Annual Financial Report

RNS Number : 8900E

Securities Trust of Scotland PLC

16 May 2013

 



Securities Trust of Scotland plc

Annual report

Year to 31 March 2013

The financial information set out below does not constitute the company's statutory accounts for the years ended 31 March 2013 or 2012 but is derived from those accounts.  Statutory accounts for the year ended 31 March 2012 have been delivered to the Registrar of Companies and those for the year ended 31 March 2013 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 16 July 2013 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 2013, which require to be published are set out on the following pages.

Financial Summary

Key data

	As at 31 March 2013	As at 31 March 2012	% change
Net asset value per share (cum income)	141.76p	119.75p	+18.4
Net asset value per share (ex income)	140.60p	118.00p	+19.2
Share price	146.25p	122.00p	+19.9
MSCI World High Dividend Yield Index	653.69	556.70	+17.4
Premium	(3.17%)	(1.88%)
Average premium*	(2.98%)	(2.65%)

Total returns++

	Year ended 31 March 2013	Year ended   31 March 2012
Share price	24.4%	17.8%
Net asset value per share	23.8%	5.8%
Benchmark +	23.0%	5.0%

Income

	Year ended 31 March 2013	Year ended 31 March 2012	% change
Revenue return per share	4.71p	5.22p**	(9.8%)
Dividend per share	4.75p	4.70p	1.1%

Ongoing charges ratio

	Year ended 31 March 2013	Year ended 31 March 2012
Ongoing charges	1.0%	0.7%
Performance fee~	0.0%	0.3%
Ongoing charges ratio plus performance fee	1.0%	1.0%

* Average premium over twelve week period to 31 March (based on capital only net asset value).

++ The combined effect of any dividend paid, together with the rise or fall in the share price, net asset or benchmark. 

+ Prior to 1 august 2011, the company's benchmark was the FTSE all-Share index and the MSCI World High dividend Yield index thereafter.  

**0.41p of the increase in revenue return per share is attributable to transitional impact of the change of mandate.

 ~ The performance fee for year ended 31 March 2012 relates to the period from 1 April 2011 to 31 July 2011.

Five year record

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

	2013	2012	2011	2010	2009
Share price	24.4%	17.8%	14.3%	58.9%	(39.1%)
Net asset value per share	23.8%	5.8%	12.6%	55.8%	(35.9%)
Benchmark †	23.0%	5.0%	8.7%	52.3%	(29.3%)

Source: Martin Currie Investment Management Ltd.

† Prior to 1 August 2011, the company's benchmark was the FTSE All-Share index and the MSCI World

High Dividend Yield index thereafter.

Chairman's Statement

Performance

Welcome to your latest annual report. It's been quite a year for global equity markets and an even better one for Securities Trust of Scotland.

I'm pleased to tell you that the 12 months to 31 March 2013 was a period of positive performance for the company, not only in absolute terms, but also relative to both peers and benchmark.* As at the end of the period, the trust ranked first in its peer group over three years for share price and second for net asset value (NAV).**The NAV total return was 23.8% compared with the composite benchmark's gain of 23.0%. Happily, the company continued to trade at a premium to its NAV - a trend that has remained in place for 17 months and counting. The share-price total return for the year was 24.4%.

The manager's review on pages 4 and 5 outlines some of the investment decisions that drove these returns and discusses how the portfolio is positioned for the coming months.

Revenues and dividends

The revenue return over the 12 months was 4.71p per share. Although this marked a decrease from the 5.22p achieved last year, 0.41p of the difference related to the transitional impact of the mandate change. A further contributing factor was the simplification of the fee structure, which came into effect in April 2012. Your board believes that the new fee of 0.6% is very competitive relative to the industry average.

The company has paid three interim dividends of 1.15p per share, and the board has declared a fourth interim dividend of 1.3p per share, making a total of 4.75p for the year. This increases the total dividend for the year by 1.1% and delivers one of the board's primary objectives - namely, providing rising income for shareholders through steady growth in dividends. The dividend will be paid on 28 June 2013 to shareholders on the register on 7 June 2013.

Borrowing

The company has a short-term loan facility of £14 million, of which £10 million was drawn down at the year end. During the year, the level of gearing was maintained between 6.0% and 10.1%. This allowed the manager to enhance returns for shareholders over the period.

Discount management

Encouragingly, demand for shares in Securities Trust of Scotland has been extremely strong since the move to a global equity income mandate. As mentioned above, the company has consistently traded at a premium over the last year; as at 31 March 2013, that premium was 3.2% on a cum-income basis.

As a result, the board has not had to buy back shares during the period under review.

New shares issued

Our strong performance and current net yield of 3.3% per annum has proved very attractive to investors. As a result, during the financial year, we have issued 10.1 million new shares at an average premium of 2.26% and we are seeking approval to issue more to meet demand.

The board

Charles Berry has served as director on the board since 2005. Over this period, Charles has made the interest of shareholders his priority, always looking for ways in which to improve your company's service to them. His strong support of the change to a truly global mandate has been just one example of this. After eight years on the board, Charles believes it is the right time to stand down and will not stand for re-election at this year's annual general meeting. I would like to thank him for his significant contribution during his tenure. The board plans to appoint a new director in the coming months.

