TIDMUKT
RNS Number : 6163F
UK Select Trust Limited
28 April 2011
For immediate release on 28 April 2011
UK Select Trust Limited
(the "Company")
Registered No: 475
Announcement of Results
The financial information set out in this announcement is the
full unedited Annual Report and Audited Financial Statements for
the year ended 31 December 2010 ("Statements") of the Company as
approved by the Board of Directors on 27 April 2011. The Statements
will be delivered to shareholders during April 2011.
This announcement was approved by the Board of Directors on 27
April 2011.
The Annual General Meeting of the Company will be held on 1 July
2011 at its registered office.
To view the announcement in full including all graphs and
diagrams click on the links below:
http://www.rns-pdf.londonstockexchange.com/rns/6163F_1-2011-4-28.pdf
http://www.rns-pdf.londonstockexchange.com/rns/6163F_2-2011-4-28.pdf
Enquiries:
Kleinwort Benson (Channel Islands) Fund Services Limited
Company Secretary
Telephone number : 01481 727111
Fax number: 01481 728317
28 April 2011
Dorey Court
Admiral Park
St Peter Port
Guernsey
GY1 3BG
UK Select Trust Limited
Annual Financial Report for the year ended 31 December 2010
UK Select Trust Limited
Contents
Trust Information 2
Objectives 2
Financial Highlights 3
Dividends 3
Directors and Advisers 4
Chairman's Statement 5
Investment Manager's Report 6
The Portfolio 8
Sector Distribution 10
Directors' Report 12
Directors' Responsibilities 21
Independent Auditor's Report 22
Statement of Comprehensive Income 24
Statement of Financial Position 25
Statement of Changes in Net Assets Attributable to Shareholders
26
Statement of Cash Flows 27
Notes to the Financial Statements 28
Ten Year Record 45
Notice of Meeting 46
Financial Calendar 49
Trust Information
UK Select Trust Limited's ordinary shares are listed on the
London Stock Exchange. They can be bought or sold by investors
through a stockbroker or by asking a professional adviser e.g.
lawyer, accountant or bank manager to do so on their behalf.
UK Select Trust Limited's share price is published daily under
Investment Companies in the Share Information Service in the
Financial Times. In addition it is published every Monday on the
business pages of The Guernsey Press and Star and Jersey Evening
Post.
Objectives
UK Select Trust Limited (the "Company") is registered in
Guernsey and complies with the definition of a UK Investment Trust
Company. The Company invests over 80% of its gross assets by value
in companies listed or quoted on the London Stock Exchange and the
investment policy aims to provide a total return to shareholders in
excess of the net total return on the FTSE All-Share Index and a
progressive dividend policy.
Financial Highlights
31 December 31 December
2010 2009
Net asset value per
share 161.75p 149.84p
Equity shareholders'
interest (1) GBP33.46m GBP30.83m
Revenue return on ordinary
activities for the financial
year after taxation GBP0.69m GBP0.75m
Capital return on ordinary
activities for the financial
year after taxation GBP2.57m GBP9.17m
Revenue return per
ordinary share 3.36p 3.61p
Capital return per
ordinary share 12.47p 44.42p
Dividend per ordinary
share (2) 3.90p 3.75p
Share Price 136.75p 128.25p
Net asset value total
return (3) 11.26%(5) 45.89%(4)
FTSE All-Share total
return 14.51% 30.12%
() (1) During the year the Company purchased 150,000 ordinary
shares of 10p from the market to be held in Treasury. 260,758
ordinary shares of 10p each from the shares held in Treasury were
reissued during the year. 143,644 shares remain in Treasury at 31
December 2010. These are held for reissue and the Company does not
intend to cancel these.
(2) The dividend figures include the proposed dividend for the
relevant financial period.
(3) Source: Datastream. Basis: Income reinvested and net of
expenses.
(4) Based on the audited Annual Financial Reports for the years
ended 31 December 2008 and 31 December 2009.
(5) Based on the audited Annual Financial Report for the year
ended 31 December 2009 and the unaudited Net Asset Value as at 31
December 2010 released to market, (therefore subject to audit).
Dividends
A second interim dividend of 3.00p per share has been declared
for 2010 (2009: second interim dividend 2.85p). This is in addition
to the first interim dividend of 0.90p (2009: first interim
dividend 0.90p) paid during the year.
Directors
JM Le Pelley, (Born 1949), Non-executive Chairman. He joined the
board in 1983. Other Directorships include AcenciA Debt Strategies
Limited.
DR Maltwood, (Born 1938), Non-executive Director. He joined the
board in 1997 after a career in stock broking in Jersey. He has
held a number of positions including the Chairman and Director of a
number of quoted companies.
G Ross Russell, (Born 1933), Non-executive Director. He joined
the board in 1995. He is a Director of Foresight 3 VCT Plc and
former Chairman of the Chartered Institute of Securities and
Investment and Deputy Chairman of the London Stock Exchange.
JG West FCA, (Born 1947), Non-executive Director. He joined the
board in 1997. He is the Chairman of Gartmore Fledgling Trust Plc,
Canaccord Genuity Limited, New City High Yield Fund Limited, and a
Director of a number of public and private companies including
British Assets Trust Plc and JP Morgan Income and Capital Trust
Plc. He is a former chief executive of Lazard Asset Management
Limited.
D Warr, (Born 1953), Non-executive Director and Audit Committee
Chairman. He is a fellow of the Institute of Chartered Accountants
in England and Wales and joined the Board in 2006. He is also
Non-executive Chairman of FRM Diversified Alpha Limited and a
Non-executive Director of Breedon Aggregates Limited (formerly
Marwyn Materials Limited), Invista Foundation Property Trust
Limited and Unigestion (Guernsey) Limited.
Advisers
Secretary and Registered Office Registrars
Kleinwort Benson (Channel Islands) Fund Services Limited Capita
Registrars (Guernsey) Limited
Dorey Court Longue Hougue Road
Admiral Park St Sampson
St Peter Port Guernsey GY2 4JN
Guernsey GY1 3BG 0870 162 3100
01481 727111 (Calls cost 10p per minute plus network extras,
lines are open 8.30am - 5.30pm Monday - Friday)
Investment Manager Recognised Auditor
Scottish Widows Investment Partnership Limited Deloitte LLP
Edinburgh One Regency Court
Morrison Street Glategny Esplanade
Edinburgh EH3 8BE St Peter Port
0131 655 8500 Guernsey GY1 3HW
01481 724011
Bankers and Custodian Stockbrokers
HSBC Bank Plc Canaccord Genuity Limited
8 Canada Square Cardinal Place
London E14 5HQ 7th Floor
80 Victoria Street
London SW1E 5JL
0207 050 6500
Chairman's Statement
Review of 2010 Performance
The recovery in global stock markets, which started in early
2009, continued through 2010. The FTSE All-Share Index enjoyed
another strong year generating a total return of 14.5% compared
with the UK Select Trust's total return of 11.3% in 2010. While it
was disappointing to underperform the benchmark during the period
under review, your Company has delivered a total return of 44.2%
over the past five years compared with the FTSE All-Share Index
total return of 28.4%.
The Company's portfolio continues to be managed very actively by
the investment manager and I am pleased to report that performance
has been strong in the early months of 2011.
Share Price and discount
The share price increased by 6.6% during the year reflecting a
widening of the discount at which your Company's shares trade
relative to their net asset value. At the end of the year the
discount stood at 16.1%. This increased level of discount has been
a theme prevalent throughout the investment trust sector and the
Board will continue to monitor the potential for value accretive
share buybacks very closely.
Gearing
The Company remained debt free during the period.
Earnings and dividend per share
Earnings per share for the year amounted to 3.36p (2009:3.61p).
The Board has announced a second interim dividend of 3.00p
(2009:2.85p). This is in addition to the interim dividend of 0.90p
(2009:0.90p).
Articles of Incorporation
The Company's Articles of Incorporation permit the Company to
hold in treasury any shares which it purchases. Following advice
received from the Company's Guernsey legal advisors, it is proposed
to amend Article 133 of the Company's Articles of Incorporation to
clarify that the Company may use shares held in treasury for scrip
dividends where so elected by shareholders. Full details are
provided in the Notice of Meeting on pages 46 to 48.
Prospects
The current tragic events in Japan combined with the ongoing
unrest in the Middle East have created extremely volatile trading
conditions within global stock markets. The sovereign debt problems
facing several European states also remain at the forefront of
investors' minds. These macroeconomic uncertainties, however, need
to be weighed against a backdrop of impressive company earnings and
very strong corporate finances.
The Board is confident that the investment manager's active
approach to portfolio construction will help to steer your Company
through these uncertain times.
JM Le Pelley
Chairman
27 April 2011
Investment Manager's Report
Introduction
The UK stock market added to the strong gains it recorded in
2009 with the FTSE All-Share Index rising by 14.5% on a total
return basis in 2010. This overall performance, however, masked two
very different halves to the year under review.
The first half of the year was dominated by concerns over the
sustainability of global economic recovery with leading indicators
pointing to an imminent slowdown in activity levels across the
major global economies. The escalating European sovereign debt
crisis was the other major issue influencing investor sentiment in
the early months of the year. Borrowing costs for a number of the
peripheral eurozone countries, such as Greece and Ireland, moved
sharply higher raising serious question marks over the long term
future of European Monetary Union. During the second half of the
year the Company's net asset value lagged the benchmark during the
year rising by 11.3% on a total return basis. However, the
Company's performance remains comfortably ahead of the FTSE
All-Share Index on a three and five year basis.
Economic and Stock Market Background
The early months of 2010 were characterised by bouts of profit
taking in a number of sectors which had performed strongly through
the previous year. This reflected caution that the global macro
economic recovery which had taken hold in 2009 was starting to run
out of steam. Rampant inflation in key emerging markets such as
China, India and Brazil fuelled speculation that these economies
would be forced to tighten monetary policy to bring upward pricing
pressure back under control. Rising food prices was the largest
contributor to the increasing inflationary pressure and was
representative of continued strength across all commodity based
markets such as metals and energy.
The mixed economic picture in Europe was the other principal
source of concern through the early stages of the year. At one
extreme, Germany's export sector continued to go from strength to
strength benefiting from the weakness in the single currency.
However, the fiscal problems afflicting the peripheral European
economies such as Greece and Ireland were resulting in soaring
borrowing costs for these countries as speculators bet on an
imminent sovereign debt default.
US economic data provided investors with some reason for
optimism as growth continued to accelerate through the start of the
year spurred by extremely accommodative fiscal and monetary policy
stances. While the US housing market remained weak, unemployment
data started to highlight tentative signs of job creation in the
world's largest economy and corporate earnings, in the main,
continued to beat expectations.
