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UK Select Trust Ld (UKT)

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Thursday 22 April, 2010

UK Select Trust Ld

Annual Financial Report

RNS Number : 6475K
UK Select Trust Limited
22 April 2010
 

 

For immediate release on 22 April 2010

 

 

UK Select Trust Limited

(the "Company")

 

Registered No:  475

 

Announcement of Results 

 

The financial information set out in this announcement is the full unedited Annual Report and Audited Financial Statements for the year ended 31 December 2009 ("Statements") of the Company as approved by the Board of Directors on 22 April 2010.  The Statements will be delivered to shareholders during April 2010.

 

This announcement was approved by the Board of Directors on 22 April 2010.

 

The Annual General Meeting of the Company will be held on 1 July 2010.

 

 

 

 

 

Enquiries:

 

Kleinwort Benson (Channel Islands) Fund Services Limited

Company Secretary

 

Telephone number :  01481 727111

Fax number: 01481 728317

 

22 April 2010

 

Dorey Court

Admiral Park

St Peter Port

Guernsey

GY1 3BG

 

 



 

 

UK Select Trust Limited

 

 

 

 

 

 

 

 

 

 

Annual Financial Report for the year ended 31 December 2009

 

 

 

 

 

 

 

 

 

 


UK Select Trust Limited

 

Contents

 

Trust Information                                                                                                                                 2

 

Objectives                                                                                                                                             2

 

Financial Highlights                                                                                                                            3

 

Dividends                                                                                                                                              3

 

Directors and Advisors                                                                                                                      4

 

Chairman's Statement                                                                                                                         5

 

Investment Manager's Report                                                                                                           6

 

The Portfolio                                                                                                                                         9

 

Sector Distribution                                                                                                                              11

 

Directors' Report                                                                                                                                 13

 

Directors' Responsibilities                                                                                                                 22

 

Independent Auditors' Report                                                                                                          23

 

Statement of Comprehensive Income                                                                                              25

 

Statement of Financial Position                                                                                                         26

 

Reconciliation of Movements in Equity Shareholders' Funds                                                     27

 

Statement of Cash Flows                                                                                                                    28

 

Notes to the Financial Statements                                                                                                    29

 

Ten Year Record                                                                                                                                  47

 

Notice of Meeting                                                                                                                                48

 

Financial Calendar                                                                                                                               50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust information

 

UK Select Trust Limited's ordinary shares are listed on the London Stock Exchange.  They can be bought or sold by investors through a stockbroker or by asking a professional adviser e.g. lawyer, accountant or bank manager to do so on their behalf.

 

UK Select Trust Limited's share price is published daily under Investment Companies in the Share Information Service in the Financial Times.  In addition it is published every Monday on the business pages of The Guernsey Press and Star and Jersey Evening Post.

 

 

Objectives

 

UK Select Trust Limited (the "Company") is registered in Guernsey and is qualified as a UK Investment Trust Company.  The Company invests over 80% of its gross assets by value in companies listed on the London Stock Exchange and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Highlights

 












31 December 2009


31 December 2008








Net asset value per share



149.84p


106.97p

Equity shareholders' interest (1)



£30.83m


£22.17m

Revenue return on ordinary activities for the financial year after taxation

£0.75m


£1.04m

Capital return/(deficit) on ordinary activities for the financial year after taxation

£9.17m


£(11.22)m

Revenue return per ordinary share


3.61p


5.04p

Capital return/(deficit) per ordinary share


44.42p


(54.25)p

Dividend per ordinary share (2)



3.75p


3.63p

Share Price



128.25p


86.25p

Net asset value total return (3)



45.89%(5)


(31.45)%(4)

FTSE All-Share total return



30.12%


(29.93)%

 

 

 

 

 

 

 

 

(1) During the year the Company purchased 496,709 ordinary shares of 10p from the market to be held in Treasury. 347,049 ordinary shares of 10p each from the shares held in Treasury were reissued during the year. 254,402 shares remain in Treasury at 31 December 2009. These are held for reissue and the Company does not intend to cancel these.

 

(2) The dividend figures include the proposed dividend for the relevant financial period.

 

(3) Source: Datastream. Basis: Income reinvested and net of expenses.

 

(4) Based on the audited Annual Financial Reports for the years ended 31 December 2007 and 31 December 2008.

 

(5) Based on the audited Annual Financial Report for the year ended 31 December 2008 and the unaudited Net Asset Value as at 31 December 2009 released to market, (therefore subject to audit).

 

Dividends 

                                                                                                                                                                                                                                         A second interim dividend of 2.85p per share has been declared for 2009 (2008: final dividend 2.73p).  This is in addition to the first interim dividend of 0.90p (2008: 0.90p) paid during the year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors and Advisors

 

JM Le Pelley, (Born 1949), Non-executive Chairman.  He joined the board in 1983.  Other Directorships include AcenciA Debt Strategies Limited.

 

DR Maltwood, (Born 1938), Non-executive Director.  He joined the board in 1997 after a career in stock broking in Jersey. He has held a number of positions including the Chairman and Director of a number of quoted companies.

 

G Ross Russell, (Born 1933), Non-executive Director.  He joined the board in 1995.  He is a Director of Forsight 3 Venture Capital Trust Plc and former Chairman of the Chartered Institute of Securities and Investment and Deputy Chairman of the London Stock Exchange.


JG West FCA, (Born 1947), Non-executive Director.  He joined the board in 1997.  He is the Chairman of Gartmore Fledgling Trust Plc, Canaccord Adams Limited, New City High Yield Fund Limited, and a Director of a number of public and private companies including British Assets Trust Plc and JP Morgan Income and Capital Trust plc.  He is a former chief executive of Lazard Asset Management Limited.

 

D Warr, (Born 1953), Non-executive Director and Audit Committee Chairman. He is a fellow of the Institute of Chartered Accountants in England and Wales and joined the Board in 2006.  He is also Non-executive Chairman of FRM Diversified Alpha Limited and a Non-executive Director of Marwyn Materials Limited, Invista Foundation Property Trust Limited and Unigestion (Guernsey) Limited.     

 

Advisors 

 

Secretary and Registered Office                                                     Registrars

Corporate Services (Guernsey) Limited                                            Capita Registrars (Guernsey) Limited

(Resigned 18 August 2009)                                                                Longue Hougue Road

Dorey Court                                                                                          St Sampson

Admiral Park                                                                                         Guernsey GY2 4JN

St Peter Port                                                                                          0870 162 3100

Guernsey GY1 3BG                                                                              (Calls cost 10p per minute plus network extras, lines are
01481 727111                                                                                         open 8.30am - 5.30pm Monday - Friday)

 

Kleinwort Benson (Channel Islands) Fund Services Limited       Auditors                                               

(Appointed 18 August 2009)                                                             Deloitte LLP

Dorey Court                                                                                          Regency Court

Admiral Park                                                                                         Glategny Esplanade

St Peter Port                                                                                          St Peter Port

Guernsey GY1 3BG                                                                              Guernsey GY1 3HW

01481 72711                                                                                          01481 724011

 

Investment Manager                                                                           Stockbrokers

Scottish Widows Investment Partnership Limited                         Canaccord Adams Limited

Edinburgh One                                                                                     Cardinal Place

Morrison Street                                                                                    7th Floor

Edinburgh EH3 8BE                                                                             80 Victoria Street

0131 655 8500                                                                                        London SW1E 5JL

                                                                                                                0207 050 6500

Bankers and Custodian

HSBC Bank plc

8 Canada Square    

London E14 5HQ                                                                                                                                                                                                                                                                          


Chairman's Statement

 

Review of 2009 Performance

 

It gives me pleasure to report on an excellent year for both the UK stock market and also the shareholders in UK Select Trust.  The Company delivered a very strong performance in 2009 with the net asset value rising by 45.89% on a total return basis.  This compared very favourably with the 30.1% total return from the FTSE All-Share Index.

 

This result was attributable to strong stock selection with 2009 representing the fifth consecutive year in which the Company's underlying equity portfolio has out-performed the benchmark FTSE All-Share Index. 

 

This was another extraordinary year for global equity markets with share prices recovering much of the losses suffered in 2008.  The volume of liquidity pumped into the financial system in the form of both fiscal and monetary stimulus stabilised economic activity and prompted investors to increase their exposure to equities.   

 

Share Price and discount

The share price has increased by 48.7% over the year.  The discount at which your shares traded relative to their net asset value at the end of the financial year stood at 14.4% (2008: 19.4%).

 

Gearing

The Company employed no long-term borrowings during the year and only operates a small overdraft facility.

 

Earnings and dividend per share

 

Earnings per share for the year amounted to 3.61p (2008: 5.04p) and, on behalf of the Board, I am pleased to confirm that a second interim dividend of 2.85p per share has been declared by the Board which will be paid on 28 May 2010 (2008: final dividend 2.73p). This is in addition to the first interim dividend of 0.90p (2008: 0.90p), bringing the total dividend for the year to 3.75p(2008: 3.63p). A second interim dividend has been declared because the AGM has had to be moved to a later date in the year than has been the custom of late but the Board wanted to maintain a similar payment date to that of previous years.

 

Prospects

The speed and magnitude of the rally in equity markets over the past twelve months has been astonishing.  However, the recovery remains fragile and macro economic data will have to be scrutinised closely over the coming months for clues as to the sustainability of the current rise in activity levels.

 

The investment manager will continue to manage the underlying portfolio on a very active basis with a view to both exploiting opportunities and protecting shareholders' capital depending on the prevailing conditions in the equity market.  The Company enters the new decade with a strong performance track record and is confident that the strategy of focused stock picking will continue to deliver superior investment returns over the long term for shareholders.

 

 

JM Le Pelley

Chairman

 

 

22 April 2010

 

 

 

 

 

 

Investment Manager's Report
 

Introduction

 

Global stock markets staged a strong recovery during 2009 and the UK was no exception with the FTSE All-Share index posting a total return gain of 30.1%.  This was a remarkable turnaround from the despair that characterised financial markets in 2008.

 

The first quarter of the year, however, witnessed renewed weakness in equity markets with share prices continuing to spiral lower.  By the beginning of March the FTSE All-Share index had fallen a further 15% with fears surrounding the stability of the financial system weighing heavily on investor sentiment.  This marked the low point in the UK stock market with a combination of gradually improving economic data and already depressed share prices tempting investors back to equities.      