Outlook

Despite the recent strong performance of equities, both the board and manager are aware of the current challenges within global economies. Although there are grounds for optimism for another year of rising markets, it is likely to be against a backdrop of continuing economic uncertainty. I would like to take this opportunity to thank Alan Porter for his performance in managing the company over the past year, and reiterate the board's confidence in his research-driven, stock-picking approach. We believe his focus on the outlook for individual companies rather than for countries, sectors or the market as a whole is absolutely the right strategy - especially in these uncertain times.

Your board welcomes the positive outcomes achieved by the change in mandate, and is committed to ensuring that shareholders continue to benefit over the longer term. We firmly believe that the attractions of a global equity income portfolio remain compelling, both in terms of the diversified source of income such a strategy can provide and also the potential for high total returns.

Annual general meeting ('AGM')

The company's AGM takes place at 12:30pm on 16 July 2013 at the offices of Martin Currie, Saltire Court, 20 Castle Terrace, Edinburgh. As always, I would like to invite you to attend. It will provide an opportunity for you to hear from the manager, Alan Porter, and to meet with members of your board.

Lastly, thank you for your continued support. Please contact me if you have any questions regarding your company. Contact details can be found at the back of this report. I would also encourage you to visit the company's newly enhanced website at  www.securitiestrust.com, which is a comprehensive source of information.

Neil Donaldson

Chairman

16 May 2013

Manager's review

Market review

Equity markets performed well in the 12 months to the end of March 2013. The total total return of the MSCI World High Dividend Yield index, our benchmark, was 23.0% over the year. This total compares with a total return of 18.4% for the broad MSCI World index and the FTSE ALL-Share's total return of 16.8%. Indeed, after a weak start in the first two months of the fiscal year (April and May), the market rose in nine out of the ten subsequent months.

A small number of big macro-economic concerns have dominated both investor sentiment and the performance of equity markets. These were the eurozone sovereign-debt crisis, the US debt situation (and its impact on growth), and the sustainability or otherwise of economic growth in emerging markets. Newsflow on each of these and policymakers' responses to them have been paramount in dictating how quickly and in which direction equities have moved. Given the comments on performance in the opening paragraph, you can see that over the year equities have taken each of these concerns in their stride, becoming incrementally more positive since the middle of 2012.

In my view, policy response has been the key factor in allaying the main market concerns. Mario Draghi, the president of the European Central Bank (ECB), said in July 2012 'Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.' In Japan at the end of 2012, new prime minister Shinzo Abe called on the Bank of Japan to boost its monetary stimulus and adopt a 2% inflation target, double its old price goal. In March 2013, the Federal Open Market Committee Statement stated that 'To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of US$40 billion per month and longer-term Treasury securities at a pace of US$45 billion per month'. Comments and actions from the world's most influential policymakers caused the International Monetary Fund (IMF) in its January 2013 World Economic Outlook to conclude that 'Policy actions have lowered acute crisis risks in the euro area and the United States'. However, I should note that the IMF also went on to say that 'downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the US. My favourite idiom to sum up the period is 'kicking the can down the road' - in other words, delaying the decision in the hope that the problem will go away or that somebody else will make the tough choices later.

At this point, it is appropriate to repeat the third paragraph from my review in the last interim statement:

'The most important conclusion of these actions, in my view, is to create a scarcity of income. Interest rates and asset yields are likely to remain lower for longer. This means that the attractiveness of equity yields increases. Our company is focused on investing in quality franchises at attractive valuations that exhibit growth. We also focus on the higher yielding areas of the market - the aforementioned policy actions should mean that these areas remain attractive over the foreseeable future.'

Performance

For the full year, the portfolio performed ahead of the benchmark. By region, our strongest positive contributors were Europe and Japan, while our weakest was North America. Gearing made a substantial contribution, reflecting the strength of markets. By sector, our biggest positives were industrials and utilities - the former helped by stock selection, the latter by both stock selection and by virtue of being underweight.

For us, though, it is all about the stocks. Our biggest positive contributors were Heinz, Sanofi and Inmarsat. Heinz was bid for at the end of financial year, and we say goodbye to a stock that we have owned since the start of the strategy. French pharmaceuticals company Sanofi continued to impress with its focus on efficiency gains and cost-cutting as well as its strong dividend profile. UK satellite telecoms company Inmarsat has seen an improvement in its maritime business, key to our investment case.

On the downside, the powerful mid-year rally in AT&T cost us in relative terms, as we did not own it in this period. With the T-Mobile US deal being disallowed, the company wasn't able to buy additional spectrum; this in turn enabled it to post price increases, a development which was well received by the market.

Activity

Key purchases over the year included ProSiebenSat, the German television-channel operator, in March 2012, and International Paper, the US containerboard company, in November 2012. Our investment thesis at ProSiebenSat was that investors were missing the fact that the German television advertising market was stabilising and that the management, having reduced debt, was focusing on improving profitability. In essence, the investment case for International Paper was similar. This time, what the market was missing was that sector consolidation in the US containerboard market would lead to pricing power, and, in International Paper's case, improved cashflow, balance-sheet repair and higher dividends.

