TIDMUKT
RNS Number : 5744E
Threadneedle UK Select Trust Ltd
10 April 2014
Threadneedle UK Select Trust Limited
(the "Company")
Registered No: 475
Announcement of Annual Results
The information set out in this announcement is the full
unedited Annual Financial Report for the year ended 31 December
2013 (the "AFR") of the Company as approved by the Board of
Directors on 10 April 2014. The AFR is expected to be sent to all
shareholders during April 2014.
Enquiries:
Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Tel: + 44 (0) 1481 710607
Broker and Adviser
Canaccord Genuity Limited
Andrew Zychowski / Lucy Lewis
Tel: +44 (0) 20 7523 8000
Threadneedle UK Select Trust Limited
(Previously UK Select Trust Limited)
Annual Financial Report for the year ended 31 December 2013
Threadneedle UK Select Trust Limited
Contents
Introductory Information 1
Financial Highlights 2
Dividends 2
Directors and Advisors 3
Chairman's Statement 4
Investment Manager's Report 6
The Portfolio 8
Sector Distribution 9
Directors' Report 10
Directors' Responsibilities Statement 21
Report of the Audit Committee 22
Independent Auditor's Report 26
Statement of Comprehensive Income 30
Statement of Financial Position 31
Statement of Changes in Net Assets Attributable to Shareholders
32
Statement of Cash Flows 33
Notes to the Financial Statements 34
Ten Year Record - Unaudited 52
Introductory information
Threadneedle UK Select Trust Limited's (the "Company") ordinary
shares are traded on the Main Market of the London Stock
Exchange.
The Company's share price is published daily under Investment
Companies in the Share Information Section 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.
Financial Highlights
31 December 31 December
2013 2012
Net asset value per share 181.33p 147.36p
Equity shareholders' interest
(1) GBP39.69m GBP30.44m
Revenue return on ordinary activities
for the financial year after taxation GBP0.70m GBP0.35m
Capital return/(deficit) on ordinary
activities for the financial year after
taxation GBP7.49m GBP1.57m
Revenue return per ordinary
share 3.30p 1.72p
Capital return/(deficit) per
ordinary share 35.07p 7.59p
Dividend per ordinary share
(2) 4.25p 4.15p
Share Price(3) 178.00p 146.25p
Net asset value total return
(4) 28.1% 8.01%
FTSE All-Share total return 20.8% 12.30%
((1) During the year the Company purchased 140,000 ordinary
shares of 10p from the market to be held in Treasury. 286,710
ordinary shares of 10p each from the shares held in Treasury were
sold during the year. 24,322 shares remain in Treasury at 31
December 2013. These are held for resale and the Company does not
intend to cancel these.During the period 1,083,569 ordinary shares
of 10p each were issued to shareholders.
(2) The dividend figures include the declared second interim
dividend for the relevant financial period.
(3) Source: Daily official list mid market closing price.
(4) Source: Datastream/Threadneedle. Basis: Gross income
reinvested.
Dividends
In the Company's annual report for the year ended 31 December
2012 the Chairman advised that the Board was intending to increase
the proportion of income paid out in the first interim dividend in
November each year. Earnings per share for the half year amounted
to 2.06p (2012: 0.57p) and in line with the Board's intention the
Board declared an interim dividend of 1.80p per share (Six months
ended 30 June 2012: 0.95p), which was paid on 5 November 2013 to
shareholders on the register at 6 September 2013. The Company
intends to continue with the policy of paying a second interim
dividend each year to shareholders in May of the following year in
place of a final dividend. The objective is to rebalance the
proportion of the dividends paid by the Company between two interim
dividends, so that shareholders will receive an increased portion
of the Company's dividend distribution earlier.
A second interim dividend of 2.45p per share has been declared
for 2013 payable on 9 May 2014 to shareholders registered as at
close of business on 14 March 2014 (2012: second interim dividend
3.15p). This brings the total dividend paid for the year to 4.25p
(2012: 4.15p).
Directors and Advisors
J M Le Pelley (Chairman), (Born 1949) resident in
Guernsey,Non-executive Chairman. He has retired from private
practice as an Advocate of the Royal Court of Guernsey and joined
the board in 1983. Other directorships include AcenciA Debt
Strategies Limited.
J G West FCA, (Born 1947) resident in the UK,Non-executive
Director. He joined the board in 1997. He is a chartered
accountant, who has spent his career in asset management. He is
currently the Chairman of 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, Aberdeen Smaller Companies High Income Trust. He is also
Chairman of Associated British Foods Pension Fund Limited and
former chief executive of Lazard Asset Management Limited.
D Warr, (Born 1953) resident in Guernsey, Senior independent,
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 a Non-executive Director of
Breedon Aggregates Limited, Schroder Real Estate Investment Trust
Limited, Acorn Income Fund Limited and Unigestion (Guernsey)
Limited.
S Farnon, (Born 1960) resident in Guernsey, Non-Executive
Director (appointed 12 December 2013). She is a chartered
accountant and was a banking and finance Partner with KPMG Channel
Islands from 1990 until 2001, Head of Audit KPMG Channel Islands
and a former member of The States of Guernsey Public Accounts
Committee. She is currently Vice-Chairman of The Guernsey Financial
Services Commission and a non executive director of Ravenscroft
Limited, HICL Infrastructure Fund Limited, Breedon Aggregates
Limited, Standard Life Investments Property Income Trust Limited
and Dexion Absolute Limited.
D R Maltwood, (Born 1938) resident in Jersey,Non-executive
Director (resigned 31 December 2013).
G Ross Russell, (Born 1933) resident in the UK,Non-executive
Director (resigned 31 December 2013).
Advisors
Secretary, Administrator and Registered Office Registrars
Kleinwort Benson (Channel Islands) Fund Services Limited Capita Registrars (Guernsey) Limited
Dorey Court Mont Crevelt House
Admiral Park Bulwer Avenue
St Peter Port St Sampson
Guernsey GY1 2HT Guernsey GY2 4LH
01481 727111 0870 162 3100
Investment Manager Brokers and advisors
Threadneedle Asset Management Limited Canaccord Genuity
Limited
60 St Mary Axe 88 Wood Street
London EC3A 8JQ London
United Kingdom EC2V 7QR
0207 464 5000 0207 523 8000
Auditor Bankers and Custodian
Deloitte LLP HSBC Bank plc
Regency Court 8 Canada Square
Glategny Esplanade London E14 5HQ
St Peter Port
Guernsey GY1 3HW
01481 724011
Chairman's Statement
Review of Performance
I am pleased to report on a very successful year for your
Company. Over the twelve months to 31 December 2013 the Company's
net asset value rose by 28.1% on a total return basis compared with
the 20.8% total return from the FTSE All-Share Index.
This is the first full year with Threadneedle Asset Management
Limited as the Investment Manager and I am sure shareholders will
be pleased with the performance of the portfolio. I would encourage
shareholders to read the Investment Manager's report, as this
provides a very comprehensive commentary. Since the date of
Threadneedle's appointment on 27 July 2012 to this year's financial
year end, the increase in the net asset value per share has
exceeded the benchmark.
Share Price and discount
Over the year, the share price increased by 21.71% from 146.25p
to 178.0p. The average premium at which the Company's shares have
traded over the year has been 0.35%. This is a very pleasing result
for shareholders.
Gearing
The Company did not have any borrowing facility in place during
2013. On 26 March 2014 the Company entered into a one year GBP5
million loan facility with Lloyds Bank Plc. The facility will be
used to gear the Company's investment portfolio with the aim of
enhancing returns to shareholders and the Board will be looking to
target a level of approximately 10% to 20% of the Company's net
asset value. Interest will accrue on the loan at 1% over LIBOR and
it is repayable at the option of the Company. A non-utilisation fee
of 0.35% per annum is payable on any portion of the facility not
drawn down
Earnings and Dividend per share
2013 was a stronger year than 2012 in terms of dividends
received from underlying portfolio holdings. The revenue return per
share has increased to 3.30p (2012: 1.72p). In keeping with the
Company's policy to pay a progressive dividend, the Board declared
a second interim dividend of 2.45p per share on 6 March 2014 in
respect of the 2013 financial year (2012: 3.20p). This brings the
total dividend payable in respect of the 2013 financial year to
4.25p (2012: 4.15p). This is the first year that the Board has
increased the proportion of income paid out in the first interim
dividend to lessen the disparity between the dividend payments
throughout the year. Shareholders should be aware that whilst the
Investment Manager's strategy generates a degree of income, the
focus remains on total return rather than a specific level of
income from the Company's portfolio. The Company might need to make
use of its revenue reserves to pay the second interim dividend. In
addition it should be noted that scrip dividends are paid from
capital reserves and thus do not impinge on revenue reserves, nor
do they need to be funded from cash. The Board recognises that the
dividend policy, and the ability of shareholders to elect to take a
scrip alternative, remain key attractions of the Company.
Directors
In December we were pleased that Susie Farnon joined the Board.
Susie is an excellent addition to the Board and brings a wealth of
experience and we look forward to her input. At the year-end Derek
Maltwood and Graham Ross Russell retired from the Board. I would
like to thank both Derek and Graham for their years of service to
your Company. They have both given invaluable service over many
years and we will miss their wise counsel.
Chairman's Statement (continued)
Outlook
Although emerging market led volatility has weighed on equity
markets in the early part of 2014, the Investment Manager remains
positive on the longer-term prospects for UK equities, as the
market benefits from global economic recovery, with more than 75%
of investee companies' earnings coming from overseas. The Company's
portfolio continues to focus on well-managed, fundamentally strong
businesses that the Investment Manager believes have realistic
potential to deliver positive earnings surprises, helped by
selected exposure to growing global markets.
Annual general meeting
In addition to the business regularly proposed by the Board to
shareholders at each annual general meeting, the Board is also
seeking shareholder authority to issue additional shares to
Canaccord Genuity Limited ("Canaccord"), the Company's corporate
broker, at their prevailing net asset value on the basis that
Canaccord will on admission sell all these shares back to the
Company on market at the same price, free of commission, to be held
in treasury.
