Annual Financial Report

RNS Number : 0321M
Murray Income Trust PLC
12 September 2012
 



MURRAY INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

 

Highlights

·        Total Dividend increased by 3.5% to 29.75p

·        Net Asset Value Total Return +1.4%

·        Share Price Total Return + 1.7%

 

1. CHAIRMAN'S STATEMENT

 

Performance

The year to the end of June 2012 saw a small positive total return of 1.4% on a Net Asset Value basis and one of 1.7% on a total return share price basis. This consisted of a positive income return which was slightly greater than the small fall in Net Asset Value per share, representing a creditable outperformance by your investment managers of the company's benchmark which fell by 3.1%. Eighteen months have now elapsed since we saw a substantial and sustained move in either direction in the UK equity market although there have been sharp short-term movements over the period. The most positive development within the company was the continued improvement in the revenue account which means that we can propose a final dividend of 13.25p per share to give a full year dividend increase of 3.5%.

 

Murray Income's shares have traded at a small premium to Net Asset Value for much of the year though not at the balance sheet dates. This seems to be the product of good performance by the managers but, above all, an emphasis in the market on sources of reliable income. As a result we have issued 810,000 shares to the market at a premium. This has the effect of spreading costs and producing a small increase in Net Asset Value per share.  

 

Markets have been confronted by major but contradictory influences. Above all, it has become all too apparent that the problems in the world economy which came to a head in 2008 are deep-seated and incapable of rapid resolution. The pressure on households, notably in Britain and the United States, to repay debt and increase savings, combined with the need to recapitalise large parts of the banking system has weakened demand. This has not been offset fully by government, the corporate sector or the overseas sector. As a result demand has been anaemic, teetering on the verge of recession in several countries and falling into it in some including Britain. The most positive developments have been the growth of shale oil and gas production in the United States which has improved the balance of payments and the weakness in the Euro exchange rate which has helped the competitive position even of the weaker Euro members.

 

Within securities markets the most striking, and largely unanticipated, development has been the continued strength of high quality long-dated bonds. The UK 30-year gilt rose by 26.4% on a total return basis over the year to the end of June. As a result the redemption yield fell to 3.03%, around the level seen in the 1930s in a period of significant deflation. Real yields in the UK, US, Germany and Japan have now become either negative or derisory. This has helped the equity markets by lowering the discount rate on competing assets at a time when corporate profits are showing some signs of stress from the weakness of demand. It has also disrupted savings markets at a time when the need to save for households is considerable by slowing down the accumulation of assets and created a considerable transfer of wealth from savers to credit worthy borrowers.

 

The proposed final dividend of 13.25p per share represents a full year dividend increase of 3.5%. This was almost wholly the result of an increase in income from investments of 14.4%. Last year the company benefited in the revenue account from a VAT repayment of £734,000, and interest on VAT, which was subsequently refunded, of £1,358,000. There were no such payments this year and I am pleased that the revenue account has continued a strong underlying improvement.  However, we did benefit from the special dividend from Vodafone relating to its holding in Verizon Wireless amounting to £540,000.  It is uncertain whether such a payment will be maintained in the current year and we have therefore chosen to retain some income in order to cover a possible reduction in the revenue return this year.  Subject to the approval of shareholders at the Annual General Meeting, the final dividend will be paid on 25 October 2012 to shareholders on the register on 28 September 2012. 

 

Board and Management Changes

Marian Glen will be retiring from the Board at the Annual General Meeting. She has been a very valuable member of the Board with both deep knowledge of legal and regulatory matters and a great deal of common sense. On 2 July 2012, Jean Park was appointed to the Board and will stand for election at the Annual General Meeting. Her background is in accounting and risk management in the insurance industry and I am very pleased that she has agreed to join the Board. We also decided to appoint Donald Cameron to the Board on 5 September 2012, and he will seek election at the Annual General Meeting. He is a lawyer by background with other experience in the investment trust industry. We are in a period of considerable legal and regulatory change and therefore feel that a board member with this expertise as well as the ability to contribute more generally is desirable.

 

Annual General Meeting

The Annual General Meeting will be held at the Glasgow Royal Concert Hall, 2 Sauchiehall Street, Glasgow, G2 3NY on Tuesday, 23 October 2012 at 12.30 p.m. It is the Board's intention to hold the 2013 Annual General Meeting in London.

 

As at previous AGMs, there will be a presentation by the Managers and an opportunity to meet the Directors over lunch following the AGM.

 

Outlook

The process of recuperation for the world economy following the near-death experience of 2008 has been a slow one. In order for the US, UK and the weaker members of the Eurozone to recover there is a need for the pain to be spread more widely, at least to the export sectors of the developing world, whether by changes in the oil and gas markets or by weakness in demand for Chinese manufactured exports. Unfortunately the desirable shift towards domestic consumption in, for example, China, cannot take place at a matching pace particularly if it is accompanied by investment weakness, even though it is undoubtedly happening. However, there have been positive developments which are hidden beneath the general gloom and which will help economic growth in future. The vilified banking sector has rebuilt its balance sheet. The contradiction between governmental pressure to do this and the pressure to extend credit is therefore much less acute, with consequent potential benefit to the growth of lending. The Eurozone has been the centre of much of the angst in markets. Here there has been progress towards the creation of a framework for dealing with the transfers required and a grudging acceptance by Germany of the need for the European Central Bank to act as lender of last resort. Above all the weakness of the Euro has provided a boost to competitiveness which is badly needed by the weaker members and should be reflected in their performance over the next year or so.

 

The most likely outcome over the next year remains decidedly dull but possibly not as risky as some commentators suggest. Interest rates are likely to remain at current very low rates, even though these are almost certainly unsustainable in the long term. Economic growth will be subdued but not non-existent. Profit growth will be correspondingly uninspiring but companies with strong market positions either in defensive industries or in innovation will continue to earn good returns on capital and pay the dividends on which Murray Income's success depends. After eighteen months of very little change it now seems more likely that equities will move up from their present level where they are attractively priced than that further weakness will be seen.

 

Patrick Gifford

Chairman

11 September 2012

 

 

MANAGER'S REVIEW

 

Background

The UK equity market failed to make progress during the year to the end of June 2012 following the very strong returns of the prior period. The FTSE All-Share Index fell by 3.1% on a total return basis with the market flat-lining for the second half of the period having fallen by 3.3% in the first 6 months of the financial year. The limited move in the market over the year did however mask significant share price volatility. The main issue that vexed investors continued to be Europe, and in particular, Greece and Spain, where concerns over sovereign debt contagion and its impact on the banking sector weighed heavily on sentiment. The weakness in Europe had global repercussions through a transmission mechanism that included higher bank funding costs and a dark cloud of uncertainty which compounded a slowdown in activity in the United Kingdom, China and the United States.

 

In the United Kingdom, as the world economy slowed, the challenge of generating a recovery while rebalancing activity and reducing the structural deficit became increasingly difficult with the economic recovery deteriorating as the period progressed. Indeed, the United Kingdom was downgraded by the International Monetary Fund more than any other advanced economy with their expectation for GDP growth now just 0.2% for calendar 2012 compared to 2.3% a year ago. The fall in inflation, which peaked at 5.2% in September, provided scope for the Monetary Policy Committee to increase the asset purchase programme by £75bn in October (and a further £50bn after the period end) with interest rates left unchanged throughout the period. 

 

Approximately 70% of the Company's holdings' revenues are derived from overseas where economic growth was lacklustre with expectations for growth falling as the year progressed.  In the Eurozone, investors have looked to politicians for leadership and to the European Central Bank for action to assuage their concerns. Both parties have been slow to react but the announcements of a three year Long Term Refinancing Operation and a bailout of Spain's banking sector coupled with new mandates for more credible governments in Italy, Spain and (eventually) Greece have provided some respite from the fears of a disorderly collapse of the Eurozone. However, the actions taken address more the symptoms rather than the cause of the problem in Europe which remains its lack of competitiveness both externally and internally, between countries. The United States economy, that had appeared relatively unaffected by the issues in Europe, started to demonstrate signs of weakness in the second half of the year, despite a stabilisation in its housing market. Emerging Markets, which represent the engine of global growth, were also not immune with the economies of China, Brazil and India all slowing down.

 

Performance

The Company generated a positive net asset value per share total return of 1.4% in the year to 30 June 2012, compared to a fall in the FTSE All-Share Index of 3.1%. The outperformance of 4.5% represented the third year in a row of positive relative performance. On a total return basis, the Company's share price increased by 1.7%, which reflected a small narrowing of the discount to Net Asset Value at which the shares traded compared to the previous year end.

