Annual Financial Report

RNS Number : 4275F

Standard Life Equity Income Tst PLC

12 November 2015

 

STANDARD LIFE EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2015

1. CHAIRMAN'S STATEMENT

Performance

The year just ended has been very successful for your Company. The diluted net asset value total return (which is calculated on the assumption that all the Subscription shares in issue have been converted into Ordinary shares and includes the change in net asset value per share plus the dividends paid during the year) was 14.1%, which is the second best result in the last decade. This is an excellent outcome, given that the FTSE All-Share index produced a negative total return of 2.3% over the twelve months to 30 September 2015 and especially because, in the Board's view, it has been achieved without incurring an inappropriately high level of risk. I hope that shareholders will join the Board of Directors in congratulating Standard Life Investments, and in particular Thomas Moore, our portfolio manager, on the success of their efforts.

Various factors have contributed to this fine result and they are discussed more fully in the Manager's Report. However, it is clear that good stock selection and being prepared to hold a portfolio which is markedly different from the index have been the key factors.  Our strategy since Thomas took over has been to steadily increase our exposure to mid-sized and smaller companies and stocks on Standard Life's "Winners List". As a result, we now have far less invested in the largest companies in the market and correspondingly much more in medium and small companies than the index. This change has been very successful and, although it may not be successful every year, we expect it will continue to deliver good results over the long term.

The share price total return (that is the change in our share price and the dividends paid during the year) was 15.2%, slightly higher than the net asset value total return mentioned earlier. This is because the discount of the share price to net asset value narrowed from 1.0% a year ago to 0.4% at 30 September 2015.

As well as producing an excellent rise in capital value, our portfolio also produced good results on its income account helped by significant special dividends, as in the previous year. The revenue return per Ordinary share was 17.18p, an increase of 9.5% over last year, which is a particularly good result considering that last year's earnings had risen by 11.5% on the 2013 figure.

It is gratifying, if not surprising, to be able to report that your Company has dramatically improved its position in the UK Equity Income sector from 12th a year ago to 2nd this year, based on net asset value total return for the year ended 30 September 2015. This is shown in the table below:

UK Equity Income Sector Group	One Year Total Return	Three Years Total Return	Five Years Total Return
SLEIT	2/21	5/21	5/20

Source: JPMorgan Cazenove

Dividends

The Board recommends a fourth quarterly dividend of 4.70p, bringing total dividends for the year to 14.70p, an increase of 5% on last year.  For comparison the Retail Prices Index increased by 0.8% over the year to 30 September 2015.  Subject to shareholders approval at the Annual General Meeting to be held on 16 December 2015 this dividend will be paid on 18 December 2015 to shareholders on the register on 27 November 2015 with an associated ex-dividend date of 26 November 2015.

Gearing

The Company has a £30m bank facility with Scotiabank (Ireland) Limited. This facility was in use throughout the year, with the average amount drawn down being £23m, reflecting our positive view of the prospects for the companies in our portfolio. This gearing had a positive effect of 1.3% on our performance over the year.

Shareholder Relations

Our Manager, Standard Life Investments, has continued its programme of active engagement with existing and potential shareholders over the year and the Board, with our portfolio manager Thomas Moore, has held two lunches, in London and Edinburgh, with representatives of leading wealth management firms. Private investors will be very welcome at our AGM, to be held this year on 16 December 2015 at our Manager's London office on the 34th floor at 30 St. Mary Axe (the Gherkin). The meeting will start at 11.30am and will include a presentation on our investments from Thomas Moore.

The UK Equity Income sector is very competitive, with many high performing companies with excellent long term records and, to maintain the Company's share rating, it is important not only that performance remains good but that the market is made fully aware of that performance and how it is being achieved.

Share Capital

Subscription shares

During the year, the Company issued 1,620,697 new Ordinary shares at 320p per share resulting from the exercise of Subscription shares. As a reminder, the new shares can be taken up at 320p by giving notice each December and June. The last exercise date is the last business day of December 2016.

Ordinary shares

As noted above your Company's performance has been good in recent years, most notably this one, and our Manager has been active in promoting awareness of this. There has, gratifyingly, been a noticeable increase in demand for the shares and over the year £3.8m has been raised by the issue of 850,000 new shares at a small premium to net asset value. Issuing at a premium has the effect of slightly enhancing that asset value and, as importantly, reducing the level of the ongoing charge borne by shareholders as the fixed costs of running the Company are spread over a larger number of shares.

Governance and the Board

Your Board has again conducted a full annual review of strategy. It has also carried out an evaluation of itself. An external assessment will be conducted in 2016. Your Board continues to consider that the main service providers to the Company perform well and are fairly rewarded.

Having succeeded Charles Wood as Chairman at last year's AGM, I should like to pay tribute to him for his leadership of the Company for the last nine years and the diligent and courteous way in which he oversaw its operations and conducted Board meetings. We wish him a long and happy retirement.

As I reported at the interim stage, Keith Percy has intimated that he will step down at the AGM following the 30 September 2016 year end.

Outlook

Our portfolio consists of shares in companies which we believe have good prospects, prospects which are not fully appreciated by investors. Our Manager looks for companies which are either changing themselves or seem likely to benefit from changes in the external environment, neither of which are yet generally appreciated by the market.

Despite the many global economic and political uncertainties, I am therefore confident that our portfolio will continue to produce satisfactory results, even if those results are unlikely to be as spectacular as those I have the good fortune to be reporting to you this year.

Richard Burns

Chairman

11 November 2015

2. MANAGER'S REPORT

Market Review

UK equities were volatile over the period, trading in a broad range, with significant divergence in sector performance caused by shifts in macroeconomic and political drivers.

