TIDMCHY
City Merchants High Yield Trust plc
Annual Financial Report Announcement
For the year ended 31 December 2011
.
Financial Information
Performance Statistics
At At
31 December 31 December %
2011 2010 Change
Total Return*
Total return per ordinary share -7.6
FTSE All-Share Index -3.5
FTSE Government Securities - All Stocks +15.6
Capital Return
Net asset value per ordinary share 145.56p 168.98p -13.9
Mid-market price per ordinary share 147.00p 173.00p -15.0
Premium per ordinary share 1.0% 2.4%
FTSE All-Share Index -6.7
FTSE Government Securities - All Stocks Index +11.0
Gearing
Gross gearing nil nil
Net gearing -5.3% -4.8%
Total expense ratio 1.1% 1.1%
* Source: Thomson Reuters
.
Chairman's Statement
After achieving modest growth with an attractive level of income in the first
six months of the year, the second half proved more challenging. The Manager's
Investment Report reviews the Company's performance during the year and gives
further detail of the strategy and outlook for the portfolio.
In the year under review the Company suffered an overall reduction of 7.6% in
net assets. This compares with the average return of 2.2% from the funds in the
Investment Management Association Sterling Strategic Bond sector, which is
composed of funds with similar objectives. The relative under-performance of
assets arises mainly as a result of the portfolio's exposure to subordinated
financial debt. As amplified in the Manager's Investment Report, your Manager
is confident this is a position which will reverse over time.
I am pleased to report that your Board was able to pay dividends of a total of
10p per share as targeted in my report last year, with the tax charge being met
from revenue reserve.
Shareholders are directed to the Circular containing recommended proposals for
the transfer of the assets of the Company to City Merchants High Yield Trust
Limited, a new Jersey resident company, in exchange for shares. These proposals
are intended to put shareholders in a position equivalent to previous years by
increasing the net distributable income as compared with that achievable by
this Company had it continued. Full details of the proposals are set out in the
Circular and accompanying Prospectus to shareholders.
To reiterate, the new Jersey company will have the same investment objectives
as your Company has currently: to seek to obtain both a high income and capital
growth from investments in predominately high-yielding fixed-interest
securities. The new company will have the same portfolio managers, Paul Read
and Paul Causer of Invesco Asset Management Limited. In addition, and to
provide further continuity, Winifred Robbins has been appointed a director of
the new company and I am its chairman.
The Board believes that re-domicile to Jersey will be beneficial to
shareholders and I encourage you to vote in favour of the scheme at the
Extraordinary General Meetings of the Company on 22 March and 30 March 2012, as
the Directors intend to do in respect of their own beneficial holdings.
As a result of the transfer proposals, the Company does not require an Annual
General Meeting in 2012. I intend to take the opportunity at the second
Extraordinary General Meeting of the Company on 30 March 2012 to invite
shareholders to ask any questions they may have on the Annual Financial Report
and of their portfolio managers.
Clive Nicholson
Chairman
21 February 2012
.
Manager's Investment Report
Market Background
High yield bonds saw negative total returns in 2011, as a strong trend of risk
aversion in the second half of the year resulted in more credit-sensitive areas
of the bond market underperforming. The two main factors driving this
deterioration in investor sentiment were a downturn in growth expectations and
the ongoing crisis in Eurozone sovereign debt. Encouraging economic data and
strong corporate fundamentals got the year off to a positive start, with high
levels of corporate bond issuance. But in the early summer growth expectations
weakened and fears grew that the Eurozone crisis was spreading to larger member
states like Spain and Italy. High yield suffered some sharp repricing in the
summer months. Bouts of volatility continued for the rest of the year and
issuance has been very low. Measures taken by European political and monetary
authorities in the fourth quarter to support troubled sovereigns and European
banks were positively received, leading to a modest improvement in market
conditions. According to data from Merrill Lynch, for 2011 as a whole European
high yield returned -4.7% (returns data is in sterling, total return basis).
The aggregate yield for the market rose 358 basis points (`bps') to close at
12.15%. The spread over Gilts widened 476 bps to 1030 bps. Gilt yields fell to
record low levels as investors were attracted by their perceived safe haven
status and expectations that interest rates will stay low for a prolonged
period. The 10 year Gilt yield fell 142 bps to 1.98% over the year and the Gilt
index had a total return of 16.9%. Sterling investment grade returned 5.9%.
Areas of the corporate bond market exposed to the Eurozone crisis
underperformed sharply in the second half. Sterling Tier 1 subordinated debt
returned -4.9% for the year. Euro Tier 1 returned -14.8%.
The default rate in European high yield bonds remains low. However, according
to Moody's, the trailing 12 month rate rose modestly, from 2.3% to 2.7% over
the year, having dipped to 1.1% in July. Monetary policy remains stimulative.
The Monetary Policy Committee (`MPC') of the Bank of England held the bank's
rate at 0.5% throughout the year, with the Committee becoming unanimous in
support for this policy during the summer. Expecting inflationary pressures to
reduce, the Committee also agreed to extend its programme of quantitative
easing from GBP200 billion to GBP275 billion in October. This programme was a
further supportive factor for the Gilt market.
Portfolio Strategy
The total return for the Company's ordinary shares over the year, after
accounting for liquidation expenses, was -7.6%. The NAV fell by 23.4 pence.
The portfolio's exposure to subordinated financial debt detracted from
performance as many of these instruments suffered significant repricing.
Negative returns were concentrated in the third quarter of the year, which was
also a weak period for the general high yield bond market.
The portfolio managers believe this period of risk aversion has led to clear
value opportunities. Yields in the European high yield bond market are at the
highest levels seen in some time and there is a wide spread over Gilt yields.
With corporate fundamentals broadly much stronger than in the 2008-9 period,
they think that there are opportunities to lock-in very attractive income
streams. In the past few months they have been putting money to work in
favoured names across the high yield market.
Elsewhere, the portfolio managers continue to see financials as the biggest
area of value in the market. They see the reform of financial capital, through
the actions of financial institutions and regulators, as the most important
theme in the markets in the next few years. For three years now, banks have
been increasing funding and liquidity, reducing leverage and raising capital.
They have made real progress and yet in many cases the yields on financial
capital are at or near the levels of 2008-9. Yields have risen sharply in
reaction to the Eurozone debt crisis and the banking sector's exposure to this.
Yet many banks have few holdings in peripheral Eurozone sovereigns and the
actions of the European authorities, the ECB in particular, have given the
sector a lot of new support. The portfolio managers also think that the higher
levels of capital and more conservative capital definitions required under
Basel III will make banks and other financial institutions safer for investors.
Over time, this is good for holders of financial debt and there are some
tremendous opportunities for investors who take a medium to long-term view.
