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Annual Financial Report

Released 07:00 10-Mar-2017

Annual Financial Report

EP GLOBAL OPPORTUNITIES TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

The full Annual Report and Financial Statements can be accessed via the Company’s website at www.epgot.com or by contacting the Company Secretary by telephone on 0131 270 3800.

HIGHLIGHTS

FINANCIAL SUMMARY

Results for year 31 December 2016          31 December 2015    Change   

Shareholders’ funds

£143,757,000      

£118,357,000        

21.5% 
Net asset value per ordinary share (“NAV”)
                                300.2p    

                                239.8p     

        25.2%
NAV total return1 26.9%    2.9%     

Share price

292.0p    

234.5p      

24.9%

Share price discount to NAV

2.4%   

2.2%     
Revenue return per ordinary share2 5.3p       3.1p       71.0%
Final dividend per ordinary share 4.3p3      3.1p4        38.7%
Special dividend per ordinary share 1.0p3     
-      
Total dividend per ordinary share 5.3p3      3.1p       71.0%

   

1 The NAV total returns are sourced from Edinburgh Partners and include dividends reinvested.
2 Based on the weighted average number of shares in issue during the year excluding own shares held in treasury.
3 Proposed dividend for the year.
4 Interim dividend for the year.

   

Year to     
31 December 2016     
Ordinary share     
Year to    
31 December 2015    
Ordinary share    
Year’s high/low
Share price - high 293.0p    261.8p   
- low 205.8p    214.3p   
NAV - high 304.1p    268.7p   
- low 213.5p    216.5p   
Share price (discount)/premium to NAV
- low (9.5)%  (6.4)% 
- high (0.4)%  3.2%  
Cost of running the Company
Ongoing charges* 1.0%   1.0%  

   

* Based on total expenses, excluding finance costs, transaction costs and certain non-recurring items for the year as a percentage of the average monthly net asset value.

Past performance is not a guide to future performance.

PORTFOLIO OF INVESTMENTS

as at 31 December 2016



Company


Sector


Country


Valuation
£’000
% of
Net
Assets
Equity investments
20 largest equity investments
Royal Dutch Shell A Oil & Gas Netherlands 5,915 4.2
Novartis Health Care Switzerland 4,905 3.4
Panasonic Consumer Goods Japan 4,566 3.2
Nomura Financials Japan 4,443 3.1
Galaxy Entertainment Consumer Services Hong Kong 4,315 3.0
BP Oil & Gas United Kingdom 4,213 2.9
PostNL Industrials Netherlands 4,108 2.9
Bank Mandiri Financials Indonesia 4,106 2.9
AstraZeneca Health Care United Kingdom 3,994 2.8
Sumitomo Mitsui Trust Financials Japan 3,994 2.8
Sumitomo Mitsui Financial Financials Japan 3,992 2.8
Apache Oil & Gas United States 3,988 2.8
Mitsubishi Industrials Japan 3,948 2.7
BNP Paribas Financials France 3,752 2.6
HSBC Financials United Kingdom 3,686 2.5
Roche* Health Care Switzerland 3,663 2.5
Japan Tobacco Consumer Goods Japan 3,648 2.5
Commerzbank Financials Germany 3,574 2.5
NTT Telecommunications Japan 3,525 2.4
Synchrony Financial Financials United States 3,464 2.4

Total – 20 largest equity investments

81,799

56.9
Other equity investments
Sanofi Health Care France 3,407 2.4
Ubisoft Entertainment Consumer Goods France 3,374 2.4
Harman Consumer Goods United States 3,373 2.3
PerkinElmer Industrials United States 3,225 2.2
East Japan Railway Consumer Services Japan 3,180 2.2
Celgene Health Care United States 3,178 2.2
Takashimaya Consumer Services Japan 3,157 2.2
Tesco Consumer Services United Kingdom 3,058 2.1
Bangkok Bank** Financials Thailand 3,044 2.1
Alphabet A&C*** Technology United States 2,954 2.1
Edinburgh Partners Emerging
       Opportunities Fund Financials Other 2,954 2.1
Bayer Basic Materials Germany 2,793 1.9
SK Hynix Technology South Korea 2,783 1.9
Toyota Consumer Goods Japan 2,749 1.9
CK Hutchison Industrials Hong Kong 2,720 1.9
Whirlpool Consumer Goods United States 2,719 1.9
Swire Pacific A Industrials Hong Kong 2,676 1.9
Nokia Technology Finland 2,659 1.9
Telefonica Telecommunications Spain 2,639 1.8
Edinburgh Partners Financials - unlisted United Kingdom 1,025 0.7
Total – 40 equity investments 139,466 97.0
Cash and other net assets        4,291 3.0
Net assets     143,757        100.0

   

* The investment is in non-voting shares
** The investment is in non-voting depositary receipt
*** The investment has restricted voting rights

Of the ten largest portfolio investments as at 31 December 2016, the valuations at the previous year end, 31 December 2015, were Royal Dutch Shell A £2,138,000, Novartis £3,544,000, Panasonic £2,921,000, Nomura £3,113,000, Galaxy Entertainment £3,065,000, BP £2,926,000, PostNL £3,034,000, Bank Mandiri £2,687,000, AstraZeneca £3,305,000 and Sumitomo Mitsui Trust £3,580,000.

 DISTRIBUTION OF INVESTMENTS
 as at 31 December 2016 (% of net assets)

Sector distribution
% of
investments
Financials 26.5
Consumer Goods 14.2
Health Care 13.3
Industrials 11.6
Oil & Gas 9.9
Consumer Services 9.5
Technology 5.9
Telecommunications 4.2
Basic Materials 1.9
Cash and other net assets 3.0
100.0

Geographical distribution
% of
investments
Europe 28.5
Japan 25.8
United States 15.9
Asia Pacific 13.7
United Kingdom 11.0
Other 2.1
Cash and other net assets 3.0
100.0

The figures detailed in the geographical distribution table represent the Company’s exposure to these countries or regional areas.

The geographical 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.

STRATEGIC REPORT

The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 (the “Act”). Its purpose is to inform members of the Company and help them assess how the Directors have performed their legal duty under Section 172 of the Act to promote the success of the Company.

CHAIRMAN’S STATEMENT

Results

At 31 December 2016, our NAV was 300.2p, an increase of 25.2 per cent in the year. With dividends re-invested, this resulted in a total return of 26.9 per cent for the year. Although the Company has no official benchmark, it was ahead of the total return for the FTSE All-Share Index of 16.8 per cent, but behind the total return from the FTSE All-World Index of 29.6 per cent.

The share price at the end of the year was 293p, an increase of 24.9 per cent over the share price at the end of 2015. At 31 December 2016, the share price stood at a discount of 2.4 per cent to the NAV.

Economic and stock market review and investment performance

After a long period of a disinflationary, low interest rate and low growth environment, economic conditions appear to be changing. The US has started to lead the way in increasing interest rates and reducing monetary stimulus. In the US, interest rates were expected to rise in 2016 but it was not until after the Presidential election in November 2016 that the federal funds rate was increased by 0.25 per cent to 0.75 per cent. It is anticipated that interest rates will be raised further in 2017.

Other countries were still taking stimulative action in early 2016. In January, the Bank of Japan cut its key interest rate to minus 0.1 per cent. Although a relatively low rate of economic growth is forecast for Japan, the outlook appears increasingly positive for the corporate sector. Prime Minister Abe’s corporate sector reforms are having an impact and there is a greater focus on return on equity, which should benefit investors in Japanese equities.

In March 2016, the European Central Bank announced a number of additional stimulatory measures, including reducing the main interest rate used across the Eurozone from 0.5 per cent to 0.0 per cent. The UK base interest rate, which had remained at 0.5 per cent since March 2009, was reduced to 0.25 per cent in August 2016, subsequent to the referendum vote. During the year under review, the Brent Crude Oil Price fell from US$35 per barrel at the start of the period to a low of US$28 per barrel in January 2016 before recovering to US$57 as at 31 December 2016.

There had been relatively lacklustre returns from investing in global equities in 2014 and 2015. However, for sterling-based investors, the year under review was much more satisfactory, with the weakness of sterling subsequent to the UK referendum vote to leave the European Union being a major contributory factor to the high equity market returns achieved. During 2016, sterling fell by 14 per cent against the US dollar, 16 per cent against the euro and 19 per cent against the Japanese yen. As a consequence, in a number of equity markets, principally Europe and Japan, low or negative returns in local equity markets turned into useful positive returns when converted into sterling.

It was a volatile year for equity investors. At the start of 2016, concerns over Chinese economic growth had a negative impact on equity markets, with those in the Asia Pacific region being the most severely impacted. However, the sell-off was short lived and equity markets began to recover in February. Some of the more cyclical sectors, such as energy and basic materials, began to recover after their poor performance in 2015. There was also a flight to perceived quality and stocks considered to have “bond-like” characteristics performed well. Such companies have low perceived earnings risk and provide a yield greater than that available in bond markets. Our Investment Manager has avoided such shares because of their expensive valuations. In the health care sector, a number of stocks suffered collateral damage due to US drug pricing concerns.