 

The Company enjoyed an excellent year with the net asset value rising by 45.9% on a total return basis.  This was the result of very strong stock selection with the Company's equity portfolio out-performing the benchmark FTSE All-Share total return by 15.8%.  This was the fifth consecutive year of out-performance over the benchmark by the Company's equity portfolio.  

 

Global Background

 

The unprecedented monetary and fiscal stimulus injected into the global economy through the second half of 2008 began to bear fruit in the early months of 2009.  Economic leading indicators started to point to an imminent rise in activity levels, particularly in several of the key emerging markets such as China and Brazil.  

 

While Europe and North America were showing signs of economic stabilisation during the second quarter, recovery in economies such as China, Brazil, India and Australia was already well established.  This was in large part attributable to the aggressive re-stocking underway in the Chinese economy which triggered a 'v-shaped' price recovery in key commodity markets such as coal, iron ore and copper.

 

The global economic recovery continued to gather momentum and by the third quarter of the year the major western economies were once again expanding - with the UK being the notable exception.  This fuelled investors' growing appetite for exposure to risk assets with equity, corporate debt and commodity markets all rallying strongly.  Crucially, inflationary conditions remained subdued providing policy makers with the breathing space in which to let recovery take hold.

 

This upturn in economic activity came at a heavy cost, with the fiscal position of many countries deteriorating further during the year.  Growth rates were inflated by 'one-off' stimulus packages as the public sector tried to kick start consumption and spending in the private sector.  Economies will need to de-leverage in the medium to longer term and this implies a slower economic growth environment to the one enjoyed over the past decade.   

 

The UK economy and stock market

 

The stellar performance of the UK stock market in 2009 was a function of the increasing exposure to overseas markets enjoyed by many companies listed in London - not a barometer of the health of the UK economy.  It is estimated that the FTSE 100, in aggregate, will generate approximately 70% of sales from foreign markets in 2010. 

 

In stark contrast, the UK economy remained mired in recession until the final quarter of the year and only then managed to expand by the slimmest of margins, 0.3%.  The UK is faced with two major structural challenges.  Firstly, government spending has spiralled out of control over the past decade leaving the UK in one of the worst fiscal positions of any major economy.  Public sector spending currently accounts for 48% of GDP, the highest proportion since the crisis of the 1970s.  Secondly, the economy has become too dependent on the service sector through underinvestment in the country's manufacturing capabilities. 

Investment Manager's Report (continued)

 

The UK economy and stock market (continued)

 

While sterling weakness is helpful for the export sector, the manufacturing base is now too small a proportion of GDP to drive economic recovery alone.  The next government will be faced with some very difficult choices, though the end result looks likely to be a long deleveraging process at the expense of growth.

 

The return of investor risk appetite signalled a dramatic change of sector leadership in the equity market. Companies with economically sensitive earnings streams were back in favour in anticipation of demand starting to recover.  While debt markets gradually started to re-open, it was the equity market which facilitated the vast majority of company recapitalisations.  This was a theme which the Company played very successfully generating significant returns from the equity offerings of Wolseley, Liberty International, Taylor Wimpey and Cookson.  These fund raisings were completed at distressed valuations reflecting the lack of refinancing options open to many companies. 

 

The resource based sectors generated very strong returns during the year with the mining companies in particular benefitting from the sharp rebound in commodity markets.  Other sectors exposed to recovering emerging market demand, such as the engineering companies, also recovered strongly from their March lows.  At the other end of the performance table, defensive sectors, which had been so resilient through the worst of the financial crisis, came under pressure as investors moved up the risk curve.  Pharmaceuticals, tobacco and utilities were therefore among the weakest performers in 2009. 

 

The speed and magnitude of the recovery in share prices caught many investors by surprise.  A number of high profile market commentators advised clients to be patient and "buy on weakness".  However, this weakness never materialised and share prices continued to surge higher through the second half of the year.  The FTSE All Share index finished the year just over 50% higher than the low point reached in early March.

 

The portfolio

 

The Company's very strong performance over the year was attributable to several key positions.  The dislocation in debt markets which resulted in almost complete paralysis in late 2008 provided the Company with the opportunity to gain exposure to a "mini portfolio" of investment grade corporate bonds.  These bonds were issued by blue chip companies such as Marks & Spencer and British American Tobacco and offered a combined yield to maturity of over 7%.  As confidence slowly returned to financial markets these yields quickly reverted to more normalised levels, providing the portfolio with an excellent return. 

 

Performance also benefitted from the Company's longstanding exposure to a number of companies benefitting from the enormous shortage of power in emerging markets.  KSK, which is a leading player in the delivery of captive and merchant power plants in India has become one of the largest positions in the portfolio.  The group operates a fully integrated business model through its access to extensive local coal reserves, leaving it well placed to exploit the build out of India's electricity infrastructure.  Indian gas producers Great Eastern Energy and Indus Gas both continued to make excellent progress through the year.  Great Eastern completed its pipeline to market and signed a number of major long-term contracts.  Indus Gas continued to prove up its reserves resulting in a number of upgrades to its asset base. 

 

The Company's preferred mining investment, Xstrata, was another large positive contributor to performance. The group's portfolio of coal and copper assets delivered exceptional returns over the year, helping the share price to more than treble over the period. 

 

 

 

 

 

 

Investment Manager's Report (continued)

 

Outlook

 

The upturn in economic activity has provided risk assets with some much needed respite following the trauma of the credit crisis.  However, much of this economic growth has been fabricated out of higher government spending across many of the world's major economies.  This excess liquidity, which has been enjoyed by the corporate and consumer sectors alike, will have to be gradually withdrawn as governments seek to repair their own balance sheets. 

 

This will inevitably result in a prolonged period of slower economic growth as unpopular decisions are implemented to reduce borrowings. In the early months of 2010, there have been worrying signs that the explosive growth rates in China and other emerging market economies are starting to abate.  Following the spectacular rally in equity markets the Company has started to reduce its exposure to riskier assets in the more cyclical areas of the equity market.  Proceeds are being recycled into the more defensive areas of the market which have underperformed over the past 12 months.  Recent additions to the portfolio have included strong dividend paying companies such as United Utilities and British American Tobacco.  However, while equities have already performed well, they continue to look attractive relative to cash and to sovereign debt.

 

 

 

Scottish Widows Investment Partnership

3 March 2010

 

 

 


The Portfolio as at 31 December 2009
 


Company

Market Value

Activity

 

 

 

 



£'000


 

 

 

 





 

 

 

 

1

KSK Power Ventur Plc

1,912

Engaged in emerging opportunities in the power development market.

2

Glaxosmithkline Plc

1,865

Large Anglo-American pharmaceutical company.

3

Xstrata

1,633

A diversified Swiss mining company operating a number of production sites in all continents of the world.

4

BT Group

1,612

British and European telecommunications giant, providing local, national and international telecommunications services.

5

Astrazeneca Plc

1,499

One of the world's largest pharmaceutical companies.

6

Vodafone Group Plc

1,495

The largest mobile telecommunications network in the world.

7

BP Plc

1,445

One of the world's largest energy companies, providing fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items.

8

Scottish & Southern Energy Plc

1,443

British Company specialising in the production, relay, and distribution of electricity and gas supply.

9

Indus Gas Ltd

1,350

Oil and gas exploration and development company based in India.

10

Great Eastern Energy Corporation Plc

1,289

Indian based energy provider.

11

Imperial Tobacco Plc

1,266

Tobacco company.

12

Royal Dutch Shell Plc

1,230

Engages in the exploration, production, and trading of various energy resources worldwide.

13

National Grid

1,086

Specialises in the transmission and distribution of electricity and gas.

14

Berkely Group Holdings Plc

945

UK - based house builder and developer.

15

Rio Tinto Plc

924

One of the global leaders in the extraction and processing of the earth's mineral resources.

16

British American Tobacco Plc

917

The world's most international tobacco group.

17

BG Group Plc

917

Involved in oil and gas transmission and distribution, as well as power generation.

18

United Utilities Group Plc

794

British Group, which operates almost exclusively in the North-West of Britain. The Group delivers water, transports and treats wastewater and supplies electricity.

19

Thomas Cook Group

789

Principally engaged in the provision of leisure travel services.

20

Tesco Plc

718

The leading supermarket in Britain.

21

Marstons Plc

656

The UK's leading independent brewing and pub retailing business.

22

Dolphin Capital Investors Ltd

645

Real Estate Holding & Development

23

Resolution Asset Management Plc

569

Cash shell looking for acquisition opportunities in the UK life assurance sector

24

Hardy Oil & Gas Plc

517

AIM-listed oil and gas exploration company.

25

Trading Emissions Plc

332

UK listed fund investing in a range of tradable environmental permits.

26

Ryanair Plc

313

Irish - based budget airline.

27

Healthcare Locums Plc

309

Specialist healthcare recruitment company.

28

Ingenious Media Plc

252

Advisory and investment firm is now Europe's largest private investor in the media sector.

29

Cadogan Petroleum Plc

194

An independent oil and gas exploration, development and production company.

30

Leed Petroleum Plc

166

Oil and gas exploration and production company focused on the Gulf of Mexico.





The Portfolio as at 31 December 2009 (continued)

 


Company

Market Value

Activity



£'000






31

Petra Diamonds Ltd

146

The Group's principal activity is exploring for and mining diamonds in Africa.

32

Arden Partners Plc

131

Institutional stockbroker specialising in small, midcap and AIM companies.

33

Zincox Resources Plc

120

British based zinc mining company.

34

Aurora Russia Ltd

106

Investment vehicle established to make investments in small and mid-sized Russian companies.

35

Resaca Exploitation Plc

90

US - based independent oil and gas exploitation company.

36

Candover Investments Plc

28

UK based investment firm that specialises in corporate buyouts.

37

Eatonfield Group Plc

16

Commercial and residential property developer with a focus on Wales and the North of England.

38

Newfound NV Plc

10

Developer and operator of up-market holiday resorts.





Total Valuation

29,729

These holdings represent 100% of the total valuation.

