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UK Select Trust Ld (UKT)

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Thursday 28 April, 2011

UK Select Trust Ld

Annual Financial Report

RNS Number : 6163F
UK Select Trust Limited
28 April 2011
 

 

For immediate release on 28 April 2011

 

 

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 2010 ("Statements") of the Company as approved by the Board of Directors on 27 April 2011.  The Statements will be delivered to shareholders during April 2011.

 

This announcement was approved by the Board of Directors on 27 April 2011.

 

The Annual General Meeting of the Company will be held on 1 July 2011 at its registered office.

 

 

To view the announcement in full including all graphs and diagrams click on the links below:

 

http://www.rns-pdf.londonstockexchange.com/rns/6163F_1-2011-4-28.pdf

 

 http://www.rns-pdf.londonstockexchange.com/rns/6163F_2-2011-4-28.pdf

 

Enquiries:

 

Kleinwort Benson (Channel Islands) Fund Services Limited

Company Secretary

 

Telephone number :  01481 727111

Fax number: 01481 728317

 

28 April 2011

 

Dorey Court

Admiral Park

St Peter Port

Guernsey

GY1 3BG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Select Trust Limited

 

 

 

 

 

Annual Financial Report for the year ended 31 December 2010

 

 

 

 

 

 

 

 

 

 


UK Select Trust Limited

 

Contents

 

Trust Information                                                                                                                                 2

 

Objectives                                                                                                                                             2

 

Financial Highlights                                                                                                                            3

 

Dividends                                                                                                                                              3

 

Directors and Advisers                                                                                                                       4

 

Chairman's Statement                                                                                                                         5

 

Investment Manager's Report                                                                                                           6

 

The Portfolio                                                                                                                                         8

 

Sector Distribution                                                                                                                              10

 

Directors' Report                                                                                                                                 12

 

Directors' Responsibilities                                                                                                                 21

 

Independent Auditor's Report                                                                                                          22

 

Statement of Comprehensive Income                                                                                              24

 

Statement of Financial Position                                                                                                         25

 

Statement of Changes in Net Assets Attributable to Shareholders                                            26

 

Statement of Cash Flows                                                                                                                    27

 

Notes to the Financial Statements                                                                                                    28

 

Ten Year Record                                                                                                                                  45

 

Notice of Meeting                                                                                                                                46

 

Financial Calendar                                                                                                                               49

 

 

 

 

 

 

 

 

 

 

 

 

 

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 complies with the definition of a UK Investment Trust Company.  The Company invests over 80% of its gross assets by value in companies listed or quoted 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 2010


31 December 2009








Net asset value per share



161.75p


149.84p

Equity shareholders' interest (1)



£33.46m


£30.83m

Revenue return on ordinary activities for the financial year after taxation

£0.69m


£0.75m

Capital return on ordinary activities for the financial year after taxation

£2.57m


£9.17m

Revenue return per ordinary share


3.36p


3.61p

Capital return per ordinary share


12.47p


44.42p

Dividend per ordinary share (2)



3.90p


3.75p

Share Price



136.75p


128.25p

Net asset value total return (3)



11.26%(5)


45.89%(4)

FTSE All-Share total return



14.51%


30.12%








 

(1) During the year the Company purchased 150,000 ordinary shares of 10p from the market to be held in Treasury. 260,758 ordinary shares of 10p each from the shares held in Treasury were reissued during the year. 143,644 shares remain in Treasury at 31 December 2010. 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 2008 and 31 December 2009.

 

(5) Based on the audited Annual Financial Report for the year ended 31 December 2009 and the unaudited Net Asset Value as at 31 December 2010 released to market, (therefore subject to audit).

 

Dividends 

                                                                                                                                                                                                                                         A second interim dividend of 3.00p per share has been declared for 2010 (2009: second interim dividend 2.85p).  This is in addition to the first interim dividend of 0.90p (2009: first interim dividend 0.90p) paid during the year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors

 

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 Foresight 3 VCT 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 Genuity 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 Breedon Aggregates Limited (formerly Marwyn Materials Limited), Invista Foundation Property Trust Limited and Unigestion (Guernsey) Limited.     

 

Advisers 

 

Secretary and Registered Office                                                     Registrars

Kleinwort Benson (Channel Islands) Fund Services Limited       Capita Registrars (Guernsey) Limited

Dorey Court                                                                                          Longue Hougue Road

Admiral Park                                                                                         St Sampson

St Peter Port                                                                                          Guernsey GY2 4JN

Guernsey GY1 3BG                                                                              0870 162 3100

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

 

Investment Manager                                                                           Recognised Auditor                                           

Scottish Widows Investment Partnership Limited                         Deloitte LLP

Edinburgh One                                                                                     Regency Court

Morrison Street                                                                                    Glategny Esplanade

Edinburgh EH3 8BE                                                                             St Peter Port

0131 655 8500                                                                                        Guernsey GY1 3HW

                                                                                                                01481 724011

 

Bankers and Custodian                                                                     Stockbrokers

HSBC Bank Plc                                                                                     Canaccord Genuity Limited

8 Canada Square                                                                                  Cardinal Place

London E14 5HQ                                                                                  7th Floor

                                                                                                                80 Victoria Street

                                                                                                                London SW1E 5JL

                                                                                                                0207 050 6500

                                                                                                                                                                                                                                                                          


Chairman's Statement

 

Review of 2010 Performance

The recovery in global stock markets, which started in early 2009, continued through 2010.  The FTSE All-Share Index enjoyed another strong year generating a total return of 14.5% compared with the UK Select Trust's total return of 11.3% in 2010.  While it was disappointing to underperform the benchmark during the period under review, your Company has delivered a total return of 44.2% over the past five years compared with the FTSE All-Share Index total return of 28.4%.

 

The Company's portfolio continues to be managed very actively by the investment manager and I am pleased to report that performance has been strong in the early months of 2011.   

 

 

Share Price and discount

The share price increased by 6.6% during the year  reflecting a widening of the discount at which your Company's shares trade relative to their net asset value.  At the end of the year the discount stood at 16.1%.  This increased level of discount has been a theme prevalent throughout the investment trust sector and the Board will continue to monitor the potential for value accretive share buybacks very closely.

 

 

Gearing

The Company remained debt free during the period.

 

 

Earnings and dividend per share

Earnings per share for the year amounted to 3.36p (2009:3.61p). The Board has announced a second interim dividend of 3.00p (2009:2.85p).  This is in addition to the interim dividend of 0.90p (2009:0.90p).

