Annual Financial Report

RNS Number : 9384E

British Empire Trust PLC

09 November 2015

 



BRITISH EMPIRE TRUST PLC

(formerly British Empire Securities and General Trust plc)

Annual Financial Report for the year to 30 September 2015

A copy of the Company's Annual Report for the year ended 30 September 2015 will shortly be available to view and download from the Company's website, www.british-empire.co.uk. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Printed copies of the Annual Report will be sent to shareholders shortly. Additional copies may be obtained from the Corporate Secretary, Capita Company Secretarial Services Limited, on 01392 477500. 

The Annual General Meeting of the Company will be held on 17 December 2015 at 10.30am at 11 Cavendish Square, London, W1G 0AN.

The Directors have proposed the payment of a final dividend of 9.7p per Ordinary share which, if approved by shareholders at the forthcoming Annual General Meeting, will be payable on 6 January 2016 to shareholders whose names appear on the register at the close of business on 4 December 2015 (ex-dividend 3 December 2015).

The following text is copied from the Annual Report & Accounts:

Strategic Report / Company Performance

Financial Highlights

-     Net asset value ('NAV') per share on a total return basis decreased by 8.3%

-     Benchmark¹ index decreased by 5.6%

-     Total ordinary dividends increased to 11.7p - an increase of 11.4%

-     Share price total return decrease of 9.2%

Performance Summary

	30 September 2015	30 September 2014	% change
Net asset value per share (total return)			(8.31)
Share price total return			(9.23)
Indices
Morgan Stanley Capital International All Country World ex-US Index (£ adjusted total return)1	302.67	320.56	(5.58)
Morningstar Investment Trust Global Index2	147.35	142.10	3.69
Morgan Stanley Capital International All Country World Index (£ adjusted total return)	473.10	471.07	0.43
Earnings and Dividends
Revenue income	£20.93m	£19.97m3
Revenue earnings per share	11.75p	10.47p3
Capital earnings per share	(59.95)p	22.58p3
Total earnings per share	(48.20)p	33.05p3
Ordinary dividends per share	11.70p	10.50p
Discount
(difference between share price and net asset value)4	11.59%	10.28%
Ongoing Charges Ratio
Management, marketing and other expenses (as percentage of average shareholders' funds)	0.89%	0.90%
2015 Year's Highs/Lows	High	Low
Net asset value per share	622.93p	515.83p
Net asset value per share (debt at fair value)	619.78p	512.61p
Share price (mid market)	555.0p	446.0p

¹ The lead benchmark is the Morgan Stanley Capital International All Country World ex-US Index.

² The Morningstar Investment Trust Global Index (total return basis), formerly known as Fundamental Data Global Growth Investment Trust Index, is subject to revision and the figures are as at 20 October 2015.

³ The revenue return figures for 2014 include an amount of £1.76 million from the reserves of the subsidiary company, offsetting capital returns by the same amount. Revenue earnings per share at the overall group level were 9.29p. See notes to the financial statements for more information.

⁴As per guidelines issued by the Association of Investment Companies ('AIC'), the discount is calculated using the net asset value per share inclusive of accrued income and with the debt at fair value.

Buy-backs

During the year, the Company purchased 9,331,661 Ordinary Shares, all of which have been placed into treasury.

Strategic Report / Chairman's Statement

This report covers the period from 1 October 2014 to 30 September 2015. As in previous years, we have elected to include the Chairman's Statement within the Strategic Report in order to minimise duplication. In addition, we have announced two initiatives since the Company's year-end, which I shall report on first.

Investment Manager

Joe Bauernfreund became the portfolio manager of British Empire Trust ('BTEM') with effect from 1 October 2015, continuing the natural progression that has seen only three portfolio managers in the last 30 years. Joe joined BTEM's Investment Manager, Asset Value Investors ('AVI'), in 2002 and has been an influential member of the investment team assisting the previous portfolio manager, John Pennink. Over the past two years, Joe has taken on increasing responsibility for the portfolio composition as co-manager alongside John. Joe's  experience and expertise have demonstrated his ability to manage the investment strategy. The Directors and John have together decided that it is now appropriate that Joe should become the sole portfolio manager. Joe has succeeded John as Chief Investment Officer at AVI.

John, who was the portfolio manager from 2003 to September 2015, will remain as CEO and Chairman of AVI. The Board would like to thank John for his impressive contribution of a compounded total return of 10.2%¹ per annum to BTEM's investment portfolio. The Board is confident that Joe has the skills needed to navigate BTEM's investment portfolio successfully through the volatile and challenging equity markets that we face today. We see his appointment as a natural succession and are confident in his ability, supported by the team at AVI, to produce strong investment returns over the long term.

Joe will continue to utilise a bottom up, high conviction approach in the management of the fund, with stock selection driven by long-term company fundamentals. He will continue to invest in companies that are undervalued and characterised by low investor expectations with the belief that, over the long term, the market will recognise their fair value. John will continue to be involved in the investment process and his experience will be available to Joe in the future.

¹ (Source: Morningstar, 30 September 2002 to 30 September 2015)

Strategic Partnership for AVI

The second development is that AVI has entered into a strategic partnership with Goodhart Partners LLP (for further information see www.goodhartpartners.com). They will acquire a minority stake in AVI (subject to regulatory approval) and will provide resources to support its growth.

Goodhart is a private investment management organisation which has partnerships with a number of specialist investment management businesses. Goodhart has explored in detail the drivers of the past investment performance of AVI, compared it with other value-oriented managers and fully endorses AVI's investment strategy and process. We regard this as a very positive step in the further development of AVI.

Investment Performance

Over the accounting year, your Company's NAV total return per share declined by 8.3%, compared with 5.6% for the benchmark index. This overall return shows a steady rise in NAV in the first half of the accounting year and then a steeper decline in the second half. Performance suffered in the second half of the year amid the general market sell-off, with exposure to energy-related assets and the strength of the Pound reducing returns further.

The Board recognises that 'value investing' has been underperforming 'growth' for probably the longest period on record, with the quantum of such underperformance not having been seen since the dotcom bubble of the late 1990s. This created a significant headwind for returns.

In the light of this, your Board has continued to review and analyse AVI's investment performance and it is evident that BTEM has outperformed the MSCI World ex-US Value Index since the financial crisis. In summary, this analysis, which is supported by Goodhart, shows:

·      AVI's specialist investment strategy seeks to exploit specific opportunities and inefficiencies in markets.

·      AVI does not inhabit the middle ground occupied by benchmark constrained managers.

·      AVI has a disciplined and intuitively sensible investment process. The investment team are experts at investing in a proprietary universe of stocks that is neglected by other investors but fundamentally attractive.

·      AVI's process and investment universe leads to a portfolio that is difficult to compare effectively with easily available benchmarks. This makes assessment of performance challenging over shorter periods, underlining the need for clear and transparent communication of the strategy and its results. The investment process has been proven over an unusually long period.

·      In recent years, there have been a number of headwinds to performance. AVI's investment style has been out of favour and macro factors have had a disproportionately negative impact on returns relative to global benchmark indices.

·      Investors have become overly focused on macro themes over recent years and this has been to the detriment of managers focusing on securities from the 'bottom up'.

·      Investment style factors have been shown to move in cycles and the recent headwind will turn to a tailwind eventually. In the meantime, the valuation of the portfolio is attractive.

·      Over the three years to the end of September 2015, BTEM lagged its official benchmark, which can be largely explained by the high level of cash in 2013.

Having reviewed AVI's approach and, while taking full account of recent investment performance, your Board believes AVI has the ability to generate attractive returns for investors over the long term, whilst continuing to offer effective diversification compared with other equity strategies.

Between the year end and 31 October 2015, the Company's net asset value increased by 5.0%, compared with a return of 5.4% by the MSCI All Country World ex-US Index, both on a total return basis.

Long-Term Borrowings

The Company has, from time to time, held large liquidity positions but recently BTEM has been more fully invested. In light of current interest rates, which are low by historical standards, the Board is assessing the merits of some further long-term borrowing.

Simplification of Company Name

As part of the Board's continuing review of the wider perception of the Company, the Directors have concluded that the Company's name should be simplified. From 5 November 2015, the Company's name has been shortened from 'British Empire Securities and General Trust plc' to 'British Empire Trust plc'. A change of name is permitted by the Company's Articles of Association and does not require a shareholder vote. The Directors believe that the new name is simpler, while recognising the Company's long heritage.

Income and Dividend

Your Company is managed with a target of producing superior capital growth and your Board believes that it would be inappropriate to set any income requirement for the Investment Manager which could compromise their ability to deliver this primary objective.

At the half-year stage, I noted in my Chairman's Statement that revenues generally continue to be lower than they were, particularly in the years ended September 2012 and 2013. However, earnings per share were somewhat higher than expected six months ago.

Underlying revenue earnings per share have improved to 11.75 pence per share, compared with last year's 9.29 pence. The Board is therefore proposing an increased final dividend of 9.7 pence per share, making the total ordinary dividends for the year 11.7 pence, an increase of 11.4% in the total dividend compared with the last accounting year.

Discount

Over the accounting year the net asset value has again been volatile. We have continued our share buyback programme with the aim of limiting volatility in the discount. During the year under review, 9,331,661 shares were bought back at an average discount of 11.0%. Buying back shares at a discount resulted in the NAV per share being enhanced for continuing shareholders by 0.77%. The discount at the year end stood at 11.6% compared to 10.3% at the prior year end.

Board

Once again this year, and in line with accepted best practice, each of the Directors is subject to re-election.

Your Board carries out an annual review of its effectiveness. This year, having employed an external expert last year, the review was carried out using the Board's own internal resources. The review concluded that the Directors' qualifications, effectiveness, performance and contribution to the Board are of a high standard. All of the Directors are therefore offering themselves for re-election.

Annual General Meeting

I look forward to seeing shareholders at our AGM, which this year will be held at 10.30am at 11 Cavendish Square, London W1G 0AN.

Outlook

As a Board, we are delighted with the appointment of Joe Bauernfreund as named manager of the British Empire Trust portfolio, and with the prospect of the proposed partnership of Asset Value Investors with Goodhart Partners.

The forecasts for the global economy are certainly no clearer than when we last reported to you. Arguably, the most recent trends show weakness in activity in many countries, and the possibility of a period of deflation in Europe and the US remains a threat, as does the slow-down in China.

In this difficult and volatile environment your Board strongly believes in careful stock picking and looking for and finding value. This is the core skill of Asset Value Investors, which has been proven over many years. The Board believes that shareholders will be rewarded  when growth stocks become less fashionable and investor interest in, and appetite for, good value returns.

The Strategic Report has been approved and signed on the Board's behalf.

Strone Macpherson

Chairman

6 November 2015

Strategic Report / Overview of Strategy

Total returns to 30 September 2015

Company
1 Year	10 Years
-8.3%	55.9%
Benchmark
MSCI All Country World ex-US Index
1 Year	10 Years
-5.6%	64.6%
Other Comparators
Morningstar Investment Trust Global Index
1 Year	10 Years
3.7%	94.0%
MSCI All Country World Index
1 Year	10 Years
0.4%	92.7%

Aim

The Company is an investment trust. Its investment objective is to achieve capital growth through a focused portfolio of mainly listed investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Investment Approach

The Company's assets are managed by Asset Value Investors Limited. AVI aims to deliver superior returns while managing risks and specialises in investment in securities that for a number of reasons may be selling on anomalous valuations.

The Investment Manager has the flexibility to invest around the world and is not constrained by any fixed geographic or sector weightings but does seek to maintain a concentrated yet diversified portfolio. No more than 10% of the Company's investments may be in unlisted securities. AVI's investment philosophy is described in more detail below.

Key Performance Indicators ('KPIs')

The Company's Board of Directors meets regularly and at each meeting reviews performance against a number of key measures.

Net asset value total return

The Directors regard the Company's net asset value total return as being the overall measure of value delivered to shareholders over the long term. Total return reflects both net asset value growth of the Company and also dividends paid to shareholders. The Investment Manager's investment style is such that performance is likely to deviate materially from that of any broadly based equity index. The Board considers the most important comparator to be the MSCI All Country World ex-US Index, which was adopted as the Company's benchmark from 1 October 2013. The Company will also continue to report performance against the MSCI All Country World Index and the Morningstar Investment Trust Global Growth Index, which is a peer group index and was the Company's benchmark index until 30 September 2013.

The discount at which the Company's shares trade compared with net asset value

The Board believes that an important driver of an investment trust's discount or premium over the long term is investment performance. However, there can be volatility in the discount or premium. Therefore, the Board takes powers each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium.

