21,420	5.1%	n/a

*  This instrument comprises a zero coupon note issued by Credit Suisse and an option on sterling interest rate swaps. The zero coupon element has a redemption value of £6.25m (fair value - £4.6m) and the redemption value of the interest rate swap element (fair value - £6.5m) is based on a formula linked to thirty year sterling interest swap rates with higher amounts payable as rates rise. Prior to redemption, the value of the interest rate swap element will vary depending on several factors such as the level of swap rates and the implied volatility of interest rate swap options.

†  Represents a convertible security which has been classified as an equity holding.

The interest rate risk profile of the Company's bank loans and debentures (at amortised cost) and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 30 April are shown below.

Interest Rate Risk Profile	2013 £'000	2012 £'000
Fixed rate - sterling	79,679	159,647

Maturity Profile	2013 Within 1 year £'000	2013 Between 1 and 5 years £'000	2013 More than 5 years £'000	2012 Within 1 year £'000	2012 Between 1 and 5 years £'000	2012 More than 5 years £'000
Repayment of loans and debentures	40,000	-	40,000	80,000	40,000	40,000
Interest on loans and debentures	3,739	10,200	14,025	6,914	11,385	16,575
Interest rate swap payments	-	-	-	927	3,707	21,330
	43,739	10,200	54,025	87,841	55,092	77,905

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond/swap yields as at 30 April 2013 would have increased total net assets and total return on ordinary activities by £11,088,000 (2012 - £17,636,000) and would have increased the net asset value per share (with borrowings at fair value) by 6.1p (2012 - 8.7p). A decrease of 100 basis points would have decreased total net assets and total return on ordinary activities by £3,443,000 (2012 - £10,256,000) and would have decreased net asset value per share (with borrowings at fair value) by 2.9p (2012 - 5.8p).

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objective and investment policy.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 12 to 15 of the Annual Report. In addition, a geographical analysis of the portfolio (shown above), an analysis of the portfolio by broad industrial or commercial sector and a list of the 30 largest equity investments (shown above) are contained in the Managers' Portfolio Review section of the Annual Report. Details of derivative financial instruments open at the balance sheet date are shown below. 99% of the Company's net assets are invested in quoted equities (2012 - 104%). The sensitivity of the Company's equity investments to general movements in equity markets has been adjusted by the use of the equity derivative instruments detailed below, with the sales of equity index futures reducing sensitivity to market movements and the purchase of equity index call options increasing it. Further details of the impact of these instruments on the portfolio are set out in the Investment Activity section of the Chairman's Statement. After taking into account the impact of the equity index futures and options open at the balance sheet date, a 5% increase in quoted equity valuations at 30 April 2013 would have increased total assets and total return on ordinary activities by £46,861,000 (2012 - £41,777,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities. The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facilities are detailed below and the maturity profile of its borrowings is set out above.

Borrowings falling due within one year:

	2013 £'000	2012 £'000
Scotiabank Europe PLC one year floating rate loan	-	40,000
Scotiabank Europe PLC fixed rate loan (repayable 28/2/14)	40,000	-
11% debenture stock 2012	-	40,000
	40,000	80,000

At 30 April 2013 the Company had a £40m three year fixed rate loan facility with Scotiabank Europe PLC, which was fully drawn down in sterling at 30 April 2013, and a £40m uncommitted revolving credit facility with The Bank of New York Mellon, which was not utilised during the year. During the year the Company repaid its £40m 11% Debenture Stock 2012 and its £40m one year floating rate loan with Scotiabank. The Company's 30 year interest rate swap was also closed out during the year. More details on the interest rate swap are shown below.

The main covenants relating to the Scotiabank loan are that total assets shall not fall below £550m and the ratio of adjusted total net assets to debt shall not exceed 3:1. There were no breaches of loan covenants during the year.

