Annual Financial Report

RNS Number : 4592E

Aurora Investment Trust PLC

30 May 2012

 



Annual Financial Report Announcement

Aurora Investment Trust plc

Year ended 29 February 2012

CHAIRMAN'S STATEMENT 

I was kindly invited to become Chairman of Aurora last summer and this is, therefore, my first Annual Statement which covers the period to the end of February.  It has been a difficult year for Aurora reflecting a period of considerable economic upheaval worldwide as the Euro crisis worsened, although there is now, particularly in the USA where some 2 million jobs have been created over the year, some modest evidence of recovery. Aurora's objectives are to outperform its benchmark, the FT All-Share index, over the longer term, by relatively concentrated investment in companies which the Manager identifies as significantly undervalued and with substantial growth potential. Since its formation in 1997 it has outperformed during periods of positive stock markets and underperformed when markets have been weak- it is, therefore, a "high beta" investment.    The Table below sets out its performance against Benchmark since launch in 1997 and for the past 5 and 3 years to 2012.

	FT All-Share Benchmark	NAV per share (arr)
Since launch 1997	+41.2%	+119.7%
5 years to 2012	-4.8%	-13.0%
3 years to 2012	+57.7%	+92.1%

Following 2 very successful years, this year has seen a disappointing performance.  The Net Asset Value fell from 269.2 pence to 214.8 pence, a decline of 20.2%.  The Benchmark which also fell substantially in late summer/autumn, recovered more quickly than Aurora and regained its level of a year ago.  This has largely reflected the fact that the equity constituents of the FT All-share Benchmark are, of course, larger companies than those in which Aurora typically invests, which, as is typically the case, recover more quickly. During the weakness and volatility in stock markets over the financial year, more defensive, larger capitalisation stocks generally outperformed smaller cap stocks, (and especially smaller companies based in the Asian economies) essentially because of their greater liquidity and more established income flow, notwithstanding their inferior prospects for growth and longer term capital gains.  Equally, when the market turned, as is invariably the case, the larger companies recovered first.  The early part of the second half of year remained a difficult period for growth company investors with a sell off of smaller companies until the end of December.

The main cause of weak and volatile stock markets was the worsening Euro crisis with the threat of a chaotic breakup of the Eurozone and banking failures.  When the ECB announced that it would issue large volumes of cheap 3-year loans to Eurozone banks (effectively back door QE), enabling them to buy Government debt with a significant income margin - particularly in Italy and Spain - there was a rapid uplift in investor sentiment and a return in confidence in favour of small and mid-cap stocks with good future growth prospects.  Thereafter the portfolio began to outperform and regain some part of the prior lost ground.  Subsequently, and with the chaotic results of the Greek General Election, a further wave of Euro crisis has returned. The problem is that ECB intervention (of which there is likely to be more in the near future) does not address the fundamental problem of the Eurozone, of the growing uncompetitiveness of Southern versus Northern Europe and the resulting growing trade imbalances.  The German-led programme for internal devaluation in the largely Southern economies which have become seriously uncompetitive is unlikely to restore adequate competitiveness, and risks causing a downward economic spiral and political crises.  The Eurozone crisis is unlikely to be resolved until there is a major currency reorganisation in Continental Europe. As a consequence of Aurora's underperformance, the share price discount against Net Asset Value widened from 8.6% at the start of the year to 18.2% at the year end.

Tender During the six month period to the date of calling the AGM the discount to NAV at which the Company's shares trade has exceeded 10% on a daily average basis.  Accordingly, the Company will implement a tender for 10% of the shares at a 9% discount, on the basis set out last year and advised in the corporate announcement issued on 1 October 2010; a circular will be sent to shareholders following the AGM. Dividend The Board has decided to propose a further modest increase to the dividend from last year's level of 3.50 pence, to 3.55p per share, which will be paid on 20 July 2012, consistent with the Company's record of regular increases in dividends and covered by the current revenue profit of the Company. Outlook I hope I will be able to give a "better news" report in a year's time, reflecting, in particular, the strong performance of several of the Company's particular holdings which appear markedly cheap given their underlying growth potential.

Lord Flight

Chairman

30 May 2012

 

 

MANAGER'S REVIEW AND OUTLOOK

The year just ended has proved a turbulent one for certain dictators and terminal for at least two tyrants. It also proved difficult for several fund managers of growth oriented portfolios, myself included. Indeed my performance has recently been described by a senior analyst of investment trusts, brutally but aptly, as from 'Hero to Zero', in contrasting my success in 2010 and 2011 with the results for 2012. As one who not only forecast, confirmed in print in the 1998 Manager's Report, the inevitable breakup of the Eurozone but who also took evasive action to minimise exposure to the forthcoming protracted recession in Europe, I was more than slightly disappointed with the results for last year. The Euro is proving itself ever more like an onion-the more layers one peels away the more it makes one want to cry! In summary, in constructing a portfolio designed to avoid recession in Europe, I believed that other investors would consider emerging markets as relative safe havens at a time of such Sovereign debt crises in the Eurozone and possible double dip recession in the US. I was   therefore sure that these stock-markets would out-perform in view of the combination of their prevailing superior growth prospects, lower debt and higher savings ratios.  No such luck. Accordingly, I was greatly depressed by the subsequent under-performance of these markets and the effect on the portfolio.

I should have remembered the famous dictum from Mark Twain: 'A thing long expected takes the form of the unexpected when at last it comes.' As soon as I read, however, that a renowned arch bear was re-attributing the description of the acronym BRIC (normally Brazil, Russia, India and China) as a 'bloody ridiculous investment concept' my morale soared. I knew that the turning point was nigh- which it inevitably was when, on 21 December, Signor Draghi pushed the button to start the printing press by means of his offer of cheap three year money.

PORTFOLIO

Although some profits were taken in the summer, BTG remains the largest holding in the portfolio and, at the time of writing, is achieving multi-year highs, having outperformed the market by a substantial margin. This coming year promises to be full of excitement as a series of test results are set to be published; most notable amongst them are the phase 3 trials for its revolutionary treatments for varicose veins, multiple sclerosis and prostate cancer as well as the phase 2b trials for Cyto-Fab (a product to counter sepsis) - all with 'block- buster' potential to use the vernacular term. The Chinese section of the portfolio, on account of both a severe monetary tightening imposed by the government determined to reduce inflation, which peaked at 6.8%, and a series of accounting scandals involving Chinese companies listed on foreign exchanges, performed 'like lemons'. The greatest disappointment was, despite another year of 50% profits growth, from the holding in Asian Citrus whose share price halved. I remain unbowed and firmly retain my confidence in the company in view of its tremendous potential which I witnessed first hand during my visit to China in September.   This can  best be illustrated by the fact that, if the company never planted another orange tree in the next ten years, the production from the existing plantations would produce a tonnage some 3.4 times greater than last year's output, as the trees reach maturity and yield an average of 140kgs each. If one asks the question - 'What other quoted company has such assured visibility of growth?'- it is extremely difficult to find an answer. The share price represents compelling value even before taking into consideration that half the current market capitalisation is represented by net cash, some of which may be used to buy-back shares.  The adage that 'an apple a day keeps the doctor at bay' is certainly relevant. The portfolio is unable to hold shares in top performing Apple Inc. but now has plenty of exposure to oranges to keep it healthy. This holding will undoubtedly provide rich pickings from a combination of profits and dividend growth combined with an inevitable share price re-rating. May the share price go bananas! I confidently predict that this investment will become, in the language of traders, a 'ten bagger' ere too long, provided that the 50% margins continue to be achieved from trees older than ten years.  Having substantially reduced the holding two years ago, I have recently taken advantage of the price weakness (the shares currently trade at half the rating pertaining at the time of disposal) to restore it to its former level.

