Annual Financial Report

RNS Number : 8221P

Seneca Global Income & Growth PLC

11 June 2015

 



To:         RNS

Date:     11 June 2015

From:     Seneca Global Income & Growth Trust plc

Results for the year ended 30 April 2015

Chairman's Statement

Highlights

• Net asset value total return of 9.6%

• Share price total return of 9.1%

• Dividend for the year increased by 4.6% to 5.67 pence

• Annualised volatility* 6.7% compared with 12.0% for the FTSE All-Share Index

• Share price discount to net asset value of 7.2% at the period end (1.9% currently)

Introduction

Following the takeover and name change of your Manager in March last year, shareholders approved the change in your Company's name to Seneca Global Income & Growth Trust plc at the AGM in September 2014, as they overwhelmingly did its continuation.

Investment Objective

The Company's Investment Objective is to outperform 3-month LIBOR plus 3.0 per cent over the longer term, with low volatility and the prospect of income and capital growth, through investment in a multi-asset portfolio. 

Your Manager has, as I said in my statement last year we would, discussed with major shareholders the ongoing appropriateness and usefulness of your Company's benchmark. There was no appetite for change, there being no "perfect" benchmark against which to judge the investment policy, though various indices and measures for comparative purposes were suggested and a number are incorporated in this Report. The Company aims to provide a materially better return to shareholders over the long term than they would receive by placing money on deposit, whilst investing in a way that reduces the volatility of returns. The benchmark is only a target and is not a point of reference for the
Manager in selecting the portfolio. Having reviewed various suggestions and options your Board will show the Company's investment performance and volatility levels against a range of relevant indices and the Global Equity Income Sector to allow investors to compare performance against these alternative investment opportunities.

Investment and Share Price Performance

Your Company's net asset value total return for the year was 9.6%, ahead of the benchmark return of 3.6%. This continued the Company's success over recent years, and as at 30 April 2015, your Company's net asset value total return, since the introduction of the new investment policy in January 2012, was 45.5%. Over the same period the benchmark return was 12.6%. The Company received a 5 star Morningstar Rating ™ as at 30 April 2015 for its three year, five year and overall past performance. In spite of the degree of outperformance of the benchmark, this performance has been achieved in the context of a volatility level that was substantially lower than that of the equity market and other trusts in the Global Equity Income sector over both the year and since January 2012.

The discount at which the Company's shares trade to net asset value stood at 7.2% at the year end, a little wider than the 6.5% at the previous year end; this widening contributed to a share price total return of 9.1%. The average discount over the year was 4.9%, compared with 8.3% last year, and it currently stands at 1.9% as I write. I return to this subject below.

Dividends and Income

The Company paid a fourth interim dividend of 1.47 pence per share, which represented an increase of 5.0% on the 1.40 pence per share paid in respect of the same period last year. This dividend, taken with the previous three interim dividends, gives a total dividend of 5.67 pence per share in respect of the year to 30 April 2015, an increase of 4.6% on the previous year's 5.42 pence. We have also been able to add to revenue reserves. 

It is the Board's intention, barring unforeseen circumstances, that it will at least maintain the quarterly dividend rate of 1.47 pence per share for the full year to 30 April 2016. At the year end price of 141.0p and on a full year's dividends of 5.88p for the year to 30 April 2016 the Company's shares yield approximately 4.2%.

Gearing

The Company has in place a short term rolling debt facility of £7 million. The facility runs until 31 October 2015 and a replacement facility is currently being considered. The Company was 10% geared at the end of April 2015.

Investment Outlook

Domestically, the decisive general election result has removed much of the political and economic uncertainty that a coalition government threatened to engender, although the future of the Union and the UK's position in Europe remain concerns. Low oil prices have provided a global stimulus, and Europe itself continues to rebound from its economic nadir of 2014, the threat of a Greek exit from the Euro notwithstanding, while expectations are that the US economy will continue to grow, though figures for the most recent quarter showed a weather-affected fall of 0.7%. Emerging Markets remain a mixed bag, with opinion divided as to the robustness of the Chinese growth story.

Bond yields, having been a one-way bet to zero, especially in Europe, fell too far too fast in the first quarter of 2015 and duly corrected; the speed of the correction is symptomatic of a febrile market. We continue to believe that longer term bonds, as currently rated, look unattractive in the face of potential rate increases and rising inflation. On balance, equities with a defensive bias and 'alternatives' capable of generating real income and capital growth remain our assets of choice. The portfolio mix and weightings reflect this.