 

 

Articles of Incorporation

 

The Company's Articles of Incorporation permit the Company to hold in treasury any shares which it purchases. Following advice received from the Company's Guernsey legal advisors, it is proposed to amend Article 133 of the Company's Articles of Incorporation to clarify that the Company may use shares held in treasury for scrip dividends where so elected by shareholders.  Full details are provided in the Notice of Meeting on pages 46 to 48.

 

 

Prospects

The current tragic events in Japan combined with the ongoing unrest in the Middle East have created extremely volatile trading conditions within global stock markets.  The sovereign debt problems facing several European states also remain at the forefront of investors' minds.  These macroeconomic uncertainties, however, need to be weighed against a backdrop of impressive company earnings and very strong corporate finances.

 

The Board is confident that the investment manager's active approach to portfolio construction will help to steer your Company through these uncertain times.    

 

 

 

JM Le Pelley

Chairman

 

 

27 April 2011

 

 

 

 

Investment Manager's Report
 

Introduction

The UK stock market added to the strong gains it recorded in 2009 with the FTSE All-Share Index rising by 14.5% on a total return basis in 2010.  This overall performance, however, masked two very different halves to the year under review. 

 

The first half of the year was dominated by concerns over the sustainability of global economic recovery with leading indicators pointing to an imminent slowdown in activity levels across the major global economies.  The escalating European sovereign debt crisis was the other major issue influencing investor sentiment in the early months of the year.   Borrowing costs for a number of the peripheral eurozone countries, such as Greece and Ireland, moved sharply higher raising serious question marks over the long term future of European Monetary Union. During the second half of the year the Company's net asset value lagged the benchmark during the year rising by 11.3% on a total return basis.  However, the Company's performance remains comfortably ahead of the FTSE All-Share Index on a three and five year basis.   

 

Economic and Stock Market Background

The early months of 2010 were characterised by bouts of profit taking in a number of sectors which had performed strongly through the previous year.  This reflected caution that the global macro economic recovery which had taken hold in 2009 was starting to run out of steam.  Rampant inflation in key emerging markets such as China, India and Brazil fuelled speculation that these economies would be forced to tighten monetary policy to bring upward pricing pressure back under control.  Rising food prices was the largest contributor to the increasing inflationary pressure and was representative of continued strength across all commodity based markets such as metals and energy.

 

The mixed economic picture in Europe was the other principal source of concern through the early stages of the year.  At one extreme, Germany's export sector continued to go from strength to strength benefiting from the weakness in the single currency.  However, the fiscal problems afflicting the peripheral European economies such as Greece and Ireland were resulting in soaring borrowing costs for these countries as speculators bet on an imminent sovereign debt default.    

 

US economic data provided investors with some reason for optimism as growth continued to accelerate through the start of the year spurred by extremely accommodative fiscal and monetary policy stances.  While the US housing market remained weak, unemployment data started to highlight tentative signs of job creation in the world's largest economy and corporate earnings, in the main, continued to beat expectations.

 

The weakness in global equity markets in the first half of the year proved to be a buying opportunity for investors.  Economic growth rates in the major emerging markets remained strong despite measures being taken to reign in inflation.  Debt restructuring programmes in Greece and Ireland provided European debt markets with some much needed respite and encouraged investors to increase their exposure to riskier assets such as equities, funded from holdings of cash and bonds.

 

The announcement by the Federal Reserve that the US was to implement a second round of quantitative easing received a euphoric reaction from equity markets.  Whilst the longer term implications of this policy decision are questionable, the positive reaction of global risk assets reflected the view that US policy makers were fully committed to ensuring that the economic recovery remained on track.

 

In the UK, the new coalition government followed a very different policy route to their US counterparts, announcing swingeing public sector spending cuts combined with a wave of taxation hikes in an attempt to tackle the burgeoning fiscal deficit.  The UK stock market was unperturbed by this course reflecting both the general acceptance that difficult policy decisions were necessary given the state of the country's balance sheet and that the vast majority of UK listed companies' sales are generated from overseas markets.

 

 

 

Investment Manager's Report (continued)

 

Performance

 

The Company's underlying equity portfolio under-performed the FTSE All-Share Index for the first time since calendar year 2004.    

 

One of the largest detractors from performance was the position in Great Eastern Energy Corporation, a company exploring and developing gas assets in India.  The company's share price came under pressure in November following a disappointing operational update which lowered production targets as a result of de-watering issues affecting several wells.  Whilst the share price fell by around 20% on the announcement the company's value has risen by over 266% since flotation in 2005 and the long term investment case remains fully intact.  The Company's position in Barclays was also a negative contributor to performance with the share price falling on the back of earnings downgrades within its key investment banking division.

 

The largest positive contributor to performance was another Indian focused energy company, Indus Gas.  The company enjoyed a very successful year of exploration which resulted in a significant upgrade to its audited resource base in Western India.  There is an enormous structural shortage of domestically supplied energy and hence many companies are forced to import more expensive oil and gas supplies.  Companies such as Indus have abundant local end market demand to sell into at very attractive profit margins.

 

The Company's position in BP was initially detrimental to performance in the days following the Gulf of Mexico oil spill.  However, the position in the company was actively traded during the crisis and is currently the Company's largest holding reflecting our belief that the group's asset base is being significantly under-valued by the equity market.

 

Portfolio Activity   

 

A number of new holdings were added to the Company's portfolio during the year as a result of extensive financial modelling from our research based investment process.  These new holdings were sourced from a wide variety of industries and included Close Brothers Group, Essar Energy, Reed Elsevier, Smiths Group, and DS Smith.

 

These additions were funded by the disposal of the holdings in Scottish & Southern Energy, British American Tobacco, United Utilities, and GlaxoSmithKline.

 

Outlook

 

The Company has made a good start to 2011 out-performing its benchmark in the first two months of the year.  The on-going corporate earnings season has been generally supportive for equity markets with the majority of companies providing an upbeat assessment of prospects for 2011.  However, the current crisis in the Middle East is propelling the oil price sharply higher which, if sustained, has the potential to impair economic recovery.  This elevated geo-political risk combined with key macroeconomic variables such as emerging market inflation and debt levels in the major Western economies will be monitored closely.

 

The Company's equity holdings will continue to be actively managed with the shape of the portfolio influenced by rigorous company specific analysis, the direction of macroeconomic data and the course of geo-political events.

