Annual Financial Report

RNS Number : 4070O

Monks Investment Trust PLC

30 June 2010

 



THE MONKS INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

Copies of the Annual Report and Financial Statements for the year ended 30 April 2010 will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

Tel: [phone]

The Annual Report and Financial Statements for the year ended 30 April 2010 is also available on Monks page of the Baillie Gifford website at:

www.monksinvestmenttrust.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 30 April 2010 which require to be published by DTR 4.1 is set out on the following pages.

Baillie Gifford & Co

Company Secretaries

30 June 2010

CHAIRMAN'S STATEMENT

Performance

In the year to 30 April 2010 net asset value per share, with borrowings at fair value, rose by 42.8% and the FTSE World Index in sterling terms rose by 31.5%. During the first half of the year net asset value per share rose by 20.8% while the comparative index rose by 12.4% and during the second half net asset value per share rose by a further 18.2% and the index advanced by another 17.0%. The share price ended the Company's year at 313p, 32.3% higher than at the end of the previous year. Over the five years to 30 April 2010 the net asset value per share rose by 67.1% and the share price by 69.6% while the comparative index rose by 40.2%.

Markets rallied as the financial system appeared to have been stabilised, greatly reducing the risk of a complete meltdown and, after a severe shock, economic growth resumed in most parts of the world.

Over and above the general rise in equity markets around the world the largest positive contributions to performance were made by our equity holdings in Emerging Markets and Europe. The Managers' Portfolio Review contains more detail on the individual investments that made the greatest positive and negative contributions to performance. Of particular note was the performance of our holdings of bonds, which in aggregate exceeded that of the comparative index during a period of strong equity markets.

Earnings and Dividend

Earnings per share was 4.02p compared to last year's exceptionally high 6.97p, a decrease of 42.3%, mainly as a result of lower income from shares and a reduced amount of deposit income. Earnings last year also included an amount for the recovery of VAT paid in previous years together with interest thereon (see note 21 to the financial statements), excluding which the decrease in earnings per share was 35.2%.

Monks invests with the aim of achieving capital growth rather than income and all costs are charged to the Revenue Account. As a result earnings fluctuate from year to year. The year before was an exceptional period in terms of income received from investments as many of the companies in which we invest increased their dividends despite the deteriorating economic background, and we also received a relatively large amount of income from bonds. Since then, companies have become more cautious in their dividend policies in response to an increase in uncertainty about future revenues and the availability of financing from banks. As a consequence, a number of the companies in our portfolio cut their dividends. Interest income from bonds with variable coupons also declined owing to the downward trend of short term interest rates and we also reduced the holdings of bonds and cash during the year, with an adverse effect on income.

The Board has taken the decline in the Company's income and its investment objective of capital growth into account in recommending a final dividend of 0.50p, which together with the regular interim (0.50p) and second exceptional interim (2.00p) already paid, would make the total dividend for the year 3.00p, a decline of 50% from the much higher than normal 6.00p paid last year.

Long Term Borrowing

The Board takes a long term and strategic view of the Company's capital structure. The 11% debenture stock will mature in 2012 and the 63/8% debenture stock in 2023. Current long term interest rates are low relative to past history and, on balance, it seems more likely that they will rise than that they will fall. Locking in current long term rates is therefore an attractive option. Such funding is, however, difficult to obtain in practice owing to the unwillingness of banks to lend and the limited market for investment trust debentures. After examining the options available, we entered into a thirty year interest rate swap for £40m which locks in the rate banks charge to each other. We then borrowed this amount under a shorter term facility with the margin over the rate at which banks lend to each other fixed for one year. The net effect of these two transactions is that part of the cost of borrowing over the next thirty years has been locked in at attractive rates but the smaller element that is determined by the additional margin banks charge non-bank customers has only been fixed for a year. This margin is currently high compared to past levels and so may well decline in future, making it unattractive to fix this element of the borrowing cost. Taking the two transactions together the current interest rate on the £40m of additional borrowing is 5.4%. More details on the interest rate swap are included below. The funds were invested in a diversified basket of equities with an initial yield of more than 6%.

Investment Activity

Over the course of the year there were significant changes to the portfolio. In the latter half of the previous year we were able to purchase a number of corporate bonds trading at distressed prices owing to the dysfunctional nature of the market following the collapse of Lehman Brothers. During the course of the year to 30 April 2010 this investment paid off and the majority of these bonds were sold for substantially higher prices and some matured. The proceeds were largely reinvested in equities resulting in net sales of £125.6m of bonds. The cash balance at the start of the year was also almost entirely invested by the year end as were the funds raised by additional borrowing of £40m. Net purchases of equities amounted to £206.3m and overall there was a net investment of £80.7m in the combination of shares and bonds.

At the year end, equities as a percentage of shareholders' funds were 102% and equities and bonds together were 110%. This represents both a substantial increase in exposure to equities from 74% at the end of the previous year and an increase in exposure to the combination of equities and bonds from 98%. The funds raised by additional borrowing were, however, invested in a basket of shares of companies with what appear to be sustainable dividends and relatively high yields, and this may to some extent mitigate the increase in the sensitivity of shareholders' funds to fluctuations in the general level of equity markets

Discount and Buybacks

The discount (at fair value) widened to 14.0% from 7.3% over the course of the year. The Board considers the level of discount and has authorised the repurchase of shares when this will be of benefit to continuing shareholders as well as being in the interest of those shareholders who may need to sell some or all of their shares.