On the other side, key sales included Norwegian oil-rig operator Seadrill, in May 2012, and Heinz, the US food producer, in March 2013. Seadrill is a high-quality cyclical company whose valuation looked expensive, the shares having benefited as day rates for oil-rigs reached new record highs. Heinz, which was one of our largest active positions, was bid for by a consortium that included Warren Buffett's company, Berkshire Hathaway.

Outlook

Our outlook remains unchanged. We are confident in our neutral stance on markets. The biggest driver is still the economic backdrop, which, although showing some signs of improvement, is largely negative. Company margins are high and cashflow generation is strong, but confidence is low. This is positive for dividend growth in the short term, but we are looking for rising capital expenditure and merger-and-acquisition activity to signal a return of confidence in corporate boardrooms. Valuations remain neutral for markets after their rally this year, while the most positive supports for equities are still the attractiveness of dividend yields available and the high levels of cash that many investors appear to be holding. We aim to capitalise on both of these by being focused on companies that offer growing and sustainable dividends.

Alan Porter

16 May 2013

Portfolio Summary

Portfolio distribution as at 31 March

By region	2013 %	2012 %
Developed Europe	49.3	45.4
North America	41.0	42.8
Developed Asia Pacific ex Japan	6.8	7.5
Japan	2.9	3.1
Global emerging markets	-	1.2
	100	100

By Sector (excluding cash)	2013 %	2012 %
Healthcare	19	18
Consumer goods	18	11
Financials	16	15
Oil & gas	12	10
Telecommunications	11	9
Industrials	9	11
Consumer services	8	12
Basic materials	4	5
Utilities	2	6
Technology	1	3
	100	100

By asset class	2013 %	2012 %
Equities	107	109
Less borrowings	(7)	(9)
	100	100

Largest Holdings	31 March 2013 Market Value £000	31 March 2013 % of total portfolio	31 March 2012 Market Value £000	31 March 2012 % of total portfolio
AT & T	8,549	5.2	-	-
Pfizer	8,173	5.0	5,441	4.17
Chevron	6,813	4.2	4,406	3.37
Nestle	6,529	4.0	-	-
Novartis	6,396	3.9	3,913	3.0
Sanofi	6,266	3.8	3,641	2.79
Royal Dutch Shell ('B') Shares	5,748	3.5	5,186	3.97
Philip Morris International	5,624	3.4	4,675	3.58
Total	5,487	3.4	-	-
Roche Holdings	5,138	3.1	-	-

Portfolio Holdings

	Sector	Country	Market value	% of total
			£	portfolio
Developed Europe			80,743,250	49.33
Nestle	Consumer goods	Switzerland	6,528,854	3.99
Novartis	Healthcare	Switzerland	6,395,866	3.91
Sanofi	Healthcare	France	6,266,332	3.83
Royal Dutch Shell ('B' Shares)	Oil & Gas	UK	5,748,145	3.51
Total	Oil & Gas	France	5,486,664	3.35
Roche Holdings	Healthcare	Switzerland	5,138,081	3.14
British American Tobacco	Consumer goods	UK	4,852,059	2.96
Allianz	Financials	Germany	3,545,925	2.17
BASF	Basic  materials	Germany	2,960,715	1.81
TeliaSonera	Telecommunications	Sweden	2,866,499	1.75
Vodafone Group	Telecommunications	UK	2,818,347	1.72
BAE Systems	Industrials	UK	2,811,146	1.72
BHP Billiton	Basic materials	UK	2,715,202	1.66
SCOR	Financials	France	2,666,279	1.63
British Sky Broadcasting Group	Consumer Services	UK	2,294,571	1.40
GlaxoSmithKline	Healthcare	Uk	2,283,396	1.39
Modern Times Group ('B' Shares)	Consumer services	Sweden	2,276,967	1.39
Prudential	Financials	UK	2,177,499	1.33
HSBC Holdings	Financials	UK	2,167,662	1.32
Inmarsat	Telecommunications	UK	1,580,286	0.97
Schneider Electric	Industrials	France	1,551,893	0.95
Eutelsat Communications	Consumer services	France	1,531,067	0.94
Safran	Industrials	France	1,511,346	0.92
ProSiebenSat. 1 Media Pref. (non-voting)	Consumer services	Germany	1,296,879	0.79
BNP Paribas	Financials	France	1,271,570	0.78
North America			67,109,155	40.99
AT & T	Telcommunciations	United States	8,548,707	5.22
Pfizer	Healthcare	United States	8,172,707	4.99
Chevron	Oil & Gas	United States	6,812,778	4.16
Philip Morris International	Consumer goods	United States	5,623,832	3.44
McDonalds	Consumer goods	United States	4,251,554	2.60
Lockheed Martin	Industrials	United States	3,893,292	2.38
Bank of Montreal	Financials	Canada	3,598,982	2.20
Abbvie	Healthcare	United States	3,534,455	2.16
Canadian Imperial Bank of Commerce	Financials	Canada	3,163,804	1.93
Altria Group	Consumer goods	United States	3,052,561	1.87
Kraft Foods Group Inc	Consumer goods	United States	2,898,684	1.77
Waste Management	Industrials	United States	2,738,356	1.67
Sempra Energy	Utilities	United States	2,705,654	1.65
Paychex	Industrials	United States	2,543,718	1.55
Fifth Third Bancorp	Financials	United States	1,495,333	0.91
International Paper	Basic materials	United States	1,420,299	0.87
Taiwan Semiconductor ADR	Technology	United States	1,406,855	0.86
PNC Financial Services Group	Financials	United States	1,247,584	0.76
Developed Asia Pacific ex Japan			11,090,933	6.78
Woolworths	Consumer services	Australia	3,528,411	2.16
United Overseas Bank	Financials	Singapore	2,217,816	1.36
WorleyParsons	Oil & Gas	Australia	1,786,120	1.09
China Mobile	Telecommunications	Hong Kong	1,783,087	1.09
SJM Holdings	Financials	Hong Kong	1,775,499	1.08
Japan			4,740,234	2.90
Lawson	Consumer services	Japan	2,533,693	1.55
Nissan Motor	Consumer goods	Japan	2,206,541	1.35
Total portfolio			163,683,572	100.00

