TIDMJUS
RNS Number : 6174A
Jupiter US Smaller Companies PLC
29 September 2015
Jupiter US Smaller Companies plc (the 'Company')
Annual Financial Report for the year ended 30 June 2015
This announcement contains regulated information
Chairman's Statement
Dear fellow shareholders
Over the last year to 30 June 2015, the US stock market rose and
UK investors benefited from strength in the dollar. Easy money
policies and continued US economic growth supported the market.
Performance
Net Asset Value ("NAV") per share increased by 5.5% to 724.1p in
the twelve months to 30 June 2015, however, performance was poor
compared to the benchmark, underperforming by 8.8%. The sterling
adjusted Russell 2000 Index rose by 14.3%. Most of the reason for
the underperformance reflects the fact that the market was led by
biotechnology stocks, which rose by over 50% in the year and are an
area in which the Company's conservatively run portfolio does not
invest. For example, the Russell 2000 Value Index underperformed
the Russell 2000 by 6.0% in the year for the same reason. The
remainder of the underperformance reflects poor performance by the
portfolio's energy stocks in the first part of the year following
the sudden collapse in oil prices. Although it is disappointing
that performance was less than the benchmark this year, the
Company's conservative investment approach does mean that it will
underperform in the short term when the market is led by high risk
stocks as it was during the year under review. Since the Company's
formation in March 1993, the NAV per share has risen 650.3%,
compared with a gain of 397.1% for the sterling adjusted Russell
2000 Index.
Market review
During the year under review, in dollar terms, the Russell 2000
Index of smaller companies gained 5.1% but the Russell 2000 Value
Index fell 1.2%. The Standard & Poor's Composite Index added
5.3% lagging the more technology oriented NASDAQ Composite Index,
which appreciated 13.1%.
A continued feature of the market in the period was investor
euphoria about biotech stocks. The Russell 2000 Biotechnology Index
rose by 52.7% in the year. This followed a gain of 37.2% in the
prior year. When the market is led by such high risk stocks, the
Company's conservative investment style can underperform.
Sterling investors benefited from the strength of the US dollar,
which gained 8.7% in the year. The Company's investments are
denominated in dollars but are valued in the portfolio in
sterling.
The twelve month period began with a significant setback for
equities as concerns intensified about economies outside the US and
oil prices collapsed. In this period small companies underperformed
larger ones. However, from October, shares recovered with small
companies taking a lead.
US economic activity appeared to slow in the winter, as judged
by the usually reliable Institute of Supply Management survey of
manufacturing. The probable causes were a rise in the dollar,
reduced activity in the energy industry, poor weather and the
impact of a labour dispute at West Coast ports. The last had a big
impact on automobile factories that rely on imports of parts from
Asia.
Monetary policy was generally favourable during the period,
notwithstanding the widely flagged end to quantitative easing.
Despite occasional bouts of investor fear about interest rates, the
Federal Reserve appeared to be reluctant to raise rates.
Discount and buybacks
The price of the shares fell by 0.9% to 662p over the year. The
discount to NAV per share was 8.6% at the end of the period
compared to 2.7% on 30 June 2014. The average during the year was
7.2%. At 28 September 2015 the price stood at a discount of
9.7%.
The Board will continue to apply its policy of buying back
shares at appropriate times with a view to limiting any discount in
the longer term to around 10%.
Appointment of new Director
In recognition of the desirability of refreshing the Board from
time to time we are pleased to announce the appointment of Lisa
Booth as a Director with effect from 29 September 2015.
Annual general meeting
The annual general meeting will be held at 11.30am on Wednesday
18 November 2015 and I hope that you will attend. The meeting will
be held in the offices of Jupiter Asset Management Limited at 1
Grosvenor Place, London, SW1X 7JJ. In addition to the formal
business, the Investment Adviser will provide a short presentation
to shareholders.
Outlook
Whilst there has been considerable concern about the outlook for
the Chinese economy as well as a sharp correction in the US stock
market, the US smaller company sector is still an attractive and
interesting one for long term investors. It is generally
under-researched and offers areas of undiscovered value.