During the year to 30 April 2010 £7.3m was spent on the repurchase of 2,630,000 shares. Since the power to buy back shares was first granted in 1999, 126.9m shares have been bought back and cancelled, representing 33% of the share capital at the start of that period. The Board will continue to buy back shares if suitable opportunities appear.

Outlook

The magnitude of the decline in output makes this the worst recession in the post war period and unemployment has risen sharply in many countries. It has been unusual in that it was not triggered by the need to raise interest rates to control inflation and instead interest rates were slashed to record low levels. This has meant that for the majority of those with jobs and mortgages disposable income has held up or actually risen. This in turn means that consumers in the heavily indebted countries have been able to maintain relatively high spending levels and at the same time save more or pay down debt. Companies have been able to cut costs by reducing employment and have also cut back on investment while their revenues have been higher than anticipated. This has enabled companies to pay down debt and increase earnings.

Unfortunately, the improvements in the balance sheets and cash flows of companies and individuals have been achieved at the cost of a dramatic deterioration in public finances. In effect, the parcel of debt that caused the problem is still there and has just been passed to the public sector. In many parts of the world the period of fiscal stimulus is coming to an end as governments are discovering the limits to their ability to borrow. This will create a headwind for growth.

Overall global demand has also been greatly assisted by the success of efforts to stimulate the Chinese economy in the face of the collapse of export markets. This has boosted demand for commodities in general and helped to stimulate the more resource based economies such as Australia and Brazil.

While fears of mal-investment on a grand scale in China may well be exaggerated, the authorities are clearly concerned and measures aimed at property speculation may have an adverse effect on demand for commodities in the short term. Interest rates have also risen in some of the faster growing economies and may have further to rise if inflation is not to get out of control.

With so many forces pulling in different directions the immediate outlook is unclear and after the rises of the last year there are fewer pockets of value. In general terms, however, equities appear more attractive than government and corporate bonds, while the value of cash is falling in real terms. Taking a longer term view, the prospects for achieving capital growth through exposure to the areas of most rapid growth in demand remain bright.

AGM

I hope shareholders will come to the Annual General Meeting, which will be held on 3 August 2010 at 11.00am at the Institute of Directors (see map on page 45). Our manager will give a short presentation and there will be an opportunity to ask questions.

James Ferguson

15 June 2010

MANAGERS' PORTFOLIO REVIEW

We started the year with quite a large cash position and a relatively low weighting in equities with the balance of assets in bonds. We had anticipated that an upturn in markets would be led by a recovery in corporate bonds, as this was the market exhibiting the greatest degree of dysfunction and where prices were cheap relative to long run historical averages. As it turned out, the rally started with equities and, having been on the point of starting to buy in early March 2009 had the market fallen any further, we found ourselves buying into a rising market, albeit one that was still well below its high in October 2007. Fortunately, many of our holdings in oil and gas related companies and in Emerging Markets rose by more than the general rise in markets and then, at the end of March, the anticipated recovery in corporate bonds began. Over the course of the year the corporate bond holdings were reduced as valuations returned to a more normal range and the proceeds recycled mainly into further purchases of equities.

Two of the main background assumptions guiding our selection of investments have been that growth would rapidly resume its prior pace in Emerging Market economies such as China and Brazil and that growth in most developed countries would be constrained by the high level of debt and need to rebuild bank balance sheets. Mindful of the risks should this prove incorrect, we also sought out investments for which the case is independent of this view of the world. An example is our investment in a basket of biotech companies. We believe that the de-rating of the entire biotech sector as a consequence of investors' concerns about US healthcare reform has created a buying opportunity in companies with the potential to achieve very rapid growth in profits. We also believe that there are still opportunities in the area of securitised debt but liquidity in this market remains a problem.

Toward the end of the year we also invested newly borrowed funds into a basket of relatively high yielding shares which we hope will be less sensitive than most to the general moves in equity markets but provide sufficient income to cover the interest cost on the borrowing. Our increased equity weighting is largely a consequence of the diminished attractions of the alternatives of cash, the value of which is being eroded in real terms, and bonds, where corporate bonds now only look fairly valued relative to expensive government bonds. It may be that the turmoil in the Eurozone, fears of a hard landing in China and the desire to take profits in investments that have performed well in the last year will create opportunities to redeploy these funds into investments with greater potential to generate large gains. If not, and markets instead grind sideways, the high yield basket should generate a better total return than the market.

The ten largest positive and negative contributors to performance are described below. In aggregate the positive contributions outweighted the negative contributions by a comfortable margin. Four of the largest positive contributors to performance, OGX, the Credit Suisse 0% Swap Rate Linked Note 2013, Brazil CPI linked bonds 2045 and Dragon Oil were also in the top ten positive contributors last year. One of this year's largest positive contributors, BG Pacific Fund, was in the list of largest negative contributors for the previous year and none of the investments in the list of negative contributors for the year to 30 April 2010 were among the top ten negative contributors for the previous year.

Largest positive contributions to performance:

OGX is a Brazilian oil and gas exploration company and our largest single stock position. It also made the single largest positive contribution to performance the year before. It is a relatively new company established by a leading Brazilian business man, Eike Batista, who hired some of the most successful and knowledgeable staff from the exploration department of the state oil company, Petrobras, for his new company. Armed with their knowledge of offshore areas explored by Petrobras in the past it was successful in acquiring at auction some highly prospective acreage at a low cost and their IPO in 2008 raised sufficient funds to finance their planned exploration and development work. During the last year they have carried out a successful drilling programme that has demonstrated the presence of commercially viable oil and gas deposits in the areas so far drilled. Their success rate has exceeded expectations and there have been upgrades to estimates of recoverable reserves as a result. We took profits on a number of occasions during the year but we still see scope for further upside in the share price based on prices paid in deals in the industry during the last year.

