British Empire Sec BTEM Annual Financial Report

  British Empire Sec (BTEM) - Annual Financial Report

RNS Number : 9470Q
British Empire Sec & Gen Tst PLC
13 November 2012



  Results for the full year to 30 September 2012 and availability of Annual


The Company's  investment objective  is to  achieve capital  growth through  a 
focused portfolio of investments, particularly in companies whose shares stand
at a discount to estimated underlying net asset value.

Financial Highlights

• Uncertain economic conditions continue to prevail

• Net asset value (NAV) on a total return basis increased by 10.3%

• Benchmark* Index increased by 13.8%

• Total ordinary dividends increased by 11.8%

• Special dividend of 3.5p

• At the end of the year net liquidity was 19.9%

Performance Summary

                           30 September 2012    30 September 2011   % change
Capital Return
Net asset value per Share             500.47p               462.51p       8.21
Share price (mid market)              438.30p               422.60p       3.72
Net asset value per Share (total
return)                                                                  10.25
Morningstar Investment Trust
Global Growth Index*                   299.68                263.38      13.78
Morgan Stanley Capital
International World Index (£
adjusted total return)               2,865.48              2,428.27      18.00
Revenue and Dividends
Income                                £30.87m               £25.93m      19.05
Earnings per Share                     15.06p                11.50p      30.96
Ordinary Dividends per Share            9.50p                 8.50p      11.76
Special Dividend per Share              3.50p                 2.00p      75.00
(difference between share price
and net asset value)                   12.42%                 8.63%          -
Ongoing Charges Ratio

(as percentage of average
shareholders' funds)
Management, marketing and other
expenses                                0.74%                 0.72%          -
Performance fee                         0.00%                 0.00%          -
2012 Year's Highs/Lows                   High                   Low
Net asset value per Share             506.60p               440.37p          -
Share price (mid market)              475.65p               387.05p          -
* The Morningstar Investment Trust Global Growth Index (total return basis),
formerly known as Fundamental Data Global Growth Investment Trust Index, is
subject to revision and the figures are as at 26 October 2012.

During the year the Company purchased  1,985,104 Ordinary Shares of which,  at 
the year end, 66,000 had been cancelled.  The Company did not purchase any  of 
its Equities Index  Unsecured Loan Stock  2013 or any  of its Debenture  Stock 
2023 during the year.

Chairman's Statement

This report covers the period from 1 October 2011 to 30 September 2012.

The year under review has again been one in which markets have been  difficult 
for the investment  community but the  Board is pleased  to report that  Asset 
Value Investors have  not deviated from  their established investment  process 
and style; and in the second half of the year have outperformed the  benchmark 
indices by an encouraging margin.

Our European  holding company  investments contributed  38% of  our net  total 
return for the year, despite the value of the euro declining against sterling;
and our Asian  holding companies  a further 38%  . The  overall total  return, 
after taking into account the currency effect and dividend income, amounted to
some £75.9m.

For the year under review,  the net asset value per  share rose by 10.3% on  a 
total return  basis.  This compares  to  an  increase in  our  benchmark  (the 
Morningstar Investment  Trust  Global  Growth  Index)  of  13.8%.  While  this 
underperformance is  disappointing,  there was  a  marked improvement  in  the 
second half of the year, when the  Company outperformed the index by over  3%. 
Most of the investments which we hold  stand at discounts to their stated  net 
asset value, and in  the year under review,  the average see through  discount 
has narrowed from  a peak  of around 39%  to approximately  30%. Our  investee 
companies, on  the  whole,  continued  to trade  well  in  difficult  economic 
circumstances which  was  not  always reflected  in  improving  share  prices. 
Nevertheless, improved dividend income generally reflected underlying  trading 

There has again  been good income  growth over the  year of some  19%. We  are 
therefore pleased to be recommending an increased final dividend of 7.5p (2011
6.5p) which, together  with the interim  dividend of 2.0p  (2011 2.0p),  would 
bring total Ordinary  dividends for this  year to 9.5p,  an increase of  11.8% 
over last year. In addition, to reflect some exceptional dividend receipts, we
are again proposing a special dividend;  this year of 3.5p and bringing  total 
dividends for the year to 13.0p (2011: 10.5p).

At the  year  end  net  liquidity  amounted to  some  20%  of  the  portfolio, 
reflecting the manager's cautious outlook. Further details of the breakdown of
performance and  changes  in the  portfolio  are  set out  in  the  Investment 
Manager's Review.

The share price increased during the year  from 423p to 438p. The share  price 
return  of  6.2%  (again  on  a  total  return  basis,  including  re-invested 
dividends) was  below  the net  asset  value  return, because  of  a  widening 
discount over the year.

The level of discount  has oscillated between  4.5% and 14%  and, at the  year 
end, was 12.4%.

