Annual Financial Report

RNS Number : 2765N

F&C Managed Portfolio Trust PLC.

24 July 2014

 



To:                  RNS

Date:              24 July 2014

From:             F&C Managed Portfolio Trust plc

Results for the year ended 31 May 2014

The Board of F&C Managed Portfolio Trust plc announces the audited results of the Company for the year to 31 May 2014.

Chairman's Statement

Highlights

•           NAV total returns for the Income shares of 6.0% and the Growth shares of 9.3% compared to the FTSE All-Share Index of 8.9%

•           Annual dividend increased by 4.3% to 4.8p per Income share for the year

Introduction

Returns this year are more modest in comparison with the exceptional 30% plus in the previous period. They are however, in line with the expected long-run return from equities.

Both share classes are building strong records of out-performance relative to their benchmark over the financial years since inception. Moreover, we have maintained share prices very much in line with NAV throughout the year. This has helped us issue more shares to satisfy continuing demand, raising £2.3 million, net of buy-backs.

We are making good progress with our twin objectives of raising the dividend on the Income shares and building revenue reserves to a prudent level.

Our Investment Manager, Peter Hewitt, has provided a very comprehensive account of the events of the year and his management, and I commend it to you.

Performance

Net asset value total return

For the Company's financial year to 31 May 2014, the NAV total return (i.e. adding dividends paid to capital performance) was 6.0% for the Income shares and 9.3% for the Growth shares. The total return for the benchmark index for both Portfolios, the FTSE All-Share Index was 8.9%, while the Investment Company sector, as measured by the FTSE Equity Investment Instruments Index, returned 6.9%.

This is the first financial year since launch that the NAV total return for the Income shares has lagged the benchmark, but longer term performance continues to be very strong. Over the 3 years and 5 years to 31 May 2014, the Income shares NAV total return is 32.9% and 104.9% respectively, outperforming the respective benchmark returns of 30.3% and 92.8%.

The Growth shares were ahead of the benchmark for the financial year and the NAV total return for the Growth shares has now outperformed the benchmark in four of the six financial years since launch. Over the 3 years and 5 years to 31 May 2014, the Growth shares NAV total return is 26.9% and 95.5% as compared to the benchmarks set out above.

Revenue and dividends

During the year, the Company's net revenue return increased to 5.56p per Income share from 5.20p per Income share. This was achieved through growth in income in both Portfolios combined with decreased operating costs. As I highlighted last year; from 6 April 2013 the Company no longer incurs costs for the F&C private investor share plans which has resulted in a saving this year of approximately 0.3p per Income share.

For the year ended 31 May 2014, four interim dividends have now been paid totalling 4.8p per Income share. This represents an increase of 0.2p or 4.3% from the prior year to 31 May 2013. The fourth interim dividend was paid after the year end on 4 July 2014. After recognising all dividends for the year, we were able to add £194,000 to the revenue reserve, which now totals £559,000 or 2.02p per Income share.

As part of a strategy review in 2013, the board adopted the twin objectives of aiming to increase the total dividends paid each year to Income shareholders and of maintaining a revenue reserve equivalent to 6 months dividends. In the current year we have both increased the annual dividend to Income shareholders (by 4.3%) and increased the revenue reserve from 30% to 42% of the annual dividend cost which is encouraging.

As the total annual dividend rate has increased in recent years, we intend to make the quarterly interim dividends of more equal amounts. In the absence of unforeseen circumstances, your Board intends to declare three interim dividends, each of 1.15p per Income share, payable in October 2014, January 2015 and April 2015 (previous year: 1.1p per Income share). It is intended that a fourth interim dividend will be paid to Income shareholders in July 2015 with the amount determined as a clearer view emerges of income for the year.

Borrowing

At the time of writing, borrowings in the Income Portfolio total £0.5 million, (approximately 1.5%) and in the Growth Portfolio £0.5 million, (approximately 1.4%). The Board is responsible for the Company's gearing strategy and sets parameters within which the Manager operates. Borrowings are not normally expected to exceed 20% of the total assets of the relevant Portfolio.

During the year the level of gearing ranged between approximately 1% and 4% in the Income Portfolio and 0% to 2% in the Growth Portfolio.

Discounts and share buy-backs

In normal circumstances, we aim to maintain the discount to NAV at which our shares trade, at not more than 5%. We have achieved this, by buying back shares from time to time. During the year to 31 May 2014 we have been able to maintain an average premium of 0.2% for the Income shares and an average discount of 0.6% for the Growth shares. At the year end, the ratings were a premium of 1.8% for the Income shares and a discount of 0.3% for the Growth shares.

During the year, 270,000 Growth shares were bought back to be held in treasury, but a total of 1,175,000 Growth shares were also sold from treasury raising a net £1.27 million. During the year, all 735,000 Income shares which were held in treasury were sold, together with 150,000 Income shares from our block listing authority raising £1.05 million. The Income shares and Growth shares were sold at average premiums to NAV of 1.1% and 1.3% respectively. This enhanced the respective net asset values by £12,000 and £21,000 - small but positive.

