Annual Financial Report

RNS Number : 2870H

Securities Trust of Scotland PLC

25 May 2011

 



Securities Trust of Scotland plc

Annual report

Year to 31 March 2011

The financial information set out below does not constitute the company's statutory accounts for the years ended 31 March 2011 or 2010 but is derived from those accounts.  Statutory accounts for the year ended 31 March 2011 have been delivered to the Registrar of Companies and those for the year ended 31 March 2011 will be delivered following the company's annual general meeting.  The auditor's have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

A copy of the annual report and accounts has also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do

The annual general meeting of the company will be held at the offices of Martin Currie, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES on Tuesday 19 July 2011 at 12.30pm.  Full notice of the meeting can be found within the Annual Report and Accounts.

The unedited full text of those parts of the annual report and accounts for the year ended 31 March 2011, which require to be published are set out on the following pages.

Financial Summary

Key data

	As at 31 March 2011	As at 31 March 2010	% change
Net asset value per share*	117.35p	109.37p	+7.3
FTSE All-Share index	3,067.73	2,910.19	+5.4
Share price	108.00p	99.00p	+9.1
Discount	7.97%	9.48%
Average discount+	7.41%	7.42%

Total returns**

	Year ended 31 March 2011	Year ended   31 March 2010
Net asset value per share	12.6%	55.8%
FTSE All-Share index	8.7%	52.3%
Share price	14.3%	58.9%

Income

	Year ended 31 March 2011	Year ended 31 March 2010
Revenue return per share	4.41p	5.16p
Dividend per share	4.65p	4.65p

*The net asset value is inclusive of current year revenue

+ Average discount over twelve week period to 31 March (based on capital only net asset value)

** The combined effect of any dividends paid, together with the rise or fall in the net asset value, index or share price

Total expense ratio 

	Year ended 31 March 2011	Year ended 31 March 2010
Excluding performance fee	0.7%	0.8%
Performance fee	0.4%	0.1%
Total	1.1%	0.9%

Annual total returns with dividends reinvested over 12 month periods to 31 March

	2011	2010	2009	2008	2007
Securities Trust of Scotland share price	14.3%	58.9%	(39.1%)	(14.5%)	17.0%
FTSE All-Share index	8.7%	52.3%	(29.3%)	(7.7%)	11.1%
Securities Trust of Scotland net asset value per share	12.6%	55.8%	(35.9%)	(15.0%)	13.5%

Source: Martin Currie

Chairman's Statement

 

I am pleased to report that in the 12 months to 31 March 2011 investment returns were again ahead of the benchmark. In the period under review the net asset value total return was 12.6% compared with the benchmark total return of 8.7%. The share price total return was 14.3%, reflecting a narrowing of the discount over the year.

The manager's review explains how these figures were generated and how the portfolio took advantage of the market retreat in the first quarter.

Revenues and dividends

The revenue return over the year to 31 March 2011 was 4.41p per share, a fall of 0.75p compared to 5.16p in the year to 31 March 2010. The main reason for this decrease was BP's suspension of dividend payments followed by a resumption at 50% of the previous level in February 2011. The rest of the fall in revenue return was predicted in my statement last year in relation to two factors: firstly there were a number of rights issues in 2009/10 generating an unlikely to be repeated level of commission income; and secondly a number of companies brought forward their dividend payments in advance of the 2010 financial year end on a one-off basis to lower the tax burden for some shareholders.

Three interim dividends of 1.15p per share have been paid this year and the board has declared a fourth interim dividend of 1.20p per share making a total of 4.65p per share for the year. The fourth interim dividend will be paid on 30 June 2011 to shareholders on the register on 3 June 2011. This maintains the total dividend for the year at the same level as in 2010. A key objective is to deliver rising income for shareholders through steady growth in dividends and the board will increase the level of distribution as soon as it is prudent to do so. In the meantime the company's dividend comfortably exceeds that of the UK stock market. At 31 March 2011 the company's shares offered a yield of 4.3% compared to 3.0% available from the FTSE All-Share index - representing a premium of 43%. The company's revenue reserves after taking account of the fourth interim dividend will represent 23% of the current full year's dividend payment compared to 14% two years ago.

Borrowing

The company has a short term loan facility of £18m. During the year the company maintained the level of gearing between 10 and 13%, reflecting the manager's positive view on markets and enhancing the underlying investment return for shareholders.

Discount management

Over the year the discount to net assets narrowed from 9.48% to 7.97%. The cumulative average discount to net asset value at which the shares traded over the 12 weeks prior to the year end was 7.41% on an ex-income basis. Since this was below 7.5% no redemption opportunity was triggered. As part of our approach to discount management during the year the company bought back 517,000 shares for cancellation representing 0.5% of the shares in issue.

Performance fee

In addition to the low base annual management fee of 0.3% of net assets, the manager has the opportunity to earn a performance fee as described on page 9. I am pleased to report that this year as a result of outperforming the benchmark, the manager has earned a performance fee equivalent to 0.4% of net assets.

Outlook

Although many companies and sectors are delivering good results and growth, the macro-economic outlook remains uncertain particularly for western economies. Interest rates remain at very low levels. In such an environment many investment alternatives offer limited attractions for income-seeking investors. We believe that as an attractive income vehicle, Securities Trust of Scotland remains a compelling proposition for long-term, income-seeking investors.

Thank you for your continued support; please contact me if you have any questions regarding your company.

Annual General Meeting

I would like to invite all shareholders to attend the annual general meeting of the company to be held at 12.30pm on 19 July 2011 at the offices of Martin Currie, Saltire Court, 20 Castle Terrace, Edinburgh.

General Meeting - change in investment objective and policy

A General Meeting will be held following the AGM at 12.45pm on Tuesday 19 July 2011 at which a resolution to change the company's investment objective and policy will be proposed. Notice of this General Meeting and further details of the proposed changes to the company's investment objective and policy are set out in the circular to shareholders dated 25 May 2011, which will be distributed with this annual report.