The weakness in global equity markets in the first half of the
year proved to be a buying opportunity for investors. Economic
growth rates in the major emerging markets remained strong despite
measures being taken to reign in inflation. Debt restructuring
programmes in Greece and Ireland provided European debt markets
with some much needed respite and encouraged investors to increase
their exposure to riskier assets such as equities, funded from
holdings of cash and bonds.
The announcement by the Federal Reserve that the US was to
implement a second round of quantitative easing received a euphoric
reaction from equity markets. Whilst the longer term implications
of this policy decision are questionable, the positive reaction of
global risk assets reflected the view that US policy makers were
fully committed to ensuring that the economic recovery remained on
track.
In the UK, the new coalition government followed a very
different policy route to their US counterparts, announcing
swingeing public sector spending cuts combined with a wave of
taxation hikes in an attempt to tackle the burgeoning fiscal
deficit. The UK stock market was unperturbed by this course
reflecting both the general acceptance that difficult policy
decisions were necessary given the state of the country's balance
sheet and that the vast majority of UK listed companies' sales are
generated from overseas markets.
Investment Manager's Report (continued)
Performance
The Company's underlying equity portfolio under-performed the
FTSE All-Share Index for the first time since calendar year
2004.
One of the largest detractors from performance was the position
in Great Eastern Energy Corporation, a company exploring and
developing gas assets in India. The company's share price came
under pressure in November following a disappointing operational
update which lowered production targets as a result of de-watering
issues affecting several wells. Whilst the share price fell by
around 20% on the announcement the company's value has risen by
over 266% since flotation in 2005 and the long term investment case
remains fully intact. The Company's position in Barclays was also a
negative contributor to performance with the share price falling on
the back of earnings downgrades within its key investment banking
division.
The largest positive contributor to performance was another
Indian focused energy company, Indus Gas. The company enjoyed a
very successful year of exploration which resulted in a significant
upgrade to its audited resource base in Western India. There is an
enormous structural shortage of domestically supplied energy and
hence many companies are forced to import more expensive oil and
gas supplies. Companies such as Indus have abundant local end
market demand to sell into at very attractive profit margins.
The Company's position in BP was initially detrimental to
performance in the days following the Gulf of Mexico oil spill.
However, the position in the company was actively traded during the
crisis and is currently the Company's largest holding reflecting
our belief that the group's asset base is being significantly
under-valued by the equity market.
Portfolio Activity
A number of new holdings were added to the Company's portfolio
during the year as a result of extensive financial modelling from
our research based investment process. These new holdings were
sourced from a wide variety of industries and included Close
Brothers Group, Essar Energy, Reed Elsevier, Smiths Group, and DS
Smith.
These additions were funded by the disposal of the holdings in
Scottish & Southern Energy, British American Tobacco, United
Utilities, and GlaxoSmithKline.
Outlook
The Company has made a good start to 2011 out-performing its
benchmark in the first two months of the year. The on-going
corporate earnings season has been generally supportive for equity
markets with the majority of companies providing an upbeat
assessment of prospects for 2011. However, the current crisis in
the Middle East is propelling the oil price sharply higher which,
if sustained, has the potential to impair economic recovery. This
elevated geo-political risk combined with key macroeconomic
variables such as emerging market inflation and debt levels in the
major Western economies will be monitored closely.
The Company's equity holdings will continue to be actively
managed with the shape of the portfolio influenced by rigorous
company specific analysis, the direction of macroeconomic data and
the course of geo-political events.
Scottish Widows Investment Partnership
March 2011
The Portfolio as at 31 December 2010
Market
Company Value Activity
GBP'000
One of the world's largest
energy companies, providing
fuel for transportation, energy
for heat and light, retail
services and petrochemicals
1 BP Plc 2,479 products for everyday items.
Resolution Asset One of the leading players
2 Management Plc 2,064 in the UK life assurance market.
Involved in oil and gas
transmission and distribution, as
3 BG Group Plc 1,723 well as power generation.
Oil and gas exploration and
development company based
4 Indus Gas Ltd 1,475 in India.
Indian-focused energy company
with assets in the existing
5 Essar Energy Plc 1,345 power and oil and gas businesses.
A diversified Swiss mining
company operating a number
of production sites in all
6 Xstrata Plc 1,337 continents of the world.
One of the global leaders
in the extraction and processing
7 Rio Tinto Plc 1,324 of the earth's mineral resources.
A world leader in the practical
application of advanced
technologies, Smiths Group delivers
products and services for the
threat & contraband detection,
medical devices, energy,
communications and engineered
8 Smiths Group Plc 1,260 components markets worldwide.
Provider of a pay television
broadcasting service to customers
British Sky Broadcasting in the UK and the Republic
9 Plc 1,239 of Ireland.
Publisher and information
provider, publishing information
for the scientific and medical
Reed Elsevier professions, legal, and business
10 Plc 1,162 to business sector.
Berkeley Group UK - based house builder and
11 Holdings Plc 1,082 developer.
KSK Power Ventur Engaged in emerging opportunities
12 Plc 1,075 in the power development market.
Worldwide commercial insurer
providing property, automobile,
RSA Insurance liability, and specialty insurance
13 Group Plc 938 products.
One of the world's largest
14 Astrazeneca Plc 889 pharmaceutical companies.
Great Eastern
Energy Corporation
15 Plc 809 Indian-based energy provider.
16 Ryanair Plc 796 Irish - based budget airline.
Imperial Tobacco
17 Plc 766 Tobacco company.
Close Brothers Banking, securities and asset
18 Group Plc 700 management group.
Financial services company
providing advisory services,
solutions and products to
Credit Suisse companies, institutional clients
19 Group AG 592 and private clients globally.
Specialises in the transmission
National Grid and distribution of electricity
20 Plc 555 and gas.
Real estate investment company
focused on early-stage,
large-scale, leisure-integrated
Dolphin Capital residential resorts primarily in
21 Investors Ltd 503 southeast Europe.
Principally engaged in the
provision of leisure travel
22 Thomas Cook Group 464 services.
British and European
telecommunications giant, providing
local, national and international
23 BT Group 452 telecommunications services.
Hardy Oil & Gas AIM-listed oil and gas exploration
24 Plc 445 company.
International Group focused
25 DS Smith Plc 440 on packaging and office products.
26 iEnergizer Ltd 423 Engaged in providing third-party
integrated business process
outsourcing solutions to clients
throughout the world in three
primary sectors: banking, financial
services and insurance, and
entertainment and
telecommunications.
The Portfolio as at 31 December 2010 (continued)
Market
Company Value Activity
GBP'000
The Group's principal activity
Petra Diamonds is exploring for and mining
27 Ltd 405 diamonds in Africa.
Engaged in the manufacture and
sale of ingredients and solutions
to the food, beverage, industrial,
animal feed, pharmaceutical, and
28 Tate & Lyle Plc 358 personal care markets.
Provider of financial services
in Europe, the US, Africa,
and Asia offering retail and
commercial banking, credit
cards, investment banking,
29 Barclays Plc 324 and wealth management services.
Petroceltic International Oil and gas exploration and
30 Plc 242 production company
An independent oil and gas
Cadogan Petroleum exploration, development and
31 Plc 236 production company.
Investment vehicle established
Aurora Russia to make investments in small
32 Ltd 226 and mid-sized Russian companies.
Acquires and manages companies
and businesses in the UK and
Breedon Aggregates international building materials
33 Ltd 222 industry.
Oil and gas exploration and
Leed Petroleum production company focused
34 Plc 65 on the Gulf of Mexico.
Ingenious Media
Active Capital Media investment and advisory
35 Ltd 64 company in the UK.
Institutional stockbroker
Arden Partners specialising in small, midcap
36 Plc 62 and AIM companies.
Resaca Exploitation US - based independent oil
37 Plc 54 and gas exploitation company.
Developer and operator of
38 Newfound NV Plc 10 up-market holiday resorts.
Commercial and residential
property developer with a
Eatonfield Group focus on Wales and the North
39 Plc 2 of England.
Total Valuation 28,607 These holdings represent 100%
of the total valuation.
========
Sector Distribution
Total Total
2010 2009
Sector Classification % %
-------------------------------------- -------- -------
Resources
Oil and gas 26.5 23.2
26.5 23.2
-------------------------------------- -------- -------
Basic industrials
Construction and building
materials 9.0 3.1
Mining 9.1 9.2
18.1 12.3
-------------------------------------- -------- -------
Non-cyclical consumer
goods
Tobacco 2.3 7.1
Pharmaceuticals and biotechnology 2.7 13.0
5.0 20.1
-------------------------------------- -------- -------
Cyclical services
Support services 1.2 1.0
Leisure, entertainment
and hotels 3.8 5.7
Food and drug retailers 1.1 2.3
Media and entertainment 7.2 -
-------------------------------------- -------- -------
13.3 9.0
-------------------------------------- -------- -------
Non-cyclical services
Telecommunication services 1.4 10.1
1.4 10.1
-------------------------------------- -------- -------
Utilities
Utilities other 4.9 17.0
4.9 17.0
-------------------------------------- -------- -------
Financials
Banks 2.7 -
Speciality and other
finance 3.1 4.5
Real estate 1.5 0.1
Investment companies - 0.1
Non-life insurance 2.8 -
Life assurance 6.2 -
16.3 4.7
-------------------------------------- -------- -------
Net current assets 14.5 3.6
-------------------------------------- -------- -------
Net assets 100.00 100.00
====================================== ======== =======
Note: The distribution of investments is based
on the valuations at 31 December 2010 and at
31 December 2009. All of the investments above
are listed or quoted on the London Stock Exchange,
with the exception of Credit Suisse Group AG
which is listed on the Swiss Stock Exchange
and Newfound NV Plc which is an unlisted trading
entity.
Sector Distribution (continued)
By sector as a percentage
Directors' Report
The Directors present their annual financial report for the year
ended 31 December 2010 with comparatives for the year ended 31
December 2009.
Principal activities
The principal activity of the Company is that of an investment
trust company. The Company is an authorised fund under the Guernsey
Financial Services Commission Protection of Investors (Bailiwick of
Guernsey) Law, 2008 as amended, with the Company's ordinary shares
being listed on the London Stock Exchange.
Revenue
The statement of comprehensive income set out on page 24 shows a
profit for the year amounting to GBP3,262,000 (2009: profit
GBP9,915,000). The Directors have declared a second interim
dividend of 3.00p which, together with the first interim dividend
of 0.90p makes a total of 3.90p for the year (2009: 3.75p).
The second interim dividend will be paid on 27 May 2011, to
ordinary shareholders on the register on 8 April 2011 and shares in
lieu of dividend will be offered.
