Final Results
MIDAS INCOME AND GROWTH TRUST PLC
AUDITED ANNUAL FINANCIAL REPORT
for the year ended 30 April 2008
1. CHAIRMAN'S STATEMENT
Highlights
• Progressive dividend policy continued with increase of 8.1%
• 2,715,000 shares purchased for cancellation
• Net asset value total return of -9.1%
• Share price total return of -21.0%
Market background and performance
The year under review has been a very difficult period for investors. Fears of a recession in the United States, together with the prospect of a melt down in the banking system, produced an environment where market volatility increased to levels last experienced in the dark days of the bear market which ended in March 2003. The early part of 2008 saw extreme falls in equity markets, whilst corporate bond and property markets have also been under considerable stress, as investors became increasingly risk averse and sought safety in Government bonds. Some recovery in equity markets has been seen since the middle of March, when the US investment bank Bear Stearns was rescued from the brink of collapse. However, this recovery has been quite narrowly based and mainly concentrated on the energy and resource sectors. There remains a heightened level of uncertainty, despite the very positive measures taken by the Federal Reserve Board in cutting interest rates aggressively and providing liquidity to alleviate the stresses building within the financial system. Inflationary pressures have continued to build as energy and food prices have risen. Increased demand from the emerging economies of Asia, together with tight supply constraints in many areas have been further fuelled by speculative buying.
Against this background the Company's fully diluted net asset value total return for the period (including dividends) was -9.1%, which is disappointing and compares with the benchmark return of 8%. The share price fell by 23.4% over the period, which with dividends reinvested, gave a total return of -21.0%. The return for the period since Midas Capital Partners Limited were appointed as Manager to the Trust on 19 August 2005 is 14.7%, which is now behind the benchmark return of 21.7%.
It has been particularly disappointing that the Trust's shares have moved from a premium to net asset value of 5.3% at the end of the last financial year, to a discount of 8.6% as this year has drawn to a close. Your Board fully recognises the effect that this discount widening has on shareholders and over the year a total of 2,715,000 shares have been purchased for cancellation at an average discount of 7%, a level which has been accretive to the Trust's net asset value. We, together with the Manager, remain committed to ensuring that the Trust does not suffer any further de-rating and will be seeking a renewal of the share buyback facility at the Annual General Meeting in September. In the meantime the current buyback policy will continue to operate.
Gearing
A further £2 million was drawn down in August 2007 from the Trust's new multi currency revolving advance facility provided by the Royal Bank of Scotland at preferential terms to the previous borrowing facility provided by Allied Irish Bank. Total borrowings were £6.25 million at the end of the period, representing actual gearing of 8.0%.
Exercise of Warrants
99,700 warrants were exercised at 100p at the end of August 2007, which leaves a further 1,934,411 in issue.
Dividends
Three interim dividends of 1.53p were declared during the year, which together with the 4th interim dividend of 1.68p announced on 20 May 2008 (paid on 20 June 2008), give total dividends of 6.27p, an increase of 8.1% over last year. The income generated from the Company's investment portfolio remains robust and has also provided for a further increase in revenue reserves this year. The Board and Manager fully appreciate the importance of the quarterly dividends to the Company's shareholders and remain committed to following a progressive dividend policy.
VAT Statement
The Board is in discussion with the Manager and the former Manager in order to quantify the amount of VAT paid by the Company since its launch in 1996 and is taking steps to negotiate a settlement of all claims for back VAT. The timetable for recovery and quantum remain uncertain at the current time and the Board will update shareholders further at the time of the Half Yearly Report.
Annual General Meeting
This year's AGM will be held at Martins Building, Water Street, Liverpool at 12.30pm on 9 September 2008. I would be delighted if shareholders were to take this opportunity to meet with Board members and investment managers over a post AGM buffet lunch.
Outlook
Investor focus remains concentrated on the concerns surrounding the financial sector, particularly in the United States and Europe. Whilst the US authorities have acted decisively to alleviate frictions within the financial system and to support the consumer following large declines in house prices in the wake of the sub prime crisis, the effectiveness of interest rate cuts and tax rebates are yet to be proven. In Europe policy response has been more muted, as the spectre of growing inflationary pressures have tempered enthusiasm amongst the Central Bank to follow the US lead. Economic growth has fallen in all Western economies and there remains a real possibility that a period of recession will ensue. Meanwhile emerging markets economic growth remains robust, although inflation concerns are even more pronounced as growing demand for basic commodities and food have also fed into higher labour costs.
Against this background it seems likely that market volatility will continue at heightened levels and concerns surrounding the state of the financial system will persist for some time. The uncertainties surrounding markets are providing investment opportunities across a wide range of assets and should lay the foundations for better investment performance when investor confidence returns. Your Manager firmly believes that there is significant value within the wide range of assets currently held.
Hubert Reid
Chairman
3 July 2008
2. MANAGER'S REVIEW
Performance
Global stock-markets have been volatile over the course of the year and finished the period well below the levels prevailing 12 months earlier. The travails of the financial system have also led to significant pressures in corporate fixed interest and property markets. Against this backdrop the Company's net asset value total return for the year was -9.1%. This compares to the Company's investment objective, which is to produce annualised returns of 8% over the medium term. The main damage to returns was seen in the Trust's 3rd quarter, which was caused by the extreme financial market seen at the start of the year. This outturn is disappointing and bears testimony to the contagion between assets as investors have, in many areas, been forced to sell in order to raise liquidity in the teeth of the 'credit crunch'. Even more disappointing has been the Company's shares moving to a discount to net asset value from the premium seen in the 12 months prior to this financial period. Your Board and Manager have been proactive in pursuing a policy of purchasing Ordinary shares for cancellation and remain committed to ensuring that this discount does not widen further.
On a brighter note the revenue generated by the Company's investments has been robust and has enabled an increase in dividends of 8.1% this year, further delivering on the stated objective of maintaining a progressive dividend policy.
Market Commentary
Investors have needed to consider a cocktail of malign influences since the onset of the sub-prime mortgage crisis in late summer 2007. The potential implications of the 'credit crunch' on future global economic growth and intense mistrust of the banking institutions were two obvious negatives which have crushed investor confidence. Alongside these issues the potentially corrosive effects of inflation on future asset values has only added to concerns as worldwide indicators showed inflation running at over 4% in March and April.
Risk aversion therefore dominated mindsets and this was clearly illustrated by the compression of US and UK government bond yields, as investors have sought safe haven from the almost unremitting gloom increasingly purveyed by the media. The high levels of demand for government debt was in stark contrast to that of corporate debt, where prices fell sharply, propelled in a downward spiral by selling from investors either concerned about the likely deterioration in defaults in a less friendly economic environment, or in the case of banks and certain hedge funds (the two in many cases linked) being forced to raise liquidity.
On the commodities front base metal prices have remained volatile but have generally continued to rise, the main exceptions being in nickel and zinc, where prices remain well below those prevailing 12 months earlier. The inflationary background has been further fuelled by price rises in energy, precious metals and grains. There can be little doubt that the increased demand generated by the emerging economies of China, India and others has been difficult to supply from markets where such structural imbalances can take a period of years to be addressed. However, the intervention of speculative investors has also fed into the pricing of many commodities, making fundamentals difficult to ascertain.
Central Banks have been struggling to reconcile the dual objectives of maintaining price stability and solid economic growth in an environment where the need to rescue the banking system and support consumers caught up in a downward spiral in the housing market is at odds with the up-tick in global inflationary forces. The US Federal Reserve Board has been quick to act with lower interest rates, supported by the US Government's tax cuts to help the beleaguered consumer. However, the policy response in Europe has been more muted as the inflationary consequences of aggressive interest rate cuts have held sway with policy makers.
Investment Report
Summary
There have been stresses within many parts of the portfolio over the course of the year as risk aversion from investors has moved across the various asset classes to which the Company is exposed. In many cases the asset price falls experienced in the portfolio have had more to do with investor distress than any problems with the underlying investments.
The Company's exposure to equities has been reduced over the period with global investment themes being emphasised by an uplift in overseas equities at the expense of the UK equity portfolio. Positions in corporate fixed interest, property and alternative assets increased, as advantage was taken of the turbulence in these markets. In particular the terms available for structured products have improved due the elevated levels of volatility seen throughout the period and exposure to agricultural commodities has been introduced to further diversify the portfolio.
Asset Allocation
The asset allocation across the portfolio at 30 April 2008 is shown in the table below.
|
|
Portfolio Weight |
Core Allocation |
|
Asset Class |
% |
% |
|
UK Equities |
30.1 |
35 |
|
Overseas Equities |
18.7 |
15 |
|
Total equities |
48.8 |
50 |
|
Fixed Interest (inc Cash) |
17.0 |
25 |
|
Alternative Assets |
22.6 |
15 |
|
Property |
11.6 |
10 |
All figures are expressed as a percentage of gross assets.
UK Equities (30.1%)
Exposure to the UK Equity market was reduced by some 6.5% to 30% over the course of the year. This was largely carried out in the early part of the period as a more defensive stance was taken towards equities. The UK portfolio benefited from the take-over of Scottish and Newcastle by Carlsberg, and from strong performance by BHP Billiton, which was a major beneficiary of the market's very narrow focus on mining and energy stocks. Holdings in BP and Royal Dutch Shell also produced good returns, as the oil price moved ever higher during the early months of 2008.
