ANGLO & OVERSEAS PLC
FINAL RESULTS FOR THE YEAR ENDED 31 JULY 2008
The full Annual Report and Accounts can be accessed via the Company's website
at www.angloandoverseasplc.com or by contacting the Company Secretary on
telephone 0131 270 3800.
HIGHLIGHTS
- Shareholders approved new investment policy. Geographical constraints
removed. Increased focus on income.
- Total dividend for year of 2.84p, an increase of 29.1%. Recommended final
dividend of 2.04p.
CHAIRMAN'S STATEMENT
Results
The economic slowdown, to which I alluded in my annual statement
last year, has hit global financial markets hard. Given our previous caution,
it is clearly disappointing that the out-turn for the year was less favourable
than returns achieved in previous years.
During the year to 31 July 2008 the net asset value per share fell
to 105p from 131p as at 31 July 2007. This represents a decrease of 19.8% for
the year. The total return in the period was -18.3%, after including dividends
paid.
The Company's portfolio is not managed with reference to any stock
market index, as your Directors have decided not to adopt a formal benchmark.
Nonetheless, we continue to believe it would be useful to highlight the
performance of your Company against market indices for comparative purposes.
The total return from the FTSE All Share Index over the year to 31
July 2008, was -13.3%, while the corresponding total return from the FTSE All
World ex UK Index was -6.7%. The total return from the average of these two
indices over the period under review was -10.1%.
Investment Strategy
Following a period of consultation with the Company's advisers, in
May 2008 shareholders approved the adoption of a new investment policy. The
new investment policy removes the geographical restrictions so that the
Investment Manager may invest without reference to geographical constraints.
The Board also took into consideration the income and capital elements of
total return and the importance many shareholders place on dividend income.
In the year under review, UK exposure was reduced from 54% to 47%.
Holdings in European countries increased from 25% to 33%, while US exposure
remained constant at around 15%. Exposure to the Asia/Pacific Basin region was
3% at the year end.
There is more detailed comment in the Manager's Report and
Portfolio Analysis on performance and company and geographical exposure.
The investment philosophy adopted by the Investment Manager aims to
identify, through disciplined and extensive research, the long-term earnings
potential of a company and compares the intrinsic value to its share price.
This approach requires patience as the resulting portfolio is unlikely to
resemble any index and returns will therefore be volatile. The Directors
continue to believe in the merits of a fundamental, long-term approach,
particularly as we navigate through more difficult economic conditions.
Share Price and Discount
As at 31 July 2008 the Company's share price was 90p. This
represents a discount to net asset value per share (including income) of
14.3%. This compares with a discount of 9.7% at the previous year end.
Your Board continues to believe that the shares of your Company
should trade at a relatively narrow range around the net asset value. Market
conditions were clearly unhelpful and discounts for investment trusts
generally widened over the period.
It is hoped that the revised investment policy will be more
attractive to existing and potential shareholders. To this end the Investment
Manager has actively marketed the Company through a series of investor
presentations across the UK. In addition, private investors can purchase
shares in the Company through savings plans operated by Edinburgh Partners,
details of which can be found on the Edinburgh Partners' website
www.edinburghpartners.com and the Company's website
www.angloandoverseasplc.com.
Another important tool used to manage the discount is to buy-back
shares. In the year ended 31 July 2008, the Company purchased and placed into
treasury or purchased for cancellation a total of 8,284,715 shares
(representing 9.8% of shares originally in issue) at a cost of �8,524,000.
The authority to repurchase shares will expire at the Annual
General Meeting on 12 November 2008 and a Special Resolution will be proposed
for its renewal. This will allow the Company to repurchase up to 14.99% of its
shares in issue (excluding treasury shares) in the open market and for the
shares to be cancelled or held in treasury. The authority will be used when
supply exceeds demand and where the Directors consider it to be in the best
interests of Shareholders. No shares will be repurchased if it would dilute
the net asset value of the remaining shares.
Revenue and Dividend
There was a significant increase in the revenue generated from the
portfolio in the period under review. Net revenue per share was 3.41p,
compared to 2.81p in the prior year, an increase of 21.4%.
At the half year the Directors increased the interim dividend by
29.0% to 0.8p. It is my pleasure to recommend a final dividend of 2.04p, which
compares with the prior year final dividend of 1.58p. The total dividend for
the year will be 2.84p, an increase of 29.1%. The Board is aware of the
importance that shareholders place on dividend income and believe this a
greater emphasis on dividends will be welcomed by shareholders and make the
Company's shares more attractive to new investors.
Subject to the approval of shareholders at the Annual General
Meeting on 12 November 2008 the proposed final dividend of 2.04p will be paid
on 24 November 2008 to shareholders on the register as at 31 October 2008. The
ex-dividend date will be 29 October 2008.
Outlook
The turbulence in financial markets has resulted in unprecedented
write-downs in financial assets and losses for many of the world's largest
banks. This has led to a shortage of liquidity and has constrained the amount
the financial sector is willing or able to lend and has increased the cost of
borrowing to customers. When this is combined with uncomfortable levels of
inflation and with many governments and individuals already financially
over-stretched, a sharp slowdown in economic growth is unavoidable. An
inevitable effect of this adjustment is that it is likely that the volatility
that we have experienced in financial markets will continue.
We should not forget that times of change tend also to bring
opportunities. In my half year report I wrote of fortitude and patience as
some of the necessary attributes to successful long-term investing. We remain
cautious in our outlook, but expect to retain the flexibility to take
advantage of some of the outstanding investment opportunities that will occur.
I will retire as Chairman and as a Director of the Company
following the Annual General Meeting on 12 November. I would like to take this
opportunity to thank the Board for their support. I look forward to watching
the progress of the Company in the years ahead.
I am delighted to hand over to John Pearmund, who will be the next
Chairman of your Company. I am confident that John's experience and
perspective will prove to be of great value to the Company.
Robert Alcock
Chairman
9 October 2008
MANAGER'S REPORT AND PORTFOLIO ANALYSIS
Economic and Geographic Overview
Anglo & Overseas Plc's investment objective is to provide
shareholders with above average returns over the longer term through both
capital appreciation and income growth. The Company has no constraints on
geographic exposure. The composition of the portfolio is driven by company
valuations and it is constructed without reference to the composition of any
stock market index, or any geographic, industrial, or sectoral asset
allocation limits. Consequently, over short periods of time, relative
performance is likely to be volatile against any index.
Nevertheless, it is disappointing to report negative returns and
performance significantly behind comparative indices, as detailed in the
Chairman's Statement. There were two principal factors that impacted returns
over the last year: the poor performance of bank shares and investors' belief
in the possibility of emerging markets decoupling from slowing growth in the
US and Europe.
The portfolio's banking exposure detracted from performance. Our
modelling of bank company earnings was based on an expectation of slowing
growth and an accompanying decrease in profitability. Against this backdrop we
saw reasonable long-term valuations within the sector. The past twelve months
have revealed a level of off-balance sheet borrowing and lending by the banks
which has severely compromised their capital base. This hidden activity has
forced substantial capital destruction across the sector and hit share prices
accordingly. When the stock-market is hit by such an unforeseen event, share
prices tend to react violently and typically overshoot. Whilst there are
certainly short-term risks in the financial sector and more capital raising is
almost inevitable for many banks, we continue to find value in this sector.