Recognising the wider discount the Company has, during the second half of this
financial year, bought  back a total  of 1.985 million  shares, at an  average 
discount of 13.8%, adding some 0.8p per share (0.2%) to the net asset value to
the benefit of all shareholders.  These purchases included 1.2 million  shares 
bought at 412.6p at a discount of circa 14% through the market from  Caledonia 
Investments plc.  Reflecting a  change in  its investment  policy,  Caledonia, 
until recently  our largest  shareholder, has  sold its  entire holding  to  a 
combination of existing and new shareholders.

We will continue to take steps, if  necessary, to limit the volatility of  the 
discount or premium, as we  have done this year.  The Board is therefore  once 
again seeking to renew its authorities to buy back and issue shares.

The Board, meeting  as the Nomination  Committee, decided to  appoint two  new 
directors, Nigel Rich and Susan Noble, both of whom joined the board in  March 
2012. Nigel Rich is chairman  of Segro plc and  a non-executive director of  a 
number of companies. He brings extensive  experience of the Far East from  his 
former executive career  as managing director  of Hong Kong  Land and  Jardine 
Matheson. Susan  Noble was  a director  and senior  European fund  manager  at 
Robert Fleming  Asset Management,  and  latterly head  of Global  Equities  at 
Goldman Sachs Asset Management; she brings long experience of European  Equity 
Investments. She is a non-executive director of Alliance Trust plc. We welcome
both of them to the Board.

In line with best practice, all of the directors come up for re-election  each 
year.  The  Board  has  completed  a  further  board  evaluation,  this   year 
internally,  and   has  considered   again  the   directors'   qualifications, 
performance and contribution  to the Board.  The Board can  confirm that  they 
each continue to be effective and  to demonstrate commitment to the role.  The 
Board therefore recommends that each  should be re-elected with the  exception 
of Rosamund Bloomfield-Smith who has asked  not to stand for re-election  this 
year. Rosamund was appointed to the Board  in 2003 and has made a  substantial 
contribution to our Board  discussions over a long  period, and we shall  miss 
her input greatly. We wish her all success in her future activities.

Between the  year end  and  6 November,  the latest  date  for which  data  is 
available, the company's  net asset value  increased by 4.1%  compared with  a 
benchmark return of 1.3%.

The overall liquidity of the portfolio at the  year end of some 20% is at  the 
higher end  of the  usual  range and  reflects  continuing concern  about  the 
growing evidence of  slowing economic growth  in many parts  of the world  and 
continuing political concerns in the USA, China and elsewhere. The solution to
the problem of sovereign  debt in many  countries is far  from clear, and  the 
uncertain outlook in China is also unsettling the global investor. That  said, 
the Board believes that your company is well positioned, with good  liquidity, 
to take advantage of any  further difficult market conditions, while  pursuing 
its long term policy of investing in quality undervalued assets.

Strone Macpherson


12 November 2012

Investment Manager's Review

During the year, the Company's NAV rose by 10.3%, compared with an increase of
13.8% in the benchmark Morningstar Global Growth Index (both on a total return
basis). While value investing  as a strategy  has been out  of favour for  the 
last couple of  years, we  may now be  seeing the  early signs of  a shift  in 
sentiment as evidenced by our outperformance of the index over the second half
of the  year and  after the  period end.  With the  weighted average  discount 
remaining towards  the wider  end  of its  historical  range, there  are  good 
prospects for further discount narrowing and outperformance.

After a strong  first half  showing from  global markets  there was  continued 
progress in the second  half of British Empire's  financial year, albeit at  a 
reduced rate. Your Company's performance  relative to the benchmark,  however, 
improved in the second half of the year compared with the first half, owing in
large part to the narrowing of discounts on many of the Company's investments.
The proximate causes  for both  the equity markets'  positive performance  and 
also  the  narrowing   of  discounts   on  our  holdings   have  been   policy 
pronouncements from  the European  Central Bank  and the  US Federal  Reserve. 
These policies have  eased fears of  an imminent collapse,  especially in  the 
European banking system, and allowed investors the confidence to extend  their 
investment time  horizons. A  willingness to  invest for  the long  term is  a 
necessary pre-condition for  the outperformance  of the value  style which  we 
follow at AVI, as patience is often required to gather returns on  investments 
made on the basis of low valuations.

