Annual Financial Report

RNS Number : 7209Y

Scottish American Investment Co PLC

05 March 2012

 

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

ANNUAL FINANCIAL REPORT

Copies of the Annual Report and Financial Statements for the year ended 31 December 2011 have been submitted electronically to the National Storage Mechanism (which replaced the UKLA's Document Viewing Facility on 1 September 2010) and will shortly be available for inspection at http://www.hemscott.com/nsm.do.

The Annual Report and Financial Statements for the year ended 31 December 2011 including the Notice of Annual General Meeting is also available on the Company's page of the Baillie Gifford website at:

www.saints-it.com

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 December 2011 which require to be published by DTR 4.1 is set out on the following pages.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Baillie Gifford & Co

Company Secretaries

5 March 2012

Chairman's Statement

Overview

2011 was a more difficult year for the global economy and for SAINTS, and stockmarkets gave back some of the gains from the previous two years.  In particular, markets were overshadowed by the Eurozone crisis and the possibility of a double dip recession.    However, I am happy to report that the income received from SAINTS' investment portfolio rose over the year, with particularly strong increases in the dividends from our equity investments. I am hopeful that SAINTS will deliver real dividend growth in the years ahead. 

Performance

The performance of the portfolio was more or less in line with the index but the debenture priced at fair value acted as a considerable drag on overall performance.  The net asset value total return, with the debenture at fair value, was -11.8%.  Taking the debenture at its book value, the total return was -7.6%.  These figures compare to a benchmark total return of -5.2%. 

The share price total return for the year was -11.5%.  The share price began the year at a small premium to net asset value (again with the debenture at fair value) and this was maintained throughout the year.  At the year end, the premium was 1.6%.

A fuller explanation of investment performance is provided in the Managers' Review on pages 8 to 11 of the Annual Report and the longer term record for net asset value, the share price and discounts can be found on page 19 of the Annual Report.

Revenues and Dividend

Total income was £17.3m in 2011 compared to £16.4m in 2010, a rise of 6%.  Dividend income received from our listed equity investments rose 20% to £11.3m, income from our bond investments fell from £4.4m to £3.3m reflecting some changes in the portfolio while the rental income on our directly held properties rose from £2.3m to £2.7m as we benefited from some modest rent increases across the portfolio and the acquisition of some new properties.

This increase in our investment income fed through to a 9.5% increase in earnings per share, from 8.51p in 2010 to 9.32p this year.  It also means that we are required to draw only modestly on our revenue reserves (which stand at 9.8p per share) to pay this year's dividend.  Three payments of 2.35p have already been made and we propose to pay a final dividend of 2.40p, making a total of 9.45p for the year as a whole.

A dividend of 9.45p for 2011 represents an increase on the prior year of 2.2% and therefore falls short of the increase recorded in the Retail Prices Index last year.  However, over the long term, SAINTS has grown its dividend at a faster rate than inflation and we aim to continue to do so.  The historic record of how the dividend has grown in real terms since Baillie Gifford were appointed as Investment Managers on 1 January 2004 is illustrated in the chart on page 5 of the Annual Report.

Borrowings

SAINTS' borrowings take the form of a single debenture due for repayment in April 2022. The book value of these borrowed funds is £87.0m. However, since the debenture was issued at a premium to its par value, the final repayment amount will be £80m. At the start of the year, the book value of the debenture was equivalent to approximately 26% of shareholders' funds.

During 2011, this borrowed money was used as funding for a range of higher yielding investments across bond markets and in UK commercial property. The income from these investments makes a significant contribution to our total investment income but capital performance in 2011 was mixed with the property investments holding their value but the bond investments experiencing declines in sympathy with broader market movements. 

Fluctuations in the fair value of the debenture also affect our net asset value.  During 2011, the prices of UK gilts rose and this caused the market price of the debenture to rise from £97m to £109m.  This rise in the market value of the debenture was a drag on the performance of net assets and explains much of the shortfall against the composite index that we use for performance comparison purposes. 

Supply and Demand for the Company's Shares

I remarked last year that the relatively high and growing dividend offered by SAINTS was, in a world of low interest rates and falling gilt yields, an increasingly attractive proposition to private investors.  This favourable trend has allowed our shares to trade at premiums to net asset value during the last year.

Issuing shares when the price is at a premium to net asset value advantages existing shareholders, allows new shareholders to join the register with relative ease and enhances market liquidity for SAINTS' shares.  We submitted a block listing application to the London Stock Exchange in May this year and by September the share price was trading at a sufficient level for us to issue a small amount of new shares.

We will continue to look to issue new shares when it is appropriate to do so, particularly when the share price stands at a premium to the net asset value per share with the debenture priced at book value.

Notwithstanding the above, we also intend to seek shareholders' approval at this year's AGM for the renewal of the Company's authority to buy back its own shares at a discount to net asset value.  Although this has not been used in recent years, the Board believes that buy backs can be useful in certain circumstances for reducing volatility in the discount and enhancing net asset value for continuing shareholders.