Board Changes

As signalled last year, Adam Cooke stepped down from the Board at the end of December 2014, having joined the Board in 2005, just ahead of the Company's metamorphosis from The Taverners Trust to Midas Income & Growth Trust. He has been a loyal servant of shareholders' interests and a source of sound views for the Board and Manager, and we wish him well.

Adam was replaced on the Board in January this year by Jimmy McCulloch. Jimmy is the Executive Chairman of Speirs & Jeffrey Ltd, a long established stockbroking and investment management company based in Glasgow. He brings very considerable experience of investment, the wealth management industry, marketing financial products and managing a business in the financial services sector. His extensive knowledge is already benefitting the Company.

The Board's Priorities

Your Company's investment strategy of growing income and capital from a low volatility, multi asset portfolio is a distinctive one in the Global Equity Income Sector and one which your Board considers has broad potential appeal. Your Board continues to be focussed on maintaining and building on the very solid investment performance record achieved since the changes to the Company's investment policy were approved by shareholders in January 2012, and on marketing the qualities of your Company more actively, with a view to building demand for your Company's shares. Your Manager has similar objectives. Much has been achieved in this regards and it remains your Board and Manager's intention, when appropriate, actively to pursue the enlargement of your Company.

The average discount at which the Company's shares traded during the year was at 4.9%, much tighter than last year's average discount of 8.3% but it was disappointing to see the discount widen out towards the end of the year, wider sector discounts notwithstanding. This was a feature of many investment trusts at the time and may partly have been due to the investor nervousness in the run up to the General Election. Since then discounts have come back and as at the date of this Statement your Company was standing on a 1.9% discount. Further efforts to generate investor demand for shares in the Company remain second only to investment performance as the focus of the Board's and Manager's attention Contingent on the success of these efforts, Board and Manager both remain committed to the adoption of a Discount Control Mechanism ("DCM") that would seek to regulate the share price at close to its net asset value. The objectives of enlarging the Company are to reduce the Ongoing Charges (by spreading the fixed costs over a larger base) and to improve the liquidity of the Company's shares.

Whilst these initiatives are being pursued your Board continues to see the principal control over the discount as being the annual continuation vote. Adoption of any DCM mechanism in advance of enlargement would, as I said last year, risk disadvantaging continuing shareholders by virtue of the potential material increase in Ongoing Charges should any significant shrinkage occur.

Annual General Meeting ("AGM")

The Board this year decided that the gap between the Company's 30 April year end and a late September AGM was unhelpfully long. This year's AGM will therefore be held at 12.30pm on Thursday 9 July 2015 at the offices of Maclay Murray & Spens LLP, One London Wall, London EC2Y 5AB. I would be pleased if as many shareholders as possible were to take this opportunity to meet with Board members and the investment managers over a post AGM buffet lunch.

Resolution 6 at this year's AGM concerns the annual continuation vote by shareholders on the Company's future. The Board believes that it is in the best interests of the Company and its members as a whole, and strongly recommends that shareholders should vote in favour of resolution 6 as the Board intends to do in respect of its own beneficial shareholdings of 181,224 shares. Other clients of your Manager currently own 4,569,989 shares in the Company and they have indicated they will abstain from voting any such shares in relation to this resolution.

Richard Ramsay

Chairman

10 June 2015

* This measure describes the fluctuations of the share price over time. Whilst volatility is specific to a fund's particular mix of investments, higher volatility is generally considered to equate to higher risk.

Investment Manager's Review

Overview

The economic and market backdrop through the year has been largely governed by sentiment and expectations surrounding the timing of exiting from Quantitative Easing ("QE") in the US and UK. Meanwhile, Europe finally agreed to pursue a similar large scale QE program of its own.

The biggest news in the second quarter was arguably Mark Carney's Mansion House speech which followed a string of more positive economic data in the UK. In the speech, the Governor of the Bank of England finally conceded that market interest rate expectations (of no rise before 2015) were potentially too dovish. This marked a juncture, where the world was moving into a period in which policy divergence was set to emerge and widen between central banks. This has the possibility of causing a degree of upset in currencies and markets.

As we moved through the year, progress continued in the UK and US economies, particularly on the employment front. Europe however appeared to have weakened, which along with other factors "external" to the UK and US economies, moved the balance of market expectations for interest rate rises to 2015. While risks are always present in the system, the amount of uncontrollable and unpredictable "event risk" such as Ebola and IS in the Middle East, made economic policy difficult to predict. In addition to this, there had been a spate of profit warnings. However, the causes appeared to be relatively company specific rather than an economic malaise. Nevertheless, with some signs

of deflationary forces appearing, this pushed back monetary tightening expectations further.

