Annual Financial Report

RNS Number : 1900K

F&C Managed Portfolio Trust PLC

25 July 2013

 



To:                  RNS

Date:              25 July 2013

From:             F&C Managed Portfolio Trust plc

Results for the year ended 31 May 2013

The Board of F&C Managed Portfolio Trust plc announces the audited results of the Company for the year to 31 May 2013.

Chairman's Statement

Highlights

• Strong NAV total returns for the Income shares (+34.2%) and the Growth shares (+32.8%)

• Both share classesbeat their bench-mark, the FTSE All-Share Index

• Annual dividendincreased to 4.6p per Income share for the year

Introduction

These are excellent results and I am delighted to present them to shareholders. As welcome as an exceptional year may be though, it is good to see that our two share classes are establishing a track record of steady out-performance.

Our financial year encompassed a powerful surge in equity markets over the last six months as a modest recovery in the US economy became clear while the third round of Quantitative Easing ("QE") in the US drove the price of equities and other assets higher. Some of our holdings rose by 60% or more, as our Manager's Review highlights.

But as the calendar moved into June the situation reversed abruptly. Short-sighted traders awoke to the - surely blindingly obvious - realisation that QE could not continue indefinitely and that interest rates must return to more normal levels as and when economic recovery becomes clearly established. The FTSE All-Share index fell by 5.0% over the course of June, however, since then, markets have recovered their equilibrium.  As at 23 July 2013, the NAV per Income share was 117.55p and the NAV per Growth share was 127.50p, representing a NAV total return of 1.1% (Income shares) and 2.2% (Growth shares) since 31 May 2013.

Performance

Net asset value total return

For the Company's financial year to 31 May 2013, the total return (i.e. adding dividends paid to capital performance) of the FTSE All-Share Index was+30.1%. This index is the performance benchmark for both Portfolios. The total return for the Investment Company sector, as measured by the FTSE Equity Investment Instruments Index, was+29.3%.

Including the quarterly dividends paid out during the year the NAV total return of the Income shares was +34.2%, well ahead of the benchmark. The NAV total return for the Income shares has outperformed the benchmark in each of the five financial years since launch.

The NAV per share of the Growth shares rose by 32.8% to 124.78p per share and was also ahead of the benchmark. The NAV total return for the Growth shares has now outperformed the benchmark in three of the five financial years since launch.

The longer term performance of the Income shares continues to be very strong with 3 year and 5 year NAV total returns of +55.9% and +51.3% respectively, compared with +44.1% and +35.2% for the benchmark. The 3 year NAV total return for the Growth shares of +43.9% compares closely with that of the benchmark. Over 5 years, which includes the period of the financial crisis, the NAV total return was +25.7% against the benchmark return of +35.2%.

Revenue and dividends

Under the Company's capital structure any net revenue arising on the Growth Portfolio is transferred to the Income Portfolio in exchange for a capital contribution of an identical amount. The net revenue return for the Growth shares for the year to 31 May 2013 totalled £298,000, which is equivalent to 1.11p per Income share.  Including this transfer, the Company's net revenue return was £1,390,000 which is equivalent to 5.20p per Income share.

Four interim dividends with respect to the year to 31 May 2013 have now been paid, totalling 4.6p per Income share. This represents a small increase of 0.1p or 2.2% from the prior year to 31 May 2012, and was made possible by increased income from investee companies and the successful fund raising in March 2012. The fourth interim dividend was paid after the year end on 5 July 2013. After recognising all dividends for the year, we were able to add £164,000 to the revenue reserve, which now totals £365,000 or 1.37p per Income share.

As part of a strategy review, the Board has adopted the twin objectives of aiming over time to increase the total dividends paid each year, whilst building revenue reserves from the current level, (which is equivalent to 30% of the annual dividend cost) to that equivalent to 50% of the annual dividend cost. This is with a view to ensuring the stability of future dividend payments.

In the absence of unforeseen circumstances, your Board intends to again declare three interim dividends, each of 1.1p per Income share payable in October 2013, January 2014 and April 2014. It is intended that a fourth interim dividend will be paid to Income shareholders in July 2014 but the directors will determine the amount of the fourth interim dividend when a clearer view emerges of income for the year.

Expenses

In light of the outperformance of the Income shares in the current year a performance fee of £86,000 has been earned by the Investment Manager. Excluding the performance fee, we are pleased to report that the ongoing expenses of running the company (which include the management fee and other non-interest expenses), have decreased to 1.2% as a percentage of the average NAV at 31 May 2013 (from 1.4% for the Income shares and 1.6% for the Growth shares). This has been achieved, in part because from 6 April 2013 the Company will not incur costs for the F&C Private investor share plans and these costs have been removed from the figures at 31 May 2013 shown above. Moreover the increase in assets (from the March 2012 fund raising and market movements) has helped to spread operating costs over a wider base.