Neil Donaldson

Chairman

25 May 2011

Manager's Review

The year under review was another good one for investors, although returns were much lower than those of the previous period. The initial rally from the lows in the wake of the financial crisis lasted for a year, but ran out of momentum in the spring of 2010, when economic indicators caused serious doubts about the global economic recovery. In the event, the recovery was sustained but the short-term impact on equity markets was significant with the FTSE All-Share index falling almost 20% in less than three months. This proved to be a good buying opportunity, as equity markets rose more or less steadily from July 2010 until February 2011 as confidence in the economic outlook increased. The portfolio also benefited from the global nature of many of the companies listed on the UK market. Global economic growth and industrial production have a far greater impact on the stock market than the potential effects of government spending cuts and higher taxes on the UK consumer.

The portfolio had a good year in relation to the FTSE All-Share, producing a return of 12.0% compared with 8.7%. Our holdings in the chemical and engineering sectors were excellent contributors to performance due to their exposure to global economic growth. Melrose, IMI, Croda and Domino Printing all rose sharply in price as their profit forecasts were steadily increased during the year. Higher volumes and the benefits of cost reductions meant that margins recovered much faster than expected. The biggest individual contributor to the portfolio's outperformance was Elementis, a small chemical company that makes specialist additives for paints and consumer products.

Higher commodity prices have been a continuing feature over the last year, with high petrol and utility prices the most visible consequence. The oil and gas sector is a clear beneficiary but the portfolio did not benefit fully, despite a good performance from Royal Dutch. The lack of income from the oil-exploration stocks means that exposure is difficult to achieve for an income-biased portfolio. Our holding in BP performed poorly in the wake of the accident in the Gulf of Mexico; the share price fell 25%. The impact on the portfolio's income was compounded by the suspension of BP's dividend payments. The dividend payments have since resumed but are reduced by 50%.

The news on BP and its dividend obscured the fact that, for many other companies, improved levels of profitability and cashflow have already been reflected in higher dividends. This is important as it shows that management teams have confidence in future prospects. These dividend increases have occurred across a range of sectors. Croda, a chemical company, increased its dividend by 63% over the year and IMI raised its payout by 23%. Legal & General confirmed its focus upon cashflow by increasing dividends by 24%. The trading conditions for UK retailers are difficult, but this did not prevent Next from increasing dividends by 18%, as its cashflow was also very strong. These dividend increases were all better than we had forecast. The downturn in the housing market had earlier prompted Persimmon to suspend dividend payments, but better trading conditions prompted a resumption of dividends from last summer, much earlier than our expectations. Strong dividend growth is expected to continue across a range of sectors, although it will be 2012 at the earliest before the banking sector makes a significant contribution.

During the year, we purchased a new holding in DS Smith, a packaging company that operates in the UK and Europe. A new management team, who were known to us, have already made significant improvements, and this has been reflected in the share price. We also added Rexam, another packaging company, to the portfolio. The attraction here is the investment that the company is making in emerging markets, notably Brazil. BBA Aviation is an aviation service company with the bulk of its business in the US. The firm supplies fuel and overhauls engines and equipment for smaller aircraft. In the media sector, we sold Informa, with the proceeds added to UBM which operates in similar areas and to fund a holding in Pearson, whose biggest business is providing educational software. Another purchase was Tate & Lyle, where the new management have a much better focus upon cashflow and have exited the volatile commodity business. We also increased our existing holding in Legal & General.

We sold Premier Foods, as a recovery in some of its key food categories looked unlikely given the level of promotional activity in supermarkets and the increase in input costs. SIG is a distributor of building products, particularly insulation, in the UK and Europe. Trading has been difficult in recent years and the company raised new equity. Although trading prospects are better, we felt that this was already reflected in the share price and so we sold our holding. We also sold Wincanton, a small logistics business; despite improving economic conditions its business in France has deteriorated. After strong share-price performance we reduced our holdings in Melrose and Croda. We also reduced our holdings in Next and Halfords as we are concerned about the outlook for consumer expenditure during 2011.

Although the broader economic outlook remains positive, the austerity measures taken by a number of European countries, including the UK, will affect demand in those countries. In addition, a number of key decisions relating to the banking sector, such as the amount of capital banks will be required to hold, have yet to be resolved. For industrial companies, the challenge is to offset higher input prices and maintain their current high margins. Forecasts for both profits and dividends continue to show good levels of growth and this, coupled with equity valuations that are fair for this stage of the economic cycle, means that shareholders may benefit from a year of moderate, but positive, returns.

Ross Watson

25 May 2011

Portfolio Summary

Portfolio distribution as at 31 March

By asset class	2011 %	2010 %
Equities	109	110
Fixed interest	3	3
Less borrowings	(12)	(13)
	100	100

By Sector (excluding cash and fixed interest)	2011 %	2010 %
Financials	23	24
Industrials	14	12
Oil and Gas	14	16
Consumer goods	12	12
Basic materials	9	7
Consumer services	7	9
Healthcare	7	8
Telecommunications	7	5
Utilities	5	6
Technologies	2	1
	100	100

Market capitalisation of equity investments	Securities Trust of Scotland				FTSE All-Share
	Weighting %		No. of stocks		Weighting %		No. of stocks
	2011	2010	2011	2010	2011	2010	2011	2010
FTSE 100	76.6	73.5	30	25	84.7	86.0	100	100
FTSE 250	23.0	23.6	21	19	10.3	11.8	250	250
FTSE 350	99.6	97.1	51	44	95.0	97.8	350	350
FTSE small cap	0.4	2.4	1	2	5.0	2.2	270	270
Non-index stocks	-	0.5	-	2	-	-	-	-
	100.0	100.0	52	48	100.0	100.0	620	620

