PREMIER ENERGY AND WATER TRUST PLC - Annual Financial Report
Posted on: Tue, 09 Mar 2010 09:13:42 EST
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Premier Energy and Water Trust PLC
Annual Report & Accounts for the year ended 31 December 2009
INVESTMENT OBJECTIVES
The Company's investment objectives are to achieve a high income from its
portfolio and to realise long-term growth in the capital value of the
portfolio. The Company will seek to achieve these objectives by investing
principally in the equity and equity related securities of companies operating
primarily in the energy and water sectors, as well as other infrastructure
investments.
Contents
Investment objectives
Company highlights 1
Company summary 2
Financial calendar 2
Chairman's statement 3
Investment manager's report 5
Investment portfolio 7
Company details 8
Financial summary 11
Directors 13
Investment manager and secretary 13
Directors' report 14
Directors' remuneration report 30
Statement of directors' responsibilities in respect 32
of the financial
Independent auditor's report 34
Income statement 36
Balance sheet 37
Reconciliation of movements in 38
shareholders' funds
Cash flow statement 39
Notes to the financial statements 40
Glossary of terms 56
Shareholder information 57
Notice of annual general meeting 58
Notes to the notice of annual general meeting 60
Directors and advisers 63
Registered in England No. 4897881
A member of the Association of Investment Companies
COMPANY HIGHLIGHTS
Total return performance
% change
Total assets 1 +12.7%
FTSE Global Utilities Total Return Index 2 (GBP) -1.8%
FTSE All World Total Return Index 2 (GBP) +21.2%
FTSE 100 Total Return Index 2 +27.3%
Share price and NAV 3 returns
31 December 31 December
2009 2008 % change
Zero Dividend NAV 151.73p 141.86p +7.0%
Preference
share
Mid price 156.25p 142.25p +9.8%
Ordinary share NAV 192.87p 180.78p +6.7%
Mid price 187.25p 126.00p +43.8%
Net revenue per Ordinary share 9.63p 8.46p
Net dividends Base 7.70p 7.35p
declared per
Ordinary share
Special 1.70p -
Total 9.40p 7.35p
Zero Dividend Preference shares
5 Year Performance to 31 December 2009 (rebased to 100)
GRAPH REMOVED
Ordinary shares
5 Year Performance to 31 December 2009 (rebased to 100)
GRAPH REMOVED
1 Total return performance, adjusted for any dividends distributed and for the
tender offers and associated costs in 2009.
2 Source: Bloomberg.
3 Calculated in accordance with FRS21.
COMPANY SUMMARY
Launch Date 4 November 2003
Domiciled UK
Year-end 31 December
Shareholders' Funds GBP50.06 million
Market Capitalisation GBP50.06 million
Bank Loan Nil
Zero Dividend Preference shares 16,336,396: aiming to redeem at 221.78p on
31 December 2015
Ordinary shares 13,103,065
Dividends Paid on Ordinary shares
Dividend History In respect of year
ended 31 December Total dividends declared
2009 9.40p#
2008 7.35p
2007 7.00p
2006 6.90p
2005 6.75p
2004 7.875p*
Investment Manager Premier Fund Managers Limited
Management Fee 1.0% per annum, charged 100% to revenue, plus performance fee,
allocated between capital and revenue based on the out- performance attributable to capital and revenue respectively
AIC Member of the Association of Investment Companies
* This dividend was for the 14 month period from launch, representing an
annualised dividend of 6.75p.
# Includes a special dividend of 1.70p.
FINANCIAL CALENDAR
Company's year-end 31 December
Annual results announced early March
Annual General Meeting 21 April 2010
Company's half-year end 30 June
Half-year results announced early August
Dividend payments quarterly at the end of March, June,
September and December
CHAIRMAN'S STATEMENT
for year to 31 December 2009
Overview of the year
The year ended 31 December 2009 has been one of the most difficult periods for
the global economy in recent times. The weakening of global demand together
with an unprecedented level of fiscal stimulus has caused short term interest
rates to fall virtually to zero while the rescue of the global banking sector
has drained public coffers. The UK's rescue package will raise domestic debt
levels to over 50% of GDP and there has been speculation - ill founded we
believe - that this could threaten Britain's triple A credit rating. During the
course of the crisis the UK economy contracted by around 3.2% while the UK
budget deficit has grown to around 11% of GDP. It is clear that recovery from
recession will take many years and will place an enormous burden on the public
and private sectors.
Despite this ongoing stream of negative economic news, global stock markets
fared relatively well during 2009, albeit from a very low base. However, the
Utility sectors lagged the main markets' performance, as they are generally
late beneficiaries of economic recovery.
For the second year running the Company has been voted the winner of the Best
High Income Security Award in the Money Observer Investment Trust Awards.
Performance
This report deals with the performance of the Company from the 1 January 2009
to 31 December 2009. The performance figures have been adjusted for the
reorganisation of the Company, successfully undertaken towards the end of the
year. Over this period the total asset return of your Company increased by
12.7% to GBP50.1m (adjusted for the tender offers and associated costs in 2009).
Your Company does not have any formal benchmarks but rather provides investors
with a range of indices against which performance may be assessed. Over the
same period the FTSE 100 Index total return was 27.3% whilst the FTSE All World
Index total return was 21.2%. By contrast the FTSE Global Utilities Index total
return was a negative of 1.8%. The mid price of the Company's Ordinary shares
at 31 December 2009 was 187.25p compared to 126.00p at 31 December 2008, an
increase of 43.8%.
The Company's capital structure is comprised of Ordinary and Zero Dividend
Preference ("ZDP") shares. The ZDP shares are entitled to a predetermined
capital sum of 221.78p at the anticipated wind up date of the Company being 31
December 2015. As a consequence the rise or fall in assets attributable to the
Ordinary shares is geared by this prior entitlement. Over the period net assets
attributable to Ordinary shares rose from GBP24.2m to GBP25.3m after allowing for
the costs of the capital reorganisation. As a result net asset value per
Ordinary share rose from 180.78p to 192.87p, an increase of 6.7%. Net asset
value per ZDP share rose from 141.86p to 151.73p.
Since the Company's inception on 3 November 2003 to 31 December 2009 the FTSE
100 Index has produced a total return of 52.26% (source: Bloomberg). Over the
same period the total assets of your Company have produced a total return of
102.85% whilst total return on your Company's Ordinary shares (measured by
increase in net asset value together with dividends paid) is 147.0%.
Tender Offer and life extension
On 18 December 2009 your Company announced that its shareholders had voted in
favour of a tender offer and life extension. Thus your Company will continue,
to 31 December 2015, with a broadly similar capital structure to that which was
put in place at launch in November 2003. The new final entitlement per ZDP
share will be 221.78p representing an accrual rate of 6.53%, one of the lowest
in the split capital investment trust sector. Total assets of your Company
following the reconstruction were just under GBP50m.
Dividends
During the course of the year total income from the Company's investment
portfolio together with interest on cash deposits totalled GBP2.6m which compares
to total income received last year of GBP2.8m. In addition, in 2009 the Company
recovered VAT on past management fees (including interest) of GBP0.6m, and GBP0.3m
of this amount has been allocated to revenue.
The tender and matching purchase facility completed in December 2009 has
resulted in a reduction in the number of Ordinary shares in issue which has
increased the earnings per share in the final quarter of 2009. This, together
with the VAT recovery, has enabled the Board to pay a special dividend of 1.70p
(2009: nil) per Ordinary share as part of the fourth interim dividend for the
year ended 31 December 2009 in addition to the base dividend of 3.20p (2009:
2.85p) per Ordinary share making a total of 4.90p per Ordinary share. This
dividend will be paid on 31 March 2010 to shareholders on the register as at
the close of business on 12 March 2010.
The shares will be marked ex-dividend on 10 March 2010. This means total
dividends paid in respect of the year ended 31 December 2009 will be 7.70p per
Ordinary share plus the special dividend of 1.70p (2009: nil) per Ordinary
share making a total of 9.20p (2008: 7.35p). This represents an increase in the
base dividend of 4.8%.
Shareholder relations
The Board and our Investment Manager welcome contact with both the Company's
existing shareholders and with potential new shareholders. The Investment
Manager has met with the Company's larger shareholders during the process of
change of capital structure and life extension. However, the Company's AGM is
on 21 April 2010 and it is hoped that shareholders will be able to attend on
this date.
Outlook
For the remainder of 2010 it is likely that world economic recovery will be
maintained from a low base. Growth will be erratic, against a background of
continued low interest rates and other measures such as quantitative easing.
The rescue of the banking sector has left governments and ultimately taxpayers
with a debt legacy that, without a period of inflation, will take a generation
to clear. In this environment energy and water stocks look well placed,
particularly those in emerging markets where economic growth has been more
sustained. Demand for power in many of these economies has remained high - in
China and India for example - whilst in Western economies the sector's growth
will accelerate as a result of the move to a low carbon economy. Balance sheets
are in reasonable health and able to fund this growth. In addition dividends
from these companies should continue to rise, albeit more modestly than in the
past. Therefore while the structural imbalances present in many developed
economies have still to be fully addressed, the sectors in which your Company
invests are well placed to sustain future growth.
Geoffrey Burns
Chairman
8 March 2010
INVESTMENT MANAGER'S REPORT
for the period 1 January to 31 December 2009
Overview
Utilities lagged the wider stock market recovery during 2009 primarily because
of falling power prices and reduced demand for electricity. As a result the
Global Utilities Index returned a negative 1.8% in sterling terms over the
period, compared with a positive total return of 27.3% from the FTSE100.
However, energy demand is now stabilising and power prices are coming off their
lows. While there is little evidence of actual power demand recovery in the US
or Europe to date, both China and India continue to show strong advances in
line with their continued economic growth. Against a background of significant
underperformance by the utilities sector, the Company's total asset return, due
largely to stock selection, was a positive 12.7%.
Portfolio Activity
The geographic weightings within the portfolio have shifted markedly over the
period under review, from the UK (which has more than halved to just over 10%)
to the US and China in particular (which have both more than doubled to 30.4%
and 12.8% respectively). The European portion of the portfolio has remained
broadly unchanged, although there have been some shifts in country emphasis
within the region, most notably a reduction in the weighting in Spain. This
followed the sale of Iberdrola, in light of the increasing competition in
Iberian thermal generation, partly the result of weak demand.