Baillie Gifford Pacific Fund is a pooled fund though which Monks has the bulk of its exposure to the markets of the Asia-Pacific region excluding Japan, Australia and New Zealand, and for which the manager receives no additional fees. It has a large exposure to China and to economically sensitive stocks elsewhere in the region. It performed well in the year to 30 April 2010 as confidence grew in the success of the Chinese authorities in stimulating domestic demand to offset weakness in export markets and as the prospects for growth elsewhere improved. The holding was trimmed back during the year after a period of strong performance from its underlying holdings.

Seadrill is a Norwegian oil services company with a large fleet of modern deepwater drilling rigs. It has benefited more than most other drilling companies from the growth in demand for rigs capable of drilling in deep water owing to its management's astute timing of the market cycle and it has used the opportunity provided by the global financial crisis to buy assets cheaply.

Petrobras is a Brazilian state-owned integrated oil company. A recovery in the oil price and the strength of the Brazilian currency contributed to a rise in the sterling value of our holding in Petrobras. The company is embarking on a large capital expenditure programme to develop major new fields lying below a layer of salt far beneath the seabed in extremely deep water and, as this will involve cutting-edge technology, the execution risks are high and the company will need to raise additional funds. In the light of these risks the holding in what has been a very successful investment was reduced during the year.

Aggreko rents out mobile electricity generators and temperature control equipment in more than twenty countries. High profile examples of its services include the Olympic Games and the World Cup in South Africa. It has successfully identified the growing need for temporary power and established the infrastructure and systems necessary to meet this need making it into a global leader within its niche and has exceeded market expectations despite weakness in the US market.

Credit Suisse 0% Swap Rate Linked Note 2013. This is a bond whose value on maturity in 2013 is linked to the 30-year sterling interest rate at that time. It was purchased in 2006 and rose in value during the last two years despite falling long term interest rates, largely as a result of increased volatility in markets. We still believe that long rates in the UK are likely to rise in due course but this may not happen during the remaining life of the bond. We therefore sold it back to Credit Suisse during the year and replaced it with a smaller position in a similar bond maturing in 2017.

Petrofac designs, builds, operates and manages oil and gas facilities, mainly in the Middle East and the UK. It has continued to win contracts and generate excellent profits despite a slow down in investment on the part of many oil companies in response to the uncertain outlook for economic growth and hence oil demand and financing constraints. Towards the end of the year it merged its North Sea exploration and production business with that of Lupe of Sweden and the combined entity was spun out to shareholders of both companies as Enquest.

Brazil CPI linked Bonds 2045 are Brazilian index-linked government bonds denominated in the local currency. Real interest rates are high in Brazil and are likely to continue to fall over time, which should increase the value of these bonds.

Dragon Oil is an oil and gas exploration and production company whose principal assets are in Turkmenistan. Production is expected to grow by 15% a year this year and next. It was subject to a takeover bid from its majority shareholder, Emirates National Oil Company, which we opposed as we believed it undervalued the company's very attractive assets. The bid was rejected and the share price subsequently rose.

Athena Debt Opportunities Fund is a fund set up to make selective investments in oversold securitised debts. The market for this type of securities became dysfunctional following the collapse of Lehman Brothers and the fund suffered from the marking down of many of its underlying investments without trading actually taking place. We made a modest addition to the holding during the course of the year and, as the market improved the market value of its holdings rose. Its net asset value rose by 89% over the year and we continue to believe that there are opportunities to make money from the mispricing of this type of debt security.

Largest negative contributions to performance:

Credit Suisse 0% Swap Rate Linked Note 2017. This is a bond whose value on maturity in 2017 is linked to the 30-year sterling interest rate at that time. It was purchased as a replacement for the similar note maturing in 2013 described above in the list of largest positive contributors. Its subsequent decline in value can be partially attributed to a fall in long term swap rates (the rates banks charge each other in interest rate swaps). We believe that this is a result of a temporary dislocation in markets, as the desire of pension funds to lengthen the maturity of their bond portfolios through the use of swaps has pushed swap rates substantially below the interest rate on long term government bonds.

Fastenal is a distributor of fastenings and similar products to the industrial and construction markets, mainly in North America. The holding was sold in June 2009. The company had been successful in increasing efficiency but we were concerned that it would not be able to maintain the rate of efficiency improvements and thought that the shares looked expensive in the light of its prospects despite a decline in its share price.

Drax is an electricity generating company that owns a large coal-fired power station in the UK. The marginal price of electricity in the UK is determined by the price of natural gas, which is currently low, and profitability for Drax depends on the difference between the cost of burning coal (including carbon credits) and the selling price for its electricity. It has one of the most efficient coal-fired power stations in Europe and a large amount of other capacity would become uneconomic before Drax was forced to shut down. It is being valued at a fraction of the cost to replicate the plant and in the event that gas and electricity prices rise in future Drax could become extremely profitable. The share price was weak from the point of purchase to the end of the year on concerns about the short term outlook and the expiry of hedging contracts.

Kroger is a US supermarket operator. We had hoped that it would improve margins through the expansion of own label products but it has made less progress than we expected and these efforts have been overwhelmed by the impact of the recession and strong competition within the supermarket sector. We sold the holding during the year.