In the second half of the year, there was a significant change to the character of financial markets as it became increasingly apparent that a more normal and robust economic recovery was beginning to take place. Bond yields rose sharply and those shares that were perceived as having “bond-like” characteristics came under pressure. However, stock market indices were propelled higher by the strength of companies more geared to economic growth. Our own performance benefited in particular from the continued strength in oil shares and a much improved performance of our investments in the banking sector.

After a number of years of outperformance by growth stocks relative to stocks with value characteristics, it appears that 2016 saw the start of a move towards more normal relative valuation levels. We are still at an early stage of this process and, while it is unlikely to be a uniform progression, it should have a considerable way to go, given the extended period of low interest rates that preceded it. The positive equity market response seen since the election of Donald Trump as the US President in November 2016 is likely a growing realisation of what is going to happen to bond yields rather than being a direct consequence of his intended policies. As a consequence of our Investment Manager’s strict discipline of value investing, the portfolio is appropriately positioned to benefit from the environment that we believe is now unfolding.

Portfolio activity

There were seven new names added to the portfolio in 2016, four outright sales and one holding was taken over, the UK oil and gas producer, BG Group. Changes to the portfolio have been driven by individual shares moving to valuation levels that are no longer attractive and being replaced by holdings perceived to offer good long-term value. This has led to a significant increase in our investment in European shares during the year, with net investment of £10.7 million. Two new holdings were added in France, Sanofi, the French pharmaceutical company, and Ubisoft Entertainment, a video games publisher. In Spain, Telefonica, the Spanish telecommunications company that owns the UK mobile provider O2, was added. Overall, our investment in Europe increased from 19.8 per cent to 28.5 per cent of net assets.

The increased exposure to European stocks was partly financed by a net disinvestment from the Asia Pacific region of £4.5 million, with profit taking in a number of holdings and the complete disposal of DBS Bank in Singapore. This reduced the Company’s exposure to the region from 15.8 per cent to 13.7 per cent.

We continue to hold a significant portion of our assets in Japan, 25.8 per cent at the year end, as the outlook for the Japanese corporate sector still looks positive, with selective shares at attractive valuations. One new name was added during the year, the consumer services stock, Takashimaya, and there was one sale, the telecommunication company, KDDI. In June 2016, a foreign currency forward contract was entered into to hedge the equivalent of £27 million of the Japanese yen exposure back to sterling. In August 2016, the Company hedged the equivalent of an additional £4.5 million. These transactions were entered into in anticipation that the Japanese currency would depreciate against sterling. Unfortunately, there was a follow through to sterling’s initial sharp decline after the Brexit vote. Our Investment Manager took advantage of sterling’s rally in November to enter a foreign currency forward contract that effectively removed the hedges, resulting in an overall small loss of £75,000 when the contracts expired the following month.

Within our US equity exposure, purchases and sales were of similar amounts. New positions were acquired in the biotechnology stock, Celgene, which specialises in cancer and inflammatory disorders, and in the consumer finance company, Synchrony Financial. This was largely offset by the complete disposal of the telecommunication company, Qualcomm, and a partial reduction in a number of other holdings. The US was the best performing of the major equity markets in 2016. From a valuation perspective, our Investment Manager finds it difficult to find many undervalued companies in the US.

Overall, there was little net movement in the Company’s UK equity exposure during the year, although due to the weakness of sterling, there was a reduction from 13.4 per cent to  11.0 per cent of net assets. The holding in Vodafone was sold and a new holding was established in the food retailer, Tesco.

Revenue account and dividend

The revenue per share for the year ended 31 December 2016 was 5.3p. This compares with 3.1p per share in the previous year, an increase of 71 per cent. While there was healthy dividend growth from our investments plus a currency translation benefit from a number of them, a significant proportion of the increase in revenue resulted from a special dividend from our holding in Edinburgh Partners. This dividend will not be repeated in 2017, so it is probable that the revenue per share will not match the level achieved in 2016. The Board has therefore decided to recommend a special dividend of 1.0p per share and a final dividend of 4.3p per share, subject to Shareholders’ approval at the Annual General Meeting to be held on 27 April 2017. Both dividends will be payable on 26 May 2017.

While the final dividend of 4.3p is more in line with the revenue from ordinary dividends received in 2016, the level of dividend we declare will fluctuate from year to year. Our Investment Manager selects shares on the basis of where it finds the best value, rather than based on achieving a dividend that will grow steadily over time. The Board continues to believe that this strategy will produce a better long-term performance as our Investment Manager is able to fully implement its value-based investment philosophy, without any restrictions being imposed by having to achieve a specific income target.

Shares held in treasury

The Company continued with its policy of buying in shares with a view to maintaining the share price at close to the NAV. During the year, we purchased 1,460,000 shares for treasury, at a total cost of £3,615,000. Shares that have been bought back under the Company's buy back policy are retained by the Company as treasury shares rather than cancelled.

At the Annual General Meeting held in April 2016, Shareholders passed a resolution permitting the Company to continue to sell shares held in treasury at a weighted average discount of not more than 2.0 per cent to the prevailing NAV. In addition, the resolution provided that any sale of treasury shares would not result in a dilution greater than 0.2 per cent in aggregate in the period between annual general meetings. While no shares were sold from treasury during the year under review, the Board is recommending that Shareholders approve a similar resolution at this year’s Annual General Meeting, as the Board believes that having the ability to sell shares from treasury at a small discount should help improve the liquidity in the Company’s shares. In 2015, 2,035,000 shares were sold from treasury.

Audit tender

As stated in last year’s Annual Report, under European Union audit reform legislation, the Company was required to undertake an audit tender by 31 December 2017. This took place in October 2016 when three firms were invited to tender, including the incumbent auditor, Ernst & Young LLP. There was a transparent and competitive tender process and after careful evaluation by both the Audit and Management Engagement Committee and the Board, a recommendation to re-appoint Ernst & Young LLP as Auditor of the Company is being proposed to Shareholders at the Annual General Meeting to be held on 27 April 2017.

It should be noted by Shareholders that, in accordance with the legislation in respect of mandatory rotation of audit firms, the Company will be required to rotate auditors after the audit of the 2023 financial statements.

Outlook

Following the many policy measures taken to avoid a deep recession after the financial crisis of 2008, the global economy appears to be returning at last to more normal conditions. The US has started to lead the way by raising interest rates. Other countries are expected to follow, although not imminently and not at a particularly fast pace. In this scenario, bond yields are expected to rise. This will likely have a negative impact on those equities whose valuations in recent years have benefited from being seen as “bond proxies”. This could provide a much improved investment backdrop for equities with more value-based characteristics.

As always, there are a large number of factors that could impact economies and equity markets, with geopolitical concerns, particularly in the Middle East, the UK’s forthcoming exit from the European Union and renewed concerns over the Eurozone in its current form. The political changes expected following the election of Donald Trump as US President could have a significant impact. The imposition of additional trade restrictions and increased protectionism would be of particular concern as it would probably result in a reduction in the potential for global economic growth.

We continue to remain positive on the outlook for the portfolio of stocks in which we are invested and believe that the extended period of “growth” stocks outperforming “value” stocks is gradually coming to an end. There have been signs of this in recent quarters and we believe your Company will benefit from a continuation of this process.

Teddy Tulloch
Chairman
9 March 2017

Past performance is not a guide to future performance.

INVESTMENT MANAGER’S REPORT

The Company’s net asset total return in the year ended 31 December 2016 was 26.9 per cent. This result was mainly attributable to the significant fall in sterling following the Brexit referendum and emphasises the benefits of a geographically diverse portfolio.

The Brexit referendum result and the election of Donald Trump as US President were two of the major geopolitical events of the year. Few would have predicted both of these outcomes, and fewer still, that equity markets would provide positive returns against such a backdrop. Much has been written about the impact of both events and markets have become obsessed with trying to predict how related policies will unfold. This is a natural and appropriate response but at the same time, there is a danger of ignoring other equally important events which are unfolding. By far the most important of these is the ending of the era of artificially suppressed bond prices. With the exception of a geopolitical misstep of significant proportions, the global economy is now out of intensive care. The patient should be self-sustaining and no longer in need of the constant intravenous injection of zero cost money. Whilst the liquidity withdrawal will be slow and phased globally, the process has begun. This is vitally important because of the distorting effects the previous environment has had, both on the quality of credit decisions and the valuation of assets. We welcome the return to a more normal monetary environment and the accompanying impact on asset prices.

Although it is very early days, part of the impact of bond markets beginning to move to more normal yields could be seen in the outperformance of, so called, “value stocks”. In the second half of the year, the impact was meaningful, although, set against the extended period of underperformance, there is still a long way to go. The economic backdrop to this is one where we see labour markets tightening further and inflation beginning to emerge as wage increases combine with rising commodity and oil prices. Nominal economic growth will continue and the authorities will talk tough about inflation, whilst trying to avoid undermining the growth needed to reduce fiscal deficits. This is a poor environment for bonds but less damaging for “real” assets, such as equities. Nevertheless, we do not start from a position where equities are undervalued and, therefore, anticipate increasing focus on risk and potentially greater liquidity in the portfolio.