Valuations within our portfolio companies still appear to be attractive,  with 
a weighted average discount on our investments  of 30%. This is down from  39% 
one year ago but still wide by historical standards. An increasing  proportion 
of general equity  market trading  is being  conducted through  the medium  of 
Exchange Traded Funds (ETFs)  and other index-based  products. This has  meant 
that markets have awarded increasingly high valuations to large cap stocks vis
a vis  their  less  well  known  peers  and  this  has,  in  turn,  led  to  a 
corresponding lack of interest and liquidity in the smaller cap names. At some
point in time, the valuation differential between the large cap stable  growth 
stocks and the rest of the market will become so great as to sow the seeds  of 
its own undoing.  We believe that  investors will realise  at some point  that 
they all own the same expensive stocks and look to buy what is today cheap and

The degree  to which  the equity  markets appear  to be  driven by  hopes  for 
further stimulus is concerning.  Each round of monetary  easing or support  is 
being met by the markets with diminishing returns. At the same time,  economic 
fundamentals have not significantly improved and offer limited support for the
equity markets absent artificial stimulus. To the extent that the economy does
not pick up, there may be a gap opening up between the level of certain  stock 
market indices (close to an all-time high) and the rather more gloomy economic
fundamentals. Our net liquidity has increased to circa 20%.

We still believe it is sensible to focus on buying companies on discounts  for 
their long  term  appreciation  potential. In  this  particularly  challenging 
environment of economic and  policy uncertainty we believe  a tweaking of  our 
tactics (but not of our overall strategy) to pay more attention to  dividends, 
which are an increasing component of returns, and catalysts is appropriate. In
addition to the  attractive value in  the portfolio, as  noted above,  British 
Empire shares  have  themselves traded  on  a significant  discount  at  times 
throughout the year. This has represented an appealing investment  opportunity 
and your  Company has  bought back  1.985m shares  at an  average discount  of 

Portfolio Review

During the  year, your  company's  NAV increased  by  10.3% compared  with  an 
increase of 13.8% in the benchmark Morningstar Global Growth Index (both on  a 
total return basis).  Whilst it  is disappointing to  have underperformed  the 
benchmark over the year, it was encouraging that the Company has  outperformed 
the benchmark  over the  second half  of the  year by  over 3%  and we  remain 
confident that the significant  value in our portfolio  will be realised  over 

As far as returns go, two  particular factors merit mention this year.  First, 
shareholders will  be aware  that the  dividends which  have flowed  into  the 
Company's income  account in  recent  years have  increased sharply  and  this 
dividend income has formed a significant  part of the total return during  the 
financial year. This accounted for over a third of total return for the  year. 
Second, on the other  side of the  ledger, the strength  of the Pound  against 
several currencies, but  principally the Euro,  has had a  negative effect  on 
total returns during the year, accounting for a drag of 3% on NAV returns.

Weighted Average Discount

As ever, this  factor remains a  major determinant of  returns over any  given 
period. It is clear  that discounts remain  at the wider  end of the  historic 
range. The wide discounts and absence of significant narrowing have acted as a
headwind to  performance in  recent years  as narrowing  discounts can  be  an 
important boost  to returns.  The  outperformance of  the portfolio  over  the 
second half of the year  has coincided with a  narrowing of the discount  from 
35% to 30%.

European Holding Companies

This part of the  portfolio contributed 38% of  total gains achieved over  the 
financial year.  Local  currency gains  and  dividend income  were  offset  by 
negative foreign exchange translation effects. The Euro was by far the weakest
currency in the  portfolio against  Sterling. 15%  of the  total portfolio  is 
listed in Nordic countries. There remains  a lot of value in European  Holding 
Companies. Weighted average discounts are 33% compared with 38% one year ago.

Notable gains were made in Aker, a Norwegian listed company focused on the oil
services industry through a 28% stake in Aker Solutions, a major oil  services 
business, and a 49.9% stake in Det  Norske, the second largest oil company  in 
Norway. Both of  these companies have  had a good  year. In the  case of  Aker 
Solutions a change of  management and operational  improvements have driven  a 
share price re-rating, whilst at Det Norske being part of the consortium  that 
made a large  discovery in the  North Sea boosted  its share price  enormously 
over the year.  Aker holds some  other investments in  related industries  and 
also has  significant  net  cash  on its  balance  sheet,  having  made  asset 
disposals early in the year. It trades  on a 41% discount and is committed  to 
paying a relatively high dividend yield,  currently 5.9%. A share price  total 
return during the year of 66% has been driven by underlying NAV growth  rather 
than discount compression. We consider that there is scope for further  growth 
in the value of its businesses  which suggests that the current wide  discount 
level is unjustified.

Other strong contributors to performance based in Scandinavia include Investor
AB 'A'  and Orkla;  both of  which trade  on wide  discounts, have  attractive 
dividend yields and strong balance sheets,  as well as catalysts for  discount 

There were some disappointing performances  elsewhere in Europe. For  example, 
CIR SpA in Italy, which we no  longer hold, detracted from performance to  the 
tune of £2.8m over the period. This is an example of a company that trades  on 
a very wide  discount. However,  being based in  Italy, it  has suffered  from 
negative investor sentiment,  as well as  a deteriorating operational  outlook 
for some of its businesses.