We will be seeking shareholders' approval to renew the powers to allot shares, buy back shares and sell shares from treasury at the Annual General Meeting.

Alternative Investment Fund Managers Directive ("AIFMD)

As highlighted in the Interim report, shareholders may be aware of the introduction of AIFMD, originating from the European Commission. The Company is an 'alternative investment fund' (AIF), as defined by the AIFMD and will fall within the remit of these new regulations.

Arrangements have been made with the Manager who will act as the Company's Alternative Investment Fund Manager, at no additional cost to the Company. Under the Directive, the Company is also required to appoint a Depositary and the Board have appointed JPMorgan to fulfil this role. Although the use of a depository will result in additional cost to the Company, the Board does not expect this to be significant.

Investment companies have been caught in the AIFMD net, which was intended by Brussels to impose controls on hedge funds and private equity funds. The investment company sector has incurred substantial costs in legal fees in complying with the complicated regulations - with, we believe, little or no benefit to shareholders.

Scottish independence referendum

The referendum on Scottish independence, to be held on 18 September 2014, has caused considerable uncertainty on many accounts. The Company is registered in Scotland while the vast majority of our shareholders are located south of the border. The Board has taken advice and has given consideration to the implications that independence might have for the Company. However, it considers that it is too early to determine how this outcome might affect the Company and its shareholders. As and when the situation clarifies, we will take whatever action is required to protect the interests of our shareholders.

Share plans and conversion facility

Shareholders have the opportunity to convert their Income shares into Growth shares or their Growth shares into Income shares upon certain dates every year subject to minimum thresholds. The next opportunity will be on 23 October 2014. Information is provided in the Shareholder Information section in the Annual Report and full details will be provided on the Company's website (www.fcmanagedportfolio.co.uk) from 28 July 2014. Since launch, no conversion has yet taken place as the number of shares offered for conversion has been well below the minimum threshold. This minimum threshold is set by the Board in order to ensure that costs of a conversion are not incurred which would be disproportionate to the level of converting assets.

AGM

The annual general meeting ("AGM") will be held at 12 noon on Tuesday 23 September 2014 in the offices of F&C Asset Management plc, Exchange House, Primrose Street, London. It will be followed by a presentation from our Investment Manager, Peter Hewitt. This is a good opportunity for shareholders to meet the Board and Manager and I would encourage you to attend.

Outlook

Global growth appears well established even though the Eurozone continues to act as a drag. Over the course of the year, this progress should lead to an increase in company earnings sufficient to support equity markets where ratings appear full, but not excessive.

As we are learning, geo-political risks abound, although markets have so far taken events in Ukraine and the Middle East in their stride.

We believe the Company's record to date demonstrates that our portfolios of investment companies across the world and in many sectors should prove resilient as well as providing attractive returns.

Richard M Martin

Chairman

24 July 2014

Investment Manager's Review

Stockmarket Background

After the stellar returns achieved by global equity markets in the financial year to 31 May 2013, it was perhaps not unexpected that the financial year under review should be marked by more modest returns from most developed markets. Disappointing performances were recorded by the Japanese and certain Emerging Markets which experienced negative returns over the period. The massive stimulus from the policy of Quantitative Easing, undertaken by the Federal Reserve and the Bank of England to encourage economic activity, was the key driver behind the substantial gains experienced by markets last year. As the present financial year progressed, this policy began to have less effect on financial markets generally. Investors became preoccupied by the prospect of when the Federal Reserve would begin to taper down this policy and then, by how much. This created undue volatility although markets managed to take "tapering" in their stride and in the case of the US, UK and Europe still achieved reasonable positive returns for the year.

A key feature has been the continued and rather unexpected strength of sterling throughout the year. The currency appreciated 10.6% against the dollar, 5.1% against the Euro and over 11.4% relative to the Japanese Yen. This substantially reduced returns from even strongly performing overseas equity markets when their returns were translated back into sterling. Over the very long term, sterling has been regarded as a weak currency, which enhanced returns from many global equity markets. The financial crisis of 2008 caused very significant declines in the value of sterling, particularly relative to the dollar; however since the lows of early 2009 the UK currency has experienced a rather unlikely but nonetheless steady appreciation against many currencies. A variety of different reasons have been put forward to try to explain the strength of sterling. Certainly in the past year or two, the unexpected strength of the UK economic recovery accompanied by an austerity program, which sought to bear down on historically high levels of government debt, were factors. However, it may simply have been that the economic fundamentals underpinning other currencies were deemed to be worse than those of the UK e.g. the Eurozone. It would take many pages to analyse the causes and effects and even then it is not clear a satisfactory conclusion could be achieved. Importantly from the point of view of sterling based investors there has been a headwind to deal with, particularly over the past year, caused by an appreciating currency when seeking returns from overseas markets.

