UK Select Trust Limited
14 March 2006
To: Quotations Department, The Stock Exchange, London
From: UK Select Trust Limited
FINAL RESULTS AND PROPOSED DIVIDEND
The unaudited figures for the year ended 31 December 2005 are as follows:
31 December 2005 31 December 2004
Dividends and interest 1,517 1,536
Revenue return on ordinary activities after
taxation 880 1,117
Amount absorbed by dividends (1,134) (1,155)
Amount transferred from
revenue reserves - (254) (38)
Capital return on ordinary activities
After taxation 8,694 1,774
Interim and final dividend per ordinary share 3.10p 2.93p
Revenue earnings per ordinary share 2.48p 2.77p
Capital earnings per ordinary share 24.44p 4.39p
Total earnings per ordinary shares 26.92p 7.16p
31 December 2005 31 December 2004
Market value of investments 30,728 42,277
Total net assets (ex-dividend) 25,563 36,976
Net asset value per ordinary share
10p each (ex-dividend) 123.29p 95.84p
* The 2004 comparatives have been restated to account for dividends in line with
Financial Reporting Standard 21 'Events after the balance sheet date' (FRS 21).
The directors propose that ordinary shareholders should be offered the right to
elect to receive new ordinary shares in lieu of the cash final dividend.
The Directors have decided to recommend a final dividend of 2.25p (2004: 2.10p)
for the year ended 31 December 2005, making a total dividend of 3.10p (2004:
The final dividend will be payable on 9 May 2006 on such of the ordinary shares
in respect of which the holders had not, prior to 25 April 2006, elected to
receive an allotment of new ordinary shares.
The record date for the final dividend in respect of the year ended 31 December
2005 is 24 March 2006.
Review of 2005 Performance.
It gives me pleasure to report on a very strong year for the UK equity market
and also for investors in the UK Select Trust. The total return produced by the
Company (32.3%) substantially exceeded the FTSE All-Share, which returned 22.0%
on a total return basis.
Against the background of the rising market, the performance of the Company's
underlying equity portfolio has been particularly encouraging. The Company's
portfolio is run on a concentrated basis and strong stock selection has enabled
the Company significantly to outperform its benchmark index over the last year.
Share Price and discount
The share price has increased by 39.4% over the year. The discount at which
your shares trade relative to their net asset value at the end of the financial
period stood at 6.3% (2004: 9.1%) and the Board is continuing its policy of
share buy backs to help manage the discount.
The investment manager's positive stance towards the UK equity market resulted
in the Company employing an average gearing level of 10% during the year.
Revenue earnings and dividend per share
Revenue earnings per share for the year amounted to 2.48p (2004: 2.77p). This
year revenue earnings were adversely affected as a result of professional costs
incurred in the defence of the offer for the Company from Elm Grove (Caymans)
Ltd. The effect of these costs on earnings is a reduction of 0.77p per share
for the year. On behalf of the Board, I am pleased to recommend a final
dividend 2.25p (2004: 2.10p). This is in addition to the interim dividend of
0.85p (2004: 0.83p), bringing the total dividend for 2005 to 3.10p (2004:
Following two years of strong returns, equity market valuations are more
expensive. However, companies are still managing to grow profits at an
impressive rate and the prospect of further merger and acquisition activity
bodes well for share prices.
Although there are clearly challenges ahead in the shape of a probable slowdown
in consumer spending and economic growth, some excellent investment
opportunities remain. The performance of the Company's underlying equity
portfolio has been particularly encouraging and I remain confident the manager's
investment process will continue to deliver superior investment returns for
shareholders over the longer term.
Future of the Company
As intimated in my interim statement, the offer for your Company from Elm Grove
(Caymans), Ltd had lapsed on 31 August 2005 and it was the Board's intention to
implement the tender offer proposals detailed in the circular to shareholders of
4 August 2005. I am pleased to report to shareholders that the tender offer
process was successfully completed on 7 October 2005 with 45.7% of the Company's
share capital tendered and subsequently cancelled at a price of 111.9 pence per
share. Millennium Partners, L.P. (the owner of Elm Grove (Caymans), Ltd.
tendered their entire holding of 31.4%.
The Board remains committed to maximising returns for the Company's shareholders
and looks to the future with confidence.
Niall Counihan has decided not to seek re-election to the Board at the
forthcoming AGM. He has brought a fund of knowledge and experience to the Board
over the last 12 years and we will miss him greatly.
I am pleased to report that on 14 March 2006 the Board appointed David Warr, a
Guernsey resident and an Executive Director of MPR International Management
Limited, as an additional Director.
INVESTMENT MANAGERS REVIEW
UK equities delivered strong gains in 2005 with the FTSE All-Share index posting
a 22.0% rise on a total return basis - its best annual performance since 1999.
