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Murray Intnl Trust (MYI)

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Tuesday 10 March, 2015

Murray Intnl Trust

Annual Financial Report

RNS Number : 9593G
Murray International Trust PLC
10 March 2015
 

MURRAY INTERNATIONAL TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2014

 

 

1.    STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

 

The Company

Murray International Trust PLC (the "Company" or the "Trust") is an investment trust traded whose shares are traded on the London Stock Exchange and is a constituent of the FTSE Actuaries All-Share Index. Its Ordinary and B Ordinary shares are listed on the premium segment of the London Stock Exchange. Some 25,000 of its shareholders are private investors. Murray International Trust PLC offers the advantage of exposure to world markets. The Company is invested in a diversified portfolio of international equities and fixed income securities.

 

What is an Investment Trust?

Investment trusts are a way to make a single investment that gives you a share in a much larger portfolio. A type of collective investment, they let you spread your risk and access investment opportunities you might not find on your own.

 

Investment Objective

The aim of the Company is to achieve a total return greater than its benchmark by investing predominantly in equities worldwide. Within this objective the Manager will seek to increase the Company's revenues in order to maintain an above average dividend yield.

 

Company Benchmark

The Company's benchmark is a composite index comprising 40% of the FTSE World UK Index and 60% of the FTSE World ex-UK Index.

 

Investment Manager

The Company's Alternative Investment Fund Manager is Aberdeen Fund Managers Limited ("AFML") and day to day management of the portfolio is delegated to Aberdeen Asset Managers Limited ("AAM", the "Manager" or the "Investment Manager").

 

Alternative Investment Fund Manager*

Aberdeen Fund Managers Limited

Authorised and regulated by the Financial Conduct Authority (* appointed as required by EU Directive 2011/61/EU)

 

Website

Up-to-date information can be found on the Company's website - www.murray-intl.co.uk

Pre-investment Disclosure Document (PIDD)

The Alternative Investment Fund Manager Directive ("AIFMD") requires Aberdeen Fund Managers Limited, as the alternative investment fund manager of Murray International Trust PLC, to make available to investors certain information prior to such investors' investment in the Company.  The AIFMD is intended to offer increased protection to investors in investment products that do not fall under the existing European Union regime for regulation of investment products known as "UCITS".

 

The Company's PIDD is available for viewing at www.murray-intl.co.uk.

 

Financial Highlights

 


2014

2013

Net asset value per Ordinary and B Ordinary share total return

+3.0%

+4.6%

Share price total return

+1.7%

+4.1%

Benchmark total return

+7.5%

+21.2%

Net asset value performance against the benchmark total return

-4.5%

-16.6%

Earnings per share (revenue)

40.8p

43.8p

Dividends per share{A}

45.0p

43.0p

{A}         The proposed final dividend of 15.0p per Ordinary share is subject to shareholder approval at the Annual General Meeting.

 

 

2.         STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Aim

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future.  The aim of the Company is to achieve a total return greater than its benchmark by investing predominantly in equities worldwide. Within this objective the Manager will seek to increase the Company's revenues in order to maintain an above average dividend yield.  The processes to achieve this are shown below.

 

The Company's investment objective and financial highlights are shown on pages 1 and 2. A review of the Company's activities is given in the Chairman's Statement on pages 7 to 9 and the Manager's Review on pages 10 to 13. The review includes an analysis of the business of the Company and its principal activities, likely future developments of the business, the recommended dividend and details of any acquisition of its own shares by the Company.

 

Investment Policy

Asset Allocation

The Company's assets are invested in a diversified portfolio of international equities and fixed income securities spread across a range of industries and economies. The Company's investment policy is flexible and it may, from time to time, hold other securities including (but not limited to) index-linked securities, convertible securities, preference shares, unlisted securities, depositary receipts and other equity-related securities. The Company may invest in derivatives for the purposes of efficient portfolio management. The Company's investment policy does not impose any geographical, sectoral or industrial constraints upon the Manager.  The Board has agreed guidelines which the Manager is required to work within from meeting to meeting.  It is the investment policy of the Company to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts) at the time of purchase. The Company currently does not have any investments in other investment companies.

 

Risk Diversification

The Manager actively monitors the Company's portfolio and attempts to mitigate risk primarily through diversification. The Company is permitted to invest up to 15% of its investments by value in any single stock (at the time of purchase).

 

Gearing

The Board considers that returns to shareholders can be enhanced by the judicious use of borrowing. The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis. Any borrowing, except for short-term liquidity purposes, is used for investment purposes or to fund the purchase of the Company's own shares. Total gearing will not in normal circumstances exceed 30% of Net Assets with cash deposits netted against the level of borrowings. At the year end there was net gearing of 13.8% (calculated in accordance with AIC guidance) and particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy.

 

Changes to Investment Policy

Any material change to the investment policy will require the approval of the shareholders by way of an ordinary resolution at a general meeting. The Company will promptly issue an announcement to inform the shareholders and the public of any change of its investment policy.

 

Delivering the Investment Policy

Day to day management of the Company's assets has been delegated to the Investment Manager. The Manager invests in a diversified range of international companies in accordance with the investment objective.

 

The portfolio manager, Bruce Stout, has responsibility for portfolio construction across all regional segments. The Aberdeen management team utilises a "Global Equity Buy List" which is constructed by each of the specialist country management teams. This list contains all buy (and hold) recommendations for each management team, which are then used by the portfolio manager as the Company's investment universe. Stock selection is the major source of added value.

 

Top-down investment factors are secondary in the Manager's portfolio construction, with stock diversification rather than formal controls guiding stock and sector weights.  Market capitalisation is not a primary concern.

 

A detailed description of the investment process and risk controls employed by the Manager is disclosed in the Annual Report. A comprehensive analysis of the Company's portfolio is disclosed below including a description of the twenty largest investments, the portfolio of investments by value, attribution analysis, distribution of investments and distribution of equity investments.

 

At the year end the Company's portfolio consisted of 46 equity and 18 bond holdings. The Manager is authorised by the Board to hold between 45 and 150 stocks in the portfolio.

 

Principal Risks and Uncertainties

The Board has adopted a matrix of the key risks that affect the business. The major financial risks associated with the Company are detailed in note 19 to the Financial Statements and the other principal risks are summarised below. 

 

Discount and Premium Control Policy

The market value of, and the income derived from, the shares can fluctuate and, notwithstanding the Board's discount and premium control policy, may not always reflect the Net Asset Value per share. There can be no guarantee that any appreciation in the value of the Company's investments will occur and investors may not get back the full value of their investment. No assurance can be given that any sale of the Company's investments would realise proceeds which would be sufficient to repay any borrowings or provide funds for any capital repayment to shareholders. Shareholders will bear the rewards and risks of the success or otherwise of the Company's investments.

 

The market value of the shares, as well as being affected by the Net Asset Value, also takes into account the dividend yield and prevailing interest rates, supply and demand for the shares, market conditions and general investor sentiment.

 

The Company operates a discount and premium control policy. The operation of the discount control element of this policy could lead to a significant reduction in the size of the Company over time, which would increase the Company's total expense ratio and prejudice the ability of the Company to pay satisfactory levels of dividend to shareholders. When demand exceeds supply, the Company will consider issuing new shares and/or selling shares held in treasury at a small premium to the Net Asset Value per share.  Any such new issue or sale will be dependent on market conditions generally at the relevant time, upon shareholders in general meeting conferring appropriate authorities on the Board to issue further shares and, where required under the Prospectus Rules, upon a prospectus having been approved by the Financial Conduct Authority and published. The ability of the Company to operate the discount control policy will depend on the Company being able to purchase its own shares, which will be dependent upon shareholders in general meeting conferring authority on the Board to purchase its own shares. The Directors will seek renewal of this authority from shareholders annually and at other times should this prove necessary. However, there can be no guarantee that the requisite shareholder approvals will be obtained.

 

In accordance with the Listing Rules, the extent of each buy-back authority which will be sought by the Company from shareholders in general meeting will be limited to 14.99% of the Company's issued share capital as at the date on which such authority is granted. In order to continue purchasing its own shares once any such authority has been exhausted, the Company would be required to seek a renewal of such authority from shareholders in general meeting.

 

The ability of the Company to purchase its own shares will be subject to the Companies Act 2006 and all other applicable legislation, rules and regulations of any government, regulatory body or market applicable to the Directors or the Company and, in particular, will be dependent on the availability of distributable reserves.

 

Borrowings

The Company uses borrowings for investment purposes. The use of borrowings can enhance the total return on the shares where the return on the Company's underlying assets exceeds the cost of borrowing.  It is likely to have the opposite effect where the return on the underlying assets is below the cost of borrowing. As a result, the use of borrowings by the Company will increase the volatility of the Net Asset Value per share.

 

There is no guarantee that any borrowings of the Company would be refinanced on their maturity either at all or on terms that are acceptable to the Company.

 

Foreign Currency Risks

The Company's investments are principally in overseas securities. The Company accounts for its activities and reports its results in sterling. The Company currently hedges most of the foreign currency exposure in respect of the liabilities attached to its borrowings. Where the Company does not hedge its currency exposure, which is currently the case with the investment portfolio, the movement of exchange rates will have a favourable or unfavourable effect on the gains and losses experienced on investments and the income derived from investments which are made or realised in currencies other than pounds sterling.

 

Regulatory Risks

Cessation of Investment Trust Status: The Company attempts to conduct its business so as to satisfy the conditions for approval as an investment trust under Part 24 Chapter 4 of the Corporation Tax Act 2010. The Company has been accepted by HM Revenue & Customs as an investment trust, subject to the Company continuing to meet the relevant eligibility conditions of Corporation Tax Act 2010, for all financial years commencing on or after 1 January 2012. Any breach of the eligibility conditions could lead to the Company being subject to tax on capital gains.

 

Tax and Accounting: Any change in the Company's tax status or in taxation legislation or accounting practice could affect the value of the investments held by the Company, affect the Company's ability to provide returns to shareholders or alter the post-tax returns to shareholders. Representations in this document concerning the taxation of investors are based upon current tax law and practice which are subject to change. Any change in accounting standards may adversely affect the value of the Company's assets in its books of account or restrict the ability of the Company to pay dividends.

Serious breach of Laws or other regulations: Any serious breach of other regulations such as the Listing Rules, AIFMD, the Companies Act or Accounting Standards, could lead to suspension from the London Stock Exchange and reputational damage. The Board receives regular compliance reports from the Manager to monitor compliance with regulations.

 

Operational Risk

In common with other investment companies, the Company has no employees. The Company therefore relies on services provided by third parties, including AFML and AAM in particular, to whom responsibility for the management of the Company has been delegated under a management agreement (the "Management Agreement") (further details of which are set out in the Directors' Report below). The terms of the Management Agreement cover the necessary duties and responsibilities expected of the Investment Manager. The Board reviews the overall performance of AFML and AAM on a regular basis and compliance with the Management Agreement on an annual basis.

 

Contracts with other third party providers, including share registrar and custodial services, are entered into after appropriate due diligence. Thereafter, each contract, and the performance of the provider, is subject to regular review. The security of the Company's assets is the responsibility of the depositary and custodian, BNY Mellon Trust & Depositary (UK) Limited. The effectiveness of the internal controls of the depositary is subject to periodic review.

 

Investment Strategy Risk

The Company's investment strategy requires investment in equity and fixed income stockmarkets, which may lead to loss of capital. Separately, inappropriate asset allocation or level of gearing, as part of the investment strategy adopted by the Company, may result in underperformance against either the Company's benchmark and/or its peer group, leading to the establishment of a discount.

 

The Board seeks to manage these risks by diversifying its investments, as set out in the investment restrictions and guidelines agreed with the Manager, and on which the Company receives regular reports from the Manager. At each Board meeting, the Directors review the investment process with the Manager by assessing relevant management information including revenue forecasts, absolute/relative performance data, attribution analysis and liquidity/risk reports. The Board holds a separate, annual meeting devoted to investment strategy.

 

Key Performance Indicators (KPIs)

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.  Below are the main KPIs which have been identified by the Board for determining the progress of the Company:

 

-   Net Asset Value Total Return.

-   Share Price Total Return.

-   Discount/Premium.

-   Benchmark Total Return.

-   Dividend.

-   Level of Gearing.

 

A record of these measures is disclosed under Financial Highlights below.

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge to allow the Board to fulfil its obligations.  At 31 December 2014, there were four male Directors and two female Directors. The Company has no employees. The Board's statement on diversity is set out in the Annual Report.

 

Environmental, Social and Human Rights Issues

The Company has no employees as it is managed by AAM. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Annual Report.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emission producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Duration

The Company does not have a fixed life.