GRAPH REMOVED
GRAPH REMOVED
In terms of sub sectors, electricity, water and gas were all increased as the
portfolio's legacy position in telecoms was completely wound down.
Infrastructure holdings (Asian toll roads) were increased at the end of the
period - the Company now holds four toll roads - to take advantage of the
growing availability of funding for large capital projects, as the credit
markets open up again. The most recent additions were Hopewell Highway (which
operates the Guangdong-Shenzhen superhighway and is bidding for a stake in the
Hong Kong-Zhuhai-Macau Bridge) and Zheijang Expressway. These two stocks yield
7% and 5% respectively and complement the Company's existing holdings in
Jiangsu Expressway and Bangkok Expressway.
Another key long term theme for the portfolio is the provision of water, where
ageing infrastructure in developed countries and growing demand for water
resource in emerging economies mean that immense opportunities exist for
specialist companies in this area. In the US the Company now has holdings in
Aqua America, which has recently undergone two favourable rate cases (reviews),
and should also be a beneficiary of a stabilising US housing market, and the
York Water Company, a small water supply company operating in central
Pennsylvania, with a long track record of steady growth of both earnings and
dividends and a good relationship with its regulator.
A new holding in Sinomem Technology increases the fund's exposure to the
Chinese water market, for which it develops proprietary membrane materials for
use in purification/separation processes. Following a shift in focus, its
Chinese water business looks set to be the key earnings driver in the next 3-5
years. Thai Tap Water has also seen encouraging water sales over the period,
and economic recovery should continue both to support growing tap water demand
and further to accelerate the indices to which the water tariff is linked.
Epure, which has performed very strongly over the last twelve months, is a
further beneficiary of Asian infrastructure expenditure. It has continued to
win major wastewater contracts in China, and higher margin contracts outside
its home region, in Saudi Arabia, for example, and its share price has
increased threefold as a result. It has also announced its intention to seek a
dual primary listing in Hong Kong that is likely to stimulate further interest
in the stock through favourable valuation comparisons with its Hong Kong peers.
Meanwhile an increased position in Northeast Utilities and new holdings in
regulated utilities such as UIL (Connecticut) and PG&E (Northern California)
should enable the fund to benefit from low risk investments in transmission and
distribution in the US. Like Aqua America, UIL has high earnings visibility
following recent rate case decisions, while PG&E has substantial hydroelectric
capacity, and growing solar, waste and geothermal capabilities.
Renewable energy will be a beneficiary of government investment plans in many
parts of the world. A major geographic focus of buying activity for the
portfolio over the period that also exploits this theme has been India, which
remains an extremely attractive market for power, both fossil fuel and
renewable, given the sub-continent's significant power supply-demand imbalance.
Previously held as an unquoted stock, the fund's position in Indian Energy -
currently the only independent pure wind power producer in India - was
increased at IPO to complement the existing renewable holding in Greenko
(hydroelectric and biomass). Mudajaya Group, although quoted in Malaysia,
brings further exposure to the Indian power market through its stake in a
special purpose vehicle undertaking a 1,400MW coal fired IPP Project in the
State of Chhattisgarh. Towards the end of the period, Greenko reported a 20%
tariff increase in two long term Power Purchase Agreements (PPAs) for biomass
plants also in the State of Chhattisgarh and believes that there is further
potential for tariff increases under long term PPAs across all States. The
shares have almost doubled over the period, but there is significant scope for
a further share price improvement.
Outlook
We believe that the global utilities universe of companies is an attractive
area for investors. Cheap valuations supported by high dividend yields in many
situations mean we are optimistic about the prospects for the Company in 2010
and beyond. We welcome contact with existing and potential new investors.
Further details of the Company may be found at www.premierfunds.co.uk.
Kevin Scutt
Andrew Whalley
Claire Burgess
Premier Fund Managers Limited
8 March 2010
INVESTMENT PORTFOLIO
at 31 December 2009
Holdings by value in descending order as at 31 December 2009
2009 Valuation 2008#
Company Activity Country GBP000 % of total GBP000
1 E.ON Electricity Germany 2,738 5.8% 2,585
generation &
supply
2 Northeast Electricity & USA 1,916 4.1% 1,672
Utilities gas
distribution
3 Gaz de France Gas production France 1,876 4.0% 1,366
and
transmission
4 Entergy Electricity USA 1,875 4.0% -
generation &
supply
5 UIL Holdings Electricity USA 1,790 3.8% -
generation &
supply
6 Snam Rete Gas Gas production Italy 1,533 3.3% 1,529
and
transmission
7 Aqua America Water & waste USA 1,516 3.2% -
services
8 Public Power Electricity Greece 1,502 3.2% -
generation &
supply
9 EDF Electricity France 1,475 3.1% 2,731
generation &
supply
10 Guangdong Water supply Hong Kong 1,444 3.1% 1,530
Investment
11 Epure Water Singapore 1,426 3.0% 382
International treatment
12 Pacific Gas and Electricity & USA 1,382 2.9% -
Electric gas
Company distribution
13 China Power New Renewable Hong Kong 1,318 2.8% 706
Energy electricity
generation
14 SUEZ Water & waste France 1,318 2.8% 233
services and
electricity
generation
15 Public Service Electricity USA 1,235 2.6% -
Enterprise generation &
Group supply
16 Altagas Income Gas production Canada 1,220 2.6% -
Trust and
transmission
17 Huaneng Power Electricity Hong Kong 1,187 2.5% -
International generation &
supply
18 Exelon Corp Electricity USA 1,089 2.3% -
generation &
supply
19 Enel Electricity Italy 1,079 2.3% 3,084
generation &
supply
20 Veolia Water & waste France 1,027 2.2% 2,246
Environnement services
21 National Grid Electricity & UK 1,016 2.2% -
gas
distribution
22 ITC Holdings Electricity USA 967 2.1% 908
Corporation distribution
23 Greenko Group Renewable UK 964 2.0% 325
electricity
generation
24 Electricity Electricity Thailand 954 2.0% 1,370
Generating generation &
supply
25 Gas Natural Gas production Spain 938 2.0% -
and
transmission
26 Indian Energy Renewable UK 936 2.0% 1,000
electricity
generation
27 PPL Corp Electricity USA 900 1.9% -
generation &
supply
28 York Water Water & waste USA 895 1.9% -
services
29 Thai Tap Water Water Thailand 825 1.7% 518
treatment
30 A2A Electricity & Italy 776 1.6% -
gas
distribution
31 Sabesp Water supply & USA 725 1.5% -
water
treatment
facilities
32 Jiangsu Toll roads China 722 1.5% -
Expressway
33 Hong Kong Electricity Hong Kong 674 1.4% -
Electric generation &
supply
34 Korea Electric Electricity USA 674 1.4% -
Power ADR generation &
supply
35 Transcanada Gas Canada 641 1.4% -
Corp transmission
36 Zhejiang Toll roads China 573 1.2% -
Expressway
37 Mudajaya Group Infrastructure Malaysia 538 1.1% -
38 ITI Energy* Renewable UK 504 1.1% 504
electricity
generation
39 Sinomem Water Singapore 494 1.0% -
Technology treatment
40 Pennon Group Water & waste UK 481 1.0% 1,493
services
41 Freepower* Renewable UK 420 0.9% 420
electricity
generation
42 Hopewell Toll roads Hong Kong 377 0.8% -
Highway
43 Premier Renewable UK 376 0.8% 263
Renewable electricity
generation
44 Independent Gas storage UK 316 0.7% 500
Resources
45 Bangkok Toll roads Thailand 268 0.6% 1,751
Expressway
46 Energybuild Coal UK 259 0.6% 336
Group production
Total portfolio 47,159 100.0%
* Unquoted investment.
# Values have been provided for holdings in the portfolio at both 31 December
2009 and 31 December 2008. Valuation movements between the two dates will
reflect market price changes and transactions.
COMPANY DETAILS
HISTORY
The Company was incorporated on 12 September 2003 and commenced its activities
on 4 November 2003. The Company was established in connection with the scheme
of reconstruction of LeggMason Investors International Utilities Trust Plc with
18,143,433 Ordinary shares and 19,143,433 Zero Dividend Preference shares being
allotted at launch. On 18 December 2009 shareholders approved special
resolutions to implement tender offers for Ordinary shares and Zero Dividend
Preference ("ZDP") shares, to extend the life of the Company until 31 December
2015 and to amend the final entitlement per ZDP share to 221.78p on 31 December
2015 (a gross redemption yield of 6.53% on the ZDP Net Asset Value ("NAV") of
151.39p at 17 December 2009).
CAPITAL STRUCTURE
Bank Loan The Company's policy is not to employ any long-term gearing.
16,336,396 Zero Dividend Preference shares of 1p each.
The Zero Dividend Preference shares will have a final capital entitlement of
221.78p on 31 December 2015 subject to there being sufficient capital in the
Company.
The Zero Dividend Preference shares are not entitled to any dividends.
The Zero Dividend Preference shareholders have the right to receive notice of,
to attend and to vote at all general meetings of the Company.
13,103,065 Ordinary shares of 1p each.
The Ordinary shares are entitled to all of the Company's net income available
for distribution by way of dividends. On a winding-up, they will be due any
undistributed revenue reserves and any surplus assets of the Company after the
Zero Dividend Preference shares have been paid in full.
The Ordinary shareholders have the right to receive notice of, to attend and to
vote at all general meetings of the Company.
Wind-up date 31 December 2015.
EXPENSE RECOGNITION POLICY
Expenses are charged wholly to revenue except when they directly relate to the
acquisition or disposal of an investment, in which case they are charged to
capital as investment transaction costs. The performance fee is allocated
between capital and revenue based on the out-performance attributable to
capital and revenue respectively.
RISK FACTORS
The Company concentrates on investments in the utility sector and may be
regarded as representing a higher risk than that of a generalist fund.
Securities listed on a recognised stock exchange have been valued at bid-market
prices and exchange rates ruling at the close of business. In certain
circumstances, the market prices at which investments may be 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 Company may invest up to 15% of its gross assets in unquoted securities
which may have limited liquidity and be difficult to realise.
The income and capital value of the Company's investments can be affected,
favourably or unfavourably, by currency movements as a proportion of the
Company's assets and income is denominated in currencies other than sterling.
The dividend on the Ordinary shares depends on receipt of interest payments and
dividends from securities in which the Company invests.