Within the portfolio, the major concentration of holdings is in three categories. The first of these is energy, where we believed an overly negative scenario had been built into share prices and we began adding to our exposure in 2015. Whilst the rebound in prices took longer than we expected, it started to come through in 2016, such that the US exploration and production company, Apache, was one of the best performing stocks in the portfolio in the year. Royal Dutch Shell also appreciated as concerns over its ability to sustain its dividend reduced as oil prices rose. There was a similar reaction in the share price of BP. 

The second category is healthcare stocks, where concerns over drug pricing, particularly prevalent during the US election, caused share prices to be lacklustre. Within the portfolio, we have invested in companies with strong balance sheets, decent drug pipelines and good cash flow. We believed that price concerns were already discounted and in 2016 we acquired new positions in Celgene and Sanofi and added to our holdings in Novartis and Roche. 

The third category where we have a significant investment is the banking sector, where a view exists that banks should not be considered viable investments at almost any price. We agree that banks still have much work to do on their cost base and are still impacted by the continued overhang of their behaviour up to and over the financial crisis. We also agree that in the long run many banking functions will be performed by new companies, whether it is peer to peer lenders or independent foreign exchange operators. However, banks will continue to have a role to play and as the yield curve steepens, they will be able to earn reasonable returns on traditional lending. Given current valuations, there is substantial potential for appreciation. We own investments in a range of banks and financial companies in the UK, Europe, US and Asia, including HSBC, Commerzbank and Bank Mandiri of Indonesia. During the year, we added a holding in Synchrony Financial, the US credit card provider. Performance over the year was positive but mixed and we anticipate that the valuation differences will begin to narrow, with the banks that have lagged in performance beginning to catch up.

The two major sales from the portfolio were the Japanese telecoms company, KDDI, and Qualcomm, the US wireless technology business. In both cases, their share prices had appreciated strongly and more than discounted future prospects.

Overall, we remain cautious on the potential returns from equities, despite our view that economic growth will continue. The consequence of monetary policies, such as quantitative easing, has been to leave other asset classes looking demonstrably expensive, with a knock on effect to those related elements in equity markets, such as “bond-like equities”. Whilst the stocks we own look better value, in aggregate, the portfolio valuation is “fair” rather than cheap and, as a consequence, it is highly likely that cash balances will rise as we dispose of stocks which achieve their valuation targets. We have been through this cycle many times before and it is important to retain valuation discipline to be in a position to take advantage of opportunities as they arise.

Dr Sandy Nairn
Edinburgh Partners
9 March 2017

Past performance is not a guide to future performance.

OTHER STATUTORY INFORMATION

Objective

The investment objective of the Company is to provide Shareholders with an attractive real long-term total return by investing globally in undervalued securities. The portfolio is managed without reference to the composition of any stock market index.

Strategy and business model

Investment policy

A detailed description of the Company’s investment policy is set out in the full Annual Report and Financial Statements.

The Investment Manager's compliance with the limits set out in the investment policy is monitored by the Board and the AIFM.

Investment strategy

The Company’s portfolio is managed without reference to any stock market index. Investments are selected for the portfolio only after extensive research by the Investment Manager. The process through which an equity must pass in order to be included in the portfolio is 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 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. Further details of the investment strategy can be found in the Chairman’s Statement and the Investment Manager’s Report above.

Business and status of the Company

The Company is registered as a public limited company and is an investment company within the terms of section 833 of the Act. The Company has been approved by HM Revenue & Customs as an authorised investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010 (the “CTA“), subject to there being no subsequent serious breaches of the regulations. In the opinion of the Directors, the Company is directing its affairs so as to enable it to continue to qualify for such approval.

The Company's shares are listed on the premium segment of the Official List of the UK Listing Authority and traded on the main market of the London Stock Exchange.

Portfolio analysis

A detailed review of how the Company’s assets have been invested is contained in the Investment Manager’s Report above. A list of all the Company’s investments is contained in the Portfolio of Investments above. At 31 December 2016, the Company held 40 investments, excluding cash and other net assets, with the largest representing 4.2 per cent of net assets, thus ensuring that the Company has a suitable spread of investment risk. A sector and geographical distribution of investments is shown above.

Results and dividends

The results for the year are set out in the Income Statement and in the Reconciliation of Movements in Shareholders’ Funds below.

For the year ended 31 December 2016, the net revenue return attributable to Shareholders was £2.6 million (2015: £1.5 million) and the net capital return attributable to Shareholders was £27.9 million (2015: £1.7 million). Total Shareholders’ funds increased by 21.5 per cent to £143.8 million (2015: £118.4 million).

A final dividend of 4.3p per ordinary share and a special dividend of 1.0p per ordinary share, a total of 5.3p per ordinary share for the year ended 31 December 2016 (2015: interim dividend of 3.1p), have been recommended by the Board. Subject to the approval of Shareholders at the Annual General Meeting to be held on 27 April 2017, the final and special dividends will be payable on 26 May 2017 to Shareholders on the register at the close of business on 5 May 2017. The ex-dividend date will be 4 May 2017.

Key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess how the Company is achieving its objective. The key performance indicators used to measure the progress and performance of the Company over time are established industry measures and are as follows:

Net asset value

In the year to 31 December 2016, the NAV increased by 25.2 per cent from 239.8p to 300.2p. After taking account of the dividend paid in the year of 3.1p relating to the year ended 31 December 2015, the net asset value total return was 26.9 per cent. This compares with the total return of 29.6 per cent from the FTSE All-World Index, adjusted to sterling.

The net asset value total return since the launch of the Company on 15 December 2003 to 31 December 2016 was 253.0 per cent. The total return from the FTSE All-World Index, adjusted to sterling, was 253.8 per cent for the same period.

Share price

In the year to 31 December 2016, the Company’s share price increased by 24.9 per cent from 234.5p to 293.0p. The share price total return was 26.7 per cent, after taking account of the 3.1p dividend paid in 2016 relating to the year ended 31 December 2015.

Share price discount to NAV

The share price discount to NAV widened from 2.2 per cent to 2.4 per cent in the year to 31 December 2016.

Revenue return per ordinary share

There was an increase in the revenue per ordinary share in the year to 31 December 2016 of 71.0 per cent from 3.1p to 5.3p.

Dividends per ordinary share

The Directors are recommending a final dividend of 4.3p per ordinary share and a special dividend of 1.0p per ordinary share, a total of 5.3p per ordinary share. This represents a 71.0 per cent increase on the prior year dividend of 3.1p. As detailed in the Chairman's Statement above, the Board has always taken the view that the investments to be held in the portfolio should be determined entirely on where the Investment Manager finds the best value rather than on achieving a particular level of dividend.

Ongoing charges

In the year to 31 December 2016, the ongoing charges ratio was 1.0 per cent (2015: 1.0 per cent).

The longer-term records of the key performance indicators are shown in the Performance Record below.

Management Agreement

In order to comply with the Alternative Investment Fund Managers’ Directive (“AIFMD”), the Company appointed Edinburgh Partners AIFM Limited as its AIFM with effect from 16 July 2014. Edinburgh Partners AIFM Limited has been approved as an AIFM by the UK’s Financial Conduct Authority (“FCA”). With the approval of the Directors of the Company, the AIFM appointed Edinburgh Partners as Investment Manager to the Company pursuant to a delegation agreement.

The AIFM receives a management fee of 0.75 per cent per annum (payable monthly in arrears) of the month-end market capitalisation of the issued ordinary shares (excluding treasury shares) up to £100 million and 0.65 per cent above £100 million. No performance fee will be paid. The AIFM receives an administration fee of £127,000 per annum (payable monthly in arrears), which is adjusted annually in line with changes in the Retail Price Index. The Company also pays the Investment Manager £25,000 per annum in respect of marketing-related services.

The Company has a holding in the Edinburgh Partners Emerging Opportunities Fund, which is managed by Edinburgh Partners, as detailed in notes 8 and 9 of the Financial Statements below. No management fee was charged by the AIFM to the Company in relation to its investment in the Edinburgh Partners Emerging Opportunities Fund during the year ended 31 December 2016 (2015: nil).

The Management Agreement may be terminated by either party giving 12 months’ written notice. No additional compensation is payable to the AIFM on the termination of this agreement other than the fees payable during the notice period. Further details relating to the Management Agreement are detailed in note 3 of the Financial Statements below.