 

Kevin Carter

Chairman

9 March 2015



 

3.    CHAIRMAN'S STATEMENT

 

Highlights

-   Net Asset Value Total Return of 3.0%

-   Benchmark Total Return of 7.5%

-   Total Ordinary dividend increased by 4.7% compared with 2013

-   £24m of new shares issued at a premium during the year

 

Performance

It is disappointing to report that the Trust has underperformed its benchmark in 2014, notwithstanding a positive Net Asset Value Total Return of 3.0% and an increase of 4.7% in dividends compared with 2013. Well above average capital gains achieved by global equity markets in 2013 were unlikely to be repeated in 2014 and so it proved.  With the Federal Reserve in the United States finally reducing monetary stimulus and the rest of the world struggling to grow, the environment for corporate profits remained challenging, and already generally elevated equity market ratings were unable to expand further in aggregate.  There was significant divergence between strength in the United States, and weakness in most other major developed indices.  Contrary to widespread expectations of twelve months ago, sovereign bond markets responded positively to rapidly declining inflation and performed well, more than making up for last year's losses.  This primarily reflected a reduction in investors' appetite for risk plus a sharp appreciation of the US dollar against all its major trading partners.  The Benchmark Total Return of 7.5% was positively affected by the performance of United States equities in which the Trust is underweight.  The Trust's greater geographical diversification and focus on above average yield proved a drag on relative performance. Temporary distortions in dividend payments of three Latin American holdings also accounted for a shortfall in overall revenues.  During the year the Trust's exposure to equities was reduced to below 100% for the first time since 2009.  Commensurate exposure to fixed income securities rose as the Trust took advantage of opportunities in periods of market panic.  The Manager's Review contains an attribution analysis which shows the factors affecting net asset performance. 

 

Background

At the beginning of 2014 investor sentiment and consensus held that global economic growth would accelerate, interest rates would rise and normality would return to prevailing economic relationships.  What ultimately transpired was almost exactly the opposite.  While the United States honoured its stated intention to stop printing money, the UK maintained its unorthodox policies and Japan created extra liquidity.  By year end a distressed Europe was even considering such extreme measures, despite all the destabilising unintended consequences that they bring.  Now, in early 2015, the European Central Bank has finally succumbed to the same approach used by their central bank colleagues.  Behind every unit of currency printed remains the belief that somehow additional liquidity holds the key to restoring economic growth.  Instead of lubricating the global economic engine, all this extra liquidity has, so far, become largely immobilised. Technically, the velocity of money has slowed dramatically thereby neutralising the policy objectives it was intended to deliver. As a consequence, economic activity remained hostage to stubbornly high unemployment, declining real incomes, onerous debt servicing obligations and a puzzling failure to see any gains in productivity.  In most consumer-dependent societies, consumer purchasing power was eroded, and savers in particular continued to endure negative real rates of interest on their savings. This has incentivised aggressive price competition from companies keen to stimulate demand to produce top-line growth, especially as continued cost savings are becoming harder to generate.  Falling oil and commodity prices have added to prevailing deflationary pressures. This general environment has caused bond yields to decline sharply, to levels not seen since the great depression of the 1930s, or in some cases, ever.  Muted growth combined with lower inflation eliminated any need for tighter monetary policy in 2014, especially in demand-deficient Europe.  Risk aversion amongst equity investors rose sharply, causing numerous global stock markets to decline in local currency terms. With corporate profits and dividend growth being generally disappointing, market valuations appear very stretched indeed. Against such a backdrop, the Trust's immediate aspirations were to preserve capital and grow its dividend, objectives which ultimately were achieved, albeit with periods of uncomfortable volatility along the way.

 

Dividends

We have been able to continue the trend of increasing the level of dividends paid, despite the impact arising from some dividends in Latin America that were expected to be paid in 2014 which were accounted for in 2013, depressing the dividends received in 2014. A more normal pattern of payments is expected in 2015. Accordingly, three interim dividends of 10.0p (2013: three interims of 9.5p) have been declared during the year. Your Board is now recommending a final dividend of 15.0p (2013: 14.5p) which, subject to the approval of shareholders at the Annual General Meeting, will be paid on 15 May 2015 to shareholders on the register on 7 April 2015. Subject to approval of the final dividend, the total Ordinary dividend for the year will amount to 45.0p, an increase of 4.7% from last year (2013: 43.0p). B Ordinary shareholders will receive their capitalisation issue of B Ordinary shares at the same time as each dividend is paid. Accordingly, subject to approval at the Annual General Meeting, B Ordinary shareholders will be issued on 15 May 2015 with new B Ordinary shares equivalent in Net Asset Value to the recommended final dividend for the year just ended.  The payment of the final dividend will necessitate a transfer from the Company's brought forward revenue reserves of £5.3 million.

 

Issue of New Shares

At the Annual General Meeting held in April 2014 shareholders renewed the annual authority to issue up to 10% of the Company's issued share capital for cash at a premium to the prevailing asset value at the time of each issue. During the year we have continued to see demand for the Company's shares resulting in the issue of over two million new shares. The Board will be seeking approval from shareholders to renew the authority to issue new shares for cash in 2015 and as in previous years, to avoid diluting the asset value of existing shareholders, new shares will only be issued at a premium to net asset value. Resolutions to this effect will be proposed at the Annual General Meeting and the Directors strongly encourage shareholders to support this proposal. Subsequent to the period end, the Ordinary shares have continued to trade at a premium to NAV per share albeit at a reduced level. At the time of writing the inclusive of income NAV per share was 994.4p and the share price was 1037.0p equating to a premium of 4.3% per Ordinary share.  A further 15,000 new Ordinary shares were issued subsequent to the period end.

 

Gearing

At the year end total borrowings amounted to the equivalent of £188.6 million representing net gearing (calculated by dividing the total assets less cash by shareholders' funds) of 13.8% (2013: 15.1%) of which approximately £53.5 million has been drawn in Yen with the remainder drawn in Sterling.  During the year a new £15 million facility was agreed with The Royal Bank of Scotland and drawn in full, fixed for just over two years.  The Company has a Yen8.4 billon loan that is due to mature in May 2015 and the Directors are in the process of reviewing options to replace this facility.

 

Alternative Investment Fund Managers Directive

As I reported at the time of the Half Yearly Report, in August 2014, the Company appointed Aberdeen Fund Managers Limited (''AFML''), to act as the Company's Alternative Investment Fund Manager ("AIFM") and entered into a new management agreement with AFML on 14 July 2014. Under this agreement, AFML has delegated portfolio management services to Aberdeen Asset Managers Limited, which continues to act as the Company's Investment Manager.  There was no change to the commercial arrangements from the previous investment management agreement. In addition, on the same date, the Company entered into a depositary agreement with AFML and BNY Mellon Trust & Depositary (UK) Limited which replaced the previous custodial arrangements. The appointment of a depositary was a new requirement under the Directive which has resulted in an increase in administrative costs estimated to be of the order of £100,000 per annum.  These regulatory changes have also placed additional periodic disclosure requirements on the Company's AIFM, AFML. As a result, your Annual Report contains an additional un-audited disclosure page which you will find at the end of the Annual Report.

 

Annual General Meeting

This year's Annual General Meeting will be held in Glasgow on 28 April 2015 at 12.30 p.m. at the Glasgow Royal Concert Hall, 2 Sauchiehall Street, Glasgow G2 3NY. As at previous AGMs, there will be a presentation from the Manager and an opportunity to meet the Directors and Manager and ask questions. I should be grateful if you would confirm your attendance by completing the separate notice that will accompany the Annual Report and returning it together with an indication of any particular questions.  I hope as many shareholders as possible will be able to attend.

 

Directorate

Fred Shedden retired from the Board at the conclusion of the Annual General Meeting on 29 April 2014 and I should like to reiterate the Board's thanks and appreciation for the contribution made by Fred as a Director of the Company and in his previous role as Chairman of the Audit Committee.  Following a detailed search using the services of an independent external recruitment consultancy, David Hardie was appointed to the Board with effect from 1 May 2014.  David has brought to the Board considerable expertise, being a corporate lawyer by background who was until recently a partner of UK law firm, Dundas & Wilson (now part of CMS Cameron McKenna), where he had also previously held various positions including head of corporate, managing partner and chairman.

 

Outlook

In the business of investing, when attempting to predict the future, the past often provides some useful guidance. The unfortunate truth is just how unrecognisable today's global economic landscape has become. Government balance sheets bear the strain of record debts and unsustainable financing obligations. Central banks have presided over an expansion of their balance sheets that defies any prior experience. Negative inflation rates are pressurising consumers to delay future purchases now that expectations of lower prices tomorrow are gaining credence.  Banks are beginning to charge customers to deposit cash and bond yields have reached unprecedented lows. For investors the search for income has become a real challenge.  Such economic conditions offer little guidance for the future, other than to illustrate how difficult the investment landscape ahead might be.  In a world that is increasingly inter-dependent and reliant on free movement of capital, finding safe havens for savings at attractive valuations remains the challenge. Your Board believes that the best way of navigating this environment is for the Trust to continue with its approach of broad portfolio diversification, emphasising high quality companies with diversified income streams, sound business models and competent management.

 

 

 

Kevin Carter

Chairman

9 March 2015

 

 

4.    MANAGER'S REVIEW

 

Background

Certain maxims exist globally irrespective of country, creed or culture.  Oil and water don't mix; foundations built on sand don't last; pouring petrol on fire won't extinguish flames.  Applying such logical thought and common sense to the financial world, it would be reasonable to assume borrowing more money won't reduce debt.   Self-evident, perhaps, but seemingly beyond comprehension for central bank policymakers.  Complicit with relentlessly layering more debt on top of existing debt in a futile attempt to solve the chronic global debt crisis, their actions remain beyond contempt.  Unfortunately such practice continued to dominate recent global economic policy.  Ironically, as financial regulators belatedly scrutinised commercial bank balance sheets in pursuit of adequate capital ratios, no-one questioned the balance sheets of the central banks themselves.  Excessively burdened by distressed bond purchases and quantitative easing obligations, many ended the year close to breaking point. Renewed tensions towards European unity and Greece, in particular, emphasised exactly this point.  In a year which began fearing interest rate rises and inflation, ended with policy generally unchanged and prices falling.  Central banks proved powerless to counter escalating deflationary forces as stimulative measures failed to reinvigorate growth.  The private sector suffered significantly.  Faced with stubbornly high unemployment and declining real incomes, households preferred to save gains from falling food and energy prices rather than spend.  Standards of living fell, particularly in Europe and the UK, as debt deleveraging dominated domestic finances.  Retail and service sector businesses endured a torrid twelve months coping with intense competition and cautious consumers.  The vulnerabilities of purely consumer spending based economies were cruelly exposed.  Business confidence, investment and expansion succumbed to inertia associated with focusing on cost control above all else. Few were brave enough to expand in a world of deficient domestic demand.  Owners of financial assets faced a similar dilemma to that of last year.  Plummeting bond yields all but extinguished returns from cash; global equity markets remained unsupported by corporate profitability; and increasing volatility tested the resolve of complacent investor sentiment.  History will show positive aggregate returns for the global equity index in 2014 but for many it proved a year of painful financial losses.  Thankfully, global diversification did provide protection from individual country and sector weakness in a year best described as "walking on eggshells". 

 

Investor sentiment cooled significantly from the widespread euphoria associated with 2013's equity market returns. Consistently disappointing economic data dashed hopes of any return to normal financial relationships.  Sovereign bonds in the developed world ignored deteriorating credit conditions and performed well, but most equity markets struggled to make progress.  The UK market only just scraped into positive territory, with paltry overall dividend growth of less than 2.0% reflecting declining business confidence.  Japan stormed into 2014 leading the popularity polls but ultimately failed to deliver expected returns.  A Sterling return of 2.7% from such Central Bank largesse proved extremely disappointing.  Plagued by deepening deflation and widespread austerity, domestic European companies found profit growth hard to come by.  Negative market returns of 2%, 3% and 4% from Italy, France and Germany respectively emphasised growing concerns regarding the region's future.  The portfolios +15% return from its 9.0% weighting in Switzerland proved resilient under the circumstances.  Asia ex Japan also provided some bright spots.  Taiwan, Indonesia, China and Hong Kong all delivered strong capital and income growth, primarily due to quality companies focusing on creating shareholder value.  Improving fundamentals across the region augur well for this trend to continue.  By far the widest divergence of returns was witnessed in the Americas.  North America recorded the largest gains in Sterling terms, up 19.6%, propelled to historical highs by excessive corporate share buybacks and expanding valuations, while Latin America drifted downwards, declining by 7.1%.  South of the Rio Grande, rising risk aversion and disenchantment towards the asset class negatively affected sentiment throughout.  Encouragingly the broader Emerging Market asset class is now firmly out of favour with international investors. Selling pressures, which prompted three consecutive years of negative fund flows out of equities, tangibly abated towards year end.  The process of improving sentiment can now begin.

 

Performance

The Net Asset Value total return for the year to 31 December 2014 with net dividends reinvested was 3.0% compared with a return on the benchmark of 7.5%.  A full attribution analysis is given in the Annual Report, which details the various influences on portfolio performance.  In summary, of the 419 basis points (before expenses) of performance below the benchmark, asset allocation deleted 268 basis points and stock selection deleted 151 basis points.  Structural effects relating to the fixed income portfolio and gearing, net of borrowing and hedging costs, deleted a further 31 basis points of relative performance.