Borrowing

At the year end, borrowings in the Income Portfolio and in the Growth Portfolio each total £0.4 million (approximately 1.4% in each Portfolio). The Board is responsible for the Company's gearing strategy and sets parameters within which the Investment Manager operates. In accordance with the stated investment policy, borrowings are not normally expected to exceed 20 per cent of the total assets of the relevant Portfolio, although in current conditions they are unlikely to exceed 10 per cent and indeed have not done so since launch.

During the year the level of gearing ranged between approximately 1% and 5% in the Income Portfolio and 0% to 1.5% in the Growth Portfolio.

Discounts and share buy-backs

In normal circumstances we aim to maintain the discount to NAV at which our shares trade at not more than 5%. We have achieved this by an active programme of buying back shares from time to time. During the year to 31 May 2013 we have been able to maintain an average discount of 2.1% for the Income shares and 2.7% for the Growth shares. At the year end, the ratings were a discount of 1.0% for the Income shares and a discount of 1.4% for the Growth shares.

During the year, 300,000 Income shares and 940,000 Growth shares were bought back to be held in treasury and are available to re-sell. In addition 50,000 Income shares were sold from treasury.

We will be seeking shareholders' approval to renew the powers to allot shares, buy back shares and sell shares from treasury at the Annual General Meeting.

Alternative Investment Fund Managers Directive ("AIFMD")

Shareholders may be aware of the introduction of the AIFMD. The Company is an 'alternative investment fund' (AIF), as defined by the AIFMD. This directive, which originates from the European Commission, imposes significant regulation on the management and operations of AIFs and is effective, subject to transitional provisions, from 22 July 2013.

Your Board is working closely with the Company's advisers to determine how best to comply with the requirements of AIFMD and expects to be fully compliant by the July 2014 deadline.

Share plans and conversion facility

Shareholders have the opportunity to convert their Income shares into Growth shares or their Growth shares into Income shares upon certain dates every year subject to minimum thresholds. The next opportunity will be on 24 October 2013.

Information is provided in the Annual Report and Accounts and full details will be provided on the Company's website www.fcmanagedportfolio.co.ukfrom 29 July 2013. Since launch, no conversion has yet taken place as the number of shares offered for conversion has been well below the minimum threshold. This minimum threshold is set by the Board in order to ensure that the costs which would be incurred by shareholders who are converting are not disproportionate to the value of converting assets.

AGM

The annual general meeting ("AGM") will be held at 12 noon on Wednesday 25 September 2013 in the offices of F&C Asset Management plc, Exchange House, Primrose Street, London. It will be followed by a presentation from our fund manager, Peter Hewitt. This is a good opportunity for shareholders to meet the Board and Manager and I would encourage you to attend.

Outlook

Stock markets have a well proven record of anticipating economic trends, often well in advance. Currently markets - both equities and bonds - have started to anticipate a rise in interest rates from close to zero to higher levels that correspond with more stable economies. As ever this process is starting in the US, following Ben Bernanke's indication that the Federal Reserve intends to start tapering Quantitative Easing and bring it to an end in 2014 - if it is clear that the US economy has achieved sustainable growth.

The pace of normalisation is likely to be volatile as markets react to the flow of economic data. Bonds remain vulnerable but equities appear reasonably priced and will reward the patient investor. As we have said in previous reports, our portfolios of investment companies investing across the world and in many sectors should prove resilient.

Richard M. Martin

Chairman

25 July 2013

Manager's Review as follows:

Stockmarket Background

The concluding sentence from last year's Manager's Review was "The Manager believes that when current macro uncertainties eventually do subside and markets begin to recover, they will benefit strongly". It has to be said that the strength and consistency of the recovery experienced by most equity markets across the globe would have surprised all but the most bullish of investors.

Although the macro uncertainties referred to above are still present they do appear to have receded, principally as a result of the action of Central Banks. That is not to say they have been resolved, far from it. This is particularly true of the problems in the Euro zone. Countries in the southern part of the Euro zone appear mired in deep recession and although bailouts from the European Central Bank and much needed structural reform, particularly of the banking sector have been undertaken, the chronic lack of growth means a further crisis seems to be always just around the corner.

There are fears too that although the Chinese economy appears to have avoided a hard landing, the debt fuelled nature of the boom of the last few years could cause profound difficulties should it begin to falter. In contrast, US economic activity has recovered more strongly than most other developed economies and though a growth rate of 2% per annum is below normal rates of growth for the US, there are indications it is beginning to strengthen and broaden out. Following a long period of weakness, recovery in the UK has been very modest, however a broad range of indicators point to a gradual pick up in the pace of economic activity over the next twelve months.

The actions of Central Banks through Quantitative Easing, initially by the Federal Reserve in the US and the Bank of England in the UK and latterly through the European Central Bank, have kept interest rates and government bond yields at historically very low levels. These actions, designed to aid economic recovery, have also had the effect of being extremely supportive of global equity markets.