The period saw a gap opening up between Emerging Market and Developed Market economies as commodity price weakness tended to act as a depressant on Emerging Market growth but a stimulant for Developed Market growth via consumer disposable income. Market sentiment came to be dominated by events in China towards the end of the period. What began as a softening in Chinese economic data culminated in a slump in the Chinese equity market and a surprise devaluation of the renminbi. This had the effect of dragging down several large UK sectors, including Oil & Gas and Mining.

US monetary policy remained in focus during the period, with speculation growing about the timing of the first interest rate rise. The Federal Reserve surprised markets by resisting a September rate increase, citing the uncertain global economic outlook. In effect, dollar strength has done much of its tightening work for the Federal Reserve, allowing rates to remain lower for longer.

In contrast to the economic gloom witnessed in many parts of the world, the UK economy stood out as one of the world's bright spots during the period. Fears of a messy General Election result were misplaced as the Conservative party unexpectedly achieved an overall majority. The UK economy remained resilient throughout the period, supported by a sustained improvement in employment markets, long-awaited signs of wage inflation, a fall in the cost of living and rising disposable income. The combination of the calmer political backdrop and improving economic outlook provided the catalyst for the valuation of domestically-orientated sectors to move ahead.

Performance

For the year ended 30 September 2015, the Company's net asset value total return was 14.1%, outperforming the FTSE All-Share Index which had a negative total return of 2.3%. Over the same period, the share price rose by 11.4% from 394p to 439p.

The Company's strong NAV performance was boosted by heavy exposure to domestic sectors that benefited from the strength of the UK economic recovery. AIM-listed recruitment business Staffline contributed strongly to returns as the market responded warmly to excellent interim results that allowed the dividend to grow by 50%. Management's revenue and profit targets appeared highly ambitious when first announced, but are becoming more credible given their track record of consistent operational execution. The long-standing holding in Cineworld performed well in response to better than expected interim results, with like-for-like sales growing by 11% driven by increased ticket prices and retail spend in the UK and higher admissions in Central and Eastern Europe. The holding in Rightmove made a positive contribution as the company's competitive position strengthened, as reflected in rising volumes and pricing, confounding the market's fears over new competition. The holding in packaging firm DS Smith was another major contributor after the company announced a healthy increase in profits, alongside further evidence of successful bolt-on acquisitions.

Performance benefitted from the Company's limited exposure to the Mining and Oil & Gas sectors. It was particularly helpful that the Company did not own any shares in Glencore or Royal Dutch Shell throughout the period, although performance did suffer from owning Soco International, which disappointed the market due to downgraded reserve estimates linked to lower future investment assumptions.

The holding in van rental business Northgate detracted from performance due to market concerns over toughening competition and falling resale values. Performance also suffered as shares in International Personal Finance responded to unexpected adverse regulatory developments in Poland, which over-shadowed progress in their other markets.

Activity

Purchase activity largely reflected individual company-specific opportunities identified during the year.

While the Company has increased its weighting in small and mid cap stocks in recent years, it is also continuing to identify opportunities among large cap stocks. During the period the Company bought shares in Vodafone on the view that market trends should be supportive for the pricing of data services and therefore for the profitability of their European operations, which would vindicate the heavy investment they have made in their 4G data network.

The Company also bought shares in software business Sage, where we have confidence in the ability of the new management team to achieve its growth and margin targets in the near term, with the potential medium term for operational efficiencies and acceleration in revenue growth.

The Company started a new holding in Real Estate Investors, which acquires and manages commercial and industrial properties mainly in the West Midlands, where management is taking advantage of high rental yields in a region where market conditions are improving very sharply. We expect the NAV to move ahead sharply in the coming years through a combination of yield shift, rental growth and asset management.

Having been extremely cautious towards resource stocks to the benefit of performance, the Company began to increase its weighting in the mining sector as valuations became compelling. In September the Company bought a new holding in BHP Billiton whose diversified portfolio of high-quality assets, low production costs and strong balance sheet should underpin cashflows and dividends even at depressed commodity prices.

The Company sold out of HSBC during the first half of the period in the light of reduced financial targets that reflect structural cost and cyclical top-line pressures, which could hamper profit and dividend growth for several years to come. The Company also sold out of BP in the first half of the period, as dividend cover is under pressure from weakening free cash flow as cost of production struggles to keep up with falling oil and gas prices. Cuts to capital expenditure will inevitably have an adverse impact on future production growth and hence dividend paying ability.

The Company sold its holding in HellermannTyton after it received a cash bid from US vehicle component manufacturer Delphi Automotive. Profits were also taken in spread-betting company IG Group after strong performance as volumes benefited from high levels of financial market volatility.

Outlook

We remain confident in the continued success of our conviction-led, market-agnostic approach to income investing. The portfolio remains truly active, continuing to invest in our highest conviction ideas, regardless of index weightings.

At the beginning of the period we anticipated that domestically-orientated stocks would offer significantly better return characteristics than overseas earners. This has turned out to be absolutely correct. Our portfolio positioning remains in favour of domestically-orientated businesses that are set to benefit from the continuing growth in consumer disposable income. Dividend growth potential appears to be greatest in this area of the market, with several of the Company's holdings recently announcing ordinary dividend hikes in excess of 20% and some announcing special dividends. There is little reason to expect a reversal in the benign dividend trends being witnessed among the portfolio's holdings given the strength of their earnings, cash flows and balance sheets.

Following a period of marked under-performance, the FTSE 100 is now beginning to offer a broader selection of compelling value situations. We remain responsive to opportunities resulting from periods of market dislocation such as the recent fall-out in Emerging Markets. Having had limited exposure to overseas earnings, the Company has recently begun to rebuild exposure to certain FTSE 100 stocks that offer market-leading positions and solid balance sheets, underpinning their dividends.

