Annual Financial Report

RNS Number : 3106F

F&C Managed Portfolio Trust PLC.

27 July 2016

 

To:                  RNS

Date:              27 July 2016

From:             F&C Managed Portfolio Trust plc

Results for the year ended 31 May 2016

The Board of F&C Managed Portfolio Trust plc announces the audited results of the Company for the year to 31 May 2016.

Chairman's Statement

While this financial year has been a difficult and volatile period for global equity markets, your Company has outperformed its benchmark index, increased its annual dividend by 4.0% and through share issuance increased in size by some 20%.

Performance

Net asset value total return

For the Company's financial year to 31 May 2016, the NAV total return (i.e. adding dividends paid to capital performance) was -4.8% for the Income shares and -4.5% for the Growth shares which represented outperformance against the -6.3% total return for the FTSE All-Share Index, the benchmark index for both Portfolios.

The Investment Company sector, as measured by the FTSE Equity Investment Instruments Index, returned -2.5%. As Peter Hewitt, our Investment Manager, mentions in his report, this index now contains a significant component of funds investing in infrastructure, renewable energy and debt with little or no equity exposure.

We are disappointed to report losses in value but at least the returns over longer periods are more robust.

The principal contributors to the performance and additional information on the Company's investment portfolios are identified in the Investment Manager's Review. A major factor was the widening of investment trust discounts. Interestingly, there has been a sweeping reversal since the Brexit Referendum, with the sectors which fared well during the period, such as smaller companies, now lagging emerging markets and trusts focused on large companies with international exposure.

The NAV total return of both share classes have outperformed the benchmark index over 1 year, 3 years and 5 years to 31 May 2016 and from launch.

Revenue and dividends

Despite the significant increase in the Company's shares in issue, we have been able to increase the dividend by 4.0%, well above inflation on any realistic measure. This is the fifth consecutive year of increase; in line with our objective. As a result, the yield on the Income shares was 4.6% on the year- end share price, compared with 3.75% for the FTSE All-Share Index. We were also able to add to the revenue reserve, which is now equivalent to approximately 43% of the annual dividend cost, an important buffer for the dividend in challenging times.

For the year ended 31 May 2016, four interim dividends have now been paid totalling 5.2p per Income share (5.0p for the previous year). The fourth interim dividend was paid after the year end on 8 July 2016.

In the absence of unforeseen circumstances, your Board intends again to declare three interim dividends, each of not less than 1.2p per Income share payable in October 2016, January 2017 and April 2017. A fourth interim dividend will be paid in July 2017 when a clearer view emerges of income for the year.

Growing the Company

As referred to in my statement in the Interim Report; the Company was selected as the rollover option for the winding up of The Cayenne Trust. The Cayenne Trust invested in investment trusts and other closed ended funds and the rollover option allowed those shareholders who wished to remain invested in a similar investment company to elect to receive Income shares and/or Growth shares in our Company. On 30 October 2015, we published a new Prospectus in order to facilitate the anticipated demand from The Cayenne Trust.

Ultimately we were pleased to announce that we received approximately £12.9 million of cash from The Cayenne Trust shareholders who wished to rollover. Around £7.0 million related to elections for Income shares and £5.9 million for Growth shares. Under the terms of the rollover these shares were issued at a premium to NAV of approximately 0.85%.  I would like to welcome these new shareholders and thank them for their support.

Borrowing

In December 2015, the Company renewed its one year £5 million unsecured revolving credit facility with The Royal Bank of Scotland plc. The Board is responsible for the Company's gearing strategy and sets parameters within which the Investment Manager operates.

Borrowings are not normally expected to exceed 20% of the total assets of the relevant Portfolio; in practice they have been modest and primarily used to enhance income in the Income Portfolio by investing in higher yielding alternative funds. At the time of writing, borrowings total £2.0 million (3.9%) in the Income Portfolio and £nil in the Growth Portfolio.

Share capital

During the financial year, 7,845,099 new Income shares and 5,437,194 new Growth shares were issued, raising £9.1 million and £8.2 million respectively, net of expenses.

Much of this related to the issue of shares to The Cayenne Trust shareholders, but it also includes the issue of 1,825,000 new Income shares and 1,550,000 new Growth shares from our block listing authority to meet ongoing market demand. These shares were sold at average premiums to NAV of 1.4% and 1.5% respectively.

Overall, after allowing for the costs of the share issues, this enhanced the respective net asset values. The issuance increased the size of the Company by approximately 20% and has helped to reduce our ongoing charges to 1.09%, as operating costs are now spread over a larger asset base.

As part of our efforts to maintain the share prices close to the respective NAVs, there was some activity with our shares held in treasury. Overall, 583,537 Growth shares and 750,000 Income shares were bought back at an average discount to NAV of 1.9% and 2.7% respectively, while 275,000 Growth shares were resold from treasury at an average premium to NAV of 1.8%.