Returns from most equity markets were strongly positive, with Europe, which was the worst performing region in the last financial year, experiencing the largest gains in this financial year at +43.3%. The important point is that equity markets across most regions were substantially ahead as the financial system was flooded with liquidity which sought better returns than were available either on deposit or in overvalued sovereign bond markets. Indeed, perhaps the most striking feature of financial markets in the year under review was the end of the long bull market in government bonds. In the UK, 10 year Government gilts started the financial year with a yield of just 1.6% and ended the year at nearly 2%. The FTSE Government All Stocks Index declined by 1.0% (in total return terms)

Performance

For the year to 31 May 2013 the FTSE All-Share Index rose by 30.1% (in total return terms). Over the same period the Net Asset Value for the Income Portfolio was ahead by 34.2% whilst that of the Growth Portfolio gained 32.8% (again both in total return terms). This is the fifth consecutive financial year that the Income portfolio has generated returns ahead of that of the principal benchmark. Encouragingly the Growth Portfolio was also ahead of the FTSE All-Share Index in the year under review and is also outperforming the benchmark index over four years.

For comparative purposes, the FTSE Equity Investment Instruments Index (which is the Investment Companies sector index and effectively the universe that both portfolios are chosen from) rose by 29.3% over the year under review (also in total return terms). The FTSE World (ex UK) Index (which represents global equities, where the Investment Companies sector has a bias towards) rose by 29.4%. Both of these indices underperformed the FTSE All-Share Index so it is very encouraging that both the Income and Growth Portfolios outperformed the last financial year.

What were the key drivers behind the outperformance?

Perhaps the key factor was stock selection. This will be analysed in the next section.

Other more general factors were;

Small and Mid Cap Effect

The largest companies, as represented by the FTSE 100 Index, tend to lead the performance of the equity market at times of financial distress or great uncertainty. Two recent examples which illustrate this trend would be the global financial crisis which followed the collapse of Lehman Bros bank in the second half of 2008 and the acute difficulties present in the Euro zone in the last quarter of 2011 where the break up of the currency was a distinct possibility.

However, over the past twelve months the policy actions of the Federal Reserve in the US, the Bank of England in the UK and latterly the European Central Bank through Quantitative Easing, have resulted in both interest rates and yields on government bonds in developed markets at historic lows. This is a highly supportive environment for equity markets at a time when returns on cash deposits are negligible and valuations of government bond markets in developed countries are stretched. As investors perceived risk as diminishing due to these actions, so equity markets have prospered and the FTSE All-Share Index rose in each month consecutively of the year under review.

When large companies lead the market it is not helpful for active fund managers who have difficulty being overweight the biggest companies in the Index and so they tend to have a much greater exposure to medium and small sized companies which are often viewed as possessing better growth prospects.

Average Sector Discounts

Over the period under review, average discounts in the Investment Company sector (for companies that are mainly invested in equities, excluding private equity, property and hedge funds) have tightened in from 8.5% a year ago to 6.3% as at 31 May 2013. This has clearly assisted performance and in particular is driven by those sub sectors such as UK or Global Growth & Income where funds have above market yields that are viewed as sustainable and may indeed grow. The Income Portfolio has been a major beneficiary of this trend.

Gearing

One of the main advantages that investment companies have over their open ended counterparts is the ability to borrow and invest in the markets. This can work against performance should equity price levels decline however over the past year with equity markets consistently moving ahead it has been helpful to performance for those investment companies who have borrowed monies to invest in the markets.

Leading Contributors - Income Portfolio (all figures total return)

The best performing markets by region in the year under review were European and similarly within the Income Portfolio the leading contributor was European Assets Trust which gained 61%. The trust specialises in small and mid sized companies in continental Europe. Investors have tended to focus on macro issues of the Euro zone and consequential allocations to European equities are at low levels, as are valuations. The focus of the trust is on niche businesses with strong financials and good growth prospects almost regardless of economic conditions. This approach has led to strong returns. European Assets Trust has a dividend yield of 5.4%. For the third consecutive year Lowland Investment Company appears amongst the portfolio's best performers with a gain of 45%. Lowland Investment Company is a UK investment company with around two-thirds of the portfolio invested in medium and small companies with a bias towards the industrial sector. As mentioned earlier in the performance section investment companies which have a decent exposure to medium and small companies are well represented in the portfolio's better performers. Another with these characteristics is Mercantile Investment Trust which is a UK trust focussed on investing in companies in the FTSE 250 Index for mid-cap companies. Mercantile Investment Trust achieved a total return of 45% last year. Bankers Investment Trust also had a strong year with a gain of 46%. Bankers Investment Trust has a global mandate and good asset allocation combined with modest gearing and positive stock selection led to a strong year. The trust also has one of the best long term dividend records in the sector with 45 years of consecutive growth. Another UK holding Merchants Trust produced a noteworthy 47% rise during the year. Merchants Trust is exposed mainly to large companies within the FTSE 100 Index, although this may appear less than optimal in terms of performance, it is also the most highly geared trust within the UK Growth & Income sector at around 20%. Given market movements last year gearing significantly added to performance. The trust has a consistent record of dividend growth and an attractive yield of 5%.