If on a wind-up of the Company the gross assets are insufficient to cover the
capital entitlement of the prior ranking Zero Dividend Preference shares, the
terminal asset value of the Ordinary shares could be zero and an investor could
lose all of the capital invested in those shares.
The Zero Dividend Preference shares rank ahead of the Ordinary shares for
repayment on a winding-up of the Company. A decline in the gross assets could
result in the Zero Dividend Preference shares failing to receive their full
redemption value on wind-up and if gross assets were equal to or less than the
amount required to pay liquidation costs, an investor would lose all of the
capital invested in the Zero Dividend Preference shares.
TOTAL NET ASSETS AND MARKET CAPITALISATION
As at 31 December 2009, the Company had a market capitalisation of GBP50.06
million (2008: GBP50.09 million) and assets attributable to shareholders amounted
to GBP50.06 million (2008: GBP59.96 million).
The figures at 31 December 2009 are after the tender offers for shares that
were completed on 18 December 2009.
MANAGEMENT FEE
During the year, the management fee was 0.0833% per month of the gross assets
(total assets less current liabilities). From 1 October 2008 no VAT has been
charged on the management fee. Until 31 December 2009, 100% of the management
fee was charged to revenue, from 1 January 2010 it has been decided to allocate
the management fees 60% to capital and 40% to revenue.
In addition, the Manager ("Premier Fund Managers Limited") is entitled to a
performance fee if in each Company year:
(i) the dividends paid are at least 6.75p; and
(ii) the gross assets at the end of the year exceed the highest level of gross
assets at the end of any previous Company year or the initial gross assets (if
higher) by more than 7.5% (on annualised basis). In that event the performance
fee will be equivalent to 15% of the excess.
The management contract is terminable by one year's written notice to expire at
any time.
ISA STATUS
The Company's Ordinary shares and Zero Dividend Preference shares are
qualifying investments for Individual Savings Accounts ("ISAs"). Full details
can be obtained from Premier Fund Managers Limited.
FINANCIAL SUMMARY
CAPITAL
Premium/
(discount) %
31 December 31 December % 31 December
2009 2008 change 2009
Total Assets (GBP 000)* 50,059 59,955 +12.7 -
Net Asset Value per 151.73p 141.86p +7.0 -
Zero Dividend
Preference share **
Mid-market price per 156.25p 142.25p +9.8 3.0
Zero Dividend Preference share
Net Asset Value 192.87p 180.78p +6.7 -
per Ordinary
share **
Mid-market 187.25p 126.00p +43.8 3.0
price per
Ordinary share
REVENUE
31 December 31 December %
2009 2008 change
Return per 21.88p (87.83)p +124.9
Ordinary share
Net dividend Base 7.70p 7.35p +4.8
per Ordinary
share:
Special 1.70p -
Total 9.40p 7.35p
* Total assets less current liabilities, adjusted for any dividends distributed
and for the tender offers and associated costs in 2009.
** Net asset values calculated in accordance with Articles of Association.
HURDLE RATESaEUR
31 December
2009
Zero Dividend Preference
shares:
Hurdle rate to redemption -aEUR%4.6%
share price of 221.78p on
31 December 2015
Ordinary shares:
Hurdle rate return to +3.3%
current share price of
187.25p
Source: Cazenove.
aEUR See page 56 for definition of hurdle rate.
TOTAL RETURN
Year to Year to
31 December 31 December
2009 2008
Total return on gross +12.7% -20.5%
assets 1
FTSE Global Utilities -1.8% -6.2%
Total Return Index 2 (GBP)
FTSE All World Total +21.2% -19.4%
Return Index 2 (GBP)
FTSE 100 Total Return +27.3% -28.3%
Index 2
Total expense ratio/cost 1.96% 1.85%
of running the Company 3
At At
31 December 31 December
2009 2008
GBP/$ exchange rate 1.6148 1.4378
GBP/ae exchange rate 1.1255 1.0343
1 Total return performance calculated, adjusted for any dividends distributed
and adjusted for the tender offers and associated costs in 2009.
2 Source: Bloomberg.
3 The expense ratio, excluding any performance management fee and VAT recovered
from HMRC in 2009, based on average monthly net asset value.
DIRECTORS
Geoffrey Burns - Chairman
Geoffrey Burns (56) has worked in the investment fund industry for over twenty
years. From 1997 to 2000 he was a director of and head of investment trusts at
Murray Johnstone Limited. Mr Burns is an adviser to a number of government or
multilateral agencies who make investments in private equity funds in emerging
markets, including CDC Group plc, the Swiss Investment Fund for Emerging
Markets and the Asian Development Bank. Mr Burns is Chairman of City Natural
Resources High Yield Trust PLC.
Adam Cooke
Adam Cooke (50) was a global partner of INVESCO PLC (formerly AMVESCAP PLC),
one of the world's largest independent investment management organisations
where he worked for INVESCO UK. His experience includes the UK institutional
business, investment trusts and collective investments. Mr Cooke is a member of
the Chartered Institute of Bankers and is a non executive director of City
Natural Resources High Yield Trust PLC and Midas Income and Growth Trust PLC.
Ian Graham
Ian Graham (56) has over 20 years experience as an investment analyst, more
than half of which were spent covering utilities, having worked at Scrimgeour
Kemp-Gee, Simon & Coates, Nat West Securities and Merrill Lynch until 2001.
Michael Wigley
Michael Wigley (70) is a director of The Conygar Investment Company plc. He was
formerly a director of Matheson Investment Limited and a non-executive director
of Development Securities PLC. He was deputy chairman of LeggMason Investors
International Utilities Trust Plc, the predecessor company.
INVESTMENT MANAGER AND SECRETARY
Investment Manager: Premier Fund Managers Limited
Premier Fund Managers Limited is a subsidiary of Premier Asset Management
Limited. Premier Asset Management Limited had just under GBP2.5 billion of funds
under management at 31 December 2009. Premier Fund Managers Limited is
authorised and regulated by the Financial Services Authority. The Company's
portfolio is managed by Andrew Whalley, Kevin Scutt and Claire Burgess.
Secretary: Premier Asset Management Limited
Premier Asset Management Limited provides the company secretarial and
administrative services.
DIRECTORS' REPORT
The Directors have pleasure in submitting their Business Review, Report and
Financial Statements for the year ended 31 December 2009.
BUSINESS REVIEW
UK listed companies are required to include a business review within their
directors' reports or, should they prefer, a more detailed operating financial
review. Having considered the regulations and in view of the nature and the
size of the Company, the Board has chosen to include a business review in its
report to shareholders, rather than an operating financial review. This
business review is intended to enhance shareholders' understanding of the
development, performance and position of the Company through a combination of
narrative and financial performance measures.
Extension of the life of the Company, Tender Offers, Matching Purchase Facility
and Placing and adoption of New Articles of Association
The Company was launched in 2003 as a successor Company to LeggMason Investors
International Utilities Trust PLC, with total assets of GBP36.8 million. The Zero
Dividend Preference ("ZDP") shares were issued with a redemption yield of 7.0
per cent, and a fixed life to 31 December 2010. Under the Company's Articles of
Association, the Directors were obliged to put a winding up proposal to
shareholders on 31 December 2010.
On 24 November 2009 the Company published a circular, which also incorporated a
prospectus ("Prospectus"), in which the Board sought shareholders approval for
the following proposals ("Proposals"):
aEURc the extension of the life of the Company to 31 December 2015 by releasing the
Directors of the Company from the obligation to put forward winding up
proposals on 31 December 2010;
aEURc a revision of the rights attaching to the ZDP Shares, such that their life
will continue until 31 December 2015 and their yield to redemption will also be
changed;
aEURc effecting the tender offers for Ordinary shares and ZDP shares (as explained
below); and
aEURc operating a matching purchase facility and placing to enable shareholders to
purchase shares tendered under the tender offers.
On 18 December 2009 the Board announced that shareholders had voted in favour
of each of the special resolutions put at the Class Meeting of ZDP
shareholders, the Class Meeting of Ordinary shareholders and the General
Meeting of the Company and that each resolution had been duly passed. The life
of the Company has therefore been extended to 31 December 2015.
The result of the Ordinary Share Tender Offer was as follows:
The Ordinary Share Tender Price at the Calculation Date (17 December 2009) was
182.38p and the total number of Ordinary shares validly tendered was 5,860,342.
The total number of Ordinary shares validly purchased under the Matching
Purchase Facility and Placing was 819,974 and the total number of Ordinary
shares repurchased by the Company was 5,040,368. The total number of Ordinary
shares in issue following the Proposals was 13,103,065.
The result of the ZDP Share Tender Offer was as follows:
The ZDP Share Tender Price at the Calculation Date (17 December 2009) was
156.00p. In accordance with the methodology for setting the Gross Redemption
Yield ("GRY") of the ZDP shares set out in part 3 of the Prospectus, the
resulting GRY was to be 6 per cent per annum. The total number of ZDP shares
validly purchased at a GRY level of 6 per cent per annum under the Matching
Purchase Facility and Placing was 662,707 and the total number of ZDP shares
repurchased by the Company was 2,807,037. The total number of ZDP shares in
issue following the Proposals was 16,336,396. The revised final capital
entitlement per ZDP share on 31 December 2015 will be 221.78 pence.
Business and tax status
The Company is an investment company as defined in Section 833 of the Companies
Act 2006. The Company operates as an investment trust and directs its affairs
so as to enable it to seek approval as such by HM Revenue & Customs under
Section 842 of the Income and Corporation Taxes Act 1988. Approval has been
obtained for the year ended 31 December 2008, which is subject to there being
no subsequent enquiry under Corporate Self Assessment. In the opinion of the
Directors, the Company has conducted its affairs for the year ended 31 December
2009 so as to enable it to continue to seek such approval.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the profits made from the sale of its investments.
Investment trusts offer a number of other advantages for investors, including
access to investment opportunities that might not be open to private investors
and to professional stock selection skills at low cost.
Investment objectives
The Company's investment objectives are to achieve high income from its
portfolio and to realise long-term growth in the capital value of the
portfolio. The Company will seek to achieve these objectives by investing
principally in equity and equity related securities of companies operating
primarily in the energy and water sectors, as well as other infrastructure
investments.