 

 

 

Scottish Widows Investment Partnership

March 2011

 


The Portfolio as at 31 December 2010


Company

Market Value

Activity







£'000














1

BP Plc

2,479

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.

2

Resolution Asset Management Plc

2,064

One of the leading players in the UK life assurance market.  

3

BG Group Plc

1,723

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

4

Indus Gas Ltd

1,475

Oil and gas exploration and development company based in India.

5

Essar Energy Plc

1,345

Indian-focused energy company with assets in the existing power and oil and gas businesses.

6

Xstrata Plc

1,337

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

7

Rio Tinto Plc

1,324

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

8

Smiths Group Plc

1,260

A world leader in the practical application of advanced technologies, Smiths Group delivers products and services for the threat & contraband detection, medical devices, energy, communications and engineered components markets worldwide.

9

British Sky Broadcasting Plc

1,239

Provider of a pay television broadcasting service to customers in the UK and the Republic of Ireland.

10

Reed Elsevier Plc

1,162

Publisher and information provider, publishing information for the scientific and medical professions, legal, and business to business sector.

11

Berkeley Group Holdings Plc

1,082

UK - based house builder and developer.

12

KSK Power Ventur Plc

1,075

Engaged in emerging opportunities in the power development market.

13

RSA Insurance Group Plc

938

Worldwide commercial insurer providing property, automobile, liability, and specialty insurance products.

14

Astrazeneca Plc

889

One of the world's largest pharmaceutical companies.

15

Great Eastern Energy Corporation Plc

809

Indian-based energy provider.

16

Ryanair Plc

796

Irish - based budget airline.

17

Imperial Tobacco Plc

766

Tobacco company.

18

Close Brothers Group Plc

700

Banking, securities and asset management group.

19

Credit Suisse Group AG

592

Financial services company providing advisory services, solutions and products to companies, institutional clients and private clients globally.

20

National Grid Plc

555

Specialises in the transmission and distribution of electricity and gas.

21

Dolphin Capital Investors Ltd

503

Real estate investment company focused on early-stage, large-scale, leisure-integrated residential resorts primarily in southeast Europe.

22

Thomas Cook Group

464

Principally engaged in the provision of leisure travel services.

23

BT Group

452

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

24

Hardy Oil & Gas Plc

445

AIM-listed oil and gas exploration company.

25

DS Smith Plc

440

International Group focused on packaging and office products.

26

iEnergizer Ltd

423

Engaged in providing third-party integrated business process outsourcing solutions to clients throughout the world in three primary sectors: banking, financial services and insurance, and entertainment and telecommunications.



 

The Portfolio as at 31 December 2010 (continued)

 


Company

Market Value

Activity



£'000






27

Petra Diamonds Ltd

405

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

28

Tate & Lyle Plc

358

Engaged in the manufacture and sale of ingredients and solutions to the food, beverage, industrial, animal feed, pharmaceutical, and personal care markets.

29

Barclays Plc

324

Provider of financial services in Europe, the US, Africa, and Asia offering retail and commercial banking, credit cards, investment banking, and wealth management services.

30

Petroceltic International Plc

242

Oil and gas exploration and production company

31

Cadogan Petroleum Plc

236

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

32

Aurora Russia Ltd

226

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

33

Breedon Aggregates Ltd

222

Acquires and manages companies and businesses in the UK and international building materials industry.

34

Leed Petroleum Plc

65

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

35

Ingenious Media Active Capital Ltd

64

Media investment and advisory company in the UK.

36

Arden Partners Plc

62

Institutional stockbroker specialising in small, midcap and AIM companies.

37

Resaca Exploitation Plc

54

US - based independent oil and gas exploitation company.

38

Newfound NV Plc

10

Developer and operator of up-market holiday resorts.

39

Eatonfield Group Plc

2

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





Total Valuation

28,607

These holdings represent 100% of the total valuation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sector Distribution

 



Total

Total



2010

2009

Sector Classification


%

%

Resources




Oil and gas


26.5

23.2        



26.5

23.2

Basic industrials




Construction and building materials


9.0

3.1

Mining


9.1

9.2



18.1

12.3

Non-cyclical consumer goods




Tobacco


2.3

7.1

Pharmaceuticals and biotechnology


2.7

13.0



5.0

20.1

Cyclical services




Support services


1.2

1.0

Leisure, entertainment and hotels


3.8

5.7

Food and drug retailers


1.1

2.3

Media and entertainment


7.2

-



13.3

9.0

Non-cyclical services




Telecommunication services


1.4

10.1



1.4

10.1

Utilities




Utilities other


4.9

17.0



4.9

17.0

Financials




Banks


2.7

-

Speciality and other finance


3.1

4.5

Real estate


1.5

0.1

Investment companies


-

0.1

Non-life insurance


2.8

-

Life assurance


6.2

-



16.3

4.7

Net current assets


14.5

3.6

Net assets


100.00

100.00

 

Note: The distribution of investments is based on the valuations at 31 December 2010 and at 31 December 2009. All of the investments above are listed or quoted on the London Stock Exchange, with the exception of  Credit Suisse Group AG which is listed on the Swiss Stock Exchange and Newfound NV Plc which is an unlisted trading entity.

 

Sector Distribution (continued) 
 
 
By sector as a percentage

 

 
Directors' Report

 

The Directors present their annual financial report for the year ended 31 December 2010 with comparatives for the year ended 31 December 2009.

 

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, with the Company's ordinary shares being listed on the London Stock Exchange.

 

Revenue 

 

The statement of comprehensive income set out on page 24 shows a profit for the year amounting to £3,262,000 (2009: profit £9,915,000). The Directors have declared a second interim dividend of 3.00p which, together with the first interim dividend of 0.90p makes a total of 3.90p for the year (2009: 3.75p).

 

The second interim dividend will be paid on 27 May 2011, to ordinary shareholders on the register on 8 April 2011 and shares in lieu of dividend will be offered.

 

Assets

 

At the year end the net assets attributable to the ordinary shares were £33,460,000 (2009: £30,832,000).  Based on this figure the net asset value of an ordinary share was 161.75p (2009: 149.84p).

 

Share capital 

 

During the year no shares were repurchased by the Company for cancellation (2009: nil). During the year 150,000 issued ordinary shares of 10p each were purchased at a total cost of £188,522 and held in Treasury.  The authority allowing the Company to purchase its own shares expires at the end of the 2011 annual general meeting 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 260,758 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 (2009: 347,049 new shares issued in lieu of cash dividends) thereby resulting in a total of £323,263 (2009: £315,543) being capitalised.