Gordon Grender
Chairman
29 September 2015
Financial Highlights
Capital Performance
30 June 30 June
2015 2014 % change
Net Assets (GBP'000) 174,033 164,957 +5.5
Ordinary Share Performance
30 June 30 June
2015 2014 % change
Net Asset Value (pence) 724.11 686.34 +5.5
Middle Market Price (pence) 662.00 668.00 -0.9
Russell 2000 Index (Sterling
adjusted) 797.32 697.70 +14.3
Discount to Net Asset
Value (%) (8.6) (2.7)-
Ten year record
Year-
Net on-year
change
Asset in Year-
Value Net Asset on-year
Value change
per per in
Net Ordinary Ordinary Benchmark
Assets Share Share Index
Year ended 30 June GBP'000 p %%
2005 71,350 296.0 --
2006 75,464 318.5 +7.6 +9.8
2007 73,177 336.1 +5.5 +6.1
2008 55,982 269.3 -19.9 -16.6
2009 60,607 292.7 +8.7 -10.9
2010 77,298 373.3 +27.5 +32.0
2011 96,201 464.6 +24.5 +26.5
2012 99,248 468.3 +0.8 -1.2
2013 147,688 618.4 +32.1 +26.6
2014 164,957 686.3 +11.0 +8.3
2015 174,033 724.1 +5.5 +14.3
Investment Adviser's Review
NAV per share rose in the year, however, it was a particularly
difficult year for a conservatively run portfolio to keep up with
the benchmark index. Performance lagged the benchmark in the first
seven months of the year but matched the benchmark subsequently.
Not only were conditions unfavourable for the Company's
conservative investment style but also there were several changes
of industry cycle to navigate, not least a sudden collapse in the
energy sector. Notwithstanding this, investments were made in new
areas that should benefit shareholders. The largest of these were
in consumer recovery, housing-related and energy-related stocks,
health care services and data-related businesses services. Exposure
to oil exploration and production was eliminated and holdings in
manufacturing and transport were reduced.
Investment approach
The Company takes a conservative investment approach that aims
to preserve capital rather than to chase growth aggressively. The
approach is not particularly fashionable and does not necessarily
produce good results every year but over time it should lead to
superior long-term returns. This approach emphasises taking a
long-term view of company business prospects and buying shares when
they are cheap and have substantial appreciation potential. As a
result, the portfolio tends to emphasise areas of the market that
are out of favour or where companies have lower risk businesses.
Conversely, popular market sectors tend to be shunned and stocks
that can offer steady, if unspectacular, returns are preferred. An
example of this is companies that can compound growth in book value
per share, such as disciplined insurance underwriters.
Performance
The portfolio lagged its benchmark for two main reasons: firstly
the impact of the rally in biotechnology stocks, which rose 52.7% -
the Company avoids high risk stocks like these because of the
conservative approach used; secondly losses in energy stocks.
Despite this there were some strong stock contributions. The
best of these came from INTL FC Stone (commodity consultancy and
trading), which experienced a recovery as the volatility of
commodity prices increased. Installed Building Products (home
insulation installation) saw good growth as a result of gains in
market share, whereas, Alere (patient diagnostics and monitoring)
now under new management, continued the turnaround begun in 2012.
American Vanguard (crop chemicals producer) rallied on hopes of a
recovery in the farm sector and America's Car-Mart (which sells and
finances used cars) saw a pick-up in growth as a result of
lessening competition from new car lenders.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 12:18 ET (16:18 GMT)
Poor contributors were primarily oil and gas stocks, led by
Goodrich Petroleum, Resolute Energy and Rex Energy. Shale plays
such as these prosper when oil prices are high because of the
outstanding return on investment in these circumstances, but when
oil prices are lower they suffer. This was the case last year. In
addition Conn's (retailer of consumer durables that provides its
own credit) and Genesee & Wyoming (short line rails) were also
weak. Conn's was hit by high credit losses as it expanded into new
regions. The holding was increased in December, once the company's
board had taken firm action, and the portfolio benefited from the
subsequent rebound. Genesee and Wyoming suffered from falling car
loads volumes caused by weakness in the energy, coal and metals
industries.
There were two bids this year: Bally Technologies (gaming
equipment and software) was acquired by Scientific Games and HCC
Insurance (specialised insurance underwriter) received an agreed
bid from Tokio Marine.
Portfolio
Over the last year, activity was concentrated in recovery stocks
and compounders, the two most common categories of stock in the
portfolio.
The Company's conservative investment approach tends to lead the
portfolio to own broadly four kinds of stocks. These are a)
"compounders", that is companies capable of delivering reliable
growth over a long period, where the stock price, at purchase, is
very cheap compared to the underlying business value; b) "valuable
assets", where the company owns an asset that can be exploited to
increase overall share value; c) recovery stocks, where the shares
are deeply depressed and very cheap in absolute terms; and d)
turnarounds: troubled companies that require new management to set
them back on the right track.
