TIDMAOT
ANGLO & OVERSEAS PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2009
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
- First full year of new investment policy with greater emphasis on income
within total return
- Net asset value total return for the year -4.9%, 2.3% ahead of composite
index
- Share price discount to NAV reduced to 7.3% from 14.3%
- Total dividend for year up 2.1% to 2.9p, recommended final dividend 2.08p
- Investments increased in China and emerging markets with reductions in US and
UK
- Equities expected to continue to be attractive for long-term investors
Financial Summary
Results for year 31 July 31 July % change
2009 2008
Shareholders' funds GBP73,689,000 GBP84,076,000 (12.4)%
Net asset value ("NAV") per Ordinary 96.80p 105.04p (7.8)%
Share
Share price per Ordinary Share 89.75p 90.00p (0.3)%
Share price discount to NAV 7.3% 14.3%
Year to Year to
31 July 2009 31 July 2008
Capital return per Ordinary Share* (9.35)p (28.20)p
Revenue return per Ordinary Share* 3.17p 3.41p
Total return per Ordinary Share* (6.18)p (24.79)p
Dividend per Ordinary Share** 2.90p 2.84p
* 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.
Year's high/low Year to Year to
31 July 2009 31 July 2008
NAV - high 115.25p 131.80p
- low 75.47p 98.05p
Share price - high 103.00p 119.00p
- low 68.50p 81.25p
Share price discount to NAV
- low 0.1% 6.7%
- high 16.4% 18.4%
Cost of running the Company
Total expense ratio* 0.9% 0.9%
* Based on the total expenses for the year and average monthly net asset value.
Performance record
Net asset Share Revenue
value per price per Discount to return per Dividend
Year ended Shareholders' Ordinary Ordinary net asset Ordinary per
Ordinary
31 July funds Share Share value Share Share***
2006* GBP105.8m 118.36p 108.75p 8.1% 2.38p 1.92p
2007** GBP115.7m 130.99p 118.25p 9.7% 2.81p 2.20p
2008 GBP84.1m 105.04p 90.00p 14.3% 3.41p 2.84p
2009 GBP73.7m 96.80p 89.75p 7.3% 3.17p 2.90p
* Period 29 July 2005 to 28 July 2006.
** Period 29 July 2006 to 31 July 2007.
*** This includes the final dividend for each year, including the 2009 proposed
final dividend of 2.08p.
CHAIRMAN'S STATEMENT
Results
In what can only be described as a rollercoaster period for equity investors
during the year to 31 July 2009 the net asset value per share fell to 96.8p
from 105.0p as at 31 July 2008. This represents a decrease of 7.8% for the
year. The total return in the year was -4.9%, after including dividends paid.
The total return from the FTSE All-Share Index over the year to 31 July 2009
was -10.5%, while the corresponding total return from the FTSE All-World ex UK
Index was -3.8%. The total return from the average of these two indices, which
is used for comparative purposes as the Company does not have any formal
benchmark, over the year under review was -7.2%. While it is obviously
disappointing to produce a negative return for the year, it is encouraging that
the Company produced a relative return 2.3% ahead of the composite index.
Investment Strategy
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 may be volatile against any index. The Directors believe in the
merits of a fundamental, long-term approach, particularly as we navigate
through difficult economic conditions.
Share Price and Discount
As at 31 July 2009 the Company's share price was 89.75p, which is only
marginally lower than the 90.0p at 31 July 2008. This represents a discount to
net asset value per share (including income) of 7.3% and compares with a
discount of 14.3% at the previous year end. Your Board believes that the shares
of your Company should trade at a relatively narrow range around the net asset
value. The Board continues to actively monitor and manage the discount and was
pleased to note the reduction over the year.
The Investment Manager has continued to actively market 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 2009, the Company purchased for cancellation a total of
3,920,251 shares (representing 4.9% of shares in issue at the prior year end,
excluding own shares held in treasury) at a cost of GBP3,275,000.
The authority to repurchase shares will expire at the Annual General Meeting on
27 November 2009 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. As I stated in the half yearly report, the
Company's shares will only be purchased when supply exceeds demand and where
the Directors consider it to be in the best interests of Shareholders,
particularly in the enhancement to net asset value per share to continuing
Shareholders. No shares will be repurchased if it would dilute the net asset
value of the remaining shares.
Revenue and Dividend
There was a reduction in the revenue generated from the portfolio in the year
under review. Net revenue was 3.17p, compared to 3.41p, representing a decrease
of 7%. This was not unexpected as many banks were required to strengthen their
balance sheets. While there has been an underlying improvement in the
availability of finance to the corporate sector, it is clear that it has still
not returned to normal. As a result, many companies will conserve capital and
dividends remain under pressure.
The Board is aware of the importance that shareholders place on dividend income
as highlighted at the time of the change of investment policy in May 2008 when
shareholders approved the removal of geographical constraints on the portfolio
and increased emphasis was placed on income return.
After increasing the dividend in recent periods, the Directors do not want to
place unnecessary constraints on investment management decisions by adopting a
policy to protect the income of the Company, as this may be at the expense of
long-term shareholder value. It also recognises in particular at present that
yields on other assets are reducing and has taken these factors into account
when deciding on the dividend amount.
It is my pleasure to recommend a final dividend of 2.08p, an increase of 0.04p
on the prior year final dividend of 2.04p. The total dividend for the year will
be 2.90p, an increase of 2.1%. The Company has revenue reserves of 4.5p per
share, before taking account of the proposed final dividend.
It remains the intention of the Board to maintain a progressive dividend
policy, and the Directors intend to at least maintain the level of dividends to
shareholders during the current phase of the economic cycle.
Subject to the approval of shareholders at the Annual General Meeting on 27
November 2009 the proposed final dividend of 2.08p will be paid on 4 December
2009 to shareholders on the register as at 30 October 2009. The ex-dividend
date will be 28 October 2009.