During the year under review, the discount has moved in a range from 8.0% to 13.9% based on closing prices and, as at 30 September 2015, stood at 11.6%.

During the year under review, no new shares were issued and 9.3m shares were bought back and placed into treasury, adding an estimated 0.77% to net asset value per share to the benefit of continuing shareholders.

Value for money

The Board continues to be conscious of expenses and works hard to maintain a sensible balance between strong service and costs.

For the year ended 30 September 2015, the ongoing charges ratio was 0.9%, unchanged from the prior year.

Discount
30 September 2015	30 September 2014
11.6%	10.3%

Estimated percentage added to net asset value per share from buybacks

2015	2014
0.8%	0.8%
Ongoing charges ratio
2015	2014
0.9%	0.9%

Positions the Company typically holds

40-50

Top ten investments represent

40% of the portfolio

Principal Risks

When considering the total return of the investments, the Board must also take account of the risk which has been taken in order to achieve that return. There are many ways of measuring investment risk, and the Board takes the view that understanding and managing risk is much more important than setting any numerical target. The Board looks at risk from many different angles, an overview of which is set out below. It has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

A plethora of statistical tools exist to measure risk, none of which offers a complete insight into the actual risks in a portfolio, as all rely on historical data and there is no single agreed definition of what risk is. The Investment Manager presents reports on portfolio returns and a set of contribution and risk statistics at each Board meeting. The objective of using these techniques is not to be prescriptive, but to understand levels of risk and how they have changed over time.

The purpose of this focus on risk is to ensure that the returns earned are commensurate with the risks assumed. The investment approach followed by the Investment Manager has led, over the long term, to returns in excess of those given by the market, while taking less risk in so doing.

Portfolio Diversification

Conventional wisdom holds that the most effective way of reducing risk is to hold a diversified portfolio of assets. The Company typically holds 40-50 positions, which could be considered a relatively concentrated (and therefore risky) portfolio. It is important to note that, in line with its investment objective, the Company's holdings are mostly in stocks which are themselves owners of multiple underlying businesses. Thus, the portfolio is much more diversified on a look-through basis than if it were invested in companies with a single line of business, for example. For the same reason, the top 10 portfolio positions, representing 40% of assets at the year end, are in practice highly diversified on a look-through basis. This diversification is evident at country, sector and currency levels.

Gearing and liquidity

Historically, the Company has held large liquidity positions, mostly in government bonds, when the Investment Manager cannot find sufficient value in its investment universe. This position has normally been in the range of 0-25% but could in extremis be higher. This use of liquidity allows an expression of caution to be reflected in the portfolio at times of high valuation without altering the basic investment strategy. The Company is permitted to use gearing, and has a £15 million debenture. The Board is currently assessing the merits of further long-term borrowing.

Taking account of the £15 million debenture liability, the Company's debt-to-equity ratio as at 30 September 2015 was 2.2% (2014: 1.8%)

Foreign exchange

Foreign exchange risk arises if there are falls against the Pound Sterling in the currencies in which the Company's investments are denominated. These risks are managed by the Investment Manager mainly by way of portfolio diversification but the Investment Manager may, with Board approval, hedge currency risk.

Discount

The shares of investment trusts frequently trade at a discount to their published net asset value. The Board seeks to manage the risk of any widening of the discount by regularly reviewing the level of discount at which the Company's shares trade, and it will, if necessary and appropriate, limit any significant widening through measured buybacks of shares.

The value of the Company's shares will additionally be subject to the interaction of supply and demand, prevailing net asset values and the general perceptions of investors. The share price will accordingly be subject to unpredictable fluctuations and the Company cannot guarantee that the share price will appreciate in value.

Other risks

Further risks which can impact on performance are a loss of key personnel (especially within the investment management team); regulatory (principally breaches of either UKLA Listing Rules, Disclosure and Transparency Rules or Section 1159 of the Corporation Tax Act 2010) and failure of systems or controls. In managing these risks, the Company reviews staffing and succession planning of the Investment Manager at least annually to ensure that there are adequate qualified staff/capacity available, and in particular requires the Investment Manager to notify the Board promptly of any changes in senior staff. The Company also reviews the relevant systems and controls at the Investment Manager and at other third party suppliers, including the Custodian and Administrator.

The Board monitors the risks inherent in the changing of a supplier, and also considers the risk controls at new suppliers. There were no material changes to the Company's risk profile during the year, other than normal movements in market risk, and an increased risk from cyber-crime. The Company has received from its principal suppliers reports on their cyber-crime controls.

The principal financial risks are examined in more detail in note 17 to the financial statements.

Environmental and Social Issues

The Company recognises that social, human rights, community and environmental issues can have an effect on some of its investee companies. AVI's Stewardship Policy also recognises that the social and environmental consequences of corporate activity are important factors in determining the creation and maximisation of shareholder value over the long term.

The Company is an investment trust and so its own direct environmental impact is minimal. The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

The Directors do not have service contracts and the Company has no employees. There are five Directors, four male and one female. Further information on the Board's policy on recruitment of new Directors is contained in the full Annual Report.

Future Strategy

The Board and the Investment Manager have long believed in their focus on investment in high quality undervalued assets and that, over time, this style of investment has been well rewarded.

The Company's overall future performance will, inter alia, be affected by: the Investment Manager's decisions; investee companies' earnings, dividends and asset values; and by stock market movements globally. Stock markets are themselves affected by a number of factors, including: economic conditions; central bank and other policymakers' decisions; political and regulatory issues; and currency movements.

The Company's performance relative to its peer group and benchmarks will depend on the Investment Manager's ability to allocate the Company's assets effectively, and manage its liquidity or gearing appropriately. More specifically, the Company's performance will be affected by the movements in the share prices of its investee companies in comparison to their own net asset values.

The overall strategy remains unchanged.

Strategic Report / Investment Portfolio

We seek to build a portfolio that is diversified in the underlying businesses in which it invests by sector, country and market capitalisation.

Investments at 30 September 2015

Company	Nature of business	% of investee company	Cost £'000	Valuation £'000	% of total assets less current liabilities
Investor AB 'A'	Investment Holding Company	0.67	21,707	41,256	5.79
Sofina	Investment Holding Company	1.37	24,812	34,489	4.84
NB Private Equity Partners	Investment Company	5.38*	26,075	32,229	4.52
Harbourvest Global Private Equity	Investment Company	4.62	21,865	30,635	4.30
Investment AB Kinnevik 'B'	Investment Holding Company	0.64	30,548	28,186	3.96
Jardine Matheson Holdings	Investment Holding Company	0.13	18,627	27,497	3.86
Mitsui Fudosan	Real Estate Company	0.13	24,487	23,644	3.32
AP Alternative Assets	Investment Company	1.30	7,829	23,523	3.30
Wendel	Investment Holding Company	0.62	22,680	23,001	3.23
DWS Vietnam Fund	Investment Company	14.15	17,862	22,862	3.21
Top ten investments			216,483	287,322	40.33
JP Morgan Private Equity	Investment Company	11.06	19,193	22,755	3.19
Symphony International Holdings	Investment Company	9.57	20,746	22,439	3.15
Aker ASA	Investment Holding Company	2.55	31,189	21,716	3.05
Eurazeo	Investment Holding Company	0.67	20,752	21,356	3.00
Pargesa	Investment Holding Company	0.70	24,055	20,840	2.92
Toyota Industries	Investment Holding Company	0.19	22,827	19,446	2.73
Hitachi	Conglomerate	0.12	27,169	18,674	2.62
Marwyn Value Investors	Investment Company	13.42	14,986	18,216	2.56
Ecofin Water and Power Opportunities	Investment Company	6.87	21,931	16,437	2.31
DIC Asset	Real Estate Investment Company	4.01	17,880	16,343	2.29
Top twenty investments			437,211	485,544	68.15
Power Corp of Canada	Investment Holding Company	0.25	17,755	14,146	1.98
First Pacific	Investment Holding Company	0.82	24,476	14,040	1.97
LMS Capital	Investment Company	13.18	13,547	13,972	1.96
Inmobiliaria Colonial	Real Estate Investment Company	0.88	12,615	12,880	1.81
SC Fondul Proprietatea	Investment Company	0.02	14,241	12,112	1.70
Better Capital (2009)	Investment Company	5.99	10,788	12,008	1.68
Adler Real Estate	Real Estate Investment Company	2.71	17,654	11,314	1.59
Empiric Student Property	Real Estate Investment Company	3.35	10,821	11,053	1.55
Dundee Corporation	Investment Holding Company	4.55	27,602	10,674	1.50
BlackRock World Mining Trust	Investment Company	2.87	16,663	10,458	1.47
Top thirty investments			603,373	608,201	85.36
Pantheon International Participations - Redeemable Shares	Investment Company	2.51	6,951	9,851	1.38
Dolphin Capital Investors	Real Estate Investment Company	7.19	21,352	9,593	1.35
Private Equity Holding	Investment Company	8.60	8,028	9,584	1.35
Brookfield Canada Office Properties	Real Estate Investment Company	2.87	13,319	9,079	1.28
Sacyr	Investment Holding Company	1.12	15,578	8,430	1.18
Detour Gold	Gold Mining Company	0.70	7,920	8,402	1.18
Rallye SA	Investment Holding Company	1.55	19,077	8,147	1.14
Dorel Industries 'B'	Consumer Goods Conglomerate	1.48	9,512	6,411	0.90
SVG Capital	Investment Company	0.76	5,405	6,085	0.85
Dragon Capital Vietnam Property Fund	Real Estate Investment Company	15.40	4,729	4,319	0.61
Top forty investments			715,244	688,102	96.58
Ashmore Global Opportunities - GBP Shares	Investment Company	11.8*	3,666	3,967	0.56
Total equity investments			718,910	692,069	97.14
UK Government Treasury Bill - 04/01/2016	UK Government Security	0.00	14,981	14,978	2.10
Fixed income investments			733,891	707,047	99.24
Net current assets				5,438	0.76
Total assets less current liabilities				712,485	100.00

*Represents % of total voting rights of the company

Strategic Report / Ten Largest Equity Investments

The top ten equity investments make up 40% of the portfolio, with underlying businesses spread across a diverse range of sectors and regions.

1.   Investor AB 'A'

Nature of business - Investment Holding Company

Valuation -  £41.3m

Valuation basis - Market price

% of total assets less current liabilities - 5.8%

A Swedish industrial holding company which owns significant shareholdings in public multi-national companies and private companies. Investor takes an active ownership role in many companies and at year end was on a 25% discount to NAV.

2.   Sofina

Nature of business - Investment Holding Company

Valuation - £34.5m

Valuation basis - Market price

% of total assets less current liabilities - 4.8%

A diversified Belgian holding company trading on a 30% discount to estimated NAV. Over half the portfolio comprises listed companies; they also own a portfolio of private equity holdings.

3.   NB Private Equity Partners

Nature of business - Investment Company

Valuation - £32.2m

Valuation basis - Market price

% of total assets less current liabilities - 4.5%

A London and Euronext-listed closed-end fund investing mostly in US-based private equity co-investments and debt. We expect NBPE's discount to narrow due to its transition from a fund of private equity funds to making direct investments, and due to the growing income from its debt holdings.

4.   Harbourvest Global Private Equity

Nature of business - Investment Company

Valuation - £30.6m

Valuation basis - Market price

% of total assets less current liabilities - 4.3%

A highly-diversified London and Euronext-listed closedend fund investing in private equity limited partnerships. A focus on top quartile managers has resulted in a strong NAV growth track record, while realisations aided by buoyant IPO, credit and M&A markets have been achieved at substantial uplifts to carrying value and confirmed the conservative nature of the valuations.

5.   Investment AB Kinnevik - B

Nature of business - Investment Holding Company

Valuation - £28.2m

Valuation basis - Market price

% of total assets less current liabilities - 4.0%

Kinnevik is a Swedish holding company that focuses on building digital consumer brands with investments in unlisted and listed assets. Investments are made around four key areas: Communication, E-commerce & Marketplaces, Entertainment, and Financial Services. Kinnevik trades at a 22% discount to NAV.

6.   Jardine Matheson Holdings

Nature of business - Investment Holding Company

Valuation - £27.5m

Valuation basis - Market price

% of total assets less current liabilities - 3.9%

An Asian holding company which controls Mandarin Oriental, Hongkong Land, Jardine Cycle & Carriage and Dairy Farm. The group also has a significant investment in insurance as well as other private investments. Jardine Matheson is trading on a 21% discount to the sum of its parts.