 

 

 

 

 

 

 

 

Sector Distribution

 



Total

Total



2009

2008

Sector Classification


%

%

Resources




Oil and Gas


23.2

        17.1



23.2

        17.1

Basic industrials




Construction and building materials


3.1

          4.2

Mining


9.2

          3.5



12.3

          7.7

Non-cyclical consumer goods




Tobacco


7.1

          8.5

Pharmaceuticals and biotechnology


13.0

        14.8



20.1

        23.3

Cyclical services




Support services


1.0

          1.2

Leisure, entertainment and hotels


5.7

          4.5

Food and Drug Retailers


2.3

          2.4



9.0

          8.1

Non-cyclical services




Telecommunication services


10.1

          7.2



10.1

          7.2

Utilities




Utilities other


17.0

          5.5



17.0

          5.5

Information and technology




Software and computer services


-

          0.1




          0.1

Financials




Banks


-

          8.5

Speciality and other finance


4.5

          4.7

Real Estate


0.1

          2.6

Investment companies


0.1

          0.3

Life assurance


-

          5.1



4.7

        21.2

Net current assets


3.6

          9.8

Total assets less current liabilities


100.00

       100.0

Borrowings


-

            -  

Net assets


100.00

       100.0

 

Note: The distribution of investments is based on the valuations at 31 December 2009 and at 31 December 2008. All of the investments above are Listed on the London Stock Exchange, with the exception of Newfound NV Plc which is an unlisted trading entity.

 

 
Sector Distribution (continued)
 
 

 

 
By sector as a percentage

 

 

 

 

Directors' Report

 

The Directors have pleasure in submitting their annual financial report for the year ended 31 December 2009 with comparatives for the year ended 31 December 2008.

 

Principal activities
 

The principal activity of the Company is that of an investment trust company. The Company is an authorised fund under the Guernsey Financial Services Commission Protection of Investors (Bailiwick of Guernsey) Law, 2008 as amended.

 

Revenue 

 

The statement of comprehensive income set out on page 25 shows a return on ordinary activities for the financial year after taxation amounting to £9,915,000 (2008: deficit £10,182,000). The Directors have declared a second interim dividend of 2.85p which, together with the first interim dividend of 0.90p makes a total of 3.75p for the year (2008: 3.63p).

 

The second interim dividend will be paid on 28 May 2010, to ordinary shareholders on the register on 9 April 2010 and shares in lieu of dividend will be offered.

 

Assets

 

At the year end the net assets attributable to the ordinary shares were £30,832,000 (2008: £22,171,000).  Based on this figure the net asset value of an ordinary share was 149.84p (2008: 106.97p).

 

Share capital 

 

During the year no shares were repurchased by the Company for cancellation (2008: nil). During the year 496,709 issued ordinary shares of 10p each were purchased at a total cost of £528,092 and held in treasury.  The authority allowing the Company to purchase its own shares expires at the end of the 2010 AGM and allows the purchase of a maximum of 3,065,836 shares, representing 14.9% of the number of shares in issue on 31 December 2009.

 

During the year 347,049 ordinary shares of 10p each were issued from the treasury reserve arising from elections by ordinary shareholders to receive shares in lieu of cash dividends (2008: 216,587 new shares issued in lieu of cash dividends) thereby resulting in a total of £315,543 being capitalised.

 

Substantial shareholdings 

 

At 31 March 2010, the following held a notifiable interest in the Company's voting rights:

 



31 March


27 March



2010


2009






State Street Nominees (held on behalf of clients of Scottish Widows Investment Partnership Limited)


28.42%


29.28%

JM & Mrs AE Le Pelley

6.69%

6.43%

Mr G Green

6.31%

6.11%

 

At 31 March 2010, there has been no other notifiable interest in the Company's voting rights reported to the Company.
 

 

 

 

Directors' Report (continued)

 

Crest registration

 

On 3 January 2003, the Company made an application for Crest registration.  This was granted hence shareholders have the option to hold stock in either certificated or uncertificated form.

 

Directors

 

The current Directors who served on the Board during the year, together with their beneficial interests and those of their families at 31 December 2009, were as follows:

 



2009


2008



Shares


Shares

JM Le Pelley (Chairman)


1,443,382


1,339,428

DR Maltwood


3,442


3,309

G Ross Russell


326,462


313,113

JG West


10,000


10,000

D Warr (Audit Committee Chairman)


30,000


                         -

 

JM Le Pelley is also a Trustee of a Trust holding 568,373 (2008: 546,365) shares, of which he does not have a beneficial interest.

 

There have been no changes in the Directors' interests in the shares of the Company between 31 December 2009 and 15 April 2010.


The Company has no service contracts with the Directors.


G Ross Russell and D Warr, retire from the board at the Annual General Meeting in accordance with Article 97 of the Articles of Association of the Company and are eligible for re-election.
 

 

Corporate Governance 

 

The UK Listing Authority requires all listed companies to disclose how they have applied the principles and complied with the provisions of the Combined Code on Corporate Governance ("the Code") published in June 2006, which applies to all companies with accounting periods commencing on or before 1 November 2006. The Association of Investment Companies (formerly Association of Investment Trust Companies), of which the Company is a member, also published its Code of Corporate Governance for Investment Companies ("the AIC Code") in May 2007. The Combined Code on Corporate Governance is only applicable to companies incorporated in the United Kingdom and whilst this company is not incorporated in the United Kingdom the Board has sought to reflect the Code and AIC Code when reviewing its corporate governance arrangements. The Guernsey Financial Services Commission ("GFSC") issued guidelines for corporate governance on 10 December 2004 which the Company currently complies with in full and whose underlying principles are the same as those of the Code.

 

 

 

 

 

 

 

 

 

 

 

Directors' Report (continued)

 

The Board 

 

The Company is led and controlled by a Board comprising non-executive Directors, all of whom have wide experience and are considered to be independent. The Board believes that it is in the shareholders' best interests for the Chairman to be the point of contact for all matters relating to the governance of the Company. 

 

Mr D Warr has been appointed as the senior independent non-executive Director for the purpose of the Codes. The appointment of Directors is considered by the Board who are the Nominations Committee. The Articles of Association stipulate that one third, or the number nearest to but not exceeding one third, of the Directors shall retire and offer themselves for re-appointment at each Annual General Meeting, and the Board has chosen to adopt best practice in relation to retirement by rotation of two Directors over the Articles of Association and as stated in the Director's Report, two Directors will stand for re-appointment so that the shareholders will have the opportunity to consider each Director's continuing involvement with the Company every third year. During the year, the Board reviewed its performance and composition, and was content.

 

In addition, following the evaluation of the performance of the Board, its committees and individual Directors, it is  considered that the performance of both Directors who are to retire by rotation and offer themselves for re-appointment continues to be effective and that they have demonstrated commitment to their roles.

 

The Board meets regularly, normally quarterly, with additional meetings should it be considered appropriate to discuss specific issues.

 

The Directors have no service contracts. Further, they are not entitled to any minimum period of notice or to compensation in the event of their removal as a Director.

 

The table below lists the number of Board and Audit Committee meetings attended by each Director during the year ended 31 December 2009.

 

Director


Board Meetings Attended

Audit Committee Meetings Attended

JM Le Pelley (Chairman)


4

2

DR Maltwood


4

2

G Ross Russell


4

2

JG West


4

2

D Warr (Audit Committee Chairman)


4

2

 

The Board has contractually delegated to Scottish Widows Investment Partnership Limited ("SWIP") the management of the Company's investments. The management agreement between the Company and its investment manager sets out the matters over which the manager has authority and the limits above which Board approval must be sought. Other matters reserved for the approval of the Board include the report and accounts, communications with shareholders and decisions on strategy.

 

The safe custody of the Company's investments is managed by HSBC Plc and Kleinwort Benson (Channel Islands) Fund Services Limited are contracted to provide the Company's administration, secretarial and accounting functions and Capita IRG (CI) Limited, its registration function. The Board reviews regularly the performance of the service provided by these companies.

 

In 2008 and 2009 the Company did not employ any personnel.

 

 

 

Directors' Report (continued)

 

The Board (continued)

 

The Board has established itself as an Audit Committee which meets when necessary, and at least once a year, with the auditors of the Company with a view to providing further assurance of the quality and reliability of the financial information used by the Board in these financial statements. The Board has also established itself as a Nominations Committee, which will meet when necessary.

 

All the Board are considered independent and non-executive and Director's fees are recommended by the full Board.

 

The emoluments of the Directors for the year are as follows:

 


2009


2008


Fees


Fees


£


£

JM Le Pelley (Chairman)

20,000


20,000

DR Maltwood

15,000


15,000

G Ross Russell

15,000


15,000

JG West

15,000


15,000

D Warr (Audit Committee Chairman)

16,000


16,000


81,000


81,000

 

The figures above represent emoluments earned as Directors during the relevant financial year which are paid quarterly in arrears. The Directors receive no other remuneration or benefits from the Company other than the fees stated above.

 

Mr Warr received a one-off consultancy fee in relation to services provided to the Company which were outside the duties performed in his role as a Director. The fee has been recorded in the Statement of Comprehensive Income in other expenses and disclosed in notes 11 and 16 to the financial statements.

 

Relations with shareholders 

 

In conjunction with the Board, the broker keeps under review the register of members of the Company.  Potential investors are also contacted by the investment manager.

 

All shareholders are encouraged to participate in the Company's Annual General Meeting. All Directors normally attend the Annual General Meeting, at which shareholders have the opportunity to ask questions and discuss matters with the Directors and the investment manager.

 

It is recognised that the Code requires notice of Annual General Meetings to be dispatched at least 21 clear days notice before the meeting. The Company intends to comply with the Code provision in 2010.

 

Accountability and audit 

 

a) Directors' responsibilities in relation to the financial statements

 

The Directors are required by the Companies (Guernsey) Law, 2008 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. The Directors consider that in preparing the financial statements on pages 25 to 46, the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all accounting standards which they consider applicable have been followed.

 

 

Directors' Report (continued)

 

Accountability and audit (continued)

 

a) Directors' responsibilities in relation to the financial statements (continued)

 

The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

b) Statement of going concern

 

In the opinion of the Directors, there is a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason the financial statements have been prepared using the going concern basis.

 

The Directors have arrived at this opinion by considering, inter alia, the following factors:

 

·      the Company has sufficient liquidity to meet all on-going expenses (net current asset position at 31 December 2009 of £1,103,000);

·      the portfolio of investments held by the Company consists of listed investments which are readily realisable and therefore the Company will have sufficient resources to meet its liquidity requirements; and

·      aside from a £46,000 overdraft at 31 December 2009, the Company currently has no external borrowings and therefore is under no obligation to repay any borrowing facilities for the foreseeable future.