The economic slowdown and higher cost of bank lending is important
for the global corporate sector. If we need an example of this we need look no
further than the UK or US house-building sectors. The impact of slowing
economic growth is now spreading beyond the banking and house building
sectors. We have long believed the `decoupling arguments' to be suspect. These
arguments posited the view that emerging markets, particularly Brazil, Russia,
India and China were growing fast enough to take up the slack from a sharply
slowing US and Europe. Whilst in the very long-run these economies will become
more supportive of global growth in their own right, in the short-run, they
are dependent upon expenditure from Western economies. Moreover, the
comparative sizes of the emerging economies is such that it is hard to see how
they could compensate for a developed economy recession. This realisation is
now becoming a consensus view and is slowly being translated by analysts into
falling corporate earnings forecasts.
Whilst this realisation is now becoming increasingly widely
recognised and discounted by markets, our view was not shared by others over
the last financial year. Emerging markets' returns fell over that period by
only 3.9%. While we are attracted to the longer term growth opportunities in
these economies, we have so far found relatively few investments where share
prices meet our valuation criteria. As the evidence mounts of a global
slowdown, it is clear that emerging markets will not be immune. Indeed, with
relatively lower levels of disposable income, the emerging market consumer
will be more exposed to rising energy and food price inflation and governments
who attempt to subsidise these commodities are having their reserves rapidly
eroded. Fundamentals and share prices are now moving as we expected, and it is
encouraging that in recent months our low exposure has benefited returns.
We are only at the early stages of economic slowdown. Bankruptcies
and unemployment will rise from here. As was highlighted in the half yearly
report, "It is unfortunate that this slowdown is also occurring at the same
time that many governments are constrained in their fiscal response by high
levels of public expenditure and debt." The alternative stimulus of interest
rate cuts are being held back as independent central banks remain wary of
persistent inflation, especially in food and energy prices. Providing this
does not extend to rising labour costs, as looks likely, we expect the slowing
global economy to ease the pressure on prices and interest rate cuts will be
back on the agenda.
Portfolio
Portfolio construction is based upon our analysis of long-term
earnings and risk. Despite the difficult economic environment described above,
we continue to find companies which are attractive investments.
While the outlook for the banking sector will be troubled for some
time, as highlighted in September 2008 with the failure of Lehman Brothers,
the takeover of Merrill Lynch by the Bank of America in the USA and the
proposed takeover of HBOS by Lloyds TSB in the UK, a very significant amount
of potential future bad news is already incorporated into share prices. We
intend to maintain a meaningful exposure, somewhere between 10%-20% of the
portfolio, ahead of the upturn.
One area that we identified as meeting our investment criteria over
the past year has been the healthcare sector. Earnings growth has declined in
recent years, due to pressure on healthcare spending, generic competition,
safety issues and new product pipeline failures. This has resulted in the
sector moving out of favour and share prices declining. However, many of the
companies still have attractive new product pipelines, which meet real patient
needs and have financial flexibility provided by strong cash generation and
robust balance sheets. As a result, investments were made into Johnson &
Johnson, Novartis and Roche, bringing the exposure in the sector to 14% at the
year end.
Earnings reliability is also likely to be increasingly rewarded by
investors, providing valuations are attractive. We view much of the telecoms
sector and utilities as being capable of providing this predictability and
while earnings growth will be modest, the total return characteristics of
these sectors, which together account for around 20% of the portfolio, remain
attractive.
Another notable change in the portfolio over the last year has been
the increase in holdings in the oil & gas sector, to over 8% of the total. We
have added BP and ENI where poor share price performance allowed us to build
positions. In addition we acquired a holding in LDK Solar, a manufacturer of
solar panels, which is expected to be a major beneficiary of the growth in
solar power generation.
The credit crunch is not bad news for all companies. We recently
invested in Provident Financial. It is the UK's largest weekly collected
credit business, specialising in sub-prime lending. Unlike the banks, it
borrows long and lends short. Returns are driven by lending growth and
impairment charges. With UK banks and many traditional competitors reluctant
or unable to lend, the number of potential customers for Provident Financial
will continue to rise. The balance sheet has surplus capital and secured
funding in place that can finance growth. These are ideal conditions for
Provident Financial.
We also built a position in InBev. This is the world's largest
brewer and is typically the No. 1 or 2 player throughout the 30 countries in
which it operates. Despite being the biggest company in the sector, its
objective is to grow revenues faster than the industry average and revenues
faster than volumes. Top line revenue growth will be driven by emerging market
consumers increasing beer consumption as incomes rise and also by the
increasing segmentation of the beer market and growth of premium brands. InBev
recently successfully bid for Anheuser Busch, the owner of the Budweiser
brand. The combination of both businesses offers efficiency improvements and
opportunities from extending the brand portfolio.
Outlook
It is too early to speculate on any green shoots of recovery. We
are just heading into the downturn in the UK and growth is slowing in other
major economies. Excessive government spending and consumer borrowing and
speculation will have to be squeezed much further, before the cycle can turn.
Share prices in sectors such as financials, housebuilders and retailers
suggest that we are in for a long and deep recession. Companies in these
sectors tend to have short order books and are quickly influenced by consumer
confidence. The ripples of the credit crunch and economic slowdown are now
extending to other sectors. We remain hopeful that inflation will moderate as
economic demand slows and as previous price rises fall out of the annual
inflation calculation. This will provide the opportunity for central banks to
reduce interest rates and lessen the negative impact of the economic slowdown.
We are confident that the portfolio is positioned to do well in
this difficult environment. A significant proportion of our companies can
demonstrate the visibility and predictability of earnings which is prized by
investors at these times. In addition, we believe there is significant upside
potential in financial stocks, once current uncertainties diminish. Over the
course of the next year to eighteen months, it is likely that we will look to
re-invest the proceeds from the disposal of some holdings in utilities,
telecommunications and healthcare, into more economically sensitive
investments, once valuations become more aligned with their earnings
prospects.
Graham Campbell
Edinburgh Partners Limited
Dr Sandy Nairn
Edinburgh Partners Limited
9 October 2008
Financial Summary
31 July 2008 31 July 2007 % change
Shareholders' funds �84,076,000 �115,705,000 (27.3)%
Net asset value ("NAV")
per Ordinary Share 105.04p 130.99p (19.8)%
Share price per Ordinary Share 90.00p 118.25p (23.9)%
Share price discount to NAV 14.3% 9.7%
Year to 29 July 2006 to
31 July 2008 31 July 2007
Capital return per Ordinary Share* (28.20)p 11.69p
Revenue return per Ordinary Share* 3.41p 2.81p
Total return per Ordinary Share* (24.79)p 14.50p
Dividend per Ordinary Share** 2.84p 2.20p
Period's high/low
NAV - high 131.80p 139.03p
- low 98.05p 114.28p
Share price - high 119.00p 131.75p
- low 81.25p 107.50p
Share price discount to NAV
- low 6.7% 2.4%
- high 18.4% 9.9%
Cost of running the Company
Total expense ratio 0.9% 0.9%
* Based on the weighted average number of Ordinary Shares in issue
during the year, excluding own shares held in treasury.
