Half-yearly Report
EP GLOBAL OPPORTUNITIES TRUST PLC
HALF YEARLY REPORT
30 June 2008
The Directors announce the unaudited Half Yearly Report for the period from
1 January 2008 to 30 June 2008 as follows:-
Financial summary
30 June 31 December Change
2008 2007
Shareholders' funds £49,205,000 £57,705,000 (14.7)%
Net asset value per ordinary 153.5p 177.2p (13.4)%
share ("NAV")
Share price per ordinary share 134.0p 160.0p (16.3)%
Discount to NAV 12.7% 9.7%
INVESTMENT OBJECTIVE & POLICY
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 composition of any stock market
index.
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, in other listed investment companies
(including investment trusts) and in debt instruments, cash or short-term
deposits where the Investment Manager believes it is appropriate in the
prevailing market or economic conditions.
It is intended that, from time to time, and 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 Edinburgh Partners considers
to be undervalued on an absolute basis.
CHAIRMAN'S STATEMENT
Investment Performance
It has been a difficult six month period for equity investment. Our net asset
value per share at the end of June 2008 was 153.5p, 13.4 per cent below the
level at the end of December 2007. Adding back the 2.3p dividend paid in May,
results in a total return for the six months of minus 12.2 per cent. For
comparative purposes, the FTSE All-World Index was down 12.1 per cent (total
return minus 10.7 per cent), while the FTSE All-Share Index fell 13.1 per cent
(total return minus 11.2 per cent).
The share price declined 16.3 per cent to 134p. The discount to the net asset
value per share widened to 12.7 per cent, compared to 9.7 per cent at the year
end. While the increased volatility in the stock market has increased the
volatility of the discount, we regard this as an unsatisfactory level. We
bought in 505,000 shares into treasury during the six month period and, when
appropriate, will continue our policy of buying in shares at a discount to net
asset value.
Most of the damage to equity markets was done in the first quarter of the year.
A rally in share prices from mid-March proved short lived and, by the end of
June, most major stock market indices were back at their mid-March levels. The
themes that dominated financial markets during the second half of 2007, the
credit crisis and rising commodity prices, continued into 2008. In particular,
the oil price, which had risen steadily through 2007, accelerated upwards in
the first half of 2008 and by mid-year the price was almost 50 per cent above
the year end level. While the western economies bore the brunt of the credit
crisis, the rising cost of food and energy significantly increased the risk to
economic growth in Asia as well as in the West. As a result, the Asian stock
markets, which had held up so well during 2007, have also suffered. In the six
months to the end of June, the FTSE All-World Asia Pacific ex Japan Index
declined 18.8 per cent in sterling terms and the Chinese Shanghai SE Composite
Index, which had risen dramatically in 2006 and 2007, fell over 50 per cent
from its peak level last year. Central banks face a difficult dilemma, with the
credit crisis requiring a policy response of lower interest rates but the
acceleration in inflation limiting their ability to reduce rates.
We have been correct to maintain a cautious view of the outlook for share
prices and at mid-year 19.4 per cent of shareholders' funds were in cash and
short term UK gilts. This was up from 13.4 per cent at the year end. Also,
slightly over a third of shareholders' funds was invested in pharmaceuticals
and telecommunications, both sectors that should prove relatively defensive in
an economic downturn. However, we did not fully appreciate the depth of the
problems that have become apparent in the banking sector. Although we reduced
our exposure to banks considerably in 2007, reflecting their good performance
in prior periods, investment performance has subsequently been held back by the
financial shares we have retained. In our view these shares now have the
highest potential return in our portfolio, albeit at the expense of also being
the most risky holdings. We are very comfortable to hold them with the risk
embedded in them being offset by the proportion in high yielding lower risk
investments.
Option in Edinburgh Partners
In May, we elected to exercise our option on 71,294 shares of Edinburgh
Partners, our investment manager. This investment represents 1.75 per cent of
the issued ordinary share capital of Edinburgh Partners. The option was
exercisable at a price of £3 per share and we have increased the valuation of
our holding in Edinburgh Partners by the cost of the option. Despite the
decline in equity markets since the year end, we have not felt it necessary to
reduce the value of the holding, because funds under management have continued
to grow. At 30 June 2008, funds under management were £4.3bn, up from £3.2bn at
the end of 2007. We do not expect this rate of growth to continue, given the
market environment, but Edinburgh Partners is now profitable and in a strong
position to build on its past success.