 

On a gross assets basis, the portfolio outperformed the benchmark by over 5.3%. Overall, gearing had little impact on returns.  However, during the market falls in the autumn, the Company increased its borrowings to £45m from £40m. This was subsequently reduced back to £40m during the spring following the market recovery. The actual level of gearing was maintained in a range between 5%-10% for the majority of the year.

 

In a reversal of fortunes compared to the prior year, financials and companies exposed to global growth performed poorly. As a consequence, the Mining, Construction & Materials and Banks sectors underperformed. In contrast, the more defensive areas, such as Pharmaceuticals, Utilities and Tobacco outperformed.

 

Of note was the poor performance of the Food & Drug Retailers sector. The expected defensive qualities of the sector failed to materialise as Tesco announced a profit warning in January leading to concerns about a price war with its peers. The Mining sector also performed particularly poorly, falling by nearly one third as commodity prices fell but costs remained sticky.

 

From a size perspective, the FTSE 100 Index marginally outperformed both the Mid 250 and Small Cap Indices, a function of its more defensive constituents.

 

The Company benefited significantly, in asset allocation terms, from its underweight positions in Mining and Banks together with the overweight positions in Tobacco, Pharmaceuticals and Utilities. Stock selection was generally positive, but particularly so in the Aerospace & Defence and the Travel & Leisure sectors. In the Financials sector we continued to benefit from being underweight in banks given our concerns regarding the regulatory backdrop, prospects for growth and asset quality, coupled with the low level of dividends available.

 

We also benefited from an overweight position in Food Producers as Associated British Foods and Unilever performed strongly over the year. Having been detrimental to performance for the prior two years, our large underweight position in Mining provided the greatest contribution to performance from an asset allocation viewpoint. We remain underweight for three key reasons: we have concerns about the quality of various companies within the sector; the dividend yields available are comparatively poor; and, finally, we believe that many of the companies do not at present represent attractive value given the challenging backdrop.

 

From a stock specific standpoint, our holdings in British American Tobacco and Imperial Tobacco, Provident Financial, Whitbread and Rolls Royce all increased by more than 20%.  The defensive qualities of the tobacco sector coupled with strong pricing power and cost-saving initiatives proved very attractive to investors over the period. Provident Financial performed strongly as the environment for home collected credit remained benign and the company's credit card operations performed strongly. Whitbread's Premier Inn budget hotel chain and Costa Coffee shops outperformed expectations. Finally, Rolls Royce performed strongly as the market's earnings expectations proved to be too low given strong demand in its civil aerospace division.

 

On the other hand, there were a number of holdings that detracted from performance. Tesco's profit warning at the start of the calendar year was caused by the recognition that its domestic operations had focused too much on profitability to the detriment of quality and service levels and that this now needed to be remedied. GDF Suez's earnings were affected by a series of issues including the weather, political interference in France and uncertainty over its Belgian nuclear fleet leading to weakness in the company's share price over the year. Finally, Aviva performed poorly as the market became increasingly concerned about the company's exposure to European sovereign debt.

 

Portfolio Activity and Structure

As in previous periods, we continued to increase our exposure to high-quality, generally larger companies, with strong cash flows and robust balance sheets, which we believe will be able to prosper in an environment where economic growth is likely to be uneven and the prospect of future shocks remain a possibility. This included additions to Roche, GlaxoSmithKline, Compass and Sage. In contrast, we took profits in a number of companies that had performed well and looked increasingly expensive such as Provident Financial, Whitbread, Land Securities and National Grid. 

 

We invested in four new holdings during the period, three of which are listed overseas.  This increased our weighting in companies listed overseas to 11.0% at the end of the period.  

 

The first new holding purchased was Swiss food group Nestle, well-known for its strong brands, excellent track record and attractive exposure to faster growing end-markets.

 

Performance Attribution for the year to 30 June 2012

 

2012


%

Net Asset Value total return for year per Ordinary share

1.4

FTSE All-Share Index total return

(3.1)


_________

Relative return

4.5


_________



Relative return

%

Stock selection (equities)


Oil & Gas

0.5

Basic Materials

0.3

Industrials

0.2

Consumer Goods

0.2

Health Care

-

Consumer Services

0.4

Telecommunications

-

Utilities

(1.2)

Technology

(0.2)

Financials

0.8


_________

Total stock selection (equities)

1.0


_________

Asset allocation (equities)


Oil & Gas

(0.2)

Basic Materials

2.4

Industrials

-

Consumer Goods

0.3

Health Care

0.4

Consumer Services

(0.5)

Telecommunications

(0.1)

Utilities

1.1

Technology

0.1

Financials

0.4


_________

Total asset allocation (equities)

3.9


_________

Fixed Income & Options

0.4

Cash

(0.1)

Gearing

-

Administrative expenses

(0.2)

Management fees

(0.6)

Tax charge

-

Residual effect

0.1


_________

Total

4.5


_________


Sources : Aberdeen Asset Managers, Russell Mellon & Factset


Notes: Stock Selection - measures the effect of equity selection relative to the benchmark. Asset Allocation - measures the impact of over or underweighting each industry basket in the equity portfolio, relative to the benchmark weights. Fixed Income & Options effect - measures the impact on relative returns of the two asset categories. Gearing & Cash effect - measures the impact on relative returns of net borrowings. Management fees & other expenses - these reduce total assets and therefore reduce performance. The effect is calculated by dividing expenses incurred during the year by average total assets less current liabilities. Residual effect - this arises as a result of the different methodologies for calculating performance between the NAV total return, the benchmark provider Factset and the performance attribution system.

 

 

The second new company was the French energy efficiency group, Schneider Electric, which provides access to long-term structural growth in energy provision and derives around 40% of its revenues from Emerging Markets. The third new overseas-listed company was Linde, the German industrial gases company, which benefits from a strong competitive position and diversified global and end-market exposures.  Finally, we introduced a small holding in BG Group, which offers good production growth and a differentiating Liquefied Natural Gas (LNG) business. Although all four new entrants do not have particularly high dividend yields, they offer good scope for earnings growth, and hence dividend growth, over the long term.

 

We sold a number of holdings during the period. Aviva was sold given concerns over the company's exposure to European sovereign debt and Italy in particular. Secondly, we sold our holding in Persimmon due to the challenging consumer outlook and paucity of mortgage funding. The position in Daily Mail and General Trust was sold given concerns about the ability of the company's traditional newspaper operations to negotiate successfully the transfer to a digital environment and maintain historic levels of profitability. We sold our small holding in the hotel company Millennium & Copthorne due to concerns over the outlook for occupancy and pricing with the company having substantially benefited from a broader recognition of the value of its property assets. We also sold our holding in the Barclays Reserve Capital Instrument (RCI) due to the lack of income growth and the outlook for the company. Following a series of disappointing trading statements, caused by the weak performance of the UK business, we decided to sell our small holding in Mothercare. The valuation disparity between Shell B and Shell A shares prompted the sale of the former and the purchase of the latter allowing us to maintain the same economic interest in the company for a marginally lower investment. Finally, we sold our holding in Rio Tinto during the period and reinvested the proceeds in order to increase our holding in BHP Billiton which has a more diversified portfolio with better growth prospects and a higher dividend yield.

 

We continued to write options gently to increase and diversify the income available to the Company. The income from writing options accounted for 8.5% of total income compared to just under 10% of total income during the prior year. Although we are wary of becoming overly dependent on option income, we feel that the strategy has been of benefit to the Company by increasing the level of income generated and providing a good discipline for managing our exposure to individual holdings.

 

The actions above have marginally altered the sector positioning of the Company. The weighting in the Oil and Gas sector has increased slightly due to the purchase of BG Group. The lower exposure to Basic Materials is a result of the poor relative performance of the sector despite the addition of Linde. The position in Consumer Goods is lower than the prior year mainly due to the sale of Persimmon.  The exposure to Consumer Services has fallen due to the sale of Mothercare, Millennium & Copthorne and Daily Mail & General Trust. The weight in the Healthcare sector increased as we added to our holding in Roche and GlaxoSmithKline coupled with strong relative performance. Finally, the exposure to Financials decreased significantly over the year, a function of the underperformance of the sector and the sale of Aviva and the Barclays RCI from the portfolio.