Assets
At the year end the net assets attributable to the ordinary
shares were GBP33,460,000 (2009: GBP30,832,000). Based on this
figure the net asset value of an ordinary share was 161.75p (2009:
149.84p).
Share capital
During the year no shares were repurchased by the Company for
cancellation (2009: nil). During the year 150,000 issued ordinary
shares of 10p each were purchased at a total cost of GBP188,522 and
held in Treasury. The authority allowing the Company to purchase
its own shares expires at the end of the 2011 annual general
meeting and allows the purchase of a maximum of 3,065,836 shares,
representing 14.9% of the number of shares in issue on 31 December
2009.
During the year 260,758 ordinary shares of 10p each were issued
from the Treasury reserve arising from elections by ordinary
shareholders to receive shares in lieu of cash dividends (2009:
347,049 new shares issued in lieu of cash dividends) thereby
resulting in a total of GBP323,263 (2009: GBP315,543) being
capitalised.
Substantial shareholdings
At 31 March 2011, the following held a notifiable interest in
the Company's voting rights:
31 March 31 March
2011 2010
State Street Nominees (held
on behalf of clients of
Scottish Widows Investment
Partnership Limited) 28.42% 28.42%
JM & Mrs AE Le Pelley 7.14% 6.69%
Mr G Green 6.47% 6.31%
At 31 March 2011, there has been no other notifiable interest in
the Company's voting rights reported to the Company.
Directors' Report (continued)
Crest registration
On 3 January 2003, the Company made an application for Crest
registration. This was granted and hence shareholders have the
option to hold stock in either certificated or uncertificated
form.
Directors
The composition of the Board, including their roles and other
significant commitments, is detailed on page 4. The terms and
conditions of appointment of non-executive directors are available
for inspection by any person at the Company's registered office
during normal business hours and at the annual general meeting.
The current Directors who served on the Board during the year,
together with their beneficial interests and those of their
families at 31 December 2010, were as follows:
2010 2009
Shares Shares
JM Le Pelley (Chairman) 1,485,870 1,443,382
DR Maltwood 3,542 3,442
G Ross Russell 336,071 326,462
JG West 10,000 10,000
D Warr (Audit Committee
Chairman) 30,228 30,000
There have been no changes in the Directors' interests in the
shares of the Company between 31 December 2010 and 31 March
2011.
The Company has no service contracts with the Directors.
D R Maltwood and J G West, retire from the Board at the Annual
General Meeting in accordance with Article 97 of the Articles of
Association of the Company and are eligible for re-election.
Corporate governance
The Financial Services Authority announced changes to the
Listing Rules which require all overseas companies with a "Premium
Listing" (which includes the Company) to "comply or explain"
against the Combined Code of Corporate Governance (the "Combined
Code") and offer pre-emption rights to shareholders. The Combined
Code was revised in June 2008 (the "2008 Combined Code") and
applies to accounting periods beginning on or after 29 June 2008
and before 29 June 2010. All listed companies with periods starting
on or after 29 June 2010 will be required to follow the provisions
of the new UK Corporate Governance Code published in June 2010.
The Association of Investment Companies (formerly Association of
Investment Trust Companies), of which the Company is a member, has
previously published its Code of Corporate Governance for
Investment Companies ("the AIC Code") which was endorsed by the
Financial Reporting Council. The Board has sought to reflect the
2008 Combined Code and AIC Code when reviewing its corporate
governance arrangements.
Directors' Report (continued)
The Board
The Company is led and controlled by a Board comprising
non-executive Directors, all of whom have wide experience and are
considered to be independent. The Board believes that it is in the
shareholders' best interests for the Chairman to be the point of
contact for all matters relating to the governance of the
Company.
Mr D Warr has been appointed as the senior independent
non-executive Director for the purpose of the Codes. The
appointment of Directors is considered by the Board who are the
Nominations Committee. The Articles of Association stipulate that
one third, or the number nearest to but not exceeding one third, of
the Directors shall retire and offer themselves for re-appointment
at each Annual General Meeting, and the Board has chosen to adopt
best practice in relation to retirement by rotation of two
Directors over the Articles of Association and as stated in the
Director's Report, two Directors will stand for re-appointment so
that the shareholders will have the opportunity to consider each
Director's continuing involvement with the Company every third
year. During the year, the Board reviewed its performance and
composition, and was content.
In addition, following the evaluation of the performance of the
Board, its committees and individual Directors, it is considered
that the performance of both Directors who are to retire by
rotation and offer themselves for re-appointment continues to be
effective and that they have demonstrated commitment to their
roles.
The Board meets regularly, normally quarterly, with additional
meetings should it be considered appropriate to discuss specific
issues.
The Directors have no service contracts. Further, they are not
entitled to any minimum period of notice or to compensation in the
event of their removal as a Director.
Due to adverse weather conditions during December 2010 the Board
were unable to meet. The fourth and final Board meeting of 2010 was
reconvened and held on 18 January 2011. The table below lists the
number of Board and Audit Committee meetings attended by each
Director during the year ended 31 December 2010.
Board Meetings Audit Committee
Director Attended Meetings Attended
JM Le Pelley (Chairman) 3 2
DR Maltwood 3 2
G Ross Russell 3 2
JG West 3 2
D Warr (Audit Committee
Chairman) 3 2
In 2009 and 2010 the Company did not employ any personnel.
Directors' Report (continued)
The Board (continued)
The Board has established itself as an Audit Committee which
meets at least annually. The Audit Committee is authorised by the
Board to investigate any activity within its terms of reference and
to consult with outside legal or other independent professional
advisers when deemed necessary in order to adequately discharge
their duties and responsibilities, which includes:
-- Considering the appointment, resignation or dismissal of the
external auditor and their independence and objectivity,
particularly in circumstances where non-audit services have been
provided.
-- Reviewing the cost effectiveness of the external audit from
time to time.
-- Reviewing and challenging of the interim and annual reports,
focusing particularly on changes in accounting policies and
practice, areas of accounting judgement and estimation, significant
adjustments arising from audit or other review and the going
concern assumption.
-- Reviewing compliance with accounting standards and law and
regulations including the Listing Rules.
-- Completing regular risk management reviews of internal
controls, which includes the review of the Company's Risk
Register.
-- Reviewing the Company's system of internal controls,
including financial, operating, compliance and risk management
controls and to make and report to the Board any recommendations
that may arise.
-- Considering the major findings of internal investigations and
make recommendations to the Board on appropriate action.
-- Ensuring that arrangements exist whereby service providers
and management may raise concerns over irregularities in financial
reporting or other matters in confidence and that such concerns are
independently investigated and remediated with appropriate
action.
The Board has also established itself as a Nominations
Committee, which will meet when necessary. The Terms of Reference
for both the Audit Committee and Nominations Committee are
available for inspection at the Company's registered office during
normal business hours.
Where non-audit services are provided by the auditor, these
engagements are pre-approved by the Audit Committee to ensure that
the Auditor's independence and objectivity is not breached. There
were GBP3,500 of non-audit services in the year ended 31 December
2010 (2009: nil) for which the Board pre-approved the engagement
after due consideration that the Auditor's independence and
objectivity was not impaired.
All the Board are considered independent and non-executive and
Director's fees are recommended by the full Board.
The emoluments of the Directors for the year are as follows:
2010 2009
Fees Fees
GBP GBP
JM Le Pelley (Chairman) 22,500 20,000
DR Maltwood 17,500 15,000
G Ross Russell 17,500 15,000
JG West 17,500 15,000
D Warr (Audit Committee
Chairman) 19,250 16,000
------- -------
94,250 81,000
------- -------
Directors' Report (continued)
The Board (continued)
The figures above represent emoluments earned as Directors
during the relevant financial year which are paid quarterly in
arrears. The Directors receive no other remuneration or benefits
from the Company other than the fees stated above. However, in 2010
D Warr received a one off payment of GBP3,500 in respect of
consultancy work carried out in 2009.
Relations with shareholders
In conjunction with the Board, the broker keeps under review the
register of members of the Company. Potential investors are also
contacted by the Investment Manager.
All shareholders are encouraged to participate in the Company's
Annual General Meeting. All Directors normally attend the Annual
General Meeting, at which shareholders have the opportunity to ask
questions and discuss matters with the Directors and the Investment
Manager.
It is recognised that the Code requires notice of Annual General
Meetings to be dispatched at least 21 clear days notice before the
meeting. The Company will continue to comply with this Code
provision in 2011.
Accountability and audit
a) Statement of going concern
In the opinion of the Directors the Company has adequate
resources to continue in operational existence for the foreseeable
future. For this reason the financial statements have been prepared
using the going concern basis.
The Directors have arrived at this opinion by considering, inter
alia, the following factors:
-- the Company has sufficient liquidity to meet all on-going
expenses (net current asset position at 31 December 2010 of
GBP4,853,000);
-- the portfolio of investments held by the Company materially
consists of listed investments which are readily realisable and
therefore the Company will have sufficient resources to meet its
liquidity requirements; and
-- as at 31 December 2010, the Company has no external
borrowings and therefore is under no obligation to repay any
borrowing facilities for the foreseeable future.
b) Internal control
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss. They have
therefore established an ongoing process designed to meet the
particular needs of the Company in managing the risks to which it
is exposed, consistent with the guidance provided by the Financial
Reporting Council. Such review procedures have been in place
throughout the full financial year and up to the date of the
approval of the financial statements.
The Board has contractually delegated to Scottish Widows
Investment Partnership Limited ("SWIP") the management of the
Company's investments. The management agreement between the Company
and its Investment Manager sets out the matters over which the
manager has authority and the limits above which Board approval
must be sought. Other matters reserved for the approval of the
Board include the report and accounts, communications with
shareholders and decisions on strategy.
Directors' Report (continued)
Accountability and audit (continued)
The safe custody of the Company's investments is managed by HSBC
Plc and Kleinwort Benson (Channel Islands) Fund Services Limited
are contracted to provide the Company's administration, secretarial
and accounting functions and Capita IRG (CI) Limited, its
registration function. The Board reviews regularly the performance
of the service provided by these companies.
SWIP maintains its own systems of internal controls, on which it
has reported to the Board. The Company, in common with other
investment trusts, does not have an internal audit function. The
Board has considered the need for an internal audit function, but
because of the internal control systems in place at the Investment
Manager, has decided to place reliance on the Investment Manager's
systems and internal audit procedures.
The systems are designed to ensure effectiveness and efficient
operations, internal control and compliance with laws and
regulations. In establishing the systems of internal control regard
is paid to the materiality of relevant risks; the likelihood of
costs being incurred and costs of control. It follows therefore
that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material
misstatement or loss.
