EP GLOBAL OPPORTUNITIES TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2014
The full Annual Report and Financial Statements can be accessed via the
Company's website at www.epgot.com or by contacting the Company Secretary by
telephone on 0131 270 3800.
HIGHLIGHTS
* At 31 December 2014, our net asset value per share was 236.0p, giving a
total return for the twelve months of 2.2 per cent.
* Our revenue return was 3.7p per share. The Board is pleased to recommend a
dividend of 3.3p per share, an increase of 22.2 per cent on the prior year
dividend.
* The share price closed the year at 234.6p which was a discount of 0.6 per
cent to the net asset value per share.
* We continued our policy of buying in shares with a view to maintaining the
share price at close to the net asset value per share. During 2014, we
bought in 675,000 shares at a cost of £1.52 million.
* The ongoing charges ratio was 1.1 per cent in 2014.
* Winner of the Global Growth Sector of the Investment Week Investment
Company of the Year Awards 2014 (based on performance for the three years
to 30 June 2014).
FINANCIAL SUMMARY
Results for year 31 December 2014 31 December 2013 Change
Shareholders' funds £112,143,000 £112,580,000 (0.4)%
Net asset value per ordinary
share ("NAV") 236.0p 233.6p 1.0%
Share price 234.6p 230.0p 2.0%
Share price premium/ (discount) to NAV 0.6% 1.5%
Revenue return per ordinary
share* 3.7p 2.7p 37.0%
Dividend per ordinary share 3.3p** 2.7p 22.2%
* Based on the weighted average number of shares in issue during the year
excluding own shares held in treasury.
** Proposed final dividend for the year.
Year to Year to
31 December 2014 31 December 2013
Ordinary share Ordinary share
Year's high/low
Share price - high 236.0p 230.0p
- low 208.0p 175.5p
NAV - high 244.1p 234.9p
- low 222.3p 186.3p
Share price premium/(discount) to NAV
- high 2.0% (0.7)%
- low (7.6)% (7.4)%
Cost of running the Company
Ongoing charges* 1.1% 1.1%
* Based on total expenses, excluding finance costs and certain non-recurring
items for the year and average monthly net assets.
Past performance is not a guide to future performance.
PORTFOLIO OF INVESTMENTS
as at 31 December 2014
% of
Net
Company Sector Country Valuation Assets
£'000
Equity investments
20 largest equity
investments
Swire Pacific Industrials Hong Kong 3,665 3.3
Novartis Health Care Switzerland 3,588 3.2
Microsoft Technology United States 3,356 3.0
Screen Technology Japan 3,273 2.9
Sumitomo Mitsui Trust Financials Japan 3,272 2.9
AstraZeneca Health Care United Kingdom 3,261 2.9
DBS Financials Singapore 3,239 2.9
Toshiba Industrials Japan 3,214 2.9
Panasonic Consumer Goods Japan 3,185 2.8
East Japan Railway Consumer Services Japan 3,132 2.8
Toyota Consumer Goods Japan 3,113 2.8
Fresenius Medical Care Health Care Germany 3,098 2.8
Vodafone Telecommunications United Kingdom 2,966 2.6
Mitsubishi Industrials Japan 2,888 2.6
KDDI Telecommunications Japan 2,880 2.6
Qualcomm Technology United States 2,854 2.5
PostNL Industrials Netherlands 2,828 2.5
Bangkok Bank * Financials Thailand 2,800 2.5
HSBC Financials United Kingdom 2,787 2.5
BNP Paribas Financials France 2,780 2.5
Total - 20 largest equity
investments 62,179 55.5
Other equity investments
Japan Tobacco Consumer Goods Japan 2,780 2.5
Sumitomo Mitsui Financial Financials Japan 2,777 2.5
Roche ** Health Care Switzerland 2,768 2.5
Yamaha Motor Consumer Goods Japan 2,754 2.4
Google Technology United States 2,686 2.4
Terex Industrials United States 2,649 2.4
Royal Dutch Shell *** Oil & Gas Netherlands 2,573 2.3
Hutchison Whampoa Industrials Hong Kong 2,520 2.2
Samsung Electronic Consumer Goods South Korea 2,397 2.1
BG Oil & Gas United Kingdom 2,371 2.1
Intesa Sanpaolo Financials Italy 2,334 2.1
Bridgestone Consumer Goods Japan 2,324 2.1
Bank Mandiri Financials Indonesia 2,323 2.1
ABB Industrials Switzerland 2,202 2.0
Sanofi Health Care France 2,139 1.9
Misawa Homes Consumer Goods Japan 1,857 1.6
Edinburgh Partners Financials - unlisted United Kingdom 1,450 1.3
Gazprom Oil & Gas Russia 1,285 1.1
Total - 38 equity investments 104,368 93.1
Cash and other net assets 7,775 6.9
Net assets 112,143 100.0
* The investment is in non-voting depositary receipts.
** The investment is in non-voting shares.
*** The investment is in Class A ordinary shares.
The geographical distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
Of the ten largest portfolio investments as at 31 December 2014, the valuations
at the previous year end, 31 December 2013, were Swire Pacific £2,305,000,
Microsoft £3,333,000, Screen (previously Dainippon Screen) £2,924,000,
AstraZeneca £863,000, DBS £2,650,000, Toshiba £2,262,000 and Panasonic
£2,931,000. Novartis, Sumitomo Mitsui Trust and East Japan Railway were new
purchases in the year ended 31 December 2014.
DISTRIBUTION OF INVESTMENTS
as at 31 December 2014 (% of investments)
% of
Sector distribution investments
Financials 21.4
Industrials 19.1
Consumer Goods 17.6
Health Care 14.2
Technology 11.7
Oil & Gas 6.0
Telecommunications 5.6
Consumer Services 3.0
Financials (unlisted) 1.4
100.0
% of
Geographical distribution investments
Japan 35.9
Europe 24.5
Asia Pacific 16.2
United Kingdom 12.3
United States 11.1
100.0
The figures detailed in the geographical distribution table represent the
Company's exposure to these countries or regional areas.
The geographical distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
As at 31 December 2014, the Company's investments represented 93.1% of
Shareholders' funds.
STRATEGIC REPORT
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the "Act"). Its purpose is to inform members of the Company
and help them assess how the Directors have performed their legal duty under
Section 172 of the Act to promote the success of the Company.
CHAIRMAN'S STATEMENT
Results
At 31 December 2014, our net asset value per share ("NAV") was 236.0p, giving a
total return for the year of 2.2 per cent. This was slightly better than the
total return for the FTSE All-Share Index of 1.2 per cent but lagged the return
achieved by the FTSE All-World Index of 11.3 per cent.
The share price closed the year at 234.6p, an increase of 2.0 per cent over the
price at the end of 2013. At the year end, the share price was at a discount of
0.6 per cent to the NAV. We continued our policy of buying in shares with a
view to maintaining the share price at close to the NAV. During the year, we
bought in 675,000 shares.
The main feature of the portfolio is the emphasis on Japanese and European
shares. Holdings in these two geographical regions account for over half the
assets of the Company. This emphasis was a significant factor behind our strong
performance in 2013, a performance that led to the Company winning the Global
Growth Sector of the Investment Week Investment Company of the Year Awards
2014. This award was judged on performance over the three-year period to
30 June 2014. However, the emphasis on Japan and Europe held back performance last
year. The healthy return achieved by the FTSE All-World Index was largely due
to the rise in the US stock market with US shares accounting for over half the
market capitalisation of that Index. US shares had also performed strongly in
2013 and by the end of that year it was becoming difficult to find US shares
that offered good value. However, this did not stop further gains being made in
2014. We started the year with 16.6 per cent of the Company's investments in
the US, but this was reduced during the year to 11.1 per cent as it became
increasingly difficult to justify the ratings applied to our US holdings.
Changes in exchange rates played a significant part in the Company's results
for the year and overall were not helpful. Our US investments did benefit with
the US dollar appreciating by 6 per cent against sterling but the value of our
European and Japanese holdings were reduced by a decline of over 7 per cent
against sterling for both the euro and the yen.
At the end of 2013, the portfolio was slightly geared making use of a
multicurrency loan facility as we had borrowed £3.7 million of Japanese yen.
This equated to gearing of 3.3 per cent. After a prolonged equity bull market,
our Investment Manager is finding fewer shares that represent good long-term
value. These higher valuations make share prices more vulnerable to unexpected
shocks. As a consequence, we decided to remove the gearing and in July 2014,
cancelled the borrowing facility.
Stock market performance
Equity markets, in general, made slow progress in the first eight months of the
year. After a dip in early January 2014, most of the major regional market
indices were contained in broad trading ranges. There was uncertainty over the
direction of economic growth, including concerns that some countries,
particularly in Europe, would slip back into recession. The Chinese growth rate
continued to moderate and there was considerable uncertainty over the effect of
the US Federal Reserve ending its stimulative monetary policy of buying in US
government bonds, known as quantitative easing. There were plenty of other
developments to worry investors. The outbreak of Ebola in Africa, the Russian
annexation of the Crimea, followed by the civil war in Eastern Ukraine, the
possibility of Greece exiting the Eurozone, and the growing threat from
militant Islam in the Middle East have all had the potential to disrupt the
global economy. In September 2014, the negatives finally began to overwhelm
investor sentiment and there was a brief but sharp sell-off in October 2014
resulting in a fall in share prices. However, the damage was limited and
markets turned around quickly, staging a firm recovery into the year end.
