Final Results

RNS Number : 0209R

City Natural Res High Yield Tst PLC

22 October 2013

 



To:                    RNS

From:                City Natural Resources High Yield Trust plc

Date:                 22 October 2013

Audited results for the year ended 30 June 2013

·      Net asset value total return of -32.0 per cent since 1 July 2012 compared to a total return of

-14.3 per cent from the benchmark index.

·      Ordinary share price total return since 1 July 2012 of -35.9 per cent.

·      Dividend of 5.50 pence per share for the year, an increase of 13.9 per cent.

·      Eighth consecutive increase in the annual dividend, with an increase of 175.0 per cent since 1 August 2003.

·      Net asset value total return of 275.6 per cent since 1 August 2003 compared to a total return of 183.5 per cent from the benchmark index.

·      Ordinary share price total return since 1 August 2003 of 212.7 per cent.

The Chairman, Geoff Burns stated,

"Introduction

A second successive difficult year for commodity markets, which marked time until December 2012 before concluding that improving growth prospects in the developed world did not compensate for declining growth prospects in the developing world and nervousness over the state of the Chinese economy. The first quarter of 2013 saw commodity markets in retreat, and the second quarter saw them in rout.

Investment and Share Price Performance

This was reflected in your Company's performance and in returns to shareholders. As at 30 June 2013 your Company's net asset value stood at 163.1 pence, giving a net asset value total return for the year of -32.0 per cent. The benchmark index returned -14.3 per cent.

The Company's ordinary share price total return during the year of -35.9 per cent was somewhat worse than this, the discount at which the Company's shares trade widening from 11.9 per cent to 17.2 per cent during the year. This summary masks an unusually high degree of discount volatility, with the discount ranging from a high of 21.9 per cent to a low of 8.1 per cent during the year. It stands at 10.8 per cent as I write.

Although this performance is most disappointing, it is largely a consequence of the key and unique

exposure that your Company provides to the less accessible areas of smaller mining and resource stocks. As illustrated in the paragraph below this exposure has secured longer term outperformance, but it does come at the price of high volatility. Your Board and Investment Manager look to manage this volatility (our income emphasis and the diversification of stocks, sectors and geography are part of that process), but it cannot be eliminated. We remain absolutely committed, nevertheless, to providing shareholders with that access and exposure to the less accessible areas of the resource market.

Your Company has generated net asset value and ordinary share price total returns of 275.6 and 212.7 per cent respectively since 1 August 2003; the benchmark index has returned 183.5 per cent.

Income and Dividends

Income and dividends have been a constant focus since 2004, and we believe it contributes an important element of stability in our volatile asset class. I am pleased to be able to report continuing progress in this regard. Earnings grew by 8.6 per cent to 6.34 pence per share during the year, and your Company paid a fourth interim dividend of 2.92 pence per share. This took the dividend for the year to 5.50 pence, an increase of 13.9 per cent on last year and representing the eighth successive year of dividend increases, as illustrated below:

Financial year    Total dividend     % increase

2004/05             2.00p                -

2005/06             2.15p                7.5%

2006/07             2.35p                9.3%

2007/08             2.65p                12.8%

2008/09             3.07p                15.8%

2009/10             3.71p                20.8%

2010/11             4.22p                13.7%

2011/12             4.83p                14.5%

2012/13             5.50p                13.9%

The Company's dividends have grown by 175 per cent since 2004/05, and, although maintaining the historic pace of growth may be challenging, the Board intends to continue to implement a progressive dividend policy.

The yield on the Company's shares is 3.8 per cent as I write.

Gearing and 3.5% Cumulative Unsecured Loan Stock 2018 ("CULS")

The Company has £39.9 million nominal of CULS in issue. Although occasionally at a lower level gearing was generally maintained in the range of 20% to 25% of shareholders' funds during the year, 25% being the upper limit allowed under the Company's investment policy. It was 22.7% at the year end.

The Company's CULS price fell from 100.0 pence to 93.5 pence during the year, a decline of 6.5%.