7.   Mitsui Fudosan Co

Nature of business - Real Estate Company

Valuation - £23.6m

Valuation basis - Market price

% of total assets less current liabilities - 3.3%

A Japanese listed property company operating in the ownership, leasing, development and operations of office and retail properties, throughout Japan, with a focus in metropolitan Tokyo. The company also has a strong presence in residential condominium sales and sponsors three Japanese REITs. Mitsui Fudosan is trading on a 28% discount to its NAV.

8.   AP Alternative Assets

Nature of business - Investment Company

Valuation - £23.5

Valuation basis - Market price

% of total assets less current liabilities - 3.3%

Originally established to co-invest alongside Apollo's private equity funds, the company now owns just one asset following a restructuring: a stake in unlisted Athene Insurance. Athene continues to perform well and generate healthy returns Although AP Alternative Assets now trades in line with its NAV, we believe the carrying valuation of Athene to be very conservative and that an IPO will unlock value comfortably in excess of the current share price.

9.   Wendel

Nature of business - Investment Holding Company

Valuation - £23.0m

Valuation basis - Market price

% of total assets less current liabilities - 3.2%

Wendel is a French listed holding company with exposure to a diverse range of industrial sectors. Major business lines include industrial certification and inspection services, building material production and mobile telephone infrastructure through their investments in Bureau Veritas, Saint-Gobain and IHS. The company is trading on a discount of 29% to NAV.

10.  DWS Vietnam Fund

Nature of business - Investment Company

Valuation - £22.9m

Valuation basis - Market price

% of total assets less current liabilities - 3.2%

An Irish-listed OTC-traded closed-end. Following a prolonged period of engagement with the board, the company has taken action to narrow the discount with the cancellation of treasury shares and a renewed buyback programme. On a discount of 20% at our financial year-end with open-ending proposals now set to be put forward in 2016, we continue to believe the shares are attractively priced.

All discounts are estimated by AVI as at 30 September 2015.

Investment Manager's Review

Overview of AVI's Investment Philosophy

British Empire is managed by Asset Value Investors Ltd.

The aim of AVI is to deliver superior investment returns while managing risks. AVI specialises in investing in securities that for a number of reasons may be selling on anomalous valuations.

AVI's investment philosophy is to:

●	Invest in companies trading at discounts to net asset value. Our focus is to find listed companies that own assets such as listed securities, property, cash and other businesses. We then estimate the value of all of those assets. After deducting any liabilities such as debt or pension liabilities, we arrive at an estimate of net asset value for that company. We will consider investing in companies where the discount between the current share price and our estimate of the value of that business is wide. The types of company which we typically find include investment holding companies, conglomerates, closed-end funds and property companies. Our approach naturally leads to investment in a variety of companies with diverse underlying businesses.
●	Identify good quality underlying assets with appreciation potential at compelling valuations. There are many companies trading at discounts to net asset value. Our aim is to identify companies that own high quality businesses where there is not only a wide discount, but also where we consider there to be a reasonable likelihood of those assets appreciating in value.
●	Focus on balance sheet strength. Debt works very well when markets are appreciating. However, debt can also destroy a lot of value when markets are falling and the business environment for a particular company deteriorates. We consider very carefully the balance sheet strength of the companies in which we invest. Factors which we look at include the actual quantum of debt relative to the assets of the companies, the maturity profile of the debt and the cashflows that the businesses generate.
●	Look for catalysts to narrow discounts. Once we find a good quality business on an attractive valuation, we then consider whether it is likely that the discount will narrow. Many companies trade at a discount for a reason and if that reason persists, then the discount may persist. Catalysts differ for the various types of company in which we invest. For example, in the case of a closed-end fund, where we are a large shareholder we can influence a board to pursue a strategy for discount narrowing. In the case of a family controlled company where we cannot exert influence to the same extent, our analysis would involve trying to understand the interests and objectives of the controlling shareholder, and whether our interests were aligned with theirs.
●	Focus on bottom-up stock picking. We are not asset allocators attempting to invest a pool of money across various asset classes. We are equity investors focusing on a particular style of value investing. We do not hug benchmarks and we will not own a company just because it is in a benchmark. We seek to invest in companies that meet the criteria described above.
●	Be willing to hold cash if investments do not meet our criteria. Very simply put, if we cannot find companies that meet our valuation and quality criteria we will not invest our shareholders' money. We will preserve capital until an appropriate investment opportunity arises.

Our focus on buying high-quality businesses trading at wide discounts to their net asset value has served us well over the long term. There are periods of time, however, when our style is out of favour and the types of companies in which we invest are ignored by the broader market. This requires us to be patient and to remain true to our style, so that when other investors begin to appreciate the value in those companies, we are well placed to benefit. In the short term, this means that there could be some volatility in our returns. However, we are confident that we own high quality businesses, which are trading on cheap valuations and which generate reasonable cash dividends for us as we wait for the value to be appreciated by the market.

Members of the investment team at AVI invest their own money in funds which they manage. As at 30 September 2015, AVI, its directors and staff owned approximately 900,800 (2014: 872,000) shares in British Empire Trust plc.

Portfolio Overview

The second half of the Company's financial year has been marked by intense volatility across equity markets around the world as a slowdown in economic growth in China and fears that the Federal Reserve in the US would raise interest rates caused a sharp sell-off in markets.

Having returned 7.2% during the first half of the year, your Company's NAV total return in the second half of its financial year was -14.5%, making the total return for the full year  -8.3%.

The Company's formal benchmark (MSCI All Country World ex-US) returned -5.6% over the full year.

Over three years the NAV total return has been 10.7% against a 15.8% return for the benchmark and over five years your Company has delivered a total return of 11.2% against the benchmark's 16.4%.

The past five years have been challenging for your Company. Whilst markets in general have rallied strongly, our performance in NAV terms has failed to keep pace. This is frustrating for all shareholders of course, but nevertheless we remain committed to our philosophy and to the value style of investing we have been pursuing with long-term success since 1985. We wanted to explain why this is not simply a worn mantra, but remains today as valid as it has over the long run.

We are committed to building a portfolio of stocks that are cheap and likely to make money for investors over the long term. We do not acquire stocks simply because they are in an index and, indeed, our portfolio does not resemble a broad market index in any way. Being entirely benchmark agnostic means that our performance will necessarily deviate from that of a broad market index for periods of time. Over the long term we would expect that our focus on quality companies and cheap valuations will result in stronger performance than such indices. This has been the case over the long term. That it has not happened over the past few years, we put down to the particular features of a market that has been driven more by macro factors than by fundamentals. By continuing to build a portfolio that focuses on absolute levels of valuation, and with an approach that defines "risk" as permanent loss of capital rather than underperforming an index, we are confident that we will once again demonstrate the benefits of our approach to investing.

Over the long term, studies have shown that value investing outperforms growth. This has not been the case over the seven years since the financial crisis. However, your Company's performance has been greater than that of the MSCI World ex-US Value Index over seven and ten years. The reason for our confidence that the trend will reverse at some point, and that value will once again outperform growth, is based on valuations. The key determinant of long-term returns is the valuation that an investor pays for an asset at the outset. Looking across equity markets around the world today, it is clear that some markets are highly valued, whilst others are less so.

Since the market lows reached in March 2009 following the financial crisis, the MSCI All Country World Index is up by 130.3% in GBP terms. Over the same period, your Company's benchmark, the MSCI All Country World ex-US Index is up by 88.7% in GBP terms. This highlights one particular feature of the market environment over the past six and a half years: performance has been particularly strong in the US. As shareholders know, we have today and have always had very little exposure to US markets and hence when comparing our performance to many in our peer group of global growth trusts, we have been at a distinct disadvantage. We have made no secret of not investing in the US, a decision which reflects the absence of companies there which meet our investing criteria. Indeed, our formal benchmark is explicitly an ex-US index.

The US market has done well because the country has been the engine of developed market growth in recent years. In the run up to the financial crisis, the US dollar had weakened, which left US exporters in a good position at the low point of the cycle. In the aftermath of that crisis, the policy response from the Federal Reserve was extreme, with interest rates dropping to and remaining effectively at zero. These two factors combined to make the recovery stronger than that seen in other developed economies. In contrast, Europe has lagged the US as its economy has been weaker and the policy response from the Central Bank has been slower in coming. In addition, the Euro area had to contend with crises surrounding the stability and viability of its currency which added further volatility.

Investors have therefore found good reasons to allocate capital to the US and to worry about anaemic growth, deflation and structural issues in Europe. This has been the correct decision. Over the past five years, US markets have returned 14.2% pa in GBP terms, whilst Europe, Japan and Asia ex Japan have returned 5.9%, 8.1% and 1.5% respectively. Despite, or perhaps because of, the relatively stronger returns in the US, the result today is that US markets look expensive. On the basis of very long-term valuation measures which adjust for short-term earnings oscillations, the US is very highly valued. The best known of these measures, (Schiller/CAPE) shows that on 10 year figures the US is trading at an earnings multiple of almost 23 times, which is higher than most European and Asian countries.

As investors who believe that the price paid for a stock is the most important predictor of its future return, our fundamental perspective supports the argument in favour of cheaper international markets over the US. Cheapness alone will not give us much of a clue about the timing of when the current trend might reverse and, while we acknowledge that the bias against value can persist for a time, ultimately we believe that there will be mean-reversion in favour of cheaper markets.

In trying to understand why markets have behaved as they have, we need to consider the impact of ultra-low interest rates and quantitative easing on market behaviour. These policies reflect the continuation of weak growth across the world which, in the absence of a sharp pick-up in economic activity, may hold back central banks from attempting to normalise interest rates. Recent events in the US have illustrated how challenging it is for the Federal Reserve to move away from zero interest rates. In the UK too, where growth has been relatively better, the data is not entirely supportive of an interest rate hike. The simple fact is that after years of massive stimulus, growth remains weak and evidence of inflation is absent. In this environment, not only have investors tended to allocate capital to the US and hence push up valuations to expensive levels there, but they have also concentrated on certain types of company. In an economic environment where growth is scarce, it is perhaps unsurprising that the markets have favoured companies with high growth potential - such as technology or biotech business, or large cap, high-quality defensive businesses where cash flows are deemed to be stable and where dividends can provide superior returns to the near zero interest rates on offer by government bonds.

These are not the type of asset-backed companies trading on discounts to NAV which we prefer. With popularity come high valuations, while with disinterest come low valuations. After a multi-year trend that has clearly favoured companies outside our investment universe, the gap between valuations on companies within our portfolio and those of the broader market is extremely wide. Whilst we cannot be precise about when this trend will reverse, we are confident that it will do so as it always has in the past. It is also worth noting that the companies which we favour may trade at substantial discounts to underlying asset value, but that does not mean that they offer no growth. On the contrary, many of our underlying assets show the same characteristics of sustainable growth which have done so well over the last several years. It is the fact that both the assets and the growth of our businesses are hidden which has put investors off. We think that offers an unusual opportunity.

The final piece of the puzzle in understanding the level of absolute returns over recent years is foreign exchange. The strength of the Pound has been a significant headwind. With a portfolio that is overwhelmingly international in nature, your Company's returns have been hurt by the weakness of the Euro, the Nordic currencies and the Canadian Dollar. In absolute terms, over the last three years almost 6% of NAV has been lost in translation back into Sterling. Many of the companies which we own have performed well in local currency terms, as readers will see in the following section. For the most part, the companies which we have invested in have not been "bad" companies. However, macro-economic policy has distorted exchange rates and that has had a greater impact on absolute Sterling returns than historically. Ultimately, businesses operating in countries where the currency is weakening may benefit from a boost to profits and in some cases we expect profit growth to be accompanied by a turnaround in currencies too.

Your Company's portfolio is valued cheaply relative to the rest of the market. The weighted average discount to underlying assets is currently 28%. This compares to approximately the 10% level at which it traded in 2006 - the last time "value" embarked on a multi-year outperformance of growth, and the last time the rest of the world outperformed the US. In addition, your Company's portfolio is cheaper than the broader market given the discount at which it trades as well as the level of earnings multiples on the businesses which we own.

Academic studies suggest that this is an exceptionally promising starting point for long-run returns. The headwinds that we have faced as a result of our investment style and our geographic areas of focus have been huge. Despite the reasons why these headwinds have persisted, we do not believe that they will persist forever. Ultimately, capital will flow out of expensive assets in search of more attractive valuations. This will be a strong tail-wind to our performance in the same way the reverse has been a head-wind. The fact that we have made these arguments in the past makes it no less likely that we will be proven correct in coming years. We remain excited by the potential in your Company's portfolio. The following section describes many of the companies we own and highlights the successes and challenges that we have experienced in the past 12 months.