Largest Holdings	2011 Market Value £000	2011 % of total portfolio	2010 Market Value £000	2010 % of total portfolio
Royal Dutch Shell	9,829	7.49	8,240	6.67
BP	7,907	6.02	10,857	8.79
British American Tobacco	7,303	5.56	7,107	5.75
Vodafone	7,139	5.44	6,172	5.00
BHP Billiton	6,287	4.79	5,776	4.68
HSBC	5,634	4.29	4,654	3.77
GlaxoSmithKline	5,461	4.16	5,832	4.72
AstraZeneca	3,664	2.79	3,761	3.04
IMI	3,172	2.42	2,040	1.65
Imperial Tobacco	3,163	2.41	3,312	2.68
Melrose	3,074	2.34	2,691	2.18
National Grid	2,962	2.26	2,896	2.34
Elementis	2,958	2.25	1,515	1.23
Barclays	2,926	2.23	3,813	3.09
BAE Systems	2,747	2.09	3,152	2.55
Scottish and Southern Energy	2,509	1.91	2,614	2.12
Intermediate Capital	2,474	1.88	2,062	1.67
Hiscox	2,457	1.87	2,187	1.77
Next	2,254	1.72	3,631	2.94
WPP	2,211	1.68	1,412	1.14

Portfolio Holdings

United Kingdom	Market Value £	% of total portfolio
Royal Dutch Shell	9,828,785	7.49
BP	7,906,760	6.02
British American Tobacco	7,302,913	5.56
Vodafone	7,139,473	5.44
BHP Billiton	6,286,948	4.79
HSBC	5,634,396	4.29
GlaxoSmithKline	5,461,447	4.16
AstraZeneca	3,663,552	2.79
IMI	3,172,173	2.42
Imperial Tobacco	3,162,959	2.41
Melrose	3,073,725	2.34
National Grid	2,962,153	2.26
Elementis	2,957,799	2.25
Barclays	2,925,943	2.23
BAE Systems	2,747,182	2.09
Scottish and Southern Energy	2,509,403	1.91
Intermediate Capital	2,473,877	1.88
Hiscox	2,456,721	1.87
Next	2,253,596	1.72
WPP	2,211,113	1.68
Pearson	2,151,673	1.64
Sage	2,058,090	1.57
Legal and General	2,020,520	1.54
BT	1,930,173	1.47
Resolution	1,801,703	1.37
Croda	1,751,983	1.33
Aviva	1,744,539	1.33
United Business Media	1,691,888	1.29
RSA Insurance	1,663,663	1.27
Carillion	1,645,267	1.25
Smiths	1,632,391	1.24
Centrica	1,462,188	1.11
Admiral	1,387,318	1.06
Rexam	1,372,137	1.05
Unilever	1,362,528	1.04
Tate and Lyle	1,360,168	1.04
Savills	1,311,674	1.00
Domino Printing	1,241,505	0.95
Smith (DS)	1,218,175	0.93
Tullett Prebon	1,201,934	0.92
Britvic	1,200,805	0.91
Santander (10.375% pref shares)	1,194,782	0.91
Persimmon	1,182,926	0.90
BBA Aviation	1,164,777	0.89
3I Infrastructure	1,146,674	0.87
Halfords	1,086,245	0.83
Land Securities	1,025,272	0.78
Lloyds Banking Group (9.75% pref shares)	1,013,897	0.77
General Accident (7.875% pref shares)	976,530	0.74
Man Group	762,140	0.58
Corporate Services (10% guaranteed loan note)	730,032	0.56
F&C Asset Management	663,461	0.50
AZ Electronic Materials	523,970	0.40
ING UK Real Estate Income Trust	477,257	0.36
Total portfolio	131,289,203	100.00

Revenue and dividends

Gross revenue for the year amounted to £5,111,000 (2010: £5,950,000) and the revenue return per share was 4.41p (2010: 5.16p). Interim dividends totalling 4.65p have been paid during the year.

The directors recommend a fourth interim dividend of 1.20p per share payable on 30 June 2011 to holders on the register at the close of business on 3 June 2011, making a total for the year of 4.65p (2010: 4.65p).

Related Party Transactions

With the exception of the management and secretarial fees, there were no related party transactions during the year. 

Going concern status

The company's business activities, together with the factors likely to affect its future development, performance and position are set out in the chairman's statement, manager's review and the report of the directors.

The company has a loan facility of £18,000,000 which expires on 30 September 2011, of which £14,200,000 was drawn down at the year-end date. The purpose of the facility is to enable the manager to enhance the return for shareholders by borrowing and investing where the return is expected to exceed the cost of borrowing. Therefore the company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the company is able to continue in operational existence without the facility.

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk issued in October 2009, the directors have undertaken a rigorous review of the company's ability to continue as a going concern. The company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal risks and uncertainties disclosed on page 12 and have reviewed revenue forecasts and they believe that the company has adequate financial resources to continue its operational existence for the foreseeable future, and at least one year from the date of this annual report. Accordingly, the directors continue to adopt the going concern basis in preparing these accounts.

Risks and Uncertainties

Management of principal risks

With the assistance of the manager, the board has drawn up a risk matrix, which identifies the key risks to the company. These key risks fall broadly under the following categories and the implementation of specific mitigating measures and procedures has taken place in order to reduce the probability and impact of each risk to the greatest extent possible.

Risk Mitigation

Loss of s1158-1159 status - In order to qualify as an investment trust, the company must comply with s1158-1159 of the Corporation Tax Act 2010. S1158-1159 qualification criteria are continually monitored by Martin Currie.

Operational disruption at the manager's premises - Martin Currie has in place a full disaster recovery and business continuity plan which facilitates continued operation of the business should the manager's premises be subject to operational disruption. The plan, including a full staff call chain test, was last tested in December 2010 with successful results. The manager maintains a fully operational off-site disaster recovery centre for use by key staff during any disruption.