Board Changes

It is with great regret that I report that Adam Cooke has decided not to stand for re-election at the forthcoming AGM. Adam has been intimately involved with your Company since its change of investment objective in 2003, and has made an extraordinary contribution both to the deliberations of the Board, and in helping us to maintain excellent shareholder communications. He is therefore well known to many of the investors in the Company, who I am sure will join me in wishing him well in the future.

Investment Management

The departure from New City Investment Managers ("NCIM") of some key personnel in the early summer, together with ongoing performance issues, led the Management Engagement Committee to undertake a more than usually intensive review of the investment management arrangements of your Company. This included consulting with our advisers as to the options open to the Board; calling for detailed performance and human resource information from NCIM; reviewing the investment policy and investment environment; assessing feedback from shareholders; and, meeting with NCIM a number of times in the period to September to hear its plans and consider the actions taken by them to address the issues.

Taking into account the specialist and unique nature of our investment policy, the strong response of NCIM and its parent CQS Cayman Limited Partnership to address the problems, the rapid recruitment

undertaken to bolster resourcing and clear evidence of NCIM's own intensive review of its operation, the Board has concluded that it is in the best interests of shareholders that NCIM continues as investment manager of your Company.

Alternative Investment Fund Managers Directive ("AIFMD")

Your Board has considered and taken advice on the best response for your Company to this EU inspired legislation. It appears to be a classic case of applying a sledgehammer, in this case to crack a hedge fund and derivatives 'nut'. It is hard to see that we have anything other than a tenuous connection to this nut, but there will be higher regulatory charges which we are in the process of assessing. We expect to be fully compliant well in advance of the July 2014 deadline.

Annual General Meeting

The Company's Annual General Meeting will take place at The Caledonian Club in Belgravia at 12.30pm on Wednesday 18 December 2013. I do hope that as many shareholders as possible will join us and take the opportunity to meet the Directors and the Investment Managers over a buffet lunch after the meeting.

Outlook

The combined effects of the Chinese slow down, the fear of the tapering of Quantitative Easing, and the slow to negligible recovery in Europe weigh heavily on both emerging and natural resource markets. The economic progress recorded in the USA cannot currently offset the weak demand elsewhere, and has the added effect of sucking investment cash away from emerging markets which have been the principal beneficiaries of the low cost credit froth of the last three years. The expectation of higher interest rates in the West, and greater confidence in its banking system, add to these asset allocation moves which have contributed to weak commodities demand.

While your Company has increased its current focus in the last eighteen months on the more positive

areas of the resources sector, such as oil and gas and soft commodities, the portfolio continues to balance risk, with its long held commitment to gold and uranium. These address the continuing likelihood that excessive application of monetary expansion is going to result in inflation in the West (part of the case for gold), and that global energy demand is not going to be met in a non-polluting way by carbon or renewable sources (the case for uranium).

Although there are recent signs of stabilisation in the resources sector, helped by the cancellation of a

number of capital projects and a renewed focus on shareholder value, it is not possible to predict when a sustained recovery in the sector will arrive. In the meantime income generation is a serious focus for your Board, while it believes that the Company provides diversification into the less accessible areas of resource companies, as desired by shareholders. This positions your Company to outperform, as it has done in the past, when the recovery does come."

Geoff Burns

Chairman

21 October 2013

Investment Manager's Review

The first six months of 2013 saw investors focus, and fret, on the health of the Chinese economy and on the growth prospects for the rest of the world. Their downbeat conclusions saw the bear market in commodity prices, which started in April 2011, extend into a third year; this was a performance mirrored by all the mining equity indices, large or small.

The resources sell off became indiscriminate during the second quarter of 2013, as copper, gold, silver and platinum all posted lows for the year in the last week of June. Gold was a particular whipping boy as unprecedented physical buying out of Asia, became overwhelmed by the liquidation of gold ETF holdings. The value of these holdings fell 41% over the first half of 2013.

We do not believe that the medium or long term reasons for owning gold have been impaired in the least; it remains a store of value, inflation hedge and alternative currency, but we are mindful that, in the short term, gold equities have some adverse headwinds to overcome.