The US was by far the best performing geographical region. The S&P Composite
Index achieved a total return of 13.7 per cent in the year and a strong US
dollar converted this into a 20.8 per cent gain for UK investors. The FTSE
All-World Asia ex Japan Index had a total return of 10.0 per cent in sterling
terms. After a weak start to the year, the Japanese stock market recovered
strongly as the Japanese government reconfirmed its commitment to stimulative
economic policies. The Topix Index ended the year with a total return in local
currency of 10.3 per cent, but the weak yen negated almost all of this,
resulting in a sterling gain of just 2.7 per cent. Continental Europe was the
weakest area. The stock market was held back by concerns that the European
Central Bank's ("ECB") attempts to add further monetary stimulus were being
thwarted by objections from the German Bundesbank. As with other equity
markets, European shares began to recover in October and they ended 2014 on a
firm note as optimism grew that the ECB's strategy would prevail. However, the
euro came under pressure and a 5.8 per cent gain in the FTSE All-World Europe
ex UK Index was converted into a sterling decline of 1.4 per cent.
Revenue account and dividend
The revenue per share for the year ended 31 December 2014 was 3.7p. This
compares with 2.7p per share in the previous year. The increase in our income
is primarily a result of alteration to the portfolio, in particular the
addition of shares in a number of European pharmaceutical companies with above
average yields. The Board is recommending a dividend of 3.3p per share which,
subject to Shareholders' approval at the Annual General Meeting ("AGM"), will
be paid on 29 May 2015. While it is pleasing to recommend a 22.2 per cent
increase in the dividend, it is important that Shareholders are aware that the
level of dividend we declare will fluctuate.
The selection of shares held is based on where our Investment Manager finds the
best value rather than on achieving a particular level of dividend. The Board
believes that a better long-term total return performance will be achieved by
enabling our Investment Manager to fully implement their value-based investment
philosophy unrestricted by income considerations.
The Board
In last year's Chairman's Statement, I reported that Richard Burns would be
retiring from the Board at the 2014 AGM. It was always going to be difficult to
replace Richard's in-depth understanding of the investment scene. Therefore, I
am delighted to report that David Ross joined the Board in June 2014. David had
just retired from Aberforth Partners LLP, a company of which he was a founding
partner. Aberforth Partners is a highly successful, Edinburgh based, investment
management company and David brings with him an extensive knowledge of
investment trusts and financial markets as well as considerable experience of
the marketing challenges that face the investment trust industry.
Alternative Investment Fund Managers' Directive (the "AIFMD")
As detailed in both the 2013 Annual Report and 2014 Half-Yearly Report, I
outlined the new regulatory requirement for certain types of funds, including
investment trusts, to appoint an Alternative Investment Fund Manager ("AIFM")
and have a depositary as well as a custodian to provide additional security
over the Company's assets.
To comply with the new regulations, the Company has appointed Edinburgh
Partners AIFM Limited to act as its AIFM. The AIFM has delegated the function
of managing the Company's investment portfolio to Edinburgh Partners, the
manager of the Company's assets since its launch in 2003. There have therefore
been no changes in the individuals managing the investment portfolio of the
Company.
We have also appointed Northern Trust Global Services Limited as the Company's
depositary. They have delegated the custody functions to The Northern Trust
Company who have replaced The Bank of New York Mellon as the Company's
custodian.
Further details about the management and depositary agreements for the Company
are set out below.
Sale of shares held in treasury
At last year's AGM, Shareholders passed a resolution permitting your Company to
sell shares held in treasury at a weighted average discount of not more than
2.0 per cent to the prevailing NAV. In addition, the resolution provided that
any sale of treasury shares would not result in a dilution of greater than
0.2 per cent in aggregate in the period between AGMs. The Board believes that
this should help improve the liquidity in the Company's shares and that the
potential effect of dilution on existing Shareholders' interest will be
minimal.
Shares that have been bought back under the Company's buy back policy are
retained by the Company as treasury shares rather than cancelled. Since the
year end, we have sold 725,000 shares from treasury and I am pleased to report
that the majority of these shares have been sold at fractional premiums to the
prevailing NAV. It is worth noting that no stamp duty is payable by the
purchaser of treasury shares.
Outlook
Equity markets ended the year on a firm note, as optimism for the economic
outlook improved. In January 2015, the ECB finally announced a large programme
of quantitative easing. Central banks generally continue to operate stimulative
monetary policies with a number of countries, including China and India,
reducing their short-term interest rates. The dramatic fall in the price of oil
since mid-2014 is a major stimulus to economic growth for those countries that
are importers of energy. It will put further downward pressure on inflation,
which in turn is likely to delay any upward pressure on interest rates.
Equities are good value relative to bonds, particularly after the drop in
long-term interest rates last year which saw rates in the developed world fall
to historically low levels.
However, it is important to remember that stock markets lead economic activity
and much of the positive outlook may well be priced into share prices, which
have risen substantially since the depth of the financial crisis in 2008. Many
shares look to be fully priced and this is particularly true in the US, which
has benefitted from its lead in technology and its relatively low energy
prices. The global fall in energy prices plus the strength of the US dollar has
reduced the relative advantage of US companies. Japan and Europe are major
beneficiaries of the lower oil price and equities in both countries now offer
better value. The issue of Greece's relationship within the euro currency block
remains a potential concern, but it is the strains within Europe which have
held back European share prices and created such good value.
We remain positive about our emphasis on Japanese and European equities with
both the Bank of Japan and the ECB printing money through quantitative easing.
With low interest rates and many central banks still inclined to ease monetary
conditions, this should be supportive for equities generally but with shares
becoming more expensive we find our optimism tempered with a degree of caution.
Teddy Tulloch
Chairman
18 March 2015
Past performance is not a guide to future performance.
INVESTMENT MANAGER'S REPORT
The Company's net asset value total return per share for the year ended
31 December 2014 was 2.2 per cent. Global equity markets were more subdued during
2014 following the sharp rises of 2013. The most impressive performance was
seen in the US market, which outperformed other major equity markets by a
considerable margin, achieving a total sterling return of over 20 per cent.
Outperformance of this magnitude has not been witnessed since the early 1990s.
In our view, the rise in the US equity market was driven more by sentiment than
by valuations and as such, it will at some point reverse. Our returns lagged
that of the global index reflecting the difficulty we have had in finding US
securities at prices which justify investment.
On the other hand, areas where we considered value was becoming more visible,
and where we have made investments, have performed well. Two areas worthy of
highlighting are emerging markets and the pharmaceutical sector.
In emerging markets, although it was not a case of value being seen across the
entire universe, our research analysis highlighted that a number of banks were
not being given credit for their potential future growth. Compounding this was
the general fear of investors relating to possible fiscal tightening by the US
Federal Reserve and associated investor liquidity draining from emerging
markets. This provided the opportunity to invest in a number of emerging market
banks. We initially invested in Bank Mandiri in Indonesia in late 2013 and
completed the building of the holding in 2014. Later in the year, as political
concerns surfaced over the incumbent Thai government and whether the royal
family could continue to exert the same calming influence during times of
potential strife, we took the opportunity of stock market weakness to purchase
a holding in Bangkok Bank.
We increased the Company's exposure to the pharmaceutical sector with the
purchases of AstraZeneca, Roche, Novartis and Sanofi during the year. Although
the reasons for investing in these stocks were different in each case, there
were a number of common underlying themes. For many years, pharmaceutical
companies have been characterised by the amount of capital devoted to drug
discovery and development and the lack of success achieved from this
investment. However, the advances in knowledge derived from DNA and genome
sequencing have led to an improved focusing of research and higher potential
success rates, albeit in more narrowly defined segments. Additionally, the
regulatory agencies, in particular the US Food and Drug Administration,
appreciate that the decline in phase III approvals has not helped to improve
the health of the general population. Whilst the share prices of biotech
companies had soared on the expectations of new 'wonder' drugs, the share
prices of the large incumbent multinational pharmaceutical groups had been
largely stagnant despite the improvements and advances they had made. This
provided the opportunity for us to make the purchases mentioned earlier.
Recognition of the importance of potential drug pipelines was afforded by the
abandoned Pfizer bid for AstraZeneca. Notwithstanding the advance in their
share prices, we do not believe the valuations are yet in 'sell' territory.
The largest geographical concentration in the portfolio continues to be in
Japan. The holdings are broadly unchanged, although there was the sale of Sugi,
the pharmaceutical chain, as a result of its share price appreciating to its
target level. Similarly, although KDDI, Yamaha Motor and Bridgestone remain in
the portfolio, there were occasions during the year when price movements in
their shares made it prudent to reduce the size of these holdings. From a
global investment perspective, we still find Japan the most attractively valued
market in the world. Corporate profits are rising and are generally exceeding
market expectations, but after the initial share price rises post 2012,
investors have remained sceptical and share prices have lagged the improvements
in the Japanese corporate sector. This can continue, but not indefinitely. In
our view, fundamental change is taking place in Japan and it is being fully
embraced by the corporate sector. Our experience from meetings with management
is of companies anxious to increase their profitability and cognisant of what
is required to attract investor interest, not least that of the Government
Pension Investment Fund ("GPIF"). GPIF is set to increase its investment in
Japanese equities and will operate in a universe, at least in part,
pre-selected by various profitability measures.
Within the investment portfolio, the other area where there was significant
activity was in companies with higher sensitivity to economic conditions. Many
of these companies were on lower valuations reflecting the uncertainty that
still prevailed over economic growth. During 2014, some of this concern began
to recede and the shares performed well. For example, the share price of the
Danish shipping company A.P. Moller-Maersk appreciated to a point where we were
no longer comfortable with the risk/reward balance and hence the holding was
sold. This is an individual example of a more general point. Reflecting where
we have found value, the Company's investment portfolio has for a number of
years exhibited a pronounced cyclical bias. We feel this has now peaked. It is
our expectation that the risk profile of the portfolio will gradually reduce in
the coming years as we adopt a more cautious stance in responding to rising
market valuation levels.
We currently see a world where inflation remains dormant; we are not believers
that the falling oil price is a consequence of a demand shortfall and thus, do
not reside in the deflationary camp. Global growth can continue at its moderate
pace and there is no need for precipitate government action to dampen growth.