In normal circumstances, we aim to maintain the discount to NAV at which our shares trade, at not more than 5%. In practice over the years the shares have generally traded close to NAV. During the year to 31 May 2016, we have been able to maintain an average premium of 0.9% for the Income shares and 1.2% for the Growth shares.

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.

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 20 October 2016. Information is provided in the Shareholder Information section in the Annual Report and Accounts and full details will be provided on the Company's website (www.fcmanagedportfolio.co.uk).

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 costs of a conversion are not incurred which would be disproportionate to the level of converting assets.

AGM

The annual general meeting ("AGM") will be held at 12.30pm on Thursday 22 September 2016 in the offices of BMO Global Asset Management, Exchange House, Primrose Street, London. It will be followed by a presentation from our Investment Manager, Peter Hewitt. This is a good opportunity for shareholders to meet the Board and Investment Manager and I would encourage you to attend.

Outlook

Since the vote for the UK to leave the European Union, prospects for equity markets, particularly in the UK but also in Europe and even globally, have become deeply uncertain. This has happened at a time when the outlook globally was becoming increasingly challenging. In this environment, a diversified portfolio of investment companies is an attractive way for the private investor to gain exposure to global equity markets. Both the Income and Growth portfolios have significant holdings in investment companies invested overseas, which are run by the very best fund managers.  I believe that by sticking to the highest quality investment companies and employing a cautious investment strategy then shareholder interests will be best served, against an uncertain background.

Richard M Martin

Chairman

26 July 2016

Investment Manager's Review

Stockmarket Background

How times change. It appears almost a different world, that in the Investment Manager's Review a year ago, reference was made to the FTSE 100 Index trading at almost 7000 and double-digit gains were reported for the Net Asset Values of both the Income Portfolio and Growth Portfolio.

Twelve months on and the same FTSE 100 Index finished the Company's financial year to 31 May at 6230. Not only that, but periods of quite significant volatility have been experienced by markets along the way. As an example the FTSE 100 Index fell to nearly 5500 in mid-February. Some of the key features which were behind this volatile performance are highlighted below:

•  The oil price, which had already fallen from over $100 to $60 at the start of the financial year, fell again to below $30 in January before recovering to finish the year over $50

•  Inflation declined to historically very low levels in many developed countries with the threat of deflation becoming a real worry for financial markets

•  The slowdown in China affected the global economy and particularly countries in the Asia Pacific region

•  Levels of growth disappointed in most developed countries and led to another year of downgraded profit estimates for the corporate sector

A major concern was that the highly accommodative monetary policy of quantitative easing, adopted by Central Banks across the globe, appeared to have reached the limits of its effectiveness. The concern for investors was that the authorities were no longer able to stimulate growth and that fear stalked financial markets for much of the past year.

The US Federal Reserve has a clear desire to try to normalise interest rates, however, despite a small increase in December, persistently below trend levels of growth in the US prevented any further rate increases for the year under review.

As a consequence of weak activity levels, negative interest rates and negative bond yields have over the course of the year become commonplace in a number of countries e.g. Japan, Germany and Switzerland.

The trends noted above were reflected in poor performance from most global equity markets where in local currency terms most returns were significantly negative. However, for sterling investors these declines were cushioned by a near 5% decline over the year against the dollar and a 6% fall in sterling relative to the Euro as once again sterling proved to be one of the weakest of the major currencies. Only the S&P Composite Index, which represents US equities, actually managed to record a positive return in local currency terms although even then, it was only +1.7%.

The UK equity market was also adversely affected by the trends highlighted above such that only Asia Pacific and Emerging Markets performed worse over the period under review.

Performance

For the year to 31 May 2016, the FTSE All-Share Index fell by 6.3% (in total return terms). Over the same period the Net Asset Value of the Income Portfolio fell by 4.8% whilst that of the Growth Portfolio declined by 4.5% (again both in total return terms). This represents the fourth consecutive financial year that the Growth Portfolio has been ahead of the FTSE All-Share Index. Since launch in 2008, the Income Portfolio has outperformed the benchmark in seven of the eight financial years. Whilst this performance record is encouraging the past financial year was most definitely "a game of two halves". After a period of good relative performance in the first half of the year, in the second half, the Growth Portfolio lagged the benchmark whilst the Income Portfolio recorded a slight outperformance.

A key factor behind the performance is illustrated by looking at the average discount across investment companies in the sector (excluding private equity, property, hedge funds, debt and leasing funds and infrastructure). This looks at investment companies, which are mainly invested in equities and from this it can be seen, that for the first part of the year discounts were relatively stable and then in the second half, they widened from around 5.5% to nearly 7% by the end of the financial year. There was a noticeable widening of discounts around the time the Federal Reserve raised US interest rates in December and again in January/February when real concerns over prospects for global growth became apparent. However as these concerns appeared to ease there was a partial recovery towards the end of the period.

