Annual Financial Report

RNS Number : 9402D
Edinburgh US Tracker Trust plc
31 March 2011
 



31 March 2011

 

 

EDINBURGH US TRACKER TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2011

 

 

Edinburgh US Tracker Trust aims to achieve long term growth of capital and income by tracking the performance of the S&P 500 Index.

 

•     Company continues to track the performance of the S&P Composite Index

 

 

For further information, please contact:

 

David McCraw

Aberdeen Asset Managers Limited                                               0131 528 4000

 

CHAIRMAN'S STATEMENT

US equities started the year strongly in response to the recovery in the US economy and better than expected corporate profits. The equity markets reached a short-term peak in April but subsequent concerns over the impact of sovereign debt issues in Europe and signs of the recovery in the US economy beginning to wane led to a pull back in equity markets through the summer months. However, from the start of September through the end of the financial year the equity markets moved sharply higher again in response to the Federal Reserve announcing that a further round of quantitative easing would be implemented if the economy remained weak. Investors also responded positively to better than expected corporate profits and a rebound in the manufacturing sector.

 

The Company continues to meet the objective of tracking the performance of the S&P 500 Index. In the 12 months to 31 January 2011, the net asset value per share (excluding undistributed revenue for the period) rose by 19.8% to 668.37p (NAV), compared to an increase of 19.8% in the index (in sterling terms). Since the investment objective of the Company was revised in June 1997, the capital performance has slightly exceeded the return from the Index. The annualised returns of the Company's capital net asset value per share for the period 31 July 1997 to 31 January 2011 was 2.61% per annum compared to an annualised return of 2.40% per annum for the Index.

 

The Company operates a share buy-back programme with the aim of managing the level of the discount and in the year bought back 3,356,690 of its own shares for cancellation. The share price rose by 18.3% during the year (compared to the index return of 19.8%) and at 31 January 2011 the shares were standing at a discount of 4.9% to the net asset value per share (excluding the undistributed revenue of the period) compared with a discount of 3.8% at 31 January 2010. The Directors will continue to operate its share buyback programme to manage the discount when necessary in the year ahead.

 

The income statement for 2011 includes a repayment of £106,000 of VAT representing the VAT charged on the management fees between 1990 and 1996 and £78,000 of simple interest on the total amount of VAT repaid. A compound interest claim on the sums recovered remains outstanding. 

 

Dividend

The revenue return per share rose by 9.9% to 8.81p (2010: 8.02p) with the VAT refund and interest claim contributing 0.44p to this figure. The Directors declared an interim dividend of 4.20p per share and are recommending a final dividend of 4.95p (2010: 3.80p) which will take the total dividends for the year to 9.15p (2010: 10.00p). Dividends for the year to 31 January 2010 included an additional 2.00p per share from accumulated revenue reserves. This one-off supplement recognised the non-recurring benefit to revenue reserves per share arising from the tender offer and was made at a time when income from equity investments had been under pressure.  

 

Marketing

The Board continues to promote the company through the Investment Manager's marketing initiative which provides a series of savings schemes through which savers can invest in Edinburgh US Tracker Trust in a low cost and convenient manner. Up-to-date information about the company is available on the Company's website on www.edinburghustracker.com.

 

Corporate Governance

The Board reviews annually the performance of the Investment Manager, the Chairman and the Board as a whole. The Board has assessed the performance of the Investment Manager, the investment process and risk controls. The Board has reviewed the terms of the management agreement during the year and believes that the continuing appointment of the Investment Manager, on the terms agreed, is in the interests of shareholders. 

 

Annual General Meeting

The Company's Articles of Association require shareholders to vote on the continuation of the Company at every Annual General Meeting. Accordingly, a resolution to this effect will be proposed as Special Business at the Annual General Meeting to be held on Wednesday 25 May 2011. If this resolution is not passed, a resolution to liquidate the Company will be proposed later this year. Liquidation would result in a disposal of the Company's shares for taxation purposes and therefore shareholders should consider carefully whether they wish the company to be wound up. There will be another opportunity to consider the future of the Company at the same time next year. I believe that our investment performance, aided by low management and administration costs, as evidenced by the total expense ratio of 0.38%, underlines the attractions of the index tracking approach to investors. Your Board therefore strongly recommends all shareholders to vote in favour of the resolution.