Asian Holding Companies

Asian companies have been a source of strong returns for a number of years and
once again they  contributed significantly.  38% of this  year's returns  came 
from this  group  of  companies,  with  the bulk  of  these  coming  from  our 
investments in Jardine Matheson Holdings and Jardine Strategic Holdings.

Wheelock & Co was another notable contributor to performance. In recent months
its share price appreciated sharply and  thus the discount at which it  trades 
narrowed. We used this  strength to sell our  holding and realise profits.  We 
also took profits on part of our holdings in Swire Pacific and thereby further
reduced our exposure to property markets in Hong Kong and China, both of which
have been remarkably strong in recent years.

We have  been adding  companies  that offer  exposure  to the  Asian  domestic 
consumer. During the year we  had a position in Fraser  & Neave which was  the 
subject of  corporate activity  that allowed  us  to sell  our holding  for  a 
reasonable profit.

Another recent addition is First Pacific, which is a Hong Kong listed  holding 
company that owns stakes in four other listed companies in the Philippines and
Indonesia. It is on a 45% discount and management are attempting to narrow the
discount by  way  of share  buybacks  and generally  increasing  the  investor 
awareness and understanding of the company.


Vivendi is the largest  single holding in the  portfolio. Its share price  has 
been relatively flat over the year but this masks a rather more volatile  time 
for the company as challenges in its French mobile phone business  contributed 
to a decision to  cut the dividend  by a third. Vivendi  owns a collection  of 
businesses spanning mobile phones,  broadband, television, music and  computer 
games and the share price is significantly below the aggregate value of  those 
businesses. Following management changes,  the company has  now embarked on  a 
different strategy that we  believe will see one  or more of those  businesses 
disposed of.  This  reflects a  recognition  by management  that  the  present 
structure does  not work,  as a  huge amount  of value  could be  created  for 
shareholders if the discount were successfully eliminated.

The company trades on very low multiples  of earnings and, even after the  cut 
in dividend, currently yields over 6%.

We added to  our holding in  Vivendi after  the sharp sell-off  in the  shares 
earlier in the  year and this,  together with the  dividend income, has  meant 
that Vivendi made a small positive contribution to returns during the year.


Losses within this sector  have come from small  Japanese companies, where  we 
have been reducing  our investments.  Despite very wide  discounts indeed,  it 
seems unlikely that  management will pursue  the kind of  strategy that  could 
lead to those discounts being reduced.

Closed End Funds

The weighting in closed end funds has expanded over the year and we have  been 
particularly focused on the listed private equity sector. Holdings in Pantheon
and Electra have been supplemented with new investments including LMS  Capital 
and AP Alternative Assets.  These investments were  made on average  discounts 
above 30% and we are confident in  the value of the underlying businesses.  In 
addition, action  is  being taken  to  address  wide discounts,  with  no  new 
investments being made by the funds and capital being returned to shareholders
from the sale of existing holdings.

Mining & Resources

Nexen was a large contributor  to performance for the  year under review as  a 
result of  a take  over  bid from  CNOOC at  a  premium of  circa 60%  to  the 
prevailing share price. This was almost  matched by a very strong  performance 
over the year from Amerisur Resources, a London listed oil exploration company
with assets in South America.

It has  been a  challenge to  make money  out of  gold mining  stocks  despite 
another year of decent gains in the  gold spot price. We currently have 3%  in 
gold mining companies, which is lower than a  year ago. A loss on the sale  of 
one holding was partially offset by the gains made in others.


Granite Real Estate, a  Canadian listed REIT, performed  well; with its  share 
price rising by over 30%  during the year. This  has been driven by  improving 
investor sentiment following the implementation of a more shareholder friendly
strategy. The company yields almost 6% and is trading on a discount to NAV  of 
circa 12%, which is far more attractive  than most of its peer group of  North 
American REITs.

Suntec REIT  in Singapore  is an  example of  a more  recent investment.  This 
company owns prime commercial  property in Singapore  and yields almost  6.5%. 
There is  scope for  this to  be  increased after  the company  completes  its 
recently announced asset enhancement initiative.


A comment is warranted  on the level of  liquidity within the portfolio  which 
has expanded from 10%  one year ago to  20% as at 30  September 2012. Much  of 
this increase has come about during the last few months of the financial year,
as stronger markets and narrower discounts in some of our stocks allowed us to
take profits  and  to  build up  our  cash  levels for  investment  into  more 
attractive opportunities.  We  do  not  target a  particular  level  of  cash. 
However, at times cash will build up  as the timing of sales and purchases  do 
not always match.