Outlook

We expect our revenue account to show further improvement during 2012 and are hopeful that the year ahead will see a return to real growth in our dividend. 

The levels of stockmarkets and those of the other asset classes and investment markets in which SAINTS can invest will, we expect, remain volatile.  There are still many significant challenges facing the global economy and these make it difficult to foresee with great conviction any significant uplift in economic activity or corporate profits. 

However, such environments can sometimes present as many opportunities as they do threats and we and our Managers will endeavour to profit from them.  In this regard, we are pleased to announce the appointment of Dominic Neary as Deputy Manager.  Dominic will assist the current Manager, Patrick Edwardson, with particular responsibility for the equity portfolio.

The Board and the AGM

David Price, who has served on the Board for 14 years, has decided to retire from the Board after the forthcoming AGM. I am very grateful for his considerable contribution, full commitment and valued support over that period. He will be succeeded as Senior Independent Director by Lord Kerr.

The AGM will be held at 11am on Thursday 5 April at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh (see map on page 53 of the Annual Report). The Managers will make a presentation on the investment portfolio. There will also be an opportunity to ask questions and the Directors and Managers look forward to meeting you there.

Sir Brian Ivory, CBE

Chairman

20 February 2012

Managers' Review

Overview

2011 presented us with a challenging investment environment.  The year began well with the global economy expanding briskly and financial markets buoyant.  However, these conditions were not maintained and optimism gave way to pessimism as growth slowed in the second half of the year. 

The portfolio was fully invested through the year, predominantly in equities but also in higher yielding bonds and commercial property.  This mix proved successful in terms of generating a high level of income but it meant we suffered capital declines.

While gearing as part of the long term strategy is sound, last year this had an adverse impact on the NAV total return due to the relative movements in equity and fixed interest markets. The total return on the portfolio was -6.5% which was slightly worse than the -5.2% return on the composite benchmark that we use for performance comparisons.  At the net asset value level, the total return was -7.6% with the debenture at its book value but the result with the debenture at fair value was worse, -11.8%.  This difference in the two measures reflects an increase in the estimated fair value of the debenture and this is explained in more detail below.

Economies and Markets

Economic and market developments last year should, we believe, be seen in the context of a world still recovering from the grave financial crisis of 2007-2009.  That episode exposed significant imbalances in the world economy and serious misjudgements in how it was financed.  It was always likely that full recovery from such a situation would take time and be interrupted by periods when growth would appear to falter and crises threaten.

The most obvious threat during 2011 came from Europe.  The financial crisis and the associated recession saw government deficits and debt levels soar in many of the euro area economies.  Financial markets lost confidence, particularly as efforts to reduce borrowing through austerity programmes cut into the economic growth needed to generate tax revenues.  A vicious circle emerged in which declining confidence led to higher bond yields which in turn made debt burdens ever more unviable.

The European Central Bank has been providing large amounts of emergency lending and euro area governments have been inching their way towards the sort of joint fiscal arrangements that might make a common currency work.  So far, a true crisis has been avoided.  However, the threat of euro member states defaulting, the possible break-up of the euro and the likely subsequent collapse in Europe's banking system have been, and remain, an ominous shadow over financial markets.

Had growth elsewhere been strong, events in Europe might have had little broader impact.  However, the United States is also struggling to deal with a large debt burden and the other consequences of the financial crisis, Japan was struck by a devastating earthquake and a number of the developing economies faced, or were inclined to encourage, a deceleration in growth rates.  Notably, in China the authorities have been working hard to dampen inflationary pressures by running tight monetary policy.  Although growth in that economy is still likely to have been very strong in absolute terms, this policy stance encouraged fears of a sharp deceleration in growth.

All told, it was not a supportive environment.  The best returns were had from those assets and markets viewed as safe havens such as gold and credit worthy government bonds.  The worst returns came from those markets most reliant on the economy such as equities.

Full detail on the performance of SAINTS' portfolio is provided in the subsequent sections but, in summary, our listed equity investments saw price falls whilst the bond and property portfolios generated positive returns.  As mentioned earlier, there was also a significant move in the estimated fair value of the debenture (from £97.0m at the start of the year to £108.8m at the year end) which deserves explanation. 

The debenture is tightly held, transactions are rare and there is no market price as such.  To estimate its fair value, indicative prices are used from such brokers as are able to provide them.  Generally, these prices will be calculated with reference to the prevailing yields on comparable maturity gilt yields and an estimate of the appropriate extra yield required as compensation for the credit risk and limited liquidity of the instrument.  With little change to these factors during 2011, the estimated fair value of the debenture rose alongside gilt prices. 

Equities

On average during the year 69% of the portfolio was invested in equities. Expressed as a percentage of shareholders' funds, the figure was 90%. The total return for the year was a loss of 5.7%.

The equity investments represent the core of SAINTS' portfolio.   Over the long run, we believe that owning shares in companies with good long term growth prospects will see our investment income and the capital value of the portfolio rise.  However, these results are rarely delivered smoothly and 2011 was a good example of a year in which the companies we invested in performed well in operational terms, delivered substantial dividend increases and yet finished the year at lower share prices than they started with.