 

Income

For the financial year ended 30 June 2012, the Company witnessed a small fall in the level of income generated, with the revenue return per share decreasing from 30.9p to 30.6p, or by 1.0%. Although the income from investments increased by 14.4% this was only partially able to offset last year's non-recurring rebate of VAT and VAT interest, a small rise in administrative expenses and the impact of marginally more shares in issue. We continue to keep a very close watch on the revenue account and over the year have focused on improving the dividend growth characteristics of the underlying portfolio.

 

The broad outlook for income generation has improved considerably over the past couple of years, but there remains the potential for negative earnings shocks and hence dividend disappointments. Our concentration on companies with strong competitive positions and robust balance sheets should help to mitigate these risks. It is worth noting that market dividends, in aggregate, are at present expected to increase by over 7% per annum in both the financial years 2012 and 2013, although these may well prove to be optimistic forecasts.

 

Outlook

Over the past year the focus of the market has been on the Eurozone, where politics and economics have proven to be difficult bedfellows resulting in only limited progress to address the salient issues of a lack of competitiveness and significant over-indebtedness. The likelihood is that over the coming year, the Eurozone will remain the most significant risk and progress towards a resolution will continue to be slow. The list of actions needed is long; a guarantee of bank deposits; common bank supervision; a system of fiscal transfers between countries; structural reforms; and perhaps ultimately full federalism. Momentum in the global economy has slowed and despite stimulatory actions in both the United States and Emerging Markets the potential for a further reduction in activity remains real. This all suggests that the outlook for the domestic economy remains anaemic at best.

The juxtaposition between the weak macroeconomic background and the corporate world remains stark and particularly so for those companies with strong competitive positions, healthy balance sheets and needs-driven products and services. These are the types of companies with which we aim to populate the portfolio to help protect against the challenges ahead. However, the benefits of these attractive attributes have not been lost on the market and although many of our holdings are now more expensive than they were a year ago, we still feel that their valuations remain broadly attractive. Indeed, we remain firm in our commitment that companies capable of generating attractive earnings and dividend growth are the best way to ensure good long term performance.

 

 

Charles Luke

Aberdeen Asset Managers Limited

Investment Manager

11 September 2012

 

 

3. REVIEW OF BUSINESS

A review of the Company's activities is given in the Chairman's Statement and in the Manager's Review. This includes a review of the business of the Company and its principal activities, and likely future developments of the business.

 

Investment Objective

The Company's investment objective is to achieve a high and growing income combined with capital growth through investment in a portfolio principally of UK equities.

 

Benchmark

The Company's benchmark is the FTSE All-Share Index.

 

Investment Policy

In pursuit of the Company's objective, the Company's investment policy is to invest in the shares of companies that have potential for real earnings and dividend growth, while at the same time providing an above-average portfolio yield. The emphasis is on the management of risk and on the absolute return from the portfolio, which is achieved by ensuring an appropriate diversification of stocks and sectors, with a high proportion of its assets in strong, well-known companies. The Company makes use of low-cost, flexible borrowing facilities to enhance shareholder returns when appropriate.

 

The Company maintains a highly-diversified portfolio of investments, typically comprising between 30 and 70 holdings (but without restricting the Company from holding a more or less concentrated portfolio from time to time). The Company is unconstrained as to the market sectors in which it may invest.

 

The Company may invest up to 100% of its gross assets in UK-listed equities and other securities and is permitted to invest up to 20% of its gross assets in other overseas listed equities and securities. The Company invests primarily in the equity securities of large, well-known UK and overseas companies with an emphasis on investing in quality companies with good management, strong cash flow and a sound balance sheet, and which are generating a reliable earnings stream.

 

The Company may use derivatives for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy.

 

It is the Company's policy to invest no more than 15 per cent of its gross assets in other listed investment companies (including investment trusts). The Company complies with Section 1158 of the Corporation Tax Act 2010 and does not invest more than 15% of its assets in the shares of any one company.

 

The Board is responsible for setting the gearing policy of the Company and for the limits on gearing. The Manager is responsible for gearing within the limits set by the Board. The Board has set its gearing limit at a maximum of 25% of Net Asset Value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy. Significant changes to gearing levels will be communicated to shareholders.

 

The Directors are responsible for determining the investment policy and the investment objective of the Company, while day-to-day management of the Company's assets has been delegated to Aberdeen Asset Managers Limited (the "Manager" or "Aberdeen"). The Manager invests in a diversified range of UK and overseas companies, following a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value, concentrating on quality first, then price. Top-down investment factors are secondary in the Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. The Manager is authorised to invest up to 15% of the Company's gross assets in any single stock. Currently, the top five holdings may not exceed 40% of the total value of the portfolio, and the top three sectors represented in the portfolio may not exceed 50%. The Manager is permitted to invest in options and in structured products, provided that any structured product issued in the form of a note or bond has a minimum credit rating of "A".

 

At the year end the Company's portfolio consisted of 41 holdings.

 

Capital Structure

The Company's issued share capital as at 30 June 2012 consisted of 65,499,458 Ordinary shares of 25p and 917,000 Ordinary shares held in treasury. At 11 September 2012, these numbers were unchanged.

 

Total Assets and Net Asset Value

At 30 June 2012, the Company had Total Assets of £465.5m and a Net Asset Value per Ordinary share of 649.6p.

 

Borrowings and Borrowing Covenants

The borrowings at 30 June 2012 of £40 million represent 9.4% of Net Assets. Borrowing facilities of £70 million are committed to the Company until 29 September 2013. Financial covenants contained within the loan agreement provide, inter alia, that the ratio of Net Assets to borrowings shall at no time fall below 3.5:1 (in effect, a limit on borrowings equivalent to 28.57% of Net Assets), and that the Net Assets must exceed £185 million. The Net Assets were £425.5 million at 30 June 2012. If any of the financial covenants are breached, the lender is entitled, following the serving of notice to the Company, to declare the loans and all accrued interest, fees and other sums owed under the agreement to be immediately due and repayable.

 

Duration

The Company does not have a fixed life.

 

Risk

Equity markets are volatile, and short-term movements may therefore be greater than justified by longer-term trends. The use of gearing is likely to lead to an increase in the volatility of the Company's Net Asset Value. Currently, 50% of the investment management fees and interest costs are charged to capital. This increases distributable income at the expense of capital growth, which will be reduced to the same extent. The policy of investing in higher-yielding shares may also diminish capital growth. There is no guarantee that the market price of investment trust shares will accurately reflect their underlying Net Asset Value or move in line with it. More detailed information is available in note 17 to the financial statements.

 

Oversight and Review of Performance

The Board meets at least five times a year to review performance with the Manager. As well as carrying out the matters set out in the Statement of Corporate Governance in the Annual Report, the Board receives, for each meeting, a detailed portfolio report and an analysis of economic indicators, and discusses performance and strategy, considering perceived risks and economic conditions. It uses measures such as attribution analysis against the benchmark, active weights and valuation matrices to assess the Company's success in achieving its objectives. The key performance indicators are established industry measures, and are as follows:

 

·        Net asset value (total return) relative to the Company's benchmark

·        Share price (total return)

·        Discount to net asset value

·        Performance attribution

·        Earnings and dividends per share

·        Ongoing charges ratio.

 

A historical record of these measures (except performance attribution) is disclosed in Section 5 below. We compare our performance with the Company's benchmark and selected peer companies. A range of comparator groups are used, including the AIC UK Growth & Income peer group and the Open-Ended UK Equity Income peer group.

 

Management of Risk

The Board regularly reviews the major strategic risks that the Board and the Manager have identified, and against these the Board sets out the delegated controls designed to manage those risks. The principal risks facing the Company relate to the Company's investment activities and include market price, interest rate, liquidity and credit risk. An explanation of these risks and how they are managed is contained in note 17 to the financial statements. Such key risks relating to investment and strategy as, for example, inappropriate asset allocation or gearing, are managed through investment policy guidelines and restrictions, and by the process of oversight at each Board meeting outlined above. Operational disruption, accounting and legal risks are also covered annually, and regulatory compliance is reviewed at each Board meeting. The major risks associated with the Company are:

 

·        Resource risk - like most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties, including, in particular, the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement (the "Agreement") (further details of which are set out in the Annual Report). The terms of the Agreement cover the necessary duties and conditions expected of the Manager. The Board reviews the performance of the Manager on a regular basis, and their compliance with the Agreement formally on an annual basis.

·        Investment objective - the objective of the Company is to achieve a high and growing income combined with capital growth. As a consequence, the investment portfolio may not always match that of the stock market as a whole, with a consequential impact on shareholder returns. The Board's aim is to maximise absolute returns to shareholders while managing risk by ensuring an appropriate diversification of stocks and sectors.