The shares to be held in treasury will be used by the Company to
satisfy demand under the scrip dividend scheme and to be issued
into the market for general corporate purposes. Unless the proposal
is approved, the Company may need to issue new shares for such
purposes; the use of treasury shares will be more efficient and
cost effective. In particular, the Company can be more responsive
in taking advantage of market demand for its shares and save on the
significant fixed costs incurred on each occasion that a further
issue of shares is made.
The sale of treasury shares into the market for cash cannot be
made at a discount to NAV and will be subject to pre-emption rights
unless the Company has capacity under shareholder authority
resolution 8 to sell such shares without regard to pre-emption. For
the avoidance of doubt, pre-emption rights do not apply in respect
of the shares issued out of treasury to satisfy scrip. The pricing
of treasury shares used for scrip dividends will be at the average
of the closing mid market price over the five business days
commencing on the ex-dividend date for the relevant dividend, which
is on the same basis that new shares are issued to satisfy scrip
dividends. Under the Companies Law and the Articles, the Company
may only hold a maximum of up to 10 per cent. of the total number
of shares in issue at any time in treasury.
These proposals require the approval of shareholders and are
therefore conditional on the passing of the resolutions which will
be proposed at the annual general meeting.
JM Le Pelley
Chairman
10 April 2014
Investment Manager's Report
Market Background
Like most other developed equity markets, the UK stock market
performed robustly in 2013, with the FTSE All-Share index up more
than 20% in sterling total return terms. The main drivers of this
strong performance were improvement in global economic indicators
and more importantly the sustained provision of liquidity in the
form of quantitative easing. M&A also provided some support
with significant deals including Vodafone's sale of its stake in
Verizon Wireless. Shareholder-friendly activity, such as share
buybacks, provided a further boost for the FTSE.
The UK's economic data showed a steady improvement over the
year, with GDP growth reaching 1.9% in 2013, the strongest rate of
expansion since 2007. There was also a marked revival in the
housing market, which was invigorated by government lending
incentives such as 'Help to Buy', although muted levels of business
investment and sluggish growth in the eurozone raised some
questions over the sustainability of the recovery. On the policy
front, the Bank of England kept interest rates on hold at 0.5%,
while new Bank of England Governor Mark Carney introduced the
concept of 'forward guidance', a commitment to keep interest rates
low as long as certain economic preconditions are met. However, the
rapid recovery in the UK economy led to speculation that the Bank
would have to recast forward guidance. (This was subsequently
confirmed in February 2014 when the Bank abandoned the link between
the unemployment rate and monetary policy.)
The best-performing sectors over the year were
telecommunications, consumer discretionary and industrials. The
materials sector was by far the weakest area of the market and the
only sector to produce a negative total return for the year.
Energy, consumer staples and utilities also underperformed.
Performance Review
The Net Asset Value significantly outperformed the FTSE
All-Share index in 2013. This outperformance stemmed from
favourable sector allocation and positive stock selection, with the
latter adding the most value.
At the sector level, the portfolio benefited from overweight
positions in industrials and consumer discretionary, both of which
outperformed in 2013. The underweight in materials was also a
positive as the sector was affected by Chinese GDP growth concerns
and fears that some mining companies have been too slow to cut
capacity and capital expenditure. The underweight position in
telecoms was detrimental, however. Stock selection was positive in
all sectors except energy, healthcare and utilities. It was
particularly strong in the materials and financial sectors, and
also worked well in industrials and both of the consumer
sectors.
At the security level, significant positive contributors over
the year included the holding in BT Group. The fixed-line telecom
operator delivered strong results, with positive updates on its
fibre service and demand for BT Sport. Our overweight position in
the stock helped to offset the effect of not holding Vodafone,
which performed strongly on the sale of its stake in Verizon
Wireless. The recovery in the housing market helped the portfolio's
position in Breedon Aggregates, which produces construction
materials, as well as the holdings in house builders Persimmon and
Bellway. Other strong performers included auto and aero parts maker
GKN and support services firm Berendsen; both posted good
results.
Elsewhere, the overweight position in Daily Mail & General
Trust added value, as the media group announced strong results,
while the holding in budget airline easyJet was boosted by growing
passenger numbers. Booker, the food wholesaler, benefited from
optimism over its growth prospects after its acquisition of the
Makro chain of cash-and-carry stores. The portfolio participated in
IPOs such as Royal Mail, which performed strongly.
Investment Manager's Report (continued)
Performance Review (continued)
The biggest stock-level negatives came from not holding some of
the better-performing FTSE 100 stocks such as Vodafone, Lloyds
Banking Group and Prudential. Within the portfolio, First Quantum
Minerals detracted from returns as the copper price weakened. Other
notable detractors included Tullow Oil, which was affected by
disappointing drilling results
Outlook
Fresh signs are emerging that the trading environment is
improving in the UK, with many of the company executives we meet
now also noticing 'green shoots' in the eurozone.
We believe that the outlook remains encouraging at the UK
company level and continue to focus on well-managed, fundamentally
strong businesses that we believe have realistic potential to
deliver positive earnings surprises, helped by selected exposure to
growing global markets. Many of our highest-conviction holdings
also offer scope to support total returns to shareholders through
attractive and sustainable levels of dividend payouts.
Nevertheless, although corporate profits are growing and
companies are increasingly putting balance-sheet cash to use, we
remain vigilant to the risk that rising investor expectations have
also created more scope for profit warnings.
Simon Brazier
Portfolio Manager
Threadneedle Asset Management Limited ("Threadneedle")
31 March 2014
The Portfolio as at 31 December 2013
Market
Company Value Company Market Value
GBP'000 GBP'000
1 BP 1,693 43 Aviva 392
2 BT Group 1,441 44 Rentokil 384
3 GlaxoSmithKline 1,405 45 Bellway 383
4 AstraZeneca 1,065 46 Diageo 379
5 Unilever 1,002 47 Tullow Oil 374
6 Imperial Tobacco 956 48 Crest Nicholson 374
7 Royal Dutch Shell 908 49 St James's Place 364
8 First Quantum Minerals 902 50 AMEC 352
9 Breedon Aggregates 868 51 Experian Group 349
10 Booker Group 846 52 Old Mutual 348
11 BG Group 842 53 SABMiller 347
12 Rio Tinto 829 54 Pearson 338
13 Johnson Matthey 793 55 Electrocomponents 333
14 Sage Group 788 56 Stagecoach Group 325
15 Merlin Entertainment 761 57 easyJet 307
16 Legal and General 747 58 CRH 307
Reckitt Benckiser
17 Group 737 59 Schroders 307
18 HSBC Holdings 709 60 IMI 303
19 DCC 703 61 ITE Group 297
20 Smith (DS) 699 62 De La Rue 295
21 Smith & Nephew 686 63 Wetherspoon (J.D) 285
22 Smiths Group 648 64 RSA Insurance Group 283
23 Daily Mail & General 630 65 PZ Cussons 270
24 Reed Elsevier 630 66 Standard Chartered 262
London Stock Exchange
25 Group 630 67 Headlam Group 232
26 GKN 620 68 Ultra Electronics 229
27 Melrose Industries 619 69 Grainger 205
28 Compass Group 601 70 G4S 185
29 Signet Jewelers 590 71 Persimmon 185
30 Wolseley 588 72 Berkeley Group 47
31 AZ Electronic Materials 573 73 Acquisition 1234 3
-------------
32 Berendson 555 Total Valuation 39,712
=============
33 Rolls Royce Holdings 555
British American
34 Tobacco 541
35 Barclays 534
36 Wood Group (John) 493
37 Carnival 463
38 SVG Capital 425
39 Royal Mail 406
40 Essentra 397
41 Glencore Xstrata 396
42 Derwent London 394
Sector Distribution
Total Total
2013 2012
Sector Classification % %
---------------------------------------------------- --------- ---------
Oil and Gas
Oil and gas producers 9.6 10.7
Oil Equipment, Services and
Distribution 2.2 3.0
11.8 13.7
---------------------------------------------------- --------- ---------
Industrials
Construction and materials 3.0 1.6
Aerospace and defence 2.0 2.2
General industrials 3.4 2.5
Industrial engineering 2.3 3.3
Support services 9.5 9.9
Industrial transportation 1.0 -
21.2 19.5
---------------------------------------------------- --------- ---------
Basic Materials
Chemicals 3.4 2.6
Mining 5.4 5.1
---------------------------------------------------- --------- ---------
8.8 7.7
---------------------------------------------------- --------- ---------
Consumer goods
Automobiles and parts 1.5 1.5
Beverages 1.8 2.0
Food Producers 2.5 2.7
Household goods and home construction 5.0 5.2
Tobacco 3.8 3.7
Personal goods 0.7 -
15.3 15.1
---------------------------------------------------- --------- ---------
Consumer Services
General retailers 1.5 0.8
Travel and leisure 6.9 7.2
Food and drug retailers 2.1 3.2
Media 4.8 6.2
---------------------------------------------------- --------- ---------
15.3 17.4
---------------------------------------------------- --------- ---------
Health Care
Pharmaceuticals and biotechnology 6.2 5.8
Health care equipment and Services 1.8 1.3
8.0 7.1
---------------------------------------------------- --------- ---------
Telecommunications
Fixed line telecommunications 3.6 3.1
3.6 3.1
---------------------------------------------------- --------- ---------
Utilities
Gas, Water and Multi utilities - 2.1
- 2.1
---------------------------------------------------- --------- ---------
Technology
Software and computer services 2.0 1.9
---------------------------------------------------- --------- ---------
2.0 1.9
---------------------------------------------------- --------- ---------
Financials
Banks 3.8 4.5
Financial services 3.4 1.5
Real estate investments & services 0.5 1.5
Real estate investment trusts 1.0 -
Non-life insurance 0.7 0.6
Life assurance 4.7 3.6
14.1 11.7
---------------------------------------------------- --------- ---------
Net current (liability)/assets (0.1) 0.7
---------------------------------------------------- --------- ---------
Net assets 100.00 100.00
==================================================== ========= =========
Note: The distribution of investments is based on the valuations
at 31 December 2013 and at 31 December 2012. All of the investments
are listed or quoted on the London Stock Exchange except for
Acquisition 1234.