Leading Contributors - Growth Portfolio (all figures are total return)

For the second year running the leading contributor within the Growth Portfolio is the Biotech Growth Trust with a gain of 67%. The portfolio is invested mainly in the US where the biotech market is most developed and where most of the stocks are listed. As mentioned last year, a series of quite significant new products are entering clinical trials from a variety of companies and with valuations in the sector still historically attractive there is also more acquisition activity from large pharmaceutical companies who are seeking to deploy their cash resources rather than plough even more into research and development. The result has been strong share prices in the sector which has benefitted the trust. Next best contributor is long time holding Jupiter European Opportunities Trust with a rise of 60%. The portfolio has a focus on medium sized pan European companies with a global presence, so not reliant purely on the European economies. The strategy is to be exposed to companies with consistent growth qualities and strong balance sheet and cash flow characteristics. This has proven to be a successful approach over the long term for the trust. Schroder UK Mid Cap Fund also had a good year with a gain of 58%. The portfolio is exclusively focussed on companies in the FTSE 250 Index which was a strong performing area of the market. Schroders have an experienced team with a strong reputation in this area and continue to generate returns ahead of the market. The next two contributors are European Assets Trust and Lowland Investment Company both of which are covered in the section on the Income Portfolio but are also held in the Growth Portfolio. Standard Life European Private Equity Trust rose by 45% over the year under review which marks a strong recovery from the 2008/9 period when along with other funds in this sector they had a difficult time due to an extended balance sheet. However the financial strength of the company has improved considerably as have the outlook for private companies and the market for realisations. Reflecting these improvements the discount narrowed sharply from over 40% last year to closer to 20% currently which has resulted in strong returns for shareholders.

Investment Strategy and Outlook

Returns from equity markets over the past year have surprised on the upside and have been much better than would have been expected at the start of the financial year under review. Then, the level of uncertainty and general investor pessimism as a result of the Euro zone crisis and widespread lack of forward momentum in levels of economic activity throughout developed markets led to very muted or even negative expectations from equity markets globally. The key driver behind positive returns was the policy of Quantitative Easing adopted by the Federal Reserve in the US, the Bank of England in the UK and eventually the European Central Bank. This was highly supportive of equities which were valued attractively anyway, and led to steadily rising market index levels. Indeed this is best illustrated by the FTSE All-Share Index which rose for twelve consecutive months to end May 2013 to record a gain of over 30%.

What are the prospects for the coming year?

An indirect effect of the policy of Quantitative Easing has been to reduce considerably the magnitude of uncertainty pervading equity markets. Also by driving government bond yields to historic lows (as illustrated by the yield on 10 year UK government bonds falling to 1.5%) the valuations of bonds have become extremely stretched. Indeed whilst equities achieved strongly positive returns last year the FTSE Government All Stocks Index recorded a total return of -1.0% which may well mark the end of a long bull market in fixed interest securities.

At the time of writing, markets are fixated with the likely slowing in the pace of asset purchases through Quantitative Easing. This has been signalled by the Chairman of the Federal Reserve in recent statements that it could begin later this year and so a sharp correction has occurred in equity markets whilst the yield offered by government bonds has clearly bottomed and is slowly but relentlessly moving upwards. However the positive side to this is a strengthening US economy and confidence that it will continue on this track over the next year. Even in the UK there are early signs that a modest firming in economic data is in place which may become more apparent as the year unfolds. At the very least, a double dip recession appears less likely. The Euro zone is someway behind and remains a drag whilst the risks in China remain, particularly in terms of levels of debt and the speculative property sector.

Although a lessening and ultimately a removal of the policy of Quantitative Easing is viewed adversely by investors it may not be wholly negative. The reason for this is it would infer that monetary authorities have increased confidence in an improving global outlook. This would be most evident in the US but even in the UK where consumer expenditure may begin to show signs of modest recovery. Eventually, assisted by a weaker currency, this should feed into a better environment for corporate profits and dividends. Although this outcome is by no means certain, the valuation of the UK equity market, despite being higher than a year ago, is still below average on a prospective P/E of 12x and a dividend yield of nearly 4%. When set against the returns from cash on deposit or government bonds either in the UK, US or other developed markets, equities continue to offer attractive value.