Activity largely reflected several changes of industry cycle
that occurred in the year as well as secular changes affecting
healthcare and business services.
Additions were made to depressed consumer stocks in anticipation
of a recovery stimulated by lower gasoline prices. Examples were
Big 5 Sporting Goods (a retailer) and Penn National Gaming (a
regional casino operator).
Further additions were made to housing-related stocks on the
view that the area is now in a better position to grow than it has
been for several years. Following a market bubble, such as the one
in housing in 2005, it can typically take up to ten years before
the affected sector is able to recover sustainably. There were
initial investments last year but this year two examples were the
turnaround, State Bank Financial (an Atlanta based bank) and the
compounder, Installed Building Products (insulation installation
services).
In response to the fall in oil prices, new purchases were made
of stocks that in the view of the Investment Adviser had been
unfairly punished. Examples were the recovery stock Clean Harbors
(toxic waste clean-up) and a valuable asset stock, Seacor Holdings
(an aggressive trader of energy related transport assets).
Health care is undergoing considerable change with the advent of
Obama Care and this kind of change often creates new opportunities.
In addition health care providers are under increasing pressure
from payers to reduce costs, not only because of the ageing of the
population but also the greater cost of new (often biotech)
treatments. Several investments were made in companies that can
help payers save money. Examples are the compounders Almost Family
(a regional provider of home care) and IPC Healthcare (a physician
practice manager for hospitalists).
Corporations are increasingly focused on how they can use data
to improve their business and this is creating opportunities in
business services. The problem for a conservative investor is to
identify sustainable business models and shares that do not already
reflect growth prospects. One area that is promising is in database
businesses. These often have attractive characteristics, such as
steep barriers to entry, high levels of recurring revenue, and
strong cash flow. An example of a purchase this year is the
compounder REIS (commercial real estate data for investors and
borrowers).
The complete sale of a holding normally results from one of four
circumstances: a) confidence is lost in management or the company's
franchise; b) the price objective is met and future prospects are
uncertain; c) the investment thesis no longer applies; or d) the
stock the subject of a bid. Examples of the first were CRA
International (litigation consultant) and Simpson Manufacturing
(building reinforcement products). The largest category of
disposals this year were stocks that were felt to be fully valued
and these included Grand Canyon Education (online degrees for
healthcare personnel) and INTL FC Stone (commodity consultancy and
trading) as well as an old favourite Pool (swimming pool supply
distribution). The third reason for sale resulted in the disposal
of MSC Industrial (distributor to the metal working industry) and
Astec Industries (manufacturer of road building equipment). As
already mentioned there were bids for Bally Technologies and HCC
Insurance.
The strengthening of the dollar and weakness in commodities led
to sales of manufacturing and transportation stocks, leading to a
significant reduction in exposure to producer durables. The fall in
energy prices also led to sales where stocks were exposed by virtue
of valuation (wet barge operator Kirby) or high operating leverage
(the pipe and valves distributor MRC Global). The Investment
Adviser initially took the view that the sell-off in oil prices was
temporary: this proved to be wrong and they were sold into a
bounce.
Outlook
Notwithstanding weakness in the stock market and concerns about
economic growth in Asia, it appears that the US economy continues
to expand, although at a moderate pace. Tightening by the Federal
Reserve is looking likely in the near future. The over exuberance
that was apparent in equities over the summer, especially around
biotech stocks is dissipating. Although forecasting stock market
moves is exceedingly difficult, once the storms of autumn have been
navigated and the market has adjusted to rising rates, a return to
better conditions is possible.
Robert Siddles
Fund Manager
Jupiter Asset Management Limited
Investment Adviser
29 September 2015
Strategic Report
The Strategic Report has been prepared in accordance with the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013.
The Strategic Report seeks to provide shareholders with the
relevant information to enable them to assess the performance of
the Directors of the Company during the period under review.
Business and Status
During the year the Company carried on business as an investment
trust with its principal activity being portfolio investment. The
Company has been approved by HM Revenue & Customs as an
investment trust subject to the Company continuing to meet the
eligibility conditions of sections 1158 and 1159 of the Corporation
Tax Act 2010 (CTA 2010) and the ongoing requirements for approved
companies as detailed in Chapter 3 of Part 2 of the Investment
Trust (Approved Company) (Tax) Regulations 2011. In the opinion of
the Directors, the Company has conducted its affairs in the
appropriate manner to retain its status as an investment trust.