The most significant development over the course of 2014 was the continued decline in the oil price. While investors feared it betrayed an underlying economic weakness and therefore a deficiency of demand; we viewed it as more a matter of over-supply and Saudi Arabia, in particular, wishing to squeeze out the marginal producers with higher costs of production. Either way, the repercussions have been acute and severe. Russia has struggled to cope with economic sanctions over Ukraine and

declining oil revenues; meanwhile international oil companies have announced large cut-backs to their investment plans, with significant repercussions for oil service companies.

Moving into the first 4 months of 2015; the US and UK continued their recovery, however, the recentjobs data from the US gave some cause for concern. In a repeat of Q1 2014, there were some

adverse weather effects that made extrapolation difficult. Debate surrounded whether the Fed will raise interest rates in June or delay to September. Meanwhile in Europe, the ECB finally commenced its own version of QE which has resulted in a further weakening of the currency. However, some observers have highlighted that the region had already started to show signs of recovery before QE was implemented. The currency movements of a weaker euro and a stronger dollar are likely to aid European companies, while US exporters are complaining that they are being hindered by dollar strength.

Equity returns have been, in general, strong over the period, although the US market lead in 2014 gave way to more subdued performance in the early part of 2015. Meanwhile, the Emerging

and Asian equity markets, which had been lagging the US, played catch up later in the period and finished the period on a strong note. The impact of currency movements cannot be ignored. For

example, the S&P 500 achieved a total period return of 24% in sterling, but almost half of that gain was achieved through the relative strength of the US dollar. On the other hand the Japanese

market outturn of 30% would have been even higher for sterling investors had the yen not depreciated against the pound by some 8% over the course of the year.

Gilts have managed to confound the sceptics, as their yields continued to fall to new lows. Over the 12 month period they returned almost 11%, however their volatility has begun to pick up and the asset class has been more challenging with short periods of negative returns following the peaks achieved in late January. The benchmark 10 year gilt ended the period at 1.83%, having started the year at an already unattractively low yield of 2.66%.

Performance

The strong returns achieved over recent years have been built upon over the past 12 months. However, the year was, in football parlance, a 'game of two halves'. In the period to December,

returns were dominated by the US equity market (and dollar) strength, together with strong performance from G7 sovereign bonds; both areas in which we have struggled to find value. As we

moved into 2015, the headwinds facing the US economy became more apparent and equity market leadership passed to the bourses in Asia, Europe and Emerging Markets, where the portfolio is well represented. This environment, complemented by a better showing from the direct UK equity holdings, was beneficial to performance. By the period end the portfolio produced a net asset value total return of 9.6%. The share price total return was marginally lower at 9.1%, as the discount at

which the shares trade widened slightly (from 6.5% to 7.2%). This outturn was ahead of the benchmark (3 month Libor +3%) return of 3.6%. The returns were achieved with a level of volatility which was around half that of the FTSE All Share Index (as measured by Financial Express Analytics).

Returns from within the portfolio were well spread, with contributions coming from across a wide range of the assets held. The largest contribution came from Japanese equities, where market strength was preserved by having over 60% of investments hedged against yen weakness. The contribution from European equity investments was similarly improved by our decision to increase exposure on a currency hedged basis (also 60%) at the time QE easing was announced. The emphasis within the portfolio on real assets was vindicated, as the property holdings also made

a major contribution. The UK equity portfolio, which is largely held through direct holdings, had a mixed year, but still contributed positively. This was helped by an emphasis on mid cap stocks,

which generally outperformed their larger brethren.

The only significant detractor from returns at the asset class level was in other overseas equities, which was purely due to the investment held in Blackrock World Mining Trust. This vehicle

suffered not only from the difficult market environment in commodities, but also from injudicious investments made in smaller mining companies, which led to a de-rating of the company.

The benefit to returns made from Japanese equity holdings is demonstrated in the table below, as two of the top six performance contributions came from this area. It is also interesting to note that the funds held in Japan demonstrate that smaller 'boutique' managers are capable of producing strong

returns. We are keen to identify such managers as an integral part of our investment process. Another such fund also features in the top contributors table, namely the Prusik Asian Equity Income

Fund. This fund was invested in early in its life and has demonstrated remarkably consistent and strong performance.