Revenue and dividends

Gross revenue for the year amounted to £6,340,000 (2012: £6,353,000) and the revenue return per share was 4.71p (2012: 5.22p). Interim dividends totalling 3.45p have been paid during the year.

The directors recommend a fourth interim dividend of 1.30p per share payable on 28 June 2013 to holders on the register at the close of business on 7 June 2013, making a total for the year of 4.75p (2012: 4.70p).

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 financial position of the company as at 31 March 2013 is shown on the balance sheet.  The cash flows of the company are detailed later. Note 15 sets out the company's risk management policies, including those covering market net risk, liquidity risk and credit risk.

The company has a loan facility of £14,000,000 which expires on 28 September 2013, of which £10,000,000 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. 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 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. Below are the principal risks along with details of the latest board assessment.

Risk Mitigation

Regulatory change

The board has identified a number of developments that will potentially increase operational and regulatory risk for the company, of which it draws investors' attention to the following:

AIFM Directive(EU regulation) - The Alternative investmentFund Managers (AIFM) directive is European legislation which is designed to regulate any fund which is not a UCITS fund and which is managed and/or marketed in the EU. The directive aims to improve regulation, transparency and investor protection for fundsthat fall within the remit of the new regulations.  The board has been working closelywith the manager and its professional advisers to ensure it is fully prepared for the implementation of the AIFM Directive.

FATCA (US regulation) - The Foreign Account Tax Compliance Act (FATCA) creates a new tax informationreporting and withholding regime forpayments made to certain

 foreign financial institutions and other foreign persons.FATCA is intended to increase transparency for the Internal Revenue Service(iRS) with respectto US persons that may be investing and earning income through non-USinstitutions. The intergovernmentalagreement whichthe UK signedin September 2012should reducethe regulatory burden of FATCA for investment companies.

The company is workingwith its advisersand the investment trust industryas appropriate to ensure compliance.

Maintaining market liquidity

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 board, the manager and the company's broker with a report being reviewed by the board at each meeting. The board regularly discusses ways to improve the liquidity position of the company.

Loss of s1158-1159 status 

In order to qualify as an investment trust, the company must comply with s1 158-1159 of the Corporation Taxes Act 2010.

The board is comfortable that the mitigating measures in place reduce the risk to the greatest extent possible. The Investment Trust tax rules have changed for companies with financial year-ends beginning on or after 1 January 2012. The board believes that due to the more favourable nature of the rules, the risk of losing investment trust status will be greatly reduced. The company was granted for investment trust status under the new regime in February 2013.  s1158-1159 qualification criteria are continually monitored

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 their premises be subject to operational disruption. The plan is tested annually and was last tested in October 2012 with successful results. Martin Currie 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.  . 

Loss of investment team or portfolio manager 

Martin Currie 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 relying on good manager stock selection skills within a framework of diversification and other investment restrictions and guidelines.

The board monitors the implementation and results of the investment process with the portfolio manager, who attends all board meetings, and reviews data that show statistical measures of the company's risk profile.

Gearing/Interest rate risk 

From time to time the company finances its operations through bank borrowings. However, the board monitors such borrowings (gearing) closely and takes a prudent approach. At the year end, there was a bank facility of £14,000,000 of which £10,000,000 was drawn down. In accordance with the investment policy the limit on gearing is 15% of total assets.

Foreign exchange risk

A significant proportion of the company's investment portfolio is invested in overseas securities and the balance sheet can be significantly affected by movements in foreign exchange rates. It is not the company's policy to hedge this risk on a continuing basis but the company may, from time to time, match specific overseas investment with foreign currency borrowings.