In terms of investment strategy there seems little cause to deviate from the long term goal of seeking to capture superior returns that can be achieved through holdings in investment companies exposed to certain overseas markets, particularly against a background of a weak currency. Selecting only the best quality investment companies which have demonstrated the ability to achieve strong performance is a key element in the approach. Experience indicates that the achievement of outperformance is more likely from investment managers who have a clearly defined investment process, experience of a variety of different market conditions, ample resources to underpin their management skills and a relentless focus on the portfolio they are charged with managing.

In summary, a number of macro risks remain. The Euro zone crisis has been averted but is far from being solved and could re-emerge should growth continue to be elusive for these economies. In China, also there are concerns over the nature of much of the growth which has a reliance on debt finance that could prove unsustainable. Encouragingly recovery is more tangible in the US and even the UK may generate some forward momentum later this year.

From an investment perspective there may be a period where markets have to adjust to a gradual withdrawal of Quantitative Easing which may well lead to increased volatility. However provided activity levels do recover, that will underpin corporate profits and dividends which should support further progress in equity markets.

Peter Hewitt

Investment Manager

F&C Investment Business Limited

Income Statement (audited)

Year to 31 May 2013

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	14,907	14,907
Income		1,920	-	1,920
Investment management and performance fees		(108)	(337)	(445)
Other expenses		(410)	-	(410)
Return on ordinary activities before finance       costs and tax		1,402	14,570	15,972
Finance costs		(7)	(12)	(19)
Return on ordinary activities before tax		1,395	14,558	15,953
Tax on ordinary activities	5	(5)	-	(5)
Return attributable to shareholders	2	1,390	14,558	15,948
Return per Income share	3	5.20p	25.30p	30.50p
Return per Growth share	3	-	30.60p	30.60p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate Portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Income Statement (audited)

Year to 31 May 2012

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(6,039)	(6,039)
Foreign exchange gains		-	4	4
Income		1,669	-	1,669
Investment management and performance fees		(82)	(218)	(300)
Other expenses		(381)	-	(381)
Return/(loss) on ordinary activities before      finance costs and tax		1,206	(6,253)	(5,047)
Finance costs		(11)	(17)	(28)
Return/(loss) on ordinary activities before tax		1,195	(6,270)	(5,075)
Tax on ordinary activities		(7)	-	(7)
Return/(loss) attributable to shareholders	2	1,188	(6,270)	(5,082)
Return/(loss) per Income share	3	5.04p	(12.84)p	(7.80)p
Return/(loss) per Growth share	3	-	(15.57)p	(15.57)p

The total column of this statement is the Profit and Loss Account of the Company.  The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Segmental analysis, illustrating the two separate Portfolios of assets, the Income Portfolio and the Growth Portfolio, is provided in note 2.

All revenue and capital items in the Income Statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance Sheet (audited)

As at 31 May 2013

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		31,934	31,732	63,666
Current assets
Debtors		54	31	85
		54	31	85
Creditors
Amount falling due within one year		(650)	(556)	(1,206)
Net current liabilities		(596)	(525)	(1,121)
Net assets		31,338	31,207	62,545
Capital and reserves
Called-up share capital		2,736	2,740	5,476
Share premium		4,978	7,876	12,854
Capital redemption reserve		-	182	182
Special reserve		18,683	14,847	33,530
Capital reserves		4,230	5,562	9,792
Revenue reserve		711	-	711
Shareholders' Funds		31,338	31,207	62,545
Net asset value per share (pence)	6	117.68p	124.78p

Balance Sheet (audited)

As at 31 May 2012

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		25,196	24,154	49,350
Current assets
Debtors		58	54	112
Cash at bank and on deposit		-	271	271
		58	325	383
Creditors
Amount falling due within one year		(562)	(94)	(656)
Net current (liabilities)/assets		(504)	231	(273)
Net assets		24,692	24,385	49,077
Capital and reserves
Called-up share capital		2,736	2,740	5,476
Share premium		4,967	7,876	12,843
Capital redemption reserve		-	182	182
Special reserve		18,927	15,824	34,751
Capital reserves		(2,529)	(2,237)	(4,766)
Revenue reserve		591	-	591
Shareholders' Funds		24,692	24,385	49,077
Net asset value per share (pence)	6	91.86p	93.97p

Cash Flow Statement (audited)

Year to 31 May 2013

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Operating activities
Investment income received, net of withholding tax suffered		1,364	577	1,941
Deposit interest received		-	3	3
Investment management and performance fees paid		(167)	(166)	(333)
Other cash payments		(174)	(191)	(365)
Net cash inflow from operating activities		1,023	223	1,246
Servicing of finance
Interest paid on bank borrowings		(18)	(1)	(19)
Net cash outflow from servicing of finance		(18)	(1)	(19)
Capital expenditure and financial investment
Purchases of investments		(768)	(4,084)	(4,852)
Disposals of investments		1,292	4,151	5,443
Net cash inflow from capital expenditure and financial investment		524	67	591
Equity dividends paid		(1,270)	-	(1,270)
Net cash inflow before financing		259	289	548
Financing
Expenses of offer for subscription		(7)	(13)	(20)
Shares purchased to be held in treasury		(292)	(977)	(1,269)
Sale of shares from treasury		59	-	59
Net cash outflow from financing		(240)	(990)	(1,230)
Increase/(decrease) in cash		19	(701)	(682)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year		19	(701)	(682)
Opening net (debt)/cash		(440)	271	(169)
Closing net debt		(421)	(430)	(851)