Top 6 Contributors	Asset Class	Contribution
Lindsell Train Japanese Equity	Japanese Equities	0.71%
Barrat Developments	UK Equities	0.62%
Phoenix Group Holdings	UK Equities	0.58%
Assura	Property	0.48%
Prusik Asian Equity Income	Far East (ex Japan)	0.47%
Goodhart Michinori Japan Equity	Japanese Equities	0.47%
Bottom 6 Contributors	Asset Class	Return
Blackrock World Mining	Other Overseas	-0.57%
Balfour Beatty	UK Equities	-0.45%
Standard Chartered	UK Equities	-0.35%
Menzies (John)	UK Equities	-0.32%
Centrica	UK Equities	-0.31%
Tesco	UK Equities	-0.29%

The mixed performance within the UK equity portfolio is demonstrated by the healthy contributions made by Barratt Developments and Phoenix Group, which were counterbalanced by poor performance from several other direct holdings. Amongst those direct equity positions making negative contributions, only Centrica remained in the portfolio by the period end. It is pleasing

to note that the majority of holdings made a positive return over the period.

The income generated by the portfolio has been robust during the year, despite one or two disappointments. The solid income performance has enabled a further improvement in your

Company's dividends this year, whilst again adding to revenue reserves.

Asset Allocation

The changes to the investment objectives, approved by shareholders in January 2012, have provided more flexibility to improve capital returns and further diversify the Company's assets.

The portfolio is positioned with an emphasis on real assets including equities and property. In addition increased investment in alternative assets has been targeted at sectors offering the prospect for good levels of income, coupled with potential for both capital and income growth.

An underweight position in US equities was adopted, in anticipation of a change in market leadership away from the US, which we are now beginning to witness. Exposure to European equities was increased, as we believe they have the potential to re-rate higher, at the same time that there is scope for profits to recover from depressed levels.

The Company also remains structurally overweight in Asian equities. Not only do we believe that powerful secular trends should provide a healthy backdrop for investors, such as urbanisation and emerging consumerism, but Asian markets also remain relatively inefficient, enabling active managers to outperform the wider market.

QE continues to exert downward pressure on fixed income yields. The portfolio is commensurately underweight in that asset class and has a cautious stance towards a turn in the interest rate cycle. Selective opportunities have been taken, however, in senior loans, corporate high yield and asset backed lending. Emphasis has been very much on short duration assets, which should benefit

from a higher interest rate environment. There are no investments in G7 sovereign bonds, where yields look extremely unattractive and where there is potential for significant capital loss - not risk free at these yields!

Alternative assets continue to play a pivotal role in providing unique sources of return for the Company. In a low interest rate environment, the advantage of multi-asset investing is

exemplified by the use of alternative assets to contribute significantly towards income objectives. Favoured strategies include asset leasing, renewable energy and UK property.

Portfolio asset allocation - comparison between 30 April 2014 and 30 April 2015

The main changes to asset allocation over the period were as follows:-

• UK Equities - a reduction in exposure, although this was largely due to a reclassification of UK REIT holdings into property, to give more clarity to investors on the underlying exposure to real estate within the portfolio.

• Overseas Equities - exposure was increased, mainly due to strong relative performance. Within overseas equities further capital was deployed in Europe at the expense of US and Asian

equities, where some profits were taken.

• Property - as previously mentioned the property weighting was increased due to both the commitment of capital to this area, but also the re-categorisation of several UK REIT

holdings from the UK equity portfolio.

• Alternative Assets - exposure was increased with the introduction of further leasing assets. This investment was, in part, funded by a reduction in private equity investments. A more detailed review of portfolio activity is commented on later in this report.

UK Equities (26.8%)

The UK stock market's strong rise over the past 12 months has also been accompanied with periods of volatility, particularly when sentiment was impacted by the anticipated change in the US

Federal Reserve's policy towards quantitative easing. However, the overall trend has been towards rising prices and leadership from the mid-capitalisation and small company indices. This trend

has been beneficial to returns, as the UK portfolio is well represented, particularly in the mid-cap area.

The weighting to UK equities has been reduced both through net sales, but also due to the reclassification of REIT holdings into the property sector. The emphasis within the UK holdings has been concentrated further on mid-sized companies, where our stock selection process has consistently identified better value. Large companies are, we believe over brokered, and over owned by UK investors and, as such, tend to offer less than compelling valuations.