The Board's ongoing review process involves a revision of SWIP's
internal control report and Kleinwort Benson (Channel Islands) Fund
Services Limited internal control report, AAF 01/06.
There are well established budgeting and forecasting procedures
in place and reports are presented to the Board detailing variance
against budget and prior year and other performance data. The
effectiveness of the internal control systems is reviewed annually
by the Board and the Audit Committee. The Audit Committee
has a discussion annually with the auditor to ensure that there
are no issues of concern in relation to the audit opinion on the
accounts and, if necessary, representatives of the Investment
Manager would be excluded from that discussion.
Investment manager
The Investment Manager employs highly experienced personnel and
maintains a continuous training programme for fund managers. The
fund managers are constantly monitoring the portfolio and over the
past twelve months they have visited virtually all the companies in
which the Company has invested.
Under the terms of the management agreement, SWIP decides
whether and in what manner all rights conferred by any investment
shall be exercised. However, the Directors may, at any time,
instruct SWIP as to the exercise of the voting and other rights
attached to the Company's investments, and they review regularly
the voting decisions taken by the Investment Manager.
The corporate governance of companies is one of the several
elements taken into consideration by the Investment Manager when
making investment decisions.
Statements of compliance
The Directors believe that the Company has complied with the
provisions of the 2008 Combined Code on Corporate Governance and
the AIC Code where appropriate, and that it has complied throughout
the year with the provisions where the requirements are of a
continuing nature, except that a Remuneration Committee and
Management Engagement Committee have not been established. During
2011, the Board will give further consideration to setting up these
Committees.
Directors' Report (continued)
Investment policy
The Company is permitted to invest in any security listed or
quoted on any recognised UK exchange in order to achieve its
investment objective of outperforming the FTSE All-Share Index.
The Company's investment universe comprises the constituents of
the FTSE All-Share Index. While the Directors expect the bulk of
the Company's portfolio to be within the investment universe, the
Company reserves the right to invest in companies traded on any
recognised UK exchange, for example, the Alternative Investment
Markets ("AIM") of the London Stock Exchange (and any successor
market to it) which the Investment Manager believes, because of
movement in their market capitalisations or, in the case of new
listings, because of their likely market capitalisations, may be
considered appropriate for investment.
In addition, the Company reserves the right to retain an
investment in any company that was within the appropriate range of
market capitalisation when the investment was made but which has
subsequently moved out of the investment universe as a result of
changes in its market capitalisation relative to the rest of the
investment universe. The Investment Manager's investment approach
favours a value bias, which is to identify undervalued companies in
all sectors of the Company's investment universe. Considerable
emphasis is placed on identifying companies which are well managed,
have high levels of cash generation and enjoy real pricing power.
The Investment Manager considers those attributes to be the key
components of a strong market position.
No holding in another company may exceed 15% of the value of the
Company's portfolio. This test is applied when the investment is
first acquired and subsequently, when additions are made to the
holding.
In addition to the original shareholders' capital, the Company
has at its disposal a Revolving Loan Facility for the amount of
GBP2,000,000 which is subject to an agreement with Lloyds TSB
Banking Group and is detailed further in note 12 to the financial
statements. The interest rate on the loan is renegotiated annually
and was set at a rate of LIBOR plus 0.60%. At the year end, the
Company had GBPnil drawn down against the facility (2009:
GBPnil).
A breakdown of the risks the Company is subject to and how they
are mitigated are detailed further below and in note 17 to the
financial statements.
Implementation
During the year under review, the assets of the Company were
invested in accordance with the Company's investment policy.
Further details of the performance of the Company and the extent to
which the Company's objectives were achieved are detailed further
in the Chairman's Statement and Investment Manager's Review on
pages 5 to 7.
The Company's portfolio consisted of 39 investments as at 31
December 2010 and is detailed further on pages 8 and 9. The sector
distribution of the portfolio is provided on pages 10 and 11. As at
31 December 2010, the portfolio held investments issued in the
United Kingdom and Switzerland. The top 10 holdings comprise 46.05%
of total net assets (2009: 50.41%).
The Company's gearing stood at nil% as at 31 December 2010
(2009: 0.15%).
Financial risk profile
The Company's financial instruments comprise investments, cash
and various items such as debtors, creditors etc that arise
directly from the Company's operations. The main purpose of these
instruments is the investment of shareholders' funds.
Directors' Report (continued)
Market price risk
The main risk arising from the Company's financial instruments
is market price risk.
In accordance with the Company's investment objectives, the
Company does not hedge against its exposure to market price
risk.
The investment strategy of the Company has been delegated to the
Company's Investment Manager, Scottish Widows Investment
Partnership Limited under an agreement dated 25 April 2002. The
Investment Manager operates under agreed parameters and the Board
monitors their performance on a regular basis.
Liquidity risk
The Company's assets comprise securities that can be readily
realised to meet its obligations. As a result the Company is able
to quickly liquidate its investments in these instruments at an
amount close to its fair value in order to meet its liquidity
requirements.
The Company has entered into a revolving 5-year loan facility
explained in note 12.
Interest rate risk
The Company's interest rate sensitive assets and liabilities
mainly comprise of cash at bank and a bank loan. The cash at bank
and bank loan facility are subject to floating rates and the loan
facility is considered to be part of the investment strategy of the
Company. No other hedging is undertaken in respect of this interest
rate risk. The bank loan facility, which is undrawn at the year end
is due to expire on 23 September 2012.
Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign exchange
rates.
The Company's foreign currency risk in 2010 arose from the
investment portfolio including cash and was minimal as it was
principally Sterling denominated. No hedging was undertaken in
respect of this foreign currency exposure. The Company had no
significant exposure to foreign currencies as at 31 December 2010
(See note 17).
Investment manager
Scottish Widows Investment Partnership Limited ("SWIP") provides
investment management services to the Company.
The Board believes that in the light of the performance of the
portfolio, SWIP should continue as the Investment Manager of the
Company. The Directors have the view that there are significant
advantages to both the Company and the shareholders as a whole by
having SWIP manage the assets of the Company. It is SWIP's size and
its expertise which gives the Board the confidence that the
objectives of the Company are being met. The Directors are of the
opinion that the continuing appointment of SWIP as the Company's
Investment Manager on the terms agreed under the agreement dated 25
April 2002 is in the interest of shareholders as a whole. Details
of the agreement are explained in note 4.
Directors' Report (continued)
Auditor
Deloitte LLP have expressed their willingness to continue in
office as auditor and a resolution to re-appoint them will be
proposed at the forthcoming Annual General Meeting.
Disclosure of information to the auditor
At the date of approval of the financial statements, the
Directors confirm that:
-- so far as they are aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- they have taken all steps they ought to have taken as
Directors to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 249 of The Companies
(Guernsey) Law, 2008.
By order of the Board
JM Le Pelley
D Warr
Directors
27 April 2011
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial year. Under that
law the Directors have elected to prepare the financial statements
in accordance with International Financial Reporting Standards
(IFRSs).
Under company law the Directors must not approve the accounts
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, International Accounting Standard 1 requires that
Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the company's ability to continue as a
going concern.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in Guernsey and the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the financial statements prepared in accordance with
International Financial Reporting Standards give a true and fair
view of the assets, liabilities, financial position and profit of
the Company; and
2. the Investment Managers 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 faced by the Company.
By order of the Board
JM Le Pelley
D Warr
Directors
27 April 2011
Independent Auditor's Report
To the members of UK Select Trust Limited
We have audited the financial statements of UK Select Trust
Limited (the "Company") for the year ended 31 December 2010 which
comprise the statement of comprehensive income, statement of
financial position, statement of changes in net assets attributable
to shareholders, statement of cash flows and the related notes 1 to
19. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards ("IFRSs").
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of The Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the
overall presentation of the financial statements.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2010 and of its profit for the year then
ended;
-- have been properly prepared in accordance with IFRSs; and
-- have been prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where The Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept; or
-- the financial statements are not in agreement with the
accounting records and returns; or
-- we have not received all the information and explanations we
require for our audit.
Independent Auditors' Report (continued)
Under the Listing Rules we are required to review:
-- the Directors' statement, contained within the Directors'
Report and note 2, in relation to going concern; and
-- the part of the Corporate Governance Statement relating to
the company's compliance with the nine provisions of the June 2008
Combined Code specified for our review.
Richard Anthony Garrard, FCA
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port, Guernsey
27 April 2011
Statement of Comprehensive Income
for the year ended 31 December 2010
2010 2009
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Dividend revenue 3 1,031 - 1,031 1,051 - 1,051
Other revenue 3 12 - 12 24 - 24
Net gains on
financial assets
at fair value
through profit
or loss 8 - 2,714 2,714 - 9,252 9,252
Net foreign
exchange
(loss)/gain - (20) (20) - 22 22
------- ------- ------- ------- ------- -------
1,043 2,694 3,737 1,075 9,274 10,349
Expenses
Investment
management fees 4 40 118 158 33 100 133
Administration
fees 89 - 89 95 - 95
Registrars'
fees 26 - 26 19 - 19
Auditors' fees 18 - 18 12 - 12
Directors' fees
and expenses 16 97 - 97 84 - 84
Other expenses 79 - 79 84 - 84
------- ------- ------- ------- ------- -------
Total operating
expenses before
finance costs 349 118 467 327 100 427
------- ------- ------- ------- ------- -------
Operating profit
before finance
costs 694 2,576 3,270 748 9,174 9,922
Finance costs
Interest
payable 12 2 6 8 2 5 7
------- ------- ------- ------- ------- -------
Profit for the
year 692 2,570 3,262 746 9,169 9,915
======= ======= ======= ======= ======= =======
Basic return per 7 3.36p 12.47p 15.83p 3.61p 44.42p 48.03p
ordinary share
------- ------- ------- ------- ------- -------
The total column of this statement is the statement of
comprehensive income of the Company, with the revenue and capital
columns representing supplementary information.
All revenue and capital items in the above statement derive from
continuing operations. All income is attributable to the ordinary
shareholders of the Company.
The notes on pages 28 to 44 are an integral part of these
financial statements.
Statement of Financial Position
as at 31 December 2010
Notes 2010 2009
GBP'000 GBP'000
Assets
Cash and cash equivalents 10 3,841 1,113
Due from brokers 9 900 120
Other receivables and
accrued income 9 229 425
Financial assets at fair
value through profit or
loss 8 28,607 29,729
----------- -----------
Total assets 33,577 31,387
----------- -----------
Liabilities
Bank overdraft - 46
Due to brokers 11 - 389
Other payables and
accrued expenses 11 117 120
----------- -----------
Total liabilities 117 555
----------- -----------
Net assets attributable
to shareholders 33,460 30,832
=========== ===========
Represented by:
Share Capital 14 2,083 2,083
Treasury Share Reserve 14 (245) (380)
Reserves 31,622 29,129
----------- -----------
Net assets attributable
to shareholders 33,460 30,832
=========== ===========
Number of ordinary shares
in issue (net of Treasury
shares) 15 20,686,840 20,576,082
Net asset value per share 15 161.75p 149.84p
These financial statements were approved by the Board of
Directors on 27 April 2011 and are signed on behalf of the Board
by:
JM Le Pelley D Warr
Director Director
Date: 27 April 2011.