 

The Directors are also seeking shareholder's approval to renew the authority to issue new shares for cash to meet investor demand provided the subscription price is not below the net asset value per share. Your Board also has the authority to purchase the Company's shares for cancellation were the shares to trade persistently at a level in excess of the company's stated discount policy. Special resolutions proposing an extension of these facilities will be put to shareholders in the Annual General Meeting.

 

Outlook

The US equity market indices have rebounded from their recession lows but continue to exhibit high levels of volatility amid a clouded outlook for economic growth. In addition to weak housing and employment, both financial and healthcare reform will begin to be implemented, with unknown but potentially negative consequences to profitability and growth in those industries. Rising energy and food prices may temper consumption and borrowing costs will rise eventually. In the long term, the US needs to deal with the rising national debt incurred by a decade of budget deficits, funding two wars abroad and the government's latest efforts to support the economy during the recession. The debt-to-GDP ratio is projected to reach heights not seen since World War II. Difficult changes will need to be made but recently proposed defence cuts are an indication that the scale of the problem has been recognised.

 

Estimates for corporate earnings have continued to rise on improved operations, recovering demand, organic investment, and merger and acquisition activity. Equity valuations remain below their historical averages and may revert toward historical norms over time but the path toward this may entail continued volatility as economic and policy issues are addressed.

 

James Ferguson

Chairman

30 March 2011

 

 

MANAGER'S REPORT

Edinburgh US Tracker Trust is the only UK investment trust to track the performance of the S&P 500 Index and provides shareholders with a diversified portfolio which is invested in the leading 500 companies across the main industries within the US economy. The method employed by the Company to track the index involves full replication of the index constituents. This means that the Company's portfolio holds every stock making up the index in an amount that equals the stock's proportionate weight in the index. The index is calculated on the basis of the market capitalisation of its 500 constituents which are drawn from companies listed on the New York Stock Exchange and NASDAQ and is widely regarded as the best single gauge of the US equity market.

 

The constituents of the S&P 500 Index are controlled by the Standard & Poor's Index Committee which employs a strict definition of a US company. To be considered for inclusion in one of Standard and Poor's US index series, a company is required to have the following characteristics:

 

-     File 10-K annual reports and not be considered a foreign entity by the SEC

-     The US portion of fixed assets and revenues should constitute a plurality of the total but need not exceed 50%

-     The primary listing of the common stock should be on NYSE and NASDAQ. ADRs are not eligible for inclusion

-     A corporate governance structure consistent with US practice

 

Standard & Poor's undertakes regular reviews of the market cap guidelines for its US indices to ensure that these reflect changes in share prices. The current guidelines, which were implemented on 16 February 2011, are:

 

-     S&P 500 Index - market cap of $4.0 billion or greater

-     S&P MidCap 400 - $1.0 billion to $4.4 billion

-     S&P SmallCap 600 - $300 million to $1.4 billion

 

The level of activity within the portfolio reflected changes to the constituents of the Index which resulted from takeover activity (11 constituents were acquired) and companies leaving the index on grounds of low market capitalisations (6 constituents were removed).

 

Some of the better known names to leave the S&P 500 Index as a result of takeover activity included Burlington Northern Santa Fe, Pepsi Bottling, Black & Decker, Millipore, Smith International and King Pharmaceuticals. The new entrants to the index included Berkshire Hathaway, Helmerich & Payne, CarMax, ACE, Ingersoll-Rand and Noble.

 

Apart from changes to the constituents of the Index, additional trading activity was generated by sales from the portfolio to finance the purchase of the Company's own shares - a total of 3,356,690 shares were purchased at a total cost of £19.2 million. 