The Company is an investment company within the meaning of
section 833 of the Companies Act 2006.
The Company is not a close company within the meaning of the
provisions of the CTA 2010 and has no employees.
The Company was incorporated in England & Wales on 15
January 1993.
Reviews of the Company's activities are included in the
Chairman's Statement and Investment Adviser's Review.
There has been no significant change in the activities of the
Company during the year to 30 June 2015 and the Directors
anticipate that the Company will continue to operate in the same
manner during the current financial year.
Investment Objective
The Company's investment objective is to achieve long-term
capital growth by investing in a diversified portfolio of quoted US
smaller and medium-sized companies.
Strategy
The Board recognises that by its nature the US smaller companies
sector can be a risky asset class in which to invest. The sector is
highly diversified with a great many companies from which to
choose. Many companies are relatively immature, whether financially
or operationally or in terms of management or market position. They
tend to be highly geared to growth and are particularly vulnerable
to market and other changes. Against this background, the Company
has adopted a disciplined and relatively conservative investment
style that focuses on companies with a strong franchise, free cash
flow, insider ownership by management and whose shares are
considered by the Investment Adviser to be cheap at the time of
investment. Whilst shares in these companies will not always be the
best performing, the Directors believe that this is an excellent
approach to long-term investment in this sector.
Business Model & Investment Policy
The investment policy of the Company is to invest in quoted US
smaller and medium-sized companies and its objective is achieved
through diversification of holdings across a variety of
economic/industrial sectors.
No more than 10% of the total assets of the Company may be
invested in other UK listed investment companies (including
investment trusts) except in such other UK listed investment
companies which themselves have stated that they will invest no
more than 15% of their total assets in other UK listed investment
companies, as defined in section 15.6.8 of the Listing Rules, in
which case the limit is 15%.
Management
The Company has no employees and most of its day-to-day
responsibilities are delegated to Jupiter Asset Management Limited
(via Jupiter Unit Trust Managers Limited, the Alternative
Investment Fund Manager), which act as the Company's Investment
Adviser and Company Secretary.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 12:18 ET (16:18 GMT)
J.P. Morgan Europe Limited acts as the Company's Depositary and
the Company has entered into an outsourcing arrangement with J.P.
Morgan Chase Bank N.A. for the provision of custodian, accounting
and administration services.
The Board believes that individual fund managers holding shares
in the companies they manage is a positive indicator of their
conviction in those companies. Robert Siddles held 36,694 shares in
the Company as at 30 June 2015.
Key Performance Indicators
At the quarterly Board meetings the Directors consider a number
of performance indicators to help assess the Company's success in
achieving its objectives. The key performance indicators used to
measure the performance of the Company over time are as
follows:
-- Net Asset Value changes;
-- The premium or discount of share price to Net Asset Value over time;
-- A comparison of the absolute and relative performance of the
Ordinary share price and the Net Asset Value per share relative to
the return on the Company's Benchmark Index; and
-- Ordinary share price movement.
Information on these Key Performance Indicators and how the
Company has performed against them can be found within the
Chairman's Statement.
In addition, a history of the Net Asset Value, Ordinary share
price and Benchmark Index are shown on the monthly factsheets which
can be viewed on the Investment Adviser's website
www.jupiteram.com/JUS and which are available on request from the
Company Secretary.
Discount to Net Asset Value
The Directors review the level of the discount or premium
between the middle market price of the Company's Ordinary shares
and their Net Asset Value on a regular basis. The Directors have
taken the opportunity to issue shares when there is sufficient
demand.
Such issues are always at a price which is in excess of the
NAV.
The Directors have powers granted to them at the last Annual
General Meeting to purchase Ordinary shares and either cancel or
hold them in treasury as a method of controlling the discount to
Net Asset Value and enhancing shareholder value.
No shares were issued or repurchased during the year under
review.