The continued recovery in corporate profitability and a surge in the level of
merger and acquisition activity combined to push share prices higher through the
The Company's net asset value significantly outperformed the benchmark during
the period, returning 32.3% on a total return basis. This excellent performance
relative to the FTSE All-Share Index was attributable to a combination of stock
selection and the positive impact of the Company's gearing in a rising stock
The global economic backdrop remained supportive for equity markets during 2005
with the FTSE World index recording a gain of 14.2%. Spiralling commodity
prices, fuelled by both strong demand from emerging economies such as India and
China and a lack of new supply coming on stream, remained a prominent feature of
global equity markets through the year. One of the most notable performances in
2005 came in Japan where further evidence of economic recovery helped drive a
44% rise in the Japanese equity market.
In the US, the Federal Reserve continued to raise interest rates in response to
above trend economic growth and the potential inflationary pressures associated
with strong economic activity. Interest rates in all the major economies,
however, remain at historically low levels courtesy of the current benign
inflationary environment supported by the increasing economic contribution from
lower cost producers in the emerging economies of the world.
The UK Economy and Stock Market
The UK economy continued to expand during 2005 though at a slower rate than had
previously been forecast by the Treasury. The consumer slowdown which started
to take hold in the second half of 2004 gathered pace through the first half of
2005 prompting the Monetary Policy Committee (MPC) to maintain interest rates on
hold at 4.75%. However, with mounting concerns that consumer confidence had
fallen too far, and in the absence of any significant inflationary pressures,
the MPC cut interest rates by 0.25% at their August meeting - the only interest
rate movement of the year. With UK interest rates moving in the opposite
direction to most of the major global economies, sterling weakened through the
year providing some welcome respite for the UK's export led manufacturing base.
The FTSE All-Share index climbed steadily over the year with four consecutive
quarters of positive returns. This strong performance can in large part be
attributed to a fundamental improvement in the trading conditions facing many of
the index's constituents which has provided the opportunity to repair balance
sheets stretched by the excesses of the late 1990's. This has been complemented
by a significant rise in the prevalence of corporate activity in the last year
with a large number of UK companies the subject of either competitor takeover
approaches or management led buy-outs funded by the private equity sector.
There have been several factors responsible for this wave of industry
consolidation. One of the most significant factors has been the return of
positive sentiment towards equities. This has brought renewed investor optimism
about future prospects and an appetite for companies that can demonstrate
superior earnings growth. As a result, companies are being encouraged to invest
in future growth rather than return capital to shareholders. The other major
driver of corporate activity is the availability of cheap finance in the money
markets with the vast majority of corporate transactions being funded through
the debt markets in preference to equity issuance.
The Company's portfolio benefited from the consolidation theme during 2005 with
the holdings in Aggregate Industries and O2 the recipients of cash bids from
overseas competitors, while Britannic merged with a domestic competitor. In
many cases the aggressor also performed very strongly after completing a
take-over with the Company's holdings in Pendragon and Persimmon both rewarded
for announcing earnings enhancing acquisitions.
The Resources sector continued to perform very strongly in 2005 with mining and
oil stocks enjoying significant earnings upgrades as commodity prices spiked
higher. The Company's holdings in BG, Hardy Oil & Gas and Xstrata were among
the strongest performing stocks in the portfolio.
The Company established a number of new holdings in the year including Aberdeen
Asset Management, Bovis Homes, McCarthy & Stone, Hilton Group, Kazahkmys, Hardy
Oil & Gas, Britannic, ITV and Adamind. These purchases were funded by the sale
of positions in Gallaher, Hanson, Amec, Compass Group, Unilever, HSBC, Reuters,
Logica and BAA.
Portfolio construction continues to be shaped by rigorous fundamental analysis
at the stock specific level. At present this translates into overweight
positions relative to the Company's benchmark in the Construction, Media and
Financials sectors and underweight stance in Telecommunications, Food Producers
and Beverages. The Company continues to identify more value in the mid and
smaller market capitalisation segments of the market.
Despite recent gains, UK equities remain attractively valued in an historic
context, particularly when compared with other asset classes such as government
bonds. The 'Mergers & Acquisition' theme is likely to provide continued support
for UK stocks through 2006 as domestic and foreign competitors alike seek to
take advantage of cheap finance to fund acquisitions to fuel future growth.
Whilst the rate of corporate profits growth is forecast to slow during 2006,
dividend growth and the expectation of further corporate activity should help
the FTSE All Share index make further progress in the coming year. The
Company's portfolio will continue to be actively managed to identify the most
attractive investment opportunities for shareholders.
This information is provided by RNS
The company news service from the London Stock Exchange LGVZM