 

North America

The disconnect between economic fundamentals and the American stock market clearly widened over the period. Unrestrained enthusiasm for equities inflated prices to historical highs, yet support from improving macro-economics and corporate profitability was conspicuously absent.  The US equity market in Sterling terms returned over 20.0%, despite the overall decline of US pre-tax corporate profits.  The process of exiting quantitative easing, the grotesque practice of expanding liquidity through printing money deployed so religiously by policymakers since 2009, dominated the financial landscape.  Concluded by year end and proving less painful than expected, hopes were high for a return to economic normality.  Reality suggested something very different. The legacy left from QE shows a misguided experiment with lasting negative consequences: five years of monetary madness during which credit growth remained anaemic, banks showed no appetite to lend, US nominal growth failed to meaningfully accelerate and reflation did not occur.  The dubious desire to "inflate away" excessive debt was not fulfilled as outstanding sovereign liabilities spectacularly boomed.  For the next generation, record outstanding debt of $60 trillion is an inheritance it could well do without.  In context, this mountainous liability is equivalent to borrowing $80 million each day, every day, since the birth of modern times.  Realistically, it may take another 2000 years to pay it back!  For quite simply, in the absence of domestic savings, the United States needs to attract foreign capital to finance such fiscal profligacy.  With ten year bond yields below 2.0% and falling fast, prospective buyers are rapidly diminishing.  Dealing with the unintended consequences of QE also involves facing financial market challenges.  For there can be no doubt such unorthodox monetary policy has inflated asset prices way above fundamental values.  Last year witnessed US companies issuing cheap debt to buy expensive equities, as corporate America funded record share buybacks in a cosmetic attempt to show earnings per share growth.  Without the availability of ample liquidity, this process will likely stop.  Similarly, the escalating stampede toward technology stocks so prevalent of late, had its roots in easy money.  Enduring negative real returns on bank deposits, savers eagerly embraced the equity cult.  A parabolic rise in the technology-heavy US Nasdaq index is testimony to investors increasingly being seduced by concepts over cash flow, new paradigms over profits, delusions over dividends.  How long such asset inflationary madness will prevail is tough to predict but for those who paid the wrong price, capital will ultimately be destroyed.  For the beleaguered US economy, already struggling with anaemic demand and constrained consumer confidence, an opaque outlook awaits. Without the Federal Reserve printing money can it stand on its own two feet?  In the hostile environment of remote Scottish islands it is said that if the wind ever stopped blowing the people would fall over.  Let us hope the US economy avoids the same fate now the blast from quantitative easing is extinguished.  Net divestment from the region selectively continued, leaving a residual portfolio of high quality, defensive companies.

 

UK

"It couldn't happen to us, could it?"  The "it" being deflation; the "us" being the UK economy: the possibility being descent into what only Japan has endured for the past twenty years.  In a world becoming increasingly accustomed to unorthodox economics, stranger things have happened.  Faltering growth, falling prices and falling incomes confronted an already fragile UK economic landscape in 2014. Imbalances continued to deteriorate with record current account deficits, negative net investment and stubbornly high fiscal shortfalls adding to existing woes.  Britain's time-honoured tendency to live beyond its means prevailed, as did common perceptions that its inability to pay its way in the world doesn't matter.  Lessons learnt from history suggest it most certainly does.  As total household, business, financial and government debt breached record highs, Britain increasingly faced a Hobson's choice.  Issue more debt to finance existing debt or sell off assets to foreign buyers.  The problem is, the more prices fall, the more bond yields fall.  The lower bond yields go, the more reluctant foreign capital becomes to re-finance existing debt rollovers. By year end the UK economy had entered extremely uncomfortable territory.  Insufficient domestic savings exposed the potential vacuum in financing should international capital find more attractive returns elsewhere.  It may not be long before it does. Somewhat irrationally, despite such fundamental fragilities, sentiment within and towards domestic financial assets remained relatively upbeat.  Policymakers peddled persistent optimism, citing rising house prices and Sterling strength as confirmation that all was well.  Positive rhetoric was resolute and relentless, yet, to the more critical observer, constantly without substance.  Beneath the veneer of respectability, structural decline proved all too evident, highlighting a rising age profile, stagnation of wages, persistently weak capital spending and ongoing erosion of international competitiveness.  Those expecting a return to long term average economic growth and prosperity are likely to be disappointed.  Divestment from UK equities continued to be implemented through the outright sale of Centrica and profit taking in British American Tobacco.  With Sterling adjudged to be increasingly overvalued and the outlook for corporate profits diminishing, better opportunities were deemed to exist elsewhere.

 

Europe

European policymakers increasingly found themselves impotent to influence the impacts of deflationary pressures sweeping across the continent.  Economic stagnation prevailed as 27 million Europeans (12% of the workforce) remained unemployed.  Real incomes continued to contract from Portugal to Poland and all countries in-between, keeping consumption muted.  Widespread austerity provided the catalyst for rising social unrest, set against a backdrop of politicians promising much but delivering little.  The problem was virtually no orthodox policy measures were left with which to act. Previous stimulative measures had already reduced interest rates to essentially zero and expanded sovereign debts beyond rational comfort levels.  From a policy perspective, the cupboard was bare.  The European Central Bank frantically discussed emergency measures yet remained powerless as the deflationary spiral gathered downward momentum.  Falling prices took inflation into negative territory, households began deferring spending, the windfall tax relief of lower energy costs was saved, not spent.  All classic deflationary trends; all extremely worrying.  For European companies domestically focused, business conditions were extremely tough: downward pressure on selling prices, revenue growth, gross margins and ultimately operating margins.  Hardly an inspiring environment for equity investment, and so it proved.  In Sterling terms, most European stock markets declined over the period, the only notable exception being a positive return of 6.9% from Switzerland.  Portfolio activity within the region focused on staying defensive, emphasising quality companies with high overseas earnings.  Despite overall equity valuations appearing relatively attractive, Europe remains plagued by numerous economic abnormalities and unrecognisable economic relationships.  Negative nominal interest rates in Switzerland and Germany currently mean depositors must pay to deposit money in banks!  Ten year bond yields in Europe hover around lows not witnessed in centuries!  Sovereign balance sheets, crippled with debt only just solvent in the eyes of the beholders!  There can be no doubt such challenges will test the resolve of the political establishment and European unity.  Pressure is building on the ECB to print money in Europe.  For politicians whose economic planning horizons rarely extend beyond the next election, the temptation is there.  Conventional wisdom equates printing money with stimulus and growth thereby making life easier for incumbent governments.  How naïve.  For those unimpressed by the emperor's new clothes, QE is the left hand lending money to the right hand, QE is the monetary equivalent of methadone, QE is perpetuating dependence on cheap money, QE is unsustainable debt creation and QE is ultimately the debasement of an untenable currency.  Sadly, at the eleventh hour, the ECB capitulated and succumbed.  Desperate times indeed but such desperate measures have no respected place in fundamental long term investment.

 

Latin America

Black gold and the blue Brazil.  Without doubt oil prices and Latin America's largest economy were popularly perceived as having exerted greatest influence on financial market performance in 2014.  Headline returns of +1.7% from sovereign bonds and -7.1% from regional equities in Sterling terms suggested negative forces at work.  Closer inspection actually identified a confluence of factors contributing to investor scepticism towards the region but simplicity dictated Brazil and oil were to blame.  In a world of rising risk aversion, no deeper explanation was required.  Constant criticism was levelled at Brazil.  Economic growth disappointed, the country's high dependency on food and commodity exports constraining prosperity as international demand softened.  Manufacturing output received a welcome boost from improved global competitiveness courtesy of a weakening currency, but not enough to offset inactivity elsewhere.  Productivity remained problematic as the nation stopped to host the World Cup and stayed economically disengaged and distracted by the Presidential election.  The closest fought political campaign in decades witnessed the incumbent president Rouseff only just holding office by the skin of her teeth.  The razor-thin victory margin combined with increasingly audible frustration of middle class Brazilians towards ineffective government suggests change is on the horizon.  Restored fiscal rectitude, reduced State intervention and re-invigorated economic momentum are required.  A refreshed cabinet of respected policy makers now has the task in hand.  Elsewhere in Latin America, weaker currencies and lower oil prices affected relative prospects both positively and negatively, but for Mexico the consequences proved more ambiguous.  Lower energy prices undermined business confidence over recently secured energy reforms.  With an estimated U$50bn of oil-related foreign direct investment at risk such sentiment was well founded albeit perhaps premature.  A prolonged period of low oil prices will be required before a true assessment can be made.  For the wider population, such issues were of little concern.  Falling unemployment, four per cent. wage growth and benign inflation kept consumer confidence on an upward trajectory.  In effect, business as usual for the private sector.  Portfolio holdings performed well operationally although dividends from Grupo Asur and Femsa, both of which paid twice in fiscal 2013 for advantageous tax reasons, were noticeable by their absence.  Both companies are expected to revert to normal schedules this year.  Against an increasingly hostile dividend environment elsewhere in the world, income returns from the region remain very attractive. This, combined with attractive diversification characteristics and opportunities for capital gain, support a positive investment case.

 

Japan and Asia

Remaining fully committed to the monetary experiment dubbed Abenomics, which the world welcomed with evangelical equanimity less than eighteen months ago, the Bank of Japan continued to turn previously conservative Japanese macro-economic management upside down.  Radical, populist, monetary policies designed to inflate asset prices were relentlessly pursued throughout the year.  Scant regard seemed to be paid to their effectiveness or not.  Unsurprisingly, enthusiasm waned sharply as the real effects of Abenomics monetary vandalism percolated into the population's psyche.  Lower real incomes, loss of international purchasing power, sharply higher import costs, higher taxes and escalating debt obligations now prevailed for an aging population accustomed to dealing with deflation.  Above all, as policy makers contrived to create negative real interest rates, Japanese savers were consigned to watching their wealth eaten away by inflation.  The enigma that is Japanese economic policy became even more puzzling.  Why create negative saving returns when the whole nation is totally dependent on domestic savings?  Forcing bond yields to zero through printing money is tantamount to cutting off the hand that feeds you.  In response, the savings ratio in Japan became the dis-saving ratio falling into negative territory for the first time since 1955.  Where this leaves Japan is almost impossible to predict.  Who will finance unsustainable government debt at rates that guarantee negative returns?  Where does support for the currency come from?  Economic reforms, wage increases and widespread immigration needed to replenish depleting pension funds remain as elusive as ever.  With only political promises to cling onto, time is rapidly running out for policy makers to deliver.

 

Politics dominated the economic and financial landscape elsewhere in Asia.  Thailand's rich history of political drama was updated as yet another military coup witnessed the arrival of yet another non-elected government complete with martial law and social curfews.  Domestic investors remained distinctly unperturbed as the "having seen it all before" mentality clearly prevailed.  A positive return of +23.6% from the Thai equity reinforced such sentiment.  Conversely, in India, democratic political change may prove momentous.  Populist candidate Modi swept to a landslide victory on a mandate for investment change.  The opportunity now exists for previous barriers to business associated with insular family dynasties and entrenched political self-interest to be dismantled.  Similarly, Indonesia democratically voted for change and reform, with new president Widodo intent on delivering results rather than just potential.  Politically induced currency and bond market weakness ahead of both these elections provided the opportunity to invest in local currency sovereign and corporate debt.  Improving economic fundamentals and attractive growth dynamics will hopefully reward this investment going forward.  Economic news emanating from China also gripped investors' attention.  Engineering the sharpest currency devaluation for years, the Bank of China underlined its commitment to radically changing policy if deemed in the national interest.  Unlike Washington or Westminster, Beijing has no intention of pandering to domestic financial markets.  Excess credit within the Chinese shadow banking system will clearly no longer be tolerated.  Such measures combined with other pragmatic policies currently quietly delivering progress across the region, greatly enhance the positive investment case for Asia.  Double digit portfolio returns based on solid profit and dividend gains, contributed positively to absolute and relative performance during 2014.  Despite reduced overall exposure to the region arising primarily from the takeover of Wing Hang Bank, prevailing opportunities suggest long term positives remain very much intact.

 

Conclusion

Neither a borrower nor a lender be.  Not so much a global maxim, more a Scottish mantra.  A philosophical concept built on common sense and fiscal prudence, yet in today's world, unfortunately, neither possible nor pragmatic.  For without some debt to oil the wheels of commerce the global financial system simply could not function.  Alas debt dependency, built up over decades, has disfigured private and public sector balance sheets beyond any point of recognition.  Fearing widespread austerity and fragile democracy, policy makers pump even more credit into the financial arteries of an already desperately indebted system.  In the United States alone, the national debt is on pace to double during the eight years of the current administration.  In other words, from the most recent two-term presidency the US government will accumulate as much debt as it did under all the other presidents in US history.  For those advocates of easy money and blinkered short-termism, none of this matters.  Unfortunately in the real world it most certainly does.  Crippling debt-financing commitments condemn numerous global economies to a future of lower growth, persistent unemployment, lower wages, lower living standards and few opportunities.  Companies operating in such environments can expect intense competition, constant pressure on margins and capital constraints on innovation.  Cost control will reign supreme.  For those more fortunate to have global presence, the focus on higher growth, higher profitability markets become paramount.  To find these, companies must embrace regions with abundant savings, countries not constrained by irresponsible credit cultures and consumers benefitting from rising real incomes and increasing confidence.  Whether in Asia, Africa or South America the challenge remains the same: identify solid growth businesses with strong balance sheets and proven management teams willing to return cash to shareholders, then invest for the long term.  Possessing exactly the type of flexible investment mandate to pursue such global opportunities, Murray International will continue to emphasise truly global diversification in pursuit of its capital and income objectives.