Proshares Ultrashort 20+Year Treasury is an exchange-traded fund that rises in value if long term US Treasury bonds fall in value (corresponding to a rise in yields). We held this fund in order to benefit from an expected increase in US yields from very low levels but sold out as it appeared less likely that yields would rise as quickly as we initially anticipated.

OSX is a newly established Brazilian shipyard company established by the major shareholder of OGX (described above) in order to allow OGX and other companies operating in the oil and gas industry in Brazil to meet local content requirements for rigs, platforms and associated infrastructure. The company has a guaranteed stream of work from OGX and a partner with an established track record in building such equipment in the form of Hyundai Heavy, who will manage the yard. The company came to the market at a difficult time and the shares fell on listing. We took a holding in the aftermarket in March as we believe it has considerable potential, but the share price fell further over the remainder of the year.

China Vanke is a Chinese property developer. It has a broad geographical spread rather than focusing on one or two Chinese cities and it has adopted a cautious approach to the market in recent years. While we believe it to be one of the soundest and best placed of the quoted Chinese property developers it is not immune from negative sentiment towards the sector arising from actions to counteract speculation and deflate property bubbles in certain cities. Over the country as a whole property prices have not seen the same increase as in the hot-spots and the longer term outlook remains positive

Heritage Oil is an oil and gas exploration and production company with interests in Africa, the Middle East, Russia and Kurdistan. The investment case was based on its activities in Iraqi Kurdistan. Iraq is one of the few places in the world where, from a geological and technical perspective, oil is easy to find and cheap to produce. Security in the Kurdish region is also less of a problem than in most of the rest of the country and it is relatively easy to link new fields into existing export pipelines. Unfortunately the company became involved in a merger with a Turkish company that had to be abandoned owing to improper dealing on the part of directors of the proposed merger partner. We sold the holding during the year but we have exposure to similar assets through the Norwegian company DNO International, and this has performed well.

Allied Irish Banks is a leading Irish Bank with significant stakes in M&T Bank in the US and Bank Zachodni in Poland. The Irish banking regulator has ordered a more rapid strengthening of Irish Banks' capital positions than anticipated. This is likely to mean greater dilution for existing shareholders and a more aggressive timetable for the disposal of its valuable holdings in the US and Poland than we expected. The decline in the share price on this news may prove to have been excessive, and so we have held on to the position having unfortunately added to it during the year.

Monsanto is a US seed and agricultural chemicals business. It has issued a number of profit warnings and the holding was sold during the year. Some weakness in its 'Round-up' herbicide business was expected, as generic competition is increasing, but of greater concern is the mounting evidence of a loss of pricing power in its genetically modified seed business. The company appears to have been slow to recognise this and to adjust its business model.

DISTRIBUTION OF ASSETS

at 30 April 2010

 

				30 April 2010 %		30 April 2009 %
Equities:	United Kingdom			13.1		7.8
	Continental Europe			15.1		10.8
	North America			22.1		21.2
	Japan			2.8		3.6
	Asia Pacific			16.7		11.4
	Other Emerging Markets			20.8		12.0
				90.6		66.8
Bonds:                 United Kingdom				2.9		6.3
Overseas				4.3		14.3
Net liquid assets				2.2		12.6
Total assets (before deduction of borrowings)				100.0		100.0

 

THIRTY LARGEST EQUITY HOLDINGS at 30 April 2010
			2010		2009
Name	Region	Business	Value £'000	% of total assets	Value £'000
Baillie Gifford Pacific Fund	Asia Pacific	Investment fund	49,708	4.6	54,593
OGX	Other Emerging Markets	Oil and gas exploration and   production	46,533	4.3	30,726
Aggreko	United Kingdom	Temporary power units	21,773	2.0	10,290
McDonalds	North America	Fast food restaurants	19,158	1.8	-
Seadrill	Continental Europe	Contract drilling services	18,804	1.7	8,469
Dragon Oil	Other Emerging Markets	Oil and gas exploration and   production	13,419	1.2	7,218
Eldorado Gold	North America	Gold mining	13,271	1.2	-
Petrofac	United Kingdom	Oilfield services company	13,162	1.2	6,650
Meditek	Asia Pacific	Electronic components	13,060	1.2	-
Novozymes	Continental Europe	Enzyme producer	13,042	1.2	3,801
Petrobras	Other Emerging Markets	Integrated oil	12,833	1.2	22,071
TKI Garanti BSKI	Other Emerging Markets	Bank	12,722	1.2	-
Solera Holdings	North America	Transactional software	12,501	1.2	7,575
Vale	Other Emerging Markets	Diversified mining group	12,321	1.1	6,496
Healthspring	North America	Health maintenance   organisation	12,290	1.1	-
LG Electronics	Asia Pacific	Electronic goods	11,520	1.1	-
Atlas Copco	Continental Europe	Industrial compressors and   mining equipment	11,271	1.0	6,702
Berkshire Hathaway	North America	Insurance	11,067	1.0	9,086
Kunlun Energy Company	Asia Pacific	Oil and gas company	10,937	1.0	-
DNO International	Continental Europe	Oil and gas exploration and   production	10,873	1.0	-
Marine Harvest	Continental Europe	Salmon farmer	10,849	1.0	3,756
BHP Billiton	Asia Pacific	Diversified resources	10,842	1.0	7,624
The Biotech Growth Trust	United Kingdom	Investment trust	10,744	1.0	3,961
Naspers	Other Emerging Markets	Media company	10,530	1.0	-
Nestlé	Continental Europe	Food and consumer products	10,524	1.0	10,262
Kellog	North America	Food manufacturer	10,473	1.0	8,281
Noble	North America	Offshore drilling company	10,420	1.0	-
Capitalsource	North America	Commercial lending	10,395	1.0	-
Taiwan Semicon   Manufacturing	Asia Pacific	Semiconductor manufacturer	10,340	1.0	-
BIM Birlesik Magazalar	Other Emerging Markets	Discount food and consumer   goods	10,337	1.0	-
			445,719	41.3	207,561