There is good  value in our  portfolio of  stocks relative to  the market,  as 
evidenced by the  continued very  wide weighted  average discount  to NAV.  In 
these holdings  is embedded  a store  of value  that can  be released  through 
corporate activity such as  takeovers and reorganisations. Corporate  activity 
may affect a small sub-set  of our portfolio in any  given period; as we  have 
seen in the  past year  with Nexen,  Allied Gold and  Fraser &  Neave. A  more 
general narrowing of discounts  will occur when  investors gain confidence  in 
the economic and  political environment  and can make  longer term  investment 
decisions. Because  the  investment  environment has  been  so  influenced  by 
central  bank  policies,  many  investors  have  become  less  interested   in 
stockpicking  and  the  major  decision   has  been  between  'risk-on'   and 
'risk-off'. This has led  many of them into  using only the mostliquid  index 
investments so as to be able to change their orientation quickly.  Longer-term 
investment is discouraged for both  corporate and stock market investors.  For 
this reason,  we consider  the monetary  activism  as carried  out by  the  US 
Federal Reserve,  the Bank  of England  and  the ECB  to be  misconceived.  In 
delivering a transient shot in the arm  to the markets we are also  destroying 
the predictability and stability  that we need to  make sound investments  and 
capital allocations both as investors and as a society.

Notwithstanding the economic and policy headwinds, we will continue to seek to
invest in good companies at attractive valuations.

John Pennink

Asset Value Investors Limited

12 November 2012

Consolidated Statement of Comprehensive Income

of the Group for the year ended 30 September 2012

                               2012    2012            2011    2011
                            Revenue Capital   2012 Revenue Capital 2011
                             return  return   Total  return  return  Total
                              £'000   £'000   £'000   £'000   £'000  £'000
Investment income (note 2)  30,865       -  30,865  25,929         -   25,929
Gains/(losses) on
investments held at fair
value                             -  55,533  55,533       -  (91,472) (91,472)
Unclaimed distribution
monies                            -      52      52       -         -        -
(Losses)/gains on Equities
Index Stock 2013 held at
fair value                        -   (243)   (243)       -       145      145
Exchange losses on currency
balances                          - (1,242) (1,242)       -   (1,639)  (1,639)
                             30,865  54,100  84,965  25,929  (92,966) (67,037)
Expenses (note 3)
Investment management fee  (2,200) (2,200) (4,400) (2,471)   (2,471)  (4,942)
Back VAT on management and
performance fees                  -       -       -     111        69      180
Other expenses (including
irrecoverable VAT)         (1,235)    (58) (1,293) (1,194)         -  (1,194)
Profit/(loss) before
finance costs and tax        27,430  51,842  79,272  22,375  (95,368) (72,993)
Finance costs (note 4)      (1,486)     (7) (1,493) (2,116)       (7)  (2,123)
Profit/(loss) before
taxation                     25,944  51,835  77,779  20,259  (95,375) (75,116)
Taxation (note 5)           (1,894)       9 (1,885) (1,854)        11  (1,843)
Profit/(loss) for the year   24,050  51,844  75,894  18,405  (95,364) (76,959)
Earnings per Ordinary Share
(note 6)                     15.06p  32.46p  47.52p  11.50p  (59.57)p (48.07)p

The Company  did not  have any  income or  expense that  was not  included  in 
profit/(loss) for the year. Accordingly,  the "Profit/(loss) for the year"  is 
also the  "Total comprehensive  income for  the  year", as  defined in  IAS  1 
(revised)  and  no  separate  Statement  of  Comprehensive  Income  has   been 

The total column  of this  statement is  the profit  and loss  account of  the 
Group. The revenue return and capital return columns are supplementary to this
and are prepared under the guidance published by the Association of Investment

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire  Securities 
and General Trust plc. There are no minority interests.

Consolidated and Company Statements of Changes in Equity

for the year ended 30 September 2012

                 Ordinary    Capital
                    share redemption   Share Capital  Merger  Revenue
                  capital    reserve premium reserve reserve  reserve    Total
                    £'000      £'000   £'000   £'000   £'000    £'000    £'000
For the year

30 September
Balance as at

30 September
2011               16,008      2,927  28,078 620,938  41,406   31,028  740,385
Ordinary Shares
bought back and
cancelled             (7)          7       -   (264)       -        -    (264)
Ordinary Shares
bought back and
held in treasury        -          -       - (7,982)       -        -  (7,982)
income for the
year                    -          -       -  51,844       -   24,050   75,894
dividends paid          -          -       -       -       - (13,607) (13,607)
Special dividend
paid                    -          -       -       -       -  (3,201)  (3,201)
Balance as at

30 September
2012               16,001      2,934  28,078 664,536  41,406   38,270  791,225

For the year ended

30 September 2011
Balance as at

30 September 2010        16,008 2,927 28,078  716,302 41,406   24,949  829,670
Total comprehensive
income for the year           -     -      - (95,364)      -   18,405 (76,959)
Ordinary dividends paid       -     -      -        -      - (12,326) (12,326)
Special dividend paid         -     -      -        -      -        -        -
Balance as at