The divergence in earnings trends across sectors appears set to persist as global economic growth remains patchy. This plays to the strengths of our highly selective approach to income investing. The strength of the portfolio's fundamentals is reflected in the improved pace of dividend growth being witnessed among our holdings. Backed by a robust research resource and process, the portfolio remains in strong shape, underpinning the dividend and capital prospects of the Company.

Thomas Moore

Standard Life Investments

11 November 2015

Relative Performance Attribution	%
Stock Selection	16.7
Gearing	1.3
Interest	-0.1
Expenses	-0.5
Total	17.4

The relative performance of 17.4% represents the geometric difference between the increase in the Company's net asset value of 10.8% and the decrease in the FTSE All-Share Index of 5.6% (for the year ended 30 September 2015).

Top 5 Stock Level Contributors	Relative Position (%)#	Contribution (%)
Royal Dutch Shell<	-6.1	2.2
DS Smith	3.1	1.4
Glencore<	-1.3	1.3
Staffline	1.6	1.2
Cineworld	2.0	1.1

Bottom 5 Stock Level Contributors	Relative Position (%)#	Contribution (%)
Soco International*	0.5	-0.9
British American Tobacco*	-2.2	-0.4
Reckitt Benckiser<	-1.7	-0.3
Imperial Tobacco	-1.3	-0.3
Northgate	0.8	-0.3

# based on average position for the year

< stocks not held by the Company

* stocks sold during the year by the Company

3.    FINANCIAL HIGHLIGHTS

	Year to 30 September 2015
Share price total return	15.2%
Increase in total dividends	5.0%
Net asset value total return (diluted)	14.1%
Benchmark total return	-2.3%

	30 September 2015	30 September 2014	% change
Capital
Net asset value per Ordinary share       Basic      Diluted	455.2p 440.7p	411.0p 397.9p	10.8 10.8
Ordinary share price	439.0p	394.0p	11.4
Subscription share price	114.0p	86.5p	31.8
Benchmark capital return	3,335.9	3,533.9	-5.6
Discount of ordinary share price to diluted net asset value	-0.4%	-1.0%
Total assets	£221.9m	£190.4m	16.6
Shareholders' funds	£195.6m	£166.5m	17.5
Ordinary shares in issue	42,976,691	40,505,994	6.1
Gearing
Gearing	7.7%	13.2%
Earnings and Dividends Revenue return per Ordinary share Total dividends for the year Dividend yield	17.18p 14.70p 3.3%	15.69p 14.00p 3.6%	9.5 5.0
Expenses Ongoing charges
Based on average net asset value	0.94%	0.94%
Based on year end net asset value	0.90%	0.96%

4.  BUSINESS REVIEW

Introduction

The Company carries on business as an investment trust.

The Board

The Board consists wholly of non-executive Directors. The Chairman is Mr Richard Burns and as at 30 September 2015 other Board members were Ms Josephine Dixon, Mr Keith Percy, Mr Jeremy Tigue and Mr Mark White. As at 30 September 2015, the Board consisted of four men and one woman. As the Company is an investment trust, all of its activities are outsourced and it does not have any employees.

Investment Objective

The objective of the Company is to provide shareholders with an above average income from their equity investment while also providing real growth in capital and income.

Business Model and Investment Policy

The management of the Company's investments and the day to day operation of the Company is delegated to Standard Life Investments (Corporate Funds) Limited (the "Manager").

The Directors set the investment policy which is to invest in a diversified portfolio consisting mainly of quoted UK equities which will normally comprise between 50 and 70 individual equity holdings.

In order to reduce risk in the Company without compromising flexibility:

• no holding within the portfolio will exceed 10% of aggregate net assets; and

• the top ten holdings within the portfolio will not exceed 50% of net assets

The Company may invest in convertible preference shares, convertible loan stocks, gilts and corporate bonds.

The Directors set the gearing policy which is to operate within parameters of between 5% net cash and 15% net gearing for the level of gearing that can be employed. The Directors have delegated responsibility to the Manager for the operation of the gearing level within the above parameters.

Manager's Investment Process

The Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management and dealing. The investment process is research intensive and is driven by the Manager's distinctive 'Focus on Change' which recognises that different factors drive individual stocks and markets at different times in the cycle. This flexible but disciplined investment process ensures that the Manager has the opportunity to perform in different market conditions.

Results and Dividend

Details of the Company's results are shown in the Financial Highlights.

The total revenue return attributable to Ordinary shareholders for the year ended 30 September 2015 amounted to £7,044,000 (2014: £6,214,000).

Dividends are paid on a quarterly basis, in March, June, September and December.

In 2015 three quarterly dividends have been paid as follows:

20 March 2015                3.20p per share

26 June 2015                   3.40p per share

25 September 2015          3.40p per share

The Directors are now recommending to shareholders that a fourth quarterly dividend of 4.70 pence (2014 - fourth quarterly dividend of 4.40 pence) be paid on 18 December 2015 to shareholders on the share register as at the close of business on 27 November 2015. The ex-dividend date is 26 November 2015.

Monitoring Performance - Key Performance Indicators

The key performance indicators (KPIs) shown below have been identified by the Directors to determine the progress of the Company and a record of these measures, with comparatives, is disclosed in the Financial Highlights.

• Net asset value total return relative to the Company's benchmark (FTSE All-Share Index total return)

• Share price (capital return)

• Premium or Discount to net asset value

At each Board meeting the Directors consider a number of performance measures, including the KPIs and attribution analysis, to assess the Company's success in achieving its investment objective.

The Board considers the performance measures over various time periods and against similar funds.