As a consequence, corporate earnings can continue to expand. Valuations are
stretched in a number of areas, most notably in the US, and risk increases
directly with valuation expansion. The most dangerous period occurs when the
economic cycle reaches its final phases but valuations assume continued growth.
This is some distance away and the dangers of being absent from equity markets
are well documented. We are not at the stage where we see markets as being
dangerously high, but we are at the stage where progressive risk reduction is
prudent.
Dr Sandy Nairn
Edinburgh Partners
18 March 2015
Past performance is not a guide to future performance.
OTHER STATUTORY INFORMATION
Objective
The investment objective of the Company is to provide Shareholders with an
attractive real long-term total return by investing globally in undervalued
securities. The portfolio is managed without reference to the composition of
any stock market index.
Strategy and business model
Investment policy
The Company invests in a focused portfolio of approximately 30 to 40 securities
of issuers throughout the world, predominantly in quoted equities. The Company
may also invest in unquoted securities, which are not anticipated to exceed
10 per cent of the Company's total assets at the time of investment (excluding
shares held in Edinburgh Partners). No investment in the Company's portfolio
may exceed 15 per cent of the Company's total assets at the time of investment.
The Company has the ability to invest in other investment companies or funds
but will invest no more than 15 per cent of its gross assets in other listed
investment companies (including investment trusts).
The Company may also invest a substantial portion of its assets in debt
instruments, cash or cash equivalents when the Investment Manager believes
market or economic conditions make equity investment unattractive or while
seeking appropriate investment opportunities for the portfolio or to maintain
liquidity. In addition, the Company may purchase derivatives for the purposes
of efficient portfolio management.
It is intended that, from time to time, when deemed appropriate, the Company
will borrow for investment purposes up to the equivalent of 25 per cent of its
total assets. By contrast, the Company's portfolio may from time to time have
substantial holdings of debt instruments, cash or short-term deposits.
The investment objective and policy are intended to distinguish the Company
from other investment vehicles which have relatively narrow investment
objectives and which are thus constrained in their decision making and asset
allocation. The objective and policy allow the Company to be constrained in its
investment selection only by valuation and to be pragmatic in portfolio
construction by only investing in securities which the Investment Manager
considers to be undervalued on an absolute basis.
The Investment Manager's compliance with the limits set out in the investment
policy is monitored by the Board and the AIFM.
Investment strategy
The Company's portfolio is managed without reference to any stock market index.
Investments are selected for the portfolio only after extensive research by the
Investment Manager. The process through which an equity must pass in order to
be included in the portfolio is rigorous. Only a security where the Investment
Manager believes that the price will be significantly higher in the future will
pass the selection process. The key to successful stock selection is to
identify the long-term value of a company's shares and to have the patience to
hold the shares until that value is appreciated by other investors. Identifying
long-term value involves detailed analysis of a company's earning prospects
over a five-year time horizon. Further details of the investment strategy can
be found in the Chairman's Statement and the Investment Manager's Report above.
Business and status of the Company
The Company is registered as a public limited company and is an investment
company within the terms of section 833 of the Act. The Company has been
approved by HM Revenue & Customs ("HMRC") as an authorised investment trust
under sections 1158 and 1159 of the Corporation Tax Act 2010 (the "CTA") for
each accounting period, subject to there being no subsequent serious breaches
of the regulations.
The Company has been approved as an investment trust for all years since its
inception in 2003. In the opinion of the Directors, the Company is directing
its affairs so as to enable it to continue to qualify for such approval.
The Company's shares are listed on the premium segment of the Official List of
the UK Listing Authority and traded on the main market of the London Stock
Exchange.
Portfolio analysis
A detailed review of how the Company's assets have been invested is contained
in the Investment Manager's Report above. A list of all the Company's
investments is contained in the Portfolio of Investments above. At 31 December
2014, the Company held 38 investments, excluding cash and other net assets,
with the largest representing 3.3 per cent of net assets, thus ensuring that
the Company has a suitable spread of investment risk. A sector and geographical
distribution of investments is shown above.
Results and dividend
The results for the year are set out in the Income Statement and in the
Reconciliation of Movements in Shareholders' Funds below.
For the year ended 31 December 2014, the net revenue return attributable to
Shareholders was £1.8 million (2013: £1.3 million) and the net capital return
attributable to Shareholders was £0.6 million (2013: £25.2 million). Total
Shareholders' funds decreased by 0.4 per cent to £112.1 million
(2013: £112.6 million).
A final dividend for the year ended 31 December 2014 of 3.3p per ordinary share
(2013: 2.7p) has been recommended by the Board. Subject to Shareholder
approval, this dividend will be payable on 29 May 2015 to Shareholders on the
register at the close of business on 8 May 2015. The ex-dividend date will be
7 May 2015.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objective. The key performance
indicators used to measure progress and performance of the Company over time
are established industry measures and are as follows:
Net asset value
In the year to 31 December 2014, the NAV increased by 1.0 per cent from 233.6p
to 236.0p. After taking account of dividends paid in the year of 2.7p, the net
asset value total return was 2.2 per cent. This compares with the total return
of 11.3 per cent from the FTSE All-World Index, adjusted to sterling.
The net asset value total return since the launch of the Company on 15 December 2003
to 31 December 2014 was 170.4 per cent. This was an outperformance against
the total return of 162.4 per cent from the FTSE All-World Index, adjusted to
sterling.
Share price
In the year to 31 December 2014, the Company's share price increased by 2.0 per cent
from 230.0p to 234.6p. The share price total return, taking account of the
2.7p dividend paid in the year, was 3.2 per cent.
Share price premium/discount to NAV
The share price discount to NAV narrowed from 1.5 per cent to 0.6 per cent in
the year to 31 December 2014.
Revenue return per ordinary share
There was an increase in the revenue per share in the year to 31 December 2014
of 37.0 per cent from 2.7p to 3.7p.
Dividend per ordinary share
The Directors are recommending a final dividend of 3.3p per ordinary share.
This represents a 22.2 per cent increase on the prior year dividend of 2.7p. As
detailed in the Chairman's Statement above, the Board has always taken the view
that the investments to be held in the portfolio should be determined entirely
on where the Investment Manager finds the best value rather than on achieving a
particular level of dividend.
Ongoing charges
The ongoing charges ratio was 1.1 per cent (2013: 1.1 per cent) in the year to
31 December 2014.
The longer-term records of the key performance indicators are shown in the
Performance Record below.
Management Agreement
For the period from 1 January 2014 to 15 July 2014, the Company's investments
were managed by Edinburgh Partners under an Investment Management Agreement
dated 16 April 2008, as amended pursuant to the terms of a letter of agreement
between the Company and Edinburgh Partners dated 3 February 2011. The
Investment Manager received a management fee of 0.75 per cent per annum
(payable quarterly in arrears) of the average month-end market capitalisation
up to £100 million and 0.65 per cent of the average month-end market
capitalisation above this figure of the issued ordinary shares (excluding
treasury shares) during the relevant calendar quarter, plus an administration
fee (£123,000 per annum) payable quarterly in arrears and adjusted annually in
line with changes in the Retail Price Index. The Company also paid the
Investment Manager £25,000 per annum in respect of marketing-related services.
As detailed in the Chairman's Statement above, on 16 July 2014, the Company
appointed Edinburgh Partners AIFM Limited as the Company's AIFM on the terms,
and subject to the conditions, of a new management agreement (the "Management
Agreement") between the Company and the AIFM. Edinburgh Partners AIFM Limited
has been approved as an AIFM by the UK's Financial Conduct Authority (the
"FCA").
The existing management agreement between the Company and Edinburgh Partners,
which is not authorised as an AIFM, has been terminated. Edinburgh Partners has
been appointed by the AIFM as Investment Manager to the Company pursuant to a
delegation agreement, so there has been no change to the day-to-day management
arrangements.
The arrangements in respect of the management fee and notice period remain
unchanged, except that the management and administration fees which were
previously paid on a quarterly basis are now payable on a monthly basis. The
Company continues to pay the Investment Manager £25,000 per annum in respect of
marketing-related services.
During the year, the Company had an investment in the Edinburgh Partners
Prospect Fund which is managed by Edinburgh Partners, as detailed in note 9 of
the Financial Statements below. No management fee was charged by Edinburgh
Partners to the Company in relation to its investment in the Edinburgh Partners
Prospect Fund during the year ended 31 December 2014. The Company's investment
in the Edinburgh Partners Prospect Fund was sold on 25 November 2014.
The Management Agreement may be terminated by either party giving 12 months'
written notice. No additional compensation is payable to the AIFM on the
termination of this agreement other than the fees payable during the notice
period. No performance fee will be paid. Further details relating to the
Management Agreement are detailed in note 3 of the Financial Statements.
The AIFM is required to make disclosures relating to the total remuneration
paid by the AIFM in respect of the AIFM's first relevant reporting period, the
year ending 29 February 2016, and these will be made available in the AIFM's
Annual Reports and Financial Statements issued after that date. The
remuneration policy of the AIFM is available on request. Accordingly, and in
line with FCA guidance on reporting under AIFMD, no remuneration disclosures
relating to the AIFM have been included in this Annual Report and Financial
Statements for the year ended 31 December 2014.
Continuing appointment of the Investment Manager
The Board keeps the performance of the AIFM under continual review. As the AIFM
has delegated the investment management function to Edinburgh Partners, the
performance of the Investment Manager is also regularly reviewed. The Board,
through delegation to the Audit and Management Engagement Committee (the
"Committee"), has considered the performance of the AIFM and the terms of its
engagement. It is the opinion of the Directors that the continuing appointment
of the AIFM on the terms agreed is in the interests of Shareholders as a whole.