The level of new high yield issuance was strong in the first few months of the
year and several positions were added to the portfolio across a range of
sectors, trimming positions where it was felt there was less value. Purchases
included Jaguar Land Rover 8.125% (Auto, B+ rated), Southern Water 8.5%
(Utilities, BB- rated) and Matalan Finance 8.875% (Retail, BB- rated). In the
much poorer market conditions of the second half, the portfolio managers took
advantage of sharp repricing in some areas to add investments, including in
subordinated financials, where they felt that the yield on offer was
compelling. Purchases included Intesa Sanpaolo 8.375% (Bank, BBB+), Gala
Finance 8.875% (Leisure, B+) and Aviva 6.125% (Insurance, BBB+).
Outlook
The portfolio managers think that fixed interest markets will continue to be
sensitive to developments in the Eurozone crisis and will continue to see bouts
of volatility. The actions taken by the European authorities to date amount to
a substantial package of support for Eurozone member states and the European
banking system and the portfolio managers believe that there is a huge
commitment to supporting the single currency project. However, the process
remains prone to political risk and there is still uncertainty and disagreement
over how to tackle the debt problems afflicting some member states. Signs of
weakening growth in recent months will add to the challenges facing the
Eurozone economies.
Growth remains weak in the UK too, where persistent high unemployment and low
earnings growth are depressing consumption. Although headline inflation in the
UK remains well above the MPC's target rate of 2%, substantial interest rate
rises are not expected in the next year. The Committee's belief that
inflationary pressures will reduce in 2012 appears to be supported by recent
data. If inflation continues to moderate, it is possible that the Bank of
England's quantitative easing process will be further extended.
The Eurozone crisis and global growth prospects may well continue to dominate
headlines and be an important element of market sentiment. However, credit
selection will remain key to our management of the portfolio. The recent
dominance of these macro themes has pushed out credit spreads across the high
yield market as different bonds have been tarred with a single brush. The
portfolio managers believe there are excellent opportunities where market
prices have moved away from fundamental value.
Invesco Asset Management Limited
Manager
Paul Read Paul Causer
Portfolio Managers
21 February 2012
.
Investments in Order of Valuation
at 31 December 2011
Market
Moody/S&P Country of Value % of
Issuer Issue Rating Sector Incorporation GBP'000 Portfolio
LBG Capital 7.975% 15 Sep Ba3/BB Financials UK 2,419 2.49
2024
6.385% 12 May Ba2/BB+ 851 0.88
2020
9% 15 Dec Ba2/BB+ 757 0.78
2019
6.439% 23 May Ba3/BB 568 0.58
2020
16.125%10 Dec Ba2/BB+ 112 0.12
2024
4,707 4.85
Premier 89.2P Cum Cnv NR/NR Industrials UK 3,485 3.59
Farnell Red Prf
Bank of 6% 01 Sep Baa1/A- Financials USA 1,773 1.83
America 2017
6.125% 15 Sep Baa1/A- 900 0.92
2021
2,673 2.75
General Motors Wts 10 Jul Equity Consumer USA 2,283 2.35
2019 Goods
Wts 10 Jul Equity 233 0.24
2016
(Escrow) 0% NR/NR 10 0.01
15 Jul 2033
2,526 2.60
Societe 8.875% FRN Ba1/BBB- Financials France 2,503 2.58
Generale Perpetual
Vedanta 4% Cnv 30 Mar NR/BB Basic UK 1,920 1.98
2017 Materials
8.25% 07 Jun Ba2/BB 496 0.51
2021
2,416 2.49
Aviva 6.125% A3/BBB+ Financials UK 2,407 2.48
Perpetual
Balfour Beatty 10.75P Gross NR/NR Industrials UK 2,306 2.38
Cum Cnv Prf
Intergen 9.5% 30 Jun Ba3/BB- Oil and Gas Holland 2,040 2.10
2017
8.5% 30 Jun Ba3/BB- 209 0.22
2017
2,249 2.32
Citigroup FRN 28 Jun Baa3/BB Financials USA 1,605 1.65
2067
Pfd USD100 NR/NR 479 0.49
Common Stock Equity 34 0.04
2,118 2.18
Intesa 8.375% FRN Baa2/BBB+ Financials Italy 1,879 1.94
Sanpaolo Perpetual
First Hydro 9% 31 Jul NR/NR Utilities UK 1,779 1.83
Finance 2021
Catlin 7.249% FRN NR/BBB+ Financials USA 1,730 1.78
Perpetual
American 8.625% FRN 22 Baa2/BBB Financials USA 802 0.83
International May 2068
Group
8.175% 15 May Baa2/BBB 573 0.59
2068
6.797% 15 Nov Baa1/A- 341 0.35
2017
1,716 1.77
Unity Media 9.625% 01 Dec B3/B- Consumer Germany 1,712 1.76
2019 Services
Barclays 9.25% 29 Nov Baa2/BBB Financials UK 1,002 1.03
2049
6.625% 30 Mar Baa1/BBB+ 707 0.73
2022
1,709 1.76
Cemex - S.A.B. 4.875% Cnv 15 NR/NR Consumer Mexico 1,260 1.30
Mar 2015 Goods
Cemex - Espana 9.25% 12 May NR/B- Spain 424 0.44
2020
1,684 1.74
Market
Moody/S&P Country of Value % of
Issuer Issue Rating Sector Incorporation GBP'000 Portfolio
DFS 9.75% 15 Jul B2/B Consumer UK 1,612 1.66
2017 Goods
Legrand 8.5% 15 Feb Baa1/BBB+ Industrials France 1,570 1.62
2025
Ecclesiastical 8.625% Non NR/NR Financials UK 1,564 1.61
Cum Irrd Prf
REA Finance 9.5% 31 Dec NR/NR Consumer Holland 1,545 1.59
2017 Goods
RWE 4.625% FRN Baa2/BBB Utilities Germany 1,544 1.59
Perpetual
SSE 5.025% Baa2/BBB Utilities UK 1,541 1.59
Perpetual
Santos Finance 8.25% 22 Sep NR/BB Oil and Gas Australia 1,531 1.58
2070
Iron Mountain 6.75% 15 Oct B1/B+ Support USA 1,326 1.37
2018 Services
Ineos 9.25% 15 May Ba3/B Basic UK 1,240 1.27
2015 Materials
Credit 7.589% FRN Baa3/BBB- Financials France 1,227 1.26
Agricole Perpetual
General 8.875% Cum NR/NR Financials UK 1,150 1.19
Accident Irrd Prf
Suez 4.82% FRN Baa2/NR Utilities France 1,133 1.17
Perpetual
Novae 8.375% 27 Apr Ba1/NR Financials UK 1,112 1.15
2017
Reynolds 7.75% 15 Oct Ba3/BB- Industrials USA 860 0.89
2016
Beverage 9.5% 15 Jun Caa1/B- Luxembourg 230 0.24
Packaging* 2017
1,090 1.13
UBS Capital 8.836% FRN Baa3/BBB- Financials Switzerland 578 0.60
Securities Perpetual
3.22% 31 Jul Aa3/A 510 0.53
2012