 

 

Bruce Stout

Aberdeen Asset Managers Limited

Senior Investment Manager

9 March 2015

 

 

5.    DIRECTORS' REPORT

 

Introduction

The Directors present their report and the audited financial statements for the year ended 31 December 2014.

 

The Directors disclosed in the Annual Report (with the exception of D Hardie who was appointed on 1 May 2014) held office throughout the year under review and, together with A C Shedden who retired from the Board on 29 April 2014, were the only Directors who served during the year.

 

A review of the Company's activities is given in the Strategic Report. This includes the overall strategy of the business of the Company and its principal activities, main risks faced by the Company, likely future developments of the business, the recommended dividend and any details of acquisition of its own shares by the Company.

 

Status

The Company is an investment trust whose shares are traded on the London Stock Exchange and its Ordinary and B Ordinary shares are listed on the premium segment of the London Stock Exchange.  The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 January 2012.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2014 so as to enable it to comply with the ongoing requirements for investment trust status.

 

The affairs of the Company were conducted in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

 

The Company is registered as a public limited company.  The Company's registration number is SC006705. The Company has no employees and the Company makes no political donations.

 

Results and Dividends

The total gain attributable to equity shareholders for the year amounted to £35.4 million.

 

A final dividend for the year ended 31 December 2013 of 14.5p per Ordinary share was paid on 16 May 2014. Interim dividends of 10.0p each were paid on 15 August 2014, 17 November 2014 and 18 February 2015 making a total distribution to Ordinary shareholders of £55.3 million. The Directors are recommending a final dividend for the year ended 31 December 2014 of 15.0p per Ordinary share payable on 15 May 2015 to holders of Ordinary shares on the register at close of business on 7 April 2015.

 

Whenever a cash dividend is paid on the Ordinary shares, a bonus issue of B Ordinary shares is made to the holders of B Ordinary shares. In connection with the final dividend the Directors will make a corresponding capitalisation issue of B Ordinary shares credited as fully paid. This capitalisation issue will be equivalent in asset value to the final dividend now recommended on the Ordinary shares but excluding any tax credit thereon. Subject to the approval of shareholders of the final dividend, definitive certificates in respect of the capitalisation issue will be posted on 15 May 2015. Fractional entitlements will be sold for the benefit of B Ordinary shareholders. The new B Ordinary shares will rank equally with the existing B Ordinary shares.

 

Resolution No. 11 to approve the final dividend will be proposed at the Annual General Meeting.

 

The Net Asset Value per Ordinary and B Ordinary share at 31 December 2014 was 966.6p (2013 - 981.0p).

 

Share Capital

At 31 December 2014 there were 127,361,901 Ordinary shares and 975,063 B Ordinary shares in issue representing 99.24% and 0.76% respectively of the total issued capital.  During the year 2,232,500 new Ordinary shares were issued for cash at a premium to the prevailing NAV per share; 42,624 new B Ordinary shares were issued by way of capitalisation issue in lieu of dividends; and, 3,194 B Ordinary shares were converted into new Ordinary shares.

 

Management and Secretarial Arrangements

The Company's investment management arrangements with the Aberdeen Asset Management Group were reorganised during the year and the Company has appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager with effect from 15 July 2014. In order to facilitate this appointment, the Company terminated its existing investment management agreement with Aberdeen Asset Managers Limited ("AAML") and entered into a new management agreement with AFML. The new management agreement is made on the same commercial terms as the previous agreement with AAML and is also compliant with the new regulatory regime. Under these new arrangements, the Company's portfolio will continue to be managed by Aberdeen by way of a group delegation agreement in place between AFML and AAML.

 

Investment management services are provided to the Company by AFML. Company secretarial, accounting and administrative services have been delegated by AFML to Aberdeen Asset Management PLC.

 

For the year ended 31 December 2014, the management and secretarial fees payable to AFML were calculated and charged on the following basis:

 

-      an investment management fee payable to AFML of 0.5% per annum of the value of total assets, less unlisted investments and all current liabilities excluding monies borrowed to finance the investment objectives of the Company, averaged over the six previous quarters. A fee of 1.5% per annum is charged on the value of unlisted investments. The investment management fee is chargeable 30% against revenue and 70% against realised capital reserves.

 

Included in the charge of 0.5% above is a secretarial fee of £100,000 per annum which is chargeable 100% to revenue.

 

In addition, the Manager is entitled to a performance fee on the following basis:

 

-      a fee of 5% of the first 2% of any outperformance of the Company's net asset total return over that of its benchmark;

-       a fee of 10% of any additional outperformance against the benchmark.

 

The total amount of the fee earned by the Manager in any one year (comprising the basic management fee and the performance fee) is capped at 0.8% of the average value of the Company's total assets less current liabilities. Any performance fee is paid in equal instalments over a four year period with any future underperformance offset against the fee payable.

 

No fees are charged in the case of investments managed or advised by the Aberdeen Asset Management Group. The management agreement may be terminated by either party on the expiry of one year's written notice. On termination the Manager would be entitled to receive fees which would otherwise have been due up to that date.

 

The Board considers the continued appointment of the Manager on the terms agreed to be in the interests of the shareholders as a whole because the Aberdeen Asset Management Group has the investment management, secretarial, marketing and administrative skills required for the effective operation of the Company.

 

Directors' & Officers' Insurance

The Company purchases and maintains liability insurance covering the Directors and Officers of the Company. The Company's Articles of Association provide an indemnity to the Directors out of the assets of the Company against any liability incurred in defending proceedings or in connection with any application to the Court in which relief is granted.

 

Corporate Governance

The Statement of Corporate Governance forms part of this Directors' Report and covers the Company's compliance with The UK Corporate Governance Code and is shown in the Annual Report.

 

Going Concern

In accordance with the Financial Reporting Council's guidance on Going Concern and Liquidity Risk issued in October 2009 the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of a diverse portfolio of listed equity shares and bonds which in most circumstances are realisable within a very short timescale.

 

The Company is in process of reviewing options to replace the Yen8.4 billion loan facility with RBS which will mature in May 2015. However, at this stage it is too early to confirm that the facility will be renewed. If acceptable terms are available from the existing bankers, or any alternative, the Company would expect to continue to access a similarly sized facility. However, should the Board decide not to replace the facility any outstanding borrowing would be repaid through the proceeds of equity sales.

 

The Directors are mindful of the principal risks and uncertainties disclosed in the Strategic Report and have reviewed forecasts detailing revenue and liabilities.  The Directors believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements.

 

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest, as required by the Companies Act 2006. As part of this process, the Directors are required to disclose other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

 

The Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Manager also adopts a group-wide zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Manager's anti-bribery and corruption policies are available on its website www.aberdeen-asset.com.

 

Accountability and Audit

Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware, and he or she has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

Independent Auditor

The Company's policy is to conduct a regular review of its audit arrangements. The last tender took place in 2013 and following a detailed and rigorous process involving large and medium-sized audit firms the Board's recommendation to shareholders to reappoint Ernst & Young LLP ("EY") was duly approved at the AGM in April 2014.

 

The auditor, EY, has expressed its willingness to continue in office. Resolution No. 9 to re-appoint EY as the Company's auditor will be put to the forthcoming Annual General Meeting, along with Resolution No. 10 to authorise the Directors to fix their remuneration. Details of fees relating to non-audit services are disclosed below.

 

Annual General Meeting

The Notice of Annual General Meeting is contained in the Annual Report.

 

Discount Management Policy and Special Business at Annual General Meeting

Share Buybacks

At the Annual General Meeting held on 29 April 2014, shareholders approved the renewal of the authority permitting the Company to repurchase its Ordinary shares.

 

The Directors wish to renew the authority given by shareholders at the previous Annual General Meeting. The principal aim of a share buyback facility is to enhance shareholder value by acquiring shares at a discount to Net Asset Value, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to Net Asset Value per share, should result in an increase in the Net Asset Value per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the Net Asset Value per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the Annual General Meeting.

 

Under the Listing Rules, the maximum price that may be paid on the exercise of this authority must not be more than the higher of (i) an amount equal to 105% of the average of the middle market quotations for a share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the share is purchased; and (ii) the higher of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p per share.

 

It is currently proposed that any purchase of shares by the Company will be made from the capital reserve of the Company. The purchase price will normally be paid out of the cash balances held by the Company from time to time.

 

Special Resolution No. 14 will permit the Company to buy back shares and any shares bought back by the Company may be cancelled or held as treasury shares. The benefit of the ability to hold treasury shares is that such shares may be resold. This should give the Company greater flexibility in managing its share capital and improve liquidity in its shares. The Company would only sell on treasury shares at a premium to Net Asset Value. When shares are held in treasury, all voting rights are suspended and no distribution (either by way of dividend or by way of a winding up) is permitted in respect of treasury shares. If the Directors believe that there is no likelihood of re-selling shares bought back, such shares would be cancelled.

 

Special Resolution No. 14 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum of 14.99% of shares in issue at the date of the Annual General Meeting (amounting to 19,093,797 Ordinary shares and 147,632 B Ordinary shares as at 9 March 2015). Such authority will expire on the date of the 2016 Annual General Meeting or on 30 June 2016, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General Meeting or earlier if the authority has been exhausted.

 

During the year ended 31 December 2014 and up to the date of this Report no share repurchases have taken place and no shares are currently held in treasury.

 

Issue of Shares

In terms of the Companies Act 2006 (the "Act") the Directors may not allot shares unless so authorised by the shareholders. Resolution No. 12 in the Notice of Annual General Meeting which will be proposed as an Ordinary Resolution will, if passed, give the Directors the necessary authority to allot shares up to an aggregate nominal amount of £3,209,044 (equivalent to 12,737,690 Ordinary shares and 98,487 B Ordinary shares or 10% of the Company's existing issued share capital at 9 March 2015, the latest practicable date prior to the publication of this Annual Report). Such authority will expire on the date of the next Annual General Meeting or on 30 June 2016, whichever is earlier. This means that the authority will have to be renewed at the next Annual General Meeting.

 

When shares are to be allotted for cash, Section 561 of the Act provides that existing shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares otherwise than by a pro rata issue to existing shareholders. Special Resolution No. 13 will, if passed, also give the Directors power to allot for cash equity securities up to an aggregate nominal amount of £3,209,044 (equivalent to 12,737,690 Ordinary shares and 98,487 B Ordinary shares or 10% of the Company's existing issued share capital at 9 March 2015, the latest practicable date prior to the publication of this Annual Report), as if Section 561 of the Act does not apply. This is the same nominal amount of share capital which the Directors are seeking the authority to allot pursuant to Resolution No. 12. This authority will also expire on the date of the 2016 Annual General Meeting or on 30 June 2016, whichever is earlier. This authority will not be used in connection with a rights issue by the Company.

 

The Directors intend to use the authority given by Resolutions No. 12 and 13 to allot shares and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. Accordingly, issues will only be made where shares can be issued at a premium of 0.5% or more to Net Asset Value and there will never be any dilution for existing shareholders.  The issue proceeds will be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in general meeting. Resolution No. 13 will also disapply pre-emption rights on the sale of treasury shares as envisaged above. Once again, the pre-emption rights would only be disapplied where the treasury shares are sold at a premium to Net Asset Value of not less than 0.5%.

 

Recommendation

The Directors consider that the authorities granted above are in the best interests of the shareholders taken as a whole and recommend that all shareholders vote in favour of the resolutions, as the Directors intend to in respect of their own beneficial holdings of Ordinary shares amounting in aggregate to 82,490 shares, representing approximately 0.07% of the Company's issued share capital as at 9 March 2015.

 

Additional Information

The following further information is disclosed in accordance with the Companies Act 2006 and DTR 7.2.6:

 

-      The Company's capital structure and voting rights are summarised in note 14;

-      Details of the substantial shareholders in the Company are listed in the Annual Report;

-      The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and are summarised in the Annual Report;

-      Amendment of the Company's Articles of Association and powers to issue or buy back the Company's shares requires a special resolution to be passed by shareholders;

-      There are: no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; no agreements which the Company is party to that might affect its control following a takeover bid; and,

-      There are no agreements between the Company and its Directors concerning compensation for loss of office.