Cash Flow Statement (audited)

Year to 31 May 2012

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Operating activities
Investment income received, net of withholding tax suffered		1,179	418	1,597
Deposit interest received		-	3	3
Investment management and performance fees paid		(260)	(120)	(380)
Other cash payments		(182)	(206)	(388)
Net cash inflow from operating activities		737	95	832
Servicing of finance
Interest paid on bank borrowings		(29)	-	(29)
Net cash outflow from servicing of finance		(29)	-	(29)
Capital expenditure and financial investment
Purchases of investments		(4,534)	(8,995)	(13,529)
Disposals of investments		1,077	1,865	2,942
Net cash outflow from capital expenditure and financial investment		(3,457)	(7,130)	(10,587)
Equity dividends paid		(991)	-	(991)
Net cash outflow before financing		(3,740)	(7,035)	(10,775)
Financing
Issue of new shares		4,801	8,145	12,946
Expenses of offer for subscription		(76)	(126)	(202)
Shares purchased to be held in treasury		(453)	(1,046)	(1,499)
Net cash inflow from financing		4,272	6,973	11,245
Increase/(decrease) in cash		532	(62)	470
Reconciliation of net cash flow to movement in net (debt)/cash
Increase/(decrease) in cash in the year		532	(62)	470
Opening net (debt)/cash		(972)	333	(639)
Closing net (debt)/cash		(440)	271	(169)

Reconciliation of Movements in Shareholders' Funds (audited)

Year to 31 May 2013

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Opening shareholders' funds		24,692	24,385	49,077
Shares sold from treasury		59	-	59
Shares purchased for treasury		(292)	(977)	(1,269)
Transfer of net income to Income shares from Growth shares		298	(298)	-
Transfer of capital from Income shares to Growth shares		(298)	298	-
Dividends paid		(1,270)	-	(1,270)
Return attributable to shareholders		8,149	7,799	15,948
Closing shareholders' funds		31,338	31,207	62,545

Reconciliation of Movements in Shareholders' Funds (audited)

Year to 31 May 2012

		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Opening shareholders' funds		23,254	20,671	43,925
Increase in share capital in issue		4,801	8,145	12,946
Expenses of offer for subscription		(83)	(139)	(222)
Shares purchased for treasury		(453)	(1,046)	(1,499)
Transfer of net income to Income shares from Growth shares		227	(227)	-
Transfer of capital from Income shares to Growth shares		(227)	227	-
Dividends paid		(991)	-	(991)
Loss attributable to shareholders		(1,836)	(3,246)	(5,082)
Closing shareholders' funds		24,692	24,385	49,077

Principal Risks and Uncertainties

The Company's assets consist mainly of listed equity securities and its principal risks are therefore   market-related.  More detailed explanations of these risks and the way in which they are managed are contained in the notes to the accounts.

Other risks faced by the Company include the following:

·      External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.

·      Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.

·      Credit risk - is the risk that a counterparty will fail to discharge an obligation or commitment that it had entered into with the Company.  All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's custodian.  Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited.

·      Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.  Breach of section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

·      Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of the third party service providers, could lead to an inability to provide accurate reporting and monitoring to the Company, leading to a loss of shareholders' confidence.

·      Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets of the Company.  Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.

The Board seeks to mitigate and manage these risks through continual review, policy-setting and reliance upon contractual obligations.  It also regularly monitors the investment environment and the management of the Company's investment portfolios, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

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

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year to 31 May 2013, of which this statement of results is an extract, have been prepared in accordance with applicable UK Generally Accepted Accounting Practice, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Richard M. Martin

Chairman

25 July 2013

Notes (audited)

1.   The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 25 July 2013, have been prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with guidelines set out in the Statement of Recommended Practice (''SORP''), for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (''AIC'') in January 2009. The audited financial statements for the Company comprise the Income Statement and the total columns of the Balance Sheet, the Cash Flow Statement, Reconciliation of Movements in Shareholders' Funds and the Company totals shown in the notes to the financial statements.

2.   Segmental analysis

            The Company carries on business as an investment trust and manages two separate portfolios of assets: the Income Portfolio and the Growth Portfolio.