This is frustrating but understandable in the context of a global economy still challenged by the fallout from the financial crisis. Whilst we hope for a swift return to strong growth and benign financial market conditions, we have to acknowledge that the immediate environment is more difficult and sentiment regarding valuations and prospects will swing around.

Our main response to the febrile behaviour of stockmarkets is to try and ignore it.  Where we believe our investments are sound, we will generally stick with them believing that, over time, commercial success will be reflected in a rising share price and higher dividend payments.  This approach manifests itself in relatively low turnover and during 2011 we made few changes to the equity portfolio.

New holdings were taken in Cochlear, Seadrill, AES Tiete and Elswedy Electric.  Cochlear is an Australian listed company that manufactures hearing devices.  It has a commanding share of the market for that type of medical device which, subject to continued investment and innovation on its part, should allow it to enjoy strong profits growth.  Seadrill owns and leases out drilling platforms to the oil industry.  High oil prices and depletion of existing resources is encouraging oil companies to increase exploration budgets and Seadrill should profit from this.  AES Tiete is a Brazilian power company.  Brazil is a dynamic economy with the potential to grow strongly for many years.  This will require ongoing expansion of its power infrastructure which should benefit AES Tiete.  Elswedy is an Egyptian company that manufactures power cables and other electrical equipment.  We believe it is a robust business but its share price has been hit by the turmoil in Egypt and in neighbouring countries.  We hope that purchasing now, whilst not without risk, will prove a profitable decision in due course.

We also bought small holdings in a number of Japanese companies.  These purchases were made in March when share prices plunged after the terrible earthquake and tsunami.  Those two events had significant impact on economic activity in Japan during 2011 but should not affect the long term prospects of most Japanese companies.  We felt the share price falls would reverse in time and therefore took new holdings in a variety of companies.

We sold out of Lupus Capital, a small engineering company and Wellstream, an oil services company at the start of the year.  As the year progressed, we also disposed of Victrex (a speciality chemicals company), Folli Follie (a Greek listed retailer), Walgreen (the US pharmacy chain), Tullow Oil (a UK listed oil explorer) and Schindler (a Swiss listed manufacturer of lifts).  These sales were made for a variety of reasons encompassing valuation, disappointment over operational performance and doubts of how management would allocate capital.

These transactions made little difference to the geographic distribution of the portfolio.  In terms of listing domicile, the largest portion of the portfolio was in UK listed stocks which made up around 35% of the total.  The next largest portions were companies listed in the developing economies (at 21%), North America (at 19%) and Europe (at 16%). 

Compared to our performance benchmark (which is comprised 50% UK listed stocks and 50% overseas listed), this meant we had underweight positions in the UK and US markets and a large overweight in Emerging Markets.  However, listed companies operate in a very open, globalised market place and where they happen to be listed has little bearing on long run results.  This is best illustrated by looking at where our investments generate their sales.  These are estimated figures as disclosure is not always as full as we would like but approximately two-fifths of revenues are generated in Asia (ex-Japan) and other developing economies, one-third in Europe (with the UK included in this figure) and one-fifth in the United States.  The portfolio is therefore a very global one.

Bonds

2011 saw slightly higher turnover in the bond portfolio although the average allocation (at 14% of the investment portfolio, or 18% of shareholders' funds) was not much changed on the previous year.

The total return was only just positive at 0.6%.

This outcome reflects the nature of our bond investments which are generally lower rated credit market instruments.  We believe this segment of bond markets offers very attractive returns. With the banking system in much of the developed world shrinking its balance sheet, there is a general shortage of capital available for lending and yields have been driven up.  These high yields also mean the holdings make a significant contribution to the revenue account.  However, when market confidence is undermined and economic prospects look more dim, such instruments tend to sell off.  Consequently, during 2011 the high income yields on our holdings were offset by declines in their market price.

The largest holding was the Athena Debt Opportunities Fund.  This invests in structured debt instruments such as securitisations and collateralised loan obligations.  These types of instrument rallied in the first half of the year, sufficiently so for us to reduce the holding (at a profit on our original investment in 2008).  Thereafter, valuations declined and, for the year as a whole, the holding produced a loss.  Our other credit market investments (which at the year-end consisted of holdings in the Baillie Gifford High Yield Bond Fund, some direct investments in securitisation issues and a Barclays Bank capital note) reflected the general pattern in credit markets. 

The one government bond that we hold is an index linked bond issued by Brazil.  The price of this bond rose in local currency terms but an adverse currency movement meant a capital loss in sterling terms.  In total return terms, allowing for the high coupon paid by this bond, the result was just positive.

Listed Investment Funds

SAINTS owns a number of listed investment funds, often as a convenient way of getting exposure to asset classes other than equities. Where this is the case, we separate them out from the main equity portfolio.   Currently we own one such forestry fund and several funds invested in overseas property markets.