Investment policy
The policy of the Directors is that, in normal market conditions, the portfolio
of the Company should consist primarily of a diversified portfolio of equity
and equity-related securities of companies operating in the energy and water
sectors, as well as other infrastructure investments. There are no restrictions
on the proportion of the portfolio of the Company which may be invested in any
one geographical area or asset class but no more than 15% of the Company's
assets, at the time of acquisition, will be invested in a single security. The
Company may also invest up to 15% of its gross assets in investment companies
provided they themselves invest in utilities and infrastructure. However, not
more than 10% of the Company's gross assets may be invested in other UK listed
closed-ended investment funds unless such funds themselves have published
investment policies to invest not more than 15% of their total assets in other
UK listed closed-ended investment funds (provided they themselves invest in
utilities and infrastructure). The Company may invest up to 15% of its gross
assets in unquoted securities. There are no borrowings under financial
instruments or the equivalent of financial instruments but investors should be
aware of the gearing effect of the ZDP shares within the capital structure.
The Company will manage and invest its assets in accordance with its published
investment policy. Any material change to this policy will only be made with
the approval of Shareholders by ordinary resolution unless otherwise permitted
by the Listing Rules.
Investment Restrictions
In accordance with the Prospectus Rules and Listing Rules applicable to the
Company, the Company will not:
(i) invest more than 10%, in aggregate, of the value of its gross assets at the
time the investment is made in other listed closed-ended funds, provided that
this restriction does not apply to investments in any such closed-ended funds
which themselves have stated investment policies to invest no more than 15% of
their total assets in other listed closed-ended funds;
(ii) invest more than 15% of its gross assets in listed closed-ended funds;
(iii) invest more than 20% (calculated at the time of any relevant investment)
of its gross assets in other collective investment undertakings (open-ended or
closed-ended);
(iv) expose more than 20% of its gross assets to the creditworthiness or
solvency of any one counterparty (including the counterparty's subsidiaries or
affiliates);
(v) invest in physical commodities;
(vi) cross-finance between the businesses forming part of its investment
portfolio including provision of undertakings or security for borrowings by
such businesses for the benefit of another;
(vii) operate common treasury functions as between the Company and an investee
company; or
(viii) conduct any significant trading activity.
In addition to the above restriction on investment in a single company the
Board seeks to achieve a spread of risk in the portfolio through monitoring the
country and sector weightings of the portfolio.
There will be a minimum of 20 stocks in the portfolio.
The Company is geared through zero dividend preference shares but does not use
other gearing.
Going concern
The Directors believe that the Company has adequate resources to continue in
operational existence for the foreseeable future. The use of the going concern
basis is appropriate because there are no material uncertainties relating to
events or conditions that may cast significant doubt about the ability of the
Company to continue as a going concern.
Performance
An outline of the performance, market background, investment activity and
portfolio strategy during the period under review, as well as the investment
outlook, is provided in the Chairman's Statement and Investment Manager's
report.
Dividends
During the year the following dividends were paid:
Dividend
pence
Payment date (net per share)
Fourth Interim for the 31 March 2009 2.85p
year ended 31 December
2008
First Interim for the year 30 June 2009 1.5p
ended 31 December 2009
Second Interim for the 30 September 2009 1.5p
year ended 31 December
2009
Third Interim for the year 31 December 2009 1.5p
ended 31 December 2009
Subsequent to the year-end but in respect of the year ended 31 December 2009,
the Directors have declared a fourth interim dividend of 4.9p (which includes a
special dividend of 1.7p), payable on 31 March 2010 to members on the register
at the close of business on 12 March 2010. The shares were marked ex-dividend
on 10 March 2010. This dividend relates to the year ended 31 December 2009 but
in accordance with the Company's accounting policies, it is recognised in the
period in which it is paid.
Principal risks associated with the Company (see note 20)
Structure of the Company and gearing
The Company is a split-capital investment trust with two separate classes of
share, each with different characteristics. Returns generated by the Company's
underlying portfolio are apportioned in accordance with the respective
entitlements of each class of share. As the Ordinary shares and Zero Dividend
Preference shares have different rights both during the life of the Company and
on a winding-up, shareholders and prospective investors are advised to give
careful consideration to their choice of class or classes of share (see pages 8
to 9 for details of these entitlements).
The Company employs no gearing in the form of a bank loan. The Ordinary shares
are geared by the payment of the prior ranking Zero Dividend Preference shares.
Dividend levels
Dividends paid on the Company's Ordinary shares rely on receipt of interest
payments and dividends from the securities in which the Company invests. The
Company's revenue levels are monitored on a monthly basis by the Board and the
Investment Manager.
Currency risk
The Company invests in overseas securities and its assets are therefore subject
to currency exchange rate fluctuations.
Liquidity risk
The Company may invest up to 15% of its gross assets in unquoted securities.
These securities may have limited liquidity and be difficult to realise.
Market price risk
Since the Company invests in financial instruments, market price risk is
inherent in these investments. In order to minimise this risk, a detailed
analysis of the risk/reward relationship of each investee company is undertaken
by the Investment Manager prior to making investments.
Discount volatility
Being a closed-end fund, the Company's shares may trade at a discount to their
net asset value. The magnitude of this discount fluctuates daily and can vary
significantly. Thus, for a given period of time, it is possible that the market
price could decrease despite an increase in the Company's shares' net asset
value. The Directors review the discount levels regularly. The Investment
Manager actively communicates with the Company's major shareholders and
potential new investors, with the aim of managing discount levels.
Operational
Like most other investment trust companies, the Company has no employees. The
Company therefore relies upon the services provided by third parties and is
dependent on the control systems of the Investment Manager and the Company's
service providers. The security, for example, of the Company's assets, dealing
procedures, accounting records and maintenance of regulatory and legal
requirements, depend on the effective operation of these systems.
Accounting, legal and regulatory
In order to qualify as an investment trust, the Company must comply with
Section 842 of the Income and Corporation Taxes Act 1988 ("Section 842"). A
breach of Section 842 could lead to the Company being subject to capital gains
tax on gains within the Company's portfolio. Section 842 qualification criteria
are continually monitored by Premier Fund Managers Limited and the results
reported to the Board at its regular meetings. The Company must also comply
with the Companies Act and the UKLA Listing Rules. The Board relies on the
services of the administrator, Premier Asset Management Limited and its
professional advisers to ensure compliance with the Companies Act and the UKLA
Listing Rules.
Analysis of the Company's performance
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives.
The key performance indicators used to measure the progress and performance of
the Company over time are as follows:
1) The performance against a set of reference points. The Investment Manager's
performance is not assessed against a formal benchmark but rather against a set
of reference points which are more general in nature and intended to be
representative of the broad spread of assets in which the portfolio invests.
These references include the FTSE Global Utilities Total Return Index, FTSE All
World Total Return Index and FTSE 100 Total Return Index (see financial summary
on page 12).
2) The performance against the peer group. The assessment of the Investment
Manager's performance against companies which invest in similar, but not
necessarily the same, securities allows the Board to evaluate the effectiveness
of the Company's investment strategy.
3) The performance of the Company at the net asset level. This shows how the
assets attributable to shareholders as a whole have performed.
4) The performance of the individual share classes, both in terms of share
price total return (i.e. accounting for dividends received) and in terms of net
asset value total return. The share price performance is the measure of the
return that shareholders have actually received and will reflect the impact of
widening or narrowing of discounts to NAV (see graphs on page 1).
5) Total Expense Ratio ("TER"). The TER is an expression of the Company's
management fees and other operating expenses as a percentage of average net
assets over the year. The TER for the year ended 31 December 2009 was 1.96%
excluding performance fee and VAT recovered from HMRC in 2009 (2008: 1.85%).
Future prospects
The Board's main focus is the achievement of a high income from the portfolio
together with the generation of long-term capital growth. The future of the
Company is dependent upon the success of the investment strategy. The
investment outlook is discussed in both the Chairman's statement on page 4 and
the Investment Manager's report on page 6.
DIRECTORS
Directors serving throughout the year ended 31 December 2009 were as follows:
Geoffrey Burns
Adam Cooke
Ian Graham
Michael Wigley
None of the Directors, nor any persons connected with them, had a material
interest in any of the Company's transactions, arrangements or agreements
during the year. None of the Directors has, or has had, any interest in any
transaction which is, or was, unusual in its nature or conditions or
significant to the business of the Company, and which was effected by the
Company during the current financial year.
At the date of this report, there are no outstanding loans or guarantees
between the Company and any Director.
In accordance with the Articles of Association Mr Michael Wigley retires by
rotation and, being eligible, offers himself for re-election.
DIRECTORS' BENEFICIAL AND FAMILY INTERESTS
The interests of the Directors and their families in the shares of the Company
are as follows:
Ordinary Zero Dividend Ordinary Zero Dividend
shares at Preference shares at Preference
shares at shares at
31 December 2009 31 December 2009 1 January 2009 1 January 2009
Geoffrey 80,411 - 69,500 -
Burns
Adam Cooke 37,000 - 32,000 -
Ian Graham 18,309 - 10,126 -
Michael 124,183 - 116,000 -
Wigley
There have been no changes in any of the above holdings up to the date of this
report.
SUBSTANTIAL SHAREHOLDINGS
As at the date of this report the Company had been notified of the following
substantial interests in the Ordinary and Zero Dividend Preference share
capital of the Company.
% of total
Ordinary shares Number of shares voting rights
Premier Fund Managers 1,845,314 6.3
Limited*
NCL Smith & Williamson 1,416,180 4.8
Charles Stanley Group PLC 1,414,649 4.8
Armstrong Investments 1,000,000 3.4
Limited
Philip J Milton & Company 833,272 2.8
PLC
Rensberg Sheppards PLC 173,532 0.59
Deutsche Bank AG/Tilney 8,498 0.03
Group Limited
Zero Dividend Preference
shares
Deutsche Bank AG/Tilney 3,893,354 13.2
Group Limited
Rensburg Sheppards PLC 3,037,959 10.3
* This includes 1,789,036 Ordinary shares that are held in the ISA scheme that
is administered by Premier Fund Managers Limited on behalf of individual
shareholders.
NET ASSET VALUE
The net asset value per Ordinary share, including revenue reserve, at 31
December 2009 was 192.87p (31 December 2008: 180.78p). The cumulative net asset
value of the Zero Dividend Preference share at 31 December 2009 was 151.73p (31
December 2008: 141.86p).
MANAGEMENT, SECRETARIAL AND ADMINISTRATION AGREEMENTS
The Company's portfolio is managed by Premier Fund Managers Limited under an
Investment Management Agreement dated 26 September 2003.
