Annual Financial Report
EP GLOBAL OPPORTUNITIES TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2010
The full Annual Report and Financial Statements can be accessed via the
Company's website at www.epgot.com or by contacting the Company Secretary on
telephone 0131 270 3800.
HIGHLIGHTS
* At 31 December 2010 our net asset value per share was 188.2p, giving a total
return for the twelve months of 8.3 per cent.
* The share price closed the year at 186.8p, an increase of 8.6 per cent over
the share price at the end of 2009. At the year-end this represented a discount
of 0.7 per cent to the net asset value per share.
* Our revenue per share increased by 18.5 per cent to 3.2p. The Board, in
February 2011, declared an interim dividend (instead of a final dividend) of
2.8p per share, a 16.7 per cent increase over the dividend declared for 2009.
* We continued our policy of buying in shares with a view to maintaining the
share price at close to the net asset value per share. During 2010, we bought
back 1,393,700 shares into treasury.
* Following the end of the year we announced an agreement to borrow £5 million
from Scotiabank Europe PLC in the form of a secured multicurrency revolving
loan. To date the equivalent of £4.5 million in Japanese yen and US dollars has
been drawn down and is being invested.
* The proposed merger with Anglo & Overseas Plc announced in February 2011 has
received the approval of Shareholders of both companies. A total of 31,855,462
new shares in EP Global Opportunities Trust have been issued to Anglo &
Overseas Plc Shareholders who elected to roll over their investment into the
Company, increasing the net assets of the Company by £59 million to £110
million.
FINANCIAL SUMMARY
Results for year 31 December 31 December Change
2010 2009
Shareholders' funds £51,620,000 £50,712,000 1.8%
Net asset value per ordinary share 188.2p 175.9p 7.0%
("NAV")
Share price 186.8p 172.0p 8.6%
Share price discount to NAV 0.7% 2.2%
Revenue return per ordinary share* 3.2p 2.7p 18.5%
Dividend per ordinary share** 2.8p 2.4p 16.7%
* Based on the weighted average number of shares in issue during the year
excluding own shares held in treasury.
** Declared dividend for the year.
Ordinary share Ordinary share
Year's high/low
Share price - high 186.8p 173.0p
- low 159.5p 113.0p
NAV - high 193.1p 177.3p
- low 162.0p 116.8p
Share price premium /(discount) to NAV
- high 0.5% 0.4%
- low (6.6)% (13.5)%
Cost of running the Company
Total expense ratio* 1.3% 1.0%**
* Based on total expenses for the year and average monthly net asset value.
** Total expense ratio 1.3% in 2009 excluding VAT refund.
Performance
record
Share
price Revenue
Net asset Share discount return Dividend
value per price per to net per per
Shareholders' ordinary ordinary asset ordinary ordinary
funds share share value share share
Year ended 31
December
2004* £26.1m 116.4p 110.5p 5.1% 0.6p 0.4p
2005 £52.2m 156.2p 154.5p 1.1% 1.1p 0.8p
2006 £58.8m 172.8p 170.0p 1.6% 2.1p 1.8p
2007 £57.7m 177.2p 160.0p 9.7% 2.7p 2.3p
2008 £46.4m 150.4p 132.5p 11.9% 3.9p 3.1p
2009 £50.7m 175.9p 172.0p 2.2% 2.7p 2.4p
2010 £51.6m 188.2p 186.8p 0.7% 3.2p 2.8p**
* Period 13 November 2003 to 31 December 2004. The Company commenced operations
on the admission of its shares to listing on the London Stock Exchange on 15
December 2003.
** Declared dividend for the year.
CHAIRMAN'S STATEMENT
Results
At 31 December 2010 our net asset value per share was 188.2p, giving a total
return for the twelve months of 8.3 per cent. This follows the total return of
19.4 per cent in 2009, as share prices continued to recover from the 2008 bear
market.
We do not have a benchmark against which we monitor the performance of the net
asset value. However, your Board does take note of the investment performance
of your Company compared to the major stock market indices. Relative to the
FTSE All-World Index, our performance is ahead of the Index since the launch of
the Company in late 2003. However, in 2010 we gave back some of that
outperformance, with the FTSE All-World Index achieving a total return of 16.7
per cent. The total return for the FTSE All-Share Index was 14.5 per cent.
The share price closed the year at 186.8p, an increase of 8.6 per cent over the
share price at the end of 2009. At the year end, this represented a discount of
0.7 per cent to the net asset value per share. We continued our policy of
buying in shares with a view to maintaining the share price at close to the net
asset value per share. During 2010, we bought back 1,393,700 shares into
treasury. A further 244,000 shares have been bought back into treasury since
the year end and this has been more than offset by the sale from treasury of
450,000 shares.
Stock market and investment performance
World stock markets started 2010 on a firm note. A brief setback in January was
quickly reversed and most markets enjoyed a positive first quarter. The second
quarter was a very different story. Share prices fell back sharply, with
declines in the second quarter of typically 10 to 15 per cent in the main
regional indices causing all the first quarter gains to be surrendered.
Concerns about the financial stability of some individual countries within the
euro-zone and worries that the US recovery was beginning to falter led some
commentators to predict that the recovery from recession would be short-lived.
In particular, concerns about the budget deficits and the ability of
governments in some southern European countries to finance their debts unnerved
financial markets. While Greece was the first country to suffer a sharp rise in
interest rates, contagion soon spread to Ireland and threatened both Portugal
and Spain. In June, the European finance ministers finalised the creation of
the European Financial Stability Facility, a fund to make loans to countries
within the euro-zone which are in financial distress.
Share prices bottomed out in early July as markets began to anticipate that the
Federal Reserve, the US central bank, would commence another round of
"quantitative easing", i.e. buying US government debt and printing the money to
do so. Share prices recovered strongly as worries of an economic double dip
evaporated.
The main trends in equity markets that had developed in 2009 continued through
2010, with investors focusing on the growth potential of Asia and the
increasing demand for commodities. The best performing region was the Far East,
where the FTSE All-World Asia ex-Japan Index achieved a total return of 23.9
per cent in sterling terms. Once again, currency fluctuations played a
significant part in the relative performance of markets. The Japanese yen was
particularly strong. As a result, while the Japanese Topix Index ended the year
fractionally below its level at the start of the year, there was a total return
of 19.5 per cent when adjusted into sterling. The euro was the weakest of the
major currencies and the FTSE All-World European Index was the poorest
performer in sterling terms of the major regional indices with a gain of only
6.6 per cent. The S&P composite index in the US was up 18.7 per cent in
sterling terms.
Our own performance was held back by having our largest geographical weighting
in Europe (excluding the UK) for most of the year and by holding relatively
little in the regional markets in Asia. We continue to find poor value in the
emerging Asian markets. On the other hand, the one country where share prices
appear to offer significant value is Japan. We added steadily to our
investments in Japan throughout 2010 and, by the year end, 24.9 per cent of our
assets were invested in Japanese equities, making it our largest geographical
area of investment.
Holding in Edinburgh Partners
Funds managed by our Investment Manager, Edinburgh Partners, have continued to
grow, helped by the rise in equity markets. We have increased the valuation of
our equity stake in Edinburgh Partners by £300,000 to £1.5 million.
Gearing
Since the end of the year, in January 2011, we announced an agreement to borrow
£5 million from Scotiabank Europe PLC in the form of a secured multicurrency
revolving loan. The interest rate payable on the loan is 1.2 per cent over
LIBOR, the London interbank lending rate. One of the long- term advantages of
the investment trust structure is the ability to borrow money and hence to
introduce an element of gearing to the performance of the net assets. At the
time of the agreement, the £5 million amounted to gearing of approximately 10
per cent of our net assets. To date, the equivalent of £4.5 million in Japanese
yen and US dollars has been drawn down and is being invested.