The forestry fund is Cambium Global Timberland.  This was approximately 2% of the total portfolio during 2011, or about 3% of shareholders' funds.  SAINTS owns 15% of this fund, an investment we made in March 2007 when Cambium first listed.  Our rationale at the time was that, in the long run, the return from forestry was likely to be attractive and the approximate split in that return between immediate income and longer term growth matched up well with SAINTS' objectives.

Our experience to date has been disappointing.  Cambium's portfolio consists of tracts of timberland in the US, Brazil and Australia and, in the round, we believe these are valuable, well managed assets.  However, Cambium's net asset value has fallen since its listing and a significant discount has opened up between its share price and the net asset value.  We are patient long-term investors who are not unduly concerned by the periodic emergence of discounts on listed investment funds.  Nonetheless, it is frustrating to report that 2011 saw a further loss from owning Cambium's shares (the total return was -12.3%) and our patience is not without limit.  We are in regular contact with Cambium's board and managers and have made it clear that considerably better returns are required for us to continue with this investment.

The listed property funds make up 3% of the portfolio which is approximately 4% of shareholder's funds.  These give us exposure to commercial property markets in Europe, Japan and China as well as the prospect of capital gains as their share prices recover from deep discounts to their asset values.  During 2011, and reflecting the more challenging conditions in financial markets generally, these struggled to produce good returns.  However,  a combination of dividend payments from some of the funds, moves by others to liquidate their portfolios and return money to shareholders and a particularly good performance from one of the funds (Japan Residential Investment Company) meant that losses were limited to -0.4%. 

Direct Property

The direct investments in UK commercial property are managed by OLIM Property Limited, a specialist property manager. The total return for 2011 was 7.9% which compares to the return on the IPD All Property Index of approximately 8%.

Two new properties were purchased during the year.  These were a car showroom in Newport Pagnell and a mixed use office and leisure property in Sunderland.  A small, incremental investment was also made in the holiday village property at New Romney.  In total, these investments amounted to £7.5m and took the value of the property portfolio to £39.4m by the year end (approximately 10% of the total portfolio).

We believe that commercial property valuations in the UK are attractive.  The economic outlook is undoubtedly challenging, the risk of tenant defaults is higher than usual and some parts of the UK property market may experience stagnant or even falling rents. However, property market valuations appear to reflect this difficult environment and the 8% rental yield on the properties that SAINTS owns is, we feel, more than adequate compensation for any such risks.

Outlook

Financial markets have begun 2012 in an optimistic mood.  Stockmarkets in particular have responded well to the better economic news from the United States and efforts by the European Central Bank to supply liquidity to banks and governments in the euro area.

These developments are very welcome but it would be rash to extrapolate from them and assume that the world economy has moved on to a more stable footing.  Many of the imbalances that lay behind the Great Financial Crisis are still present and our central expectation is that they will take several years yet to be unwound.  Political decision-makers, their electorates, and those setting policy at central banks will have significant influence over how this process evolves and much depends on the right decisions being made at the right time.

Equity valuations, whilst lower than at many points in the last twenty years, are not obviously at distressed levels and corporate profit margins are already high.  Of course, the current level of profitability may well be sustainable as the corporate sector seems better placed than households to benefit from technological change and globalisation.  But the current starting point does suggest that even if policy mistakes are avoided the level of equity market returns from here will be moderate. 

Where we can offer more cheer is on the prospects for dividend payments.  Large swathes of the corporate sector have healthy balance sheets, strong cash flows and low payout ratios.  We expect the companies we hold to continue raising their dividends through 2012 and beyond.  In combination with the high levels of income paid on the property and bond investments, this should be positive for SAINTS' revenue account.

Patrick Edwardson

Baillie Gifford & Co

20 February 2012

ASSET ALLOCATION

	At 31 December 2011 %		At 31 December 2010 %
UK Quoted Equities*	26.3		24.6
Overseas Quoted Equities*	45.1		45.4
Total Quoted Equities*	71.4		70.0
Quoted Fixed Interest	12.3		15.4
Direct property	10.4		7.7
Quoted Equity Property Investments	3.0		2.9
Quoted Equity Forestry Investments	2.2		2.4
Unquoted	0.5		0.4
Net Liquid Assets	0.2		1.2
	100.0		100.0

* Excludes quoted equity property and forestry investments.

 

PERFORMANCE ATTRIBUTION

for the year ended 31 December 2011

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Quoted Equities*	89.8	100.0	(5.7)	(5.2)
Quoted Fixed Interest	18.2		0.6
Direct Property	11.0		7.9
Quoted Equity Forestry Investments	2.7		(12.3)
Quoted Equity Property Investments	3.8		(0.4)
Unquoted	0.6		3.3
Deposits	1.5		-
Debenture at Book Value	(27.6)		(6.8)
Portfolio Total Return (debenture at book value)			(6.5)	(5.2)
Other items #			(1.1)
Fund Total Return (debenture at book value)			(7.6)	(5.2)
Adjustment for change in fair value of debenture			(4.2)
Fund Total Return (debenture at fair value)			(11.8)	(5.2)

 

The above returns are calculated on a total return basis with net income reinvested.

Past performance is not a guide to future performance.