Prosperity Minerals is another example of a Chinese equity whose share price has almost halved. It now trades at little more than one third of its net asset value, despite its excellent record and attractive prospects. I visited the company's fully tenanted office in the central business district of Guangzhou, as well as its massive neighbouring thirty five storey mixed development scheme,  which is nearing completion and already part sold. Fortunately, some of the profits in the highly successful holding in West China Cement were taken before it also halved in price. This fall occurred in a year of severe credit tightening as well as being due to several other adverse factors. These include the temporary cessation of infrastructure projects following the well-publicised high speed rail crash and four months of heavy autumn rains, which halted much construction work in the region. A bout of dramatic consolidation of the industry in Shaanxi Province also helped to lower cement prices for some six months. Since no licences to build new capacity can now be obtained, and against a background where nearly 80% of the region's supply is currently controlled by only four producers, the outlook for price increases is encouraging; indeed this new trend has already commenced since Chinese New Year. Moreover it is highly probable, inflation having fallen to its current official rate of 3.2%, that in September, when the new central administration takes office, it will engage in a policy of monetary loosening, thereby giving birth to a new building cycle.

I was greatly encouraged to learn that the finances of Shaanxi Province, the base for the vast bulk of the company's operations, are extremely strong, being derived, not from property sales, as frequently occurs elsewhere, but from natural resources. Accordingly, fixed asset investment in the current five year plan is projected to continue to grow at an amazing annual rate of 30%; this will provide plenty of scope for further price increases and hence profits growth. The large exposure to major mining stocks proved detrimental to the portfolio last year as the sentiment towards cyclicals deteriorated in late summer while investors became so risk averse.  The sector is set to perform again as investors regain their nerve and wake up to the fact that the combined economies of  Asia are  continuing to thrive and are relatively unscathed by the financial crisis on account of the high savings ratio which prevails in many countries. The underweight exposure to the financial sector performed badly in the sell-off although it is now making some recovery. Standard Chartered continues to prosper, as is the share price of Prudential, perhaps buoyed by hopes of a relisting in HK. By contrast, Man Group has struggled for most of the year having made an ill-timed acquisition of GLG, a 'long only' fund management group which has suffered from a high degree of redemptions in recent months.  The dividend yield, however, which the Board has promised to maintain, remains mouth-watering. With the exception of Petro Matad, which found excessive water mingled with the large oil reserves discovered during the last two years, the portfolio's exposure to the oil sector fared well in relative terms. BP continues to make progress towards settlement of its liabilities arising from the Macondo oil spill disaster and gradually restoring the dividend.  Royal Dutch Shell benefited from the commissioning of its massive investment in Qatar for the production of gas to liquids. BG made further announcements of the ever increasing scale of the finds of gas/oil off- shore Brazil. Meanwhile Tullow and Premier continue to make new discoveries and benefit from the rising price of oil.

GCM is another major holding whose share price has fallen by more than half. Whereas the power shortage in Bangladesh persists at a level of some 40%, thereby severely restraining the whole economy, progress towards providing a solution to the problem is taking place, but at a glacial speed. The technical committee appointed by the PM last summer to investigate the effects of open cast mining, such as those which affect the environment, is already late in publishing its report. Hope springs eternal. Although it is taking much longer to come to fruition than I would ever have imagined, I have every confidence that the project will receive the go-ahead one day in the near future.  The government now has plans to construct 11000 MWs of coal fired power stations to ease the power shortage, as promised in the PM's election manifesto some three years ago. Moreover, a pronouncement by the Prime Minister in Parliament in January, that domestic coal reserves would be left in the ground for future generations and that foreign coal would be imported instead, has recently been contradicted; this has served to increase my confidence in the project. The revised policy is much more commercial; it now involves burning coal from domestic sources, as any logical person would have predicted long ago. It is far too costly to import coal from foreign sources in a large carrier and then tranship it in succession to a barge, whilst still at sea, and thereafter to carriage by rail. A delivery on the railway network direct from mine to power station is far more economical. Shortly after the licence to mine has been finally issued, I expect an immediate takeover battle to gain control of this company, whose deposits of both coking (semi-soft grade) and thermal coal are deemed Tier 1, i.e. long life (30 years of extraction) and low cost (<US$35 per tonne). The shares are currently valued at a small fraction of their true potential.

Elsewhere, the portfolio, except by market action, has been little changed during the year. The most noteworthy new additions include further exposure to fixed interest, which now represents 6.8% of the total - all in corporate bonds. In terms of equities, Tesco has made its debut appearance in the list, on account of its large exposure to emerging markets, following its recent fall from favour, which I strongly suspect has been overdone. There have also been additions to the holdings in Ocean Wilson, whose prospects in Brazil improve with every new off-shore discovery, as well as Emblaze. This latter company has announced contracts with three major global manufacturers of mobile handsets to convert standard phones into smart phones at prices easily affordable in low income countries, especially China; if successful the company has huge potential. Much more exciting in the short term, however, is the fact that Emblaze is currently commencing the process of suing Apple for unpaid royalties on every Iphone and Ipad ever produced. A satisfactory outcome to the lawsuit would certainly transform the share price. These purchases have been financed by the proceeds from the sale of China Shoto, together with reductions from West China Cement and BTG as mentioned earlier. Further money was raised from Aviva, in view of its high exposure to peripheral Eurozone countries, and from a gentle trimming of mining stocks at a time of the slowdown in global trade.

OUTLOOK

Despite the worries prevailing one year ago, of a possible double dip recession, the US economy has confounded many forecasters; it is now showing good signs of recovery, although a further dose of QE is still under consideration. The level of unemployment has finally started to fall and some two million new jobs have been created. Sadly, corporations currently remain reluctant to spend their vast liquid resources. At long last, however, retail investors appear to have recently reversed their strategy and are investing once more in mutual funds, if only on a miniscule scale, after heavy reductions last year. In Europe, the chickens have finally come home to roost in the peripheral countries of the Euro-zone, as manifested through the rise in the yields on Sovereign bonds. Several nations have been refinanced, most notably amongst them is Greece for the second but not, I fear, for the last time. Although the politicians are congratulating themselves, I foresee that, with unemployment exceeding 50% among the young and the Greek economy set in a downwards spiral, declining rapidly, the problem is far from over. As 'austerity fatigue' increases so social unrest will rise and thus eventual departure from the Euro becomes ever more inevitable, whatever the bureaucrats in Brussels may desire. Other Mediterranean countries such as Portugal and Spain will then appear under the spotlight before too long, perhaps causing further blips to take place in stock-markets.  Signor Draghi will certainly have to his work cut out to keep the printing presses rolling to maintain the Eurozone, aptly dubbed the largest Ponzi scheme in history, intact.  The Euro looks set to become the most potent non-military weapon of mass destruction ever invented.  In summary, the immediate prospects for the economies of several countries on the periphery are akin to those of the Costa Concordia, i.e. on the rocks and ready for break-up!