Regulatory, accounting/internal control breach - The company must comply with the Companies Act 2006 and the UKLA Listing Rules. The board relies on the services of its company secretary and its professional advisers to ensure compliance.  Details of how the board monitors the services provided by Martin Currie and the key elements designed to provide effective internal control are included within the internal control section of the Corporate Governance Report. 

Loss of investment team or portfolio manager - The manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel.

Failure to manage the discount- The board regularly discusses discount policy and has set parameters for the manager and the company's broker to follow.

Investment underperformance - The board manages the risk of investment underperformance by diversification of investments and through a set of investment restrictions and guidelines that are monitored and reported on by the manager.  The board monitors the implementation and results of the investment process with the manager, who attends all board meetings, and reviews data that show statistical measures of the company's risk profile.

Interest rate risk - From time to time the company finances its operations through bank borrowings. The amount of such borrowings will not exceed 15% of the company's total assets.  Details are provided in note 16 to the financial statements.

Currency risk - The board regularly monitors the impact of currency rate risk.In recent years the proportion of the company's revenue that is declared in US dollars and euros has increased and currency fluctuations have meant that revenue forecasting has become more uncertain.  In order to offset these fluctuations the company has taken out forward contracts to hedge the expected revenue from a number of portfolio constituents.

Counterparty risk - Martin Currie monitors counterparty relationships on behalf of the board, including the service provided by, and the internal controls in place at, the Custodian and Registrar. This process includes identifying major counterparties, mapping exposure and analysing the risks through Martin Currie's risk, compliance, dealing, operations and middle office teams. The aim is to enable the board to determine an appropriate level of counterparty risk exposure, and to diversify or mitigate this, as required. This process is subject to continual monitoring and review with any recommendations made to the board.

Major regulatory change - In response to the financial crisis, the European Commission produced the Alternative Investment Fund Managers Directive.  The directive was aimed at hedge funds and private equity funds but investment trusts fall within its scope.  Following intensive representation from across the industry, the worst outcomes suggested by the initial proposals have been avoided.  The board continues to monitor developments in the legislation to ensure the company can comply with any new requirements.

Liquidity test failure - In order to retain its place in the FTSE All-Share index, the company must satisfy the liquidity test criteria set by FTSE at each annual review.  The liquidity of the company is monitored by the manager and the company's broker with a report being reviewed by the board at each meeting.

Directors' Responsibility

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 that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 year. In preparing these financial statements, the directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to assume that the company will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to disclose the company's transactions and that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on the www.securitiestrust.com website, which is maintained by the manager. The maintenance and integrity of the website maintained by Martin Currie is, so far as it relates to the company, the responsibility of Martin Currie.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

In accordance with Chapter 4 of the Disclosure and Transparency Rules, and to the best of their knowledge, each director of Securities Trust of Scotland plc ('the company') confirms that the financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the company. Furthermore each director certifies that the report of the directors includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that the company faces.

Edward Murray

Chairman of audit committee

25 May 2011

Income Statement

		Year to 31 March 2011
	Notes	Revenue £000	Capital £000	Total £000
Gains on investments	8	-	9,143	9,143
Currency gains/ (losses)		55	7	62
Income	3	5,111	-	5,111
Investment management fee		(99)	(184)	(283)
Performance fee		-	(474)	(474)
VAT recoverable on Investment management fee	15	-	-	-
Other expenses	4	(482)	-	(482)
Net return before finance costs and taxation		4,585	8,492	13,077
Finance Costs	5	(139)	(258)	(397)
Net return on ordinary activities before taxation		4,446	8,234	12,680
Taxation on ordinary activities	7	-	-	-
Return attributable to ordinary redeemable shareholders		4,446	8,234	12,680
Return per ordinary redeemable share	2	4.41p	8.17p	12.58p

		Year to 31 March 2010
	Notes	Revenue £000	Capital £000	Total £000
Gains on investments	8	-	35,276	35,276
Currency gains/ (losses)		(56)	(3)	(59)
Income	3	5,950	-	5,950
Investment management fee		(88)	(163)	(251)
Performance fee		-	(109)	(109)
VAT recoverable on Investment management fee	15	27	-	27
Other expenses	4	(464)	-	(464)
Net return before finance costs and taxation		5,369	35,001	40,370
Finance Costs	5	(109)	(201)	(310)
Net return on ordinary activities before taxation		5,260	34,800	40,060
Taxation on ordinary activities	7	-	-	-
Return attributable to ordinary redeemable shareholders		5,260	34,800	40,060
Return per ordinary redeemable share	2	5.16p	34.14p	39.30p

The total columns of this statement are the income statement of the company.

The revenue and capital items are presented in accordance with The Association of Investment Companies (AIC) SORP 2009.

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

No operations were acquired or discontinued in the year.

A statement of total recognised gains and losses is not required as all gains and losses of the company have been reflected in the above statement.

Balance sheet

		As at 31 March 2011		As at 31 March 2010
	Note	£000	£000	£000	£000
Non-current assets
Investments at fair value through profit or loss
Listed on Exchanges in the UK			131,289		123,227
Listed on Exchanges abroad			-		282
	8		131,289		123,509
Current Assets
Loans and receivables	9	1,279		2,845
Cash at bank		134		301
		1,413		3,146
Creditors
Amounts falling due within one year	10	(15,048)		(16,438)
Net current liabilities			(13,635)		(13,292)
Net assets			117,654		110,217
Capital and reserves
Called up ordinary share capital	11		1,003		1,008
Capital redemption reserve			78		73
Special distributable capital reserve			109,411		109,968
Capital reserve	11		4,873		(3,361)
Revenue reserve			2,289		2,529
			117,654		110,217
Net asset value per ordinary redeemable share	2		117.35p		109.37p

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

The aggregate amount of called up share capital as at 31 March 2011 is £1,002,598 (2010: £1,007,768)

 

 