Directors' Report
The Directors present their report and the annual financial
statements for the year ended 31 December 2013 with comparatives
for the year ended 31 December 2012. The Directors confirm that the
Annual Financial Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
Principal activities
The principal activity of the Company during the year was that
of an investment company. The Company is an authorised closed-ended
investment scheme regulated by the Guernsey Financial Services
Commission under the Protection of Investors (Bailiwick of
Guernsey) Law, 1987 as amended. The Company's ordinary shares have
been admitted to the Official List of the UK Listing Authority with
a premium listing and to trading on the London Stock Exchange's
Main Market for listed securities.
Name change
At the Annual General Meeting held on 15 August 2013 the
Directors were authorised to apply to the Registrar of Companies to
change the registered name of the Company to Threadneedle UK Select
Trust Limited. The Registrar of Companies confirmed the name change
with effect from 27 August 2013.
Revenue and dividend
The statement of comprehensive income set out on page 30 shows a
profit for the year amounting to GBP8,195,000 (2012: GBP1,919,000).
The Directors have declared a second interim dividend of 2.45p
which, together with the first interim dividend of 1.80p, makes a
total of 4.25p for the year (2012: 4.15p)
The second interim dividend will be paid on 9 May 2014 to
ordinary shareholders on the register on 14 March 2014 and a scrip
dividend alternative will be offered.
Assets
At the year end the net assets attributable to the ordinary
shares were GBP39,691,000 (2012: GBP30,443,000). Based on this
figure the net asset value of an ordinary share was 181.33p (2012:
147.36p).
Share capital
During the year 140,000 issued ordinary shares of 10p each were
purchased by the Company at a total cost of GBP232,225 and held in
Treasury. The authority allowing the Company to purchase its own
shares expires at the end of the 2014 annual general meeting and
allows the purchase of a maximum of 3,282,505 shares, representing
14.99% of the number of shares in issue on 15 August 2013, being
the date of the 2013 annual general meeting. The Board will seek
this authority again at the 2014 annual general meeting.
During the year 286,710 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 (2012:
316,846) thereby resulting in a total of GBP475,108 (2012:
GBP384,933) being capitalised. In addition, 1,083,569 new ordinary
shares were issued to investors on 4 June 2013 at 1.72p per share,
being a premium of 1.4% to the prevailing net asset value,
resulting in an additional GBP1,863,739 being capitalised.
Directors' Report (continued)
Directors
Substantial shareholdings
At 31 March 2014, the following held a notifiable interest in
the Company's voting rights:
31 March 31 December
2014 2013
Ameriprise Financial Inc 22.21% 22.21%
JM & Mrs AE Le Pelley 10.06% 10.06%
Mr G Green 6.63% 6.63%
At 31 March 2014, there has been no other notifiable interest in
the Company's voting rights reported to the Company.
The Directors are responsible for the determination of the
Company's investment objectives and policies and have overall
responsibility for the Company's activities. The Directors have put
procedures in place to ensure that the Company meets current
corporate governance requirements.
Details of the current Board composition, including their roles
and other significant commitments, are provided on page 3.
None of the Directors has a contract of service with the Company
and, no contract or arrangement subsisted during or at the end of
the year in which any directors was materially interested and which
was significant in relation to the Company's business.
Furthermore, they are not entitled to any minimum period of
notice or to compensation in the event of their removal as a
Director.
The Directors who served on the Board during the year, together
with their beneficial interests and those of their spouses and
dependent children at 31 December 2013, were as follows:
2013 2012
Shares Shares
J M Le Pelley (Chairman) 2,203,579 2,138,544
J G West 34,263 33,900
D Warr (Audit Committee Chairman) 115,572 112,162
S Farnon * 48,000 N/A
D R Maltwood** 3,880 3,766
G Ross Russell** 368,469 357,596
* Appointed as a Director of the Company with effect from 12
December 2013.
** Resigned as Directors of the Company with effect from 31
December 2013.
There have been no changes in the Directors' interests in the
shares of the Company between 31 December 2013 and 31 March
2014.
Directors' Report (continued)
Share buy back policy
The Board intends to use its share buyback powers with the
objective of minimising any discount at which the Company's shares
trade to their underlying net asset value in normal market
conditions. However, shareholders should note that the Board is not
bound to undertake share buybacks and will do so entirely at its
own discretion, bearing in mind, inter alia, available cash, the
remaining shareholder authority the Company has to conduct share
buybacks and the ability of the Company to satisfy the applicable
statutory solvency tests or any other company law requirements.
There is no guarantee that the Board will decide to exercise its
buyback powers in any particular case or that it will be successful
in achieving its objective.
Any shares repurchased by the Company will normally be held in
treasury to be used, inter alia, to satisfy elections under the
Company's popular scrip dividend scheme.
Gearing
On 26 March 2014 the Company entered into a one year GBP5
million loan facility with Lloyds Bank Plc. The facility will be
used to gear the Company's investment portfolio with the aim of
enhancing returns to shareholders and the Board will be looking to
target a level of approximately 10% to 20% of the Company's net
asset value. Interest will accrue on the loan at 1% over LIBOR and
it is repayable at the option of the Company. A non-utilisation fee
of 0.35% per annum is payable on any portion of the facility not
drawn down.
Corporate governance
a) Statements of compliance
The UK Listing Authority's Listing and Disclosure and
Transparency Rules require all overseas companies with a premium
listing (which includes the Company) to include a corporate
governance statement in its directors' report, which must contain a
reference to the corporate governance code to which the Company is
subject and / or the corporate governance code which the Company
may have voluntarily decided to apply and / or all relevant
information about the corporate governance practices applied beyond
the requirements under national law.
The Association of Investment Companies (formerly Association of
Investment Trust Companies), of which the Company is a member, has
published its Code of Corporate Governance for Investment Companies
(the "AIC Code") and the Corporate Governance Guide for Investment
Companies dated February 2013 (the "AIC Guide"), which incorporates
the FRC's UK Corporate Governance Code, the AIC Code and certain
requirements of the UKLA Listing Rules. The UK's Financial
Reporting Council (the "FRC") has confirmed that "it remains the
FRC's view that by following the AIC Corporate Governance Guide
investment company boards should fully meet their obligations in
relation to the UK Corporate Governance Code and Paragraph LR 9.8.6
of the Listing Rules."
The Board has considered the principles and recommendations of
the AIC Guide. The AIC Code, as explained by the AIC Guide,
addresses all the principles set out in the UK Corporate Governance
Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company. The Board considers that reporting against the principles
and recommendations of the AIC Code will provide better information
to shareholders.
The Directors believe that the Company has complied with the
provisions of the AIC Code where appropriate, and that it has
complied throughout the year with the provisions where the
requirements are of a continuing nature.
Directors' Report (continued)
Corporate governance (continued)
a) Statement of compliance (continued)
On 30 September 2011, the Guernsey Financial Services Commission
published its Finance Sector Code of Corporate Governance (the
"GFSC Code"), which came into effect on 1 January 2012. The GFSC
Code provides a framework which applies to all companies in the
regulated finance sector in Guernsey. The GFSC Code deals with
governance issues under several topics including the Board,
accountability, risk management, disclosure and reporting,
remuneration and shareholder relations. Companies which report
against the AIC Code are deemed to meet the requirements of the
GFSC Code.
b) 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 AIC Code. The
appointment of Directors is considered by the Board who sit on the
Nomination Committee. The Board has reviewed its performance and
composition, as well as that of its committees and individual
Directors, and is content that, following the changes made in
December 2013, no further changes to the composition of the Board
are necessary or desirable, as it is considered that the
performance of all Directors is satisfactory and that they have
demonstrated commitment to their roles. Biographical information on
each Director is included on page 3.
The Chairman and Mr West have served on the Board for more than
nine years. Mr Warr joined the Board in 2006 and Ms Farnon joined
the Board in 2013. Whilst the AIC Code recommends that
non-executive directors serving more than nine years should be
subject to annual re-election, the Articles of Incorporation
stipulate that one third, or the number nearest to but not
exceeding one third, of the Directors shall retire and offer
themselves up for reappointment at each annual general meeting. The
Board does not consider it to be in the best interests of the
Company to require the majority of Directors to stand for
re-election annually and has chosen therefore to adopt best
practice in relation to retirement by rotation of two Directors.
Therefore two Directors will stand for re-appointment at each
annual general meeting, so that the shareholders will have the
opportunity to consider each Director's continuing involvement with
the Company every second year.
Following the evaluation of the performance of the Board, its
committees and individual Directors, it is considered that the
performance of all Directors who are to retire and offer themselves
for re-appointment continues to be effective and that they have
demonstrated commitment to their roles. In accordance with this
policy Mr Le Pelley will at the Company's forthcoming annual
general meeting retire and, being eligible, offer himself for
re-election in accordance with Article 21 of the Articles of
Association of the Company. In addition, as Ms Farnon was appointed
during the year by the Directors, she also will retire and, being
eligible, offer herself for re-election.
Directors' Report (continued)
Corporate governance (continued)
b) The Board (continued)
The Board meets regularly, normally quarterly, with additional
meetings should it be considered appropriate to discuss specific
issues. The table below lists the number of Board and Committee
meetings attended by each Director during the year ended 31
December 2013.
Scheduled Other Audit Committee Nomination
Board Board Committee
Number of Meetings 4 7 2 1
JM Le Pelley (Chairman) 4 7 2 1
J G West 4 - 2 1
D Warr (Audit Committee
Chairman) 4 6 2 1
S Farnon* 1 - - -
DR Maltwood** 3 2 2 -
G Ross Russell** 4 - 1 1
* Appointed as a Director of the Company with effect from 12
December 2013.