Developments in the Investment Trust Sector
Your Board is strongly supportive of the stance of the Association of
Investment Companies ("AIC") in opposing European initiatives to impose greater
regulation on fund management activity which may inadvertently include
companies such as Anglo & Overseas.
We welcome the changes in the tax treatment of overseas income which should
have a positive impact on the net revenue return from the Company's
investments.
Board
Robert Alcock retired as Chairman of the Board and as a Director of the Company
on 12 November 2008, immediately after last year's Annual General Meeting, and
I succeeded him as Chairman, with Giles Weaver succeeding me as chairman of the
Audit Committee and as Senior Independent Director.
Robert Alcock had been Chairman of the Board since the Company's launch in 2005
and of its predecessor company, Anglo & Overseas Trust PLC, where he was a
Director from 1997 and Chairman from 2004. He has played an important part in
guiding the Company and I and my colleagues take this opportunity to thank him
for all his hard work and advice over the years.
Outlook
It would appear that we are through the worst of the financial crisis and there
are signs in most of the world's major economies that the decline in economic
activity may be over. The debate has now moved on to the expected strength of
the economic recovery.
While growth in emerging market economies will be higher we remain convinced
that the recovery in the major developed economies will be gradual, as too many
consumers and governments still require to put their balance sheets in order.
The scope for additional government stimulus programmes is limited from here
and unemployment will continue to increase. There is an excess of productive
capacity over demand in the corporate sector and while the banking sector is
recovering, many companies are still finding financing terms onerous. As a
result, companies will manage working capital and capital expenditure tightly.
This is likely to lead to global interest rates being maintained at low levels
for quite some time. As a consequence, against other major asset classes, such
as bonds and cash, equities are expected to continue to be attractive
investments for the long-term investor.
John Pearmund
Chairman
15 October 2009
MANAGER'S REPORT AND PORTFOLIO ANALYSIS
Objective
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 is constructed without reference
to the composition of any stock market index, or any industrial or sectoral
asset allocation limits. Consequently, over short periods of time, relative
performance is likely to be volatile against any index.
Economic and Geographic Overview
To describe the financial year to 31 July 2009 as volatile appears now as
something of an understatement. From the start of the financial year until the
first quarter of 2009, economies worldwide suffered the full force of the
global financial crisis. In Europe, North America and the UK economies were in
recession and governments took extraordinary action to ensure that financial
markets continued to operate. In the most extreme cases in the US where Barack
Obama was sworn in as President in January 2009, and the UK, banks were
effectively nationalised and massive quantitative easing programmes were
initiated to provide capital, liquidity and ultimately confidence to financial
markets. Liquidity was in short supply and businesses required to squeeze as
much cash as possible out of working capital.
We remain convinced that the economic recovery in Europe and North America will
be subdued. In the UK and the US, in particular, household debt levels are
still uncomfortably high and with job insecurity increasing and higher taxes on
the horizon, it will be some time before confidence to spend and borrow
returns. Similarly, substantial debt has been transferred to the public sector
and some tough decisions require to be taken for governments to bring their
debt under control. This recession is also different from many previous
economic recessions, in that it has been accompanied by a banking crisis. The
massive capital injections have averted depression, but banks, faced with
rising bad debts and an imbalance between lending and deposits, are still
contracting their loan books. This will be a slow and job-less recovery.
There is likely to continue to be more growth in emerging markets and we
continued to search for investments that met our investment criteria. While the
most visible signs of these changes were seen at a sector level, the impact at
a geographical level saw reductions in UK and US exposure from 47% and 16%
respectively, to 43% and 7%. Conversely, a 2% position was established in Hong
Kong and investment in China increased from 2% to 5%.
Portfolio
Portfolio construction is based upon our analysis of long-term earnings and
risk. The strategy, set out in last year's report, of re-investing the proceeds
from the disposal of holdings in utilities, telecommunications and healthcare
companies has continued. Reinvestment has concentrated on more economically
sensitive and growth companies, where valuations align with their earnings
prospects. At a sector level the clearest examples of this have been the
reduction in healthcare from 14% to 7% and an increase in technology from 6% to
9%.
Progress in reorientating the portfolio has been slower than we had originally
anticipated; the more defensive utility and telecommunication companies did not
become overvalued or reach a position where investment in more growth or
cyclical companies could be justified. Given the economic overview described
above, we expect global economic recovery to be gradual and prolonged and this
has been incorporated into our long-term valuation strategy.
Included within our purchases over the period were Baidu.com and China Mobile.
Both companies have strong market positions and healthy balance sheets.
Baidu.com is often referred to as the `Google of China', while China Mobile is
the dominant wireless provider in China. Closer to home a position was built in
C&C, the Irish cider producer of Magners, which has a new management team. A
holding was established in Deutsche Post where a new management team is also in
place and there is scope for margin improvement.
There is an increased focus on income generation within the portfolio following
the change in investment policy in May 2008 which removed the previous
geographical constraints on investment and placed a greater emphasis on
dividends within the Company's total return objective.
Over the year, 3% of the portfolio position was invested in corporate bonds. We
selected liquid, investment grade bonds with a relatively short duration. It
was the intention to initially increase this to 5% of the portfolio, but we
were frustrated by market movements and poor liquidity.
Outlook
Equities still look attractive compared to many other alternative investments,
although in the short term the position regarding individual company liquidity
will require to be closely monitored. Cash returns are minimal and the flood of
government gilt issuance and eventual inflation is likely to negatively impact
returns. Property has fallen in value but there is still too much distressed
supply to give confidence that values have bottomed.
There is cash on the sidelines and investors need income and a hedge against
possible future inflation. Equities can meet these parameters and there are
some outstanding opportunities in quality companies at valuation levels that we
have not seen for some time.
After the recent rally, it is likely that equity markets will pause to reflect
on a subdued economic recovery and absorb equity issuance. We believe that many
cyclical companies look exposed in this scenario. Conversely, some companies
which are still able to grow revenues and profits are on attractive valuations
and it is in these areas where we will continue to focus our research and
investment.