 

Substantial shareholdings 

 

At 31 March 2011, the following held a notifiable interest in the Company's voting rights:

 



31 March


31 March



2011


2010






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


28.42%


28.42%

JM & Mrs AE Le Pelley


7.14%


6.69%

Mr G Green


6.47%


6.31%

 

At 31 March 2011, 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 and hence shareholders have the option to hold stock in either certificated or uncertificated form.

 

 

Directors

 

The composition of the Board, including their roles and other significant commitments, is detailed on page 4. The terms and conditions of appointment of non-executive directors are available for inspection by any person at the Company's registered office during normal business hours and at the annual general meeting.

 

The current Directors who served on the Board during the year, together with their beneficial interests and those of their families at 31 December 2010, were as follows:

 



2010


2009



Shares


Shares

JM Le Pelley (Chairman)


1,485,870


1,443,382

DR Maltwood


3,542


3,442

G Ross Russell


336,071


326,462

JG West


10,000


10,000

D Warr (Audit Committee Chairman)


30,228


30,000

 

 

There have been no changes in the Directors' interests in the shares of the Company between 31 December 2010 and 31 March 2011.


The Company has no service contracts with the Directors.


D R Maltwood and J G West, 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 Financial Services Authority announced changes to the Listing Rules which require all overseas companies with a "Premium Listing" (which includes the Company) to "comply or explain" against the Combined Code of Corporate Governance (the "Combined Code") and offer pre-emption rights to shareholders.  The Combined Code was revised in June 2008 (the "2008 Combined Code") and applies to accounting periods beginning on or after 29 June 2008 and before 29 June 2010.  All listed companies with periods starting on or after 29 June 2010 will be required to follow the provisions of the new UK Corporate Governance Code published in June 2010.

 

The Association of Investment Companies (formerly Association of Investment Trust Companies), of which the Company is a member, has previously published its Code of Corporate Governance for Investment Companies ("the AIC Code") which was endorsed by the Financial Reporting Council.  The Board has sought to reflect the 2008 Combined Code and AIC Code when reviewing its corporate governance arrangements.

 

 

 

 

 

 

 

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.

 

Due to adverse weather conditions during December 2010 the Board were unable to meet.  The fourth and final Board meeting of 2010 was reconvened and held on 18 January 2011.  The table below lists the number of Board and Audit Committee meetings attended by each Director during the year ended 31 December 2010.

 

Director


Audit Committee Meetings Attended

JM Le Pelley (Chairman)


2

DR Maltwood


2

G Ross Russell


2

JG West


2

D Warr (Audit Committee Chairman)


2

 

 

In 2009 and 2010 the Company did not employ any personnel.

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors' Report (continued)

 

The Board (continued)

 

The Board has established itself as an Audit Committee which meets at least annually. The Audit Committee is authorised by the Board to investigate any activity within its terms of reference and to consult with outside legal or other independent professional advisers when deemed necessary in order to adequately discharge their duties and responsibilities, which includes:

 

·      Considering the appointment, resignation or dismissal of the external auditor and their independence and objectivity, particularly in circumstances where non-audit services have been provided.

·      Reviewing the cost effectiveness of the external audit from time to time.

·      Reviewing and challenging of the interim and annual reports, focusing particularly on changes in accounting policies and practice, areas of accounting judgement and estimation, significant adjustments arising from audit or other review and the going concern assumption.

·      Reviewing compliance with accounting standards and law and regulations including the Listing Rules.

·      Completing regular risk management reviews of internal controls, which includes the review of the Company's Risk Register.

·      Reviewing the Company's system of internal controls, including financial, operating, compliance and risk management controls and to make and report to the Board any recommendations that may arise.

·      Considering the major findings of internal investigations and make recommendations to the Board on appropriate action.

·      Ensuring that arrangements exist whereby service providers and management may raise concerns over irregularities in financial reporting or other matters in confidence and that such concerns are independently investigated and remediated with appropriate action.

 

The Board has also established itself as a Nominations Committee, which will meet when necessary. The Terms of Reference for both the Audit Committee and Nominations Committee are available for inspection at the Company's registered office during normal business hours.

 

Where non-audit services are provided by the auditor, these engagements are pre-approved by the Audit Committee to ensure that the Auditor's independence and objectivity is not breached. There were £3,500 of non-audit services in the year ended 31 December 2010 (2009: nil) for which the Board pre-approved the engagement after due consideration that the Auditor's independence and objectivity was not impaired.

 

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:

 


2010


2009


Fees


Fees


£


£

JM Le Pelley (Chairman)

22,500


20,000

DR Maltwood

17,500


15,000

G Ross Russell

17,500


15,000

JG West

17,500


15,000

D Warr (Audit Committee Chairman)

19,250


16,000


94,250


81,000

 


 

 

 

Directors' Report (continued)

 

The Board (continued)

 

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. However, in 2010 D Warr received a one off payment of £3,500 in respect of consultancy work carried out in 2009.

 

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 will continue to comply with this Code provision in 2011.

 

Accountability and audit

 

a) Statement of going concern

 

In the opinion of the Directors 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 2010 of £4,853,000);

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

·      as at 31 December 2010, the Company has no external borrowings and therefore is under no obligation to repay any borrowing facilities for the foreseeable future.

 

b) 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.

 

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.

 
Directors' Report (continued)

 

Accountability and audit (continued)

 

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.

 

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.

 

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.

 

The Board's ongoing review process involves a revision of SWIP's internal control report and Kleinwort Benson (Channel Islands) Fund Services Limited internal control report, AAF 01/06.

 

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.

 

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 2008 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 2011, the Board will give further consideration to setting up these Committees.



 

 
Directors' Report (continued)

 

Investment policy 

 

The Company is permitted to invest in any security listed or quoted 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 recognised UK exchange, for example, the Alternative Investment Markets ("AIM") of the London Stock Exchange (and any successor market to it) which the Investment Manager believes, 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.

 

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 sectors 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 the Company'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 TSB 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 (2009: £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 5 to 7.

 

The Company's portfolio consisted of 39 investments as at 31 December 2010 and is detailed further on pages 8 and 9. The sector distribution of the portfolio is provided on pages 10 and 11. As at 31 December 2010, the portfolio held investments issued in the United Kingdom and Switzerland. The top 10 holdings comprise 46.05% of total net assets (2009: 50.41%).