Against such a lacklustre economic background the rate of recovery in the UK economy will be severely constrained by the paucity of growth in Europe, yet there will undoubtedly be winners to be found amongst the beneficiaries of new growth trends. I feel confident that the portfolio can demonstrate its superior, not only geographic but also growth, potential once investor sentiment has begun to improve and risk aversion to abate. Meanwhile, growth in China and Asean countries, to which the portfolio is heavily exposed, continues unabated, albeit at a percentage point lower than in the past, on account of a reduction in export trade with Europe. An astounding and most relevant statistic, of which I have recently become aware, is that the combined economies of eleven Asean economies plus China now, for the first time for two centuries, exceed that of each of the EU and USA. How life has changed from only a few years ago. Amazingly this has not yet been reflected in the asset allocation of the average portfolio; but, as the saying goes: 'the early bird catches the worm'.

Chinese monetary conditions remained tighter than many had expected throughout the year, but this policy has successfully managed to help lower the rate of inflation, which has halved from above 6% to nearly 3%. (greatly aided, I am led to believe, by the rapid expansion of the pig industry). Accordingly, there is plenty of 'ammunition', should the need arise, to stimulate that economy in the form of reductions in interest rates and fewer restrictions on the property market as well as lower requirements for reserve ratios. As mentioned earlier, such changes will, in all probability, only take place after the accession of the new administration in September.  Thereafter, investors may gain an increased appetite for such exposure once more. At the risk of repeating an extract from last year's Report, 'the commodity super-cycle is merely pausing for breath during the slow-down in global trade'. It will not be very long, however, before commodity prices start to rise rapidly once more, driven on by major industrialisation programmes in emerging market economies, which account for 60% of the world's population, at a time of shortages in supply. An important milestone was reached in 2011 when the urban population in China exceeded 50% of the total for the first time. The general hunger for income continues unsated at a time of huge pension fund deficits, ageing populations and low interest rates. Such conditions will provide support for equity markets, indeed there are some who would dare to use the expression 'golden opportunity'. Not for five decades has there existed a reverse yield gap (remember Mr Ross Goobey Sr.) coinciding with the strong possibility of future rampant inflation, should the printing presses continue to roll, as many sage investors now expect. Meanwhile, one strategist has expressed my views succinctly: 'Say a long good bye to bonds and embrace the long good buy for equities'. As a fisherman I exercise great patience in the hope of catching a huge salmon one day. I would gain no satisfaction in spending time at a well-stocked trout farm to hook a small trout every two minutes. Instead I derive much pleasure from going forth on many occasions, when the time is right, even if usually returning empty handed, in search of a 'whopper'.  Similarly my style of investing requires much patience for sometimes far longer than expected in order to achieve the anticipated rich rewards. Fortunately, I now see, continuing the analogy, several large fish splashing about in the tail of the pool. Even if the climate is stormy and the reel is not yet screaming, I am indeed excited about the near term potential in the portfolio. Finally, I wish to thank the shareholders for their assistance, loyalty and patience during the past year.

James Barstow

Mars Asset Management Limited

30 May 2012

BUSINESS REVIEW

INVESTMENT POLICY The Company's objectives are pursued through investments in securities, the majority of which are listed on the London Stock Exchange, predominantly comprising equities but allowing exposure to fixed interest and equity related securities. In general the portfolio is weighted towards the larger and mid-cap stocks.  A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.  In pursuing this policy, the Manager takes into account the following considerations: Distribution of the portfolio relative to the benchmark An element of risk is inherent in investment undertaken on a selective basis.  The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities.

The benchmark is the FTSE All-Share Index, which is an index of over 700 of the largest capitalised stocks quoted on the London market.  This Index is not only representative of the UK economy but also includes a significant degree of international exposure, because the London Stock Exchange has become the stock market of choice for many of the emerging world's largest companies and, furthermore, many of the largest stocks are multinational companies with the majority of their revenues derived outside the UK.  Therefore the Manager can achieve the aim of exposure to fast-growing economies while investing selectively in stocks quoted on the London market.  However, the Manager makes no attempt to replicate the benchmark and the weightings of the portfolio to particular sectors may differ significantly from those of the benchmark.  A performance fee is payable to the Manager only if the benchmark is beaten and a NAV is achieved that is greater than the NAV at the time when the previous performance fee was paid.  This incentivises the Manager to seek to achieve a superior distribution in the portfolio to that of the benchmark. Risk diversification At 29 February 2012 the Company's investments were spread across 43 holdings and across 7 main sectors. The Board does not believe that it should normally or continuously impose prescriptive limits on the Manager regarding the geographic breakdown or distribution by sector of the portfolio.  However, these matters are a subject of repeated discussion between the Board and the Manager and from time to time particular informal limits are agreed between them.  The Company can and sometimes does hold large positions in certain stocks.  However, the Company, as an investment trust, has been prohibited from creating a holding at the time of investment that represents more than 15% of the portfolio in any company.  Furthermore, it does not hold more than 15% of the portfolio in other investment trusts.

Gearing Policy The Company is usually geared to a moderate degree.  Borrowings are limited by the articles to a maximum of 30% of NAV and by the Company's bank covenant to 25% of NAV.  The Board has adopted a policy whereby under normal circumstances borrowings are to be kept to within approximately 20% of the Company's NAV, but with the flexibility to rise for limited periods.  This flexibility is considered desirable to avoid the possibility of forced sales in adverse market conditions. The Board keeps the level of gearing and the extent, if any, of borrowing in foreign currencies under close review.  Hedging The Company does not use derivatives to hedge market or currency exposure.

OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIs) The Company's principal investment objective is to achieve capital growth.  The Company's success in attaining its objectives is measured by reference to KPIs as follows: a)     The Company seeks to achieve a positive total return over the long-term.  To measure its success, the Board compares shareholders' returns from owning the shares (share price appreciation and dividends) over one and five years and since launch to the return on an appropriate gilt-edged security (without reinvestment of dividends or interest).  The Board considers long-term performance to be of greater importance than short-term and that the five-year comparison is the Company's Primary KPI.    b)    The Company's Benchmark is the FTSE All-Share Index, against which the Net Asset Value (NAV) return (capital only) is compared.  After achieving the goal of making absolute returns for shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark. c)     The Company also seeks to outperform other companies that it considers to be its Peer Group.  The Company's one and five year NAV returns are therefore compared with those of the AIC UK Growth Sector Size Weighted Average. d)    The Company seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Total Expense Ratio) are reasonable. The Board has also sought to achieve a dividend rising in line with inflation, although this is not defined as a KPI.

PERFORMANCE Since its launch the management of the Company's investments has been contracted to Mars Asset Management Limited, which is regulated by the FSA.  The principal participant in the management of the Company's investments is James Barstow (managing director).  Mr Barstow reports in detail upon the Company's activities in his Report.     The Company's performance relative to the KPIs described above was as follows:

(a) Performance of share price vs. gilt edged security

	Year ended 29 February 2012	Five years ended 29 February 2012	Since launch (1997)
Share price and dividends	(27.2%)	(12.9%)	+118.4 %
Treasury 9% stock 2012 and interest	+8.1%	+38.1%	+119.5%

The Company has not achieved this KPI over any of the periods.