 

c) Internal control

 

The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. They have therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the guidance provided by the Financial Reporting Council. Such review procedures have been in place throughout the full financial year and up to the date of the approval of the financial statements.

 

This process involves a review by the Board of SWIP internal control report and Kleinwort Benson (Channel Islands) Fund Services Limited internal control report, AAF 01/06, and a report covering specific internal controls operated by SWIP to ensure that the Company's requirements are met.

 

The Board has delegated certain aspects of the management and administration of the Company to SWIP. Further, the Company has delegated Kleinwort Benson (Channel Islands) Fund Services Limited with the secretarial and accounting functions.

 

SWIP maintains its own systems of internal controls, on which it has reported to the Board. The Company, in common with other investment trusts, does not have an internal audit function. The Board has considered the need for an internal audit function, but because of the internal control systems in place at the investment manager, has decided to place reliance on the investment manager's systems and internal audit procedures.

 

 

 

 

Directors' Report (continued)

 

Accountability and audit (continued)

 

c) Internal control (continued)

 

The systems are designed to ensure effectiveness and efficient operations, internal control and compliance with laws and regulations. In establishing the systems of internal control regard is paid to the materiality of relevant risks; the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

 

There are well established budgeting and forecasting procedures in place and reports are presented to the Board detailing variance against budget and prior year and other performance data. The effectiveness of the internal control systems is reviewed annually by the Board and the Audit Committee. The Audit Committee has a discussion annually with the auditor to ensure that there are no issues of concern in relation to the audit opinion on the accounts and, if necessary, representatives of the investment manager would be excluded from that discussion.

 

Where non-audit services are provided by auditors, these engagements are pre-approved by the audit committee to ensure that the auditors' independence and objectivity is not breached. There were no non-audit services in the year ended 31 December 2009 (2008: nil).

 

Investment manager

 

The investment manager employs highly experienced personnel and maintains a continuous training programme for fund managers. The fund managers are constantly monitoring the portfolio and over the past twelve months they have visited virtually all the companies in which the Company has invested.

 

Under the terms of the management agreement, SWIP decides whether and in what manner all rights conferred by any investment shall be exercised. However, the Directors may, at any time, instruct SWIP as to the exercise of the voting and other rights attached to the Company's investments, and they review regularly the voting decisions taken by the investment manager.

 

The corporate governance of companies is one of the several elements taken into consideration by the investment manager when making investment decisions.

 

Statements of compliance

 

The Directors believe that the Company has complied with the provisions of the Combined Code on Corporate Governance and the AIC Code where appropriate, and that it has complied throughout the year with the provisions where the requirements are of a continuing nature, except that a Remuneration Committee and Management Engagement Committee have not been established.  During 2010, the Board will give further consideration to setting up these Committees.

 

Investment Policy 

 

The Company is permitted to invest in any security listed on any recognised UK exchange in order to achieve its investment objective of outperforming the FTSE All-Share Index.

 

The Company's investment universe comprises the constituents of the FTSE All- Share Index. While the Directors expect the bulk of the Company's portfolio to be within the investment universe, the Company reserves the right to invest in companies traded on any recogonised UK exchange, for example, the Alternative Investment Markets ("AIM") of the London Stock Exchange (and any successor market to it) which the Directors believe, because of movement in their market capitalisations or, in the case of new listings, because of their likely market capitalisations, may be considered appropriate for investment.

Directors' Report (continued)

 

Investment Policy (continued)

 

In addition, the Company reserves the right to retain an investment in any company that was within the appropriate range of market capitalisation when the investment was made but which has subsequently moved out of the investment universe as a result of changes in its market capitalisation relative to the rest of the investment universe. The Investment Manager's investment approach favours a value bias, which is to identify undervalued companies in all sector of the Company's investment universe. Considerable emphasis is placed on identifying companies which are well managed, have high levels of cash generation and enjoy real pricing power. The investment manager considers those attributes to be the key components of a strong market position.

 

No holding in another Company may exceed 15% of the value of Investment Trust's portfolio. This test is applied when the investment is first acquired and subsequently, when additions are made to the holding.

 

In addition to the original shareholders' capital, the Company has at its disposal a Revolving Loan Facility for the amount of £2,000,000 which is subject to an agreement with Lloyds Banking Group and is detailed further in Note 12 to the financial statements. The interest rate on the loan is renegotiated annually and was set at a rate of LIBOR plus 0.60%. At the year end, the Company had £nil drawn down against the facility (2008: £nil).

 

A breakdown of the risks the Company is subject to and how they are mitigated are detailed further below and in Note 17 to the Financial Statements.

 

Implementation

 

During the year under review, the assets of the Company were invested in accordance with the Company's investment policy. Further details of the performance of the Company and the extent to which the Company's objectives were achieved are detailed further in the Chairman's Statement and Investment Manager's Review on pages 6 to 8.

 

The Company's portfolio consisted of 38 investments as at 31 December 2009 and is detailed further on pages 9 and 10. The sector distribution of the portfolio is provided on pages 11 and 12. As at 31 December 2009, the portfolio only held investments issued in the United Kingdom. The top 10 holdings comprise 50.41% of total net assets (2008: 52.30%).

 

The Company's gearing stood at 0.15% as at 31 December 2009 (2008: nil%).

 

Financial risk profile

 

The Company's financial instruments comprise investments, cash and various items such as debtors, creditors etc that arise directly from the Company's operations.  The main purpose of these instruments is the investment of shareholders' funds.

 

 

Market price risk

 

The main risk arising from the Company's financial instruments is market price risk.


In accordance with the Company's investment objectives, the Company does not hedge against its exposure to market price risk.

 

The investment strategy of the Company has been delegated to the Company's Investment Manager, Scottish Widows Investment Partnership Limited under an agreement dated 25 April 2002.  The Investment Manager operates under agreed parameters and the Board monitors their performance on a regular basis.

Directors' Report (continued)

 

Financial risk profile (continued)

 

Liquidity risk

 

The Company's assets comprise securities that can be readily realised to meet its obligations. As a result the Company is able to quickly liquidate its investments in these instruments at an amount close to its fair value in order to meet its liquidity requirements.

 

The Company has entered into a revolving 5-year loan facility explained in Note 12.

 

Interest rate risk

 

The Company's interest rate sensitive assets and liabilities mainly comprise of cash at bank and a bank loan.  The cash at bank and bank loan are subject to floating rates and the loan is considered to be part of the investment strategy of the Company.  No other hedging is undertaken in respect of this interest rate risk. The bank loan is due to expire on 23 September 2012.

 

Foreign currency risk

 

Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.


The Company's foreign currency risk in 2009 arose from the investment portfolio and was minimal as it was principally Sterling denominated.  No hedging was undertaken in respect of this foreign currency exposure. The Company had no exposure to major currencies as at 31 December 2009 (See Note 17).

 

Investment Manager

 

Scottish Widows Investment Partnership Limited ("SWIP") provides investment management services to the Company.

 

The Board believes that in the light of the performance of the portfolio, SWIP should continue as the Investment Manager of the Company. The Directors have the view that there are significant advantages to both the Company and the shareholders as a whole by having SWIP manage the assets of the Company. It is SWIP's size and its expertise which gives the Board the confidence that the objectives of the Company are being met. The Directors are of the opinion that the continuing appointment of SWIP as the Company's Investment Manager on the terms agreed under the agreement dated 25 April 2002 is in the interest of shareholders as a whole. Details of the agreement are explained in Note 4.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors' Report (continued)

 

Auditors

 

Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting.

 

At the date of approval of the financial statements, the Directors confirm that:

 

·      so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware; and

·      they have taken all steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

This confirmation is given and should be interpreted in accordance with the provisions of section 249 of The Companies (Guernsey) Law, 2008.

 

By order of the Board

 

 

JM Le Pelley

D Warr

Directors

 

22 April 2010

 

 

 

 

 

 

 

 

 

Directors' Responsibilities

 

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

 

The Companies (Guernsey) Law, 2008 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 International Financial Reporting Standards (IFRSs).

 

International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows.  This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'.  In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.  However, the Directors are also required to:

 

·      properly select and apply accounting policies;

·      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

·      make an assessment of the company's ability to continue as a going concern.

 

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. 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 financial statements have been prepared on the going concern basis. The Directors believe that this basis is appropriate as the Company has significant net assets, is not dependant on external finance and is expected to operate for the foreseeable future. The Directors have reviewed the cash flow and projected income and expenses over the next twelve months and deemed that the Company has adequate financial resources to meet its obligations.

 

Directors' responsibility statement

 

We confirm to the best of our knowledge:

 

1.     the financial statements prepared in accordance with International Financial Reporting Standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

 

2.     the Investment Managers 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 faced by the Company.

 

By order of the Board

 

 

JM Le Pelley

D Warr

Directors

 

22 April 2010


Independent Auditors' Report

 

To the members of UK Select Trust Limited

 

We have audited the financial statements of UK Select Trust Limited for the year ended 31 December 2009 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Reconciliation of Movements in Equity Shareholders' Funds, the Statement of Cash Flows and the related notes 1 to 19. These financial statements have been prepared under the accounting policies set out therein.

 

This report is made solely to the Company's members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of Directors and Auditors

 

As described in the statement of Directors' responsibilities, the Company's Directors are responsible for the preparation of the financial statements in accordance with applicable Guernsey law and International Financial Reporting Standards (IFRSs). Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

 

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 2008.  We also report if, in our opinion the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

 

We read the Directors' report and the other information contained in the Annual Report for the above year as described in the contents section and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

 

Basis of Opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board.  An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements.  It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We are not required to review any Corporate Governance disclosures required by the Listing Rules of the Financial Services Authority as the Company is an overseas company.

 

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error.  In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

 

 

 

 

 

 

 

Independent Auditors' Report (continued)

 

Opinion

 

In our opinion the financial statements give a true and fair view, in accordance with IFRSs of the state of the Company's affairs as at 31 December 2009 and of its return for the year then ended and have been properly prepared in accordance with The Companies (Guernsey) Law, 2008.