These come in the form of a difficult technical position for the commodity, not just because producing companies are re-instating their hedge books, which were largely absent at the $1800/oz. level. The miners have also been forced into some dramatic write-offs as the gold price falls with Barrick Gold, Kinross Mining, Newcrest Mining and Goldcorp alone accounting for $14.8bn.

Gold equities, however, have had an even more torrid time; the XAU senior gold miners index falling 46% in the first half of 2013, and the GDXJ, the index of the junior gold producers and developers, falling 53%. Exploration companies valuations reverted to their cash backing in many cases, which impacted the portfolio as the likes of Ausgold, Rockridge and Azumah all gave up their "blue sky" premiums.

These are dramatic falls which we believe are overdone in the short term, and which offer compelling opportunities to invest in quality companies at attractive valuations. An example would be Perseus Mining, falling over 80% on the year to the end of June, and nearly doubling in six weeks since. We look forward to seeing real evidence of the sector being able to sustain margins by controlling costs aggressively to match the metal price.

One of the key costs that needs to be aggressively controlled in any mining operation is energy, a difficult task when the oil price has been one of the better performing commodities this year, WTI rising 25% (in Australian dollar terms) in the year to the end of June. The Company increased exposure to the oil and gas sector, not solely in view of the commodity strength, but also because producing companies within the sector have a proven record of creating free cash flow and returning some of this to shareholders. This is especially true of some Canadian ex royalty trusts such as Vermilion Energy, Peyto Exploration and Development and Arc Resources which specialises in the unconventional plays of North America. These companies are not reliant on higher commodity prices for their margin expansion or growth, but are achieving impressive cost discipline through improved understanding of the resource and optimisation of technology.

These dividend paying growth stocks, along with the Company's corporate holdings in convertibles and bonds, have been conspicuous in supporting a robust income account, from which the dividends are paid.

As the span of the low interest era increases, we remain mindful of the importance of income to investors, and are pleased to have delivered another year of increased dividends.

The palm oil price fell 32% in the first half of the year and New Britain Palm Oil's year was not helped by a strong Kina and also poor weather affecting the crop and harvesting. The stock fell 50% as a result, prompting a low ball partial bid from their 49% shareholder. This was subsequently blocked by the Papua New Guinea Securities Commission leaving the company, and the share price, in an unsatisfactory state.

We believe that the sharp falls witnessed in prices within the resource sector do offer investors more than a little optimism at this juncture. Firstly, such a wholesale selloff does offer the possibility of acquiring premium companies at discount prices. Secondly, the unprecedented management changes within the mining industry (over 60% of the FTSE Mining industry by capitalisation and 18 gold industry CEOs have been replaced) will lead to a welcome change of culture. This is best summed up by the new CEO of Rio Tinto, Sam Walsh, in his first message to shareholders where he promised that "under my leadership, Rio Tinto will have an unrelenting focus on pursuing greater value for shareholders". This culture has been sadly lacking for a number of years, and we believe that it will percolate down through the industry. We look forward to more companies recognising the existence of shareholders through increased returns.

We believe that the urbanisation of the developing world continues, indeed those lookouts searching for signs of global economic growth have rarely shouted louder than in the last month. The inevitable supply constraint that must follow as both companies and investors rein back their capital spending programmes should be very supportive of the commodity complex when combined with any increase in demand that will accompany growth. As the bear market for commodity prices enters its third year, the prevailing despondency within the resource sector has depressed valuations to a level the balance of risk is, at last, skewed to the investor.