This is because the investment performance since the launch of the Company is
good relative to that of the markets in which the Company invests and because
the remuneration of the AIFM is fair both in absolute terms and compared to
that of managers of comparable investment companies. The Directors believe that
by paying the management fee calculated on a market capitalisation basis,
rather than a percentage of assets basis, the interests of the AIFM are more
closely aligned with those of Shareholders.
Risk management by the AIFM
As required under the AIFMD, the AIFM has established and maintains a permanent
and independent risk management function to ensure that there is a
comprehensive and effective risk management policy in place and to monitor
compliance with risk limits. This risk policy covers the risks associated with
the management of the investment portfolio, and the AIFM reviews and approves
the adequacy and effectiveness of the policy on at least an annual basis,
including the risk management processes and controls and limits for each risk
area.
The AIFM sets risk limits that take into account the risk profile of the
Company's investment portfolio, as well as its investment objectives and
strategy. The AIFM monitors the risk limits, including leverage, and
periodically assesses the portfolio's sensitivity to key risks.
The AIFM reviews risk limit reports at regular meetings of its Risk Committee.
Principal risks and uncertainties
The Board considers that the following are the principal risks associated with
investing in the Company: investment and strategy risk, discount volatility
risk, market risk, liquidity risk, credit risk, interest rate risk, foreign
currency risk, gearing risk, regulatory risk, operational risk and financial
risk. An explanation of these risks and how they are managed and the policy and
practice with regards to financial instruments are contained in note 20 below.
The Board, through delegation to the Committee, undertakes an annual assessment
and review of all the risks stated above and in note 20 of the Financial
Statements below, together with a review of any new risks which may have arisen
during the year. These risks are formalised within the Company's risk
assessment matrix.
Leverage
Leverage is defined in the AIFMD as any method by which the Company increases
its exposure, whether through borrowing of cash or securities, or leverage
embedded in derivative positions or by any other means. The Company has not
used any derivative instruments during the year ended 31 December 2014.
In accordance with the detailed requirements of the AIFMD, leverage has been
measured in terms of the Company's exposure, and is expressed as a ratio of net
asset value. The AIFMD requires this ratio to be calculated in accordance with
both the Gross Method and the Commitment Method. Details of these methods of
calculation can be found by referring to the AIFMD or to the guidance published
in September 2014 by the AIC. The main difference between the two methods is
that the Commitment Method enables instruments to be netted off to reflect
hedging arrangements and the exposure is effectively reduced.
The AIFMD introduced a requirement for the AIFM to set maximum levels of
leverage for the Company. The Company's AIFM has set a maximum limit of 1.25
for both the Gross and Commitment Methods of calculating leverage. However,
the AIFM anticipates that the figures are likely to be lower than this under
normal market conditions. At 31 December 2014, the Company's Gross ratio was
0.93 and its Commitment ratio was 1.00. In accordance with the AIFMD, any changes
to the maximum level of leverage set by the Company will be communicated to
Shareholders.
Depositary agreement
The Board has appointed Northern Trust Global Services Limited to act as its
depositary (the "Depositary") under an agreement dated 22 July 2014 (the
"Depositary Agreement"). The Depositary is authorised by the Prudential
Regulation Authority and regulated by the FCA and the Prudential Regulation
Authority. Custody services, which were previously supplied by The Bank of New
York Mellon, are being provided by The Northern Trust Company (as a delegate of
the Depositary). A fee of 0.01% per annum of the net assets of the Company,
plus fees in relation to safekeeping and other activities undertaken to
facilitate the investment activity of the Company are payable to the
Depositary. The Company and the Depositary may terminate the Depositary
Agreement at any time by giving six months' written notice. The Depositary may
only be removed from office when a new depositary is appointed by the Company.
Main trends and future development
A review of the main features of the year ended 31 December 2014 and the
outlook for the coming year can be found in the Chairman's Statement and the
Investment Manager's Report above. The Board's main focus is on the investment
return and approach, attention is paid to the integrity and success of the
investment approach and on factors which may have an impact on this approach.
Human rights, employees and community issues
The Board recognises the requirement under Section 414C of the Act to detail
information about human rights, employees and community issues; including
information about any policies it has in relation to these matters and the
effectiveness of these policies. These requirements do not apply to the Company
as it has no employees, all the Directors are non-executive and it has
outsourced all its functions to third party service providers; the Company has
therefore not reported further in respect of these provisions.
Gender diversity
As at 31 December 2014, the Board of Directors of the Company comprised four
male Directors.
Social, environmental and ethical policy
The Company seeks to invest in companies that are well managed, with high
standards of corporate governance. The Board believes this creates the proper
conditions to enhance long-term value for Shareholders. The Company adopts a
positive approach to corporate governance and engagement with companies in
which it invests.
In pursuit of the above objective, the Board believes that proxy voting is an
important part of the corporate governance process and considers seriously its
obligation to manage the voting rights of companies in which it is invested. It
is the policy of the Company to vote, as far as is practicable, at all
shareholder meetings of investee companies. The Company follows the relevant
applicable regulatory and legislative requirements in the UK, with the guiding
principles being to make proxy voting decisions which favour proposals that
will lead to maximising Shareholder value while avoiding any conflicts of
interest. To this end, voting decisions are taken on a case-by-case basis, with
the key issues on which the AIFM focuses being corporate governance, including
disclosure and transparency, board composition and independence, control
structures, remuneration and social and environmental issues.
The day-to-day management of the Company's investment portfolio has been
delegated by the AIFM to the Company's Investment Manager, Edinburgh Partners,
which has an Environmental, SRI and Corporate Governance ("ESG") policy in
place. The ESG policy statement, which can be found on the website at
www.edinburghpartners.com, describes the manner in which the principles of the
UK Stewardship Code are incorporated within the investment process.
The assessment of the quality of investee companies in relation to
environmental considerations, socially responsible investment and corporate
governance is embedded in the Investment Manager's stock selection process.
Teddy Tulloch
Chairman
18 March 2015
Past performance is not a guide to future performance.
EXTRACTS FROM THE DIRECTORS' REPORT
Share capital
At 31 December 2014, the Company's issued share capital comprised 64,509,642
ordinary shares, of which 16,981,917 ordinary shares were held in treasury.
At general meetings of the Company, one vote is attached to each ordinary share
in issue. Own shares held in treasury do not carry voting rights. The total
voting rights of the Company at 31 December 2014 were 47,527,725 ordinary
shares.
Issue of shares
On 11 October 2005, the Company applied for a block listing of 1,300,000
ordinary shares. As at 31 December 2014, and at the date of signing this
report, a balance of 745,830 shares may be issued under this block listing.
No shares were issued during the year.
Purchase of shares
During the year ended 31 December 2014, the Company purchased in the market
675,000 ordinary shares (with a nominal value of £6,750) for treasury, at a
total cost of £1,520,000. This represented 1.05 per cent of the issued share
capital at 31 December 2013. During the year ended 31 December 2014, no shares
were purchased for cancellation.
The total number of own shares held in treasury as at 31 December 2014,
including those shares bought back in prior accounting periods, totalled
16,981,917 ordinary shares. The Board has not set a limit on the number of
shares that can be held in treasury at any one time. The maximum number of own
shares held in treasury during the year was 16,981,917 ordinary shares (with a
nominal value of £169,819) representing 26.32 per cent of the issued share
capital at the time they were held in treasury.
Sale of shares from treasury
No shares were sold from treasury during the year ended 31 December 2014.
Subsequent to the year end of 31 December 2014 and up to 18 March 2015, the
date of signing this report, the Company sold in the market 725,000 ordinary
shares (with a nominal value of £7,250) from treasury, representing 1.1 per
cent of the issued share capital as at 31 December 2014, for a total
consideration of £1,748,000. The shares were sold at a premium to the
prevailing net asset value. Holding shares in treasury enables a company to
issue shares cost effectively that might otherwise have been cancelled.
Going concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Strategic
Report above. In addition, notes 20 and 21 to the Financial Statements include
the Company's objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments; and
its risk exposure. The Company's principal risks are investment and strategy
risk, discount volatility risk, market risk, liquidity risk, credit risk,
interest rate risk, foreign currency risk, gearing risk, regulatory risk,
operational risk and financial risk. The Company's assets consist principally
of a diversified portfolio of listed equity shares, which in most circumstances
are realisable within a short period of time and exceed its liabilities by a
significant amount.
After due consideration, the Directors have concluded that the Company has
adequate resources to continue in operational existence for the foreseeable
future. For this reason, they have adopted the going concern basis in preparing
the Financial Statements.
MANAGEMENT REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO
THE ANNUAL REPORT AND FINANCIAL STATEMENTS
Management report
Listed companies are required by the Financial Conduct Authority's Disclosure
and Transparency Rules (the "Rules") to include a management report within
their annual report and financial statements.
The information required to be included in the management report for the
purpose of these Rules is included in the Strategic Report, including the
Chairman's Statement and the Investment Manager's Report, above. Therefore no
separate management report has been included.
Statement of Directors' responsibilities in relation to the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial period. Under that law, they have elected to prepare the Financial
Statements in accordance with UK Accounting Standards. Under company law, the
Directors must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and
of the profit or loss of the Company for that period.
In preparing these Financial Statements, the Directors are required to:
● select suitable accounting policies and then apply them consistently;
● make judgements and estimates that are reasonable and prudent;
● state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the Financial Statements;
and
● prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its Financial Statements comply with the Act and
include the information required by the Listing Rules of the FCA. They have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with that law and those
regulations.