(b) Performance of NAV vs. Benchmark

	Year ended 29 February 2012	Five years ended 29 February 2012	Since launch (1997)
Net Asset Value per share	(20.2%)	(13.0%)	+119.7 %*
Benchmark	(2.0%)	(4.8%)	+41.2%

All NAV figures are for capital-only performance

*by reference to a starting value of 97.78p (net of launch expenses).

The Company has achieved this objective since launch, but not over one or five years.

(c) Performance vs. Peer Group

	Year ended 29 February 2012	Five years ended 29 February 2012
Net Asset Value per share	(20.2%)	(13.0%)
AIC UK Growth Sector Weighted Average	(0.16%)	+8.40%

The Company has not achieved this achieved this objective over one year or five years.

(d) Total Expense Ratio

	Year ended 29 February 2012	Year ended 28 February 2011
Total Expense Ratio	1.81%	1.58%

The ratio is calculated excluding finance costs but including operating expenses charged to capital and applied to the average NAV of the year.  Expenses of a type not expected to recur under normal circumstances are excluded from the calculation.  Increase in dividend The Company has generally succeeded in achieving a steady increase in the level of dividend paid.  Another modest increase is proposed in respect of the year ended 29 February 2012.  The directors are recommending a dividend of 3.55p per share (2011: 3.5p per share).

REVENUE RESULT AND DIVIDEND The Group's revenue profit after tax for the period amounted to £59,211 (2011: loss £126,269).  The Company made a revenue profit after tax of £415,150 (2011:£304,164).  At the Annual General Meeting on 11 July 2012 a resolution will be proposed to approve a final dividend of 3.55p (2011: 3.5p) per ordinary share, absorbing £410,105 (2011: £404,329).  The final dividend, if approved, will be paid on 20 July 2012 to shareholders on the register at 29 June 2012; the ordinary shares will go ex-dividend, if approved, on 27 June 2012.  In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 29 February 2012.

RISK ANALYSIS The Board considers that the principal risks faced by the shareholders of the Company fall into two categories: External Risks Poor performance in the UK and/or world economies; poor corporate profits and dividends.  Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc.  The Board does not consider, however, that short-term volatility represents a risk for the long-term shareholder and it regards long-term performance to be of primary importance. Internal Risks Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.   Poor control of borrowing, including borrowing at excessive rates of interest relative to likely returns and borrowing excessive amounts leading to the breach of covenants and possible enforced sales of assets at disadvantageous prices. Poor governance, compliance or administration, including particularly the risk of loss of S1159 status. All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

RISK CONTROLS External risks Information on the mitigation of risk by diversification and by control of gearing and hedging is given in the Investment Policy section above. Further details concerning currency risks, liquidity risks and interest rate risks are given in note 19. Internal risks The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance in the Company's annual report.

FIVE YEAR SUMMARY The following data are all expressed as pence per share.  NAV figures are all calculated at bid prices.

Year	NAV	Dividend in respect of year	Special dividend	Share price (mid market)
2007	246.88	3.10	-	222.50
2008	203.04	3.15	-	181.00
2009	111.86	3.25	1.75	81.00
2010	191.52	3.45	-	159.50
2011	269.24	3.50	-	246.00
2012	214.84	3.55	-	175.75

OUTLOOK The outlook for the Group is discussed in the Chairman's Statement and the Manager's Review and Outlook. THE BOARD The Directors of the Company and of its subsidiary AIT Trading Limited at any time during the year are stated below.  Lord Flight of Worcester (Chairman) (appointed 18 July 2011) The Honourable James Nelson (appointed 18 July 2011) Alex Hammond-Chambers (Chairman) (retired 18 July 2011) Richard Robinson (retired 18 July 2011) James Barstow FCA Richard Martin All directors are non-executive, in as much as Mr Barstow is an employee of Mars Asset Management Limited and not of the Company.

DIRECTORS' SHAREHOLDINGS 

The Directors' shareholdings in the Company, all of which were beneficially owned, were:

			At 29 February 2012		At 28 February 2011
			Ordinary shares		Ordinary shares
	Lord Howard Flight		0		0
	The Hon. James Nelson		10,000		0
	A Hammond-Chambers		N/A		15,000
	MJ Barstow		860,000		839,000
	R Robinson		N/A		0
	R Martin		10,100		6,100

Since 29 February 2012, but prior to the commencement of the Close Period, a discretionary fund manager purchased 30,000 shares in the Company for a pension scheme of which Lord Flight is a beneficiary.  There are no other changes as at the date of this report to the information shown above. During the year, no rights to subscribe for shares in or debentures of the Company or its subsidiary have been granted to, or exercised by, any director or a member of his immediate family.  No shares in AIT were held by any director.

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

The directors are responsible for preparing the Directors' Report, the Remuneration report and the financial statements in accordance with applicable law and regulations. Company law in the United Kingdom requires the directors to prepare financial statements for each financial year.  Under that law the directors have to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have elected to prepare the Company financial statements on the same basis.  Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period.  In preparing these financial statements, the directors are required to: ·       select suitable accounting policies and then apply them consistently; ·       make judgements and accounting estimates which are reasonable and prudent; ·       state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; ·       prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Disclosure of information to auditor The directors confirm that: ·      so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and ·      the directors have taken all the steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

Statement under the Disclosure and Transparency Rules 4.1.12 The directors confirm that to the best of their knowledge and belief; (a)   This annual report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that the Company faces; and (b)   The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole.

For and on behalf of the Board

Lord Flight

Chairman

30 May 2012

CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

FOR THE YEAR ENDED 29 FEBRUARY 2012

		Year ended 29 February 2012				Year ended 28 February 2011
Note		£'000	£'000	£'000		£'000	£'000	£'000
	(Losses)/Gains on investments designated at fair value through profit or loss	-	(5,913)	(5,913)		-	10,865	10,865
	Realised gains of trading subsidiary at fair value through profit or loss	214	-	214		92	-	92
	Unrealised losses of trading subsidiary at fair value through profit or loss	(710)	-	(710)		(595)	-	(595)
2	Investment income	1,100	-	1,100		826	-	826
	Total income	604	(5,913)	(5,309)		323	10,865	11,188
3	Investment management fees	(120)	(120)	(240)		(136)	(136)	(272)
3	Other expenses	(323)	-	(323)		(229)	-	(229)
	Profit/(loss) before finance costs and tax	161	(6,033)	(5,873)		(42)	10,729	10,687
6	Finance costs	(108)	(108)	(216)		(90)	(90)	(180)
	Profit/(loss) before tax	53	(6,141)	(6,088)		(132)	10,639	10,507
7	Tax	6	-	6		6	-	6
	Profit/(loss) and total comprehensive income for the year	59	(6,141)	(6,082)		(126)	10,639	10,513
9	Earnings per share	0.51p	(52.55p)	(52.04p)		(0.97p)	82.14p	81.17p

The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the AIC.  As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income.  The amount of the Company's loss for the financial year was £6,082,145 (2011: profit £10,512,968) All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the period.  All revenue is attributable to the equity holders of the parent company.  There are no minority interests.  The Board recommends a final dividend of 3.55p per share (see note 8) absorbing £410,105, out of the Company's revenue profit for the year of £415,150