 

By order of the Board of Murray International Trust PLC

 

Aberdeen Asset Management PLC

Secretary

40 Princes Street, Edinburgh EH2 2BY

9 March 2015

 

 



6  FINANCIAL HIGHLIGHTS

 


31 December 2014

31 December 2013

%
change

Total assets less current liabilities (before deducting prior charges)

£1,429,179,000

£1,427,525,000


Equity shareholders' funds (Net Assets)

£1,240,537,000

£1,236,718,000


Market capitalisation

£1,317,337,000

£1,328,538,000

-0.8

Share price - Ordinary share (mid market)

1026.0p

1052.0p

-2.5

Share price - B Ordinary share (mid market)

1087.5p

1305.0p

-16.7

Net Asset Value per Ordinary and B Ordinary share

966.6p

981.0p

-1.5

Premium to Net Asset Value on Ordinary shares

6.1%

7.2%






Gearing (ratio of borrowings less cash to shareholders' funds)




Net gearing{A}

13.8%

15.1%






Dividends and earnings per Ordinary share




Revenue return per share

40.8p

43.8p

-6.8

Dividends per share{B}

45.0p

43.0p

+4.7

Dividend cover (including proposed final dividend)

0.91

1.02


Revenue reserves{C}

£64,690,000

£68,120,000






Ongoing charges{D}




Excluding performance fee

0.73%

0.66%


Including performance fee

0.73%

0.66%




{A}         Calculated in accordance with AIC guidance "Gearing Disclosures post RDR"

{B}         The figure for dividends per share reflects the years to which their declaration relates (see note 8) and assuming approval of the 15.0p (2013 - 14.5p) final dividend.

{C}         The revenue reserve figure does not take account of the third interim and final dividends amounting to £12,736,000 and £19,104,000 respectively (2013 - £11,887,000 and £18,163,000).

{D}         Ongoing charges are calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.

 

 

Performance (total return)

 


1 year

3 year

5 year

10 year


% return

% return

% return

% return

Share price{A}

+1.7

+26.0

+62.3

+237.0

Net asset value per Ordinary and B Ordinary share

+3.0

+22.9

+53.0

+195.3

Benchmark

+7.5

+45.2

+59.2

+123.9


Total return represents the capital return plus dividends reinvested.

{A} Mid to mid.

 

 

7.    STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

 

-    select suitable accounting policies and then apply them consistently;

-    make judgments and accounting estimates that are reasonable and prudent; and,

-    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

 

The financial statements are published on www.murray-intl.co.uk which is a website maintained by the Company's Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Each of the Directors confirms that to the best of his or her knowledge:

 

-      the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

-      the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces; and

-      that in the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy.

 

For Murray International Trust PLC

 

Kevin Carter

Chairman

9 March 2015

 

 



8.    INCOME STATEMENT

 

For the year ended 31 December 2014

 



Year ended 31 December 2014

Year ended 31 December 2013



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

(Losses)/gains on investments

10

-

(9,252)

(9,252)

-

150

150

Income

2

62,609

-

62,609

63,717

-

63,717

Investment management fees

3

(2,165)

(5,052)

(7,217)

(2,038)

(4,756)

(6,794)

Performance fees

4

-

-

-

-

5,336

5,336

Currency losses

18

-

(27)

(27)

-

(411)

(411)

Other expenses

5

(1,995)

-

(1,995)

(1,964)

-

(1,964)



_______

_______

_______

_______

_______

_______

Net return before finance costs and taxation


58,449

(14,331)

44,118

59,715

319

60,034









Finance costs

6

(1,498)

(3,490)

(4,988)

(1,384)

(3,229)

(4,613)



_______

_______

_______

_______

_______

_______

Return on ordinary activities before tax


56,951

(17,821)

39,130

58,331

(2,910)

55,421









Tax on ordinary activities

7

(5,107)

1,336

(3,771)

(3,514)

310

(3,204)



_______

_______

_______

_______

_______

_______

Return attributable to equity shareholders


51,844

(16,485)

35,359

54,817

(2,600)

52,217



_______

_______

_______

_______

_______

_______









Return per Ordinary share assuming full conversion of the B Ordinary shares (pence)

9

40.8

(13.0)

27.8

43.8

(2.1)

41.7



_______

_______

_______

_______

_______

_______









The total column of this statement represents the profit and loss account of the Company. The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the year.

The accompanying notes are an integral part of these financial statements.











£'000

£'000

£'000

£'000

£'000

£'000

Ordinary dividends on equity shares

8

55,274

-

55,274

51,328

-

51,328



_______

_______

_______

_______

_______

_______









The above dividend information does not form part of the Income Statement.

 

 



9.    BALANCE SHEET

 

As at 31 December 2014

 



As at

As at



31 December 2014

31 December 2013


Notes

£'000

£'000

£'000

£'000

Non-current assets






Investments listed at fair value through profit or loss

10


1,408,332


1,421,277







Current assets






Debtors

11

8,015


6,827


Cash and short term deposits


17,766


4,535




_______


_______




25,781


11,362




_______


_______








Creditors: amounts falling due within one year






Bank loans

12/13

(44,933)


(13,212)


Other creditors

12

(4,934)


(5,114)




_______


_______




(49,867)


(18,326)




_______


_______


Net current liabilities



(24,086)


(6,964)




_______


_______

Total assets less current liabilities



1,384,246


1,414,313







Creditors: amounts falling due after more than one year






Bank loans and Debentures

12/13

(143,709)


(177,595)




_______


_______





(143,709)


(177,595)




_______


_______

Net assets



1,240,537


1,236,718




_______


_______







Capital and reserves






Called-up share capital

14


32,084


31,516

Share premium account



348,045


324,866

Capital redemption reserve



8,230


8,230

Capital reserve

15


787,488


803,986

Revenue reserve



64,690


68,120




_______


_______

Equity shareholders' funds



1,240,537


1,236,718




_______


_______







Net Asset Value per Ordinary and B Ordinary share (pence)

16


966.6


981.0




_______


_______

 

 



10    RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

For the year ended 31 December 2014











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 December 2013


31,516

324,866

8,230

803,986

68,120

1,236,718

Return on ordinary activities after taxation


-

-

-

(16,485)

51,844

35,359

Dividends paid

8

-

-

-

-

(55,274)

(55,274)

Issue of new shares

14

568

23,179

-

(13)

-

23,734



_______

______

______

_______

______

_______

Balance at 31 December 2014


32,084

348,045

8,230

787,488

64,690

1,240,537



_______

______

______

_______

______

_______









For the year ended 31 December 2013






Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total



£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 December 2012


30,546

282,240

8,230

806,596

64,631

1,192,243

Return on ordinary activities after taxation


-

-

-

(2,600)

54,817

52,217

Dividends paid

8

-

-

-

-

(51,328)

(51,328)

Issue of new shares

14

970

42,626

-

(10)

-

43,586



_______

______

______

_______

______

_______

Balance at 31 December 2013


31,516

324,866

8,230

803,986

68,120

1,236,718



_______

______

______

_______

______

_______









The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of these financial statements.

 

 



11    CASH FLOW STATEMENT

 

For the year ended 31 December 2014

 



Year ended

Year ended



31 December 2014

31 December 2013


Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

17


49,764


45,916







Returns on investments and servicing of finance






Interest paid


(5,052)


(4,435)




________


________


Net cash outflow from servicing of finance



(5,052)


(4,435)







Financial investment






Purchases of investments


(180,829)


(224,593)


Sales of investments


185,123


131,949




________


________


Net cash inflow/(outflow) from financial investment



4,294


(92,644)







Equity dividends paid

8


(55,274)


(51,328)




________


________

 Net cash outflow before financing



(6,268)


(102,491)







Financing






Share issue

14

23,734


43,586


Net loan drawdown


3,455


53,924




________


________


Net cash inflow from financing



27,189


97,510




________


________

Increase/(decrease) in cash

18


20,921


(4,981)




________


________

 

 



12    NOTES TO THE FINANCIAL STATEMENTS

 

For the year ended 31 December 2014


1.

Accounting policies


(a)

Basis of preparation



The financial statements have been prepared under the historical cost convention as modified to include the revaluation of fixed assets and in accordance with applicable UK Law and Accounting Standards (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted, and on a going concern basis.





(b)

Income



Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends are recognised on their due date. Provision is made for any dividends not expected to be received. Special dividends are credited to capital or revenue, according to their circumstances.






The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares.






Interest receivable from cash and short-term deposits and interest payable is accrued to the end of the year.





(c)

Expenses



All expenses are accounted for on an accruals basis and are charged to the Income Statement. Expenses are charged against revenue except as follows:



 -

transaction costs on the acquisition or disposal of investments are charged to the capital account in the Income Statement;



 -

expenses are treated as a capital item in the Income Statement and ultimately recognised in the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 30% to revenue and 70% to the capital reserve to reflect the Company's investment policy and prospective income and capital growth. The performance fee has been charged 100% to the capital reserve, as the fee will have arisen wholly or predominantly by virtue of the capital performance of the investments.






(d)

Taxation



Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Balance Sheet date.






Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 






The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Income Statement on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year, based on the marginal basis.





(e)

Investments



All investments have been designated upon initial recognition as fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis.






Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange.






Gains and losses arising from changes in fair value are treated in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.





(f)

Borrowings



Monies borrowed to finance the investment objectives of the Company are stated at the amount of the net proceeds immediately after issue plus cumulative finance costs less cumulative payments made in respect of the debt. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to capital in the Income Statement to reflect the Company's investment policy and prospective income and capital growth. 





(g)

Exchange rates



Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction.






Translation of all other foreign currency balances including foreign assets and foreign liabilities is at the rates of exchange at the year end. Differences arising from translation are treated as a gain or loss to capital or revenue within the Income Statement depending upon the nature of the gain or loss.





(h)

Derivative financial instruments



Financial derivatives are measured at fair value based on an appropriate model. Changes in the fair value of derivative financial instruments are recognised in the Income Statement under "(Losses)/gains on investments". If capital in nature, the associated change in value is presented as a capital item in the Income Statement.

 



2014

2013

2.

Income

£'000

£'000


Income from investments:




UK dividends

7,727

8,864


UK unfranked investment income

74

703


Overseas dividends

43,003

48,389


Overseas interest

10,973

5,756


Stock dividends

826

-



________

________



62,603

63,712


Interest:

________

________


Deposit interest

6

5



________

________


Total income

62,609

63,717



________

________







2014

2013


Income from investments comprises:

£'000

£'000


Listed UK

8,627

9,567


Listed overseas

53,976

54,145



________

________



62,603

63,712



________

________

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

3.

Investment management fees

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees

2,165

5,052

7,217

2,038

4,756

6,794



_______

______

______

______

______

______




Details of the fee basis are contained in the Directors' Report. The balance due to Aberdeen Fund Managers Limited at the year end was £1,793,000 (2013 - £1,765,000).

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

4.

Performance fees

£'000

£'000

£'000

£'000

£'000

£'000


Performance fees

-

-

-

-

(5,336)

(5,336)



________

________

_____

________

_______

_______










Details of the fee basis are contained in the Directors' Report. Due to underperformance against the Company's benchmark during the year ended 2013, a claw-back of previously earned but unpaid performance fees of £5,336,000 was triggered under the terms of the performance fee agreement.




Due to underperformance in the years ended 31 December 2013 and 31 December 2014 outperformance equivalent to £22,222,000 will need to be achieved before a performance fee again becomes payable.

 



2014

2013

5.

Other expenses

£'000

£'000


Shareholders' services{A}

688

755


Directors' remuneration 

164

155


Irrecoverable VAT

55

52


Secretarial fees{B}

100

100


Auditor's fees for:




- Statutory audit

24

23


- Other assurance services

13

8


- Tax compliance

24

9


Administrative expenses{C}

927

862



________

________



1,995

1,964



________

________




{A}        Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £504,000 (2013 - £558,000) was payable to Aberdeen Asset Managers Limited (AAM) to cover marketing activities during the year. At the year end £122,000 (2013 - £122,000) was due to AAM.


{B}        Details of the fee basis are contained in the Directors' Report. The balance due to Aberdeen Fund Managers Limited at the year end was £25,000 (2013 - £25,000).


{C}        Includes bank charges and custody fees of £449,000 (2013 - £477,000), depositary fees of £102,000 (2013 - £nil), stock exchange fees of £121,000 (2013 - £130,000) and printing, postage and stationery costs of £96,000 (2013 - £84,000).

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

6.