 

The Company's gearing stood at nil% as at 31 December 2010 (2009: 0.15%).

 

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.

 

 

Directors' Report (continued)

 

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.

 

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 facility are subject to floating rates and the loan facility 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 facility, which is undrawn at the year end 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 2010 arose from the investment portfolio including cash and was minimal as it was principally Sterling denominated.  No hedging was undertaken in respect of this foreign currency exposure. The Company had no significant exposure to foreign currencies as at 31 December 2010 (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)

 

Auditor

 

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

 

Disclosure of information to the auditor

 

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

 

27 April 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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).

 

Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.  In preparing these financial statements, International Accounting Standard 1 requires that Directors:

 

·      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 directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.  Legislation in Guernsey and the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

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 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

 

27 April 2011

 

 

 

 

 

 

 

Independent Auditor's Report

 

To the members of UK Select Trust Limited

 

We have audited the financial statements of UK Select Trust Limited (the "Company") for the year ended 31 December 2010 which comprise the statement of comprehensive income, statement of financial position, statement of changes in net assets attributable to shareholders, statement of cash flows and the related notes 1 to 19. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ("IFRSs").

 

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 auditor's 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 Auditor

 

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.  Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).  Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.  This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

 

Opinion on financial statements

 

In our opinion the financial statements:

·              give a true and fair view of the state of the Company's affairs as at 31 December 2010 and of its profit for the year then ended;

·              have been properly prepared in accordance with IFRSs; and

·              have been prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

 

Matters on which we are required to report by exception

 

We have nothing to report in respect of the following matters where The Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

·              adequate accounting records have not been kept; or

·              the financial statements are not in agreement with the accounting records and returns; or

·              we have not received all the information and explanations we require for our audit.

 

 

 

 

 

 

Independent Auditors' Report (continued)

 

Under the Listing Rules we are required to review:

 

·              the Directors' statement, contained within the Directors' Report and note 2, in relation to going concern; and

·              the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specified for our review.

 

 

 

 

 

Richard Anthony Garrard, FCA

for and on behalf of Deloitte LLP

Chartered Accountants and Recognised Auditor

St. Peter Port, Guernsey

 

27 April 2011

 

 

 



Statement of Comprehensive Income

for the year ended 31 December 2010






 

 2010


 

2009




Notes


Revenue


Capital


Total


Revenue


Capital


Total






£'000


£'000


£'000


£'000


£'000


£'000

Income














Dividend revenue

3


1,031


-


1,031


1,051


-


1,051

Other revenue

3


12


-


12


24


-


24

Net gains on financial assets at fair value through profit or loss                   

8


-


2,714


2,714


-


9,252


9,252

Net foreign exchange (loss)/gain



-


(20)


(20)


-


22


22




1,043


2,694


3,737


1,075


9,274


10,349

















Expenses
















Investment management fees

4


40


118


158


33


100


133

Administration fees




89


-


89


95


-


95

Registrars' fees


          


26


-


26


19


-


19

Auditors' fees



18


-


18


12


-


12

Directors' fees and expenses

    16      


97


-


97


84


-


84

Other expenses



79


-


79


84


-


84

Total operating expenses before finance costs



349


118


467


327


100


427














Operating profit before finance costs



694


2,576


3,270


748


9,174


9,922

















Finance costs















Interest payable


12


2


6


8


2


5


7














Profit for the year



692


2,570


3,262


746


9,169


9,915















Basic return per ordinary share

7


3.36p


12.47p


15.83p


3.61p


44.42p


48.03p

 

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 28 to 44 are an integral part of these financial statements.


Statement of Financial Position

as at 31 December 2010

 

 


Notes


 

 

 2010


 

 2009





£'000


£'000

Assets






Cash and cash equivalents

10


3,841


1,113

Due from brokers

9


900


120

Other receivables and accrued income

9


229


425

Financial assets at fair value through profit or loss

8


28,607


29,729

Total assets




33,577


31,387








Liabilities







Bank overdraft




-


46

Due to brokers


11


-


389

Other payables and accrued expenses


11


117


120

Total liabilities




117


555








Net assets attributable to shareholders



33,460


30,832








Represented by:







Share Capital


14


2,083


2,083

Treasury Share Reserve


14


(245)


(380)

Reserves



31,622


29,129

Net assets attributable to shareholders



33,460


30,832







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

15


20,686,840


20,576,082







Net asset value per share

15


161.75p


149.84p

 

These financial statements were approved by the Board of Directors on 27 April 2011 and are signed on behalf of the Board by:

 

 

 

 

 

JM Le Pelley                                                                        D Warr

Director                                                                                 Director

Date: 27 April 2011.

 

The notes on pages 28 to 44 are an integral part of these financial statements.

 

 

 

 

 

 

 

 

 

Statement of Changes in Net Assets Attributable to Shareholders

 

for the year ended 31 December 2010

 


Equity share capital

Treasury

share

reserve

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 2010

2,083

(380)

5,411

4,308

10,788

4,574

4,048

30,832

Shares repurchased during the year

-

(189)

-

-

-

-

-

(189)

Cash dividends:









-2009 second interim dividend

-

-

-

-

-

-

(331)

(331)

-2010 first interim dividend

-

-

-

-

-

-

(104)

(104)

Scrip dividends

-

324

*(10)

-

-

-

(324)

(10)

Net profit

-

-

-

-

3,426

(856)

692

3,262

At 31 December 2010

2,083

(245)

5,401

4,308

14,214

3,718

3,981

33,460

 

There are no other recognised income and expenses for the year ended 31 December 2010.

 

* Costs associated with the administration of the scrip dividends.

 

for the year ended 31 December 2009

 


Equity share capital

Treasury

share

reserve

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 first 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 capital reserve unrealised position.
** Costs associated with the administration of the scrip dividends. 
 
The notes on pages 28 to 44 are an integral part of these financial statements.

Statement of Cash Flows

for the year ended 31 December 2010












Notes

 2010


 2009



£'000


£'000

Cash flows from operating activities




Payments for purchase of financial investments


(61,505)


(87,472)

Proceeds from sale of financial investments


63,894


87,924

Cash received from investments


1,232


672

Other income


12


24

Investment management fee paid


(154)


(122)

Other cash payments


(53)


(309)






Net cash inflow from operating activities


3,426


717






Cash flows from financing activities





Interest paid


(8)


(7)

Share repurchase

14

(189)


(528)

Equity dividends paid

6

(435)


(435)






Net cash outflow from financing activities


(632)


(970)






Net increase/(decrease) in cash and cash equivalents

2,794


(253)






Effect of exchange rate changes on cash and cash equivalents


(20)


22






Cash and cash equivalents at the beginning of the year


1,067


1,298






Cash and cash equivalents at the end of the year

10

3,841


1,067

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 28 to 44 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 or quoted 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.