Anglo & Overseas
In February 2011, we announced that we had reached agreement in principle with
the board of Anglo & Overseas Plc in respect of a merger with your Company
through a scheme of reconstruction and voluntary winding up of Anglo &
Overseas. Details of the proposals were posted to Shareholders in February,
with Shareholder meetings taking place in March. Your Board recommended the
proposals as we believed an increase in the size of your Company should improve
the marketability of the shares and reduce the annual running costs as a
percentage of the total assets.
The proposals have now received the approval of the Shareholders of both
companies. One member of the Anglo & Overseas Board, Giles Weaver, joined our
Board on 10 March 2011 and a total of 31,855,462 new shares in EP Global
Opportunities Trust have been issued to Anglo & Overseas Shareholders who
elected to roll over their investment, increasing the net assets of the Company
by £59 million to £110 million.
Anglo & Overseas was also managed by Edinburgh Partners and had the same
value-based investment philosophy as your Company. The prime difference between
the two trusts is that Anglo & Overseas operated a progressive dividend policy,
whereas our dividend is dependent on where our Investment Manager perceives the
best value to be. We would rather reduce our dividend than compromise this
investment philosophy. We believe that our approach will produce superior
returns over the longer term. This will continue to be our policy.
Revenue account and dividend
Our revenue per share increased by 18.5 per cent to 3.2p. In 2009 we reduced
the dividend as revenue declined due to changes in the shares held in the
portfolio. In 2010, the reverse was the case and the Board has been able to
declare an interim dividend of 2.8p per share, a 16.7 per cent increase over
the dividend declared for 2009. As in the past, only one dividend will be paid
for the year. The dividend was announced in February 2011, prior to the issue
of new shares in the Company to Anglo & Overseas Shareholders, and is payable
on 18 March 2011.
Outlook
As 2010 closed, rising commodity prices were causing an increase in
inflationary pressures. This was particularly true in developing countries
where food is a relatively high percentage of consumption. China had already
raised interest rates a number of times and no doubt will continue to do so
until the pricing pressure has been reduced. This is likely to moderate the
rate of economic growth and it would not be surprising to see it dampen the
enthusiasm for Asian equities, at least for a while. More recently, unrest in a
number of Middle Eastern countries and the effect on the price of oil has
increased the level of concern.
While China is becoming an increasingly important engine of growth for the
world economy, the USA remains by far the largest economy. The US is still
focusing on stimulative policies, both fiscal and monetary, to maintain the
momentum of the economic recovery. The US monetary policy of "quantitative
easing", continues to be a positive for the economy and hence for share prices.
Europe, by contrast, is pursuing a policy of monetary easing, while tightening
fiscally, raising taxes and cutting spending.
The variety of policy strategies being applied around the world will no doubt
cause moments of doubts about the pace of economic growth in 2011, just as
there were such moments in 2010. At the year end, we remained fully invested,
as our Investment Manager was still able to find shares that represent good
value even as some shares in more fashionable areas were looking increasingly
fully valued. It is not possible to gauge the short-term effect on financial
markets of the nuclear risk in Japan following the tragic earthquake but we are
hopeful that the negative effect will indeed be only short-term.
Teddy Tulloch
Chairman
18 March 2011
MANAGER'S REPORT AND PORTFOLIO ANALYSIS
In 2010 the Company's net asset value total return per share was 8.3 per cent.
In real terms this was a positive, but set against the backdrop of returns from
global equities it was less than inspiring. Although we do not invest by
reference to the composition of indices, we nevertheless are cognisant of the
returns earned by indices. During the calendar year the FTSE All-World Index
total return was 16.7 per cent. This begs the question of whether there were
opportunities we missed.
As our Shareholders know, we seek to identify companies where the long-term
profit potential is not being valued correctly by the market. The key lies in
the analysis of this profit potential and to this end we have an extremely
experienced team which operates within a robust and tested analytical process.
This approach has been sound over the long term and we believe will continue to
be so. However, that does not mean that there will not be periods where we
misjudge future events meaning that we do not participate in some share price
advances. Equally, there will be periods when stocks that are expensive go up
and during that period our performance will lag. The critical question for 2010
was whether it was the former or the latter. Putting this another way, Benjamin
Graham, the famous investor and author whose teachings are often quoted by
Warren Buffet, described the market as a voting machine in the short-run and a
weighing machine in the long-run.
In our view, many of the stocks which performed best in 2010 were the product
of `votes' or sentiment rather than of underlying value. Two principal
categories of stocks performed particularly well during 2010. The first were
those who were deemed to be beneficiaries of consumption growth, in particular
in Asia, with Chinese stocks the most prominent. We subscribe to the widely
held view that there are better economic growth conditions in emerging markets.
Our difficulty is that for many of our holdings in this area we found that even
with a generous allowance for this higher growth many of the stocks were
becoming expensive. As a consequence, for 2010 our direct exposure to these
types of stocks was relatively low. During the period, the stock market
`voting' was directly opposed to this, to the detriment of our performance. We
have spent considerable time reviewing our forecasts and have seen little that
would change our view. We remain positive on economic prospects in the emerging
markets and will invest in companies domiciled there when valuations come back
into range.
The second category of stocks which performed well in 2010 were companies that
might loosely be termed as beneficiaries of global monetary easing. Asian asset
plays and commodities were the two most obvious groupings. Again, we have not
seen anything which alters our views on their valuations.
On a more positive note, there are many companies within the portfolio which
did not perform well during 2010, but where we are convinced there is
outstanding value. In the technology area, Cisco Systems, Intel and Applied
Materials delivered very solid financial results but to a greater or lesser
extent were penalised for cautious outlook statements. In our view these
statements were appropriate and did not detract from the longer term prospects.
We expect to see strong returns from these holdings.
Other stocks where we see sentiment having unduly impacted share prices are a
number of our bank holdings, including Bank of America, Mizuho and Intesa
Sanpaolo. It is not that we see a recovery in these companies fuelled by future
growth. Neither do we see them as being free from a range of risk factors.
Rather it is simply that we believe many of the risks to be discounted and that
a level of exposure to the potential returns is appropriate for the portfolio.
The major change in the structure of the portfolio has been the continued
increase in the number of Japanese holdings. The simple reason for this is that
as the year progressed more companies fell into our valuation range. Additions
to the portfolio included Bridgestone, the tyre company, which has been able to
raise prices consistently, Omron, the control equipment and automation
supplier, and Panasonic, the consumer electronics company formerly known as
Matsushita Electric Industries. Although these holdings did not provide much by
way of return during the year, their valuation suggests that we can expect
strong returns at some point in the future.
Japan has been a stock market where investors have been disappointed for some
considerable time. However, earnings growth has been strong for the past ten
years and the market valuation has now deflated to such a level that (on
Thomson Reuters Datastream numbers) it has a lower PE and higher yield than
that of the US. International investors can continue to ignore the potential
value in Japan for a while, but eventually the `weighing machine' will kick in.
The realisation of value in Japan may well be postponed by the recent
earthquake and subsequent tsunami. It is very early days but it appears that
the damage to the fabric of the economy was at the margin and there does not
yet appear any reason to significantly alter our long-term profits growth
expectations. The main concerns seem to revolve around nuclear power generation
and the potential for energy shortages and price rises in combination with the
Middle East tension. We will monitor these aspects very closely.
Major sales from the portfolio during 2010 were Swedbank and Franklin
Resources. Their share prices had appreciated strongly since purchase and we
considered both stocks to be fully valued.
We continue to believe that future returns will be lower than historic norms
but substantially ahead of what can be earned from bonds and cash. Again, it is
entirely likely that we will also see periodic setbacks which will create
opportunities for Shareholders. Finally, we have now in place a small amount of
gearing which we believe will enhance returns in the long-run.