The revenue account is subject to currency fluctuation arising on overseas income.

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 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

16 May 2013

Income Statement

		Year to 31 March 2013
	Notes	Revenue £000	Capital £000	Total £000
Gains on investments	8	-	23,978	23,978
Currency gains/ (losses)		8	136	144
Income	3	6,340	-	6,340
Investment management fee		(271)	(503)	(774)
Performance fee		-	-	-
Other expenses	4	(525)	-	(525)
Net return before finance costs and taxation		5,552	23,611	29,163
Finance costs	5	(89)	(164)	(253)
Net return on ordinary activities before taxation		5,463	23,447	28,910
Taxation on ordinary activities	7	(557)	-	(557)
Net return attributable to ordinary redeemable shareholders		4,906	23,447	28,353
Net returns per ordinary redeemable share	2	4.71p	22.50p	27.21p

		Year to 31 March 2012
	Notes	Revenue £000	Capital £000	Total £000
Gains on investments	8	-	2,738	2,738
Currency gains/ (losses)		(17)	(135)	(152)
Income	3	6,353	-	6,353
Investment management fee		(102)	(189)	(291)
Performance fee		-	(372)	(372)
Other expenses	4	(541)	-	(541)
Net return before finance costs and taxation		5,693	2,042	7,735
Finance Costs	5	(109)	(202)	(311)
Net return on ordinary activities before taxation		5,584	1,840	7,424
Taxation on ordinary activities	7	(354)	-	(354)
Net return attributable to ordinary redeemable shareholders		5,230	1,840	7,070
Net returns per ordinary redeemable share	2	5.22p	1.83p	7.05p

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 2013		As at 31 March 2012
	Note	£000	£000	£000	£000
Non-current assets
Investments at fair value through profit or loss
Listed on Exchanges in the UK			29,447		38,538
Listed on Exchanges abroad			134,237		92,088
	8		163,684		130,626
Current Assets
Loans and receivables	9	2,742		718
Cash at bank		2,275		-
		5,017		718
Creditors
Amounts falling due within one year	10	(12,260)		(11,282)
Net current liabilities			(7,243)		(10,564)
Net assets			156,441		120,062
Capital and reserves
Called up ordinary share capital	11		1,104		1,003
Capital redemption reserve			78		78
Share premium account			12,862		-
Special distributable capital reserve			109,359		109,411
Capital reserve	11		30,160		6,713
Revenue reserve			2,878		2,857
			156,441		120,062
Net asset value per ordinary redeemable share	2		141.76p		119.75p

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 2013 is £1,103,598 (2012: £1,002,598)

The financial statements were approved by the board and signed on its behalf by

Neil Donaldson, Chairman

16 May 2013

Reconciliation of movements in shareholders' funds

	Notes	Called up ordinary share capital £000	Capital redemption reserve £000	Share premium account £000	Special distributable reserve £000	Capital reserve £000	Revenue reserve £000	Total £000
As at 31 March 2012		1,003	78	-	109,411	6,713	2,857	120,062
Return attributable to shareholders		-	-		-	23,447	4,906	28,353
Ordinary shares issued during the year	6	101	-	12,862	(52)	-	-	12,911
Dividends paid		-	-	-	-	-	(4,885)	(4,885)
Balance as at 31 March 2013		1,104	78	12,862	109,359	30,160	2,878	156,441

	Notes	Called up ordinary share capital £000	Capital redemption reserve £000	Share premium account £000	Special distributable reserve £000	Capital reserve £000	Revenue reserve £000	Total £000
As at 31 March 2011		1,003	78	-	109,411	4,873	2,289	117,654
Return attributable to shareholders		-	-	-	-	1,840	5,230	7,070
Dividends paid	6	-	-	-	-	-	(4,662)	(4,662)
Balance at 31 March 2012		1,003	78	-	109,411	6,713	2,857	120,062

Statement of cash flow

		Year to 31 March 2013		Year to 31 March 2012
	Note	£000	£000	£000	£000
Net cash inflow from operating activities	12		4,788		4,278
Servicing of finance
Finance costs			(251)		(370)
Taxation
Taxation received			(113)		(28)
Capital expenditure and financial investment
Payments to acquire investments		(61,430)		(122,790)
Receipts from disposal of investments		52,295		126,674
Net cash (outflow)/inflow from capital expenditure and financial investment			(9,135)		3,684
Dividends paid			(4,885)		(4,662)
Net cash (outflow)/inflow before use of liquid resources and financing			(9,596)		3,102
Repurchase of ordinary share capital		-		(76)
Shares issued for cash (including costs)		12,911		-
Reduction in short term borrowings		(1,000)		(3,240)
Net cash inflow/(outflow) from financing			11,911		(3,316)
Increase/ (decrease) in cash for the year			2,315		(214)
Reconciliation of net cash flow to movements in net debt
Increase / (decrease) in cash as above		2,315		(214)
Reduction in short-term borrowings		1,000		3,240
Change in net debt resulting from cash flows			3,315		3,026
Opening net debt			(11,040)		(14,066)
Closing net debt	13		(7,725)		(11,040)

Notes

1      Accounting policies

(a)   The financial statements have been prepared on a going concern basis and 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 in 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.