Both portfolios were affected by this trend. It is best illustrated by the average discount movements amongst certain sub-sectors of the investment company universe over the second half of the financial year. For example, Technology trusts experienced a 7% widening, for European trusts it was 3%, whilst for UK Smaller Companies and UK All Companies, it was 2.4%. Even UK Equity Income experienced on average a 1.3% widening out of the average discount between the share price and the net asset value. Discounts in investment companies have often been indicators of risk and so the evidence above of discount widening could be viewed as an indicator of rising risks to the global economy and also the risk of Brexit will have been a factor. This trend will impact equity related sectors most, however it is trusts in these sectors that will be the principal generator of long term performance and so, unless a serious downturn is likely, should continue to form a core part of both portfolios.

Historically there has been a perception that when equity markets rise the investment company sector, due to its gearing and also a narrowing of discounts, tended to outperform. Similarly when the reverse occurred the sector tended to lag mainstream equity indices. Other factors such as the level of sterling also have an influence however in broad terms these were principal drivers to relative performance of the investment company sector.

Due principally to substantial levels of new issuance, the exposure of the sector to equity markets has changed over the last decade. During that time, the development of the infrastructure sector in particular, but also property and various debt related sectors, have increased the non- equity component of the investment company universe to over a quarter. In terms of performance trends, it has meant that the investment company sector is much less sensitive to equity market movements and has become more defensive in character when viewed relative to equity indices. Of course the sensitivity of individual trusts, especially those with equity objectives will remain closely linked to the fortunes of mainstream equity indices, particularly if they employ gearing as part of their investment strategy.

Income Portfolio - Leaders and Laggards

Two of the better performers have been Standard Life UK Smaller Companies 2018 3.5% Convertible Unsecured Loan Stock which rose over 16% and the Invesco Perpetual UK Smaller Companies Investment Trust which gained 5% (both are share price total returns). It is not easy for a portfolio with an income objective to gain exposure to the UK small company sector, as typically most trusts don't have a high enough dividend yield. In the case of the first, the underlying trust performed strongly and the convertible offered a yield of just over 3%. With the second, its Board took the initiative to supplement the natural yield with a small transfer from the capital reserve so that the dividend yield was 4% at the start of the period. Long term the UK small company sector tends to outperform, so this represents an interesting diversification.

After a period when it lagged the S&P Composite Index (the main benchmark for US equities) BlackRock North American Income produced a rise of 13% in the share price total return as higher yielding large companies returned to favour. It also benefitted from sterling weakness relative to the dollar.

A good indicator of the difficult nature and poor returns from most global equity markets is that the next two best performers are in the infrastructure sector. 3i Infrastructure and GCP Infrastructure Investments generated share price total returns of 11% and 8% respectively. Neither is sensitive to the direction of equity markets and most of their return came in the form of income. The former paid out a special dividend in the course of the year following the successful sale of one its principal investments and has an ongoing dividend yield of around 4.5%, whilst the latter has a dividend yield of 6.3%.

There was a common theme to a number of the principal laggards in the Income Portfolio namely exposure to Emerging Markets and/or the Asia Pacific region. JPMorgan Global Emerging Markets Income Trust declined 17%, Aberdeen Asian Income Fund fell 13%, whilst Henderson Far East Income was down by 11%, all share price total return. The slowdown in China affected the stock markets these funds were invested in, as did the reduction in appetite for risk from global investors. However, it should be remembered the long term attractions of these markets and the strong returns these trusts have achieved in the past. In addition, all of them maintained their dividends which is important as they represent useful income diversifiers for the Income Portfolio.

As explained earlier, during the second half of the year under review, there was a marked widening of discounts in the investment company sector generally, which was also manifest in the UK Equity Income sector. This is a core sector in the investment trust universe and also an important area of investment for the Income Portfolio. Two holdings that underperformed were The Merchants Trust and Temple Bar Investment Trust where the share price total returns were down 13% and 10% respectively. Although net asset values of both were behind the FTSE All-Share Index over the period, it was compounded by discounts widening from close to asset value to high single digits by the end of the year under review. Encouragingly, both trusts actually managed small increases in their dividends and offer attractive yields of around 4% for Temple Bar and over 5% for The Merchants Trust.

Growth Portfolio - Leaders and Laggards

Similar to the Income Portfolio, the best performers in the Growth Portfolio were all significantly invested in UK smaller companies. The leader was Diverse Income Trust with an 11% gain, closely followed by River & Mercantile UK Micro Cap Investment Company which rose 10% and Miton UK MicroCap Trust which was ahead by 9% (all are share price total returns). Diverse Income Trust is an all cap fund which has chosen to invest around two thirds of its portfolio in the small cap sector, whilst the other two trusts specialise in the very smallest listed UK companies. This is an area largely ignored by institutional investors, yet where valuations are most attractive and where, if the right companies with strong management can be identified, then good earnings and dividend growth have led to outperformance.

Standard Life European Private Equity Trust invests in UK and European funds specialising in private companies. In a relatively benign economic environment many private companies have prospered and asset growth has been strong. Because of the perceived risk of investment in this area, discounts on trusts in this sector are wide, often between 20% and 30%. This trust has an experienced management team is well resourced and has a strong balance sheet to take advantage of opportunities. The share price rose 9% in total return terms.