The Directors, to the best of their knowledge, state that:
● the Financial Statements, prepared in accordance with UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit of the Company;
● the Strategic Report and the Directors' Report include a fair review of the
development and performance of the business and the position of the Company
together with a description of the principal risks and uncertainties that it
faces; and
● the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website. The work
carried out by the Auditor does not include consideration of these matters and,
accordingly, the Auditor accepts no responsibility for any changes that may
have occurred to the Financial Statements since they were initially presented
on the website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
On behalf of the Board
Teddy Tulloch
Chairman
18 March 2015
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2013 and 31 December 2014
but is derived from those accounts. Statutory accounts for the year ended
31 December 2013 have been delivered to the Registrar of Companies, and those for
the year ended 31 December 2014 will be delivered in due course. The Auditor
has reported on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the Auditor drew attention by way
of emphasis without qualifying their report and (iii) did not contain a
statement under Section 498 (2) or (3) of the Act. The text of the Auditor's
report can be found in the Company's full Annual Report and Financial
Statements at www.epgot.com.
INCOME STATEMENT
for the year ended 31 December 2014
2014 2013
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
at fair value 9 - 429 429 - 24,716 24,716
Foreign exchange
gains on capital items - 176 176 - 448 448
Income 2 3,227 - 3,227 2,711 - 2,711
Management fee 3 (803) - (803) (757) - (757)
Other expenses 4 (393) - (393) (391) - (391)
Net return before
finance costs and
taxation 2,031 605 2,636 1,563 25,164 26,727
Finance costs 5 (35) - (35) (77) - (77)
Net return before
taxation 1,996 605 2,601 1,486 25,164 26,650
Taxation 6 (222) - (222) (154) - (154)
Net return after
taxation 1,774 605 2,379 1,332 25,164 26,496
pence pence pence pence pence pence
Return per ordinary
share 8 3.7 1.3 5.0 2.7 51.7 54.4
All revenue and capital items in the above statement derive from continuing
operations.
The total column of this statement is the profit and loss account of the
Company. The revenue and capital columns are prepared under guidance published
by the AIC.
A separate Statement of Comprehensive Income has not been prepared as all such
gains and losses are included in the Income Statement.
Dividend information
A final dividend for the year ended 31 December 2014 of 3.3p per ordinary share
(2013: 2.7p) has been recommended by the Board. Subject to Shareholder
approval, this dividend will be payable on 29 May 2015 to Shareholders on the
register at the close of business on 8 May 2015. The ex-dividend date will be
7 May 2015. Based on 48,252,725 ordinary shares, being the number of ordinary
shares in issue (excluding shares held in treasury) on 18 March 2015, the date
of signing this report, the total dividend payment will amount to £1,592,000.
Dividends are accounted for in the period in which they are paid. Further
information on dividend distributions can be found in note 7 of these Financial
Statements below.
The notes form part of these Financial Statements.
BALANCE SHEET
as at 31 December 2014
2014 2013
Note £'000 £'000
Fixed asset investments
Investments at fair value through
profit or loss 9 104,368 115,443
Current assets
Debtors 11 200 121
Cash at bank and short-term deposits 7,820 1,079
8,020 1,200
Creditors - amounts falling due within
one year
Creditors 12 245 372
Loans 13 - 3,691
245 4,063
Net current assets/(liabilities) 7,775 (2,863)
Net assets 112,143 112,580
Capital and reserves
Called-up share capital 14 645 645
Capital redemption reserve 14 14
Special reserve 67,309 68,829
Capital reserve 40,981 40,376
Revenue reserve 3,194 2,716
Total Shareholders' funds 112,143 112,580
pence pence
Net asset value per ordinary share 16 236.0 233.6
These Financial Statements were approved and authorised for issue by the Board
of Directors of EP Global Opportunities Trust plc on 18 March 2015 and were
signed on its behalf by:
Teddy Tulloch
Chairman
Registered in Scotland No. 259207
The notes form part of these Financial Statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2014
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Year ended 31 December 2014
At 31 December 2013 645 14 68,829 40,376 2,716 112,580
Net return after taxation
for the year - - - 605 1,774 2,379
Dividends paid - - - - (1,296) (1,296)
Share purchases for treasury - - (1,520) - - (1,520)
At 31 December 2014 645 14 67,309 40,981 3,194 112,143
Year ended 31 December 2013
At 31 December 2012 645 14 72,615 15,212 3,280 91,766
Net return after taxation
for the year - - - 25,164 1,332 26,496
Dividends paid - - - - (1,896) (1,896)
Share purchases for treasury - - (3,786) - - (3,786)
At 31 December 2013 645 14 68,829 40,376 2,716 112,580
The notes form part of these Financial Statements.
CASH FLOW STATEMENT
for the year ended 31 December 2014
2014 2013
Note £'000 £'000
Operating activities
Investment income received 3,167 2,811
Management fees paid (868) (719)
Administration fees paid (133) (111)
Other expenses paid (271) (280)
Taxation paid (250) (154)
Net cash inflow from operating activities 17 1,645 1,547
Investing activities
Purchases of investments (32,275) (49,800)
Sales of investments 43,747 53,571
Exchange losses on settlement (42) (42)
Net cash inflow from investing activities 11,430 3,729
Net cash inflow before financing 13,075 5,276
Financing activities
Shares purchased for treasury (1,520) (4,259)
Interest paid (45) (79)
Equity dividend paid 7 (1,296) (1,896)
Net cash outflow from financing (2,861) (6,234)
Increase/(decrease) in cash 18 10,214 (958)
The notes form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2014
1. Accounting policies
Statement of compliance
EP Global Opportunities Trust plc is a company incorporated in Scotland. The
Company is registered as a public limited company and is an investment company
within the terms of section 833 of the Act. The registered office is detailed
below. The nature of the Company's operations and its principal activities are
set out in the Strategic Report above.
The Company's Financial Statements have been prepared in compliance with
Financial Reporting Standard ("FRS") 102 as it applies to the Financial
Statements of the Company for the year ended 31 December 2014. The Company
early adopted FRS 102 as at 1 January 2013. The transition to FRS 102 had no
impact on the previous reported financial position and financial performance.
The Financial Statements are prepared on a going concern basis and in
accordance with the Act and with the AIC Statement of Recommended Practice
issued in January 2009 relating to the Financial Statements of Investment Trust
Companies and Venture Capital Trusts ("SORP"). Where presentational guidance
set out in the SORP is consistent with FRS 102, the Directors have sought to
prepare the Financial Statements on a consistent basis compliant with the
recommendations of the SORP. All of the Company's activities are continuing.
The comparative figures for the Financial Statements are for the year ended
31 December 2013. The format of the comparative disclosures has been amended to be
consistent with the current year format of presentation.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. The Company primarily invests
in listed companies.
Income recognition
Dividend and other investment income is included as revenue on the ex-dividend
date, the date the Company's right to receive payment is established. Deposit
interest and underwriting commission receivable is included on an accruals
basis.
Dividends are accounted for on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from overseas
companies are shown gross of withholding tax.
Expenses and finance costs
All management expenses and finance costs are accounted for on an accruals
basis. All operating expenses and finance costs are charged through the revenue
account in the Income Statement except costs that are incidental to the
acquisition or disposal of investments, which are charged to the capital
account in the Income Statement. Finance costs are debited using the effective
interest rate method. Transaction costs are included within the gains and
losses on investment sales, as disclosed in the Income Statement.
Investments
All investments held by the Company are classified as 'fair value through
profit or loss'. Investments are initially recognised at cost, being the fair
value of the consideration given.
After initial recognition, investments are measured at fair value, with changes
in the fair value of investments and impairment of investments recognised in
the Income Statement and allocated to capital. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the Balance Sheet date, without adjustment for
transaction costs necessary to realise the asset. Unlisted investments will be
valued by the Directors at fair value, using the guidelines on valuation
published by the International Private Equity and Venture Capital Association
("IPEVC Valuation Guidelines"). This represents the Directors' view of the
amount for which an asset could be exchanged between knowledgeable willing
parties in an arm's length transaction.
Foreign currency
The Financial Statements have been prepared in sterling, rounded to the nearest
£'000, which is the functional and reporting currency of the Company. Sterling
is the currency of the primary economic environment in which the Company
operates.
Transactions denominated in foreign currencies are converted to sterling at the
actual exchange rate as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at
the rate of exchange at the Balance Sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of the transaction is included
as an exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is of a capital or revenue nature.
Taxation
The charge for taxation is based on the net revenue for the year and takes into
account taxation deferred or accelerated because of timing differences between
the treatment of certain items for accounting and taxation purposes. Full
provision for deferred taxation is made under the liability method, without
discounting, on all timing differences between taxable profits and total
comprehensive income that have arisen but not been reversed by the Balance
Sheet date, unless such provision is not permitted by FRS 102. Deferred tax
assets are only recognised if it is considered more likely than not that there
will be suitable profits from which the future reversal of the underlying
timing differences be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the
Financial Statements which are capable of reversal in one or more subsequent
periods.
Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet comprise cash at bank and
short-term deposits with an original maturity date of three months or less.
Short-term debtors and creditors
Debtors and creditors with no stated interest rate and receivable within one
year are recorded at transaction price. Any losses arising from impairment are
recognised in the Income Statement in other operating expenses.
Dividends payable to Shareholders
Final dividends are recognised as a liability in the period in which they have
been approved by Shareholders in a general meeting. Interim dividends are
recognised as a liability in the period in which they have been declared and
paid.
Loans
All interest-bearing loans and borrowings which are basic financial instruments
are initially recognised at the sterling present value of cash payable to the
bank (including interest). After initial recognition, they are measured at
amortised cost using the effective interest rate method. The effective interest
rate amortisation is included in finance costs in the Income Statement. Loans
are revalued to the sterling equivalent using exchange rates at the appropriate
date, with the gain or loss being charged through the revenue account in the
Income Statement.
Borrowings that are payable within one year shall be measured at the
undiscounted amount of the cash or other consideration expected to be paid.