The management fee is 0.0833% per month of the gross assets (from 1 October
2008 no VAT has been charged).
In addition, the Investment Manager is entitled to a performance fee if in each
Company year:
(i) the dividends paid are at least 6.75p, and
(ii) the gross assets at the end of the year exceed the highest level of gross
assets at the end of any previous Company year or the initial gross assets (if
higher) by more than 7.5% (on annualised basis). In that event the performance
fee will be equivalent to 15% of the excess.
The Management Agreement is currently terminable on 12 months' notice.
Under the Administration Agreement dated 26 September 2003, company secretarial
services and the general administration of the Company are undertaken by
Premier Asset Management Limited. The Administration Agreement is currently
terminable on 12 months' notice.
The Board as a whole regularly reviews the terms of the management and
secretarial contracts.
CORPORATE GOVERNANCE
The Board is accountable to the Company's shareholders for the governance of
the Company's affairs and this statement describes how the principles of the
Combined Code on Corporate Governance issued in 2008 ("the Code") have been
applied to the affairs of the Company. In applying the principles of the Code,
the Directors have also taken account of the Code of Corporate Governance
published by the Association of Investment Companies ("the AIC Code"), which
has established a framework of best practice specifically for the Boards of
investment trust companies. There is some overlap in the principles laid down
by the two Codes and there are some areas where the AIC Code is more flexible
for investment trust companies.
Board of Directors
The Board currently consists of four non-executive Directors all of whom are
independent of the Investment Manager. Their biographies are set out on page
13. Collectively the Board has the requisite range of business and financial
experience which enables it to provide clear and effective leadership and
proper stewardship of the Company.
The number of meetings of the Board, the Audit Committee and the Nomination
Committee held during the financial year and the attendance of individual
Directors are shown below:
Audit Nomination
Board Committee Committee
Number of meetings 7 2 1
in the year
Geoffrey Burns 7 2 1
Adam Cooke 7 2 1
Ian Graham 7 2 1
Michael Wigley 7 2 1
All of the Directors attended the Annual General Meeting held in April 2009.
The Board deals with the Company's affairs, including the setting of gearing
and investment policy parameters, the monitoring of gearing and investment
policy and the review of investment performance. The Investment Manager takes
decisions as to asset allocation and the purchase and sale of individual
investments. The Board papers circulated before each meeting contain full
information on the financial condition of the Company. Key representatives of
the Investment Manager attend most of the Board meetings, enabling Directors to
probe further or seek clarification on matters of concern.
Matters specifically reserved for discussion by the full Board have been
defined and a procedure adopted for the Directors to take independent
professional advice if necessary at the Company's expense.
The Chairman of the Company is a non-executive Director. A senior non-executive
Director has not been identified as the Board is comprised entirely of
non-executive Directors.
In accordance with the Articles of Association, new Directors stand for
election at the first Annual General Meeting following their appointment. The
Articles require that one third of the Directors retire by rotation each year
and seek re-election at the Annual General Meeting. In addition, all Directors
are required to submit themselves for re-election at least every three years
and will seek annual re-election if they have already served for more than nine
years.
Performance evaluation/re-election of Directors
An appraisal process has been established in order to review the effectiveness
of the Board, the Committees and individual Directors. This process involves
the consideration by the Chairman and the Board of responses from individual
Directors to a questionnaire which is completed on an annual basis. In
addition, the other Directors meet collectively once a year to evaluate the
performance of the Chairman. As a result of this appraisal process the
Nomination Committee recommends the re-election of Mr Michael Wigley who
retires by rotation.
The performance of the Company is considered in detail at each Board meeting.
Committees
The Board believes that the interests of shareholders in an investment trust
company are best served by limiting its size such that all Directors are able
to participate fully in all the activities of the Board. It is for this reason
that the membership of the Audit and Nomination Committees is the same as that
for the Board as a whole.
Audit Committee
Mr Cooke is the Chairman of the Audit Committee which operates within defined
terms of reference. The Audit Committee meets at least twice a year and is
responsible for reviewing the annual and interim reports, the nature and scope
of the external audit and the findings therefrom, and the terms of appointment
of the auditors, including their remuneration and the provision of any
non-audit services by them. The Audit Committee has considered the independence
of the auditors and the objectivity of the audit process and is satisfied that
Ernst & Young LLP is independent and has fulfilled its obligations to
shareholders. The Audit Committee meets representatives of the Investment
Manager and its Compliance Officer who report as to the proper conduct of
business in accordance with the regulatory environment in which both the
Company and the Investment Manager operate and reviews the Investment Manager's
internal controls. The Company's external auditors also attend this Committee
at its request and report on their findings in relation to the Company's
statutory audit.
Nomination Committee
Mr Burns is the Chairman of the Nomination Committee which is responsible for
the Board appraisal process, and reviews the Board's size and structure and is
responsible for succession planning. The Nomination Committee meets at least
annually.
Remuneration Committee
The Board as a whole considers Directors' remuneration and therefore has not
appointed a separate remuneration committee. As the Company is an investment
trust and all Directors are non-executive the Company is not required to comply
with the Code in respect of executive Directors' remuneration. Directors' fees
are detailed in the Directors' Remuneration Report on page 31.
Internal controls
The Board acknowledges that it is responsible for the Company's system of
internal controls and has established a process for identifying, evaluating and
managing significant risks faced by the Company. The process is subject to
regular review by the Board and accords with "Internal Control: Guidance for
Directors on the Combined Code" ("The Turnbull guidance") which was issued in
September 1999.
These internal control systems are designed to safeguard shareholders'
investment and the Company's assets. It should be recognised that such systems
provide reasonable but not absolute assurance against material misstatement or
loss.
Internal control process
The Turnbull guidance recommends a risk-based approach to the assessment of
internal controls. The Board has completed a risk map for the Company and
established procedures for the monitoring and review of the risks identified.
The Board as a whole is primarily responsible for the monitoring and review of
risks associated with investment matters and the Audit Committee is primarily
responsible for other risks.
As the Board has contractually delegated to other companies the investment
management, the custodial services and the day-to-day accounting and company
secretarial requirements, the Company relies significantly upon the internal
controls operated by those companies. Therefore, the Directors have concluded
that the Company should not establish its own internal audit function.
Investment management is performed by Premier Fund Managers Limited and
administration services by Premier Asset Management Limited. Details of the
agreement with the Investment Manager and the administrator are given on page
20 and in notes 3 and 19 to the financial statements. The custodian is Northern
Trust Company Limited.
The risk map has been considered at all regular meetings of the Board and Audit
Committee. As part of the risk review process, regular reports are received
from the Investment Manager on all investment-related matters including
compliance with the investment mandate, the performance of the portfolio
compared with relevant indices and compliance with investment trust status
requirements. The Board also receives and reviews reports from the custodian on
its internal controls and their operation.
The Board confirms that appropriate procedures to review the effectiveness of
the Company's system of internal control have been in place, throughout the
year and up to the date of this report, which cover all controls including
financial, operational and compliance controls and risk management. An
assessment of internal control, which includes a review of the Company's risk
map, an assessment of the quality of reports on internal control from the
service providers and the effectiveness of the Company's reporting process, is
carried out on an annual basis.
Evaluation of Investment Manager's performance
The investment performance is reviewed at each regular Board meeting at which
representatives of the Investment Manager are required to provide answers to
any questions raised by the Board. The Board has instigated an annual formal
review of the Investment Manager which includes consideration of:
aEURc performance compared with relevant indices;
aEURc investment resources dedicated to the Company;
aEURc investment management fee arrangements and notice period compared with the
peer group; and
aEURc marketing effort and resources provided to the Company.
The Board believes that Premier Fund Managers Limited has served the Company
well in terms of investment performance and has no hesitation in continuing its
appointment.
The Company Secretary
The Board has direct access to the advice and services of the Company
Secretary, Premier Asset Management Limited, which is responsible for ensuring
that Board and Committee procedures are followed and that applicable
regulations are complied with. The Secretary is also responsible to the Board
for ensuring timely delivery of information and reports and that statutory
obligations of the Company are met.
Individual Directors may take independent professional advice on any matter
concerning them in the furtherance of their duties at the Company's expense.
The Company also maintains Directors' and Officers' liability insurance to
cover legal defence costs.
Relations with shareholders
Communication with shareholders is given a high priority by both the Board and
the Investment Manager and all Directors are available to enter into dialogue
with shareholders. Major shareholders of the Company are offered the
opportunity to meet with the Board. The Board regularly reviews any contact
with the Company's shareholders and monitors its shareholder register.
All shareholders are encouraged to attend and vote at the Annual General
Meeting, during which the Board and the Investment Manager are available to
discuss issues affecting the Company and shareholders have the opportunity to
address questions to the Investment Manager, the Board and the Chairmen of the
Board's standing committees.
Any shareholder who would like to lodge questions in advance of the Annual
General Meeting is invited to do so in writing to the Company Secretary at the
address detailed inside the back cover. The Company always responds to letters
from individual shareholders.
The Annual and Interim Reports of the Company are prepared by the Board and its
advisers to present a full and readily understandable review of the Company's
performance. Copies are dispatched to shareholders by mail and are also
available for downloading from the Investment Manager's website.
A monthly fact sheet is produced by the Investment Manager and is also
available via their website.
If a shareholder would like to contact the Board directly, they should write to
the Chairman at c/o Premier Asset Management Limited, Eastgate Court, High
Street, Guildford, Surrey GU1 3DE, marking their letter "Private and
confidential".
Statement of compliance
The Board believes that it has complied with all the material provisions, in so
far as they apply to the Company's business, of the Code throughout the year
under review. It did not, however, comply with the following provisions, as
explained previously:
aEURc due to the small size of the Board and nature of the business a separate
remuneration committee has not been established; and
aEURc a senior non-executive Director has not been identified.
The Board has adhered to the principles of the AIC Code in all material
respects.
SOCIALLY RESPONSIBLE INVESTMENT
The Board has delegated the investment management function to Premier Fund
Managers Limited. The Investment Manager's primary objective is to produce
superior financial returns to investors. It believes that over the long-term
sound social, environmental and ethical policies make good business sense and
takes these issues into account, when, in its view, they have a material impact
on either the investment risk or the expected return from an investment.
PROXY VOTING AS AN INSTITUTIONAL INVESTOR
Responsibility for actively monitoring the activities of companies in which the
Company is invested has been delegated by the Board to the Investment Manager.