Principal Risks and Uncertainties

The Board has an ongoing process for identifying, evaluating and managing the principal risks and uncertainties of the Company. The process is regularly reviewed by the Board.

Most of the Company's principal uncertainties and risks are market related and no different from those of other investment trusts that invest primarily in the UK listed market. Risks may vary in significance from time to time and the controls and actions to mitigate these are described below.

The Board considers the following to be the principal risks and uncertainties:

Principal Risk	Risk Mitigation and Actions in the year
Investment Performance	The Board recognises that market risk is significant in achieving performance and your Board reviews strategy and investment guidelines to ensure that these are appropriate. Regular reports are received from the Manager on stock selection, asset allocation, gearing and costs of running the Company. The performance is reviewed in detail and discussed with the Manager at each Board meeting. The Board, through its review process, did not identify any specific new actions required to mitigate performance risks during the year. The Manager's Report explains the changes made within the portfolio during the year.
Operational Risk	In common with most investment trusts the Board delegates the operation of the business to third parties, the principal delegate being the Manager. As part of the annual assessment of key third party service providers, the internal control reports of the service providers are reviewed. During the year there were no issues identified that compromised the security of the assets and the Board received assurances on the internal control environment of service providers from these reports. There was one operational administrative problem during the year relating to the cessation of the Standard Life Investment Trust Savings Scheme, the impact of which was that shareholders affected were given short timescales to react to the changes. The Board of your Company raised the matter as soon as possible at the appropriate levels and the timescales were extended to assist shareholders with the change.
Discount / Premium to NAV	A significant share price discount or premium to net asset value per share could lead to high levels of uncertainty and could potentially reduce shareholder confidence. The Board keeps the level of the Company's discount/premium under regular review. The Company's discount widened in the run up to the UK general election, as a result of market uncertainty, but subsequently narrowed to a small premium and, as a result, the Board has been able to issue 850,000 new Ordinary shares to satisfy market demand.

Regulatory Risk

The Company operates in an environment with significant regulation including the UKLA Listing Rules, the UK Companies Act, the Corporation Tax Act 2010 and the Alternative Investment Fund Managers Directive ('AIFMD'). There has been no significant change in this risk during the year though the environment as a whole is considered to be one of increasing costs for compliance with ever increasing regulation.

Employee, Environmental and Human Rights Policy

As an investment trust, the Company has no direct social community, employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and, accordingly, has no requirement to separately report in this area as the management of the portfolio has been delegated to the Manager. The Manager engages with the Company's underlying investee companies in relation to their corporate governance practices and in developing their policies on social, community and environmental matters. In light of the nature of the Company's business there are no relevant human rights issues and the Company does not have a human rights policy.

Bank Facilities

The company has a £30 million sterling revolving credit facility with Scotiabank (Ireland) Limited. During the year, funds were periodically drawn down from the facility as determined by the Manager. As at 30 September 2015, £25m had been drawn down. Additional information may be found in the "Gearing" section of the Chairman's Statement.

Future Strategy

The Board and Manager intend to maintain the strategic policies set out above for the year ending 30 September 2016 as it is believed that these are in the best interest of shareholders.

Approval of the Strategic Report

The Strategic Report was approved by the Board of Directors on 11 November 2015 and signed on its behalf by:

Richard Burns

Chairman

11 November 2015

5. GOING CONCERN

After enquiry, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the next 12 months. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments, and the ability of the Company to meet all of its liabilities and ongoing expenses. Accordingly, it is reasonable for the Financial Statements to continue to be prepared on a going concern basis.

6. VIABILITY STATEMENT

The Directors have considered the Company's prospects for a period of five years. The Directors consider this to be an appropriate period of time since the Company's Articles require that it pass a resolution to continue as an investment trust every five years.

As detailed in the Financial highlights, the Company has had a period of strong performance over the past year and since the implementation of the conviction-led investment strategy in November 2011. The Directors consider the Company's future prospects to be positive, as highlighted in the Chairman's Statement.

The principal risks faced by the Company, together with the steps taken to mitigate these risks are highlighted in the Business Review. The Company takes any potential risks to its ongoing success and ability to perform very seriously and works hard to ensure that risks are kept to a minimum at all times.

Therefore, after careful consideration of the Company's current position and future prospects and taking into account its risk-aware attitude, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the course of the forthcoming five year period.

7. STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Accounting Standards. The Financial Statements are required by law to 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 judgments and estimates that are reasonable and prudent; and

•      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements.

The Directors are responsible for keeping adequate accounting records that 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 Companies Act 2006. 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 are responsible for the maintenance and integrity of the corporate and financial information included on the Company's webpage hosted by the Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are also responsible for ensuring that the Annual Report and Financial Statements, taken as a whole are fair balanced and understandable and provide the information necessary to assess the Company's performance, business model, position and strategy.

Directors' Responsibility Statement

Each Director confirms that:

•      the Financial Statements have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit;

•      the Strategic Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and that

•      the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model, position and strategy.

For and on behalf of the Board of Standard Life Equity Income Trust plc

Richard Burns

Chairman

11 November 2015

INCOME STATEMENT 

For the year ended 30 September

		2015			2014
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments at fair value	9	-	20,270	20,270	-	6,706	6,706
Currency gains/(losses)		-	-	-	-	(4)	(4)
Income	2	7,957	-	7,957	7,084	-	7,084
Investment management fee	3	(413)	(963)	(1,376)	(373)	(870)	(1,243)
Administrative expenses	4	(383)	-	(383)	(353)	-	(353)
Net return before finance costs and taxation		7,161	19,307	26,468	6,358	5,832	12,190
Finance costs	5	(117)	(274)	(391)	(118)	(276)	(394)
Return on ordinary activities before taxation		7,044	19,033	26,077	6,240	5,556	11,796
Taxation	6	-	-	-	(26)	-	(26)
Return on ordinary activities after taxation		7,044	19,033	26,077	6,214	5,556	11,770
Return per ordinary share:	8
Basic		17.18p	46.41p	63.59p	15.69p	14.03p	29.72p
Diluted		16.55p	44.71p	61.26p	15.12p	13.52p	28.64p

The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

No operations were acquired or discontinued in the year.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.