Portfolio Review

European Holding Companies

This area was the second largest part of the portfolio, with an average weight of 29.2% over the year. It was the greatest detractor to returns for your Company, contributing -3.0% to our overall performance.

Our performance in this area was disappointing and can largely be attributed to three companies; Aker ASA, Rallye and Sacyr, which together subtracted 4.3% from our returns. However, other investments in European Holding Companies returned +5.5% (contributing 1.3% to our performance) and outperforming the MSCI Europe, which fell 1.98% in Sterling terms.

Sacyr is a Spanish holding company with investments in Spanish property, various toll road concessions, Infrastructure and also Repsol, the Spanish integrated oil company. We invested in Sacyr on the premise that the market was undervaluing Sacyr's stake in Testa, a prime Spanish property company and that management would reduce their exposure to Repsol. We were proved correct in regard to the Testa sale when, in June, Sacyr announced that they had agreed to sell the asset to Merlin Properties for 19.0% uplift to the last reported NAV. At this time, Repsol traded at around €17, and given its poor strategic fit in Sacyr's portfolio, it made sense to us for management to dispose of this stake. However, Sacyr did not do so and that decision was painfully wrong in the short term, with Repsol falling by 36.7% to the end of September, reducing Sacyr's NAV by approximately 29%. Today, the company is trading on a discount of 37% and the valuation of Repsol looks cheap, albeit that it is dependent on the oil price. We retain our holding in the company, believing there to be substantial upside.

Rallye's principal asset is Casino, a food and electronics retailer with operations predominantly in France, Thailand, Brazil, Colombia and Argentina. Casino has good market positioning with a variety of brands that target different consumers. For example, their French brand Monoprix aims its products at wealthy Parisians while Leader Price is a discount store targeted towards the more price conscious consumer. The greatest drag on Casino's performance over the last year has been the difficulties in Latin America, particularly with regard to the weakening currencies. The Colombian Peso fell by 25.9% and the Brazilian Real fell by 30.0%, which together reduced our estimated value of Casino by 12.3%. In addition to this, the French business has been struggling, particularly their hypermarket banner, Géant, which has had to reduce prices drastically to retain its market share. Encouragingly, Rallye has taken the opportunity to increase its stake in Casino on share price weakness.

Gearing at Rallye has compounded the downside, but we believe that given the extent to which emerging market assets and currencies have sold off, there could be a lot of upside in Rallye's share price.

Aker ASA has been in the portfolio for over seven years now and, given the cyclical nature of its business, we expect there to be periods of underperformance. We did not foresee the savage fall in the oil price over the last 18 months and its impact on Aker's share price, which fell sharply. However, we remain optimistic about Aker's businesses. They are well funded and cash flow generative. The holding company has been adding to its positions in some of its businesses at sharply reduced valuations and this ought to create value over the long term.We see Aker as one of the survivors of the oil industry and, given that it trades at a 44% discount to its asset value, we find the investment case compelling at recent price levels.

TUI was our most successful investment amongst the European holding companies. Our thesis that it would merge with its subsidiary, London-listed TUI Travel, to unlock the holding company discount played out earlier than anticipated. Although the price of getting the merger through was some dilution to TUI's NAV, this was more than offset by the discount contracting from 35% at purchase to 10% at exit. We sold TUI early in the financial year, for a total return of +34% in local currency (+28% in GBP) over the financial year.

Investor, Sofina and Eurazeo contributed 0.44%, 0.43% and 0.17% respectively to NAV. Once again they delivered market-beating NAV performance, with NAV growth in aggregate of 8.2%. In addition, their discounts contracted by 3.7 percentage points on average. We sold out of GBL, whose discount contracted by 5.4 percentage points over the year, but kept our exposure to the same assets through an investment in GBL's parent company, the more cheaply valued Pargesa. The discount disparity between GBL and Pargesa is the largest it has been for over ten years, with GBL trading on a 20.6% discount and Pargesa on 33.7%. It makes no sense for there to be such a big gap between two companies that offer exposure to the same pool of underlying assets. We think it highly likely that the discount on Pargesa will move back to far narrower levels and close the gap with GBL.

Closed-end Funds

With an average exposure of 35% for the year, closed-end funds were our largest allocation and added 0.9% to our overall return. 10 of our 16 closed-end fund positions made a positive contribution for the financial year. The weighted average total return of +2.48% modestly outperformed the FTSE All-Share Equity Investment Instruments Index's 2.11%.

Listed Private Equity was again a source of robust returns, adding 2.1% to NAV, but our exposures to energy/mining-exposed funds hurt us, with positions in BlackRock World Mining, Ecofin Water & Power Opportunities and Fondul Proprietatea detracting from returns.

The largest contribution across our closed-end funds came from AP Alternative Assets, which registered a 23.3% return and added 0.54% to NAV. The company's sole remaining asset, a stake in unlisted Athene Insurance, continues to perform well and generate healthy returns. As a result of integration issues following the acquisition of Aviva's US annuities business, Athene had to restate its GAAP financials which delayed plans for an IPO. Now that Athene has caught up with its reporting, the company has confirmed it will file for its IPO in early 2016. Although AP Alternative Assets now trades in line with its NAV, we believe the carrying valuation of Athene to be very conservative and that an IPO will unlock value comfortably in excess of the current share price.

Our position in J.P. Morgan Private Equity was our next largest contributor with a total return of 18.1%, adding 0.42% to NAV. Following the imminent redemption of the company's ZDPs, shareholders will have the option to move into a redemption share class which will see the discount effectively eliminated over time as the proceeds from realisations are returned to shareholders. We have been encouraged by the newer investments made in terms of entry multiples and growth characteristics, and the high visibility and transparency as a consequence of them being mature single assets bought in secondary transactions (effectively direct co-investments rather than stakes in diversified funds). Since we re-established a holding in the company, the NAV has grown by 13% and the discount has narrowed from 31% to 27%.

SVG Capital was another strong performer, contributing 0.37% to NAV as our position recorded a gain of 19.6% over the financial year. Since 2012, SVG Capital has been transitioning from a quasi-direct private equity investor (only investing in Permira funds) to a fund-of-funds model, albeit much more concentrated than peers such as Harbourvest's and Pantheon's closed-end vehicles, holding just 8-10 fund relationships rather than the hundreds held by these competitors. Our investment thesis when we acquired our position in November 2014 was that continued secondary market sales of the large position in publicly-quoted Hugo Boss would reduce that part of SVG's discount attributable to excessive portfolio concentration, while realisations from the rest of the mature portfolio would drive increases in NAV and fund further capital returns to shareholders.

Our thesis has largely panned out, with the stake in Hugo Boss being sold in its entirety, the announcement of Freescale Semiconductor's merger with NXP Semiconductor, and various realisations of unlisted holdings all contributing to NAV growth of 19% since we acquired our stake. The company has persisted with its shareholder-value driven approach exhibited since its near-death experience in the financial crisis, with substantial capital returns being made through tender offers and buy-backs. Having sold two-thirds of our holding at an average weighted discount of 12% to then-prevailing NAVs, we think the shares are attractively priced at a discount of 25% following the market sell off towards British Empire's financial year-end.

Other significant contributors to performance amongst our listed private equity holdings were NB Private Equity Partners and Harbourvest Global Private Equity ('HGPE'), each adding 0.29% to our NAV. Towards the end of the period, HGPE completed its long-awaited move to introduce voting rights and gain a full listing on the London Stock Exchange. This should bring long-term benefits to liquidity and improve the broader appeal of the company. In the short term, we expect index tracker demand to have a positive impact on the rating with the change to a Sterling quote facilitating entry into the FTSE All-Share Index towards the end of the year. We continue to encourage NB Private Equity, our largest listed private equity holding, to make a similar move.

Our stakes in closed-end funds tend to be very sizeable and we use this leverage to engage actively with the management and boards of investee companies. This will usually take the form of constructive recommendations regarding the efficacy of various discount control mechanisms, but we will not hesitate to adopt a more aggressive stance to defend our interests and extract value when required.

One such instance occurred during the period when LMS Capital, in which AVI owns a 15% stake, announced proposals to cease returning realisation proceeds from its private equity portfolio to shareholders, and instead re-invest them in oil & gas assets under a new management team. We wrote a lengthy letter to the board and other significant shareholders detailing our concerns; the board responded by postponing the General Meeting called to vote on the new investment policy. After further discussions with the board, we were pleased to see the proposals officially withdrawn shortly afterwards. Since then, the company's holding in Wesupply, representing 6% of NAV, has been sold, adding to the substantial cash balance that we estimate now stands at 32% of NAV. We expect further realisations and a significant return of capital at NAV later this year. Despite the 7% rise in the share price since the withdrawal of the proposals, the portfolio is being implicitly valued at a discount of 32% after adjusting for the company's cash balance.

Another example of AVI's engagement is DWS Vietnam, an Irish-listed OTC-traded closed-end fund in which we also own a 15% stake and which added 0.25% to our NAV over the year. Our investment thesis was based on the company holding a portfolio of attractively-priced listed securities, and a track record of private equity holdings being sold at significant uplifts to carrying values. It was our contention that the wide discount of almost 40%, in large part due to the egregious management contract featuring a performance fee with no high water-mark, would disappear as the fund approached its wind-up vote at the end of 2016. Indeed, the manager, Duxton Asset Management, had persistently said in meetings with investors that they wanted to open-end the fund ahead of the wind-up vote, and that no new private equity investments would be made given the relatively short time until the vote. To mitigate the risk of the managers failing to follow through with their promises, AVI has engaged in an active, persistent, and dogged year-long campaign that has so far resulted in the removal of three directors employed by the manager, and the cancellation of 10% of shares held in treasury thus allowing for the resumption of an aggressive share buyback programme. The board has made a public statement that proposals to open-end the fund will be put forward in 2016. In the coming weeks, there will be a vote held to elect two new independent directors proposed by AVI.

The three largest closed-end fund detractors all had exposure to energy/mining. Fondul Proprietatea, the Romanian-listed fund that now has a secondary listing in London, suffered due to its 40% exposure to the oil & gas sector. Its NAV decline of 9% was further exacerbated by the Romanian Leu falling by 5% versus the British Pound, costing British Empire 0.29% of NAV in total.

Our position in Ecofin Water & Power Opportunities ('ECWO') was down by 24%, costing us 0.68% of NAV as its top holding, US and Australian-listed shale oil play Lonestar Resources, fell by 69% in a torrid market for smaller Oil & Gas Exploration & Production ('E&P') stocks. Given the substantial amount of Lonestar's expected production that is hedged, the low-cost nature of its drilling activities in the Eagle Ford basin in Texas, and the company's access to significant liquidity from the large undrawn balance on its credit facility, the share price reaction seems overdone and we note that Lonestar trades on a significant valuation discount to US E&P peers. In an effort to correct this mispricing, Lonestar is in the process of moving to a main board NYSE or NASDAQ listing. ECWO has also suffered from share price declines in its energy infrastructure holdings despite these investments only having indirect linkage to oil and gas prices.

Lastly, extremely weak commodities markets proved costly for our position in BlackRock World Mining ('BRWM'). We established a position in the fund in February 2015, a few months after the write-down of a royalty investment had led to the discount deteriorating from a level close to NAV to low double digits. In hindsight, this was too early an entry point given the further savage falls in the sector, with BRWM's price falling by 30% adjusted for dividends over our holding period. The position cost us 0.62% of NAV. We have added to the position on the way down, and take comfort from the fact that, with many commodities trading below their marginal cost of production, the industry's return on capital has fallen to historically low levels, preventing reinvestment. Capital expenditure has been cut sharply, and the sector is looking very cheap on a number of metrics. If BRWM's dividend is maintained for 2015, as seems likely, this equates to a dividend yield of over 10% based on the year-end share price.

Asian Holding Companies

This area contributed -2.0% to overall return with an average weight in the portfolio of 8.9% over the year. Asian markets were particularly weak, with the MSCI Asia ex-Japan Index, in Sterling, falling by 8.3% over our financial year and falling by 47.7% from the April high to the end of September.