·        Investment policy and gearing - a major risk affecting the Company is inappropriate sector and stock selection leading to under-performance relative to the Company's benchmark index and peer group. In addition, the use of borrowing facilities to invest in markets may have a negative impact if markets fall. To mitigate these risks, the Manager operates within investment guidelines and agreed levels of borrowing. Performance against the benchmark index and the peer group is regularly monitored. 

·        Discount volatility - investment trust shares tend to trade at discounts to their underlying net asset values, although they can also trade at premia. Discounts and premia can fluctuate considerably. In order to seek to minimise the impact of such fluctuations, where the shares are trading at a significant discount, the Company has operated a share buy-back programme for a number of years. If the shares trade at a premium, the Company has the authority to issue new shares or re-issue shares from treasury. Whilst these measures seek to minimise volatility, it cannot be guaranteed that they will do so.

·        Foreign currency risk - a proportion of the Company's investment portfolio is invested in overseas securities and the value of the Company's investments and the income derived from them can, therefore, be affected by movements in foreign exchange rates. In addition, the earnings of the Company's other investments may also be affected by currency movements which, indirectly, could have an impact on the Company's performance.

·        Regulatory risk - the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains tax on the sale of its investments. Serious breach of other regulations, such as the UKLA Listing Rules and the Companies Act, could lead to suspension from the Stock Exchange and reputational damage. The Board receives monthly compliance reports from the Manager to monitor compliance with regulations.

 

Results and Dividends

The total return attributable to equity shareholders for the year amounted to £4,350,000.

 

A third interim dividend of 5.5p per Ordinary share was paid on 15 July 2011, and the final dividend for the year ended 30 June 2011 of 12.25p per Ordinary share was paid on 26 October 2011. The first and second interim dividends for the year ended 30 June 2012 of 5.5p per Ordinary share each were paid on 13 January 2012 and 13 April 2012 respectively, making a total distribution to Ordinary shareholders of £18,604,000 as shown in note 6. The third interim dividend of 5.5p per Ordinary share was paid on 13 July 2012.

 

The Directors now recommend a final dividend of 13.25p per Ordinary share payable on 25 October 2012 to holders of Ordinary shares on the register on 28 September 2012. The relevant ex-dividend date is 26 September 2012. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

 

Dividends are paid by means of three interim dividends, normally in January, April, July, and a final, after the Annual General Meeting in October or November. Further information on dividends is contained in the Chairman's Statement.

 

 

4. STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual 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 the law they 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 (including a Business Review), 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.

 

The Directors confirm that to the best of their knowledge:

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

·        the Chairman's Statement, Manager's Review and Business Review contained within the Report of the Directors (together constituting the Management Report) include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces; and

·        the financial statements and the Directors' Report and Business Review include details on related party transactions.

 

 

For and on behalf of the Board of Murray Income Trust PLC

 

Humphrey van der Klugt

Chairman of the Audit Committee

11 September 2012

 

 

5. RESULTS

For the year ended 30 June 2012

 

 

Financial Highlights









30 June 2012

30 June 2011

% change

Total assets (£'000)

465,458

474,406

-1.9

Equity shareholders' funds (£'000)

425,458

434,406

-2.1

Net asset value per Ordinary share

649.6p

 671.5p

-3.3

Share price of Ordinary share (mid)

640.0p

659.5p

-3.0

Discount to net asset value on Ordinary shares

1.5%

1.8%


Gearing (ratio of borrowing to shareholders' funds)




Actual gearing ratio

4.7%

7.5%


Potential gearing ratio

9.4%

9.2%


Dividends and earnings




Revenue return per share

30.6p

30.9p

-1.0

Dividends per share{A}

29.75p

 28.75p

+3.5

Dividend cover

 1.03 times

 1.07 times


Revenue reserves (£'000){B}

27,992

26,710


Operating costs




Ongoing charges ratio{C}

0.8%

0.8%



{A}    The figures for dividends per share reflect the years in which they were earned (see note 6).

{B}    The revenue reserve figure does not take account of the proposed third interim and final dividends amounting to £3,602,000 and £8,679,000 respectively (2011 - third interim and final dividends amounting to £3,558,000 and £7,924,000 respectively).

{C}    Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.  The figures for 2011 have been restated in accordance with AIC guidelines.

 

 

Performance (total return)

 

 1 year return

3 year return

5 year return


%

%

%

Share price

+1.7

+67.5

+16.9

Net asset value per Ordinary share

+1.4

+2.3

Source: Aberdeen Asset Management/Fundamental Data

 

 

Dividends

 

Rate

xd date

Record date

Payment date

1st interim 2012

5.50p

14 December 2011

16 December 2011

13 January 2012

2nd interim 2012

5.50p

7 March 2012

9 March 2012

13 April 2012

3rd interim 2012

5.50p

6 June 2012

8 June 2012

13 July 2012

Proposed final 2012

13.25p

26 September 2012

28 September 2012

25 October 2012

Total dividends 2012

29.75p




 

 

Ten Year Financial Record

 

Year end 30 June

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Revenue (£'000)

 16,041

 16,827

 16,533

 17,237

 19,251

 22,390

 19,790

 18,257

  21,844

 22,688

Per Ordinary share (p)











Net revenue return

 18.7

 19.6

 20.0

 21.8

 24.7

 29.3

  28.1

 25.4

  30.9

 30.6

Dividends

17.75

18.25

 19.15

 21.60

 24.25

 27.00

 27.75

 28.00

 28.75

 29.75

Net asset value

 433.8

 496.2

 603.3

 699.7

 802.3

  619.9

 455.4

 547.9

 671.5

 649.6


______

______

______

______

______

______

______

______

______

______

Shareholders' funds (£'000)

304,529

345,138

404,601

 456,714

522,617

400,536

294,570

354,425

434,406

 425,458


______

______

______

______

______

______

______

______

______

______












The Net Asset Value figure for 2005 has been restated to reflect the changes in accounting policies (FRS 26 - 'Financial Instruments: Recognition and Measurement'; FRS 21 - 'Events after the Balance Sheet Date').


The figures for dividends reflect the dividends for the years in which they were earned.


Please note that past performance is not a guide to future performance.

 

 

MURRAY INCOME TRUST PLC

 

Income Statement

 


Year ended 30 June 2012

Year ended 30 June 2011



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

(Losses)/gains on investments

9

-

(14,044)

(14,044)

-

78,910

78,910

Currency gains/(losses)


-

80

80

-

(10)

(10)

Income

2

22,688

-

22,688

21,844

-

21,844

Investment management fees

3

(1,112)

(1,112)

(2,224)

(1,110)

(1,110)

(2,220)

Administrative expenses

4

(981)

-

(981)

(859)

-

(859)

VAT recovered on investment management fee


-

-

-

734

742

1,476



_______

_______

_______

_______

_______

_______

Net return before finance costs and taxation


20,595

(15,076)

5,519

20,609

78,532

99,141

















Finance costs of borrowing

5

(460)

(460)

(920)

(467)

(467)

(934)



_______

_______

_______

_______

_______

_______

Net return on ordinary activities before taxation


20,135

(15,536)

4,599

20,142

78,065

98,207









Taxation on ordinary activities

7

(249)

-

(249)

(125)

-

(125)



_______

_______

_______

_______

_______

_______

Net return on ordinary activities after taxation


19,886

(15,536)

4,350

20,017

78,065

98,082



_______

_______

_______

_______

_______

_______









Return per Ordinary share (pence)

8

30.6

(23.9)

6.7

30.9

120.7

151.6



_______

_______

_______

_______

_______

_______









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

The Company had no recognised gains or losses other than those recognised in the Income Statement.

No operations were acquired or discontinued in the year.

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

The accompanying notes are an integral part of the financial statements.




£'000

£'000

£'000

£'000

£'000

£'000

Ordinary dividends on equity shares

6

18,604

-

18,604

18,101

-

18,101



_______

_______

_______

_______

_______

_______


The above dividend information does not form part of the Income Statement.