Statement of cash flow

		Year to 31 March 2011		Year to 31 March 2010
	Note	£000	£000	£000	£000
Net cash inflow from operating activities	12		4,410		5,405
Servicing of finance
Finance costs			(362)		(298)
Taxation
Taxation received			30		-
Capital expenditure and financial investment
Payments to acquire investments		(16,210)		(17,515)
Receipts from disposal of investments		16,932		11,245
Net cash inflow/(outflow) from investing activities			722		(6,270)
Dividends paid			(4,686)		(5,557)
Net cash inflow/(outflow) before use of liquid resources and financing			114		(6,720)
Financing
Repurchase of ordinary share capital	11	(481)		(1,177)
Net movement in short-term borrowings		200		5,000
Net cash (outflow)/inflow from financing			(281)		3,823
Decrease in cash for the year			(167)		(2,897)
Reconciliation of net cash flow to movements in net debt
Decrease in cash as above		(167)		(2,897)
Net movement in short-term borrowings		(200)		(5,000)
Change in net debt resulting from cash flows			(367)		(7,897)
Opening net debt			(13,699)		(5,802)
Closing net debt	13		(14,066)		(13,699)

 Reconciliation of movements in shareholders' funds

For the year ended 31 March 2011	Notes	Called up ordinary share capital £000	Capital redemption reserve £000	Special distributable capital reserve £000	Capital reserve £000	Revenue reserve £000	Total £000
As at 31 March 2010		1,008	73	109,968	(3,361)	2,529	110,217
Return attributable to shareholders		-	-	-	8,234	4,446	12,680
Ordinary shares bought back during the year		(5)	5	(557)	-	-	(557)
Dividends paid	6	-	-	-	-	(4,686)	(4,686)
Balance at 31 March 2011		1,003	78	109,411	4,873	2,289	117,654

For the year ended 31 March 2010	Notes	Called up ordinary share capital £000	Capital redemption reserve £000	Special distributable capital reserve £000	Capital reserve £000	Revenue reserve £000	Total £000
As at 31 March 2009		1,019	62	111,145	(38,161)	2,826	76,891
Return attributable to shareholders		-	-	-	34,800	5,260	40,060
Ordinary shares bought back during the year		(11)	11	(1,177)	-	-	(1,177)
Dividends paid	6	-	-	-	-	(5,557)	(5,557)
Balance at 31 March 2010		1,008	73	109,968	(3,361)	2,529	110,217

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

Notes to the Financial Statements

1 Accounting policies

(a) The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice for Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP), issued in January 2009.

The disclosures on going concern on page 10 of the report of the directors form part of the financial statements.

Dividends - In accordance with FRS 21: 'Events after the balance sheet date', dividends are included in the financial statements in the period in which they are paid.

Functional currency - In accordance with FRS 23: 'The effects of changes in foreign currency', the company is required to nominate a functional currency, being the currency in which the company predominately operates. The board has determined that sterling is the company's functional currency, which is also the currency in which these financial statements are prepared.

The company adopted the extended disclosure requirements within FRS 29, which introduced a fair value hierarchy and is disclosed in note 18.

(b) Income from equity investments is determined on the date on which the investments are quoted ex-dividend, or where no ex-dividend date is quoted, when the company's right to receive payment is established. Income from fixed interest securities is recognised on an effective yield basis. UK dividends received are accounted for at the amount receivable and are not grossed up for any tax credit. Other income includes any taxes deducted at source. Gains and losses arising from the translation of income denominated in foreign currencies are recognised in the revenue reserve. Scrip dividends are treated as unfranked investment income; any excess in value of shares received over the amount of the cash dividend is recognised in capital reserve. Income from underwriting commission and traded options is recognised as earned.

(c) Interest receivable and payable and management expenses are treated on an accruals basis.

(d) The management fee and interest costs are allocated 65% to capital and 35% to revenue in accordance with the board's expected long-term split of returns in the form of capital gains and income, respectively. The performance fee is wholly allocated to capital. All other expenses are wholly allocated to revenue.

(e) Gains and losses on realisation of investments and changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms, together with exchange adjustments to overseas currencies are taken to capital reserve.

(f) Foreign currencies are translated at the rates of exchange ruling on the balance sheet date. Investments are recognised initially as at the trade date of a transaction. Subsequent to this, the disposal of an investment is accounted for once again as at the trade date of a transaction.

(g) Revenue received and interest paid in foreign currencies are translated at the rates of exchange ruling on the transaction date. Any exchange differences relating to revenue items are taken to the revenue account.

(h) The company's investments are classified as 'financial assets at fair value through profit or loss' and are therefore valued at bid price. Gains and losses arising from changes in fair value are included in the capital return for the period.

(i) All financial assets and liabilities are recognised in the financial statements.

(j) Deferred tax is recorded in accordance with Financial Reporting Standard 19 (Deferred Tax). Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. A deferred tax asset is only recognised to the extent that it is regarded as recoverable. 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 for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(k) Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the income statement.

(l) Share buy backs are funded through the capital reserve.

(m) The company uses derivative financial instruments to manage the risk associated with foreign currency fluctuations arising on dividends received in currencies other than sterling. This is achieved by the use of forward foreign currency contracts. The company does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at fair value on the contract date and subsequently remeasured to the fair value at each reporting date. The resulting gain or loss is recognised as revenue or capital in the income statement depending on the nature and motive of each derivative transaction. Derivative financial instruments with a positive fair value are recognised as financial assets and derivative financial instruments with a negative fair value are recognised as financial liabilities. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months.

2. 

	Year to 31 March 2011	Year to 31 March 2010
Returns and net asset value Revenue return
Revenue return attributable to ordinary redeemable shareholders	£4,446,000	£5,260,000
Average number of shares in issue during the year	100,768,215	101,934,772
Revenue return per ordinary redeemable share	4.41p	5.16p
Capital return
Capital return attributable to ordinary redeemable shareholders	£8,234,000	£34,800,000
Average number of shares in issue during the year	100,768,215	101,934,772
Capital return per ordinary redeemable share	8.17p	34.14p
Total return
Total return per ordinary redeemable share	12.58p	39.30p
Net asset value per share
Net assets attributable to shareholders	£117,654,000	£110,217,000
Number of shares in issue at year end	100,259,771	100,776,771
Net asset value per share	117.35p	109.37p

3. 