The Investment Manager is responsible for reviewing, on a regular basis, the
annual reports, circulars and other publications produced by the investee
companies. The Investment Manager, in the absence of explicit instructions from
the Board, is empowered to exercise discretion in the use of the Company's
voting rights. Wherever practicable, the Investment Manager's policy is to vote
all shares held by the Company.
VAT ON MANAGEMENT FEES
On 5 August 2009, the Company received the repayment of GBP531,000 of VAT on
management fees incurred since its launch in November 2003 and subsequently
received a further amount of GBP51,000 in respect of interest.
PAYMENT OF SUPPLIERS
It is the Company's payment policy to obtain the best possible terms for all
business and therefore there is no consistent policy as to the terms used. The
Company agrees with its suppliers the terms on which business will take place
and it is our policy to abide by these terms. There were no trade creditors at
31 December 2009 (2008: nil).
ANNUAL GENERAL MEETING
THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt as to what action you should take or about the contents of this
document, you should immediately consult an independent financial adviser
authorised under the Financial Services and Markets Act 2000 (or in the case of
recipients outside the United Kingdom, a stockbroker, bank manager, solicitor,
accountant or other independent financial adviser).
If you have sold or otherwise transferred all of your shares in Premier Energy
and Water Trust PLC, please pass this document, together with the accompanying
Form of Proxy, as soon as possible to the purchaser or transferee or to the
stockbroker or other agent through whom the sale or transfer was effected for
transmission to the purchaser or transferee.
The notice of the Annual General Meeting sets out the ordinary business and
special business to be conducted at the Meeting. The following explains the
resolutions to be considered at the Meeting as special business.
RESOLUTION 5, 6 & 7: Authority to allot shares
Under Resolution 5 of the Annual General Meeting ("AGM"), the Directors seek a
general power from shareholders to allot new shares up to an aggregate par
value of GBP29,439 representing approximately 10% of the issued Ordinary share
capital of the Company and approximately 10% of the issued Zero Dividend
Preference share capital, in each case as at 5 March 2010.
Resolution 6 of the AGM will, if passed, permit the Directors to allot Ordinary
shares at a discount to the then prevailing net asset value of the Ordinary
shares. The Directors will only utilise this authority to issue new shares
provided that the aggregate value of new Ordinary shares and new Zero Dividend
Preference shares to be issued is at an overall premium to net asset value. In
any event, any new issue of shares would only be made in accordance with the
provisions of the Company's Articles of Association which require existing Zero
Dividend Preference shares to have a cover of not less than 1.5 times
immediately following the issue of the new shares if any new shares are to rank
ahead of, or parri passu with, the existing Zero Dividend Preference shares.
Resolution 7 of the AGM will, if passed, empower the Directors to make
allotments of Ordinary shares for cash on a non pre-emptive basis up to an
aggregate of GBP13,103, being approximately 10% of the issued Ordinary share
capital of the Company.
These Resolutions will provide the Directors with flexibility to act in the
best interests of shareholders.
These authorities, if granted, will expire at the conclusion of the next Annual
General Meeting.
RESOLUTION 8: Purchase by the Company of its own shares
At an Annual General Meeting held on 22 April 2009 a special resolution was
passed, giving the Directors authority until the conclusion of the earlier of
the 2010 Annual General Meeting and 22 October 2010, to make market purchases
of up to a maximum of 2,719,700 Ordinary shares and 2,869,600 Zero Dividend
Preference shares. This authority was updated at the General Meeting held on 18
December 2009 when a special resolution was passed giving the Directors
authority until 31 March 2010, to make market purchases up to a maximum of
7,257,373 Ordinary shares and 7,657,373 Zero Dividend Preference shares. This
was to facilitate the tender offers and is explained in the Directors' Report
on pages 14 and 15. The tender offers were implemented on 18 December 2009 and
5,040,368 Ordinary shares and 2,807,037 Zero Dividend Preference shares were
purchased for cancellation (year ended 31 December 2008: no shares were
purchased).
The Board proposes that the Company should be given renewed general authority
to purchase Ordinary shares and Zero Dividend Preference shares in the market
for cancellation in accordance with the Companies Act 2006 but subject to the
provisos set out below. Resolution 8 of the Annual General Meeting, which is a
special resolution, is being proposed for this purpose.
It is proposed that the Company be authorised to purchase on the London Stock
Exchange up to 1,964,149 Ordinary shares and 2,448,826 Zero Dividend Preference
shares (representing 14.99% of each class of the Company's issued share capital
as at 5 March 2010) provided that:
(a) Ordinary shares will only be repurchased at a purchase price which is below
the prevailing Net Asset Value per Ordinary share and where the cover on the
Zero Dividend Preference shares is 1.5 times or above and, as a consequence of
the proposed repurchase, the cover on the Zero Dividend Preference shares will
not reduce to below 1.5 times (having taking account of any Zero Dividend
Preference shares to be purchased at or about the same time); and/or
(b) Ordinary shares and Zero Dividend Preference shares are only repurchased in
the ratio of Ordinary shares to Zero Dividend Preference shares of 0.802:1; and
/or
(c) Zero Dividend Preference shares are purchased at a purchase price which is
below their prevailing accrued capital entitlement (as at the business day
immediately preceding the day on which the Zero Dividend Preference share is
purchased).
Repurchases of shares will be made at the discretion of the Board within
guidelines set from time to time by the Board and only when market conditions
are considered by the Board to be appropriate and in accordance with the
Listing Rules. Repurchases will only be made when they result in an increase in
the fully diluted Net Asset Value per Ordinary share. The Board remains
committed to exploring methods by which shareholder value can be enhanced. The
purchase for cancellation by the Company of its shares at a cost below the net
asset value of those shares enhances the net asset value of the remaining
shares. This additional demand for shares may reduce the discount at which the
shares trade. Any shares repurchased by the Company will be cancelled and will
not be held in treasury for resale.
Under London Stock Exchange rules, the maximum price to be paid on any exercise
of the authority in respect of Ordinary shares must not exceed the higher of
(i) 105% of the average of the middle market quotations for a share for the
five business days immediately preceding the date of purchase and (ii) the
higher of the price of the last independent trade and the highest current bid.
Separately we have chosen to restrict our authority to purchase Zero Dividend
Preference shares to a maximum price equivalent to their accrued capital
entitlement at the time of purchase. The minimum price paid for an Ordinary
share or Zero Dividend Preference share may not be below 1p per share.
The authority to purchase shares will last until the Annual General Meeting of
the Company in 2011, or 20 October 2011, whichever is the earlier. The
authority may be renewed by shareholders at a General Meeting.
Purchases will be funded either by using available cash resources, debt or by
selling investments.
Recommendation
Your Board considers that resolutions 1 to 8 are in the best interests of the
Company and its members as a whole and are likely to promote the success of the
Company for the benefit of its members as a whole. Accordingly, your Board
unanimously recommends that shareholders should vote in favour of the
resolutions as they intend to do in respect of their own beneficial
shareholdings amounting to 259,903 Ordinary shares.
COMPANIES ACT 2006 DISCLOSURES
In accordance with Section 992 of the Companies Act 2006 the Directors disclose
the following information:
aEURc the Company's capital structure is summarised on page 2, voting rights are
summarised on page 8, and there are no restrictions on voting rights nor any
agreement between holders of securities that result in restrictions on the
transfer of securities or on voting rights;
aEURc there exist no securities carrying special rights with regard to the control
of the Company;
aEURc details of the substantial shareholders in the Company are listed on page 20;
aEURc the Company does not have an employees' share scheme;
aEURc the rules concerning the appointment and replacement of Directors, amendment
of the Articles of Association and powers to issue or buy back the Company's
shares are contained in the Articles of Association of the Company and the
Companies Act 2006;
aEURc there exist no agreements to which the Company is party that may affect its
control following a takeover bid; and
aEURc there exist no agreements between the Company and its Directors providing for
compensation for loss of office that may occur because of a takeover bid.
AUDITORS
Ernst & Young LLP have expressed their willingness to continue in office as
Auditor and a resolution proposing their reappointment and to authorise the
Board to determine their remuneration will be submitted at the Annual General
Meeting.
The Directors who held office at the date of approval of this Directors' Report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's Auditors are unaware; and each Director has
taken all the steps that they ought to have taken as Directors to make
themselves aware of any relevant audit information and to establish that the
Company's Auditors are aware of that information.
By Order of the Board
Premier Asset Management Limited
Secretary
8 March 2010
DIRECTORS' REMUNERATION REPORT
The Board has prepared this report, in accordance with Section 421 of the
Companies Act 2006. An ordinary resolution for the approval of this report will
be put to the members at the forthcoming Annual General Meeting.
The law requires your Company's auditors to audit certain of the disclosures
provided. Where disclosures have been audited, they are indicated as such. The
auditors' opinion is included in their report on page 35.
Remuneration Committee
The Board as a whole fulfils the function of a Remuneration Committee. The
Company Secretary, Premier Asset Management Limited, will be asked to provide
advice when the Directors consider the level of Directors' fees.
Policy on Directors' fees
The Board's policy is that the remuneration of non-executive Directors should
reflect the experience of the Board as a whole and be fair and comparable to
that of other investment trusts that are similar in size, have a similar
capital structure and have a similar investment objective.
The fees for the non-executive Directors are determined within the limits of GBP
150,000 set out in the Company's Articles of Association. The Directors are not
eligible for bonuses, pension benefits, share options, long-term incentive
schemes or other benefits.
Directors' service contracts
It is the Board's policy that none of the Directors have a service contract.
The terms of their appointment provide that a Director shall retire and be
subject to re-election at the first Annual General Meeting after his/her
appointment, and at least every three years and will seek re-election if they
have already served for more than nine years. The terms also provide that a
Director may be removed without notice and that compensation will not be due on
leaving office.
Your Company's performance
For the purpose of this report the Board is required to select an index against
which the Company's performance can be measured. Although performance is not
measured against a single benchmark the FTSE Global Utilities Total Return
Index (sterling based) has been selected for this purpose. The graph overleaf
shows the 5 year share price total return (assuming all dividends are
reinvested) to Ordinary shareholders against the FTSE Global Utilities Total
Return Index on a total return basis from 31 December 2004 until 31 December
2009.