Own shares held in treasury
From time to time, the Company buys back shares and holds them in treasury for
potential sale at a later date or for cancellation. The consideration paid and
received for these shares is accounted for in Shareholders' funds and, in
accordance with the SORP, the cost has been allocated to the Company's special
reserve. The cost of shares sold from treasury is calculated by taking the
average cost of shares held in treasury at the time of sale. Any difference
between the proceeds from shares sold from treasury and the average cost is
taken to share premium.
Judgements and key sources of estimation uncertainty
The preparation of the financial statements requires the Company to make
judgements, estimates and assumptions that affect amounts reported for assets
and liabilities as at the Balance Sheet date and the amounts reported for
revenues and expenses during the year. The nature of estimation means that the
actual outcomes could differ from those estimates, possibly significantly. The
judgements relate to the unlisted investment where there is no appropriate
market price.
Reserves
Capital reserve
The following are accounted for in this reserve:
• gains and losses on the realisation of investments;
• realised exchange differences of a capital nature;
• net movement arising from changes in the fair value of investments; and
• expenses, together with related taxation effect, charged to this account in
accordance with the above policies.
Share premium
This reserve records the amount above the nominal value received for shares
sold, less transaction costs.
Special reserve
The special reserve was created by a reduction in the share premium account by
order of the High Court. It can be used for the repurchase of the Company's
ordinary shares.
In accordance with the SORP, the consideration paid for shares bought into and
held in treasury is shown as a deduction from the special reserve.
Capital redemption reserve
The capital redemption reserve accounts for amounts by which the issued capital
is diminished through the repurchase of the Company's own shares.
2. Income
2014 2013
£'000 £'000
Income from investments
UK net dividend income* 859 588
Overseas dividend income 2,368 2,122
Liquidity fund income - 1
3,227 2,711
Total income comprises
Dividends 3,227 2,711
3,227 2,711
* Includes income of £428,000 (2013: £214,000) from the unlisted investment in
Edinburgh Partners.
3. Management fee
2014 2013
£'000 £'000
Management fee - AIFM 373 -
Management fee - Investment Manager 430 757
803 757
Edinburgh Partners was appointed to provide management, marketing and general
administrative services to the Company with effect from 15 December 2003 until
15 July 2014. Under the agreement, as amended on 3 February 2011, Edinburgh
Partners was entitled to a fee paid quarterly in arrears, at the rate of
0.75 per cent per annum of the equity market capitalisation of the Company up to
£100,000,000 and at a rate of 0.65 per cent per annum of the equity market
capitalisation which exceeds this amount. No performance fee was payable during
this period.
During the year ended 31 December 2014, the management fees payable to
Edinburgh Partners totalled £430,000 (2013: £757,000). At 31 December 2014,
there was £nil outstanding payable to Edinburgh Partners (2013: £202,000)
in relation to management fees.
In addition, the Investment Manager received an administration fee of £67,000
as detailed in note 4 (2013: £120,000). At 31 December 2014, there was £nil
outstanding (2013: £30,000). The administration fee now incorporates a number
of costs previously paid directly by the Company to an external service
provider.
In addition to the management fee, in the year ended 31 December 2014, the
Company paid Edinburgh Partners £25,000 (2013: £25,000) for marketing-related
services. At 31 December 2014, there was £6,000 outstanding to Edinburgh
Partners (2013: £6,000) in relation to marketing-related services. This cost is
included in other expenses as detailed in note 4 of these Financial Statements.
With effect from 16 July 2014, the Company appointed Edinburgh Partners AIFM
Limited as the Company's AIFM. Under the Management Agreement, the AIFM is
entitled to a fee paid monthly in arrears at the rate of 0.75 per cent per annum
of the equity market capitalisation of the Company up to £100,000,000 and at a
rate of 0.65 per cent per annum of the equity market capitalisation which exceeds
this amount. No performance fee will be paid.
During the year ended 31 December 2014, the management fees payable to the AIFM
totalled £373,000 (2013: £nil). At 31 December 2014, there was £137,000
outstanding payable to the AIFM (2013: £nil) in relation to management fees.
During the year ended 31 December 2014, the administration fees payable to the
AIFM, as detailed in note 4, totalled £56,000 (2013: £nil). At 31 December
2014, there was £21,000 outstanding payable to the AIFM (2013: £nil) in
relation to administration fees.
4. Other expenses
2014 2013
£'000 £'000
Administration fee - AIFM 56 -
Administration fee - Investment Manager 67 120
Auditor's remuneration (excluding VAT) for:
Audit 19 18
Taxation services - non-audit services 3 6
Directors' remuneration 71 73
Other 177 174
393 391
Directors' remuneration and outstanding amounts are shown in the Directors'
Remuneration Report in the full Annual Report and Financial Statements.
5. Finance costs
2014 2013
£'000 £'000
Loan interest paid 19 53
Loan non-utilisation fee 12 16
Loan arrangement fee 4 8
35 77
6. Taxation
a) Analysis of charge in year
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current tax
Overseas tax suffered 222 - 222 154 - 154
222 - 222 154 - 154
b) The current taxation charge for the year ended 31 December 2014 is lower
than the theoretical rate of corporation tax in the UK of 21.5 per cent
(2013: 23.25 per cent) (NB The standard rate of corporation tax was
23.0 per cent from 1 April 2013 and 21.0 per cent from 1 April 2014.
Previously it had been 24.0 per cent from 1 April 2012). The differences are
explained below:
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before
taxation 1,996 605 2,601 1,486 25,164 26,650
Theoretical tax at UK
corporation tax rate
of 21.5 per cent
(2013: 23.25 per cent) 429 130 559 346 5,851 6,197
Effects of:
- UK dividends that
are not taxable (185) - (185) (137) - (137)
- Foreign dividends
that are not taxable (489) - (489) (433) - (433)
- Non-taxable
investment (gains)/
losses - (130) (130) - (5,851) (5,851)
- Unrelieved excess
expenses 243 - 243 224 - 224
- Disallowable
expenses - - - (1) - (1)
- Double tax relief 2 - 2 1 - 1
- Overseas tax
suffered 222 - 222 154 - 154
Total tax 222 - 222 154 - 154
At 31 December 2014, the Company had unrelieved losses of £3,575,000
(31 December 2013: £2,272,000). It is unlikely that the Company will generate
sufficient taxable income in the future to use these expenses to reduce future
tax charges and therefore no deferred tax asset has been recognised.
In addition, due to the Company's status as an investment trust and the
intention to continue meeting the conditions required to obtain approval as an
investment trust in the foreseeable future, the Company has not provided
deferred tax on any capital gains and losses arising on the revaluation or
disposal of investments.
7. Dividends
2014 2013
£'000 £'000
Declared and paid
2013 final dividend of 2.7p per ordinary share paid in May 2014
(2012: final dividend of 3.9p paid in May 2013) 1,296 1,896
Net revenue return after taxation 1,774 1,332
Proposed
2014 final dividend of 3.3p (2013: final dividend of 2.7p)
per ordinary share 1,592 1,301
1,592 1,301
The Directors recommend a final dividend for the year of 3.3p per ordinary
share (2013: final dividend of 2.7p). Subject to approval by Shareholders at
the Annual General Meeting to be held on 29 April 2015, this dividend will be
payable on 29 May 2015 to Shareholders on the register at the close of business
on 8 May 2015. The ex-dividend date will be 7 May 2015. Based on 48,252,725
ordinary shares, being the number of ordinary shares in issue (excluding shares
held in treasury) at 18 March 2015, the date of signing this report, the total
dividend payment will amount to £1,592,000.
8. Return per ordinary share
2014 2013
Net Ordinary Per Net Ordinary Per
return shares* share return shares* share
£'000 pence £'000 pence
Revenue return after
taxation 1,774 47,899,423 3.7 1,332 48,688,710 2.7
Capital return after
taxation 605 47,899,423 1.3 25,164 48,688,710 51.7
Total return 2,379 47,899,423 5.0 26,496 48,688,710 54.4
* Weighted average number of ordinary shares, excluding shares held in
treasury, in issue during the year.
9. Investment
2014 2013
£'000 £'000
Listed investments 102,918 113,993
Unlisted investments 1,450 1,450
104,368 115,443
2014 2013
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of investment portfolio movements
Opening book cost 214 101,636 101,850 94,970
Opening investment holding gains/(losses) 1,236 12,357 13,593 (504)
Opening valuation 1,450 113,993 115,443 94,466
Movements in the year:
Purchases at cost - 32,243 32,243 49,832
Sales - proceeds - (43,747) (43,747) (53,571)
- realised gains on sales - 7,155 7,155 10,619
(Decrease)/increase in investment
holding gains - (6,726) (6,726) 14,097
Closing valuation 1,450 102,918 104,368 115,443
Closing book cost 214 97,287 97,501 101,850
Closing investment holding gains 1,236 5,631 6,867 13,593
Closing valuation 1,450 102,918 104,368 115,443
Previously included in the Company's listed investments at 31 December 2013 at
a value of £1,217,000 was an investment in the Edinburgh Partners Prospect Fund
which was sold on 25 November 2014 for proceeds of £1,178,000. The investment
had been purchased at a cost of £1,037,000 on 19 June 2013.
The unlisted investment detailed above is the 71,294 (2013: 71,294) shares in
Edinburgh Partners.
2014 2013
Unlisted Listed Total Total
£'000 £'000 £'000 £'000
Analysis of capital gains and losses
Realised gains on sales - 7,155 7,155 10,619
(Decrease)/increase in investment
holding gains - (6,726) (6,726) 14,097
Gains on investments - 429 429 24,716
Fair value hierarchy
In accordance with FRS 102, the Company must disclose the fair value hierarchy
of financial instruments.
The different levels of the fair value hierarchy are as follows:
a. Quoted price for an identical asset in an active market.
b. The price of a recent transaction for an identical asset as long as there
has not been a significant change in economic circumstances or a
significant lapse of time since the transaction took place.
c. A valuation technique.