The notes on pages 28 to 44 are an integral part of these
financial statements.
Statement of Changes in Net Assets Attributable to
Shareholders
for the year ended 31 December 2010
Equity Treasury Capital Capital
share share Share redemption Capital reserve- Revenue
capital reserve premium reserve reserve-realised unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2010 2,083 (380) 5,411 4,308 10,788 4,574 4,048 30,832
Shares
repurchased
during
the year - (189) - - - - - (189)
Cash
dividends:
-2009
second
interim
dividend - - - - - - (331) (331)
-2010
first
interim
dividend - - - - - - (104) (104)
Scrip
dividends - 324 *(10) - - - (324) (10)
Net profit - - - - 3,426 (856) 692 3,262
-------- --------- -------- ----------- ----------------- ----------- -------- --------
At 31
December
2010 2,083 (245) 5,401 4,308 14,214 3,718 3,981 33,460
-------- --------- -------- ----------- ----------------- ----------- -------- --------
There are no other recognised income and expenses for the year
ended 31 December 2010.
* Costs associated with the administration of the scrip
dividends.
for the year ended 31 December 2009
Equity Treasury Capital Capital
share share Share redemption Capital reserve- Revenue
capital reserve premium reserve reserve-realised unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2009 2,083 (168) 5,422 4,308 8,320 (1,847) 4,053 22,171
Opening
adjustment - - - - - *(280) - (280)
Shares
repurchased
during
the year - (528) - - - - - (528)
Cash
dividends:
-2008
final
dividend - - - - - - (331) (331)
-2009
first
interim
dividend - - - - - - (104) (104)
Scrip
dividends - 316 **(11) - - - (316) (11)
Net profit - - - - 2,468 6,701 746 9,915
-------- --------- -------- ----------- ----------------- ----------- -------- --------
At 31
December
2009 2,083 (380) 5,411 4,308 10,788 4,574 4,048 30,832
-------- --------- -------- ----------- ----------------- ----------- -------- --------
There are no other recognised income and expenses for the year
ended 31 December 2009.
* Opening adjustment made to correct capital reserve unrealised
position.
** Costs associated with the administration of the scrip
dividends.
The notes on pages 28 to 44 are an integral part of these
financial statements. Statement of Cash Flows
for the year ended 31 December 2010
Notes 2010 2009
GBP'000 GBP'000
Cash flows from operating
activities
Payments for purchase
of financial investments (61,505) (87,472)
Proceeds from sale of
financial investments 63,894 87,924
Cash received from investments 1,232 672
Other income 12 24
Investment management
fee paid (154) (122)
Other cash payments (53) (309)
Net cash inflow from operating
activities 3,426 717
--------- ---------
Cash flows from financing
activities
Interest paid (8) (7)
Share repurchase 14 (189) (528)
Equity dividends paid 6 (435) (435)
Net cash outflow from
financing activities (632) (970)
--------- ---------
Net increase/(decrease) in
cash and cash equivalents 2,794 (253)
Effect of exchange rate
changes on cash and cash
equivalents (20) 22
Cash and cash equivalents
at the beginning of the
year 1,067 1,298
Cash and cash equivalents
at the end of the year 10 3,841 1,067
--------- ---------
The notes on pages 28 to 44 are an integral part of these
financial statements.
Notes to the Financial Statements
1. General information
UK Select Trust Limited is a UK Investment Trust Company
incorporated under The Companies (Guernsey) Law, 2008, with its
registered office at Dorey Court, Admiral Park, St Peter Port,
Guernsey. UK Select Trust Limited's shares are listed on the London
Stock Exchange.
The objective of the Company is to invest over 80% of its gross
assets by value in companies listed or quoted on the London Stock
Exchange and the investment policy aims to provide a total return
to shareholders in excess of the net total return on the FTSE
All-Share Index and a progressive dividend policy.
The Company has no employees.
2. Accounting policies
a. Basis of preparation
The financial statements have been prepared in accordance with
the applicable International Financial Reporting Standards and
interpretations adopted by the International Accounting Standards
Board (IASB), and in accordance with the guidelines included in the
AIC Statement of Recommended Practice for Financial Statements of
Investment Trust Companies issued in January 2003 and revised in
January 2009 ("AIC SORP") to the extent that it is not in conflict
with IFRS. The financial statements have been prepared on a
historical cost basis except for financial assets held at fair
value through profit or loss, which have been measured at fair
value.
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the statement of
comprehensive income between items of a revenue and capital nature
has been presented alongside the statement of comprehensive
income.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with
International Financial Reporting Standards requires the Company to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates arerecognised in
the period in which the estimates is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both the current and future
periods.
The critical judgements and key sources of estimation
uncertainty are detailed within the accounts policies note
below.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
b. Going concern
In the opinion of the Directors the Company has adequate
resources to continue in operational existence for the foreseeable
future. For this reason the financial statements have been prepared
using the going concern basis.
The Directors have arrived at this opinion by considering, inter
alia, the following factors:
-- the Company has sufficient liquidity to meet all on-going
expenses (net current asset position at 31 December 2010 of
GBP4,853,000);
-- the portfolio of investments held by the Company materially
consists of listed investments which are readily realisable and
therefore the Company will have sufficient resources to meet its
liquidity requirements; and
-- as at 31 December 2010, the Company has no external
borrowings and therefore is under no obligation to repay any
borrowing facilities for the foreseeable future.
c. Adoption of new and revised standards
In the current year, the Company has not adopted any new or
revised standards.
At the date of authorisation of these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet
effective.
IFRS 9 "Financial Instruments"
IAS 24 (amended) "Related Party Disclosure"
IAS 32 (amended) "Classification of Rights Issue"
IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments"
IFRIC 14 (amended) "Prepayments of a Minimum Funding
Requirement"
The Directors do not expect that the adoption of the other
standards listed above will have a material impact on the financial
statements of the Company in the future periods.
d. Other receivables
Other receivables do not carry any interest, are short-term in
nature, and are accordingly stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable
amounts.
Sales of financial assets are recognised at the trade date.
Where trades have been executed but are awaiting settlement from
the broker, these are accounted for as due from brokers on the
statement of financial position.
e. Financial assets
(i) Classification
The Company classifies its financial assets as fair value
through profit or loss in accordance with IAS 39.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
e. Financial assets (continued)
(ii) Recognition
Financial assets are recognised on the trade date where a
purchase is under a contract whose terms require delivery within
the timeframe established by the market concerned.
(iii) Initial measurement
As the Company's business is investing in financial assets with
a view to profiting from their total return in the form of
interest, dividends or increases in fair value and are managed on a
portfolio basis to meet the objectives of the Company, listed
equities and fixed income securities are designated as fair value
through profit or loss on initial recognition and transaction costs
on acquisition or disposal of the financial asset are expensed as a
capital item. The Company manages and evaluates these investments
on a fair value basis in accordance with an investment
strategy.
(iv) Subsequent measurement
After initial measurement, the Company measures its financial
assets, which are classified as fair value through profit or loss,
at fair value, which is either the bid price or the last traded
price, depending on the convention of the exchange on which the
financial asset is quoted.
Subsequent changes in the fair value of the Company's financial
assets are recorded in the statement of comprehensive income under
net gains/ (losses) on financial assets at fair value through
profit or loss. Foreign exchange gains and losses for financial
assets at fair value through profit or loss are included within the
changes in its fair value.
(v) Derecognition
Financial assets are derecognised where:
-- a sale is under contract whose terms require delivery within
the timeframe established by the market concerned; or
-- it is evident, following an impairment review, that the
Company can no longer recover any value from the financial
asset.
(vi) Impairment
The Company is required to evaluate the financial assets in its
portfolio to determine if any of the securities are impaired.
As a matter of accounting policy, the Company has determined
that it will have intent and ability to hold a financial asset with
unrealised loss until the cost of purchases has been recovered.
Fair value and impairment estimates are made at a specific point
in time based on market conditions and information about the
financial asset. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement.
The Company invests in listed or quoted equities and therefore
at the reporting date, with the exception of Newfound NV, there
were no sources of significant judgement or uncertainty.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
f. Net gains/(losses) on financial assets at fair value through
profit or loss
Net gains/(losses) on financial assets at fair value through
profit or loss includes changes in the fair value of financial
assets held at fair value through profit or loss.
Unrealised gains and losses comprise changes in the fair value
of financial assets for the year and from reversal of prior year's
unrealised gains and losses for financial assets which were
realised in the reporting period.
Realised gains and losses on disposals of financial assets
classified as fair value through profit or loss are calculated
using the First-In, First-Out method. They represent the difference
between a financial asset's initial carrying amount and its
disposal amount.
g. Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. A financial liability is any liability that contractually
obligates the Company to deliver cash or another financial asset or
exchange financial assets or financial liabilities that are
potentially unfavourable to the Company, or a contract that will or
may be settled in the Company's own equity instruments. An equity
instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
As the ordinary shares have no fixed rights to redemption or income
they are classified as equity.
h. Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the
proceeds received, net of direct issue costs, finance charges,
including premiums payable on settlement or redemption and direct
issue costs. They are accounted for on an accruals basis in the
statement of comprehensive income using the effective interest
method and are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they
arise.
i. Other payables
Other payables are not interest-bearing and are stated at their
nominal value.
Purchases of financial assets are recognised at the trade date.
Where trades have been executed but the broker requires funds for
settlement of the trade, these have been accounted for as due to
brokers on the statement of financial position.
j. Dividend revenue, interest revenue and other revenue
Dividend revenue is brought into the statement of comprehensive
income as a revenue item on the ex-dividend date or, where no
ex-dividend date is quoted, when the Company's right to receive
payment is established. All dividends are shown gross of
withholding tax.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the amount of the
cash dividend is recognised as dividend revenue in the statement of
comprehensive income.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
j. Dividend revenue, interest revenue and other revenue
(continued)
Fixed returns on non-equity investments and on debt securities
are recognised as a revenue item in the statement of comprehensive
income on a time apportionment basis so as to reflect the effective
yield on the investment. Other returns on non-equity shares are
recognised when the right to the return is established.
Deposit interest is recognised as interest revenue and is
included in the statement of comprehensive income on an accruals
basis.