Continuing appointment of the AIFM

The Board keeps the performance of the AIFM under continual review. As the AIFM has delegated the investment management function to Edinburgh Partners, the performance of the Investment Manager is also regularly reviewed. The Board, through delegation to the Audit and Management Engagement Committee (the “Committee”), has considered the performance of the AIFM and the terms of its engagement. It is the opinion of the Directors that the continuing appointment of the AIFM on the terms agreed is in the interests of Shareholders as a whole. The reasons are that the long-term investment performance has been satisfactory and the investment strategy remains convincing. The remuneration of the AIFM is fair both in absolute terms and compared to that of managers of comparable investment companies. The Directors believe that by paying the management fee calculated on a market capitalisation basis, rather than a percentage of assets basis, the interests of the AIFM are more closely aligned with those of Shareholders.

AIFM remuneration disclosures

In accordance with the AIFM, information in relation to the remuneration of the Company’s AIFM, Edinburgh Partners AIFM Limited, is required to be made available to investors. The AIFM’s remuneration policy is incorporated within a group policy which is available at www.edinburghpartners.com. The disclosure also includes those remuneration disclosures in respect of the AIFM’s staff and ‘Identified Staff’ for the reporting period, the year ended 29 February 2016.

Risk management by the AIFM

As required under the AIFMD, the AIFM has established and maintains a permanent and independent risk management function to ensure that there is a comprehensive and effective risk management policy in place and to monitor compliance with risk limits. This risk policy covers the risks associated with the management of the investment portfolio, and the AIFM reviews and approves the adequacy and effectiveness of the policy on at least an annual basis, including the risk management processes and controls and limits for each risk area.

The AIFM sets risk limits that take into account the risk profile of the Company’s investment portfolio, as well as its investment objectives and strategy. The AIFM monitors the risk limits, including leverage, and periodically assesses the portfolio’s sensitivity to key risks. The AIFM reviews risk limit reports at regular meetings of its risk committee.

Leverage

Leverage is defined in the AIFMD as any method by which the Company increases its exposure, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. The Company did not have any borrowings during the year ended 31 December 2016. The Company used derivative instruments for currency hedging as detailed in the Chairman’s Statement above.

In accordance with the detailed requirements of the AIFMD, leverage has been measured in terms of the Company’s exposure, and is expressed as a ratio of net asset value. The AIFMD requires this ratio to be calculated in accordance with both the Gross Method and the Commitment Method. Details of these methods of calculation can be found by referring to the AIFMD. In summary, these methods express leverage as a ratio of the exposure of debt, non-sterling currency, equity or currency hedging and derivatives exposure against the net asset value. The principal difference between the two methods is that the Commitment Method enables derivative instruments to be netted off to reflect hedging arrangements and the exposure is effectively reduced, while the Gross Method aggregates the exposure.

The AIFMD introduced a requirement for the AIFM to set maximum levels of leverage for the Company. The Company’s AIFM has set a maximum limit of 1.25 for both the Gross and Commitment Methods of calculating leverage. However, the AIFM anticipates that the figures are likely to be lower than this under normal market conditions. At 31 December 2016, the Company’s Gross ratio was 1.00 and its Commitment ratio was 1.00. In accordance with the AIFMD, any changes to the maximum level of leverage set by the Company will be communicated to Shareholders.

Principal risks and uncertainties

The Board considers that the following are the principal risks associated with investing in the Company: investment and strategy risk, key manager risk, discount volatility risk, market risk, foreign currency risk and regulatory risk. Other risks associated with investing in the Company are liquidity risk, credit risk, interest rate risk, gearing risk, operational risk and financial risk. An explanation of these risks and how they are managed and the policy and practice with regards to financial instruments are contained in note 16 of the Financial Statements below.

The Board, through delegation to the Committee, has undertaken a robust annual assessment and review of all the risks stated above, together with a review of any new risks which may have arisen during the year, including those that would threaten the Company’s business model, future performance, solvency or liquidity. These risks are formalised within the Company’s risk assessment matrix.

Internal control

In accordance with guidance issued to directors of listed companies by the Financial Reporting Council (“FRC”) on Risk Management, Internal Control and Related Financial and Business Reporting, the Directors confirm that they have carried out a review of the effectiveness of the systems of internal control during the year ended 31 December 2016, as set out in the Corporate Governance Statement in the full Annual Report and Financial Statements. There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.

Depositary agreement

The Board appointed Northern Trust Global Services Limited to act as its depositary (the “Depositary”) under an agreement dated 22 July 2014 (the “Depositary Agreement”), to which the AIFM is also a party. The Depositary is authorised by the Prudential Regulation Authority (“PRA”) and regulated by the FCA and the PRA. Custody services are provided by The Northern Trust Company (as a delegate of the Depositary). A fee of 0.01 per cent per annum of the net assets of the Company, plus fees in relation to safekeeping and other activities undertaken to facilitate the investment activity of the Company, are payable to the Depositary. The Company and the Depositary may terminate the Depositary Agreement at any time by giving six months’ written notice. The Depositary may only be removed from office when a new depositary is appointed by the Company.

Main trends and future development

A review of the main features of the year ended 31 December 2016 and the outlook for the current year can be found in the Chairman’s Statement and the Investment Manager’s Report above. The Board’s main focus is on the investment return and strategy, with attention paid to the integrity and success of the investment approach and on the factors which may have an impact on this.

Human rights, employees and community issues

The Board recognises the requirement under Section 414C of the Act to detail information about human rights, employees and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply to the Company as it has no employees, all the Directors are non-executive and it has outsourced all its functions to third party service providers. The Company has therefore not reported further in respect of these provisions.

The Company is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and therefore, no further disclosure is required in this regard.

Gender diversity

As at 31 December 2016, the Board of Directors of the Company comprised four male Directors. The appointment of any new Director is made on the basis of merit, with the aid of an experienced consultant.

Social, environmental and ethical policy

The Company seeks to invest in companies that are well managed with high standards of corporate governance. The Board believes this creates the proper conditions to enhance long-term value for Shareholders. The Company adopts a positive approach to corporate governance and engagement with companies in which it invests.

In pursuit of the above objective, the Board believes 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. 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. To this end, voting decisions are taken on a case-by-case basis, with the key issues on which the AIFM focuses being corporate governance, including disclosure and transparency, board composition and independence, control structures, remuneration and social and environmental issues.

The day-to-day management of the Company’s investment portfolio has been delegated by the AIFM to the Company’s Investment Manager, Edinburgh Partners, which has an Environmental, Socially Responsible Investing and Corporate Governance (“ESG”) policy in place. The ESG policy statement, which can be found on the website at www.edinburghpartners.com, describes the manner in which the principles of the UK Stewardship Code are incorporated within the investment process.

The assessment of the quality of investee companies in relation to environmental considerations, socially responsible investment and corporate governance is embedded in the Investment Manager’s stock selection process.

On behalf of the Board

Teddy Tulloch
Chairman
9 March 2017

Past performance is not a guide to future performance.

EXTRACTS FROM THE DIRECTORS’ REPORT

Share capital

At 31 December 2016, the Company’s issued share capital comprised 64,509,642 ordinary shares of one pence each, of which 16,621,917 ordinary shares were held in treasury.

At general meetings of the Company, one vote is attached to each ordinary share in issue. Shares held in treasury do not carry voting rights. The total voting rights of the Company at 31 December 2016 were 47,887,725.

Issue of shares

On 11 October 2005, the Company applied for a block listing of 1,300,000 ordinary shares. As at 31 December 2016, and at the date of signing this report, a balance of 745,830 shares may be issued under this block listing.

No shares were issued during the year.

Purchase of shares

During the year ended 31 December 2016, the Company purchased in the stock market 1,460,000 ordinary shares (with a nominal value of £14,600) for treasury, at a total cost of £3,615,000. This represented 2.3 per cent of the issued share capital at 31 December 2015. During the year ended 31 December 2016, no shares were purchased for cancellation.

Subsequent to the year end of 31 December 2016 and up to 9 March 2017, the date of signing this report, the Company purchased in the stock market 600,000 ordinary shares (with a nominal value of £6,000) for treasury, at a total cost of £1,751,000, representing 0.93 per cent of the issued share capital as at 31 December 2016.

The share purchases during the year were made with a view to reducing discount volatility and maintaining the middle market price at which the shares traded at close to the NAV.

Sale of shares from treasury

No shares were sold from treasury during the year ended 31 December 2016.

Shares held in treasury

Holding shares in treasury enables a company to issue shares cost effectively that might otherwise have been cancelled. The total number of own shares held in treasury as at 31 December 2016, including those shares bought back in prior accounting periods, totalled 16,621,917 ordinary shares. The Board has not set a limit on the number of shares that can be held in treasury at any one time. The maximum number of own shares held in treasury during the year was 16,621,917 ordinary shares (with a nominal value of £166,219) representing 25.8 per cent of the issued share capital at the time they were held in treasury.

Going concern

The Company’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report above. In addition, notes 16 and 17 of the Financial Statements below include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its risk exposure. The Company’s principal risks are set out in the Strategic Report above. The Company’s assets consist principally of a diversified portfolio of listed equity shares, which in most circumstances are realisable within a short period of time and exceed its liabilities by a significant amount.

After due consideration, the Directors have concluded that the Company has adequate resources to continue in operational existence for the next year. For this reason, they have adopted the going concern basis in preparing the Financial Statements.