BALANCE SHEET

As at 30 September

		2015			2014
	Notes	£'000	£'000	£'000		£'000
FIXED ASSETS
Investments designated at fair value through profit or loss	9		210,877			188,277
CURRENT ASSETS
Debtors	10	1,166		1,103
Money market funds		9,698		959
Cash and short term deposits		196		54
		11,060		2,116
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan	11	(25,000)		(23,000)
Other creditors	11	(1,289)		(921)
		(26,289)		(23,921)
NET CURRENT LIABILITIES			(15,229)			(21,805)
NET ASSETS			195,648			166,472
CAPITAL AND RESERVES
Called-up share capital	12		10,745			10,127
Share premium account			32,473			24,084
Capital redemption reserve			12,616			12,615
Capital reserve
Realised		89,272		80,554
Unrealised		43,661		33,346
			132,933			113,900
Revenue reserve			6,881			5,746
EQUITY SHAREHOLDERS' FUNDS			195,648			166,472
NET ASSET VALUE PER ORDINARY SHARE:	13
Basic			455.24p			410.98p
Diluted			440.65p			397.87p

The financial statements were approved by the Board of Directors and authorised for issue on 11 November 2015 and were signed on its behalf by:

Richard Burns

Chairman

The accompanying notes are an integral part of the financial statements.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 September 2015

							Share capital		Share premium account		Capital redemption reserve		Capital reserve		Revenue reserve		Total
Notes							£'000		£'000		£'000		£'000		£'000		£'000
Balance at 30 September 2014							10,127		24,084		12,616		113,900		5,746		166,472
Issue of ordinary shares on conversion of subscription shares					12		405		4,781		-		-		-		5,187
Issue of ordinary shares							213		3,608		-		-		-		3,821
Return on ordinary activities after taxation							-		-		-		19,033		7,044		26,077
Dividends paid					7		-		-		-		-		(5,909)		(5,909)
BALANCE AT 30 SEPTEMBER 2015							10,745		32,473		12,616		132,933		6,881		195,648
For the year ended 30 September 2014
								Share		Capital
					Share			premium		redemption		Capital		Revenue
						capital		account		reserve		reserve		reserve		Total
		Notes				£'000		£'000		£'000		£'000		£'000		£'000
Balance at 30 September 2013						10,033		21,576		12,615		102,772		4,841		151,837
Issue of ordinary shares on conversion of subscription shares				12		94		1,117		-		-		-		1,211
Issue of ordinary shares from treasury						-		1,391		-		5,572		-		6,963
Return on ordinary activities after taxation						-		-		-		5,556		6,214		11,770
Dividends paid				7		-		-		-		-		(5,309)		(5,309)
BALANCE AT 30 SEPTEMBER 2014						10,127		24,084		12,615		113,900		5,746		166,472

The capital reserve at 30 September 2015 is split between realised £89,272,000 and unrealised £43,661,000.  (30 September 2014 is split between realised £80,554,000 and unrealised £33,346,000).

The revenue reserve and the realised capital reserve represent the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT

For the year ended 30 September

		2015		2014
	Notes	£'000	£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES	14		6,382		5,856
NET CASH OUTFLOW FROM SERVICING OF FINANCE			(395)		(390)
FINANCIAL INVESTMENT
Purchases of investments		(82,726)		(83,562)
Sales of investments		80,521		72,509
NET CASH OUTFLOW FROM FINANCIAL INVESTMENT			(2,205)		(11,053)
EQUITY DIVIDENDS PAID			(5,909)		(5,309)
			(2,127)		(10,896)
MANAGEMENT OF LIQUID RESOURCES
Purchase of money market funds		(68,061)		(58,626)
Sale of money market funds		59,322		58,310
NET CASH OUTFLOW FROM MANAGEMENT OF LIQUID RESOURCES			(8,739)		(316)
NET CASH OUTFLOW BEFORE FINANCING			(10,866)		(11,212)
FINANCING
Proceeds from exercise of subscription shares		5,187		1,211
Proceeds from issue of ordinary shares from treasury		-		6,963
Proceeds from issue of ordinary shares		3,821		-
Repayment of loan		-		(20,000)
Drawdown of loan		2,000		23,000
NET CASH INFLOW FROM FINANCING			11,008		11,174
INCREASE/(DECREASE) IN CASH			142		(38)
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
Increase/(decrease) in cash as above		142		(38)
Net change in liquid resources		8,739		316
Drawdown of loan		(2,000)		(3,000)
Currency movements		-		(4)
MOVEMENT IN NET DEBT IN YEAR			6,881		(2,726)
Opening net debt			(21,987)		(19,261)
CLOSING NET DEBT	15		(15,106)		(21,987)

The accompanying notes are an integral part of the financial statements.  

Notes to the Financial Statements
For the year ended 30 September 2015
1.	Accounting policies
	(a)		Basis of accounting
			The financial statements have been prepared in accordance with the Companies Act 2006, the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis and the Directors believe this is appropriate. All values are rounded to the nearest thousand pounds (£000) except where indicated otherwise.
	(b)		Valuation of investments
			The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 along with some other securities. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
	(c)		Money market funds
			The money market funds are used by the Company to provide additional short term liquidity. As they are not listed on a recognised exchange and due to their short term nature, they are recognised in the financial statements as a current asset and are included at fair value through profit or loss.
	(d)		Income
			Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on short term deposits is accounted for on an accruals basis.
	(e)		Expenses and interest payable
			Expenses are accounted for on an accruals basis. Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see notes 3 and 5). Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.