Other revenue, such as underwriting commission, is recognised on
a received basis as the timing of receipts of this nature is
uncertain and therefore the received basis is deemed the most
appropriate method to account for this revenue.
k. Functional and presentation currency
The Company's functional and presentation currency is sterling,
which is the currency of the primary economic environment in which
the company operates. The Company's performance is evaluated and
its liquidity is managed in sterling, therefore sterling is
considered as the currency that most faithfully represents the
economic effects of the underlying transactions, events and
conditions.
l. Foreign currency translations
Foreign currency monetary assets and liabilities are translated
into sterling at the rate of exchange ruling at the statement of
financial position date. Transactions during the year in foreign
currencies are translated into sterling at the rate ruling at the
date of the transaction. Realised and unrealised foreign exchange
gains and losses are recognised in the statement of comprehensive
income.
m. Statement of cash flows
The Company is required to prepare a statement of cash flows in
accordance with IFRS and has elected to prepare the statement of
cash flows on a direct basis.
n. Expenses
All expenses are accounted for on an accruals basis. Expenses
are charged through the statement of comprehensive income as
revenue except as follows:
-- expenses which are incidental to the acquisition of an
investment are deducted from gains on investments through the
statement of comprehensive income as capital;
-- expenses which are incidental to the disposal of an
investment are deducted from the disposal proceeds of the
investment; and
-- expenses are charged to the statement of comprehensive income
as capitalrealised where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated. In
this respect, the Investment Manager's fee and performance fee have
been allocated 75% to the capital reserve -realised and 25% to the
revenue reserve in line with the Board's expected long-term split
of returns in the form of capital gains and income respectively
from the investment portfolio of the Company.
o. Finance costs
Finance costs are accounted for on an accruals basis. Finance
costs are allocated, insofar as they relate to the financing of the
Company's investments, 75% to capital reserve - realised and 25% to
revenue account, in line with the Board's expected long-term split
of returns, as outlined in the expenses note above.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
p. Segment Reporting
A business segment is a distinguishable component of the Company
that is engaged in providing products and services and that is
subject to risks and returns that are different from those of other
business segments. A geographical segment is a distinguishable
component of the Company that is engaged in providing products and
services and that is subject to risks and returns that are
different from those of other economic environments. The Board of
Directors is of the opinion that the Company isorganised in one
main business segment, namely the management of the Company's
investments in order to achieve the Fund's investment objectives as
described in note 1 to the financial statements. The Board of
Directors is further of the opinion that the Company's secondary
segment reporting format is alsoorganised into one main
geographical unit since all investments are listed or quoted within
the United Kingdom.
q. Treasury shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from net assets attributable to
shareholders through the Treasury Share reserve, which is a
distributable reserve.
When such shares are subsequently sold or reissued, any
consideration received, net of any directly attributable
incremental transaction costs, is recognised as an increase in
equity and the resulting surplus or deficit on the transaction is
transferred to/from the Treasury Share reserve.
3. Dividend and other revenue
2010 2009
GBP'000 GBP'000
Dividend revenue from investments
designated at fair value
through profit or loss:
Dividends 1,031 1,051
1,031 1,051
-------- --------
Other revenue from financial
assets not at fair value
through profit or loss:
Deposit interest arising
on cash and cash equivalents - 11
Underwriting commission - 13
Unclaimed dividends 2003/2004 12 -
-------- --------
12 24
-------- --------
Total revenue 1,043 1,075
======== ========
Notes to the Financial Statements (continued)
4. Investment management and performance fees
The Investment Manager was appointed under an agreement with the
Company dated 25 April 2002. The agreement may be terminated by
either side giving 6 months notice. The basic remuneration of the
Investment Manager is 0.125% quarterly in arrears, based on the
value of the portfolio at 31 March, 30 June, 30 September and 31
December. The Investment Manager is entitled to receive a
performance fee payable in arrears linked to the excess total
return of the Company's net assets compared to the total return of
the FTSE All-Share Index. The performance fee is capped at 0.25% of
NAV in any year. On this basis, the maximum possible management fee
in any year will be 0.75% of NAV if the average of two years
outperformance equals or exceeds 2.5%. There was no performance fee
payable in 2010 or 2009. Where the Investment Manager is also
manager of funds in which the Company has an investment, an
arrangement is in place to avoid double charging of fees and
expenses.
5. Taxation
The Company is exempt from Guernsey Income Tax under the Income
Tax (Exempt Bodies) (Guernsey) Ordinances 1989 to 1997 and is
charged an annual exemption fee of GBP600 which is included within
other expenses in the statement of comprehensive income.
The Company suffered GBP69,000 (2009: GBP32,000) of withholding
tax on foreign dividends during the year and this expense has been
included in other expenses in the statement of comprehensive
income.
6. Dividends
2010 2009
GBP'000 GBP'000
Equity dividends
Ordinary shares
First Interim of 0.90p (gross)
on 11,606,880 shares for 2010
paid in 2010 104
(2009 first interim paid in 2009:
0.90p (gross) on 11,561,991 shares) 104
Scrip dividend for 2010 paid in
2010: 69,021 shares issued at
a cost of 128.75p per share 89
(Scrip dividend for 2009 paid
in 2009: 66,031 shares issued
at a cost of 122.5p per share) 81
Second interim dividend for 2009:
2.85p (gross) on 11,614,189 shares
paid in 2010 331
Final dividend for 2008: 2.73p
(gross) on 12,178,179 shares paid
in 2009 331
Scrip dividend for 2009 paid in
2010: 191,737 shares issued at
a cost of 122.25 per share 235
(Scrip dividend for 2008 paid
in 2009: 281,018 shares issued
at a cost of 83.5p per share 235
-------- --------
759 751
======== ========
Notes to the Financial Statements (continued)
7. Basic return per ordinary share
2010 2009
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Return 3.36 12.47 15.83 3.61 44.42 48.03
======== ======== ====== ======== ======== ======
Revenue return per ordinary share is based on the net revenue on
ordinary activities of GBP692,000 (2009: return GBP746,000) and on
20,608,335 ordinary shares, being the weighted average number of
ordinary shares in issue during the year (2009: 20,640,813).
Capital return per ordinary share is based on a net capital
return for the financial year of GBP2,570,000 (2009: return
GBP9,169,000) and on 20,608,335 ordinary shares, being the weighted
average number of ordinary shares in issue during the period (2009:
20,640,813).
8. Financial assets at fair value through profit or loss
2010 2009
% of net Fair % of net
Fair Value assets Value assets
GBP'000 % GBP'000 %
Financial assets at
fair value through
profit or loss
- Listed equity
securities 28,597 85.47 29,719 96.39
- De-listed trading
entities 10 0.03 10 0.03
28,607 85.50 29,729 96.42
----------- --------- -------- ------------
Net gains/(losses)
on financial assets
at fair value through
profit or loss
2010 2009
GBP'000 GBP'000
Realised gains 3,570 2,551
Unrealised (losses)/gains (856) 6,701
--------- ------------
2,714 9,252
--------- ------------
Fair value measurements
The Company has previously adopted the amendment to IFRS 7,
effective 1 January 2009. This requires the Company to classify
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. IFRS 7 establishes a fair value
hierarchy that prioritises the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the
fair value hierarchy under IFRS 7 are as follows:
Notes to the Financial Statements (continued)
8. Financial assets at fair value through profit or loss
(continued)
Fair value measurements (continued)
-- Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability either
directly (that is, as prices) or indirectly (that is, derived from
prices); or
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgment, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgment by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The Company mainly holds equity investments for which fair value
has been determined by reference to quoted prices in active markets
for the same instrument, being level 1 of the IFRS 7 fair value
hierarchy. The Company also has one holding, Newfound NV Plc, for
which fair value has been derived by inputs other than quoted
prices due to the investment being de-listed during the prior
year.
The following table presents the Company's financial assets by
level within the valuation hierarchy as of 31 December 2010.
Percentage Percentage
of net of net
2010 assets 2009 assets
Level 1 fair value
assets GBP'000 % GBP'000 %
Investments valued
at fair value 28,597 85.47 29,719 96.39
Level 2 fair value
assets
Investments valued
at fair value 10 0.03 10 0.03
Total fair value
financial assets 28,607 85.50 29,729 96.42
======== =========== ======== ===========
Notes to the Financial Statements (continued)
9. Other receivables and accrued income
Other receivables 2010 2009
GBP'000 GBP'000
Due from brokers 900 120
Accrued income 216 418
Prepayments 13 7
-------- --------
1,129 545
======== ========
The Directors consider that the carrying amount of receivables
approximates to their fair value.
10. Cash and cash equivalents
Cash and cash equivalents comprises bank balances and cash held
by the Company including short-term deposits with an original
maturity of three months or less. The carrying amount of these
assets approximates to their fair value.
11. Other payables and accrued expenses
Due to brokers 2010 2009
GBP'000 GBP'000
Due to brokers - 389
- 389
======== ========
Other payables 2010 2009
GBP'000 GBP'000
Management fees 42 38
Administrative fees 45 35
Directors fees - 16
Audit fees 18 14
Registrars fees 7 6
Consultancy fee - 4
Sundry expenses 5 7
-------- --------
117 120
======== ========
The Directors consider that the carrying amount of payables
approximates their fair value.
12. Loan facility
The Company has a revolving 5 year loan facility, secured on the
assets of the Company, which is due to expire on 23 September 2012
with an aggregate principal amount of GBP2,000,000, for the
purposes of future investment. During the year ended 31 December
2010, the loan facility was not utilised. Interest is payable at a
rate of six month sterling LIBOR plus 0.6% and the borrowing is
held at amortised cost. No loan interest was paid during 2010 or
2009. A fee of 0.30% per annum is payable on the undrawn amount of
GBP2,000,000 of this facility, resulting in GBP6,000 being paid for
the year ended 31 December 2010 (1) . Further, the Company is
required to comply with the following financial covenants imposed
by the bank:
Notes to the Financial Statements (continued)
12. Loan facility (continued)
-- the Company is required to ensure that the borrowing does not
at any time exceed 45% of the Adjusted Gross Asset Value;
-- the Company is required to maintain the Net Worth at not less
that GBP20,000,000; and
-- the Company is required to ensure that the investment
portfolio includes holdings in not less that 30 separate
businesses.
(1) The loan is secured on the assets of the Company.
13. Business and geographical segments
As described in the accounting policies in note 2 to the
financial statements the Board of Directors is of the opinion that
the Company is organised in one main business segment, namely the
management of the Company's investments in order to achieve the
Company's investment objectives as described in note 1 to the
financial statements, and considers this to be the primary
reporting format for segment information and no further business
segment information not already included in other parts of the
financial statements is required.