CONSOLIDATED BALANCE SHEET

AT 29 FEBRUARY 2012

		2012		2011
Notes		£'000		£'000
	NON-CURRENT ASSETS
10	Investments designated at fair value through profit or loss	27,565		37,675
	CURRENT ASSETS
	Investments designated at fair value through profit or loss	1,744		2,420
	Other receivables	173		68
	Cash and cash equivalents	37		1,431
		1,954		3,919
	TOTAL ASSETS	29,519		41,594
	CURRENT LIABILITIES:
	Purchases for future settlement	-		741
	Other payables	84		105
	Bank loan and overdraft	4,616		5,876
		4,700		6,722
	TOTAL ASSETS LESS CURRENT LIABILITIES	24,819		34,872
	EQUITY
12	Called up share capital	3,598		3,598
	Capital redemption reserve	179		179
	Share premium account	10,997		10,997
14	Gains on disposal	13,343		14,487
14	Investment holding gains/(losses)	(2,467)		6,097
	Revenue reserve	(831)		(486)
	TOTAL EQUITY	24,819		34,872
15	Net assets per ordinary share	214.84p		269.24p

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

FOR THE YEAR ENDED 29 FEBRUARY 2012

		Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	Notes	£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity		3,598	179	10,997	14,487	6,097	(486)	34,872
Total comprehensive income/(loss) for the year		-	-	-	2,423	(8,564)	59	(6,082)
Purchase of own shares		-	-	-	(3,567)	-	-	(3,567)
Dividends paid	8	-	-	-	-	-	(404)	(404)
Closing equity		3,598	179	10,997	13,343	(2,467)	(831)	24,819

FOR THE YEAR ENDED 28 FEBRUARY 2011

		Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
	Notes	£,000	£'000	£,000	£,000	£,000	£,000
Opening equity		3,598	179	10,997	11,290	(1,345)	87	24,806
Total comprehensive income/(loss) for the year		-	-	-	3,197	7,442	(126)	10,513
Dividends paid	8	-	-	-			(447)	(447)
Closing equity		3,598	179	10,997	14,487	6,097	(486)	34,872

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 29 FEBRUARY 2012

Notes		2012		2011
		£'000		£'000
	NET CASH FLOW FROM OPERATING ACTIVITIES
	Cash inflow from investment income and interest	1,022		845
	Cash inflow/(outflow) from held for trading current asset investments	180		(2,923)
	Cash outflow from management expenses	(588)		(504)
	Payments to acquire non-current asset investments	(7,997)		(6,946)
	Receipts on disposal of non-current asset investments	11,453		10,536
	Tax recovered	5		6
16	NET CASH FLOW FROM OPERATING ACTIVITIES	4,075		1,014
	CASH FLOWS FROM FINANCING ACTIVITIES
	Purchase of own shares	(3,567)		-
	Dividends paid	(404)		(447)
	(Decrease)/increase in bank borrowings	(1,260)		918
	Interest paid	(238)		(155)
	NET CASH FLOW FROM FINANCING ACTIVITIES	(5,469)		316
	(DECREASE)/INCREASE IN CASH	(1,394)		1,330
	Cash and cash equivalents at beginning of year	1,431		101
	(Decrease)/increase in cash	(1,394)		1,330
	Cash and cash equivalents at end of year	37		1,431

COMPANY BALANCE SHEET

AT 29 FEBRUARY 2012

		2012		2011
Notes		£'000		£'000
	NON-CURRENT ASSETS
10	Investments designated at fair value through profit or loss	27,565		37,675
11	Investment in subsidiary	1,748		2,423
		29,313		40,098
	CURRENT ASSETS
	Other receivables	173		68
	Cash and cash equivalents	33		1,428
		206		1,496
	TOTAL ASSETS	29,519		41,594
	CURRENT LIABILITIES:
	Purchases for future settlement	-		741
	Other payables	84		105
	Bank loan and overdraft	4,616		5,876
		4,700		6,722
	TOTAL ASSETS LESS CURRENT LIABILITIES	24,819		34,872
	EQUITY
12	Called up share capital	3,598		3,598
	Capital redemption reserve	179		179
	Share premium account	10,997		10,997
14	Gains on disposal	13,343		14,487
14	Investment holding gains/(losses)	(3,970)		4,950
	Revenue reserve	672		661
	TOTAL EQUITY	24,819		34,872

COMPANY STATEMENT OF CHANGES IN EQUITY

 

FOR THE YEAR ENDED 29 FEBRUARY 2012

	Notes
		Share capital	Capital  redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity		3,598	179	10,997	14,487	4,950	661	34,872
Total comprehensive income/(loss) for the year		-	-	-	2,423	(8,920)	415	(6,082)
Purchase of own shares		-	-	-	(3,567)	-	-	(3,567)
Dividends paid	8	-	-	-	-	-	(404)	(404)
Closing equity		3,598	179	10,997	13,343	(3,970)	672	24,819

FOR THE YEAR ENDED 28 FEBRUARY 2011

	Notes
		Share capital	Capital redemption reserve	Share premium account	Realised capital reserve	Unrealised capital reserve	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000
Opening equity		3,598	179	10,997	11,290	(2,062)	804	24,806
Total comprehensive income/(loss) for the year		-	-	-	3,197	7,012	304	10,513
Dividends paid	8	-	-	-	-	-	(447)	(447)
Closing equity		3,598	179	10,997	14,487	4,950	661	34,872

COMPANY CASH FLOW STATEMENT

FOR THE YEAR ENDED 29 FEBRUARY 2012

Note		2012		2011
		£'000		£'000
	NET CASH INFLOW FROM OPERATING ACTIVITIES
	Cash inflow from investment income and interest	882		772
	Cash outflow from management expenses	(588)		(504)
	Payments to acquire non-current asset investments	(7,997)		(6,946)
	Receipts on disposal of non-current asset investments	11,453		10,536
	Tax recovered	5		6
16	NET CASH INFLOW FROM OPERATING ACTIVITIES	3,755		3,864
	CASH FLOWS FROM INVESTING ACTIVITIES
	Decrease/ (Increase) in loans advanced to subsidiary	319		(2,844)
	CASH FLOWS FROM FINANCING ACTIVITIES
	Purchase of own shares	(3,567)		-
	Dividends paid	(404)		(447)
	Increase/(decrease) in bank borrowings	(1,260)		918
	Interest paid	(238)		(155)
	NET CASH FLOW FROM FINANCING ACTIVITIES	(5,469)		316
	(DECREASE) / INCREASE IN CASH	(1,395)		1,336
	Cash and cash equivalents at beginning of year	1,428		92
	(Decrease) / Increase in cash	(1,395)		1,336
	Currency translation difference
	Cash and cash equivalents at end of year	33		1,428

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     ACCOUNTING POLICIES

Basis of Accounting The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.   Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009 has no formal status, but the Group adheres to the guidance of the SORP.  The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated.  The particular accounting policies adopted are described below: (a)            Accounting Convention The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments. (b)                      Basis of Consolidation The Group accounts consolidate the accounts of the Company and of its subsidiary AIT Trading Limited ("AIT"), both drawn up to either 28 or 29 February each year.  As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income.  The amount of the Company's loss for the financial year was £6,082,145 (2011: profit £10,512,968).