Impax Environmental Markets has been a long term holding in the Growth Portfolio and after a spell of dull performance, has begun to flourish. The share price rose 4% in total return terms. Most of this came in the second half of the year under review, following a major environmental conference in Paris which set goals in a number of key areas for countries to meet. Perhaps unexpectedly, agreement was achieved and this has cleared the way for a re-appraisal of stocks globally in a number of sectors, such as renewables, waste management, filtration etc. Earnings growth is likely to be strong, whilst valuations are attractive.

The principal laggard was Biotech Growth Trust, which fell 23%. After a stellar run of performance, the biotech sector has come in for profit taking as investor sentiment has become more risk averse over the course of the year. Encouragingly the underlying operating companies have produced strong profits and earnings growth. Most of these businesses, which are listed in the US, are sizeable companies, often with billions of dollars of revenues and strong balance sheets. Valuations, particularly in relation to projected growth which is driven by new products, are attractive.

European equity markets have had a difficult past twelve months and trusts invested in this region have experienced a widening of the discount between the share price and the net asset value. This was the case with Henderson European Focus Trust which in share price total return terms, experienced a 10% decline. The trust has an experienced manager with a clear investment approach and have underperformed, not due to poor performance against respective benchmarks, but due to quite sharp widening of the discount. Edinburgh Worldwide Investment Trust, a specialist in global small cap growth companies, declined 10%, and Schroder UK Mid Cap Fund fell 9% in share price total return terms. As investor sentiment has turned more cautious, this has been reflected in a wider discount being accorded to trusts, principally invested in equities, which are perceived as being more risky. In terms of magnitude, the discount move on Gabelli Value Plus + Trust, a trust investing in US equities was the most significant. The trust slightly underperformed the S&P Composite Index but moved from a premium of 2% to a discount of 11% during the year under review. This resulted in a share price decline of 10%, in total return terms.

Investment Strategy and Prospects

This report is being written in the immediate aftermath of the EU referendum. There is little doubt that the preceding months have seen increased levels of uncertainty in both the UK and Europe as to prospects, should a Brexit vote occur. Now that a vote has taken place and the decision to leave the EU has been made, this takes the UK into uncharted waters both politically and economically with a level of uncertainty that has not been experienced for a long time.

F&C Managed Portfolio Trust is not managed on a three or six month time horizon but is focussed on what is in the long term interests of our shareholders. Such is the uncertainty about the future, waiting to see some of the dust settle seems sensible because it is difficult to assess what some of the moving parts will look like as international trade and regulatory negotiations take place.

It seems likely growth will be lower, with perhaps even a recession in 2017. The Bank of England may have to cut interest rates and sterling which has already weakened may well fall further. Equity markets also could well move lower although the fall in sterling acts as a useful offset for overseas earners and exporters.

All of this is happening at a time when the global economic backdrop, regardless of the UK's decision to leave the EU, has become very challenging. The liquidity fuelled bull market with quantitative easing and highly accommodative monetary policy looks to have run its course. Investors worry that Central Banks have lost the ability to stimulate growth even with interest rates negative in many countries.

Although equity markets across the globe are lower than a year ago, in certain cases they are not less expensive, as earnings have fallen. This is particularly true of the UK and of overall corporate earnings. However, profits and earnings have also been under pressure in other sectors so there has not been a compensating increase. In order to make headway it is unlikely valuations will expand much further and so it will require earnings and dividend growth from the corporate sector for the markets to progress.

In terms of investment strategy; similar to the global economic outlook, prospects for financial markets are more challenging than for a long time. In this context, a defensive and cautious approach is appropriate. Having said that, where areas of long term secular growth can be identified, there will still be a measured exposure e.g. technology and healthcare through investment companies such as Polar Capital Technology Trust, Allianz Technology Trust, Biotech Growth Trust, BB Biotech and Worldwide Healthcare Trust. All of which have little exposure to the UK and are beneficiaries of a weaker sterling.

The focus of the investment process will remain on identifying the best managers who have a clear disciplined investment style with proven records achieved through a variety of investment conditions.

In conclusion, financial markets are facing a prolonged period of uncertainty and against this background there is no mileage in making big portfolio shifts until prospects have become clearer. Over the longer term, it is likely that the UK economy can cope with life after Brexit. We have a dynamic economy which has adapted to change before and prospered. Meantime, cautious optimism are the watchwords, with an emphasis on quality in the selection of investment companies for both portfolios.