Under the Listing Rules, the maximum price that may currently be
paid by the Company on the repurchase of any Ordinary shares is
105% of the average of the middle market quotations for the
Ordinary shares for the five business days immediately preceding
the date of repurchase. The minimum price will be the nominal value
of the Ordinary shares. The Board is proposing that its authority
to repurchase up to approximately 14.99% of its issued share
capital should be renewed at the Annual General Meeting. The new
authority to repurchase will last until the conclusion of the
Annual General Meeting of the Company in 2016 (unless renewed
earlier). Any repurchase made will be at the discretion of the
Board in light of prevailing market conditions and within
guidelines set from time to time by the Board, the Companies Act,
the Listing Rules and Model Code.
Treasury Shares
In accordance with the Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 (the 'Regulations') which came
into force on 1 December 2003 any Ordinary shares repurchased,
pursuant to the above authority, may be held in treasury. These
Ordinary shares may subsequently be cancelled or sold for cash.
This would give the Company the ability to reissue shares quickly
and cost effectively and provide the Company with additional
flexibility in the management of its capital. The Company may hold
in treasury any of its Ordinary shares that it purchases pursuant
to the share buy back authority granted by shareholders.
As at 23 September 2015 there were no shares held in
treasury.
Gearing
The Company is not currently geared.
Gearing is defined as the ratio of a company's total loan
liability, expressed as a percentage of net assets less cash held.
The effect of gearing is that in rising markets a geared share
class tends to benefit from any out-performance of the relevant
company's investment portfolio above the cost of payment of the
prior ranking entitlements of any lenders and other creditors.
Conversely, in falling markets the value of the geared shares class
suffers more if the Company's investment portfolio under-performs
the cost of those prior entitlements.
Principal Risks and Uncertainties
The principal risk factors that may affect the Company and its
business can be divided into the following areas:
Investment Strategy and Share Price Movement - The Company is
exposed to the effect of variations in the price of its
investments. A fall in the value of its portfolio will have an
adverse effect on shareholders' funds. It is not the aim of the
Board to eliminate entirely the risk of capital loss, rather it is
its aim to seek capital growth. The Board reviews the Company's
investment strategy and the risk of adverse share price movements
at its quarterly board meetings taking into account the economic
climate, market conditions and other factors that may have an
effect on the sectors in which the Company invests.
Liquidity Risk - The Company may invest in securities that have
a very limited market which will affect the ability of the
Investment Adviser to dispose of securities when it is no longer
felt that they offer the potential for future returns. Likewise the
Company's shares may experience liquidity problems when
shareholders are unable to realise their investment in the Company
because there is a lack of demand for the Company's shares. At its
quarterly meetings the Board considers the current liquidity in the
Company's investments when setting restrictions on the Company's
exposure. The Board also reviews, on a quarterly basis, the
Company's buy back programme and in doing so is mindful of the
liquidity in the Company's shares.
Gearing Risk - The Company's gearing can impact the Company's
performance by accelerating the decline in value of the Company's
Net Assets at a time when the Company's portfolio is declining.
Conversely gearing can have the effect of accelerating the increase
in the value of the Company's Net Assets at a time when the
Company's portfolio is rising. At its quarterly meetings the Board
is mindful of the outlook for equity markets when reviewing the
Company's gearing.
Discount to Net Asset Value - A discount in the price at which
the Company's shares trade to Net Asset Value would mean that
shareholders would be unable to realise the true underlying value
of their investment. The Directors have powers granted to them at
the last Annual General Meeting to purchase Ordinary shares as a
method of controlling the discount to Net Asset Value and enhancing
shareholder value.
Regulatory Risk - The Company operates in a complex regulatory
environment and faces a number of regulatory risks. A breach of
section 1158 of the CTA 2010 could result in the Company being
subject to capital gains tax on portfolio movements. Breaches of
other regulations such as the UKLA Listing rules, could lead to a
number of detrimental outcomes and reputational damage. Breaches of
controls by service providers such as the Investment Adviser could
also lead to reputational damage or loss. The board relies on the
services of its Company Secretary, Jupiter Asset Management
Limited, and its professional advisers to ensure compliance with,
amongst other regulations, the Companies Act 2006, the UKLA Listing
Rules, the FCA's Disclosure and Transparency Rules and the
Alternative Investment Fund Managers Directive.
Credit and Counterparty Risk - The failure of the counterparty
to a transaction to discharge its obligations under that
transaction could result in the Company suffering a loss.
Loss of Key Personnel - The day-to-day management of the Company
has been delegated to the Investment Adviser. Loss of the
Investment Adviser's key staff members could affect investment
return. The Investment Adviser develops its recruitment and
remuneration packages in order to retain key staff, has training
and development programmes in place and undertakes succession
planning.