** Resigned as Directors of the Company with effect from 31
December 2013.
In 2012 and 2013 the Company did not employ any personnel.
c) Committees, Board Composition and Succession Planning
The Board has established an Audit Committee, a separate report
being provided on page 22, and the Board has also established for
itself a Nomination Committee. On 12 December 2013 the Board
created a Management Engagement and Remuneration Committee, which
will meet when necessary, usually at least annually. The Terms of
Reference for all Committees are available for inspection at the
Company's registered office during normal business hours.
In addition to conducting an evaluation on the composition of
the Board, in terms of size, skills and expertise, a formal and
rigorous evaluation of the Board's own performance, as well as its
Committees, is undertaken annually by the Nomination Committee. The
Nomination Committee consists of all non-executive Directors.
The objectives of Board planning in terms of its composition and
succession are to ensure that the Board is comprised collectively,
of fit and proper individuals with the capability to direct the
Company in the best interest of its shareholders.
The Nomination Committee and the Board have reviewed the Board's
performance and composition, as well as that of its Committees and
individual Directors. Messrs Maltwood and Ross Russell resigned
from the Board, with the effect from 31 December 2013. Ms S Farnon
was appointed as an independent non-executive Director on 12
December 2013. Ms Farnon has also been appointed to serve as a
member on the Audit Committee, Nomination Committee and the
Management, Engagement and Remuneration Committee.
Directors' Report (continued)
Corporate governance (continued)
c) Committees, Board Composition and Succession Planning
(Continued)
Directors' fees are recommended by the full Board. The
emoluments of the Directors for the year were as follows:
2013 2012
Fees Fees
GBP GBP
JM Le Pelley (Chairman) 25,000 25,000
DR Maltwood 20,000 20,000
G Ross Russell 20,000 20,000
JG West 20,000 20,000
D Warr (Audit Committee Chairman) 22,500 22,500
S Farnon 1,095 -
-------- --------
108,595 107,500
-------- --------
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. The directors
are paid out of pocket expenses for attendance at Board
meetings.
With effect from 1 January 2014, the Directors fees were
increased to GBP30,000 for the Chairman and GBP24,000 for other
Directors. In addition the Chairman of the Audit Committee and the
Risk Committee will each receive an additional GBP3,000.
d) Management Engagement and Remuneration Committee
The Management Engagement and Remuneration Committee consists of
all non-executive Directors. The Committee has been delegated the
responsibility for monitoring and reviewing and making
recommendations to the Board on all aspects of the management and
administration of the Company's assets and corporate records and
other ancillary services provided by each of Threadneedle Asset
Management Limited, Kleinwort Benson (Channel Islands) Fund
Services Limited, Canaccord Genuity Limited, Capita Registrars
(Guernsey) Limited and HSBC Bank Plc, as well as any other service
providers. The Management Engagement and Remuneration Committee
also makes recommendations to the Board on any variations to the
terms of the Investment Management Agreement and any agreement with
any other service provider which the Committee considers necessary
or desirable.
The Committee is authorised to seek any information it requires
from any employee or agent of the Company in order to perform its
duties. All agents of the Company are directed to co-operate with
any reasonable request made by the Committee.
The Committee is authorised by the Board to obtain, at the
Company's expense, outside legal or other professional advice on
any matters within its terms of reference if it considers
necessary.
e) Risk Committee
The Board has decided to establish a Risk Committee as part of
its preparation for complying with the Alternative Investment Fund
Managers Directive ("AIFMD").
As mentioned in the Audit Committee section of the Annual
Financial Report, the Board's intention is to register as a
self-managed AIFM with the Financial Conduct Authority ("FCA") to
enable it to continue marketing its shares within the United
Kingdom beyond 22 July 2014.
The Risk Committee will assume responsibility for certain of the
duties currently undertaken by the Audit Committee.
Directors' Report (continued)
Corporate governance (continued)
f) 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 AIC Code requires notice of annual
general meetings to be dispatched at least 21 clear days before the
meeting. The Company will continue to comply with this Code
provision in 2014.
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 Although the Company is in a net current liability
position of GBP20,900 (excluding investments) at the year end the
Board regularly reviews the cash flow of the Company and is
confident that the Company will have sufficient resources to meet
all future obligations.
-- 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 2013, the Company had no external
borrowings and therefore was under no obligation to repay any
borrowing facilities. As at the date of signing the Annual
Financial Report the Company had in place a one year GBP5 million
loan facility with Loyds Bank Plc, which has not yet been
utilised.
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 AIC. Such
review procedures have been in place throughout the full financial
year and up to the date of the approval of the financial
statements.
Directors' Report (continued)
Accountability and audit (continued)
b) Internal control (continued)
The Board has contractually delegated to Threadneedle the
management of the Company's investments. The management agreement
between the Company and its Investment Manager sets out the matters
over which the Investment 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.
The safe custody of the Company's investments is managed by HSBC
Plc and Kleinwort Benson (Channel Islands) Fund Services Limited is
contracted to provide the Company's administration, secretarial and
accounting functions and Capita Registrars (Guernsey) Limited, its
registration function. The Management Engagement and Remuneration
Committee will regularly review the performances of the services
provided by these companies.
Threadneedle and Kleinwort Benson (Channel Islands) Fund
Services Limited maintain their own systems of internal controls,
on which they have reported to the Board. The Company, in common
with other investment companies, does not have an internal audit
function.
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.
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.
The Board regularly takes steps to embed internal control and
risk management further into the operations of the Company and to
deal with areas of improvement which come to the Investment
Manager's and the Board's attention.
Investment objective and policy
The Company's investment objective is to provide shareholders
with a total return in excess of the total return on the FTSE
All-Share Index, together with a progressive dividend policy.
The Company is permitted to invest in any security listed or
quoted on any UK stock exchange provided that no less than 80 per
cent of its gross assets at the time an investment is made are
invested in constituents of the FTSE All-Share index.
There are no minimum or maximum limits on the number of
investments in the portfolio but it is expected that the portfolio
will generally comprise shares and securities in 50 to 90
companies. The Company seeks to manage risk in part through heeding
the following investment restrictions:
-- The top five holdings in the Company's portfolio may not
exceed 40 per cent of the total value of the portfolio.
-- The top three sectors represented in the portfolio may not
exceed 50 per cent of the total value of the portfolio.
Directors' Report (continued)
Investment objective and policy (continued)
-- The securities of no one company may represent more than 10
per cent of the value of the Company's portfolio measured at the
time of acquisition and subsequently, when additions are made to
the holding.
-- The Company will not hold more than 5 per cent of the issued
share capital (or voting shares) in any one company.
While the Company may hold shares in other investment companies
(including investment trusts), the Company will not invest more
than 10 per cent., in aggregate, of the value of its total assets
in other listed closed-ended investment funds (save to the extent
that such closed-ended investment funds have published investment
policies to invest no more than 15 per cent. of their total assets
in such other listed closed-ended investment funds).
Cash
The Company intends to be fully invested in normal market
conditions but may hold up to 20 per cent of net asset value in
cash on deposit (or in short-term money market instruments) during
periods in which the Investment Manager believes markets are
overvalued or expects them to fall.
Gearing
Gearing may be used selectively in order to leverage the
Company's portfolio to enhance returns where the Board in
conjunction with the Investment Manager considers it appropriate to
do so.
Derivatives
Subject to the Board giving its prior approval, the Investment
Manager is permitted to invest in options and other derivatives for
the purposes of efficient portfolio management only.
Investment Process and implementation of investment policy
The Investment Manager's investment approach is driven by stock
selection, with a focus on risk and reward. Reward is derived from
valuation and profit opportunity. In terms of risk, it is the level
of business risk rather than index weight that determines position
size in the portfolio, with portfolio risk minimised through
diversification. Considerable emphasis is placed on identifying
companies which are well managed, have sustainable franchises,
strong balance sheets and cash flow generation, and which trade on
attractive valuations relative to peers and history.
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 can be found in the
Chairman's Statement and Investment Manager's Report.
The Company's portfolio consisted of 73 investments as at 31
December 2013. As at 31 December 2013, the portfolio consists
primarily of investments issued in the United Kingdom. The top 10
holdings comprise 27.93% of total net assets (2012: 27.08%).
The Company's gearing stood at nil% as at 31 December 2013
(2012: nil%).
Directors' Report (continued)
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.
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 normally hedge against its exposure to market
price risk.
The investment strategy of the Company has been delegated to the
Company's Investment Manager, Threadneedle under an agreement dated
27 July 2012. The Investment Manager operates under agreed
parameters and the Board monitors its performance on a regular
basis.
Liquidity risk
As set out above and subsequent to the year end, the Company has
entered into a one year GBP5 million loan facility with Lloyds Bank
Plc. The Company's assets comprise securities that can be readily
realised to meet its obligations. As a result the Company is able
to realise its investments in these instruments at an amount close
to their fair value in order to meet its liquidity
requirements.
Interest rate risk
The Company's interest rate sensitive assets and liabilities
mainly comprise cash at bank and any bank loan. The cash at bank
and bank loan facility are subject to floating rates and any 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.
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 2013 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 2013
(see note 18).
The Alternative Investments Fund Managers Directive
('AIFMD')
The AIFMD, which was required to be transposed by EU Member
States into national law by 22nd July 2013 seeks to regulate
alternative investment fund managers ('AIFM') established in the EU
and prohibits such managers from managing any alternative
investment fund ('AIF') or marketing shares in such funds to
investors in the EU unless an AIFMD authorisation is granted to the
AIFM.
The UK has implemented the AIFMD in a way that allows the
continuation of certain activities after the date of transposition,
provided that the authorisation conditions are met within a year
after that date (the 'Transitional Period'). The Company has the
benefit of the Transitional Period and has decided that it will be
a self-managed AIF and register accordingly with both the Financial
Conduct Authority in the UK and the Guernsey Financial Services
Commission prior to the 22 July 2014. In deciding on the
self-managed option the Board is mindful that the reporting
requirements of so doing are less than would be the case if the
Investment Manager was appointed the AIFM and therefore considers
this approach to be both practical and cost effective.