** Total dividend for the year, including proposed final dividend.
PORTFOLIO OF INVESTMENTS
As at 31 July 2008
20 LARGEST INVESTMENTS
% of Net
Assets
Company Sector Country Valuation
�'000
Novartis Healthcare Switzerland 3,008 3.6
GlaxoSmithKline Healthcare United Kingdom 2,587 3.1
ENI Oil & Gas Italy 2,312 2.8
Mothercare Consumer Services United Kingdom 2,257 2.7
KPN Telecommunications Netherlands 2,243 2.7
Provident Financial Financials United Kingdom 2,200 2.6
Wells Fargo Financials United States 2,139 2.6
Rexam Industrials United Kingdom 2,129 2.5
E.On Utilities Germany 2,123 2.5
Vodaphone Telecommunications United Kingdom 2,041 2.4
BP Oil & Gas United Kingdom 1,956 2.3
Compass Consumer Services United Kingdom 1,921 2.3
Deutsche Telecom Telecommunications Germany 1,788 2.1
Roche Healthcare Switzerland 1,776 2.1
Sanofi-Aventis Healthcare France 1,775 2.1
Johnson & Johnson Healthcare United States 1,727 2.1
LDK Solar Oil & Gas China 1,543 1.8
Morrison (WM)
Supermarkets Consumer Services United Kingdom 1,489 1.8
Royal Bank of Scotland Financials United Kingdom 1,458 1.7
Persimmon Consumer Goods United Kingdom 1,444 1.7
Total - 20 Largest Investments 39,916 47.5
DISTRIBUTION OF INVESTMENTS
As at 31 July 2008 (% of net assets)
Sector distribution as at 31 July % of Net Assets
2008
Financials 19.4
Healthcare 14.1
Telecommunications 13.8
Industrials 12.1
Consumer Services 11.7
Oil & Gas 8.4
Utilities 7.1
Technology 6.4
Consumer Goods 5.7
Cash and Other Net Assets 1.3
100.0
Geographical distribution as at 31 % of Net Assets
July 2008
United Kingdom 46.7
Europe 33.2
Asia 3.0
United States 15.8
Cash and Other Net Assets 1.3
100.0
BUSINESS REVIEW
Financial reporting requirements direct that the Company is
required to provide a Business Review within the Directors' Report. The
Business Review must contain a review of the Company's business, the principal
risks and uncertainties it faces and an analysis of its performance during the
financial period and the position at the period end. To aid understanding of
these areas the Board are required to include analysis using appropriate Key
Performance Indicators.
Forward looking statements
This business review contains "forward looking statements" with
respect to the Company's plans and its current goals and expectations relating
to its future financial condition, performance and results. By their nature,
all forward looking statements involve risk and uncertainty because they
relate to future events that are beyond the Company's control. Factors that
could cause actual results to differ materially from those estimated by the
forward looking statements include, but are not limited to:
- UK and overseas economic conditions
- UK and overseas equity market performance and prices
- Changes in Government policies, both in the UK and overseas
- Monetary and interest rate policies
- The impact of inflation and deflation
- Changes to regulations and taxes, both in the UK and overseas
- Changes to consumer saving or spending habits
- Foreign exchange rates
- The Company's success in managing its assets and business to manage the above factors
- The Company's use of gearing
As a result, the Company's actual future financial condition,
performance and results may differ materially from the plans, goals and
expectations set forth in the Company's forward looking statements. The
Company undertakes no obligation to update the forward looking statements
contained within this review or any other forward looking statements we make.
Business and status of the Company
The Company is registered as a public limited company under the
Companies Act 1985 and is an investment company within the terms of Section
833 of the Companies Act 2006. Its shares are listed on the Official List of
the UK Listing Authority and traded on the main market of the London Stock
Exchange. The Company has received approval from the Inland Revenue as an
authorised investment trust under Section 842 of the ICTA 1988 for the period
from 29 July 2006 to 31 July 2007. In the opinion of the Directors, the
Company continues to direct its affairs so as to enable it to qualify for such
approval and the Company will continue to seek approval under Section 842 each
year.
The Company's investment policy, strategy and portfolio analysis
set out below and in the Annual Report provides information in relation to its
investment activities as required by the listing rules for closed ended
investment funds.
Objective
The investment objective of the Company is to provide shareholders
with above average returns over the longer-term through both capital
appreciation and income growth.
Investment policy
The Company's investment policy was amended and approved by
shareholders at the Extraordinary General Meeting held on 16 May 2008. The
current policy is set out below:
Asset allocation
The Company's investment policy is to invest in a focused portfolio
comprising principally securities of publicly quoted companies worldwide which
the Investment Manager considers to be undervalued on the basis of their
earnings potential. The Company may also invest up to 5 per cent of its gross
assets in unquoted securities and up to 10 per cent of its gross assets in
other listed investment companies or funds, including investment trusts. The
Company's portfolio will be constructed without reference to either the
composition of any stock market index or any geographic, industrial or
sectoral asset allocation limits.
Where the Investment Manager believes market or economic conditions
make equity investment unattractive or while seeking appropriate investment
opportunities for the portfolio or to maintain liquidity, the Company may
invest in bonds and other debt instruments, cash, cash equivalents or short
term deposits. The proportion of the Company's assets which may be invested in
this way will vary according to the Investment Manager's view of market or
economic conditions and the availability of suitable equity investment
opportunities. In the unlikely event of very extreme conditions, 100 per cent
of the portfolio could be so invested, although the use of such investments is
not expected normally to exceed 30 per cent of gross assets. In addition, the
Company may purchase derivatives for the purposes of efficient portfolio
management (i.e. for the purpose of reducing, transferring or eliminating
investment risk in its investments, including protection against currency
risk).
Risk diversification
In order to spread risk, the portfolio will normally consist of
between 40 and 70 equity investments in publicly quoted companies. No single
investment will represent more than 15 per cent of the Company's gross assets
at the time of its acquisition.
Gearing
The Company's policy on gearing is not to have fixed or structural
gearing, but the Company may from time to time, when deemed appropriate,
borrow for investment purposes in various currencies to suit investment
conditions. This gearing will not exceed 20 per cent of shareholders' funds at
the time of borrowing. This is intended to enhance the Company's ability to
take advantage of future investment opportunities identified by the Investment
Manager, subject always to the Board's overall control in relation to
borrowings.
Investment strategy
The Company is managed without reference to any stock market index.
Investments are selected for the portfolio only after extensive research which
the Investment Manager believes to be key. The whole process through which an
equity must pass in order to be included in the portfolio is very rigorous.
Only a security where the Investment Manager believes that the price will be
significantly higher in the future will pass the selection process. The
Company's Investment Manager believes the key to successful stock selection is
to identify the long-term value of a company's shares and to have the patience
to hold the shares until that value is appreciated by other investors.
Identifying long term value involves detailed analysis of a company's earning
prospects over a five year time horizon.
The Company's Investment Manager is Edinburgh Partners Limited,
which is an independent specialist investment manager focusing exclusively on
achieving above average returns for investors based on global investment
analysis of the highest quality. The founders of Edinburgh Partners Limited
include experienced investment professionals with strong investment
performance records who believe rigorous fundamental research allied to
patience is the basis of long term investment success. Each of the investment
professionals has specific responsibilities for sector and regional research
in addition to their fund management role.
Edinburgh Partners Limited is committed to investment trusts as
flexible, long-term savings vehicles and intends that they should form an
important component of its business offering.
Portfolio analysis
The Company has and intends to observe the investment restrictions
necessary to achieve and maintain approved investment trust status in the
United Kingdom and to comply with the Listing Rules. In accordance with the
Company's investment objective and policy stated above, in order to spread
risk, the portfolio will normally consist of between 40 and 70 equity
investments in publicly quoted companies. No single investment will represent
more than 15 per cent of the Company's gross assets at the time of its
acquisition.
A detailed review of how the Company's assets have been invested is
contained in the Chairman's Statement and the Manager's Report and Portfolio
Analysis. A list of the 20 largest investments is detailed in these Financial
Statements and a detailed list of all the Company's investments is contained
in the Portfolio of Investments in the full Annual Report & Accounts. The
portfolio of Investments details that the Company held 64 investments,
excluding cash and other net assets, as at 31 July 2008, with the largest
investment representing 3.6% of net assets, thus ensuring that the Company has
a suitable spread of investment risk. A sector and geographical distribution
is detailed in these Financial Statements.