Revenue Account
The revenue account shows a large increase over the same period last year, with
earnings per share increasing from 1.9p to 2.9p, a rise of 52.6 per cent. The
increase in revenue is a consequence of the defensive nature of the portfolio
including the significant amount held in cash and short term UK gilts. The
total revenue per share for 2007 was 2.7p, so we would hope to be able to
increase the dividend again this year. However, some companies are likely to
reduce the dividends they pay as their profitability is hurt by the
recessionary environment making it more difficult than usual to forecast our
revenue.
Our investment policy is based on value and if our manager perceives there to
be better value in lower yielding shares or, indeed, that our cash reserves
should be reinvested, we will reduce our dividend rather than compromise our
investment philosophy.
Outlook
We continue to take a cautious view of financial markets, despite the lower
level of share prices. Corporate profits are increasingly coming under pressure
with costs rising and demand slowing. In the West, these challenges are
compounded by the problems in the banking system. Our main concern is the
difficulty this is causing companies in obtaining credit and, as a consequence,
with the exception of our bank holdings mentioned earlier, we have focused on
companies where balance sheets are sound and cash flows are strong. Volatility
in markets is likely to continue and we expect this will present some excellent
opportunities to invest our cash reserves in the months ahead.
Teddy Tulloch
Chairman
13 August 2008
distribution of investments
as at 30 June 2008 (% of net assets)
Sector distribution
as at 30 June 2008
%
Healthcare 18.6
Telecommunications 17.5
Financials 12.9
Technology 10.8
Oil & Gas 7.1
Industrials 4.2
Utilities 3.7
Unlisted 2.2
Consumer goods 1.9
Consumer services 1.7
Cash, fixed interest and 19.4*
other net assets
100.0
Geographical distribution
as at 30 June 2008
%
Europe 40.1
United States 23.4
United Kingdom 11.4
Japan 3.7
Asia Pacific 2.0
Cash, fixed interest and 19.4*
other net assets
100.0
* Cash, fixed interest and other net assets includes foreign currency balances
of £2,005,000 (4.1%). The figures detailed in the geographical distribution
represents the Company's equity exposure to those countries or regional areas.
PORTFOLIO OF INVESTMENTS
as at 30 June 2008
Company Sector Country Valuation % of
£'000 Net Assets
Equity Investments
KPN Telecommunications Netherlands 2,011 4.1
Gazprom Oil & Gas Russia 1,982 4.0
Novartis Healthcare Switzerland 1,915 3.9
Roche Healthcare Switzerland 1,905 3.9
E.ON Utilities Germany 1,827 3.7
Vodafone Telecommunications UK 1,715 3.5
GlaxoSmithKline Healthcare UK 1,580 3.2
ENI Oil & Gas Italy 1,535 3.1
Johnson & Johnson Healthcare USA 1,486 3.0
Belgacom Telecommunications Belgium 1,431 2.9
Sanofi-Aventis Healthcare France 1,410 2.9
Dell Technology USA 1,408 2.9
TeliaSonera Telecommunications Sweden 1,282 2.6
Royal Bank of Scotland Financials UK 1,233 2.5
Telefonica Telecommunications Spain 1,202 2.5
Edinburgh Partners Unlisted UK 1,100 2.2
Intesa Sanpaolo Financials Italy 1,088 2.2
General Electric Industrials USA 1,068 2.2
Intel Technology USA 1,004 2.0
Cisco Technology USA 993 2.0
Total - Top 20 Equity 29,175 59.3
Investments
Other Equity Investments 10,497 21.3
Total Equity Investments 39,672 80.6
Fixed Interest
Investments
Treasury 5% 2011 Government Bonds UK 3,906 7.9
Cash and Other Net 5,627 11.5
Assets
Net Assets 49,205 100.0
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
Interim Management Report
This Half Yearly Report is the first published by the Company under the
Disclosure and Transparency Rules ("DTR") that are applicable to listed
companies with accounting periods commencing after 20 January 2007. The Company
is required to make a number of new disclosures, including those in this
section.
The important events that have occurred during the period under review are set
out in the Chairman's Statement. The key factors influencing the financial
statements are also set out in the Chairman's Statement.
The principal risks and uncertainties for the remaining six months of the
financial year are reviewed in the Outlook section of the Chairman's Statement
detailed above and in Risk Factors detailed below.
Edinburgh Partners Limited, as investment manager of the Company, is considered
to be a related party by virtue of its management contract with the Company.