First Pacific was the largest detractor, reducing overall performance by 1.0%. The stock suffered from weak emerging markets and with debt held mostly in USD the NAV fell by 9% solely on currency movements. Philippine Long Distance Telephone Co ('PLDT'), First Pacific's largest investment accounting for 47% of its NAV, has been struggling of late. PLDT derived a large amount of revenue from fixed line rental which has been cannibalised by the increase in smart phone usage and wireless broadband. PLDT was slow to recognise this, lagging behind its duopoly peer Globe Telecom which has taken market share in the mobile internet segment. First Pacific's mining investment also performed poorly, falling by 52.9% over the year. As a consequence of this, the discount has widened substantially from 43.1% to 51.3%. We have engaged with management in order to encourage them to be more proactive in managing their discount. As yet there has been no activity on this front. Nevertheless, we believe the current valuations of the underlying assets to be cheap and this, combined with an extremely wide discount, should provide a good basis for returns from these levels.

Jardine Matheson also suffered from the emerging market fall out, although its discount has contracted from 28.4% to 21.1% over the year. Its NAV return in USD was -28.0% which, compared with the MSCI Asia ex Japan Index falling by 12.2%, was disappointing. We had reduced our holding in this company earlier in the year, which has proven to be a sensible decision. The fall in the Indonesian Rupiah and the general weakness of Indonesia hit its holding in Astra International. A reversal of this trend would be a big boost to NAV and we therefore retain a reasonable position in Jardine, which has been a tremendous long-term value creator for shareholders.

We initiated a holding in Toyota Industries during the financial year. In addition to the holding in Toyota Motor and a number of other auto and auto parts businesses, it also operates two world leading businesses - forklifts and compressors. It trades on a discount to NAV of over 40% and will benefit from dividend increases at Toyota Motor. In addition, the continued success of its operating business has been under-appreciated by the market. Improvements in corporate governance and in operating performance ought to be strong drivers of both NAV growth and discount contraction.

Property

Property had an average weighting of 11%, with exposure to Europe, Asia and North America, and detracted 0.93 percentage points from performance over the twelve months.

Property across most regions has performed well since 2012 in a low interest rate environment as investors sought secure income. In many developed markets this has led to listed property companies trading on premia to NAV, and thus falling outside our investment remit. Despite this, we believe we can still find real estate companies in certain sectors which trade at a discount to our valuation estimates and provide NAV growth and discount contraction.

German residential property companies have been a source of success for us in past years and over the last 12 months another, Westgrund, contributed 0.30% to performance. We acquired our stake in September 2014 via a capital raising when the company purchased a 12,000 unit portfolio. This stake was acquired at a discount of 28% to NAV, versus peers which were trading at an average premium of 10% to NAV. We believed the company had good growth prospects and our valuation would be supported by corporate activity. This proved to be the case as our shares in Westgrund were acquired by another German residential company, Adler, in a cash plus equity deal which valued our shares at €5 per share versus our initial acquisition cost of €3.50. We still own our stake in Adler Real Estate and are confident that it will provide good performance in the future as transactions in the market point towards further NAV growth.

The major European office markets such as London and Paris have recovered well since 2012, posting record low valuation yields. However, the European periphery has been slower to react and we believe that this is an area where we can source undervalued companies at present. We have a stake in a Spanish listed property company, Inmobiliaria Colonial, which arguably owns the best quality office portfolio in Madrid and Barcelona. While yields have come in quite quickly from 6% to 4.25% in Madrid, capital values are still 30% below peak valuations. We expect the next leg up in Colonial to be driven by rental growth in a supply constrained office market, which has seen almost no new development since the global financial crisis. We are looking for further opportunities in Spain which will benefit from improving consumer confidence and from the supply constrained office markets.

Dolphin Capital Investors returned negative 56.8% over the year. The company develops luxury hotel and golf resorts in Southern Europe and Central America. However, after the sale of one large asset in Cyprus fell through it became apparent the company required extra funding. We were involved in extensive discussions with management and other major shareholders to bring about changes in order to support an equity raise. These changes included replacing the board, reducing the management fee significantly and tightening the investment strategy to focus on five core projects. Management incentives are now closely aligned to returning capital to shareholders through asset sales, which we believe is key to extracting value from this company.

We have reduced our exposure to Canadian real estate, with 1.3% of the portfolio invested as at the year end. Property values are under pressure as demand for office and residential space is slowing, especially in Western Canada, due to pressures on the oil industry. However, through our continued holding in Brookfield Canada Office Properties, we believe we own a prime office portfolio which is hard to replicate at a discount of 23% to NAV. The company has been successful in managing lease expiries in a difficult rental market which will support current valuations. While performance over the last 12 months has been disappointing, with the share price falling 9% in local currency, the current 23% discount is at the wide end of the historical range. The largest shareholder, Brookfield Asset Management, has a history of buying in subsidiary companies, which we believe offers potential for discount contraction.

Over the course of the year we also owned two Canadian-listed, property-related, companies whose performance diverged significantly, Dundee Corp and Hudson's Bay. Dundee Corp has large exposure to land and developments via their holdings in DREAM Unlimited and direct investments. Land values have suffered due to the slowing Canadian economy, which in addition to their exposure to commodities has led to a negative contribution of 1.4% over the year.

Conversely, Hudson's Bay has been one of our most successful investments over the financial year. Our original investment thesis was based upon the market not reflecting the full value of the real estate portfolio that the retailer owned. Over the course of the year Hudson's Bay embarked upon several transactions, which proved that the value of their real estate portfolio was well above market expectations. As news of transactions came through we sold our position at an average price of C$27.1, a gain of 53% in local currency since the start of the financial year.

Last year we initiated a position in Mitsui Fudosan, a Japanese company which owns a prime office and shopping centre portfolio throughout Japan. Trading on a discount of 28%, we believe the company is trading significantly below its real worth as transactions in the market point towards yields of below 4%. With the first shoots of improved corporate governance coming through in Japan and the boon of the 2020 Olympics to come, we believe Mitsui will provide discount contraction and NAV growth in the future.

We continue to look for undervalued property companies, but are mindful of the interest rate environment which drives short-term sentiment for property stocks. Despite this, we are seeing opportunities to invest further in well run companies with strong balance sheets and attractive assets which we believe will deliver strong performance.

Conglomerates and Other

Conglomerates made up approximately 4.2% of the portfolio over the year and generated -1.1%. Morrison was not a successful investment overall as it generated a negative total return of 19.1%. It did, however, generate a positive contribution of +0.28% during the financial year, as we benefited from a partial recovery in the price.

The main detractor of performance amongst this group of companies was Hitachi, which has been a disappointing investment despite delivering strong profit growth, substantial corporate governance improvements and increases in returns on equity. It looks cheap on absolute valuation metrics with a current PE multiple below 10x and on a discount to sum of the parts of 44%. We have recently added to our holding following a sharp selloff over the summer.

Outlook

 Value, as an investment style, has underperformed the broader equity markets for a number of years. This has left many of our holdings unloved and, we believe, undervalued. This undervaluation sets up the possibility of strong future performance.

At the time of writing, economic data appear to be weakening, increasing fears of a decline in profits and so weakening the case for equities. The worsening data makes it more difficult for Central Banks - in particular the Federal Reserve - to start raising interest rates. A continuation of ultra-low interest rates could be positive for equities despite valuations in some markets not being particularly cheap. However, after seven years of historically unprecedented monetary accommodation, the real risk to global markets must surely be that investors start to question the omnipotence of Central Banks, at which point bad economic news should translate directly into bad news for equities.

While we claim little insight into the future direction of markets, we do know that we are still able to find attractively priced assets. The valuations which we see in our portfolio are both relatively and absolutely low, and we believe that this provides us with a substantial long-term margin of safety regardless of wider market gyrations.

Capital Structure as at 30 September 2015

The Company's capital structure comprises Ordinary Shares and Debenture Stock.

Ordinary Shares

At 30 September 2015, there were 160,014,089 (2014: 160,014,089) Ordinary Shares of 10p each in issue, of which 25,750,878 (2014: 16,419,217) were held in treasury and therefore the total voting rights attaching to Ordinary Shares in issue were 134,263,211.

Debenture Stock

At 30 September 2015, there was in issue £15,000,000 (2014: £15,000,000) 8⅛% Debenture Stock 2023,

repayable on 2 July 2023.

Directors

Strone Macpherson

Steven Bates

Andrew Robson

Susan Noble

Nigel Rich

All Directors are non-executive and independent of the Investment Manager.

Management Arrangements

Asset Value Investors Limited is the Company's appointed Alternative Investment Fund Manager, and is engaged under the terms of an Investment Management Agreement ('IMA') dated 17 July 2014. The IMA is terminable by one year's notice from either party, other than for "cause".

The Investment Manager is entitled to a management fee of 0.70% of the net assets of the Company, calculated quarterly by reference to the net assets at the preceding quarter end and paid monthly.

J.P. Morgan Europe Limited was appointed as Depositary under an agreement with the Company and AVI dated 2 July 2014, and is paid a fee on a sliding scale between 0.5 basis points and 4 basis points based on the assets of the Company. The Depositary Agreement is terminable on 90 calendar days' notice from either party.

JPMorgan Chase Bank, National Association, London Branch, has been appointed as the Company's Custodian under an agreement dated 2 July 2014. The agreement will continue for so long as the Depositary Agreement is in effect and will terminate automatically upon termination of the Depositary Agreement, unless the parties agree otherwise.

Capita Company Secretarial Services Limited was appointed as corporate Company Secretary on 1 April 2014 for an annual fee of £55,000, which is subject to an annual RPI increase. The Agreement may be terminated by either party on six months' written notice.

With the Board's consent, with effect from 1 April 2014 AVI sub-contracted certain fund administration services to Capita Asset Services. The cost of these sub-contracted services is borne by AVI from its own resources and not by the Company.

Going Concern

The Directors have carefully reviewed the current financial resources and the projected expenses of the Company and its subsidiary for the next 12 months. On the basis of that review and as the majority of net assets are securities which are traded on recognised stock exchanges, the Directors are satisfied that the Company's resources are adequate for continuing in business for the foreseeable future and that it is appropriate to prepare the financial statements on a going concern basis.

Viability

The Directors consider viability as part of their continuing programme of monitoring risk. The Directors consider three years to be a reasonable time horizon to consider the continuing viability of the Company, although they do have due regard to viability over the longer term and particularly to key points outside this time frame, such as the due date for the repayment of long-term debt. The Company is an investment trust whose portfolio is invested in readily realisable listed securities and with some short-term cash deposits. The following facts support the Directors' view of the viability of the Company:          

• In the year under review, expenses (including finance costs and taxation) were covered some 2 times by investment income.

• The Company has a highly liquid investment portfolio.

• The Company's long-term debt falls due for repayment in 2023, with a principal liability of £15 million in 2023. This debt was covered some 47 times as at the end of September 2015 by the Company's total assets. The Directors are of the view that the Company will have sufficient resources to meet the costs of annual interest and eventual repayment of principal on this debt.

• The Company has a large margin of safety over the covenants on its debt.

Given the high levels of cover set out above, the Directors have a reasonable expectation that the Company can continue in operation and meet its liabilities over the period for which the long term debt is outstanding. The Company's viability depends on the global economy and markets continuing to function. The Directors do also consider the possibility of a wide ranging collapse in corporate earnings and/or the market value of listed securities. To the latter point, it should be borne in mind that a significant proportion of the Company's expenses are in ad valorem investment management fees, which would naturally reduce if the market value of the Company's assets were to fall.

In order to maintain viability, the Company has a robust risk control framework which, following guidelines from the Financial Reporting Council, has the objectives of reducing the likelihood and impact of: poor judgement in decision-making; risk-taking that exceeds the levels agreed by the Board; human error; or control processes being deliberately circumvented.

The full Annual Report contains the following statements regarding responsibility for the Annual Report and financial statements (references in the following statements are to pages in the Annual Report).

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and Company financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare Company financial statements for each financial year. Under that law they are required to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS') and have elected to prepare the financial statements on the same basis. They are also responsible for ensuring that the Annual Report includes information required by the Disclosure Rules of the UK Listing Authority.

The Company financial statements are required by law and IFRS to present fairly the financial position of the Company and the financial performance and cash flows of the Company for the relevant period. The Companies Act 2006 (the 'Act') provides, in relation to such financial statements, that references in the relevant part of the Act to financial statements giving a true and fair view are references to their achieving a fair presentation. In preparing the Company financial statements the Directors are required to:

●	select suitable accounting policies and apply them consistently in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
●	make judgements and estimates which are reasonable and prudent;
●	state whether the financial statements have been prepared in compliance with IFRS, subject to any material departures disclosed and explained therein;
●	provide additional disclosures where compliance with the specific requirements of IFRS are considered to be insufficient to enable users to understand the impact of particular transactions, events and conditions on the financial position and performance; and
●	prepare financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

Financial statements of the Company are published on the Company's website at www.british-empire.co.uk. The Directors are responsible for ensuring the maintenance and integrity of the information relating to the Company published on this website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are also responsible for ensuring that the Company complies with the provisions of the Disclosure Rules of the UK Listing Authority which, with regard to corporate governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the corporate governance code applicable to the Company.