Dr Sandy Nairn
Edinburgh Partners Limited
18 March 2011
PORTFOLIO OF INVESTMENTS
as at 31 December 2010
Company Sector Country Valuation % of
£'000 Net
Assets
Equity investments
20 largest equity
investments
Vodafone Telecommunications United 1,907 3.7
Kingdom
Gazprom Oil & Gas Russia 1,820 3.5
Samsung Electronics Technology South Korea 1,694 3.3
Yamaha Motor Company Consumer Goods Japan 1,673 3.2
Cisco Systems Technology United States 1,559 3.0
Applied Materials Technology United States 1,543 3.0
Sony Consumer Goods Japan 1,512 2.9
Edinburgh Partners Financials (unlisted) United 1,500 2.9
Limited Kingdom
Fujitsu Technology Japan 1,499 2.9
Royal Dutch Shell Oil & Gas United 1,472 2.9
Kingdom
Mitsubishi Industrials Japan 1,471 2.9
Nokia Technology Finland 1,458 2.8
Time Warner Cable Media United States 1,434 2.8
Taisei Industrials Japan 1,408 2.7
Mizuho Financials Japan 1,388 2.7
D.R. Horton Consumer Goods United States 1,379 2.7
Singapore Telecommunications Singapore 1,359 2.6
Telecommunications
Omron Industrials Japan 1,351 2.6
Deutsche Post Industrials Germany 1,345 2.6
Bridgestone Consumer Goods Japan 1,313 2.5
Total - 20 largest equity 30,085 58.2
investments
Other equity investments
Tesco Consumer Services United 1,312 2.5
Kingdom
ENI Oil & Gas Italy 1,297 2.5
Petrobras Oil & Gas Brazil 1,286 2.5
Novartis Health Care Switzerland 1,284 2.5
GlaxoSmithKline Health Care United 1,278 2.5
Kingdom
Sanofi-aventis Health Care France 1,275 2.5
Panasonic Consumer Goods Japan 1,275 2.5
Aviva Financials United 1,250 2.4
Kingdom
HSBC Financials United 1,224 2.4
Kingdom
Bank of America Financials United States 1,201 2.3
Yara International Basic Materials Norway 1,150 2.2
SK Telecom Telecommunications South Korea 1,129 2.2
China Mobile Telecommunications China 1,127 2.2
Telecom Italia Telecommunications Italy 1,126 2.2
UBS Financials Switzerland 1,098 2.1
Intesa Sanpaolo Financials Italy 975 1.9
Symantec Technology United States 973 1.9
Intel Technology United States 967 1.9
Total - 38 equity 51,312 99.4
investments
Cash and other net assets 308 0.6
Net assets 51,620 100.0
The geographic distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
Of the ten largest portfolio investments as at 31 December 2010, the valuations
at the previous year end, 31 December 2009, were Vodafone £1,653,000; Gazprom
£1,784,000; Samsung Electronics £1,347,000; Yamaha Motor Company £1,246,000;
Cisco Systems £2,046,000; Applied Materials £1,166,000; Sony £1,618,000;
Edinburgh Partners Limited £1,200,000 and Fujitsu £1,334,000. Royal Dutch Shell
was a new purchase during the year ended 31 December 2010.
DISTRIBUTION OF INVESTMENTS
as at 31 December 2010 (% of net assets)
Sector distribution % of net
assets
Technology 18.8
Financials 13.8
Consumer Goods 13.8
Telecommunications 12.9
Oil & Gas 11.4
Industrials 10.8
Health Care 7.5
Financials (unlisted) 2.9
Media 2.8
Consumer Services 2.5
Basic Materials 2.2
Cash and other net assets* 0.6
100.0
Geographical distribution % of net
assets
Japan 24.9
Europe 24.8
United Kingdom 19.3
United States 17.6
Asia Pacific 10.3
Latin America 2.5
Cash and other net assets* 0.6
100.0
*Cash and other net assets includes foreign currency balances of £17,000
(0.03%).
The figures detailed in the geographical distribution above represent the
Company's equity exposure to these countries or regional areas.
The geographic distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
BUSINESS REVIEW
Status of Company
The Company is registered as a public limited company and is an investment
company within the terms of section 833 of the Companies Act 2006. Its shares
are listed on the premium segment of the Official List of the UK Listing
Authority and traded on the main market of the London Stock Exchange. The
Company has received approval from HM Revenue & Customs as an authorised
investment trust under section 842 of the Income and Corporation Taxes Act 1988
for the period from inception to 31 December 2009. This approval is subject to
there being no subsequent enquiry under corporation tax self-assessment. In the
opinion of the Directors, the Company has subsequently directed its affairs so
as to enable it to continue to qualify for such approval and the Company will
continue to seek approval each year. With effect from the year ended 31
December 2010, approval will be sought under sections 1158 and 1159 of the
Corporation Tax Act 2010.
Activities
The principal activity of the Company is to carry on business as an investment
trust.
A review of the Company's activities during the year is given in the Chairman's
Statement and in the Manager's Report and Portfolio Analysis.
Net asset valuation
The net asset value per ordinary share ("NAV") at 31 December 2010 was 188.2p
(2009: 175.9p).
Results
The results for the year are set out in the Income Statement and the
Reconciliation of Movements in Shareholders' Funds below.
Dividends
The Directors have declared the payment of an interim dividend of 2.8p per
ordinary share (2009: interim dividend of 2.4p). This dividend is payable on 18
March 2011 to Shareholders on the register at the close of business on 4 March
2011. The ex-dividend date was 2 March 2011. No final dividend has been
recommended.
Objective
The investment objective of the Company is to provide Shareholders with an
attractive real long-term total return by investing globally in undervalued
securities. The portfolio is managed without reference to the composition of
any stock market index.
Investment policy
The Company invests in a focused portfolio of approximately 30 to 40 securities
of issuers throughout the world, predominantly in quoted equities. The Company
may also invest in unquoted securities, which are not anticipated to exceed 10
per cent of the Company's total assets at the time of investment (excluding
shares held in Edinburgh Partners). No investment in the Company's portfolio
may exceed 15 per cent of the Company's total assets at the time of investment
(being the maximum amount permitted for an investment trust company in terms of
Chapter 4 of Part 24 of the Corporation Tax Act 2010).
The Company has no present intention to invest in other investment companies or
funds but retains the ability to invest no more than 15 per cent of its gross
assets in other listed investment companies (including investment trusts).
The Company may also invest a substantial portion of its assets in debt
instruments, cash or cash equivalents when the Investment Manager believes
market or economic conditions make equity investment unattractive or while
seeking appropriate investment opportunities for the portfolio or to maintain
liquidity. In addition, the Company may purchase derivatives for the purposes
of efficient portfolio management.
It is intended that, from time to time, when deemed appropriate, the Company
will borrow for investment purposes up to the equivalent of 25 per cent of its
total assets. By contrast, the Company's portfolio may from time to time have
substantial holdings of debt instruments, cash or short-term deposits.
The investment objective and policy are intended to distinguish the Company
from other investment vehicles which have relatively narrow investment
objectives and which are thus constrained in their decision making and asset
allocation. The objective and policy allow the Company to be constrained in its
investment selection only by valuation and to be pragmatic in portfolio
construction by only investing in securities which the Investment Manager
considers to be undervalued on an absolute basis.
Investment strategy
The Company's portfolio is managed without reference to any stock market index.
Investments are selected for the portfolio only after extensive research by the
Investment Manager. The process through which an equity must pass in order to
be included in the portfolio is rigorous. Only a security where the Investment
Manager believes that the price will be significantly higher in the future will
pass the selection process. The key to successful stock selection is to
identify the long-term value of a company's shares and to have the patience to
hold the shares until that value is appreciated by other investors. Identifying
long-term value involves detailed analysis of a company's earning prospects
over a five year time horizon. Further details of the investment strategy can
be found in the Chairman's Statement and the Manager's Report and Portfolio
Analysis.