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under the Companies Act. Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less than 6 months' notice. The fee in respect of each quarter is 0.1125% of the total assets less current liabilities. The management fee is levied on all assets, including holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co. However, the class of shares in OEICs held by the Company does not attract a management fee.  The details of the management fee are as follows:

	2010 £'000		2009 £'000
Investment management fee	4,186		3,637

Investment management fees, net of the recoverable VAT recognised during the year of £nil (2009 - £1,738,000) as detailed in note 3 below, amounted to £4,186,000 (2009 - £1,899,000).

PRINCIPAL RISKS AND UNCERTAINTIES

As an investment trust, the Company invests in equities and makes other investments so as to secure its investment objective of capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to a variety of risks that cause short term variation in the Company's net assets and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent reduction in the Company's net assets rather than to minimise the short term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board reviews and agrees policies for managing these risks and the Company's Investment Manager both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolio are shown in note 9 in the Annual Report. Details of derivative financial instruments outstanding at the balance sheet date are shown below.

Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the currency in which a company's share price is quoted is not necessarily the one in which it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the share price of the company is quoted.

Foreign currency borrowings and forward currency contracts are used periodically to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objectives. The main change to net currency exposure during the year has been a reduction in the US dollar, euro and Japanese yen exposures relative to other overseas currencies, mainly due to the relative increase in the Company's Asia Pacific and Emerging Markets assets.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 30 April 2010	Investments £'000	Cash and Deposits £'000	Forward currency contracts £'000	Loans and Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	310,074	4,858	(49,669)	-	9,821	275,084
Euro	74,913	-	(12,963)	-	219	62,169
Japanese yen	29,546	-	(4,484)	-	536	25,598
Brazilian real	99,245	826	(23,665)		(1,302)	75,104
Other overseas currencies	301,828	7,029	-	-	651	309,508
Total exposure to currency risk	815,606	12,713	(90,781)	-	9,925	747,463
Sterling	238,397	1,736	91,426	(119,582)	(1,104)	210,873
	1,054,003	14,449	645	(119,582)	8,821	958,336

*    Includes non-monetary assets of £30,000.

At 30 April 2009	Investments £'000	Cash and Deposits £'000	Forward currency contracts £'000	Loans and Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	261,974	40,583	-	-	(5,003)	297,554
Euro	68,629	1,645	-	-	775	71,049
Japanese yen	38,713	-	-	-	616	39,329
Brazilian real	46,791	-	-	-	368	47,159
Other overseas currencies	72,752	55,474	-	-	274	128,500
Total exposure to currency risk	488,859	97,702	-	-	(2,970)	583,591
Sterling	175,768	1,256	-	(79,549)	(310)	97,165
	664,627	98,958	-	(79,549)	(3,280)	680,756

*      Includes non-monetary assets of £50,000.

Currency Risk Sensitivity

At 30 April 2010, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2009.

	2010 £'000		2009 £'000
US dollar	13,754		14,878
Euro	3,108		3,552
Japanese yen	1,280		1,966
Brazilian real	3,755		2,358
Other overseas currencies	15,476		6,425
	37,373		29,179

Interest Rate Risk

Interest rate movements may affect directly:

• the fair value of the investments in fixed interest rate securities;

• the level of income receivable on cash deposits;

• the fair value of derivative instruments linked to interest rates;

• the fair value of the Company's fixed-rate borrowings; and

• the interest payable on any variable rate borrowings which the Company may take out.

Interest rate movements may also impact upon the market value of the Company's investments other than its fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments. The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

Movements in interest rates, to the extent that they affect the fair value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates). During the year the Company drew down a £40 million short term variable rate bank loan and entered into a 30 year interest rate swap for £40m (see note 11 in the Annual Report and the table below for further details).

The interest rate risk profile of the Company's financial assets and liabilities at 30 April is shown below.

Financial assets	2010			2009
	Fair value £'000	Weighted average interest rate	Weighted average period until maturity	Fair value £'000	Weighted average interest rate	Weighted average period until maturity
Fixed rate:
UK bonds	7,147	8.3%	9 years	19,490	16.8%	9 years
European bonds*	2,297	6.7%	5 years	9,909	11.1%	16 years
US bonds	3,515	12.7%	3 years	22,563	28.0%	8 years
UK swap rate linked note†	3,732	7.2%	7 years	12,062	5.6%	4 years
Floating rate:
UK bonds (interest rate linked to sterling LIBOR)	3,960	1.6%	2 years	3,654	3.1%	2 years
European bonds (interest rate linked to Euro LIBOR)	2,769	33.6%	7 years	18,989	10.7%	8 years
Brazilian bonds (interest rate linked to Brazilian CPI)	17,217	6.1%	35 years	11,634	11.6%	36 years
US bonds (interest rate linked to US dollar LIBOR)	3,176	4.1%	28 years	26,704	6.2%	13 years
Japanese bond (interest rate linked to Japanese CPI)	-	-	-	10,811	3.2%	9 years
UK swap rate linked note†	13,143	n/a	7 years	12,538	n/a	4 years
Fixed interest collective investment schemes:
UK fund	2,736	-	n/a	-	-	n/a
US dollar denominated fund	20,590	2.9%	n/a	9,262	8.0%	n/a

The main change to the interest rate risk profile of the Company's financial assets during the year has been net sales of bonds of £126 million, including a 50% reduction in the Company's UK swap rate linked note holding.