Principal risks and uncertainties
The principal risks facing the Company relate to the Company's
investment activities. An explanation of these risks and how they are managed
is contained in note 19. These risks are:
Investment and strategy risk; discount volatility; market risk (comprising;
interest rate risk, currency risk and other price risk); liquidity risk;
foreign currency risk and gearing risk.
In addition, the Board also considers the following as principal risks:
Regulatory risk
Failure to qualify under the terms of Section 842 of the Income and
Corporation Taxes Act 1988 may lead to Anglo & Overseas Plc being subject to
capital gains tax. A breach of the rules of the London Stock Exchange may
result in censure by the Financial Services Authority ("FSA") and/or the
Company's suspension from Listing.
The Investment Manager is responsible for certain administrative matters
including regulatory compliance. Accordingly, the Board has agreed service
levels with the Investment Manager which includes active and regular review of
compliance with ICTA 1988 and FSA requirements. These checks are reviewed
monthly and at each Board meeting.
Operational risk
There are a number of operational risks associated with the fact that third
parties undertake the Company's administration and custody. The main risk is
that third parties may fail to ensure that statutory requirements such as
Companies Act and London Stock Exchange requirements are met.
The Board regularly receives and reviews management information on third
parties which the Secretary compiles. In addition each of the third parties
provides a copy of its report on internal controls (AAF 01/06 or equivalent)
to the Board each year.
Financial risk
Inappropriate accounting polices or failure to comply with current or new
accounting standards may lead to a breach of regulations.
The Board employs independent administrators to prepare all Financial
Statements and the Audit Committee meets with the independent auditors at
least once a year to discuss all financial matters including appropriate
accounting polices.
The Company is a member of the Association of Investment Companies ("AIC"), a
trade body intended to promote investment trusts which also develops best
practice for all of its members.
Key personnel risk
There is a risk that key personnel within the Investment Manger might leave
the company or are not involved in the management of the Company's portfolio.
The Investment Manager has in place an insurance policy covering key
personnel. The investment management agreement provides for termination in the
event that certain key personnel are no longer involved in the management of
Anglo & Overseas Plc.
The Board undertakes an annual assessment and review of all the risks stated
above and in note 19 together with a review of any new risks which may have
arisen during the year. These risks are formalised within the Company's risk
assessment matrix.
Performance
Results and dividends: The results for the year are set out in the
Income Statement and in the Reconciliation of Movements in Shareholders'
Funds.
The Directors recommend a final dividend of 2.04p (2007: 1.58p) per
Ordinary Share to be paid on 24 November 2008 to shareholders on the register
as at the close of business on 31 October 2008. The ex-dividend date will be
29 October 2008. Subject to shareholders approving the final dividend, the
total dividend for the year ended 31 July 2008, including the interim dividend
of 0.80p (2007: 0.62p) will total 2.84p (2007: 2.20p).
Further information on the performance of the Company may be found
in the Chairman's Statement and the Manager's Report and Portfolio Analysis.
Net asset value: The net asset value per Ordinary Share including
revenue reserves as at 31 July 2008 was 105.04p (2007: 130.99p).
Key Performance Indicators ("KPIs")
At each Board meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving its
objectives.
The KPIs used to measure progress and performance of the Company
over time are established industry measures and are as follows:
- Net asset value ("NAV") per Ordinary Share
- Share price
- Discount/premium to NAV
- Revenue return per share
- Dividend per share
- Portfolio turnover
- Total expense ratio
The records of the key performance indicators are shown below:
31 July 2008 31 July 2007 Change
Net asset value per Ordinary Share 105.04p 130.99p (19.8)%
Share Price per Ordinary Share 90.00p 118.25p (23.9)%
Discount to NAV 14.3% 9.7%
Year 29 July 2006
to to
31 July 2008 31 July 2007
Revenue return per share 3.41p 2.81p
Dividend per share 2.84p 2.20p
Portfolio turnover 54% 45%
Total expense ratio 0.9% 0.9%
Current and future developments
A review of the main features of the year is to be found in the
Chairman's Statement and in the Manager's Report and Portfolio Analysis. The
Board's main focus is on the investment return and investment approach.
Attention is paid to the integrity and success of the investment approach and
on factors which may have an impact on this approach. Due regard is paid to
the promotion of the Company including communication with shareholders and
other external parties. The Board is regularly updated on wider investment
trust industry issues. Detailed papers are presented to the Board which lead
to extensive discussion on development and strategy.
MANAGEMENT REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF
THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
Management Report
Listed Companies are required by the FSA's Disclosure and Transparency Rules
(the "Rules") to include a management report within their annual report and
financial statements.
The information required to be included in the management report for the
purpose of these Rules is included in the Chairman's Statement, the Manager's
Report and Portfolio Analysis and the Business Review contained in the
Director's Report. Therefore no separate management report has been included.
The Financial Statements have been reviewed by the Company's Auditors.
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and
the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law they have elected to prepare the
Financial Statements in accordance with UK Generally Accepted Accounting
Practice (UK Accounting Standards and applicable law).
The Financial Statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit or loss of
the Company for that year.
In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements; and
- 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 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 1985. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors' Report, Directors' Remuneration Report
and Statement of Corporate Governance that comply with law and those
regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company's website. The
work carried out by KPMG Audit Plc as independent auditors of the Company does
not involve consideration of the maintenance and integrity of the website and
accordingly they accept no responsibility for any changes that have occurred
to the Financial Statements since they were initially presented on the
website. Legislation in the United Kingdom governing the preparation and
dissemination of the Financial Statements and other information included in
the annual reports may differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge:
- 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
- the Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
Robert Alcock
Chairman
9 October 2008
INDEPENDENT AUDITOR'S REPORT
The Company's financial statements for the year ended 31 July 2008 have been
audited by KPMG Audit Plc. The text of the Auditor's report can be found in
the Company's Annual Report and Accounts at www.angloandoverseasplc.com.
INCOME STATEMENT
for the year ended 31 July 2008
Year 29 July 2006
to to
31 July 2008 31 July 2007
Revenue Capital Total Revenue Capital Total
Notes �'000 �'000 �'000 �'000 �'000 �'000
(Losses)/gains
on investments 8 - (24,260) (24,260) - 11,119 11,119
Foreign
exchange
gains/(losses)
on capital
items 8 - 476 476 - (416) (416)
Income 2 3,918 - 3,918 3,452 - 3,452
Investment
management fee 3 (216) (216) (432) (274) (273) (547)
Other expenses 4 (467) - (467) (496) (42) (538)
Net
return/(loss)
before
interest and 3,235 (24,000) (20,765) 2,682 10,388 13,070
taxation
Interest paid (5) - (5) - - -
Net
return/(loss)
before 3,230 (24,000) (20,770) 2,682 10,388 13,070
taxation
Taxation 5 (338) 63 (275) (191) - (191)
Net
return/(loss)
after taxation 2,892 (23,937) (21,045) 2,491 10,388 12,879
pence pence pence pence pence pence
Return per
Ordinary
Share* 7 3.41 (28.20) (24.79) 2.81 11.69 14.50
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital return columns are prepared
under guidance published by the Association of Investment Companies ("AIC").
A separate Statement of Total Recognised Gains and Losses has not been
prepared as all such gains and losses are included in the Income Statement.
All revenue and capital items in the above statement derive from continuing
operations.
* Based on the weighted average number of Ordinary Shares in issue during the
year (excluding own shares held in treasury).