The Board of Directors is further of the opinion that the
Company's secondary segment reporting format is also organised into
one main geographical unit as the location of all of its
investments is materially all within the United Kingdom.
Income Net Assets
2010 2009 2010 2009
GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 1,043 1,075 33,460 30,832
1,043 1,075 33,460 30,832
======== ======== ======== ========
Geographical locations are determined by the Company based on
the country of primary listing for listed instruments and the
country of incorporation for unlisted instruments.
14. Share capital
2010 2009
GBP'000 GBP'000
Authorised
100,000,000 ordinary shares
of 10p each 10,000 10,000
250,000 5% cumulative preference
restrictive voting shares
of GBP1 each 250 250
10,250 10,250
======== ========
The holders of the five per cent cumulative preference
restrictive voting shares shall be entitled, out of profits for
dividend, to a fixed cumulative preferential dividend at the rate
of five per cent per annum and in a winding-up or on a return of
capital shall be entitled to repayment of capital in priority to
the ordinary shareholders. At 31 December 2010, no five per cent
cumulative preference restrictive voting shares had been issued
(2009: none). The ordinary shareholders carry the right to receive
any surplus income and in winding-up any surplus assets, after
repayment of the preference capital and dividends as above.
Notes to the Financial Statements (continued)
14. Share capital (continued)
2010 2009
GBP'000 GBP'000
Issued, called up and
fully paid:
20,830,484 ordinary shares
of 10p each
(2009: 20,830,484) 2,083 2,083
==================== =====================
2010
Treasury Share Shares in
reserve issue
Shares Cost Shares Cost
Nominal GBP'000 Nominal GBP'000
Balance at 1 January
2010 254,402 380 20,830,484 2,083
Shares purchased and
held in Treasury 150,000 189 - -
Shares issued in lieu
of dividends from Treasury (260,758) (324) - -
Balance at 31 December
2010 143,644 245 20,830,484 2,083
------------ -------- ------------- --------
2009
Treasury Share Shares in
reserve issue
Shares Cost Shares Cost
Nominal GBP'000 Nominal GBP'000
Balance at 1 January
2009 104,742 168 20,830,484 2,083
Shares purchased and
held in Treasury 496,709 528 - -
Shares issued in lieu
of dividends from Treasury (347,049) (316) - -
Balance at 31 December
2009 254,402 380 20,830,484 2,083
------------ -------- ------------- --------
During 2010 and 2009 no shares were purchased
for cancellation.
On 12 February 2010, 100,000 shares were purchased for Treasury
at a total cost including expenses of GBP123,369.
On 1 December 2010, 50,000 shares were purchased for Treasury at
a total cost including expenses of GBP65,153.
On 28 May 2010, 191,737 shares were issued to shareholders who
elected to receive them in lieu of a second interim cash dividend
for 2009. On 5 November 2010, 69,021 shares were issued to
shareholders who elected to receive them in lieu of a first interim
dividend for 2010. Ordinary shares of 10p each, fully paid were
issued to shareholders from the Treasury Share reserve held by the
Company.
Notes to the Financial Statements (continued)
15. Net asset value per share
Net asset value per ordinary share is based on net assets
attributable to the ordinary shareholders of GBP33,460,000 (2009:
GBP30,832,000) and on 20,686,840 (2009: 20,576,082) ordinary
shares, being the number of ordinary shares in issue at the end of
the year.
16. Related party transactions
The members of the Board of Directors are listed on page 4 of
the annual financial report. Fees earned by the Directors of the
Company during the year were GBP94,250 (2009: GBP81,000) of which
nil (2009: GBP16,250) was outstanding at the year end. Allowable
expenses claimed by the Directors in the course of their duties
amounted to GBP2,344 for the year ended 31 December 2010 (2009:
GBP3,173).
D Warr is a Non-Executive Director of Breedon Aggregates Limited
of which the Company holds 1,583,270 shares as at 31 December
2010.
The Investment Manager, Scottish Widows Investment Partnership
Limited exercises discretion over 28.42% (2009: 28.42%) of shares
in the Company, on behalf of their clients, and earned investment
management fees of GBP157,732 (2009: GBP132,843) during the year of
which GBP42,090 (2009: GBP38,564) was outstanding at the reporting
date. No performance fees were paid in 2010 or 2009. The basis of
calculation of these fees is detailed in note 4.
The Company has appointed Kleinwort Benson (Channel Islands)
Fund Services Limited to provide administrative and accounting
services. Administrative fees (including the accounting fee) for
the year ended 31 December 2010 amounted to GBP95,000 (2009:
GBP95,000) of which GBP45,000 (2009: GBP35,000) was outstanding at
the year end.
17. Financial risk management
Introduction
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities, but is managed through a process of ongoing
identification, measurement and monitoring, subject to risks limits
and other controls. The process of risk management is critical to
the Company's continuing profitability. The Company is exposed to
market risk (which includes currency risk, interest rate risk, and
price risk), credit risk and liquidity risk arising from the
financial assets it holds.
Capital risk management
The capital structure of the Company consists of the cash and
cash equivalents and equity attributable to ordinary shareholders,
comprising issued share capital, Treasury Share reserve, share
premium, capital redemption reserve, capital reserves and revenue
reserve as disclosed in statement of changes in net assets
attributable to shareholders. The Company does not have any
externally imposed capital requirements.
The investment objective of UK Select Trust Limited is to invest
over 80% of its gross assets by value in the UK and the investment
policy aims to provide a total return to shareholders in excess of
the net total return on the FTSE All-Share Index and a progressive
dividend policy.
The Company aims to deliver its objective by investing available
cash and using leverage whilst maintaining sufficient liquidity to
meet on-going expenses and dividend payments.
Notes to the Financial Statements (continued)
17. Financial assets and liabilities interest rate disclosure
and other financial risks (continued)
Capital risk management (continued)
The Company's policy is to provide net income for distribution
from the dividend income earned from a portfolio of UK equity
securities, all of which are listed on the London Stock Exchange.
Further, the Company has allocated to capital 75% of its investment
management fee, performance fee and finance costs in respect of the
non-utilisation fee from the loan facility in line with the Board's
expectation of long-term returns in the form of capital gains from
the investment portfolio of the Company.
UK Select Trust Limited uses leverage to enhance the returns to
shareholders and for this purpose has entered into a 5 year
revolving loan facility amounting to GBP2 million for future
investments. The interest payable on borrowing is six month
sterling LIBOR plus 0.6%, therefore limiting the Company's interest
rate risk. The company has pledged its assets to secure such
borrowings.
During the year under review, the assets of the Company were
invested in accordance with the Company's Investment Manager's
strategy. The Company invests in various sectors and businesses to
mitigate the primary risk of the company, price risk. In addition,
price-volatility levels are reviewed and monitored daily.
Concentration risk
Concentration risk is the risk that the Company's portfolio is
not suitably diversified and therefore the Company could become
materially exposed to sector specific price fluctuations.
As at 31 December 2010, the Company's portfolio consisted of 39
investments spread over 7 sectors. Further, the portfolio only held
investments issued in the United Kingdom.
The Board has also adopted investment restrictions to manage the
risk profile, which are:
-- no holding in another company may exceed 15% of the value of
the Company's portfolio. This test is applied when the investment
is first acquired and subsequently, when additions are made to the
holding; and
-- futures positions may be entered into so long as the
positions that are taken are long only and do not exceed 5% of the
Net Asset Value of the Company when the deal is struck.
The Board monitors investment restrictions by utilising the
Investment Manager's compliance functions. Investment strategy and
allocation is monitored by the Board through the use of an
Investment Manager.
Credit risk
Credit risk is the risk that an issuer or counter-party may be
unable or unwilling to meet a commitment that it has entered into
with the Company.
The Company's principal financial assets are bank balances and
cash, other receivables and investments as set out in the statement
of financial position which represents the Company's maximum
exposure to credit risk in relation to the financial assets.
The credit risk on bank balances is limited because the
counter-parties are banks with high credit ratings of A-1+ assigned
by international credit-rating agencies.
Notes to the Financial Statements (continued)
17. Financial assets and liabilities interest rate disclosure
and other financial risks (continued)
Credit risk (continued)
All transactions in listed securities are settled upon delivery
using approved brokers. The risk of default is considered minimal
as delivery of securities sold is only made once the broker has
received payment. Payment is made on a purchase once the securities
have been received by the broker. The trade will fail if either
party fails to meet its obligations.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its liabilities as they fall due.
The Company's assets comprise securities that can be readily
realised to meet obligations. As a result, the Company is able to
liquidate its investments in these instruments at an amount close
to its fair value in order to meet its liquidity requirements.
Dividend income is also expected to be sufficient to cover
short-term liquidity requirements.
The Company has entered into a revolving 5-year loan facility
explained in note 12, to provide leverage and enhance returns to
shareholders. No amounts have been drawn down on this facility
subsequent to the reporting date.
No liquidity analysis for the Company's financial assets and
liabilities has been provided for the current or prior year as
liquidity risk is not considered material.
Market risk
Market risk is the possibility that future changes in market
prices may make a financial instrument less valuable or more
onerous.
The Company's market risk is managed by the Investment Manager
through diversification of the investment portfolio in accordance
with the Company's investment policy.
a) Price risk
Price risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices whether those changes are caused by factors specific
to the individual financial instrument or its issuers, or factors
affecting similar financial instruments traded in the market.
In accordance with the Company's investment objectives, the
Company does not hedge against its exposure to market price
risk.
The investment strategy of the Company has been delegated to the
Company's Investment Manager, Scottish Widows Investment
Partnership Limited under an agreement dated 25 April 2002. The
Investment Manager operates under agreed parameters and the Board
monitors their performance on a regular basis.
Notes to the Financial Statements (continued)
17. Financial assets and liabilities interest rate disclosure
and other financial risks (continued)
a) Price risk (continued)
Price sensitivity
The following table details the Company's sensitivity to a 10%
increase and decrease in the market prices while all other
variables were held constant. 10% is the sensitivity rate used when
reporting price risk internally to key management personnel and
represents management's assessment of the possible change in market
prices. A positive number indicates an increase in net assets
attributable to holders of shares where the market price of the
relevant financial instrument increases and a negative number
indicates a decrease where the market price of the relevant
financial instrument decreases.
Net Assets Net Assets
10% increase 10% decrease
in price in price
Impact on financial Impact on financial
assets at fair assets at fair
value through value through
profit or loss profit or loss
2010 2009 2010 2009
GBP'000 GBP'000 GBP'000 GBP'000
Increase/(decrease)
in net assets
attributable to
shareholders
-Designated as at
fair value through
profit or loss 2,861 2,973 (2,861) (2,973)
-------------- -------- --------------- --------
2,861 2,973 (2,861) (2,973)
============== ======== =============== ========
In practice the actual trading results may differ from the
sensitivity analysis above and the difference could be
material.
b) Interest rate risk
Interest rate risk is the risk that future cash flows of a
financial instrument will fluctuate because of changes in interest
rates associated with that financial instrument.