		(f)		Dividends payable
				In accordance with FRS21, "Events after the balance sheet date" dividends that are declared and approved by the Company after the Balance Sheet date are not recognised as a liability of the Company at the Balance Sheet date.
		(g)		Capital reserves
				Gains or losses on realisation of investments and changes in fair values of investments are included within the capital reserve. The capital element of the management fee along with any associated irrecoverable VAT and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.
		(h)		Taxation
				Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Temporary differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Owing to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval 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.
2.			Income
					2015		2014
					£'000		£'000
			Income from investments
			Franked investment income
			Ordinary dividends		6,444		5,146
			Special dividends		420		456
					6,864		5,602
			Overseas and unfranked investment income
			Ordinary dividends		765		896
			Special dividends		293		534
					1,058		1,430
			Stock dividends		-		25
					7,922		7,057
			Other income
			Money market interest		19		17
			Underwriting commission		16		10
					35		27
			Total income		7,957		7,084
3.	Investment management fee
						2015			2014
						£'000			£'000
	Charged to revenue reserve					413			373
	Charged to capital reserve					963			870
						1,376			1,243
	The Company has an agreement with Standard Life (Corporate Funds) Limited for the provision of management services. The contract is terminable by either party on not less than six months notice. The fee is based on 0.65% of total assets, payable quarterly in arrears and is chargeable 30% to revenue and 70% to capital (see note 1(e)).

4.	Administrative expenses
				2015	2014
				£'000	£'000
	Directors' fees			115	106
	Fees payable to the Company's Auditor (excluding VAT):
	- for the audit of the annual financial statements			22	21
	Professional fees			16	29
	Depositary fees			43	7
	Other expenses			187	190
				383	353
	With the exception of fees payable to the Company's auditor, irrecoverable VAT has been included under the relevant expense line above. Irrecoverable VAT on fees payable to the Company's auditor is included within other expenses.

5	Finance Costs
		2015 £'000	2014 £'000
	On bank loans and overdrafts:
	Charged to revenue reserve	117	118
	Charged to capital reserve	274	276
		391	394
	Finance costs are chargeable 30% to revenue and 70% to capital (see note 1(e)).

6.	Taxation
				2015	2014
				£'000	£'000
	(a)	Analysis of charge for the year
		Overseas withholding tax		-	26
	(b)	Factors affecting current tax charge for the year
		The corporation tax rate was 21% until 31 March 2015 and 20% from 1 April 2015 giving an effective rate of 20.5%. The tax assessed for the year is lower than that resulting from applying the standard rate of corporation tax in the UK.
		A reconciliation of the Company's current tax charge is set out below:
		Total return on ordinary activities before taxation		26,077	11,796
		Return on ordinary activities at the UK standard rate of corporation tax 20.5% (2014 - 22%)		5,346	2,595
		Effects of:
		Gains on investments not taxable		(4,155)	(1,475)
		Non-taxable income		(1,578)	(1,513)
		Excess management expenses and loan relationship debit expenses		387	393
		Overseas withholding tax		-	26
		Total taxation		-	26
		At 30 September 2015, the Company had unutilised management expenses and loan relationship losses of £19,336,000 (2014 - £17,456,000). No deferred tax asset has been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be suitable taxable profits from which the future reversal of the deferred tax asset could be deducted.

7.	Dividends on Ordinary shares
		2015		2014
		£'000		£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2014 of 4.40p per share (2013 - 3.80p)	1,782		1,473
	First quarterly dividend for 2015 of 3.20p per share (2014 - 3.20p)	1,301		1,269
	Second quarterly dividend for 2015 of 3.40p per share (2014 - 3.20p)	1,383		1,271
	Third quarterly dividend for 2015 of 3.40p per share (2014 - 3.20p)	1,443		1,296
		5,909		5,309
	The proposed final dividend for 2015 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £7,044,000 (2014 - £6,214,000).
		2015	2014
		£'000	£'000
	First quarterly dividend for 2015 of 3.20p per share (2014 - 3.20p)	1,301	1,269
	Second quarterly dividend for 2015 of 3.40p per share (2014 - 3.20p)	1,383	1,271
	Third quarterly dividend for 2015 of 3.40p per share (2014 - 3.20p)	1,443	1,296
	Proposed final dividend for 2015 of 4.70p per share (2014 - 4.40p)	2,020	1,782
		6,147	5,618

8.	Return per Ordinary share
	Basic	2015		2014
		£'000	p	£'000	p
	Revenue return	7,044	17.18	6,214	15.69
	Capital return	19,033	46.41	5,556	14.03
	Total return	26,077	63.59	11,770	29.72
	Weighted average number of Ordinary shares in issueA		41,010,971		39,609,718
	Diluted
	Revenue return	7,044	16.55	6,214	15.12
	Capital return	19,033	44.71	5,556	13.52
	Total return	26,077	61.26	11,770	28.64
	Number of dilutive shares		1,556,223		1,483,865
	Diluted shares in issue		42,567,194		41,093,583
	The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with Financial Reporting Standard No. 22, "Earnings per Share". For the purposes of calculating diluted total, revenue and capital returns per Ordinary share, the number of Ordinary shares is the weighted average used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all Subscription shares by reference to the average share price of the Ordinary shares during the period. A Calculated excluding shares held in Treasury where applicable.