 

 

MURRAY INCOME TRUST PLC

 

Balance Sheet

 


As at

As at



30 June 2012

30 June 2011


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

9

443,355

466,713



___________

___________

Current assets




Other debtors and receivables

10

3,115

3,105

Cash and short term deposits


19,867

5,515



___________

___________



22,982

8,620



___________

___________

Creditors: amounts falling due within one year




Other payables

11

(879)

(927)

Bank loans

11

(40,000)

(40,000)



___________

___________

Net current liabilities


(17,897)

(32,307)



___________

___________

Net assets


425,458

434,406



___________

___________

Share capital and reserves




Called-up share capital

12

16,604

16,604

Share premium account


8,103

7,955

Capital redemption reserve


4,997

4,997

Capital reserve

13

367,762

378,140

Revenue reserve

13

27,992

26,710



___________

___________

Total equity shareholders' funds


425,458

434,406



___________

___________





Net asset value per Ordinary share (pence)

14

649.6

671.5



___________

___________

 

 

MURRAY INCOME TRUST PLC

 

Reconciliation of Movements in Shareholders' funds

 

For the year ended
30 June 2012











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 July 2011


16,604

7,955

4,997

378,140

26,710

434,406

Return on ordinary activities after taxation


-

-

-

(15,536)

19,886

4,350

Issue of Ordinary shares


-

148

-

5,158

-

5,306

Dividends paid

6

-

-

-

-

(18,604)

(18,604)



________

________

________

________

________

________

Balance at
30 June 2012


16,604

8,103

4,997

367,762

27,992

425,458



________

________

________

________

________

________









For the year ended
30 June 2011











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total



£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 July 2010


16,604

7,955

4,997

300,075

24,794

354,425

Return on ordinary activities after taxation


-

-

-

78,065

20,017

98,082

Dividends paid

6

-

-

-

-

(18,101)

(18,101)



________

________

________

________

________

________

Balance at
30 June 2011


16,604

7,955

4,997

378,140

26,710

434,406



________

________

________

________

________

________









The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

 

 


MURRAY INCOME TRUST PLC

 

Cash Flow Statement

 


Year ended

Year ended



30 June 2012

30 June 2011


Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

15


18,888


20,209







Servicing of finance






Interest paid



(976)


(1,045)







Taxation






Net tax paid



(397)


(204)







Financial investment






Purchases of investments


(68,224)


(85,311)


Sales of investments


78,279


49,940




_______


_______


Net cash inflow/(outflow) from financial investment



10,055


(35,371)







Equity dividends paid

6


(18,604)


(18,101)




_______


_______

Net cash inflow/(outflow) before financing



8,966


(34,512)







Financing






Issue of Ordinary shares

12

5,306


-


Drawdown of loan


5,000


5,000


Repayment of loan


(5,000)


-




_______


_______


Net cash inflow from financing



5,306


5,000




_______


_______

Increase/(decrease) in cash   

16


14,272


(29,512)




_______


_______

 

MURRAY INCOME TRUST PLC

 

Notes to the Financial Statements

Year Ended 30 June 2012

 

1.

Accounting policies


(a)

Basis of preparation



The financial statements have been prepared 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'.






The financial statements have been prepared on a going concern basis. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.





(b)

Income



Dividends receivable on equity shares (other than special dividends) are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Where the Company has elected to receive dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as revenue. Provision is made for any dividends not expected to be received. Special dividends are credited to capital or revenue, according to the circumstances. Dividend revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately with the Income Statement.






The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares.






Interest receivable from cash and short-term deposits and interest payable is accrued to the end of the year.





(c)

Expenses



All expenses are accounted for on an accruals basis. All expenses are charged through the revenue column of the Income Statement except as follows:



-     transaction costs on the acquisition or disposal of investments are recognised as a capital item in the Income Statement.



-     expenses are charged to the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 50% to revenue and 50% to capital to reflect the Company's investment policy and prospective income and capital growth.





(d)

Taxation



The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and the revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year.






Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Balance Sheet date.






Due to the Company's status as an investment trust company, 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. 





(e)

Valuation of investments



Investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis. 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 valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included in the net return for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.





(f)

Cash and cash equivalents



Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of change in value.





(g)

Borrowings



Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. Subsequently, they continue to be valued at fair value, which is determined by aggregating the expected future cash flows for that loan or overdraft at a rate comprising the borrower's margin plus an average of market rates applicable to loans or overdrafts of a similar period of time and currency. Finance charges are accounted for on an accruals basis using the effective interest rate method and are charged 50% to revenue and 50% to capital to reflect the Company's investment policy and prospective income and capital growth.





(h)

Traded options



The Company may enter into certain derivatives (eg options) to gain exposure to the market. The option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value ie market value adjusted for the amortisation of transaction expenses. The premium received and fair value changes in the open position are normally recognised in the revenue column of the Income Statement. However, where the option is written for the maintenance or enhancement of the Company's investments then the change in fair value is recognised in the capital column of the Income Statement.





(i)

Segmental reporting



The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.





(j)

Treasury shares



When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve.





(k)

Dividends payable



Dividends are recognised in the financial statements in the period in which they are paid.

 


 2012

 2011

2.

Income

 £'000

 £'000


Income from investments




UK dividends (all listed)

17,472

15,911


Overseas dividends (all listed)

 2,427

 1,474


Bond interest

 60

565


Stock dividends

 741

147



_________

_________



 20,700

18,097



_________

_________


Other income




Interest from HMRC on VAT recovered

-

1,358


Deposit interest

 48

 94


Traded option premiums

1,940

 2,132


Underwriting commission

-

163



_________

_________



1,988

 3,747



_________

_________


Total income

 22,688

21,844



_________

_________






During the year, the Company received premiums totalling £1,940,000 (2011 - £2,132,000) in exchange for entering into derivative transactions. At the year end there were 16 open positions, valued at a net liability position of £223,000 (2011 - £306,000) and securities held by the Company with a value of £2,954,000 (2011 - £3,211,000) were pledged as collateral against this.

 


 2012

 2011



Revenue

 Capital

 Total

Revenue

 Capital

 Total

3.

Investment management fees

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000


Investment management fees

 1,112

 1,112

2,224

1,110

1,110

 2,220



______

______

______

______

______

______










Details of the fee basis are contained in the Annual Report. There was £439,000 (2011 - £391,000) due to Aberdeen Asset Managers Limited in respect of these investment management services at the year end.

 


2012

2011

4.

Administrative expenses

£'000

£'000


Shareholders' services{A}

409

358


Irrecoverable VAT

117

81


Directors' remuneration

114

114


Secretarial fees

75

75


Auditor's remuneration:




fees payable to the Company's auditor for the audit of the Company's annual accounts

19

19


fees payable to the Company's auditor and its associates for other services

4

-


Other expenses

243

212



_________

_________



981

859



_________

_________






{A} Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £327,000 (2011 - £291,000) was paid to Aberdeen Asset Managers Limited (AAM) to cover marketing activities during the year. There was £83,000 (2011 - £73,000) due to AAM in respect of these marketing activities at the year end.

 


 2012

 2011



Revenue

Capital

 Total

Revenue

 Capital

 Total

5.

Finance costs of borrowing

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000


Bank loans and overdrafts

 460

460

920

 467

 467

934



______

______

______

______

______

______

 


2012

2011

6.

Ordinary dividends on equity shares

£'000

£'000


Third interim 2011 of 5.50p (2010 - 5.50p)

3,558

3,558


Final 2011 of 12.25p (2010 - 11.50p)

7,924

7,439


First interim 2012 of 5.50p (2011 - 5.50p)

3,558

3,558


Second interim 2012 of 5.50p (2011 - 5.50p)

3,574

3,558


Return of unclaimed dividends

(10)

(12)



_________

_________



18,604

18,101



_________

_________






The third interim and proposed final dividends for 2012 have not been included as a liability in these financial statements as they were not payable until after the balance sheet date. The proposed final dividend for 2012 is subject to approval by shareholders at the Annual General Meeting.




We 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 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £19,886,000 (2011 - £20,017,000).