Will Smith, New City Investment Managers:                     0207 201 6900

Ian Francis, New City Investment Managers:                    0207 201 6900

Martin Cassels, R&H Fund Services Limited:                    0131 524 6138

Audited Income Statement

for the year ended 30 June 2013

			2013	2013	2013
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Losses on investments		-		(53,075)	(53,075)
Exchange losses		-		(95)	(95)
Income		6,415		-	6,415
Investment management fee		(459)		(1,377)	(1,836)
Other expenses		(509)		-	(509)
Net return before finance costs and taxation		5,447		(54,547)	(49,100)
Interest payable and similar charges		(363)		(1,865)	(2,228)
Net return on ordinary activities before taxation		5,084		(56,412)	(51,328)
Tax on ordinary activities		(844)		723	(121)
Net return attributable to equity shareholders		4,240		(55,689)	(51,449)
Return per ordinary share	1	6.34p		(83.28)p	(76.94)p

Reconciliation of Movements in Shareholders' Funds

	Year ended 30 June 2013 Audited  £'000	Year ended 30 June 2012 Audited  £'000
Opening equity shareholders' funds	163,946	236,788
Losses on investments	(53,075)	(75,959)
Net return attributable to ordinary shareholders	4,240	3,907
Costs charged to capital	(2,519)	(2,654)
Exchange losses	(95)	(154)
Dividends paid	(3,410)	(2,982)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	-	4,971
Issue of ordinary shares	7	29
Closing equity shareholders' funds	109,094	163,946

Audited Income Statement

for the year ended 30 June 2012

			2012	2012	2012
		Revenue		Capital	Total
	Notes	£'000		£'000	£'000
Losses on investments		-		(75,959)	(75,959)
Exchange losses		-		(154)	(154)
Income		6,314		-	6,314
Investment management fee		(616)		(1,850)	(2,466)
Other expenses		(609)		-	(609)
Net return before finance costs and taxation		5,089		(77,963)	(72,874)
Interest payable and similar charges		(296)		(1,502)	(1,798)
Net return on ordinary activities before taxation		4,793		(79,465)	(74,672)
Tax on ordinary activities		(886)		698	(188)
Net return attributable to equity shareholders		3,907		(78,767)	(74,860)
Return per ordinary share	1	5.84p		(117.81)p	(111.97)p

 

Audited Balance Sheet

as at 30 June 2013

	As at 30 June 2013	As at 30 June 2012
	£'000	£'000
Fixed assets
Investments	131,736	183,864
Current assets
Debtors	3,119	4,062
Cash at bank and on deposit	10,895	14,277
	14,014	18,339
Creditors: amounts falling due within one year	(1,013)	(3,421)
Net current assets	13,001	14,918
3.5% Convertible Unsecured Loan Stock 2018                    4	(35,643)	(34,836)
Net assets	109,094	163,946
Capital and reserves
Called-up share capital                                                          5	16,718	16,717
Special distributable reserve                                                   5	30,386	30,386
Share premium                                                                     5	4,791	4,783
Equity component of 3.5% Convertible Unsecured Loan Stock 2018                                                                                    5	3,698	4,424
Capital reserve                                                                      5	47,167	102,132
Revenue reserve                                                                    5	6,334	5,504
Equity shareholders' funds	109,094	163,946
Net asset value per share                                                    2	163.14p	245.18p

Audited Cash Flow Statement

for the year to 30 June 2013

	Year ended 30 June 2013	Year ended 30 June 2012
	£'000	£'000
Operating activities
Investment income received	6,423	5,719
Deposit interest received	2	4
Other income received	17	47
Investment management fees paid	(1,889)	(2,533)
Other cash payments	(499)	(593)
Net cash inflow from operating activities	4,054	2,644
Servicing of finance
Interest on bank facility / overdraft	(14)	(147)
Interest on 3.5% Convertible Unsecured Loan Stock 2018	(1,399)	(715)
Net cash outflow from servicing of finance	(1,413)	(862)
Taxation
Tax paid	-	(89)
Capital expenditure and financial investment
Purchases of investments	(76,943)	(92,107)
Disposals of investments	74,432	85,950
Net cash outflow from capital expenditure and financial investment	(2,511)	(6,157)
Dividends
Equity dividends paid	(3,410)	(2,982)
Net cash outflow before financing	(3,280)	(7,446)
Financing
Bank facility repaid	-	(17,400)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	-	39,226
Issue expenses on ordinary shares	(7)	(6)
Net cash (outflow) / inflow from financing	(7)	21,820
(Decrease) / increase in net cash	(3,287)	14,374
Reconciliation of net cash flow to movement in net cash / (debt) (Decrease) / increase in cash in the year	(3,287)	14,374
Repayment of bank facility	-	17,400
Exchange losses	(95)	(154)
Movement in net cash / (debt) in the year	(3,382)	31,620
Opening net cash / (debt) at 1 July	14,277	(17,343)
Closing net cash at 30 June	10,895	14,277