 

The Company has no employees.

 

2.         Accounting policies

 

a.         Basis of preparation

 

The financial statements have been prepared in accordance with the applicable International Financial Reporting Standards and interpretations adopted by the International Accounting Standards Board (IASB), 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 statements have been prepared on a historical cost basis except for financial assets held at fair value through profit or loss, which have been measured at fair value.

 

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.

 

Critical accounting judgements and key sources of estimation uncertainty

 

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.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognised in the period in which the estimates is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both the current and future periods.

 

The critical judgements and key sources of estimation uncertainty are detailed within the accounts policies note below.

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

b.         Going concern

 

In the opinion of the Directors 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 2010 of £4,853,000);

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

·      as at 31 December 2010, the Company has no external borrowings and therefore is under no obligation to repay any borrowing facilities for the foreseeable future.

 

 

c.         Adoption of new and revised standards

 

In the current year, the Company has not adopted any new or revised standards.

 

At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective.

 

IFRS 9 "Financial Instruments"

 

IAS 24 (amended) "Related Party Disclosure"

 

IAS 32 (amended) "Classification of Rights Issue"

 

IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments"

 

IFRIC 14 (amended) "Prepayments of a Minimum Funding Requirement"

 

The Directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Company in the future periods.

 

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

 

e.         Financial assets

 

(i)            Classification

 

The Company classifies its financial assets as fair value through profit or loss in accordance with IAS 39.

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

e.         Financial assets (continued)

 

 

(ii)           Recognition

 

Financial assets are recognised on the trade date where a purchase is under a contract whose terms require delivery within the timeframe established by the market concerned.

 

(iii)         Initial measurement

 

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 and transaction costs on acquisition or disposal of the financial asset are expensed as a capital item. The Company manages and evaluates these investments on a fair value basis in accordance with an investment strategy.

 

(iv)          Subsequent measurement

 

After initial measurement, the Company measures its financial assets, which are classified as fair value through profit or loss, at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the financial asset is quoted.

 

Subsequent changes in the fair value of the Company's financial assets are recorded in the statement of comprehensive income under net gains/ (losses) on financial assets at fair value through profit or loss. Foreign exchange gains and losses for financial assets at fair value through profit or loss are included within the changes in its fair value.

 

(v)            Derecognition

 

Financial assets are derecognised where:

 

·      a sale is under contract whose terms require delivery within the timeframe established by the market concerned; or

·      it is evident, following an impairment review, that the Company can no longer recover any value from the financial asset.

                  

 (vi)         Impairment

 

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

 

As a matter of accounting policy, the Company has determined that it will have intent and ability to hold a financial asset 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 asset. These estimates are subjective in nature and involve uncertainties and matters of significant judgement.

 

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

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

f.          Net gains/(losses) on financial assets at fair value through profit or loss

 

Net gains/(losses) on financial assets at fair value through profit or loss includes changes in the fair value of financial assets held at fair value through profit or loss.

 

Unrealised gains and losses comprise changes in the fair value of financial assets for the year and from reversal of prior year's unrealised gains and losses for financial assets which were realised in the reporting period.

 

Realised gains and losses on disposals of financial assets classified as fair value through profit or loss are calculated using the First-In, First-Out method. They represent the difference between a financial asset's initial carrying amount and its disposal amount.

 

g.         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 may be 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.

 

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 financial assets 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 due to brokers on the statement of financial position.

 

j.          Dividend revenue, interest revenue and other revenue

 

Dividend revenue is brought into the statement of comprehensive income as a revenue item 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. 

 

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 dividend revenue in the statement of comprehensive income.

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

j.          Dividend revenue, interest revenue and other revenue (continued)


Fixed returns on non-equity investments and on debt securities are recognised as a revenue item 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 recognised as interest revenue and is included in the statement of comprehensive income on an accruals basis.

 

Other revenue, such as underwriting commission, is recognised on a received basis as the timing of receipts of this nature is uncertain and therefore the received basis is deemed the most appropriate method to account for this revenue.

 

k.         Functional and presentation currency

 

The Company's functional and presentation currency is sterling, which is the currency of the primary economic environment in which the company operates. The Company's performance is evaluated and its liquidity is managed in sterling, therefore sterling is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

 

l.          Foreign currency translations

 

Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the statement of financial position date.  Transactions during the year 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.

 

m.        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.

 

n.         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 capitalrealised 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.

 

o.         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)

 

 

p.         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 isorganised 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 alsoorganised into one main geographical unit since all investments are listed or quoted within the United Kingdom.

 

 

q.         Treasury shares

 

Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from net assets attributable to shareholders through the Treasury Share reserve, which is a distributable reserve.

 

When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity and the resulting surplus or deficit on the transaction is transferred to/from the Treasury Share reserve.

 

3.         Dividend and other revenue

 


2010


2009


£'000


£'000

Dividend revenue from investments designated at fair value through profit or loss:




 

Dividends

1,031


1,051


1,031


1,051

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




Deposit interest arising on cash and cash equivalents

-


11

Underwriting commission

-


13

Unclaimed dividends 2003/2004

12


-


12


24

Total revenue

1,043


1,075





 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

4.         Investment management and performance fees

 

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%.  There was no performance fee payable in 2010 or 2009. 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.

 

5.         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 which is included within other expenses in the statement of comprehensive income.

 

The Company suffered £69,000 (2009: £32,000) 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

 



2010


2009



£'000


£'000

Equity dividends





Ordinary shares





First Interim of 0.90p (gross) on 11,606,880 shares for 2010 paid in 2010


104



(2009 first interim paid in 2009: 0.90p (gross) on 11,561,991 shares)




104

Scrip dividend for 2010 paid in 2010: 69,021 shares issued at a cost of 128.75p per share


 

89



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




 

81






Second interim dividend for 2009: 2.85p (gross) on 11,614,189 shares paid in 2010


 

331



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




331

Scrip dividend for 2009 paid in 2010: 191,737 shares issued at a cost of 122.25 per share


 

235



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




 

235



759


751






 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

7.         Basic return per ordinary share







2010

2009


Revenue

Capital

Total

Revenue

Capital

Total


pence

pence

pence

pence

pence

pence








Return

3.36

12.47

15.83

3.61

44.42

48.03

 

Revenue return per ordinary share is based on the net revenue on ordinary activities of £692,000 (2009: return £746,000) and on 20,608,335 ordinary shares, being the weighted average number of ordinary shares in issue during the year (2009: 20,640,813).