Peter Hewitt

Investment Manager

F&C Investment Business Limited

26 July 2016

Income Statement (audited)

Year to 31 May 2016

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(6,051)	(6,051)
Foreign exchange gains		-	2	2
Income		2,797	-	2,797
Investment management and performance fee		(177)	(418)	(595)
Other expenses		(415)	-	(415)
Return on ordinary activities before finance      costs and tax		2,205	(6,467)	(4,262)
Finance costs		(8)	(20)	(28)
Return on ordinary activities before tax		2,197	(6,487)	(4,290)
Tax on ordinary activities	5	(11)	-	(11)
Return attributable to shareholders		2,186	(6,487)	(4,301)
Return per Income share	3	5.62p	(11.18)p	(5.56)p
Return per Growth share	3	-	(6.72)p	(6.72)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.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Income Statement (audited)

Year to 31 May 2015

	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	6,908	6,908
Foreign exchange losses		-	(4)	(4)
Income		2,260	-	2,260
Investment management fees		(147)	(349)	(496)
Other expenses		(355)	-	(355)
Return on ordinary activities before finance      costs and tax		1,758	6,555	8,313
Finance costs		(13)	(27)	(40)
Return on ordinary activities before tax		1,745	6,528	8,273
Tax on ordinary activities		(8)	-	(8)
Return attributable to shareholders		1,737	6,528	8,265
Return per Income share	3	5.87p	5.95p	11.82p
Return per Growth share	3	-	17.80p	17.80p

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.

Return attributable to shareholders represents the profit/(loss) for the year and also total comprehensive income.

Balance Sheet (audited)

As at 31 May 2016

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		48,262	49,051	97,313
Current assets
Debtors		161	28	189
Cash at bank and on deposit		762	1,005	1,767
		923	1,033	1,956
Creditors
Amount falling due within one year		(1,141)	(142)	(1,283)
Net current (liabilities)/assets		(218)	891	673
Net assets		48,044	49,942	97,986
Capital and reserves
Called-up share capital		4,254	3,428	7,682
Share premium		21,685	18,546	40,231
Capital redemption reserve		-	182	182
Special reserve		18,532	16,733	35,265
Capital reserves		1,973	11,053	13,026
Revenue reserve		1,600	-	1,600
Shareholders' Funds		48,044	49,942	97,986
Net asset value per share (pence)	6	114.98p	147.02p

Balance Sheet (audited)

As at 31 May 2015

		Income Shares	Growth Shares	Total
	Notes	£'000	£'000	£'000
Fixed assets
Investments at fair value		43,964	45,012	88,976
Current assets
Debtors		110	44	154
Cash at bank and on deposit		1,388	1,063	2,451
		1,498	1,107	2,605
Creditors
Amount falling due within one year		(1,623)	(1,728)	(3,351)
Net current liabilities		(125)	(621)	(746)
Net assets		43,839	44,391	88,230
Capital and reserves
Called-up share capital		3,469	2,884	6,353
Share premium		13,346	10,927	24,273
Capital redemption reserve		-	182	182
Special reserve		19,380	17,197	36,577
Capital reserves		6,320	13,201	19,521
Revenue reserve		1,324	-	1,324
Shareholders' Funds		43,839	44,391	88,230
Net asset value per share (pence)	6	126.37p	153.92p

Cash Flow Statement (audited)

Year to 31 May 2016

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(500)	(495)	(995)
Dividends received		2,029	725	2,754
Interest received Interest paid		22 (16)	8 (12)	30 (28)
Net cash inflow from operating activities		1,535	226	1,761
Investing activities
Purchases of investments		(9,703)	(8,606)	(18,309)
Disposals of investments		1,682	2,035	3,717
Net cash flows from investing activities		(8,021)	(6,571)	(14,592)
Net cash flows before financing activities		(6,486)	(6,345)	(12,831)
Financing activities Equity dividends paid		(1,910)	-	(1,910)
Net proceeds from issuance of new shares Sale of shares from treasury Shares purchased to be held in treasury Loan repaid		9,118 - (848) (500)	8,159 400 (872) (1,400)	17,277 400 (1,720) (1,900)
Net cash flows from financing activities		5,860	6,287	12,147
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		(626) 1,388	(58) 1,063	(684) 2,451
Cash and cash equivalents at the end of the year		762	1,005	1,767
Represented by: Cash at bank and short term deposits		762	1,005	1,767

Cash Flow Statement (audited)

Year to 31 May 2015

		Income	Growth
		Shares	Shares	Total
		£'000	£'000	£'000
Net cash outflow from operations before dividends and interest		(408)	(435)	(843)
Dividends received		1,543	636	2,179
Interest received Interest paid		19 (24)	1 (16)	20 (40)
Net cash inflow from operating activities		1,130	186	1,316
Investing activities
Purchases of investments		(9,748)	(6,963)	(16,711)
Disposals of investments		1,609	1,826	3,435
Net cash flows from investing activities		(8,139)	(5,137)	(13,276)
Net cash flows before financing activities		(7,009)	(4,951)	(11,960)
Financing activities Equity dividends paid		(1,388)	-	(1,388)
Net proceeds from issuance of new shares Sale of shares from treasury Loan drawn down		8,752 - 1,500	2,115 2,158 1,400	10,867 2,158 2,900
Net cash flows from financing activities		8,864	5,673	14,537
Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year		1,855 (467)	722 341	2,577 (126)
Cash and cash equivalents at the end of the year		1,388	1,063	2,451
Represented by: Cash at bank and short term deposits		1,388	1,063	2,451