Despite the effect of sterling strength and still uninspiring economic fundamentals, the best stock market returns came from Europe where the Mediterranean countries and those that had experienced the greatest difficulties during the Eurozone crisis, enjoyed the best returns e.g. Spain, Italy and Greece. The US equity market delivered strong returns in local currency and has continued to consistently make new highs over the year. This has been achieved against a background of over optimistic corporate earnings estimates and valuations of equities trending towards the expensive end of historic ranges. Asian markets generally had a disappointing year, where concerns over slowing demand from China was a key factor behind poor corporate profits results from many companies inside and outside China. In Japan also, the euphoria caused by the policy initiatives and goals of "Abenomics" have given way to a more pragmatic approach towards the equity market from investors because as yet it is too early to determine how successful the policy may be.

Once again a striking feature of financial markets has been a second consecutive year of uninspiring returns from the UK bond market. As an illustration, the yield on 10 year government gilts rose from 2% to 2.6% over the period and the FTSE Government All Stocks Index managed a total return of
only 0.5%.

Performance

For the year to 31 May 2014 the FTSE All-Share Index rose by 8.9% (in total return terms). Over the same period the Net Asset Value for the Income Portfolio was ahead by 6.0% whilst that of the Growth Portfolio gained 9.3% (again both in total return terms). This was the first year, since the launch of F&C Managed Portfolio Trust in 2008, that the Income Portfolio had generated returns that lagged those of the principal benchmark. Encouragingly, the Growth Portfolio was slightly ahead of the FTSE All-Share Index in the year under review and both portfolios are ahead of the benchmark over five years.

For comparative purposes the FTSE Equity Investment Instruments Index (which is the Investment Companies sector index and effectively the universe that both portfolios are chosen from) rose by 6.9% over the year under review (also in total return terms). The FTSE World (ex UK) Index (adjusted back into sterling and in total return terms) also rose by 6.9%. This index represents a proxy for global equities where the Investment Companies sector has a bias, with over half its assets invested overseas.

What were the key influences behind performance?

Small and Mid-Cap Effect

This is a very important factor influencing the performance of active fund managers. When medium sized and smaller companies lead the performance of the equity market (in the UK this would be measured by the FTSE Mid 250 Index and the FTSE Small Cap Index excluding investment companies) then there is a good chance that fund managers of investment companies invested in the UK equity market are out performing the main UK equity index. The reason for this is that it is difficult for fund managers to achieve overweight positions in the very largest companies which themselves may comprise a sizeable proportion of the FTSE All-Share Index. Fund managers tend to seek outperformance from holdings in medium and smaller companies which have better growth characteristics than their larger brethren. The past year has generally been favourable for these type of companies who typically prosper when economic activity is recovering and inflation and interest rates are low. The largest companies, as represented by the FTSE 100 Index lead performance at times of financial distress or great uncertainty.

Over the past year the mid and small cap effect has been evident not only in the UK but also Europe and Japan and to a lesser degree the US. The Growth Portfolio is well represented in investment companies which are overweight these areas and this benefitted performance.

Average Sector Discounts

The direction of discounts often plays a part in the performance of investment companies. However, in the past financial year the average sector discount for Investment Companies (excluding private equity, property and hedge funds) started at 6.5% and ended at 5.7% so the effect on performance was modest.

Gearing

One of the main advantages that investment companies have over their open ended counterparts is the ability to borrow and invest in the markets. This can work against performance should equity price levels decline, however over the past year most equity markets have moved ahead and so it has been helpful to performance for those investment companies which have borrowed monies to invest in the markets.

Income Portfolio - Contributors and Detractors (all figures total return).

Two principal factors were behind the Income Portfolio lagging the FTSE All-Share Index for the first time since the launch of the trust in April 2008. First, was exposure to a number of Asian Income investment companies. These long time holdings had performed well over a number of years and gave the Income Portfolio exposure to a region that income funds typically do not have much representation. In addition, they also gave welcome diversity to the sources of income for the portfolio so as to prevent an over reliance on well-known names within the FTSE 100 Index. However, as was touched on earlier in the market background section, Asia Pacific markets did not perform well in the last financial year. A slowdown in growth in China and weak corporate profits combined to cause most of the main stockmarkets in the region to fall. Although long term attractions of the Asia Pacific region remain; in the last year, investment companies exposed to the area underperformed. As an example, Aberdeen Asian Income Fund -11%, Henderson Far East Income -6% and Schroder Oriental Income Fund -7%. The second factor was the difficulty of gaining enough exposure to investment companies with significant exposure to mid and small cap holdings. The reason for that is yield; not many have sufficient dividend yields to merit inclusion in an Income Portfolio.