 

The total value of purchases in the year, excluding the Company's own shares, amounted to £6.3 million while sales totaled £26.7 million. 

 

Aberdeen Asset Managers Limited

30 March 2011

 

 

PERFORMANCE TABLES

Performance

1 year return

3 year return*

5 year return*


%

%

%

Capital return




Share price

+18.3

+16.9

+11.5

Net asset value per share

+20.3

+15.5

+12.1

S&P 500 Index (in sterling terms)

+19.8

+15.8

+11.5





Total return (Capital return plus dividends reinvested)

Share price

+19.9

+23.8

+20.7

Net asset value per share

+21.8

+22.0

+21.0

S&P 500 Index (in sterling terms)

+22.2

+23.9

+23.9





* cumulative return

 

Financial Summary

 

 
31 January 2011
31 January
2010
%
change
Total Assets
£222,855,000
£204,098,000
+9.2
Equity shareholders' funds
£222,855,000
£204,098,000
+9.2
Share price (mid market)
635.50p
537.00p
+18.3
Net Asset Value per share
(including undistributed revenue for the period)
673.28p
559.84p
+20.3
Net Asset Value per share
(excluding undistributed revenue for the period)
668.37p
557.96p
+19.8
S&P 500 Index (in sterling terms)
802.95
670.16
+19.8
Premium/(Discount) (difference between share price and net asset value B )
(4.9%)
(3.8%)
 
 
 
 
 
Dividends and earnings
 
 
 
Revenue return per share
8.81p
8.02p
+9.9
Dividends per share
(including proposed final dividend)
9.15p
10.00p
-8.5
Dividend cover
0.96
0.80
 
Revenue reserves per share
(prior to payment of proposed final dividend)
9.95p
8.27p
 
Revenue reserves per share
(after payment of proposed final dividend)
5.00p
4.47p
 
 
 
 
 
Operating costs
 
 
 
Total expense ratio
0.38%
0.40%
 

 

B Based on Net Asset Value per share (excluding undistributed revenue for the period) 

 

BUSINESS REVIEW

 

The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006.

 

Principal Activity and Status

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. 

 

The Company's registration number is SC5218.

 

The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 1158 of the Corporation Tax Act 2010 (formerly Section 842 of the ICTA) for the year ended 31 January 2010. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 January 2011 so as to be able to continue to obtain approval as an investment trust under Section 1158 of the Corporation Tax Act 2010 for that year, although approval for the year would be subject to review were there to be any enquiry under the Corporate Tax Self Assessment regime.

 

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

 

Investment Objective and Policy

The investment objective is to invest in a portfolio designed to track closely the S&P 500 Index, both in terms of capital and income.

 

The Company's methodology in tracking the Index is full replication of the Index constituents. Details of the investment policy are provided in the Corporate Summary section within the Company's published annual report and accounts. 

 

Review of Performance

An outline of the performance, market background, investment activity and portfolio strategy during the year under review, as well as the investment outlook, is provided in the Chairman's Statement and Manager's Review.

 

Principal Risks and Uncertainties

The Board has reviewed the key risks that affect its business. The principal risks are as follows:

 

-     Market and performance risk: The Company is exposed to the effect of variations in share prices and movements in the US$/£ exchange rate due to the nature of its business.  A fall in the market value of its portfolio would have an adverse effect on shareholders' funds. The NAV performance relative to the Index and the underlying stock weightings in the portfolio against the Index weightings are monitored closely to eliminate any risk of a significant tracking error developing.

-     Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company may operate a share buyback programme when the level of the discount is above 3%.

-     Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Acts, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

 

Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 17 to the accounts.

 

Monitoring Performance - Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The following key performance indicators (KPIs) have been identified by the Board for determining the progress of the Company:

 

-     Net asset value

-     S&P 500 Index (in sterling terms)

-     Discount

-     Total expense ratio

 

A record of these measures is disclosed in the Results section. 

