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UK Select Trust Ld (UKT)

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Wednesday 18 April, 2012

UK Select Trust Ld

Annual Financial Report

RNS Number : 6199B
UK Select Trust Limited
18 April 2012
 



 

 

 

 

 

UK Select Trust Limited (the "Company")

 

Registered No:  475

 

Announcement of Annual Results 

 

The information set out in this announcement is the full unedited Annual Financial Report for the year ended 31 December 2011 (the "AFR") of the Company as approved by the Board of Directors on 12 April 2012.  The AFR is expected to be sent to all shareholders during April 2012.

 

 

Enquiries:

 

Kleinwort Benson (Channel Islands) Fund Services Limited

Secretary

Tel: + 44 (0) 1481 710607

 

Canaccord Genuity Limited                                                      

Broker and Adviser

Robbie Robertson / Andrew Zychowski / Lucy Lewis

Tel: +44 (0) 20 7523 8000

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Select Trust Limited

 

 

 

 

 

Annual Financial Report for the year ended 31 December 2011

 

 

 

 

 

 

 

 

 

 


UK Select Trust Limited

 

Contents

 

Company 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  - Unaudited                                                                                                           45

 

Financial Calendar                                                                                                                               46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company 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 2011


31 December 2010








Net asset value per share



142.08p


161.75p

Equity shareholders' interest (1)



£29.47m


£33.46m

Revenue return on ordinary activities for the financial year after taxation

£0.91m


£0.69m

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

(£4.17m)


£2.57m

Revenue return per ordinary share


4.38p


3.36p

Capital (deficit)/return per ordinary share


(20.15p)


12.47p

Dividend per ordinary share (2)



4.10p


3.90p

Share Price



120.00p


136.75p

Net asset value total return (3)



(11.68%)(3)


11.26%(3)

FTSE All-Share total return



(3.46%)


14.51%








 

(1) During the year the Company purchased 214,000 ordinary shares of 10p from the market to be held in Treasury. 269,766 ordinary shares of 10p each from the shares held in Treasury were reissued during the year. 87,878 shares remain in Treasury at 31 December 2011. 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.

 

 

 

Dividends 

                                                                                                                                                                                                                                         A second interim dividend of 3.15p per share has been declared for 2011 (2010: second interim dividend 3.00p).  This is in addition to the first interim dividend of 0.95p (2010: first interim dividend 0.90p) paid during the year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors

 

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

 

DR Maltwood, (Born 1938) resident in Jersey,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) resident in the UK,Non-executive Director.  He joined the board in 1995.  He is the Chairman 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) resident in the UK, Non-executive Director.  He joined the board in 1997.  He is Deputy Chairman of Canaccord Genuity Limited. He is the Chairman of New City High Yield Fund Limited, and a Director of British Assets Trust Plc, Aberdeen Smaller Companies High Income Trust Plc and JP Morgan Income and Capital Trust Plc. He was the Chairman of Canaccord Genuity Limited.  He is a former chief executive of Lazard Asset Management Limited.

 

D Warr, (Born 1953) resident in Guernsey, 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 a Non-executive Director of Breedon Aggregates 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                                                                                  88 Wood Street

London E14 5HQ                                                                                  London EC2V 7QR

                                                                                                                0207 050 6500

                                                                                                                                                                                                                                                                          


Chairman's Statement

 

Review of 2011 Performance

Last year was a very difficult year for equity investing, and the benchmark FTSE All-Share Index fell by 3.46%. Unfortunately the Company net asset value fell by 11.68%. Stock and sector selection were the principal reasons for this underperformance and this is explored in detail within the Investment Manager's Report. The Board, although not content with the performance, understands that volatility, relative to the benchmark, is to be anticipated due to the Investment Manager's active investment style.

 

Share price and discount

The share price broadly tracked the net asset value performance decreasing by 12.2% during the year.  The discount at which the Company's shares trade relative to their net asset value closed the year at 15.5%.  This compared with a discount of 16.1% at the start of 2011.  

 

Gearing

The Company remained debt free during the year.

 

Earnings and dividend per share

Earnings per share for the year amounted to 4.38p (2010: 3.36p). The Board is recommending a final dividend of 3.15p (2010: 3.00p).  This is in addition to the interim dividend of 0.95p (2010: 0.90p).

 

Prospects

Global equity markets have continued to recover strongly in the early months of 2012 following the violent correction in share prices witnessed last summer.  This revival has occurred in the face of some severe macroeconomic and geopolitical headwinds. 

 

The European sovereign debt crisis continues to unfold while leading indicators in Asia are pointing to a faster economic slowdown than many commentators are currently forecasting.  The escalating crisis in the Middle East is another major concern for equity markets with the spectre of military conflict likely to sustain oil prices at levels which are damaging to the global economic growth outlook.

 

The Company's portfolio is currently positioned to reflect these concerns with an emphasis on both companies which can fund an attractive and sustainable dividend yield and those companies which can deliver earnings growth through these uncertain economic times.  While the Company suffered a very disappointing second half of last year, the Board remains confident that the Investment Manager's rigorous stock research process will deliver superior investment returns over the medium and longer term.