Graham Campbell
Edinburgh Partners Limited
Dr Sandy Nairn
Edinburgh Partners Limited
15 October 2009
PORTFOLIO OF INVESTMENTS
as at 31 July 2009
20 Largest Investments
% of
Company Sector Country Valuation Net
Assets
GBP'000
BP Oil & Gas United Kingdom 2,486 3.4
ENI Oil & Gas Italy 2,272 3.1
Anheuser-Busch InBev Consumer Goods Belgium 2,172 3.0
Banque Cantonale Vaudoise Financials Switzerland 2,107 2.9
Provident Financial Financials United Kingdom 2,018 2.7
Sanofi-Aventis Healthcare France 1,965 2.7
Vodafone Telecommunications United Kingdom 1,841 2.5
Sun Hung Kai Property Financials - Real Hong Kong 1,745 2.4
Estate
HSBC Financials United Kingdom 1,710 2.3
Lenovo Technology China 1,680 2.3
UK Commercial Property Financials - Real United Kingdom 1,566 2.1
Estate
C&C Consumer Goods Ireland 1,564 2.1
Lloyds Banking Financials United Kingdom 1,512 2.0
E.On Utilities Germany 1,501 2.0
Rexam Industrials United Kingdom 1,497 2.0
GlaxoSmithKline Healthcare United Kingdom 1,436 1.9
Centrica Utilities United Kingdom 1,363 1.9
McBride Consumer Goods United Kingdom 1,356 1.8
Portugal Telecom Telecommunications Portugal 1,337 1.8
Gazprom Oil & Gas Russia 1,306 1.8
Total - 20 largest 34,434 46.7
investments
Other Investments
Deutsche Post Industrials Germany 1,237 1.7
Novartis Healthcare Switzerland 1,234 1.7
Belgacom Telecommunications Belgium 1,233 1.7
CRH Industrials Ireland 1,224 1.7
Telefonica Telecommunications Spain 1,194 1.6
China Mobile Telecommunications China 1,188 1.6
Teliasonera Telecommunications Sweden 1,178 1.6
Intel Technology United States 1,161 1.6
Morrison (WM) Consumer Services United Kingdom 1,145 1.6
Supermarkets
Imperial Tobacco Consumer Goods United Kingdom 1,142 1.6
KPN Telecommunications Netherlands 1,127 1.5
UBS Financials Switzerland 1,127 1.5
National Grid Utilities United Kingdom 1,117 1.5
Tesco Consumer Services United Kingdom 1,106 1.5
Home Depot Consumer Services United States 1,080 1.5
Sage Group Technology United Kingdom 1,055 1.4
Unilever Consumer Goods Netherlands 1,041 1.4
Cisco Systems Technology United States 1,023 1.4
Baidu.com Technology China 1,007 1.4
Beazley Financials United Kingdom 972 1.3
Aviva Financials United Kingdom 958 1.3
Nokia Technology Finland 935 1.3
SK Telecom Telecommunications Korea, Republic 911 1.2
of
Close Brothers Group Financials United Kingdom 905 1.2
Balfour Beatty Industrials United Kingdom 887 1.2
Roche Healthcare Switzerland 849 1.2
Scottish & Southern Utilities United Kingdom 841 1.1
Energy
BT Telecommunications United Kingdom 823 1.1
Reed Elsevier Consumer Services United Kingdom 806 1.1
Intesa Sanpaolo Financials Italy 766 1.0
Arriva Consumer Services United Kingdom 759 1.0
First Group 6.875% 15/04/ Corporate Bonds United Kingdom 750 1.0
2013
General Dynamics Industrials United States 723 1.0
Siemens Industrials Germany 716 1.0
Home Depot 5.25% 16/12/ Corporate Bonds United States 712 1.0
2013
National Grid 4.125% 21/ Corporate Bonds United Kingdom 696 0.9
03/2013
MacFarlane Group Industrials United Kingdom 691 0.9
General Electric Industrials United States 597 0.8
Hyder Consulting Industrials United Kingdom 485 0.7
Total - 59 investments 71,835 97.5
Cash and other net assets 1,854 2.5
Net assets 73,689 100.0
The geographic distribution is based on each investment's principal stock
exchange listing, except in instances where this would not give a proper
indication of where its activities predominate.
Of the ten largest portfolio investments as at 31 July 2009 the valuations at
the previous year end, 31 July 2008, were BP GBP1,956,000; ENI GBP2,312,000;
Anheuser-Busch InBev GBP1,192,000; Banque Cantonale Vaudoise GBP786,000; Provident
Financial GBP2,200,000; Sanofi-Aventis GBP1,775,000; and Vodafone GBP2,041,000. The
remaining three investments, Sun Hung Kai Property, HSBC and Lenovo, were new
purchases made during the year ended 31 July 2009.
DISTRIBUTION OF INVESTMENTS
as at 31 July 2009 (% of net assets)
Sector distribution % of Net Assets
Financials 16.4
Telecommunications 14.7
Industrials 11.0
Consumer Goods 9.8
Technology 9.3
Oil & Gas 8.2
Healthcare 7.4
Consumer Services 6.7
Utilities 6.6
Financials - Real Estate 4.5
Corporate Bonds 2.9
Cash and Other Net Assets* 2.5
100.0
Geographical distribution % of Net Assets
United Kingdom 43.3
Europe 38.1
Asia 8.9
United States 7.2
Cash and Other Net Assets* 2.5
100.0
Source: Edinburgh Partners Limited
* Cash and Other Net Assets includes foreign currency balances of GBP61,000
(0.1%)
The figures detailed in the geographical distribution represent the Company's
equity exposure to those countries or regional areas.
DIRECTORS
The Directors in office are:
John Pearmund (Chairman)
Christopher Duffett
John Sussens
Giles Weaver
All of the Directors are non-executive and independent of the Investment
Manger.