Directors' Report (continued)
The Alternative Investments Fund Managers Directive ('AIFMD')
(continued)
Subject to registration with the FCA the Company will be able to
continue marketing its shares into the UK beyond 22 July 2014.
The Board is implementing the necessary measures to facilitate
compliance with AIFMD which includes the establishement of the Risk
Committee. It is intended that the Risk Committee will specifically
monitor the risks pertaining to the investment portfolio and
strategy. This Committee will assume certain of the
responsibilities previously undertaken by the Audit Committee.
Auditor
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to re-appoint it 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
10 April 2014
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Financial
Report in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 (the "Companies Law")
requires the Directors to prepare Financial Statements for each
financial year. Under the Companies Law the Directors have elected
to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRSs").
Under the Companies Law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
these financial statements, 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 Law. 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.
To the best of the knowledge of the Directors:
The financial statements, which have been prepared in accordance
with International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
The Chairman's Statement, Investment Manager's Report and Notes
to the Financial Statements are incorporated herein by reference
and include a true and fair review of the development and
performance of the Company and a description of the principal risks
and uncertainties that it faces, as required by DTR 4.1.8 of the
Disclosure and Transparency Rules.
By order of the Board
JM Le Pelley D Warr
10 April 2014
Report of the Audit Committee
Role and responsibility
This is the report of the Audit Committee which has been
prepared with reference to the AIC Code and describes the work of
the Committee in discharging its responsibilities.
The Company has established an Audit Committee in compliance
with the Financial Conduct Authority's (FCA's) Disclosure and
Transparency Rule 7.1 and the AIC Code, which reports formally
twice each year to the main Board. It has formally delegated duties
and responsibilities within written terms of reference which are
reviewed and reapproved annually.
The Audit Committee is mandated by the Board to investigate any
activity within its terms of reference and to consult externally
with legal or other independent professional advisors, as required,
to ensure that the Committee adequately discharges its duties and
responsibilities, which include:
a) considering the appointment of the external auditor, its
letter of engagement, the audit fee, and any questions of
resignation or dismissal of the external auditor;
b) reviewing from time to time the cost effectiveness of the
audit and the independence and objectivity of the external
auditor;
c) developing and implementing policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit
services by the external audit firm; and report to the Board,
identifying any matters in respect of which it considers that
action or improvement is needed and making recommendations as to
the steps to be taken;
d) reviewing the Company's half-yearly and annual financial
reports, not excepting the full Board's responsibility over the
accounts, focusing particularly on:
-- Any changes in accounting policies and practice;
-- Major judgmental areas;
-- Significant adjustments arising from the audit;
-- The going concern assumption;
-- Compliance with accounting standards (and in particular
accounting standards adopted in the financial year for the first
time);
-- Compliance with applicable legal and regulatory requirements
(including inter alia, those of the Financial Conduct Authority,
the London Stock Exchange, the Guernsey Financial Services
Commission and The Companies (Guernsey) Law, 2008, as amended);
-- A risk management review; and
-- Assessing the effectiveness of internal controls
e) discussing any problems and reservations arising from the
final audit, and any other matters which the auditor may wish to
discuss (in the absence of the Company's agents where
necessary);
f) reviewing the external auditor's Report to the Audit
Committee and determining whether any changes have to be
implemented as a result;
g) reviewing, on behalf of the Board, the Company's system of
internal control (including financial, operational, compliance and
risk management) and make recommendations to the Board;
h) reviewing from time to time the appropriateness of internal
audit reporting by the Company's agents;
i) considering the major findings of internal investigations and management's response;
Report of the Audit Committee (continued)
Role and responsibility (continued)
j) reviewing the Company's operating, financial and accounting policies and practices;
k) considering any other matters specifically delegated to the
Committee by the Board from time to time; and
l) confirming to the Board as to whether the annual financial
report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The committee may review any matter that it considers
appropriate not withstanding that it is not specifically mentioned
in the above list of duties.
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. No
non-audit services were provided in the year ended 31 December 2013
(2012: GBPnil).
Composition
Mr Warr is the Chairman of the Audit Committee and Mr West and
Ms Farnon are additional members serving on the Committee. In line
with what has been considered best practice Mr Le Pelley stepped
down from the Audit Committee on 12 December 2013. Only independent
non-executive Directors serve on the Audit Committee and the
members do not have any links with the Company's external auditor.
They are also independent of the management teams of the Investment
Manager, administrator and all other service providers. The Audit
Committee meets formally no less than twice a year in Guernsey and
on an ad hoc basis if required. In addition, it meets the external
auditor at least twice a year. The membership of the Audit
Committee and its terms of reference are kept under review.
Significant issues considered regarding the Annual Financial
Report
In discharging its responsibilities, the Audit Committee has
specifically considered the following significant issues relating
to the financial statements:-
Significant issue How the issue was addressed
--------------------------------------- -----------------------------------
Valuation of the Company's Investments The Board reviews the portfolio
valuations on a regular basis
throughout the year. The Board
meets with the Investment Manager
at least quarterly and seeks
assurance that the pricing basis
is appropriate and in line with
relevant accounting standards
as adopted by the Company and
that the carrying values are
materially correct.
The Company's net asset value
is calculated on a daily basis
by the Administrator, Kleinwort
Benson (Channel Islands) Fund
Services Limited and published
in the Financial Times.
--------------------------------------- -----------------------------------
Report of the Audit Committee (continued)
Significant issues considered regarding the Annual Financial
Report (continued)
Significant issue How the issue was addressed
--------------------------------------- ---------------------------------------
Ownership of the Company's Investments The Company's investments are
held in safe custody by HSBC
Bank Plc. The Board monitors
the performance of the Custodian
and also considers the security
of the investments held by the
Custodian.
The Investment Manager has procedures
to ensure that investments can
only be made to the extent that
the appropriate contractual
and legal arrangements are in
place to protect the Company's
assets. The Administrator reconciles
the investments held according
to their records with the Custodian's
records. The Board satisfies
itself with these procedures
by reviewing the internal control
documents of the Administrator.
The Board also has regular meetings
with the Investment Manager
where they discuss the Company's
investments amongst other issues.
--------------------------------------- ---------------------------------------
Accuracy of calculation of investment The management fee and any performance
management and performance fees fee is calculated in accordance
with the contractual terms in
the investment management Agreement
by the Administrator, Kleinwort
Benson (Channel Islands) Fund
Services Limited. These calculations
are prepared on a daily basis
as part of the daily net asset
value calculation.
The Board monitors the investment
management fee and any performance
fee on an ongoing basis. The
standard schedule used to calculate
the performance fee has been
created by the Administrator
and reviewed and approved by
the Board before being used.
--------------------------------------- ---------------------------------------
Auditor and audit tenure
The Company's auditor Deloitte LLP, has acted in this role since
1974 under its current trading name of Deloitte LLP as well as
predecessor trading names. The Committee, in conjunction with the
Board, is committed to reviewing this appointment on a regular
basis to ensure that the Company is receiving an optimal level of
service. The appointment of the auditor is reviewed annually and we
are satisfied that sufficient safeguards are put in place by the
auditor to mitigate risks associated with long association such as
regular partner rotation. There are no contractual obligations
which restrict the Company's choice of auditor.
Report of the Audit Committee (continued)
Assessment of the external audit process
The Audit Committee considers the nature, scope and results of
the auditor's work and monitors the independence of the external
auditor. Formal reports are received from the auditors on an annual
basis relating to the extent of their work, the accuracy of
accounting and the correctness of valuation of assets. The work of
the auditors in respect of any significant audit issues and
consideration of the adequacy of that work is discussed.
The Chairman of the Audit Committee liaises with the Investment
Manager and Administrator to discuss the extent of audit work
completed to ensure all matters of risk are covered while the
Committee assesses the quality of the draft financial statements
prepared by the administrator.
The Audit Committee has an active involvement and oversight of
the preparation of both half yearly and annual financial
statements. Ultimate responsibility for reviewing and approving the
Annual Financial Report remains with the Board.
Conclusion in respect of the Annual Financial Report
The production of the Company's Annual Financial Report is a
comprehensive process requiring input from a number of different
parties. One of the key governance requirements of the Company's
Annual Financial Report is that it is fair, balanced and
understandable. The Board has requested that the Committee advise
on whether it considers that the Annual Financial Report fulfil
these requirements.
As a result of the work performed, the Committee has concluded
that the Annual Financial Report for the year ended 31 December
2013, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholder's to assess the
Company's performance, business model and strategy and has reported
on these findings to the Board. The Board's conclusions in this
respect are set out in the Directors' Report on page 10.
D Warr
Chairman of Audit Committee
10 April 2014
Independent auditor's Report to the members of Threadneedle UK
Select Trust Limited
Opinion on financial In our opinion the financial statements:
statements of * give a true and fair view of the state of the
Threadneedle Company's affairs as at 31 December 2013 and of its
UK Select Trust profit for the year then ended;
Limited
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards
Board (IASB); and
* have been prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
The financial statements comprise the Statement
of Comprehensive Income, the Statement of Financial
Position, the Statement of Cash Flows, the Statement
of Changes in Net Assets and the related notes
1 to 20. The financial reporting framework that
has been applied in their preparation is applicable
law and IFRSs as issued by the IASB.
Going concern We have reviewed the directors' statement on
page 16 that the Company is a going concern.
We confirm that:
* we have not identified material uncertainties related
to events or conditions that may cast significant
doubt on the Company's ability to continue as a going
concern which we believe would need to be disclosed
in accordance with IFRSs as issued by the IASB; and
* we have concluded that the directors' use of the
going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions
can be predicted, this statement is not a guarantee
as to the Company's ability to continue as a
going concern.