Some of the leading contributors were investment companies where they did have a reasonable exposure to the strongly performing mid and small cap segments and had dividend yields high enough to be held in an income portfolio. For the second year running European Assets Trust +24%, Mercantile Investment Trust +20% and Lowland Investment Company +20% were amongst the best performers. Indeed for Lowland this was the fourth consecutive year it has been a leading contributor. Strong selection has been a feature for all three funds. The top performer was the Schroder Real Estate Investment Trust. Having suffered a near death experience in 2009/10 the trust has recovered and has showed good net asset value progress as the UK property market has recovered strongly. Last year the share price rose by 31% and still has an attractive dividend yield of nearly 5%.

Growth Portfolio - Contributors and Detractors (all figures total return)

As with the Income Portfolio, the holdings which were the main detractors to performance were all in the Asia Pacific region e.g. Aberdeen Asian Smaller Companies -18%, Asian Total Return -12% and Edinburgh Dragon Trust -11%. However, because the Growth Portfolio did not have as high an overall exposure to the region, performance was not as adversely affected.

The best performing holding was TR Property Investment Trust which rose 33%. As mentioned earlier, property was a strongly performing asset class and this trust invests mainly in the shares of quoted property companies in the UK and Europe. Underlying holdings, boosted by gearing, experienced strong asset value growth, and also a sharp narrowing of discounts or move to premiums. Next best performer was Schroder UK Mid Cap Fund (which was also a leading contributor last year) whose share price gained 32%. Not only was the trust exposed to a strongly performing area of the market, stock selection added value and the discount closed from 10% to 5%. RCM Technology Trust and Herald Investment Trust were both ahead by 23%. They operate at different ends of the technology sector with the former focussing on exciting companies often based in Silicon Valley in the US, whilst Herald specialises in smaller UK companies in the technology and media sector. Technology stocks generally performed strongly over the past year. Lastly, Henderson European Focus gained 27% asset growth, significantly ahead of its benchmark and was enhanced with the share price moving from a 5% discount to a 2% premium over the period.

Investment Strategy and Outlook

The outlook section in last year's annual report concluded by saying that provided overall activity levels recovered, that would be supportive of further gains in equity markets. In this respect a return of nearly 9% from the FTSE All-Share Index, although much less than the previous year, represented reasonable progress. Globally, most major equity markets delivered decent positive returns in local currencies, however, for the sterling based investor, these returns were significantly diluted due to the UK currency's unexpected strength.

What are the prospects for the coming year?

At the time of writing sterling has strengthened further against both the dollar and the Euro to over $1.70 and €1.25 respectively. Forecasting the likely path of currencies is an almost impossible task however it does appear that with the new Governor of the Bank of England hinting that interest rates in the UK may begin edging higher earlier than had been anticipated, there is every chance that sterling will remain firm. No other major countries, certainly not the European Central Bank who recently cut their interest rate, or the Federal Reserve in the US, are likely to increase rates in the near future. If this is the case, then returns from global equities for sterling based investors may again be diluted on translation.

The UK should continue to experience robust growth and although there is the likelihood of a change of direction of interest rates, the overall backdrop remains positive. Similarly, the US economy is growing, albeit at a slower pace. Encouragingly there are indications that this will increase over the balance of the year. The Eurozone remains a mixed bag, however a return to growth is more likely with even some of the countries worst hit by the financial crisis showing signs of recovery. The Asia Pacific region has been affected by slower growth from China and although the evidence from China is sometimes contradictory, there are early indications that growth has begun to stabilise, albeit at lower level.

Last year there was much concern focussed on the prospects of the US Federal Reserve beginning to taper down their policy of Quantitative Easing, which resulted in much volatility in financial markets. A year on this has happened and markets have taken it in their stride. One of investors' major concerns is an indirect result of this policy which has been operated in the US and UK. A prolonged period of historically very low interest rates has had the effect of boosting asset prices. One example would be property values in the UK. Another is equity price levels. In the US, the Standard & Poor's Composite Index is at an all-time high, whilst in the UK, the FTSE 100 Index has moved from below 4000 in March 2009 to around 6850 by the end of May 2014.

The valuation accorded to equities has expanded significantly, such that the price earnings ratio of the UK stockmarket has risen to around 13x. This happened with only modest support from UK corporate earnings which have consistently disappointed over the five years of ultra-low interest rates. To continue to experience gains from current levels, without the market becoming seriously overvalued, will require much stronger corporate earnings. In this regard, supported by rising activity levels, indicators are more positive for a robust recovery. This would be the major pre-requisite for equity markets to progress. As interest rates appear likely to gently move upwards, valuations would come under pressure if not supported by better levels of corporate profits growth.