In the much beleaguered financial sector the holding in Standard Chartered Bank performed well, in sharp contrast to HBOS where balance sheet concerns were very much to the fore following the write down of US mortgage related assets. The very weak environment seen in January and February was used as an opportunity to top up holdings - including BHP Billiton where some profits had been taken earlier in the period; and to introduce a new holding in Weir Group (a company supplying pumps and valves to the energy and water sectors) to the portfolio. Holdings in the utility sector held up well in the difficult market conditions, although the performance of BT Group was disappointing in the aftermath of their first quarter trading figures released in early February. More positive was the performance of Vodafone, whilst the sales made last year in the consumer related sectors proved well timed. Unfortunately the Company's holdings in William Hill and Persimmon faired less well as the falls in house prices and consumer confidence weighed heavily on sentiment.
Dividend growth was generally strong over the period, although the pace of growth looks likely to fall as the more difficult economic background slows profits growth as we move through 2008.
Overseas Equities (18.7%)
Exposure to Overseas equity markets increased over the period through a combination of good performance and new investments. The Trust's holding in the BlackRock Commodities Income Fund held pride of place, giving a total return of 57% over the year, and some profits were taken late in the period. A new holding in Polar Capital Technology Fund was introduced to the portfolio to take advantage of what we believe will be better industry fundamentals going forward. European smaller company exposure was reduced in anticipation of a harsher economic environment, which will curtail profit growth. We had mentioned the slightly disappointing performance of Aberdeen Asian Income Fund in the interim report, as the manager had failed to fully capture the very strong market performance in 2007. However, the major sell-off in Asian markets seen in early 2008 showed the advantage of the manager's disciplined approach, as they produced positive returns over that difficult period. Japanese market returns have been disappointing over the year but equity valuations are at multi year lows and we believe that the market now looks enticing and may attract investor attention once again.
Fixed Interest (17.0%)
The shift in risk perception caused by the US sub-prime mortgage problems and continued negative news-flow have triggered a lack of confidence in credit markets globally and reinforced concerns about the asset quality of the banking sector as a whole. This uncertainty led to reduced liquidity in credit markets and a 'flight to safety' amongst bond investors. Against this background yields on government bonds moved sharply lower, whilst corporate issuers saw their bonds eschewed and yields rise.
The Trust's holding in the M&G Leveraged European Loan Fund has been hit particularly hard following indiscriminate selling by hedge funds and lack of buying interest from banks unable to support the market. We feel that the worst may now be over and that the European loan market should see some gradual recovery over the next 12 months.
Exposure to HBOS was reduced through the sale of their 9.75% preference shares but corporate bond exposure has been maintained through the purchase of short dated (3 to 4 years) investment grade issues, where yields look attractive following the 'blow out' of spreads compared to gilts.
Alternative Assets (12.5%)
We continue to maintain a strong weighting towards alternative asset sectors and returns were positive over the period. Over the year hedge fund exposure has been increased and new investment has been made in soft commodities through the Phaunos Timber Fund and Ceres Agriculture Fund, both of which have performed well since acquisition. The portfolio also benefited from a further uplift in its holding in the unquoted A J Bell Holdings, following a third party transaction in the shares in early April. The A J Bell business continues to perform well and the carried value was increased to 275p per share, which compares with the original purchase price of 100p and the previous valuation of 200p. Exposure to Gold is held through the Trust's position in the CF Ruffer Baker Steel Fund, which was disappointing over a period where the Gold price moved ahead strongly. Whilst we still believe that an exposure to Gold is important in a balanced portfolio, we are currently reviewing the method through which exposure is held.
Structured Products (10.1%)
The pricing of structured product holdings has been adversely affected due to the sharp spike in volatility seen over the period. In addition there have been several products which have seen their capital protection levels eroded and these have either been sold or transferred into the relevant equity part of the portfolio, as the equity component to the product price became dominant. Whilst we have been disappointed with the overall performance of the structured product holdings, we also continue to feel that they offer value within a balanced portfolio approach.
Further opportunity to introduce new products over the period led to the purchase of two new issues over the latter part of the period, namely a defensive auto-call with a compounding coupon of 12.5%, which is paid providing any one of a basket of three indices does not fall by more than 10% per annum over the 6 year life of the product; and a 14% 'collared and capped' product which has a 1 year duration and pays its coupon providing the FTSE 100 does not rise or fall by more than 35% over that period. Other structured products held offer significant latent value with annualised returns generally in excess of 12% and coupled with significant levels of capital protection.
Property (11.6%)
The Trust's property holdings have been hurt not only by a reversal of sentiment towards the UK commercial property sector, but also due to concerns surrounding assets where investors have used leverage to enhance returns. Whilst we feel that the negative sentiment towards the UK property sector may be justified, there appears to be less reason to be so downbeat about the prospects for property elsewhere in Europe, particularly in Germany, where there has been much less evidence of an asset bubble forming.
Notice of redemption was served on the Protego UK Property Fund at the end of September for around 50% of the holding but the manager subsequently imposed a moratorium on redemptions following similar notices from other investors in the Fund. It is anticipated that it will now take some time to realise this investment. Elsewhere, small additions have been made to the Trust's holdings in Dolphin Capital, Puma Brandenburg and Summit Germany, at significant discounts to their latest disclosed net asset value. In addition the Company's property interests were further expanded by the purchase of Macau Property Opportunities Fund, a company developing projects to service the fast growth of the gaming industry in Macau.
Outlook
Through concerted actions by central banks and self help from commercial banks themselves, the possibility of an end to the financial sector crisis may have been reached. However, this does not mean that the economic crisis is over, as we enter a lengthy period where, for many, credit is difficult to find, as witnessed at present in the UK housing market. Whilst a severe recession may be avoided in the United States and Europe, the slowdown in economic growth, coupled with higher energy and commodity prices, mean that corporate profit growth is likely to slow and in many sectors move sharply into reverse. Inflationary forces may abate as we move into 2009, although for emerging market economies these pressures appear likely to persist for some time to come. Against this background it is difficult to imagine that equity markets will make significant progress over the course of 2008 and further volatility can be expected.
Investor attention has become very focused through the early part of 2008 on companies within the mining and energy sectors, together with companies servicing these areas. Mistrust of any companies not perceived to have immediate earnings transparency has meant that large parts of the UK market have been substantially de-rated. Whilst headline market advances of any size appear unlikely, there is a growing opportunity to look through the economic malaise with many stocks and sectors now appearing to be discounting severe profits setbacks and, on a medium term view, offering significant value. With corporate fixed interest markets offering the prospect of enhanced returns from current levels and property holdings trading on large discounts, the potential for recovery in the value of the Company's portfolio is good.
The recent returns for the Company have been disappointing. However we feel that the portfolio is well positioned to produce more positive returns, particularly so if investor sentiment turns more positive as the fears surrounding the banking system are addressed and the general economic outlook becomes clearer. We are convinced that significant levels of latent value exist within the current portfolio and the recent uncertain market conditions will likely prove a fertile environment for further attractive investment opportunities to be unearthed.
Midas Capital Partners Limited
3 July 2008
3. RESULTS
Financial Highlights
|
|
|
30 April 2008 |
30 April 2007 |
% change |
|
Total assetsA |
|
£73,864,000 |
£85,706,000 |
(13.8) |
|
Total Equity Shareholders' funds (Net Assets) |
|
£67,614,000 |
£81,456,000 |
(17.0) |
|
Share price (mid market) |
|
139.50p |
182.00p |
(23.4) |
|
Basic Net Asset Value per share |
|
154.94p |
176.10p |
(12.0) |
|
Diluted Net Asset Value per share |
|
152.60p |
172.90p |
(11.8) |
|
(Discount)/premium to diluted Net Asset Value |
(8.6%) |
5.3% |
|
|
|
Actual gearing |
|
1.08 |