Finance costs

£'000

£'000

£'000

£'000

£'000

£'000


Bank loans and overdrafts

1,496

3,486

4,982

1,293

3,017

4,310


Swap contracts

-

-

-

89

208

297


Debenture stock

2

4

6

2

4

6



_____

_____

_____

_____

_____

_____



1,498

3,490

4,988

1,384

3,229

4,613



_____

_____

_____

_____

_____

_____

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

7.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Tax charge









The tax charge comprises:









Current UK tax

962

-

962

651

-

651



Tax relief to capital

1,336

(1,336)

-

310

(310)

-



Overseas tax

5,045

-

5,045

4,360

-

4,360



Overseas tax reclaimable

(1,274)

-

(1,274)

(1,156)

-

(1,156)



Double taxation relief

(962)

-

(962)

(651)

-

(651)




_____

_____

_____

_____

_____

_____



Total tax

5,107

(1,336)

3,771

3,514

(310)

3,204




_____

_____

_____

_____

_____

_____











(b)

Factors affecting the tax charge for the year



The UK corporation tax rate was 23% until 31 March 2014 and 21% from 1 April 2014, giving an effective rate of 21.5% (2013 - 23.25%). The tax assessed for the year is lower than the effective corporation tax rate. The differences are explained below:







2014

2013




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Return on ordinary activities before taxation

56,951

(17,821)

39,130

58,331

(2,910)

55,421












Tax thereon at an effective rate of 21.5% (2013 - 23.25%)

12,244

(3,832)

8,412

13,562

(677)

12,885



Effects of:









Non taxable UK dividends

(1,661)

-

(1,661)

(2,061)

-

(2,061)



Losses/(gains) on investments not taxable

-

1,989

1,989

-

(34)

(34)



Currency losses not taxable

-

5

5

-

95

95



Non taxable overseas dividends

(8,107)

-

(8,107)

(10,540)

-

(10,540)



Non taxable stock dividends

(178)

-

(178)

-

-

-



Irrecoverable overseas tax suffered

5,045

-

5,045

4,360

-

4,360



Overseas tax reclaimable

(1,274)

-

(1,274)

(1,156)

-

(1,156)



Double taxation relief

(962)

-

(962)

(651)

-

(651)



Tax relief obtained by expenses capitalised

1,336

(1,336)

-

310

(310)

-



Expenses charged to capital available to be utilised

(1,838)

1,838

-

(616)

616

-



Excess management expenses

502

-

502

306

-

306




_____

_____

_____

_____

_____

_____




5,107

(1,336)

3,771

3,514

(310)

3,204




_____

_____

_____

_____

_____

_____












No provision for deferred tax has been made in the current or prior accounting period.






The Company has not provided for deferred tax on chargeable gains or losses arising on the revaluation or disposal of investments as it is exempt from corporation tax on these items because of its status as an investment trust company.






The Company has an unrecognised deferred tax asset of £1,683,000 (2013 - £2,111,000) arising as a result of unutilised management expenses of £8,414,000 (2013 - £10,555,000). Any excess management expenses will be utilised against any taxable income that may arise.

 



2014

2013

8.

Ordinary dividends on equity shares

£'000

£'000


Amounts recognised as distributions paid during the year:




Third interim for 2013 of 9.5p (2012 - 9.0p)

11,887

10,915


Final dividend for 2013 of 14.5p (2012 - 13.5p)

18,163

16,643


First interim for 2014 of 10.0p (2013 - 9.5p)

12,620

11,885


Second interim for 2014 of 10.0p (2013 - 9.5p)

12,669

11,885


Refund of unclaimed dividends

(65)

-



_______

_______



55,274

51,328



_______

_______




In accordance with UK GAAP the third interim dividend and proposed final dividend for 2014 have not been included as liabilities in these financial statements. The proposed final dividend for 2014 is subject to approval by shareholders at the Annual General Meeting.




We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £51,844,000 (2013 - £54,817,000).







2014

2013



£'000

£'000


Three interim dividends for 2014 of 10.0p (2013 - 9.5p)

38,025

35,657


Proposed final dividend for 2014 of 15.0p (2013 - 14.5p)

19,107

18,159



_______



53,816



_______

_______






Subsequent to the year end the Company has issued a further 15,000 Ordinary shares; therefore the amount reflected above for the cost of the proposed final dividend for 2014 is based on 127,376,901 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this Report.

 

9.

Returns per share

2014

2013


Returns have been based on the following figures:




Weighted average number of Ordinary shares

126,132,659

124,315,341


Weighted average number of B Ordinary shares

955,545

918,448



_______

_______


Weighted average number of Ordinary shares assuming conversion of B Ordinary shares

127,088,204

125,233,789



_______

_______







2014

2013



£'000

£'000


Revenue return attributable to equity shareholders

51,844

54,817


Capital return attributable to equity shareholders

(16,485)

(2,600)



_______

_______


Total return attributable to equity shareholders

35,359

52,217



_______

_______

 



2014

2013

10.

Investments listed at fair value through profit or loss

 £'000

 £'000


Opening valuation

1,421,277

1,327,532


Opening investment holdings gains

(368,310)

(403,974)



_______

_______


Opening book cost

1,052,967

923,558


Movements during the year:




Purchases

183,405

224,593


 Sales - proceeds

(185,123)

(131,949)


 Sales - realised gains

18,477

35,814


Amortisation of fixed income book cost

(1,975)

951



_______

_______


Closing book cost

1,067,751

1,052,967


Closing investment holdings gains

340,581

368,310



_______


Closing valuation

1,421,277



_______

_______







2014

2013


The portfolio valuation

 £'000

 £'000


Listed on stock exchanges at bid valuation:




United Kingdom:




- equities

159,644

204,452


- fixed income

6,566

16,650


Overseas:




- equities

1,066,052

1,114,407


- fixed income

176,070

85,768



_______


Total

1,421,277



_______

_______







2014

2013


(Losses)/gains on investments

 £'000

 £'000


Realised gains based on book cost

18,477

35,814


Net movement in investment holdings gains

(27,729)

(35,664)



_______



150



_______

_______






 All investments are categorised as held at fair value through profit and loss and were designated as such upon initial recognition.




Transaction costs


During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Income Statement. The total costs were as follows:







2014

2013



 £'000

 £'000


Purchases

106

485


Sales

98

208



_______



693



_______

 



2014

2013

11.

Debtors: amounts falling due within one year

£'000

£'000


Current taxation

1,265

1,121


Other debtors

96

53


Prepayments and accrued income

6,654

5,653



_______



6,827



_______

_______


None of the above amounts are overdue.


 



2014

2013

12.

Creditors

£'000

£'000


Amounts falling due within one year:




Bank loans (note 13)

44,933

13,212


Forward contracts

370

2,413


Amounts due to brokers

1,750

-


Accruals

2,814

2,701



_______



18,326



_______

_______







2014

2013


Amounts falling due after more than one year:

£'000

£'000


Bank loans and Debentures (note 13)

177,595



_______

_______






All financial liabilities are included at amortised cost or at fair value for forward contracts.

 



2014

2013

13.

Bank loans and Debentures

£'000

£'000


Secured by floating charge and repayable other than by instalments or at the Company's option:




-

4% Debenture Stock - Perpetual

150

150


 Unsecured bank loans repayable within one year:




-

Yen 2,300,000,000 at 2.03% - 16 February 2014

-

13,212


-

Yen 8,400,000,000 at 3.17% - 13 May 2015

44,933

48,254


 Unsecured bank loans repayable in more than one year but no more than five years:




-

Yen 1,600,000,000 at 2.82% - 15 May 2016

8,559

9,191


-

£15,000,000 at 2.00% - 16 May 2016

15,000

-


-

£60,000,000 at 2.21% - 31 May 2017

60,000

60,000


 -

£60,000,000 at 2.575% - 31 May 2018

60,000

60,000




_______

_______




188,642

190,807




_______

_______







The terms of these loans permit early repayment at the borrower's option which may give rise to additional amounts being either payable or repayable in respect of fluctuations in interest rates since drawdown. Since the Directors, currently, have no intention of repaying the loans early, then no such charges are included in the cash flows used to determine their effective interest rate.




The Company currently has a fixed rate term loan facility with ING Bank N.V., which is fully drawn down and has a maturity date of 15 May 2016.




The Company currently has four fixed rate term loan facilities with The Royal Bank of Scotland plc ("RBS"), all of which are fully drawn down and have maturity dates of 13 May 2015, 16 May 2016, 31 May 2017 and 31 May 2018 respectively.




Financial covenants contained within the relevant loan agreements provide, inter alia, that borrowings shall at no time exceed 40% of net assets and that the net assets must exceed £600 million. At 31 December 2014 net assets were £1,240,537,000 and borrowings were 15.2% thereof.

 



2014

2013

14.

Share capital

Number

£'000

Number

£'000


Allotted, called up and fully paid:






Ordinary shares of 25p each

127,361,901

31,840

125,126,207

31,282


B Ordinary shares of 25p each

975,063

244

935,633

234



__________

_______

__________

_______



128,336,964

32,084

126,061,840

31,516



__________

_______

__________

_______








During the year 2,232,500 Ordinary shares were issued pursuant to the Company's block listing facility. All of these shares were issued at a premium to net asset value, enhancing net assets per share for existing shareholders. The issue prices ranged from 983p to 1115p and raised a total of £23,734,000, net of expenses. These expenses have been offset against the capital reserve.




In accordance with Article 131 of the Company's Articles of Association, 8,856 B Ordinary shares, 14,324 B Ordinary shares, 9,766 B Ordinary shares, and 9,678 B Ordinary shares were allotted by way of capitalisation of reserves on 18 February, 16 May, 15 August and 17 November 2014 respectively.




On 1 July 2014, 3,194 B Ordinary shares were converted into a like number of Ordinary shares of 25p in accordance with Article 47 of the Company's Articles of Association. When the nominal value of the allotted and fully paid B Ordinary shares is less than £100,000 the Directors may, under the terms of Article 47(B), require the conversion of such shares into Ordinary shares. The net asset value at the conversion date of 1 July 2014 was 985.29p per share.




On a winding up of the Company, any surplus assets available after payment of all debts and satisfaction of all liabilities of the Company shall be applied in repaying the Ordinary and B Ordinary shareholders the amounts paid up on such shares. Any surplus shall be divided among the holders of Ordinary and B Ordinary shares pari passu according to the amount paid up on such shares respectively.




Voting rights


In accordance with the Articles of Association of the Company, on a show of hands, every member (or duly appointed proxy) present at a general meeting of the Company has one vote; and, on a poll, every member present in person or by proxy shall have 89 votes for every 25p nominal amount of Ordinary or B Ordinary shares held.

 



2014

2013

15.

Capital reserve

£'000

£'000


At 31 December 2013

803,986

806,596


Movement in fair value gains

(9,252)

150


Capitalised expenses (net of tax)

(7,206)

(2,339)


Issue of shares

(13)

(10)


Currency losses

(27)

(411)



_______

_______


At 31 December 2014

787,488

803,986



_______

_______






Included in the total above are investment holdings gains at the year end of £340,581,000 (2013 - £368,310,000).

 

16.

Net asset value per share


The net asset value per share and the net asset value attributable to the Ordinary shares (including conversion of the B Ordinary shares), at the year end calculated in accordance with the Articles of Association were as follows:







Net asset value

Net asset value



per share

attributable



2014

2013

2014

2013



p

p

£'000

£'000


 Ordinary and B Ordinary shares (note 14)

966.6

981.0

1,240,537

1,236,718



_______

_______

_______

_______

 

17.

Reconciliation of net return before finance costs and

2014

2013


taxation to net cash inflow from operating activities

 £'000

 £'000


Net return before finance costs and taxation

44,118

60,034


Add: losses/(gains) on investments

9,252

(150)


Add: currency losses

27

411


Amortisation of fixed income book cost

1,975

(951)


Increase in accrued income

(1,001)

(1,452)


Increase in other debtors

(43)

(1)


Increase/(decrease) in accruals

176

(8,566)


Tax on unfranked income - overseas

(3,914)

(3,409)


Stock dividends included in investment income

(826)

-



_______

_______



49,764

45,916



_______

_______

 






At



31 December


Currency


Cash


Non-cash

31 December



2013

differences

flows

movements

2014

18.

Analysis of changes in net debt

£'000

£'000

£'000

£'000

£'000


Cash and short term deposits

4,535

(7,690)

20,921

-

17,766


Forward contracts

(2,413)

2,043

-

-

(370)


Debt due within one year

(13,212)

5,534

11,545

(48,800)

(44,933)


Debt due after more than one year

(177,595)

86

(15,000)

48,800

(143,709)



_______

_______

_______

_______



(27)

17,466

-

(171,246)



_______

_______

_______

_______

_______










At




At



31 December


Currency


Cash


Non-cash

31 December



2012

differences

flows

movements

2013



£'000

£'000

£'000

£'000

£'000


Cash and short term deposits

25,940

(16,424)

(4,981)

-

4,535


Forward contracts

(8,805)

6,392

-

-

(2,413)


Swap

(315)

315

-

-

-


Debt due within one year

(58,525)

3,152

58,525

(16,364)

(13,212)


Debt due after more than one year

(87,664)

6,154

(112,449)

16,364

(177,595)



_______

_______

_______

_______



(411)

(58,905)

-

(188,685)



_______

_______

_______

_______

_______









A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.

 

19.

Financial instruments and risk management


The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments other than derivatives, comprise listed equities, cash balances, loans and debentures and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may enter into derivative transactions for the purpose of managing market risks arising from the Company's activities in the form of swap contracts, forward foreign currency contracts, futures and options. The Company utilised forward foreign currency contracts during the year.