There may be early signs of a change of leadership within the market, as for the first time since 2011 the FTSE 100 Index which comprises the very largest companies, has begun to outperform medium and smaller sized companies which comprise the FTSE Mid 250 and FTSE Small Company Indices. If this were to continue, it would create a headwind for many active fund managers who find it difficult to be overweight the biggest companies in the Index. In response, the Investment Manager has trimmed exposure to specialist mid cap funds, however over the longer run, superior growth comes from medium and smaller companies which is reflected in the consistent outperformance from these areas.

In terms of investment strategy, the focus of your Investment Manager is to identify and select investment companies which have demonstrated superior performance records within their respective sectors and have good prospects for asset growth. Experience indicates that outperformance is more likely from investment managers who have a clearly defined process, experience of a variety of different market conditions, ample resources to underpin their management skills and a relentless focus on the portfolio they are charged with managing.

From a longer term investment perspective, although the direction of interest rates will change over the next 12 months they remain at historically low levels and increases are likely to be gentle; inflation is subdued; and growth, particularly in the UK is recovering strongly. Valuations for equities have moved above fair value, however provided overall corporate earnings and dividends grow as anticipated, then that should support further progress in equity markets.

Peter Hewitt

Investment Manager

F&C Investment Business Limited

24 July 2014

Income Statement (audited)

Year to 31 May 2014

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	3,528	3,528
Foreign exchange losses		-	(9)	(9)
Income		1,971	-	1,971
Investment management and performance fees		(125)	(297)	(422)
Other expenses		(332)	-	(332)
Return on ordinary activities before finance      costs and tax		1,514	3,222	4,736
Finance costs		(11)	(21)	(32)
Return on ordinary activities before tax		1,503	3,201	4,704
Tax on ordinary activities	5	(4)	-	(4)
Return attributable to shareholders	2	1,499	3,201	4,700
Return per Income share	3	5.56p	1.22p	6.78p
Return per Growth share	3	-	11.41p	11.41p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

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

Income Statement (audited)

Year to 31 May 2013

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	14,907	14,907
Income		1,920	-	1,920
Investment management and performance fees		(108)	(337)	(445)
Other expenses		(410)	-	(410)
Return on ordinary activities before finance       costs and tax		1,402	14,570	15,972
Finance costs		(7)	(12)	(19)
Return on ordinary activities before tax		1,395	14,558	15,953
Tax on ordinary activities		(5)	-	(5)
Return attributable to shareholders		1,390	14,558	15,948
Return per Income share	3	5.20p	25.30p	30.50p
Return per Growth share	3	-	30.60p	30.60p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

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

Balance Sheet (audited)

As at 31 May 2014

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		33,514	35,218	68,732
Current assets
Debtors		41	49	90
Cash at bank and on deposit		-	341	341
		41	390	431
Creditors
Amount falling due within one year		(577)	(258)	(835)
Net current (liabilities)/assets		(536)	132	(404)
Net assets		32,978	35,350	68,328
Capital and reserves
Called-up share capital		2,751	2,740	5,491
Share premium		5,312	8,295	13,607
Capital redemption reserve		-	182	182
Special reserve		19,380	15,700	35,080
Capital reserves		4,560	8,433	12,993
Revenue reserve		975	-	975
Shareholders' Funds		32,978	35,350	68,328
Net asset value per share (pence)	6	119.85p	136.41p

Balance Sheet (audited)

As at 31 May 2013

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		31,934	31,732	63,666
Current assets
Debtors		54	31	85
		54	31	85
Creditors
Amount falling due within one year		(650)	(556)	(1,206)
Net current liabilities		(596)	(525)	(1,121)
Net assets		31,338	31,207	62,545
Capital and reserves
Called-up share capital		2,736	2,740	5,476
Share premium		4,978	7,876	12,854
Capital redemption reserve		-	182	182
Special reserve		18,683	14,847	33,530
Capital reserves		4,230	5,562	9,792
Revenue reserve		711	-	711
Shareholders' Funds		31,338	31,207	62,545
Net asset value per share (pence)	6	117.68p	124.78p

Cash Flow Statement (audited)

Year to 31 May 2014

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Operating activities
Investment income received, net of withholding tax suffered		1,397	565	1,962
Investment management and performance fees paid		(322)	(210)	(532)
Other cash payments		(163)	(187)	(350)
Net cash inflow from operating activities		912	168	1,080
Servicing of finance
Interest paid on bank borrowings		(25)	(7)	(32)
Net cash outflow from servicing of finance		(25)	(7)	(32)
Capital expenditure and financial investment
Purchases of investments		(3,602)	(3,937)	(7,539)
Disposals of investments		2,858	3,275	6,133
Net cash outflow from capital expenditure and financial investment		(744)	(662)	(1,406)
Equity dividends paid		(1,235)	-	(1,235)
Net cash outflow before financing		(1,092)	(501)	(1,593)
Financing
Issue of new shares		180	-	180
Shares purchased to be held in treasury		-	(325)	(325)
Sale of shares from treasury		866	1,597	2,463
Net cash inflow from financing		1,046	1,272	2,318
(Decrease)/increase in cash		(46)	771	725
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year		(46)	771	725
Opening net debt		(421)	(430)	(851)
Closing net (debt)/cash		(467)	341	(126)