5 year share price performance
GRAPH REMOVED
Directors' emoluments for the year (audited)
The Directors who served in the year received the following emoluments in the
form of fees:
Year ended Year ended
31 December 31 December
2009 2008
Geoffrey Burns 22,000 22,000
Adam Cooke 15,000 15,000
Ian Graham 15,000 15,000
Michael Wigley 15,000 15,000
Total 67,000 67,000
Approval
A resolution for the approval of the Directors' Remuneration Report for the
year ended 31 December 2009 will be proposed at the Annual General Meeting.
By Order of the Board
Premier Asset Management Limited
Secretary
8 March 2010
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
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:
aEURc select suitable accounting policies and then apply them consistently;
aEURc make judgements and estimates that are reasonable and prudent; and
aEURc state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, Directors' Remuneration Report and Corporate
Governance Statement that complies with that law and those regulations.
The financial statements are published on the www.premierassetmanagement.co.uk
website, which is maintained by the Company's Investment Manager. The
maintenance and integrity of the website maintained by Premier Asset Management
Limited is, so far as it relates to the Company, the responsibility of Premier
Asset Management Limited. The work carried out by the auditors does not involve
consideration of the maintenance and integrity of this website and,
accordingly, the auditors accept no responsibility for any changes that have
occurred to the financial statements since they were initially presented on the
website. The financial statements are prepared in accordance with UK
legislation, which may differ from legislation in other jurisdictions.
Statement under the Disclosure & Transparency Rules 4.1.12
The Directors each confirm to the best of their knowledge that:
a) the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
b) this Annual Report includes a fair review of the development and performance
of the business and the position of the Company, together with a description of
the principal risks and uncertainties that it faces.
For and on behalf of the Board.
Adam Cooke
Director
8 March 2010
INDEPENDENT AUDITOR'S REPORT
to the members of Premier Energy and Water Trust PLC
We have audited the financial statements of Premier Energy and Water Trust PLC
for the year ended 31 December 2009 which comprise the Income Statement, the
Balance Sheet, the Reconciliation of Movements in Shareholders' Funds, the Cash
Flow Statement and the related notes 1 to 20. The financial reporting framework
that has been applied in their preparation is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors' Responsibilities set out
on pages 32 to 33, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view. Our responsibility is to audit the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial
statements.
Opinion on financial statements
In our opinion the financial statements:
aEURc give a true and fair view of the state of the Company's affairs as at 31
December 2009 and of its net return for the year then ended;
aEURc have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
aEURc have been prepared in accordance with the requirements of the Companies Act
2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
aEURc the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
aEURc the information given in the Directors' Report for the financial year for
which the financial statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
aEURc adequate accounting records have not been kept, or returns adequate for our
audit have not been received from branches not visited by us; or
aEURc the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns; or
aEURc certain disclosures of directors' remuneration specified by law are not made;
or
aEURc we have not received all the information and explanations we require for our
audit.
Under the Listing Rules we are required to review:
aEURc the Directors' Statement, set out on page 16, in relation to going concern;
and
aEURc the part of the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the June 2008 Combined Code specified
for our review.
Caroline Gulliver (Senior Statutory Auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London
8 March 2010
INCOME STATEMENT
For the year ended 31 December 2009
Year Year Year Year Year Year
ended 31 ended 31 ended 31 ended 31 ended 31 ended 31
December December December December December December
2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gains/ 13 - 3,691 3,691 - (15,828) (15,828)
(losses) on
investments
- held at
fair value
through
profit or
loss
Income 2 2,679 - 2,679 2,798 - 2,798
Investment 3 (561) - (561) (636) (15) (651)
management
and
performance
fee
VAT 3 247 284 531 - - -
recovered
from HMRC on
management
and
performance
fees
Other 4 (297) - (297) (296) - (296)
expenses
Return 2,068 3,975 6,043 1,866 (15,843) (13,977)
before
finance
costs and
taxation
Finance 5 (1) (2,005) (2,006) (1) (1,777) (1,778)
costs
Return on 2,067 1,970 4,037 1,865 (17,620) (15,755)
ordinary
activities
before
taxation
Taxation on 6 (238) - (238) (330) 150 (180)
ordinary
activities
Return on 1,829 1,970 3,799 1,535 (17,470) (15,935)
ordinary
activities
after
taxation
attributable
to equity
shares
Return per 15 21.16 (87.83)
Ordinary
share
(pence) -
basic
Return per 15 9.87 9.28
Zero
Dividend
Preference
share
(pence)
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
The notes on pages 40 to 55 form part of these financial statements.
The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
BALANCE SHEET
as at 31 December 2009
Company registration number 4897881
2009 2008
Notes GBP000 GBP000
Non current assets
Investments at fair 8 47,159 53,868
value through the
profit or loss
Current assets
Debtors 9 244 328
Cash at bank 6,001 5,880
6,245 6,208
Current liabilities
Creditors: amounts 10 (3,345) (121)
falling due within
one year
Net current assets 2,900 6,087
Total assets less 50,059 59,955
current liabilities
Creditors: amounts 11 (24,787) (27,156)
falling due after
more than one year
Total net assets 25,272 32,799
Capital and
reserves
Share capital 12 131 181
Redemption reserve 88 10
Capital reserve 13 16,107 14,137
Special reserve 7,454 17,474
Revenue reserve 1,492 997
Total equity 25,272 32,799
shareholders' funds
Net asset value per 16 151.73 141.86
Zero Dividend
Preference share
(pence)
(Zero Dividend
Preference shares
are classified as
financial
liabilities)
Net asset value per 16 192.87 180.78
Ordinary share
(pence)
The financial statements on pages 36 to 55 were approved by the Board and
authorised for issue on 8 March 2010 and were signed on its behalf by:
Adam Cooke
Director
The notes on pages 40 to 55 form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2009
Share Redemption Capital Special Revenue
capital reserve reserve reserve reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
For the year
ended 31
December 2009
Balance at 31 181 10 14,137 17,474 997 32,799
December 2008
Return on - - 1,970 - 1,829 3,799
ordinary
activities
after
taxation
Tender for (50) 50 - (9,992) - (9,992)
Ordinary
shares for
cancellation
Cancellation - 28 - (28) - -
of Zero
Dividend
Preference
shares
Dividends - - - - (1,334) (1,334)
paid
Balance at 31 131 88 16,107 7,454 1,492 25,272
December 2009
For the year
ended 31
December 2008
Balance at 31 181 10 31,607 17,474 732 50,004
December 2007
Return on - - (17,470) - 1,535 (15,935)
ordinary
activities
after
taxation
Dividends - - - - (1,270) (1,270)
paid
Balance at 31 181 10 14,137 17,474 997 32,799
December 2008
The notes on pages 40 to 55 form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 31 December 2009
Year ended Year ended
31 December 31 December
2009 2008
Notes GBP000 GBP000
Net cash inflow from 17 2,595 170
operating activities
Servicing of finance
Interest paid (1) (1)
Taxation
Overseas tax paid (289) (215)
Financial
investments
Purchases of (40,634) (46,219)
investments
Sales of investments 54,150 47,276
Net cash inflow from 13,516 1,057
financial
investments
Equity dividends 7 (1,334) (1,270)
paid
Net cash inflow/ 14,487 (259)
(outflow) before
financing
Financing
Tender for Ordinary (9,992) -
shares and
associated costs
Tender for Zero (4,374) -
Dividend Preference
shares
Net cash outflow (14,366) -
from financing
Increase/(decrease) 18 121 (259)
in cash
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Increase/(decrease) 121 (259)
in cash as above
Net change in debt 2,369 (1,777)
due in more than one
year
Movements in net 2,490 (2,036)
debt for year
Net debt as at 1 (21,276) (19,240)
January
Net debt as at 31 (18,786) (21,276)
December
The notes on pages 40 to 55 form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
A summary of the principal accounting policies, all of which have been
consistently applied throughout the year and the preceding year is set out
below:
(a) Basis of accounting
The financial statements have been prepared in accordance with the applicable
UK Accounting Standards and with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture Capital Trusts"
(issued in January 2009). The adoption of the January 2009 SORP has had no
effect on the financial statements of the Company, other than:
aEURc the requirement to separately disclose capital reserves that relate to the
revaluation of investments held at the reporting date. These are disclosed in
note 8. This new requirement replaces the previous requirement to disclose the
value of the capital reserve that was unrealised; and
aEURc the requirement to present tax reconciliations based on the total column of
the Income Statement rather than the revenue column as was previously
recommended. The reconciliation is disclosed in note 6.
They have also been prepared on the assumption that approval as an investment
trust will continue to be granted. The financial statements have been prepared
on a going concern basis. The Directors believe this is appropriate for the
reasons outlined in the Directors' Report on page 16.
The financial statements, and the net asset value per share figures, have been
prepared in accordance with UK Generally Accepted Accounting Practice ("UK
GAAP").
(b) VALUATION OF INVESTMENTS
Upon initial recognition investments are designated by the Company "at fair
value through profit or loss". They are accounted for on the date they are
traded and are included initially at fair value which is taken to be their cost
including expenses incidental to purchase. Subsequently investments are valued
at fair value which is the bid market price for listed investments. Unquoted
investments are valued at fair value by the Board which is established with
regard to the International Private Equity and Venture Capital Valuation
Guidelines by using where appropriate latest dealing prices, valuations from
reliable sources and other relevant factors. Where no reliable fair value can
be estimated for such unquoted investments, they are carried at cost, subject
to any provision for impairment.
Changes in the fair value of investments held at fair value through profit or
loss and gains or losses on disposal are included in the capital column of the
income statement within "gains/(losses) on investments held at fair value
through profit or loss".
Profits and losses on realisation of fixed asset investments have been taken to
capital reserve.
(c) FOREIGN CURRENCY
Transactions denominated in foreign currencies are translated into sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at
the rates of exchange prevailing at the year end. Any gain or loss arising from
a change in exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss in capital reserve. Foreign exchange
movements on investments are included in the Income Statement within gains on
investments.
(d) INCOME
Investment income, which includes related taxation, has been accounted for on
an ex-dividend basis or when the Company's right to the income is established.
Special dividends are credited to capital or revenue in the Income Statement,
according to the circumstances. UK dividends are accounted for net of any tax
credits. Overseas dividends are included gross of witholding tax.
Interest receivable on deposits is accounted for on an accruals basis.