During the course of the year, positions at the top end of the market were reduced with Royal Dutch Shell, Tesco, HSBC and Standard Chartered all being exited. In addition, the investment in GlaxoSmithKline was significantly reduced. This reduction in larger companies was tempered by a new investment in the Fidelity Enhanced Equity Income Fund, which should provide an element of large cap exposure, but with a covered call overlay that will generate additional income.

Two new companies were introduced to the portfolio; Polypipe, the manufacturer of plastic pipes; and Dairy Crest, which owns the number one branded cheese (Cathedral City) in the UK. Both companies offer attractive valuations and exposure to the UK economy, in which we retain a fair degree of confidence.

Overseas Equities (32.6%)

Overseas fund selection remains biased towards managers who emphasise the identification of dividend growing companies within their investment process. We are also attracted to managers who

have proven defensive in less buoyant market conditions and who can deliver returns with lower volatility than their benchmark indices.

Exposure to overseas equity markets was increased slightly with investment mainly directed into European equities on a currency hedged basis. We believe that European companies offer considerable value and are supported by the introduction of QE. However, as we had seen previously in Japan, the ECB move to introduce full blown QE is likely to devalue its currency. We therefore wanted to protect our investors from this potential drag on returns by investing in currency hedged share classes in two new open ended funds. To this end, we introduced Schroder European Alpha Income Fund and BlackRock European Equity Income Fund to the portfolio. Both these funds have given strong returns in the early part of 2015. In addition, some repositioning of existing investments into other currency hedged funds held, left overall hedging at just over 60% of total euro exposure. Capital for the investment in Europe was found from within the US equity and Asian Equity holdings.

In the United States, the BlackRock North American Income Trust was sold, following a period of disappointing performance. In addition the position in the Harewood US Enhanced Income Fund

was liquidated, as it suffered a significant withdrawal on capital from its largest investor, which made the fund uneconomic to run. These sales were, in part, committed to a new 'Smart Beta'

Exchange Traded Fund (ETF), namely the IShare MSCI USA Dividend ETF. The fund aims at enhancing the performance of a range of the more consistent dividend paying companies within its

benchmark index. With a yield of close to 3% this fund should deliver competitive performance and a higher running yield than actively managed funds, at a much lower management charge.

Asian market exposure was reduced by a sale in the Newton Asian Equity Income Fund, where we had become concerned that the growth in the size of the fund (to £5 billion), had led to a period of

recent poor performance. However, we remain committed to the area and believe there are long term secular attractions, which warrant this region continuing to be the largest overseas equity

exposure within the portfolio.

The introduction of the Goodhart Michinori Japan Equity Fund was a new investment in Japan. This fund is another example of our willingness to back 'boutique' firms and managers early on in their life. The Fund invests in mainly mid-sized Japanese companies, with the manager being focussed on companies with market leading positions and good corporate governance. This position was financed by the sale of the IShares MSCI Japan ETF, which had been bought as a stop gap to provide Japanese equity exposure until the launch of the Michinori fund. There was no investment activity in the emerging markets area with the two global funds held giving satisfactory returns, which improved as the period progressed.

Alternative Assets (20.5%)

Private equity exposure has been reduced over the period, with the holding in NB Private Equity Partners being sold at a handsome profit. The position in this investment company was bought in December 2013 on a 24% discount to net asset value (nav). Over the following 7-8 months the company benefitted from a combination of strong nav growth, firming US dollar and narrowing of the nav discount. These factors led to a 90% profit on initial investment being achieved. Proceeds from this sale were, in part, committed to a new position in Aberdeen Private Equity Fund, which offers good potential for nav progression. This holding was bought at a similar discount to nav.

Further redemption proceeds were received from Partners Group Global Opportunities. This fund is valued at a 20% discount to nav, due to its limited liquidity. However, the company has now moved

to the full liquidation of assets and the proceeds from realisations are distributed at net asset value, thus accruing improvement in your Company's portfolio value.

The unquoted investment in A J Bell Holdings (AJB), which is one of the UK's primary providers of self-invested personal pensions (SIPPS) and is now also one of the UK's largest investment

platforms and provider of stockbroking services, has remained valued at 575p per share throughout the period. AJB released its full year results (to 30 September 2014) in December. These results demonstrated significant growth in both client numbers (up 20%) and assets under administration (up 16%). However, profits fell by 33% due to lower interest margins on cash balances. Interest rate margin pressure is also likely to be a drag on current year profits. At 575p the holding is valued at a prospective Price Earnings Ratio(PER) of 18.9x, and a yield of 4.4%, based on management current

expectations.

