Final Results
EP GLOBAL OPPORTUNITIES TRUST plc
28 February 2006
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
HIGHLIGHTS
* The Company's net asset value per Ordinary share increased by 34.2 per cent
to 156.2p
* Share price increased 39.8 per cent to 154.5p, ending the year at a discount
to net asset value slightly over one per cent, compared to approximately 5 per
cent at the end of 2004
* The Board is recommending a doubling of the final dividend to 0.8p per
Ordinary share, payable on 5 May 2006. The ex-dividend date will be 5 April
2006 and the record date will be 7 April 2006
* In November 2005 the Company issued 10,181,930 new Ordinary Shares at a price
of 151.5p via a placing and offer for subscription
* During the year, the Board also exercised its powers to issue new shares at a
premium to net asset value, resulting in a further increase of over 800,000 new
shares in issue
* At 31 December 2005 shareholders' funds had increased to £52.2 million from £
26.1 million at the end of the previous year
* The second annual general meeting of the Company will be held on 19 April
2006
The Directors announce the annual results for the year from 1 January 2005 to
31 December 2005, which were approved by the Directors on 28 February 2006, as
follows:-
INCOME STATEMENT (UNAUDITED)
1 January 2005 to 13 November 2003 to
31 December 2005 31 December 2004 (restated)*
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on - 9,906 9,906 - 4,237 4,237
investments
Foreign exchange - (94) (94) - (61) (61)
losses on capital
items
Dividends and 824 - 824 571 - 571
interest
Investment (241) - (241) (173) - (173)
management fee
Other expenses (242) - (242) (230) - (230)
Net return before 341 9,812 10,153 168 4,176 4,344
taxation
Taxation (68) - (68) (37) - (37)
Return after 273 9,812 10,085 131 4,176 4,307
taxation
Return per Ordinary 1.13p 40.57p 41.70p 0.59p 18.67p 19.26p
share **
* For details of the restatement of the Company's comparative figures please
refer to the notes that accompany this announcement.
** The revenue return per Ordinary share is based on earnings of £273,000
(2004: £131,000) and on 24,186,688 (2004: 22,365,329) Ordinary shares being the
weighted average number of Ordinary shares in issue during the period. The
capital return per Ordinary share is based on net capital gains of £9,812,000
(2004: £4,176,000) and on 24,186,688 (2004: 22,365,329)Ordinary shares being
the weighted average number of Ordinary shares in issue during the period.
All revenue and capital items derive from continuing operations.
The total column of this statement is the profit and loss account of the
Company.
A separate Statement of Recognised Gains and Losses has not been prepared as
all such gains and losses are included in the Income Statement.
BALANCE SHEET (UNAUDITED)
As at As at
31 December 2005 31 December 2004
(restated)*
£'000 £'000
Fixed assets
Investments 49,812 25,389
Current assets
Debtors 112 60
Cash at bank 2,479 826
2,591 886
Creditors - amounts falling due within one 162 145
year
Net current assets 2,429 741
Total net assets 52,241 26,130
Capital and reserves
Called up share capital 334 224
Capital redemption reserve 1 1
Share premium account 17,099 1,092
Special reserve 20,506 20,506
Capital reserve - realised 5,439 393
- unrealised 8,549 3,783
Revenue reserve 313 131
Total Shareholders' funds 52,241 26,130
Net asset value per Ordinary share 156.2p 116.4p
* For details of the restatement of the Company's comparative figures please
refer to the notes that accompany this announcement.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (UNAUDITED)
Note I January 2005 13 November 2003
to 31 December to 31 December
2005 2004
£'000 £'000
Opening shareholders' funds (as 26,077 -
originally stated)
Restatements 2 53 -
Opening shareholders' funds 26,130 -
(restated)
Issue of shares 110 225
Premium on issue of shares 16,350 22,322
Expenses of share issue (343) (646)
Net gains on realisation of 2,858 454
investments
Unrealised appreciation on 7,048 3,783
investments
Exchanges losses on capital items (94) (61)
Purchase of shares for cancellation - (78)
Net revenue return after taxation 273 131
for the year
Dividends paid and declared 3 (91) -
Closing shareholders' funds 52,241 26,130
SUMMARISED STATEMENT OF CASH FLOW (UNAUDITED)
1 January 2005 13 November 2003
to 31 December 2005 to 31 December
2004
£'000 £'000
Net cash inflow from operating 278 153
activities
Investing activities
Purchases of investments (32,538) (26,503)
Sales of investments 17,975 5,414
Exchange losses on settlement (94) (61)
Net cash outflow from investing (14,657) (21,150)
activities
Net cash outflow before financing (14,379) (20,997)
Financing
Proceeds of share issues 16,460 22,547
Expenses of share issues (337) (646)
Purchase of shares for cancellation - (78)
Equity dividends paid (91) -
Net cash inflow from financing 16,032 21,823
Increase in cash 1,653 826
Notes to this announcement:
The above financial information does not constitute statutory financial
statements as defined in Section 240 of the Companies Act 1985. This
information has been prepared on the basis of the accounting policies used in
the statutory accounts of the Company for the year ended 31 December 2004, with
the exception of the changes stated below. The statutory accounts for the year
ended 31 December 2004 received an unqualified audit opinion.