(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 paid during the year was wholly allocated to capital. All other expenses are wholly allocated to revenue.

(e)   Gains and losses on the 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)    Transactions in foreign currencies are recorded in the operational currency of the company at the prevailing exchange rate on the date of the transaction and re-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 on the transaction date. Any exchange differences between the recognition and settlement both for revenue transactions 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 valued at fair value. For listed investments this is deemed to be bid market prices. 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 buybacks 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 re-measured 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 2013	Year to 31 March 2012
Returns and net asset value Revenue return
Revenue return attributable to ordinary redeemable shareholders	£4,906,000	£5,230,000
Average number of shares in issue during the year	104,193,470	100,259,771
Revenue return per ordinary redeemable share	4.71p	5.22p
Capital return
Capital return attributable to ordinary redeemable shareholders	£23,447,000	£1,840,000
Average number of shares in issue during the year	104,193,470	100,259,771
Capital return per ordinary redeemable share	22.50p	1.83p
Total return
Total return per ordinary redeemable share	27.21p	7.05p
Net asset value per share
Net assets attributable to ordinary redeemable shareholders	£156,441,000	£120,062,000
Number of shares in issue at year end	110,359,771	100,259,771
Net asset value per ordinary redeemable share	141.76p	119.75p

3. 

	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Income
From listed investments
Franked income - equities	1,837	3,551
Franked income - fixed interest and convertibles	-	62
Unfranked income - equities	4,425	2,721
Unfranked income - fixed interest and convertibles	70	10
	6,332	6,344
Other income
Interest on deposits	8	9
	6,340	6,353
Total income comprises:
Dividends from investments	6,332	6,334
Interest	8	19
	6,340	6,353
Dividends from investment:
Listed in the UK	1,837	3,623
Listed overseas	4,495	2,711
	6,332	6,334

4.

Other expenses	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Bank Charges	6	4
Director's fees	116	116
Employers' national insurance contributions	11	11
Irrecoverable VAT	25	57
Legal fees	11	14
Printing and postage	25	28
Registrar's fees	41	45
Savings plan administration and advertising	22	20
Secretarial fee	95	92
Other	151	140
	503	527
Auditors' remuneration:
Audit services	15	14
Non audit services	7	-
	525	541

The audit services represent  fees payable to Deloitte LLP for the audit of the company's annual financial statements.

The non-audit services comprise £7,000 (2012:nil) for VAT registration services and expenses paid to the company auditor.

In addition to the auditors' remuneration, in 2012 the company's auditor received a fee of £9,000 from Martin Currie Investment Management Limited for other assurance services relating to the change of administrator.

The company was registered for VAT during the year with the registration to take effect 1 August 2011.

5.

	Year to 31 March 2013			Year to 31 March 2012
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Finance costs
Interest payable on bank loans and overdrafts	89	164	253	109	202	311

6.

	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Dividends
Year ended 31 March 2011 - fourth interim dividend of 1.2p	-	1,203
Year ended 31 March 2012 - first interim dividend of 1.15p	-	1,153
Year ended 31 March 2012 - second interim dividend of 1.15p	-	1,153
Year ended 31 March 2012 - third interim dividend of 1.15p	-	1,153
Year ended 31 March 2012 - fourth interim dividend of 1.25p	1,253	-
Year ended 31 March 2013 - first interim dividend of 1.15p	1,173	-
Year ended 31 March 2013 - second interim dividend of 1.15p	1,202	-
Year ended 31 March 2013 - third interim dividend of 1.15p	1,257	-
	4,885	4,662

Set out below are the total dividends payable in respect of the period, which form the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered.

	Year to 31 March 2013 £000	Year to 31 March 2012 £000
First interim dividend of 1.15p for the year ended 31 March 2013 (2012 - 1.15p)	1,173	1,153
Second interim dividend of 1.15p for the year ended 31 March 2013 (2012 -1.15p)	1,202	1,153
Third interim dividend of 1.15p for the year ended 31 March 2013 (2012 -1.15p)	1,257	1,153
Proposed fourth interim dividend of 1.30p for the year ended 31 March 2013 (2012 - 1.25p)	1,435	1,253
	5,067	4,712

During the year the directors received dividends of 4.70p (2012: 4.65p) per share.  Directors' shareholdings are disclosed in note 14.

7.

Taxation on ordinary activities	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Foreign tax	557	354

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 24% (2012: 26%).  The differences are explained below.