Long-term viability statement

The Directors have assessed the prospects of the Company over a period longer than one year. The Board considers that, for a company with an investment objective to provide Shareholders with an attractive real long-term return by investing globally in undervalued securities, a period of five years is an appropriate period to consider for the purpose of the Long-term Viability Statement. Furthermore, five years is the time period used for identifying long-term value, as detailed in the Strategic Report in the investment strategy section above.

In making its assessment, the Board considered a number of factors, including those detailed below:

The Board’s assessment was based on the following assumptions:

The Board considers that, following its assessment, there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment.

MANAGEMENT REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS

Management report

Listed companies are required by the FCA’s Disclosure Guidance 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 detailed in the Strategic Report, including the Chairman’s Statement and the Investment Manager’s Report, above. Therefore no separate management report has been included.

Statement of Directors’ responsibilities in relation to the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial period. Under that law, they have elected to prepare the Financial Statements in accordance with UK Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. 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:

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 its Financial Statements comply with the Act and include the information required by the Listing Rules of the FCA. 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 Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors, to the best of their knowledge, state that:

The Annual Report and Financial Statements, taken as a whole, are considered by the Board to be fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, business model and strategy.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. The work carried out by the Auditor does not include consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Teddy Tulloch
Chairman
9 March 2017

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 December 2015 and 31 December 2016 but is derived from those accounts. Statutory accounts for the year ended 31 December 2015 have been delivered to the Registrar of Companies, and those for the year ended 31 December 2016 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Act. The text of the Auditor’s report can be found in the Company’s full Annual Report and Financial Statements at www.epgot.com.

INCOME STATEMENT
for the year ended 31 December 2016



Note

Revenue 
£’000 
2016 
Capital 
£’000 

Total
£’000 

Revenue 
£’000 
2015
Capital
£’000

Total 
£’000 
Gains on investments at fair value
8


27,190 

27,190 


978

978 
Foreign exchange gains on capital items
- 

827 

827 


767

767 
Foreign currency forward contract loss

(75)

(75)


-

Income 2 4,096  4,096  2,960  - 2,960 
Management fee 3 (873) (873) (867) - (867)
Other expenses 4 (376) (376) (366) - (366)
Net return before finance costs and taxation
2,847 

27,942 

30,789 

1,727 

1,745

3,472 
Finance costs
Interest payable and related charges




-

Net return before taxation 2,847  27,942  30,789  1,727  1,745 3,472 
Taxation 5 (250) (250) (199) - (199)
Net return after taxation 2,597  27,942  30,539  1,528  1,745 3,273 
pence  pence  pence pence  pence pence 
Return per ordinary share 7 5.3  57.4  62.7 3.1  3.6  6.7 

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 revenue and capital columns are prepared under guidance published by the AIC.

A separate Statement of Comprehensive Income has not been prepared as all such gains and losses are included in the Income Statement.

Dividend information

A final dividend for the year ended 31 December 2016 of 4.3p per ordinary share and a special dividend of 1.0p per ordinary share, a total of 5.3p per ordinary share (2015: interim dividend of 3.1p) have been recommended by the Board. Subject to shareholder approval, these dividends are payable on 26 May 2017 to Shareholders on the register at the close of business on 5 May 2017. The ex-dividend date will be 4 May 2017. Based on 47,287,725 ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) on 9 March 2017, the date of signing this report, the total dividend payment will amount to £2,506,000. Dividends are accounted for in the period in which they are paid. Further information on dividend distributions can be found in note 6 of these Financial Statements below.

The notes form part of these Financial Statements.

BALANCE SHEET
as at 31 December 2016


Note
2016
£’000
2015
£’000
Fixed asset investments
Investments at fair value through profit or loss 8 139,466 106,889
Current assets
     Debtors 10 224 181
     Cash at bank and short-term deposits 4,384 11,947
4,608 12,128
Creditors – amounts falling due within one year
     Creditors 11 317 660
317 660
Net current assets 4,291 11,468
Net assets 143,757 118,357
Capital and reserves
Called-up share capital 12 645 645
Share premium 1,597 1,597
Capital redemption reserve 14 14
Special reserve 66,630 70,245
Capital reserve 70,668 42,726
Revenue reserve 4,203 3,130
Total Shareholders’ funds 143,757 118,357
pence pence 
Net asset value per ordinary share 14 300.2 239.8 

These Financial Statements were approved and authorised for issue by the Board of Directors of EP Global Opportunities Trust plc on 9 March 2017 and were signed on its behalf by:

Teddy Tulloch
Chairman

Registered in Scotland No. 259207

The notes form part of these Financial Statements.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 December 2016




Note

Share
capital
£’000

Share
premium
£’000
Capital
redemption
reserve
£’000

Special 
reserve 
£’000 

Capital
reserve
£’000

Revenue 
reserve 
£’000 


Total  
£’000 
Year to 31 December 2016
At 31 December 2015 645 1,597 14 70,245  42,726 3,130  118,357 
Net return after taxation
-

-

-

-  

27,942

2,597 

30,539 
Dividends paid 6 - - - -   - (1,524) (1,524)
Share purchases for treasury
13

-

-

-

(3,615)

-

-  

(3,615)
Share sales from treasury
13

-

-

-

-  

-

-  

-  
At 31 December 2016 645 1,597 14 66,630  70,668 4,203  143,757 
Year to 31 December 2015
At 31 December 2014 645 - 14 67,309  40,981 3,194  112,143 
Net return after taxation
-

-

-

-  

1,745

1,528 

3,273 
Dividends paid 6 - - - -   - (1,592) (1,592)
Share purchases for treasury
13

-

-

-

(496)

-

-  

(496)
Share sales from treasury
13

-

1,597

-

3,432 

-

-  

5,029 
At 31 December 2015 645 1,597 14 70,245  42,726 3,130  118,357 

The notes form part of these Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2016

1. Accounting policies

Statement of compliance

EP Global Opportunities Trust plc is a company incorporated in Scotland. The Company is registered as a public limited company and is an investment company within the terms of section 833 of the Act. The registered office is detailed below. The nature of the Company’s operations and its principal activities are set out in the Strategic Report above.

The Company’s Financial Statements have been prepared in compliance with Financial Reporting Standard (“FRS”) 102 as it applies to the Financial Statements of the Company for the year ended 31 December 2016. The Company has elected to remove the Cash Flow Statement for the year ended 31 December 2016, applying the exemption detailed in FRS 102 Section 7.1A.

The Financial Statements are prepared on a going concern basis and in accordance with the Act and with the Statement of Recommended Practice issued by the AIC in November 2014 (the “AIC SORP”). Where presentational guidance set out in the AIC SORP is consistent with FRS 102, the Directors have sought to prepare the Financial Statements on a consistent basis compliant with the recommendations of the AIC SORP. All of the Company’s activities are continuing.

The comparative figures for the Financial Statements are for the year ended 31 December 2015.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company primarily invests in listed companies.

Income recognition

Dividend and other investment income is included as revenue on the ex-dividend date, the date the Company’s right to receive payment is established. Deposit interest and underwriting commission receivable is included on an accruals basis.

Dividends are accounted for on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. Dividends from overseas companies are shown gross of withholding tax.

Expenses and finance costs

All management expenses and finance costs are accounted for on an accruals basis. All operating expenses and finance costs 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 in the Income Statement. Finance costs are debited using the effective interest rate method. Transaction costs are included within the gains and losses on investments, as disclosed in the Income Statement.

Investments

In accordance with FRS 102, Sections 11 and 12, all investments held by the Company are designated as held at fair value upon initial recognition and are measured at fair value through profit or loss in subsequent accounting periods. 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 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. Unlisted investments will be valued by the Directors at fair value, using the guidelines on valuation published by the International Private Equity and Venture Capital Association (“IPEVC Valuation Guidelines”). This represents the Directors’ view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction.

Foreign currency

The Financial Statements have been prepared in sterling, rounded to the nearest £’000, which is the functional and reporting currency of the Company. Sterling is the currency of the primary economic environment in which the Company operates.

Transactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. 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 and 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 between taxable profits and total comprehensive income that have arisen but not been reversed by the Balance Sheet date, unless such provision is not permitted by FRS 102. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences 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.

Cash at bank and short-term deposits

Cash at bank and short-term deposits comprise cash at bank and short-term deposits with an original maturity date of three months or less.

Short-term debtors and creditors

Debtors and creditors with no stated interest rate and receivable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the Income Statement in other operating expenses.

Dividends payable to Shareholders

Final dividends are recognised as a liability in the period in which they have been approved by Shareholders in a general meeting. Interim dividends are recognised as a liability in the period in which they have been declared and paid.

Loans

All interest-bearing loans and borrowings which are basic financial instruments are initially recognised at the sterling present value of cash payable to the bank (including interest). After initial recognition, they are measured at amortised cost using the effective interest rate method. The effective interest rate amortisation is included in finance costs in the Income Statement. Loans are revalued to the sterling equivalent using exchange rates at the appropriate date, with the gain or loss being charged through the revenue account in the Income Statement.