1.03 |
4.9 |
|
Potential gearing |
|
1.09 |
1.05 |
3.8 |
|
Total expense ratioB |
|
1.53% |
1.72% |
|
|
|
|
|
|
|
|
Dividend and earnings |
|
|
|
|
|
Total return per share (basic) |
|
(16.20)p |
21.44p |
(175.7) |
|
Revenue return per share (basic) |
|
7.64p |
6.40p |
18.9 |
|
Dividends per share: |
|
|
|
|
|
- Ordinary shares |
|
6.27p |
5.80p |
8.1 |
|
- C shares |
|
n/a |
0.40p |
|
|
Revenue reserves |
|
£1,612,000 |
£792,000 |
|
|
A Total assets less current liabilities (excluding bank debt). |
||||
|
B Excludes performance fee. |
|
|
|
|
|
|
|
|
|
|
|
Performance (total return) |
|
1 year % return |
3 year % return |
5 year % return |
|
Share price |
|
-21.0 |
20.8 |
190.3 |
|
Basic Net Asset Value |
|
-9.5 |
16.1 |
120.3 |
|
Diluted Net Asset Value |
|
-9.1 |
20.7 |
117.6 |
|
|
|
|
|
|
|
Dividends |
Rate |
xd date |
Record date |
Payment date |
|
First interim 2008 |
1.53p |
29 August 2007 |
31 August 2007 |
17 September 2007 |
|
Second Interim 2008 |
1.53p |
28 November 2007 |
30 November 2007 |
14 December 2007 |
|
Third Interim 2008 |
1.53p |
27 February 2008 |
29 February 2008 |
20 March 2008 |
|
Fourth Interim 2008 |
1.68p |
28 May 2008 |
30 May 2008 |
20 June 2008 |
|
|
|
|
|
|
|
First interim 2007 |
1.45p |
23 August 2006 |
25 August 2006 |
18 September 2006 |
|
Second Interim 2007 |
1.45p |
22 November 2006 |
24 November 2006 |
15 December 2006 |
|
Third Interim 2007 |
1.45p |
21 February 2007 |
23 February 2007 |
22 March 2007 |
|
Fourth Interim 2007 |
1.45p |
25 April 2007 |
27 April 2007 |
4 June 2007 |
|
Special 2007 (C shares only) |
0.40p |
25 April 2007 |
27 April 2007 |
4 June 2007 |
4. INVESTMENT PORTFOLIO
|
|
|
|
Valuation |
Total |
|
|
|
|
2008 |
assetsA |
|
Company |
Sector |
Asset Class |
£'000 |
% |
|
Bell AJB |
Special & Other Finance |
Unquoted Equity |
2,750 |
3.72 |
|
BlackRock Commodities |
Investment Companies |
Commodities Equities |
2,007 |
2.72 |
|
Barclays Bank I/L 07/03/13 GBP 'S207' |
Fixed Interest |
Structured Product |
1,840 |
2.49 |
|
Aberdeen Asian Income Fund |
Investment Companies |
Asian Equities |
1,670 |
2.26 |
|
CF Ruffer Inv Funds Baker Steel Gold |
OEICS |
Gold Equities |
1,643 |
2.23 |
|
BlackRock (Lux) c/wts 09/05/13 DJ Euro Stoxx 50C |
Special & Other Finance |
Structured Product |
1,578 |
2.14 |
|
BP |
Oil & Gas Producers |
UK Equities |
1,528 |
2.07 |
|
M&G Leveraged European Loan FundC |
OEICS |
European Corporate Bonds |
1,480 |
2.00 |
|
Legal & General Group |
Life Insurance |
UK Equities |
1,459 |
1.98 |
|
Protego UK PropertyC |
Unit Trusts |
UK Property |
1,454 |
1.96 |
|
Top ten investments |
|
|
17,409 |
23.57 |
|
Resolution Argonaut European Income |
Unit Trusts |
European Equities |
1,433 |
1.94 |
|
Barclays Bank Plc 0% 30/04/12 GBP |
Fixed Interest |
Structured Product |
1,428 |
1.93 |
|
Royal Dutch Shell EUR0.07 'B' |
Oil & Gas Producers |
UK Equities |
1,411 |
1.91 |
|
CQS Rig Finance Fund Ltd |
Equity Investment Instruments |
Other Financial |
1,358 |
1.84 |
|
Barclays Bank Var 07/08/13 Series BSKT |
Fixed Interest |
Structured Product |
1,331 |
1.80 |
|
Dolphin Capital Investors |
Real Estate |
South Eastern Europe Property |
1,310 |
1.77 |
|
Thames River Traditional High Income FundC |
Other Fixed Interest |
Emerging Market Debt |
1,256 |
1.70 |
|
National Grid |
Gas Water & Multiutilities |
UK Equities |
1,226 |
1.66 |
|
ACP Mezzanine Ltd |
Equity Investment Instruments |
Other Financial |
1,165 |
1.59 |
|
Harewood Structured Inv US High Income Sterling Hedge Fund |
Investment Companies |
UK Equities |
1,163 |
1.58 |
|
Top twenty investments |
|
|
30,490 |
41.29 |
|
Ecofin Water & Power Opportunities |
Investment Companies |
International Equities |
1,157 |
1.57 |
|
Summit Germany |
Investment Companies |
German Property |
1,150 |
1.56 |
|
GlaxoSmithKline |
Pharmaceuticals |
UK Equities |
1,121 |
1.52 |
|
Ecclesiastical Insurance Office 8 5/8% |
Fixed Interest |
UK Preference Share |
1,093 |
1.48 |
|
Lloyds TSB Group |
Banks |
UK Equities |
1,081 |
1.46 |
|
United Utilities |
Gas Water & Multiutilities |
UK Equities |
1,076 |
1.46 |
|
Elders Investment 17A Merrill Lynch Japan High IncomeC |
Structured Product |
Japanese Equities |
1,063 |
1.44 |
|
Acencia Debt Strategies 'C' |
Special & Other Finance |
Hedge Fund of Funds |
1,053 |
1.43 |
|
European Asset Trust NV |
Investment Companies |
European Equities |
1,046 |
1.42 |
|
Unilever |
Food Producers |
UK Equities |
1,021 |
1.38 |
|
Top thirty investments |
|
|
41,351 |
56.01 |
|
HSBC Holdings |
Banks |
UK Equities |
1,011 |
1.37 |
|
Sun Alliance 7 3/8% Cum Irred Pref |
Fixed Interest |
UK Preference Share |
1,010 |
1.37 |
|
Rexam |
General Industries |
UK Equities |
1,007 |
1.36 |
|
BT Group |
Fixed Line Telecommunications |
UK Equities |
1,002 |
1.36 |
|
Altus Capital Japan Opportunities II B IncC |
Investment Companies |
Japanese Property |
1,002 |
1.36 |
|
Puma Brandenburg |
Investment Companies |
German Property |
963 |
1.30 |
|
Babcock & Brown Public Partners |
Investment Companies |
UK Property |
961 |
1.30 |
|
Close Finsbury Global Japanese Equity InstlB |
OEICS |
Japanese Equities |
940 |
1.27 |
|
Phaunos Timber Fund |
Investment Companies |
Commodities Equities |
928 |
1.26 |
|
Barclays Bank 14.3% 17/11/08 Conv |
Fixed Interest |
Structured Product |
919 |
1.24 |
|
BHP Billiton |
Mining |
UK Equities |
900 |
1.22 |
|
General Accident 8.875% Cum Irred Prf |
Fixed Interest |
UK Preference Share |
883 |
1.20 |
|
Vodafone Group |
Mobile Telecommunications |
UK Equities |
882 |
1.19 |
|
Ceres Agricultural |
Investment Companies |
Commodities Equities |
856 |
1.16 |
|
Bellway 9.50% Cum Red Prf 06/04/14 |
Fixed Interest |
UK Preference Share |
840 |
1.14 |
|
Societe Gen Acceptance 0% EMTN 05/02/09 |
Fixed Interest |
Structured Product |
839 |
1.14 |
|
Jardine Lloyd Thomson Group |
Non-life Insurance |
UK Equities |
833 |
1.13 |
|
Real Estate Opportunities 7.5% Cnv 31/05/11 |
Fixed Interest |
Convertible Bond |
833 |
1.13 |
|
Symphony Structured Products Jersey 0% 20/12/13 |
Fixed Interest |
Structured Product |
826 |
1.12 |
|
Polar Capital Global Technology Fund Inc |
Unit Trusts |
UK Equities |
816 |
1.11 |
|
Ladbrokes Group Finance 7.125% |
Fixed Interest |
European Corporate Bonds |
815 |
1.10 |
|
Premier Foods |
Food Producers |
UK Equities |
790 |
1.07 |
|
Hill (William) |
Travel & Leisure |
UK Equities |
772 |
1.05 |
|
Standard Chartered |
Banks |
UK Equities |
718 |
0.97 |
|
Dawnay Day Carpathian |
Real Estate |
Eastern European Property |
699 |
0.95 |
|
Highway Insurance Holdings |
Non-life Insurance |
UK Equities |
684 |
0.93 |
|
HBOS |
Banks |
UK Equities |
682 |
0.92 |
|
City Merchants High Yield Trust |
Investment Companies |
UK Equities |
668 |
0.90 |
|
ACP Capital Ltd |
Investment Companies |
UK Equities |
648 |
0.88 |
|
Zenith Inv European Income Inst 'B'C |
OEICS |
European Equities |
645 |
0.88 |
|
Zenith Investment European Inst AC |
OEICS |
European Equities |
643 |
0.87 |
|
Weir Group |
Industrial Engineering |
UK Equities |
545 |
0.74 |
|
Throgmorton Trust |
Investment Companies |
UK Equities |
532 |
0.72 |
|
Harewood Structured Inv Units |
Investment Companies |
UK Equities |
530 |
0.72 |
|
Macau Property Opportunities |
Real Estate |
UK Equities |
523 |
0.71 |
|
Tate & Lyle Intl Fin 6.5% EMTN 28/06/12 |
Fixed Interest |
European Corporate Bonds |
492 |
0.67 |
|
BNP Paribas 16.5% Conv 02/10/08 |
Fixed Interest |
Structured Product |
487 |
0.66 |
|
Nomura Bank Intl 0% 22/11/2011 BSKT |
Structured Product |
Japanese Property |
421 |
0.56 |
|
Aberdeen Development Capital |
Investment Companies |
Private Equity |
389 |
0.52 |
|
Harewood Structured US High Inc Unhedged CLS'B' Pref |
Investment Companies |
US Equities |
345 |
0.46 |
|
Barclays Bank 16% 14/07/08 GBP BSKT |
Fixed Interest |
Structured Product |
318 |
0.42 |
|
Persimmon |
Household Goods |
UK Equities |
318 |
0.42 |
|
Close Finsbury Global Japanese Equity |
OEICS |
Japanese Equities |
303 |
0.40 |
|
Total investments |
|
|
72,569 |
98.26 |
|
Net current assetsA |
|
|
1,295 |
1.74 |
|
Total assets |
|
|
73,864 |
100.00 |
|
With the exception of those companies' shares marked with a specific share class above, all investments are in the ordinary shares of the investee company. |
||||
|
A Excluding bank loan of £6,250,000. |
|
|
|
|
|
B Unquoted. |
|
|
|
|
|
C Unlisted. |
|
|
|
|
|
|
|
|
|
|
Top Ten Holdings Comparative Value
|
|
|
|
2008 |
2007 |
|
Company |
Sector |
Asset Class |
£'000 |
£'000 |
|
Bell AJB |
Special & Other Finance |
Unquoted Equity |
2,750 |
2,000 |
|
BlackRock Commodities Income Investment Trust |
Investment Companies |
Commodities Equities |
2,007 |
1,621 |
|
Barclays Bank I/L 07/03/13 GBP 'S207' |
Fixed Interest |
Structured Product |
1,840 |
1,029 |
|
Aberdeen Asian Income Fund |
Investment Companies |
Asian Equities |
1,670 |
1,607 |
|
CF Ruffer Inv Funds Baker Steel Gold Fund AccC |
OEICS |
Gold Equities |
1,643 |
1,896 |
|
BlackRock (Lux) c/wts 09/05/13 DJ Euro Stoxx 50C |
Special & Other Finance |
Structured Product |
1,578 |
1,364 |
|
BP |
Oil & Gas Producers |
UK Equities |
1,528 |
1,555 |
|
M&G Leveraged European Loan FundC |
OEICS |
European Corporate Bonds |
1,480 |
2,133 |
|
Legal & General Group |
Life Insurance |
UK Equities |
1,459 |
1,779 |
|
Protego UK PropertyC |
Unit Trusts |
UK Property |
1,454 |
1,751 |
|
B Unquoted |
|
|
|
|
5 BUSINESS REVIEW
A review of the Company's activities is given in the Chairman's Statement and the Manager's Review above. This includes a review of the business of the Company and its principal activities, recommended dividends, likely future developments of the business and details of the Company's policy on share capital management. The principal risks and uncertainties associated with the Company are detailed below and in Note 17 to the financial statements. The Company has exposure to financial instruments, details of which are disclosed in Note 17 to the financial statements. Further details of the risk management objectives and policies are provided in the Statement on Corporate Governance contained within the Annual Report.