Statement of Changes in Equity (audited)

Year to 31 May 2016

Income Shares	Share capital £000	Share premium account £000	Capital redemption reserve £000	Special reserve £000	Capital reserves £000	Revenue reserve £000	Total shareholders' funds £000
As at 31 May 2015	3,469	13,346	-	19,380	6,320	1,324	43,839
Increase in share capital in issue, net of share issuance expenses	785	8,339	-	-	-	-	9,124
Shares purchased for treasury	-	-	-	(848)	-	-	(848)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	438	438
Transfer of capital from Income to Growth portfolio	-	-	-	-	(438)	-	(438)
Dividends paid	-	-	-	-	-	(1,910)	(1,910)
Return attributable to shareholders	-	-	-	-	(3,909)	1,748	(2,161)
As at 31 May 2016	4,254	21,685	-	18,532	1,973	1,600	48,044
Growth Shares
As at 31 May 2015	2,884	10,927	182	17,197	13,201	-	44,391
Increase in share capital in issue, net of share issuance expenses	544	7,619	-	-	-	-	8,163
Shares sold from treasury	-	-	-	408	(8)	-	400
Shares purchased for treasury	-	-	-	(872)	-	-	(872)
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(438)	(438)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	438	-	438
Return attributable to shareholders	-	-	-	-	(2,578)	438	(2,140)
As at 31 May 2016	3,428	18,546	182	16,733	11,053	-	49,942
Total Company
As at 31 May 2015	6,353	24,273	182	36,577	19,521	1,324	88,230
Increase in share capital in issue, net of share issuance expenses	1,329	15,958	-	-	-	-	17,287
Shares sold from treasury	-	-	-	408	(8)	-	400
Shares purchased for treasury	-	-	-	(1,720)	-	-	(1,720)
Dividends paid	-	-	-	-	-	(1,910)	(1,910)
Return attributable to shareholders	-	-	-	-	(6,487)	2,186	(4,301)
As at 31 May 2016	7,682	40,231	182	35,265	13,026	1,600	97,986

Statement of Changes in Equity (audited)

Year to 31 May 2015

Income Shares	Share capital £000	Share premium account £000	Capital redemption reserve £000	Special reserve £000	Capital reserves £000	Revenue reserve £000	Total shareholders' funds £000
As at 31 May 2014	2,751	5,312	-	19,380	4,560	975	32,978
Increase in share capital in issue, net of share issuance expenses	718	8,034	-	-	-	-	8,752
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	393	393
Transfer of capital from Income to Growth Portfolio	-	-	-	-	(393)	-	(393)
Dividends paid	-	-	-	-	-	(1,388)	(1,388)
Return attributable to shareholders	-	-	-	-	2,153	1,344	3,497
As at 31 May 2015	3,469	13,346	-	19,380	6,320	1,324	43,839
Growth Shares
As at 31 May 2014	2,740	8,295	182	15,700	8,433	-	35,350
Increase in share capital in issue, net of share issuance expenses	144	1,971	-	-	-	-	2,115
Shares sold from treasury	-	661	-	1,497	-	-	2,158
Transfer of net income from Growth to Income Portfolio	-	-	-	-	-	(393)	(393)
Transfer of capital from Income to Growth Portfolio	-	-	-	-	393	-	393
Return attributable to shareholders	-	-	-	-	4,375	393	4,768
As at 31 May 2015	2,884	10,927	182	17,197	13,201	-	44,391
Total Company
As at 31 May 2014	5,491	13,607	182	35,080	12,993	975	68,328
Increase in share capital in issue, net of share issuance expenses	862	10,005	-	-	-	-	10,867
Shares sold from treasury	-	661	-	1,497	-	-	2,158
Dividends paid	-	-	-	-	-	(1,388)	(1,388)
Return attributable to shareholders	-	-	-	-	6,528	1,737	8,265
As at 31 May 2015	6,353	24,273	182	36,577	19,521	1,324	88,230

Principal Risks

In accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach are described below.

Market Risk. The Company's assets consist mainly of listed closed-ended investment companies and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.

Mitigation:  An explanation of these risks and the way in which they are managed are contained in the notes to the accounts.  The Board regularly considers the composition and diversification of the Income Portfolio and the Growth portfolio together with purchases and sales of investments.  Investments and markets are discussed with the Investment Manager on a regular basis.

Investment risk. Incorrect strategy, asset allocation, stock selection, inappropriate capital structure, insufficient monitoring of costs, failure to maintain an appropriate level of discount/premium and the use of gearing could all lead to poor returns for shareholders.