Income	Year to 31 March 2011 £000	Year to 31 March 2010 £000
From listed investments
Franked income - equities	4,530	5,200
Franked income - fixed interest and convertibles	185	293
Unfranked income - equities	290	190
Unfranked income - fixed interest and convertibles	76	76
	5,081	5,759
Other income
Interest on deposits	3	6
Underwriting commission	27	157
Income on exchange traded option	-	9
Interest on VAT recoverable on investment management fees	-	19
	5,111	5,950
Total income comprises:
Dividends from investments	5,005	5,683
Underwriting commission	27	157
Interest	79	101
Income on exchange traded option	-	9
	5,111	5,950
Dividends from investments:
Listed in the UK	4,966	5,652
Listed overseas	39	31
	5,005	5,683

No capital dividends were received during the year to 31 March 2011 (31 March 2010: no capital dividends received).

4.

Other expenses	Year to 31 March 2011 £000	Year to 31 March 2010 £000
Savings plan administration and advertising	18	24
Directors' fees	109	102
Employers' national insurance contributions	10	9
Secretarial fee	87	84
Printing and postage	24	40
Registrar's fees	36	38
Legal fees	13	-
Bank charges	6	7
Other	117	109
Irrecoverable VAT	48	37
	468	450
Auditors' remuneration:
Audit services	14	14
	482	464

Details of the contract between the company and Martin Currie for provision of investment management and secretarial services are given in the report of the directors on page 9 of the full annual report.

5.

	Year to 31 March 2011			Year to 31 March 2010
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Finance costs
Interest payable on bank loans and overdrafts	139	258	397	109	201	310

6.

	Year to 31 March 2011			Year to 31 March 2010
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Dividends
Year ended 31 March 2009 - fourth interim dividend of 2.00p	-	-	-	2,039	-	2,039
Year ended 31 March 2010 - first interim dividend of 1.15p	-	-	-	1,173	-	1,173
Year ended 31 March 2010 - second interim dividend of 1.15p	-	-	-	1,173	-	1,173
Year ended 31 March 2010 - third interim dividend of 1.15p	-	-	-	1,172	-	1,172
Year ended 31 March 2010 - fourth interim dividend of 1.20p	1,209	-	1,209	-	-	-
Year ended 31 March 2011 - first interim dividend of 1.15p	1,159	-	1,159	-	-	-
Year ended 31 March 2011 - second interim dividend of 1.15p	1,159	-	1,159	-	-	-
Year ended 31 March 2011 - third interim dividend of 1.15p	1,159	-	1,159	-	-	-
	4,686	-	4,686	5,557	-	5,557

Set out below are the total dividends payable in respect of the period, which forms the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 (formerly s842 of the Income and Corporation Taxes Act 1988) are considered.

	Year to 31 March 2011 £000	Year to 31 March 2010 £000
First interim dividend of 1.15p for the year ended 31 March 2011 (2010 - 1.15p)	1,159	1,173
Second interim dividend of 1.15p for the year ended 31 March 2011 (2010 -1.15p)	1,159	1,173
Third interim dividend of 1.15p for the year ended 31 March 2011 (2010 -1.15p)	1,159	1,172
Proposed fourth interim dividend of 1.20p for the year ended 31 March 2011 (2010 - 1.20p)	1,203	1,209
	4,680	4,727

During the year the directors received dividends of 4.65p (2010: 5.45p) per share.  Directors' shareholdings are disclosed in note 14.

7.

Taxation on ordinary activities	As at 31 March 2011 £000	As at 31 March 2010 £000
There is no liability to corporation tax for the year (2010: £nil)

In accordance with the SORP issued in 2009, the company has adopted the marginal method for allocating tax relief between income and capital.  The revenue account tax charge for the period is lower than the standard rate of corporation tax in the UK for an investment trust company (28%) (2010: 28%).  The differences are explained below.

Taxation on ordinary activities	As at 31 March 2011 £000	As at 31 March 2010 £000
Net return on ordinary activities before taxation	12,680	40,060
Corporation tax at standard rate of 28% (2010: 28%)	3,550	11,217
Effects of:
Gains on investments not taxable	(2,560)	(9,877)
UK dividends not taxable	(1,320)	(1,538)
Expenses not deductible	-	7
Movement in taxable accrued income	-	2
Currency (gains)/losses not taxable	(2)	25
Excess management expenses not utilised	397	188
Non-taxable income	(65)	(24)
Current year tax charge	-	-

At the year end, the company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £5,983,000 (2010: £4,470,000).  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.

8.

Investments	As at 31 March 2011 £000	As at 31 March 2010 £000
Opening valuation	123,509	83,512
Opening investment holding (gains)/losses	(12,268)	34,217
Opening cost	111,241	117,729
Add:  additions at cost	14,178	17,854
Disposal proceeds	(15,541)	(13,133)
Less: net gain/(loss) on disposal of investments	1,266	(11,209)
Disposals at cost	(14,275)	(24,342)
Closing cost	111,144	111,241
Add: investment holding gains	20,145	12,268
Closing valuation	131,289	123,509

The carrying value of the fixed interest securities as at 31 March 2011 was £3,915,000 (2010: £3,756,000).  Details of the interest rate risk profile of the fixed interest securities are contained within note 16. 

	As at 31 March 2011 £000	As at 31 March 2010 £000
Gains/(losses) on investment
Net gain/(loss) on disposal of investments	1,266	(11,209)
Movement in investment holdings unrealised gains /(losses)	7,877	46,485
	9,143	35,276

Transaction costs

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

	As at 31 March 2011 £000	As at 31 March 2010 £000
Acquisitions	65	92
Disposals	16	15
	81	107

9. 