The Key Performance Indicators (NAV and benchmark movements together with details of the share price performance and total expense ratio (TER)) for the Company are shown in the above.
The Company makes no political donations or expenditures and donations for charitable purposes and in common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance has been maintained throughout the year at the expense of the Company.
Results and Dividends
Details of the Company's results and dividends paid are shown in the highlights table above.
Principal Activity
The business of the Company is that of an investment trust investing in a diversified portfolio principally comprising UK equities and fixed interest securities but also other asset classes. By investing in overseas equities as well as diversifying into property, bonds, alternative assets and structured products, the Company can take advantage of a wide range of investment opportunities and reduce the risk profile of the Company's portfolio.
Status
The Company is registered as a public limited company, and is an investment company as defined by Section 833 of the Companies Act 2006. The Company is also a member of the Association of Investment Companies ('AIC').
The Company has been approved by the HM Revenue & Customs as an investment trust for the purposes of Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 30 April 2007. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 April 2008 so as to be able to continue to obtain approval as an investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for that year, although approval for that year would be subject to review were there to be any enquiry under the Corporate Tax Self Assessment regime.
The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account ('ISA') and it is the Directors' intention that the Company should continue to qualify.
Significant Contracts
The Company has as Investment Management Agreement with Midas Capital Partners Limited, further details of which are provided in note 3 to the financial statements. There is also an Administration Agreement with Aberdeen Asset Management PLC and further details are disclosed in note 4 to the financial statements.
Share Capital
During the year to 30 April 2008 the Company has purchased in the market 2,715,000 Ordinary shares. These shares were immediately cancelled. Subsequent to the year end and up to the date of this Annual Report a further 725,000 Ordinary shares have been purchased for cancellation.
Investment Objective
The Company's investment objective is to seek to achieve an absolute return with low volatility through investment in a multi-asset portfolio with the aim of achieving both income and capital returns.
Investment Restrictions
The Company will not:
(i) invest more than 10 per cent., in aggregate, of the value of its gross assets at the time the investment is made in other investment trusts or investment companies admitted to the Official List, provided that this restriction does not apply to investments in any such investment trusts or investment companies which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other investment trusts or investment companies admitted to the Official List;
(ii) invest, either directly or indirectly, or lend more than 20 per cent. (calculated at the time of any relevant investment or loan) of its gross assets (consolidated where appropriate) to any single underlying issuer (including the underlying issuer's subsidiaries or affiliates) provided that this restriction does not apply to cash deposits awaiting investment;
(iii) invest in physical commodities;
(iv) take legal or management control of any of its investments; or
(v) conduct any significant trading activity; or,
(vi) invest more than 20 per cent. (calculated at the time of any relevant investment) of its gross assets in one or more collective investment undertakings which may invest in excess of 20 per cent. of their gross assets in other collective investment undertakings (open-ended or closed-end);
In the event of any breach of the investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the Manager by an announcement issued through a Regulatory Information Service or a notice sent to Shareholders at their registered addresses in accordance with the Articles.
Investment Policies and Approach
The Company's investment objective is achieved through a policy of investing in a diversified portfolio principally comprising UK equities and fixed interest securities but also other asset classes. By investing in overseas equities as well as diversifying into property, alternative assets (such as private equity, commodity funds and funds of hedge funds) and structured products, the Company can take advantage of a wide range of investment opportunities and reduce the risk profile of the Company's portfolio.
Midas Capital Partners Limited (the 'Manager') endeavours to construct a balanced portfolio of assets with both market and non-market correlation with an emphasis on reducing volatility, risk and on achieving absolute returns. This is done by using a predominantly 'top down' approach to portfolio construction. The Manager assesses the risk/return characteristics of the main asset classes represented within the Company's portfolio on an ongoing basis, taking into account current valuations, expected returns and the major long-term themes driving investment markets.
The asset classes included within the portfolio are UK and overseas equities, fixed interest securities, property, alternative assets and structured products. The Manager varies the asset allocation of the portfolio around a core long-term position for each asset class with a view to adding value through tactical asset allocation.
Individual investments are selected as the Manager's best ideas through which to implement top down thematic decisions. Each investment, regardless of asset class, is expected to make a clear contribution to the achievement of one or more of the portfolio's aims, whether absolute return, income, capital growth, capital preservation or reduced volatility.
The equity element of the Company's portfolio is principally focused on companies in the FTSE 350 index with strong balance sheet, cash flow and dividend growth characteristics. In addition, a significant proportion of the equity portfolio is also invested in overseas markets. This exposure is used to broaden the diversification of the Company's portfolio and to reduce dependence on UK equities in addressing the growth and income elements of the portfolio's objectives. Ordinarily, exposure to overseas companies is achieved through the use of specialist collective investment schemes and products.
The equity portfolio is complemented by a spread of investments in fixed interest securities, alternative investments, property and structured products. These are included as non-equity correlated assets and serve to diversify further the Company's portfolio and correspondingly reduce volatility. The alternative assets and structured products in particular, add an element of absolute return to the portfolio while the property and fixed interest elements provide a degree of income security and further capital preservation.
The Manager gains exposure to certain sectors by investing a proportion of the Company's portfolio in other investment funds where specialised management skills are necessary or where it would be uneconomic for the Company to invest directly.
The majority of the Company's investments are in listed securities. However, with the prior consent of the Board, the Manager may invest in unlisted securities where it believes there exists a specific investment opportunity. It is not anticipated that unlisted investments will ordinarily represent more than 5 per cent. of the portfolio by value, measured at the time of investment. Additionally, a number of investments may be made in unlisted collective investment schemes, such as unit trusts, in order to gain exposure to specialist sectors. Currently there is one unquoted holding in the portfolio, representing 3.7 per cent. of the gross assets.
Generally, the Manager seeks to invest no more than 5 per cent. of the Company's total assets in any one security and to hold no more than 10 per cent. of the equity of any one company (although it may deviate from any such guidelines from time to time).
The Manager expects the Company's assets will normally be fully invested. However, during periods in which changes in economic conditions or other factors so warrant, the Manager may, with the Board's consent, reduce the Company's exposure to one or more asset classes and increase its position in cash and money market instruments.
The Company does not directly invest in, or use, derivative strategies (for efficient portfolio management or otherwise); however, certain of the Company's investments may incorporate derivatives. In the event of adverse market movements this may result in the Company being exposed to the full value of such negative movements. The Manager seeks to minimise this risk, and to achieve the Company's investment objective of targeting absolute returns, by investing in a diversified range of assets, including assets with a low correlation to equity markets.
The Company does not currently intend to enter into any direct currency hedging arrangements. Most of the overseas holdings within the portfolio are sterling denominated. In some instances, local currency returns may be hedged into sterling within the individual holding. The Manager regards this range of currency exposure as part of the diversification of risk within the portfolio.
Investment Manager
The Company is managed by Midas Capital Partners Limited ('Midas'), a fast growing fund management company formed in early 2002 by Simon Edwards and Alan Borrows, the investment team who were responsible for the £3 billion Merseyside Pension fund from 1995 to 2002. The Midas investment team of 6 investment managers has in aggregate 89 years of investment experience and boasts a pension fund track record which is top decile over both 5 and 10 years (5 years top percentile)*.
On 7 March 2008 Midas merged with iimia MitonOptimal plc, to form Midas Capital PLC, an AIM market listed company encompassing fund management, wealth management and corporate services. This merger created a leading multi-asset fund management business with excellent long term investment performance across a diversified product range. The company had assets under management and advice of circa £3 billion at 30 April 2008.
* Source WM Company - All Pension Funds Universe for periods to 31 March 2008.
Principal Risks and Uncertainties
Investment and Market Risks: Managing a portfolio of shares and debt security investments necessarily involves certain risks, the more important of which are set out below. A significant proportion of the assets of the Company may be invested in debt security investments and overseas equities. Whilst this broader spread of investments is intended to reduce the volatility and risk profile of the Company's portfolio this cannot be assured.