Source: Baillie Gifford & Co

* Excludes quoted equity property and forestry investments.

# This includes Baillie Gifford and OLIM management fees.

THIRTY LARGEST HOLDINGS at 31 December 2011
Name	Classification	Business	2011		2010
			Value £'000	% of total assets	Value £'000
Brazil CPI Linked 15/05/2045	Quoted Fixed Interest	Brazilian government bond	17,742	4.7	18,780
Athena Debt Opportunities Fund	Quoted Fixed   Interest	Structured finance investment fund	12,758	3.3	22,063
Cambium Global Timberland	Quoted Equity   Forestry   Investments	Forestry investment fund	8,250	2.2	9,975
Baillie Gifford Greater China   Fund	Overseas Quoted   Equities	Chinese equities investment fund	7,676	2.0	10,338
Philip Morris International	Overseas Quoted   Equities	Cigarette manufacturer	7,528	2.0	5,574
Holiday Village in New      Romney	Direct Property	Holiday village	7,450	2.0	6,800
British American Tobacco	United Kingdom Quoted Equities	Cigarette manufacturer	6,740	1.8	7,459
Baillie Gifford High Yield   Bond Fund	Quoted Fixed   Interest	High yield bond fund	6,642	1.8	13,545
BHP Billiton	United Kingdom   Quoted Equities	Mining	6,344	1.7	6,735
Rio Tinto	United Kingdom    Quoted Equities	Mining	5,875	1.5	7,089
Taiwan Semiconductor Manufacturing	Overseas Quoted   Equities	Semiconductor manufacturer	5,870	1.5	5,669
Deere	Overseas Quoted   Equities	Farm and construction machinery	5,764	1.5	6,142
Royal Dutch Shell	United Kingdom   Quoted Equities	Integrated oil company	5,643	1.5	4,865
Penn West Energy Trust	Overseas Quoted   Equities	Oil exploration and production	5,472	1.4	6,584
Samsung Electronics	Overseas Quoted    Equities	Electronic devices	5,096	1.3	5,032
Japan Residential Investment   Company	Quoted Equity   Property   Investments	Japanese residential property fund	5,063	1.3	4,172
Nursing home in Kenilworth	Direct Property	Nursing home	4,950	1.3	5,200
DBS	Overseas Quoted   Equities	Banking	4,931	1.3	6,158
Amlin	United Kingdom   Quoted Equities	Property and casualty insurance	4,886	1.3	2,307
Canon	Overseas Quoted   Equities	Imaging devices	4,791	1.3	4,907
Scottish & Southern Energy	United Kingdom   Quoted Equities	Electricity utility	4,644	1.2	3,185
Jeronimo Martins	Overseas Quoted    Equities	Food retailer	4,552	1.2	4,169
Doric Nimrod Air Two	United Kingdom    Quoted Equities	Aircraft leasing	4,480	1.2	-
Vodafone	United Kingdom   Quoted Equities	Mobile telecommunication   services	4,372	1.1	4,052
Altria	Overseas Quoted   Equities	Cigarette manufacturer	4,277	1.1	3,523
Office and leisure property in   Sunderland	Direct Property	Office and leisure property	4,250	1.1	-
International Oil and Gas   Technology Fund	United Kingdom    Quoted Equities	Oil and gas private equity   investment fund	4,070	1.1	-
Catco	United Kingdom   Quoted Equities	Catastrophe re-insurance	3,793	1.0	-
Atlas Copco	Overseas Quoted   Equities	Engineering	3,734	1.0	8,061
Vale	Overseas Quoted   Equities	Mining	3,726	1.0	5,428
			181,369	47.7	187,812

 

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report in the Annual 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 section 412 of the Companies Act 2006. Baillie Gifford & Co were appointed as Investment Managers and Secretaries with effect from 1 January 2004. The management contract can be terminated on six months' notice. Baillie Gifford & Co's fee is 0.45% of total assets less current liabilities, excluding the property portfolio. Although holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co are subject to this fee the OEIC share class held by the Company does not itself attract a fee, thereby avoiding any duplication of fees. The property portfolio is managed by OLIM Property Limited. This agreement can be terminated on three months' notice. OLIM Property Limited's annual fee is 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.

The details of the management fees are as follows:

	2011 £'000		2010 £'000
Investment management fee	1,609		1,612
Property management fee	181		153
	1,790		1,765

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 increasing capital and growing income in order to deliver real dividend 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 or its profits available for dividend 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 and of its 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 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 country in which a company is listed is not necessarily where 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 company is quoted.

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. Cash amounts received in foreign currencies are generally converted to sterling on a daily basis.

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 31 December 2011	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	99,298	54	(7,722)	-	388	92,018
Euro	22,666	83	(5,430)	-	(1,081)	16,238
Brazilian real	22,502	1,094	-	-	152	23,748
Japanese yen	14,985	-	(13,385)	-	78	1,678
Other overseas currencies	58,629	-	-	-	62	58,691
Total exposure to currency risk	218,080	(1,231)	(26,537)	-	(401)	192,373
Sterling	162,325	1,934	26,482	(86,972)	(1,948)	101,821
	380,405	3,165	(55)	(86,972)	(2,349)	294,194

*      Includes net non-monetary assets of £144,000.