A further commitment was made during the period to leasing, with the purchase of SQN Asset Finance Income Fund. This closed end fund was launched to invest in business critical equipment

leases in both the private and public sector, predominantly in the UK. It offers the prospect, when fully invested, of a 7.25% yield and targeted total return of up to 10%. This investment compliments the longer term (and large ticket) A380 aircraft leasing vehicles already held.

The portfolio has retained exposure to renewable energy assets (5.5% of gross assets) throughout the period. We believe these assets provide an element of inflation protection within the portfolio, together with yields that are attractive when compared to bonds.

Fixed Interest (11.6% including cash)

Fixed interest positions remain defensively positioned in shorter duration assets. We continue to see little value in sovereign bond and investment grade bonds, but believe there to be attractions in

other parts of the fixed interest spectrum. In particular, we have added to senior loans exposure, with the purchase of Fair Oaks Income Fund, which was set up to invest in diversified portfolios of loans, including Collateralised Loan Obligations. This investment was financed by a reduction in the Royal London Extra Yield Bond, together with the full sale of the TwentyFour Income Fund, which had performed well since acquisition, having also moved to a significant premium to nav. Fixed interest positions held are now largely invested in relatively short duration bonds and loans. This should mean that they are protected against any pick-up in inflation. Indeed they should be early beneficiaries of higher interest rates, as and when the interest rate cycle finally turns. These investments also act as a hedge against the loan facility held by your Company, which is linked to LIBOR.

Property (8.5%)

Property exposure has been increased although, as mentioned earlier in this report, the re-categorisation of several UK Real Estate Investment Trusts (REITs) is responsible for the lion's share

of this increase. These holdings had previously been held within the UK equity component of the portfolio, but it was felt that the nature of these investments was such that they should be

included within your Company's property holdings.

The property market in the UK has seen considerable improvement over the past two to three years, but we believe still offers attractions when compared to other asset classes. We have

been selective in gaining exposure and have emphasised investment in niche areas such as warehousing, primary health care practices and property outside of the South East of England,

where values now look stretched. A new addition to the portfolio was Londonmetric Property, a highly respected and well managed REIT, which has been actively re-positioning its portfolio away

from the South and into the provincial UK property markets - with emphasis on warehousing and large out of town retail. Another introduction to the portfolio came when the IPO of a new property

vehicle, Ediston Property Limited, was supported. The managers of the vehicle have a good track record in very actively managing property assets to realise significant value. These new

investments were partly financed by the sale (top slicing having started in the previous financial year) in Macau Property Opportunities Fund, due to our concerns over Chinese intervention in the Macau gaming industry.

Outlook

Market returns are likely to be heavily influenced by macroeconomic developments and central bank monetary policy. It is clear that unconventional monetary policy has driven asset prices

in many areas to more elevated levels, but this outcome should be considered against a backdrop of limited alternatives and positive macro-economic developments, including benign inflationary

pressures.

The "elephant in the room" presently is the future direction of US monetary policy. An eventual tightening could trigger some market volatility, as assets prices re-adjust to the new reality.

However, the US Federal Reserve will attempt to flag in advance any change in monetary stance.

Following a 30 year plus bond bull market, fixed income assets remain the most vulnerable, especially because of current low levels of liquidity. Geo-political risks will likely remain at the fore,

including Greece's future membership of the Eurozone/EU and tension in the Middle East/Ukraine.

The next couple of years will see markets and investors sail into unchartered territory, where market volatility and asset price recalibration could arise, as an outcome of rising sovereign bond

yields.

We believe that the Company will further benefit from the implementation of a multi-asset framework. This approach provides for potential to add value from tactical asset allocation, manager selection and from high conviction direct UK equity investments. The highly diversified nature of the portfolio should dampen volatility and provide capital growth over time, as well as delivering high and growing income from a wide range of sources.

Seneca Investment Managers Limited

10 June 2015

Income Statement

For the year ended 30 April 2015

	Year ended 30 April 2015
		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Gains on investments		-	3,390	3,390
Income		3,044	-	3,044
Investment management fee		(241)	(241)	(482)
Administrative expenses		(393)	-	(393)
Exchange gains		-	6	6
Net return on ordinary activities before interest payable and taxation		2,410	3,155	5,565
Finance costs		(60)	(60)	(120)
Net return on ordinary activities before taxation		2,350	3,095	5,445
Taxation		-	-	-
Return on ordinary activities after taxation		2,350	3,095	5,445
Return per share (pence)	2	5.89	7.76	13.65

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

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

No operations were acquired or discontinued in the year.