Shares: The market value of the Ordinary shares, as well as being affected by the net asset value, also takes into account their supply and demand. The market value of an Ordinary share can fluctuate and may not always reflect its underlying net asset value. Investment in the Company should be regarded as long term in nature. There can be no guarantee that appreciation in the value of the Company's investments will occur and investors may not get back the full value of their original investment.
Investment Objective: There is no guarantee that the investment policy adopted by the Company will provide the returns sought by the Company.
Borrowings: The Company currently utilises gearing in the form of bank borrowings (see note 11 to the financial statements). Gearing has the effect of exacerbating market falls and market gains.
Currency: A proportion of the Company's portfolio may be invested in assets denominated in currencies other than sterling. This will increase the currency risk that the Company is exposed to as a result in fluctuations in the exchange rate between the denomination of the investments and the sterling denomination of the Company's base currency.
Dividends: The ability of the Company to pay dividends in respect of the Ordinary shares and any future dividend growth will depend on the level of income received from its investments. Accordingly, the amount of dividends paid to Shareholders may fluctuate.
Discount: While the Board intends to implement an active discount management policy, the ability to implement such a policy is dependent on a number of factors including; the ability to buy back shares in the market, the ability to fund share buybacks, the authority to buy back shares being renewed annually and the Board's discretion over the making and timing of any buybacks.
Key Individuals: The Company is substantially dependent on the services of key individuals working for its Manager, namely Simon Edwards and Alan Borrows. The loss of either or both of these individuals could have an adverse effect on the Company's performance.
Taxation and Exchange Controls: Any change in the Company's tax status or in taxation legislation (including the tax treatment of dividends or other investment income received by the Company) or failure to satisfy the conditions of section 842 of the Income and Corporation Taxes Act 1988 could affect the value of the investments held by the Company, affect the Company's ability to provide returns to Shareholders or alter the post tax returns to Shareholders.
Discount Management and Treasury
In order to sustain the rating of the Ordinary shares, the Board applies an active discount management policy by buying back Ordinary shares if the market price is at a discount greater than 5 per cent. to the NAV per Ordinary share. The Company is currently authorised to buyback up to 14.99 per cent. of its current issued Ordinary shares through the market which expires at the annual general meeting in 2008 and will seek annual (or, if required, more frequent) renewal of this authority. Since the authority was renewed at the Company's last Annual General Meeting in September 2007, 725,000 Ordinary shares have been purchased for cancellation. The Company is seeking to renew this authority at the AGM.
The making and timing of any buyback is at the absolute discretion of the Board. Any Ordinary shares bought back may be cancelled or, subject to a limit of up to 10 per cent. of the issued Ordinary shares, held in treasury. Ordinary shares held in treasury may be subsequently cancelled or, subject to Shareholder approval at the relevant time, sold for cash. The Directors do not intend to sell any Ordinary shares held in treasury at a discount to the prevailing NAV per Ordinary Share.
Borrowing Policy
The Company may borrow to gear the Company's returns when the Board believes it is in Shareholders' interests to do so. The Company's existing borrowing policy allows gearing up to approximately 20 per cent. of the Company's net assets. The Company's current credit facilities comprise the existing £8 million Bank Facility of which £6.25 million has been drawn down as at 30 April 2008 (equivalent to approximately 9.2 per cent. of its net assets) and a short-term overdraft facility of up to £1 million (currently unutilised). The Board believes these levels are appropriate for the Company at the present time.
6. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Accounts and the financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accountings Standards and applicable law).
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent; and
• 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 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 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The financial statements are published on www.midascapital.co.uk 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; and
• the Directors' 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 Midas Income & Growth Trust PLC
Hubert Reid
Chairman
3 July 2008
INCOME STATEMENT
|
|
|
Year ended 30 April 2008 |
Year ended 30 April 2007 |
||||
|
|
Notes |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
(Loss) / Gains on investments |
9 |
- |
(10,266) |
(10,266) |
- |
6,365 |
6,365 |
|
Income |
2 |
4,423 |
- |
4,423 |
2,892 |
- |
2,892 |
|
Investment management fee |
3 |
(402) |
(403) |
(805) |
(342) |
(342) |
(684) |
|
Performance fee |
3 |
- |
- |
- |
- |
(450) |
(450) |
|
Administrative expenses |
4 |
(348) |
- |
(348) |
(307) |
- |
(307) |
|
Exchange gains / (losses) |
|
- |
2 |
2 |
- |
(23) |
(23) |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Net return on ordinary activities before interest payable and taxation |
|
3,673 |
(10,667) |
(6,994) |
2,243 |
5,550 |
7,793 |
|
Finance costs |
5 |
(192) |
(198) |
(390) |
(105) |
(524) |
(629) |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Net return on ordinary activities before taxation |
3,481 |
(10,865) |
(7,384) |
2,138 |
5,026 |
7,164 |
|
|
Taxation |
6 |
- |
- |
- |
- |
- |
- |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Return on ordinary activities after taxation |
|
3,481 |
(10,865) |
(7,384) |
2,138 |
5,026 |
7,164 |
|
|
|
===== |
===== |
===== |
===== |
===== |
===== |
|
|
|
|
|
|
|
|
|
|
Return per share (pence): |
8 |
|
|
|
|
|
|
|
Basic |
|
7.64 |
(23.84) |
(16.20) |
6.40 |
15.04 |
21.44 |
|
Diluted |
|
n/a |
n/a |
n/a |
6.22 |
14.62 |
20.84 |
|
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
|
|
Notes |
As at 30 April 2008 £'000 |
As at 30 April 2007 £'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
9 |
72,569 |
84,861 |
|
|
|
----- |
----- |
|
Current assets |
|
|
|
|
Debtors & prepayments |
10 |
791 |
839 |
|
Cash and short term deposits |
14 |
756 |
1,614 |
|
|
|
----- |
----- |
|
|
|
1,547 |
2,453 |
|
|
|
----- |
----- |
|
Creditors: amounts falling due within one year |
11 |
|
|
|
Bank loan |
|
(6,250) |
(4,250) |
|
Other creditors |
|
(252) |
(1,608) |
|
|
|
----- |
----- |
|
|
|
(6,502) |
(5,858) |
|
|
|
----- |
----- |
|
Net current liabilities |
|
(4,955) |
(3,405) |
|
|
|
----- |
----- |
|
Net assets |
|
67,614 |
81,456 |
|
|
|
===== |
===== |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
12 |
10,910 |
11,564 |
|
Share premium account |
|
40,993 |
40,918 |
|
Special reserve |
|
6,641 |
10,538 |
|
Warrant reserve |
|
616 |
648 |
|
Capital redemption reserve |
|
679 |
- |
|
Capital reserve |
|
6,163 |
16,996 |
|
Revenue reserve |
|
1,612 |
792 |
|
|
|
----- |
----- |
|
Equity Shareholders' funds |
|
67,614 |
81,456 |
|
|
|
===== |
===== |
|
Net asset value per share (pence): |
16 |
|
|
|
Basic |
|
154.94 |
176.10 |
|
Diluted |
|
152.60 |
172.90 |
|
|
|
|
|
|
The financial statements were approved by the Board of Directors and authorised for issue on 3 July 2008 and were signed on its behalf by: |
|||
|
H V Reid |
|||
|
Chairman |
|||
|
The accompanying notes are an integral part of the financial statements. |
|||
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
|
For the year ended 30 April 2008 |
|
|
|
|
|
|
|
|
|
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Warrant reserve £'000 |
Capital redemption reserve £'000 |
Capital reserve - realised £'000 |
Capital reserve - unrealised £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance at 30 April 2007 |
11,564
|
40,918 |
10,538 |
648 |
- |
10,468 |
6,528 |
792 |
81,456 |
|
Purchase of Ordinary shares for cancellation |
(679)
|
-
|
(3,897)
|
-
|
679
|
-
|
-
|
-
|
(3,897)
|
|
Exercise of Warrants |
25 |
75 |
- |
(32) |
- |
32 |
- |
- |
100 |
|
Return on ordinary activities after taxation |
-
|
-
|
-
|
-
|
-
|
537
|
(11,402)
|
3,481
|
(7,384)
|
|
Dividends paid (see note 7) |
- |
- |
- |
- |
- |
- |
- |
(2,661) |
(2,661) |
|
|
----- |
----- |
----- |
----- |
----- |
----- |
----- |
----- |
----- |
|
Balance at 30 April 2008 |
10,910 |
40,993 |
6,641 |
616 |
679 |
11,037 |
(4,874) |
1,612 |
67,614 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
|
For the year ended 30 April 2007 |
|
|
|
|
|
|
|
|
|
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Warrant reserve £'000 |
Capital redemption reserve £'000 |
Capital reserve - realised £'000 |
Capital reserve - unrealised £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance at 30 April 2006 |
8,147 |
22,067 |
10,538 |
980 |
- |
8,527 |
2,688 |
523 |
53,470 |
|
C shares issued |
3,156 |
18,491 |
- |
- |
- |
- |
- |
- |
21,647 |
|
C share issue expenses |
- |
(423) |
- |
- |
- |
423 |
- |
- |
- |
|
Exercise of Warrants |
261 |
783 |
- |
(332) |
- |
332 |
- |
- |
1,044 |
|
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
1,186 |
3,840 |
2,138 |
7,164 |
|
Dividends paid (see note 7) |
- |
- |
- |
- |
- |
- |
- |
(1,869) |