The Company has adopted the Statement of Recommended Practice revised December
2005 regarding the Financial Statements of Investment Trust Companies.
The results for the year ended 31 December 2005 will be circulated to
shareholders in the form of an Annual Report, copies of which will be available
at the Company's registered office, and which will be filed with the Registrar
of Companies.
1. Changes in accounting policies
These Financial Statements have been prepared using new accounting standards
which have been issued to converge UK accounting standards with International
Financial Reporting Standards ('IFRS'). The small effect on the net asset value
of these changes is laid out in the table in note 2. The first change,
Financial Reporting Standard ('FRS ') 21, is to recognise any dividend payable
as a liability only after it has been declared, (a) in the table in note 2. The
second, FRS 26, is to value the portfolio of investments at bid prices rather
than at mid market prices, (b) in the table in note 2.
2. Net asset value per share
The net asset value per Ordinary share is based on total net assets at 31
December 2005 of £52,241,000 (2004: £26,130,000) and on 33,444,010 Ordinary
shares (2004: 22,445,339) being the issued share capital at that date. These
net asset values have been calculated in accordance with the revised accounting
policies set out in note 1 and include current period revenue.
Reconciliation of changes to net asset values resulting from accounting policy
changes:
31 December 2004
£'000 pence
Net asset value as originally stated 26,077 116.2
Increase due to dividend accounting change 90 0.4
(a)
Reduction due to using bid prices (b) (37) (0.2)
Net assets per revised UK GAAP 26,130 116.4
3. Dividends paid
The Company issued a total of 300,000 Ordinary shares prior to the record date
for the final dividend for the period ended 31 December 2004 and therefore
these shareholders were entitled to receive that dividend. The total amount
paid by the Company was £1,000 higher than the original proposed dividend of £
90,000. See note 1 for details of the Company's revised policy relating to
dividends payable to shareholders.
4. Status of the Company
It is the intention of the Directors to conduct the affairs of the Company so
that they satisfy the conditions for approval as an investment trust company
set out in Section 842 of the Income and Corporations Taxes Act 1988.
Chairman's Statement
Results
This is the second Annual Report of EP Global Opportunities Trust and it is
pleasing to be able to report another year of excellent performance, indeed an
even better performance than was achieved in the first year. The net asset
value per share increased by 34.2 per cent to 156.2p at the end of December
2005 from an adjusted 116.4p at the end of the previous year. The net asset
value per share for the end of 2004 was adjusted due to accounting changes.
These changes are a requirement to comply with new accounting standards.
The share price increased by 39.8 per cent to 154.5p. The greater percentage
increase in the share price resulted in it ending the year at a smaller
discount to the net asset value per share than it had been at the end of 2004.
The discount at the end of 2005 was slightly over one per cent while, at the
end of 2004, the shares were quoted at a discount of approximately five per
cent and at various times during the year the shares stood at a small premium
to net asset value.
Investment performance
It was a good year for equity investment. The FT All-Share Index gained 18.1
per cent in 2005 (total return 22.0 per cent), while the FT All-World Index was
up 22.2 per cent (total return 24.9 per cent). The Company does not have a
benchmark based on these indices. They are mentioned for comparison purposes
only.
It is an important feature of the Company that it does not have any benchmark.
This permits Edinburgh Partners, our investment manager, the freedom to invest
in those shares that in its view offer the best value, without any concern for
the composition of an index. In 2005, this led to a portfolio with geographical
weightings very different from those of the FT All-World Index.
The investment policy led to an emphasis on shares in Japan and Europe combined
with only a small investment in the United States. This proved very beneficial.
The best performing of the major equity markets was Japan, where the Topix
Index rose 39.3 per cent, while the FT Europe ex UK Index gained 20.6 per cent,
both in sterling terms. The poorest performing major market, for the second
year running, was the US stock market, where the S & P Composite Index,
measured in dollars, was up only 3.0 per cent. However, one of the features of
financial markets in 2005 was the strength of the US dollar. After declining
steadily for three years, the dollar rallied in 2005. As a result, when
converted into sterling, the S & P Composite Index was up 15.2 per cent. This
was still the poorest performing major market but the 15 per cent capital
return demonstrates what an excellent year it was for equities generally.
Share price and discount
The share price at the end of 2005 was at a level of approximately one per cent
below the net asset value per share. It is your Board's intention to buy-in
shares in the open market and to issue shares to limit, as far as possible, the
divergence of the share price from the net asset value per share. During the
year, 816,741 new shares were issued in addition to the November share issue
described below. A further 175,000 new shares have been issued since the end of
the year. The new shares were only issued when demand was such that they could
be issued at a small premium to the net asset value. It is also the Company's
policy to buy in shares if, in the Board's opinion, there is an excess supply
of shares in the market place and such purchases would not dilute the net asset
value per share of the remaining ordinary shares. No shares were bought-in in
2005. The current authority for the Company to make market purchases of its
ordinary shares expires at the conclusion of this year's annual general
meeting. A special resolution will be proposed at the annual general meeting to
renew the authority.