30 September 2011        16,008 2,927 28,078  620,938 41,406   31,028  740,385

For the year ended

30 September 2012
Balance as at

30 September 2011         16,008 2,927 28,078 622,706 41,406   29,260  740,385
Ordinary Shares bought
back and cancelled           (7)     7      -   (264)      -        -    (264)
Ordinary Shares bought
back and held in treasury      -     -      - (7,982)      -        -  (7,982)
Total comprehensive
income for the year            -     -      -  51,841      -   24,053   75,894
Ordinary dividends paid        -     -      -       -      - (13,607) (13,607)
Special dividend paid          -     -      -       -      -  (3,201)  (3,201)
Balance as at

30 September 2012         16,001 2,934 28,078 666,301 41,406   36,505  791,225

For the year ended

30 September 2011
Balance as at

30 September 2010        16,008 2,927 28,078  718,073 41,406   23,178  829,670
Total comprehensive
income for the year           -     -      - (95,367)      -   18,408 (76,959)
Ordinary dividends paid       -     -      -        -      - (12,326) (12,326)
Special dividend paid               -      -        -      -        -        -
Balance as at

30 September 2011        16,008 2,927 28,078  622,706 41,406   29,260  740,385

Consolidated and Company Balance Sheets

as at 30 September 2012

                                       Company                  Group
                                      2012        2011        2012        2011
                                     £'000       £'000       £'000      £'000
Non-current assets
Investments held at fair value
through profit or loss             809,196     758,889     807,181     756,871
Current assets
Other receivables                    5,776       3,819       5,776       3,820
Cash and cash equivalents            7,778       5,660       7,780       5,662
                                    13,554       9,479      13,556       9,482
Total assets                       822,750     768,368     820,737     766,353
Current liabilities
Other payables                     (9,539)     (6,238)     (7,526)     (4,223)
Equities Index Stock 2013 held
at fair value through profit
or loss                            (7,038)          -     (7,038)           -
Total assets less current
liabilities                        806,173     762,130     806,173     762,130
Non-current liabilities
8 ^1/8 per cent Debenture
Stock 2023                        (14,921)    (14,914)    (14,921)    (14,914)
Equities Index Stock 2013 held
at fair value through profit
or loss                                  -     (6,795)           -     (6,795)
Provision for deferred tax            (27)        (36)        (27)        (36)
Net assets                         791,225     740,385     791,225     740,385
Equity attributable to equity
Ordinary share capital              16,001      16,008      16,001      16,008
Capital redemption reserve           2,934       2,927       2,934       2,927
Share premium                       28,078      28,078      28,078      28,078
Capital reserve                    666,301     622,706     664,536     620,938
Merger reserve                      41,406      41,406      41,406      41,406
Revenue reserve                     36,505      29,260      38,270      31,028
Total equity                       791,225     740,385     791,225     740,385
Net asset value per

Ordinary Share - basic (note
7)                                 500.47p     462.51p     500.47p     462.51p
Number of shares in issue
excluding Treasury             158,094,985 160,080,089 158,094,985 160,080,089

Consolidated and Company Cash Flow Statements

for the year ended 30 September 2012

                                             Company              Group
                                            2012      2011      2012      2011
                                           £'000     £'000     £'000    £'000
Reconciliation of profit/(loss) before
taxation to net cash inflow from
operating activities
Profit/(loss) before taxation             77,779  (75,116)    77,779  (75,116)
Losses/(gains) on Equities Index Stock
2013 held at fair value                      243     (145)       243     (145)
Realised exchange losses on currency
balances                                   1,242     1,639     1,242     1,639
(Gains)/losses on investments held

at fair value through profit or loss    (55,530)    91,475  (55,533)    91,472
Purchases of investments               (556,735) (626,817) (556,735) (626,817)
Sales of investments                     563,194   634,405   563,194   634,405
Decrease/(increase) in other
receivables                                  733     (219)       733     (219)
Increase/(decrease) in creditors             925     (322)       927     (319)
Taxation                                 (3,444)   (2,612)   (3,443)   (2,612)
Amortisation of Debenture issue
expenses                                       7         7         7         7
Net cash inflow from operating
activities                                28,414    22,295    28,414    22,295
Financing activities
Dividends paid                          (16,808)  (12,326)  (16,808)  (12,326)
Payments for Ordinary Shares bought
back and cancelled                         (264)         -     (264)         -
Payments for Ordinary Shares bought
back and held in Treasury                (7,982)         -   (7,982)         -
Buyback of Equities Index Stock 2013           -     (204)         -     (204)
Redemption of 10 ^3/8 per cent
Debenture Stock 2011                           -  (8,484)         -   (8,484)
Cash outflow from financing activities  (25,054)  (21,014)  (25,054)  (21,014)
Increase in cash and cash equivalents      3,360     1,281     3,360     1,281
Exchange movements                       (1,242)   (1,639)   (1,242)   (1,639)
Change in cash and cash equivalents        2,118     (358)     2,118     (358)
Cash and cash equivalents at