During the six months to 30 June 2008, services with a total value of £205,000
(six months to 30 June 2007: £245,000; year to 31 December 2007:£477,000) were
purchased by the Company from Edinburgh Partners Limited. At 30 June 2008, the
amount due to Edinburgh Partners Limited, included within creditors, was £
103,000 (30 June 2007: £123,000; 31 December 2007: £115,000). Amounts are
exclusive of VAT.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
- The condensed set of financial statements has been prepared in accordance
with the Statement on Half Yearly Financial Reports issued by the UK Accounting
Standards Board;
- The interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
This Half Yearly Report was approved by the Board of Directors on 13 August
2008 and the above responsibility statement was signed on its behalf by Teddy
Tulloch, Chairman.
INCOME STATEMENT (UNAUDITED)
for the six months to 30 June 2008
Six months to Six months to Year to 31
30 June 2008 30 June 2007 December 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/ 3 - (8,091) (8,091) - 1,853 1,853 - 1,083 1,083
gains on
investments
at fair
value
through
profit or
loss
Foreign - 130 130 - (144) (144) - (153) (153)
exchange
gains/
(losses) on
capital
items
Income 2 1,432 - 1,432 1,161 - 1,161 1,726 - 1,726
Investment (171) - (171) (212) - (212) (410) - (410)
management
fee
Other (132) - (132) (140) - (140) (254) - (254)
expenses
Net return 1,129 (7,961) (6,832) 809 1,709 2,518 1,062 930 1,992
before
finance
costs and
taxation
Finance
costs
Interest - - - - - - (5) - (5)
payable and
similar
charges
Net return 1,129 (7,961) (6,832) 809 1,709 2,518 1,057 930 1,987
before
taxation
Taxation 4 (203) - (203) (160) - (160) (141) - (141)
Net return 926 (7,961) (7,035) 649 1,709 2,358 916 930 1,846
after
taxation
pence pence pence pence pence pence pence pence pence
Return per 5 2.9 (24.7) (21.8) 1.9 5.0 6.9 2.7 2.8 5.5
ordinary s
hare
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 return columns are prepared in accordance with
guidance issued by the Association of Investment Companies ("AIC").
A separate Statement of Total 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 30 June 2008
30 June 30 June 31 December
2008 2007 2007
Note £'000 £'000 £'000
Fixed asset investments
Investments at fair value 43,578 58,433 53,952
through profit or loss
Current assets
Debtors 299 210 222
Cash at bank and short-term 5,539 3,032 3,931
deposits
5,838 3,242 4,153
Current liabilities
Creditors - amounts falling 211 1,454 400
due within one year
Net current assets 5,627 1,788 3,753
Net assets 49,205 60,221 57,705
Capital and reserves
Called-up share capital 340 340 340
Capital redemption reserve 1 1 1
Share premium account 17,991 17,991 17,991
Special reserve 20,506 20,506 20,506
Capital reserve
- realised 18,386 17,278 19,132
- unrealised (6,229) 3,619 986
Revenue reserve 1,226 776 1,043
Own shares held in treasury (3,016) (290) (2,294)
Total shareholders' funds 49,205 60,221 57,705
pence pence pence
Net asset value per ordinary 6 153.5 178.0 177.2
share including current
period revenue
STATEMENT OF CASH FLOWS (UNAUDITED)
For the six months to 30 June 2008
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December
2007
Note £'000 £'000 £'000
Operating activities
Investment income received 1,405 1,041 1,647
Bank deposit interest - - 1
received
Investment management fees (183) (215) (422)
paid
Secretarial fees paid (34) (32) (66)
Other cash payments (265) (135) (49)
Net cash inflow from 7 923 659 1,111
operating activities
Serving of finance - - (5)
Taxation
Income tax paid (182) (117) (177)
Investing activities
Purchases of investments (8,316) (16,401) (33,463)
Sales of investments 10,599 18,664 38,168
Exchange gains on 18 39 15
settlement
Net cash inflow from 2,301 2,302 4,720
investing activities
Net cash inflow before 3,042 2,844 5,649
equity dividend paid and
financing
Equity dividend paid (743) (612) (612)
Financing
Own shares purchased and (803) (290) (2,213)
held in treasury
Net cash outflow from (803) (290) (2,213)
financing
Increase in cash 1,496 1,942 2,824
Reconciliation of Movements in Shareholders' Funds (unaudited)
For the six months to 30 June 2008
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December 2007
£'000 £'000 £'000
Opening shareholders' 57,705 58,765 58,765
funds
Net return after taxation (7,035) 2,358 1,846
Dividends paid (743) (612) (612)
Costs of own shares bought (722) (290) (2,294)
into treasury
Closing shareholders' 49,205 60,221 57,705
funds
NOTES TO THE FINANCIAL STATEMENTS
at 30 June 2008
1. Accounting policies
a) Accounting convention
The financial statements are prepared in accordance with the Accounting
Standard Board's ("ASB") Statement on Half Yearly Financial Reports, UK
Generally Accepted Accounting Practice ("UK GAPP") and with the AIC Statement
of Recommended Practice, revised in December 2005, regarding the financial
statements of Investment Trust Companies.