Operational - Failure of the core accounting systems, or a
disastrous disruption to the Investment Adviser's business, could
lead to an inability to provide accurate reporting and monitoring.
The Investment Adviser is contractually obliged to ensure that its
conduct of business conforms to applicable laws and
regulations.
Financial - Inadequate financial controls could result in
misappropriation of assets, loss of income and debtor receipts and
inaccurate reporting of Net Asset Value per share. The Board
annually reviews the Investment Adviser's report on its internal
controls and procedures.
Social and Environmental Matters
The Investment Adviser considers various factors when evaluating
potential investments. While an investee company's policy towards
the environment and social responsibility, including with regard to
human rights, is considered as part of the overall assessment of
risk and suitability for the portfolio, the Investment Adviser does
not necessarily decide to, or not to, make an investment on
environmental and social grounds.
All of the Company's activities are outsourced to third
parties.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its
operations as its day-to-day management and administration
functions have been outsourced to third parties and it neither owns
physical assets or property nor has employees of its own. It
therefore does not have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report on
Directors' Reports) Regulations 2013.
Statement of Directors Responsibilities
The Directors are responsible for preparing the Annual Report
& Accounts in accordance with applicable law and
regulation.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 12:18 ET (16:18 GMT)
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 laws).
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 and
loss of the Company for that period. In preparing those financial
statements, the Directors are required to:
(a) select suitable accounting policies and then apply them
consistently;
(b) make judgments and estimates that are reasonable and
prudent;
(c) state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
(d) prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper 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 Report of the Directors, Directors'
Remuneration Report and Statement of Corporate Governance that
comply with that law and those regulations.
The financial statements are published on www.jupiteram.com/JUS
which is a website maintained by the Investment Adviser.
The work carried out by the auditor does not include
consideration of the maintenance and integrity of the website and
accordingly the auditor accepts no responsibility for any changes
that have occurred to the financial statements when they are
presented on the website.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Investment Adviser'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 to the best of his knowledge
that:
(a) the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
(b) the Strategic Report and Report of the Directors include a
fair review of the development and performance of the Company,
together with a description of the principal risks and
uncertainties that the Company faces; and
(c) in his opinion the Annual Report & 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.
By Order of the Board
Gordon Grender
Chairman
29 September 2015
Income Statement for the year ended 30 June 2015
2015 2014
Revenue Capital Revenue Capital
Return Return Total Return Return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments
at fair value
through profit or
loss - 9,355 9,355 - 17,991 17,991
Foreign exchange gain/(loss) - 312 312 - (761) (761)
Investment income 1,508 - 1,508 825 - 825
Other income - - - 3 - 3
============================== ======= ======= ======= ======= ======= =========
Total income 1,508 9,667 11,175 828 17,230 18,058
Investment management
fee (1,378) - (1,378) (1,274) - (1,274)
Performance fee - - - - (43) (43)
Other expenses (343) (3) (346) (331) - (331)
Total expenses (1,721) (3) (1,724) (1,605) (43) (1,648)
(Loss)/return before
finance costs
and taxation (213) 9,664 9,451 (777) 17,187 16,410
(Loss)/return before
taxation (213) 9,664 9,451 (777) 17,187 16,410
Taxation (375) - (375) (130) - (130)
Net (loss)/return
after taxation (588) 9,664 9,076 (907) 17,187 16,280
Net (loss)/return
per Ordinary Share (2.45p) 40.21p 37.76p (3.78p) 71.69p 67.91p
The total column of this statement is the profit and loss
account of the Company.