 

 

 

JM Le Pelley

Chairman

 

 

12 April 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Manager's Report
 

Introduction

The UK stock market endured a difficult second half of the year with deteriorating economic data and the escalating sovereign debt crisis in Europe depressing investor sentiment.  The FTSE All-Share Index reversed the 2.96% gain recorded in the first half to close the full year 3.46% lower on a total return basis. 

 

The Company's net asset value fell by 11.68% in the period under review on a total return basis.  This disappointing performance was attributable primarily to poor stock selection in the second half of the year with the underlying equity portfolio falling by 5.38% over the full year.  This is discussed in more detail below.

 

Economic and Market Backdrop

2011 was most notable for a series of extraordinary macroeconomic issues and geopolitical events.  European sovereign states in financial distress, the Standard & Poor's downgrade of the US's credit rating and revolutions across North Africa were several of these remarkable headlines.

 

The European sovereign debt crisis continued to intensify through the year with Portugal the third sovereign state forced to seek financial aid from the EU.  The economic picture across Europe continued to deteriorate at an accelerating rate through the second half of the year as austerity measures started to bite and the acute uncertainty surrounding the future of the eurozone dampened both corporate and consumer spending.  While the latest bailout of Greece has staved off the imminent threat of a sovereign default the critical issue remains the lack of economic growth in the region.  The challenge for Europe's policy makers is the achievement of simultaneous de-leveraging whilst stimulating growth - economic precedent is not on their side.

 

The sustainability of the strong economic growth rates being generated in Asia and Latin America increasingly came under scrutiny during the year.  These economies have been key contributors to global growth in recent years helping to offset the sluggish growth witnessed in the developed world.  Persistent fears over spiralling inflation rates in several of these key emerging economies such as China, India and Brazil has raised the risk of policy error, with monetary authorities desperate to balance the need to control inflation while still providing adequate stimulus to maintain the momentum behind economic expansion.  The short term global growth outlook will in a large part be influenced by the execution of appropriate monetary policy in these key developing economies.  

 

In addition to the economic challenges, equity markets also had to contend with a mounting political crisis in the Middle East which was accompanied by a surging oil price.  The acute instability in the region currently represents one of the largest risks to equity markets with many companies starting to feel the adverse effects of a persistently strong oil price.  The Company's portfolio remains heavily exposed to oil and gas producers and this position is unlikely to change in the short term.

 

Market leadership shifted markedly during the period, with the more economically sensitive sectors such as industrials, materials and financials propelling the market higher through the early part of 2011. This optimism reflected recovering corporate earnings and the relatively attractive valuation of equities compared with other asset classes such as bonds and cash.

 

The second half of the year, however, was characterised by slowing global economic growth and renewed liquidity concerns surrounding European funding markets.  These factors weighed heavily on investor risk appetite and triggered a violent rotation out of the more cyclical areas of the market into sectors with perceived 'safe haven' status such as pharmaceuticals, tobacco and telecoms.  

 

Performance

The main detractor from performance during the year was the holding in Essar Energy.  The Indian based energy group suffered from a series of delays to the build of its power project portfolio resulting in a slump in its share price.  These delays were the result of a government dispute over the award of coal blocks to Essar and several other private sector companies.  The sourcing of competitively priced domestic coal supplies is critical to the economics of the group's power business and the recent suspension of coal mining

 
Investment Manager's Report (continued)

 

Performance (continued)

 

operations in India forced Essar to import much more expensive coal supplies from South Africa and Indonesia.  The company remains confident that the dispute which centres around environmental issues will be resolved in the near future and we continue to hold the position within the portfolio.

 

The holding in Lloyds Banking Group was the other key negative contributor to performance during the review period.  The position was purchased following the appointment of the new management team and the encouraging strategic review which followed.  However, the group announced worse than anticipated impairments through the second half of the year which in large part was driven by the inherited HBOS loan exposure to Ireland.  This resulted in a material reduction to the group's earnings guidance and the shares were sold from the portfolio.

 

Key positive contributors to performance included Resolution, an acquisition vehicle within the UK life assurance sector.  During the year, the company reassured investors that no further acquisitions would be undertaken with management fully focused on running the existing portfolio of businesses.  The company also announced a major capital return programme.

 

The Company's performance also benefitted from Berkeley Group's announcement that it planned to return £13 per share in cash to shareholders over the next ten years. This capital return reinforces our view that the London-based house builder remains significantly undervalued by the equity market. The holding in Indus Gas, an India-focused energy company, also performed very strongly following the announcement of a dramatic increase in its gas reserves base following an independent audit.

 

Outlook

The Company's equity portfolio endured a very disappointing second half to the year as a result predominantly of two major stock selection errors - Essar Energy and Lloyds Banking Group.  2012 has started more positively in performance terms and the portfolio is currently positioned very defensively following a strong recovery in equity markets from the August low point.