Declaration

The Directors listed above, being the persons responsible, hereby confirm to the best of their knowledge:

●	that the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
●	the Strategic Report and the Investment Manager's Review 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 the Company faces.

In the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy.

Strone Macpherson

Chairman

6 November 2015

Non-statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 September 2015 but is derived from those accounts. Statutory accounts for the year ended 30 September 2015 will be delivered to the Registrar of Companies 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 (iii) 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 on the Company's website at

www.british-empire.co.uk.

Statement of Comprehensive Income

 for the year ended 30 September 2015

		2015 Revenue return	2015     Capital    return	2015    Total	2014*   Revenue   return	2014* Capital  return	2014*  Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Income
Investment income	2	20,934	-	20,934	19,970	-	19,970
(Losses)/gains on investments held at fair value	8	-	(76,232)	76,232	-	39,833	39,833
Foreign exchange forward contract loss		-	(27)	(27)	-	-	-
Exchange losses on currency balances	16	-	(294)	(294)	-	(1,210)	(1,210)
		20,934	(76,553)	(55,619)	19,970	38,623	58,593
Expenses
Investment management fee	3	(1,707)	(3,983)	(5,690)	(1,773)	(4,136)	(5,909)
Other expenses (including irrecoverable VAT)	3	(1,366)	-	(1,366)	(1,715)	-	(1,715)
Profit/(loss) before finance costs and tax		17,861	(80,536)	(62,675)	16,482	34,487	50,969
Finance costs	4	(375)	(883)	(1,258)	(369)	(868)	(1,237)
Profit/(loss) before taxation		17,486	(81,419)	(63,933)	16,113	33,619	49,732
Taxation		(1,218)	(1,560)	(2,778)	(524)	-	(524)
Profit/(loss) for the year		16,268	(82,979)	(66,711)	15,589	33,619	49,208
Earnings/(loss) per Ordinary Share	7	11.75p	(59.95)p	(48.20)p	10.47p	22.58p	33.05p

*Prior year figures presented for the Company only, where previously consolidated figures were disclosed. The revenue return figures for 2014 include an amount of £1.76 million from the reserves of the subsidiary company, offsetting capital returns by the same amount. Revenue earnings per share at the overall group level were 9.29p. See note 1(d) for more information.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire Trust plc. There are no minority interests.

There were no items of other comprehensive income in the year and therefore the profit/(loss) for the year is also the total comprehensive income/(loss) for the year.

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

Statement of Changes in Equity

for the year ended 30 September 2015

	Ordinary share capital	Capital redemption reserve	Share premium	Capital reserve	Merger reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
For the year ended 30 September 2015
Balance as at 30 September 2014	16,001	2,934	28,078	704,809	41,406	33,756	826,984
Ordinary Shares bought back and held in treasury	-	-	-	(47,968)	-	-	(47,968)
Total comprehensive income for the year	-	-	-	(82,979)	-	16,268	(66,711)
Ordinary dividends paid (see note 6)	-	-	-	-	-	(14,763)	(14,763)
Balance as at 30 September 2015	16,001	2,934	28,078	573,862	41,406	35,261	697,542
For the year ended 30 September 2014
Balance as at 30 September 2013	16,001	2,934	28,078	718,248	41,406	37,788	844,455
Ordinary Shares bought back and held in treasury	-	-	-	(47,058)	-	-	(47,058)
Total comprehensive income for the year	-	-	-	33,619	-	15,589	49,208
Ordinary dividends paid (see note 6)	-	-	-	-	-	(15,831)	(15,831)
Special dividends paid (see note 6)	-	-	-	-	-	(3,790)	(3,790)
Balance as at 30 September 2014	16,001	2,934	28,078	704,809	41,406	33,756	826,984

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

Balance Sheet

as at 30 September 2015

		2015	2014
	Notes	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	8	707,047	839,033
		707,047	839,033
Current assets
Other receivables	10	4,121	3,225
Cash and cash equivalents		6,649	5,994
		10,770	9,219
Total assets		717,817	848,252
Current liabilities
Purchases for future settlement		-	(2,080)
Foreign exchange forward contracts		(3,181)	-
Other payables		(2,151)	(4,233)
		(5,332)	(6,313)
Total assets less current liabilities		712,485	841,939
Non-current liabilities
8⅛% Debenture Stock 2023	12	(14,943)	(14,936)
Provision for deferred tax	13	-	(19)
Net assets		697,542	826,984
Equity attributable to equity shareholders
Ordinary share capital	14	16,001	16,001
Capital redemption reserve		2,934	2,934
Share premium		28,078	28,078
Capital reserve		573,862	704,809
Merger reserve		41,406	41,406
Revenue reserve		35,261	33,756
Total equity		697,542	826,984
Net asset value per Ordinary Share - basic		519.53p	575.92p
Number of shares in issue excluding Treasury		134,263,211	143,594,872

The financial statements were approved by the Board of British Empire Trust plc on 6 November 2015 and were signed on its behalf by:

PSS Macpherson Chairman

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

Registered in England & Wales No. 28203

Cash Flow Statement

for the year ended 30 September 2015

	Notes	2015  £'000	2014 £'000
Reconciliation of (loss)/profit before taxation to net cash inflow from operating activities
(Loss)/profit before taxation		(63,933)	49,732
Realised exchange losses on currency balances		325	1,210
Losses/(gains) on investments held at fair value through profit or loss		76,232	(39,833)
Purchases of investments		(454,845)	(700,340)
Sales of investments		508,265	754,801
Return of capital from subsidiary		250	-
(Increase)/decrease in other receivables		(40)	1,146
Increase(decrease) in creditors		2,729	(1,455)
Taxation		(3,634)	(426)
Amortisation of debenture issue expenses		7	8
Net cash inflow from operating activities		65,356	64,843
Financing activities
Dividends paid	6	(14,763)	(19,621)
Payments for Ordinary Shares bought back and held in treasury		(49,613)	(45,142)
Cash outflow from financing activities		(64,376)	(64,763)
Increase in cash and cash equivalents		980	80
Exchange movements including forward contracts		(325)	(1,210)
Change in cash and cash equivalents		655	(1,130)
Cash and cash equivalents at beginning of year		5,994	7,124
Cash and cash equivalents at end of year		6,649	5,994
Cash and cash equivalents received/(paid) during the period includes:
- Dividends received		20,883	18,195
- Interest received		22	13
- Interest paid		(1,251)	(1,229)

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

Notes to the Financial Statements

1. Accounting policies

The financial statements of the Company and subsidiary have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union.

(a) Basis of preparation

The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice (the 'SORP') for investment trusts issued by the AIC in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

IFRS 10 sets out the principles for the presentation and preparation of consolidated financial statements and establishes a single control model that applies to all entities including special purpose entities. In addition, IFRS 10 includes an exception from consolidation for entities which meet the definition of an investment entity, and requires such entities to recognise substantially all investments at fair value through profit or loss. The Company has made the significant accounting judgement that it does meet the criteria of an investment entity, as discussed in note 1(q). Accordingly the Company is no longer required to prepare consolidated financial statements and so has prepared individual company accounts, with only individual company comparatives as required by IAS1.

IFRS 12 sets out the requirements for disclosures relating to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements. The standard did not have a significant effect on the financial statements of the Company. The Company's one subsidiary, BEST Securities Limited, has not been consolidated. For further information please see note 9.

The functional currency of the Company is Pounds Sterling because this is the currency of the primary economic environment in which the Company operates. The financial statements are also presented in Pounds Sterling rounded to the nearest thousand, except where otherwise indicated.

(b) Accounting developments

The accounting policies adopted are consistent with the previous financial year, except that the following new standards have been adopted in the current year.

IFRS 10 and IFRS 12, as discussed in note 1(a) Basis of preparation.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There were no accounting estimates or significant judgements in the current period.

(c) Presentation of Statement of Comprehensive Income

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The Company is registered as an investment company under Section 833 of the Companies Act 2006. Additionally, net revenue is the measure which the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

(d) Changes to accounting principles

The Company has applied, for the first time, IFRS 10 Consolidated Financial Statements. Under IFRS 10 the subsidiary has been classified as an investment entity. As a result it is no longer consolidated and is instead held at fair value.

Impact on Statement of Comprehensive Income

As a result of this change in treatment, the total return generated by the subsidiary is no longer presented on a line-by-line basis but combined and shown within the Statement of Comprehensive Income.

This has resulted in the prior year figures shown in the Statement of Comprehensive Income being presented for the Company, where previously consolidated figures were shown.

The impact of this change in the prior year figures by line item is:

• Unrealised gains on investments held at fair value reduced by £1,762,000; and

• Investment income increased by £1,762,000.

No other prior year figures for the primary financial statements have been affected.

(e) Investments held at fair value through profit or loss

When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with the documented investment strategy and information is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition, the investments are designated by the Company as 'held at fair value through profit or loss' and are described in the financial statements as investments held at fair value.

All investments are designated as held at fair value upon initial recognition and are measured at subsequent reporting dates at fair value.

If a significant movement in fair value occurs subsequent to the close of trading up to midnight on the traded Stock Exchange on the year end date, valuation techniques will be applied to determine the fair value. A significant event is any event that occurs after the last market price for a security, close of market or close of the foreign exchange, but before the Company's valuation time that materially affects the integrity of the closing prices for any security, instrument, currency or securities affected by that event so that they cannot be considered 'readily available' market.

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques in accordance with the International Private Equity and Venture Capital Valuation (the 'IPEV') guidelines. These may include recent arm's length market transactions, the current fair value of another instrument which is substantially the same, discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised. Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment.

Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets are presented in the Statement of Comprehensive Income within gain on investment at fair value through profit or loss in the period in which they arise.

Foreign exchange gains and losses for fair value through profit or loss on investments are included within the changes in their fair value.

(f) Movements in fair value of investment

Changes in fair value of investments are recognised in the Statement of Comprehensive Income as a capital item. On disposal, realised gains and losses are also recognised in the Statement of Comprehensive Income as capital items.

All investments held are classified as at "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 unrealised gains and losses on investments and impairment of investments recognised in the Statement of Comprehensive Income and allocated to capital.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 17, described as follows, based on the lowest significant applicable input:

• Level 1 reflects financial instruments quoted in an active market.

• Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets.

• Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. For investments that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest significant applicable input) at the date of the event that caused the transfer.

(g) Cash and cash equivalents

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

For the purpose of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

(h) Dividends payable to shareholders

Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

(i) Foreign currency translation

Transactions in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of the transaction. Items that are denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income.

(j) Finance costs

Finance costs are accounted for on an accruals basis using the effective interest method and have been allocated 30% (2014: 30%) to revenue and 70% (2014: 70%) to capital. This complies with the SORP, which requires the finance costs of the Debenture Stock to be allocated between revenue and capital in the same proportions as the management fee.

(k) Debenture pricing

The 8⅛% Debenture Stock 2023 is valued at amortised cost under the effective interest method and secured by a floating charge over all assets of the Company. Costs in relation to arranging the debt finance of the 8⅛% Debenture Stock 2023 have been capitalised and are amortised over the term of the finance. Further details of the Debenture Stock are disclosed in notes 12 and 17.

(l) Capital reserve

Capital reserve - other - The following are taken to this reserve:

• gains and losses on the disposal of investments.

• amortisation of issue expenses;

• costs of share buybacks;

• exchange difference of a capital nature; and

• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Capital reserve - investment holding gains - The following are taken to this reserve:

• increase and decrease in the valuation of investments held at the year end.

(m) Merger reserve

The merger reserve represents the share premium on shares issued on the acquisition of Selective Assets Trust plc on 13 October 1995.

(n) Investments in subsidiaries

Investments in subsidiaries are stated at fair value.

(o) Income

Dividends received from UK registered companies are accounted for net of imputed tax credits. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are disclosed separately in the Statement of Comprehensive Income.

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis.

Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case by case basis.

All other income is accounted for on a time-apportioned accruals basis using the effective interest rate method and is recognised in the Statement of Comprehensive Income.

(p) 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 between taxable profits and total comprehensive income that have arisen but not been reversed by the Balance Sheet date. Deferred tax assets are only 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.