Mitigation: The investment strategy, performance against peers and the benchmark, and gearing are reviewed with the Investment Manager at each Board meeting. The Income Portfolio and Growth Portfolio are diversified and comprise listed closed-ended investment companies and their composition are reviewed regularly with the Board. The Board regularly considers ongoing charges and a discount management policy has operated since the launch of the Company. Underlying dividends from investee companies and the dividend paying capacity of the Company are closely monitored.

Custody. Safe custody of the Company's assets may be compromised through control failures by the custodian.

Mitigation: The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Custodian's internal controls reports are also reviewed by the Manager and key points reported to the Audit Committee. The Depositary is specifically liable for loss of the Company's securities and cash held in custody.

Operational. Failure of F&C as the Company's main service provider or disruption to its business, or that of an outsourced or third party service provider, could lead to an inability to provide accurate reporting and monitoring, leading to a potential breach of the Company's investment mandate or loss of shareholders' confidence. External cyber attacks could cause such failure or could lead to the loss or sabotage of data.

Mitigation: The Board meets regularly with the management of F&C and receives regular internal control and risk reports from the Manager which includes oversight of third party service providers. The Manager's appointment is reviewed annually and the contract can be terminated with six months' notice.  The Manager benefits from the long-term financial strength and policies of its owner, the BMO Group, and through its stated commitment to the future of F&C's investment trust management business.  The Manager continues to strengthen its Risk, Compliance and Internal Control functions as part of the integration of its operations following the acquisition of F&C by Bank of Montreal and continues to invest in IT security. F&C has outsourced trade processing, valuation and middle office tasks and systems to State Street Bank and Trust ("State Street") and supervision of such third party service providers, including IFDS who administer the F&C savings plans, has been maintained by F&C.

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 2016, of which this statement of results is an extract, have been prepared in accordance with applicable UK Generally Accepted Accounting Practice, including FRS 102 on a going concern basis, and give a true and fair view of the assets, liabilities, financial position, net return and cash flows of the Company;

·      The Strategic Report and the Report of the Directors within the Annual Report to 31 May 2016 includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces;

·      Taken as a whole, the annual report and accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company; and

·      The Annual Report includes details of related party transactions.

On behalf of the Board

Richard M. Martin

Chairman

26 July 2016

Notes (audited)

1.   The financial statements of the Company, which are the responsibility of, and were approved by, the Board on 26 July 2016, have been prepared in accordance with revised UK Generally Accepted Accounting Practice ("New UK GAAP") applying, for the first time, Financial Reporting Standard 102 ("FRS 102") 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 November 2014. The audited financial statements for the Company comprise the Income Statement and the total columns of the Balance Sheet, the Cash Flow Statement, the Statement of Changes in Equity 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 Statement can be analysed as follows. This has been disclosed to assist shareholders' understanding, but this analysis is additional to that required by FRS 102:

Year ended 31 May 2016

	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	-	(3,725)	(3,725)	-	(2,326)	(2,326)	-	(6,051)	(6,051)
Foreign exchange gains	-	2	2	-	-	-	-	2	2
Income	2,085	-	2,085	712	-	712	2,797	-	2,797
Investment management and        performance fees	(116)	(176)	(292)	(61)	(242)	(303)	(177)	(418)	(595)
Other expenses	(206)	-	(206)	(209)	-	(209)	(415)	-	(415)
Return on ordinary activities before finance costs and tax	1,763	(3,899)	(2,136)	442	(2,568)	(2,126)	2,205	(6,467)	(4,262)
Finance costs	(6)	(10)	(16)	(2)	(10)	(12)	(8)	(20)	(28)
Return on ordinary activities before tax	1,757	(3,909)	(2,152)	440	(2,578)	(2,138)	2,197	(6,487)	(4,290)
Tax on ordinary activities	(9)	-	(9)	(2)	-	(2)	(11)	-	(11)
Return  #	1,748	(3,909)	(2,161)	438	(2,578)	(2,140)	2,186	(6,487)	(4,301)

Year ended 31 May 2015

	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	-	2,315	2,315	-	4,593	4,593	-	6,908	6,908
Foreign exchange losses	-	(4)	(4)	-	-	-	-	(4)	(4)
Income	1,629	-	1,629	631	-	631	2,260	-	2,260
Investment management             fees	(96)	(144)	(240)	(51)	(205)	(256)	(147)	(349)	(496)
Other expenses	(173)	-	(173)	(182)	-	(182)	(355)	-	(355)
Return on ordinary activities before finance costs and tax	1,360	2,167	3,527	398	4,388	4,786	1,758	6,555	8,313
Finance costs	(10)	(14)	(24)	(3)	(13)	(16)	(13)	(27)	(40)
Return on ordinary activities before tax	1,350	2,153	3,503	395	4,375	4,770	1,745	6,528	8,273
Tax on ordinary activities	(6)	-	(6)	(2)	-	(2)	(8)	-	(8)
Return  #	1,344	2,153	3,497	393	4,375	4,768	1,737	6,528	8,265

# 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 Statement of Changes in Equity.

.