Taxation on ordinary activities	Year to 31 March 2013 £000	Y ear to 31 March 2012 £000
Net return on ordinary activities before taxation	28,910	7,424
Corporation tax at standard rate of 24% (2012: 26%)	6,938	1,930
Effects of:
Gains on investments not taxable	(5,755)	(712)
UK dividends not taxable	(441)	(942)
Overseas dividends not taxable	(1,079)	(705)
Overseas tax suffered	557	354
Currency (gains)/losses not taxable	(35)	35
Excess management expenses not utilised	372	394
Non-taxable income	-	-
Current year tax charge	557	354

At the year end, the company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £9,046,000 (2012: £7,507,000).  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 at fair value through profit or loss	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Opening valuation	130,626	131,289
Opening investment holding gains	(11,914)	(20,145)
Opening cost	118,712	111,144
Add:  acquistions at cost	62,713	122,790
Disposal proceeds	(53,633)	(126,177)
Less: net gain on disposal of investments	4,740	10,955
Disposals at cost	(48,893)	(115,222)
Closing cost	132,532	118,712
Add: investment holding gains	31,152	11,914
Valuation as at 31 March	163,684	130,626

There were no fixed interest securities as at 31 March 2013 (2012: nil).  Details of the interest rate risk profile of the fixed interest securities are contained within note 15. 

	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Gains on investment
Net gain on disposal of investments	4,740	10,955
Movement in investment holdings unrealised gains /(losses)	19,238	(8,231)
Capital distributions	-	14
	23,978	2,738

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:

	Year to 31 March 2013 £000	Year to 31 March 2012 £000
Acquisitions	151	158
Disposals	96	103
	247	261

9. 

Loans and receivables	As at 31 March 2013 £000	As at 31 March 2012 £000
Dividends receivable	597	632
Special dividends to capital receivable	-	14
Due from brokers	1,338	-
Tax recoverable	148	35
Forward foreign currency contracts	-	3
Prepayments and other debtors	659	34
	2,742	718

10.

Creditors - Amounts falling due within one year	As at 31 March 2013 £000	As at 31 March 2012 £000
Interest accrued	2	-
Due to brokers	1,283	-
Sterling bank revolving loan	10,000	11,000
Bank overdraft	-	40
Financial liabilities held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	-	5
Other creditors	975	237
	12,260	11,282

The company has a £14,000,000 revolving loan facility with State Street Bank and Trust Company which expires on 28 September 2013.  Under this agreement £10,000,000 was drawn at 31 March 2013 at a rate of 1.65688% with a maturity date of 25 June 2013.

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	As at 31 March 2013 £000	Number of shares	As at 31 March 2012 £000
Called up share capital
Ordinary shares of 1p
Ordinary shares in issue at the beginning of the year	100,259,771	1,003	100,259,771	1,003
Ordinary shares issued during the year	10,100,000	101	-	-
Ordinary shares in issue at the end of the year	110,359,771	1,104	100,259,771	1,003

There were no shares bought back during the year to 31 March 2013 (2012:nil). During the year, the company issed 10,100,000 shares (2012:nil) at an average price of 127.83p per share costing £12,911,000 (2012:nil)

The share premium represents the surplus amount over the annuak nominal value of the shares excluding costs, with any related issuance cost allocated to the special distributable capital reserve.

The analysis of the capital reserve is as follows:

	Realised capital reserve £000	Investment holding gains £000	Total capital reserve £000
As at 31 March 2012	(5,201)	11,914	6,713
Gains on realisation of investments at fair value	4,740	-	4,740
Realised currency gains during the year	136	-	136
Movement in fair value gains	-	19,238	19,238
Capitalised expenses	(667)	-	(667)
As at 31 March 2013	(992)	31,152	30,160

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 2013 £000	Year to 31 March 2012 £000
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs	29,163	7,735
(Increase)/Decrease in accrued income and other debtors	(573)	106
Increase/(Decrease) in other creditors	733	(471)
Net gains on investments	(23,978)	(2,738)
Taxation withheld from income on investments	(557)	(354)
Net cash inflow from operating activities	4,788	4,278

13.

	As at 31 March 2012 £000	Cashflow £000	As at 31 March 2013 £000
Analysis of net debt
Cash at bank	-	2,275	2,275
Bank overdraft	(40)	40	-
Bank borrowings - sterling revolving loan	(11,000)	1,000	(10,000)
Net debt	(11,040)	3,315	(7,725)

14.

Directors' shareholdings	As at 31 March 2013 No. of shares held	As at 31 March 2012 No. of shares held
Neil Donaldson	92,956	89,200
Charles Berry	15,698	15,184
Andrew Irvine	80,000	80,000
Edward Murray	7,448	7,188
Rachel Beagles	30,000	30,000

Directors who held office during the year and their ordinary shareholdings at the year end are shown above. Charles Berry's holding of 15,698 shares includes a beneficial and family interest of 7,849 shares.  Andrew Irvine's holding of 80,000 shares includes a beneficial and family interest of 50,000 shares.

Since the year end Neil Donaldson's shares have increased by 651 shares.

15. 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 State Street Bank and Trust Company 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 2013 are shown in note 10.

Interest risk profile

The interest rate risk profile of the portfolio of financial assets (comprising cash balances only) at the balance sheet date was 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 2013
Assets
Sterling - undated	-	0.30	-	2,275	163,684
Sterling - dated	-	-	-	-	-
			-	2,275	163,684
Liabilities
Bank loan - sterling	0.2	1.66	10,000	-	-
At 31 March 2012
Assets
Sterling - undated	-	0.30	-	(40)	130,626
Sterling - dated	-	-	-	-	-
			-	(40)	130,626
Liabilities
Bank loan - sterling	0.3	2.13	11,000	-	-

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.