1,088 1.13
Abengoa 8.5% 31 Mar Ba3/B+ Industrials Spain 800 0.82
2016
4.5% 03 Feb NR/NR 284 0.29
2017
1,084 1.11
Virgin Media 8.875% 15 Oct Ba2/BB- Consumer UK 1,069 1.10
Finance 2019 Services
Wind 7.375% 15 Feb Ba3/BB Consumer Italy 550 0.57
Acquisition 2018 Services
11.75% 15 Jul B3/BB- 516 0.53
2017
1,066 1.10
Rexam 6.75% FRN 29 Ba2/BB Industrials UK 1,051 1.08
Jun 2067
Peabody 4.75% Cnv 15 Ba3/B+ Basic USA 979 1.01
Dec 2066 Materials
Stena 6.125% 01 Feb Ba3/BB+ Financials Sweden 953 0.98
2017
Thames Water 7.75% 01 Apr B1/NR Utilities UK 948 0.98
Utilities 2019
Cie Gen 7.75% 15 May Ba3/BB- Oil and Gas France 910 0.94
Geophysique 2017
Southern Water 8.5% 15 Apr NR/BB- Utilities UK 897 0.92
2019
MWB 9.75% 30 Jun NR/NR Financials UK 880 0.91
2012
Royal & Sun 8.5% FRN Baa1/BBB+ Financials UK 858 0.88
Alliance Perpetual
Standard 9.5% FRN A3/A- Financials UK 344 0.35
Chartered Perpetual
FRN Perpetual Baa1/NR 308 0.32
8.125% FRN Baa2/BBB+ 199 0.21
Perpetual
851 0.88
Obrascon 8.75% 15 Mar Ba2/NR Industrials Spain 823 0.85
Huarte Lain 2018
Sl Finance 6.75% A3/A- Financials UK 792 0.82
Perpetual
Origin 7.785% 16 Jun Baa3/BB Oil and Gas Australia 760 0.78
2071
Axa 6.379% FRN Baa1/BBB Financials France 419 0.43
Perpetual
5.25% FRN 16 A3/BBB+ 305 0.31
Apr 2040
724 0.74
* A subsidiary of The Reynolds Group Inc.
Market
Moody/S&P Country of Value % of
Issuer Issue Rating Sector Incorporation GBP'000 Portfolio
Gala Finance 8.875% 01 Sep B3/B+ Consumer UK 710 0.73
2018 Services
Unicredit 8.125% FRN Ba1/BBB- Financials Luxembourg 470 0.48
Perpetual
8.5925% FRN Ba1/BBB- 237 0.24
Perpetual
707 0.72
Ashtead Capital 9% 15 Aug B2/B+ Industrials USA 671 0.69
2016
Enterprise Inns 6.5% 06 Dec NR/BB- Consumer UK 665 0.69
2018 Goods
Old Mutual 8% Perpetual Baa3/NR Financials UK 617 0.64
Chrysler 8% 15 Jun B2/B Consumer USA 591 0.61
2019 Goods
Phoenix Life 7.25% Baa3/BBB Financials UK 528 0.54
Perpetual
Taylor Wimpey 10.375% 31 B2/B+ Consumer UK 527 0.54
Dec 2015 Services
William Hill 7.125% 11 Nov Ba1/BB+ Consumer UK 508 0.52
2016 Services
Gategroup CHF5 Equity Consumer Switzerland 503 0.52
Goods
Peel 8.375% 30 Apr NR/NR Financials UK 496 0.51
2040
Alcatel 6.5% 15 Jan B2/B Technology USA 462 0.48
2028
Alcatel-Lucent 6.45% 15 Mar B2/B Technology USA 462 0.48
2029
Odeon & UCI 9% 01 Aug B3/B Consumer UK 455 0.47
Finco 2018 Services
Care UK 9.75% 01 Aug B2/B+ Health Care UK 450 0.46
2017
ISS Finance 11% 15 Jun NR/B Financials UK 439 0.45
2014
Boats 11% 31 Mar NR/NR Financials Holland 439 0.45
Investments 2017
Pipe 9.5% 01 Nov B3/B- Basic UK 439 0.45
2015 Materials
Fortis Bank FRN Cnv Ba3/BB Financials Belgium 438 0.45
Perpetual
Dong Energy 7.75% 01 Jun Baa3/BB+ Oil and Gas Denmark 435 0.45
3010
Santander 11.3% FRN Baa2/BBB+ Financials Spain 428 0.44
Perpetual
Mark IV 8.875% 15 Dec Ba3/BB- Industrials Luxembourg 417 0.43
2017
SPCM 8.25% 15 Jun NR/BB Basic France 417 0.43
2017 Materials
HeidelbergCement 8.5% 31 Oct Ba2/BB Industrials Germany 414 0.43
2019
Campofrio 8.25% 31 Oct Ba3/BB- Consumer Spain 412 0.42
2016 Goods
Hertz 7.875% 01 Jan B2/B Consumer USA 412 0.42
2014 Goods
UBI Banca 8.75% 29 Oct NR/NR Financials Italy 408 0.42
International 2012
Boparan 9.875% 30 Apr Ba3/B+ Consumer UK 403 0.42
2018 Goods
Alba 8% 15 May B3/B Industrials Germany 399 0.41
2018
Bormioli Rocco 10% 01 Aug B1/BB- Consumer Luxembourg 397 0.41
2018 Goods
Legal & General 6.385% FRN Baa2/BBB+ Financials UK 389 0.40
Perpetual
Zinc Capital 8.875% 15 May B2/B+ Industrials Luxembourg 380 0.39
2018
Codere 8.25% 15 Jun B2/B Consumer Luxembourg 380 0.39
2015 Services
Xefin 8% 01 Jun Ba3/B+ Industrials Luxembourg 367 0.38
2018
Jaguar Land 8.125% 15 May B1/B+ Consumer UK 366 0.38
Rover 2018 Goods
Fiat Finance & 6.375% 01 Apr Ba3/BB Consumer Luxembourg 355 0.37
Trade 2016 Goods
M&G Finance 7.5% FRN NR/NR Industrials Luxembourg 351 0.36
Perpetual
Travelport 11.875% 01 Caa3/CCC Industrials USA 183 0.19
Sep 2016
10.875% 01 Caa3/CCC 167 0.17
Sep 2016
350 0.36
Market
Moody/S&P Country of Value % of
Issuer Issue Rating Sector Incorporation GBP'000 Portfolio
Cirsa Finance 8.75% 15 May B3/B+ Consumer Luxembourg 346 0.36
2018 Goods
EDP Finance 8.625% MTN 04 Baa3/BBB Utilities Holland 337 0.35
Jan 2024
Parpublic 3.25% Cnv 18 B1/BB Oil and Gas Portugal 335 0.35
Dec 2014
Bakkavor 8.25% 15 Feb B2/B Consumer UK 334 0.34
Finance 2018 Goods
Matalan 8.875% 29 Apr Ba3/BB- Consumer UK 332 0.34
Finance 2016 Services
Lottomatica 8.25% FRN 31 Ba2/BB Consumer Italy 326 0.34
Mar 2066 Services
Ono Finance 11.125% 15 Jul Caa1/CCC+ Consumer Ireland 326 0.34
2019 Services
Pregis 12.375% 15 Oct Caa2/CCC Basic USA 307 0.32
2013 Materials
Nexans 1.5% Cnv 01 NR/BB+ Industrials France 281 0.29
Jan 2013
Rothschilds FRN Perpetual NR/NR Financials UK 259 0.27
Brazilian Common Stock NR/NR Oil and Gas Canada 239 0.25
Resources
Skipton 10% 12 Dec Ba2/NR Financials UK 215 0.22
2018
Aperam 7.75% 01 Apr B2/BB Industrials Luxembourg 214 0.22
2018
Nara Cable 8.875% 01 Dec B1/B Consumer Ireland 184 0.19
2018 Services
Pittards Ord Equity Consumer UK 140 0.14
Goods
Investec 7.075% B1/NR Financials UK 125 0.13
Perpetual
Rivington 8% Cnv 30 Jun NR/NR Financials UK 100 0.10
2015
0% Cnv 13 Dec NR/NR 6 0.01
2013
106 0.11
Novasep 9.625% 15 Dec Ca/D Basic France 98 0.10
2016 Materials
Pearl 6.5864% FRN NR/NR Financials UK 97 0.10
Perpetual
Corero Ord Equity Technology UK 96 0.10
Levi Strauss 7.75% 15 May B2/B+ Consumer USA 78 0.08
2018 Goods
Cattles 8.125% 05 Jul C Financials UK 52 0.05
2017
7.875% 17 Jan C 5 0.01
2014
57 0.06
Chesapeake 7% 15 Dec 2014 WR/NR Basic USA 29 0.03
Materials
10.375% 15 Nov WR/NR 15 0.02
2011
44 0.05
Pfleiderer 7.125% FRN WR/NR Industrials Holland 41 0.04
Finance Perpetual