The Company's Investment Manager is Edinburgh Partners which is an independent
specialist investment manager focusing exclusively on achieving returns for
investors based on global investment analysis of the highest quality. The
Edinburgh Partners investment team includes experienced investment
professionals with strong investment performance records who believe rigorous
fundamental research allied to patience is the basis of long-term investment
success. Each of the investment professionals has specific responsibilities for
sector and regional research in addition to their fund management role.
Principal risks
The Board considers that the following are the principal risks associated with
investing in the Company: investment and strategy, discount volatility, market
risk, liquidity risk, credit risk, interest rate risk, foreign currency risk,
gearing, regulatory risk, operational risk and financial risk. An explanation
of these risks and how they are managed and the policy and practice with
regards to financial instruments are contained in note 18.
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objective. The Key Performance
Indicators used to measure progress and performance of the Company over time
are established industry measures and are as follows:
- Net asset value per ordinary share
- Share price
- Share price discount/premium to net asset value per ordinary share
- Revenue return per ordinary share
- Total expense ratio
The Financial Summary above provides information for the years ended 31
December 2010 and 31 December 2009 on the Key Performance Indicators noted
above.
Current and future developments
A review of the main features of the year ended 31 December 2010 and the
outlook for the coming year can be found in the Chairman's Statement and the
Manager's Report and Portfolio Analysis. The Board's main focus is on the
investment return and approach. Attention is paid to the integrity and success
of the investment approach and on factors which may have an impact on this
approach. Due regard is paid to the promotion of the Company including
communication with Shareholders and other external parties. The Board is
regularly updated on wider investment trust industry issues. Detailed papers
are presented to the Board which lead to extensive discussion on development
and strategy.
On 10 March 2011 a merger of the assets of the Company and Anglo & Overseas was
implemented following Shareholder approval. Further information regarding the
merger can be found in the Chairman's Statement and in note 21: Post balance
sheet events.
Gearing
The Company did not have any gearing as at 31 December 2010. The Company
entered into a £5,000,000 secured multicurrency revolving credit facility on 14
January 2011, as detailed in note 21.
The use of gearing can cause both gains and losses in the net asset value of
the Company to be magnified, as explained more fully in note 18.
Social, environmental and ethical policy
EP Global Opportunities Trust plc seeks to invest in companies that are well
managed, with high standards of corporate governance. The Directors believe
this creates the proper conditions to enhance long-term value for Shareholders.
In aiming to achieve a high level of corporate performance the Company adopts a
positive approach to corporate governance and engagement with companies.
In pursuit of the above objective, the Directors believe that proxy voting is
an important part of the corporate governance process and considers seriously
its obligation to manage the voting rights of companies in which is invested,
for which it has delegated responsibility to its Investment Manager. It is the
policy of the Company to vote, as far as it is practicable, at all shareholder
meetings of investee companies. The Company follows the relevant applicable
regulatory and legislative requirements in the UK, with the guiding principles
being to make proxy voting decisions which favour proposals that will lead to
maximising Shareholder value while avoiding any conflicts of interest. Voting
decisions are taken on a case by case basis, with the key issues on which the
Investment Manager focuses being corporate governance, including disclosure and
transparency, board composition and independence, control structures,
remuneration and social and environmental issues.
The Company itself has no employees and all the Directors are non-executive.
The day-to-day management of the Company's business has been delegated to the
Company's Investment Manager, Edinburgh Partners, which has an Environmental,
SRI and Corporate Governance ("ESG") policy in place, which can be found on
their website at www.edinburghpartners.com.
Share capital
At the year end the Company's issued share capital comprised 32,654,180
ordinary shares of which 5,223,700 ordinary shares were held in treasury. At
general meetings of the Company, one vote is attached to each ordinary share in
issue. Own shares held in treasury do not carry voting rights. The total voting
rights of the Company at 31 December 2010 were 27,430,480 ordinary shares.
There are no restrictions on the transfer of the Company's ordinary shares or
special rights attached to these shares regarding control.
During the year ended 31 December 2010 the Company purchased in the market
1,393,700 ordinary shares (with a nominal value of £13,937) for treasury, at a
total cost of £2,419,000. This represented 4.27 per cent of the issued share
capital at 31 December 2009.
The total number of own shares held in treasury as at 31 December 2010,
including those shares bought back in prior accounting periods, totalled
5,223,700 ordinary shares. The Board has not set a limit on the number of
shares that can be held in treasury at any one time. The maximum number of own
shares held in treasury during the year was 5,223,700 ordinary shares (with a
nominal value of £52,237) representing 16.00 per cent of the issued share
capital at the time they were held in treasury.
Subsequent to the year end and up to the date of this report, a further 244,000
ordinary shares (with a nominal value of £2,440) have been purchased for
treasury representing 0.75 per cent of the issued share capital at 31 December
2010, at a total cost of £445,000.
On 17 March 2011 the Company sold 450,000 ordinary shares (with a nominal value
of £4,500) from treasury, representing 1.38 per cent of the issued share
capital at 31 December 2010, for a total consideration of £805,500. The shares
were sold at a premium to the prevailing net asset value.
On 11 October 2005 the Company applied for a block listing of 1,300,000
ordinary shares. As at 31 December 2010 and at the date of this report a
balance of 745,830 shares may be issued under this block listing.
The Company made no share issues during the year ended 31 December 2010. After
the year end, on 10 March 2011, 31,855,462 new ordinary shares were allotted
(with a nominal value of £318,555) to Shareholders in Anglo & Overseas who
elected or were deemed to elect to roll over their shareholdings in Anglo &
Overseas into shares in the Company under the scheme of reconstruction and
voluntary winding up of Anglo & Overseas. The price at which these new ordinary
shares are treated as being issued is 186.29p per share. The Company received
assets comprising of investments in shares of publicly quoted companies
worldwide and cash as consideration for the issue of the new ordinary shares.
Sale of shares from treasury
The Company will only sell shares from treasury at a price at or above the
prevailing net asset value per share. Holding shares in treasury enables a
company to issue shares cost effectively that might otherwise have been
cancelled.
The Company made no sales from treasury during the year ended 31 December 2010.
Subsequent to the year end the Company sold 450,000 ordinary shares from
treasury, as detailed above.
Cancellation of share premium
As part of the resolutions required to approve the merger with Anglo &
Overseas, Shareholders approved the cancellation of the Company's share premium
account. This requires the approval of the Court in order to take effect and
once obtained will increase the Company's special reserve which can be used to
fund purchases of the Company's own shares for treasury or for cancellation.
The full Annual Report contains the following statements regarding
responsibility for the financial statements and management report/ business
review included therein (references in the following statements are to pages in
the Annual Report).
MANAGEMENT REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO
THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
Management report
Listed companies are required by the FSA's Disclosure and Transparency Rules
(the "Rules") to include a management report within their annual report and
financial statements.
The information required to be included in the management report for the
purpose of these Rules is included in the Chairman's Statement, the Manager's
Report and Portfolio Analysis and the Business Review contained in the
Directors' Report. Therefore no separate management report has been included.
Statement of Directors' responsibilities in relation to the Annual Report and
Financial Statements
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 period. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent; and
- state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
The Directors, to the best of their knowledge, state that;
- the financial statements, prepared in accordance with UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit of the Company; and
- the Chairman's Statement, Manager's Report and Portfolio Analysis and the
Directors' Report include a fair review of the development and performance of
the business and the position of the Company together with a description of the
principal risks and uncertainties that it faces.
The Directors confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditors are unaware; and each
Director has taken all the steps that ought to have been taken as a Director to
make himself aware of any relevant audit information and to establish that the
Company's Auditors are aware of that information.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006 and include the information required by the Listing Rules of the FSA.