(q) Significant accounting judgements

As discussed in note 1(a) "Basis of preparation" IFRS 10 includes an exemption from consolidation of subsidiaries for all entities that meet the definition of an investment entity, and instead measure them at fair value through profit or loss. The primary criteria that must be met in order to meet the definition of an investment company is as follows:

·    an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both;

·    an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis; and

·    an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services.

The Board has agreed with the recommendation of the Audit Committee that the Company meets the definition of an investment entity as it satisfies each of the criteria above and that this accounting treatment better reflects the Company's activities as an investment trust. The Company's principal activity as an investment trust and its investment approach is detailed in the Strategic Report. The criteria and these conclusions are re-assessed by the Board annually.

2. Income

	2015 £'000	2014 £'000
Income from investments
Listed investments	20,883	18,195
Other income
Deposit interest	22	13
Other income	29	-
Realisation of investment holding gains of subsidiary	-	1,762
	51	1,775
Total income	20,934	19,970
Income from investments
Equity securities	20,877	18,068
Fixed interest securities	6	127
	20,883	18,195
Total income comprises:
Dividends	20,877	18,068
Interest	28	140
Other income	29	1,762
	20,934	19,970

3. Investment management fee and other expenses

	2015	2015		2014	2014
	Revenue	Capital	2015	Revenue	Capital	2014
	return	return	Total	return	return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Management fee	1,707	3,983	5,690	1,773	4,136	5,909
	1,707	3,983	5,690	1,773	4,136	5,909
Other expenses:
Directors' emoluments - fees	135	-	135	133	-	133
Auditor's remuneration - audit	30	-	30	34	-	34
Auditor's remuneration - taxation	13	-	13	13	-	13
Auditor's remuneration - withholding tax, interim review and debenture review services	32	-	32	8	-	8
Marketing costs	424	-	424	475	-	475
Printing and postage costs	110	-	110	68	-	68
Registrar fees	71	-	71	94	-	94
Custodian fees	123	-	123	275	-	275
Depositary fees*	127	-	127	28	-	28
Advisory and professional fees	140	-	140	261	-	261
Irrecoverable VAT	88	-	88	162	-	162
Other expenses	73	-	73	164	-	164
	1,366	-	1,366	1,715	-	1,715

* The Depositary was appointed 2 July 2014.

For the year ended 30 September 2015, the fee calculated in accordance with the Investment Management Agreement amounted to 0.7% (2014: 0.7%) of the net asset value calculated on a quarterly basis.

Details of the Investment Management Agreement and fees paid to the Investment Manager are set out above.

4. Finance costs

	2015	2015		2014	2014
	Revenue	Capital	2015	Revenue	Capital	2014
	return	return	Total	return	return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Bank overdraft interest	10	23	33	3	7	10
Interest on other loans	365	853	1,218	366	853	1,219
Amortisation of debenture issue expenses*	-	7	7	-	8	8
	375	883	1,258	369	868	1,237

*See note 12.

5. Taxation

	Year ended 30 September 2015			Year ended 30 September 2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Analysis of charge for the year:
Corporation tax	-	-	-	-	-	-
Overseas tax not recoverable	1,218	1,579	2,797	524	-	524
Deferred tax release	-	(19)	(19)	-	-	-
	1,218	1,560	2,778	524	-	524

The tax assessed for the year differs from the standard rate of corporation tax in the United Kingdom of 20%. The differences are explained below:

	Year ended 30 September 2015			Year ended 30 September 2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return on ordinary activities after interest payable but before appropriations	17,486	(81,419)	(63,933)	16,113	33,619	49,732
Theoretical tax at UK corporation tax rate of 20.5% (2014: 22%)	3,585	(16,691)	(13,106)	3,545	7,396	10,941
Effects of the non-taxable items:
- UK franked investment income	(690)	-	(690)	(238)	-	(238)
- Tax-exempt overseas investment income	(3,485)	-	(3,485)	(3,131)	-	(3,131)
- Other non-taxable income	(7)	-	(7)	-	-	-
- (Losses)/gains on investments, exchange gains on capital items and movement on fair value of derivative financial instruments	-	15,693	15,693	-	(8,886)	(8,886)
- Excess management expenses carried forward	604	998	1,602	(183)	1,416	1,233
- Expenses not deductible for tax	-	-	-	7	74	81
- Overseas tax not recoverable	1,218	1,579*	2,797	524	-	524
- Accrued income taxable on receipt	(7)	-	(7)	-	-	-
- Deferred tax	-	(19)	(19)	-	-	-
	1,218	1,560	2,778	524	-	524

* Tax deducted on receipt of capital on acquisition of Westgrund by Adler.

At 30 September 2015 the Company had unrelieved management expenses of £40,457,000, (30 September 2014: £32,589,000) that are available to offset future taxable revenue. A deferred tax asset of £8,091,000 has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Trust meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company.

Unrecognised tax losses

The Company has a tax loss of £40,896,000 (2014: £32,589,000) carried forward at the Balance Sheet date which is available indefinitely for offset against future taxable profits. A potential deferred tax asset of £8,179,200 (2014: £6,517,800) (based on 20% tax rate) has not been recognised in respect of this tax loss as there is uncertainty over whether there will be sufficient future taxable profits against which this tax loss can be offset.

6. Dividends

	2015	2014
	£'000	£'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 September 2014 of 8.50p (2013: 8.50p) per Ordinary Share	12,023	12,885
Special dividend for the year ended 30 September 2014 of nil (2013: 2.50p) per Ordinary Share	-	3,790
Interim dividend for the year ended 30 September 2015 of 2.00p (2014: 2.00p) per Ordinary Share	2,740	2,946
	14,763	19,621

Set out below are the interim and final dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.

Interim dividend for the year ended 30 September 2015 of 2.00p (2014: 2.00p) per Ordinary Share	2,740	2,946
Proposed final dividend for the year ended 30 September 2015 of 9.70p (2014: 8.50p) per Ordinary Share	12,976*	12,116
	15,716	15,062

* Based on shares in circulation on 4 November 2015.

7. Earnings per Ordinary Share

	2015	2015	2015	2014	2014	2014
	Revenue	Capital	Total	Revenue	Capital	Total
Basic	11.75p	(59.95)p	(48.20)p	10.47p	22.58p	33.05p

The total basic earnings per Ordinary Share is based on Company net (loss)/profit for the financial year of (£66,711,000) (2014: £49,208,000) and on 138,417,127 (2014: 148,907,851) Ordinary Shares, being the weighted average number of Ordinary Shares in issue (excluding shares in treasury) during the year.

The total basic earnings per Ordinary Share figures detailed above can be further analysed between revenue and capital, as below.

The basic revenue earnings per Ordinary Share is based on revenue after taxation for the financial year of £16,268,000 and the basic capital earnings per Ordinary Share is based on a net loss for the year of (£82,979,000). The weighted average number of shares in issue for the year was 138,417,127.

The equivalent figures for the 2014 accounting year were: basic revenue earnings per Ordinary Share of £15,589,000, basic capital earnings per Ordinary Share a net profit of £33,619,000 and the weighted average number of shares in issue for that year was 148,907,851.

There are no dilutive instruments issued by the Company (2014: none).

8. Investments held at fair value through profit or loss

	Listed   investments	Unlisted investments	Investment in subsidiary	Total investments
	£'000	£'000	£'000	£'000
(a) Securities
Opening book cost	761,095	5,169	250	766,514
Opening investment holding gains/(losses)	75,072	(2,553)	-	72,519
Opening fair value	836,167	2,616	250	839,033
Movement in the year:
Purchases at cost:
Equities	288,772	-	-	288,772
Bonds	163,993	-	-	163,993
Sales - proceeds:
Equities	(331,023)	(137)	-	(331,160)
Bonds	(177,109)	-	-	(177,109)
- realised gains/(losses) on sales	28,162	(5,032)	-	23,130
Distribution from subsidiary	-	-	(250)	(250)
Movement in investment holding gains/(losses)
-  reversal of unrealised depreciation upon realisation	-	2,553	-	2,553
- movement in unrealised depreciation	(101,915)	-	-	(101,915)
Closing fair value	707,047	-	-	707,047
Closing book cost	733,891	-	-	733,891
Closing investment holding losses	(26,844)	-	-	(26,844)
Closing fair value	707,047	-	-	707,047

	Company
	£'000
(b) Gains on investments
Gains on sales of securities based on historical cost	23,130
Movement in investment holding losses for the year	(99,362)
Net losses on investments	(76,232)

(c) Transaction costs

Investment transaction costs on purchases and sales of investments during the year to 30 September 2015 amounted to £764,304 and £659,280 respectively (2014: £1,411,000 and £881,000 respectively).

9. Subsidiary undertaking

The Company has one wholly owned subsidiary, BEST Securities Limited.
Name of undertaking	Principal activity	Country of incorporation and operation	Description of shares held	Proportion of nominal value of issued shares and voting rights held by:
				Company (%)	Group (%)
BEST Securities Limited	Dealing Subsidiary	England	Ordinary	100	100

10. Other receivables

	2015	2014
	£'000	£'000
Overseas tax recoverable*	3,398	2,542
Prepayments and accrued income	709	669
VAT recoverable	14	14
	4,121	3,225

* This relates to withholding tax in a number of countries which is in the process of being reclaimed and which the Company expects to receive in due course.

No amounts are past due or impaired. The carrying value approximates to fair value.

11. Other payables

	2015	2014
	£'000	£'000
Purchases for future settlement	-	2,080
Amounts owed for share buybacks	1,130	2,786
Amounts owed to subsidiary undertakings	-	250
Unrealised forward exchange rate contracts	3,181	-
Other creditors	1,021	1,197
	5,332	6,313

The carrying value approximates to fair value.

12. Non-current liabilities

	2015	2014
	£'000	£'000
8⅛% Debenture Stock 2023	14,943	14,936
	14,943	14,936

The movement on the 8⅛% Debenture Stock 2023 represents the amortisation of issue expenses. The market value of the Debenture Stock as at 30 September 2015 was £19.3 million (2014: £18.5 million). The effect on the NAV per share of deducting the Debenture Stock at market value rather than par is disclosed in note 15.

The mid-market price of the 8⅛% Debenture Stock 2023 as at 30 September 2015 was 128.50p (2014: 123.50p).

The Debenture Stock is secured by a floating charge over all of the assets of the Company. Under the terms of the trust Deed, total borrowings are not to exceed 150% of capital and reserves.

Further information on the Debenture Stock is set out above.

13. Provision for deferred tax

	2015		2014
	£'000		£'000
Provided
In respect of the origination and reversal of temporary differences	19		-
	-		-
The movement in the provision for deferred taxation is as follows:
Opening balance	19		19
(Release)/charge to capital account	(19)		-
Closing balance	-		19
	2015	2014
	£'000	£'000
The deferred tax provision is made up as follows:
Equities Index Unsecured Loan Stock 2013	-	19
Closing balance	-	19

14. Called-up share capital

	Ordinary Shares of 10p each
		Nominal
	Number	Value
	of  Shares	£'000
Allotted, called up and fully paid:	160,014,089	16,001
Treasury Shares:
Balance at beginning of year	(16,419,217)
Buyback of Ordinary Shares into treasury	(9,331,661)
Balance at end of year	(25,750,878)
Total Ordinary Share capital excluding Treasury Shares	134,263,211

During the year, 9,331,661 (2014: 9,394,016) Ordinary Shares with a nominal value of £933,166.10 (2014: £939,401.60) and representing 5.83% of the issued share capital, were bought back and placed in treasury for an aggregate consideration of £47,967,720 (2014: £47,058,009). No Ordinary Shares were bought back for cancellation (2014: nil).

15. Net asset value

The net asset value per share and the net asset value attributable to the Ordinary Shares at the year-end are calculated in accordance with their entitlements in the Articles of Association and were as follows:

	Net asset value per share attributable
	2015	2014
	p	p
Ordinary Shares (basic)	519.53	575.92
	Net asset value attributable
	2015	2014
	£'000	£'000
Ordinary Shares (basic)	697,542	826,984

The movement during the year of the Company assets attributable to the Ordinary Shares was as follows:

	2015	2014
	Ordinary	Ordinary
	Shares	Shares
	(basic)	(basic)
	£'000	£'000
Total net assets attributable at beginning of year	826,984	844,455
Ordinary Shares bought back and held in treasury	(47,968)	(47,058)
Total comprehensive income for the year	(66,711)	49,208
Dividends appropriated in the year	(14,763)	(19,621)
	697,542	826,984

Basic net asset value per Ordinary Share is based on net assets and on 134,263,211 Ordinary Shares (2014: 143,594,872), being the number of Ordinary Shares in issue excluding Treasury Shares at the year end.