Notes

1.         The revenue return per ordinary share is based on a net profit after taxation of £4,240,000 (2012: £3,907,000) and on a weighted average of 66,869,778 ordinary shares in issue during the year (2012: 66,860,111).

The capital return per ordinary share is based on a net capital loss of £55,689,000 (2012: a net capital loss of £78,767,000) and on a weighted average of 66,869,778 ordinary shares in issue during the year (2012: 66,860,111).

2.         The net asset value per ordinary share is based on net assets of £109.1 million (2012: £163.9 million) and on 66,871,406 (2012: 66,867,488) ordinary shares, being the number of ordinary shares in issue at the year end.

3.         The Board declared a fourth interim dividend of 2.92p per share which was paid on 30 August 2013 to shareholders on the register on 9 August 2013, having an ex-dividend date of 7 August 2013. 

4.         3.5% Convertible Unsecured Loan Stock 2018   

	Nominal value of CULS £'000	Liability component £'000	Equity component £'000
Balance at the beginning of the year	39,961	34,836	4,424
Amortisation of discount on issue and issue expenses	-	96	-
Transfer of CULS liability discount amortisation	-	724	(724)
Conversion during the year	(15)	(13)	(2)
Balance at the end of the year	39,946	35,643	3,698

On 26 September 2011, the Company issued a total of £40,000,000 nominal of 3.5% Convertible Unsecured Loan Stock 2018. The CULS can be converted at the election of holders into ordinary shares during the months of March and September in each year throughout their life, commencing March 2012 to September 2018 at a rate of 1 ordinary share for every 377.1848p nominal of CULS. On 8 October 2012, the Company issued 2,829 ordinary shares of 25 pence each in connection with the exercise of conversion rights by holders of £10,689 nominal of the Company's CULS. On 12 April 2013, the Company issued 1,089 ordinary shares of 25 pence each in connection with the exercise of conversion rights by holders of £4,118 nominal of the Company's CULS. Once 80% of the nominal amount of the CULS issued have been converted, the Company is allowed to request that holders redeem or convert the remainder. Interest is paid on the CULS on 31 March and 30 September in each year, commencing 31 March 2012. 25% of the interest is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.

As at 30 June 2013, there was £39,946,126 nominal of CULS in issue.

5.         Reserves

	Special reserve £'000	Share premium £'000	Equity element of CULS £'000	Capital reserve £'000	Revenue reserve £'000
At 30 June 2012	30,386	4,783	4,424	102,132	5,504
Exchange losses	-	-	-	(95)	-
Losses on investments	-	-	-	(53,075)	-
Management fees charged to capital	-	-	-	(1,377)	-
Finance costs charged to capital	-	-	-	(1,865)	-
Taxation credited to capital	-	-	-	723	-
Dividends paid	-	-	-	-	(3,410)
Retained net revenue for the year	-	-	-	-	4,240
Transfer of CULS liability discount amortisation	-	-	(724)	724	-
Issue of ordinary shares	-	8	(2)	-	-
At 30 June 2013	30,386	4,791	3,698	47,167	6,334

6.         The following are considered related parties: the Board of Directors ("the Board") and CQS/New 

             City Investment Managers (the "Investment Manager").

As at 30 June 2013, the Company held shares in New City Energy and Golden Prospect Precious Metals, these two investment companies are also managed by the Investment Manager.