They have general responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Company and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Directors' Remuneration Report and Corporate
Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Teddy Tulloch
Chairman
18 March 2011
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2010 and 2009 but is derived
from those accounts. Statutory accounts for 2009 have been delivered to the
Registrar of Companies, and those for 2010 will be delivered in due course. The
Auditors have reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the Auditors drew
attention by way of emphasis without qualifying their report and (ii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The
text of the Auditors' report can be found in the Company's full Annual Report
and Accounts at www.epgot.com.
INCOME STATEMENT
for the year ended 31 December 2010
2010 2009
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains on 8 - 3,149 3,149 - 7,616 7,616
investments at
fair value
Foreign exchange - (35) (35) - (226) (226)
losses on capital
items
Income 2 1,635 - 1,635 1,382 - 1,382
Investment 3 (365) - (365) (323) - (323)
management fee
Refund of VAT - - - 126 - 126
paid on
investment
management and
administration
fees
Other expenses 4 (276) - (276) (248) - (248)
Net return before 994 3,114 4,108 937 7,390 8,327
finance costs and
taxation
Finance costs
Interest payable - - - (1) - (1)
and similar
charges
Net return before 994 3,114 4,108 936 7,390 8,326
taxation
Taxation 5 (100) - (100) (131) - (131)
Net return after 894 3,114 4,008 805 7,390 8,195
taxation
pence pence pence pence pence pence
Return per 7 3.2 11.0 14.2 2.7 24.7 27.4
ordinary share
All revenue and capital items in the above statement derive from continuing
operations.
The total column of this statement is the profit and loss account of the
Company. The revenue and capital return columns are prepared under guidance
published by the Association of Investment Companies ("AIC").
A separate Statement of Total Recognised Gains and Losses has not been prepared
as all such gains and losses are included in the Income Statement.
Dividend Information
An interim dividend, instead of a final dividend, for the year of 2.8p per
ordinary share (2009: 2.4p) has been declared. This dividend is payable on 18
March 2011 to Shareholders on the register at the close of business on 4 March
2011. The ex-dividend date was 2 March 2011. Based on 27,186,480 ordinary
shares, being the number of ordinary shares in issue (excluding shares held in
treasury) on 2 March 2011, the total dividend payment will amount to £761,000.
In accordance with FRS 21, dividends are accounted for in the period in which
they are paid. Further information on dividend distributions can be found in
note 6.
The notes form part of these financial statements.
BALANCE SHEET
as at 31 December 2010
2010 2009
Note £'000 £'000
Fixed asset investments:
Investments at fair value through 8 51,312 49,254
profit or loss
Current assets:
Debtors 10 193 1,340
Cash at bank and short-term deposits 350 1,186
543 2,526
Creditors: amounts falling due within 11 235 1,068
one year
Net current assets 308 1,458
Net assets 51,620 50,712
Capital and reserves:
Called-up share capital 12 327 327
Capital redemption reserve 14 14
Share premium account 17,991 17,991
Special reserve 10,486 12,905
Capital reserve 21,205 18,091
Revenue reserve 1,597 1,384
Total Shareholders' funds 51,620 50,712
pence pence
Net asset value per ordinary share 14 188.2 175.9
These financial statements were approved and authorised for issue by the Board
of Directors on 18 March 2011 and were signed on its behalf by:
Teddy Tulloch
Chairman
Registered in Scotland No. 259207
The notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2010
Share Capital Share Special Capital Revenue Total
capital redemption premium reserve reserve reserve
reserve account
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Year ended
31 December 2010
At 31 December 327 14 17,991 12,905 18,091 1,384 50,712
2009
Net return after - - - - 3,114 894 4,008
taxation for the
year
Dividends paid - - - - - (681) (681)
Share purchases - - - (2,419) - - (2,419)
for treasury
At 31 December 327 14 17,991 10,486 21,205 1,597 51,620
2010
Year ended
31 December 2009
At 31 December 340 1 17,991 15,795 10,701 1,525 46,353
2008
Net return after - - - - 7,390 805 8,195
taxation for the
year
Dividends paid - - - - - (946) (946)
Share purchases (13) 13 - (1,667) - - (1,667)
for cancellation
Share purchases - - - (1,223) - - (1,223)
for treasury
At 31 December 327 14 17,991 12,905 18,091 1,384 50,712
2009
The notes form part of these financial statements
CASH FLOW STATEMENT
for the year ended 31 December 2010
2010 2009
Note £'000 £'000
Operating activities:
Investment income received 1,601 1,388
Bank deposit interest received - 1
Refund of VAT, including interest, on 138 -
investment management and administration
fees
Investment management fees paid (361) (307)
Secretarial fees paid (71) (70)
Other cash payments (125) (199)
Net cash inflow from operating activities 15 1,182 813
Servicing of finance - (1)
Taxation (70) (188)
Capital expenditure and financial
investment:
Purchases of investments (12,957) (18,371)
Sales of investments 14,126 20,349
Exchange losses on settlement (40) (100)
Net cash inflow from investing activities 1,129 1,878
Net cash inflow before equity dividend 2,241 2,502
and financing
Equity dividend paid 6 (681) (946)
Financing:
Ordinary shares purchased and held in (2,419) (1,223)
treasury
Ordinary shares purchased and cancelled - (1,667)
Net cash outflow from financing (2,419) (2,890)
Decrease in cash 16 (859) (1,334)
The notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2010
1. Accounting policies
Accounting convention
The financial statements are prepared on a going concern basis, under the
historical cost convention (modified to include fixed asset investments at fair
value), in accordance with the Companies Act 2006, UK Generally Accepted
Accounting Practice ("UK GAAP") and with the AIC Statement of Recommended
Practice issued in January 2009 relating to the Financial Statements of
Investment Trust Companies and Venture Capital Trusts. All of the Company's
activities are continuing.
Income recognition
Dividend and other investment income is included as revenue on the ex-dividend
date. Deposit interest and underwriting commission receivable is included on an
accruals basis.
Dividends are accounted for in accordance with Financial Reporting Standard No.
16: Current Taxation on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from
overseas companies are shown gross of withholding tax.
Management expenses and finance costs
All expenses are accounted for on an accruals basis. All operating expenses are
charged through the revenue account in the Income Statement except costs that
are incidental to the acquisition or disposal of investments, which are charged
to the capital account in the Income Statement. Transaction costs are included
within the gains and losses on investment sales, as disclosed in the Income
Statement.
Investments
All investments held by the Company are classified as `fair value through
profit or loss'. Investments are initially recognised at cost, being the fair
value of the consideration given.
After initial recognition, investments are measured at fair value, with changes
in the fair value of investments and impairment of investments recognised in
the Income Statement and allocated to capital. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the Balance Sheet date, without adjustment for
transaction costs necessary to realise the asset. Unlisted investments will be
valued by the Directors at fair value, using the guidelines on valuation
published by the International Private Equity and Venture Capital Association.
This represents the Directors' view of the amount for which an asset could be
exchanged between knowledgeable willing parties in an arm's length transaction.
This does not assume that the underlying business is saleable at the reporting
date or that its current shareholders have any intention to sell their holding
in the near future.
Foreign currency
The functional and reporting currency of the Company is sterling because that
is the currency of the primary economic environment in which the Company
operates.
Transactions denominated in foreign currencies are converted to sterling at the
actual exchange rate as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at
the rate of exchange at the Balance Sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of the transaction is included
as an exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is of a capital or revenue nature.
Taxation
The charge for taxation is based on the net revenue for the year and takes into
account taxation deferred or accelerated because of timing differences between
the treatment of certain items for accounting and taxation purposes. Full
provision for deferred taxation is made under the liability method, without
discounting, on all timing differences that have arisen but not been reversed
by the Balance Sheet date, unless such provision is not permitted by Financial
Reporting Standard No. 19: "Deferred Tax". This is subject to deferred tax
assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the underlying
timing differences can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the
financial statements which are capable of reversal in one or more subsequent
periods.