	Year to 31 March 2013 Increase in rate £000	Year to 31 March 2013 Decrease in rate £000	Year to 31 March 2012 Increase in rate £000	Year to 31 March 2012 Decrease in rate £000
Effect on revenue return	(35)	35	(39)	39
Effect on capital return	(65)	65	(72)	72
Effect on total return and on net assets	(100)	100	(111)	111

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.

Foreign currency risk

A significant proportion of the company's investment portfolio is invested in overseas securities and the balance sheet can be significantly affected by movements in foreign exchange rates. It is not the company's policy to hedge this risk on a continuing basis but the company may, from time to time, match specific overseas investment with foreign currency borrowings.

The revenue account is subject to currency fluctuation arising on overseas income.

Foreign currency risk exposure by currency of denomination:

	As at 31 March 2013			As at 31 March 2012
	Investments £000	Net monetary assets £000	Total currency exposure £000	Investments £000	Net monetary assets £000	Total currency exposure £000
US dollar	60,346	163	60,509	50,867	136	51,003
Euro currency	28,089	45	28,134	15,592	-	15,592
Swiss franc	18,063	41	18,104	3,912	36	3,948
Canadian dollar	6,763	5	6,768	5,034	23	5,057
Australian dollar	5,315	64	5,379	4,265	135	4,400
Japanese yen	4,740	42	4,782	4,094	72	4,166
Hong Kong dollar	3,559	(1)	3,558	3,426	-	3,426
Swedish krona	5,143	(711)	4,432	-	-	-
Singapore dollar	2,218	-	2,218	2,108	-	2,108
Czech Republic koruna	-	-	-	1,604	-	1,604
Norwegian krone	-	-	-	1,186	-	1,186
Total overseas investments	134,236	(352)	133,884	92,088	402	92,490
Pound Sterling	29,448	(6,891)	22,557	38,538	(10,966)	27,572
Total	163,684	(7,243)	156,441	130,626	(10,564)	120,062

The asset allocation between specific markets can vary from time to time based on the manager's opinion of the attractiveness of the individual markets.

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 contracts.  At the year end, the following contracts were held:

	As at 31 March 2013		As at 31 March 2012
	Amount Currency	Unrealised (gain)/loss £000	Amount Currency	Unrealised (gain)/loss £000
US dollar purchases	-	-	433	4
US dollar sales	-	-	(433)	(6)
Euro purchases	-	-	17	(1)
Euro sales	-	-	(17)	1
	-	-	-	(2)

Foreign currency sensitivity

There were minimal foreign currency denominated monetary items at year end.

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 recognised stock exchanges.

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 equities. 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.

	Year to 31 March 2013		Year to 31 March 2012
	Increase in rate £000	Decrease in rate £000	Increase in rate £000	Decrease in rate £000
Effect on revenue return	(26)	26	(21)	21
Effect on capital return	24,505	(24,505)	19,556	(19,556)
Effect on total return and on net assets	24,479	(24,479)	19,535	(19,535)

(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 requirements if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (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:

	As at 31 March 2013			As at 31 March 2012
	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	2	-	2	-	-	-
Due to brokers	1,283	-	1,283	-	-	-
Sterling bank revolving loan	10,000	-	10,000	11,000	-	11,000
Financial liabilities carried at fair value through the income statement: Forward foreign currency contracts	-	-	-	5	-	5
Bank overdraft	-	-	-	40	-	40
Other creditors	975	-	975	237	-	237
	12,260	-	12,260	11,282	-	11,282

(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 to be 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 who have high quality external credit ratings.

None of the company's financial assets is secured by collateral.

The company is not currently undertaking any securities lending

The maximum credit risk exposure as at 31 March 2013 was £2,742,000  (2012: £678,000). 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.

16. 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.

17. Fair value hierarchy

Under FRS 29 'Financial Instruments: Disclosures' an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the requirements.  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 2013	Note	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Fair assets at fair value through profit or loss
Quoted equities	(a)	163,684	-	-	163,684
Forward foreign exchange contracts	(b)	-	-	-	-
Total		163,684	-	-	163,684
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts	(b)	-	-	-	-
Total		163,684	-	-	163,684

As at 31 March 2012	Note	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Fair assets at fair value through profit or loss
Quoted equities	(a)	130,626	-	-	130,626
Forward foreign exchange contracts	(b)	-	3	-	3
Total		130,626	3	-	130,629
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts	(b)	-	(5)	-	(5)
Total		130,626	(2)	-	130,624

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)   Forward foreign exchange contracts

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

      There have been no movements between levels in the fair value hierarchy during the year.

18 Post balance sheet events

On 16 May 2013 the board declared a fourth interim dividend of 1.30p per share.  There were 985,000 shares issued between 1 April 2013 and 15 May 2013, at a total cost of £1,417,225. There are no other post balance sheet events.

 

END

 

 

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