(c)            Investments As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39.  At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment.  After initial recognition such investments are valued at fair value.  For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income.  All purchases and sales of investments are accounted for on a trade date basis.      The investment of the Company in AIT is stated at cost less impairment.   AIT's own investments are managed and performance evaluated on a fair value basis and accordingly are designated by AIT as "at fair value through profit or loss".  The AIT investments in quoted securities are valued at all times in accordance with current market values that represent fair value; at the time of acquisition they are valued on the basis of trade date accounting. Securities of companies whose prices are quoted on the London Stock Exchange are valued by reference to the Official List of the London Stock Exchange at their bid market prices at the close of the period.  (d)            Income from Investments Investment income from ordinary shares is accounted for on the basis of ex-dividend dates.  Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income.  Income from gilts and bank interest receivable is accounted for on an accruals basis using the effective yield. (e)            Financial liabilities The Group's financial liabilities include borrowings and trade and other payables.  Financial liabilities are measure subsequently at amortised cost using the effective interest method, except for financial liabilities held for trading or designated as FVTPL, that are carried subsequently at fair value with gains or losses recognised in profit or loss.  All interest-related charges and, if applicable, changes in an instruments fair value that are reported in profit or loss are included within finance costs or finance income. (f)            Capital Reserves The Company is precluded by its Articles from making any distribution of capital profits by way of dividend.  Profits and losses on disposals of investments are taken to the gains on disposal reserve.  Revaluation movements are taken to the investment holding losses reserve via the capital column of the Statement of Comprehensive Income.

(g)            Investment Management Fees, Finance Costs and Other Costs Finance costs and monthly management fees are allocated between capital and revenue according to the Board's expected long-term split of returns between capital gains and income; one-half of these costs are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Performance-related fees are charged to gains on disposal via the capital column of the Statement of Comprehensive Income.  Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital.  Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.      (h)            Taxation Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date.  Deferred income taxes are calculated using the liability method on temporary differences.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.  In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.  Deferred tax liabilities are always provided for in full.  Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity.  (i)          Foreign currency The currency of the primary economic environment in which the Group companies operate (the functional currency) is pounds sterling ("Sterling"), which is also the presentational currency of the Group.  Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date.  At each balance sheet date, monetary items and non-monetary assets and liabilities, which are fair valued and which are denominated in foreign currencies, are retranslated at the closing rates of exchange.   Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature.  Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate. (j)          Cash and cash equivalents    Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank. (k)          Dividends payable to equity shareholders Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid, or have been approved by shareholders in the case of a final dividend.

2.	INCOME	2012		2011
	Income from investments:	£'000		£'000
	Franked dividends from listed  or quoted investments	661		598
	Unfranked income from overseas dividends	341		82
	Income from listed fixed interest securities	98		146
		1,100		826
	Other income:
	Bank interest receivable	-		-
		1,100		826

3.	INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES		2012				2011
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
	Investment management fees                                      - monthly                                      - performance	120 -	120 -	240 -		136 -	136 -	272 -
		120	120	240		136	136	272
	Administration fees	58	-	58		53	-	53
	Custodian's fees	13	-	13		10	-	10
	Registrar's fees	14	-	14		10	-	10
	Directors' fees	79	-	79		64	-	64
	Consultancy payments	54	-	54		27	-	27
	Legal fees	18	-	18		-	-	-
	Auditors' fees - audit of the Company        and of the consolidated financial        statements        -     audit of the subsidiary	22 3	- -	22 3		22 3	- -	22         3
	-       other services	19	-	19		6	-	6
	Miscellaneous expenses	43	-	43		34	-	34
	Total other expenses	323	-	323		229	-	229

All expenses include any relevant irrecoverable VAT

4.      DIRECTORS' FEES

The fees paid or accrued were £72,460 (2011: £63,871).  There were no other emoluments.  The gross figures shown for directors' fees in note 3 above include employers' National Insurance charges or VAT, as appropriate.

5.      TRANSACTION CHARGES

         Group

		2012		2011
		£'000		£'000
	Transaction costs on purchases of investments	28		51
	Transaction costs on sales of investments	26		26
	Total transaction costs included in gains or losses on investments at fair value through profit or loss	54		77

6.	INTEREST PAYABLE AND SIMILAR CHARGES		2012				2011
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
	Interest payable	81	81	162		52	52	104
	Facility and arrangement fees and other charges	27	27	54		38	38	76
		108	108	216		90	90	180

7.	TAXATION		2012				2011
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
	Corporation tax	-	-	-		-	-	-
	Overseas tax	(6)	-	(6)		(6)	-	(6)
	Tax charge in respect of the current year	(6)	-	(6)		(6)	-	(6)

             Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK (26%).  The differences are explained below:

		2012		2011
		£'000		£'000
	Total (loss)/profit before tax	(6,088)		10,507
	Theoretical tax at UK corporation tax rate of 26% (2011: 28%)	(1,582)		2,942
	Effects of:
	Capital (losses)/profits that are not taxable	(1,597)		(2,979)
	UK dividends which are not taxable	(165)		(167)
	Increase/(decrease) in excess tax losses	239		267
	Expenses charged to capital account for which a deduction is claimed	(59)		(63)
	Overseas tax recovered	(6)		(6)
	Actual current tax	(6)		(6)

The Company is an investment trust and therefore is not charged to tax on capital gains.          Factors that may affect future tax charges The Company has tax losses of £6,826,713 (2011: £6,277,610) in respect of management expenses and of £1,360,868 (2011: £1,242,278) in respect of loan interest.  Its subsidiary has trading losses carried forward of £1,909,720 (2011: £1,413,625).  These amounts are available to offset future taxable revenue.  A deferred tax asset has not been recognised in respect of those expenses and will be recoverable only to the extent that the Company has sufficient future taxable revenue.

8.          ORDINARY DIVIDENDS

				2012		2011
				£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year 2011 at 3.5p (2010: 3.45p)				404		447
Dividends not reflected in the financial statements:
Proposed final dividend for the year 2012 at 3.55p (2011: 3.5p)				410		404

9.         EARNINGS PER SHARE

Earnings per share are based on the loss of £6,082,145 (2011: profit £10,512,968) attributable to the weighted average of 11,686,497 (2011: 12,952,250) ordinary shares of 25p in issue during the year, excluding shares held in Treasury. Supplementary information is provided as follows: revenue earnings per share are based on the revenue profit of £59,211 (2011: loss £126,269); capital earnings per share are based on the net capital loss of £6,141,356 (2011: profit £10,639,237), attributable to 11,686,497 (2011: 12,952,250) ordinary voting shares of 25p.

10.	INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	2012		2011
		£'000		£'000
	UK listed or quoted securities	25,899		37,675
	Hong Kong listed security	1,666		-
	Total non-current investments	27,565		37,675
	Movements during the year:
	Opening balance of investments, at cost	31,578		31,004
	Additions, at cost	7,255		7,687
	Disposals - proceeds received or receivable	(11,451)		(10,536)
	- less realised profits	2,650		3,423
	- at cost	(8,801)		(7,113)
	Cost of investments at 29 or 28 February	30,032		31,578
	Revaluation of investments to market value:
	Opening balance	6,097		(1,345)
	Transfer to gains on disposal - realised gains recognised as unrealised in the previous year	2,719		1,665
	Increase / (decrease) in unrealised appreciation credited to investment holding reserve	(11,283)		5,777
	Balance at 29 or 28 February	(2,467)		6,097
	Market value of non-current investments at 29 or 28 February	27,565		37,675

The Company holds a notifiable interest in the following company, the percentage shown being the relevant proportion of the share capital held:  GCM Resources 3.87%.