 

Capital return per ordinary share is based on a net capital return for the financial year of £2,570,000 (2009: return £9,169,000) and on 20,608,335 ordinary shares, being the weighted average number of ordinary shares in issue during the period (2009: 20,640,813).

 

8.         Financial assets at fair value through profit or loss






2010

2009






Fair Value

% of net assets

Fair Value

% of net assets




£'000

%

£'000

%








Financial assets at fair value through profit or loss





- Listed equity securities


28,597

85.47

29,719      

96.39   

- De-listed trading entities


10

0.03

10

0.03






28,607

85.50

29,729

96.42   










 

Net gains/(losses) on financial assets at fair value through profit or loss















2010


2009







£'000


£'000










Realised gains




3,570


2,551

Unrealised (losses)/gains


6,701







2,714


9,252

 

Fair value measurements

The Company has previously 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:

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

8.         Financial assets at fair value through profit or loss (continued)

 

Fair value measurements (continued)

 

·      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.  

 

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 prior year.

 

The following table presents the Company's financial assets by level within the valuation hierarchy as of 31 December 2010.

 


 

2010

Percentage of net assets

 

2009

Percentage of net assets

Level 1 fair value assets

£'000

%

£'000

%

Investments valued at fair value

28,597

85.47

29,719

96.39






Level 2 fair value assets





Investments valued at fair value

10

0.03

10

0.03






Total fair value financial assets

28,607

85.50

29,729

96.42

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

9.         Other receivables and accrued income





Other receivables

2010


2009


£'000


£'000

Due from brokers

900


120

Accrued income

216


418

Prepayments

13


7


1,129


545

 

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

 

10.       Cash and cash equivalents

 

Cash and cash equivalents 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.

 

11.       Other payables and accrued expenses

 

Due to brokers

2010


2009


£'000


£'000

Due to brokers

-


389


-


389





 

Other payables

2010


2009


£'000


£'000

Management fees

42


38

Administrative fees

45


35

Directors fees

-


16

Audit fees

18


14

Registrars fees

7


6

Consultancy fee

-


4

Sundry expenses

5


7


117


120





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

 

12.       Loan facility

 

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 2010, 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. No loan interest was paid during 2010 or 2009. 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 2010 (1). Further, the Company is required to comply with the following financial covenants imposed by the bank:

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

12.       Loan facility (continued)

 

·      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 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 organised into one main geographical unit as the location of all of its investments is materially all within the United Kingdom.

 


Income


Net Assets


2010


2009


2010


2009


£'000


£'000


£'000


£'000

United Kingdom

1,043


1,075


33,460


30,832


1,043


1,075


33,460


30,832









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.

 

14.       Share capital

 







2010


2009







£'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 2010, no five per cent cumulative preference restrictive voting shares had been issued (2009: 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)

 







  2010


 2009







£'000


£'000

Issued, called up and fully paid:






20,830,484 ordinary shares of 10p each




(2009: 20,830,484)




       2,083


           2,083
















2010







Treasury Share reserve

Shares in issue







Shares

Cost

Shares

Cost







Nominal

£'000

Nominal

£'000

Balance at 1 January 2010




 254,402

           380

 

20,830,484

 

2,083

Shares purchased and held in Treasury

150,000

189

 -

 -

Shares issued in lieu of dividends from Treasury

(260,758)

(324)

 -

 -

Balance at 31 December 2010




143,644

245

20,830,484

2,083

















2009







Treasury Share reserve

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











During 2010 and 2009  no shares were purchased for cancellation.

 

On 12 February 2010, 100,000 shares were purchased for Treasury at a total cost including expenses of £123,369.

 

On 1 December 2010, 50,000 shares were purchased for Treasury at a total cost including expenses of £65,153.

 

On 28 May 2010, 191,737 shares were issued to shareholders who elected to receive them in lieu of a second interim cash dividend for 2009. On 5 November 2010, 69,021 shares were issued to shareholders who elected to receive them in lieu of a first interim dividend for 2010. Ordinary shares of 10p each, fully paid were issued to shareholders from the Treasury Share reserve 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 £33,460,000 (2009: £30,832,000) and on 20,686,840 (2009: 20,576,082) 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 financial report. Fees earned by the Directors of the Company during the year were £94,250 (2009: £81,000) of which nil (2009: £16,250) was outstanding at the year end. Allowable expenses claimed by the Directors in the course of their duties amounted to £2,344 for the year ended 31 December 2010 (2009: £3,173).

 

D Warr is a Non-Executive Director of Breedon Aggregates Limited of which the Company holds 1,583,270 shares as at 31 December 2010.

 

The Investment Manager, Scottish Widows Investment Partnership Limited exercises discretion over 28.42% (2009: 28.42%) of shares in the Company, on behalf of their clients, and earned investment management fees of £157,732 (2009: £132,843) during the year of which £42,090 (2009: £38,564) was outstanding at the reporting date. No performance fees were paid in 2010 or 2009. The basis of calculation of these fees is detailed in note 4.

 

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 2010 amounted to £95,000 (2009: £95,000) of which £45,000 (2009: £35,000) was outstanding at the year end.

 

17.       Financial risk management

 

Introduction

 

The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company's activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes currency risk, interest rate risk, and price risk), credit risk and liquidity risk arising from the financial assets it holds.

 

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, Treasury Share reserve, share premium, capital redemption reserve, capital reserves and revenue reserve as disclosed in statement of changes in net assets attributable to shareholders. The Company does not have any externally imposed capital requirements.

 

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.

 

 

Notes to the Financial Statements (continued)

 

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

 

Capital risk management (continued)

 

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.

 

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

 

Concentration risk is the risk that the Company's portfolio is not suitably diversified and therefore the Company could become materially exposed to sector specific price fluctuations.

 

As at 31 December 2010, the Company's portfolio consisted of 39 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 Company'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 represents 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.

 

 

Notes to the Financial Statements (continued)

 

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

 

Credit risk (continued)

 

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.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its liabilities as they fall due.

 

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.