(1,869) |
|
|
----- |
------ |
----- |
----- |
----- |
----- |
----- |
----- |
----- |
|
Balance at 30 April 2007 |
11,564 |
40,918 |
10,538 |
648 |
- |
10,468 |
6,528 |
792 |
81,456 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||||
CASHFLOW STATEMENT
|
|
|
Year ended 30 April 2008 |
Year ended 30 April 2007 |
||
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
|
Net cash inflow from operating activities |
13 |
|
2,253 |
|
1,956 |
|
|
|
|
|
|
|
|
Servicing of finance |
|
|
|
|
|
|
Bank and loan interest paid |
|
|
(320) |
|
(191) |
|
|
|
|
|
|
|
|
Financial investment |
|
|
|
|
|
|
Purchases of investments |
|
(22,661) |
|
(36,491) |
|
|
Sales of investments |
|
24,333 |
|
13,942 |
|
|
|
|
|
----- |
|
----- |
|
Net cash inflow/(outflow) from financial investment |
|
|
1,672 |
|
(22,549) |
|
|
|
|
|
|
|
|
Equity dividends paid |
|
|
(2,661) |
|
(1,869) |
|
|
|
|
----- |
|
----- |
|
Net cash inflow/(outflow) before financing |
|
|
944 |
|
(22,653) |
|
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
Share capital issued - C shares |
|
- |
|
21,647 |
|
|
Share capital issue expenses |
|
(7) |
|
(423) |
|
|
Buyback of shares |
|
(3,897) |
|
- |
|
|
Exercise of Warrants |
|
100 |
|
1,044 |
|
|
|
|
|
----- |
|
----- |
|
Net cash (outflow)/inflow from financing |
|
|
(3,804) |
|
22,268 |
|
|
|
|
----- |
|
----- |
|
Decrease in cash |
|
|
(2,860) |
|
(385) |
|
|
|
|
===== |
|
===== |
|
Reconciliation of net cash flow to movements in net debt |
|
|
|
|
|
|
Decrease in cash as above |
|
|
(2,860) |
|
(385) |
|
Exchange movements |
|
|
2 |
|
(23) |
|
|
|
|
----- |
|
----- |
|
Movement in net debt in the year |
|
|
(2,858) |
|
(408) |
|
Net debt at 1 May |
|
|
(2,636) |
|
(2,228) |
|
|
|
|
----- |
|
----- |
|
Net debt at 30 April |
14 |
|
(5,494) |
|
(2,636) |
|
|
|
|
===== |
|
===== |
|
The accompanying notes are an integral part of the financial statements. |
|||||
NOTES TO THE FINANCIAL STATEMENTS:
|
1 |
Accounting policies |
|
|
|
(a) |
Basis of preparation and going concern |
|
|
|
The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('the SORP') (issued January 2003 and revised in December 2005). 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. The Directors believe this is appropriate for the reasons outlined in the Directors' Report in the Annual Report. During the year the Company adopted FRS 29 'Financial Instruments: Disclosures'. This standard primarily concerns the disclosure of financial instruments and risks. These disclosures can be found primarily in note 17. |
|
|
(b) |
Valuation of investments |
|
|
|
Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. The unquoted investments held (see note 9) are valued by the Directors using primary valuation techniques, such as earnings multiples, recent transactions and net assets, which equate to their fair values. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement. |
|
|
(c) |
Income |
|
|
|
Income from investments (other than special dividends), accounting policy for loan investment, is included in revenue by reference to the date on which the investment is quoted ex dividend. Special dividends are credited to capital or revenue, according to the circumstances. Interest receivable on short term deposits is treated on an accruals basis. The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares. |
|
|
(d) |
Expenses |
|
|
|
All expenses are accounted for on an accrual basis. Expenses are charged to revenue within the Income Statement except as follows: |
|
|
|
• transaction costs on the acquisition or disposal of investments are charged to capital; |
|
|
|
• expenses are charged to capital reserve - realised where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect the investment management fee and loan interest on the £6.25m bank loan have been allocated 50% to capital and 50% to revenue within the Income Statement; |
|
|
|
• loan break costs and performance fees are charged 100% to capital reserve - realised within the Income Statement. |
|
|
(e) |
Capital reserves |
|
|
|
Realised |
|
|
|
Gains or losses on investments realised in the year that have been recognised in the Income Statement are transferred to the realised capital reserve. In addition, any prior unrealised gains or losses on such investments are transferred from the unrealised capital reserve to realised capital reserve on disposal of the investment. |
|
|
|
Also, expenses and finance costs, together with the related taxation effect, are charged to this reserve in accordance with (d) above. |
|
|
|
Unrealised |
|
|
|
Increases and decreases in the fair value of investments are recognised in the Income Statement and are then transferred to the unrealised capital reserve. |
|
|
(f) |
Deferred taxation |
|
|
|
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred taxation is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in future against which the deferred tax asset can be offset. |
|
|
|
Due to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
(g) |
Foreign currency |
|
|
|
Transactions involving foreign currencies are converted to sterling, being the Company's functional currency, at the rate ruling at the date of the transaction. |
|
|
|
Translation of all other foreign currency balances including foreign assets and foreign liabilities is at the middle rates of exchange at the year end. Differences arising from translation are treated as a gain or loss to capital or revenue within the Income Statement depending upon the nature of the gain or loss. |
|
|
Income |
2008 £'000 |
2007 £'000 |
|
2 |
|||
|
|
Income from investments |
|
|
|
|
UK franked income |
1,980 |
1,412 |
|
|
UK unfranked income |
1,001 |
854 |
|
|
Overseas dividends |
1,328 |
575 |
|
|
|
4,309 |
2,841 |
|
|
|
|
|
|
|
Other income |
|
|
|
|
Deposit interest |
90 |
43 |
|
|
Other commission |
24 |
8 |
|
|
|
114 |
51 |
|
|
Total income |
4,423 |
2,892 |
|
|
|
|
|
|
|
|
2008 |
2007 |
|
|
Income from investments |
£'000 |
£'000 |
|
|
Listed UK |
3,123 |
2,169 |
|
|
Listed overseas |
352 |
215 |
|
|
Unlisted |
834 |
457 |
|
|
|
4,309 |
2,841 |
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
3 |
Investment management and performance fees |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Investment management fee |
373 |
374 |
747 |
291 |
291 |
582 |
|
|
Irrecoverable VAT |
29 |
29 |
58 |
51 |
51 |
102 |
|
|
|
402 |
403 |
805 |
342 |
342 |
684 |
|
|
Midas Capital Partners Limited ('Midas') were appointed the Investment Manager on 19 August 2005 (formerly Aberdeen Asset Managers Limited) and the management fee payable to Midas during the year was 1% of net assets along with a performance fee (see below). The fee is chargeable 50% to capital and 50% to revenue within the Income Statement and is subject to VAT at the appropriate rate. The agreement is terminable by either party on twelve months notice. The balance due to Midas at the year end was £56,000 (2007 - £80,000). The irrecoverable VAT charged during the year has been affected as a consequence of the ruling highlighted in note 19. No VAT was charged on management fees after the monthly fee for September 2007. |
||||||
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Performance fee |
- |
- |
- |
- |
383 |
383 |
|
|
Irrecoverable VAT |
- |
- |
- |
- |
67 |
67 |
|
|
|
- |
- |
- |
- |
450 |
450 |
|
|
The performance fee is calculated based on a comparison of the net asset value at the start of the calculation period and the net asset value at the period end. Where there has been an increase of greater than the benchmark of 8% per annum then a performance fee of 10% of the excess is applicable. The balance due to Midas at the year end in respect of the performance fee was £nil (2007 - £383,000) plus VAT. |
||||||
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4 |
Administrative expenses |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Administration fees |
129 |
- |
129 |
123 |
- |
123 |
|
|
Directors' fees |
54 |
- |
54 |
54 |
- |
54 |
|
|
Printing and stationery |
11 |
- |
11 |
14 |
- |
14 |
|
|
Auditors' remuneration: |
|
|
|
|
|
|
|
|
- audit |
23 |
- |
23 |
23 |
- |
23 |
|
|
- for review of Interim Report |
6 |
- |
6 |
6 |
- |
6 |
|
|
Other |
125 |
- |
125 |
87 |
- |
87 |
|
|
|
348 |
- |
348 |
307 |
- |
307 |
|
|
The Company has an agreement with Aberdeen Asset Managers Limited ('AAM') which is delegated to Aberdeen Asset Management PLC for the provision of administration services with fees based on the following basis: |
||||||
|
|
- £90,000 per annum plus VAT where the Company's net asset value is less than £50 million; |
||||||
|
|
- £110,000 per annum plus VAT where the Company's net asset value exceeds £50 million; |
||||||
|
|
The net asset position is assessed at 1 August for each year the agreement is in place. At this date the fee will also be increased, but not decreased, by the movement in RPI over the twelve month period. |
||||||
|
|
The agreement is terminable by either party on three months' notice. No sum was due to AAM at the year end |
||||||
|
|
|
||||||
|
|
Services related to Corporate Finance Transaction |
||||||
|
|
During the year nothing was paid to Ernst & Young for services relating to any Placings and Offers (2007 - £22,000 plus VAT), which was included within the costs of the issue of new shares under the Placing and Offer. |
||||||
|
|
|
2008 |
2007 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
5 |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
On bank loans and overdrafts |
192 |
198 |
390 |
105 |
101 |
206 |
|
|
C share issue expenses |
- |
- |
- |
- |
423 |
423 |
|
|
|
192 |
198 |
390 |
105 |
524 |
629 |
Finance costs relate to interest charged on the revolving loan facility, details of which are disclosed in note 11.