beginning of year                          5,660     6,018     5,662     6,020
Cash and cash equivalents at

end of year                                7,778     5,660     7,780     5,662


1. Accounting policies

The financial statements of  the Group and the  Company have been prepared  in 
accordance with International Financial Reporting Standards (IFRS) as  adopted 
by the European Union. These  comprise standards and interpretations  approved 
by  the  International  Accounting  Standards  Board  (IASB),  together   with 
interpretations  of  the  International  Accounting  Standards  and   Standing 
Interpretations Committee approved by  the International Accounting  Standards 
Committee (IASC) that  remain in  effect, to the  extent that  IFRS have  been 
adopted by the European Union.

The functional currency of  the Group is pounds  sterling because this is  the 
currency of the primary economic environment in which the Group operates.  The 
financial statements  are also  presented in  pounds sterling  rounded to  the 
nearest thousand, except where otherwise indicated.

(a) Basis of preparation

The  principal  accounting   policies  adopted  are   set  out  below.   Where 
presentational guidance set out in the Statement of Recommended Practice  (the 
SORP) for investment trusts issued by the Association of Investment  Companies 
(the AIC) in  January 2009 is  consistent with the  requirements of IFRS,  the 
Directors have sought to prepare the financial statements on a basis compliant
with the recommendations of the SORP.

(b) Adoption of new and revised standards

At the  date of  authorisation of  these financial  statements, the  following 
Standards which have not  been applied in these  financial statements were  in 
issue but were not yet effective (and  in some cases had not yet been  adopted 
by the EU):

International Accounting Standards (IAS/IFRS)            Effective for periods
                                                         beginning on or after
IFRS 9  Financial Instruments: Classification &          1 January 2015
IFRS 10 Consolidated Financial Statements                1 January 2013
IFRS 11 Joint Arrangements                               1 January 2013
IFRS 12 Disclosure of Interest in other Entities         1 January 2013
IFRS 13 Fair-Value Measurement                           1 January 2013

The Company  is  considering  what  impact, if  any,  the  adoption  of  these 
standards/interpretations in future periods will  have. Currently they do  not 
believe that  there  will  be  a material  impact  on  the  2013  consolidated 
financial statements.

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements  of 
the Company and entities controlled by the Company (its subsidiary) made up to
30 September each year. Control is achieved where the Company has the power to
govern the  financial and  operating policies  of an  entity so  as to  obtain 
benefits from its activities.  All intra-group transactions, balances,  income 
and expenses are eliminated on consolidation.

As permitted by Section 408 of the Companies Act 2006 no Company Statement  of 
Comprehensive Income has been prepared.

(d) Presentation of Statement of Comprehensive Income

In order to reflect better the  activities of an investment trust company  and 
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue  and 
capital nature has  been presented  alongside the  Statement of  Comprehensive 
Income. The Company is registered as a UK Investment Company under Section 833
of the Companies Act 2006. Additionally, net revenue is the measure which  the 
Directors believe  appropriate  in  assessing the  Company's  compliance  with 
certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

(e) Use of estimates

The preparation of financial statements  requires the Group to make  estimates 
and assumptions that affect  items reported in the  Group and Company  balance 
sheet and Consolidated Statement of Comprehensive Income and the disclosure of
contingent assets and  liabilities at  the date of  the financial  statements. 
Although these  estimates  are  based  on best  knowledge  of  current  facts, 
circumstances and,  to some  extent, future  events and  actions, the  Group's 
actual  results  may   ultimately  differ  from   those  estimates,   possibly 
significantly. Unquoted equity investments that the Group holds are not traded
and, as such,  the prices  are more uncertain  than those  more widely  traded 
securities. The  unquoted investments  are valued  by reference  to  valuation 
techniques approved by the Directors and in accordance with the  International 
Private Equity and Venture Capital  Valuation (IPEVC) guidelines as  described 
in note 1(i).

(f) Income

Dividends receivable on equity shares are  recognised as revenue for the  year 
on an ex-dividend basis. Where an ex-dividend date is not available, dividends
received on  or before  the year  end are  treated as  revenue for  the  year. 
Interest income is  accrued on  a time basis,  by reference  to the  principal 
outstanding and at the effective interest  rate applicable, which is the  rate 
that discounts estimated future cash receipts through the expected life of the
financial asset to the asset's  net carrying amount. Interest receivable  from 
cash and short term deposits is accrued to the end of the year.