Dividends payable to Shareholders
Under Financial Reporting Standard No. 21: "Events after the Balance Sheet
Date", final dividends are recognised as a liability in the period in which
they have been approved by shareholders in a general meeting. Interim dividends
are recognised as a liability in the period in which they have been declared
and paid.
2. Income
2010 2009
£'000 £'000
Income frominvestments:
UK net dividend income 486 322
Overseas dividends 1,147 1,041
Interest on liquidity funds 2 7
1,635 1,370
Other income:
Interest on VAT refund on investment - 12
management and administration fees
1,635 1,382
Total income comprises:
Dividends 1,635 1,370
Interest - 12
1,635 1,382
3. Investment management fee
2010 2009
£'000 £'000
Investment management fee 365 323
The investment management fee is paid quarterly in arrears, at the rate of 0.75
per cent per annum of the market capitalisation of the issued ordinary shares
(excluding treasury shares) of the Company. At 31 December 2010 there was £
93,000 outstanding (2009: £89,000).
In addition, the Investment Manager received an administration fee of £72,000
as detailed in note 4 (2009: £70,000). At 31 December 2010 there was £18,000
outstanding (2009: £17,000).
4. Other expenses
2010 2009
£'000 £'000
Administration and secretarial fees 72 70
Auditors' remuneration for:
Audit 18 18
Directors' remuneration 56 56
Other 130 104
276 248
5. Taxation
a) Analysis of charge 2010 2009
in year
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current tax:
UK Corporation Tax - - - 108 - 108
Overseas tax suffered 100 - 100 118 - 118
Double taxation relief - - - (95) - (95)
100 - 100 131 - 131
b) The current taxation charge for the year ended 31 December 2010 is lower
than the standard rate of Corporation Tax in the UK of 28 per cent (2009: 28
per cent). The differences are explained below:
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before 994 3,114 4,108 936 7,390 8,326
taxation
Theoretical tax at UK 278 872 1,150 262 2,069 2,331
Corporation Tax rate of
28% (2009: 28%)
Effects of:
- UK dividends that are (136) - (136) (90) - (90)
not taxable
- Foreign dividends (257) - (257) (70) - (70)
that are not taxable
- Accrued income - - - 11 - 11
taxable on receipt
- Accrued income exempt (7) - (7) - - -
on receipt
- Non-taxable - (872) (872) - (2,069) (2,069)
investment gains
- Unrelieved excess 122 - 122 - - -
expenses
- Marginal relief - - - (3) - (3)
adjustment
- Overseas tax suffered 100 - 100 118 - 118
- Overcharge relating - - - (2) - (2)
to prior period
- Double taxation - - - (95) - (95)
relief
100 - 100 131 - 131
At 31 December 2010 the Company had unrelieved management expenses of £435,000
(31 December 2009: £nil). It is unlikely, that the Company will generate
sufficient taxable income in the future to use these expenses to reduce future
tax charges and therefore no deferred tax asset has been recognised.
In addition due to the Company's status as an investment trust and the
intention to continue meeting the conditions required to obtain approval as an
investment trust in the foreseeable future, the Company has not provided
deferred tax on any capital gains and losses arising on the revaluation or
disposal of investments.
6. Dividends
2010 2009
Declared and paid £'000 £'000
2009 interim dividend of 2.4p per ordinary share paid
in March 2010
(2008: final dividend of 3.1p paid in May 2009) 681 946
681 946
Net revenue return after taxation 894 805
Declared
2010 interim dividend of 2.8p (2009: interim dividend 761 681
of 2.4p) per ordinary share
761 681
An interim dividend, instead of a final dividend, for the year of 2.8p per
ordinary share (2009: interim dividend of 2.4p) has been declared. This
dividend is payable on 18 March 2011 to Shareholders on the register at the
close of business on 4 March 2011. The ex-dividend date was 2 March 2011. Based
on 27,186,480 ordinary shares, being the number of ordinary shares in issue
(excluding shares held in treasury) at 2 March 2011, the total dividend payment
will amount to £761,000.
7. Return per ordinary share
2010 2009
Net Ordinary Per Net Ordinary Per
return shares* share return shares* share
£'000 pence £'000 pence
Revenue return after 894 28,149,994 3.2 805 29,872,821 2.7
taxation
Capital return after 3,114 28,149,994 11.0 7,390 29,872,821 24.7
taxation
Total return 4,008 28,149,994 14.2 8,195 29,872,821 27.4
* Weighted average number of ordinary shares, excluding shares held in
treasury, in issue during the year.
8. Investments
2010 2009
£'000 £'000
Listed investments 49,812 48,054
Unlisted investments 1,500 1,200
51,312 49,254
2010 2009
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of investment portfolio
movements
Opening book cost 214 46,035 46,249 50,777
Opening investment holding gains/ 986 2,019 3,005 (6,842)
(losses)
Opening valuation 1,200 48,054 49,254 43,935
Movements in the year:
Purchases at cost - 12,056 12,056 19,045
Sales - proceeds - (13,147) (13,147) (21,342)
- realised gains/(losses) on sales - 2,805 2,805 (2,231)
Increase in investment holding gains 300 44 344 9,847
Closing valuation 1,500 49,812 51,312 49,254
Closing book cost 214 47,749 47,963 46,249
Closing investment holding gains 1,286 2,063 3,349 3,005
Closing valuation 1,500 49,812 51,312 49,254
2010 2009
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of capital gains and losses
Realised gains/(losses) on sales - 2,805 2,805 (2,231)
Increase in investment holding gains 300 44 344 9,847
Gains on investments 300 2,849 3,149 7,616
The unlisted investment is the 71,294 shares in Edinburgh Partners as disclosed
in the Chairman's Statement.
Fair value hierarchy
In accordance with Financial Reporting Standard No. 29: "Financial Instruments:
Disclosures", the Company must disclose the fair value hierarchy of financial
instruments.
All of the Company's financial instruments fall into level 1, being valued at
quoted prices in active markets, except its investment in Edinburgh Partners
which falls into level 3 and is valued using an unquoted price that is derived
from inputs that are not based on observable market data. A reconciliation of
the fair value movements of level 3 investments is shown in the unlisted column
of the table above.
Transaction costs
During the year the Company incurred transaction costs of £28,000 (2009:
£35,000) and £16,000 (2009: £36,000) on purchases and sales of investments
respectively. These amounts are included in gains on investments at fair value,
as disclosed in the Income Statement.
9. Significant holdings
The Company had no holdings of 3 per cent or more of the share capital of any
portfolio companies.
10. Debtors
2010 2009
£'000 £'000
Due from brokers - 997
Dividends receivable 104 71
Prepayments and accrued income 10 21
Taxation recoverable 79 125
VAT refund on investment management and - 126
administration fees
193 1,340
11. Creditors: amounts falling due within one year
2010 2009
£'000 £'000
Due to brokers - 901
Other creditors and accruals 235 152
Corporation Tax - 15
235 1,068
12. Share capital
2010 2009
£'000 £'000
Allotted, called up and fully paid:
32,654,180 (2009: 32,654,180) ordinary shares of 1p each
(includes 5,223,700 (2009: 3,830,000) shares held in 327 327
treasury. See notes 13 and 14)
Duration of the Company
The Company does not have a termination date or the requirement for any
periodic continuation votes.