Our assessment The assessed risks of material misstatement
of risks of material described below are those that had the greatest
misstatement effect on our audit strategy, the allocation
of resources in the audit and directing the
efforts of the engagement team:
Risk How the scope of our audit responded
to the risk
Valuation of the Company's investments We tested 100% of the year end
There is a risk that the Company's prices to prices obtained independently
pricing methodology does not from reliable third party sources.
accurately reflect the potential In addition, the liquidity of
exit price at the year-end date. the portfolio was considered
This risk is heightened when as at the year-end date to assess
current market conditions may whether any adjustments to establish
impair the liquidity of the investment the fair value of illiquid or
portfolio as an element of judgment otherwise suspended for trading
may need to be incorporated into equities from stale pricing were
the valuation. required.
======================================== =========================================
Independent auditor's Report to the members of Threadneedle UK
Select Trust Limited (continued)
Risk How the scope of our audit responded
to the risk
Ownership of the Company's investments We received direct confirmation
There is a risk that the Company of all positions from the Custodian
has not retained the rights on both a trade date and settlement
and obligations of its investment date basis and reconciled the
portfolio, or that the investments trade date basis to the Company's
portfolio is not recognised records in order to test for
on a trade date basis which the recognition of gains and
may result in gains and losses losses in the correct period.
on investments being recognised
in an incorrect period.
Accuracy of calculation of performance We determined an expectation
fees of the fees by following the
The performance fee is payable calculation methodology detailed
to the Investment Manager, based in the agreements entered into
on the excess total return of by the Company and compared our
the Company's net assets compared expectation to the Company's
to the total return of the FTSE records with reference to a statistical
All-Share Index, over a 2 year threshold. For our expectation
period. The calculation requires of the fees, we utilised third
reference to a third party index party market data in respect
and adjustment to the Company's of the performance fee benchmark
NAV to reflect the Company's and checked the calculation of
total return over the specified the Company's NAV on a total
performance period. Further return basis. We also reviewed
detail on the performance fee the Company's own calculation
is included in note 4. As this of the performance fees and sample
calculation is complex and considered tested the fees to invoice, also
to be a related party transaction checking settlement of those
it has been identified as a samples to bank statements.
significant risk.
The Audit Committee's consideration of these
risks is set out on page 23.
Our audit procedures relating to these matters
were designed in the context of our audit of
the financial statements as a whole, and not
to express an opinion on individual accounts
or disclosures. Our opinion on the financial
statements is not modified with respect to
any of the risks described above, and we do
not express an opinion on these individual
matters.
Our application We define materiality as the magnitude of misstatement
of materiality in the financial statements that makes it probable
that the economic decisions of a reasonably
knowledgeable person would be changed or influenced.
We use materiality both in planning the scope
of our audit work and in evaluating the results
of our work.
We determined materiality for the Company to
be GBP794k, which is approximately 2% of equity.
We agreed with the Audit Committee that we would
report to the Committee all audit differences
in excess of GBP16k, as well as differences
below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters
that we identified when assessing the overall
presentation of the financial statements.
Independent auditor's Report to the members of Threadneedle UK
Select Trust Limited (continued)
Matters on which
we are required
to report by
exception
Adequacy of explanations Under the Companies (Guernsey) Law, 2008 we
received and are required to report to you if, in our opinion:
accounting records * we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept; or
* the financial statements are not in agreement with
the accounting records.
We have nothing to report in respect of these
matters.
Corporate Governance Under the Listing Rules we are also required
Statement to review the part of the Corporate Governance
Statement relating to the Company's compliance
with nine provisions of the UK Corporate Governance
Code. We have nothing to report arising from
our review.
Our duty to read Under International Standards on Auditing (UK
other information and Ireland), we are required to report to you
in the Annual if, in our opinion, information in the annual
Report report is:
* materially inconsistent with the information in the
audited financial statements; or
* apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Company acquired in the course of performing our
audit; or
* otherwise misleading.
In particular, we are required to consider whether
we have identified any inconsistencies between
our knowledge acquired during the audit and
the directors' statement that they consider
the annual report is fair, balanced and understandable
and whether the annual report appropriately
discloses those matters that we communicated
to the audit committee which we consider should
have been disclosed. We confirm that we have
not identified any such inconsistencies or misleading
statements.
Respective responsibilities As explained more fully in the Directors' Responsibilities
of directors Statement, the directors are responsible for
and auditor 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.
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/or those further matters we have
expressly agreed to report to them on in our
engagement letter 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.
Independent auditor's Report to the members of Threadneedle UK
Select Trust Limited (continued)
Scope of the An audit involves obtaining evidence about the
audit of the amounts and disclosures in the financial statements
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. In addition, we
read all the financial and non-financial information
in the annual report to identify material inconsistencies
with the audited financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired by
us in the course of performing the audit. If
we become aware of any apparent material misstatements
or inconsistencies we consider the implications
for our report.
Richard Garrard
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port
Guernsey
10 April 2014
Statement of Comprehensive Income
for the year ended 31 December 2013
2013 2012
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Dividend revenue 3 1,152 - 1,152 833 - 833
Other income 3 - - - 1 - 1
Net gains on financial
assets at fair value
through profit or loss 10 - 7,708 7,708 - 1,680 1,680
Net foreign exchange
loss - (1) (1) - (18) (18)
------- ------- ------- ------- ------- -------
1,152 7,707 8,859 834 1,662 2,496
Expenses
Investment management
fees 4 45 134 179 31 92 123
Performance fees 4 28 82 110 - - -
Administration
fees 104 - 104 101 - 101
Registrar's
fees 25 - 25 25 - 25
Auditor's fees 20 - 20 18 - 18
Directors' fees and
expenses 16 112 - 112 114 - 114
Legal and professional
fees 17 - - - 75 - 75
Other expenses 114 - 114 114 - 114
------- ------- ------- ------- ------- -------
Total operating expenses
before finance costs 448 216 664 478 92 570
------- ------- ------- ------- ------- -------
Operating profit before
finance costs 704 7,491 8,195 356 1,570 1,926
Finance costs
Bank charges 12 - - - 2 5 7
------- ------- ------- ------- ------- -------
Profit for the year 704 7,491 8,195 354 1,565 1,919
======= ======= ======= ======= ======= =======
Basic return per ordinary
share 7 3.30p 35.07p 38.37p 1.72p 7.59p 9.31p
------- ------- ------- ------- ------- -------
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 34 to 51 are an integral part of these
financial statements.
Statement of Financial Position
as at 31 December 2013
Notes 2013 2012
GBP'000 GBP'000
Assets
Cash and cash equivalents 8 158 205
Due from brokers 9 - 40
Other receivables and accrued
income 9 84 84
Financial assets at fair value
through profit or loss 10 39,712 30,255
----------- -----------
Total assets 39,954 30,584
----------- -----------
Liabilities
Other payables and accrued
expenses 11 263 141
----------- -----------
Total liabilities 263 141
----------- -----------
Net assets attributable to shareholders 39,691 30,443
=========== ===========
Represented by:
Share Capital 14 2,192 2,083
Treasury Share Reserve 14 (19) (261)
Other reserves 37,518 28,621
----------- -----------
Net assets attributable to shareholders 39,691 30,443
=========== ===========
Number of ordinary shares in
issue (net of Treasury shares) 14 21,889,731 20,659,452
Net asset value per share 15 181.33p 147.36p
These financial statements were approved by the Board of
Directors on 10 April 2014 and are signed on behalf of the Board
by:
JM Le Pelley D Warr
10 April 2014
The notes on pages 34 to 51 are an integral part of these
financial statements.
Statement of Changes in Net Assets Attributable to
Shareholders
for the year ended 31 December 2013
Issued Treasury Share Capital Capital
share share premium redemption Capital reserve- Revenue
capital reserve reserve 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
2013 2,083 (261) 5,401 4,308 13,937 1,002 3,973 30,443
Shares
repurchased
during the
year - (233) - - - - - (233)
Share
subscriptions 109 - 1,755 - - - - 1,864
Cash dividends:
-2012 second
interim
dividend - - - - - - (365) (365)
-2013 first
interim
dividend - - - - - - (213) (213)
Scrip dividends - 475 - - (475) - - -
Net profit - - - - 1,873 5,618 704 8,195
--------- --------- --------- ------------ ----------------- ------------ --------- --------
At 31 December
2013 2,192 (19) 7,156 4,308 15,335 6,620 4,099 39,691
--------- --------- --------- ------------ ----------------- ------------ --------- --------
There is no other recognised income and expenses for the year
ended 31 December 2013.
for the year ended 31 December 2012
Issued Treasury Share Capital Capital
share share premium redemption Capital reserve- Revenue
capital reserve reserve 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
2012 2,083 (153) 5,401 4,308 16,507 (2,748) 4,073 29,471
Shares
repurchased
during the
year - (493) - - - - - (493)
Cash dividends:
-2011 second
interim
dividend - - - - - - (348) (348)
-2012 first
interim
dividend - - - - - - (106) (106)
Scrip dividends - 385 - - (385)* - -* -
Net
(loss)/profit - - - - (2,185) 3,750 354 1,919
--------- --------- --------- ------------ ----------------- ------------ --------- --------
At 31 December
2012 2,083 (261) 5,401 4,308 13,937 1,002 3,973 30,443
--------- --------- --------- ------------ ----------------- ------------ --------- --------
There is no other recognised income and expenses for the year
ended 31 December 2012.
* 2012 Scrip dividends amounting to GBP385,000 deducted from
revenue reserves in the financial statements for the year ended 31
December 2012 have been transferred to capital reserves realised,
which is consistent with the Board's policy of allocating scrip
dividends against capital reserves realised.
The notes on pages 34 to 51 are an integral part of these
financial statements.