The Board has delegated the risk management function to AFML under the terms of its management agreement with AFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors.




The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.




Risk management framework


The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.




AFML is a fully integrated member of the Aberdeen Asset Management PLC ("Aberdeen") group of companies (referred to as "the Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.




The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").




The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.




The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.




Risk management


The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk.




(i)

Market risk



The fair value and future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and price risk. 






Interest rate risk



Interest rate risk is the risk that interest rate movements will affect:



the fair value of the investments in fixed interest rate securities;



the level of income receivable on cash deposits;



interest payable on the Company's variable rate borrowings.






Management of the risk



The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.






The Board reviews on a regular basis the values of the fixed interest rate securities.






The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. The fixed rate facilities are used to finance opportunities at low rates and, the revolving and uncommitted facilities to provide flexibility in the short-term. Current bank covenant guidelines state that the total borrowings will not exceed 40% of the adjusted net tangible assets of the Company.






Interest risk profile



The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:







Weighted








average








period for

Weighted



Non-




which

average

Fixed

Floating

interest




rate is fixed

interest rate

rate

rate

bearing



At 31 December 2014

Years

%

£'000

£'000

£'000



Assets








Sterling

-

-

6,566

8,597

159,644



US Dollar

13.63

10.85

90,211

8,385

356,897



Other

10.25

8.30

85,859

784

709,155






_______

_______

_______



Total assets



182,636

17,766

1,225,696






_______

_______

_______











Liabilities








Bank loans

2.12

2.57

(188,492)

-

-



Debenture Stock

-

-

(150)

-

-






_______





Total liabilities



(188,642)








_______














Weighted








average








period for

Weighted



Non-




which

average

Fixed

Floating

interest




rate is fixed

interest rate

rate

rate

bearing



At 31 December 2013

Years

%

£'000

£'000

£'000



Assets








Sterling

4.09

5.38

16,650

4,522

204,452



US Dollar

16.33

6.81

63,326

-

346,915



Euro

11.47

4.50

14,364

-

112,172



Other

11.82

9.75

8,078

13

655,320






_______

_______

_______



Total assets



102,418

4,535

1,318,859






_______

_______

_______











Liabilities








Bank loans

2.93

2.58

(190,657)

-

-



Debenture Stock

-

-

(150)

-

-






_______

_______




Total liabilities



(190,807)

-

-






_______

_______












The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's loans are shown in note 13 to the financial statements.



The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.



The non-interest bearing assets represent the equity element of the portfolio.



Short-term debtors and creditors have been excluded from the above tables.



Forward currency contracts are measured at fair value. Other financial liabilities are measured at amortised cost.






Interest rate sensitivity



The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. There is no interest rate risk exposure from derivative instruments.






If interest rates had been 100 basis points higher or lower (based on current parameter used by the Manager's Investment Risk Department on risk assessment) and all other variables were held constant, the Company's:



revenue return for the year ended 31 December 2014 would increase/decrease by £177,000 (2013 - increase/decrease by £45,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.



equity reserves would increase/decrease by £1,632,000 (2013 - increase/decrease by £4,381,000). This is also mainly attributable to the Company's exposure to interest rates on cash balances and its fixed interest portfolio. These figures have been calculated based on cash and fixed interest portfolio positions at each year end.






In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. The risk parameters used will also fluctuate depending on the current market perception.






Foreign currency risk



A significant proportion of the Company's investment portfolio is invested in overseas securities and the Balance Sheet can be significantly affected by movements in foreign exchange rates.






Management of the risk



It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. A significant proportion of the Company's borrowings, as detailed in note 13, is in foreign currency as at 31 December 2014. The Manager seeks, when deemed appropriate, to manage exposure to currency movements on borrowings by using forward foreign currency contracts as a hedge against potential foreign currency movements. At 31 December 2014 the Company had a foreign currency contract, details of which are disclosed below. During the year a loss of £5,983,000 (2013 - loss of £28,332,000) was realised.






The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk.






Currency risk exposure



Currency risk exposure (excluding foreign exchange contracts due to the reason their being entered into is to mitigate foreign currency risk) by currency of denomination:







 31 December 2014

 31 December 2013




 UK and



 UK and






overseas

Net

Total

overseas

Net

Total




equity

monetary

currency

equity

monetary

currency




investments

assets

exposure

investments

assets

exposure




£'000

£'000

£'000

£'000

£'000

£'000



US Dollar

356,897

6,635

363,532

346,915

-

346,915



Sterling

159,644

(126,403)

33,241

204,452

(115,478)

88,974



Swiss Franc

108,863

-

108,863

99,729

-

99,729



Euro

102,271

-

102,271

112,172

-

112,172



Taiwan Dollar

93,938

191

94,129

71,155

11

71,166



Canadian Dollar

62,956

-

62,956

55,907

-

55,907



Malaysian Ringgit

48,184

-

48,184

46,978

-

46,978



Indonesian Rupiah

46,760

-

46,760

36,117

-

36,117



Singapore Dollar

45,948

-

45,948

41,517

-

41,517



Swedish Krone

45,099

-

45,099

47,286

-

47,286



Brazilian Real

37,127

593

37,720

46,122

-

46,122



Japanese Yen

31,134

(53,492)

(22,358)

38,624

(70,657)

(32,033)



South African Rand

26,949

-

26,949

27,523

2

27,525



Mexican Peso

23,685

-

23,685

29,012

-

29,012



Australian Dollar

13,813

-

13,813

35,783

-

35,783



Hong Kong Dollar

13,695

-

13,695

67,330

-

67,330



Thailand Baht

8,733

-

8,733

12,237

-

12,237




_______

_______

_______

_______

_______

_______



Total

1,225,696

(172,476)

1,053,220

1,318,859

(186,122)

1,132,737




_______

_______

_______

_______

_______

_______






The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual markets.






 Foreign currency sensitivity



The following table details the Company's sensitivity to a 10% decrease (in the context of a 10% increase the figures below should all be read as negative) in sterling against the major foreign currencies in which the Company has exposure (based on exposure >5% of total exposure and excludes foreign exchange contracts due to the reason their being entered into is to mitigate foreign currency risk). The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.







2014

2014

2013

2013




Revenue

Equity{A}

Revenue

Equity{A}




£'000

£'000

£'000

£'000



US Dollar

1,878

35,690

1,738

34,692



Swiss Franc

428

10,886

382

9,973



Euro

754

10,227

768

11,217



Taiwan Dollar

333

9,394

286

7,116



Canadian Dollar

134

6,296

n/a

n/a



Hong Kong Dollar

n/a

n/a

266

6,733




_______

_______

_______

_______



Total

3,527

72,493

3,440

69,731




_______

_______

_______

_______






{A} Represents equity exposures to the relevant currencies.






Foreign exchange contracts



The following Japanese Yen forward contract was outstanding at the Balance Sheet date:














Unrealised loss at





Amount


31 December




Settlement

JPY

Contracted

2014



Date of contract

date

'000

rate

£'000



1 December 2014

6 March 2015

10,000,000

185.47

370





_______

_______

_______










The fair value of forward foreign currency contracts is based on forward exchange rates at the Balance Sheet date.






Price risk



Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. The Company's stated objective is to achieve a total return greater than its benchmark by investing predominantly in equities worldwide.






Management of the risk



It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The allocation of assets to international markets and the stock selection process, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide.






Price risk sensitivity



If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 December 2014 would have increased/decreased by £140,833,000 (2013 - increase/decrease of £142,128,000) and equity reserves would have increased/decreased by the same amount.





(ii)

Liquidity risk



This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities as they fall due in line with the maturity profile analysed below. 












More

 




Within

Within

Within

Within

Within

than

 




1 year

1-2 years

2-3 years

3-4 years

4-5 years

5 years

Total



At 31 December 2014

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Bank loans

44,933

23,559

60,000

60,000

-

-

188,492



Debenture Stock{A}

-

-

-

-

-

150

150



Interest cash flows on bank loans and Debenture Stock

3,438

3,156

2,212

776

6

211

9,799



Cash flow on forward currency contracts

370

-

-

-

-

-

370



Cash flows on other creditors

4,564

-

-

-

-

-

4,564




_______

______

______

______

______

______

_______




53,305

26,715

62,212

60,776

6

361

203,375




_______

______

______

______

______

______

_______






{A} The Debenture Stock is perpetual and has therefore been disclosed as maturing after more than 5 years. 



















More





Within

Within

Within

Within

Within

than





1 year

1-2 years

2-3 years

3-4 years

4-5 years

5 years

Total



At 31 December 2013

£'000

£'000

£'000

£'000

£'000

£'000

£'000



Bank loans

13,212

48,254

9,191

60,000

60,000

-

190,657



Debenture Stock{A}

-

-

-

-

-

150

150



Interest cash flows on bank loans and Debenture Stock

4,684

3,924

3,015

2,212

776

217

14,828



Cash flow on forward currency contracts

2,413

-

-

-

-

-

2,413



Cash flows on other creditors

2,701

-

-

-

-

-

2,701




_______

_____

_____

_____

_____

_____

_______




23,010

52,178

12,206

62,212

60,776

367

210,749




_______

_____

_____

_____

_____

_____

_______






{A} The Debenture Stock is perpetual and has therefore been disclosed as maturing after more than 5 years.






Management of the risk



Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities (note 13).





(iii)

Credit risk



This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.






Management of the risk



-     where the Manager makes an investment in a bond, corporate or otherwise, the credit ratings of the issuer are taken into account so as to manage the risk to the Company of default;



-     investments in quoted bonds are made across a variety of industry sectors and geographic markets so as to avoid concentrations of credit risk;



-     transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;



-     investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;



-     the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports. In addition, both stock and cash reconciliations to the custodian's records are performed daily to ensure discrepancies are investigated in a timely manner. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee;



-     cash is held only with reputable banks with acceptable credit quality. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties.






Credit risk exposure



In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 December 2014 was as follows:







2014

2013




Balance

Maximum

Balance

Maximum




Sheet

exposure

Sheet

exposure




£'000

£'000

£'000

£'000



Non-current assets







Securities at fair value through profit or loss

1,408,332

1,408,332

1,421,277

1,421,277










Current assets







Current taxation

1,265

1,265

1,121

1,121



Other debtors

96

96

53

53



Accrued income

6,654

6,654

5,653

5,653



Cash and short term deposits

17,766

17,766

4,535

4,535




_______

_______

_______

_______




1,434,113

1,434,113

1,432,639

1,432,639




_______

_______

_______

_______










None of the Company's financial assets is secured by collateral or other credit enhancements.






Fair values of financial assets and financial liabilities



The fair value of borrowings has been calculated at £190,821,000 as at 31 December 2014 (2013 - £195,401,000) compared to an accounts value in the financial statements of £188,642,000 (2013 - £190,807,000) (note 13). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. The carrying value of all other assets and liabilities is an approximation of fair value.

 

20.

Fair value hierarchy


FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:




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 assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and


Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at the reporting date as follows:






Level 1

Level 2

Level 3

Total


As at 31 December 2014

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

1,225,696

-

-

1,225,696


Quoted preference shares

a)

6,566

-

-

6,566


Quoted bonds

b)

144,106

31,964

-

176,070




_______

_______

_______

_______


Total


1,376,368

31,964

-

1,408,332




_______

_______

_______

_______









Financial liabilities at fair value through profit or loss







Foreign exchange forward contracts

c)

-

(370)

-

(370)




_______

_______

_______


Net fair value


31,594

-

1,407,962




_______

_______

_______

_______











Level 1

Level 2

Level 3

Total


As at 31 December 2013

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

1,318,859

-

-

1,318,859


Quoted preference shares

a)

5,900

-

-

5,900


Quoted bonds

b)

96,518

-

-

96,518




_______

_______

_______

_______


Total


1,421,277

-

-

1,421,277




_______

_______

_______

_______









Financial liabilities at fair value through profit or loss







Foreign exchange forward contracts

c)

-

(2,413)

-

(2,413)




_______

_______

_______


Net fair value


(2,413)

-

1,418,864




_______

_______

_______










a)

Quoted equities and preference shares



The fair value of the Company's investments in quoted equities and preference shares has been determined by reference to their quoted bid prices at the reporting date. Quoted equities and preference shares included in Fair Value Level 1 are actively traded on recognised stock exchanges.


b)

Quoted bonds



The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Bonds included in Fair Value Levels 1 and 2 include Government Bonds and Corporate Bonds. Of the investments categorised as Level 2, one with a fair value of £10,800,000 (2013 - £10,133,000) has been recategorised from Level 1 to Level 2 during the year due to concern over its liquidity.


c)

Foreign exchange forward contracts



The fair value of the Company's investment in foreign exchange forward contracts has been determined in relation to models using observable market inputs and hence are categorised in Fair Value Level 2.

 

21.

Capital management policies and procedures


The investment objective of the Company is to achieve a total return greater than its benchmark by investing predominantly in equities worldwide.