Welsh Power C' Shares Equity Utilities UK 6 0.01
(Unquoted)
GMA Resources Ord Equity Basic UK 1 -
Materials
97,028 100.0
Abbreviations used in the above valuation:
Cnv: Convertible
Cum: Cumulative
FRN: Floating Rate Note
Irrd: Irredeemable
MTN: Medium Term Note
Ord: Ordinary Share
Pfd: Preferred
Prf: Preference
Red: Redeemable
Wts: Warrants
.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be divided into the
following areas:
Investment Policy (incorporating the Investment Objective) and Process
The Company's investment objective is described on page 1 of the Annual
Financial Report. There is no guarantee that the Company's investment objective
will be achieved or will provide the returns sought by the Company.
Portfolio performance is substantially dependent on the performance of
fixed-interest and high-yielding stocks in the UK and elsewhere in the
Company's investment universe. These stocks are particularly influenced by
prevailing interest rates, government monetary policy and by demand for income.
The portfolio managers strive to maximise both capital growth and high income
from the investments and the Board naturally recognises the external influences
on portfolio performance.
As part of the Company's overall strategy, the Board continues to seek to
manage the Company's affairs so as to maximise returns for shareholders. The
longer-term aim is to continue to increase the size of the Company by a
combination of growth in underlying asset values and by the issue of additional
equity capital. The Directors believe that this should continue to make the
Company's shares attractive to a broad spectrum of investors and improve
liquidity.
Risk management is an integral part of the investment management process. The
Manager effectively controls risk by ensuring that the Company's portfolio is
appropriately diversified. In-depth and continual analysis of the fundamentals
of all holdings should give the Manager a full understanding of the financial
risks associated with any particular stock.
Market Movement and Portfolio Performance
The majority of the Company's investments are traded on a number of the world's
major securities markets. The principal risk for investors in the Company is of
a significant fall in the markets and/or a prolonged period of decline in the
markets relative to other forms of investment. The value of investments held
within the portfolio is influenced by many factors including the general health
of the world economy, interest rates, inflation, government policies, industry
conditions, political and diplomatic events, tax laws and environmental laws
and by changing investor demand. The Manager strives to maximise the return
from the investments held but these investments are influenced by market
conditions and the Board acknowledges the effects of external influences on
portfolio performance.
The performance of the Manager is carefully monitored by the Board and the
continuation of the Manager's mandate is reviewed each year. The Board has
established guidelines to ensure that the investment policy that has been
approved is pursued by the Manager. The Board and the Manager maintain an
active dialogue with the aim of ensuring that the market rating of the
Company's shares reflects the underlying NAV and that buy back and issuance
facilities help the management of this process.
For a fuller discussion of the economic and market conditions facing the
Company and the current and future performance of the portfolio of the Company,
see both the Chairman's Statement and Manager's Investment Report.
High-Yield Fixed-Interest Securities
High-yield fixed-interest securities are subject to credit, interest rate and
liquidity risks. Adverse changes in the financial position of an issuer or in
general economic conditions may impair the ability of the issuer to make
payments of principal and interest or may cause the liquidation or insolvency
of an issuer.
The majority of the Company's portfolio currently consists of
non-investment-grade securities. To the extent that the Company invests in
non-investment-grade securities, the Company may realise a higher current yield
than the yield offered by investment-grade securities. On the other hand,
investments in such securities involve a greater volatility of price and a
greater risk of default by the issuers of such securities, with consequent loss
of interest payment and principal. Non-investment-grade securities are likely
to have greater uncertainties of risk exposure to adverse conditions and will
be speculative with respect to an issuer's capacity to meet interest payments
and repay principal in accordance with its obligations. A lack of liquidity in
non-investment-grade securities may make it difficult for the Company to sell
those securities at or near their purported value.
Gearing
Performance may be geared by means of a bank credit facility. There is no
guarantee that the Company's credit facility would be renewable at maturity on
terms acceptable to the Company. If it were not possible to renew this facility
or replace it with another, any amounts owing by the Company would need to be
funded by the sale of investments.
Gearing levels may change from time to time in accordance with the Manager's
and the Board's assessment of risk and reward. As a consequence, any reduction
in the value of the Company's investments may lead to a correspondingly greater
percentage reduction in its net asset value (which is likely to affect the
Company's share price adversely). Any reduction in the number of shares in
issue (for example, as a result of buy backs) will, in the absence of a
corresponding reduction in borrowings, result in an increase in the Company's
gearing.