Statement of Cash Flows
for the year ended 31 December 2013
Notes 2013 2012
GBP'000 GBP'000
Cash flows from operating activities
Payments for purchase of financial
investments (13,450) (44,097)
Proceeds from sale of financial
investments 11,727 42,563
Dividend received from investments 1,150 978
Investment management fee paid (169) (159)
Other operating expenses (357) (445)
Net cash outflow from operating
activities (1,099) (1,160)
--------- ---------
Cash flows from financing activities
Interest paid - (10)
Share repurchase 14 (233) (493)
Share subscriptions 1,864 -
Equity dividends paid 6 (578) (454)
Net cash inflow/(outflow) from
financing activities 1,053 (957)
--------- ---------
Net decrease in cash and cash equivalents (46) (2,117)
Effect of exchange rate changes
on cash and cash equivalents (1) (18)
Cash and cash equivalents at
the beginning of the year 205 2,340
Cash and cash equivalents at
the end of the year 8 158 205
--------- ---------
The notes on pages 34 to 51 are an integral part of these
financial statements.
Notes to the Financial Statements
1. General information
The Company is an authorised closed-ended investment Company
incorporated under The Companies (Guernsey) Law, 2008, as amended,
with its registered office situate at Dorey Court, Admiral Park, St
Peter Port, Guernsey GY1 2HT. The Company's shares have been
admitted to the Official List of the UK Listing Authority with a
premium listing and to trading on the London Stock Exchange's Main
Market for listed securities.
The objective of the Company is to provide shareholders with a
total return in excess of the total return on the FTSE All-Share
Index, together with 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 ("IFRS")
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 IFRS
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 are 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 accounting 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 at 31 December 2013; Although the Company is in a net
liability position of GBP20,900 at the year end the Board regularly
reviews the cash flow of the Company and is confident that the
Company will have sufficient resources to meet all future
obligations;
-- 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 2013, the Company had no external
borrowings and therefore was under no obligation to repay any
borrowings. As at the date of signing the Annual Financial Report
the Company had in place a one year GBP5 million loan facility with
Loyds Bank Plc, which has not yet been utilised.
c. Adoption of new and revised standards
Standards not yet affecting the reported results nor the
financial position
The same accounting policies, presentation and methods of
computation are followed in these annual financial statements as
those followed in the preparation of the Company's audited
financial statements for the year ended 31 December 2012.
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 8 Aggregation of segments - effective 1 July 2014
IFRS 9 Financial instruments - contains no stated effective date
IAS 19 (revised) Employee benefits - effective 1 July 2014
IAS 24 Related parties - effective 1 July 2014
IAS 36 Impairment of assets - effective 1 January 2014
IAS 38 Intangible assets - effective 1 July 2014
The Directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Company in the future periods.
New standard adopted
IFRS 13: Fair Value Measurement effective for periods commencing
on or after 1 January 2013.
IFRS 13 explains how to measure fair value and aims to enhance
fair value disclosures. The guidance includes enhanced disclosure
requirements that could result in additional disclosure for
reporting entities. These requirements are similar to those in IFRS
7, 'Financial instruments: Disclosures', but apply to all assets
and liabilities measured at fair value, not just financial ones.
IFRS 13 was adopted for the first time for the year ended 31
December 2013 and will be applied prospectively, subject to certain
transitional provisions. Additional disclosures have been brought
into the financial statements in Note 2 and 10.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
c. Adoption of new and revised standard (continued)
Standards effective but not adopted
The following standards became effective 1 January 2013. The
board has considered these standards and concluded that they are
not applicable to the Company.
IFRS 11 Joint ventures
IFRS 10 Consolidated financial statements (Amendment for
investments entities)
IFRS 12 Disclosure of interests in other entities (Amendment for
investments entities)
IAS 27 Separate financial statements
IAS 28 Investments in Associates & Joint Ventures
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.
(ii) Recognition
Financial assets are recognised on the trade date where a
purchase is under 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 material
transaction costs on acquisition and all transaction costs on
disposal of the financial asset are expensed as a capital item.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
e. Financial assets (continued)
(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. In accordance with the transitional provisions of
IFRS 13, the Company has applied the new definition of fair value
as set out under fair value measurement.
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.
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 materially invests in listed or quoted equities and
therefore at the reporting date, there were no sources of
significantjudgement or uncertainty.
(vii) Fair value measurement
'Fair value' is the price that would be received to sell an
asset in an orderly transaction between market participants at the
measurement date in principal or, in its absence, the most
advantageous market to which the Company has access at that date.
When available, the Company measures the fair value of an
instrument using the quoted price in an active market for that
instrument. A market is regarded as 'active' if transactions for
the asset take place with sufficient frequency and volume to
provide pricing information on an ongoing basis. The Company
measures financial assets quoted in an active market at mid
price.
If there is no quoted price in an active market, then the
Company uses valuation techniques that maximises the use of
relevant observable inputs and minimise the use of unobservable
inputs. The chosen valuation techniques incorporate all of the
factors that market participants would take into account in pricing
a transaction.
The Company recognises transfers between levels of fair value
hierarchy as at the end of the accounting period during which the
change has occurred.
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 average 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. Interest is 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.
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
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.
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 Company'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 also organised into one main
geographical unit as the location of all investments is materially
all 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.
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 income
2013 2012
GBP'000 GBP'000
Dividend revenue from investments
designated at fair value through
profit or loss:
Dividends 1,152 833
1,152 833
-------- --------
Other Income - 1
-------- --------
- 1
-------- --------
Total income 1,152 834
======== ========
Notes to the Financial Statements (continued)
4. Investment management and performance fees
Threadneedle was appointed Manager under an Investment
Management Agreement with the Company dated 27 July 2012.
Commencing 1 October 2012 the management fee was calculated as 0.5%
per annum of the value of the funds under management on each
Valuation Date in respect of each quarter or such other date or fee
as shall be agreed from time to time between the Company and the
Manager. The first Valuation Date for the purpose of the Management
Fee was 31 December 2012.
The Manager is also entitled to a performance fee that is
calculated as at 31 December in each financial year and shall be a
fee representing the percentage of the average value of the funds
under management on the date of the calculation and on 31 December
of the immediately preceding financial year. For the purpose of the
first performance fee, the performance fee is calculated for a 15
month period from 1 October 2012 to 31 December 2013. The
performance fee percentage calculated may not exceed 0.25% over a
period of 12 months. For the purpose of the first performance fee
period (1 October 2012 to 31 December 2013), this percentage is
amended to 0.3125 over the 15 month period. The performance fee is
calculated as 10% of the total return NAV out-performance of the
FTSE All-Share Index (total return) both expressed as a percentage
of that as indicated at the end of that year and that of the
immediately preceding financial year. A performance fee of
GBP110,000 is attributable for the year ended 31 December 2013 (31
December 2012: GBPNil). This performance fee shall be payable
within 23 days of 31 March 2014.
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 GBP4,020 (2012: GBP11.030) 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
2013 2012
GBP'000 GBP'000
Equity dividends
Ordinary shares
Second interim dividend for 2012: 3.20p
(gross) on 11,396,593 shares paid in 2013 365 348
Scrip dividend for 2012 paid in 2013: 179,947
shares issued at a cost of 164.28p per share 295 294
First interim dividend for 2013: 1.80p (gross)
on 11,835,814 shares paid in 2013 213 106
Scrip dividend for 2013 paid in 2013: 106,763
shares issued at a cost of 168.13p per share 180 91
1,053 839
======== ========
Notes to the Financial Statements (continued)
7. Basic return per ordinary share
2013 2012
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Return 3.30 35.07 38.37 1.72 7.59 9.31
======== ======== ====== ======== ======== ======
Revenue return per ordinary share is based on the net revenue on
ordinary activities of GBP704,000 (2012: return GBP354,000) and on
21,361,009 ordinary shares, being the weighted average number of
ordinary shares in issue during the year (2012: 20,630,069).
Capital return per ordinary share is based on a net capital
profit for the financial year of GBP7,491,000 (2012: return
GBP1,565,000) and on 21,361,009 ordinary shares, being the weighted
average number of ordinary shares in issue during the year (2012:
20,630,069).
8. 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.
9. Other receivables and accrued income
Other receivables 2013 2012
GBP'000 GBP'000
Due from brokers - 40
Accrued income 74 72
Prepayments 10 12
-------- --------
84 124
======== ========
The Directors consider that the carrying amount of receivables
approximates to their fair value.
10. Financial assets at fair value through profit or loss
2013 2012
% of net % of net
Fair Value assets Fair Value assets
GBP'000 % GBP'000 %
Financial assets at fair
value through profit or loss
- Listed equity securities 39,709 100.04 30,255 99.38
- De-listed trading entities 3 0.01 - -
39,712 100.05 30,255 99.38
----------- --------- ----------- ---------
Notes to the Financial Statements (continued)
10. Financial assets at fair value through profit or loss (continued)
Net gains/(losses) on financial
assets at fair value through
profit or loss
2013 2012
GBP'000 GBP'000
Realised gains/(losses) 2,090 (2,070)
Unrealised gains 5,618 3,750
-------- --------
7,708 1,680
-------- --------
Fair value measurements
The Company adopted the amendment to IFRS 13, effective 1
January 2013. IFRS 13 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 13 are as follows:
Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
Level 2 fair value measurements are those derived from 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)
Level 3 fair value measurements are those derived from valuation
techniques that include 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 following tables present the Company's financial assets and
liabilities by level within the valuation hierarchy as of 31
December 2013 and 2012:
Percentage Percentage
2013 of net assets 2012 of net assets
Level 1 fair value GBP'000 % GBP'000 %
assets
Investments valued
at fair value 39,709 100.04 30,255 99.38
Level 2 fair value
assets
Investments valued
at fair value 3 0.01 - -
Total fair value financial
assets 39,712 100.05 30,255 99.38
======== =============== ======== ===============
Notes to the Financial Statements (continued)
11. Other payables and accrued expenses
Other payables 2013 2012
GBP'000 GBP'000
Administrative fees 52 50
Audit fees 20 20
Directors' fees 28 -
Investment management fees 48 38
Performance fee 110 -
Registrars fees 4 7
Sundry expenses 1 26
-------- --------
263 141
======== ========
The Directors consider that the carrying amount of payables
approximates to their fair value.