At 31 December 2010	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	107,893	-	(14,054)	-	174	94,013
Euro	21,456	-	(2,999)	-	54	18,511
Brazilian real	21,695	-	-	-	128	21,823
Japanese yen	11,560	-	-	-	70	11,630
Other overseas currencies	76,864	-	-	-	21	76,885
Total exposure to currency risk	239,468	-	(17,053)	-	447	222,862
Sterling	173,721	6,154	17,112	(87,446)	(1,580)	107,961
	413,189	6,154	59	(87,446)	(1,133)	330,823

*      Includes net non-monetary assets of £41,000.

Currency Risk Sensitivity

At 31 December 2011, 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 2010.

	2011 £'000		2010 £'000
US dollar	4,601		4,701
Euro	812		925
Brazilian real	1,187		1,091
Japanese yen	84		582
Other overseas currencies	2,935		3,844
	9,619		11,143

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 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. Where fixed rate borrowings are not being used to fund active investments, the borrowed funds are invested in a diversified portfolio of fixed income securities in order to provide a hedge against movements in interest rates.

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.

The interest rate risk profile of the Company's financial assets and liabilities at 31 December is shown below.

Financial Assets	2011			2010
	Fair value £'000	Weighted average interest rate	Weighted average fixed rate period	Fair value £'000	Weighted average interest rate	Weighted average fixed rate period
Fixed rate:
UK bonds	3,362	11.3%	7 years	6,250	13.3%	7 years
US bonds*	1,287	3.3%	4 years	1,724	2.6%	5 years
Floating rate:
Brazilian bonds (interest rate linked to Brazilian CPI)	17,742	10.0%	n/a	18,780	10.0%	n/a
Euro bonds (interest rate linked to Euroibor)	5,485	19.3%	n/a	2,969	23.7%	n/a
Fixed Interest Collective Investment Funds:
UK funds	7,424	6.9%	n/a	14,157	6.1%	n/a
US dollar denominated fund	12,758	0.9%	n/a	22,063	1.5%	n/a

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

Financial Liabilities	2011 £'000	2010 £'000
The interest rate risk profile of the Company's financial liabilities at 31 December was:
Fixed rate - sterling	86,972	87,446

The maturity profile of the Company's financial liabilities at 31 December was:
In more than five years - 12 years (2010 - 13 years)	86,972	87,446

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 December 2011 would have decreased total net assets and total return on ordinary activities by £2,758,000 (2010 - £3,543,000) and would have increased the net asset value per share (with debentures at fair value) by 3.8p (2010 - 3.2p). A decrease of 100 basis points would have had an equal but opposite effect.

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 objectives and investment policies.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 15 to 18 of the Annual Report. In addition, a list of the 30 largest holdings (shown above) together with various analysis of the portfolio by assets class and industrial sector are contained in the Managers' Review section of the Annual Report. 92.6% of the Company's net assets are invested in quoted equities (excluding quoted property and forestry investments). A 5% increase in quoted equity valuations at 31 December 2011 would have increased total assets and total return on ordinary activities by £13,622,000 (2010 - £14,645,000). 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 Company's holdings in direct property and unlisted investments, which are not considered to be readily realisable, amount to 11% of total assets at 31 December 2011. The Company has the power to take out borrowings, which give it access to additional funding when required.

The Board gives guidance to the Investment Managers as to the maximum amount of the Company's resources that should be invested in any one holding and to the maximum aggregate exposure to any one entity (see investment policy on pages 20 and 21 of the Annual Report). The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities.  

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 Board regularly receives information from the Investment Manager on the credit ratings of those bonds and other securities in which the Company has invested;

·    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 credit worthiness 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;

·    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 of the creditworthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; 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 31 December was:

	2011 £'000	2010 £'000
Fixed interest investments	46,771	64,219
Cash and short term deposits	3,165	6,154
Debtors and prepayments	1,552	1,542
	51,488	71,915

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 value of the debenture stock is shown below.

	2011			2010
	Nominal £'000	Book £'000	Fair £'000	Nominal £'000	Book £'000	Fair £'000
8% debenture stock 2022	80,000	86,972	108,848	80,000	87,446	97,032

Gains and losses on hedges

The following forward currency contracts were open at 31 December:

At 31 December 2011 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	$12,000,000	Sterling	£7,715,000	11/1/12	(7)
Euro	€6,500,000	Sterling	£5,587,000	11/1/12	157
Japanese yen	¥1,600,000,000	Sterling	£13,180,000	11/1/12	(205)
					(55)

At 31 December 2010 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	$22,000,000	Sterling	£14,151,000	26/1/11	97
Euro	€3,500,000	Sterling	£2,961,000	26/1/11	(38)
					59

Realised currency gains/(losses) are taken to the capital reserve and are not reflected in the revenue account unless they are of a revenue nature.