 

 

 

Deloitte LLP

Chartered Accountants

 

 

 

 

 

St Peter Port

Guernsey

 

22 April 2010

 

 

 

 



Statement of Comprehensive Income

for the year ended 31 December 2009





 

 2009

 

2008




Notes


Revenue


Capital


Total


Revenue


Capital


Total






£'000


£'000


£'000


£'000


£'000


£'000

Gains/(losses) on investments














Net realised gains/(losses) on financial

assets and liabilities held at fair

value through profit or loss                    8


-


2,551


2,551


-


(5,526)


(5,526)

Net changes in unrealised appreciation/(depreciation) on financial assets and liabilities held at fair value through profit or loss

8


-


6,701


6,701


-


(5,409)


(5,409)

Net foreign exchange gain



-


22


22


-


-


-




-


9,274


9,274


-


(10,935)


(10,935)

Income















Other income


3


1,075


-


1,075


1,449


-


1,449

















Expenses
















Investment management fees

4


33


100


133


38


115


153

Administration fees




95


-


95


84


-


84

Registrars' fees


          


19


-


19


19


-


19

Auditors' fees



12


-


12


21


-


21

Directors' fees and expenses

    16      


84


-


84


82


-


82

Other expenses


84


-


84


105


-


105

Total operating expenses before finance costs



327


100


427


349


115


464














Operating profit/(loss) before finance costs and tax



748


9,174


9,922


1,100


(11,050)


(9,950)

















Finance costs















Interest payable


2h &

12


2


5


7


58


174


232














Profit/(loss) before tax



746


9,169


9,915


1,042


(11,224)


(10,182)

Taxation

5


-


-


-


-


-


-















Net Profit/(loss)



746


9,169


9,915


1,042


(11,224)


(10,182)















Basic return/(deficit) per Ordinary Share

7


3.61p


44.42p


48.03p


5.04p


(54.25)p


(49.21)p

 

The total column of this statement is the Statement of Comprehensive Income of the Company, with the revenue and capital columns representing supplementary information.

All revenue and capital items in the above statement derive from continuing operations. All income is attributable to the ordinary shareholders of the Company.

The notes on pages 29 to 46 are an integral part of these financial statements


Statement of Financial Position

As at 31 December 2009

 

 


Notes


 

 

 2009


 

 2008

Assets




£'000


£'000

Non-current assets






Financial assets at fair value through profit or loss

8


29,729


19,989

Total non-current assets




29,729


19,989








Current assets







Receivable from brokers


9


120


1,153

Other receivables

9


425


76

Cash at bank

10


1,113


1,298

Total current assets




1,658


2,527








Total assets




31,387


22,171








Liabilities







Current Liabilities







Payable to brokers


11


389


224

Other payables


11


120


121

Bank overdraft




46


-

Total current liabilities




555


345







Total liabilities




555


345








Net assets attributable to holders of equity shares



30,832


22,171








Equity shareholders' funds







Share Capital


14


2,083


2,083

Own shares held in treasury


14


(380)


(168)

Reserves



29,129


20,256




30,832


22,171







Number of ordinary shares in issue (net of treasury shares)

15


20,576,082


20,725,742







Net asset value per share

15


149.84


106.97p

 

These financial statements were approved by the Board of Directors 22 April 2010 and are signed on behalf of the Board by:

 

 

 

 

 

JM Le Pelley                                                                        D Warr

Director                                                                                 Director

Date: 22 April 2010.

 

The notes on pages 29 to 46 are an integral part of these financial statements.

 

Reconciliation of Movements in Equity Shareholders' Funds

 

For the year ended 31 December 2009

 


Equity share capital

Own shares held in treasury

Share premium

Capital redemption reserve

Capital reserve-realised

Capital reserve- unrealised

Revenue reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2009

2,083

(168)

5,422

4,308

8,320

(1,847)

4,053

22,171

Opening adjustment *

-

-

-

-

-

(280)

-

(280)

Shares repurchased during the year

-

(528)

-

-

-

-

-

(528)

Cash dividends:









-2008 final dividend

-

-

-

-

-

-

(331)

(331)

-2009 interim dividend

-

-

-

-

-

-

(104)

(104)

Scrip dividends

-

316

**(11)

-

-

-

(316)

(11)

Net profit

-

-

-

-

2,468

6,701

746

9,915

At 31 December 2009

2,083

(380)

5,411

4,308

10,788

4,574

4,048

30,832

 

There are no other recognised Income and Expenses for the year ended 31 December 2009

 

* Opening adjustment made to correct the Capital reserve unrealised position.

** Costs associated with the administration of the scrip dividends.

 

For the year ended 31 December 2008

 


Equity share capital

Own shares held in treasury

Share premium

Capital redemption reserve

Capital reserve-realised

Capital reserve- unrealised

Revenue reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2008

2,083

(176)

5,422

4,308

14,139

3,281

3,724

32,781

Shares repurchased during the year

-

(280)

-

-

-

(7)

-

(287)

Cash dividends:









-2007 final dividend

-

-

-

-

-

-

(316)

(316)

-2008 interim dividend

-

-

-

-

-

-

(109)

(109)

Scrip dividends

-

288

-

-

-

288

(288)

288

Net profit

-

-

-

-

(5,819)

(5,409)

1,042

(10,186)

At 31 December 2008

2,083

(168)

5,422

4,308

8,320

(1,847)

4,053

22,171

 
There are no other recognised Income and Expenses for the year ended 31 December 2008
 
 
 
The notes on pages 29 to 46 are an integral part of these financial statements.

Statement of Cash Flows

For the year ended 31 December 2009

 

 

 

 

 







Notes

 2009


 2008



£'000


£'000

Cash flows from operating activities




Payment on purchase of investments


(87,472)


(125,206)

Proceeds from sale of investments


87,924


131,182

Cash received from investments


672


1,524

Other income


24


76

Investment management fee paid


(122)


(94)

Other cash payments


(287)


(279)






Net cash inflow from operating activities


739


7,203






Cash flows from financing activities





Interest paid


(7)


(336)

Share repurchase

14

(528)


(280)

Equity dividends paid

6

(435)


(425)

Repayment of long term loan

12

-


(5,200)






Net cash outflow from financing activities


(970)


(6,241)






Net (decrease)/increase in cash and cash equivalents

(231)


962






Cash and cash equivalents at the beginning of the year


1,298


336






Cash and cash equivalents at the end of the year

10

1,067


1,298






Cash and cash equivalents comprise:





Cash at bank


1,113


1,298

Bank overdraft


(46)


-








1,067


1,298

 

 

 

 

The notes on pages 29 to 46 are an integral part of these financial statements.

 

 

 

 

 

Notes to the Financial Statements

 

1.         General information

 

UK Select Trust Limited is a UK Investment Trust Company incorporated under The Companies (Guernsey) Law, 2008, with its registered office at Dorey Court, Admiral Park, St Peter Port, Guernsey. UK Select Trust Limited's shares are listed on the London Stock Exchange.

 

The objective of the Company is to invest over 80% of its gross assets by value in companies listed on the London Stock Exchange and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.

 

2.         Accounting Policies

 

a.         Basis of presentation

 

The financial statements have been prepared in accordance with the applicable International Reporting Standards and interpretations adopted by the International Accounting Standards Board (IASB), except for the departure from IAS 1 which requires the production of a third statement of financial position as the adoption of IFRS 8 applies retrospectively, and in accordance with the guidelines included in the AIC Statement of Recommended Practice for Financial Statements of Investment Trust Companies issued in January 2003 and revised in January 2009 ("AIC SORP") to the extent that it is not in conflict with IFRS. The financial information is prepared under the historical cost basis except for the revaluation of financial instruments.

 

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.

 

The preparation of financial statements in conformity with International Financial Reporting Standards requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.

 

b.         Going concern

 

In the opinion of the Directors, there is a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason the financial statements have been prepared using the going concern basis.

 

The Directors have arrived at this opinion by considering, inter alia, the following factors:

 

·      the Company has sufficient liquidity to meet all on-going expenses (net current asset position at 31 December 2009 of £1,103,000);

·      the portfolio of investments held by the Company consists of listed investments which are readily realisable and therefore the Company will have sufficient resources to meet its liquidity requirements; and

·      aside from a £46,000 overdraft at 31 December 2009, the Company currently has no external borrowings and therefore is under no obligation to repay any borrowing facilities for the foreseeable future.

 

 

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting Policies (continued)

 

c.         Standards and interpretations

 

The Company has adopted the following standards and interpretations for the year ended 31 December 2009:

 

Amendments to IAS 1: 'Presentation of financial statements - A revised presentation' (Effective for annual periods beginning on or after 1 January 2009);

 

IFRS 7 '(amendment) Financial Instruments: Disclosures (Effective for annual periods beginning on or after 1 January 2009); and

 

IFRS 8 'Operating Segments' (Effective for annual periods beginning on or after 1 January 2009).  IFRS 8 applies retrospectively and under IAS 1 (amended 2007) the Company should present a statement of financial position and supporting notes as at the beginning of the earliest comparative period, being 31 December 2007. As the impact of this change has been limited to presentational changes (due to the format of previous financial statements), the Directors have not produced three statements of financial position as strictly required under IAS 1 (revised 2007) for retrospective changes in accounting policies. The Directors believe this departure does not materially affect the readers' overall understanding of these financial statements.

 

The Directors believe that the following pronouncements, which are in issue but not yet operative or adopted by the Company, will not have a material impact on the financial statements of the Company:

 

IAS 23 'Borrowing Costs' (Effective for annual periods beginning on or after 1 January 2009);

 

IAS 27 'Consolidated and Separate Financial Statements' (Effective for annual periods beginning on or after 1 July 2009);

 

IAS 32 (Amendment) (Effective for annual periods beginning on or after 1 January 2009);

 

IAS 39 (Amendment) Financial Instruments: Recognition and measurement (Effective for annual periods beginning on or after 1 January 2009); and

 

IFRS 9 Financial Instruments: Recognition and Measurement (Effective for annual periods beginning on or after 1 January 2013) (issued but not adopted by the European Union).

 

d.         Other receivables

 

Other receivables do not carry any interest, are short-term in nature, and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

Sales of investments are recognised at the trade date. Where trades have been executed but are awaiting settlement from the broker, these are accounted for as receivable form brokers on the statement of financial position.

 

e.         Investments

 

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting Policies (continued)

 

e.         Investments (continued)

 

Investments are classified as fair value through profit or loss. As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value and are managed on a portfolio basis to meet the objectives of the Company, listed equities and fixed income securities are designated as fair value through profit or loss on initial recognition. The Company manages and evaluates these investments on a fair value basis in accordance with an investment strategy.