EXTRACTS FROM THE DIRECTOR'S REPORT
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, an analysis of its performance during the financial
period, the position at the period end and the future business plans of the
Company. It must also provide information about the Company's environmental,
social and ethical policy and about persons with whom the Company has
contractual or other arrangements essential to the business of the Company. To
aid understanding of these areas the Board is 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 it makes.
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 Income and Corporation Taxes Act 1988
("ICTA") for the year ended 31 July 2008 and all previous periods. This
approval is subject to there being no subsequent enquiry under corporation tax
self-assessment. 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.
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
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 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 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. 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 Manager's Report and Portfolio Analysis. A detailed list of all the
Company's investments is contained in the Portfolio of Investments. The
Portfolio of Investments details that the Company held 59 investments,
excluding cash and other net assets, as at 31 July 2009, with the largest
investment representing 3.4% of net assets, thus ensuring that the Company has
a suitable spread of investment risk. A sector and geographical distribution is
shown above.
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 18. These risks are: investment and strategy risk; discount volatility
risk; market risk (comprising: interest rate risk, currency risk and other
price risk); liquidity risk; credit 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 ICTA may lead to Anglo
& Overseas Plc being subject to capital gains tax. A breach of the Listing
Rules of the Financial Services Authority ("FSA") may result in censure by the
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 the ICTA and FSA requirements. These checks are reviewed
monthly and at each Board meeting.
Operational risk
In common with most other investment companies the Company has no employees;
the Company therefore relies upon the services provided by third parties. 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 the
third parties may fail to ensure that statutory requirements, such as
compliance with the Companies Act and FSA Listing Rules, 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, SAS 70 or equivalent)
to the Board each year.
Financial risk
Inappropriate accounting policies 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 Auditor at least
once a year to discuss all financial matters including appropriate accounting
policies.
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 Manager might leave
Edinburgh Partners or may no longer be 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. Further details of the Investment
Management Agreement are below.
The Board undertakes an annual assessment and review of all the risks stated
above and in note 18 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 ended 31 July 2009 are set out
in the Income Statement and in the Reconciliation of Movements in Shareholders'
Funds.
The Directors recommend a final dividend of 2.08p (2008: 2.04p) per Ordinary
Share to be paid on 4 December 2009 to shareholders on the register as at the
close of business on 30 October 2009. The ex-dividend date will be 28 October
2009. Subject to shareholders approving the final dividend, the total dividend
for the year ended 31 July 2009, including the interim dividend of 0.82p (2008:
0.80p) will be 2.90p (2008: 2.84p).
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 ("NAV") per Ordinary Share, including
revenue reserves, as at 31 July 2009 was 96.80p (2008: 105.04p).
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:
* NAV per Ordinary Share
* Share price
* Discount/premium to NAV
* Revenue return per Ordinary Share
* Dividend per Ordinary Share
* Portfolio turnover
* Total expense ratio
The records of the KPIs are shown below:
31 July 2009 31 July 2008 Change
Net asset value per Ordinary 96.80p 105.04p (7.8)%
Share
Share price per Ordinary Share 89.75p 90.00p (0.3)%
Discount to NAV 7.3% 14.3%
Year Year to
to to
31 July 2009 31 July 2008
Revenue return per Ordinary Share 3.17p 3.41p
Dividend per Ordinary Share 2.90p 2.84p
Portfolio turnover 43% 54%
Total expense ratio 0.9% 0.9%
Current and future developments
A review of the main features of the year and the outlook for the coming year
is to be found in the Chairman's Statement and 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.
Social, environmental and ethical policy
Anglo & Overseas Plc seeks to invest in companies that are well managed, with
high standards of corporate governance, as the Directors believe this creates
the proper conditions to enhance long-term value for shareholders. In aiming to
achieve a high level of corporate performance the Company adopts a positive
approach to corporate governance and engagement with companies.
In pursuit of the above objective, the Directors believe that proxy voting is
an important part of the corporate governance process and considers seriously
its obligation to manage the voting rights of companies in which it is
invested, for which it has delegated responsibility to its Investment Manager.
It is the policy of the Company to vote, as far as is practicable, at all
shareholder meetings of investee companies. The Company follows the relevant
applicable regulatory and legislative requirements in the UK, with the guiding
principles being to make proxy voting decisions which favour proposals that
will lead to maximising shareholder value while avoiding any conflicts of
interest. Voting decisions are taken on a case by case basis, with the key
issues on which the Investment Manager focuses being corporate governance,
including disclosure and transparency, board composition and independence,
control structures, remuneration and social and environmental issues.
Donations
The Company made no political or charitable donations during the year.
Purchase of own shares
At the Annual General Meeting held on 12 November 2008 the Directors were
granted the authority to purchase up to 14.99% of the Company's Ordinary Shares
(either for cancellation or for placing into treasury). Any buy-backs of shares
have been made within the guidelines established from time to time by the
Board. In total the authority granted amounted to 11,847,778 Ordinary Shares.
During the year ended 31 July 2009, 3,920,251 shares (with a nominal value of GBP
392,025) were purchased for cancellation, representing 4.63% of the issued
share capital at the year end, for an aggregate amount of GBP3,275,000. The
Company also cancelled during the year 436,000 shares (with a nominal value of
GBP43,600) from treasury, representing 0.52% of the issued share capital at the
year end. The shares were cancelled from treasury in order to ensure that the
number of own shares held in treasury at any one time did not exceed the limit
prescribed by the Companies (Acquisition of own shares) (Treasury shares)
Regulations 2003 (the "Regulations"), being 10% of the issued share capital at
any one time. The maximum number of own shares held in treasury during the year
was 8,893,438 shares (with a nominal value of GBP889,344) representing 10% of the
issued share capital of 88,938,819 Ordinary Shares at the time they were held
in treasury.
The total number of own shares held in treasury as at 31 July 2009, including
those shares bought back in prior accounting periods, totalled 8,457,438
Ordinary Shares.