Capital Management

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital (see note 13 on page 42 of the Annual Report) which is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on pages 20 and 21 of the Annual Report. Shares may be issued and/or repurchased as explained on pages 26 and 27 of the Annual Report.

Investments

At 31 December 2011	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Securities
Listed equities	289,257	1,840	-	291,097
Listed convertible securities	1,287	-	-	1,287
Listed debt securities	10,786	17,742	18,243	46,771
Unlisted equities	-	-	1,850	1,850
Total financial asset investments	301,330	19,582	20,093	341,005
Property
Freehold                                                                                                                                                                            39,400
Long  leasehold				-
				39,400
Total investments				380,405

At 31 December 2010	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Securities
Listed equities	311,551	1,909	-	313,460
Listed convertible securities	1,724	-	-	1,724
Listed debt securities	20,407	18,780	25,032	64,219
Unlisted equities	-	-	1,836	1,836
Total financial asset investments	333,682	20,689	26,868	381,239
Property
Freehold                                                                                                                                                                            31,950
Long  leasehold				-
				31,950
Total investments				413,189

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures', the above table provides an analysis of these investments based on the fair value hierarchy described below which reflects the reliability and significance of the information used to measure their fair value. Property investments are not financial assets and therefore the fair value hierarchy does not apply to these assets.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - investments with quoted prices in an active market;

Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

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 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains. The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 1158 are not breached. 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.

Major regulatory change could impose unnecessary compliance burdens on the Company or threaten the viability of the investment company structure. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised.

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 Managers have a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews the Managers' Report on Internal Controls and the reports by other key third party providers are reviewed by the Managers on behalf of the Board.

Premium/Discount Volatility

The premium/discount at which the Company's shares trade can change. The Board monitors the level of premium/discount and the Company has authority to issue new shares and to buy back its existing shares.

Gearing Risk

The Company may borrow money for investment purposes. 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 they have elected to prepare the financial statements in accordance with applicable law and UK Accounting Standards (UK 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 UK 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 on 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 on page 6 of the Annual Report, confirm that, to the best of their knowledge:

•     the financial statements, which have been prepared in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and net return 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

SIR BRIAN IVORY

20 February 2012

 

 

INCOME STATEMENT

	For the year ended 31 December 2011				For the year ended 31 December 2010
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000
Net (losses) gains on investments - securities	-	(31,679)		(31,679)	-	58,182	58,182
Currency losses	-	(840)		(840)	-	(699)	(699)
Income (note 2)	17,316	-		17,316	16,379	-	16,379
Management fees	(627)	(1,163)		(1,790)	(618)	(1,147)	(1,765)
Other administrative expenses	(1,000)	-		(1,000)	(901)	-	(901)
Net return before finance costs and taxation	15,689	(33,682)		(17,993)	14,860	56,336	71,196
Finance costs of borrowings	(2,074)	(3,852)		(5,926)	(2,084)	(3,870)	(5,954)
Net return on ordinary activities before taxation	13,615	(37,534)		(23,919)	12,776	52,466	65,242
Tax on ordinary activities	(1,269)	698		(571)	(1,505)	977	(528)
Net return on ordinary activities after taxation	12,346	(36,836)		(24,490)	11,271	53,443	64,714
Net return per ordinary share       (note 3)	9.32p		(27.80p)	(18.48p)	8.51p	40.34p	48.85p

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

	For the year ended 31 December 2011			For the year ended 31 December 2010
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	12,346	(36,836)	(24,490)	11,271	53,443	64,714
Net (losses)/gains on investments - property	-	(86)	(86)	-	1,122	1,122
Total recognised gains and losses for the year	12,346	(36,922)	(24,576)	11,271	54,565	65,836
Total recognised gains and losses  per ordinary share (note 3)	9.32p	(27.86p)	(18.54p)	8.51p	41.18p	49.69p

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

All revenue and capital items in these statements derive from continuing operations.

BALANCE SHEET

	At 31 December 2011		At 31 December 2010
	£'000	£'000	£'000	£'000
Fixed Assets
Investments - securities	341,005		381,239
Investments - property	39,400		31,950
		380,405		413,189
Current Assets
Debtors	1,552		1,542
Cash and deposits	3,165		6,154
	4,717		7,696
Creditors
Amounts falling due within one year	(3,956)		(2,616)
Net Current Assets		761		5,080
Total Assets Less Current Liabilities		381,166		418,269
Creditors
Amounts falling due after more than one year (note 5)		(86,972)		(87,446)
Total Net Assets		294,194		330,823
Capital and Reserves
Called up share capital		33,169		33,121
Share premium		357		-
Capital redemption reserve		22,781		22,781
Capital reserve		221,749		258,671
Revenue reserve		16,138		16,250
Shareholders' funds		294,194		330,823
Net Asset Value Per Ordinary Share:
(Debenture at fair value)		205.3p		242.5p
Net Asset Value Per Ordinary Share:
(Debenture at book value)		221.7p		249.7p
Ordinary Shares In Issue (note 6)		132,675,943		132,485,943