All of the Company's financial instruments fall into level a, except its
investment in Edinburgh Partners which falls into level c and is fair valued
using an unquoted price that is derived from inputs that are not based on
observable market data by using recognised valuation methodologies, in
accordance with IPEVC Valuation Guidelines. A reconciliation of the fair value
movements of level c investments is shown in the unlisted column of the table
above.
Transaction costs
During the year, the Company incurred transaction costs of £70,000
(2013: £82,000) and £48,000 (2013: £71,000) on purchases and sales of investments
respectively. These amounts are included in gains on investments at fair value,
as disclosed above in the Income Statement of these Financial Statements.
10. Significant holdings
The Company had no holdings of 3.0 per cent or more of the share capital of any
portfolio companies.
11. Debtors
2014 2013
£'000 £'000
Dividends receivable 146 87
Prepayments and accrued income 17 25
Taxation recoverable 37 9
200 121
12. Creditors: amounts falling due within one year
2014 2013
£'000 £'000
Due to brokers - 32
Loan interest payable - 10
Other creditors and accruals 245 330
245 372
13. Loans
2014 2013
£'000 £'000
Revolving credit - Japanese yen facility - 3,691
- 3,691
The Company had entered into a £10,000,000 secured multi-currency revolving
credit facility with Scotiabank Europe PLC. The amount drawn down on this loan
was repaid on 1 July 2014 and the facility was cancelled on 3 July 2014. As at
the previous year end, 31 December 2013, £3,691,000 had been drawn down under
this facility. Interest on any amounts drawn down under this facility were
chargeable at a margin of 0.85 per cent (2013: 1.10 per cent) per annum above
the British Bankers' Association Interest Settlement Rate at the time of draw
down.
14. Share capital
Number Number
of shares 2014 of shares 2013
Ordinary 1p £'000 Ordinary 1p £'000
Allotted, called-up and fully
paid:
At 1 January 64,509,642 645 64,509,642 645
At 31 December 64,509,642 645 64,509,642 645
Duration of the Company
The Company does not have a termination date or the requirement for any
periodic continuation vote.
15. Own shares held in treasury
Details of own shares purchased for and sold from treasury are shown below:
2014 2013
Number of Number of
shares shares
At 1 January 16,306,917 14,381,917
Shares purchased for treasury 675,000 1,925,000
At 31 December 16,981,917 16,306,917
During the year ended 31 December 2014, 675,000 shares (2013: 1,925,000) were
purchased for treasury at a cost of £1,520,000 (2013: £3,786,000). No shares
were sold from treasury during the year ended 31 December 2014 (2013: nil).
16. Net asset value per ordinary share
The NAV, calculated in accordance with the Articles of Association, is as
follows:
2014 2013
pence pence
Ordinary share 236.0 233.6
The NAV is based on net assets of £112,143,000 (2013: £112,580,000) and on
47,527,725 (2013: 48,202,725) ordinary shares, being the number of ordinary
shares, excluding shares held in treasury, in issue at the year end.
17. Reconciliation of net return before finance costs to net cash inflow from
operating activities
2014 2013
£'000 £'000
Net return before finance costs 2,636 26,727
Net gains on capital items (605) (25,164)
(Decrease)/increase in creditors (85) 47
(Increase)/decrease in debtors and accrued income (79) 93
Taxation (222) (156)
Net cash inflow from operating activities 1,645 1,547
18. Reconciliation of net cash flow to movement in net cash/(debt)
2014 2013
£'000 £'000
Increase/(decrease) in cash for the year 10,214 (958)
Realised exchange gains 218 491
10,432 (467)
Net debt at 1 January (2,612) (2,145)
Net cash/(debt) at 31 December 7,820 (2,612)
At Exchange At
1 January Cash gains/ 31 December
2014 flows (losses) 2014
£'000 £'000 £'000 £'000
Cash at bank 1,079 6,520 221 7,820
Loans (3,691) 3,694 (3) -
(2,612) 10,214 218 7,820
At Exchange At
1 January Cash (losses) 31 December
2013 flows /gains 2013
£'000 £'000 £'000 £'000
Cash at bank 2,165 (958) (128) 1,079
Loans (4,310) - 619 (3,691)
(2,145) (958) 491 (2,612)
19. Analysis of financial assets and liabilities
Interest rate and currency profile
The interest rate and currency profile of the Company's financial assets and
liabilities were:
2014 2013
Cash Cash
No flow No flow
interest interest interest interest
rate rate risk rate rate risk
exposure exposure Total exposure exposure Total
£'000 £'000 £'000 £'000 £'000 £'000
Equity shares
Japanese yen 37,449 - 37,449 34,839 - 34,839
Euro 15,752 - 15,752 26,279 - 26,279
Sterling 12,835 - 12,835 10,895 - 10,895
US dollar 12,830 - 12,830 22,701 - 22,701
Swiss franc 8,558 - 8,558 2,807 - 2,807
Hong Kong dollar 6,185 - 6,185 5,661 - 5,661
Singapore dollar 3,239 - 3,239 5,522 - 5,522
Thai baht 2,800 - 2,800 - - -
South Korean won 2,397 - 2,397 2,278 - 2,278
Indonesian rupee 2,323 - 2,323 1,278 - 1,278
Danish krone - - - 3,183 - 3,183
Cash at bank and
short-term deposits
US dollar - 7,665 7,665 - 1,044 1,044
Sterling - 155 155 - 35 35
Debtors
Japanese yen 79 - 79 38 - 38
Euro 18 - 18 5 - 5
Sterling 65 - 65 74 - 74
Swiss franc 19 - 19 - - -
South Korean won 19 - 19 - - -
Norwegian krone - - - 4 - 4
Short-term creditors
Japanese yen - - - (10) - (10)
Sterling (245) - (245) (330) - (330)
Indonesian rupee - - - (32) - (32)
Loans
Japanese yen - - - - (3,691) (3,691)
104,323 7,820 112,143 115,192 (2,612) 112,580
At 31 December 2014, the Company had no financial liabilities other than the
short-term creditors and loans as stated above (2013: £nil). All financial
assets and liabilities of the Company are held at fair value.
20. Risk analysis
Risks
The principal risks the Company faces are:
* Investment and strategy risk * Foreign currency risk
* Discount volatility risk * Gearing risk
* Market risk * Regulatory risk
* Liquidity risk * Operational risk
* Credit risk * Financial risk
* Interest rate risk
The Investment Manager monitors the financial risks affecting the Company on an
ongoing basis within the policies and guidelines determined by the Board. The
Directors receive financial information, which is used to identify and monitor
risk, quarterly. The Company may enter into derivative contracts to manage risk
but has not done so to date. A description of the principal risks the Company
faces is set out below.
Investment and strategy risk
There can be no guarantee that the objective of the Company will be achieved.
The Investment Manager meets regularly with the Board to discuss the portfolio
performance and strategy. The Board receives quarterly reports from the
Investment Manager detailing all portfolio transactions and any other
significant changes in the market or stock outlooks.
Discount volatility risk
The Board recognises that it is in the long-term interests of Shareholders to
reduce discount volatility and believes that the prime driver of discounts over
the longer term is investment performance. The Company is permitted to employ
gearing, a process whereby funds are borrowed principally for the purpose of
purchasing securities should the Board feel that it is appropriate to do so.
The use of gearing can magnify discount volatility.
The Board actively monitors the discount at which the Company's shares trade,
and is committed to using its powers to allot or repurchase the Company's ordinary
shares with a view tomaintaining the middle market price at which the shares trade
at close to the net asset value most recently published by the Company (taking into
account the effect on the net asset value per ordinary share of any rights to which the
shares are trading ex-dividend).
The Board's commitment to allot or repurchase ordinary shares is subject to it
being satisfied that any offer to allot or purchase shares is in the best
interests of Shareholders of the Company as a whole, the Board having the
requisite authority pursuant to the Articles of Association and relevant
legislation to allot or purchase shares, and all other applicable legislative
and regulatory provisions.
During the year ended 31 December 2014, the Company bought back 675,000
(2013: 1,925,000) ordinary shares into treasury.
During the year ended 31 December 2014, the Company sold nil (2013: nil)
ordinary shares from treasury. Subsequent to the year end of 31 December 2014
and up to 18 March 2015, the date of signing this report, the Company sold
725,000 ordinary shares from treasury.
Market riskThe Company is exposed to market risk due to fluctuations in the market prices
of its investments. Market risk arises mainly from uncertainty about future
prices of financial instruments used in the Company's business. It represents
the potential loss the Company might suffer through holding market positions in
the face of price movements. The Investment Manager monitors the prices of
financial instruments held by the Company on an ongoing basis.
The Investment Manager actively monitors market and economic data and reports
to the Board, which considers investment policy on a regular basis. The net
asset value per ordinary share of the Company is issued daily to the London
Stock Exchange and is also available on the Company's website at www.epgot.com.
Details of the Company's investment portfolio as at 31 December 2014 are
disclosed above.
If the investment portfolio valuation fell by 1 per cent from the amount
detailed in the Financial Statements as at 31 December 2014, it would have the
effect, with all other variables held constant, of reducing the total return
before taxation and therefore net assets by £1,044,000 (2013: £1,154,000). An
increase of 1 per cent in the investment portfolio valuation would have an
equal and opposite effect on the total return before taxation and net assets.
Liquidity risk
The Company's policy with regard to liquidity is to ensure continuity of
funding. Short-term flexibility is achieved through cash management.
The Company's assets comprise mainly of readily realisable securities which can
be sold freely to meet funding requirements if necessary. Securities listed on
a recognised stock exchange have been valued at bid prices and exchange rates
ruling at the close of business on 31 December 2014. In certain circumstances,
the market prices at which investments are valued may not represent the
realisable value of those investments, taking into account both the size of the
Company's holding and the frequency with which such investments are traded.