BALANCE SHEET
as at 31 July 2008
31 July 2008 31 July 2007
Notes �'000 �'000
Fixed assets:
Investments at fair value 8 82,987 115,447
Current assets:
Debtors 10 474 457
Cash at bank 2,352 99
2,826 556
Creditors - amounts falling due within one 11 1,737 298
year
Net current assets 1,089 258
Net assets 84,076 115,705
Capital and reserves:
Called-up share capital 14 8,894 8,972
Special reserve 79,949 80,652
Capital redemption reserve 128 50
Capital reserve - realised 1,357 19,812
- unrealised - 5,482
Distributable revenue reserve 3,189 2,357
Own shares held in treasury 18 (9,441) (1,620)
Total equity shareholders' funds 84,076 115,705
pence pence
Net asset value per Ordinary Share 15 105.04 130.99
These financial statements were approved by the Board of Directors on 9 October 2008.
Robert Alcock
Chairman
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
for the year ended 31 July 2008
Called-up Distri-
share Capital Capital Capital butable Own Total equity
capital Special redemption reserve reserve revenue shares shareholders'
Notes reserve reserve realised unrealised reserve held in funds
treasury
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Year ended 31 July 2008
As at 31 July 2007 8,972 80,652 50 19,812 5,482 2,357 (1,620) 115,705
Movement in fair value of investments - - - 5,552 (5,552) - - -
As at 31 July 2007 (restated) 8,972 80,652 50 25,364 (70) 2,357 (1,620) 115,705
Cost of own shares bought for
cancellation (70) (619) 70 - - - - (619)
Cost of own shares
bought into treasury 18 - - - - - - (7,905) (7,905)
Cost of own shares cancelled from treasury (8) (84) (8) - - - 84 -
Movement in fair value
of investments 8 - - - (20,768) - - - (20,768)
Net loss on realisation
of investments 8 - - - (3,492) - - - (3,492)
Foreign exchange gains
on capital items 8 - - - 406 70 - - 476
Dividends paid in the year 6 - - - - - (2,060) - (2,060)
Investment management fee 3 - - - (216) - - - (216)
Tax on investment management fee - - - 63 - - - 63
Retained net return for year - - - - - 2,892 - 2,892
As at 31 July 2008 8,894 79,949 128 1,357 - 3,189 (9,441) 84,076
In accordance with TECH01/08 issued by the Institute of Chartered
Accountants in England and Wales, changes in the fair value of investments,
which are readily converted to cash at the balance sheet date, are included in
the realised capital reserve rather than the unrealised capital reserve. The
balances on both reserves as at 31 July 2007 have been restated by a reserve
transfer to reflect this change.
Called-up Distri-
share Capital Capital Capital butable Own Total equity
capital Special redemption reserve reserve revenue shares shareholders'
reserve reserve realised unrealised reserve held in funds
treasury
Notes �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Period ended 31 July 2007
As at 28 July 2006 8,972 80,652 50 6,173 8,733 1,591 (337) 105,834
Cost of own shares
bought into treasury 18 - - - - - - (1,283) (1,283)
Unrealised appreciation
on investments 8 - - - - (3,251) - - (3,251)
Net gain on realisation
of investments 8 - - - 14,370 - - - 14,370
Foreign exchange losses
on capital items 8 - - - (416) - - - (416)
Dividends paid
in the period 6 - - - - - (1,725) - (1,725)
Investment management
fee (including VAT) 3 - - - (315) - - - (315)
Retained net return for the period - - - - - 2,491 - 2,491
As at 31 July 2007 8,972 80,652 50 19,812 5,482 2,357 (1,620) 115,705
STATEMENT OF CASH FLOWS
for the year ended 31 July 2008
Year 29 July 2006
to to
31 July 2008 31 July 2007
Notes �'000 �'000
Operating activities:
Investment income received 3,619 3,138
Bank deposit interest received 9 16
Investment management fees paid (475) (408)
Administration and secretarial fees paid (106) (102)
Other cash payments (393) (394)
Net cash inflow from operating activities 16 2,654 2,250
Servicing of finance
Interest paid (5) -
Taxation - (61)
Capital expenditure and financial investment
Purchases of investments (41,136) (56,070)
Sales of investments 50,591 52,373
Exchange gains/(losses) on settlement 489 (334)
Net cash inflow/(outflow) from capital
expenditure and financial investment
9,944 (4,031)
Equity dividends paid (2,060) (1,725)
Net cash inflow/(outflow) before financing 10,533 (3,567)
Financing:
Shares purchased for cancellation (375) -
Own shares purchased and held in treasury (7,905) (1,283)
Net cash outflow from financing (8,280) (1,283)
Increase/(decrease) in cash 17 2,253 (4,850)
NOTES TO THE FINANCIAL STATEMENTS
at 31 July 2008
1 Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost
convention as modified by the revaluation of fixed asset investments and in
accordance with applicable accounting standards and the Statement of
Recommended Practice regarding the Financial Statements of Investment Trust
Companies ("SORP") issued in January 2003 (revised December 2005). All the
Company's activities are continuing.
Income recognition
Dividend and other investment income is included as revenue when
the investments concerned are quoted `ex-dividend'. Income arising on holdings
of fixed income securities is recognised on a time apportionment basis so as
to reflect the effective interest rate on that security. Deposit interest and
underwriting commission receivable is included on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. All operating
expenses are charged through the revenue account in the Income Statement
except costs that are incidental to the acquisition or disposal of
investments, which are charged to the capital account. Transaction costs are
included within the gains and losses on investment sales, as disclosed in the
Income Statement.
The Investment Manager's fee is allocated 50% to capital and 50% to
revenue.
Expenses related to the issue of new shares are charged to the
Company's share premium account.
Investments
All investments held by the Company are classified as `fair value
through profit or loss'. Investments are initially recognised at cost, being
the fair value of the consideration given.
After initial recognition, investments are measured at fair value,
with changes in the fair value of investments and impairment of investments
recognised in the Income Statement and allocated to capital. In accordance
with TECH01/08 issued by the Institute of Charted Accountants in England and
Wales the net movement arising from changes in the fair value of investments
that can be readily converted to cash, are treated as realised gains and
losses. The Company considers all of its investments to be readily convertible
to cash. Realised gains and losses on investments sold are calculated as the
difference between sales proceeds and cost.
For investments actively traded in organised financial markets,
fair value is generally determined by reference to Stock Exchange quoted
market bid prices at the close of business on the balance sheet date, without
adjustment for transaction costs necessary to realise the asset.
Foreign currency
Transactions denominated in foreign currencies are converted to
sterling at the actual exchange rate as at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the year
end are reported at the rate of exchange at the balance sheet date. Any gain
or loss arising from a change in exchange rate subsequent to the date of the
transaction is included as an exchange gain or loss in the capital reserve or
the revenue account depending on whether the gain or loss is of a capital or
revenue nature.
Taxation
The charge for taxation is based on the net revenue for the year.
In accordance with Financial Reporting Standard 16: Current Tax, UK dividend
income is shown net of attributable tax credits, therefore no tax credits are
included within the charge for taxation.
The charge for taxation takes into account taxation deferred or
accelerated because of timing differences between the treatment of certain
items for accounting and taxation purposes. Full provision for deferred
taxation is made under the liability method, without discounting, on all
timing differences that have arisen but not been reversed by the balance sheet
date, unless such provision is not permitted by Financial Reporting Standard
19: Deferred Tax. This is subject to deferred tax assets only being recognised
if it is considered more likely than not that there will be suitable profits
from which the future reversal of the underlying timing differences can be
deducted. Timing differences are differences arising between the Company's
taxable profits and its results as stated in the Financial Statements which
are capable of reversal in one or more subsequent periods. The tax effect of
different items of expenditure is allocated between revenue and capital on the
same basis as the particular item to which it relates. Tax relief on expenses
is allocated between revenue and capital using the marginal basis in
accordance with the SORP.