 

Financial assets designated as fair value through profit or loss are measured at fair value, which is either bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

 

Where securities are designated upon initial recognition as fair value through profit or loss, gains and losses arising from changes in fair value are included in the statement of comprehensive income for the period as a capital item and transaction costs on acquisition or disposal of the security are expensed as a capital item.

 

Foreign exchange gains and losses for fair value through profit or loss investments are included within the changes in its fair value.

 

f.          Financial liabilities and equity

 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. A financial liability is any liability that contractually obligates the Company to deliver cash or another financial asset or exchange financial assets or financial liabilities that are potentially unfavourable to the Company, or a contract that will or maybe settled in the Company's own equity instruments.  An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. As the Ordinary shares have no fixed rights to redemption or income they are classified as equity.

 

g.         Financial instruments

 

Financial assets and financial liabilities are recognised on the Company's statement of financial position when the Company becomes party to the contractual provisions of the instrument.  The Company shall offset financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

 

h.         Bank borrowings

 

Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs, finance charges, including premiums payable on settlement or redemption and direct issue costs.  They are accounted for on an accruals basis in the statement of comprehensive income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

 

i.          Other payables

 

Other payables are not interest-bearing and are stated at their nominal value.

 

Purchases of investments are recognised at the trade date. Where trades have been executed but the broker requires funds for settlement of the trade, these have been accounted for as payable to brokers on the statement of financial position.

Notes to the Financial Statements (continued)

 

2.         Accounting Policies (continued)

 

j.          Income

 

Dividends are brought into the statement of comprehensive income as revenue items on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established.  All dividends are shown gross of withholding tax and received net of imputed tax credits as the Company is exempt from Guernsey Income Tax. 


Fixed returns on non-equity investments and on debt securities are recognised as revenue items in the statement of comprehensive income on a time apportionment basis so as to reflect the effective yield on the investment.  Other returns on non-equity shares are recognised when the right to the return is established.  Deposit interest is included on an accruals basis.


Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend is recognised as revenue in the statement of comprehensive income.

 

k.         Foreign exchange

 

The presentational and functional currency of the Company is sterling, which is the currency of the primary economic environment in which the company operates.  Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the statement of financial position date.  Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction.  Realised and unrealised foreign exchange gains and losses are recognised in the statement of comprehensive income as capital realised, and capital reserve - unrealised, respectively.

 

l.          Expenses

 

All expenses are accounted for on an accruals basis. Expenses are charged through the statement of comprehensive income as revenue except as follows:

·      expenses which are incidental to the acquisition of an investment are deducted from gains on investments through the statement of comprehensive income as capital;

·      expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment; and

·      expenses are charged to the statement of comprehensive income as capital realised where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment manager's fee and performance fee have been allocated 75% to the capital reserve - realised and 25% to the revenue reserve in line with the Board's expected long-term split of returns in the form of capital gains and income respectively from the investment portfolio of the Company.

 

The Company has no employees

 

m.        Finance costs

 

Finance costs are accounted for on an accruals basis.  Finance costs are allocated, insofar as they relate to the financing of the Company's investments, 75% to capital reserve - realised and 25% to revenue account, in line with the Board's expected long-term split of returns, as outlined in the expenses note above.

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting Policies (continued)

 

n.         Segment Reporting

 

A business segment is a distinguishable component of the Company that is engaged in providing products and services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Company that is engaged in providing products and services and that is subject to risks and returns that are different from those of other economic environments. The Board of Directors is of the opinion that the Company is organised in one main business segment, namely the management of the Company's investments in order to achieve the Fund's investment objectives as described in Note 1 to the financial statements. The Board of Directors is further of the opinion that the Company's secondary segment reporting format is also organised into one main geographical unit as the location of all investments is materially all within the United Kingdom.

 

o.         Capital reserves


Capital reserve - realised

 

The following are accounted for in the statement of comprehensive income and then in this reserve:

 

·      gains and losses on the realisation of investments;

·      realised foreign exchange gains and losses; and

 

Capital reserve - unrealised

 

The following are accounted for in the statement of comprehensive income and then in this reserve:

 

·     difference between cost and valuation of investments held at the year end; and

·     unrealised foreign exchange gains and losses.

 

p.         Fair values of financial instruments

 

Many of the Company's financial instruments are measured at fair value on the statement of financial position and it is usually possible to determine fair values within a reasonable range of estimates.

 

For all the Company's investments, with the exception of Newfound NV Plc which is de-listed but still a trading entity, there is an active market and quoted market prices available.

 

q.         Impairment

 

The Company is required to evaluate the securities in its portfolio to determine if any of the securities are impaired.

 

As a matter of accounting policy, UK Select Trust Limited has determined that it will have intent and ability to hold a security with unrealised loss until the cost of purchases has been recovered.

 

Fair value and impairment estimates are made at a specific point in time based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement.

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting Policies (continued)

 

q.         Impairment (continued)

 

During the year under review, the Company's holdings in Silverjet, Everex Systems and American Leisure Group have been de-recognised as financial assets of the Company as in the opinion of the Investment Manager it is felt that the Company can no longer recover any value from these investments. The value of the investments in Silverjet and Everex Systems had been written down in full in the prior year with the losses on these investments being recognised as unrealised losses. However, as the decision has been made to de-recognise these assets, the losses on these investments and the loss on the investment in American Leisure Group have been realised in the year ended 31 December 2009.

 

The Company invests in Listed UK equities and therefore at the reporting date, with the exception of Newfound NV, there were no sources of significant judgement or uncertainty.

 

r.          Statement of cash flows

 

The Company is required to prepare a statement of cash flows in accordance with IFRS and has elected to prepare the statement of cash flows on a direct basis.

 

s.         Adoption of IAS 1: 'Presentation of financial statements - A revised presentation'

 

The Company has adopted IAS 1: 'Presentation of financial statements - A revised presentation' in the current accounting period. The standard prescribes the introduction of new terminology for the primary statements and in accordance with the standard, the Company has renamed the Income Statement to the Statement of Comprehensive Income, the Balance Sheet to the Statement of Financial Position and the Cash flow Statement to the Statement of Cash Flows.

 

The Company has chosen to reflect all of the items previously recognised in the Income Statement in one single Statement of Comprehensive Income.

 

 

 
 
 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

3.         Other income

 


2009


2008


£'000


£'000

Dividend income and bond interest from investments designated at fair value through profit or loss:




 

Listed UK - gross

1,051


1,373


1,051


1,373

Other income from financial assets not at fair value through profit or loss:




Deposit interest arising on cash and cash equivalents

11


54

Underwriting commission

13


22


24


76

Total income

1,075


1,449





Total income comprises:




Dividends and bond interest

1,051


1,373

Interest

11


54

Other income

13


22

Total income

1,075


1,449

 

4.         Investment management and performance fee

 



2009

2008



Revenue

Capital

Total

Revenue

Capital

Total



£'000

£'000

£'000

£'000

£'000

£'000

Investment management fee


33

100

133

38

115

153









The investment manager was appointed under an agreement with the Company dated 25 April 2002.  The agreement may be terminated by either side giving 6 months notice.  The basic remuneration of the investment manager is 0.125% quarterly in arrears, based on the value of the portfolio at 31 March, 30 June, 30 September and 31 December.  The investment manager is entitled to receive a performance fee payable in arrears linked to the excess total return of the Company's net assets compared to the total return of the FTSE All Share Index.  The performance fee is capped at 0.25% of NAV in any year.  On this basis, the maximum possible management fee in any year will be 0.75% of NAV if the average of two years outperformance equals or exceeds 2.5%.  A performance fee of £nil (2008: £nil) is due for the current year. Where the investment manager is also manager of funds in which the Company has an investment, an arrangement is in place to avoid double charging of fees and expenses.

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

5.         Taxation

 


2009


2008


£'000


£'000

Taxation

-


-





 

The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 to 1997 and is charged an annual exemption fee of £600 (2008: £600) which is included within other expenses in the statement of comprehensive income. The Company suffered £32,000 (2008: £nil) of withholding tax on foreign dividends during the year and this expense has been included in other expenses in the Statement of Comprehensive Income.

 

6.         Dividends

 



2009


2008



£'000


£'000

Equity dividends





Ordinary shares





Interim of 0.90p on 11,561,991 shares for 2009 paid in 2009


104



(2008 paid in 2008: 0.90p (gross) on 12,111,111 shares)




109

Scrip dividend for 2009 paid in 2009: 66,031 shares issued at a cost of 122.5p per share


 

81


 

 

(Scrip dividend for 2008 paid in 2008: 64,470 shares issued at a cost of 119.8p per share)


 

 


 

77






Final dividend for 2008: 2.73p (gross) on 12,178,179 shares paid in 2009


331



(2007 paid in 2008: 2.55p (gross) on 12,392,157 shares paid in 2008




316

Scrip dividend for 2008 paid in 2009: 281,018 shares issued at a cost of 83.5p per share


 

235


 

 

(Scrip dividend for 2007 paid in 2008: 152,117 shares issued at a cost of 138.7p per share


 

 


 

211



751


713






 

7.         Basic return/(deficit) per ordinary share

 







2009

2008


Revenue

Capital

Total

Revenue

Capital

Total


£

£

£

£

£

£








Return/(deficit)

3.61

44.42

48.03

5.04p

(54.25)p

(49.21)p

 

Revenue return per ordinary share is based on the net revenue on ordinary activities of £746,000 (2008: return £1,042,000) and on 20,640,813 ordinary shares, being the weighted average number of ordinary shares in issue during the year (2008: 20,689,850).

 

Capital return/(deficit) per ordinary share is based on a net capital return for the financial year of £9,169,000 (2008: deficit £11,224,000) and on 20,640,813 ordinary shares, being the weighted average number of ordinary shares in issue during the period (2008: 20,689,850).