(g) Expenses

All expenses and  interest payable  are accounted  for on  an accruals  basis. 
Expenses have been charged to revenue except as follows:

• The base management fee has been allocated 50% to revenue and 50% to capital
within the  Consolidated Statement  of Comprehensive  Income. The  performance 
element  of  the  management  fee  is  charged  100%  to  capital  within  the 
Consolidated Statement of Comprehensive Income;

• Expenses which are incidental to the  purchase or sale of an investment  are 
recognised within  the Consolidated  Statement of  Comprehensive Income  as  a 
capital item;

• Expenses are presented as capital where a connection with the maintenance or
enhancement of the value of investments can be demonstrated.

(h) Taxation

The tax expense represents the sum  of the tax currently payable and  deferred 

The tax currently payable is based on the taxable profit for the year. Taxable
profit differs  from  profit  before  tax  as  reported  in  the  Consolidated 
Statement of  Comprehensive Income  because  it excludes  items of  income  or 
expense that are taxable or deductible in other years and it further  excludes 
items that are never taxable or deductible. The Group's liability for  current 
tax is calculated using tax rates  that were enacted or substantially  enacted 
at the balance sheet date.

In line with the  recommendations of the SORP,  the allocation method used  to 
calculate tax  relief on  expenses presented  against capital  returns in  the 
supplementary information  in  the  Consolidated  Statement  of  Comprehensive 
Income is the "marginal basis". Under this basis, if taxable income is capable
of being offset entirely by expenses presented in the revenue return column of
the Consolidated  Statement of  Comprehensive Income,  then no  tax relief  is 
transferred to the capital return column.

Deferred tax is the tax expected  to be payable or recoverable on  differences 
between the  carrying  amounts of  assets  and liabilities  in  the  financial 
statements and the corresponding tax bases used in the computation of  taxable 
profit and is accounted for using the balance sheet liability method. Deferred
tax liabilities  are  recognised for  all  taxable temporary  differences  and 
deferred tax assets  are recognised  to the extent  that it  is probable  that 
taxable  profits  will  be   available  against  which  deductible   temporary 
differences can  be utilised.  Deferred  tax is  charged  or credited  in  the 
Consolidated Statement  of Comprehensive  Income, except  when it  relates  to 
items charged or credited directly to  equity, in which case the deferred  tax 
is also dealt with within equity.

Investment trusts  which have  approval  as such  under  Section 1158  of  the 
Corporation Tax Act 2010 are not liable for taxation on capital gains.

(i) Investments held at fair value through profit or loss

When a purchase or sale is made  under a contract, the terms of which  require 
delivery  within  the  timeframe  of  the  relevant  market,  the  investments 
concerned are recognised or derecognised on the trade date.

In accordance  with  IFRS  recognition and  measurement  principles,  all  the 
Group's investments are  classified as  investments designated  at fair  value 
through profit or  loss and  are described  in these  financial statements  as 
investments held at fair value.

All investments are designated as held at fair value upon initial  recognition 
and are measured at subsequent reporting dates at fair value, which is  either 
the bid price or  the last traded  price, depending on  the convention of  the 
exchange on which the investment is quoted.

Fair values for unquoted investments, or  investments for which the market  is 
inactive, are established by using various valuation techniques in  accordance 
with the  IPEVC  guidelines. These  may  include recent  arm's  length  market 
transactions,  the  current  fair  value   of  another  instrument  which   is 
substantially the  same,  discounted cash  flow  analysis and  option  pricing 
models.  Where  there  is  a  valuation  technique  commonly  used  by  market 
participants to price the instrument and that technique has been  demonstrated 
to  provide  reliable   estimates  of   prices  obtained   in  actual   market 
transactions, that technique is utilised. Where no reliable fair value can  be 
estimated for  such instruments,  they  are carried  at  cost subject  to  any 
provision for impairment.

Investments held by  the subsidiary  undertaking are classified  as "held  for 
trading" and are valued  at fair value in  accordance with the policies  above 
for listed and unlisted holdings. Profits  or losses on investments "held  for 
trading" are taken to revenue.

Foreign exchange gains  and losses for  fair value through  profit or loss  on 
investments are included within the changes in their fair value.

(j) Movements in fair value

Changes in fair value  of investments not designated  as held for trading  are 
recognised in the Consolidated Statement of Comprehensive Income as a  capital 
item. On  disposal, realised  gains  and losses  are  also recognised  in  the 
Consolidated Statement of Comprehensive Income as capital items.

(k) Cash and cash equivalents

Cash comprises  cash  in  hand and  at  bank  and short  term  deposits.  Cash 
equivalents are  short  term,  highly  liquid  investments  that  are  readily 
convertible to known amounts of cash and are subject to an insignificant  risk 
of changes in value.

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