Cash Flow Statement (audited)

Year to 31 May 2013

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Operating activities
Investment income received, net of withholding tax suffered		1,364	577	1,941
Deposit interest received		-	3	3
Investment management and performance fees paid		(167)	(166)	(333)
Other cash payments		(174)	(191)	(365)
Net cash inflow from operating activities		1,023	223	1,246
Servicing of finance
Interest paid on bank borrowings		(18)	(1)	(19)
Net cash outflow from servicing of finance		(18)	(1)	(19)
Capital expenditure and financial investment
Purchases of investments		(768)	(4,084)	(4,852)
Disposals of investments		1,292	4,151	5,443
Net cash inflow from capital expenditure and financial investment		524	67	591
Equity dividends paid		(1,270)	-	(1,270)
Net cash inflow before financing		259	289	548
Financing
Expenses of offer for subscription		(7)	(13)	(20)
Shares purchased to be held in treasury		(292)	(977)	(1,269)
Sale of shares from treasury		59	-	59
Net cash outflow from financing		(240)	(990)	(1,230)
Increase/(decrease) in cash		19	(701)	(682)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year		19	(701)	(682)
Opening net (debt)/cash		(440)	271	(169)
Closing net debt		(421)	(430)	(851)

Reconciliation of Movements in Shareholders' Funds (audited)

Year to 31 May 2014

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Opening shareholders' funds		31,338	31,207	62,545
Increase in share capital in issue		180	-	180
Shares sold from treasury		866	1,597	2,463
Shares purchased for treasury		-	(325)	(325)
Transfer of net income to Income shares from Growth shares		368	(368)	-
Transfer of capital from Income shares to Growth shares		(368)	368	-
Dividends paid		(1,235)		(1,235)
Return attributable to shareholders		1,829	2,871	4,700
Closing shareholders' funds		32,978	35,350	68,328

Reconciliation of Movements in Shareholders' Funds (audited)

Year to 31 May 2013

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Opening shareholders' funds		24,692	24,385	49,077
Shares sold from treasury		59	-	59
Shares purchased for treasury		(292)	(977)	(1,269)
Transfer of net income to Income shares from Growth shares		298	(298)	-
Transfer of capital from Income shares to Growth shares		(298)	298	-
Dividends paid		(1,270)	-	(1,270)
Return attributable to shareholders		8,149	7,799	15,948
Closing shareholders' funds		31,338	31,207	62,545

Principal Risks and Uncertainties

The Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council, and has established an ongoing process designed to meet the needs of the Company in managing the risks and uncertainties to which it is exposed.

The Company's assets consist mainly of listed equity securities and its principal risks are therefore   market-related.  More detailed explanations of these risks and the way in which they are managed are contained in the notes to the accounts.

Other risks faced by the Company include the following:

·      External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.

·      Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.

·      Credit risk - is the risk that a counterparty will fail to discharge an obligation or commitment that it had entered into with the Company.  All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's custodian.  Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited.

·      Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.  Breach of section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

·      Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of the third party service providers, could lead to an inability to provide accurate reporting and monitoring to the Company, leading to a loss of shareholders' confidence.

·      Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets of the Company.  Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.

·      Referendum on Scottish Independence - the Company is a Scottish registered company and the Board is mindful that there is uncertainty arising in relation to the referendum on Scottish Independence which is due to take place on 18 September 2014. Such matters of uncertainty include jurisdiction and taxation of savings and pension plans, financial services regulation, investment trust status, currency and membership of the European Union.  The Board considers that, should the vote be in favour of independence, there will be a transitional period during which there will be an opportunity to assess the new situation and take any appropriate action.

The Board seeks to mitigate and manage these risks through continual review, policy-setting and reliance upon contractual obligations.  It also regularly monitors the investment environment and the management of the Company's investment portfolios.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year to 31 May 2014, of which this statement of results is an extract, have been prepared in accordance with applicable UK Generally Accepted Accounting Practice, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Richard M. Martin

Chairman

24 July 2014

Notes (audited)

1.   The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 24 July 2014, have been prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with guidelines set out in the Statement of Recommended Practice (''SORP'') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (''AIC'') in January 2009. The audited financial statements for the Company comprise the Income Statement and the total columns of the Balance Sheet, the Cash Flow Statement, Reconciliation of Movements in Shareholders' Funds and the Company totals shown in the notes to the financial statements.

2.   Segmental analysis

            The Company carries on business as an investment trust and manages two separate portfolios of assets: the Income Portfolio and the Growth Portfolio.