Subsequent to the year end and up to the date of this report, a further
1,177,249 shares (with a nominal value of GBP117,725) were purchased for
cancellation, representing 1.41% of the issued share capital at the date of
this report, for an aggregate amount of GBP1,122,000. In addition, 130,000 shares
(with a nominal value of GBP13,000) were cancelled from treasury, representing
0.16% of the issued share capital at the date of this report. The total number
of own shares held in treasury at the date of this report is 8,327,438 shares,
representing 10% of the issued share capital.
Issue of shares from treasury
The Board has the facility to authorise the sale of shares from treasury at
prices at or above the net asset value per share (plus costs of the relevant
sale). In the future the Directors will consider selling shares from treasury,
in order to meet demand as it arises. This should result in a positive overall
effect on the net asset value per share if shares are bought back at a discount
and then sold at a price at or above the net asset value per share.
During the year ended 31 July 2009, in accordance with the Regulations, the
Company was permitted to hold up to 10% of its issued Ordinary Shares in
treasury at any one time. From 1 October 2009, in accordance with the Companies
(Share Capital and Acquisition by the Company of its Own Shares) Regulations
2009, there is no longer a limit on the number of shares that a company can
hold in treasury at any one time. Holding shares in treasury enables a company
to issue shares cost effectively that might otherwise have been cancelled. The
Board has set no limit on the number of shares that can be held in treasury at
any one time.
Investment Management Agreement
The Company's investments are managed by Edinburgh Partners Limited under an
Investment Management Agreement dated 23 June 2005 (the "Investment Management
Agreement"). Edinburgh Partners receives a management fee of 0.125 per cent per
quarter of the market capitalisation of the issued Ordinary Shares, payable
quarterly in arrears. In addition it receives an administration fee (GBP113,000
per annum for the year ended 31 July 2009), payable quarterly in arrears and
adjusted annually in line with changes in the Retail Prices Index. The
Investment Management Agreement is terminable by 12 months' notice by either
party. The Company may terminate the agreement with less than 12 months'
notice; however, it may be required to pay liquidated damages for early
termination, unless certain specific circumstances set out in the agreement are
met.
Continuing appointment of the Investment Manager
The Company keeps the performance of the Investment Manager under review
through the Remuneration and Management Engagement Committee. It is the opinion
of the Directors that the continuing appointment of Edinburgh Partners is in
the interests of shareholders as a whole. The reasons for these views are that
the Directors are confident that the long-term investment strategy of Edinburgh
Partners will ensure that the Company's objective of providing above average
returns over the longer term through both capital appreciation and income
growth will be achieved. The remuneration of the Investment Manager is
considered reasonable both in absolute terms and compared with that of managers
of comparable investment companies. The Directors believe that by paying the
Investment Management fee calculated on a market capitalisation basis, rather
than a percentage of assets basis, the interests of the Investment Manager are
more closely aligned with those of shareholders.
Related party
Edinburgh Partners, as Investment Manager of the Company, is considered to be a
related party by virtue of its management contract with the Company. During the
year ended 31 July 2009, services with a total value of GBP444,000 (31 July 2008:
GBP539,000) were purchased by the Company from Edinburgh Partners. At 31 July
2009, the amount due to Edinburgh Partners, disclosed under creditors, was GBP
112,000 (31 July 2008: GBP123,000).
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
Directors' 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 Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).
Under company law the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these Financial Statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements 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 adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Directors' Remuneration Report and Corporate
Governance Statement that comply with that 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.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge:
* the Financial Statements, prepared in accordance with UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and 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 Company, together with a
description of the principal risks and uncertainties that it faces.
On behalf of the Board
John Pearmund
Chairman
15 October 2009
INDEPENDENT AUDITOR'S REPORT
The Company's financial statements for the year ended 31 July 2009 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 2009
Year to Year to
31 July 2009 31 July 2008
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on 8 - (7,275) (7,275) - (24,260) (24,260)
investments at
fair value
Foreign 8 - 24 24 - 476 476
exchange gains
on capital
items
Income 2 3,399 - 3,399 3,918 - 3,918
Investment 3 (165) (166) (331) (216) (216) (432)
management fee
Refund of VAT 3 55 42 97 - - -
on investment
management and
administration
fees
Other expenses 4 (389) - (389) (467) - (467)
Net return/ 2,900 (7,375) (4,475) 3,235 (24,000) (20,765)
(loss) before
interest and
taxation
Interest paid (3) - (3) (5) - (5)
Net return/ 2,897 (7,375) (4,478) 3,230 (24,000) (20,770)
(loss) before
taxation
Taxation 5 (412) 35 (377) (338) 63 (275)
Net return/ 2,485 (7,340) (4,855) 2,892 (23,937) (21,045)
(loss) after
taxation
pence pence pence pence pence pence
Return per 7 3.17 (9.35) (6.18) 3.41 (28.20) (24.79)
Ordinary Share
*
* Based on the weighted average number of Ordinary Shares in issue during the
year (excluding own shares held in treasury).
All revenue and capital items in the above statement derive from continuing
operations.
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.
The notes form part of these Financial Statements.
BALANCE SHEET
as at 31 July 2009
31 July 31 July
2009 2008
Restated*
Notes GBP'000 GBP'000
Fixed assets:
Investments at fair value through 8 71,835 82,987
profit or loss
Current assets:
Debtors 10 592 474
Cash at bank and short-term deposits 1,845 2,352
2,437 2,826
Creditors - amounts falling due within 11 583 1,737
one year
Net current assets 1,854 1,089
Net assets 73,689 84,076
Capital and reserves:
Called-up share capital 14 8,458 8,894
Special reserve 67,233 70,508
Capital redemption reserve 564 128
Capital reserve (5,983) 1,357
Distributable revenue reserve 3,417 3,189
Total equity shareholders' funds 73,689 84,076
pence pence
Net asset value per Ordinary Share 15 96.80 105.04
* Previously the cost of own shares held in treasury was shown as a separate
reserve. In accordance with the AIC Statement of Recommended Practice issued in
January 2009, the cost of own shares held in treasury is now reflected as a
deduction from the special reserve.