 

Our short term caution reflects the view that several of the more cyclical areas of the market now appear to be discounting a lot of good news flow while earnings forecasts are predicated on optimistic growth assumptions.  The macroeconomic and geopolitical backdrop also remains highly uncertain.  The European sovereign debt crisis has much further to run with the recent bail-out packages for several member states deferring, rather than solving, the fundamental problems of over leverage and a lack of growth. 

 

The escalating political tension in the Middle East also represents a potent threat to equity markets in the short term with the continuing spike in the oil price suppressing growth potential.  The portfolio will continue to be shaped by both stock specific fundamental analysis and the prevailing macroeconomic and geopolitical backdrop.  At present this translates into heavy weightings within the oil and gas, pharmaceuticals and media sectors with limited exposure to the financials and materials industries.    

 

Scottish Widows Investment Partnership

March 2012

 

Scottish Widows Investment Partnership - SWIP - is one of the largest asset management companies in Europe. Our teams are recognised as high fliers within the industry. Our performance is based on their skills, backed by thorough research, and the ability to uncover and capitalise on opportunities as soon as they arise.

 

We invest across all asset classes, including equities, property, bonds and cash. We also offer specialist expertise in multi-manager, multi-asset solutions and socially responsible investing.

 

Our goal: to provide superior risk-adjusted returns and quality service for our clients, which include individuals, pension funds, charities and financial institutions from around the world.

 

Whatever your investment requirements, our teams have the innovation, drive and skill to deliver investment solutions that perform.

 

Scottish Widows Investment Partnership is part of the Lloyds Banking Group.

As of 31 December 2011, we manage funds worth £139.9 billion.


The Portfolio as at 31 December 2011


Company

Market Value

Activity







£'000














1

BP Plc

2,556

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

GlaxoSmithKline Plc

2,525

One of the world's leading research-based pharmaceutical and healthcare companies.

3

Indus Gas Ltd

1,975

Oil and gas exploration and development company based in India.

4

Reed Elsevier Plc

1,922

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

5

Resolution Ltd

1,592

Offer a broad spectrum of funds to cater for the differing investment needs.

6

AstraZeneca Plc

1,388

One of the world's largest pharmaceutical companies.

7

Berkeley Group Holdings Plc

1,272

UK - based house builder and developer.

8

Smiths Group Plc

1,236

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

KSK Power Ventur Plc

1,117

Engaged in emerging opportunities in the power development market.

10

Glencore International Plc

924

A leading integrated producer and marketer of commodities.

11

RSA Insurance Group Plc

916

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

12

SABMiller Plc

911

One of the world's largest brewers.

13

BG Group Plc

852

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

14

iEnergizer Ltd

788

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.

15

Nandan Cleantec Plc

635

A sustainable energy company with a strong foothold in the biofuel space.

16

Centrica Plc

559

An integrated energy company.

17

DS Smith Plc

499

International Group focused on packaging and office products.

18

Royal Dutch Shell Plc B Shares

483

UK-based energy provider.

19

Great Eastern Energy Corporation Plc

478

Indian-based energy provider.

20

Genel Energy Plc

465

Investment vehicle aiming to purchase emerging markets oil and gas businesses.

21

Cairn Energy Plc

454

One of Europe's largest independent oil and gas exploration and production companies.

22

Ryanair Plc - London Listed

440

Irish - based budget airline.

23

Essar Energy Plc

409

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

 

24

LXB Retail Properties Plc

313

Jersey based investment company investing in out-of-town and edge-of-town retail assets.

25

British Sky Broadcasting Plc

309

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

26

Dolphin Capital Investors Ltd

306

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

The Portfolio as at 31 December 2011 (continued)

 


Company

Market Value

Activity



£'000


27

Hardy Oil & Gas Plc

298

AIM - listed oil and gas exploration company.

28

Cadogan Petroleum Plc

278

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

29

Breedon Aggregates Ltd

261

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

30

Tullett Prebon Plc

256

An intermediary in the wholesale financial markets industry facilitating the trading activities of its clients.

31

Invensys Plc

212

Develops and applies advanced technologies that enable the world's manufacturing and energy-generating facilities, mainline and mass transit rail networks, and appliances to operate safely and in an energy-efficient manner.

32

Aurora Russia Ltd

194

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

33

Petroceltic International Plc

161

Oil and gas exploration and production company.

34

Arden Partners Plc

41

Institutional stockbroker specialising in small, midcap and AIM - listed companies.

35

Resaca Exploitation Inc

30

US - based independent oil and gas exploitation company.

36

Newfound NV Plc

10

Developer and operator of up-market holiday resorts.

37

Ryanair Plc - Irish Listed

1

Irish - based budget airline.