7.         The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2013. The financial information for 2013 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2012 accounts, their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006.  The statutory accounts for 2013 are audited and the Auditors have issued an unqualified opinion. The statutory accounts for 2013 will be finalised on the basis of the financial information presented in this announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Principal Risks

The principal risks faced by the Company are: investment and strategy risk; market risk; sector risk; financial risk; earnings and dividend risk; operational risk and regulatory risk. These risks, which have not changed materially since the annual report for the year ended 30 June 2012, and the way in which they are managed, are described in more detail in the annual report for the year ended 30 June 2013.  The report will be made available on the manager's website www.ncim.co.uk during October 2013.

The Company's financial instruments comprise its investment portfolio, cash balances, bank facilities, debtors and creditors that arise directly from its operations.  As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective.  The Company can make use of flexible borrowings for short term purposes, as detailed in the Chairman's Statement, to achieve improved performance in rising markets and to seek to enhance the returns to shareholders, when considered appropriate by the Investment Manager. The downside risk of borrowings may be reduced by raising the level of cash balances held.

Listed fixed asset investments held are valued at fair value.  For listed securities this is either bid price or the last traded price depending on the convention of the exchange on which the investment is listed.  Unlisted investments are valued by the Directors on the basis of all information available to them at the time of valuation.  The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet. The fair value of the bank facility and the fair value of the 3.5% Convertible Unsecured Loan Stock 2018 are not materially different from their carrying value in the Balance Sheet.

The main risks that the Company faces arising from its financial instruments are:

(i)         market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)         interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii)        foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates;

(iv)        credit risk, being the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v)         liquidity risk, being the risk that the bank may demand re-payment of the loan or that the Company many not be able to liquidate quickly its investments.

Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments held.  It represents the potential loss the Company might suffer through holding market positions in the face of price movements.  To mitigate the risk the Board's investment strategy is to select investments for their fundamental value.  Stock selection is therefore based on disciplined accounting, market and sector analysis, with the emphasis on long term investments.  An appropriate spread of investments is held in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a country or sector.  The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. 

Interest rate risk

Financial assets

Bond and preference share yields, and their prices, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Government's fiscal position, short term interest rates and international market comparisons.  The Investment Manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company.

Returns from bonds and preference shares are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds.  Consequentially, if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date.  However, over the life of a bond the market price at any given time will depend on the market environment at that time.  Therefore, a bond sold before its redemption date is likely to have a different price to its purchase level and a profit or loss may be incurred.

Interest rate risk on fixed rate interest instruments is considered to be part of market price risk as disclosed above.

Floating rate

When the Company retains cash balances they are held in floating rate deposit accounts.  The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency for each deposit.

Financial liabilities

The Company may utilise the bank facility to meet any liabilities due.  The Company has borrowed in sterling at a variable rate based on the UK bank base rate. The Board sets borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis.

Foreign Currency Risk

The Company invests in overseas securities and may hold foreign currency cash balances which give rise to currency risks. The Company does not hedge its currency exposure and as a result the movement of exchange rates between pounds sterling and the other currencies in which the Company's investments are denominated may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company. Although the Manager may seek to manage all or part of the Company's foreign exchange exposure, there is no assurance that this can be performed effectively.

The Manager does not intend to hedge the Company's foreign currency exposure at the present time.

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.  The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis.  The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

Credit risk on fixed interest investments is considered to be part of market price risk.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement.  Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

The cash held by the Company and all the assets of the Company which are traded on a recognised exchange are held by HSBC Bank, the Company's custodian.  Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited.  The Board monitors the Company's risk by reviewing the custodian's internal control reports.

Should the credit quality or the financial position of HSBC Bank deteriorate significantly the Investment Manager will move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties as at 30 June 2013 and as at 30 June 2012.

Liquidity risk

The Company's financial instruments include investments in unlisted investments which are not traded in an organised public market and which generally may be illiquid.  As a result, the Company may not be able to liquidate these investments at an amount close to their fair value.

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager.  The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient cash, has a short term bank facility and readily realisable securities to pay accounts payable and accrued expenses.  The Company also maintains sufficient cash and readily realisable securities to meet any demand repayment on its overdraft facility.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

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 and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the 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 Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies 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 website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Geoff Burns, Chairman

21 October 2013

 

END

 

 

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