The financial statements were approved by the Board of Directors on 15 October
2009.
John Pearmund
Chairman
The notes form part of these Financial Statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 July 2009
Called-up Capital Distributable Own Total equity
share Special redemption Capital revenue shares shareholders'
held
Notes capital reserve reserve reserve reserve in funds
treasury
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31
July 2009
As at 31 July 8,894 79,949 128 1,357 3,189 (9,441) 84,076
2008
Transfer of - (9,441) - - - 9,441 -
own shares
held in
treasury*
As at 31 July 8,894 70,508 128 1,357 3,189 - 84,076
2008
(restated)
Cost of own (392) (3,275) 392 - - - (3,275)
shares bought
for
cancellation
Cost of own (44) - 44 - - - -
shares
cancelled from
treasury
Movement in 8 - - - 9,351 - - 9,351
fair value of
investments
Net loss on 8 - - - (16,626) - - (16,626)
realisation of
investments
Foreign 8 - - - 24 - - 24
exchange gains
on capital
items
Dividends paid 6 - - - - (2,257) - (2,257)
in the year
Investment 3 - - - (166) - - (166)
management fee
Refund of VAT 3 - - - 42 - - 42
on investment
management
and
administration
fees
Tax on - - - 35 - - 35
investment
management fee
Retained net - - - - 2,485 - 2,485
return for the
year
As at 31 July 8,458 67,233 564 (5,983) 3,417 - 73,689
2009
* Previously the cost of shares held in treasury was shown as a separate
reserve. In accordance with the AIC Statement of Recommended Practice issued in
January 2009, the cost of own shares held in treasury is now reflected as a
deduction from the special reserve.
The notes form part of these Financial Statements.
Called-up Capital Distributable Own Total equity
shares
share Special redemption Capital revenue held in shareholders'
Notes capital reserve reserve reserve reserve treasury funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended
31 July 2008
As at 31 8,972 80,652 50 25,294 2,357 (1,620) 115,705
July 2007
Cost of own (70) (619) 70 - - - (619)
shares
bought for
cancellation
Cost of own - - - - - (7,905) (7,905)
shares
bought into
treasury
Cost of own (8) (84) 8 - - 84 -
shares
cancelled
from
treasury
Movement in 8 - - - (20,768) - - (20,768)
fair value
of
investments
Net loss on 8 - - - (3,492) - - (3,492)
realisation
of
investments
Foreign 8 - - - 476 - - 476
exchange
gains on
capital
items
Dividends 6 - - - - (2,060) - (2,060)
paid in the
year
Investment 3 - - - (216) - - (216)
management
fee
Tax on - - - 63 - - 63
investment
management
fee
Retained net - - - - 2,892 - 2,892
return for
the year
As at 31 8,894 79,949 128 1,357 3,189 (9,441) 84,076
July 2008
The notes form part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 31 July 2009
Year to Year to
31 July 31 July
2009 2008
Notes GBP'000 GBP'000
Operating activities:
Investment income received 3,163 3,619
Other income 13 -
Bank deposit interest received - 9
Investment management fees paid (343) (475)
Administration and secretarial fees paid (111) (106)
Other cash payments (295) (393)
Net cash inflow from operating activities 16 2,427 2,654
Servicing of finance
Interest paid (3) (5)
Taxation (65) -
Capital expenditure and financial
investment
Purchases of investments (29,200) (41,136)
Sales of investments 31,949 50,591
Exchange (losses)/gains on settlement (116) 489
Net cash inflow from capital expenditure 2,633 9,944
and financial investment
Equity dividends paid (2,257) (2,060)
Net cash inflow before financing 2,735 10,533
Financing:
Shares purchased for cancellation (3,242) (375)
Own shares purchased and held in treasury - (7,905)
Net cash outflow from financing (3,242) (8,280)
(Decrease)/increase in cash 17 (507) 2,253
The notes form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
at 31 July 2009
1 Accounting policies
Basis of accounting
The financial statements are prepared in accordance with UK Generally Accepted
Accounting Practice ("UK GAAP") and with the AIC Statement of Recommended
Practice issued in January 2009 regarding the Financial Statements of
Investment Trust Companies and Venture Capital Trusts ("SORP"). 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. 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
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; and
* 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.
In accordance with the AIC Statement of Recommended Practice issued in January
2009, the consideration paid for shares bought into and held in treasury is
shown as a deduction from the special reserve. 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 to Year to
31 July 2009 31 July 2008
GBP'000 GBP'000
Income from listed investments:
UK dividend income 1,644 2,005
Overseas dividends 1,631 1,696
Deposit funds 44 207
Interest 67 1
3,386 3,909
Other income:
Bank interest receivable - 9
Underwriting commission 13 -
3,399 3,918
Total income comprises:
Dividends 3,319 3,908
Interest 67 10
Underwriting commission 13 -
3,399 3,918
3 Investment Management fee
Year to Year to
31 July 2009 31 July 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment Management fee 165 166 331 216 216 432
The Investment Management fee is paid quarterly in arrears, at the rate of 0.5%
per annum of the market capitalisation of the Company. At 31 July 2009 there
was GBP84,000 outstanding (2008: GBP96,000). In addition, the Investment Manager
received an administration fee of GBP113,000 per annum subject to an annual RPI
uplift (2008: GBP107,000) (see note 4 below). At 31 July 2009 there was GBP28,000
outstanding (2008: GBP27,000).
Following the AIC/Claverhouse judgement in 2007 regarding the charging of VAT
on investment management and administration fees, Edinburgh Partners Limited
has made a payment of GBP97,000 to the Company, pending final agreement with HM
Revenue & Customs. This has been recognised in the Financial Statements and has
been allocated GBP55,000 to revenue and GBP42,000 to capital, as detailed in the
Income Statement.