38

Leed Petroleum Plc

1

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





Total Valuation

27,067

These holdings represent 100% of the total valuation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sector Distribution

 



Total

Total



2011

2010

Sector Classification


%

%

Resources




Alternative Energy


2.2

-

Oil and gas


28.6

26.5        



30.8

26.5

Basic industrials




Construction and building materials


6.8

5.8

Mining


3.1

9.1



9.9

14.9

Non-cyclical consumer goods




Tobacco


-

2.3

Pharmaceuticals and biotechnology


13.3

2.7



13.3

5.0

Cyclical services




Support services


-

1.2

Leisure, entertainment and hotels


1.5

3.8

Food and drug retailers


3.1

1.1

Media and entertainment


7.6

7.2



12.2

13.3

Non-cyclical services




Telecommunication services


3.4

1.4



3.4

1.4

Utilities




Utilities other


5.7

4.9



5.7

4.9

Household goods




House building


4.3

3.2



4.3

3.2

Financials




Banks


-

2.7

Speciality and other finance


1.7

3.1

Real estate


2.1

1.5

Non-life insurance


3.1

2.8

Life assurance


5.4

6.2



12.3

16.3

Net current assets


8.1

14.5

Net assets


100.00

100.00

 

Note: The distribution of investments is based on the valuations at 31 December 2011 and at 31 December 2010. All of the investments are listed or quoted on the London Stock exchange, with the exception of Newfound NV which is an unlisted trading entity and Ryanair Plc which is listed on the Irish Stock Exchange.

 
 

 

 

Sector Distribution (continued) 

 

Please click on the link below. 

http://www.rns-pdf.londonstockexchange.com/rns/6199B_1-2012-4-18.pdf

 

By sector as a percentage

 

Please click on the link below.

http://www.rns-pdf.londonstockexchange.com/rns/6199B_1-2012-4-18.pdf 

 
Directors' Report

 

The Directors present their annual financial report for the year ended 31 December 2011 with comparatives for the year ended 31 December 2010.

 

Principal activities
 

The principal activity of the Company is that of an investment trust company. The Company is authorised as a fund by the Guernsey Financial Services Commission under the 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 loss for the year amounting to £3,266,000 (2010: profit £3,262,000). The Directors have declared a second interim dividend of 3.15p which, together with the first interim dividend of 0.95p makes a total of 4.10p for the year (2010: 3.90p).

 

The second interim dividend will be paid on 25 May 2012, to ordinary shareholders on the register on 10 April 2012 and shares in lieu of dividend will be offered.

 

Assets

 

At the year end the net assets attributable to the ordinary shares were £29,471,000 (2010: £33,460,000).  Based on this figure the net asset value of an ordinary share was 142.08p (2010: 161.75p).

 

Share capital 

 

During the year no shares were repurchased by the Company for cancellation (2010: nil). During the year 214,000 issued ordinary shares of 10p each were purchased at a total cost of £273,191 and held in Treasury.  The authority allowing the Company to purchase its own shares expires at the end of the 2012 annual general meeting and allows the purchase of a maximum of 3,082,339 shares, representing 14.9% of the number of shares in issue on 31 December 2010.

 

During the year 269,766 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 (2010: 260,758 new shares issued in lieu of cash dividends) thereby resulting in a total of £364,725 (2010: £323,263) being capitalised.

 

Substantial shareholdings 

 

At 31 March 2012, the following held a notifiable interest in the Company's voting rights:

 


31 March


31 March


2012


2011





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

28.42%


28.42%

JM & Mrs AE Le Pelley

9.93%


7.14%

Mr G Green

6.55%


6.47%

 

At 31 March 2012, 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 spouses and dependent children at 31 December 2011, were as follows:

 


2011

2010


Shares

Shares

JM Le Pelley (Chairman)

2,064,601

1,485,870

DR Maltwood

3,570

3,542

G Ross Russell

345,938

336,071

JG West

10,000

10,000

D Warr (Audit Committee Chairman)

31,115

30,228

 

 

J M Le Pelley acquired a further 4,221 shares in February 2012. There have been no other changes in the other Directors' interests in the shares of the Company between 31 December 2011 and 31 March 2012


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

 

 

Corporate governance 

 

Statements of compliance

 

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 UK Code of Corporate Governance ("UK Code"). All listed companies with periods starting on or after 29 June 2010 are required to follow the provisions of the UK 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. 

 

 

 

 

 

 

 

 

 

 

Directors' Report (continued)

 

Statements of compliance (continued)

 

The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").  The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.  The Board considers that reporting against the principles and recommendations of the AIC Code will provide better information to shareholders.

 

The Directors believe that the Company has complied with the provisions of the AIC Code where appropriate, and that it has complied throughout the year with the provisions where the requirements are of a continuing nature.

 

On 30 September 2011, the Guernsey Financial Services Commission published its Finance Sector Code of Corporate Governance (the "GFSC Code"), which came into effect on 1 January 2012. The GFSC Code provides a framework which applies to all companies in the regulated finance sector in Guernsey. The GFSC Code deals with governance issues under several topics including the Board, accountability, risk management, disclosure and reporting, remuneration and shareholder relations.  Companies which report against the AIC Code are deemed to meet the requirements of the GFSC Code.