Reserves
Capital reserve (realised)
The following are accounted for in this reserve:
- gains and losses on the realisation of investments;
- net movement arising from changes in the fair value of investments that
can be readily converted to cash without accepting adverse terms;
- realised exchange differences of a capital nature; and
- expenses, together with related taxation effect, charged to this account
in accordance with the above policies.
Capital reserve (unrealised)
The following is accounted for in this reserve:
- net movement arising from changes in the fair value of investments that
cannot be readily converted to cash without accepting adverse terms, held at
the year end.
Special reserve
The special reserve was created by a reduction in the share premium
account by order of the High Court on 25 August 2005. It can be used for the
repurchase of the Company's Ordinary Shares.
Own shares held in treasury
Own shares held in treasury represents the consideration paid for
shares bought into and held in treasury and is shown as a deduction from
shareholders' funds. The number of own shares held in treasury is excluded
from the calculation of the net asset value per share as detailed in these
Financial Statements.
Dividends payable to shareholders
Under Financial Reporting Standard 21: Events after the Balance
Sheet Date, interim dividends are recognised when paid with final dividends
being recognised when approved by shareholders in general meeting.
2 Income
Year 29 July 2006
to to
31 July 2008 31 July 2007
�'000 �'000
Income from listed investments:
UK dividend income 2,005 1,935
Overseas dividends 1,696 1,331
Deposit funds 207 174
Interest 1 2
3,909 3,442
Other income:
Bank interest receivable 9 10
3,918 3,452
Total income comprises:
Dividends 3,908 3,440
Interest 10 12
3,918 3,452
3 Investment Management fee
Year 29 July 2006
to to
31 July 2008 31 July 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Investment Management fee 216 216 432 274 273 547
The Investment Management fee is paid quarterly in arrears, at the
rate of 0.5% per annum (excluding VAT) of the market capitalisation of the
Company. At 31 July 2008 there was �96,000 outstanding (2007: �139,000). In
addition, the Investment Manager received an administration fee of �107,000
per annum (excluding VAT) subject to an annual RPI uplift (2007: �103,000)
(see note 4 below). At 31 July 2008 there was �27,000 (excluding VAT)
outstanding (2007: �26,000).
4 Other expenses
Year 29 July 2006
to to
31 July 2008 31 July 2007
�'000 �'000
Administration and secretarial fees 107 103
Auditors' remuneration 25 23
Directors' remuneration 125 120
Printing 15 22
Registrars' fees 23 14
Irrecoverable VAT 23 100
Other 149 156
467 538
The entire amount of the Auditors' remuneration relates to audit services.
5 Taxation
Year 29 July 2006
to to
31 July 2008 31 July 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
a) Analysis of charge in
year
Current tax:
UK corporation tax 338 (63) 275 189 - 189
Overseas tax suffered 275 - 275 191 - 191
Double taxation relief (275) - (275) (189) - (189)
338 (63) 275 191 - 191
b) The current taxation charge for the year is lower than the
standard rate of Corporation Tax in the UK of 30% to 31 March 2008 and 28%
from 1 April 2008. The differences are explained below:
Year 29 July 2006
to to
31 July 2008 31 July 2007
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Net return before taxation 3,230 (24,000) (20,770) 2,682 10,388 13,070
Theoretical tax at UK
corporation tax rate of
28%/30% 947 (7,040) (6,093) 805 3,116 3,921
Effects of:
- UK dividends that are
not taxable (589) - (589) (581) - (581)
- Non-taxable investment
losses/(gains) - 6,977 6,977 - (3,211) (3,211)
- Irrecoverable overseas - - - 2 - 2
tax
- Brought forward overseas
tax utilised (20) - (20) - - -
- Taxable income - - - - 60 60
capitalised
- Relieved capital - - - (35) 35 -
expenses
338 (63) 275 191 - 191
c) Factors that may affect future tax charges
After allowing for accrued taxable income at the year end, the
Company has eligible unrelieved foreign tax of �nil (2007: �2,300) that is
available to offset against tax chargeable on future taxable overseas revenue.
No deferred tax asset has been recognised in respect of these amounts as they
will only be recoverable to the extent that there is sufficient future taxable
overseas revenue, not relieved by future eligible foreign tax suffered.
Due to the Company's status as an investment trust and the
intention to continue meeting the conditions required to obtain approval as an
Investment Trust in the foreseeable future, the Company has not provided
deferred tax on any capital gains and losses arising on the revaluation or
disposal of investments.
6 Dividends
Year 29 July 2006
to to
31 July 2008 31 July 2007
�'000 �'000
Declared and paid
2007 final dividend of 1.58p (2006:1.32p) per 1,393 1,173
Ordinary Share
2008 interim dividend of 0.80p per Ordinary Share
(2007 interim dividend of 0.62p per Ordinary Share)
667 552
2,060 1,725
Proposed
2008 final dividend of 2.04p* (2007:1.58p) per 1,626 1,395
Ordinary Share
* Figure based on 79,685,381 shares, being the number of shares in issue as at
the date of this report (excluding own shares held in treasury).
7 Return per Ordinary Share
Year 29 July 2006
to to
31 July 2008 31 July 2007
Net Ordinary Per share Net Ordinary Per share
return Shares* return Shares*
�'000 pence �'000 pence
Revenue return 2,892 84,870,031 3.41 2,491 88,841,774 2.81
Capital return (23,937) 84,870,031 (28.20) 10,388 88,841,774 11.69
Total (21,045) (24.79) 12,879 14.50
* Weighted average number of Ordinary Shares in issue during the year
(excluding own shares held in treasury).
8 Investments
31 July 31 July
2008 2007
�'000 �'000
Listed investments 82,987 115,447
�'000 �'000
Analysis of investment portfolio movements
Opening book cost 109,895 92,640
Opening fair value adjustment 5,552 8,803
Opening valuation 115,447 101,443
Movements in the year:
Purchases at cost - cash purchases during the year 42,404 55,005
Sales - proceeds (50,604) (52,120)
- (losses)/gains on sales (3,492) 14,370
Changes in fair value of investments (20,768) (3,251)
Closing valuation 82,987 115,447
Closing book cost 98,203 109,895
Closing fair value adjustment (15,216) 5,552
82,987 115,447
�'000 �'000
Analysis of capital gains and losses
Realised (losses)/gains on sales (3,492) 14,370
Changes in fair value of investments (20,768) (3,251)
(24,260) 11,119
Foreign exchange gains/(losses) on capital items 476 (416)
(Losses)/gains on investments (23,784) 10,703
Transaction costs
During the year the Company incurred transaction costs of �160,000
(2007: �255,000) and �90,000 (2007: �116,000) on purchases and sales of
investments respectively. For purchases transaction costs are included in the
cost of investments and for sales they are netted off the gains on
investments, as disclosed in the Income Statement.
9 Significant holdings
The Company had no holdings of 3% or more of the share capital of portfolio
companies that are material in the context of the Financial Statements.
10 Debtors
31 July 31 July
2008 2007
�'000 �'000
Dividends receivable 260 224
Prepayments and accrued income 55 113
Taxation recoverable 159 120
474 457
11 Creditors: amounts falling due within one year
31 July 31 July
2008 2007
�'000 �'000
Amounts due to brokers 1,268 -
Other creditors and accruals 225 298
Amounts due on share buy-backs 244 -
1,737 298
12 Provision for liabilities and charges
No provision for liabilities and charges is considered necessary at
the Company's year end (2007: nil). There were no amounts unprovided in
respect of deferred taxation (2007: nil).