            The Company's Income Statementcan be analysed as follows. This has been disclosed to assist shareholders' understanding, but this analysis is additional to that required by UK GAAP and is not audited:

Year ended 31 May 2014

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	-	845	845	-	2,683	2,683	-	3,528	3,528
Foreign exchange losses	-	(9)	(9)	-	-	-	-	(9)	(9)
Income	1,388	-	1,388	583	-	583	1,971	-	1,971
Investment management and    performance fees	(82)	(123)	(205)	(43)	(174)	(217)	(125)	(297)	(422)
Other expenses	(162)	-	(162)	(170)	-	(170)	(332)	-	(332)
Return on ordinary activities before finance costs and tax	1,144	713	1,857	370	2,509	2,879	1,514	3,222	4,736
Finance costs	(10)	(15)	(25)	(1)	(6)	(7)	(11)	(21)	(32)
Return on ordinary activities before tax	1,134	698	1,832	369	2,503	2,872	1,503	3,201	4,704
Tax on ordinary activities	(3)	-	(3)	(1)	-	(1)	(4)	-	(4)
Return  #	1,131	698	1,829	368	2,503	2,871	1,499	3,201	4,700

Year ended 31 May 2013

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	-	7,262	7,262	-	7,645	7,645	-	14,907	14,907
Income	1,362	-	1,362	558	-	558	1,920	-	1,920
Investment management and     performance fees	(72)	(194)	(266)	(36)	(143)	(179)	(108)	(337)	(445)
Other expenses	(188)	-	(188)	(222)	-	(222)	(410)	-	(410)
Return on ordinary activities before finance costs and tax	1,102	7,068	8,170	300	7,502	7,802	1,402	14,570	15,972
Finance costs	(7)	(11)	(18)	-	(1)	(1)	(7)	(12)	(19)
Return on ordinary activities before tax	1,095	7,057	8,152	300	7,501	7,801	1,395	14,558	15,953
Tax on ordinary activities	(3)	-	(3)	(2)	-	(2)	(5)	-	(5)
Return  #	1,092	7,057	8,149	298	7,501	7,799	1,390	14,558	15,948

# Any net revenue return attributable to the Growth Portfolio is transferred to the Income Portfolio and a corresponding transfer of an identical amount of capital is made from the Income Portfolio to the Growth Portfolio and accordingly the whole return in the Growth Portfolio is capital.  Refer to the Reconciliation of Movements in Shareholders' Funds.

.

3.   Return per share

      The Return per share is as follows:

Year ended 31 May 2014	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,131	698	1,829	368	2,503	2,871
Transfer of net income from Growth to Income Portfolio	368	-	368	(368)	-	(368)
Transfer of capital from Income  to Growth Portfolio	-	(368)	(368)	-	368	368
Return attributable to    shareholders	1,499	330	1,829	-	2,871	2,871
Return per share	5.56p	1.22p	6.78p	-	11.41p	11.41p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		26,969,936			25,153,747

Year ended 31 May 2013	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,092	7,057	8,149	298	7,501	7,799
Transfer of net income from Growth to Income Portfolio	298	-	298	(298)	-	(298)
Transfer of capital from Income  to Growth Portfolio	-	(298)	(298)	-	298	298
Return attributable to     shareholders	1,390	6,759	8,149	-	7,799	7,799
Return per share	5.20p	25.30p	30.50p	-	30.60p	30.60p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		26,715,073			25,484,706

4.       Dividends

		2014
		Income shares Total
Dividends on Income shares		£'000
Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2013
- fourth interim dividend of 1.3p per Income share		346
For the year ended 31 May 2014
- first interim dividend of 1.1p per Income share		296
- second interim dividend of 1.1p per Income share		296
- third interim dividend of 1.1p per Income share		297
		1,235
Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.5p per Income share*		416

* Based on 27,714,936 Income Shares in issue at the record date of 20 June 2014.

The fourth interim dividend of 1.5p per Income share, was paid on 4 July 2014 to shareholders on the register on 20 June 2014, with an ex-dividend date of 18 June 2014.

The Growth shares do not carry an entitlement to receive dividends.

5.       (a) Tax on ordinary activities

    Year ended 31 May 2014

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Current tax charge for the year (all irrecoverable overseas tax) being Taxation on ordinary activities	3	-	3	1	-	1	4	-	4

 (b) Reconciliation of tax charge

		2014
		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Return on ordinary activities before tax:		1,832	2,872	4,704
Corporation tax at standard rate of 22.7 per cent		415	651	1,066
Effects of:
Gains on investments not taxable		(192)	(608)	(800)
Overseas tax suffered		3	1	4
Non taxable UK dividend income		(165)	(119)	(284)
Non taxable overseas dividend income		(146)	(13)	(159)
Expenses not utilised		88	89	177
Current year tax charge (note 5 (a))		3	1	4

6.       The net asset value per Income share is calculated on net assets of £32,978,000 (2013: £31,338,000), divided by 27,514,936 (2013: 26,629,936) Income shares, being the number of Income shares in issue at the year end (excluding shares held in treasury).