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

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

Income Statement

For the year ended 30 April 2014

	Year ended 30 April 2014
		£ '000	£'000	£'000
	Notes	Revenue	Capital	Total
Gains on investments		-	1,902	1,902
Income		2,969	-	2,969
Investment management fee		(232)	(232)	(464)
Administrative expenses		(402)	-	(402)
Exchange losses		-	-	-
Net return on ordinary activities before interest payable and taxation		2,335	1,670	4,005
Finance costs		(58)	(58)	(116)
Net return on ordinary activities before taxation		2,277	1,612	3,889
Taxation		-	-	-
Return on ordinary activities after taxation		2,277	1,612	3,889
Return per share (pence)	2	5.71	4.04	9.75

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

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

No operations were acquired or discontinued in the year.

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

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

Balance Sheet

		As at	As at
		30 April 2015	30 April 2014
	Notes	£'000	£'000
Non-current assets
Investments held at fair value through profit and loss		65,988	63,624
Current assets
Debtors and prepayments		501	677
Cash and short term deposits		1,217	179
		1,718	856
Creditors: amounts falling due within one year
Bank loan		(7,000)	(7,000)
Other creditors		(115)	(102)
		(7,115)	(7,102)
Net current liabilities		(5,397)	(6,246)
Net assets		60,591	57,378
Capital and reserves
Called up share capital		9,974	9,974
Share premium account		1,445	1,445
Special reserve		41,783	41,783
Capital redemption reserve		2,099	2,099
Capital reserve		4,325	1,230
Revenue reserve		965	847
Equity shareholders' funds		60,591	57,378
Net asset value per share (pence)	3	151.87	143.82

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 April 2015

		Share		Capital
	Share	premium	Special	Redemption	Capital	Revenue
	capital	Account	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2014	9,974	1,445	41,783	2,099	1,230	847	57,378
Return on ordinary activities after taxation	-	-	-	-	3,095	2,350	5,445
Dividends paid	-	-	-	-	-	(2,232)	(2,232)
Balance at 30 April 2015	9,974	1,445	41,783	2,099	4,325	965	60,591

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 April 2014

		Share		Capital
	Share	premium	Special	Redemption	Capital	Revenue
	capital	Account	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2013	9,974	1,445	41,783	2,099	(382)	714	55,633
Return on ordinary activities after taxation	-	-	-	-	1,612	2,277	3,889
Dividends paid	-	-	-	-	-	(2,144)	(2,144)
Balance at 30 April 2014	9,974	1,445	41,783	2,099	1,230	847	57,378

Cash Flow Statement

		Year		Year
		Ended		Ended
		30 April 2015		30 April 2014
		£'000		£'000
Net cash inflow from operating activities		2,355		1,932
Servicing of finance
Bank and loan interest paid		(117)		(136)
Taxation
Tax paid		-		-
Financial investment
Purchases of investments	(22,789)		(28,306)
Sales of investments	23,815		26,478
Net cash inflow/(outflow) from financial investment		1,026		(1,828)
Equity dividends paid		(2,232)		(2,144)
Increase/(decrease) in cash		1,032		(2,176)
Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash as above		1,032		(2,176)
Exchange movements		6		-
Movement in net debt in the year Net debt at 1 May		1,038 (6,821)		(2,176) (4,645)
Net debt at 30 April		(5,783)		(6,821)

Principal Risks and Uncertainties

The principal risks faced by the Company are: investment and strategy risk; market risk; financial risk; earnings and dividend risk; operational risk; regulatory risk and key man risk. These risks, which have not changed materially since the annual report for the year ended 30 April 2014, and the way in which they are managed, are described in more detail in the annual report for the year ended 30 April 2015.  The report will be made available on the manager's website www.senecaim.com during June 2015.

       Risk management, financial assets and liabilities

The Company's financial instruments comprise:

·      Equities and debt security investments that are held in accordance with the Company's investment objectives;

·      Term loans and bank overdrafts, the main purpose of which are to raise finance for the Company's operations;

·      Cash and liquid resources that arise directly from the Company's operations; and

·      Other short term debtors and creditors

The main risks arising from the Company's financial instruments are market risk, interest rate risk, credit risk, liquidity and foreign currency risk. The Board regularly reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged since the inception of the Company.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant as the Company's assets comprise of mainly readily realisable securities, which can be sold to meet funding commitments if necessary.