2012

2011



£'000

£'000


Three interim dividends of 5.50p each (2011 - 5.50p)

10,734

10,674


Proposed final dividend of 13.25p (2011 - 12.25p)

8,679

7,924



_________

_________



19,413

18,598



_________

_________

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

 Total

7.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Overseas tax suffered

400

-

400

204

-

204



Overseas tax reclaimable

(151)

-

(151)

(79)

-

(79)




______

_____

_____

______

______

______



Current tax charge for the year

249

-

249

125

-

125




______

_____

_____

______

______

______











(b)

Factors affecting the tax charge for the year



The tax assessed for the year is lower than the effective rate of corporation tax rate of 25.5% (2011 - 27.5%).  The differences are explained as follows:









2012

2011




Revenue

Capital

 Total

Revenue

 Capital

 Total




£'000

£'000

£'000

£'000

£'000

£'000



Net profit on ordinary activities before taxation

20,135

(15,536)

4,599

20,142

78,065

98,207












Return on ordinary activities multiplied by the effective rate of corporation tax of 25.5% (2011 - 27.5%)

5,134

(3,962)

1,172

5,539

21,468

27,007



Effects of:









Non-taxable UK dividends

(4,382)

-

(4,382)

(4,282)

-

(4,282)



Non-taxable stock dividends

(189)

-

(189)

(40)

-

(40)



Non-taxable overseas dividends

(619)

-

(619)

(405)

-

(405)



Movement in income accruals taxable on receipt

6

-

6

(1)

-

(1)



Movement in unutilised loan relationships

97

117

214

(129)

129

-



Movement in unutilised management expenses

-

236

236

(682)

101

(581)



Tax relief from expenses charged to capital

(47)

47

-

-

-

-



Other capital returns

-

3,562

3,562

-

(21,698)

(21,698)



Overseas tax irrecoverable

249

-

249

125

-

125




______

_____

_____

______

______

_____



Current tax charge

249

-

249

125

-

125




______

_____

_____

______

______

_____











(c)

Factors that may affect future tax charges



No provision for deferred tax has been made in the current or prior accounting period.






The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.






At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £48,506,000 (2011 - £46,827,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised.

 


2012

2011

8.

Return per Ordinary share

£'000

p

£'000

p


Returns are based on the following figures:






Revenue return

19,886

30.6

20,017

30.9


Capital return

(15,536)

(23.9)

78,065

120.7



_______

_______

_______

________


Total return

4,350

6.7

98,082

151.6



_______

_______

_______

________


Weighted average number of Ordinary shares in issue


64,937,245


64,689,458




__________


__________

 


 2012

 2011

9.

Investments

 £'000

 £'000


Held at fair value through profit or loss:




Opening valuation

466,713

352,285


Opening investment holdings gains

(109,319)

(44,688)



_______

_______


Opening book cost

357,394

307,597


Movements during the year:




Purchases at cost

68,965

85,458


Sales - proceeds

(78,279)

(49,940)


Sales - gains

11,729

14,279



_______

_______


Closing book cost

359,809

357,394


Closing investment holdings gains

83,546

109,319



_______

_______


Closing valuation

443,355

466,713



_______

_______



2012

2011


The portfolio valuation:

£'000

£'000


UK equities

392,431

430,325


Overseas equities

50,924

34,386


UK fixed interest

-

2,002



_______

_______


Total

443,355

466,713



_______

_______







2012

2011


(Losses)/gains on investments

£'000

£'000


Gains based on book cost

11,729

14,279


Net movement in investment holdings gains

(25,773)

64,631



_______

_______



(14,044)

78,910



_______

_______






As at 30 June 2012, the Company had pledged collateral greater than the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £2,954,000, all in the form of securities. The collateral position is monitored on a daily basis, which then determines if further assets are required to be pledged over and above those already pledged.




Transaction costs


During the year expenses were incurred in acquiring or disposing of investments classified at fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:







2012

2011



£'000

£'000


Purchases

183

364


Sales

76

 40



_______

_______



259

404



_______

_______

 


 2012

 2011

10.

Other debtors and receivables

 £'000

 £'000


Prepayments and accrued income

3,115

3,105



_______

_______

 


 2012

 2011

11.

Creditors: amounts falling due within one year

 £'000

 £'000


Accruals

656

 621


Amounts due on derivative contracts

 223

306


Bank loans

40,000

40,000



_______

_______



40,879

40,927



_______

_______






Accruals include £445,000 (2011 - £397,000 plus VAT) of management fees and secretarial fees due to Aberdeen Asset Managers Limited, the Investment Manager and 16 (2011 - 15) open option positions having a value of £223,000 (2011 - £306,000).




At 30 June 2012 the Company had drawn down £40,000,000 (30 June 2011 - £40,000,000 drawn down of a £60,000,000 revolving bank credit facility with Santander Corporate Banking) of a £70,000,000 unsecured revolving bank credit facility with Scotiabank (Ireland) Limited. Under the terms of the agreement, advances from the facility may be made for periods of up to six months or for such longer periods agreed by the lender. Interest is charged at a variable rate based on LIBOR plus a margin of 1.15% for the relevant period of the advance. As at 30 June 2012 this rate was 1.76600% (30 June 2011 - 1.92840%) and the loan rolled over on 31 July 2012.




On 11 September 2012 the Company had drawn down £40,000,000 of the facility, at an all-in interest rate of 1.68125% until maturity on 28 September 2012. Borrowing facilities are committed to the Company until 29 September 2013.




Financial covenants contained within the loan agreement provide, inter alia, that the Adjusted Asset Coverage must exceed 3.50 to 1.00 and that net assets must exceed £185 million. All financial covenants were met during the year and also during the period from the year end to the date of this report.

 


2012

2011

12.

Called-up share capital

 Shares

 £'000

 Shares

 £'000


Authorised






Ordinary shares of 25p each

102,842,000

25,710

102,842,000

25,710



_________

_______

_________

_______


Allotted, called-up and fully-paid






Ordinary shares of 25p each: publicly held

65,499,458

16,375

64,689,458

16,172


Ordinary shares of 25p each: held in treasury

917,000

 229

1,727,000

432



__________

_______

_________

_______



66,416,458

16,604

66,416,458

16,604



_________

_______

_________

_______








During the year there were no Ordinary shares repurchased (2011 - nil), and 810,000 Ordinary shares were sold from the Treasury account (2011 - nil). All of these shares were sold at a premium to net asset value. The issue prices ranged from 650p to 670.5p and raised £5,306,000 net of expenses, which represents a gain of £148,000 against the cost of buying the shares for treasury.

 


2012

2011

13.

Retained earnings

£'000

£'000


Capital reserve




At 1 July 2011

378,140

300,075


Movement in investment holding gains

(25,773)

64,631


Gains on realisation of investments at fair value

11,729

14,279


Currency gains/(losses)

80

(10)


Finance costs of bank loan

(460)

(467)


Investment management fees

(1,112)

(1,110)


Issue of Ordinary shares

5,158

-


VAT recovered on investment management fees

-

742



_________

_________


At 30 June 2012

367,762

378,140



_________

_________


Revenue reserve





2012

2011



£'000

£'000


At 1 July 2011

26,710

24,794


Revenue

19,886

20,017


Dividends paid

(18,604)

(18,101)



_________

_________


At 30 June 2012

27,992

26,710



_________

_________

 

14.

Net asset value per share


The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows:







 2012

 2011


Net asset value attributable (£'000)

425,458

434,406


Number of Ordinary shares in issue (note 12)

65,499,458

64,689,458


Net asset value per share (p)

649.6

671.5

 

15.

Reconciliation of net return before finance costs and

 2012

 2011


taxation to net cash inflow from operating activities

 £'000

 £'000


Net return before finance costs and taxation

5,519

99,141


Adjustments for:




Losses/(gains) on investments

14,044

(78,910)


Currency (gains)/losses

(80)

10


Non cash stock dividend

(741)

(147)


Decrease/(increase) in accrued income

148

(142)


Increase in other debtors

(10)

(1)


Increase in accruals

8

258



_________

_________


Net cash inflow from operating activities

18,888

20,209



_________

_________

 


At
 1 July 2011

 
Cash flows

 Currency gains

At
30 June 2012

16.

Analysis of changes in net debt

 £'000

 £'000

 £'000

 £'000


Net cash:






Cash

5,515

14,272

80

19,867


Debt:






Debt due within one year

(40,000)

-

-

(40,000)



_________

_________

_________

_________


Net debt

(34,485)

14,272

80

(20,133)



_________

_________

_________

_________

 

17.

Derivatives and other financial instruments


The Company's financial instruments, other than derivatives, comprise securities and other investments, cash balances, liquid resources, 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, futures and options, subject to Board approval, for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy.




The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk.




In order to mitigate risk, the investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis. 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. The Attribution Analysis, detailing the allocation of assets and the stock selection, is shown in the Performance Attribution table. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. Current strategy is detailed in the Chairman's Statement (in the sections headed "Performance", "Dividends" and "Outlook") and in the Investment Manager's Review (in the sections headed "Background", "Performance", "Portfolio Activity", "Structure", "Income" and "Outlook").




The Board has agreed the parameters for gearing, which was 9.4% of net assets as at 30 June 2012 (2011 - 9.2%). The Manager's policies for managing these risks are summarised below and have been applied throughout the current and previous year. The numerical disclosures in the table listed below exclude short-term debtors and creditors.