12. Loan facility
The Company had a revolving 5 year loan facility, secured on the
assets of the Company, which expired on 23 September 2012, and was
not renewed, with an aggregate principal amount of GBP2,000,000,
for the purposes of future investment. No loan interest was paid
during 2013 or 2012.
On 26 March 2014 the Company entered into a one year GBP5
million loan facility with Lloyds Bank Plc. The facility will be
used to gear the Company's investment portfolio with the aim of
enhancing returns to shareholders and the Board will be looking to
target a level of approximately 10% to 20% of the Company's net
asset value. Interest will accrue on the loan at 1% over LIBOR and
it is repayable at the option of the Company. A non-utilisation fee
of 0.35% per annum is payable on any portion of the facility not
drawn down.
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
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 1,152 834 39,691 30,443
1,152 834 39,691 30,443
======== ======== ======== ========
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.
Notes to the Financial Statements (continued)
14. Share capital
2013 2012
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 2013, no five per cent
cumulative preference restrictive voting shares had been issued
(2012: 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.
2013 2012
GBP'000 GBP'000
Issued, called up and fully
paid:
21,914,053 ordinary shares of 10p each
(2012: 20,830,484) 2,192 2,083
=========== ==================
2013
Treasury Share
reserve Shares in issue
Shares Cost Shares Cost
Nominal GBP'000 Nominal GBP'000
Balance at 1 January
2013 171,032 261 20,830,484 2,083
Shares purchased and held in
Treasury 140,000 233 - -
Shares issued in lieu of dividends
from Treasury (286,710) (475) - -
Share capital issued during the
year - - 1,083,569 109
Balance at 31 December
2013 24,322 19 21,914,053 2,192
------------ -------- -------------- --------------
2012
Treasury Share
reserve Shares in issue
Shares Cost Shares Cost
Nominal GBP'000 Nominal GBP'000
Balance at 1 January
2012 87,878 153 20,830,484 2,083
Shares purchased and held in
Treasury 400,000 493 - -
Shares issued in lieu of dividends
from Treasury (316,846) (385) - -
Balance at 31 December 2012 171,032 261 20,830,484 2,083
------------ -------- -------------- --------------
During 2013 and 2012 no shares were purchased for cancellation.
Notes to the Financial Statements (continued)
14. Share capital (continued)
On 1 February 2013, 25,000 shares were purchased for Treasury at
a total cost including expenses of GBP38,452.
On 16 July 2013, 90,000 shares were purchased for Treasury at a
total cost including expenses of GBP152,406.
On 16 October 2013, 25,000 shares were purchased for Treasury at
a total cost including expenses of GBP41,835.
On 9 May 2013, 179,947 shares were issued to shareholders who
elected to receive them in lieu of a second interim cash dividend
for 2012. On 5 November 2013, 106,763 shares were issued to
shareholders who elected to receive them in lieu of a first interim
dividend for 2013. Ordinary shares of 10p each, fully paid were
issued to shareholders from the Treasury Share reserve held by the
Company.
On 30 May 2013, 1,083,569 ordinary shares of 10p each were
issued to shareholders with a share capital value of GBP108,356 and
a share premium value of GBP1,755,381.
15. Net asset value per share
Net asset value per ordinary share is based on net assets
attributable to the ordinary shareholders of GBP39,691,000 (2012:
GBP30,443,000) and on 21,889,731 (2012: 20,659,452) 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 3 of
the annual report. Fees earned by the Directors of the Company
during the year were GBP108,595 (2012: GBP107,500) of which
GBP27,900 (2012: GBPNil) was outstanding at the period end.
Allowable expenses claimed by Directors in the course of their
duties amounted to GBP3,565 for the year (2012: GBP6,202).
Amerprise Financial Inc., the parent of Threadneedle, controlled
the voting rights attached to 22.21% of the Company's shares as at
31 December 2013. Threadneedle exercises discretion over these
shares on behalf of its clients and earned investment management
fees of GBP178,500 (2012: GBP37,800) during the year of which
GBP48,400 (2012: GBP37,800) was outstanding at the reporting date
In addition GBP110,000 performance fees were accrued for the year
(2012: GBPNil).
The Company has appointed Kleinwort Benson (Channel Islands)
Funds Services Limited to provide administrative, corporate
secretarial services and accounting services. Administrative fees
(including the accounting and secretarial fee) for the year
totalled GBP104,073 (2012: GBP100,562) of which GBP51,751 (2012:
GBP49,578) was outstanding at the period end.
17. Legal and professional fees
A one off fee of GBP75,000 was paid in 2012 to Canaccord Genuity
Limited for their services provided after the resignation of
Scottish Widows Investment Partnership and concerning the
appointment of Threadneedle Asset Management Limited.
Notes to the Financial Statements (continued)
18. 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 risk 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 reserve, capital redemption reserve, capital reserves and
revenue reserve as disclosed in the statement of changes in net
assets attributable to shareholders. The Company does not have any
externally imposed capital requirements.
The investment objective of the Company 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 ongoing expenses and dividend payments.
The Company's policy is to provide net income for distribution
from the dividend income earned from a portfolio of mainly UK
equity securities which are listed on the London Stock Exchange.
Further, the Company has allocated to capital 75% of its investment
management fee and performance fee in line with the Board's
expectation of long-term returns in the form of capital gains from
the investment portfolio of the Company.
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.
Notes to the Financial Statements (continued)
18. Financial risk management (continued)
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 2013, the Company's portfolio consisted of 73
investments spread over 9 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:
-- The top five holdings in the Company's portfolio may not
exceed 40 per cent of the total value of the portfolio.
-- The top three sectors represented in the portfolio may not
exceed 50 per cent of the total value of the portfolio.
-- The securities of no one company may represent more than 10
per cent of the value of the Company's portfolio measured at the
time of acquisition and subsequently, when additions are made to
the holding.
-- The Company will not hold more than 5 per cent of the issued
share capital (or voting shares) in any one company.
-- While the Company may hold shares in other investment
companies (including investment trusts), the Company will not
invest more than 10 per cent., in aggregate, of the value of its
total assets in other listed close-ended investment funds (save to
the extent that such close-ended investment funds have published
investment policies to invest no more than 15 per cent. of their
total assets in such other listed close-ended investment
funds).
The Board monitors investment restrictions by utilising the
Investment Manager's and the Administrator'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 counterparty 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 counterparties
are banks with high credit ratings of A-1+ assigned by
international credit-rating agencies.
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.
Notes to the Financial Statements (continued)
18. Financial risk management (continued)
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
realise its investments in these instruments at an amount close to
their fair value in order to meet its liquidity requirements.
Dividend income is also expected to be sufficient to cover
short-term liquidity requirements.
No liquidity analysis for the Company's financial assets and
liabilities has been provided for in the current or prior year as
liquidity risk is not considered material.
Country risk
On 17 January 2012 the Financial Reporting Council ("FRC")
released "Responding to the increased country and currency risk in
financial reports".
The FRC released on 17 January 2012 an update for directors of
listed companies which includes guidance on responding to the
increased country and currency risk as a result of funding
pressures on certain European countries, the curtailment of capital
spending programmes (austerity measures) and regime changes in the
Middle East.
The Board has reviewed the disclosures contained within the
annual financial report and believes that no additional disclosures
are required since the Company is primarily invested in UK listed
equities.
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, Threadneedle, under an agreement
dated 27 July 2012. The Investment Manager operates under agreed
parameters and the Board monitors its performance on a regular
basis.
Notes to the Financial Statements (continued)
18. Financial risk management (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 in 10% decrease in
price price
Impact on financial Impact on financial
assets at fair assets at fair
value through value through profit
profit or loss or loss
2013 2012 2013 2012
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 3,971 3,025 (3,971) (3,025)
----------- --------- ----------- -------------
3,971 3,025 (3,971) (3,025)
=========== ========= =========== =============
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.
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 2013 and 31 December 2012 the Company's net
currency exposure was as follows:
2013 2012
GBP'000 % of Net Assets GBP'000 % of Net
Assets
Euro - 0.00 - 0.00
Sterling 39,691 100.00 30,443 100.00
United States
Dollar - 0.00 - 0.00
-------- ---------------- -------- ---------
39,691 100.00 30,443 100.00
======== ================ ======== =========
Notes to the Financial Statements (continued)
19. Parent and ultimate controlling party
The Board is of the opinion that there is no immediate parent or
ultimate controlling party of the Company.
20. Events after the reporting date
A second interim dividend of 2.45p per Ordinary Share has been
declared for 2013 (2012: second interim dividend 3.20 p). 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.
This dividend will be payable on 9 May 2014 to shareholders on the
register as at close of business on 14 March 2014. This, together
with the first interim dividend of 1.80p (2012: first interim
dividend 0.95p) paid during the year, makes a total of 4.25p for
the year. The Company intends to continue with the policy of paying
a second interim dividend each year to shareholders in May of the
following year in place of a final dividend. Scrip election forms
are expected to be sent to all shareholders on or around 1 April
2014 and the latest date for receipt by the Registrar of scrip
elections is 22 April 2014.
On 26 March 2014 the Company entered into a one year GBP5
million loan facility with Lloyds Bank Plc, further details of
which are given in note 12.
Ten Year Record- Unaudited
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
Revenue Gross share Net asset
Net revenue return dividends capital value
after per ordinary per ordinary eligible of ordinary
Gross revenue taxation share share for dividends shares
(Ex-div)
Year ended GBP'000
31 December (1&2) GBP'000 p p(3) GBP'000 p
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
2011 1,307 907 4.38 4.10 2,074 142.1
2012 834 354 1.72 4.15 2,066 147.4
2013 1,152 704 3.30 4.25 2,189 181.3
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, was
accounted for.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR QKKDPQBKDPQD
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