 

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 AIC Code.  The appointment of Directors is considered by the Board who sit on the Nomination Committee. During the year, the Board reviewed its performance and composition, as well as that of its committees and individual directors, and was content that no changes to the composition of the Board were necessary or desirable, as it was considered that the performance of all Directors continued to be effective and that they had demonstrated commitment to their roles. Biographical information on each Director is included on page 4.

 

All of the Directors have served on the Board for more than nine years, save for Mr Warr, who joined the Board in 2006.  Whilst the AIC Code recommends that non-executive directors serving more than nine years should be subject for annual re-election, the Articles of Incorporation 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 . The Board does not consider it to be in the best interests of the Company to require the majority of Directors to stand for re-election annually and has chosen therefore to adopt best practice in relation to retirement by rotation of two Directors in accordance with the Company's Articles of Association and as stated in the Director's Report. Therefore, two Directors will stand for re-appointment at each annual general meeting, so that the shareholders will have the opportunity to consider each Director's continuing involvement with the Company every third year.

 

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.

 

 

 

 

 

Directors' Report (continued)

 

The Board (continued)

 

In accordance with this policy Messrs Le Pelley and Ross Russell will at the Company's forthcoming annual general meeting retire and, being eligible, offer themselves for re-election in accordance with Article 97 of the Articles of Association of the Company.

 

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

 

The Directors have no service contracts.

 

The table below lists the number of Board and Audit Committee meetings attended by each Director during the year ended 31 December 2011.

 



Scheduled

Quarterly Board

Other

Board

Audit Committee

Nomination Committee

Number of Meetings


4

5

2

-

JM Le Pelley (Chairman)


4

5

2

-

DR Maltwood


4

1

2

-

G Ross Russell


4

1

2

-

J G West


4

1

2

-

D Warr (Audit Committee Chairman)


4

5

2

-

 

As no changes to the Board were proposed in 2011, it was not considered necessary for the Nomination Committee to meet.

 

In 2010 and 2011 the Company did not employ any personnel.

 

The Board has established itself as an Audit Committee which meets at least twice 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 include:

 

·      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 half-yearly and annual financial 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 UKLA 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.

 

 

 

Directors' Report (continued)

 

The Board (continued)

 

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 £8,000 of non-audit services in the year ended 31 December 2011 (2010: £3,500) 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 Directors fees are recommended by the full Board.

 

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

 


2011


2010


Fees


Fees


£


£

JM Le Pelley (Chairman)

25,000


22,500

DR Maltwood

20,000


17,500

G Ross Russell

20,000


17,500

JG West

20,000


17,500

D Warr (Audit Committee Chairman)

22,500


19,250


107,500


94,250

 

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.

 

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 AIC 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 2012.

 



 

 

Directors' Report (continued)

 

 

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 2011 of £2,404,000);

·      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 2011, 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.

 

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 Registrars (Guernsey) 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 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.

 

 

 

 

 

Directors' Report (continued)

 

Accountability and audit (continued)

 

b) Internal control (continued)

 

The Board's ongoing review process involves a review of SWIP's 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.

 

The Board is regularly taking steps to embed internal control and risk management further into the operations of the Company and to deal with areas of improvement which come to the Investment Manager's and the Board's attention.

 

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.

 

 

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.

 

 

Directors' Report (continued)

 

Investment policy (continued)

 

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 Bank Plc and is detailed  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 (2010: £nil) drawn down against the facility.

 

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 can be found  in the Chairman's Statement and Investment Manager's Report on pages 5 to 7.

 

The Company's portfolio consisted of 38 investments as at 31 December 2011 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 2011, the portfolio held investments issued in the United Kingdom, Ireland and Canada. The top 10 holdings comprise 56.01% of total net assets (2010: 46.05%).

 

The Company's gearing stood at nil% as at 31 December 2011 (2010: nil%).

 

Financial risk profile

 

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

 

Market price risk

 

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


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

 

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

 

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.

 

 

Directors' Report (continued)

 

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 2011 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 2011 (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.

 

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 .

 

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

12 April 2012

 

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 adequate 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 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.

 

 

By order of the Board

 

 

 

JM Le Pelley

D Warr

Directors

 

12 April 2012

 

 

 

 

 

 

 

 

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 2011 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.

 

In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies, we consider the implication for our report.

 

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 2011 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 part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review.