Derivatives
The Company may enter into derivative transactions for efficient portfolio
management. Derivative instruments can be highly volatile and expose investors
to a high risk of loss. There is a risk that the return on a derivative does
not exactly correlate to the returns on the underlying investment, obligation
or market sector being hedged against. If there is an imperfect correlation,
the Company may be exposed to greater loss than if the derivative had not been
entered into.
Regulatory and Tax Related
The Company is subject to various laws and regulations by virtue of its status
as a company registered under s833 of the Companies Act 2006 as an investment
company and its listing on the London Stock Exchange. A breach of s1158 CTA
could lead to the Company being subject to capital gains tax on the profits
arising from the sale of its investments. A serious breach of other regulatory
rules may lead to suspension from the London Stock Exchange, a fine or a
qualified Audit Report. Other control failures, either by the Manager or any
other of the Company's service providers, may result in operational or
reputational problems, erroneous disclosures or loss of assets through fraud as
well as breaches of regulations.
The Manager reviews the level of compliance with s1158 CTA and other financial
regulatory requirements on a regular basis. All transactions, income and
expenditure are reported to the Board. The Board regularly considers all
perceived risks and the measures in place to control them. The Board ensures
that satisfactory assurances are received from service providers. The Manager's
Compliance and Internal Audit Officers produce regular reports for review by
the Company's Audit Committee.
Resources: Reliance on Third Party Providers
The Company is an investment company which outsources its management, company
secretarial and administrative functions. It has no employees and the Directors
are all non-executive. The Company is therefore reliant on other parties for
the performance of its functions and the quality of its operations. Through the
contractual arrangements in place the full range of services required is
available to the Company. The most significant contracts are with the Manager,
to whom responsibility both for the management of the Company's portfolio and
for the provision of company secretarial and administrative services are
delegated. The Company also has contractual arrangements with third parties to
act as Registrars and, through the Manager, Custodian.
Failure by any service provider to carry out its obligations in accordance with
the terms of its appointment could have a materially detrimental impact on the
effective operation of the Company and on the ability of the Company to pursue
its investment policy successfully. Such failure could also expose the Company
to reputational risk. In particular, the Manager may be exposed to the risk
that litigation, misconduct, operational failures, negative publicity and press
speculation, whether valid or not, will harm its reputation. Any damage to the
reputation of the Manager could result in potential counterparties and third
parties being unwilling to deal with the Manager and by extension the Company.
This could also have an adverse impact on the ability of the Company to pursue
its investment policy successfully.
The Board seeks to manage these risks in a number of ways. In particular the
Board reviews the performance of the Manager formally at every board meeting
and otherwise as appropriate. The day-to-day management of the portfolio is the
responsibility of the portfolio managers to whom the Board has given wide
discretion to operate within set guidelines. Any proposed variation outside
those guidelines is referred to the Board and the guidelines themselves are
reviewed at every board meeting. The risk that one of the portfolio managers
might be incapacitated or otherwise unavailable is mitigated by the fact that
they work within and are supported by the wider Invesco Fixed Interest team.
The Board has power to replace the Manager and reviews the management contracts
formally once a year.
The Manager reviews the performance of all third party providers regularly
through formal and informal meetings, the results of which are reported to and
reviewed by the Board. The contractual arrangements which govern relationships
with third party providers, including the Registrars and the Custodian, and
with the Corporate Broker are also reviewed by the Board in relation to agreed
service standards on a regular basis and, more formally, on an annual basis.
The Ordinary Shares
The market price of, and the income derived from, the Company's ordinary shares
can fluctuate and may go down as well as up. The market value may not always
reflect the NAV per ordinary share. The market price of an ordinary share may
therefore trade at a discount to its NAV which is published daily. As at 31
December 2011, the ordinary shares of the Company traded at a premium of 1%.
Past performance of the Company is not necessarily indicative of future
performance.
The market value of the ordinary shares will be affected by a number of
factors, including their dividend yield from time to time, prevailing interest
rates and supply and demand for those shares, along with wider economic factors
and changes in law, including tax law, and political factors. The market value
of an ordinary share may therefore vary considerably from its underlying NAV.
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.
Although the ordinary shares are listed on the Official List and admitted to
trading on the London Stock Exchange's main market for listed securities, it is
possible that there may not be a liquid market in the ordinary shares and
shareholders may have difficulty in selling them.
Shareholder Relationships
Through the annual and half-yearly financial reports, interim management
statements, daily and monthly factsheets, the publication of a daily net asset
value, the Company's website, general meetings and other methods, the Board
endeavours to ensure that shareholders understand the Company's investment
policy and objective and that the Board, both independently and through the
Manager, reviews its policy and objective in the light of feedback from
shareholders. The Board monitors and reviews shareholder communications on a
regular basis.
.
Statement of Directors' Responsibilities
in respect of the preparation of financial statements
The Directors are responsible for preparing the annual financial report 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 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 accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and on 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 judgements and 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 which 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 which
enable them to ensure that the accounts comply with company law. 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, a Directors' Remuneration Report and a Corporate
Governance Statement that comply with that law and those regulations.
Each of the Directors of the Company confirms that to the best of his/her
knowledge:
* the accounts, which have been prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
* this annual financial report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
Clive Nicholson
Chairman
Signed on behalf of the Board of Directors
21 February 2012
.
Electronic Publication
The Annual Financial Report is published on www.invescoperpetual.co.uk/
investmenttrusts, a website maintained by the Company's Manager. The work
carried out by the Auditor does not involve consideration of the maintenance
and integrity of this website and, accordingly, the Auditor accept no
responsibility for any changes that have occurred to the financial statements
since they were initially presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in their jurisdictions.
.
Income Statement
for the year ended 31 December
2011 2010
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on 9 - (14,212) (14,212) - 9,790 9,790
investments
Foreign exchange - 816 816 - 986 986
profits
Revenue 2 8,756 - 8,756 9,371 - 9,371
Investment management 3 (551) (297) (848) (562) (304) (866)
fee
VAT recoverable on 3 285 125 410 - - -
management fees
Other expenses 4 (805) (1) (806) (448) (2) (450)
Net return before 7,685 (13,569) (5,884) 8,361 10,470 18,831
finance costs and
taxation
Finance costs 5 (37) (20) (57) (109) (70) (179)
Return on ordinary 7,648 (13,589) (5,941) 8,252 10,400 18,652
activities before
taxation
Tax on ordinary 6 (2,338) (1,122) (3,460) (2,215) 1,122 (1,093)
activities
Return on ordinary 5,310 (14,711) (9,401) 6,037 11,522 17,559
activities after tax
for the financial
year
Return per ordinary 7 7.3p (20.2)p (12.9)p 8.3p 15.8p 24.1p
share - basic
The total column represents the Company's profit and loss account. The
supplementary revenue and capital columns are presented for information
purposes as recommended by the guidance note issued by the Association of
Investment Companies. The Company has no other gains or losses; therefore, no
statement of recognised gains or losses is presented. No operations were
acquired or discontinued in the year.