9.	Investments
			2015	2014
			£'000	£'000
	Fair value through profit or loss
	Opening book cost		154,930	133,233
	Opening fair value gains on investments held		33,347	36,848
	Opening fair value		188,277	170,081
	Movements in the year:
	Purchases at cost		82,983	83,692
	Sales	- proceeds	(80,653)	(72,202)
		- realised gains on sales	9,955	10,207
	Current year fair value gains/(losses) on investments held		10,315	(3,501)
	Closing fair value		210,877	188,277
	Closing book cost		167,215	154,930
	Closing fair value gains on investments held		43,662	33,347
	Closing fair value		210,877	188,277
	Gains on investments held at fair value through profit or loss
	Gains on sales		9,928	10,047
	Gains on special dividends		27	160
	Increase/(decrease) in fair value gains on investments held		10,315	(3,501)
			20,270	6,706

Transaction costs

During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

		2015	2014
		£'000	£'000
Purchases		417	397
Sales		97	77
Total		514	474

Purchase costs include stamp duty of £343,000 (2014: £315,000)

10.	Debtors: amounts falling due within one year		2015		2014
		£'000			£'000
	Amounts due from brokers	500			368
	Net dividends and interest receivable	549			654
	Other debtors	117			81
				1,116	1,103

11.	Creditors: amounts falling due within one year
		2015	2014
		£'000	£'000
	Bank loan	25,000	23,000
	Other creditors
	Amounts due to brokers	387	130
	Investment management fee payable	709	623
	Sundry creditors	193	168
		1,289	921
	During the year, the Company increased its revolving credit facility with Scotiabank (Ireland) Ltd, from £25m to £30m. As at 30 September 2015, the Company had drawn down £25 million (2014 - £23 million) of the £30 million (2014 - £25 million) loan facility arranged with Scotiabank (Ireland) Ltd, £20 million maturing on 28 October 2015, £3 million maturing on 28 October 2015 and £2 million maturing on 9 October 2015, at interest rates of 1.60819%, 1.60819% and 1.60538%. Subsequent to the year end, the £20 million loan was rolled over from 28 October 2015 to 30 November 2015 at an interest rate of 1.60569%, the £3 million loan was rolled over from 28 October 2015 to 30 November 2015 at an interest rate of 1.60569%, and the £2 million loan was rolled over from the 9 October 2015 to 28 October at an interest rate of 1.59163%, and then to 30 November 2015 at an interest rate of 1.60569%.

12.		Called up share capital
			2015	2014
			£'000	£'000
		Issued and fully paid:
		Ordinary shares of 25p each
		Opening balance of 40,505,994 (2014 - 38,419,941) Ordinary shares	10,126	9,605
		Issue of 1,620,697 (2014 - 378,725) Ordinary shares on conversion of Subscription shares	405	94
		Issue of nil (2014 - 1,707,328) Ordinary shares from Treasury	-	427
		Issue of 850,000 (2014 - nil) Ordinary shares	213	-
		Closing balance of 42,976,691 (2014 - 40,505,994) Ordinary shares	10,744	10,126
		Subscription shares of 0.01p each
		Opening balance of 6,817,773 (2014 - 7,196,498) Subscription shares	1	1
		Conversion of 1,620,697 (2014 - 378,725) Subscription shares into Ordinary shares	-	-
		Closing balance of 5,197,076 (2014 - 6,817,773) Subscription shares	1	1
		Treasury shares
		Opening balance of nil (2014 - 1,707,328) Treasury shares	-	427
		Issue of nil (2014 - 1,707,328) Ordinary shares from Treasury	-	(427)
		Closing balance of nil (2014 - nil) Treasury shares	-	-
			10,745	10,127

On 17 December 2010 the Company issued 7,585,860 Subscription shares of 0.01p each by way of a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares. Each Subscription share confers the right, but not the obligation, to subscribe for one Ordinary share on any subscription date, being the final business day of June and December in each year commencing June 2011 and finishing on the last business day of December in 2016, after which the rights under the Subscription shares will lapse. The conversion price has been determined as being 320p. During the year, shareholders have exercised their right to convert 1,620,697 (2014 - 378,725) Subscription shares into ordinary shares for a total consideration of £5,187,000 (2014 - £1,211,000). During the year, nil (2014 - 1,707,328) Ordinary shares were issued from Treasury for a total consideration of £nil (2014 - £6,963,000). During the year, 850,000 (2014 - nil) Ordinary shares were issued for a total consideration of £3,821,000 (2014 - nil). There were no shares repurchased during the year. The total shares held in Treasury is nil (2014 - nil). The number of Subscription shares in issue at 30 September 2015 is 5,197,076 (2014 - 6,817,773).

13.	Net asset value per share
	The net asset value per share and the net assets attributable to Ordinary shares at the end of the year calculated in accordance with the Articles of Association were as follows:
		2015	2014
	Basic
	Total shareholders' funds (£'000)	195,648	166,472
	Number of Ordinary shares in issue at year endA	42,976,691	40,505,994
	Net asset value per share	455.24p	410.98p
	Diluted
	Total shareholders' funds assuming exercise of Subscription shares (£'000)	212,279	188,289
	Number of potential Ordinary shares in issue at year endA	48,173,767	47,323,767
	Net assets per share	440.65p	397.87p
	The diluted net asset value per Ordinary share has been calculated in accordance with guidelines issued by the Association of Investment Companies and assumes that all outstanding Subscription shares were converted into Ordinary shares at the year end.
	A Excludes shares in issue held in Treasury where applicable.