Borrowings falling due after more than one year:

	Repayment date	Nominal rate	Effective rate	2013 £'000	2012 £'000
Debenture stocks:
£40 million 6 3/8% debenture stock 2023	1/9/2023	6.375%	6.5%	39,679	39,647
Bank loans:
Scotiabank Europe PLC	28/2/2014	3.57%	3.57%	-	40,000
				39,679	79,647

The debenture stocks are stated at amortised cost (see note 1 on page 32 of the Annual Report); the cumulative effect is to decrease the carrying amount of borrowings by £321,000 (2012 - £353,000). The debenture stocks are secured by a floating charge over the assets of the Company. Under the terms of the Debenture Agreement, total borrowings should not exceed net assets and the Company cannot undertake share buy-backs if this would result in total borrowings exceeding 66.67%.

The weighted average interest rate of the debenture stocks is 6.4% (2012 - 8.7%).

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

·     where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

·     the Company's listed investments are held on its behalf by Bank of New York Mellon, 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. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

·     investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily done on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

·     the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Manager; and

·     cash is only held at banks that have been identified by the Managers as reputable and of high credit quality.

Credit Risk Exposure

The exposure to direct credit risk at 30 April was:

	2013 £'000	2012 £'000
Fixed interest investments	48,336	73,153
Cash and short term deposits	38,591	39,519
Debtors and prepayments*	5,735	37,107
	92,662	149,779

*    Includes non-monetary assets of £44,000 (2012 - £43,000).

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that there is no difference between the amounts at which the financial assets and liabilities of the Company are carried in the balance sheet and their fair values, with the exception of fixed rate borrowings. The fair values of the Company's borrowings are shown below.

	2013			2012
	Nominal value £'000	Book value £'000	Fair value £'000	Nominal value £'000	Book value £'000	Fair value £'000
11% debenture stock 2012*	-	-	-	40,000	40,000	41,008
6 3/8% debenture stock 2023*	40,000	39,679	44,556	40,000	39,647	46,732
Bank loans due within one year	40,000	40,000	40,641	40,000	40,000	40,000
Bank loans due after one year	-	-	-	40,000	40,000	41,181
	80,000	79,679	85,197	160,000	159,647	168,921

*    Financial liabilities stated in the balance sheet at amortised cost (book value).

Gains and Losses on Equity Index Futures Sales

The following equity index futures sales were in position at 30 April:

At 30 April 2013 Description	Expiration date	Notional amount	Position	Counterparty	Fair value £'000
FTSE 100	21/6/13	(£59,049,900)	Sale	UBS	(125)
Euro STOXX 50	21/6/13	(€40,687,889)	Sale	UBS	(599)
Hang Seng China Enterprises	30/5/13	(HK$24,144,720)	Sale	UBS	(712)
					(1,436)

At 30 April 2012 Description	Expiration date	Notional amount	Position	Counterparty	Fair value £'000
FTSE 100	15/6/12	(£115,996,970)	Sale	UBS	1,754
Euro STOXX 50	15/6/12	(€93,634,038)	Sale	UBS	6,814
Brazilian Bovespa	15/6/12	(R$58,477,963)	Sale	UBS	943
Hang Seng China Enterprises	30/5/12	(HK$58,532,823)	Sale	UBS	(882)
					8,629

Gains and Losses on Purchased Equity Index Options

The following purchased equity index options were in position at 30 April:

At 30 April 2013 Description	Number of contracts	Strike price	Expiration date	Premium paid  £'000	Fair value £'000
FTSE 100 call	1,300	5,900	20/12/13	4,455	7,235
Euro STOXX 50 call	2,900	2,700	20/12/13	3,343	3,404
Hang Seng China Enterprises call	864	11,200	30/12/13	2,487	1,702
				10,285	12,341

At 30 April 2012 Description	Number of contracts	Strike price	Expiration date	Premium paid  £'000	Fair value £'000
Nikkei 225 call	907	9,500	13/12/12	4,048	4,093
Nikkei 225 call	530	10,000	13/12/12	1,381	1,410
Nikkei 225 call	300	11,000	13/12/12	761	266
FTSE 100 call	1,300	5,500	21/12/12	4,734	5,512
Euro STOXX 50 call	2,900	2,500	21/12/12	4,272	1,562
Brazilian Bovespa call	2,700	70,000	12/12/12	4,581	1,304
Hang Seng China Enterprises call	1,350	12,000	28/12/12	5,030	2,175
				24,807	16,322