|
|
|
|
2008 |
2007 |
|||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
6 |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
(a) |
Analysis of charge for the year |
|||||||
|
|
|
Overseas withholding tax |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Factors affecting the tax charge for the year |
|||||||
|
|
|
The tax assessed for the year is lower than the standard rate of corporation tax in the UK. |
|||||||
|
|
|
|
|
|
|
|
2008 |
2007 |
|
|
|
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
|
Revenue return on ordinary activities before taxation |
|
|
3,481 |
2,138 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on ordinary activities at the UK standard rate of corporation tax (29.75%) (2007 - 30%) |
1,038 |
641 |
|||||
|
|
|
Effects of: |
|
|
|
|
|
|
|
|
|
|
Non-taxable UK investment income |
|
|
|
|
(591) |
(424) |
|
|
|
|
Excess management expenses |
|
|
|
|
(447) |
(217) |
|
|
|
|
Current revenue tax charge for the year |
|
|
|
|
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Factors that may affect future tax changes |
|
|
|
|
|
|
|
|
|
|
There was no provision for deferred taxation made for either this year or the previous year. The Company has not recognised a deferred tax asset of £1,489,132 (2007 - £1,907,180) arising as a result of non-trading deficits and eligible unrelieved foreign tax. These deficits will only be utilised if the Company has profits chargeable to corporation tax in future accounting periods. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised.
|
|||||||
|
|
|
2008 |
2007 |
|
7 |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Second interim dividend for 2006 - 1.38p (2005 - nil) |
- |
220 |
|
|
Fourth interim dividend for 2007 - 1.45p (2006 - nil) |
488 |
- |
|
|
Special C share dividend for 2007 - 0.40p (2006 - 0.75p) |
87 |
201 |
|
|
First interim dividend for 2008 - 1.53p (2007 - 1.45p) |
708 |
473 |
|
|
Second interim dividend for 2008 - 1.53p (2007 - 1.45p) |
699 |
488 |
|
|
Third interim dividend for 2008 - 1.53p (2007 - 1.45p) |
679 |
487 |
|
|
|
2,661 |
1,869 |
|
|
There is a fourth dividend proposed for the year of £733,000 (2007 - £488,000). There is no final dividend proposed for the year (2007 - nil). |
||
|
|
We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £3,468,000 (2007 - £2,138,000). |
||
|
|
|
|
|
|
|
|
2008 |
2007 |
|
|
|
£'000 |
£'000 |
|
|
To Ordinary Shareholders prior to C share conversion: |
|
|
|
|
First interim dividend for 2008 - 1.53p (2007 - 1.45p) |
708 |
473 |
|
|
Second interim dividend for 2008 - 1.53p (2007 - 1.45p) |
699 |
488 |
|
|
Third interim dividend for 2008 - 1.53p (2007 - 1.45p) |
679 |
487 |
|
|
Fourth interim dividend for 2008 - 1.68p (2007 - 1.45p) |
733 |
488 |
|
|
To C Shareholders: |
|
|
|
|
Special dividend for 2008 - nil (2007 - 0.4p) |
- |
87 |
|
|
|
2,819 |
2,023 |
|
8 |
Return per Ordinary share |
||||||
|
|
The return per Ordinary share is based on the following figures: |
||||||
|
|
|
2008 |
2007 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
P |
P |
P |
P |
P |
P |
|
|
Basic |
7.64 |
(23.84) |
(16.20) |
6.40 |
15.04 |
21.44 |
|
|
Diluted |
n/a |
n/a |
n/a |
6.22 |
14.62 |
20.84 |
|
|
The basic revenue return per Ordinary share is calculated on net revenue on ordinary activities after taxation for the year of £3,481,000 (2007 - £2,138,000) and on 45,578,361 (2007 - 33,422,634) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. |
||||||
|
|
The basic capital return per Ordinary share is calculated on net capital returns for the year of (£10,865,000) (2007 - £5,026,000) and on 45,578,361 (2007 - 33,422,634) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. |
||||||
|
|
The basic total return per Ordinary share is calculated on the total return for the year of (£7,384,000) (2007 - returns of £7,164,000) and on 45,578,361 (2007 - 33,422,634) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. |
||||||
|
|
Diluted returns have been calculated on the basis set out in Financial Reporting Standard 22 'Earnings per share' ('FRS 22'). For the year ended 30 April 2008 there has been no dilutive effect. The adjusted weighted average number of Ordinary shares used in the 30 April 2007 calculation is 34,377,033. |
||||||
|
9 |
Investments |
Listed in UK £'000 |
Unquoted (incl. Unit Trusts & OEICS) £'000 |
Total £'000 |
|
|
Fair value through profit or loss: |
|
|
|
|
|
Opening book cost at 1 May 2007 |
61,926 |
16,407 |
78,333 |
|
|
Opening unrealised appreciation at 1 May 2007 |
4,691 |
1,837 |
6,528 |
|
|
Opening valuation at 1 May 2007 |
66,617 |
18,244 |
84,861 |
|
|
Movements in year: |
|
|
|
|
|
Purchases at cost |
21,394 |
673 |
22,067 |
|
|
Sales - proceeds |
(22,421) |
(1,672) |
(24,093) |
|
|
- realised gains on sales |
1,031 |
105 |
1,136 |
|
|
Increase in unrealised appreciation |
(10,243) |
(1,159) |
(11,402) |
|
|
Closing valuation at 30 April 2008 |
56,378 |
16,191 |
72,569 |
|
|
|
|
|
|
|
|
Closing book cost at 30 April 2008 |
61,930 |
15,513 |
77,443 |
|
|
Closing unrealised appreciation at 30 April 2008 |
(5,552) |
678 |
(4,874) |
|
|
|
56,378 |
16,191 |
72,569 |
|
|
|
|
|
|
|
|
|
|
2008 |
2007 |
|
|
|
|
£'000 |
£'000 |
|
|
Realised gains on sales |
|
1,136 |
2,525 |
|
|
Decrease/(increase) in unrealised appreciation |
|
(11,402) |
3,840 |
|
|
|
|
(10,266) |
6,365 |
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows: |
|||
|
|
|
|
2008 |
2007 |
|
|
|
|
£'000 |
£'000 |
|
|
Purchases |
|
50 |
102 |
|
|
Sales |
|
22 |
19 |
|
|
|
|
72 |
121 |
|
|
|
2008 |
2007 |
|
10 |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Dividends and interest receivable |
769 |
566 |
|
|
Prepayments and other debtors |
22 |
33 |
|
|
Amounts due from brokers |
- |
240 |
|
|
|
791 |
839 |
|
|
|
2008 |
2007 |
|
11 |
Creditors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Bank loan |
6,250 |
4,250 |
|
|
Amounts due to brokers |
56 |
650 |
|
|
Interest payable |
94 |
31 |
|
|
Other creditors |
102 |
927 |
|
|
|
6,502 |
5,858 |
|
|
The Company has an £8,000,000 revolving loan facility in place with Royal Bank of Scotland plc, of which at 30 April 2008 £6,250,000 had been drawn down at an all in rate of 6.2462%. Subsequent to the year end on 6 May 2008 the loan was rolled over until 6 June 2008 at an all-in rate of 6.1212%. The remaining £1,750,000 has not been drawn down and remains available for draw down in the future for purposes of funding investments consistent with the Company's investment policy. |
||
|
|
The termination date of the facility is 2 August 2009. The Company anticipates refinancing the facility through a |
||
|
|
|
2008 |
2007 |
|
12 |
Called up share capital |
£'000 |
£'000 |
|
|
Authorised |
|
|
|
|
390,000,000 (2007 - 390,000,000) Ordinary shares of 25p |
97,500 |
97,500 |
|
|
|
|
|
|
|
Called-up, allotted and fully paid |
|
|
|
|
43,639,950 (2007 - 46,255,250) Ordinary shares of 25p |
10,910 |
11,564 |
|
|
On 14 September 2007 99,700 Warrants were exercised with proceeds of £99,700 which resulted in a decrease in the warrant reserve of £32,000. At 30 April 2008 there were in issue 1,934,411 (2007 - 2,034,111) Warrants to subscribe for one Ordinary share at 100p on 31 August in each of the years 2008 to 2010 inclusive or, if later, the date in any such year 30 days after the date on which copies of the audited financial statements of the Company for its then immediately preceding financial year are dispatched to Shareholders. During the year to 30 April 2008 the Company purchased 2,715,000 Ordinary shares in the market for immediate cancellation. |
||
|
13 |
Reconciliation of net revenue before finance costs and taxation |
2008 |
2007 |
|
|
to net cash inflow/(outflow) from operating activities |
£'000 |
£'000 |
|
|
Net return before finance costs and taxation |
(6,994) |
7,793 |
|
|
Adjustments for: |
|
|
|
|
Losses /(gains) on investments |
10,266 |
(6,365) |
|
|
Exchange (gains)/losses |
(2) |
23 |
|
|
Increase in accrued income |
(203) |
(204) |
|
|
Decrease/(increase) in other debtors |
11 |
(28) |
|
|
(Decrease)/increase in other creditors |
(825) |
737 |
|
|
Net cash inflow from operating activities |
2,253 |
1,956 |
|
|
|
1 May |
Cash |
Exchange |
30 April |
|
|
|
2007 |
Flow |
Movements |
2008 |
|
14 |
Analysis of changes in net debt |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash and short term deposits |
1,614 |
(860) |
2 |
756 |
|
|
Debt due in less than one year |
(4,250) |
(2,000) |
- |
(6,250) |
|
|
|
(2,636) |
(2,860) |
2 |
(5,494) |
|
15 |
Commitments and contingencies |
|
|
As at 30 April 2008 there were no contingent liabilities (2007 - nil.) |
|
|
As at 30 April 2008 there was a commitment to pay a fee for any sums not drawn down on the bank loan. The fee of £6,000 (2007- £5,000) is based on 0.325% of the undrawn sum (2007 - 0.375%). |
|
16 |
Net asset value per equity share |
2008 |
2007 |
|
|
Basic |
|
|
|
|
Net assets attributable |
£67,614,000 |
£81,456,000 |
|
|
Number of Ordinary shares in issue |
43,639,950 |
46,255,250 |
|
|
Net asset value per Ordinary share |
154.94p |
176.10p |
|
|
|
|
|
|
|
Diluted |
|
|
|
|
Net assets attributable |
£69,548,000 |
£83,490,000 |
|
|
Number of Ordinary shares if Warrants converted |
45,574,361 |
48,289,361 |
|
|
Net asset value per Ordinary share |
152.60p |
172.90p |
|
|
The diluted net asset values per Ordinary share as at 30 April 2008 and 30 April 2007 have been calculated by reference to the total number of Ordinary shares in issue at each year end and on the assumption that those Warrants which are not exercised at the period end, amounting to 1,934,411 Warrants as at 30 April 2008 (30 April 2007 - 2,034,111), were fully exercised on the first day of the financial year at 100p per share, giving a total of 45,574,361 Ordinary shares (30 April 2007 - 48,289,361). |