 

Resource

The Company has no employees. The responsibility for the management of the Company has been delegated to Aberdeen Asset Managers Limited under the investment management agreement.

 

As an investment trust, the Company has no direct social, or community responsibilities. Details of the Company's policy on socially responsible investment are set out in the Statement of Corporate Governance.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors are required to:

 

-     select suitable accounting policies and then apply them consistently;

-     make judgments and estimates that are reasonable and prudent;

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

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

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

 

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

 

The Directors confirm that to the best of their knowledge:

 

-     the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

-     the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

 

 

For Edinburgh US Tracker Trust plc

James Ferguson

Chairman

30 March 2011

 

 

INCOME STATEMENT (audited)

 


Year ended 31 January 2011

Year ended 31 January 2010



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Net gains on investments

8

-

37,695

37,695

-

30,214

30,214

Net currency gains/(losses)

16

-

20

20

-

(284)

(284)

Income

2

4,390

-

4,390

4,433

-

4,433

Investment management fee

3

(434)

-

(434)

(386)

-

(386)

VAT recovered on investment management fees

3

75

31

106

-

-

-

Administrative expenses

4

(371)

-

(371)

(370)

-

(370)



______

______

_____

______

______

_____

Net return on ordinary activities before finance costs and taxation


3,660

37,746

41,406

3,677

29,930

33,607

Finance costs


-

-

-

(1)

-

(1)



______

______

_____

______

______

_____

Return on ordinary activities before taxation


3,660

37,746

41,406

3,676

29,930

33,606

Taxation

5

(620)

(28)

(648)

(687)

-

(687)



______

______

_____

______

______

_____











______

______

_____

______

______

_____









The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

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

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


Proposed final dividend

The Board is proposing a final dividend of 4.95p per share (£1,638,000), making a total dividend of 9.15p per share (£3,055,000) for the year to 31 January 2011 which, if approved, will be payable on 27 May 2011 (see note 6).




BALANCE SHEET (audited)

 


As at

As at



31 January 2011

31 January 2010


Notes

£'000

£'000

Fixed assets




Investments at fair value through profit or loss

8

219,994

202,656



__________

__________

Current assets




Debtors and prepayments

9

282

206

Cash and short term deposits

16

2,772

1,729



__________

__________



3,054

1,935



__________

__________





Creditors: amounts falling due within one year

10

(193)

(493)



__________

__________

Net current assets


2,861

1,442



__________

__________





Capital and reserves




Called-up share capital

12

8,275

9,114

Share premium account


32,643

32,643

Capital redemption reserve


13,820

12,981

Capital reserve

13

164,822

146,346

Revenue reserve


3,295

3,014



__________

__________







RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

 

For the year ended 31 January 2011









 Share

 Capital





 Share

premium

redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 January 2010

9,114

32,643

12,981

146,346

3,014

204,098

Return on ordinary activities after taxation

-

-

-

37,718

3,040

40,758

Dividends paid (see note 6)

-

-

-

-

(2,759)

(2,759)

Purchase of own shares for cancellation

(839)

-

839

(19,242)

-

(19,242)


______

______

______

______

______

______








 For the year ended 31 January 2010









 Share

 Capital





 Share

premium

redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 January 2009

9,400

32,643

12,695

122,320

3,984

181,042

Return on ordinary activities after taxation

-

-

-

29,930

2,989

32,919

Dividends paid (see note 6)

-

-

-

-

(3,959)

(3,959)

Purchase of own shares for cancellation

(286)

-

286

(5,904)

-

(5,904)


______

______

______

______

______

______

Balance at 31 January 2010

9,114

32,643

12,981

146,346

3,014

204,098


______

______

______

______

______

______








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


CASH FLOW STATEMENT (audited)

 


Year ended


Year ended




31 January 2011


31 January 2010



Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

15


3,620


3,811







Servicing of finance






Interest paid



-


(1)







Taxation






UK corporation tax paid


(37)


(290)


Overseas withholding tax paid


(648)


(660)




______


______


Net tax paid



(685)