Market risk


The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective as set out in the Review of Business. Adherence to investment guidelines and to investment and borrowing powers set out in the management agreement mitigates the risk of exposure to any particular type of security or issuer. Further information on the investment portfolio is set out in the Investment Manager's Review.




Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. It is the Board's policy to hold equity investments in the portfolio in a broad spread of sectors in order to reduce the risk arising from factors specific to a particular sector. A summary of investment changes during the year under review and an analysis of the equity portfolio by industrial classification appear in the Annual Report (the twenty largest portfolio holdings are shown below). 




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;


-     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.




Financial assets


The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates.




The interest rate risk of the portfolio of financial assets at the Balance Sheet date was as follows:





Floating rate

Fixed rate

Non-interest bearing



 2012

 2011

 2012

 2011

 2012

 2011



 £'000

 £'000

 £'000

 £'000

 £'000

 £'000


Euro

610

  699

-

-

26,789

  20,024


Sterling

19,160

4,751

-

 2,002

392,431

430,325


Swedish Krona

-

16

-

-

 4,199

4,052


Swiss Francs

97

34

-

-

19,936

10,310


US Dollar

-

15

-

-

-

-



_______

_________

________

________

_________

_________


Total

 19,867

5,515

-

 2,002

 443,355

464,711



_______

_________

________

________

_________

_________










The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.




The interest bearing assets represent corporate bonds, amounting to £nil (2011 - £2,002,000). Their weighted average interest rate, based on current yield of the underlying equity, plus a fixed rate of interest on the nominal amount notes held, was nil% (2011 - 14.00%).




The non-interest bearing assets represent the equity element of the portfolio.




Financial liabilities 


The Company has borrowings by way of a loan facility, details of which are in note 11. The fair value of this loan has been calculated at £40,000,000 as at 30 June 2012 (2011 - £40,000,000). The fair value of the loan equates to the cost as the loans are rolled on a regular basis. All other financial assets and liabilities of the Company are included in the Balance Sheet at their book value which in the opinion of the Directors is not materially different from their fair value.




Maturity profile


The maturity profile of the Company's financial assets and liabilities at 30 June was as follows:







 Within 

 Within



 1 year

 1 year



 2012

 2011


Assets

 £'000

 £'000


Fixed rate

-

-



_________

_________


Floating rate




Cash

19,867

5,515



_________

_________







 More than 

 More than 



 5 years

 5 years



 2012

 2011


Assets

 £'000

 £'000


Fixed rate




Corporate Bonds

-

2,002



_________

_________







 Within 

 Within 



 1 year

 1 year



 2012

 2011


Liabilities

 £'000

 £'000


Floating rate




Revolving bank credit facility

40,000

 40,000



_________

_________






All the other financial assets and liabilities do not have a maturity date.




Interest rate sensitivity


The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant in the case of instruments that have floating rates.



If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit before tax for the year ended 30 June 2012 and net assets would increase/decrease by £199,000 (2011 -  increase/decrease by £55,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.




Foreign currency risk


A 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.




The revenue account is subject to currency fluctuations arising on dividends receivable 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:





 30 June 2012

 30 June 2011




Net

Total


Net

Total




monetary

currency


monetary

currency



Investments

assets

exposure

Investments

assets

exposure



£'000

£'000

£'000

£'000

£'000

£'000


Euro

26,789

610

27,399

20,024

699

20,723


Sterling

392,431

(20,840)

371,591

432,327

(35,249)

397,078


Swedish Krona

4,199

-

4,199

4,052

16

4,068


Swiss Francs

19,936

97

20,033

10,310

34

10,344


US Dollar

-

-

-

-

15

15



_________

________

________

_________

________

_________


Total

443,355

(20,133)

423,222

466,713

(34,485)

432,228



_________

________

________

_________

________

_________










Foreign currency sensitivity


No sensitivity analysis has been included. 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 (ie 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 country or sector. The allocation of assets to international markets and the stock selection process, as detailed in the section "Investment Policy" in the Review of Business, both 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.




Other price risk sensitivity


If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders and equity for the year ended 30 June 2012 would have increased/decreased by £44,336,000 (2011 - £46,671,000).




Liquidity risk


The Company's assets comprise readily realisable securities which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of committed loan and overdraft facilities.




As at 30 June 2012 the Company utilised £40,000,000 of a £70,000,000 (2011 - £40,000,000 of £60,000,000) revolving bank credit facility. Interest is charged at a variable rate based on LIBOR plus a margin of 1.15% (2011 - margin 1.30%) for the relevant period of the advance. As at 30 June 2012 this rate was 1.76600% (2011 - 1.92840%) and the loan rolled over on 31 July 2012 (2011 - matured on 11 July 2011). The aggregate of all future interest payments at the rate ruling at 30 June 2012 and the redemption of the loan amounted to £40,062,000 (2011 - £40,066,000).




Credit risk


Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. This is mitigated by the Investment Manager reviewing the credit ratings of broker counterparties. The risk attached to dividend flows is mitigated by the Investment Manager's research of potential investee companies. The Company's custodian bank is responsible for the collection of income on behalf of the Company and its performance is reviewed by the Board on a regular basis. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. The maximum credit risk at 30 June 2012 is £22,626,000 (30 June 2011 - £10,422,000) consisting of £nil (2011 - £nil) equity linked notes, £nil (2011 - £2,002,000) corporate bonds, £2,759,000 (2011 - £2,905,000) of dividends receivable from equity shares and £19,867,000 in cash held (2011 - £5,515,000).




None of the Company's financial assets are past due or impaired (2011 - £nil).




Capital management policies and procedures


The investment objective of the Company is to achieve a high and growing income combined with capital growth through investment in a portfolio of UK and overseas equities.




The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.




The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:


-     the planned level of gearing which takes into account the Investment Manager's views on the market;


-     the level of equity shares in issue;


-     the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.




At the year end financial covenants contained within the loan agreement provide, inter alia, that the Adjusted Asset Coverage must exceed 3.50 to 1.00 and that the net assets must exceed £185 million. At 30 June 2012 net gearing was 9.4% (2011 - 9.2%) and the net assets were £425.5 million (2011 - £434.4 million).

 

18.

Fair value hierarchy


FRS 29 'Financial Instruments: Disclosures' requires 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 (ie as prices) or indirectly (ie 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 Balance Sheet are grouped into the fair value hierarchy at the Balance Sheet date as follows:




For the year ended 30 June 2012







Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss



Quoted equities

a)

443,355

-

-

443,355




________

_______

_______

________


Total


443,355

-

-

443,355




________

_______

_______

________









Financial liabilities at fair value through profit or loss



Derivatives

c)

(147)

(76)

-

(223)




________

_______

_______

________


Net fair value


443,208

(76)

-

443,132




________

_______

_______

________









For the year ended 30 June 2011







Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss



Quoted equities

a)

464,711

-

-

464,711


Quoted bonds

b)

2,002

-

-

2,002




________

_______

_______

________


Total


466,713

-

-

466,713




________

_______

_______

________









Financial liabilities at fair value through profit or loss



Derivatives

c)

(129)

(177)

-

(306)




________

_______

_______

________


Net fair value


466,584

(177)

-

466,407




________

_______

_______

________









a) Quoted equities


The fair value of the Company's investments in quoted equities have 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 have been determined by reference to their quoted bid prices at the reporting date. 




c) Derivatives


The fair value of the Company's investments in exchange traded options has been determined using quoted prices on an exchange traded basis and therefore have been classed as Level 1.




The fair value of the Company's investments in over-the-counter options has been determined using observable market inputs other than quoted prices and are therefore included within Level 2.

 

19.

Related party disclosure


Aberdeen Asset Managers Limited ('AAM') received fees for its services as investment manager and for the provision of marketing services. Aberdeen Asset Management PLC, the ultimate parent company of AAM, received fees for the provision of secretarial services. Further details of these arrangements are provided in notes 3 and 4.




The Directors of the Company received fees for their services. Further details are provided in the Directors' Remuneration Report in the Annual Report. The Directors' shareholdings in the Company are disclosed in the Annual Report.

 

20.   If approved, the proposed final dividend of 13.25p per share will be paid on 25 October 2012 to holders of Ordinary shares on the register at the close of business on 28 September 2012. The relevant ex-dividend date is 26 September 2012.