||
|
17 |
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, which are set out on in the Annual Report; |
|
|
• Term loans and bank overdrafts, the main purpose of which are to raise finance for the Company's operations; and |
|
|
• Cash and liquid resources that arise directly from the Company's operations. |
|
|
The main risks arising from the Company's financial instruments are market price risk, interest rate risk and foreign currency risk. There may also be exposure to interest rate risk from time to time. 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 price risk |
|
|
Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. |
|
|
To mitigate the risk the Board's investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis, with the emphasis on long term investments. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. |
|
|
A list of the investments held by the Company at 30 April 2008 is shown in the 'Investment Portfolio' table above. All investments are stated at fair value. |
|
|
Interest rate risk |
|
|
Financial assets |
|
|
Bonds, Open Ended Investment Companies, floating rate notes and preference share yields, and as a consequence their prices, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Government's fiscal position, short-term interest rates and international market comparisons. The Investment Manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company. |
|
|
Returns from bonds, floating rate notes 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. |
|
|
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. |
|
|
The interest rate profile of the Company (excluding short term debtors and creditors) at 30 April 2008 and 30 April 2007 was as follows: |
|
|
|
Total (as per Balance Sheet) £'000 |
Floating rate £'000 |
Fixed rate |
Financial assets on which no interest is paid |
Weighted average interest rateA |
||||
|
|
Type |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Equities |
38,900 |
47,076 |
- |
- |
- |
- |
38,900 |
47,076 |
- |
|
|
Property |
1,483 |
890 |
- |
- |
- |
- |
1,483 |
890 |
- |
|
|
OEIC's |
10,615 |
16,311 |
- |
- |
- |
- |
10,615 |
16,311 |
- |
|
|
Corporate Bond |
5,118 |
4,069 |
- |
- |
5,118 |
4,069 |
- |
- |
8.44 |
|
|
Floating Rate Notes |
8,699 |
7,803 |
8,699 |
7,803 |
- |
- |
- |
- |
6.80 |
|
|
Preference shares |
4,171 |
5,708 |
- |
- |
4,171 |
5,708 |
- |
- |
8.51 |
|
|
Convertible Bond |
833 |
1,004 |
- |
- |
833 |
1,004 |
- |
- |
6.76 |
|
|
Unquoted |
2,750 |
2,000 |
- |
- |
- |
- |
2,750 |
2,000 |
- |
|
|
Cash at bank - Sterling |
755 |
1,205 |
755 |
1,205 |
- |
- |
- |
- |
5.40 |
|
|
Cash at bank - Euro |
1 |
409 |
1 |
409 |
- |
- |
- |
- |
- |
|
|
|
73,325 |
86,475 |
9,455 |
9,417 |
10,122 |
10,781 |
53,748 |
66,277 |
n/a |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Bank loan - Sterling |
(6,250) |
(4,250) |
- |
- |
(6,250) |
(4,250) |
- |
- |
6.25 |
|
|
Total |
67,075 |
82,225 |
9,455 |
9,417 |
3,872 |
6,531 |
53,748 |
66,277 |
n/a |
|
|
A The 'weighted average interest rate' is based on the current yield of each asset, weighted by their market value. This excludes all equities and stocks where payments have been suspended. |
|||||||||
|
|
B The 'weighted average period for which rate is fixed' excludes stocks with no maturity date. |
|||||||||
|
|
Maturity profile |
||||||
|
|
The maturity profile of the Company's financial assets at 30 April 2008 and 30 April 2007 was as follows: |
||||||
|
|
At 30 April 2008 |
|
Within |
More than |
Total |
||
|
|
Fixed rate |
|
|
|
|
||
|
|
Corporate Bond |
|
2,564 |
2,554 |
5,118 |
||
|
|
Convertible Bond |
|
833 |
- |
833 |
||
|
|
Preference shares |
|
- |
840 |
840 |
||
|
|
|
|
3,397 |
3,394 |
6,791 |
||
|
|
Floating rate |
|
|
|
|
||
|
|
Cash |
|
756 |
- |
756 |
||
|
|
Details of the Company's loans are shown in note 11. All the other financial assets (including Preference shares of £3,331,000) and liabilities do not have a maturity date. |
||||||
|
|
At 30 April 2007 |
|
Within |
More than |
Total |
||
|
|
Fixed rate |
|
|
|
|
||
|
|
Corporate Bond |
|
1,871 |
2,198 |
4,069 |
||
|
|
Convertible Bond |
|
1,004 |
- |
1,004 |
||
|
|
Preference shares |
|
- |
916 |
916 |
||
|
|
|
|
2,875 |
3,114 |
5,989 |
||
|
|
Floating rate |
|
|
|
|
||
|
|
Cash |
|
1,614 |
- |
1,614 |
||
|
|
Details of the Company's loans are shown in note 11. All the other financial assets (including Preference shares of £4,792,000) and liabilities do not have a maturity date. |
||||||
|
|
|
||||||
|
|
Interest rate sensitivity |
||||||
|
|
The sensitivity analyses below have been determined based on the exposure to interest rates for floating and fixed interest investments at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of investments that have floating rates. If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's: - profit before tax for the year ended 30 April 2008 would increase/decrease by £8,000 (2007 - £16,000). This is mainly attributable to the Company's exposure to interest rates on it's floating rate cash balances. These figures have been calculated based on cash positions at each year end. - profit before tax for the year ended 30 April 2008 would increase/decrease by £75,000 (2007 - £66,000). This is also mainly attributable to the Company's exposure to interest rates on its fixed interest securities. This is based on a Value at Risk ('VaR') calculated at a 99% confidence level. In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. The risk parameters used will also fluctuate depending on the current market perception. |
||||||
|
|
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. At the year end the Company held the following investments: |
||||||
|
|
|
2008 |
2007 |
||||
|
|
|
Currency |
Sterling equivalent |
Currency |
Sterling equivalent |
||
|
|
Euro |
2,945 |
2,315 |
3,476 |
2,372 |
||
|
|
Japanese Yen |
270,286 |
1,306 |
283,825 |
1,188 |
||
|
|
US Dollar |
4,219 |
2,130 |
728 |
364 |
||
|
|
|
||||||
|
|
|
||||||
|
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, as detailed on above, 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. Other price risk sensitivity If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 30 April 2008 would have increased/decreased by £5,375,000 (2007: increase/decrease of £6,628,000) and equity reserves would have increased/decreased by the same amount. Credit risk This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. The risk is not 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, whose 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, 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 on a monthly basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a monthly 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. |
|||||||
|
18 |
Capital management policies and procedures |
|
|
The Company's capital management objectives are: • to ensure that the Company will be able to continue as a going concern, and • to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board normally seeks to limit gearing to 20% of net assets. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. |
|
19 |
Contingent assets |
|
|
On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT. HMRC has announced its intention not to appeal against this ruling to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company will be processed in due course. It is likely that a repayment will be made by HMRC in respect of VAT which has been charged on investment management fees in past years and the Board is currently quantifying the potential repayment that should be due. The amount the Company will receive, the period to which it will refer, and the timescale for receipt are at present uncertain and the Company has taken no account in the financial statements of any such repayments. The Company has not been charged VAT on its investment management fees since September 2007. |
|
20 |
Related party disclosure |
|
|
On 7 March 2008 Midas Capital Partners Limited and iimia MitonOptimal plc merged to form Midas Capital PLC. The Company has appointed Intelli Corporate Finance Limited ('Intelli'), a subsidiary company of Midas Capital PLC, to act as its Stockbroker and Financial Adviser. The aggregate remuneration paid by the Company to Intelli was £30,000 in respect of their services as brokers (2007 - £nil for broking services and £320,000 in relation to fund raising activities). Group subsidiaries of Midas Capital PLC, on occasions, earn broking commissions on share transactions on behalf of the Company. During the period Midas Capital PLC received commission fees totalling £17,000 (2007 - £8,000). |
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 April 2008 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2007 and 2008 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.237(2) or (3) of the Companies Act 1985. The financial information for 2007 is derived from the statutory accounts for 2007 which have been delivered to the Registrar of Companies. The 2008 accounts will be filed with the Registrar of Companies in due course.
The Annual General Meeting of the Company will be held at 12.30 p.m. on 9 September 2008 at Martins Building, Water Lane, Liverpool L2 3SP.
The audited Annual Report and Accounts will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company's Registered Office, One Bow Churchyard, Cheapside, London EC4M 9HH or from the Company's website, www.newdawn-trust.co.uk.
By order of the Board
Aberdeen Asset Management PLC - Secretary
3 July 2008
This information is provided by RNS
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