 

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




2010


2009


2010


2009


£'000


£'000


£'000


£'000









Increase/(decrease) in net assets attributable to shareholders








-Designated as at fair value through profit or loss

2,861


2,973


(2,861)


(2,973)


2,861


2,973


(2,861)


(2,973)

 

In practice the actual trading results may differ from the sensitivity analysis above and the difference could be material.

 

b) Interest rate risk

 

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates associated with that financial instrument.

 

The Company's interest rate sensitive assets and liabilities mainly comprise of cash and cash equivalents. The cash and cash equivalents are subject to floating rates and are 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

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

 

c) Currency risk

 

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


As at 31 December 2010 and 31 December 2009 the Company's net currency exposure was as follows:

 


2010

2009


£'000

% of Net Assets

£'000

% of Net Assets






Euro

1,038

3.10

267

0.87

Sterling

31,776

94.97

30,475

98.84

Swiss Franc

592

1.77

-

-

United States Dollar

54

0.16

90

0.29


33,460

100.00

30,832

100.00

 

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 31 March 2011, the Board declared a second interim dividend of 3.00p 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 Auditor's 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













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


149.8

2010

1,043


692


3.36


3.90


2,069


161.7

 

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 second Ordinary Annual General Meeting of UK Select Trust Limited (the "Company") will be held at Dorey Court, Admiral Park, St Peter Port, Guernsey, on Friday 1 July 2011 at 11:30am for the following purposes:

 

Ordinary Resolutions

1.             To consider the Directors' report and financial statements for the year ended 31 December 2010.

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 2010, or by way of an interim dividend in respect of the financial year of the Company ending 31 December 2011.

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

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

5.             To re-appoint Deloitte LLP as Auditor.

6.             To consider, and if thought fit, approve the renewal of the unconditional and general authorisation of the Company authorised by the fifty first Annual General Meeting held on 1 July 2010, 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 3,082,339 (representing 14.9% of the number of shares of the Company in issue on 31 December 2010) ;

(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 conclusion of the fifty third Annual General Meeting of the Company or 30 September 2012, whichever is earlier.

 

Special Resolution

 

7.             To consider, and if thought fit, approve the following Resolution which will be proposed as a Special Resolution:

 

"To authorise the amendment of Article 133 of the Company's Articles of Incorporation to clarify the procedure for implementing the issue of shares in lieu of dividend and to permit the transfer of shares out of treasury in satisfaction of such dividend as follows:

 

The Articles of Incorporation of the Company be amended by:

(a)           Amending the first paragraph of Article 133 (b); and

(b)           Adding a new Article 133 (c);

Such that in its entirety Article 133 will read as follows:



 

Notice of Meeting (continued)

 

 

SHARES IN LIEU OF DIVIDEND

133          (a) This Article shall apply only to dividends paid in any financial period during which (whether before or after the announcement of the dividend but prior to the due date for payment thereof) a resolution shall have been passed by the Company in General Meeting authorising the Directors to implement the following provisions of this Article.

(b)   In respect of any dividend declared, paid, recommended or proposed to be declared, paid or recommended whether by the Directors or the Company in General Meeting (and provided that an adequate number of unissued Ordinary Shares are available for the purpose), the Directors shall determine and announce, contemporaneously with or following their announcement of the dividend in question and any related information as to the Company's profits for such financial period of part thereof, that Ordinary Shareholders will be entitled to elect to receive in lieu of such dividend (or part thereof) an allotment of additional Ordinary Shares credited as fully paid up.  In any such case the following provisions shall apply:

 

(i)     The basis of allotment shall be determined by the Directors so that, as nearly as may be considered convenient, the value (calculated by reference to the average quotation) of the additional Ordinary Shares (including any fractional entitlement) to be allotted in lieu of any amount of dividend shall equal such amount.  For such purpose the "average quotation" of an Ordinary Share shall be the average of the means of quotation on the Stock Exchange Daily Official List, on the first five business days on which the Ordinary Shares are quoted ex the relevant dividend.

(ii)    The Directors, after determining the basis of allotment, shall give notice in writing to the Ordinary Shareholders of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective.

(iii)   The dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable on Ordinary Shares in respect whereof the share election has been duly exercised (the "Elected Ordinary Shares"), and in lieu thereof additional Ordinary Shares shall be allotted to the holders of the Elected Ordinary Shares on the basis of allotment determined as aforesaid, and for such purpose the Directors shall capitalise, out of such of the sums standing to the credit reserves (including any Share Premium Account or Capital Redemption Reserve Fund) or profit and loss account as the Directors may determine, a sum equal to the aggregate nominal amount of the additional Ordinary Shares to be allotted on such basis, and shall apply the same in paying up in full the appropriate number of unissued Ordinary Shares for allotment and distribution to and amongst the holders of the Elected Ordinary Shares on such basis.

(iv)  The additional Ordinary Shares so allotted shall rank pari passu in all respect with the fully paid Ordinary Shares then in issue save only as regards participation in the relevant dividend (or share election in lieu).



 

Notice of Meeting (continued)

 

(v)   The Directors may do all acts and things considered necessary or expedient to give effect to any such capitalisation, with full power to the Directors to make such provisions as they think fit in the case of shares becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are disregarded or rounded up or down or the benefit of fractional entitlements accrued to the Company rather than to the members concerned).  The Directors may authorise any person to enter on behalf of all the members interested into an agreement with the company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.

(c)  Notwithstanding the foregoing, the Directors may, in their absolute discretion, satisfy elections made by Ordinary Shareholders to receive in lieu of such dividends (or part thereof) an allotment of additional Ordinary Shares credited as fully paid up by transferring to the relevant Ordinary Shareholder an appropriate number of Ordinary Shares held by the Company as treasury shares in accordance with these articles.  The provisions above in relation to the allotment of additional Ordinary Shares in lieu of dividend shall apply (mutatis mutandis) to the transfer of Ordinary Shares from treasury as if such transfer were an allotment of additional Ordinary Shares."

 

 

 

 

 

 

 

By order of the Board

 

Kleinwort Benson (Channel Islands) Fund Services Limited

Secretary

 

Dorey Court

St Peter Port

Guernsey

GY1 3BG

 

27 April 2011

 

 

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 second interim dividend for the year announced

April                                       -  Annual Financial Report published

May                                        -  Second interim dividend paid

July                                         -  Annual General Meeting

August                                  -  Half yearly figures and interim dividend announced

August/September              -  Half yearly report for half year published

November                              -  Interim dividend paid


This information is provided by RNS
The company news service from the London Stock Exchange
 
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FR UWABRABASURR