13. Own shares held in treasury
As set out in the Business Review, from time to time the Company buys back
shares and holds them in treasury for re-issue at a later date. In accordance
with Financial Reporting Standard No. 25, the consideration paid for these
shares held in treasury is presented as a deduction in Shareholders' funds and,
in accordance with the AIC Statement of Recommended Practice issued in January
2009, has been allocated to the special reserve. Details of own shares held in
treasury and the total cost deducted from Shareholders' funds are shown below:
Number of 2010 Number of 2009
shares £'000 shares £'000
At 1 January 3,830,000 5,934 3,174,000 4,711
Shares purchased for treasury 1,393,700 2,419 782,000 1,223
Shares cancelled from treasury - - (126,000) -
At 31 December 5,223,700 8,353 3,830,000 5,934
Nominal value of own shares held in 52 38
treasury
14. Net asset value per share
The net asset value per share, calculated in accordance with the Articles of
Association, is as follows:
2010 2009
pence pence
Ordinary share 188.2 175.9
The net asset value per ordinary share is based on net assets of £51,620,000
(2009: £50,712,000) and on 27,430,480 (2009: 28,824,180) ordinary shares, being
the number of ordinary shares, excluding shares held in treasury, in issue at
the year end.
15. Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
2010 2009
£'000 £'000
Net return before finance costs and taxation 4,108 8,327
Net gains on capital items (3,114) (7,390)
Increase/(decrease) in creditors 83 (2)
Decrease/(increase) in debtors and accrued income 105 (122)
Net cash inflow from operating activities 1,182 813
16. Reconciliation of net cash flow to movement in net funds
2010 2009
£'000 £'000
Decrease in cash for the year (859) (1,334)
Realised exchange gains/(losses) 23 (130)
(836) (1,464)
Net funds at 1 January 1,186 2,650
Net funds at 31 December 350 1,186
At At
1 January Cash Exchange 31 December
2010 Flows Gains 2010
£'000 £'000 £'000 £'000
Cash at bank 1,186 (859) 23 350
1,186 (859) 23 350
At At
1 January Cash Exchange 31 December
2009 Flows Losses 2009
£'000 £'000 £'000 £'000
Cash at bank 2,734 (1,418) (130) 1,186
Bank overdraft (84) 84 - -
2,650 (1,334) (130) 1,186
17. Analysis of financial assets and liabilities
Interest rate and currency profile
The interest rate and currency profile of the Company's financial assets and
liabilities were:
2010 2009
Cash Cash
No flow No flow
interest interest interest interest
rate rate risk rate rate risk
Total exposure exposure Total exposure exposure
£'000 £'000 £'000 £'000 £'000 £'000
Equity shares
US dollar 13,291 13,291 - 16,015 16,015 -
Japanese yen 12,890 12,890 - 6,441 6,441 -
Sterling 11,240 11,240 - 6,963 6,963 -
Euro 6,179 6,179 - 10,880 10,880 -
Swiss franc 2,382 2,382 - 2,423 2,423 -
South Korean won 1,694 1,694 - 1,347 1,347 -
Singapore dollar 1,359 1,359 - - - -
Norwegian krone 1,150 1,150 - 1,499 1,499 -
Hong Kong dollar 1,127 1,127 - 1,035 1,035 -
Swedish krona - - - 1,532 1,532 -
Danish krone - - - 1,119 1,119 -
Cash at bank and
short-term
deposits
Sterling 333 - 333 792 - 792
US dollar 17 - 17 76 - 76
Japanese yen - - - 318 - 318
Debtors
Sterling 69 69 - 203 203 -
Euro 46 46 - 38 38 -
Singapore dollar 30 30 - - - -
Swiss franc 29 29 - 40 40 -
Japanese yen 8 8 - - - -
US dollar 7 7 - 57 57 -
Norwegian krone 4 4 - - - -
Hong Kong dollar - - - 997 997 -
Danish krone - - - 5 5 -
Short-term
creditors
Sterling (235) (235) - (167) (167) -
Japanese yen - - - (901) (901) -
51,620 51,270 350 50,712 49,526 1,186
At 31 December 2010 the Company had no financial liabilities other than
short-term creditors (2009: £nil). All financial assets and liabilities of the
Company are held at fair value.
18. Risk analysis
Risks
The principal risks the Company faces are:
- Investment and strategy
- Discount volatility
- Market price risk
- Liquidity risk
- Credit risk
- Interest rate risk
- Foreign currency risk
- Gearing
- Regulatory risk
- Operational risk
- Financial risk
The Investment Manager monitors the financial risks affecting the Company on an
ongoing basis within the policies and guidelines determined by the Board. The
Directors receive financial information, which is used to identify and monitor
risk, quarterly. The Company may enter into derivative contracts to manage risk
but has not done so to date. A description of the principal risks the Company
faces is detailed below.
Investment and strategy
There can be no guarantee that the objective of the Company will be achieved.
The Investment Manager meets regularly with the Board to discuss the portfolio
performance and strategy. The Board receives quarterly reports from the
Investment Manager detailing all portfolio transactions and any other
significant changes in the market or stock outlooks.
Discount volatility
The Board recognises that it is in the long-term interests of Shareholders to
reduce discount volatility and believes that the prime driver of discounts over
the longer term is investment performance. The Company is permitted to employ
gearing, a process whereby funds are borrowed principally for the purpose of
purchasing securities should the Board feel that it is appropriate to do so.
The use of gearing can magnify discount volatility.
The Board actively monitors the discount at which the Company's shares trade,
and is committed to using its powers to allot or repurchase the Company's
ordinary shares with a view to maintaining the middle market price at which the
shares trade at close to the net asset value most recently published by the
Company (taking into account the effect on the net asset value per share of any
rights to which the shares are trading ex-dividend).
The Board's commitment to allot or repurchase ordinary shares is subject to it
being satisfied that any offer to allot or purchase shares is in the best
interests of Shareholders of the Company as a whole, the Board having the
requisite authority pursuant to the Articles of Association and relevant
legislation to allot or purchase shares, and all other applicable legislative
and regulatory provisions.
During the year ended 31 December 2010 the Company bought back 1,393,700 (2009:
782,000) ordinary shares into treasury, and nil (2009: 1,218,000) ordinary
shares were bought back for cancellation. In addition nil (2009: 126,000)
ordinary shares previously held in treasury were cancelled.
During the year ended 31 December 2010 the Company issued nil (2009: nil)
ordinary shares and sold nil (2009: nil) ordinary shares from treasury.
Market risk
The Company is exposed to market risk due to fluctuations in the market prices
of its investments. Market price risk arises mainly from uncertainty about
future prices of financial instruments used in the Company's business. It
represents the potential loss the Company might suffer through holding market
positions in the face of price movements. The Investment Manager monitors the
prices of financial instruments held by the Company on an ongoing basis.
The Investment Manager actively monitors market and economic data and reports
to the Board, which considers investment policy on a regular basis. The net
asset value per share of the Company is issued daily to the London Stock
Exchange and is also available on the Company's website www.epgot.com.
Details of the Company's investment portfolio as at 31 December 2010 are
disclosed above.
If the investment portfolio valuation fell by 1 per cent from the amount
detailed in the financial statements as at 31 December 2010 it would have the
effect, with all other variables held constant, of reducing the net capital
return before taxation by £513,000 (2009: £493,000). An increase of 1 per cent
in the investment portfolio valuation would have an equal and opposite effect
on the net capital return before taxation.
Liquidity risk
The Company's policy with regard to liquidity is to ensure continuity of
funding. Short-term flexibility is achieved through cash management.
The Company's assets comprise mainly of readily realisable securities which can
be sold freely to meet funding requirements if necessary. Securities listed on
a recognised stock exchange have been valued at bid prices and exchange rates
ruling at the close of business on 31 December 2010. In certain circumstances,
the market prices at which investments are valued may not represent the
realisable value of those investments, taking into account both the size of the
Company's holding and the frequency with which such investments are traded.
Credit risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the Balance Sheet date. The Company's listed investments are held
on its behalf by The Bank of New York Mellon acting as the Company's custodian.