11.        SUBSIDIARY

The Company has an investment in AIT Trading Limited, a wholly owned subsidiary registered in England and Wales, which  comprised two ordinary shares of £1 each.  AIT undertakes purchases of investments for re-sale in the shorter term, with the  objective of achieving a trading profit.  The loss before tax of AIT for the year was £355,939 (2011: loss £430,434).  The net  deficit of AIT at the Balance Sheet date was £1,503,069 (2011: net deficit £1,147,130).  No dividend was paid from AIT to  the Company (2011: £nil). During the year the Company advanced interest-free short-term loans to AIT to finance its trading operations.  At 29 February 2012 the amount outstanding was £3,250,625 (2011: £3,570,625). The Company makes an impairment provision when AIT is in a net deficit position, of an amount equal to the net deficit.

	2011	Movement	2012
	£'000	£'000	£'000
Loan to AIT	3,570	(319)	3,251
Provision for impairment	(1,147)	(356)	(1,503)
Net investment	2,423	(675)	1,748

12.	SHARE CAPITAL
	At 28 February:		2012		2011
	Authorised
	Ordinary shares of 25p	Number	40,000,000		40,000,000
		£'000	10,000		10,000
	Allotted, issued and fully paid
	Ordinary shares of 25p	Number	14,391,389		14,391,389
		£'000	3,598		3,598

During the year ended 29 February 2012 the Company purchased 1,400,000 of its own shares (2011: Nil).  No shares were cancelled during the year (2011: Nil).  At 29 February 2012, the Company had 14,391,389 shares in issue, of which 2,839,139 are held in Treasury; the number of voting shares in issue is 11,552,250.

13.        TOTAL EQUITY

Total Equity includes, in addition to Share Capital, the following reserves: Capital Redemption Reserve.  When any shares are redeemed or cancelled, a transfer of realised profit must be made to this reserve in order to maintain the level of capital that is not distributable.  Share Premium Account.  When shares are issued at a premium to their nominal value, the "capital profit" arising on their allotment must be held in a Share Premium Account, which is not distributable in the ordinary course and may be utilised only in certain limited circumstances. Capital profits arising from the Company's investment transactions are held as Capital Reserves, subdivided between Gains on Disposal for profits arising upon sales of investments and Investment Holding gains/losses for portfolio revaluations.  The movements on this account are analysed in note 14 below.  The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.

14.	CAPITAL RESERVES	2012		2011
	Gains/(losses) on disposal	£'000		£'000
	Opening balance	14,487		11,290
	(Losses)/gains on disposal recognised in current year	(69)		1,762
	Gains on disposal previously recognised as investment holdings gains	2,719		1,665
	Net gains and losses on realisation of investments	2,650		3,427
	Expenses of capital management: management fees	(120)		(136)
	: finance costs	(107)		(90)
	Net expenses	(227)		(226)
	Purchase of own shares	(3,567)		-
	Exchange differences	-		(4)
	Total transfer to gains on disposal	(1,144)		3,197
	Balance of gains on disposal account at 29 or 28 February	13,343		14,487

		2012		2011
	Investment holding gains/(losses)	£'000		£'000
	Opening balance	6,097		(1,345)
	Transfer to gains on disposal - (losses)/gains	2,719		1,665
	Revaluation of investments  - listed	(11,283)		5,777
	Total transfer to investment holding profits/(losses)	(8,564)		7,442
	Balance of investment holding profits/(losses) account at 29 or 28 February	(2,467)		6,097
	Total capital reserve at 29 or 28 February	10,876		20,584

The capital reserves of the Company are identical to those of the Group, except that a provision is made when necessary against the Company's investment holding account for any amount loaned to AIT Trading Limited that is not covered by the subsidiary's net assets.  At 29 February 2012 such a provision was made of £1,503,069 (2011: £1,147,132).

15.        NET ASSETS PER ORDINARY SHARE

The figure for net assets per ordinary share is based on £24,818,866 (2011: £34,872,224) divided by 11,552,250 (2011: 12,952,250) voting ordinary shares in issue at 29 February 2012, excluding shares held in Treasury.

16.	RECONCILIATION OF PROFIT BEFORE FINANCE COSTS AND TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES	2012		2011
		£'000		£'000
	(Loss)/profit before finance costs and tax	(5,872)		10,687
	Decrease/(increase) in non-current investments	10,110		(8,016)
	Decrease/(increase) in current investments	676		(2,420)
	(Increase)/decrease in other receivables	(104)		18
	(Decrease)/increase in purchases for future settlement	(741)		741
	Increase/(decrease) in other payables	1		(2)
	Taxation recovered	5		6
	Net cash inflow from operating activities	4,075		1,014

17.        RELATED PARTY TRANSACTIONS

Details of transactions with AIT Trading Limited are set out in note 11. Details of the management, administration and secretarial contracts can be found in the annual report.  As disclosed in that report, Mr Barstow is a director both of the Company and of the Manager.  Fees payable to the Manager are detailed in note 3.  Other payables include accruals of a monthly management fee of £17,745 (2011: £25,281) and an administration fee of £6,000 (2011: £4,951).  No performance fee was accrued (2011: £Nil).  All figures include any appropriate VAT.

18.        FINANCIAL ASSETS/LIABILITIES

Investments are carried in the balance sheet at fair value.  For other financial assets and financial liabilities, the balance sheet value is considered to be a reasonable approximation of fair value. Financial assets - Group The Group's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances.  The currency and cash-flow profile of those financial assets was:

		2012				2011
	Interest bearing	Non- interest bearing	Total		Interest bearing	Non- interest bearing	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Non-current investments at fair value through profit or loss:
£ sterling equities	-	23,906	23,906		-	36,580	36,580
Hong Kong $ equities	-	1,666	1,666		-	-	-
£ fixed interest	1,993	-	1,993		1,095	-	1,095
	1,993	25,572	27,565		1,095	36,580	37,675
Short term trade receivables
Cash at bank:
Floating rate - £ sterling	-	37	37		-	1,431	1,431
	-	37	37		-	1,431	1,431

Cash at bank includes £24,365 (2011: £1,381,257) held by the Group's custodian, The Northern Trust Company. Financial assets - Company The Company's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances.  The currency and cash-flow profile of those financial assets was:

		2012				2011
	Interest bearing	Non- interest bearing	Total		Interest bearing	Non- interest bearing	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Non-current investments at fair value through profit or loss:
£ sterling equities	-	23,906	23,906		-	36,580	36,580
Hong Kong $ equities	-	1,666	1,666		-	-	-
£ fixed interest	1,993	-	1,993		1,095	-	1,095
	1,993	25,572	27,565		1,095	36,580	37,675
Short term trade receivables
Cash at bank:
Floating rate - £ sterling	-	33	33		-	1,428	1,428
	-	33	33		-	1,428	1,428

Cash at bank includes £20,998 (2011: £1,381,257) held by the Group's custodian, The Northern Trust Company.