* Includes a convertible security which has been classified as an equity holding.

†  This instrument comprises a zero coupon note issued by Credit Suisse and an option on sterling interest rate swaps. The zero coupon element has a redemption value of £6.25 million (fair value - £3.7 million) and the redemption value of the interest rate swap element (fair value - £13.1 million) is based on a formula linked to thirty year sterling interest swap rates with higher amounts payable as rates rise. Prior to redemption, the value of the interest rate swap element will vary depending on several factors such as the level of swap rates and the implied volatility of interest rate swap options.

Financial Liabilities	2010 £'000	2009 £'000
The interest rate risk profile of the Company's financial liabilities at 30 April was:
Fixed rate - sterling	119,582	79,549

The maturity profile of the Company's financial liabilities at 30 April was:
In one year or less	40,000	-
In two to five years	40,000	40,000
In more than five years (13 years)	39,582	39,549
	119,582	79,549

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond/swap yields as at 30 April 2010 would have increased total net assets and total return on ordinary activities by £14,867,000 (2009 - £2,145,000) and would have increased the net asset value per share (with debentures at fair value) by 7.4p (2009 - 2.6p). A decrease of 100 basis points would have decreased total net assets and total return on ordinary activities by £12,252,000 (2009 - £2,145,000) and would have decreased net asset value per share (with debentures at fair value) by 6.4p (2009 - 2.6p).

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objective and investment policy.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 12 to 16 of the Annual Report. In addition, a geographical analysis of the portfolio (shown above), an analysis of the portfolio by broad industrial or commercial sector and a list of the 30 largest equity investments (shown above) are contained in the Managers' Portfolio Review section of the Annual Report. 101.8% of the Company's net assets are invested in quoted equities (2009 - 74.4%). A 5% increase in quoted equity valuations at 30 April 2010 would have increased total assets and total return on ordinary activities by £48,801,000 (2009 - £25,314,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities. The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facilities are detailed below and the maturity profile of its borrowings is set out above.

Borrowings falling due within one year:

	2010 £'000	2009 £'000
Bank loan	40,000	-

During the year, the Company entered into a one year £40m multi-currency variable rate loan facility with Lloyds TSB. The loan, which expires on 2 March 2011, was fully drawn down at 30 April 2010 in sterling at an interest rate of 2.0%. During the year the Company also entered into a 30 year interest rate swap for £40m which locks in the rate banks charge to each other. The net effect of these two transactions is that part of the cost of borrowing over the next thirty years has been locked in but the smaller element that is determined by the additional margin banks charge non-bank customers has only been fixed for a year. Taking the two transactions together, the interest rate on the £40m of additional borrowing at the year end was 5.3%. More details of the interest rate swap are shown below.

Borrowings falling due after more than one year:

	Nominal rate	Effective rate	2010 £'000	2009 £'000
Debenture stocks:
£40 million 11% debenture stock 2012	11.0%	11.0%	40,000	40,000
£40 million 6 3/8% debenture stock 2023	6.375%	6.5%	39,582	39,549
			79,582	79,549

The debenture stocks are stated at amortised cost (see note 1(g) on page 32 of the Annual Report); the cumulative effect is to decrease the carrying amount of borrowings by £418,000 (2009 - £451,000). The debenture stocks are secured by a floating charge over the assets of the Company. Under the terms of the Debenture Agreement, total borrowings should not exceed net assets and the Company cannot undertake share buy-backs if this would result in total borrowings exceeding 66.67%.

The weighted average interest rate of the debenture stocks is 8.7% (2009 - 8.7%).

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

·    where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

·    the Company's listed investments are held on its behalf by Bank of New York Mellon, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

·    investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily done on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

·    the credit worthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Manager; and

·    cash is only held at banks that have been identified by the Managers as reputable and of high credit quality.

Credit Risk Exposure

The exposure to credit risk at 30 April was:

	2010 £'000	2009 £'000
Fixed Interest investments	77,985	157,616
Cash and short term deposits	14,449	98,958
Debtors and prepayments	26,589	9,438
	119,023	266,012

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet with the exception of the long term borrowings which are stated at amortised cost in accordance with FRS 26. The fair values of the long term borrowings are shown below.

	2010			2009
	Nominal £'000	Book £'000	Fair £'000	Nominal £'000	Book £'000	Fair £'000
11% debenture stock 2012	40,000	40,000	46,500	40,000	40,000	48,036
6 3/8% debenture stock 2023	40,000	39,582	41,084	40,000	39,549	39,904
	80,000	79,582	87,584	80,000	79,549	87,940

Gains and losses on forward currency contracts

The following forward currency contracts were in position at 30 April 2010:

At 30 April 2010 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	($76,020,000)	Sterling	£50,075,000	20/5/10	406
Euro	(€14,920,000)	Sterling	£13,521,000	20/5/10	558
Japanese yen	(¥645,000,000)	Sterling	£4,701,000	20/5/10	217
Brazilian real	(R$63,030,000)	Sterling	£23,129,000	27/5/10	(536)
					645

Gains and losses on interest rate swaps

The following interest rate swap was in position at 30 April 2010:

At 30 April 2010 Notional amount	Payments received	Payments made	Termination date	Counterparty	Fair value £'000
£40,000,000	6 months sterling LIBOR	4.2025%	19/1/2040	Royal Bank of Scotland  PLC	(648)

Hedge accounting was not adopted for this derivative.