(950)







Financial investment






Purchases of investments


(6,601)


(8,666)


Sales of investments


26,694


14,859




______


______


Net cash inflow from financial investment



20,093


6,193







Equity dividends paid



(2,763)


(3,964)




______


______

Net cash inflow before financing



20,265


5,089







Financing






Buy back of Ordinary shares (including expenses)


(19,242)


(5,904)




______


______


Net cash outflow from financing



(19,242)


(5,904)




______


______

Reconciliation of net cash flow to movement in net funds






Increase/(decrease) in cash as above



1,023


(815)

Exchange movements



20


(284)




______


______

Movement in net funds in the year



1,043


(1,099)

Opening net funds



1,729


2,828



NOTES TO THE ACCOUNTS

 

1.

Accounting policies


A summary of the principal accounting policies, all of which have been consistently applied throughout the year and the preceding year is set out below.





(a)

Basis of preparation and going concern



The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.



The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).





(b)

Investment income, interest receivable, expenses and interest payable



Income from investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex dividend. Special dividends are credited to capital or revenue, according to the circumstances. Short term deposits, expenses and interest payable are treated on an accruals basis. All expenses are charged to revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds.





(c)

Deferred taxation



Deferred taxation is provided on all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.





(d)

Investments



All purchases and sales of investments are recognised on the trade date, being the date the Company commits to purchase or sell the investment. Investments are initially recognised and subsequently re-measured at fair value in the Income Statement. Transaction costs on purchases and sales are expensed through the Income Statement.





(e)

Dividends payable



Interim and final dividends are recognised in the period in which they are paid.





(f)

Capital reserve



Gains or losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. The costs of share buybacks are also deducted from this reserve.





(g)

Foreign currency



Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Income Statement and are then transferred to the capital reserve.





(h)

Derivative financial instruments



Index future contracts are accounted for as separate derivative contracts and are shown in other assets or other liabilities in the Balance Sheet at their fair value.

 


2011

2010

2.

Income

£'000

£'000


Income from investments held at fair value through profit or loss




Dividends from overseas listed investments

4,311

4,404


Stock dividends

-

29



______

______



4,311

4,433



______

______


Other income




Interest on VAT recovered on investment management fees

78

-


Deposit interest

1

-

 


2011

2010

3.

Investment management fee

£'000

£'000



______

______






The management fee payable to Aberdeen Asset Managers Limited ("Aberdeen") is 0.05% per quarter of the total assets of the Company after deducting current liabilities and excluding commonly managed funds.




The management agreement between the Company and Aberdeen is terminable by either party on three months' notice. In the event of a resolution being passed at the AGM to wind up the Company the Manager shall be entitled to three months' notice from the date the resolution was passed. In the event of termination on not less than the agreed notice period, compensation is payable in lieu of the unexpired notice period.




During the year the Trust received £106,000 in relation to VAT previously charged on investment management fees. 

 


2011

2010

4.

Administrative expenses

£'000

£'000


Directors' fees

49

49


Registrar's fees

59

59


Custody and bank charges

40

29


Auditor's remuneration:




- fees payable to the Company's auditor for the audit of the annual accounts

16

14


Contribution to the Investment Trust Initiative

67

68


Printing, postage and stationery

23

24


Fees, subscriptions and publications

34

33


Standard & Poors' licence fee

22

18


Other expenses

61

76



______

______






The contribution to the Investment Trust Initiative was paid to the Manager in respect of marketing of the Company. At the year end £6,000 was due (2010 - £6,000 due) to the Manager.