 

 

 

 

 

Richard Garrard

for and on behalf of Deloitte LLP

Chartered Accountants and Recognised Auditor

St. Peter Port, Guernsey

 

12 April 2012

 

 

 



Statement of Comprehensive Income

for the year ended 31 December 2011






 

 2011


 

2010




Notes


Revenue


Capital


Total


Revenue


Capital


Total






£'000


£'000


£'000


£'000


£'000


£'000

Income














Dividend revenue

3


1,307


-


1,307


1,031


-


1,031

Other income

3


-


-


-


12


-


12

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

8


-


(4,064)


(4,064)


-


2,714


2,714

Net foreign exchange gain/(loss)



-


19


19


-


(20)


(20)




1,307


(4,045)


(2,738)


1,043


2,694


3,737

















Expenses
















Investment management fees

4


40


121


161


40


118


158

Administration fees




99


-


99


89


-


89

Registrar's fees


          


27


-


27


26


-


26

Auditor's fees



18


-


18


18


-


18

Directors' fees and expenses

    16      


111


-


111


97


-


97

Other expenses



103


-


103


79


-


79

Total operating expenses before finance costs



398


121


519


349


118


467














Operating profit/(loss) before finance costs



909


(4,166)


(3,257)


694


2,576


3,270

















Finance costs















Interest payable


12


2


7


9


2


6


8














Profit/(loss) for the year



907


(4,173)


(3,266)


692


2,570


3,262















Basic return/(deficit) per ordinary share

7


4.38p


(20.15p)


(15.77p)


3.36p


12.47p


15.83p

 

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 2011

 

 


Notes


 

 

 2011


 

 2010





£'000


£'000

Assets






Cash and cash equivalents

10


2,340


3,841

Due from brokers

9


-


900

Other receivables and accrued income

9


226


229

Financial assets at fair value through profit or loss

8


27,067


28,607

Total assets




29,633


33,577








Liabilities







Other payables and accrued expenses


11


162


117

Total liabilities




162


117








Net assets attributable to shareholders



29,471


33,460








Represented by:







Share Capital


14


2,083


2,083

Treasury Share Reserve


14


(153)


(245)

Reserves



27,541


31,622

Net assets attributable to shareholders



29,471


33,460







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

14


20,742,606


20,686,840







Net asset value per share

15


142.08p


161.75p

 

These financial statements were approved by the Board of Directors on 12 April 2012 and are signed on behalf of the Board by:

 

 

 

 

 

JM Le Pelley                                                                        D Warr

Director                                                                                 Director

Date: 12 April 2012

 

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 2011

 


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 2011

2,083

(245)

5,401

4,308

14,214

3,718

3,981

33,460

Shares repurchased during the year

-

(273)

-

-

-

-

-

(273)

Cash dividends:









-2010 second interim dividend

-

-

-

-

-

-

(342)

(342)

-2011 first interim dividend

-

-

-

-

-

-

(108)

(108)

Scrip dividends

-

365

-

-

-

-

(365)

-

Net profit

-

-

-

-

(1,294)

(2,879)

907

(3,266)

At 31 December 2011

2,083

(153)

5,401

4,308

12,920

839

4,073

29,471

 

There are no other recognised income and expenses for the year ended 31 December 2011.

 

 

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:









-2008 final dividend

-

-

-

-

-

-

(331)

(331)

-2009 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. 
 
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 2011












Notes

 2011


 2010



£'000


£'000

Cash flows from operating activities




Payments for purchase of financial investments


(50,910)


(61,505)

Proceeds from sale of financial investments


49,286


63,894

Cash received from investments


1,286


1,232

Other income


-


12

Investment management fee paid


(129)


(154)

Other cash payments


(327)


(53)






Net cash (outflow)/inflow from operating activities


(794)


3,426






Cash flows from financing activities





Interest paid


(3)


(8)

Share repurchase

14

(273)


(189)

Equity dividends paid

6

(450)


(435)






Net cash outflow from financing activities


(726)


(632)






Net (decrease)/increase in cash and cash equivalents

(1,520)


2,794






Effect of exchange rate changes on cash and cash equivalents


19


(20)






Cash and cash equivalents at the beginning of the year


3,841


1,067






Cash and cash equivalents at the end of the year

10

2,340


3,841

 

 

 

 

 

 

 

 

 

 

 

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 ("IFRS") 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 IFRS 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 are 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 accounting 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 2011 of £2,404,000);

·      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 2011, 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

 

Standards not affecting the reported results nor the financial position

 

The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements.

 

IAS 24 (2009) Related Party Disclosures -The revised Standard has a new, clearer definition of a related party, with inconsistencies under the previous definition having been removed.

 

Improvements to IFRSs 2010 - Aside from those items already identified above, the amendments made to standards under the 2010 improvements to IFRSs have had no impact on the Company.

 

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 1 (amended)                 Severe Hyperinflation and Removal of Fixed Dates for the First-time Adopters

IFRS 7 (amended)                 Disclosures - Transfers of Financial Assets 

IFRS 9                                    Financial Instruments

IFRS 10                                  Consolidated Financial Statements

IFRS 11                                  Joint Arrangements

IFRS 12                                  Disclosure of Interests in Other Entities

IFRS 13                                  Fair Value Measurement

IAS 1 (amended)                  Presentation of Items of Other Comprehensive Income

IAS 12 (amended)                Deferred Tax: Recovery of Underlying Assets

IAS 19 (revised)                   Employee Benefits

IAS 27 (revised)                   Separate Financial Statements

IAS 28 (revised)                   Investments in Associates and Joint Ventures

IFRIC 20                 Stripping Costs in the Production Phase of a Surface Mine

 

 

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.

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

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.