Borrowings that are payable within one year shall be measured at the undiscounted amount of the cash or other consideration expected to be paid.

Own shares held in treasury

From time to time, the Company buys back shares and holds them in treasury for potential sale at a later date or for cancellation. The consideration paid and received for these shares is accounted for in Shareholders’ funds and, in accordance with the AIC SORP, the cost has been allocated to the Company’s special reserve. The cost of shares sold from treasury is calculated by taking the average cost of shares held in treasury at the time of sale. Any difference between the proceeds from shares sold from treasury and the average cost is taken to share premium.

Judgements and key sources of estimation uncertainty

The preparation of the financial statements requires the Company to make judgements, estimates and assumptions that affect amounts reported for assets and liabilities as at the Balance Sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that the actual outcomes could differ from those estimates, possibly significantly. The judgements relate to the unlisted investment where there is no appropriate market price, as detailed in note 8.

Reserves

Capital reserve

The following are accounted for in this reserve:

Share premium

This reserve records the amount above the nominal value received for shares sold, less transaction costs.

Special reserve

The special reserve was created by a reduction in the share premium account by order of the High Court. It can be used for the repurchase of the Company’s ordinary shares.

In accordance with the AIC SORP, the consideration paid for shares bought into and held in treasury is shown as a deduction from the special reserve. The average cost of shares sold from treasury is shown as an increase to the special reserve, with any consideration in excess of average cost being held in the share premium reserve.

Capital redemption reserve

The capital redemption reserve accounts for amounts by which the issued capital is diminished through the repurchase of the Company’s own shares.

Revenue reserve

The revenue reserve represents the balance of revenue retained within the Company after the payment of any dividends.

2. Income

2016
£’000
2015
£’000
Income from investments
UK net dividend income* 1,338 840
Overseas dividend income 2,758 2,120
4,096 2,960
Total income comprises
Dividends 4,096 2,960
4,096 2,960

* Includes income of £642,000 (2015: £214,000) from the unlisted investment in Edinburgh Partners.

3. Management fee

2016
£’000
2015
£’000
Management fee 873 867
873 867

With effect from 16 July 2014, the Company appointed Edinburgh Partners AIFM Limited as the Company’s AIFM. Under the Management Agreement, the AIFM is entitled to a fee paid monthly in arrears at the rate of 0.75 per cent per annum of the equity market capitalisation of the Company to £100,000,000 and at a rate of 0.65 per cent per annum of the equity market capitalisation which exceeds this amount. The equity market capitalisation is based on shares in circulation which excludes shares held in treasury. No performance fee will be paid.

No management fee is payable in relation to the Company’s investment in Edinburgh Partners Emerging Opportunities Fund, which is managed by Edinburgh Partners. Details relating to this investment are set out in the Strategic Report above and in notes 8 and 9.

During the year ended 31 December 2016, the management fees payable to the AIFM totalled £873,000 (2015: £867,000). At 31 December 2016, there was £84,000 outstanding payable to the AIFM (2015: £144,000) in relation to management fees.

During the year ended 31 December 2016, the administration fees payable to the AIFM, as detailed in note 4, totalled £127,000 (2015: £125,000). At 31 December 2016, there was £11,000 outstanding payable to the AIFM (2015: £21,000) in relation to administration fees.

During the year ended 31 December 2016, the Company paid Edinburgh Partners £25,000 (2015: £25,000) for marketing-related services. At 31 December 2016, there was £6,000 outstanding to Edinburgh Partners (2015: £6,000) in relation to marketing-related services. The fees for marketing-related services are included within other expenses as detailed in note 4.

4. Other expenses

2016
£’000
2015
£’000
Administration fee 127 125
Auditor’s remuneration (excluding VAT) for:
        Audit 19 19
        Taxation services – advisory - 8
Directors’ remuneration 83 73
Other 147 141
376 366

Directors’ remuneration and outstanding amounts are shown in the Directors’ Remuneration Report in the full Annual Report and Financial Statements.

5. Taxation

a) Analysis of charge in year
Revenue
£’000
2016
Capital
£’000

Total
£’000

Revenue
£’000
2015
Capital
£’000

Total
£’000
Current tax
Overseas tax suffered 250 - 250 199 - 199
250 - 250 199 - 199

b) The current taxation charge for the year ended 31 December 2016 is lower than the theoretical rate of corporation tax in the UK of 20 per cent (2015: 20.25 per cent) (NB The standard rate of corporation tax has been 20 per cent from 1 April 2015. Previously it had been 21 per cent from 1 April 2014). The differences are explained below:


Revenue 
£’000 
2016 
Capital 
£’000 

Total  
£’000 

Revenue 
£’000 
2015 
Capital 
£’000 

Total 
£’000 
Net return before taxation 2,847  27,942  30,789  1,727  1,745  3,472 
Theoretical tax at UK corporation tax rate of 20.00 per cent
(2015: 20.25 per cent)
569  5,588  6,157  350  353  703 
Effects of:
- UK dividends that are not taxable
(267)

-  

(267)

(170)

-  

(170)
- Foreign dividends that are not taxable
(552)

-  

(552)

(429)

-  

(429)
- Non-taxable investment gains
-  

(5,588)

(5,588)

-  

(353)

(353)
- Unrelieved excess expenses
250 

-  

250 

249 

-  

249 
- Disallowable expenses -   -   -   -   -   -  
- Overseas tax suffered 250  -   250  199  -   199 
250  -   250  199  -   199 

At 31 December 2016, the Company had no unprovided deferred tax liabilities (2015: £nil). At that date, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £6,057,000 (2015: £4,808,000) that are available to offset future taxable revenue. A deferred tax asset of £1,030,000 (based on the corporation tax rate of 17% effective from 1 April 2020) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Trust meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company.

6. Dividends

2016
£’000
2015
£’000
Declared and paid
2015 interim dividend of 3.1p per ordinary share paid in March 2016
(2014: final dividend of 3.3p paid in May 2015)

1,524

1,592
Net revenue return after taxation 2,597 1,528
Proposed
2016 final dividend of 4.3p and a special dividend of 1.0p, total 5.3p
(2015: interim dividend of 3.1p) per ordinary share
2,506 1,524

The Directors recommend a final dividend, for the year ended 31 December 2016 of 4.3p per ordinary share and a special dividend of 1.0p per ordinary share, a total of 5.3p per ordinary share (2015: interim dividend of 3.1p). Subject to shareholder approval at the Annual General Meeting to be held on 27 April 2017, these dividends will be payable on 26 May 2017 to shareholders on the register at the close of business on 5 May 2017. The ex-dividend date will be 4 May 2017. Based on 47,287,725 ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) at 9 March 2017, the date of signing this report, the total dividend payment will amount to £2,506,000.

7. Return per ordinary share


Net
return
£’000
2016
Ordinary
shares*

Per
share
pence

Net
return
£’000
2015
Ordinary
shares*

Per
share
pence
Revenue return after taxation
2,597

48,679,555

5.3

1,528

49,008,643 

3.1
Capital return after taxation
27,942

48,679,555

57.4

1,745

49,008,643 

3.6
Total return after taxation
30,539

48,679,555

62.7

3,273

49,008,643 

6.7

* Weighted average number of ordinary shares, excluding shares held in treasury, in issue during the year.  There was no dilution of returns.

8. Investments

2016 
£’000 
2015 
£’000 
Listed investments 138,441  105,439 
Unlisted investments 1,025  1,450 
139,466  106,889 

Unlisted 
£’000 

Listed 
£’000 
2016 
Total  
£’000 
2015 
Total 
£’000 
Analysis of investment portfolio movements
Opening bookcost 214  102,104  102,318  97,501 
Opening investment holding gains 1,236  3,335  4,571  6,867 
Opening valuation 1,450  105,439  106,889  104,368 
Movements in the year:
Purchases at cost 26,034  26,034  45,683 
Sales - proceeds (20,647) (20,647) (44,140)
          - realised gains on sales 4,374  4,374  3,274 
(Decrease)/increase in investment holding gains (425) 23,241  22,816  (2,296)
Closing valuation 1,025  138,441  139,466  106,889 
Closing bookcost 214  111,865  112,079  102,318 
Closing investment holding gains 811  26,576  27,387  4,571 
Closing valuation 1,025  138,441  139,466  106,889 

Within the listed investments detailed above, there is included the Company’s investment in the Edinburgh Partners Emerging Opportunities Fund, a sub-fund of an Irish domiciled open-ended investment company listed on the Dublin Stock Exchange as detailed in the Strategic Report above and in note 9 below, which was valued at £2,954,000 at 31 December 2016. As at 30 September 2016, the most recent year end of the Edinburgh Partners Emerging Opportunities Fund, the aggregate amount of capital and reserves was US$8,567,000. For the year to 30 September 2016 the profit for the year after tax and distributions was US$1,000,000.

The unlisted investment detailed above is 71,294 (2015: 71,294) shares in Edinburgh Partners.