.
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December
Capital
Share Share Special Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 1,456 140,011 11,644 8,410 (54,748) 7,297 114,070
December 2009
Return for the - - - - 11,522 6,037 17,559
year from the
income statement
Dividends paid - - - - - (8,617) (8,617)
in the year -
note 8
Balance at 31 1,456 140,011 11,644 8,410 (43,226) 4,717 123,012
December 2010
Return for the - - - - (14,711) 5,310 (9,401)
year from the
income statement
Dividends paid - - - - - (7,644) (7,644)
in the year -
note 8
Balance at 31 1,456 140,011 11,644 8,410 (57,937) 2,383 105,967
December 2011
.
Balance Sheet
as at 31 December
2011 2010
Notes GBP'000 GBP'000
Fixed assets
Investments at fair value through profit or loss 9 - 111,445
Current assets
Investments at fair value through profit or loss 9 97,028 -
Debtors 10 4,061 6,416
Cash at bank 5,560 5,894
106,649 12,310
Creditors: amounts falling due within one year 11 (682) (743)
Net current assets 105,967 11,567
Total assets less current liabilities 105,967 123,012
.
Capital and reserves
Share capital 12 1,456 1,456
Share premium 13 140,011 140,011
Special reserve 13 11,644 11,644
Capital redemption reserve 13 8,410 8,410
Capital reserve 13 (57,937) (43,226)
Revenue reserve 13 2,383 4,717
Shareholders' funds 105,967 123,012
Net asset value per ordinary share 14 145.56p 168.98p
These financial statements were approved by the Board of Directors and
authorised for issue on 21 February 2012.
Clive Nicholson
Chairman
Signed on behalf of the Board of Directors
The accompanying notes are an integral part of these financial statements.
.
Cash Flow Statement
for the year ended 31 December
2011 2010
Notes GBP'000 GBP'000
Net cash inflow from operating activities 15(a) 7,728 8,202
Servicing of finance 15(b) (50) (201)
Net inflow from financial investment 15(b) 220 12,997
Equity dividends paid 8 (7,644) (8,617)
Cash inflow before financing 254 12,381
Management of liquid resources 15(b) (466) (3,334)
Financing 15(b) - (11,108)
Decrease in cash (212) (2,061)
Reconciliation of net cash flow to movement in net
funds
Notes GBP'000 GBP'000
Decrease in cash (212) (2,061)
Cash flow from movement in liquid resources 466 3,334
Cash outflow from decrease in debt - 11,108
Change in funds resulting from cash flows 254 12,381
Translation difference - exchange (losses)/profits (588) 1,762
Movement in net funds in the year (334) 14,143
Net funds/(debt) at beginning of the year 5,894 (8,249)
Net funds at end of the year 15(c) 5,560 5,894
.
Notes to the Financial Statements
for the year ended 31 December
1. Principal Accounting Policies
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied
during the year and the preceding year, unless otherwise stated.
(a) Basis of Preparation
Accounting Standards applied
The financial statements have been prepared in accordance with applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) and with the Statement of Recommended Practice (`SORP')
`Financial Statements of Investment Trust Companies and Venture Capital
Trusts', issued by the Association of Investment Companies in 2009.
As it is probable that the Company will not continue in the foreseeable future
in its current legal form, the financial statements have been prepared on a
break-up basis. As a consequence, in these financial statements:
* all assets and liabilities are classified as current;
* quoted investments continue to be stated at their bid value which
approximates to their net realisable value;
* unquoted / illiquid investments values continue to be stated as shown in note
1(c);
* the deferred tax asset has been written off to the extent that it is not
expected to be utilised in the period before liquidation; and
* estimated liquidation expenses of GBP383,000 have been recognised.
(b) Foreign Currency
(i) Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional and presentation currency and the currency in which the Company's
share capital and expenses, as well as certain of its assets and liabilities,
are denominated.
(ii) Transactions and balances
Transactions in foreign currency, whether of a revenue or capital nature, are
translated to sterling at the rates of exchange ruling on the dates of such
transactions. Foreign currency assets and liabilities are translated to
sterling at the rates of exchange ruling at the balance sheet date. Any gains
or losses, whether realised or unrealised, are taken to the capital reserve or
to the revenue account, depending on whether the gain or loss is of a capital
or revenue nature. All gains and losses are recognised in the income statement.
(c) Financial Instruments
(i) Recognition of financial assets and financial liabilities
The Company recognises financial assets and financial liabilities when the
Company becomes a party to the contractual provisions of the instrument. The
Company will offset financial assets and financial liabilities only if the
Company has a legally enforceable right to set off the recognised amounts and
interests and intends to settle on a net basis.
(ii) Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire or it transfers the right to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are
transferred. Any interest in the transferred financial asset that is created or
retained by the Company is recognised as an asset.
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are
discharged, cancelled or expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being the
date on which the Company commits to purchase or sell the assets.
(v) Classification of financial assets and financial liabilities
Financial assets
The Company's investments are classified as held at fair value through profit
or loss.
Financial assets held at fair value through profit or loss are initially
recognised at fair value, which is taken to be their cost, with transaction
costs expensed in the income statement, and are subsequently valued at fair
value (which approximates to their net realisable value) resulting in a gain or
loss in the income statement.
For investments that are actively traded in organised financial markets, fair
value is determined by reference to stock exchange quoted bid prices at the
balance sheet date. For investments that are actively traded but where active
stock exchange quoted bid prices are not available, fair value is determined by
reference to a variety of valuation techniques including broker quotes and
price modelling. Unquoted investments are valued by the Directors at fair value
based on recommendations from the Manager's Pricing Committee, which in turn is
guided by the International Private Equity and Venture Capital Association
Guidelines.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs and are subsequently measured at amortised cost
using the effective interest method (which approximates to their net realisable
value).
(d) Hedging and Derivatives
Forward currency contracts entered into for hedging purposes are valued at the
appropriate forward exchange rate ruling at the balance sheet date. Profits or
losses on the closure or revaluation of positions are included in capital
reserves.
Futures contracts are entered into for hedging purposes and any profits and
losses on the closure or revaluation of positions are included in capital
reserves.
Derivative instruments are valued at fair value in the Balance Sheet.
Derivative instruments may be capital or revenue in nature and, accordingly,
changes in their fair value are recognised in revenue or capital in the income
statement as appropriate.
(e) Income
Interest income arising from fixed income securities and cash is recognised in
the income statement using the effective interest method. Dividend income
arises from equity investments held and is recognised on the date investments
are marked `ex-dividend'. Deposit interest and underwriting commission
receivable are taken into account on an accruals basis.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals basis and are
recognised in the income statement. Investment management fees and finance
costs are allocated 65% to revenue and 35% to capital. This is in accordance
with the Board's expectation of the long-term split of returns, in the form of
income and capital gains respectively, from the portfolio. All other expenses
are charged through revenue.