 


2011

2010



Revenue

Capital

Total

Revenue

Capital

Total

5.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Corporation tax at 28% (2010 - 28%)

- 

- 

- 

384

- 

384



Double taxation relief

- 

- 

- 

(309)

- 

(309)




______

______

______

______

______

______




- 

- 

- 

75

- 

75



Overseas tax suffered

629

19

648

647

- 

647




______

______

______

______

______

______



Current tax charge for the year

629

19

648

722

- 

722



Movement in deferred taxation

- 

- 

- 

(35)

- 

(35)



Tax on capital income received

(9)

9

- 

- 

- 

- 




______

______

______

______

______

______











(b)

Factors affecting the tax charge for the year









2011

2010




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Net profit on ordinary activities before taxation

3,660

37,746

41,406

3,676

29,930

33,606












Return on ordinary activities before taxation multiplied by the applicable rate of corporation tax of 28% (2010 - 28%)

1,025

10,569

11,594

1,029

8,381

9,410



Effects of:









Non taxable overseas dividends

(1,205)

- 

(1,205)

(717)

- 

(717)



Unutilised management expenses

178

(9)

169

- 

- 

- 



Income taxable in different periods

2

- 

2

72

- 

72



Overseas taxes

629

19

648

647

- 

647



Double taxation relief

- 

- 

- 

(309)

- 

(309)



Revenue expenses utilised against capital income

(9)

9

- 

- 

- 

- 



Capital gains not taxable

- 

(10,554)

(10,554)

- 

(8,461)

(8,461)



Currency (gains)/losses not taxable

- 

(6)

(6)

- 

80

80




______

______

______

______

______

______











(c)

Provision for deferred taxation









No provision for deferred taxation has been made in the current year or in the prior year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.

 


2011

2010

6.

Dividends

£'000

£'000


Amounts recognised as distributions to equity holders in the year:




Final dividend for 2010 - 3.80p per share (2009 - 4.40p)

1,344

1,654


Interim dividend for 2011 - 4.20p per share (2010 - 6.20p)

1,417

2,311


Unclaimed dividends from previous years

(2)

(6)



______

______






The proposed final dividend for 2011 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.  The final dividend, subject to shareholder approval, will be paid on 27 May 2011 to shareholders on the register at the close of business on 3 May 2011.  The ex-dividend date is 27 April 2011.




The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £3,040,000 (2010 - £2,989,000).







2011

2010



£'000

£'000


Interim dividend for 2011 - 4.20p per share (2010 - 6.20p)

1,417

2,311


Proposed final dividend for 2011 - 4.95p per share (2010 - 3.80p)

1,638

1,344


Unclaimed dividends from previous years

(2)

(6)



______

______






The amount payable for the proposed final dividend above is based on the shares in issue at the date of this report (33,082,818) and this satisfies the investment trust status test.

 


2011

2011

2010

2010

7.

Return per Ordinary share

£'000

p

£'000

p


Based on the following figures:






Revenue return

3,040

8.81

2,989

8.02


Capital return

37,718

109.36

29,930

80.28



______

______

______

______







 


2011

2010

8.

Investments

£'000

£'000


Fair value through profit or loss:




Opening fair value

202,656

178,452


Opening investment holdings gains

(33,482)

(4,546)



______

______


Opening book cost

169,174

173,906


Purchases at cost

6,337

8,824


Sales

- proceeds

(26,694)

(14,834)



- realised gains on sales

6,747

1,278



______

______


Closing book cost

155,564

169,174


Closing investment holdings gains

64,430

33,482



______

______



______

______







2010

2010


Gains on investments

£'000

£'000


Realised gains on sales

6,747

1,278


Movement in investment holdings gains

30,948

28,936



______

______



37,695

30,214



______

______






Transaction costs




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







2011

2010



£'000

£'000


Purchases

31

15


Sales

8

6



______

______



39

21



______

______

 


2011

2010

9.

Debtors: amounts falling due within one year

£'000

£'000


Dividends receivable

182

188


Other debtors and prepayments

91

13


Amounts due from brokers

9

5

 


2011

2010

10.

Creditors: amounts falling due within one year

£'000

£'000


Investment management fee payable

111

102


Other creditors

82

90


Taxation payable

-

37


Amounts due to brokers

-

264

 


2011

2010

11.