At the year end, the net asset value per Ordinary Share adjusted to include the Debenture Stock at market value rather amortised cost was 516.31p (2014: 573.42p).

16.  Analysis of cash and cash equivalents at end of year

	At			At
	30 September	Cash	Exchange	30 September
	2014	flow	Movement	2015
	£'000	£'000	£'000	£'000
Company
Cash at bank and on deposit	5,994	949	(294)	6,649

17.  Financial instruments and capital disclosures

Risk management policies and procedures

The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value.

The Company's financial instruments comprise equity and fixed interest investments, cash balances and borrowings. The Company makes use of borrowings to achieve improved performance in rising markets. The risk of borrowings may be reduced by raising the level of cash balances or fixed interest investments held.

The Company may also enter into derivative transactions which comprise forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Company's investing activities) and quoted options on indices appropriate to sections of the portfolio (the purpose of which is to provide protection against falls in the capital values of the holdings).

The Board sets out its investment policies in the full Annual Report.

The Board and Investment Manager consider and review the risks inherent in managing the Company's assets which are detailed below.

Currency exposure	Sterling	Euro	CAD$	US$	Other	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2015
Investments held at fair value through profit or loss that are monetary items	14,978	-	-	-	-	14,978
Other receivables	468	2,381	33	222	1,017	4,121
Cash and cash equivalents	6,514	-	135	-	-	6,649
Other payables	(5,332)	-	-	-	-	(5,332)
8⅛% Debenture Stock 2023	(14,943)	-	-	-	-	(14,943)
Currency exposure on net monetary items	1,685	2,381	168	222	1,017	5,473
Investments held at fair value through profit or loss that are equities	154,387	168,189	48,712	123,395	197,386	692,069
Total net currency exposure	156,072	170,570	48,880	123,617	198,403	697,542

This exposure is representative at the Balance Sheet date and may not be representative of the year as a whole.

	Sterling	Euro	CAD$	US$	Other	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2014
Investments held at fair value through profit or loss that are monetary items	6,041	-	-	19,738	-	25,779
Other receivables	46	740	79	352	2,008	3,225
Cash and cash equivalents	5,852	-	141	-	1	5,994
Other payables	(4,233)	-	-	(2,080)	-	(6,313)
8⅛% Debenture Stock 2023	(14,936)	-	-	-	-	(14,936)
Provision for deferred tax	(19)	-	-	-	-	(19)
Currency exposure on net monetary items	(7,249)	740	220	18,010	2,009	13,730
Investments held at fair value through profit or loss that are equities	116,423	227,409	84,331	194,967	190,124	813,254
Total net currency exposure	109,174	228,149	84,551	212,977	192,133	826,984

The value of the Company's assets and the total return earned by the Company's shareholders can be significantly affected by foreign exchange rate movements as some of the Company's assets are denominated in currencies other than Pounds Sterling, the currency in which the Company's financial statements are prepared. Income denominated in foreign currencies is converted to Pounds Sterling upon receipt.

Over the year, Sterling strengthened against two of the Company's principal investing currencies, the Canadian Dollar by 12.1% (2014: 8.84%) and the Euro by 5.7% (2014: 7.28%), but weakened against the US Dollar by 6.6% (2014: strengthened by 0.11%)

A 5% rise or decline of Sterling against foreign currency denominated (i.e. non Pound Sterling) assets and liabilities held at the year end would have decreased/increased the total return and net asset value by £27,073,000 (2014: £35,891,000).

Interest rate risk

Interest rate movements may affect:

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

• the level of income receivable on cash deposits;

• the interest payable on variable rate borrowings; and

• the fair value of the Company's long-term debt.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Company, generally, does not hold significant cash balances, with short-term borrowings being used when required.

The Debenture Stock, issued by the Company as a planned level of gearing, pays a fixed rate of interest and is carried in the Company's Balance Sheet at amortised cost rather than at fair value. Hence, movements in interest rates will not affect equity but may have an impact on the Company's share price and discount/premium, which is not likely to be material. Further information on the Debenture Stock is shown in note 12.

The exposure at 30 September of financial assets and financial liabilities to interest rate risk is shown by reference to:

●	·      floating interest rates
●	·      fixed interest rates

	At 30 September 2015 £'000	At 30 September 2014 £'000
Exposure to floating interest rates: Cash and cash equivalents	6,649	5,994

If the above level of cash was maintained for a year, a 1% increase/decrease in LIBOR would increase/decrease the revenue return and net assets by £66,000 (2014: £60,000).

		£'000
Exposure to fixed interest rates: Investments held at fair value through profit or loss 8⅛% Debenture Stock 2023 (fair value based on market prices)		14,943  (19,275)
		(4,332)

The impact of holding the Debenture Stock at fair value would be to reduce the Company's net assets by £4,332,000.

The maturity dates and the nominal interest rates on the investments held at fair value through profit or loss are shown in the Investment Portfolio above. The weighted average effective interest rate on these investments is 0% (2014: 0.15%).

The Company's fixed income portfolio at the year end was valued at £14,978,000 (2014: £25,779,000). A 1% increase/decrease in relevant market interest rates would be expected to decrease/increase the portfolio's value by approximately £150,000 (2014: £58,000), all other factors being equal.

The fair value of the Company's Debenture Stock at the year end was £19,275,000 (2014: £18,525,000). A 1% increase/decrease in the applicable interest rates would be expected to decrease/increase the fair values of the Debenture Stock by approximately £1,122,000 (2014: £1,198,000), all other factors being equal.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective of maximising overall returns to shareholders. Further information on the Investment Portfolio is set out above.

If the fair value of the Company's investments at the year end increased or decreased by 10%, then it would have had an effect on the Company's capital return and equity equal to £70,705,000 (2014: £83,878,000).

Liquidity risk

The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments, if necessary. Unlisted investments in the portfolio are subject to liquidity risk. The risk is taken into account by the Directors when arriving at their valuation of these items.

The remaining contractual payments on the Company's financial liabilities at 30 September, based on the earliest date on which payment can be required was as follows:

	In 1 year or  less  £'000	In more than 1 year but not more than 2 years  £'000	In more than 2 years but not more than 3 years £'000	In more than 3 years but not more than 10 years  £'000	Total  £'000
At 30 September 2015
8⅛% Debenture Stock 2023	(1,219)	(1,219)	(1,219)	(20,788)*	(24,445)
Other payables	(5,332)	-	-	-	(5,332)
Deferred tax	-	-	-	-	-
	(6,551)	(1,219)	(1,219)	(20,788)	(29,777)
		In more than	In more than	In more than
		1 year but	2 years but	3 years but
	In 1 year	not more	not more	not more
	or less £'000	than 2 years £'000	than 3 years £'000	than 11 years £'000	Total £'000
At 30 September 2014
8⅛% Debenture Stock 2023	(1,219)	(1,219)	(1,219)	(22,007)*	(25,664)
Other payables	(6,313)	-	-	-	(6,313)
Deferred tax	(19)	-	-	-	(19)
	(7,551)	(1,219)	(1,219)	(22,007)	(31,996)

* Comprises the remaining interest payments to 2023, together with the principal to be repaid in 2023.

Credit risk

Credit risk is mitigated by diversifying the counterparties through whom the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically with limits set on amounts due from any one counterparty.

The total credit exposure of the Company at the year end as shown on the Balance Sheet and Investment Portfolio was £25,748,000 (2014: £34,998,000).

The total credit exposure represents the carrying value of fixed income, cash and receivable balances and totals £25,748,000 (2014: £34,998,000), as detailed in the table above.

Fair values of financial assets and financial liabilities

Except for the Company's Debenture Stock measured at amortised cost as shown below, the financial assets and financial liabilities of the Company are either carried in the Balance Sheet at their fair value (investments), or the Balance Sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, cash at bank and due to brokers).

		2015		2014
	Book value £'000	Fair value £'000	Book value £'000	Fair value £'000
8⅛% Debenture Stock 2023	(14,943)	(19,275)	(14,936)	(18,525)

Quoted market prices have been used to determine the fair value of the Company's Debenture Stock.

The fair value of the Company's unquoted investments is measured by the Directors using valuation methodologies in accordance with IPEVC guidelines and in accordance with the Company's accounting policies as set out above.

Valuation of financial instruments

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

●	Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities.
●	Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1.
●	Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at 30 September 2015

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity investments	687,750	4,319	-	692,069
Fixed interest bearing securities	14,978	-	-	14,978
	702,728	4,319	-	707,047

Financial assets at fair value through profit or loss at 30 September 2014

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Equity investments	810,638	-	2,616	813,254
Fixed interest bearing securities	25,779	-	-	25,779
	836,417	-	2,616	839,033

The valuation techniques used by the Company are explained in the accounting policies note.

The Company entered into a forward currency exchange contract to purchase 9.5 billion Japanese Yen and sell £49 million for future settlement. As at 30 September 2015, the unrealised loss is £3,181,000, detailed in the table below. The Company realised a profit of £3,154,000 on previous forward currency positions during the period.

Financial liabilities at amortised cost at 30 September 2015

	Level 1	Level 2	Level 3
	£'000	£'000	£'000
Foreign exchange forward contracts	-	(3,181)	-

Financial liabilities at amortised cost at 30 September 2014

	Level 1	Level 2	Level 3
	£'000	£'000	£'000
Foreign exchange forward contracts	-	-	-

A reconciliation of fair value measurements in Level 3 is set out below.

Level 2 financial assets at fair value through profit or loss at 30 September

	2015  £'000	2014   £'000
Opening fair value	-	-
Transfer from Level 1 to Level 2	4,319	-
Closing fair value	4,319	-

Level 3 financial assets at fair value through profit or loss at 30 September

	2015  £'000	2014   £'000
Opening fair value	2,616	6,183
Purchases at cost	-	935
Sales - proceeds	(137)	(196)
Total gains/(losses) included in gains on investments in the Statement of Comprehensive Income
- on sold assets	(5,032)	(5,100)
Movement in investment holding gains/(losses)
- reversal of unrealised depreciation upon realisation	2,553	5,235
- movement in unrealised appreciation/(depreciation)	-	(4,441)
Closing fair value	-	2,616

Capital management policies and procedures

The structure of the Company's capital is described in note 14 and details of the Company's reserves are shown in the Statement of Changes in Equity.

The Company's capital management objectives are:

●	to ensure that it will be able to continue as a going concern; and
●	to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value; through an appropriate balance of equity capital and debt.

The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Company's capital on an ongoing basis. These reviews include:

●	the level of gearing, which takes account of the Company's position and the Investment 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.

The Company's objectives, policies and processes for managing capital are unchanged from last year.

The Company is subject to externally imposed capital requirements:

a)	as a public company, the Company is required to have a minimum share capital of £50,000; and
b)	in accordance with the provisions of sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:
	i)	is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and
	ii)	is required to make a dividend distribution each year such that it does not retain more than 15% of the  income that it derives from shares and securities.

These requirements are unchanged since last year and the Company has complied with them at all times.

18. Contingencies, guarantees and financial commitments

At 30 September 2015, the Company had no financial commitments (2014: £nil).

At 30 September 2015, the Company had no contingent liability in respect of any investments carrying an obligation for future subscription or underwriting commitments (2014: £nil).

19.  Related party disclosure

The related party transaction pursuant to the Investment Management Agreement with Asset Value Investors Limited is set out above. Management fees for the year amounted to £5,690,000 (2014: £5,909,000).

As at the year end, the following amounts were outstanding in respect of management fees: £454,000 (2014: £495,000).

Strone Macpherson is Chairman of Close Brothers Group plc, the ultimate parent of Winterflood Securities Limited which acts as the Company's Corporate Broker which is paid a retainer of £25,000 per annum by the Company, of which £nil was outstanding at the year end.

Fees paid to the Company's Directors are disclosed in the Report on Remuneration Implementation in the full Annual Report. At the year end, £5,000 was outstanding due to Directors (2014: nil).

20.  Post balance sheet events

Since the year end the Company has completed the following transactions in its own shares:

Shares bought back and held in treasury

Date	Number of Ordinary Shares	Cost £'000
9 October 2015	93,000	438
16 October 2015	125,000	592
23 October 2015	176,165	839
30 October 2015	103,328	493

There are no further post balance sheet transactions that require disclosure or adjustment in the financial statements.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm 

 

END

 

 

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