 

 

(ii)           Recognition

 

Financial assets are recognised on the trade date where a purchase is under 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 material transaction costs on acquisition and all transaction costs on 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 its 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.

 

 

 

 Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

e.         Financial assets (continued)

 

                 

 (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 purchase 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 materially invests in listed or quoted equities and therefore at the reporting date, there were no sources of significantjudgement or uncertainty.

 

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 average 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.

 

 

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

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.


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.

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

2.         Accounting policies (continued)

 

 

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.

 

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 as the location of all investments is materially all 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.

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

3.         Dividend and other income

 


2011


2010


£'000


£'000

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




 

Dividends

1,307


1,031


1,307


1,031

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




Unclaimed dividends 2003/2004

-


12


-


12

Total income

1,307


1,043





 

 

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 2011 or 2010. 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 £20,001 (2010: £69,000) of withholding tax on foreign dividends during the year and this expense has been included in other expenses in the statement of comprehensive income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

 

6.         Dividends

 



2011

2010



£'000

£'000

Equity dividends




Ordinary shares




First interim dividend for 2011: 0.95p (gross) on 11,387,130 shares paid in 2011


108


(2010 first interim dividend for 2010: 0.90p (gross) on 11,561,991 shares paid in 2010)



104

Scrip dividend for 2011 paid in 2011: 74,121 shares issued at a cost of 120.42p per share


 

89


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



 

89






Second interim dividend for 2010: 3.00p (gross) on 11,410,621 shares paid in 2011


 

342


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



331

Scrip dividend for 2010 paid in 2011: 195,645 shares issued at a cost of 140.80 per share


 

276


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



 

235



815

759





 

 

7.         Basic return/(deficit) per ordinary share







2011

2010


Revenue

Capital

Total

Revenue

Capital

Total


pence

pence

pence

pence

pence

pence








Return/(deficit)

4.38

(20.15)

(15.77)

3.36

12.47

15.83

 

Revenue return per ordinary share is based on the net revenue on ordinary activities of £907,000 (2010: return £692,000) and on 20,704,828 ordinary shares, being the weighted average number of ordinary shares in issue during the year (2010: 20,608,335).

 

Capital return per ordinary share is based on a net capital deficit for the financial year of (£4,173,000) (2010: return £2,570,000) and on 20,704,828 ordinary shares, being the weighted average number of ordinary shares in issue during the period (2010: 20,608,335).

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

 

8.         Financial assets at fair value through profit or loss






2011

2010






Fair Value

% of net assets

Fair Value

% of net assets




£'000

%

£'000

%








Financial assets at fair value through profit or loss





- Listed equity securities


27,057

91.82

28,597           

85.47     

- De-listed trading entities


10

0.03

10

0.03










 

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















2011


2010







£'000


£'000










Realised (losses)/gains




(1,185)


3,570

Unrealised losses

(2,879)


(856)







(4,064)


2,714

 

Fair value measurements

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

 

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

 

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

 

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

   

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

 

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

 

Notes to the Financial Statements (continued)

 

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

 

Fair value measurements (continued)

 

 

The Company mainly holds equity investments for which fair value has been determined by reference to quoted prices in active markets for the same instrument, being level 1 of the IFRS 7 fair value hierarchy. The Company also has one holding, Newfound NV, for which fair value has been derived by inputs other than quoted prices due to the investment being de-listed in 2009.

 

The following table presents the Company's financial assets by level within the valuation hierarchy as of 31 December 2011.

 


 

2011

Percentage of net assets

 

2010

Percentage of net assets

Level 1 fair value assets

£'000

%

£'000

%

Investments valued at fair value

27,057

91.82

28,597

85.47






Level 2 fair value assets





Investments valued at fair value

10

0.03

10

0.03






Total fair value financial assets

27,067

91.85

28,607

85.50

 

 

9.         Other receivables and accrued income





Other receivables

2011


2010


£'000


£'000

Due from brokers

-


900

Accrued income

217


216

Prepayments

9


13


226


1,129

 

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

 

 

Other payables

2011


2010


£'000


£'000

Management fees

74


42

Administrative fees

49


45

Audit fees

18


18

Registrars fees

8


7

Sundry expenses

13


5


162


117





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

Notes to the Financial Statements (continued)

 

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 2011 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 2011 or 2010. 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 due for the year ended 31 December 2011. Further, the Company is required to comply with the following financial covenants imposed by the bank:

 

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

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

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

 

 

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


2011


2010


2011


2010


£'000


£'000


£'000


£'000

United Kingdom

1,307


1,043


29,471


33,460


1,307


1,043


29,471


33,460









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

 







2011


2010







£'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

Notes to the Financial Statements (continued)

 

14.       Share capital (continued)

 

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 2011, no five per cent cumulative preference restrictive voting shares had been issued (2010: 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.