Loans and receivables	As at 31 March 2011 £000	As at 31 March 2010 £000
Dividends receivable	701	873
Interest accrued	30	31
Due from brokers	497	1,888
Tax recoverable	7	37
Financial assets held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	28	-
Prepayments and other debtors	16	16
	1,279	2,845

10.

Creditors - Amounts falling due within one year	As at 31 March 2011 £000	As at 31 March 2010 £000
Interest accrued	59	24
Due to brokers	73	2,032
Sterling bank revolving loan	14,200	14,000
Financial liabilities held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	8	87
Other creditors	708	295
	15,048	16,438

The company has a £18,000,000 revolving loan facility with Lloyds Banking Group which expires on 30 September 2011.  Under this agreement £14,200,000 was drawn at 31 March 2011 at a rate of 2.4658%.  On 7 April 2011 the loan was rolled-over at a rate of 2.4737% with a maturity date of 6 May 2011.  On 6 May 2011 £700,000 the loan was repaid and the £13,500,000 drawndown was rolled-over at a rate of 2.47903% with maturity date of 6 June 2011.

The fair value of the sterling loan is not materially different from its carrying value.  The interest rate is set at each roll-over date at LIBOR plus a margin.

11. 

	Number of shares	Year to 31 March 2011 £000	Number of shares	Year to 31 March 2010 £000
Called up share capital
Ordinary shares of 1p
Authorised	-	3,050	-	3,050
Ordinary shares in issue at the beginning of the year	100,776,771	1,008	101,970,223	1,019
Ordinary shares bought back during the year	(517,000)	(5)	(1,193,452)	(11)
Ordinary shares in issue at the end of the year	100,259,771	1,003	100,776,771	1,008

The total cost of shares bought back during the year was £557,000 (2010: £1,177,000).  Of this amount £73,000 (2010: nil) is included in 'creditors due to brokers' and £3,000 (2010: nil) in 'other creditors' in relation to amounts owed for stamp duty, both shown in note 10.  As a result the amount paid during the year of £481,000 is reflected in the cash flow statement.

The analysis of the capital reserve is as follows:

	Realised capital reserve £000	Investment holding gains/(losses) £000	Total capital reserve £000
As at 31 March 2010	(15,629)	12,268	(3,361)
Gains on realisation of investments at fair value	1,266	-	1,266
Realised currency gains during the year	7	-	7
Movement in fair value gains	-	7,877	7,877
Capitalised expenses	(916)	-	(916)
As at 31 March 2011	(15,272)	20,145	4,873

The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'.

12. 

	Year to 31 March 2011 £000	Year to 31 March 2010 £000
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs	13,077	40,370
Decrease in accrued income and other debtors	145	90
Increase in other creditors	331	237
Net gains on investments	(9,143)	(35,276)
Taxation withheld from income on investments	-	(16)
Net cash inflow from operating activities	4,410	5,405

13.

	As at 31 March 2010 £000	Cashflow £000	As at 31 March 2011 £000
Analysis of net debt
Cash at bank	301	(167)	134
Bank borrowings - sterling loan	(14,000)	(200)	(14,200)
Net debt	(13,699)	(367)	(14,066)

14.

Directors' shareholdings	As at 31 March 2011 No. of shares held	As at 31 March 2010 No. of shares held
Neil Donaldson	85,120	30,750
Charles Berry	14,658	14,012
Anita Frew (retired on 20 July 2010)	n/a	12,000
Andrew Irvine	80,000	80,000
Edward Murray	6,915	6,611
Rachel Beagles (appointed on 20 July 2010)	30,000	-

Directors who held office at the end of the year and their ordinary shareholdings in the company are shown above. Charles Berry's holding of 14,058 shares includes a beneficial and family interest of 7,329 shares.  Andrew Irvine's holding of 80,000 shares includes a beneficial and family interest of 50,000 shares.

Since 31 March 2011 to the date of this report, Neil Donaldson's shares have increased by 802 shares.

15. VAT recoverable

On 5 November 2007, the European Court of Justice ruled that management fees should be exempt from VAT.

The manager submitted a claim to HMRC for VAT charged on investment management fees for the period 15 April 2005 to 30 June 2007. During the year to 31 March 2010 a refund of £229,000 (£202,000 of which was recognised in 2009) and simple interest of £19,000 (included in income - see note 3) was received from HMRC. This repayment was allocated to capital and revenue in line with the accounting policy of the company for the periods in which the VAT was charged. Interest was allocated entirely to revenue.

The company has submitted a claim to receive compound interest on the VAT refund. The timescale and amount of any possible claim is at present uncertain and the company has taken no account in these financial statements of any such claim.

16. Derivatives and other financial instruments

The company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the company's activities.

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

The board regularly reviews and agrees policies for managing each of these risks. The manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors.

(i) Market price risk

The fair value or future cash flows of a financial instrument held by the company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.

Interest rate risk

Interest rate movements may affect:

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

- the level of income receivable on cash deposits; and

- the level of interest payable on 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.

The board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. The company has a revolving loan facility with Lloyds Banking Group which provides flexibility to finance opportunities in the short term. Current guidelines state that the total borrowings will not exceed 15 per cent of the total assets of the company. Details of borrowings at 31 March 2011 are shown in note 10.

Interest risk profile

The interest rate risk profile of the portfolio of financial assets and liabilities at the respective balance sheet date were as follows:

	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £000	Floating rate £000	Non-interest bearing £000
At 31 March 2011
Assets
Sterling - undated	-	5.59	3,185	134	127,374
Sterling - dated	0.1	10.42	730	-	-
			3,915	134	127,374
Liabilities
Bank loan - sterling	0.1	2.46	14,200	-	-
At 31 March 2010
Assets
Sterling - undated	-	8.19	3,300	301	119,753
Sterling - dated	1	16.67	456	-	-
			3,756	301	119,753
Liabilities
Bank loan - sterling	0.1	2.41	14,000	-	-

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on the bank loan is based on the interest rate payable on each tranche drawn down, which is set at each tranche draw down, weighted by its value. The maturity date of the company's loan is shown in note 10.