13 Commitments and contingencies
The Directors are aware of the AIC/Claverhouse judgement which was
made in 2007 regarding the charging of VAT on investment management fees. It
is possible that the Company will be able to recover an amount of VAT that it
has paid on its investment management fees. The Directors have not recognised
the potential back claim of VAT in these annual results as it is not expected
to be material.
At 31 July 2008 there were no outstanding commitments in respect of
investments carrying an obligation for future subscriptions (2007: nil).
14 Share capital
31 July 31 July
2008 2007
�'000 �'000
Authorised:
399,500,000 Ordinary Shares of 10p each 39,950 39,950
Allotted, called-up and fully paid:
88,938,819 (2007: 89,724,381) Ordinary Shares of 10p each 8,894 8,972
In the year ended 31 July 2008, the Company purchased 706,562 shares for
cancellation (2007: nil) and 79,000 shares were cancelled from treasury (2007:
nil).
Duration of the Company
The Company does not have a termination date nor the requirement for any
periodic continuation votes.
15 Net asset value per share
The net asset value per share, calculated in accordance with the Articles of
Association, is as follows:
31 July 31 July
2008 2007
pence pence
Ordinary Share 105.04 130.99
The net asset value per Ordinary Share is based on net assets of
�84,076,000 (2007: �115,705,000) and on 80,045,381 (2007: 88,330,096) Ordinary
Shares being the number of Ordinary Shares in issue at the year end, excluding
own shares held in treasury.
16 Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
Year 29 July 2006
to to
31 July 2008 31 July 2007
�'000 �'000
Net return before finance costs and taxation (20,765) 13,070
Net losses/(gains) on investments 23,784 (10,703)
(Decrease)/increase in creditors (73) 190
Decrease/(increase) in debtors and accrued income 22 (56)
Tax deducted from investment income (275) (191)
Tax recoverable (39) (60)
Net cash inflow from operating activities 2,654 2,250
17 Reconciliation of net cash flow to movement in net cash
Year 29 July 2006
to to
31 July 2008 31 July 2007
�'000 �'000
Increase/(decrease) in cash in year 2,253 (4,850)
2,253 (4,850)
Change in net cash 2,253 (4,850)
Net cash at 31 July 2007 (28 July 2006) 99 4,949
Net cash at 31 July 2008 (31 July 2007) 2,352 99
18 Own shares held in treasury
31 July 2008 Cost 31 July 2007 Cost
Number of Number of
shares �'000 shares �'000
Balance of treasury shares held at
beginning of year 1,394,285 1,620 306,674 337
Shares purchased to be held in 7,578,153 7,905 1,087,611 1,283
treasury
Shares cancelled from treasury (79,000) (84) - -
Balance of treasury shares held at
end of year 8,893,438 9,441 1,394,285 1,620
19 Financial instruments
As an Investment Trust, the Company invests in equities and makes
other investments so as to achieve its investment objective to provide
shareholders with above average returns over the longer term through both
capital appreciation and income growth. In pursuing its investment objective,
the Company is exposed to various types of risk that are associated with the
financial instruments and markets in which it invests.
These risk are categorised as:
- Investment and strategy risk
- Discount volatility risk
- Market risk (comprising: interest rate risk, currency risk and other price
risk)
- Liquidity risk
- Credit risk
- Gearing risk
The risk management policies and procedures outlined in this note have not
changed substantially from the previous accounting period.
The Investment Manager monitors the risks affecting the Company on
an ongoing basis within the policies and guidelines determined by the Board.
The Directors receive financial information, which is used to identify and
monitor risk, monthly. The Company may enter into derivative contracts to
manage risk but has not done so to date. A description of the principal risks
the Company faces is detailed in the Directors' Report in the full Annual
Report and Accounts and below.
Investment and strategy risk
Anglo & Overseas Plc may fail to deliver its objective due to poor
stock selection or as a result of being geared in a falling market or ungeared
in a rising market.
The Investment Manager meets regularly with the Board to discuss
the portfolio performance and strategy. The Board receives monthly reports
from the Investment Manager detailing all portfolio transactions and any other
significant changes in the market or stock outlooks. Details of the investment
policy are given in the Directors' Report in the full Annual Report and
Accounts.
The investment process used by the Investment Manager is rigorous
and is designed to ensure that the portfolio risk level is commensurate with
the investment objective. The investment philosophy emphasises the need to
identify stocks which meet strict valuation parameters and therefore the
analytical inputs to the forecasts are reviewed in detail. At the individual
stock level central, best and worst case scenarios are constructed in order to
form a clear view of the potential risk in holding a particular stock. This
information is aggregated at portfolio level in order to gain an insight into
the overall portfolio profile.
Discount volatility risk
The Board recognises that it is in the long-term interests of
shareholders to reduce discount volatility and believes that the prime driver
of discounts over the longer term is investment performance. The Company is
permitted to employ gearing, a process whereby funds are borrowed principally
for the purpose of purchasing securities should the Board feel that it is
appropriate to do so. The use of gearing can magnify discount volatility.
The Board actively monitors the discount for Anglo & Overseas Plc,
but it does not intend to issue a precise discount target at which shares will
be bought back as it believes that the announcement of specific targets is
likely to hinder rather than help the successful execution of a buyback
policy. Equally the Company will issue shares in order to meet demand as it
arises.
Interest rate risk
The Company's assets and liabilities, excluding short-term debtors
and creditors, may comprise financial instruments which include investments in
fixed interest securities.
Details of the Company's interest rate exposure as at 31 July 2008 is
disclosed below
31 July 2008 31 July 2007
Cash Fair No Cash Fair Fixed
No flow value Fixed interest flow value interest
Total interest interest interest interest Total rate interest interest rate
rate rate rate rate exposure rate rate
exposure risk risk risk risk
exposure exposure exposure exposure
�'000 �'000 �'000 �'000 % �'000 �'000 �'000 �'000 %
Equity
shares
Euro 17,985 17,985 - - - 24,067 24,067 - - -
Sterling 39,414 39,414 - - - 61,861 61,861 - - -
Japanese
Yen - - - - - 3,487 3,487 - - -
US Dollar 16,906 16,906 - - - 19,281 19,281 - - -
Swiss Franc 5,570 5,570 - - - 2,752 2,752 - - -
Turkish 1,027 1,027 - - - 1,181 1,181 - - -
Lira
Swedish
Krona 2,085 2,085 - - - - - - - -
Treasury
stock
Sterling - - - - 2,818 - - 2,818 5
Cash at
bank
Euro - - - - - 6 - 6 - -
Turkish 2 - 2 - - 2 - 2 - -
Lira
Sterling 1,954 - 1,954 - - 91 - 91 - -
US Dollar 396 - 396 - - - - - - -
Debtors
Sterling 447 447 - - - 432 432 - - -
85,786 83,434 2,352 - 115,978 113,061 99 2,818
* Debtors exclude certain prepayments which under FRS25 are not classed as
financial assets.
At 31 July 2008 the Company had no financial liabilities other than
short-term creditors (2007: �nil). All financial assets and liabilities of the
Company are held at fair value.
The majority of the Company's assets were non-interest bearing as
at 31 July 2008. There was limited exposure to interest bearing liabilities
during the year ended 31 July 2008. Surplus cash is invested in money market
funds.