Share issue
In November, we issued a prospectus for a placing and offer of new shares.
Applications were received for 10,181,930 shares and this number of new shares
was duly issued. This increased the number of shares in issue to 33,444,010.
The new shares were priced at a three per cent premium to the net asset value.
This premium was used to pay the expenses of the issue, which included fees
paid to the placing agent and the sponsor of the issue. The small surplus that
remained ensured that the issue of new shares did not dilute the asset value of
the existing shares.
The benefit of the new issue has been to increase the size of the Company. At
the year end the total net assets were £52.2 million. In the first two years,
the small capitalisation of the Company has sometimes made it difficult for
both buyers and sellers to complete their orders at a reasonable price. The
lack of liquidity in the stock market for the shares resulted in the spread
between the bid and offer price quoted in the stock market being relatively
large compared to many larger Trusts. Moreover, your Board was aware that a
number of Independent Financial Advisers were recommending the shares for their
clients but were frustrated by the size of the Company. In some cases the
advisers had reached the limit of the percentage of the Company that their
in-house rules permitted them to hold. Typically, advisers limit the percentage
that they will hold for all their clients to below 10 per cent; above that
level the reporting requirements become rather onerous.
A further benefit of increasing the size of the Company is to reduce the
expense ratio. This is the annual cost of running the Company as a percentage
of the total net assets. In the first year the expense ratio was 1.7 per cent.
The expense ratio in 2005 was 1.5 per cent. Reducing the expense ratio is not a
one-off benefit but is an ongoing benefit for each year in the future.
Dividend
The revenue account shows a considerable increase in income over the previous
year. Net revenue after tax more than doubled to £273,000. This increase was
almost entirely the result of investing in a number of higher yielding shares,
rather than the result of the increase in the size of the Company in November.
The greater number of shares at the year end does reduce the income per share
for the year from what it would have been if there had been no share issue.
However, existing shareholders were fully compensated for this in the price
that the new shares were issued at, which included the amount of the
accumulated income at the time of the issue. Despite the greater number of
shares, the income per share is still greater than it was in 2004 and your
Board is pleased to recommend a doubling of the annual dividend to 0.8p per
share. Subject to shareholders approval at the annual general meeting, the
dividend will be paid on 5 May 2006.
Option in Edinburgh Partners
At its foundation your Company was given an option over 71,294 shares in
Edinburgh Partners, our investment manager. No charge was made for this option
in recognition of the Company's support in becoming Edinburgh Partners' first
client. The option has a five year life from December 2003, is exercisable at £
3 per share and if exercised would represent 1.8 per cent of the equity of
Edinburgh Partners.
In order to calculate the net asset value per share for the November share
issue, your Board applied a value to the option of £255,000, adding 1.1p per
share to the Company's net asset value prior to the November 2005 Placing and
Offer of new shares. There is no hard and fast rule as to how to value the
shares of an unquoted investment management company. However, it is generally
recognised that a percentage of funds under management is one of the key
factors. In deciding the value, the Board considered the financial position of
Edinburgh Partners, the level of funds under management, the type of funds
under management and the growth rate in those funds under management.
Edinburgh Partners has made excellent progress since its foundation in 2003. By
the end of 2005, funds under management had increased six-fold during the year
to over £300 million. In July, Edinburgh Partners was awarded the mandate for a
second investment trust, Anglo & Overseas plc, with assets of just under £100
million. With two strong years of performance, Edinburgh Partners is
increasingly being asked to make presentations for potential new fund
management contracts. It is important for your Company that our investment
manager continues to thrive and its progress over the last twelve months has
been very reassuring.
Outlook
While we started the year with an optimistic view for 2005, the overall result
achieved was well ahead of expectations. It follows that shares in general are
more fully priced than they were a year ago. There is the usual list of things
to be concerned about that could cause equities to give back some of the strong
gains of the last three years; foremost amongst these is a further rise in the
oil price. That said, the economic outlook does not look unduly threatening for
equity valuations. Despite the higher oil price, inflation remains relatively
subdued and there appears to be less pressure for an increase in short term
interest rates, at least in the UK and US. The increase in rates in 2005
provides room for the central banks to reduce rates again if economic growth
falters. Meanwhile, Asia is benefiting from the rapid growth being enjoyed by
China and India, coupled with an improvement in the Japanese economy after a
prolonged period of poor economic performance. Overall, we approach 2006 with a
cautiously optimistic view of equity markets.
Teddy Tulloch
Chairman
28 February 2006
Enquiries:
Sandy Nairn}
Kenneth Greig} Edinburgh Partners Limited, telephone: 0131 270 3800
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