Market risk

Market risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

To mitigate the risk the Board's investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis, with the emphasis on long term investments. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy.

Interest rate risk

Financial assets

Prices of bonds, open ended investment companies (on a look-through basis) and floating rate notes together with preference share yields, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Government's fiscal position, short-term interest rates and international market comparisons. The Investment Manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company.

Returns from bonds and preference shares are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds. This means that if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date. However, over the life of a bond the market price at any given time will depend on the market environment at that time. Therefore, a bond sold before its redemption date is likely to have a different price to its purchase level and a profit or loss may be incurred.  The Company did not hold any bonds at 30 April 2015.

Financial liabilities

The Company finances its operations through the use of a loan facility. The Board sets borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis.

Foreign currency risk

The income and capital value of the Company's investments are mainly denominated in Sterling; therefore, the Company is not subject to any material risk of currency movements.

Other price risk

Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The allocation of assets to international markets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.  The investments held by the Company are listed on various stock exchanges worldwide.

Credit risk

Credit risk represents the failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.

The risk is not considered significant, and is managed as follows:

·      where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;

·      investments in quoted bonds are made across a variety of industry sectors and geographic markets so as to avoid concentrations of credit risk;

·      transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;

·      investment transactions are carried out with a large number of brokers, the credit rating of which is taken into account prior to undertaking the transaction so as to minimise the risk to the Company of default;

·      investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker;

·      the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports by the Administrator on a daily basis. In addition, the Administrator carries out a stock reconciliation to the Custodian's records on a weekly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its findings to the Manager's Risk Management Committee.

·      cash is held only with reputable banks with high quality external credit enhancements.

None of the Company's financial assets are secured by collateral or other credit enhancements.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and financial statements, in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

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

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006, where applicable. They are responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations. The financial statements are published on www.senecaim/sigt/ which is a website maintained by the Company's Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

• that in the opinion of the Directors, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

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

For Seneca Global Income & Growth Trust plc

Richard Ramsay

Chairman

10 June 2015

Notes

1.   The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.  They have also been prepared on the assumption that approval as an investment trust will continue to be granted.  The financial statements have been prepared on a going concern basis.

2.    Return per ordinary share

       The revenue return per Ordinary share is calculated on net revenue on ordinary activities after taxation for the year of £2,350,000 (2014 - £2,277,000) and on 39,896,361 (2014 - 39,896,361) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

       The capital return per Ordinary share is calculated on net capital return for the year of £3,095,000 (2014 - £1,612,000) and on 39,896,361 (2014 - 39,896,361) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

       The total return per Ordinary share is calculated on total return for the year of £5,445,000 (2014 - £3,889,000) and on 39,896,361 (2014 - 39,896,361) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

3.    Net asset value per ordinary share

       The net asset value per Ordinary share is based on net assets of £60,591,000 (2014: £57,378,000) and on 39,896,361 (2014: 39,896,361) Ordinary shares, being the number of Ordinary shares in issue at the year end.

4.    Dividends

       A fourth interim dividend in respect of the year ended 30 April 2015 of 1.47p (2014 - 1.40p) per Ordinary share will be paid on 12 June 2015 to shareholders on the register on 22 May 2015.  In accordance with UK Accounting Standards this dividend has not been included as a liability in these accounts and will be recognised in the period in which it is paid.

5.    Related parties

The Directors of the Company receive fees for their services.

6.    Bank loan facility

The Company has a £7 million revolving loan facility in place with Royal Bank of Scotland plc, of which at 30 April 2015 the full amount had been drawn down at an all-in rate of 1.6874%.  The facility runs until October 2015 and can be cancelled at any time without cost to the Company.

7.     Financial information

These are not full statutory accounts for the year ended 30 April 2015.  The full audited annual report and accounts for the year ended 30 April 2015 will be sent to shareholders in June 2015 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The full audited accounts for the year ended 30 April 2014, which were unqualified, have been lodged with the Registrar of Companies.

8.    The report and accounts for the year ended 30 April 2015 will be made available on the website www.senecaim.com.  Copies may also be obtained from the Company's registered office, Eighth Floor, 6 New Street Square, New Fetter Lane, London EC4A 3AQ

Enquiries:

Alan Borrows, Seneca Investment Managers Limited         0151 906 2461    

Martin Cassels, R&H Fund Services Limited                     0131 524 6140

 

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