(g) Taxation
The liability to corporation tax is based on net taxable revenue for the year.
The tax charge is allocated between the revenue and capital account on the
marginal basis whereby revenue expenses are matched first against taxable
income in the revenue account.
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 or a right to pay less tax
in the future have occurred. Timing differences are differences between the
Company's taxable profits and its results as stated in the financial
statements. Deferred taxation assets are recognised where, in the opinion of
the Directors, it is more likely than not that these amounts will be realised
in future periods; any amounts previously recognised will be written off if, in
the opinion of the Directors, it is more likely than not that they will not be
realised in future periods.
Deferred taxation is measured at the tax rates that are expected to apply in
the years in which the timing differences are expected to reverse, based on tax
rates and laws that have been enacted or substantively enacted by the balance
sheet date.
(h) Dividends
Dividends are not accrued in the financial statements unless there is an
obligation to pay the dividends at the balance sheet date. Proposed dividends
are recognised in the year in which they are approved by shareholders.
2. Income
2011 2010
GBP'000 GBP'000
Income from listed investments
UK dividends 691 525
UK unfranked investment income - interest 2,914 2,754
Overseas interest 4,794 5,912
Overseas dividends 110 83
Scrip dividends 15 76
8,524 9,350
Other income
Interest on VAT recovered on management fees (note 3) 215 -
Deposit interest 17 21
232 21
Total income 8,756 9,371
Total income comprises:
Dividends 816 684
Interest 7,940 8,687
8,756 9,371
3. Investment Management Fee
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 551 297 848 562 304 866
Details of the Management Agreement are disclosed in the Report of the
Directors. At 31 December 2011 GBP198,000 (2010: GBP220,000) was due for payment in
respect of investment management fees.
In the year ended 31 December 2011, the Company recovered GBP410,000 of VAT paid
on management fees in prior periods, together with GBP215,000 of related interest
from the previous managers. These have been credited to revenue and capital in
the same proportions as originally charged.
No amounts were received in the year ended 31 December 2010.
4. Other Expenses
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Administrative and secretarial 72 - 72 67 - 67
services (i)
Directors' fees (ii) 102 - 102 110 - 110
Fees payable to the Company's
Auditors (iii)
-for the audit of the financial 26 - 26 26 - 26
statements
-for other services: tax 6 - 6 6 - 6
compliance
Liquidation expenses (iv) 383 - 383 - - -
Other expenses (v) 216 1 217 239 2 241
805 1 806 448 2 450
(i) The Manager acts as secretary to the Company and provides all general
secretarial and administrative services under an Administration Agreement dated
21 November 2005 terminable at any time by either party giving no less than
three months' notice. The fee is payable quarterly in arrears based on the
initial rate of GBP50,000 (plus VAT) per annum. The fee is revised with effect
from 1 July each year by the application of a formula based on the Retail Price
Index for the month of May in the relevant and preceding year. At 31 December
2011 GBP18,000 (2010: GBP17,000) was due for payment in respect of secretarial
services to the Manager.
(ii) The Directors' fees authorised by the Articles of Association are GBP150,000
per annum. The Directors' Remuneration Report provides further information on
Directors' fees.
(iii) Fees payable to the Auditor are shown excluding VAT, which is included in
other expenses.
(iv) Liquidation expenses are in relation to wind up costs of the Company as
part of the Proposals being put to shareholders as summarised in the Chairman's
Statement.
(v) Other expenses includes custodian transaction charges of GBP1,000 (2010: GBP
2,000) which are charged to capital.
5. Finance Costs
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest payable on bank 37 20 57 109 70 179
borrowings
6. Taxation
(a) Analysis of the charge for the year
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom taxation:
Corporation tax at 26.5% (2010: 1,865 - 1,865 2,123 - 2,123
28%)
Surplus management expenses of (1,865) - (1,865) (2,123) - (2,123)
previous years now utilised
Overseas taxation 18 - 18 14 - 14
Prior year adjustment (30) - (30) - - -
Current tax (credit)/charge (12) - (12) 14 - 14
Deferred tax:
Surplus management expenses 323 1,122 1,445 - (1,122) (1,122)
written off/(recognised)
Surplus management expenses now 2,027 - 2,027 2,201 - 2,201
utilised
Taxation charge/(credit) 2,338 1,122 3,460 2,215 (1,122) 1,093
(b) Factors affecting tax charge for the year
2011 2010
GBP'000 GBP'000
Total return on ordinary activities before taxation (5,941) 18,652
Theoretical tax at UK Corporation Tax rate of 26.5% (2010: (1,574) 5,223
28%)
non-taxable losses/(gains) on investments 3,766 (2,741)
non-taxable foreign exchange profits (216) (276)
non-taxable UK dividends (187) (168)
non-taxable overseas dividends (29) (24)
overseas taxation 18 14
prior year adjustment (30) -
expenses disallowed or unutilised in the year 105 109
surplus management expenses of previous years now utilised (1,865) (2,123)
(12) 14
Deferred tax charge 3,472 1,079
Tax charge 3,460 1,093
The Company is not liable to tax on capital gains due to its status as an
investment trust company.
6. Taxation continued
(c) Deferred taxation
Provision for deferred taxation is made at a rate of 26% (2010: 27.25%) on all
surplus management expenses to the extent that it is more likely than not that
tax relief will be obtained. The deferred tax asset has been calculated on an
expected rate at which this amount would reverse, based on projections of
taxable income for the Company's portfolio of investments, and based on the
indicated rates of corporation tax at the balance sheet date.
Details of the deferred tax asset and the movements over the year follow:
The deferred tax asset recognised and not recognised comprises:
2011 2010
Recognised Not Recognised Not
Recognised Recognised
GBP'000 GBP'000 GBP'000 GBP'000
Surplus management expenses 449 1,445 3,921 -
At the balance sheet date surplus management expenses were GBP7,286,000 (2010: GBP
14,394,000). The amount which has been recognised as a deferred tax asset
represents the surplus expenses expected to be utilised against the Company's
taxable income in the period to its liquidation. The balance remains
unrecognised.
The movement in the deferred tax asset is as follows:
2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Balance brought forward 3,921 5,000
Surplus management expenses of previous years (1,865) (2,123)
now utilised
Revaluation of deferred tax asset in year (162) (78)
Surplus management expenses (written off)/ (1,445) 1,122
recognised
(3,472) (1,079)
Balance carried forward 449 3,921
7. Return per Ordinary Share
Total return per ordinary share is based on the total return on ordinary
activities after tax. Revenue return per ordinary share is based on the revenue
return on ordinary activities after tax. Capital return per ordinary share is
based on the capital return on ordinary activities after tax.
All three returns are based on 72,799,105 (2010: 72,799,105) ordinary shares,
being the number of ordinary shares in issue during the year.