The capital of the Company consists of bank borrowings and equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.




The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes :


the planned level of gearing which takes into account the Investment Manager's views on the market;


the level of equity shares in issue; and


the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.




Details of the Company's gearing facilities and financial covenants are detailed in note 13 of the financial statements.

 

22.

Related party transactions and transactions with the Manager


Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report in the Annual Report.




 

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 December 2014 are an abridged version of the Company's full Annual Report and financial statements, which have been approved and audited with an unqualified report. The 2013 and 2014 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The 2014 financial statements will be filed with the Registrar of Companies in due course.

 

The Annual Report will be posted to shareholders in March 2015 and additional copies will be available from the registered office of the Company and on the Company's website, www.murray-intl.co.uk*

 

The Annual General Meeting will be held at 12.30 pm on 28 April 2015 at The Glasgow Royal Concert Hall, 2 Sauchiehall Street, Glasgow G2 3NY

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

 

*Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

 

For Murray International Trust PLC

Aberdeen Asset Management PLC, Secretaries

9 March 2015

 

 



13    SUMMARY OF INVESTMENT CHANGES DURING THE YEAR

 


Valuation

Appreciation/


Valuation


31 December 2014

(depreciation)

Transactions

31 December 2013


£'000

%

£'000

£'000

£'000

%

Equities







United Kingdom

159,644

11.2

(21,432)

(23,376)

204,452

14.3

North America

221,693

15.5

20,786

266

200,641

14.1

Europe ex UK

256,233

17.9

(10,855)

7,901

259,187

18.2

Japan

31,134

2.2

6,846

(14,336)

38,624

2.7

Asia Pacific ex Japan

271,071

19.0

27,543

(67,589)

311,117

21.8

Latin America

258,972

18.1

(28,314)

9,971

277,315

19.4

Africa

26,949

1.9

(574)

-

27,523

1.9


_______

_______

_______

_______

_______

_______


1,225,696

85.8

(6,000)

(87,163)

1,318,859

92.4


_______

_______

_______

_______

_______

_______








Fixed income







United Kingdom

6,566

0.4

756

(10,840)

16,650

1.2

Europe ex UK

-

-

386

(14,750)

14,364

1.0

Asia Pacific ex Japan

50,732

3.5

2,771

39,883

8,078

0.6

Latin America

105,913

7.4

(7,073)

49,660

63,326

4.4

Africa

19,425

1.4

(92)

19,517

-

-


_______

_______

_______

_______

_______

_______


182,636

12.7

(3,252)

83,470

102,418

7.2


_______

_______

_______

_______

_______

_______

Other net assets

20,847

1.5

14,599

-

6,248

0.4


_______

_______

_______

_______

_______

_______

Total assets

1,429,179

100.0

5,347

(3,693)

1,427,525

100.0


_______

_______

_______

_______

_______

_______








 

 



14    TWENTY LARGEST INVESTMENTS

 

As at 31 December 2014

 



Valuation

Valuation



2014

assets{A}

2013

Company

Country

£'000

%

£'000

1 (2)

Aeroporto del Sureste ADS





Grupo Aeroporto del Sureste operates airports in Mexico. The company holds long-term concessions to manage airports in leading tourist resorts such as Cancun and Cozumel, plus cities such as Oaxaca, Veracruz and Merida.

Mexico

63,189

4.4

56,445

2 (1)

British American Tobacco{B}





British American Tobacco is the holding company for a group of companies that manufacture, market and sell cigarettes and other tobacco products. The group sells over 300 brands in approximately 180 markets around the world.

UK & Malaysia

59,873

4.2

57,822

3 (6)

Taiwan Semiconductor Manufacturing





Taiwan Semiconductor Manufacturing Company is one of the largest integrated circuit manufacturers in the world. The company is involved in component design, wafer manufacturing, assembly, testing and mask production of integrated circuits which are used in the computer, communication and electronics industries.

Taiwan

49,615

3.5

37,014

4 (7)

Unilever Indonesia





Unilever Indonesia, a majority owned subsidiary of Unilever NV, manufactures soaps, detergents, margarine, oil and cosmetics. The company also produces dairy based foods, ice cream and tea beverages.

Indonesia

46,760

3.3

36,117

5 (11)

Taiwan Mobile





Taiwan Mobile is the leading provider of cellular telecommunications services in Taiwan. Although predominantly a wireless network operator, the company also sells and leases cellular telephony equipment.

Taiwan

44,323

3.1

34,141

6 (3)

Philip Morris International





Spun out from the Altria Group in 2008, Philip Morris International is one of the world's leading global tobacco companies. It manufactures and sells leading recognisable brands such as Marlboro, Parliament and Virginia Slims.

USA

40,740

2.9

41,029

7 (5)

Roche Holdings





Roche Holdings develops and manufactures pharmaceutical and diagnostic products. The company produces prescription drugs in the areas of cardiovascular, respiratory diseases, dermatology, metabolic disorders, oncology and organ transplantation.

Switzerland

38,310

2.7

37,204

8 (13)

Telus





Telus is a telecommunications company providing a variety of communication products and services. The company provides voice, data, internet and wireless services to businesses and consumers throughout Canada.

Canada

37,094

2.6

33,240

9 (16)

Zurich Financial Services





Zurich provides insurance-based financial services. The company offers general and life insurance products and services for individuals, small businesses, commercial enterprises, mid-sized and large corporations plus multinational companies.

Switzerland

36,213

2.5

31,564

10 (9)

Casino





Casino operates a wide range of hypermarkets, supermarkets and convenience stores. In addition to domestic operations in France the company operates various retail formats in Vietnam, Thailand, Colombia and Brazil.

France

33,508

2.3

34,838

Top ten investments


449,625

31.5


{A} The total assets less current liabilities as shown on the Balance Sheet with the addition of Prior

Charges 

{B} Holding comprises UK and Malaysia securities split £37,450,000 (2013 - £35,618,000) and £22,423,000 (2013 - £22,204,000).


11 (8)

Nordea





Nordea is a financial services group that provides banking services, financial products and related advisory services. The company's activities include investment banking, deposit and credit services, insurance products and securities trading. Nordea predominantly services the Scandinavian countries and the Baltic region.

Sweden

32,767

2.3

35,779

12 (12)

Fomento Economico Mexicano





Fomento Economico Mexicano (FEMSA) produces, distributes and markets non-alcoholic beverages throughout Latin America as part of the Coca Cola system. The company also owns and operates OXXO convenience stores in Mexico and Colombia and holds a stake in the Heineken brewing company.

Mexico

32,169

2.3

33,675

13 (-)

Verizon Communications





Verizon Communications is an integrated telecommunications company based in New York that provides wire line voice and data services, wireless services, internet servives and published directory information. The Company also provides netwotk services for the Federal Government.

 USA

31,749

2.2

26,692

14 (20)

Singapore Telecommunications





Singapore Telecommunications is a communications company providing a diverse range of communications services including fixed-line telephony, mobile, data, internet, satellite and pay television. The company operates throughout the Asian Pacific region.

Singapore

31,710

2.2

29,323

15 (-)

Daito Trust Construction





Daito Trust Construction operates building construction and property leasing businesses. The Company plans and constructs private apartments and commercial buildings mainly for land owners throughout Japan. Daito Trust also provides brokerage and maintenance sevices.

 Japan

31,134

2.2

23,975

16 (17)

Royal Dutch Shell





Royal Dutch Shell, through numerous international subsidiaries and global partnerships, explores for and produces oil, gas and petroleum products. In addition to producing fuels, chemicals and lubricants, the company owns and operates petrol filling stations worldwide.

UK

30,369

2.2

31,008

17 (-)

Pepsico





Pepsico operates worldwide beverage, snack and food businesses. The Company manufactures or use contract manufacturers, markets and sells a variety of grain-based snacks, carbonated and non-carbonated beverages and various food products. Pepsico is a global company with operations in numerous countries throughout the world.

 USA

30,322

2.1

25,035

18 (-)

Banco Bradesco{C}





Banco Bradesco is one of Brazil's leading banks. In addition to attracting deposits and making loans, the bank offers a full range of commercial banking services, including personal credit, mortgages, lease financing, mutual funds, securities brokerage and internet banking services.  Bradesco also offers credit cards, insurance and pension funds.

 Brazil

28,910

2.0

23,562

19 (15)

Total





Total is a fully integrated international energy company involved in exploration, production, refining, transportation and marketing of oil and natural gas. The company also operates a chemical division which produces polypropylene, polyethylene, polystyrene, rubber, paint, ink, adhesives and resins.

France

28,705

2.0

32,231

20 (4)

Vale do Rio Doce{D}





Vale is one of the world's largest, fully-integrated, natural resources companies. Based in Brazil, the company produces iron-ore, manganese, alloys, gold, nickel, copper, aluminium, potash and numerous other minerals. In addition to its mining assets, Vale also owns and operates railways and maritime terminals.

 Brazil & USA

28,144

1.9

37,809

Top twenty investments


755,604

52.9








{A} The total assets less current liabilities as shown on the Balance Sheet with the addition of Prior

Charges 

{C}         Holding comprises equity and fixed income securities split £19,527,000 (2013 - £15,130,000) and £9,383,000 (2013 - £8,432,000).

{D}         Holding comprises equity and fixed income securities split £13,270,000 (2013 - £24,091,000) and £14,874,000 (2013 - £13,718,000).

The value of the 20 largest investments represents 52.9% (2013 - 50.9%) of total assets. The figures in brackets denote the position at the previous year end. (-) denotes not previously in 20 largest investments.



Portfolio of Investments - Other Investments

 



Total

Valuation



2014

assets{A}

2013

Company

Country

£'000

%

£'000

MTN

South Africa

26,949

1.9

27,523

Johnson & Johnson

USA

26,826

1.9

29,306

Souza Cruz

Brazil

26,090

1.8

34,252

Potash Corporation of Saskatchewan

Canada

25,861

1.8

22,666

Public Bank

Malaysia

25,761

1.8

24,774

Telefonica Brasil

Brazil

25,725

1.8

21,678

Baxter International

USA

25,382

1.8

22,673

Standard Chartered

UK

23,779

1.7

32,640

HSBC

UK

23,735

1.6

25,834

Kimberly Clark de Mexico

Mexico

23,685

1.6

29,012

Top thirty investments


1,009,397

70.6


Sociedad Quimica Y Minera De Chile

Chile

22,953

1.6

-

BHP Billiton

Australia

22,216

1.6

29,904

Tenaris ADR

Mexico

21,326

1.5

29,003

ENI

Italy

21,058

1.5

27,210

Petroleos Mexicanos 5.5% 27/06/44

Mexico

19,625

1.4

16,528

Republic of South Africa 7% 28/02/31

South Africa

19,425

1.4

-

GDF Suez

France

19,000

1.3

17,894

Federal Republic of Brazil 10% 01/01/17

Brazil

18,329

1.3

-

Novartis

Switzerland

17,872

1.2

15,457

Nestlé

Switzerland

16,468

1.1

15,504

Top forty investments


1,207,669

84.5


Weir Group

UK

14,808

1.0

21,320

Oversea-Chinese Bank

Singapore

14,238

1.0

12,194

Coca-Cola Amatil

Australia

13,813

1.0

18,390

Swire Pacific 'B'

Hong Kong

13,695

1.0

12,194

Atlas Copco

Sweden

12,332

0.9

11,507

Republic of Venezuela 5.75% 26/02/16

USA

12,314

0.9

-

Bharti Airtel International 5.125% 11/03/23

India

11,636

0.8

-

Wilson & Sons

Brazil

11,038

0.8

11,869

Hypermarcas 6.5% 20/04/21

USA

10,800

0.7

10,133

Republic of Indonesia 8.375% 15/03/34

Indonesia

10,434

0.7

-

Top fifty investments


1,332,777

93.3


Republic of Indonesia 6.125% 15/05/28

Indonesia

9,928

0.7

-

Republic of Indonesia 7.0% 15/05/22

Indonesia

9,887

0.7

-

Federal Republic of Brazil 10% 01/01/18

Brazil

9,008

0.6

-

Petroleos De Venezuela 5.25% 12/04/17

Venezuela

8,850

0.6

-

PTT Exploration and Production

Thailand

8,733

0.6

12,237

Vodafone Group

UK

7,287

0.5

14,220

Republic of Indonesia 9.5% 15/07/23

Indonesia

4,428

0.3

4,070

Republic of Indonesia 10% 15/02/28

Indonesia

4,419

0.3

4,008

Comcast

USA

3,719

0.3

-

General Accident 7.875% Cum Irred Pref

UK

3,416

0.2

3,094

Top sixty investments


1,402,452

98.1


Santander 10.375% Non Cum Pref

UK

3,150

0.2

2,805

Federal Republic of Brazil 11% 17/08/40

USA

2,730

0.2

2,741

Total investments


1,408,332

98.5


Net current assets


20,847

1.5


Total assets{A}


100.0










{A} The total assets less current liabilities as shown on the Balance Sheet with the addition of Prior

Charges 

 

 

 

 


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