A Statement of Total Recognised Gains and Losses is not required
as all gains and losses of the Company have been reflected in the
above statement.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
Balance Sheet as at 30 June 2015
2015 2014
GBP'000 GBP'000
Fixed assets
Investments held as at fair
value through profit or loss 169,890 160,742
Current assets
Debtors 536 518
Cash at bank 4,264 4,537
4,800 5,055
Creditors: amounts falling due
within one year (657) (840)
Net current assets 4,143 4,215
Net assets 174,033 164,957
Capital and reserves
Called up share capital 6,008 6,008
Share premium 19,550 19,550
Non-distributable reserve 841 841
Capital redemption reserve 8,175 8,175
Retained earnings 139,459 130,383
Total shareholders' funds 174,033 164,957
Net Asset Value per Ordinary
Share 724.11p 686.34p
Reconciliation of Movements in Shareholders' Funds for the year
ended 30 June 2015
Called
up Non- Capital
Share distributable
Share Redemption Retained
For the year ended Capital Premium Reserve Reserve Earnings Total
30 June 2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 July 2014 6,008 19,550 841 8,175 130,383 164,957
Net return for the
year - - - - 9,076 9,076
Balance at 30 June
2015 6,008 19,550 841 8,175 139,459 174,033
Called
up Non- Capital
Share distributable
Share Redemption Retained
For the year ended Capital Premium Reserve Reserve Earnings Total
30 June 2014 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 July 2013 5,971 18,598 841 8,175 114,103 147,688
Net return for the
year - - - - 16,280 16,280
Ordinary share issue 37 952 - - - 989
Balance at 30 June
2014 6,008 19,550 841 8,175 130,383 164,957
Cash Flow Statement for the year ended 30 June 2015
2015 2014
GBP'000 GBP'000
Cash flows from operating activities
Purchases of investments (106,054) (63,925)
Sales of investments 106,067 62,409
Investment income received 1,574 806
Performance fee (44) -
Interest received - 3
Investment management fee paid (1,287) (1,312)
Other cash expenses (328) (312)
Cash outflow from operating
activities before taxation (72) (2,331)
Taxation (513) (133)
Net cash outflow from operating
activities (585) (2,464)
Financing activities
Ordinary shares issued - 989
Decrease in cash (585) (1,475)
Cash and cash equivalents at
start of year 4,537 6,773
Realised gain/(loss) on foreign
currency 312 (761)
Cash and cash equivalents at
end of year 4,264 4,537
Notes to the Accounts for the year ended 30 June 2015
1. Significant Accounting policies
The significant accounting policies, which have not been changed
and have been applied consistently during the year ended 30 June
2015, are stated below:
(a) Basis of accounting
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The accounts of the Company are prepared on a going concern
basis under the historical cost convention, modified to include
fixed asset investments at fair value through profit or loss and in
accordance with the Companies Act 2006, Accounting Standards
applicable in the United Kingdom and with the Revised Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" ("SORP") issued in January
2009.
The functional and reporting currency of the Company is pounds
sterling because that is the currency of the primary economic
environment in which the Company operates.
In accordance with the SORP, the Income Statement has been
analysed between a revenue account (dealing with items of a revenue
nature) and a capital account (relating to items of a capital
nature). Revenue returns include, but are not limited to, dividend
income, operating expenses and tax. Net revenue returns are
allocated via the revenue return to retained earnings, out of which
dividend payments may be made. Capital returns include, but are not
limited to, profits and losses on the disposal and revaluation of
fixed asset investments and currency profits and losses on cash and
borrowings. Net capital returns may not be distributed by way of
dividend and are allocated via the capital account to retained
earnings.
(b) Principal accounting policies
(i) Financial instruments
Financial instruments include fixed asset investments,
derivative assets and liabilities and long-term debt
instruments.
Accounting standards recognise a hierarchy of fair value
measurements for financial instruments which gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1) and the lowest priority
to unobservable inputs (level 3). The classification of financial
instruments depends on the lowest significant applicable input, as
follows:
Level 1 - Unadjusted, fully accessible and current quoted prices
in active markets for identical assets or liabilities. Included
within this category are investments listed on any recognised stock
exchange.
Level 2 - Quoted prices for similar assets or liabilities, or
other directly or indirectly observable inputs which exist for the
duration of the period of investment. Examples of such instruments
would be those for which the quoted price has been recently
suspended, forward exchange contracts and certain other derivative
instruments.
Level 3 - External inputs are unobservable. Value is the
Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or similar instruments. Included within
this category are unquoted investments.
(ii) Fixed asset investments
As an investment trust, the Company measures its fixed asset
investments at "fair value through profit or loss" and treats all
transactions on the realisation and revaluation of investments as
transactions on the capital account. Purchases are recognised on
the relevant trade date, inclusive of expenses which are incidental
to their acquisition. Sales are also recognised on the trade date,
after deducting expenses incidental to the sales.
Quoted investments are valued at bid value at the close of
business on the relevant date on the exchange on which the
investment is quoted.
(iii) Foreign currency
Monetary assets, monetary liabilities and equity investments
denominated in a foreign currency are expressed in sterling at
rates of exchange ruling at the balance sheet date. Purchases and
sales of investment securities, dividend income, interest income
and expenses are translated at the rates of exchange prevailing at
the respective dates of such transactions.