8. Dividends on Ordinary Shares
Dividends paid and recognised in the year:
2011 2010
Pence GBP'000 Pence GBP'000
Interim paid in respect of previous period 3.0 2,184 4.0 2,793
First interim paid 2.5 1,820 2.0 1,456
Second interim paid 2.5 1,820 3.0 2,184
Third interim paid 2.5 1,820 3.0 2,184
10.5 7,644 12.0 8,617
Set out below are the dividends that have
been declared in respect of the financial
year ended 31 December:
2011 2010
Pence GBP'000 Pence GBP'000
First interim paid 2.5 1,820 2.0 1,456
Second interim paid 2.5 1,820 3.0 2,184
Third interim paid 2.5 1,820 3.0 2,184
Fourth interim, payable on 24 February 2012 2.5 1,820 3.0 2,184
10.0 7,280 11.0 8,008
Dividends declared but not paid at the balance sheet date are not included as a
liability in that year's financial statements.
9. Investments at Fair Value Through Profit or Loss
(a) Analysis of investments
2011 2010
GBP'000 GBP'000
UK 44,414 50,773
Overseas 52,614 60,672
97,028 111,445
(b) Analysis of investment gains/(losses)
2011 2010
GBP'000 GBP'000
Opening valuation 111,445 114,652
Movements in the year:
Purchases at cost 38,019 61,078
Sales - proceeds (38,224) (74,075)
Sales - gains on sales 1,938 8,602
Unrealised movement in investment holding (losses)/gains (16,150) 1,188
Closing valuation 97,028 111,445
Closing book cost 110,784 109,051
Closing investment holding (losses)/gains (13,756) 2,394
97,028 111,445
9. Investments at Fair Value Through Profit or Loss continued
(c) Gains/(losses) on investments
2011 2010
GBP'000 GBP'000
Gains on sales 1,938 8,602
Unrealised movement in investment holding (losses)/gains (16,150) 1,188
(Losses)/gains on investments (14,212) 9,790
(d) Transaction costs
Transaction costs on purchases of GBP6,000 (2010: GBP1,000) and on sales of GBP1,000
(2010: GBP7,000) are included within gains and losses on investments.
(e) Significant holdings
As at 31 December 2011 the Company had holdings of 3% or more of the class of
issued share capital in the following investments that are considered material
in the context of the accounts.
Name of undertaking Class of capital % of class
held
Ashpol 10% Cum Prf 100p 10.0
Brazilian Resources (Canada) Common 8.6
Premier Farnell 89.2p Cum Cnv Red Prf 3.9
All the above companies are incorporated in England and Wales unless otherwise
stated.
(f) Registration of investments
The investments of the Company are registered in the name of the Company or in
the name of nominees and held to the account of the Company.
10. Debtors
2011 2010
GBP'000 GBP'000
Prepayments and 2,610 2,495
accrued income
Deferred tax asset -amounts recoverable within one year 449 1,819
-amounts recoverable after more than one - 2,102
year
Unrealised profit on 1,002 -
forward currency
contracts
4,061 6,416
11. Creditors: Amounts Falling Due Within One Year
2011 2010
GBP'000 GBP'000
Accruals and deferred income 682 341
Unrealised loss on forward currency contracts - 402
682 743
On 10 November 2011 the Company renewed a revolving credit facility with Bank
of New York Mellon. This facility allows the Company to draw down amounts in
sterling, euros or US dollars to a maximum sterling equivalent of GBP20 million.
Interest payable is based on the interbank offered rate for the currency
drawndown. This facility is available until 8 November 2012.
At 31 December 2011 the Company had no drawdowns (2010: no drawdowns).
12. Share Capital
2011 2010
GBP'000 GBP'000
Authorised
5,174,116,742 ordinary shares of 2p (2010: 5,174,116,742) 103,482 103,482
2011 2010
GBP'000 GBP'000
Allotted and fully paid
72,799,105 ordinary shares of 2p (2010: 72,799,105) 1,456 1,456
13. Reserves
The special reserve arose following Court approval to reduce the share premium
account in 2002. The capital redemption reserve maintains the equity share
capital arising on any cancellation of shares. Both reserves, together with the
capital reserve, are non-distributable.
The revenue reserve is distributable by way of dividend.
14. Net Asset Value per Ordinary Share
The net asset value per ordinary share at 31 December 2011 is based on net
assets of GBP105,967,000 (2010: GBP123,012,000) and on 72,799,105 (2010:
72,799,105) shares being the number of ordinary shares in issue at the
year-end.
15. Notes to the Cash Flow Statement
(a) Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
2011 2010
GBP'000 GBP'000
Total return before finance costs and taxation (5,834) 18,831
Losses/(gains) on investments in the year 14,212 (9,790)
Foreign exchange profits (816) (986)
Scrip dividends (15) -
Tax credit/(charge) 12 (14)
(Increase)/decrease in debtors (115) 119
Increase in creditors 284 42
Net cash inflow from operating activities 7,728 8,202
(b) Analysis of cash flow for headings netted in the cash flow statement
Servicing of finance
2011 2010
GBP'000 GBP'000
Interest paid (50) (201)
Financial investment
2011 2010
GBP'000 GBP'000
Purchase of investments (excluding Scrip dividends) (38,004) (61,078)
Sale of investments 38,224 74,075
Net inflow from financial investment 220 12,997
Management of liquid resources
2011 2010
GBP'000 GBP'000
Cash movement on short-term deposits (466) (3,334)
Net cash movement from management of liquid resources (466) (3,334)
Financing
2011 2010
GBP'000 GBP'000
Decrease in short-term borrowings - (11,108)
Net cash outflow from financing - (11,108)
(c) Analysis of changes in net funds
31 December Exchange 31 December
2010 Cash flow movement 2011
GBP'000 GBP'000 GBP'000 GBP'000
Cash 2,560 (212) (588) 1,760
Short-term deposit 3,334 466 - 3,800
Net (debt)/funds 5,894 254 (588) 5,560
.
This announcement does not constitute the Company's statutory accounts. It is
an abridged version of the audited Annual Financial Report of the Company for
the year ended 31 December 2011. The opinion of the auditors on the 2011 Annual
Financial Report is unqualified, and the auditors have not drawn attention to
any matter, nor have they sought to make a statement under section 498 of the
Companies Act 2006. Information relating to the year ended 31 December 2010 is
taken from the audited Annual Financial Report for that year which has been
delivered to the Registrar of Companies. The Annual Financial Report for 2011,
will be delivered to the Registrar shortly.
The audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
registered office, 30 Finsbury Square, London, EC2A 1AG. A copy of the Annual
Financial Report will be available from Invesco Perpetual on the following
website:
http://investmenttrusts.invescoperpetual.co.uk/portal/site/iptrust/investmentrange/investmenttrusts/citymerchants
By order of the Board
Invesco Asset Management Limited - Company Secretary
21 February 2012
END
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