 

21.   The Annual General Meeting will be held on 23 October 2012 at 12.30 pm.

 

22.   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 and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

 

The figures and financial information for the year ended 30 June 2012 are compiled from an extract of the latest accounts of the Company and do not constitute the statutory accounts for that year. Those accounts included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006. They have not yet been delivered to the Registrar of Companies. The figures and financial information for the year ended 30 June 2011 are compiled from an extract of the latest published accounts of the Company and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006. The 2012 accounts will be filed with the Registrar of Companies in due course.

 

The annual results will be circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY and from the Company's website (www.murray-income.co.uk*) and which will be filed with the Registrar of Companies.

 

*Neither the Company's website nor the content of any website accessible from hyperlinks on that website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

 

By Order of the Board

ABERDEEN ASSET MANAGEMENT PLC

 

Secretary

 

12 September 2012

MURRAY INCOME TRUST PLC

 

Summary of Investment Changes during the year

 

Valuation



Valuation


30 June 2011

Transactions

Gains/(losses)

30 June 2012


£'000

% 

£'000

£'000

£'000

% 

Equities







United Kingdom

430,325

90.7

(29,050)

(8,844)

392,431

84.3

France

7,821

1.6

8,159

(3,703)

12,277

2.6

Germany

-

-

3,287

(23)

3,264

0.7

Italy

12,203

2.6

-

(955)

11,248

2.4

Sweden

4,052

0.9

1,083

(936)

4,199

0.9

Switzerland

10,310

2.2

8,832

794

19,936

4.3


_______

_______

_______

_______

_______

_______


464,711

       98.0

(7,689)

(13,667)

443,355

95.2


_______

_______

_______

_______

_______

_______

Convertible securities/fixed interest







United Kingdom

2,002

         0.4

(1,625)

(377)

-

-


_______

_______

_______

_______

_______

_______

Total investments

466,713

98.4

(9,314)

(14,044)

443,355

95.2


_______

_______

_______

_______

_______

_______

Other net assets

7,693

         1.6

14,410

-

22,103

4.8


_______

_______

_______

_______

_______

_______

Total assets less current liabilities (excluding bank loan)

474,406

100.0

5,096

(14,044)

465,458

100.0


_______

_______

_______

_______

_______

_______

 

Summary of Net Assets

 

As at

As at


30 June 2012

30 June 2011


£'000

%

£'000

%

Equities

443,355

104.2

464,711

107.0

Convertible securities/fixed interest

-

-

2,002

0.4

Other net assets

22,103

5.2

7,693

1.8

Borrowings

(40,000)

(9.4)

(40,000)

(9.2)

Equity shareholders' funds

425,458

100.0

434,406

100.0

 

MURRAY INCOME TRUST PLC

 

Twenty Largest Investments

As at 30 June 2012

 

Valuation

Total

Valuation


2012

assets

2011

Investment

£'000

%

£'000

1 (1) British American Tobacco




British American Tobacco manufactures and markets cigarettes and other tobacco products, including cigars and roll-your-own tobacco. The group sells over 200 brands in approximately 180 countries. Key brands include: Dunhill, Kent, Pall Mall and Lucky Strike. Strong cashflow is an attractive characteristic of the tobacco industry.

 26,904

5.8

 25,808

2 (5) GlaxoSmithKline




GlaxoSmithKline is a research-based pharmaceutical group that also develops, manufactures and markets vaccines, prescription and over-the-counter medicines, as well as health-related consumer products. The group specialises in treatments for respiratory, central nervous system, gastro-intestinal and genetic disorders.

24,454

5.3

 19,877

3 (4) Vodafone Group




Vodafone is one of the world's largest mobile phone companies, with a significant position in major economies including Germany, Italy, the UK and the US, as well as many emerging markets. The group generates a significant amount of free cashflow.

 24,218

5.2

 22,334

4 (2) Royal Dutch Shell




Royal Dutch Shell is engaged in all phases of the petroleum industry, from exploration to processing and distribution. It has strong positions in oil products marketing and LNG, globally. The group operates in over 130 countries.

23,769

5.1

 24,019

5 (3) Centrica




Centrica provides gas, electricity and energy-related products and services to business and residential customers in the UK and USA. It also provides central heating and gas appliance installation and maintenance services. The company enjoys a strong competitive position in the UK market, which provides a solid platform from which to generate long-term value.

 22,101

4.7

 22,470

6 (8) Unilever




Unilever is a global consumer goods company supplying food, home and personal care products. The company has a portfolio of strong brands including: Dove, Knorr, Axe and Persil. Over half of the company's sales are to developing and emerging markets.

19,510

4.2

18,255

7 (11) Pearson




Pearson is one of the world's leading education companies. From pre-school to professional certification, the company's curriculum materials, multimedia learning tools and testing programmes help to educate more than 100m people worldwide. The company offers access to long-term structural growth.

17,281

3.7

 16,052

8 (7) AstraZeneca




AstraZeneca researches, develops, produces and markets pharmaceutical products. The company's operations are focused on six therapeutic areas: Cardiovascular, Oncology, Respiratory, Neuroscience, Inflammation and Infection. The company's product pipeline offers a number of interesting opportunities.

17,032

3.7

18,555

9 (6) BP




BP is one of the world's largest petroleum and petrochemicals groups. Its main activities are: exploration and production of crude oil and natural gas; refining, marketing, supply and transportation of petroleum products.

16,278

3.5

 18,804

10 (9) HSBC Holdings




HSBC group is one of the world's largest banking and financial services institutions. Its international network comprises more than 5,000 offices in 80 countries and territories, operating in the Asia Pacific region, Europe, the Americas, the Middle East and Africa. The diversity of HSBC's business and exposure to faster growing regions of the world should enable it to deliver superior long-term growth.

14,996

3.2

 16,527

Top ten investments

 206,543

44.4


11 (16) BHP Billiton




BHP Billiton is the world's largest diversified resources group with a global portfolio of high quality assets. Core activities comprise of production and distribution of minerals, mineral products and petroleum.

14,647

3.1

 11,622

12 (17) Roche Holdings




Listed in Switzerland, Roche develops and manufactures pharmaceutical and diagnostic products with particular strengths in the areas of oncology, cardiovascular and respiratory diseases. The company benefits from a strong product pipeline and limited near-term patent exposure.

 14,227

3.1

10,310

13 (12) Tesco




Tesco is one of the world's largest food retailers, with operations around the world. Its international operations provide a platform for growth, coupled with non-food sales and financial services. The company benefits from significant property asset-backing.

14,172

3.0

 15,067

14 (10) National Grid




National Grid owns and operates electricity and gas networks throughout the UK and in the US. It will benefit from the requirement to increase energy infrastructure spend over the long term. The company offers a generous dividend yield.

13,017

2.8

16,146

15 (-) Cobham




Cobham designs and manufactures a wide range of equipment and specialised systems for the defence and aerospace industries.  Cobham maintains leading positions in air to air refuelling, antennas and tactical communications systems, as a result of its strong intellectual property and long term customer relationships.

11,373

2.4

 9,306

16 (14) ENI




Listed in Italy, ENI is an integrated energy company, committed to developing its activities in research, production, transport and marketing of oil and natural gas. The company operates in 79 countries employing 80,000 people. ENI offers a generous dividend yield.

 11,248

2.4

12,203

17 (15) Morrison (Wm) Supermarkets




Morrisons is one of the UK's largest supermarket chains. With an emphasis on good value, the company's vertically-integrated model means that it manages most of its operations in-house. There remains substantial opportunity for the company to expand its footprint in the UK through smaller stores.

10,873

2.3

12,164

18 (-) Compass Group




Compass is a leading contract catering and food service company.  The company benefits from underlying growth in outsourcing, together with the potential for further margin improvement and growth from its emerging markets operations.  The company demonstrates strong cashflow characteristics.

10,717

2.3

 6,148

19 (-) Imperial Tobacco




Imperial Tobacco is an international tobacco company with a range of strong brands including Davidoff, Gauloises, Golden Virginia and Rizla.  Imperial Tobacco is a very simple to understand business, has strong pricing power coupled with steady and predictable cashflows.

 10,188

2.2

8,595

20 (-) Prudential




Prudential is an insurance company with substantial operations in the UK, USA and across Asia.  Early mover advantage in Asia has provided the company with a number of market leading positions giving the opportunity to capitalise on a fast growing market.

9,483

2.0

 7,704

Top twenty investments

326,488

70.0



The value of the 20 largest investments represents 70.0% (2011 - 68.6%) of total assets.

The figures in brackets denote the position at the previous year end. (-) not previously in 20 largest investments.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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