Foreign exchange profits and losses on fixed asset investments
are included within the changes in fair value in the capital
account. Foreign exchange profits and losses on other currency
balances are separately credited or charged to the capital account
except where they relate to revenue items when they are credited or
charged to the revenue account.
(iv) Income
Income from equity shares is brought into the revenue account
(except where, in the opinion of the Directors, its nature
indicates it should be recognised within the capital account) on
the ex-dividend date or, where no ex-dividend date is quoted, when
the Company's right to receive payment is established.
Dividends are accounted for in accordance with Financial
Reporting Standard 16 "Current Taxation" on the basis of income
actually receivable, without adjustment for the tax credit
attaching to the dividends. Dividends from overseas companies are
shown gross of withholding tax.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash (scrip dividends),
the amount of the cash dividend foregone is recognised as income.
Any excess in the value of the shares received over the amount of
the cash dividend foregone is recognised in the capital
account.
(v) Expenses, including finance charges
Expenses are charged to the revenue account of the Income
Statement, except as noted below:
- expenses incidental to the acquisition or disposal of fixed
asset investments are included within the cost of the investments
or deducted from the disposal proceeds of investments and are thus
charged to the capital element of retained earnings - arising on
investments sold via the capital account; and
- performance fees insofar as they relate to capital performance
are allocated to capital element of retained earnings - arising on
investments sold.
All expenses are accounted for on an accruals basis. Finance
charges are accrued using the effective interest rate method.
(vi) Taxation
Deferred tax is provided in accordance with Financial Reporting
Standard 19 "Deferred Tax", on an undiscounted basis, on all timing
differences that have originated but not reversed by the balance
sheet date, based on the tax rates that are expected to apply in
the period when the liability is settled or the asset realised.
Deferred tax assets are only recognised if it is considered more
likely than not that there will be suitable profits from which the
future reversal of timing differences can be deducted. In line with
the recommendations of the SORP, the allocation method used to
calculate the tax relief on expenses charged to capital is the
"marginal" basis. Under this basis, if taxable income is capable of
being offset entirely by expenses charged through the revenue
account, then no tax relief is transferred to the capital
account.
(vii) Capital redemption reserve
The nominal value of ordinary share capital purchased and
cancelled is transferred out of called-up share capital and into
the capital redemption reserve.
(viii) Capital reserves
Capital reserve - arising on investments sold
The following are accounted for in this reserve:
- gains and losses on the realisation of fixed asset
investments;
- realised foreign exchange differences of a capital nature;
- performance fee payable to the Manager;
costs of professional advice, including related irrecoverable
VAT, relating to the capital structure of the Company;
- other capital charges and credits charged or credited to this
account in accordance with the above policies; and
- the costs of purchasing Ordinary share capital.
Capital reserve - arising on investments held
The following are accounted for in this reserve:
- increases and decreases in the valuation of fixed asset
investments held at the year end; and
- unrealised foreign exchange differences of a capital
nature
2. Income
2015 2014
GBP'000 GBP'000
Income from investments
Dividends from overseas
companies 1,508 825
1,508 825
Other income
Deposit interest - 3
Total income 1,508 828
Total income comprises
Dividends 1,508 825
Interest - 3
1,508 828
Income from investments
Listed overseas 1,508 825
1,508 825
------------------------ ------- -------
3. Return per Ordinary share
2015 2014
GBP'000 GBP'000
Net revenue loss (588) (907)
Net capital return 9,664 17,187
Net return 9,076 16,280
Weighted average number of Ordinary
shares in issue during the year 24,034,135 23,973,656
Revenue loss per Ordinary share (2.45p) (3.78p)
Capital return per Ordinary share 40.21p 71.69p
Total return per Ordinary share 37.76p 67.91p
4. Net Asset Value per Ordinary share
The Net Asset Value per Ordinary share is based on the net
assets attributable to the equity shareholders of GBP174,033,000
(2014: GBP164,957,000) and on 24,034,135 (2014: 24,034,135)
Ordinary shares, being the number of Ordinary shares in issue at
the year end.
5. Related parties
Transactions with the Investment Adviser and related parties
There are no transactions with the Board other than aggregated
remuneration for services as Directors as disclosed in the
Directors' Remuneration Report and the beneficial interests of the
Directors in the ordinary shares of the Company.
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