 







  2011


 2010







£'000


£'000

Issued, called up and fully paid:






20,830,484 ordinary shares of 10p each




(2010: 20,830,484)




       2,083


           2,083
















2011







Treasury Share reserve

Shares in issue







Shares

Cost

Shares

Cost







Nominal

£'000

Nominal

£'000

Balance at 1 January 2011




 143,644

           245

 

20,830,484

 

2,083

Shares purchased and held in Treasury

214,000

273

 -

 -

Shares issued in lieu of dividends from Treasury

(269,766)

(365)

 -

 -

Balance at 31 December 2011




87,878

153

20,830,484

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











During 2011 and 2010  no shares were purchased for cancellation.

 

On 17 January 2011, 50,000 shares were purchased for Treasury at a total cost including expenses of £68,834.

 

On 31 January 2011, 40,000 shares were purchased for Treasury at a total cost including expenses of £55,067.

 

On 25 August 2011, 25,000 shares were purchased for Treasury at a total cost including expenses of £30,025.

 

On 22 September 2011, 25,000 shares were purchased for Treasury at a total cost including expenses of £29,899.

 

 

Notes to the Financial Statements (continued)

 

14.       Share capital (continued)

 

On 17 October 2011, 24,000 shares were purchased for Treasury at a total cost including expenses of £29,304.

 

On 21 October 2011, 25,000 shares were purchased for Treasury at a total cost including expenses of £30,275.

 

On 20 December 2011, 25,000 shares were purchased for Treasury at a total cost including expenses of £29,787.

 

On 27 May 2011, 195,645 shares were issued to shareholders who elected to receive them in lieu of a second interim cash dividend for 2010. On 4 November 2011, 74,121 shares were issued to shareholders who elected to receive them in lieu of a first interim dividend for 2011. Ordinary shares of 10p each, fully paid were issued to shareholders from the Treasury Share reserve held by the Company.

 

15.       Net asset value per share

 

Net asset value per ordinary share is based on net assets attributable to the ordinary shareholders of £29,471,000 (2010: £33,460,000) and on 20,742,606 (2010: 20,686,840) 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 £107,500 (2010: £94,250) of which nil (2010: £nil) was outstanding at the year end. Allowable expenses claimed by the Directors in the course of their duties amounted to £3,417 for the year ended 31 December 2011 (2010: £2,344).

 

D Warr is a Non-Executive Director of Breedon Aggregates Limited of which the Company holds 1,583,270 shares as at 31 December 2011.

 

The Investment Manager, Scottish Widows Investment Partnership Limited exercises discretion over 28.42% (2010: 28.42%) of the shares in the Company, on behalf of their clients, and earned investment management fees of £161,204 (2010: £157,732) during the year of which £73,977 (2010: £42,090) was outstanding at the reporting date. No performance fees were paid in 2011 or 2010. 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 2011 amounted to £99,011 (2010: £89,000) of which £49,330 (2010: £45,000) 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 risk 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.

 

 

Notes to the Financial Statements (continued)

 

17.       Financial risk management (continued)

 

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 the 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 ongoing expenses and dividend payments.

 

The Company's policy is to provide net income for distribution from the dividend income earned from a portfolio of mainly UK equity securities 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 has the ability to use 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 2011, the Company's portfolio consisted of 38 investments spread over 8 sectors. Further, the portfolio only held investments issued in the United Kingdom, Ireland and Canada.

 

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.

 

 

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial risk management (continued)

 

Credit risk

 

Credit risk is the risk that an issuer or counterparty 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 counterparties are banks with high credit ratings of A-1+ assigned by international credit-rating agencies.

 

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

 

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.

 

Country risk

 

On 17 January 2012 the Financial Reporting Council ("FRC") released "Responding to the increased country and currency risk in financial reports".

 

The FRC released on 17 January 2012 an update for directors of listed companies which includes guidance on responding to the increased country and currency risk as a result of funding pressures on certain European countries, the curtailment of capital spending programmes (austerity measures) and regime changes in the Middle East.

 

The Board has reviewed the disclosures contained within the annual financial report and believes that no additional disclosures are required since the Company is primarily invested in UK listed equities.

 

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial risk management (continued)

 

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.

 

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




2011


2010


2011


2010


£'000


£'000


£'000


£'000









Increase/(decrease) in net assets attributable to shareholders








-Designated as at fair value through profit or loss

2,707


2,861


(2,707)


(2,861)


2,707


2,861


(2,707)


(2,861)

 

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

 

 

 

 

 

Notes to the Financial Statements (continued)

 

17.       Financial risk management (continued)

 

 

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.

 

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 2011 and 31 December 2010 the Company's net currency exposure was as follows:

 


2011

2010


£'000

% of Net Assets

£'000

% of Net Assets






Euro

162

0.55

1,038

3.10

Sterling

28,386

96.32

31,776

94.97

Swiss Franc

-

-

592

1.77

United States Dollar

923

3.13

54

0.16


29,471

100.00

33,460

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 30 March 2012, the Board declared a second interim dividend of 3.15p 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








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

2011

1,307

907

4.38

4.10

2,074

142.1

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 
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

August                                  -  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
 
END
 
 
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