Provision for liabilities and charges

£'000

£'000


Deferred taxation provision:




Opening balance

-

35


Credited to revenue

-

(35)



______

______






The provision for deferred tax, relating to dividends receivable has been removed this year, as overseas dividends received after 1 July 2009 are now exempt from main stream UK corporation tax.

 


2011

2010

12.

Called-up share capital

£'000

£'000


Allotted, called-up and fully paid:




Opening balance

9,114

9,400


Shares bought back for cancellation

(839)

(286)



______

______






During the year the Company bought back and cancelled 3,356,690 Ordinary shares of 25p each (2010 - 1,142,871) for a total consideration of £19,242,000 (2010 - £5,904,000). This represents 9% of the Company's issued share capital at 31 January 2010.




Subsequent to the year end, a further 17,000 Ordinary shares were bought back at a total cost of 116,000 including expenses, leaving 33,082,818 Ordinary shares in issue at the date of this report.

 


2011

2010

13.

Capital reserve

£'000

£'000


At 1 February

146,346

122,320


Movement in fair value gains

37,695

30,214


Foreign exchange movements

20

(284)


Purchase of own shares for cancellation

(19,242)

(5,904)


Taxation

(19)

-


Tax relief to revenue

(9)

-


VAT recoverable on management fees

31

-



______

______






Included in the total above are investment holdings gains at the year end of £64,430,000 (2010 - £33,482,000).



 

14.

Net asset value per equity share 


The net asset value per share and the net assets attributable to the Ordinary shareholders at the year end were as follows:



2011

2010


Net assets attributable

£222,855,000

£204,098,000


Number of Ordinary shares in issue

33,099,818

36,456,508

 

15.

Reconciliation of net return before finance costs and taxation to

2011

2010


net cash inflow from operating activities

£'000

£'000


Return on ordinary activities before finance costs and taxation

41,406

33,607


Adjustments for:




Net gains on investments

(37,695)

(30,214)


Foreign exchange movements

(20)

284


Decrease in accrued income

6

81


(Increase)/decrease in other debtors

(78)

25


Increase in other creditors

1

28

 


At



At



1 February

Cash

Exchange

31 January



2010

flow

movements

2011

16.

Analysis of changes in net funds

£'000

£'000

£'000

£'000

 

17.

Financial instruments


The Company's financial instruments, other than derivatives, comprise listed securities, cash balances, debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.




During the year, the Company did not enter into any derivative contracts. In periods when the Company builds up cash, the Manager may enter into certain derivative contracts to gain exposure to the S&P 500 Index. The Company had no open positions in derivative contracts at 31 January 2011 or 2010.




Fixed asset investments (see note 8) are valued at closing market prices, which equates to their fair value. The fair values of all other assets and liabilities are represented by their carrying values in the Balance Sheet.




There were no financial liabilities, other than short term creditors, at 31 January 2011 (2010 - £nil).




Risk management


The main risk to the Company is the failure to track closely the S&P 500 Index. The main risks associated with the Company's financial instruments are market risk (comprising price risk, interest rate risk and foreign currency risk), liquidity risk and credit risk.




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




(i) Market risk


The Company's exposure to market risk comprises of changes in interest rates, valuations awarded to equities, movements in prices and liquidity of financial instruments. In pursuing the Company's primary objective of tracking its benchmark index, the Company does not increase the level of cash balances through the sale of equities.




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




Price risk


Price risks (i.e. changes in market prices other than those arising from interest rate risk) may affect the value of the quoted investments. The Company's stated objective is to track the S&P 500 Index. As a result the Company is exposed to movements in the underlying Index.




As the Company tracks its benchmark Index it will hold an appropriate spread of investments in the portfolio. This will reduce the risk arising from factors specific to a particular sector. The Manager actively monitors market prices throughout the year and reports investment performance to the Board on a regular basis. The investments held by the Company are listed on the New York Stock Exchange and NASDAQ.