4 Other expenses
Year to Year to
31 July 2009 31 July 2008
GBP'000 GBP'000
Administration and secretarial fees 113 107
Auditors' remuneration 22 25
Directors' remuneration 110 125
Registrars' fees 18 23
Irrecoverable VAT (7) 23
Other 133 164
389 467
The entire amount of the Auditors' remuneration relates to audit services.
5 Taxation
Year to Year to
31 July 2009 31 July 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
a) Analysis of charge
in year
Current tax:
UK corporation tax 339 (35) 304 338 (63) 275
Overseas tax suffered 173 - 173 275 - 275
Double taxation relief (173) - (173) (275) - (275)
Irrecoverable overseas 10 - 10 - - -
tax suffered
Undercharge relating to 63 - 63 - - -
prior year
412 (35) 377 338 (63) 275
b) The current taxation charge for the year is lower than the standard rate of
Corporation Tax in the UK of 28% (30% to 31 March 2008). The differences are
explained below:
Year to Year to
31 July 2009 31 July 2008
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return before 2,897 (7,375) (4,478) 3,230 (24,000) (20,770)
taxation
Theoretical tax at UK 811 (2,065) (1,254) 947 (7,040) (6,093)
corporation tax rate of
28%/30%
Effects of:
- UK dividends that are (460) - (460) (589) - (589)
not taxable
- Foreign dividends that (1) - (1) - - -
are not taxable
- Non-taxable investment - 2,030 2,030 - 6,977 6,977
losses
- Irrecoverable overseas 10 - 10 - - -
tax
- Brought forward - - - (20) - (20)
overseas tax utilised
- Accrued income taxable (1) - (1) - - -
on receipt
- Accrued income exempt (10) - (10) - - -
on receipt
- Undercharge relating to 63 - 63 - - -
prior year
412 (35) 377 338 (63) 275
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 to Year to
31 July 2009 31 July 2008
GBP'000 GBP'000
Declared and paid
2008 final dividend of 2.04p (2007: 1.58p) per 1,619 1,393
Ordinary Share
2009 interim dividend of 0.82p per Ordinary Share 638 667
(2008: interim dividend of 0.80p per Ordinary
Share)
2,257 2,060
Proposed
2009 final dividend of 2.08p* (2008: 2.04p) per 1,559 1,626
Ordinary Share
* Figure based on 74,947,881 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 to Year to
31 July 2009 31 July 2008
Net Ordinary Per Net Ordinary Per
return/ Shares* share return/ Shares* share
(loss) (loss)
GBP'000 pence GBP'000 pence
Revenue return 2,485 78,497,082 3.17 2,892 84,870,031 3.41
Capital return (7,340) 78,497,082 (9.35) (23,937) 84,870,031 (28.20)
Total (4,855) (6.18) (21,045) (24.79)
* Weighted average number of Ordinary Shares in issue during the year
(excluding own shares held in treasury).
8 Investments
31 July 2009 31 July 2008
GBP'000 GBP'000
Listed investments 71,835 82,987
Analysis of investment portfolio movements
Opening book cost 98,203 109,895
Opening fair value adjustment (15,216) 5,552
Opening valuation 82,987 115,447
Movements in the year:
Purchases at cost - cash purchases during the 27,932 42,404
year
Sales - proceeds (31,809) (50,604)
- losses on sales (16,626) (3,492)
Changes in fair value of investments 9,351 (20,768)
Closing valuation 71,835 82,987
Closing book cost 77,700 98,203
Closing fair value adjustment (5,865) (15,216)
71,835 82,987
Analysis of capital gains and losses
Realised losses on sales (16,626) (3,492)
Changes in fair value of investments 9,351 (20,768)
(7,275) (24,260)
Foreign exchange gains on capital items 24 476
Losses on investments (7,251) (23,784)
Transaction costs
During the year the Company incurred transaction costs of GBP113,000 (2008: GBP
160,000) and GBP58,000 (2008: GBP90,000) 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 holdings of 3% or more of the share capital of the following
portfolio company:
31 July 2009
Name of company Class of Share % held
MacFarlane Group Ordinary 3.7
10 Debtors
31 July 2009 31 July 2008
GBP'000 GBP'000
Dividends receivable 209 260
Prepayments and accrued income 155 55
Taxation recoverable 228 159
592 474
11 Creditors: amounts falling due within one year
31 July 2009 31 July 2008
GBP'000 GBP'000
Amounts due to brokers - 1,268
Other creditors and accruals 189 225
Amounts due on share buy-backs 277 244
Taxation 117 -
583 1,737
12 Provision for liabilities and charges
No provision for liabilities and charges is considered necessary at the
Company's year end (2008: nil). There were no amounts unprovided in respect of
deferred taxation (2008: nil).
13 Commitments and contingencies
At 31 July 2009 there were no outstanding commitments in respect of investments
carrying an obligation for future subscriptions (2008: nil).
14 Share capital
31 July 2009 31 July
2008
GBP'000 GBP'000
Authorised:
399,500,000 Ordinary Shares of 10p each 39,950 39,950
Allotted, called-up and fully paid:
84,582,568 (2007: 88,938,819) Ordinary Shares of 10p 8,458 8,894
each
In the year ended 31 July 2009, the Company purchased 3,920,251 shares for
cancellation (2008: 706,562) and 436,000 shares were cancelled from treasury
(2008: 79,000).
Treasury shares held
31 July 31 July
2009 2008
Number of Number of
shares shares
Balance of treasury shares held at beginning of year 8,893,438 1,394,285
Shares purchased to be held in treasury - 7,578,153
Shares cancelled from treasury (436,000) (79,000)
Balance of treasury shares held at end of year 8,457,438 8,893,438
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 2009 31 July 2008
pence pence
Ordinary Share 96.80 105.04
The net asset value per Ordinary Share is based on net assets of GBP73,689,000
(2008: GBP84,076,000) and on 76,125,130 (2008: 80,045,381) 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 to Year to
31 July 2009 31 July 2008
GBP'000 GBP'000
Net loss before interest and taxation (4,475) (20,765)
Net losses on investments 7,251 23,784
Decrease in creditors (36) (73)
(Increase)/decrease in debtors and accrued (61) 22
income
Tax deducted from investment income (183) (275)
Tax recoverable (69) (39)
Net cash inflow from operating activities 2,427 2,654
17 Reconciliation of net cash flow to movement in net cash
Year Year
to to
31 July 2009 31 July 2008
GBP'000 GBP'000
(Decrease)/increase in cash in year (507) 2,253
Change in net cash (507) 2,253
Net cash at 31 July 2008 2,352 99
Change in net cash (507) 2,253
Net cash at 31 July 2009 1,845 2,352
18 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 risks 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 detailed description of the principal risks the Company
faces is detailed in the Directors' Report above.