            The Company's Income Statementcan be analysed as follows. This has been disclosed to assist shareholders' understanding, but this analysis is additional to that required by UK GAAP and is not audited:

Year ended 31 May 2013

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	-	7,262	7,262	-	7,645	7,645	-	14,907	14,907
Income	1,362	-	1,362	558	-	558	1,920	-	1,920
Investment management and     performance fees	(72)	(194)	(266)	(36)	(143)	(179)	(108)	(337)	(445)
Other expenses	(188)	-	(188)	(222)	-	(222)	(410)	-	(410)
Return on ordinary activities before finance costs and tax	1,102	7,068	8,170	300	7,502	7,802	1,402	14,570	15,972
Finance costs	(7)	(11)	(18)	-	(1)	(1)	(7)	(12)	(19)
Return on ordinary activities before tax	1,095	7,057	8,152	300	7,501	7,801	1,395	14,558	15,953
Tax on ordinary activities	(3)	-	(3)	(2)	-	(2)	(5)	-	(5)
Return  #	1,092	7,057	8,149	298	7,501	7,799	1,390	14,558	15,948

Year ended 31 May 2012

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments	-	(2,665)	(2,665)	-	(3,374)	(3,374)	-	(6,039)	(6,039)
Foreign exchange gains	-	4	4	-	-	-	-	4	4
Income	1,213	-	1,213	456	-	456	1,669	-	1,669
Investment management and          performance fees	(57)	(119)	(176)	(25)	(99)	(124)	(82)	(218)	(300)
Other expenses	(179)	-	(179)	(202)	-	(202)	(381)	-	(381)
Return/(loss) on ordinary activities before finance costs and tax	977	(2,780)	(1,803)	229	(3,473)	(3,244)	1,206	(6,253)	(5,047)
Finance costs	(11)	(17)	(28)	-	-	-	(11)	(17)	(28)
Return/(loss) on ordinary activities before tax	966	(2,797)	(1,831)	229	(3,473)	(3,244)	1,195	(6,270)	(5,075)
Tax on ordinary activities	(5)	-	(5)	(2)	-	(2)	(7)	-	(7)
Return/(loss)  #	961	(2,797)	(1,836)	227	(3,473)	(3,246)	1,188	(6,270)	(5,082)

# Any net revenue return attributable to the Growth Portfolio is transferred to the Income Portfolio and a corresponding transfer of an identical amount of capital is made from the Income Portfolio to the Growth Portfolio and accordingly the whole return in the Growth Portfolio is capital.  Refer to the Reconciliation of Movements in Shareholders' Funds.

.

3.   Return per share

      The Return per share is as follows:

Year ended 31 May 2013	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,092	7,057	8,149	298	7,501	7,799
Transfer of net income from Growth to Income Portfolio	298	-	298	(298)	-	(298)
Transfer of capital from Income  to Growth Portfolio	-	(298)	(298)	-	298	298
Return attributable to     shareholders	1,390	6,759	8,149	-	7,799	7,799
Return per share	5.20p	25.30p	30.50p	-	30.60p	30.60p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		26,715,073			25,484,706

Year ended 31 May 2012	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return/(loss) attributable to Portfolios	961	(2,797)	(1,836)	227	(3,473)	(3,246)
Transfer of net income from Growth to Income Portfolio	227	-	227	(227)	-	(227)
Transfer of capital from Income to Growth Portfolio	-	(227)	(227)	-	227	227
Return/(loss) attributable to     shareholders	1,188	(3,024)	(1,836)	-	(3,246)	(3,246)
Return/(loss) per share	5.04p	(12.84)p	(7.80)p	-	(15.57)p	(15.57)p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		23,555,829			20,845,902

4.       Dividends

		2013
		Income shares Total
Dividends on Income shares		£'000
Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2012
- fourth interim dividend of 1.2p per Income share		323
- special interim dividend of 0.3p per Income share		67
For the year ended 31 May 2013
- first interim dividend of 1.1p per Income share		296
- second interim dividend of 1.1p per Income share		292
- third interim dividend of 1.1p per Income share		292
		1,270
Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.3p per share*		346

* Based on 26,629,936 Income Shares in issue at the record date of 21 June 2013.

The fourth interim dividend of 1.3p per Income share, was paid on 5 July 2013 to shareholders on the register on 21 June 2013, with an ex-dividend date of 19 June 2013.

The Growth shares do not carry an entitlement to receive dividends.

5.       (a) Tax on ordinary activities

    Year ended 31 May 2013

	Income Portfolio			Growth Portfolio			Total
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Current tax charge for the year (all irrecoverable overseas tax) being Taxation on ordinary activities	3	-	3	2	-	2	5	-	5

 (b) Reconciliation of tax charge

		2013
		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Return on ordinary activities before tax:		8,152	7,801	15,953
Corporation tax at standard rate of 23.8 per cent		1,943	1,859	3,802
Effects of:
Gains on investments not taxable		(1,731)	(1,822)	(3,553)
Overseas tax suffered		3	2	5
Non taxable UK dividend income		(194)	(122)	(316)
Non taxable overseas dividend income		(127)	(10)	(137)
Expenses not utilised		109	95	204
Current year tax charge (note 5 (a))		3	2	5

6.       The net asset value per Income share is calculated on net assets of £31,338,000 (2012: £24,692,000), divided by 26,629,936 (2012: 26,879,936) Income shares, being the number of Income shares in issue at the year end (excluding shares held in treasury).