Price risk sensitivity


If market prices, in sterling terms, at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders at the year ended 31 January 2011 would have increased/decreased by £21,999,000 (2010 - increase/decrease of £20,266,000) and equity reserves would have increased/decreased by the same amount. The calculations are based on the portfolio valuations, as at the respective Balance Sheet dates, and are not representative of the year as a whole.




Interest rate risk


Interest rate movements may affect the level of income receivable on cash deposits.




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 holds cash on deposit in Sterling and US Dollars. The US Dollar value of cash and short term deposits can be significantly affected by movements in foreign exchange rates. The tables below sets out the currency exposure of the cash and short term deposits as at 31 January 2011 and 2010:





Interest

Local

Foreign

Sterling



rate

currency

exchange

equivalent


As at 31 January 2011

%

'000

rate

£'000


US Dollar

0.00

4,408

1.6018

2,752


Sterling

0.25

20

-

20






______









Interest

Local

Foreign

Sterling



rate

currency

exchange

equivalent


As at 31 January 2010

%

'000

rate

£'000


US Dollar

0.00

2,716

1.6024

1,695


Sterling

0.25

34

-

34






______








Cash and short term deposits are held in floating rate accounts. The benchmark that determines the interest received, or paid on balances, is the bank base rate which was 0.25% (2010 - 0.25%) for Sterling funds, and nil (2010 - nil) for US Dollar funds at 31 January 2011. Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit.

 

Foreign currency risk


The Company's portfolio is invested in US quoted securities and the Balance Sheet can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis.




The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk as its investment objective is to track closely the S&P 500 Index.




Foreign currency risk exposure by currency of denomination:



 


31 January 2011

31 January 2010




Net

Total


Net

Total



Overseas

monetary

currency

Overseas

monetary

currency



investments

assets

exposure

investments

assets

exposure



£'000

£'000

£'000

£'000

£'000

£'000


US Dollar

219,994

2,934

222,928

202,656

1,619

204,275


Sterling

-

(73)

(73)

-

(177)

(177)



______

______

______

______

______

______










The asset allocation between specific markets can vary from time to time based on the constituents of the Company's benchmark index.




Foreign currency sensitivity


There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments, and they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.




(ii) Liquidity risk


Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant as the Company's assets comprise of mainly readily realisable securities, which can be sold to meet funding commitments if necessary.




(iii) Credit risk


This is the risk that a counter-party to a transaction fails to discharge its obligations under that transaction, resulting in a loss to the Company.




The Company considers credit risk not to be significant as it is actively managed as follows:


- investment securities are safeguarded by an independent custodian;


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


- cash is held only with banks with high quality external credit ratings;


- the Company does not undertake stocklending.




None of the Company's financial assets are secured by collateral or other credit enhancements.




Exposure to credit risk


In summary, compared to the amounts in the Balance Sheet, the exposure to credit risk at 31 January 2011 was as follows:





2011

2010



£'000

£'000


Debtors and prepayments

282

206


Cash and short term deposits

2,772

1,729

 

18.

Capital management policies and procedures


The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the impact of share buybacks and the extent to which revenue should be retained. The Company is not subject to any externally imposed capital requirements.

 

19.

Fair value hierarchy


Under FRS 29 'Financial Instruments: Disclosures' an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:




 - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


 - Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and


 - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the Balance sheet are grouped into the fair value hierarchy at 31 January 2011 as follows:









Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

219,994

-

-

219,994




______

______

______

______









As at 31 January 2010









Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

202,656

-

-

202,656




______

______

______

______




a) Quoted equities


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

 

20.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2011 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2011 and 2010 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The 2011 accounts will be filed with the Registrar of Companies in due course.

 

The Annual General Meeting will be held at 40 Princes Street, Edinburgh EH2 2BY on 25 May 2011 at 11.00am.



21.

The Annual Report and Accounts will be posted to shareholders in April 2011 and copies will be available from the investment manager or from the Company's website, www.edinburghustracker.co.uk.

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

 

By Order of the Board

Aberdeen Asset Management PLC, Secretary


This information is provided by RNS
The company news service from the London Stock Exchange
 
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