Credit risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the Balance Sheet date.
Investment transactions are carried out with a large number of brokers whose
creditworthiness is reviewed by the Investment Manager. Transactions are
ordinarily undertaken on a delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any transaction entered into by
the Company has delivered on its obligations before any transfer of cash or
securities away from the Company is completed.
Cash is only held at banks and in money market funds that have been identified
by the Board as reputable and of high credit quality. As at 31 December 2014,
The Northern Trust Company London Branch had a long-term rating from Standard
and Poors of AA-.
The maximum exposure to credit risk as at 31 December 2014 was £8,020,000
(2013: £1,200,000). The calculation is based on the Company's credit risk
exposure as at 31 December 2014 and this may not be representative of the year
as a whole.
None of the Company's assets are past due or impaired.
Interest rate risk
The Company's assets and liabilities, excluding short-term debtors and
creditors, may comprise financial instruments which include investments in
fixed interest securities.
Details of the Company's interest rate exposure as at 31 December 2014 are
disclosed above in note 19 of these Financial Statements.
The majority of the Company's assets were non-interest bearing as at
31 December 2014. Surplus cash is invested in liquidity funds.
The Company had entered into a £10,000,000 secured multi-currency revolving
credit facility with Scotiabank Europe PLC which was repaid on 1 July 2014 and
cancelled on 3 July 2014. As at the previous year end, 31 December 2013,
£3,691,000 had been drawn down under this facility. The average interest rate
paid on the amounts drawn down on the facility was 0.94 (2013: 1.25) per cent
per annum.
If interest rates had reduced by 0.25 per cent (2013: 0.25 per cent) from those
obtained as at 31 December 2014 it would have the effect, with all other
variables held constant, of decreasing the total return before taxation and
therefore net assets on an annualised basis by £20,000 (2013: increasing the
total return before taxation and net assets by £7,000 on an annualised basis).
If there had been an increase in interest rates of 0.25 per cent(2013:
0.25 per cent) there would have been an equal and opposite effect in the
total return before taxation and net assets. The calculations are based on
cash at bank, short-term deposits and any borrowings as at 31 December 2014
and these may not be representative of the year as a whole.
The maturity profile of the Company's financial liabilities, including
creditors, is as follows:
As at As at
31 December 31 December
2014 2013
£'000 £'000
In one year or less 245 4,063
245 4,063
Foreign currency risk
The base currency of the Company is sterling. The international nature of the
Company's investment activities gives rise to a currency risk which is inherent
in the performance of its overseas investments. The Company's overseas income
is also subject to currency fluctuations.
It is not the Company's policy to hedge this risk on a continuous basis.
Details of the Company's foreign currency risk exposure as at 31 December 2014
are disclosed above in note 19 of these Financial Statements.
If sterling had strengthened by 1.0 per cent against all other currencies on
31 December 2014, with all other variables held constant, it would have the effect
of reducing the total return before taxation and net assets by £993,000
(2013: £1,019,000). If sterling had weakened by 1.0 per cent against all other
currencies, there would have been an equal and opposite effect on the total
return before taxation and net assets.
Gearing risk
Gearing is used to enhance long-term returns to Shareholders. The Company is
permitted to employ gearing should the Board feel it appropriate to do so up to
a maximum of 25 per cent of total assets.
The use of gearing is likely to lead to volatility in the NAV, meaning that a
relatively small movement either down or up in the value of the Company's total
investments may result in a magnified movement in the same direction of the
NAV. The greater the level of gearing, the greater the level of risk and likely
fluctuation in the share price.
The Company's gearing, which was a secured multi-currency revolving credit
facility, was repaid during the year as disclosed above in note 13 of these
Financial Statements. At the year end, the Company's gearing was 0.0 per cent
(2013: 3.3 per cent).
As a result of entering into this facility, the Company was exposed to interest
rate risk due to fluctuations in the prevailing market rates.
Regulatory risk
Failure to qualify under the terms of sections 1158 and 1159 of the CTA may
lead to the Company being subject to capital gains tax. A breach of the rules
of the UK Listing Authority may result in censure by the FCA and/or the
Company's suspension from listing.
The Board has agreed service levels with the Company Secretary and Investment
Manager which include active and regular review of compliance with these
requirements. These checks are reviewed at each Board meeting.
The Company is also required to comply with the AIFMD. On 16 July 2014, the
Company announced that it had appointed Edinburgh Partners AIFM Limited as its
AIFM and the AIFM is responsible for ensuring compliance with the AIFMD.
Operational risk
There are a number of operational risks associated with the fact that third
parties undertake the Company's administration and custody. The main risk is
that third parties may fail to ensure that statutory requirements, such as
Companies Act and the UK Listing Authority requirements, are met.
The Board regularly receives and reviews management information on third
parties which the Company Secretary compiles. In addition, each of the third
parties provides a copy of its report on internal controls (ISAE 3402, SSAE 16,
or equivalent) to the Board each year.
Financial risk
Inappropriate accounting policies or failure to comply with current or new
accounting standards may lead to a breach of regulations.
The AIFM employs independent administrators to prepare all financial statements
and meets with the independent auditor at least once a year to discuss all
financial matters including appropriate accounting policies.
The Company is a member of the AIC, a trade body intended to promote investment
trusts which also develops best practice for all of its members.
The Board undertakes an annual assessment and review of all the risks stated
above together with a review of any new risks which may have arisen during the
year. These risks are formalised within the Company's risk assessment matrix.
21. Capital management policies
The Company's objective is to provide Shareholders with an attractive real
long-term total return by investing globally in undervalued securities. The
portfolio is managed without reference to the comparison of any stock market
index. In pursuing this objective, the Board has a responsibility for ensuring
the Company's ability to continue as a going concern. This involves the ability
to: issue and buyback share capital within limits set by the Shareholders in
general meeting; borrow monies in the short and long term; and pay dividends to
Shareholders out of current year revenue earnings as well as out of brought
forward revenue reserves.
The Company's capital comprises:
2014 2013
£'000 £'000
Called-up share capital 645 645
Capital redemption reserve 14 14
Special reserve 67,309 68,829
Capital reserve 40,981 40,376
Revenue reserve 3,194 2,716
Total Shareholders' funds 112,143 112,580
The Company's objectives for managing capital are the same as the previous year
and have been complied with throughout the year.
22. Transactions with the AIFM and the Investment Manager
Information with respect to transactions with the AIFM and the Investment
Manager is provided in note 3 of these Financial Statements and in the
Strategic Report above.
Information with respect to income received on the unlisted investment held by
the Company in Edinburgh Partners is provided in note 2 of these Financial
Statements.
PERFORMANCE RECORD
Net
asset Share
value price Share price Revenue Dividend
per per discount to return per per Ongoing
Shareholders' ordinary ordinary net asset ordinary ordinary charges
funds share share value share share ratio(3)
Year ended
31 December
2004(1) £26.1m 116.4p 110.5p 5.1% 0.6p 0.4p 1.7%(4)
2005 £52.2m 156.2p 154.5p 1.1% 1.1p 0.8p 1.5%(4)
2006 £58.8m 172.8p 170.0p 1.6% 2.1p 1.8p 1.2%(4)
2007 £57.7m 177.2p 160.0p 9.7% 2.7p 2.3p 1.1%(4)
2008 £46.4m 150.4p 132.5p 11.9% 3.9p 3.1p 1.1%(4)
2009 £50.7m 175.9p 172.0p 2.2% 2.7p 2.4p 1.0%(4,5)
2010 £51.6m 188.2p 186.8p 0.7% 3.2p 2.8p 1.3%(4)
2011 £95.1m 169.9p 167.0p 1.7% 5.0p 4.2p 0.8%(6)
2012 £91.8m 183.1p 175.5p 4.2% 3.9p 3.9p 1.1%
2013 £112.6m 233.6p 230.0p 1.5% 2.7p 2.7p 1.1%
2014 £112.1m 236.0p 234.6p 0.6% 3.7p 3.3p(2) 1.1%
(1) Period 13 November 2003 to 31 December 2004. The Company commenced operations
on the admission of its shares to trading on the London Stock exchange on
15 December 2003.
(2) Proposed final dividend for the year.
(3) Ongoing charges ratio based on total expenses, excluding finance costs and
certain non-recurring items for the year and average monthly net asset value.
(4) Total expense ratio based on total expenses for the year and average monthly
net asset value.
(5) Total expense ratio 1.3 per cent in 2009 excluding VAT refund.
(6) The total expense ratio would have been 1.0 per cent if investment management
fees of £236,000 had not been waived as a consequence of the merger with Anglo
& Overseas Plc.
Past performance is not a guide to future performance.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at The Bonham Hotel,
35 Drumsheugh Gardens, Edinburgh EH3 7RN on Wednesday, 29 April 2015 at
12.00 noon.
DIRECTORS
Teddy Tulloch (Chairman)
David Hough
David Ross
Giles Weaver
All of the Directors are non-executive and independent of the AIFM and the
Investment Manager.
ALTERNATIVE INVESTMENT FUND MANAGER
Edinburgh Partners AIFM Limited
27-31 Melville Street
Edinburgh
EH3 7JF
INVESTMENT MANAGER
Edinburgh Partners Limited
27-31 Melville Street
Edinburgh
EH3 7JF
National Storage Mechanism
A copy of the full Annual Report and Financial Statements will shortly be
submitted to the National Storage Mechanism ("NSM") and will be available for
inspection at the NSM, which is situated at:
www.morningstar.co.uk/uk/NSM
Enquiries:
Dr Sandy Nairn
Kenneth J Greig
Edinburgh Partners AIFM Limited
Tel: 0131 270 3800
The Company's registered office address is:
27-31 Melville Street
Edinburgh
EH3 7JF
END
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.