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2011

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2011	33,121	-	22,781	258,671	16,250	330,823
Total recognised gains and losses	-	-	-	(36,922)	12,346	(24,576)
Shares issued (note 6)	48	357	-	-	-	405
Dividends paid in the year (note 4)	-	-	-	-	(12,458)	(12,458)
Shareholders' funds at 31 December 2011	33,169	357	22,781	221,749	16,138	294,194

For the year ended 31 December 2010

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2010	33,121	-	22,781	204,106	17,167	277,175
Total recognised gains and losses	-	-	-	54,565	11,271	65,836
Dividends paid in the year (note 4)	-	-	-	-	(12,188)	(12,188)
Shareholders' funds at 31 December 2010	33,121	-	22,781	258,671	16,250	330,823

CASH FLOW STATEMENT
	For the year ended 31 December 2011			For the year ended 31 December 2010
	£'000	£'000		£'000	£'000
Net cash inflow from operating activities		14,253			13,616
Servicing of finance
Interest paid	(6,400)			(6,400)
Net cash outflow from servicing of finance		(6,400)			(6,400)
Taxation
Overseas tax  incurred	(564)			(522)
Income tax refunded	9			-
Total tax paid		(555)			(522)
Financial investment
Acquisitions of investments	(51,733)			(46,889)
Disposals of investments	54,225			48,700
Forward currency contracts	(782)			(840)
Net cash inflow from financial investment		1,710			971
Equity dividends paid		(12,458)			(12,188)
Net cash outflow before financing		(3,450)			(4,523)
Financing
Shares issued	405			-
Net cash inflow from financing		405			-
Decrease in cash		(3,045)			(4,523)
Reconciliation of net cash flow to movement in net debt
Decrease in cash		(3,045)			(4,523)
Translation difference		56			(6)
Other non-cash changes		474			446
Movement in net debt in the year		(2,515)			(4,083)
Net debt at 1 January		(81,292)			(77,209)
Net debt at 31 December		(83,807)			(81,292)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		(17,993)			71,196
Losses/(gains) on investments - securities		31,679			(58,182)
Currency losses		840			699
(Increase)/decrease in accrued income and prepaid expenses		(128)			63
Decrease/(increase) in other debtors		43			(109)
Increase in creditors and prepaid income		43			17
Other non-cash changes		(231)			(68)
Net cash inflow from operating activities		14,253			13,616

 

NOTES

1.	The financial statements for the year to 31 December 2011 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2010.
2.	Income
				2011						2010
				£'000						£'000
	Income from investments
	Franked investment income			3,989						3,652
	UK unfranked investment income			1,114						2,305
	Overseas dividends			7,272						5,751
	Overseas interest			2,215						2,104
				14,590						13,812
	Other income
	Deposit interest			6						26
	Rental income			2,670						2,287
	Other income			50						254
				2,726						2,567
	Total income			17,316						16,379
3.	Returns per ordinary share
		2011						2010
		Revenue	Capital			Total		Revenue			Capital		Total
	Net return per ordinary share (Income Statement)	9.32p	(27.80p)			(18.48p)		8.51p			40.34p		48.85p
	Total recognised gains and losses per ordinary share	9.32p	(27.86p)			(18.54p)		8.51p			41.18p		49.69p
	Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,533,834 (2010 - 132,485,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. Total recognised gains and losses per ordinary share is based on the total recognised gains and losses for the year in the Statement of Total Recognised Gains and Losses and on 132,533,834 (2010 - 132,485,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.

4.	Ordinary dividends
						2011		2010
		2011		2010		£'000		£'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 11 April 2011)	2.35p		2.30p		3,113		3,047
	First interim (paid 30 June 2011)	2.35p		2.30p		3,113		3,047
	Second interim (paid 30 September 2011)	2.35p		2.30p		3,114		3,047
	Third interim (paid 30 December 2011)	2.35p		2.30p		3,118		3,047
		9.40p		9.20p		12,458		12,188
	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 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £12,346,000 (2010 - £11,271,000).
		2011		2010		2011 £'000		2010 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 30 June 2011)	2.35p		2.30p		3,113		3,047
	Second interim (paid 30 September 2011)	2.35p		2.30p		3,114		3,047
	Third interim (paid 30 December 2011)	2.35p		2.30p		3,118		3,047
	Current year's proposed final dividend (payable 13 April 2012)	2.40p		2.35p		3,184		3,113
		9.45p		9.25p		12,529		12,254
	If approved the final dividend of 2.40p will be paid on 13 April 2012 to all shareholders on the register at the close of business on 9 March 2012. The ex-dividend date is 7 March 2012. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for reinvestment of this dividend is 21 March 2012.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2011 was £108.8m  (2010 - £97.0m).
6.	In the year to 31 December 2011 the Company allotted 190,000 ordinary shares with a nominal value of £47,500 for a total consideration of £405,000. At 31 December 2011 the Company had authority to buy back 19,859,643 ordinary shares and to allot a further 13,058,594 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2011. No shares were bought back during the year.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2011. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2010 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2011 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

- ends -

 

END

 

 

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