The net asset value per Growth share is calculated on net assets of £35,350,000 (2013: £31,207,000), divided by 25,914,843 (2013: 25,009,843) Growth shares, being the number of Growth shares in issue at the year end (excluding shares held in treasury). 

7.       During the year the Company bought back nil (2013: 300,000) Income shares at a cost of £nil (2013: £292,000) to be held in treasury and resold out of treasury 735,000 (2013: 50,000) Income shares, receiving net proceeds of £866,000 (2013: £59,000). At 31 May 2014 the Company held nil (2013: 735,000) Income shares in treasury.  A further 150,000 Income shares were issued for net proceeds of £180,000.

          During the year the Company bought back 270,000 (2013: 940,000) Growth shares at a cost of £325,000 (2013: £977,000) to be held in treasury and resold out of treasury 1,175,000 (2013: nil) Growth shares, receiving net proceeds of £1,597,000 (2013: £nil). At 31 May 2014 the Company held 1,490,000 (2013: 2,395,000) Growth shares in treasury. 

8.   Financial Instruments

The Company's financial instruments comprise its investment portfolio, cash balances, bank borrowings and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective.

Listed and quoted fixed asset investments held are valued at fair value. The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet.

The fair value of the financial assets and liabilities of the Company at 31 May 2014 and 31 May 2013 is not materially different from their carrying value in the financial statements.

The main risks that the Company faces arising from its financial instruments are:

(i)       market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)      interest rate risk, being the risk that the future cash flows of a financial instrument or the fair value of the listed debt will fluctuate because of changes in market interest rates;

(iii)      foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates;

(iv)      credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v)       liquidity risk, being the risk that the Company may not be able to liquidate its investments quickly or otherwise raise funds to meet financial commitments.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity and debt investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders.

Interest rate risk

Floating rate

When the Company retains cash balances the majority of the cash is held in variable rate bank accounts yielding rates of interest linked to the UK base rate which was 0.5 per cent at 31 May 2014 (2013: 0.5 per cent). There are no other assets which are directly exposed to floating interest rate risk. The cost of the Company's borrowing facility from its custodian JPMorgan Chase Bank is linked to the Sterling Overnight Interbank Average Rate (SONIA) which was 0.42 per cent at 31 May 2014 (2013: 0.42 per cent).

Fixed rate

The Income Portfolio holds fixed interest investments.  Movements in market interest rates will affect the market value of fixed interest investments. 

              The Growth Portfolio does not hold any fixed interest investments.

The Company does not have any liabilities which are exposed to fixed interest rate risk.

Foreign currency risk

The Company may invest in overseas securities which give rise to currency risks.  At 31 May 2014 the Income Portfolio had a US dollar denominated investment valued at £504,000 (2013: £623,000) and a Swiss Franc denominated investment valued at £596,000 (2013: £nil).

As the remainder of the Company's investments and all other assets and liabilities are denominated in sterling there is no other direct foreign currency risk.  However, although the Company's performance is measured in sterling and the Company's investments (other than the above) are denominated in sterling a proportion of their underlying assets are quoted in currencies other than sterling. Therefore movements in the rates of exchange between sterling and other currencies may affect the market price of the Company's investment portfolios and therefore they have currency exposure.

                  Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The investment manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the balance sheet date.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The credit risk on liquid funds is controlled because the counterparties are banks with acceptable credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

              Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.  The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given that the Company's listed and quoted securities are considered to be readily realisable.

The Company's liquidity risk is managed on an ongoing basis by the investment manager in accordance with policies and procedures in place. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses which are settled in accordance with suppliers stated terms. During the year, the Company had a borrowing facility with its custodian JPMorgan Chase Bank which is repayable on demand.  All liabilities are considered to be repayable on demand for a consideration equal to the carrying value of the liabilities.

9.       Subject to certain minimum and maximum thresholds which may be set by the Board of F&C Managed Portfolio Trust plc ("the Board") from time to time, shareholders have the opportunity to convert their Income shares into Growth shares and/or their Growth shares into Income shares upon certain dates, the next of which will be 23 October 2014 and then annually or close to annually thereafter (subject to the articles of association of the Company). The Conversion notice period will commence on 28 July 2014 and full details will be provided on the Company's website from this date and in the Company's Annual Report and Accounts.

10.     These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited Annual Report and Accounts for the year ended 31 May 2014 will be sent to shareholders shortly, and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.  The full Annual Report and Accounts will be available on the Company's website www.fcmanagedportfolio.co.uk.

The audited accounts for the year to 31 May 2014 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 23 September 2014.

For further information, please contact:

Peter Hewitt, F&C Investment Business Limited   0131 718 1244

Ian Ridge, F&C Investment Business Limited        0131 718 1010

 

END

 

 

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