Bankruptcy or insolvency of the custodian may cause the Company's rights with
respect to securities held by the custodian to be delayed. The Board monitors
the Company's risk by reviewing the custodian's internal controls reports.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered on its obligations before any transfer of cash or
securities away from the Company is completed.
Cash is only held at banks and in money market funds that have been identified
by the Board as reputable and of high credit quality.
The maximum exposure to credit risk as at 31 December 2010 was £51,855,000
(2009: £51,780,000). The calculation is based on the Company's credit risk
exposure as at 31 December 2010 and this may not be representative of the year
as a whole.
None of the Company's assets are past due or impaired.
Interest rate risk
The Company's assets and liabilities, excluding short-term debtors and
creditors, may comprise financial instruments which include investments in
fixed interest securities.
Details of the Company's interest rate exposure as at 31 December 2010 are
disclosed in note 17 of these financial statements.
The majority of the Company's assets were non-interest bearing as at 31
December 2010. There was limited exposure to interest bearing liabilities
during the year ended 31 December 2010. Surplus cash is invested in liquidity
funds.
If interest rates had reduced by 0.25 per cent (2009: 0.25 per cent) from those
obtained as at 31 December 2010 it would have the effect, with all other
variables held constant, of reducing the net revenue return before taxation on
an annualised basis by £1,000 (2009: £3,000). If there had been an increase in
interest rates of 0.25 per cent (2009: 0.25 per cent) there would have been an
equal and opposite effect in the net revenue return before taxation. The
calculations are based on cash at bank and short-term deposits as at 31
December 2010 and these may not be representative of the year as a whole.
Foreign currency risk
The base currency of the Company is sterling. The international nature of the
Company's investment activities gives rise to a currency risk which is inherent
in the performance of its overseas investments. The Company's overseas income
is also subject to currency fluctuations.
It is not the Company's policy to hedge this risk on a continuous basis.
Details of the Company's foreign currency risk exposure as at 31 December 2010
are disclosed in note 17 above of these financial statements.
If sterling had strengthened by 1 per cent against all other currencies on 31
December 2010, with all other variables held constant, it would have the effect
of reducing the net capital return before taxation by £402,000 (2009: £
438,000). If sterling had weakened by 1 per cent against all other currencies
there would have been an equal and opposite effect on the net capital return
before taxation.
Gearing
Gearing is used to enhance long-term returns to Shareholders. The Company is
permitted to employ gearing should the Board feel it appropriate to do so up to
a maximum of 25 per cent of total assets. The Company did not have any gearing
as at 31 December 2010.
On 14 January 2011 the Company entered into a £5,000,000 secured multicurrency
revolving credit facility as detailed in note 21. The Company will pay interest
on any amounts drawn down under this facility and as such is exposed to
interest rate risk due to fluctuations in the prevailing market rates. The
principal financial covenants of the facility are that the adjusted asset
coverage shall not be less than 4:1 and net assets shall not fall below £25
million.
The use of gearing is likely to lead to volatility in the net asset value per
share, meaning that a relatively small movement either down or up in the value
of the Company's total investments may result in a magnified movement in the
same direction of the net asset value per share. The greater the level of
gearing, the greater the level of risk and likely fluctuation in the share
price.
Regulatory risk
Failure to qualify under the terms of Sections 1158 and 1159 of the Corporation
Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act
1988) may lead to EP Global Opportunities Trust plc being subject to capital
gains tax. A breach of the rules of the London Stock Exchange may result in
censure by the Financial Services Authority ("FSA") and/or the Company's
suspension from listing.
The Board has agreed service levels with the Secretary and Investment Manager
which include active and regular review of compliance with these requirements.
These checks are reviewed at each Board Meeting.
Operational risk
There are a number of operational risks associated with the fact that third
parties undertake the Company's administration and custody. The main risk is
that third parties may fail to ensure that statutory requirements such as
Companies Act and London Stock Exchange requirements are met.
The Board regularly receives and reviews management information on third
parties which the Secretary compiles. In addition, each of the third parties
provides a copy of its report on internal controls (SAS 70 or equivalent) to
the Board each year.
Financial risk
Inappropriate accounting policies or failure to comply with current or new
accounting standards may lead to a breach of regulations.
The Investment Manager employs independent administrators to prepare all
financial statements and meets with the independent auditors at least once a
year to discuss all financial matters including appropriate accounting polices.
The Company is a member of the AIC, a trade body intended to promote investment
trusts which also develops best practice for all of its members.
The Board undertakes an annual assessment and review of all the risks stated
above together with a review of any new risks which may have arisen during the
year. This risk is formalised within the Company's risk assessment matrix.
19. Capital management policies
The Company's objective is to provide Shareholders with an attractive real
long-term total return by investing globally in undervalued securities. The
portfolio is managed without reference to the comparison of any stock market
index. In pursuing this objective, the Board has a responsibility for ensuring
the Company's ability to continue as a going concern. This involves the ability
to: issue and buyback share capital within limits set by the Shareholders in
general meeting; borrow monies in the short and long-term; and pay dividends to
Shareholders out of current year revenue earnings as well as out of brought
forward revenue reserves.
The Company's capital comprises:
2010 2009
£'000 £'000
Called-up share capital 327 327
Capital redemption reserve 14 14
Share premium account 17,991 17,991
Special reserve 10,486 12,905
Capital reserve 21,205 18,091
Revenue reserve 1,597 1,384
Total Shareholders' funds 51,620 50,712
The Company's objectives for managing capital are the same as the previous year
and have been complied with throughout the year.
20. Transactions with the Investment Manager
Information with respect to transactions with the Investment Manager is
provided in note 3 of these financial statements and in the Directors' Report
in the Annual Report and Financial Statements.
21 Post balance sheet events
On 14 January 2011 the Company entered into a £5,000,000 secured multicurrency
revolving credit facility with Scotiabank Europe PLC. The facility is available
for one year and interest will be payable on amounts drawn down at the rate of
1.20 per cent above the British Bankers' Association Interest Settlement Rate
at the time of draw down (LIBOR). At the date of this report the equivalent of
£4,500,000 in Japanese yen and US dollars has been drawn down under this
facility.
On 4 February 2011 the Company announced that the Board had reached agreement
with Anglo & Overseas in respect of a merger between the two companies. Details
of the proposed merger were posted to Shareholders in February, with
Shareholder meetings taking place in March and approval was recommended by the
Board.
The merger has now received the approval of the Shareholders of both companies.
One member of the Anglo & Overseas Board, Mr Weaver, was appointed to the Board
on 10 March 2011 and a total of 31,855,462 new shares in EP Global
Opportunities Trust have been issued to Anglo & Overseas Shareholders who
elected to roll over their investment into the Company, increasing the net
assets of the Company by £59 million to £110 million.
Edinburgh Partners has agreed that, following the merger with Anglo & Overseas,
the investment management fee will be amended with effect from 1 April 2011 by
a one-off reduction of £236,000 paid by Anglo & Overseas and with effect from
10 March 2011 will be reduced from 0.75 per cent to 0.65 per cent per annum on
fees chargeable where the average market capitalisation exceeds £100 million.
Further details are contained in the Directors' Report in the Annual Report and
Financial Statements.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at The Bonham Hotel, 35
Drumsheugh Gardens, Edinburgh EH3 7RN on 28 April 2011, at 12.00 noon.
DIRECTORS
Teddy Tulloch (Chairman)
Richard Burns
David Hough
Ian McBean
Giles Weaver
INVESTMENT MANAGER
Edinburgh Partners Limited
12 Charlotte Square
Edinburgh EH2 4DJ
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: www.hemscott.com/nsm.do.
ENQUIRIES:
Sandy Nairn / Kenneth Greig - Edinburgh Partners Limited, telephone: 0131 270
3800
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
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