 

Notes to the Financial Statements (continued)

 

8.         Investments






2009

2008






% of net assets

Fair Value

% of net assets

Financial assets at fair value through profit or loss


£'000


£'000
















Designated at fair value through profit or loss





- Listed equity securities


29,729

96.42

19,989

90.16






29,729

96.42

19,989

90.16










 







  









2009


2008







£'000


£'000










Opening book cost




22,116


33,008

Opening unrealised (depreciation)/appreciation



(2,127)


               3,281










Opening valuation




19,989


36,289










Movements in the year:






Purchases at cost




87,135


125,431

Sales - proceeds




(86,647)


   (130,796)

          - realised gains/(losses) on sales



2,551


               (5,526)

Increase/(decrease) in unrealised appreciation

6,701


              (5,409)










Closing valuation




29,729


19,989    










Comprising:








Closing book cost




25,155


22,116

Closing unrealised depreciation


4,574


               (2,127)










Closing valuation




29,729


19,989

 
 
 
 
 
 
 

 

 

 

Notes to the Financial Statements (continued)

 

9.         Other receivables

 

Receivable from brokers

2009


2008


£'000


£'000

Receivable from brokers (see note 2d)

120


1,153


120


1,153









Other receivables

2009


2008


£'000


£'000

Accrued income

418


71

Prepayments

7


5


425


76

 

The Directors consider that the carrying amount of receivables approximates their fair value.

 

10.       Cash at Bank

 

Cash at bank comprises bank balances and cash held by the Company including short-term deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value.

 

The policy regarding the treatment of the overdraft held by the Company at 31 December 2009 is covered in note 2 (h) to the financial statements.

 

11.       Other payables

 

Payable to brokers

2009


2008


£'000


£'000

Payable to brokers (see note 2i)

389


224


389


224





 

Other payables

2009


2008


£'000


£'000

Management fees

38


28

Administrative fees

35


27

Directors fees

16


20

Audit fees

14


16

Registrars fees

6


6

Consultancy fee

4


-

Sundry expenses

7


24


120


121





The Directors consider that the carrying amount of payables approximates their fair value.

 
 
 

 

 

 

 

Notes to the Financial Statements (continued)

 

12.       Borrowings

 

The Company has a revolving 5 year loan facility, secured on the assets of the Company, which is due to expire on 23 September 2012 with an aggregate principal amount of £2,000,000, for the purposes of future investment. During the year ended 31 December 2009, the loan facility was not utilised.  Interest is payable at a rate of six month sterling LIBOR plus 0.6% and the borrowing is held at amortised cost. During the year, interest of £nil (2008: £231,502) was paid. A fee of 0.30% per annum is payable on the undrawn amount of £2,000,000 of this facility, resulting in £6,000 being paid for the year ended 31 December 2009 (1). Further, the Company is required to comply with the following financial covenants imposed by the bank:

 

·      the Company is required to ensure that the borrowing does not at any time exceed 45% of the Adjusted Gross Asset Value;

·      the Company is required to maintain the Net Worth at not less that £20,000,000; and

·      the Company is required to ensure that the investment portfolio includes holdings in not less that 30 separate businesses.

 

(1) The loan is secured on the assets of the Company.

 

13.       Business and geographical segments

 

As described in the summary of significant accounting policies in note 2 to the financial statements the Board of Directors is of the opinion that the Company is organised in one main business segment, namely the management of the Company's investments in order to achieve the Company's investment objectives as described in note 1 to the financial statements, and considers this to be the primary reporting format for segment information and no further business segment information not already included in other parts of the financial statements is required.

 

The Board of Directors is further of the opinion that the Company's secondary segment reporting format is also organsised into one main geographical unit as the location of all of its investments are materially all within the United Kingdom.

 


Income


Net Assets


2009


2008


2009


2008


£'000


£'000


£'000


£'000

United Kingdom

1,075


1,449


30,759


22,171


1,075


1,449


30,759


22,171









Geographical locations are determined by the Company based on the country of primary listing for listed instruments and the country of incorporation for unlisted instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

14.       Share capital

 







2009


2008







£'000


£'000










Authorised








100,000,000 ordinary shares of 10p each

     10,000


             10,000





250,000 5% cumulative preference restrictive voting shares of £1 each

          250


                  250
















     10,250


             10,250

 

The holders of the five per cent cumulative preference restrictive voting shares shall be entitled, out of profits for dividend, to a fixed cumulative preferential dividend at the rate of five per cent per annum and in a winding-up or on a return of capital shall be entitled to repayment of capital in priority to the ordinary shareholders. At 31 December 2009, no five per cent cumulative preference restrictive voting shares had been issued (2008: none). The ordinary shareholders carry the right to receive any surplus income and in winding-up any surplus assets, after repayment of the preference capital and dividends as above.

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

14.       Share capital (continued)

 







  2009


 2008







£'000


£'000

Issued, called up and fully paid:






20,830,484 ordinary shares of 10p each




(2008: 20,830,484)




       2,083


           2,083
















2009







Own Shares held in Treasury

Shares in issue







Shares

Cost

Shares

Cost







Nominal

£'000

Nominal

£'000

Balance at 1 January 2009




 104,742

           168

 

20,830,484

 

2,083

Shares purchased and held in Treasury

496,709

528

 -

 -

Shares issued in lieu of dividends from Treasury

(347,049)

(316)

 -

 -

Balance at 31 December 2009

254,402

           380

20,830,484

2,083

















2008







Own shares held in Treasury

Shares in issue







Shares

Cost

Shares

Cost







Nominal

£'000

Nominal

£'000

Balance at 1 January 2008




 118,413

           176

20,830,484

2,083

Shares purchased and held in Treasury

 202,916

           280

                   -

-

Shares issued in lieu of dividends from Treasury

(216,587)

(288)

 -

Balance at 31 December 2008



 104,742

 168

           20,830,484

 

2,083











During the period no shares were purchased for cancellation (2008: nil).

 

On 27 April 2009, 180,000 shares were purchased for Treasury at a total cost including expenses of £176,577.

On 5 June 2009, 266,709 shares were purchased for Treasury at a total cost including expenses of £287,573.

On 14 December 2009, 50,000 shares were purchased for Treasury at a total cost including expenses of £63,942.

 

On 8 May 2009, 281,018 shares were issued to shareholders who elected to receive them in lieu of a final cash dividend for 2008. On 6 November 2009, 66,031 shares were issued to shareholders who elected to receive them in lieu of an interim dividend for 2009. Ordinary shares of 10p each, fully paid were issued to shareholders from the Treasury reserves account held by the Company.

 

 

 

Notes to the Financial Statements (continued)

 

15.       Net asset value per share

 

Net asset value per ordinary share is based on net assets attributable to the ordinary shareholders of £30,832,000 (2008: £22,171,000) and on 20,576,082 (2008: 20,725,742) ordinary shares, being the number of ordinary shares in issue at the end of the year.

 

16.       Related party transactions

 

The members of the Board of Directors are listed on page 4 of the annual report. Fees earned by the Directors of the Company during the year were £81,000 (2008: £81,000) of which £16,250 (2008: £20,250) was outstanding at the year end. Allowable expenses claimed by the Directors in the course of their duties amounted to £3,173 for the year ended 31 December 2009.

 

At the year end, a one-off consultancy fee of £3,500 was payable to D Warr in relation to services provided to the Company which were outside the duties performed in his role as a Director. The fee has been disclosed in note 11 to the financial statements and is recorded in the Statement of Comprehensive Income in other expenses.

 

The investment manager, Scottish Widows Investment Partnership Limited exercises discretion over 28.77% (2008: 29.28%) of shares in the Company, on behalf of their clients, and earned investment management fees of £132,843 (2008: £153,587) during the year of which £38,564 (2008: £27,958) was outstanding at the year end and a performance fee of £nil (2008: £nil). The basis of calculation of these fees is detailed in note 4 of the annual financial statements.

 

The Company has appointed Kleinwort Benson (Channel Islands) Fund Services Limited to provide administrative and accounting services. Administrative fees (including the accounting fee) for the year ended 31 December 2009 totalled £95,000 (2008: £84,000) of which £35,000 (2008: £26,828) was outstanding at the year end.

 

17.       Financial assets and liabilities interest rate disclosure and other financial risks

 

A description of the financial risk profile can be seen in the Directors' report on page 19.

 

Capital risk management

 

The capital structure of the Company consists of the cash and cash equivalents and equity attributable to ordinary shareholders, comprising issued share capital, own shares held in treasury, share premium, capital redemption reserve, capital reserves and revenue reserve as disclosed in the Reconciliation of Movements in Shareholders' Funds. The Company does not have any externally imposed capital requirements. At 31 December 2009, the Company had capital of £30.832 million (2008: £22.171 million).

 

The investment objective of UK Select Trust Limited is to invest over 80% of its gross assets by value in the UK and the investment policy aims to provide a total return to shareholders in excess of the net total return on the FTSE All Share Index and a progressive dividend policy.

 

The Company aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments.

 

The Company's policy is to provide net income for distribution from the dividend income earned from a portfolio of UK equity securities, all of which are listed on the London Stock Exchange. Further, the Company has allocated to capital 75% of its investment management fee, performance fee and finance costs in respect of the non-utilisation fee from the loan facility in line with the Board's expectation of long-term returns in the form of capital gains from the investment portfolio of the Company.

 

Notes to the Financial Statements (continued)

 

17.       Financial assets and liabilities interest rate disclosure and other financial risks (continued)

 

Capital risk management (continued)

 

UK Select Trust Limited uses leverage to enhance the returns to shareholders and for this purpose has entered into a 5 year revolving loan facility amounting to £2 million for future investments. The interest payable on borrowing is six month sterling LIBOR plus 0.6%, therefore limiting the Company's interest rate risk. The company has pledged its assets to secure such borrowings.

 

During the year under review, the assets of the Company were invested in accordance with the Company's Investment Manager's strategy. The Company invests in various sectors and businesses to mitigate the primary risk of the company, price risk. In addition, price-volatility levels are reviewed and monitored daily. 

 

Concentration risk

 

As at 31 December 2009, the Company's portfolio consisted of 38 investments spread over 7 sectors. Further, the portfolio only held investments issued in the United Kingdom.

 

The Board has also adopted investment restrictions to manage the risk profile, which are:

 

·      no holding in another Company may exceed 15% of the value of the Investment Trust's portfolio. This test is applied when the investment is first acquired and subsequently, when additions are made to the holding; and

·      futures positions may be entered into so long as the positions that are taken are long only and do not exceed 5% of the Net Asset Value of the Company when the deal is struck.

 

The Board monitors investment restrictions by utilising the Investment Manager's compliance functions. Investment strategy and allocation is monitored by the Board through the use of an Investment Manager.

 

Credit risk

 

Credit risk is the risk that an issuer or counter-party may be unable or unwilling to meet a commitment that it has entered into with the Company.