If interest rates had reduced by 1 per cent from those obtained as
at 31 July 2008 it would have the effect, with all other variables held
constant, of reducing the net revenue return before taxation on an annualised
basis by �24,000 (2007: �1,000). If there had been an increase in interest
rates of 1 per cent there would have been an equal and opposite effect in the
net revenue return before taxation. The calculations are based on cash at bank
and short-term deposits as at 31 July 2008 and these may not be representative
of the year as a whole.
Currency risk
The base currency of the Company is sterling. The international
nature of the Company's investment activities gives rise to a currency risk
which is inherent in the performance of its overseas investments. The
Company's overseas income is also subject to currency fluctuations.
The Investment Manager monitors the Company's exposure to foreign currencies
and reports to the Board on a regular basis. The Investment Manager assesses
the risk to the Company's net asset value and income of a movement in the
rates of exchange to which the Company's assets, liabilities, income and
expenses are exposed. However, the country in which a company is listed is not
necessarily where it earns its profits. The movement in exchange rates on
overseas earnings may have a more significant impact upon a company's
valuation than a simple translation of the currency in which the company is
quoted.
It is not the Company's policy to hedge this risk on a continuing
basis. However, the Investment Manager actively monitors investments held in
foreign currencies to ensure that they continue to meet investment criteria in
Sterling terms.
Details of the Company's currency risk exposure as at 31 July 2008 is detailed
below:
31 July 2008 31 July 2007
Cash at Cash at
Total Investments bank Debtors* Creditors Total Investments bank Debtors* Creditors
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Euro 17,985 17,985 - - - 24,073 24,067 6 - -
Sterling 40,078 39,414 1,954 447 (1,737) 64,904 64,679 91 432 (298)
Japanese Yen - - - - - 3,487 3,487 - - -
US Dollar 17,302 16,906 396 - - 19,281 19,281 - - -
Swiss Franc 5,570 5,570 - - - 2,752 2,752 - - -
Turkish Lira 1,029 1,027 2 - - 1,183 1,183 2 - -
Swedish Krona 2,085 2,085 - - - - - - - -
84,049 82,987 2,352 447 (1,737) 115,680 115,447 99 432 (298)
*Debtors exclude certain prepayments which under FRS25 are not classed as
financial assets.
If sterling had strengthened by 1 per cent against all other
currencies as at 31 July 2008, with all other variables held constant, it
would have the effect of reducing the net capital return before taxation by
�440,000 (2007: �508,000). If Sterling had weakened by 1 per cent against all
other currencies there would have been an equal and opposite effect on the net
capital return before taxation. The calculations are based on the Company's
foreign currency risk exposure as at 31 July 2008 and this may not be
representative of the year as a whole.
Other price risk
The Company is exposed to market risk due to fluctuations in the
market prices of its investments. Market price risk arises mainly from
uncertainty about future prices of financial instruments used in the Company's
business. It represents the potential loss the Company might suffer through
holding market positions in the face of price movements. The Investment
Manager monitors the prices of financial instruments held by the Company on an
ongoing basis.
The Investment Manager actively monitors market and economic data
and reports to the Board which considers investment policy on a regular basis.
The net asset value per share of the Company is issued daily to the London
Stock Exchange and is also available on the Company's website,
www.angloandoverseasplc.com.
Fixed asset investments are valued at their bid price which equates
to their fair value. A list of the 20 largest investments is detailed in these
Financial Statements and a detailed list of the Company's investment portfolio
as at 31 July 2008 is disclosed in the full Annual Report and Accounts. In
addition, an analysis of the investment portfolio by sector and geographical
distribution is detailed in these Financial Statements.
The maximum exposure to other price risk is the fair value of investments of
�82,987,000.
If the investment portfolio valuation fell by 1 per cent from the
amount detailed in the Financial Statements as at 31 July 2008 it would have
the effect, with all other variables held constant, of reducing the net
capital return before taxation by �830,000 (2007: �1,154,000). An increase of
1% in the investment portfolio valuation would have an equal and opposite
effect on the net capital return before taxation. The calculations are based
on the Company's other price risk exposure as at 31 July 2008 and this may not
be representative of the year as a whole.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities. The
Company's policy with regard to liquidity is to ensure continuity of funding.
Short-term flexibility is achieved through cash management and overdraft
facilities.
Liquidity risk is not significant as the Company's assets comprise
mainly of readily realisable securities which can be sold freely to meet
funding requirements if necessary. Securities listed on a recognised stock
exchange have been valued at bid prices and exchange rates ruling at the close
of business on 31 July 2008. In certain circumstances, the market prices at
which investments are valued may not represent the realisable value of those
investments, taking into account both the size of the Company's holding and
the frequency with which such investments are traded.
Credit risk
Credit risk is the risk of financial loss to the Company if the
contractual party to a financial instrument fails to meet its contractual
obligations.
The carrying amounts of financial assets best represent the maximum
credit risk exposure at the balance sheet date.
The Company's listed investments are held on its behalf by The Bank
of New York Mellon acting as the Company's custodian. Bankruptcy or insolvency
of the custodian may cause the Company's rights with respect to securities
held by the custodian to be delayed. The Board monitors the Company's risk by
reviewing the custodian's internal controls reports.
Investment transactions are carried out with a large number of
brokers whose creditworthiness is reviewed by the Investment Manager.
Transactions are ordinary undertaken on a delivery versus payment basis
whereby the Company's custodian bank ensures that the counterparty to any
transaction entered into by the Company has delivered in its obligations
before any transfer of cash or securities away from the Company is completed.
Cash is only held at banks and in money market funds that have been
identified by the Board as reputable and of high credit quality.
The maximum exposure to credit risk as at 31 July 2008 was
�85,813,000 (2007: �116,003,000). The calculation is based on the Company's
credit risk exposure as at 31 July 2008 and this may not be representative of
the year as a whole.
None of the Company's assets are past due or impaired.
Gearing risk
The aim of gearing is to enhance long term returns to shareholders
by investing borrowed funds in equities and other assets. The Company is
permitted to employ gearing should the Board feel it appropriate to do so up
to a maximum of 20% of shareholders' funds at the time of borrowing. The use
of gearing can cause both gains and losses in the asset value of the Company
to be magnified.
The Company did not have any gearing as at 31 July 2008 (2007: nil).
The Board undertakes an annual assessment and review of all the
risks stated above and in the Directors' Report together with a review of any
new risks which may have arisen during the year. These risks are formalised
within the Company's risk assessment matrix.
Financial assets
The majority of the Company's financial assets are listed equity
shares which neither pay interest nor have a maturity date. All financial
assets are disclosed at fair value through profit or loss.
Financial liabilities
The Company finances its operations primarily through equity and
retained profits although trade creditors and accruals arise from its
operations. As at 31 July 2008 (and 31 July 2007) all financial liabilities
are due within one year and are stated at fair value.
20 Related parties
All information with respect to transactions with related parties is provided
in the Directors' Report in the full Annual Report and Accounts.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the Chamber of
Shipping, 12 Carthusian Street, London EC1M 6EZ on Wednesday, 12 November
2008, at 11.00 am.
The notice of this meeting can be found in the Annual Report and Accounts at
www.angloandoverseasplc.com.
AMENDMENTS TO ARTICLES OF ASSOCIATION
At the Company's forthcoming AGM, a resolution will be put to
shareholders to amend the Company's Articles of Association. Details of the
proposed amendments to the Articles of Association are set out in an appendix
to the Annual Report and Accounts, which have been posted on the Company's
website at www.angloandoverseasplc.com.
Enquiries:
Graham Campbell
Sandy Nairn
Kenneth Greig
Edinburgh Partners
Telephone: 0131 270 3800
END
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