14.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
		2015	2014
		£'000	£'000
	Net return before finance costs and taxation	26,468	12,190
	Adjustments for:
	Net gains on investments at fair value	(20,270)	(6,706)
	Net currency (gains)/losses	-	4
	Decrease in accrued income	105	36
	Increase in other debtors	(5)	(3)
	Increase in other creditors	114	381
	Net overseas tax paid	(30)	(46)
	Net cash inflow from operating activities	6,382	5,856

15.	Analysis of changes in net debt
		At 30 September 2014	Cashflow	Currency movements	At 30  September 2015
		£'000	£'000	£'000	£'000
	Cash at bank and in hand	54	142	-	196
	Money market funds	959	8,739	-	9,698
	Bank loan	(23,000)	(2,000)	-	(25,000)
	Net debt	(21,987)	6,881	-	(15,106)

16.	Financial instruments
	The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities. The main risks the Company faces from its financial instruments are (i) market price risk (comprising a) interest rate risk, b) currency risk and c) other price risk), (ii) liquidity risk and (iii) credit risk. The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.
(i)	Market risk
	The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. a)   Interest rate risk Interest rate movements may affect: - the fair value of the investments in fixed interest rate securities; - the level of income receivable on cash deposits; - interest payable on the Company's variable rate borrowings.
	The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio.
	Interest rate profile: The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:

				Weighted average period for which rate is fixed			Weighted average interest rate	Fixed rate	Floating rate
						Years	%	£000	£000
	As at 30 September 2015
	Assets
	Money market funds					-	0.52	-	9,698
	Cash deposits					-	-	-	196
	Total assets					-	0.51	-	9,894
	Liabilities
	Bank loans					0.1	1.61	25,000	-
	Total liabilities					0.1	1.61	25,000	-
	As at 30 September 2014					Years	%	£000	£000
	Assets
	Money market funds					-	0.53	-	959
	Cash deposits					-	-	-	54
	Total assets					-	0.50	-	1,013
	Liabilities
	Bank loans					0.1	1.66	23,000	-
	Total liabilities					0.1	1.66	23,000	-
	The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The floating rate assets consist of money market funds and cash deposits on call earning interest at prevailing market rates. All financial liabilities are measured at amortised cost.

Maturity profile:

The Company did not hold any assets at 30 September 2015 or 30 September 2014 that had a maturity date. As detailed in note 11, the £20m, £3m and £2m loans drawn down had maturity dates of 28 October 2015, 28 October 2015 and 9 October 2015, respectively, at the Balance Sheet date.  (2014: £20m on 22 October 2014; £3m on 27 October 2014).

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's : -     profit for the year ended 30 September 2015 would increase / decrease by £151,000 (2014 : increase / decrease by £220,000). This is mainly attributable to the Company's exposure to interest rates on its fixed rate borrowings and floating rate cash balances. b)   Currency risk All of the Company's investments are in Sterling. The Company can be exposed to currency risk when it receives dividends in currencies other than sterling. The current policy is not to hedge this risk but this policy is kept under constant review by the Board. c)   Other price risk Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process, as detailed in the Business Review, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the London Stock Exchange. Other price risk sensitivity: If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders and equity for the year ended 30 September 2015 would have increased/decreased by £21,088,000 (2014 - increase/decrease of £18,828,000). This is based on the Company's equity portfolio held at each year end.

(ii)

Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 11).

(iii)

Credit risk

This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. The risk is not significant, and is managed as follows: -     where the investment manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; -     investment transactions are carried out with a large number of brokers, whose credit-standing and credit rating is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker; -     cash and money invested in AAA money market funds are held only with reputable banks. None of the Company's financial assets are secured by collateral or other credit enhancements.

	Credit risk exposure
	In summary, compared to the amount in the Balance Sheet, the maximum exposure to credit risk at 30 September was as follows:

						2015				2014
							Balance Sheet £'000	Maximum exposure £'000	Balance Sheet £'000		Maximum exposure £'000
			Current assets
			Debtors				1,166	1,166	1,103		1,103
			Money market funds (indirect exposure)				9,698	9,698	959		959
			Cash and short term deposits				196	196	54		54
							11,060	11,060	2,116		2,116
			None of the Company's financial assets is past due or impaired.
			Fair values of financial assets and financial liabilities
			The fair value of borrowings is not materially different to the accounts value in the financial statements of £25,000,000 (note 11).
17.		Fair Value hierarchy
		FRS 29 'Financial Instruments: Disclosures', requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: -       Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; -       Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (ie as prices) or indirectly (ie derived from prices); and -       Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The quoted equities and money market funds held by the Company at 30 September 2015 and 30 September 2014 were all Level 1.
18.		Capital management policies and procedures
		The Company's capital management objectives are: -       to ensure that the Company will be able to continue as a going concern; and -       to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 15% of net assets. At the year end the Company had gearing of 7.7% of net assets (2014 - 13.2%). The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. Any year end positions are presented in the Balance Sheet.
19.		Contingent liabilities
		As at 30 September 2015 there was an underwriting liability of £4,624,000 (2014 - £2,200,000). This commitment was in relation to a placing by Assura Group. Subsequent to the year end, the Company was allocated £1,274,000 of shares in the placing.

Additional notes

This Annual Financial Report is not the Company's statutory accounts.  The statutory accounts for the year ended 30 September 2014 have been delivered to the Registrar of Companies.  The statutory accounts for the years ended 30 September 2014 and 30 September 2015 received an audit report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006. 

The statutory accounts for the financial year ended 30 September 2015 have been approved and audited but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which will be held at 11.30 am on 16 December 2015 at the offices of Standard Life Investments, 30 St Mary Axe, London EC3A 8EP.

The Annual Report will be posted to shareholders in November 2015 and copies will be available from the Manager or by download from the Company's webpage hosted by the Manager (www.standardlifeinvestments.com/its).

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

For Standard Life Equity Income Trust Plc

Maven Capital Partners UK LLP, Secretaries

For further information please contact:

Standard Life Investments - Gordon Humphries, Head of Investment Companies - Tel. [phone]

 

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