Unlisted
£’000

Listed
£’000
2016
Total
£’000
2015 
Total 
£’000 
Analysis of capital gains and losses
Realised gains on sales - 4,374 4,374 3,274 
Changes in fair value of investments (425) 23,241 22,816 (2,296)
(425) 27,615 27,190 978 

Fair value hierarchy

In accordance with FRS 102, the Company must disclose the fair value hierarchy of financial instruments.

The different levels of the fair value hierarchy are as follows:

  1. Quoted price for an identical asset in an active market.
  2. The price of a recent transaction for an identical asset as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place.
  3. A valuation technique.

All of the Company’s financial instruments fall into level 1, except its investment in Edinburgh Partners which falls into level 3 and is fair valued using an unquoted price that is derived from inputs that are not based on observable market data by using recognised valuation methodologies, in accordance with IPEVC Valuation Guidelines. The valuation is based relative to those of comparable listed companies in the investment management industry using multiples related to assets under management and price earnings ratio, which are discounted to reflect that the company is unlisted and there is a lack of marketability in its shares. A reconciliation of the fair value movements of level 3 investments is shown in the unlisted column of the table above.

Transaction costs

During the year, the Company incurred transaction costs of £53,000 (2015: £80,000) and £22,000 (2015: £51,000) on purchases and sales of investments respectively. These amounts are included in gains on investments at fair value, as disclosed above in the Income Statement of these Financial Statements.

9. Significant holdings

As at 31 December 2016, the Company owned 44.3 per cent (2015: 52.0 per cent) of the net assets of the Edinburgh Partners Emerging Opportunities Fund, a sub-fund of an Irish domiciled open-ended investment company listed on the Dublin Stock Exchange as detailed in the Strategic Report above and in note 8. The Company had no other holdings of 3.0 per cent or more of the share capital of any portfolio companies.

10. Debtors

2016
£’000
2015
£’000
Dividends receivable 79 103
Prepayments and accrued income 22 20
Taxation recoverable 123 58
224 181

11. Creditors: amounts falling due within one year

2016
£’000
2015
£’000
Due to brokers on shares purchased for treasury - 404
Other creditors and accruals 317 256
317 660

   

12. Share capital Number
of shares
Ordinary 1p

2016
£’000
Number 
of shares 
Ordinary 1p

2015
£’000
Allotted, called-up and fully paid:
At 1 January 64,509,642 645 64,509,642  645
At 31 December 64,509,642 645 64,509,642  645

The voting rights attached to the Company’s shares are detailed in the extracts from the Directors’ Report above.

Duration of the Company

The Company does not have a termination date or the requirement for any periodic continuation vote.

13. Own shares held in treasury

Details of own shares purchased for and sold from treasury are shown below:

2016 
Number of 
shares 
2015 
Number of 
shares 
At 1 January 15,161,917 16,981,917 
Shares purchased for treasury 1,460,000 215,000 
Shares sold from treasury - (2,035,000)
At 31 December 16,621,917 15,161,917 

During the year ended 31 December 2016, 1,460,000 shares (2015: 215,000) were purchased for treasury at a total cost of £3,615,000 (2015: £496,000) and no shares were sold from treasury (2015: 2,035,000 shares were sold from treasury for a gross consideration of £5,029,000).

14. Net asset value per ordinary share

The NAV, calculated in accordance with the Articles of Association, is as follows:

2016
pence
2015
pence
Ordinary share 300.2 239.8

The NAV is based on net assets of £143,757,000 (2015: £118,357,000) and on 47,887,725 (2015: 49,347,725) ordinary shares, being the number of ordinary shares, excluding shares held in treasury, in issue at the year end.

15. Analysis of financial assets and liabilities

Interest rate and currency profile

The interest rate and currency profile of the Company’s financial assets and liabilities were:




No 
interest 
rate 
exposure 
£’000 
2016

Cash
flow
interest
rate risk
exposure
£’000






Total 
£’000 



No 
interest 
rate 
exposure 
£’000 
2015

Cash
flow
interest
rate risk
exposure
£’000






Total 
£’000 
Equity shares
Japanese yen 37,202  - 37,202  31,025  - 31,025 
Euro 29,357  - 29,357  16,897  - 16,897 
US dollar 25,856  - 25,856  17,862  - 17,862 
Sterling 18,840  - 18,840  15,911  - 15,911 
Hong Kong dollar 9,710  - 9,710  9,192  - 9,192 
Swiss franc 8,568  - 8,568  6,522  - 6,522 
Indonesian rupee 4,106  - 4,106  2,687  - 2,687 
Thailand baht 3,044  - 3,044  2,436  - 2,436 
South Korean won 2,783  - 2,783  2,405  - 2,405 
Singapore dollar - 1,952  - 1,952 
Cash at bank and short-term deposits
US dollar 4,331 4,331  11,839 11,839 
Sterling 53 53  108 108 
Debtors
Japanese yen 55  - 55  44  - 44 
Sterling 22  - 22  61  - 61 
Euro 31  - 31  20  - 20 
Swiss franc 92  - 92  38  - 38 
South Korean won 24  - 24  18  - 18 
Short-term creditors
Sterling (317) - (317) (660) - (660)
139,373  4,384 143,757  106,410  11,947 118,357 

At 31 December 2016, the Company had no financial liabilities other than the short-term creditors as stated above (2015: £nil). The carrying amount on the Balance Sheet approximates the fair value of all financial assets and liabilities.

The following exchange rates were used to convert investments, assets and liabilities to the functional currency of the Company which is sterling.

Foreign Exchange rates against sterling 2016 2015 Change   
Japanese yen 144.12 177.30 (19)%
US dollar 1.17 1.47 (14)%
Euro 1.24 1.36 (16)%
Hong Kong dollar 9.58 11.42 (16)%
Swiss franc 1.26 1.48 (15)%
Indonesian rupee 16,647.30 20,317.71 (18)%
Thailand baht 44.25 53.04 (17)%
South Korean won 1,492.42 1,728.22 (14)%
Singapore dollar 1.79 2.09 (14)%

16. Risk analysis

Principal risks

The principal risks the Company faces are:

The Board undertakes an annual assessment and review of all the risks stated 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.

The Investment Manager monitors the financial 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, quarterly. The Company may enter into derivative contracts to manage risk. A description of the principal risks the Company faces is set out below.

Investment and strategy risk

There can be no guarantee that the objective of the Company, to provide Shareholders with an attractive real long-term total return by investing globally in undervalued securities, will be achieved.

The Investment Manager meets regularly with the Board to discuss the portfolio performance and strategy. The Board receives quarterly reports from the Investment Manager detailing all portfolio transactions and any other significant changes in the market or stock outlooks.

Key manager risk

A change in key investment management personnel who are involved in the management of the Company’s portfolio could impact on future performance and the Company’s ability to deliver on its investment strategy.

The Investment Manager frequently considers succession planning. The Board is in regular contact with the Investment Manager and would be informed of any proposed change in the lead manager.

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 at which the Company’s shares trade, and is committed to using its powers to allot or repurchase the Company’s ordinary shares with a view to maintaining the middle market price at which the shares trade at close to the net asset value most recently published by the Company (taking into account the effect on the NAV of any rights to which the shares are trading ex-dividend).

The Board’s commitment to allot or repurchase ordinary shares is subject to it being satisfied that any offer to allot or purchase shares is in the best interests of Shareholders of the Company as a whole, the Board having the requisite authority pursuant to the Articles of Association and relevant legislation to allot or purchase shares, and all other applicable legislative and regulatory provisions.

Details of the shares purchased into treasury during the year are set out in note 13 above.

Market risk

The Company is exposed to market risk due to fluctuations in the market prices of its investments. Market 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 NAV of the Company is issued daily to the London Stock Exchange and is also available on the Company’s website at www.epgot.com.

Details of the Company’s investment portfolio as at 31 December 2016 are disclosed in the Portfolio of Investments above.

If the investment portfolio valuation fell by 1.0 per cent from the amount detailed in the Financial Statements as at 31 December 2016, it would have the effect, with all other variables held constant, of reducing the total return before taxation and therefore net assets by £1,395,000 (2015: £1,069,000). An increase of 1.0 per cent in the investment portfolio valuation would have an equal and opposite effect on the total return before taxation and net assets.

Foreign currency risk

The functional currency of the Company is sterling. The international nature of the Company’s investment activities gives rise to a currency risk which is inherent in the performance of its overseas investments. The Company’s overseas income is also subject to currency fluctuations.

It is not the Company’s policy to hedge this risk on a continuous basis.

Details of the Company’s foreign currency risk exposure as at 31 December 2016 are disclosed in note 15.

If sterling had strengthened by 1.0 per cent against all other currencies on 31 December 2016, with all other variables held constant, it would have the effect of reducing the total return before taxation and net assets by £1,252,000 (2015: £1,029,000). If sterling had weakened by 1.0 per cent against all other currencies, there would have been an equal and opposite effect on the total return before taxation and net assets.