Gains and Losses on Forward Currency Contracts

There were no forward currency contracts in position at 30 April 2013. The following forward currency contracts were in position at 30 April 2012:

At 30 April 2012 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	($77,280,000)	sterling	£48,850,000	17/5/12	1,254
Euro	(€26,630,000)	sterling	£22,300,000	17/5/12	591
Japanese yen	(¥1,846,000,000)	sterling	£14,324,000	17/5/12	82
Brazilian real	(R$62,360,000)	sterling	£21,363,000	17/5/12	1,159
					3,086

Gains and losses on interest rate swaps

There were no interest rate swaps in position at 30 April 2013. The following interest rate swap was in position at 30 April 2012:

At 30 April 2012 Notional amount	Payments received	Payments made	Termination date	Counterparty	Fair value £'000
£40,000,000	6 months sterling LIBOR	3.71%	20/1/2040	Royal Bank of Scotland plc	(3,994)

Hedge accounting has not been adopted for the Company's derivative holdings.

Capital Management

The capital of the Company is its share capital and reserves as set out in note 14 of the Annual Report together with its borrowings (see above). The objective of the Company is to invest internationally to achieve capital growth, which takes priority over income and dividends. The Company's investment policy is set out on page 18 of the Annual Report. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on page 21 of the Annual Report. The Company has the ability to buy back its shares (see page 23 of the Annual Report) and changes to the share capital during the year are set out in note 13 of the Annual Report. The Company does not have any externally imposed capital requirements other than the covenants on its loans and debentures which are detailed above.

Investments

As at 30 April 2013	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	948,171	553	-	948,724
Listed equity index options	12,341	-	-	12,341
Listed debt securities	10,088	1,075	-	11,163
Unlisted equities quoted on an investment exchange	-	15,448	-	15,448
Other unlisted equities	-	-	10,919	10,919
Unlisted debt securities	-	-	37,173	37,173
Total financial asset investments	970,600	17,076	48,092	1,035,768
Comprising:
Fixed asset investments	958,259	17,076	48,092	1,023,427
Current asset investments	12,341	-	-	12,341
	970,600	17,076	48,092	1,035,768

As at 30 April 2012	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	1,007,796	2,076	-	1,009,872
Listed equity index options	16,322	-	-	16,322
Listed debt securities	10,133	21,913	34,927	66,973
Unlisted equities	-	-	9,533	9,533
Unlisted debt securities	-	-	6,180	6,180
Total financial asset investments	1,034,251	23,989	50,640	1,108,880
Comprising:
Fixed asset investments	1,023,698	23,989	50,640	1,098,327
Current asset investments	10,553	-	-	10,553
	1,034,251	23,989	50,640	1,108,880

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with FRS 29 'Financial Instruments: Disclosures', the above tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - investments with quoted prices in an active market;

Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

Other Risks

Other risks faced by the Company include the following:

Regulatory Risk

Failure to comply with applicable legal and regulatory requirements could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. Breach of section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

The Managers monitor investment positions and the level of dividend distribution to ensure the provisions of section 1158 are not breached. Baillie Gifford's Business Risk & Internal Audit and Regulatory Risk Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes.

Major regulatory change could impose disproportionate compliance burdens on the Company or threaten the viability of the investment company structure. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised.

Operational/Financial Risk

Failure of the Managers' accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. The Managers have a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews the Managers' Report on Internal Controls and the reports by other third party providers are reviewed by the Managers on behalf of the Board.

Discount Volatility

The discount at which the Company's shares trade can widen. The Board monitors the level of discount and the Company has authority to buy back its own shares.

Gearing Risk

The Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.

All borrowings require the prior approval of the Board and gearing levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with applicable law and United Kingdom Accounting Standards, (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the net return 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 judgements and accounting estimates that are reasonable and prudent;

• state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively; 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 adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section of the Annual Report confirm that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and net return 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 it faces.