Financial liabilities - Company and Group The Group finances its investment activities through the Company's ordinary share capital, reserves and borrowing.  The Group's financial liabilities comprise its overdraft facility and other short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date. The Company has borrowing facilities from its banker, Coutts & Co.  During the year ended 29 February 2012 the facilities were restructured, from an overdraft facility of up to £6 million to a revolving credit of up to £6.5 million plus an overdraft facility of up to £2 million (or the equivalent in euros and/or US dollars in all cases).  Interest is charged at 2.25% over LIBOR in the case of the loan and over Coutts' base rate in the case of the overdraft.  The facilities are secured upon the shares and securities of the Company.  They are repayable upon demand, but normally are reviewed annually by the bank.  The currency and cash-flow profile of the financial liabilities of the Group and of the Company was:

	2012		2011
	£'000		£'000
Interest bearing: Bank overdraft:
Sterling	4,616		5,876
	4,616		5,876
Non interest bearing:
Short term trade payables	-		-
	4,616		5,876

19.        FINANCIAL INSTRUMENTS - RISK ANALYSIS

Company and Group The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Business Review.  Issues associated with portfolio distribution and concentration risk are discussed in the Investment Policy section of the Business Review.  This note, which is incorporated in accordance with accounting standard IFRS7, examines in greater detail the identification, measurement and management of risks potentially affecting the value of financial instruments and how those risks potentially affect the performance and financial position of the Company.  The risks concerned are categorised as follows:            A)    Potential Market Risks, which are principally (i) Currency Risk (ii) Interest Rate Risk and (iii) Other Price Risk.         B) Liquidity Risk         C) Credit Risk Each is considered in turn below: A (i) Currency Risk All the securities are listed on the London Stock Exchange or quoted on AIM, with the exception of West China Cement, which was previously quoted on AIM but is now listed on the Hong Kong Exchange; the Manager is not required to sell this holding, but will not add to it since it ceased to be quoted in London.  Where the underlying currency or currency of quotation is not sterling this is noted.   The element of currency risk on investments may be indirect and reflected in the effect of underlying currency movements upon the London market price, whether quoted in foreign currency or not.  Based on the portfolio as at 29 February 2012, there were no investments denominated in Euros and consequently there was no currency risk arising from the possibility of a fall in the value of sterling against the Euro, impacting upon the value of investments or income.  West China Cement is now denominated in Hong Kong Dollars; a 10% rise in sterling against the Hong Kong Dollar would result, all other factors remaining unchanged, in a fall of £151,000 in the value of the portfolio.                  The Company had no foreign currency borrowings at 29 February 2012 (2011: Nil).  In view of the elimination of foreign currency borrowings, no sensitivity analysis is presented for this risk.

A (ii) Interest Rate Risk The weighted average interest rate of the fixed rate financial assets is 7.79% (2011: 9.36%) and the weighted average period for which rates are fixed is indefinite (2011: indefinite).  The list of the Company's holdings in the annual report includes details of the split between equities and fixed interest securities.  With the exception of cash, no interest rate risks arise in respect of any current asset.   All cash held as a current asset is sterling denominated, earning interest at the bank's or custodian's variable interest rates.  Interest is charged on the bank borrowing facilities at the bank's variable interest rates as appropriate to the currency concerned in the case of each balance.  At 29 February 2012, the Company's total borrowing was £4,616,181 (2011 £5,876,080): all of which was borrowed in sterling, upon which the interest rate at the year end was 2.75% (2011: 2.75%).   A 2% rise in LIBOR, applied to the sterling loan and overdraft balance as at 29 February 2012, would decrease net revenue by £92,324 on an annual basis.

A (iii) Other Price Risk The principal price risk for the Company is the price volatility of shares that are owned by the Company.  As described in the Manager's Review, the Company spreads its investments across different sectors and geographies, but, as shown by the Portfolio Analysis in the annual report, the Company may maintain relatively strong concentrations in particular sectors selected by the Manager, such as the Resources sector.  B  Liquidity Risk Liquidity Risk is considered to be small, because the portfolio is invested in readily realisable securities.  As a consequence, cash flow risks are also considered to be small.  The Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, c75% of the portfolio could be realised within seven days. The Company's overdraft facility is repayable upon demand, although normally renewed annually.  The Directors believe that the facility will be renewed in 2012.  In view of the Company's ability to sell investments, as stated above, the Company is able to reduce or eliminate its borrowing, if necessary. C Credit Risk The Company invests in quoted equities and fixed interest securities.  The Company's investments are held by The Northern Trust Company ("the Custodian"), which is a large international bank with a high reputation.  The Company's normal policy is to remain fully invested at most times and not to hold very large quantities of cash.  At 29 February 2012, Group cash at bank comprised £24,365 (2011: £1,381,257) held by the Custodian and £12,707 held by Coutts & Co (2011: £49,933), also part of a large international bank with a very high credit rating. Credit Risk arising on transactions with brokers relates to transactions awaiting settlement.  This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.

D Capital management policies and procedures The Group' s capital management objectives are: ·      to ensure the Group's ability to continue as a going concern ·      to provide an adequate return to shareholders by pursuing investment policies commensurately with the level of risk. The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position. The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders (within the statutory limits applying to investment trusts), return capital to shareholders, issue new shares, or sell assets to reduce debt. Since an overdraft was taken out in 1997, the Group has consistently honoured its covenant obligations, among which the principal capital ratio is described under Gearing Policy above.

20.        FAIR VALUE HIERARCHY

Under IFRS7 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Classification		Input
Level 1		Valued using quoted prices in active markets for identical assets
Level 2		Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1
Level 3		Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. Assessment of Hierarchy - Group The valuation techniques used by the Group are explained in the Accounting Policies Note 1(g) above.  As at 29 February 2012, all investments held by the Group, including all current investments held for trading by the Company's subsidiary, are considered to fall within Level 1:

		2012		2011
Level 1		29,309		40,080
Level 2		-		-
Level 3		-		15

Assessment of Hierarchy - Company The Company's subsidiary is held at cost less impairment and therefore its valuation as an investment in the Company's balance sheet does not fall within the fair value hierarchy:

		2012		2011
Level 1		27,565		37,660
Level 2		-		-
Level 3		-		15

21.        Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements. The Group's management have yet to assess the impact of these new standards on the Group's consolidated financial statements. IFRS 9 Financial Instruments The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety.  IFRS 9 is being issued in phases.  To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued.  These chapters are effective for annual periods beginning 1 January 2015.  Further chapters dealing with impairment methodology and hedge accounting are still being developed.  However, they do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes. IFRS 10 Consolidated Financial Statements IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities.  It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary.  However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.  It is applicable for periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements.  It is applicable for periods beginning on or after 1 January 2013.

22.       FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2012 is derived from the statutory accounts for 2012, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2011 have been delivered to the registrar of companies.  The auditors have reported on the 2011 and 2012 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006. The Annual Report for the year ended 29 February 2012 was approved on 30 May 2012.  It will be posted to shareholders and will be made available on the Manager's website at www.marsassetmanagement.co.uk This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FSA.

23.       ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 11 July 2012 at 12.00 noon at 145-157 St. John Street, London, EC1V 4RU. 30 May 2012 Secretary and registered office: Cavendish Administration Limited 145-157 St John Street London EC1V 4RU Tel: [phone]

 

END

 

 

FR AMMFTMBMJBTT