Capital Management

The Company does not have any externally imposed capital requirements other than the loan covenants outlined in note 11 on page 37 of the Annual Report and the debenture covenants outlined above. The capital of the Company is the ordinary share capital. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 19 of the Annual Report. Shares may be repurchased as explained on page 23 of the Annual Report.

Other Risks

Other risks faced by the Company include the following:

Regulatory Risk

Failure to comply with applicable legal and regulatory requirements could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. Breach of section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains.

Baillie Gifford's Heads of Business Risk & Internal Audit and Regulatory Risk provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 842 are not breached.

Operational/Financial Risk

Failure of the Managers' accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. The Board reviews the Managers' Report on Internal Controls and the Reports by other third party providers are reviewed by the Manager on behalf of the Board.

Discount Volatility

The discount at which the Company's shares trade can widen. The Board monitors the level of discount and the Company has authority to buy back its own shares.

Gearing Risk

The Company may borrow money for investment purposes (sometimes known as 'gearing'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.

All borrowings require the prior approval of the Board and gearing levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards, (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

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

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section confirm that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards, (United Kingdom Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and profit 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 it faces.

By order of the Board

JGD FERGUSON

15 June 2010

INCOME STATEMENT

	For the year ended 30 April 2010				For the year ended 30 April 2009
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains /(losses) on investments	-	305,723	305,723		-	(361,428)	(361,428)
Currency (losses)/gains	-	(11,670)	(11,670)		-	6,011	6,011
Income (note 2)	23,887	-	23,887		33,949	-	33,949
Investment management fee	(4,186)	-	(4,186)		(3,637)	-	(3,637)
Recoverable VAT (note 3)	-	-	-		1,738	-	1,738
Other administrative expenses	(1,062)	-	(1,062)		(914)	-	(914)
Net return before finance costs and taxation	18,639	294,053	312,692		31,136	(355,417)	(324,281)
Finance costs of borrowings	(7,483)	-	(7,483)		(6,982)	-	(6,982)
Net return on ordinary activities before taxation	11,156	294,053	305,209		24,154	(355,417)	(331,263)
Tax on ordinary activities	(587)	-	(587)		(5,770)	-	(5,770)
Net return on ordinary activities after taxation	10,569	294,053	304,622		18,384	(355,417)	(337,033)
Net return per ordinary share (note 4)*	4.02p	111.99p	116.01p		6.97p	(134.79p)	(127.82p)
Dividends per share paid and payable in respect of the year (note 5)	3.00p				6.00p

* Net return per ordinary share for 2009 includes 0.77p (net of tax) in respect of recoverable VAT and interest thereon (see note 3).

The total column of the Income Statement is the profit and loss account of the Company.

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

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

BALANCE SHEET

		30 April 2010		30 April 2009
		£'000		£'000
Fixed assets
Investments		1,054,003		664,627
Current assets
Debtors		26,589		9,438
Cash and deposits		14,449		98,958
		41,038		108,396
Creditors
Amounts falling due within one year		(57,066)		(11,895)
Net current (liabilities)/assets		(16,028)		96,501
Total assets less current liabilities		1,037,975		761,128
Creditors
Amounts falling due after more than one year (note 6)		(79,582)		(79,549)
Provisions for liabilities and charges
Deferred taxation		(57)		(823)
Total net assets		958,336		680,756
Capital and Reserves
Called-up share capital		13,051		13,182
Share premium		11,100		11,100
Capital redemption reserve		6,347		6,216
Capital reserve		898,228		611,487
Revenue reserve		29,610		38,771
Shareholders' funds		958,336		680,756
Net asset value per ordinary share		364.1p		255.0p
(after deducting borrowings at fair value)
Net asset value per ordinary share		367.0p		258.0p
(after deducting borrowings at par)
Ordinary shares in issue (note 7)		261,014,859		264,179,859

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 April 2010

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2009	13,182	11,100	6,216	611,487	38,771	680,756
Net return on ordinary activities after taxation	-	-	-	294,053	10,569	304,622
Shares purchased for cancellation	(131)	-	131	(7,312)	-	(7,312)
Dividends paid during the year	-	-	-	-	(19,730)	(19,730)
Shareholders' funds at 30 April 2010	13,051	11,100	6,347	898,228	29,610	958,336

For the year ended 30 April 2009

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2008	13,209	11,100	6,189	968,894	31,460	1,030,852
Net return on ordinary activities after taxation	-	-	-	(355,417)	18,384	(337,033)
Shares purchased for cancellation	(27)	-	27	(1,990)	-	(1,990)
Dividends paid during the year	-	-	-	-	(11,073)	(11,073)
Shareholders' funds at 30 April 2009	13,182	11,100	6,216	611,487	38,771	680,756

 

*The capital reserve balance at 30 April 2010 includes investment holding gains on fixed asset investments of £246,960,000 (2009 - loss of £4,881,000).