By order of the Board

JGD FERGUSON

Chairman

18 June 2013

INCOME STATEMENT

	For the year ended 30 April 2013			For the year ended 30 April 2012
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments	-	50,194	50,194	-	(61,063)	(61,063)
Currency losses	-	(3,117)	(3,117)	-	(890)	(890)
Income (note 2)	22,983	-	22,983	31,424	-	31,424
Investment management fee	(4,648)	-	(4,648)	(5,087)	-	(5,087)
Other administrative expenses	(907)	-	(907)	(1,013)	-	(1,013)
Net return before finance costs and taxation	17,428	47,077	64,505	25,324	(61,953)	(36,629)
Finance costs of borrowings	(4,929)	-	(4,929)	(10,434)	-	(10,434)
Net return on ordinary activities before taxation	12,499	47,077	59,576	14,890	(61,953)	(47,063)
Tax on ordinary activities	(721)	-	(721)	(1,001)	-	(1,001)
Net return on ordinary activities after taxation	11,778	47,077	58,855	13,889	(61,953)	(48,064)
Net return per ordinary share (note 3)*	4.68p	18.72p	23.40p	5.35p	(23.86p)	(18.51p)
Dividends per share paid and payable in respect of the year (note 4)	3.95p			3.95p

The total column of this Income Statement represents the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

BALANCE SHEET

		30 April 2013		30 April 2012
		£'000		£'000
Fixed assets
Investments held at fair value through profit or loss		1,023,427		1,098,327
Current assets
Debtors		5,735		37,107
Investments held at fair value through profit or loss		12,341		10,553
Cash and deposits		38,591		39,519
		56,667		87,179
Creditors
Amounts falling due within one year (note 5)		(54,188)		(116,140)
Net current assets/(liabilities)		2,479		(28,961)
Total assets less current liabilities		1,025,906		1,069,366
Creditors
Amounts falling due after more than one year (note 5)		(39,679)		(79,647)
Total net assets		986,227		989,719
Capital and Reserves
Called up share capital		12,017		12,806
Share premium		11,100		11,100
Capital redemption reserve		7,381		6,592
Capital reserve		910,342		915,546
Revenue reserve		45,387		43,675
Shareholders' funds		986,227		989,719
Net asset value per ordinary share (after deducting borrowings at fair value)		408.1p		382.8p
Net asset value per ordinary share (after deducting borrowings at par)		410.2p		386.3p
Ordinary shares in issue (note 6)		240,331,859		256,124,859

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 April 2013

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2012	12,806	11,100	6,592	915,546	43,675	989,719
Net return on ordinary activities after taxation	-	-	-	47,077	11,778	58,855
Shares purchased for cancellation (note 6)	(789)	-	789	(52,281)	-	(52,281)
Dividends paid during the year (note 4)	-	-	-	-	(10,066)	(10,066)
Shareholders' funds at 30 April 2013	12,017	11,100	7,381	910,342	45,387	986,227

For the year ended 30 April 2012

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2011	13,038	11,100	6,360	992,780	37,601	1,060,879
Net return on ordinary activities after taxation	-	-	-	(61,953)	13,889	(48,064)
Shares purchased for cancellation	(232)	-	232	(15,281)	-	(15,281)
Dividends paid during the year (note 4)	-	-	-	-	(7,815)	(7,815)
Shareholders' funds at 30 April 2012	12,806	11,100	6,592	915,546	43,675	989,719