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

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

Interest rate sensitivity

The sensitivity analysis below has been determined based on the exposure to interest rates at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

The following table illustrates the sensitivity of the return after taxation to an increase or decrease of 100 basis points in interest rates. This is mainly attributable to the company's exposure to the interest rate on its bank loan.

	2011 Increase in rate	2011 Decrease in rate	2010 Increase in rate	2010 Decrease in rate
Effect on revenue return	(49)	49	(46)	46
Effect on capital return	(92)	92	(91)	91
Effect on total return and on net assets	(141)	141	(137)	137

In the opinion of the directors, the above sensitivity analysis is not representative of the year as a whole, since exposure changes as investments are made, borrowings are drawn down and repaid throughout the year.

Currency risk

A number of companies within the investment portfolio declare dividends payable in currencies other than sterling.  The revenue account is therefore subject to currency fluctuations arising on such dividends.  To reduce the risk of currency fluctuations, the company entered into a number of forward foreign exchange currency contracts.  At the year-end, the following contracts were held:

	2011		2010
	Amount Currency '000	Unrealised (gain)/loss £000	Amount Currency '000	Unrealised (gain)/loss £000
US Dollar purchases	948	3	25	1
US Dollar sales	(2,704)	19	(2,120)	(87)
Euro purchases	15	1	-	-
Euro sales	(80)	(3)	(60)	(1)
	-	20	-	(87)

A currency risk sensitivity analysis is not required as the investment portfolio is denominated exclusively in sterling.

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 sector. The allocation of assets and the stock selection process 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. The investments held by the company are listed on the London Stock Exchange.

Other price risk sensitivity

The following table illustrates the sensitivity of the return after taxation and the net asset value to an increase or decrease of 15% in the fair value of the company's investment portfolio. The calculations are based on the portfolio valuations, as at the respective balance sheet dates, and are not representative of the year as a whole.

	2011		2010
	Increase in fair value £000	Decrease in fair value £000	Increase in fair value £000	Decrease in fair value £000
Effect on revenue return	(21)	21	(20)	20
Effect on capital return	19,655	(19,655)	18,490	(18,490)
Effect on total return and on net assets	19,634	(19,634)	18,470	(18,470)

The effect of the performance fee is not included in this sensitivity analysis.

(ii) Liquidity risk

This is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not considered to be significant as the company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan facilities (please see note 10).

The contractual maturities of the financial liabilities at the year-end, based on the earliest date on which payment can be required are as follows:

	2011			2010
	Three months or less £000	More than three months £000	Total £000	Three months or less £000	More than three months £000	Total £000
Creditors:  amounts falling due within one year
Interest accrued	59	-	59	24	-	24
Due to brokers	73	-	73	2,032	-	2,032
Sterling bank revolving loan	14,200	-	14,200	14,000	-	14,000
Financial liabilities carried at fair value through the income statement: Forward foreign currency contracts	1	7	8	25	62	87
Other creditors	708	-	708	295	-	295
	15,041	7	15,048	16,376	62	16,438

(iii) Credit risk

This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the company suffering a loss.

The risk is not considered significant by the board, and is managed as follows:

- investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the manager, and limits are set on the amount that may be due from any one broker; and

- cash is held only with reputable banks with high quality external credit enhancements.

None of the company's financial assets is secured by collateral or other credit enhancements.

The maximum credit risk exposure as at 31 March 2011 was £1,413,000 (2010: £3,146,000). This was due to debtors and cash as per notes 9 and 13.

Fair values of financial assets and financial liabilities

All financial assets and liabilities of the company are included in the balance sheet at fair value or the balance sheet amount is a reasonable approximation of fair value.

17. Capital management policies and procedures

The company's capital management objectives are:

- to ensure that the company will be able to continue as a going concern; and

- to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt.

The capital of the company consists of equity, comprising issued capital, reserves and retained earnings.

The board monitors and reviews the broad structure of the company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained.

18. Fair value hierarchy

The company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009.  These amendments require an entity to classify financial assets 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 asset 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 as follows:

As at 31 March 2011	Note	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Fair assets at fair value through profit or loss
Quoted equities	(a)	130,559	-	-	130,559
Quoted bonds	(b)	-	730	-	730
Forward foreign exchange contracts	(c)	-	28	-	28
Total		130,559	758	-	131,317
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts	(c)	-	(8)	-	(8)
Total		130,559	750	-	131,309

As at 31 March 2010	Note	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Fair assets at fair value through profit or loss
Quoted equities	(a)	123,053	-	-	123,053
Quoted bonds	(b)	-	456	-	456
Total		123,053	456	-	123,509
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts	(c)	-	(87)	-	(87)
Total		123,053	369	-	123,422

The directors performed a review of the fair value hierarchy classification of the company's portfolio holdings during the year ended 31 March 2011. As a result, a total amount of £456,000 was reclassified from Level 1 to Level 2; representing the fair value of the company's investments in corporate bonds.

Other than as noted above regarding quoted bonds, there have been no movements between levels in the fair value hierarchy during the year.

a) Quoted equities

The fair value of the company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in fair value level 1 are actively traded on recognised stock exchanges.

b) Quoted bonds

The fair value of the company's investment in corporate quoted bonds has been determined by reference to its quoted bid price at the reporting date.

c) Forward foreign exchange contracts

The fair value of the company's forward foreign exchange contracts has been determined using observable market inputs.

19 Post balance sheet events

On 25 May 2011 the board declared a fourth interim dividend of 1.20p per share.  There are no other post balance sheet events.

 

END

 

 

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