b) Financial information
The financial information contained in this report does not constitute full
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the six months to 30 June 2008 and 30 June 2007 has
not been audited or reviewed by the Company's Auditors.
The information for the year ended 31 December 2007 has been extracted from the
latest published audited annual report and financial statements, which have
been filed with the Registrar of Companies. The report of the Auditors on those
financial statements contained no qualification or statement under sections 237
(2) or (3) of the Companies Act 1985.
The financial statements are prepared on the basis of the accounting policies
set out in note 1 of the audited annual report and financial statements for the
year ended 31 December 2007.
2 Income
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December
2007
£'000 £'000 £'000
Income from
investments:
UK net dividend income 213 275 414
Overseas dividends 1,079 822 1,155
Fixed interest 89 - 21
Deposit funds 51 64 135
1,432 1,161 1,725
Other income:
Bank interest - - 1
1,432 1,161 1,726
Total income comprises:
Dividends 1,343 1,161 1,704
Interest 89 - 22
1,432 1,161 1,726
3 (Losses)/gains on investments
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December
2007
£'000 £'000 £'000
Realised (losses)/gains (875) 3,644 5,781
on sales
Unrealised movement in (7,216) (1,791) (4,698)
valuation of
investments
(8,091) 1,853 1,083
4 Taxation
The taxation charge for the six months to 30 June 2008 is £203,000 (30 June
2007: £160,000, 31 December 2007: £141,000).
The taxation charge comprises a corporation tax charge for the six months to 30
June 2008 of £65,000 (30 June 2007: £62,000, 31 December 2007: nil) and
irrecoverable withholding tax suffered of £138,000 (30 June 2007: £98,000, 31
December 2007: £141,000).
5 Return per ordinary share
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December 2007
Net Per Net Per Net Per
return share return share return share
£'000 pence £'000 pence £'000 pence
Revenue return after 926 2.9 649 1.9 916 2.7
taxation
Capital return after (7,961) (24.7) 1,709 5.0 930 2.8
taxation
Total return (7,035) (21.8) 2,358 6.9 1,846 5.5
The returns per share are based on 32,287,741 (30 June 2007: 33,960,910, 31
December 2007: 33,601,801) being the weighted average number of ordinary
shares, excluding shares held in treasury, in issue during the period.
6 Net asset value per ordinary share
The net asset value per ordinary share is based on net assets at 30 June 2008
of £49,205,000 (30 June 2007: £60,221,000, 31 December 2007: £57,705,000) and
on 32,053,180 ordinary shares (30 June 2007: 33,825,180, 31 December 2007:
32,558,180) being the number of ordinary shares excluding shares held in
treasury at the period end. Net asset values calculated include current period
revenue.
7 Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities.
Six months to Six months to Year to
30 June 2008 30 June 2007 31 December
2007
£'000 £'000 £'000
Net return before finance (6,832) 2,518 1,992
costs and taxation
Net losses/(gains) on 7,961 (1,709) (930)
capital items
Dividends reinvested - (64) -
(Decrease)/increase in (172) (36) 96
creditors
Increase in debtors and (34) (50) (47)
accrued income
Net cash inflow from 923 659 1,111
operating activities
SHAREHOLDER INFORMATION
Investing in the Company
The Company's ordinary shares are traded on London Stock Exchange. You can buy
or sell shares through your stockbroker, bank or other professional investment
adviser. Shares in the Company may also be bought and held in an ISA or Share
Plan through the Edinburgh Partners Investment Trust Savings Scheme. Further
information is available on the Company's website: www.epgot.com or on the
Edinburgh Partners' website: www.edinburghpartners.com or by telephone on 0845
850 0181.
Frequency of net asset value ("NAV") publication
The Company's unaudited ordinary share net asset value is released weekly to
the London Stock Exchange and published on the Company's website: www.epgot.com
and the Edinburgh Partners' website: www.edinburghpartners.com.