CONDENSED CASH FLOW STATEMENT

	For the year ended 30 April 2013		For the year ended 30 April 2012
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		17,645		24,825
Servicing of finance
Interest paid	(6,969)		(10,498)
Net cash outflow from servicing of finance		(6,969)		(10,498)
Taxation
UK income tax recovered	380		-
Overseas tax incurred	(777)		(972)
Total tax paid		(397)		(972)
Financial investment
Acquisitions of investments	(242,196)		(448,147)
Disposals of investments	370,561		477,577
Forward currency contracts	2,346		(1,518)
Net cash inflow from financial investment		130,711		27,912
Equity dividends paid		(10,066)		(7,815)
Net cash inflow before financing		130,924		33,452
Financing
Shares purchased for cancellation	(49,475)		(10,478)
Borrowings repaid	(80,000)		-
Net cash outflow from financing		(129,475)		(10,478)
Increase in cash		1,449		22,974
Reconciliation of net cash flow to movement in net debt
Increase in cash in the year		1,449		22,974
Translation difference		(2,377)		(2,367)
Net cash outflow from borrowings repaid		80,000		-
Other non-cash changes		(32)		(33)
Movement in net debt in the year		79,040		20,574
Net debt at 1 May		(120,128)		(140,702)
Net debt at 30 April		(41,088)		(120,128)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		64,505		(36,629)
(Gains)/losses on investments		(50,194)		61,063
Currency losses		3,117		890
Amortisation of fixed interest book cost		(2,014)		(986)
Decrease in accrued income		2,212		398
Decrease in debtors		146		175
Decrease in creditors		(127)		(86)
Net cash inflow from operating activities		17,645		24,825

 

NOTES

1.	The financial information within this preliminary announcement has been extracted from the unaudited financial statements for the year to 30 April 2013 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 April 2012.
			2013					2012
			£'000					£'000
2.	Income
	Income from investments and interest receivable		22,983					31,415
	Other income		-					9
			22,983					31,424
			2013					2012
3.	Net return per ordinary share
	Revenue return		4.68p					5.35p
	Capital return		18.72p					(23.86p)
	Total return		23.40p					(18.51p)
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £11,778,000 (2012 - £13,889,000) and on 251,551,655 (2012 - 259,692,291) ordinary shares of 5p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital gain for the financial year of £47,077,000 (2012 - loss of £61,953,000) and on 251,551,655 (2012 - 259,692,291) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
		2013		2012		2013 £'000			2012 £'000
4.	Ordinary Dividends
	Amounts recognised as distributions in the year:
	Previous year's final (paid 13 August 2012)	3.45p		2.50p		8,820			6,519
	Interim (paid 30 January 2013)	0.50p		0.50p		1,246			1,296
		3.95p		3.00p		10,066			7,815
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £11,778,000 (2012 - £13,889,000).

		2013		2012		2013 £'000		2012 £'000
4.	Ordinary Dividends (Ctd)
	Amounts paid and payable in respect of the financial year:
	Adjustment to previous year's final dividend re shares bought back	-		-		(16)		-
	Interim (paid 30 January 2013)	0.50p		0.50p		1,246		1,296
	Proposed final (payable 9 August 2013)	3.45p		3.45p		8,291		8,836
		3.95p		3.95p		9,521		10,132
	If approved the recommended final dividend will be paid on 9 August 2013 to shareholders on the register at the close of business on 12 July 2013. The ex-dividend date is 10 July 2013. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 19 July 2013.
5.	At 30 April 2013 the Company had a £40m three year fixed rate loan facility with Scotiabank Europe PLC, which was fully drawn down in sterling at 30 April 2013, and a £40m uncommitted revolving credit facility with The Bank of New York Mellon, which was not utilised during the year. During the year the Company repaid its £40m 11% debenture stock 2012 and its £40m one year floating rate loan with Scotiabank. The Company's 30 year interest rate swap was also closed out during the year. The fair value of borrowings at 30 April 2013 was £85.2m (30 April 2012 - £168.9m).
6.	In the year to 30 April 2013 the Company bought back 15,793,000 ordinary shares with a nominal value of £789,000 at a total cost of £52,281,000. At 30 April 2013 the Company had authority to buy back a further 23,009,014 ordinary shares, being 9.6% of the shares in issue at the year end.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2013.  The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2011 accounts; their report was unqualified and it did not contain a statement under section 498(2) or (3) of the Companies Act 2006.  The statutory accounts for 2013 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
8.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

- ends -

 

END

 

 

ACSPGUMPQUPWURM