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 both monthly and quarterly 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 extracts from the Directors' Report.
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 buy-back 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 2009 is disclosed
below
31 July 2009 31 July 2008
No Cash Fair No Cash Fair
flow value flow value
interest interest interest Fixed interest interest interest Fixed
rate rate rate interest rate rate rate interest
risk risk risk risk
Total exposure exposure exposure rate Total exposure exposure exposure rate
GBP'000 GBP'000 GBP'000 GBP'000 % GBP'000 GBP'000 GBP'000 GBP'000 %
Equity
shares
Euro 20,284 20,284 - - - 17,985 17,985 - - -
Sterling 30,478 30,478 - - - 39,414 39,414 - - -
Hong 4,613 4,613 - - - - - - - -
Kong
Dollar
US 7,807 7,807 - - - 16,906 16,906 - - -
Dollar
Swiss 5,317 5,317 - - - 5,570 5,570 - - -
Franc
Turkish - - - - - 1,027 1,027 - - -
Lira
Swedish 1,178 1,178 - - - 2,085 2,085 - - -
Krona
Fixed
interest
shares
Euro 696 - - 696 4 - - - - -
Sterling 750 - - 750 7 - - - - -
US 712 - - 712 5 - - - - -
Dollar
Cash at
bank
Turkish 2 - 2 - - 2 - 2 - -
Lira
Sterling 1,784 - 1,784 - - 1,954 - 1,954 - -
US 59 - 59 - - 396 - 396 - -
Dollar
Debtors
Euro 10 10 - - - - - - - -
Sterling 551 551 - - - 447 447 - - -
*
US 5 5 - - - - - - - -
Dollar
74,246 70,243 1,845 2,158 85,786 83,434 2,352 -
* Debtors exclude certain prepayments which under FRS25 are not classed as
financial assets.
At 31 July 2009 the Company had no financial liabilities other than short-term
creditors (2008: GBPnil). 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
2009. There was limited exposure to interest bearing liabilities during the
year ended 31 July 2009. Surplus cash is invested in money market funds.
If interest rates had reduced by 0.25 per cent (2008: 1 per cent) from those
obtained as at 31 July 2009 it would have the effect, with all other variables
held constant, of reducing the net revenue return before taxation on an
annualised basis by GBP5,000 (2008: GBP24,000). If there had been an increase in
interest rates of 0.25 per cent (2008: 1 per cent) there would have been an
equal and opposite effect in the net revenue return before taxation. The
calculations are based on the Company's cash at bank and short-term deposits as
at 31 July 2009 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 holds overseas cash
balances and deposits from time to time and 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 of the foreign currency exposure by considering the
effect on 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 2009 is detailed
below:
31 July 2009 31 July 2008
Cash Cash
Total Investments at Debtors Creditors Total Investments at Debtors Creditors
bank * bank *
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Euro 20,990 20,980 - 10 - 17,985 17,985 - - -
Sterling 32,980 31,228 1,784 551 (583) 40,078 39,414 1,954 447 (1,737)
Hong 4,613 4,613 - - - - - - - -
Kong
Dollar
US 8,583 8,519 59 5 - 17,302 16,906 396 - -
Dollar
Swiss 5,317 5,317 - - - 5,570 5,570 - - -
Franc
Turkish 2 - 2 - - 1,029 1,027 2 - -
Lira
Swedish 1,178 1,178 - - - 2,085 2,085 - - -
Krona
73,663 71,835 1,845 566 (583) 84,049 82,987 2,352 447 (1,737)
*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 2009, with all other variables held constant, it would have the effect
of reducing the net capital return before taxation by GBP407,000 (2008: GBP
440,000). 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 2009 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. Details of the Company's investment portfolio as at 31 July 2009
are disclosed above. In addition, an analysis of the investment portfolio by
sector and geographical distribution is detailed above.
The maximum exposure to other price risk is the fair value of investments of GBP
71,835,000.
If the investment portfolio valuation fell by 1 per cent from the amount
detailed in the Financial Statements as at 31 July 2009 it would have the
effect, with all other variables held constant, of reducing the net capital
return before taxation by GBP718,000 (2008: GBP830,000). 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 2009 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 2009. 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
ordinarily 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 2009 was GBP74,272,000 (2008: GBP
85,813,000). The calculation is based on the Company's credit risk exposure as
at 31 July 2009 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 per
cent 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 2009 (2008: nil).
The Board undertakes an annual assessment and review of all the risks stated
above and in the Directors' Report above 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 2009 (and 31 July 2008) all financial liabilities were due within one
year and are stated at fair value.
19 Related parties
All information with respect to transactions with related parties is provided
in the Directors' Report in the Financial Statements.
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. A summary of the proposed
amendments to the Articles of Association is set out in an appendix to the
Annual Report and Accounts for the year ended 31 July 2009, which have been
posted on the Company's website at www.angloandoverseasplc.com. A copy of the
proposed new Articles is being lodged with the UK Listing Authority and will
shortly be available for inspection at the Document Viewing Facility, which is
situated at Financial Services Authority, 25 The North Colonnade, Canary Wharf,
London E14 5HS (Tel no: 020 7066 8224).
Enquiries:
Graham Campbell
Sandy Nairn
Kenneth Greig
Edinburgh Partners
Telephone: 0131 270 3800
END
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