The Company's interest rate sensitive assets and liabilities
mainly comprise of cash and cash equivalents. The cash and cash
equivalents are subject to floating rates and are considered to be
part of the investment strategy of the Company. No other hedging is
undertaken in respect of this interest rate risk. As such, the
Board does not believe the Company suffers any material interest
rate risk.
Notes to the Financial Statements (continued)
17. Financial assets and liabilities interest rate disclosure
and other financial risks (continued)
c) Currency risk
Foreign currency risk is the risk that a financial instrument
will fluctuate because of changes in foreign exchange rates.
As at 31 December 2010 and 31 December 2009 the Company's net
currency exposure was as follows:
2010 2009
% of Net % of Net
GBP'000 Assets GBP'000 Assets
Euro 1,038 3.10 267 0.87
Sterling 31,776 94.97 30,475 98.84
Swiss Franc 592 1.77 - -
United States
Dollar 54 0.16 90 0.29
-------- --------- -------- ---------
33,460 100.00 30,832 100.00
======== ========= ======== =========
18. Parent and ultimate controlling party
The Board is of the opinion that there is no immediate parent or
ultimate controlling party of the Company.
19. Events after the reporting date
On 31 March 2011, the Board declared a second interim dividend
of 3.00p per share. In accordance with the requirements of IFRS, as
this was not declared until after the statement of financial
position date, no accrual has been reflected in these financial
statements for this amount.
Ten Year Record
The Ten Year Record set out below has been prepared from the
accounting records of the Company. While it does not form part of
the financial statements, it should be read in conjunction with
them and the Auditor's report thereon.
Ordinary Net
Revenue Gross share asset
Net return dividends capital value of
revenue per per eligible ordinary
Gross after ordinary ordinary for shares
revenue taxation share share dividends (Ex-div)
Year
ended 31 GBP'000
December (1&2) GBP'000 p p(3) GBP'000 p
2001 2,168 1,735 3.05 2.79 5,717 104.4
2002 1,735 1,276 2.72 2.80 4,186 76.1
2003 1,500 1,130 2.69 2.83 4,203 90.7
2004 1,536 1,117 2.77 2.93 3,858 97.9
2005 1,517 880 2.48 2.95 2,073 125.5
2006 1,041 648 3.12 3.10 2,083 152.9
2007 1,241 824 3.96 3.25 2,071 158.3
2008 1,449 1,042 5.04 3.63 2,073 106.9
2009 1,075 746 3.61 3.75 2,058 149.8
2010 1,043 692 3.36 3.90 2,069 161.7
Notes:
(1) The information provided prior to 2006 in the above
statement is prepared in accordance with UK GAAP and not IFRS.
(2) Following the introduction of FRS16 (IAS 12) all dividends
receivable from 1999 have been shown gross of withholding tax
whereas previously they were shown net.
(3) Following the introduction of FRS 21 (IAS 10) all dividends
paid by the company from 2004 are accounted for in the period in
which the Company is liable to pay them. Such treatment is also
consistent with International Financial Reporting Standards. In
previous years, the Company accrued dividends in the period in
which the net revenue, to which those dividends related, were
accounted for.
Notice of Meeting
Notice is hereby given that the fifty second Ordinary Annual
General Meeting of UK Select Trust Limited (the "Company") will be
held at Dorey Court, Admiral Park, St Peter Port, Guernsey, on
Friday 1 July 2011 at 11:30am for the following purposes:
Ordinary Resolutions
1. To consider the Directors' report and financial statements
for the year ended 31 December 2010.
2. To authorise the implementation by the Directors of the
provisions of Article 133 of the Company's Articles of Association
in respect of any dividend (or part thereof) in respect of the
financial year of the Company ending 31 December 2010, or by way of
an interim dividend in respect of the financial year of the Company
ending 31 December 2011.
3. To re-elect D R Maltwood as Director in accordance with
Article 97 of the Company's Articles of Association.
4. To re-elect J G West as Director in accordance with Article
97 of the Company's Articles of Association.
5. To re-appoint Deloitte LLP as Auditor.
6. To consider, and if thought fit, approve the renewal of the
unconditional and general authorisation of the Company authorised
by the fifty first Annual General Meeting held on 1 July 2010, so
that the Company is generally and unconditionally authorised in
accordance with the Companies (Purchase of Own Shares) Ordinance
1998 to make market purchases (within the meaning of Section 5 of
the said Ordinance) of its own ordinary shares out of distributable
profits subject as follows:
(a) the maximum number of shares hereby authorised to be
purchased is 3,082,339 (representing 14.9% of the number of shares
of the Company in issue on 31 December 2010) ;
(b) the maximum price which may be paid for such shares is, as
for a share which the Company contracts to purchase on any day, a
sum equivalent to 105% of the average of the middle market
quotation for the ordinary shares of the Company in the daily
official list of the London Stock Exchange or the 5 business days
immediately proceeding the day;
(c) any purchase of shares will be made in the market for cash
at prices below the prevailing asset value per share;
(d) the minimum price which may be paid for such shares is 10p;
and
(e) the authority conferred by this resolution shall expire at
the conclusion of the fifty third Annual General Meeting of the
Company or 30 September 2012, whichever is earlier.
Special Resolution
7. To consider, and if thought fit, approve the following
Resolution which will be proposed as a Special Resolution:
"To authorise the amendment of Article 133 of the Company's
Articles of Incorporation to clarify the procedure for implementing
the issue of shares in lieu of dividend and to permit the transfer
of shares out of treasury in satisfaction of such dividend as
follows:
The Articles of Incorporation of the Company be amended by:
(a) Amending the first paragraph of Article 133 (b); and
(b) Adding a new Article 133 (c);
Such that in its entirety Article 133 will read as follows:
Notice of Meeting (continued)
SHARES IN LIEU OF DIVIDEND
133 (a) This Article shall apply only to dividends paid in any
financial period during which (whether before or after the
announcement of the dividend but prior to the due date for payment
thereof) a resolution shall have been passed by the Company in
General Meeting authorising the Directors to implement the
following provisions of this Article.
(b) In respect of any dividend declared, paid, recommended or
proposed to be declared, paid or recommended whether by the
Directors or the Company in General Meeting (and provided that an
adequate number of unissued Ordinary Shares are available for the
purpose), the Directors shall determine and announce,
contemporaneously with or following their announcement of the
dividend in question and any related information as to the
Company's profits for such financial period of part thereof, that
Ordinary Shareholders will be entitled to elect to receive in lieu
of such dividend (or part thereof) an allotment of additional
Ordinary Shares credited as fully paid up. In any such case the
following provisions shall apply:
(i) The basis of allotment shall be determined by the Directors
so that, as nearly as may be considered convenient, the value
(calculated by reference to the average quotation) of the
additional Ordinary Shares (including any fractional entitlement)
to be allotted in lieu of any amount of dividend shall equal such
amount. For such purpose the "average quotation" of an Ordinary
Share shall be the average of the means of quotation on the Stock
Exchange Daily Official List, on the first five business days on
which the Ordinary Shares are quoted ex the relevant dividend.
(ii) The Directors, after determining the basis of allotment,
shall give notice in writing to the Ordinary Shareholders of the
right of election accorded to them and shall send with such notice
forms of election and specify the procedure to be followed and the
place at which and the latest date and time by which duly completed
forms of election must be lodged in order to be effective.
(iii) The dividend (or that part of the dividend in respect of
which a right of election has been accorded) shall not be payable
on Ordinary Shares in respect whereof the share election has been
duly exercised (the "Elected Ordinary Shares"), and in lieu thereof
additional Ordinary Shares shall be allotted to the holders of the
Elected Ordinary Shares on the basis of allotment determined as
aforesaid, and for such purpose the Directors shall capitalise, out
of such of the sums standing to the credit reserves (including any
Share Premium Account or Capital Redemption Reserve Fund) or profit
and loss account as the Directors may determine, a sum equal to the
aggregate nominal amount of the additional Ordinary Shares to be
allotted on such basis, and shall apply the same in paying up in
full the appropriate number of unissued Ordinary Shares for
allotment and distribution to and amongst the holders of the
Elected Ordinary Shares on such basis.
(iv) The additional Ordinary Shares so allotted shall rank pari
passu in all respect with the fully paid Ordinary Shares then in
issue save only as regards participation in the relevant dividend
(or share election in lieu).
Notice of Meeting (continued)
(v) The Directors may do all acts and things considered
necessary or expedient to give effect to any such capitalisation,
with full power to the Directors to make such provisions as they
think fit in the case of shares becoming distributable in fractions
(including provisions whereby, in whole or in part, fractional
entitlements are disregarded or rounded up or down or the benefit
of fractional entitlements accrued to the Company rather than to
the members concerned). The Directors may authorise any person to
enter on behalf of all the members interested into an agreement
with the company providing for such capitalisation and matters
incidental thereto and any agreement made under such authority
shall be effective and binding on all concerned.
(c) Notwithstanding the foregoing, the Directors may, in their
absolute discretion, satisfy elections made by Ordinary
Shareholders to receive in lieu of such dividends (or part thereof)
an allotment of additional Ordinary Shares credited as fully paid
up by transferring to the relevant Ordinary Shareholder an
appropriate number of Ordinary Shares held by the Company as
treasury shares in accordance with these articles. The provisions
above in relation to the allotment of additional Ordinary Shares in
lieu of dividend shall apply (mutatis mutandis) to the transfer of
Ordinary Shares from treasury as if such transfer were an allotment
of additional Ordinary Shares."
By order of the Board
Kleinwort Benson (Channel Islands) Fund Services Limited
Secretary
Dorey Court
St Peter Port
Guernsey
GY1 3BG
27 April 2011
Note: A member entitled to be present and vote at the meeting
may appoint a proxy to attend and, on a poll, to vote in his stead.
Appointment of a proxy will not preclude a member from attending
the meeting and voting in person. A proxy need not be a member of
the Company. The Directors have no contracts with the Company.
Financial Calendar
Announcements, ordinary share dividend payments, and the issue
of the annual and interim reports may normally be expected in the
months shown below:
March - Preliminary figures and second interim dividend for the
year announced
April - Annual Financial Report published
May - Second interim dividend paid
July - Annual General Meeting
August - Half yearly figures and interim dividend announced
August/September - Half yearly report for half year
published
November - Interim dividend paid
This information is provided by RNS
The company news service from the London Stock Exchange
END
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