The net asset value per Growth share is calculated on net assets of £31,207,000 (2012: £24,385,000), divided by 25,009,843 (2012: 25,949,843) Growth shares, being the number of Growth shares in issue at the year end (excluding shares held in treasury). 

7.       During the year the Company bought back 300,000 (2012: 485,000) Income shares at a cost of £292,000 (2012: £453,000) to be held in treasury and resold out of treasury 50,000 (2012: nil) Income shares, receiving net proceeds of £59,000 (2012: £nil). At 31 May 2013 the Company held 735,000 (2012: 485,000) Income shares in treasury.  A further nil (2012: 4,807,744) Income shares were issued for net proceeds of £nil (2012: £4,718,000).

          During the year the Company bought back 940,000 (2012: 1,120,000) Growth shares at a cost of £977,000 (2012: £1,046,000) to be held in treasury.  At 31 May 2013 the Company held 2,395,000 (2012: 1,455,000) Growth shares in treasury.  A further nil (2012: 7,844,276) Growth shares were issued for net proceeds of £nil (2012: £8,006,000).

8.   Financial Instruments

The Company's financial instruments comprise its investment portfolio, cash balances, bank borrowings and 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.

Listed and quoted fixed asset investments held are valued at fair value. 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 financial assets and liabilities of the Company at 31 May 2013 and 31 May 2012 is not materially different from their carrying value in the financial statements.

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 or the fair value of the listed debt 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 a 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 Company may not be able to liquidate its investments quickly or otherwise raise funds to meet financial commitments.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity and debt investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders.

Interest rate risk

Floating rate

When the Company retains cash balances the majority of the cash is held in variable rate bank accounts yielding rates of interest linked to the UK base rate which was 0.5 per cent at 31 May 2013 (2012: 0.5 per cent). There are no other assets which are directly exposed to floating interest rate risk. The cost of the Company's borrowing facility from its custodian JPMorgan Chase Bank is liked to the Sterling Overnight Interbank Average Rate (SONIA) which was 0.42 per cent at 31 May 2013 (2012: 0.49 per cent).

Fixed rate

The Income Portfolio holds fixed interest investments.  Movements in market interest rates will affect the market value of fixed interest investments. 

              The Growth Portfolio does not hold any fixed interest investments.

The Company does not have any liabilities which are exposed to fixed interest rate risk.

Foreign currency risk

The Company may invest in overseas securities which give rise to currency risks.  At 31 May 2013 the Income Portfolio had a US dollar denominated investment valued at £623,000 (2012: £540,000).

As the remainder of the Company's investments and all other assets and liabilities are denominated in sterling there is no other direct foreign currency risk.  However, although the Company's performance is measured in sterling and the Company's investments (other than the above) are denominated in sterling a proportion of their underlying assets are quoted in currencies other than sterling. Therefore movements in the rates of exchange between sterling and other currencies may affect the market price of the Company's investment portfolios and therefore they have currency exposure.

                  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 represents the maximum credit risk exposure at the balance sheet date.

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 acceptable credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase 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.

The credit risk on liquid funds is controlled because the counterparties are banks with acceptable credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

              Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments.  The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given that the Company's listed and quoted securities are considered to be readily realisable.

The Company's liquidity risk is managed on an ongoing basis by the investment manager in accordance with policies and procedures in place. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses which are settled in accordance with suppliers stated terms. During the year, the Company had a borrowing facility with its custodian JPMorgan Chase Bank which is repayable on demand.  All liabilities are considered to be repayable on demand for a consideration equal to the carrying value of the liabilities.

9.       Subject to certain minimum and maximum thresholds which may be set by the Board of F&C Managed Portfolio Trust plc ("the Board") from time to time, shareholders have the opportunity to convert their Income shares into Growth shares and/or their Growth shares into Income shares upon certain dates, the next of which will be 24 October 2013 and then annually or close to annually thereafter (subject to the articles of association of the Company). The Conversion notice period will commence on 29 July 2013 and full details will be provided on the Company's website from this date and in the Company's Annual Report and Accounts.

10.     These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited Annual Report and Accounts for the year ended 31 May 2013 will be sent to shareholders shortly, and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.  The full Annual Report and Accounts will be available on the Company's website www.fcmanagedportfolio.co.uk.

The audited accounts for the year to 31 May 2013 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 25 September 2013.

For further information, please contact:

Peter Hewitt, F&C Investment Business Limited   0131 718 1244

Ian Ridge, F&C Investment Business Limited        0131 718 1010

 

END

 

 

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