3.   Return per share

      The Return per share is as follows:

Year ended 31 May 2016	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,748	(3,909)	(2,161)	438	(2,578)	(2,140)
Transfer of net income from Growth to Income Portfolio	438	-	438	(438)	-	(438)
Transfer of capital from Income  to Growth Portfolio	-	(438)	(438)	-	438	438
Return attributable to    shareholders	2,186	(4,347)	(2,161)	-	(2,140)	(2,140)
Return per share	5.62p	(11.18p)	(5.56p)	-	(6.72p)	(6.72p)
Weighted average number of shares in issue during the year (excluding shares held in treasury)		38,891,707			31,829,730

Year ended 31 May 2015	Income Shares			Growth Shares
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Return attributable to Portfolios	1,344	2,153	3,497	393	4,375	4,768
Transfer of net income from Growth to Income Portfolio	393	-	393	(393)	-	(393)
Transfer of capital from Income  to Growth Portfolio	-	(393)	(393)	-	393	393
Return attributable to    shareholders	1,737	1,760	3,497	-	4,768	4,768
Return per share	5.87p	5.95p	11.82p	-	17.80p	17.80p
Weighted average number of shares in issue during the year (excluding shares held in treasury)		29,576,498			26,785,117

4.       Dividends

		2016
		Income shares Total
Dividends on Income shares		£'000
Amounts recognised as distributions to shareholders during the year:
For the year ended 31 May 2015
- fourth interim dividend of 1.55p per Income share		538
For the year ended 31 May 2016
- first interim dividend of 1.20p per Income share		427
- second interim dividend of 1.20p per Income share		438
- third interim dividend of 1.20p per Income share		507
		1,910
Amounts relating to the year but not paid at the year end:
- fourth interim dividend of 1.60p per Income share*		669

* Based on 41,785,035 Income Shares in issue at the record date of 17 June 2016.

The fourth interim dividend of 1.60p per Income share, was paid on 8 July 2016 to shareholders on the register on 17 June 2016, with an ex-dividend date of 16 June 2016.

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

5.       (a) Tax on ordinary activities

    Year ended 31 May 2016

	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	9	-	9	2	-	2	11	-	11

 (b) Reconciliation of tax charge

		2016
		Income Shares	Growth Shares	Total
		£'000	£'000	£'000
Return on ordinary activities before tax:		(2,152)	(2,138)	(4,290)
Corporation tax at standard rate of 20.0 per cent		(430)	(428)	(858)
Effects of:
Losses on investments not taxable		745	465	1,210
Overseas tax suffered		9	2	11
Non taxable UK dividend income		(206)	(121)	(327)
Non taxable overseas dividend income		(207)	(19)	(226)
Expenses not utilised		98	103	201
Current year tax charge (note 5 (a))		9	2	11

6.       The net asset value per Income share is calculated on net assets of £48,044,000 (2015: £43,839,000), divided by 41,785,035 (2015: 34,689,936) 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 £49,942,000 (2015: £44,391,000), divided by 33,968,500 (2015: 28,839,843) Growth shares, being the number of Growth shares in issue at the year end (excluding shares held in treasury). 

7.       During the year 7,845,099 (2015: 7,175,000) Income shares were issued for net proceeds of £9,124,000 (2015: £8,752,000). In addition, the Company bought back 750,000 (2015: nil) Income shares to be held in treasury, at a cost of £848,000 (2015: £nil). At 31 May 2016 the Company held 750,000 (2015: nil) Income shares in treasury. 

8.       During the year 5,437,194 (2015: 1,435,000) Growth shares were issued for net proceeds of £8,163,000 (2015: £2,115,000). In addition, the Company bought back 583,537 (2015: nil) Growth shares at a cost of £872,000 (2015: £nil) to be held in treasury and resold out of treasury 275,000 (2015: 1,490,000) Growth shares, receiving net proceeds of £400,000 (2015: £2,158,000). At 31 May 2016 the Company held 308,537 (2015: nil) Growth shares in treasury. 

9.   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 the financial assets and liabilities of the Company at 31 May 2016 and 31 May 2015 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 2016 (2015: 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 The Royal Bank of Scotland is linked to LIBOR which was 0.51 per cent at 31 May 2016 (2015: 0.51 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 2016 the Income Portfolio had US dollar denominated investments valued at £1,654,000 (2015: £1,372,000), a Swiss Franc denominated investment valued at £1,276,000 (2015: £1,430,000) and a Euro denominated investment valued at £1,140,000 (2015: £963,000).

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. At 31 May 2016, the Company had a £5.0 million unsecured revolving credit facility with The Royal Bank of Scotland plc of which £1.0 million had been drawn down.  All liabilities are considered to be repayable on demand for a consideration equal to the carrying value of the liabilities.

10.     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 20 October 2016 and then annually or close to annually thereafter (subject to the articles of association of the Company). The Conversion notice period commences on 26 July 2016 and full details are provided on the Company's website and in the Company's Annual Report and Accounts.

 11.    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 2016 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 2016 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 22 September 2016.

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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