Share price and sources of other information
The Company's ordinary share price is quoted daily in the Financial Times under
`Investment Companies'. Previous day closing price, weekly net asset value and
other portfolio information is published on the Company's website:
www.epgot.com and on Edinburgh Partners' website: www.edinburghpartners.com.
Other useful information on investment trusts, such as prices, net asset values
and company announcements, can be found on the websites of the London Stock
Exchange: www.londonstockexchange.com and the Association of Investment
Companies ("AIC"): www.theaic.co.uk.
Share register enquiries
The register for the ordinary shares is maintained by Computershare Investor
Services PLC. In the event of queries regarding your holding, please contact
the Registrar on 0870 889 3190 or email web.queries@computershare.co.uk.
Changes of name and/or address must be notified in writing to the Registrar, at
the address below.
Key dates
Company's year end 31 December
Annual results February
announced
Annual General Meeting April
Annual dividend paid May
Company's half year 30 June
Half yearly results August
announced
In accordance with the recently introduced Disclosure and Transparency Rules,
the Company will be releasing Interim Management Statements ("IMS") for the
quarters ending 31 March and 30 September. These will be released to the Stock
Exchange and may be viewed at the Company's website.
This document is not a recommendation, offer or invitation to buy, sell or hold
ordinary shares of the Company. If you wish to deal in the ordinary shares of
the Company, you may wish to contact an authorised professional investment
adviser.
RISK FACTORS
An investment in the Company should be regarded as long term and is only
suitable for investors who are capable of evaluating the risks and merits of
such investment and who have sufficient resources to bear any loss which might
result from such investment.
The market value of, and the income derived from, the ordinary shares can
fluctuate. The Company's share price may go down as well as up. Past
performance is not a guide to future performance. There is no guarantee that
the market price of the ordinary shares will fully reflect their underlying net
asset value. Fluctuations in exchange rates will affect the value of overseas
investments held by the Company. Investors may not get back the full value of
their investment. There can be no guarantee that the investment objective of
the Company will be met. The levels of, and reliefs from, taxation may change.
The principal risks facing EP Global Opportunities Trust relating to its
investment activities were set out in detail in the annual report for the year
ended 31 December 2007, with an explanation of the risks and how they are
managed in note 21. These risks are market risk, investment and strategy risk,
foreign currency risk, interest rate risk, liquidity risk and discount
volatility risk. In particular, it should be noted that the trust does not have
any benchmark. The investment manager is free to invest in securities on a
global basis which it considers to be undervalued on an absolute basis. This
policy is designed to permit the investment manager a large degree of freedom
in share selection and as such investment results are dependent on the success
or failure of the investment manager in correctly identifying undervalued
securities.
This Half Yearly Report contains "forward looking statements" with respect to
the Company's plans and its current goals and expectations relating to its
future financial condition, performance and results. By their nature, all
forward looking statements involve risk and uncertainty because they relate to
future events that are beyond the Company's control. As a result, the Company's
actual future financial condition, performance and results may differ
materially from the plans, goals and expectations set forth in the Company's
forward looking statements. The Company undertakes no obligation to update the
forward looking statements contained within this Half Yearly Report or any
other forward looking statements it makes.
The Company is a public company. It is registered in Scotland and its shares
are listed on the London Stock Exchange. The Company is not regulated or
authorised by the Financial Services Authority.
Employees of Edinburgh Partners Limited may (subject to applicable laws and
regulations) hold shares in the Company and may buy, sell or offer to deal in
the Company's shares from time to time.
DIRECTORS, MANAGER AND ADVISERS
Directors (all Teddy Tulloch (Chairman)
non-executive)
Richard Burns
David Hough
Ian McBean
Secretary and Registered Kenneth J Greig
Office
12 Charlotte Square
Edinburgh EH2 4DJ
Investment Manager Edinburgh Partners Limited
12 Charlotte Square
Edinburgh EH2 4DJ
Auditors Ernst & Young LLP
Ten George Street
Edinburgh EH2 4DJ
Registrar and Transfer Computershare Investor Services PLC
Office
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
Marketing Adviser G&N Collective Funds Services Limited
14 Alva Street
Edinburgh EH2 4QG
Solicitor and Sponsor Dickson Minto W.S
16 Charlotte Square
Edinburgh EH2 4DF
Bankers and Custodian The Bank of New York Mellon
One Canada Square
Canary Wharf
London E14 5AL
Registered in ScotlandNo. 259207
An investment company as defined under Section 833of the Companies Act 2006
Enquiries:
Sandy Nairn
Kenneth Greig
Edinburgh Partners
Telephone: 0131 270 3800
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