Regulatory risk

The Company operates in an evolving regulatory environment and faces a number of regulatory risks.

Failure to qualify under the terms of sections 1158 and 1159 of the CTA may lead to the Company being subject to capital gains tax. A breach of the rules of the UK Listing Authority may result in censure by the FCA and/or the suspension of the Company’s shares from listing.

The Company is also required to comply with the AIFMD. On 16 July 2014, the Company announced that it had appointed Edinburgh Partners AIFM Limited as its AIFM and the AIFM is responsible for ensuring compliance with the AIFMD.

If all price sensitive issues are not disclosed in a timely manner, this could create a misleading market in the Company’s shares. The Directors are aware of their responsibilities relating to price sensitive information and would consult with their advisers if any potential issues arose. This includes ensuring compliance with the Market Abuse Regulation which became effective in the UK on 3 July 2016. The AIFM would notify the Board immediately if it became aware of any disclosure issues.

The Investment Manager has a comprehensive market abuse policy and any potential breaches of this policy would be promptly reported to the Board.

The Board has agreed service levels with the Company Secretary and Investment Manager which include active and regular review of compliance with these requirements.

Other risks

Other risks the Company faces are:

A description of these other risks is set out below.

Liquidity risk

The Company’s policy with regard to liquidity is to ensure continuity of funding. Short-term flexibility is achieved through cash management.

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 December 2016. 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.

The maturity profile of the Company’s financial liabilities, including creditors, is as follows:

As at
31 December
2016
£’000
As at
31 December
 2015
£’000
In one year or less 317 660
317 660


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.

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 on its obligations before any transfer of cash or securities away from the Company is completed.

Cash is only held at banks and in liquidity funds that have been identified by the Board as reputable and of high credit quality. As at 31 December 2016, The Northern Trust Company London Branch had a long-term rating from Standard and Poors of AA-.

The maximum exposure to credit risk as at 31 December 2016 was £4,608,000 (2015: £12,128,000). The calculation is based on the Company’s credit risk exposure as at 31 December 2016 and this may not be representative of the year as a whole.

None of the Company’s assets are past due or impaired.

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 December 2016 are disclosed in note 15.

The majority of the Company’s assets were non-interest bearing as at 31 December 2016. Surplus cash is invested in liquidity funds.

If interest rates had reduced by 0.25 per cent (2015: 0.25 per cent) from those obtained as at 31 December 2016 it would have the effect, with all other variables held constant, of decreasing the total return before taxation and therefore net assets on an annualised basis by £11,000 (2015: £30,000). If there had been an increase in interest rates of 0.25 per cent (2015: 0.25 per cent) there would have been an equal and opposite effect in the total return before taxation and net assets. The calculations are based on cash at bank and short-term deposits as at 31 December 2016 and these may not be representative of the year as a whole.

Gearing risk

Gearing can be used to enhance long-term returns to Shareholders. The Company is permitted to employ gearing should the Board feel it appropriate to do so up to a maximum of 25 per cent of total assets.

The use of gearing is likely to lead to volatility in the NAV, meaning that a relatively small movement either down or up in the value of the Company’s total investments may result in a magnified movement in the same direction of the NAV. The greater the level of gearing, the greater the level of risk and likely fluctuation in the share price.

At the year end, the Company had no gearing (2015: nil).

Operational risk

There are a number of operational risks associated with the fact that third parties undertake the Company’s administration and custody. The main risk is that third parties may fail to ensure that statutory requirements, such as Companies Act and the UK Listing Authority requirements, are met.

The Board regularly receives and reviews management information on third parties which the Company Secretary compiles. In addition, each of the third parties provides a copy of its report on internal controls (ISAE 3402, SSAE 16 or equivalent) to the Board each year.

Financial risk

If the Company utilises inappropriate accounting policies or fails to comply with current or new accounting standards, the main risk is that this may lead to a breach of regulations.

The AIFM employs independent administrators to prepare all financial statements and 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 AIC, a trade body intended to promote investment trusts which also develops best practice for all of its members.

17. Capital management policies

The Company’s objective is to provide Shareholders with an attractive real long-term total return by investing globally in undervalued securities. The portfolio is managed without reference to the composition of any stock market index. In pursuing this objective, the Board has a responsibility for ensuring the Company’s ability to continue as a going concern. This involves the ability to: issue and buy back share capital within limits set by the Shareholders in general meeting; borrow monies in the short and long term; and pay dividends to Shareholders out of current year revenue earnings as well as out of brought-forward revenue reserves.

The Company’s capital comprises:

2016
£’000
2015
£’000
Called-up share capital 645 645
Share premium 1,597 1,597
Capital redemption reserve 14 14
Special reserve 66,630 70,245
Capital reserve 70,668 42,726
Revenue reserve 4,203 3,130
Total Shareholders’ funds 143,757 118,357

The Company’s objectives for managing capital are the same as the previous year and have been complied with throughout the year.

18. Transactions with the AIFM

Details in respect of the Directors’ remuneration are set out in note 4 and in the Directors’ Remuneration Report which is detailed in the full Annual Report and Financial Statements. Information in relation to transactions with the AIFM and the Investment Manager is provided in note 3 and in the Strategic Report above. There were no other transactions with related parties in the year ended 31 December 2016.

19. Post Balance Sheet events

As disclosed in the Extracts from the Directors’ Report above, subsequent to the year end and up to 9 March 2017, the date of signing this report, the Company bought back 600,000 ordinary shares into treasury at a total cost of £1,751,000.

PERFORMANCE RECORD


Shareholders’  
funds   
Net asset 
value per 
ordinary 
share 
Share 
price per 
ordinary 
share 
Share price   
discount to   
net asset   
value   
Revenue  
return per  
ordinary  
share  

Dividend    
per ordinary    
share    

Ongoing       
charges       
ratio4         
Year ended
31 December
20041 £26.1m 116.4p 110.5p 5.1% 0.6p              0.4p   1.7%5    
2005 £52.2m 156.2p 154.5p 1.1% 1.1p    0.8p     1.5%5    
2006 £58.8m 172.8p 170.0p 1.6% 2.1p 1.8p     1.2%5    
2007 £57.7m 177.2p 160.0p 9.7% 2.7p 2.3p     1.1%5    
2008 £46.4m 150.4p 132.5p 11.9% 3.9p 3.1p     1.1%5    
2009 £50.7m 175.9p 172.0p 2.2% 2.7p 2.4p     1.0%5, 6
2010 £51.6m 188.2p 186.8p 0.7% 3.2p 2.8p     1.3%5    
2011 £95.1m 169.9p 167.0p 1.7% 5.0p 4.2p     0.8%7    
2012 £91.8m 183.1p 175.5p 4.2% 3.9p              3.9p    1.1%    
2013 £112.6m 233.6p 230.0p 1.5% 2.7p  2.7p     1.1%    
2014 £112.1m 236.0p 234.6p 0.6% 3.7p 3.3p     1.1%    
2015 £118.4m 239.8p 234.5p 2.2% 3.1p 3.1p     1.0%    
2016 £143.8m 300.2p 293.0p 2.4% 5.3p    5.3p2,3        1.0%

1 Period 13 November 2003 to 31 December 2004. The Company commenced operations on the admission of its shares to trading on the London Stock Exchange on 15 December 2003.

2 Proposed dividend for the year.

3 Includes a special dividend of 1.0p.

4 Ongoing charges ratio based on total expenses, excluding finance costs, transaction costs and certain non-recurring items for the year as a percentage of the average monthly net asset value.

5 Total expense ratio based on total expenses for the year as a percentage of the average monthly net asset value.

6 Total expense ratio 1.3 per cent excluding VAT refund.

7 The total expense ratio would have been 1.0 per cent if investment management fees of £236,000 had not been waived as a consequence of the merger with Anglo & Overseas Plc.

Past performance is not a guide to future performance.

ANNUAL GENERAL MEETING

The Company’s Annual General Meeting will be held at The Bonham Hotel, 35 Drumsheugh Gardens, Edinburgh EH3 7RN on Thursday, 27 April 2017 at 12.00 noon.

DIRECTORS

Teddy Tulloch (Chairman)
David Hough
David Ross
Giles Weaver

All of the Directors are non-executive and independent of the AIFM and the Investment Manager.

ALTERNATIVE INVESTMENT FUND MANAGER

Edinburgh Partners AIFM Limited
27-31 Melville Street
Edinburgh
EH3 7JF

INVESTMENT MANAGER

Edinburgh Partners Limited
27-31 Melville Street
Edinburgh
EH3 7JF

National Storage Mechanism

A copy of the full Annual Report and Financial Statements will shortly be submitted to the National Storage Mechanism (“NSM”) and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/NSM

Enquiries:

Dr Sandy Nairn
Kenneth J Greig


Edinburgh Partners AIFM Limited
Tel: 0131 270 3800

The Company’s registered office address is:

27-31 Melville Street
Edinburgh
EH3 7JF


END

Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.


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Annual Financial Report - RNS