CASH FLOW STATEMENT

	For the year ended 30 April 2010			For the year ended 30 April 2009
	£'000	£'000		£'000	£'000
Net cash inflow from operating activities		19,921			29,056
Net cash outflow from servicing of finance		(6,990)			(6,950)
Taxation
Corporation tax paid	(2,332)			(3,458)
Overseas tax incurred	(1,278)			(1,114)
Income tax (incurred)/refunded	(35)			41
Total tax paid		(3,645)			(4,531)
Financial investment
Acquisitions of investments	(493,377)			(414,273)
Disposals of investments	398,939			414,692
Forward currency contracts	(6,161)			-
Currency (losses)/gains	(3,900)			2,117
Net cash (outflow)/inflow from financial investment		(104,499)			2,536
Equity dividends paid		(19,730)			(11,073)
Net cash (outflow)/inflow before use of liquid resources and financing		(114,943)			9,038
Liquid resources
Decrease in short term deposits	43,924			19,638
Net cash inflow from use of liquid resources		43,924			19,638
Financing
Shares purchased for cancellation	(7,312)			(1,990)
Bank loans drawn	40,000			-
Net cash inflow/(outflow) from financing		32,688			(1,990)
(Decrease)/Increase in cash		(38,331)			26,686
Reconciliation of net cash flow to movement in net (debt)/funds
(Decrease)/increase in cash in the year		(38,331)			26,686
Decrease in short term deposits		(43,924)			(19,638)
Exchange movement on short term deposits		(2,254)			3,894
Net cash inflow from bank loans		(40,000)			-
Other non-cash changes		(33)			(33)
Movement in net (debt)/funds in the year		(124,542)			10,909
Net funds at 1 May		19,409			8,500
Net (debt)/funds at 30 April		(105,133)			19,409
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		312,692			(324,281)
(Gains)/losses on investments		(305,723)			361,428
Currency losses/(gains)		11,670			(6,011)
Amortisation of fixed interest book cost		(2,348)			(1,855)
Decrease/(increase) in accrued income		3,172			(922)
Decrease in debtors		40			1,089
Increase/(decrease) in creditors		418			(392)
Net cash inflow from operating activities		19,921			29,056

 

 

NOTES

1.	The financial statements for the year to 30 April 2010 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 April 2010, which are unchanged from the prior year and have been applied consistently.
			2010					2009
			£'000					£'000
2.	Income
	Income from investments and interest receivable		23,842					33,890
	Other income		45					59
			23,887					33,949
3.	Recoverable VAT
	In 2007 the European Court of Justice ruled that investment management fees should be exempt from VAT. Since then, HMRC has accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007. During the year ended 30 April 2009 the Company received a reimbursement of £2,902,000 in this regard of which £1,164,000 had been recognised in the year to 30 April 2008, with the balance of £1,738,000 being recognised in that year together with interest thereon of £1,078,000. A case has been recently brought against HMRC to seek to recover the amounts relating to the intervening period, 1997 to 2000, together with interest on a compound basis. The Company's Auditors, PwC, have provided services in connection with this case for a fee of £35,000. Additional fees may become payable to PwC in the event of a successful outcome to the case. No amounts have been accrued in this regard. The potential recoveries of VAT and interest would be a significant multiple to the potential additional fees payable to PwC. No VAT or related interest recover has been accrued or recognized as a contingent asset, as the outcome of the case is expected to remain uncertain for several years.
			2010					2009
4.	Net return per ordinary share
	Revenue return		4.02p					6.97p
	Capital return		111.99p					(134.79p)
	Total return		116.01p					(127.82p)
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £10,569,000 (2009 - £18,384,000) and on 262,582,039 (2009 - 263,678,571) ordinary shares of 5p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the financial year of £294,053,000 (2009 - loss of £355,417,000) and on 262,582,039 (2009 - 263,678,571) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
		2010		2009		2010 £'000			2009 £'000
5.	Ordinary Dividends
	Amounts recognised as distributions in the year:
	Previous year's final (paid 7 August 2009)	5.00p		3.20p		13,182			8,437
	Interim (paid 29 January 2010)	0.50p		1.00p		1,310			2,636
	Second interim (paid 1 April 2010)	2.00p		-		5,238			-
		7.50p		4.20p		19,730			11,073
	We also 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 £10,569,000 (2009 - £18,384,000).

		2010		2009		2010 £'000		2009 £'000
5.	Ordinary Dividends (Ctd)
	Dividends paid and payable in respect of the financial year:
	Adjustment to previous year's final dividend re shares bought back					-		(17)
	Interim  (paid 29 January 2010)	0.50p		1.00p		1,310		2,636
	Second interim (paid 1 April 2010)	2.00p		-		5,238		-
	Proposed final (payable 6 August 2010)	0.50p		5.00p		1,305		13,182
		3.00p		6.00p		7,853		15,801
	If approved the final dividend will be paid on 6August 2010 to all shareholders on the register at the close of business on 9 July 2010.  The ex-dividend date is 7 July 2010. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 16 July 2010.
6.	The fair value of the debentures at 30 April 2010 was £87,584,000 (2009 - £87,940,000).
7.	In the year to 30 April 2010 the Company bought back 2,630,000 ordinary shares with a nominal value of £131,500 at a total cost of £7,312,000. At 30 April 2010 the Company had authority to buy back a further 36,890,364 ordinary shares, being 14.1% of the shares in issue at the year end.
8.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2010.  The financial information for 2009 is derived from the statutory accounts for 2009, which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2009 and 2010 accounts, their reports for both years were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and, for the 2010 accounts, did not contain a statement under sections 495 to 497 of the Companies Act 2006.  The statutory accounts for 2010 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 3 August 2010.
9.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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