 

The Company's principal financial assets are bank balances and cash, other receivables and investments as set out in the statement of financial position which represent the Company's maximum exposure to credit risk in relation to the financial assets.

 

The credit risk on bank balances is limited because the counter-parties are banks with high credit ratings of A-1+ assigned by international credit-rating agencies.

 

All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations.

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial assets and liabilities interest rate disclosure and other financial risks (continued)

 

Liquidity risk

 

The Company's assets comprise securities that can be readily realised to meet obligations. As a result, the Company is able to liquidate its investments in these instruments at an amount close to its fair value in order to meet its liquidity requirements. Dividend income is also expected to be sufficient to cover short-term liquidity requirements.

 

The Company has entered into a revolving 5-year loan facility explained in Note 12, to provide leverage and enhance returns to shareholders. No amounts have been drawn down on this facility subsequent to the reporting date.

 

No Liquidity analysis for the Company's financial assets and liabilities has been provided for the current or prior year as liquidity risk is not considered material.

 

Market risk

 

Market risk is the possibility that future changes in market prices may make a financial instrument less valuable or more onerous. The Company's market risk is managed by the investment manager through diversification of the investment portfolio in accordance with the Company's investment policy.

 

Fair value measurements

 

The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company to classify fair value hierarchy that reflects the significance of the inputs used in making the measurements. IFRS 7 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:

 

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

·      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); or

 

·      Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

   

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

 

The determination of what constitutes 'observable' requires significant judgment by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.  

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial assets and liabilities interest rate disclosure and other financial risks (continued)

 

Market risk (continued)

 

Fair value measurements (continued)

 

The Company mainly holds equity investments for which fair value has been determined by reference to quoted prices in active markets for the same instrument, being level 1 of the IFRS 7 fair value hierarchy. The Company also has one holding, Newfound NV Plc, for which fair value has been derived by inputs other than quoted prices due to the investment being de-listed during the year under review.

 

The following table presents the Company's financial assets by level within the valuation hierarchy as of 31 December 2009.

 

 

 
 
2009
Percentage of net assets
Level 1 fair value assets
 
£'000
%
Investments valued at fair value
 
29,719
96.39
 
 
 
 
Level 2 fair value assets
 
 
 
Investments valued at fair value
 
10
0.03
 
 
 
 
Total fair value financial assets
 
29,729
96.42

 

 

a) Price risk

 

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices whether those changes are caused by factors specific to the individual financial instrument or its issuers, or factors affecting similar financial instruments traded in the market.

 

In accordance with the Company's investment objectives, the Company does not hedge against its exposure to market price risk.

 

The investment strategy of the Company has been delegated to the Company's Investment Manager, Scottish Widows Investment Partnership Limited under an agreement dated 25 April 2002.  The Investment Manager operates under agreed parameters and the Board monitors their performance on a regular basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial assets and liabilities interest rate disclosure and other financial risks (continued)

 

a) Price risk (continued)

 

Price sensitivity

 

The following table details the Company's sensitivity to a 10% increase and decrease in the market prices while all other variables were held constant. 10% is the sensitivity rate used when reporting price risk internally to key management personnel and represents management's assessment of the possible change in market prices. A positive number indicates an increase in net assets attributable to holders of shares where the market price of the relevant financial instrument increases and a negative number indicates a decrease where the market price of the relevant financial instrument decreases.

 


Net Assets


Net Assets


10% increase in price


10% decrease in price










Impact on financial assets at fair value through profit or loss


Impact on financial assets at fair value through profit or loss




2009


2008


2009


2008


£'000


£'000


£'000


£'000









Increase/(decrease) in net assets attributable








-Designated as at fair value through profit or loss

2,973


1,999


(2,973)


(1,999)


2,973


1,999


(2,973)


(1,999)

 

b) Interest rate risk

 

The Company's interest rate sensitive assets and liabilities mainly comprise of cash at bank and a bank overdraft. The cash at bank and overdraft are subject to floating rates and the overdraft is considered to be part of the investment strategy of the Company.  No other hedging is undertaken in respect of this interest rate risk. As such, the Board does not believe the Company suffers any material interest rate risk.

 

c) Currency risk

 

Foreign currency risk is the risk that a financial instrument will fluctuate because of changes in foreign exchange rates.


The Company's foreign currency risk in 2008 and 2009 is minimal as all of the Company's material assets and liabilities are Sterling denominated. 

 

18.       Parent and ultimate controlling party

 

The Board is of the opinion that there is no immediate parent or ultimate controlling party of the Company.

 

19.       Events after the reporting date

 

On 30 March 2010, the Board declared a second interim dividend of 2.85p per share. In accordance with the requirements of IFRS, as this was not declared until after the statement of financial position date, no accrual has been reflected in these financial statements for this amount.

Ten Year Record

 

The Ten Year Record set out below has been prepared from the accounting records of the Company. While it does not form part of the financial statements, it should be read in conjunction with them and the auditors report thereon.


 

 

 

 

Gross revenue


 

 

Net revenue after taxation


 

Revenue return per ordinary share


 

Gross dividends per ordinary share


Ordinary share capital eligible for dividends


 

Net asset value of ordinary shares (Ex-div)

Year ended 31 December

£'000 (1+2)


£'000


p


p(3)


£'000


p













2000

2,216


1,733


3.04


2.77


5,663


134.2

2001

2,168


1,735


3.05


2.79


5,717


104.4

2002

1,735


1,276


2.72


2.80


4,186


76.1

2003

1,500


1,130


2.69


2.83


4,203


90.7

2004

1,536


1,117


2.77


2.93


3,858


97.9

2005

1,517


880


2.48


2.95


2,073


125.5

2006

1,041


648


3.12


3.10


2,083


152.9

2007

1,241


824


3.96


3.25


2,071


158.3

2008

1,449


1,042


5.04


3.63


2,073


106.9

2009

1,075


746


3.61


3.75


2,058


149.5

 

Notes:

(1)   The information provided prior to 2006 in the above statement is prepared in accordance with UK GAAP and not IFRS.

(2)   Following the introduction of FRS16 (IAS 12) all dividends receivable from 1999 have been shown gross of withholding tax whereas previously they were shown net.

(3)   Following the introduction of FRS 21 (IAS 10) all dividends paid by the company from 2004 are accounted for in the period in which the Company is liable to pay them.  Such treatment is also consistent with International Financial Reporting Standards. In previous years, the Company accrued dividends in the period in which the net revenue, to which those dividends related, were accounted for.

 

 

 

 
Notice of Meeting

 

Notice is hereby given that the Fifty first Ordinary Annual General Meeting of UK Select Trust Limited (the "Company") will be held at La Trelade Hotel, Forest, Guernsey, on Thursday 1 July 2010 at 11:30am., for the following purposes:

 

Ordinary Resolutions

 

1.             To consider the Directors' report and financial statements for the year ended 31 December 2009.

2.             To authorise the implementation by the Directors of the provisions of Article 133 of the Company's Articles of Association in respect of any dividend (or part thereof) in respect of the financial year of the Company ending 31 December 2009, or by way of an interim dividend in respect of the financial year of the Company ending 31 December 2010.

3.             To re-elect G Ross-Russell as Director in accordance with Article 97 of the Company's Articles of Association.

4.             To re-elect D Warr as Director in accordance with Article 97 of the Company's Articles of Association.

5.             To re-appoint Deloitte LLP as Auditors.

6.             To consider, and if thought fit, approve the renewal of the unconditional and general authorisation of the Company authorised by the fiftieth Annual General Meeting held on 29 April 2009, so that the Company is generally and unconditionally authorised in accordance with the Companies (Purchase of Own Shares) Ordinance 1998 to make market purchases (within the meaning of Section 5 of the said Ordinance) of its own ordinary shares out of distributable profits subject as follows:

 

(a)   the maximum number of shares hereby authorised to be purchased is 3,065,836 (representing 14.9% of the number of shares of the Company in issue on 31 December 2009) ;

(b)   the maximum price which may be paid for such shares is, as for a share which the Company contracts to purchase on any day, a sum equivalent to 105% of the average of the middle market quotation for the ordinary shares of the Company in the daily official list of the London Stock Exchange or the 5 business days immediately proceeding the day;

(c)   any purchase of shares will be made in the market for cash at prices below the prevailing asset value per share;

(d)   the minimum price which may be paid for such shares is 10p; and

(e)   the authority conferred by this resolution shall expire at the conculsion of the fifty second Annual General Meeting of the Company or 30th September 2011, whichever is earlier.

 

Special Resolutions

 

1.     To amend article 81 of the Company's Articles of Association by deleting "£100,000" and inserting in its place "£150,000". (See explanatory note below).

 

 

By order of the Board

 

Kleinwort Benson (Channel Islands) Fund Services Limited

Secretary

 

Dorey Court

St Peter Port

Guernsey

 

 

 

 

Notice of Meeting (continued)

 

 

Notes

 

Note to Special Resolution 1: At present the maximum sum payable in respect of Directors fees is £100,000 which maximum figure has not changed for many years. It is now desirable to increase the maximum to allow the Directors remuneration to be brought into line with industry averages. Whilst it is not the present intention to utilise the proposed revised maximum figure, this will allow for future incremental changes as and when this is deemed appropriate.

 

Subject to shareholder approval the intention is to increase the total Directors remuneration to £107,500 with effect from 1 July 2010. Such increase to be apportioned between the Directors as the Board determines.

 

Note: A member entitled to be present and vote at the meeting may appoint a proxy to attend and, on a poll, to vote in his stead.  Appointment of a proxy will not preclude a member from attending the meeting and voting in person.  A proxy need not be a member of the Company.  The Directors have no contracts with the Company.

 

 

 

Financial Calendar

 

Announcements, ordinary share dividend payments, and the issue of the annual and interim reports may normally be expected in the months shown below:

 

 

March                                    -  Preliminary figures and final dividend for the year announced

April                                       -  Annual Financial Report published

May                                        -  Second interim dividend paid

July                                         -  Annual General Meeting

August                                  -  Interim figures and interim dividend announced

August/September              -  Interim report for half year published

November                              -  Interim dividend paid


Click on, or paste the following link into your web browser, to view the full Annual Financial Report.

 

 http://www.rns-pdf.londonstockexchange.com/rns/6475K_1-2010-4-22.pdf


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