(e) EXPENSES
All expenses are accounted for on an accruals basis and are charged as follows:
aEURc the basic investment management fee is charged wholly to revenue;
aEURc any performance fee earned is allocated between capital and revenue based on
the out-performance attributable to capital and revenue respectively;
aEURc investment transactions costs are included within the book cost of the
investments; and
aEURc other expenses are charged wholly to revenue.
(f) ZERO DIVIDEND PREFERENCE SHARES
The Company's Zero Dividend Preference shares are classified as a financial
liability and shown as a liability in the balance sheet.
The Directors have allocated 100% of the finance costs relating to the Zero
Dividend Preference shares to capital. Accordingly, a capital reserve has been
set up to provide for the repayment entitlements attached to the Zero Dividend
Preference shares which accrue on a daily basis to the date of the Company's
winding up on 31 December 2015. Following the approval of the Proposals by
shareholders on 18 December 2009 (see Directors' Report on pages 14 and 15)
these shares are entitled to a repayment of 221.78p on 31 December 2015,
equivalent to a redemption yield of 6.53% on the Zero Dividend Preference share
net asset value of 151.39p at 17 December 2009. The provision for compound
growth entitlement of the Zero Dividend Preference shares is recognised through
the income statement and analysed under the capital return as a finance cost
(as shown in note 5).
(g) SPECIAL RESERVE
The special reserve is available for the repurchase by the Company of its own
Ordinary shares.
(h) TAXATION
The charge for taxation is based upon the net revenue for the year. The tax
charge is allocated to the revenue and capital accounts according to the
marginal basis whereby revenue expenses are first matched against taxable
income arising in the revenue account; the effect of this for the year ended 31
December 2009 was that all the deductions for tax purposes went to the revenue
account.
Deferred taxation will be recognised as an asset or a liability if transactions
have occurred at the balance sheet date that give rise to an obligation to pay
more taxation in the future, or a right to pay less taxation in the future. An
asset will not be recognised to the extent that the transfer of economic
benefit is uncertain.
Due to the Company's status as an Investment Company, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided for deferred tax on any capital gains and
losses arising on the revaluation or disposal of Investments.
2. INCOME
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Income from investments:
UK franked investment 523 820
income
Overseas dividends 2,088 1,729
Deposit income 17 249
Interest on VAT recovered 51 -
from HMRC
2,679 2,798
3. INVESTMENT MANAGEMENT FEE
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Charged to Revenue:
Investment management fee 561 636
561 636
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Charged to Capital:
Under accrual of - 15
performance fee for the
year ended 31 December
2007
- 15
The Company's Investment Manager is Premier Fund Managers Limited under an
agreement terminable by either party giving not less than 12 months written
notice. Under the investment management agreement, the Investment Manager is
entitled to receive from the Company a management fee, payable monthly in
arrears, of 1% per annum of the gross assets of the Company. This fee is
charged to revenue.
In addition the Investment Manager is entitled to a performance fee in respect
of each accounting year of the Company commencing with the period ended 31
December 2004 if (i) the dividends paid or proposed to be paid on each Ordinary
share in respect of that accounting year (on an annualised basis in respect of
the first accounting period) equals at least 6.75p and (ii) the gross assets at
the end of the year exceed the highest level of gross assets at the end of any
previous accounting year or (if higher) the initial gross assets by more than
7.5% (again on an annualised basis). In that event, the performance fee will be
equal to 15% of the excess.
VAT recovered from HMRC on management fees:
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Recovered in respect of 247 -
basic management fees -
Revenue
Recovered in respect of 284 -
performance fees - Capital
531 -
On 5 August 2009 the Company received GBP531,000 of VAT on management fees
invoiced since its launch in November 2003 which has been credited to the
Company's revenue and capital accounts in accordance with the Board's policy
for allocation of management fees and finance costs.
4. OTHER EXPENSES
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Charged to Revenue:
Secretarial services 75 81
Administration expenses 132 127
Auditor's remuneration
- audit services 21 21
- non audit 2 -
Directors' fees 67 67
297 296
The auditors were also paid GBP33,350, including VAT of GBP4,350, for services in
connection with the Prospectus issued by the Company on 24 November 2009 and
associated tender offer costs (see pages 14 and 15). These have been charged to
special reserve.
5. FINANCE COSTS
Year ended Year ended Year ended Year ended Year ended Year ended
31 31 31 31 31 31
December December December December December December
2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Bank 1 - 1 1 - 1
interest
Provision - 2,005 2,005 - 1,777 1,777
for
compound
growth
entitlement
of the Zero
Dividend
Preference
shares
1 2,005 2,006 1 1,777 1,778
6. TAXATION
(a) ANALYSIS OF CHARGE IN THE YEAR:
Year ended Year ended Year ended Year ended Year ended Year ended
31 31 31 31 31 31
December December December December December December
2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Current tax - - - 150 (150) -
Overseas 238 - 238 180 - 180
tax
Current tax 238 - 238 330 (150) 180
charge for
the year
(see note 6
(b))
(b) FACTORS AFFECTING THE CURRENT TAX CHARGE FOR THE YEAR:
The current taxation charge for the year is different from the standard rate of
corporation tax in the UK.
The differences are explained below:
Year ended Year ended Year ended Year ended Year ended Year ended
31 31 31 31 31 31
December December December December December December
2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Return on 2,067 2,099 4,166 1,865 (17,620) (15,755)
ordinary
activities
before
taxation
Return on 578 588 1,166 532 (5,022) (4,490)
ordinary
activities
multiplied by
the standard
rate of
corporation
tax of 28%
(2008: 29%)
Effects of:
Non-taxable (146) - (146) (234) - (234)
UK dividends
Non-taxable (226) - (226) - - -
overseas
dividends
(from 1 July
2009)
Capital gains - (1,033) (1,033) - 4,511 4,511
not subject
to tax
Finance costs - 525 525 - 506 506
of ZDP shares
Capital costs - (80) (80) - 5 5
of
performance
fee and VAT
recovered
from HMRC
Expenses not 1 - 1 1 - 1
deductable
for tax
purposes
Movement in - - - 31 - 31
overseas
dividends
taxable on
receipt
Overseas tax 238 - 238 180 - 180
Double tax (207) - (207) (180) - (180)
relief
Tax transfer - - - - (150) (150)
capital/
income
Revenue 238 - 238 330 (150) 180
current tax
charge for
the year (see
note 6 (a))
The Company is not liable to tax on capital gains due to its status as an
investment trust.
Due to the Company's status as an investment trust, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided for deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
After claiming relief against accrued income taxable on receipt, the Company
has a deferred tax asset of approximately GBP130,000 (31 December 2008: GBP90,000)
relating to excess expenses. It is unlikely that the Company will generate
sufficient taxable profits in the future to utilise these expenses and
therefore no deferred tax asset in respect of these expenses has been
recognised.
7. DIVIDEND
Year ended
31 December
Per 2009
Ordinary share GBP000
First interim dividend - 1.50p 272
paid on 30 June 2009
Second interim dividend - 1.50p 272
paid on 30 September 2009
Third interim dividend - 1.50p 272
paid on 31 December 2009
Fourth interim dividend - 4.90p 642
payable on 31 March 2010*
9.40p 1,458
* Not included as a liability in the year ended 31 December 2009 accounts.
The fourth interim dividend will be paid on 31 March 2010 to members on the
register at the close of business on 12 March 2010. The shares were marked
ex-dividend on 10 March 2010.
In accordance with FRS21 the fourth interim dividend has not been included as a
liability in these accounts.
Dividends relating to the year ended 31 December 2008 are detailed below:
Year ended
31 December
Per 2008
Ordinary share GBP000
First interim dividend - 1.50p 272
paid on 30 June 2008
Second interim dividend - 1.50p 272
paid on 30 September 2008
Third interim dividend - 1.50p 272
paid on 31 December 2008
Fourth interim dividend - 2.85p 518
paid on 31 March 2009*
7.35p 1,334
* Not included as a liability in the year ended 31 December 2008 accounts.
8. INVESTMENTS
(a) SUMMARY OF VALUATION
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Investments listed on a
recognised investment
exchange:
- UK 4,349 13,849
Overseas 41,886 37,567
46,235 51,416
Unquoted investment - UK 924 1,452
Unquoted investment - - 1,000
Overseas
47,159 53,868
(b) MOVEMENTS
(i) In the year ended 31 December 2009
Quoted Quoted Unquoted Unquoted Total
UK Overseas UK Overseas 2009
GBP000 GBP000 GBP000 GBP000 GBP000
Book cost at 18,729 36,440 1,729 1,000 57,898
beginning of
year
Gains/(losses) (4,880) 1,127 (277) - (4,030)
on investments
held at
beginning of
year
Valuation at 13,849 37,567 1,452 1,000 53,868
beginning of
year
Purchases at 5,811 37,939 - - 43,750
cost
Transfer to 375 1,000 (375) (1,000) -
quoted in year
Sales:
- proceeds (18,113) (36,037) - - (54,150)
- losses on (2,934) (67) - - (3,001)
investments
sold in the
year
Gains/(losses) 5,361 1,484 (153) - 6,692
on investments
held at end of
year
Valuation at 4,349 41,886 924 - 47,159
end of year
(ii) In the year ended 31 December 2008
Quoted Quoted Unquoted Unquoted Total
UK Overseas UK Overseas 2008
GBP000 GBP000 GBP000 GBP000 GBP000
Book cost at 17,325 38,759 725 1,000 57,809
beginning of
year
Gains on 1,078 12,690 181 - 13,949
investments
held at
beginning of
year
Valuation at 18,403 51,449 906 1,000 71,758
beginning of
year
Purchases at 13,024 31,186 1,004 - 45,214
cost
Sales:
- proceeds (12,241) (35,035) - - (47,276)
- gains on 3 2,148 - - 2,151
investments
sold in year
Losses on (5,340) (12,181) (458) - (17,979)
investments
held at end
of year
Valuation at 13,849 37,567 1,452 1,000 53,868
end of year
Comprising:
Total Total
year ended year ended
GBP000 GBP000
Book cost at end of year 44,499 57,898
Gains/(losses) on 2,660 (4,030)
investments held at year
end
Valuation at end of year 47,159 53,868
Transaction costs on purchases for the year ended 31 December 2009 amounted to
GBP133,000 (2008: GBP142,000) and on sales for the year they amounted to GBP124,000
(2008: GBP107,000).
(c) GAINS/(LOSSES) ON INVESTMENTS
Total Total
year ended year ended
31 December 31 December
2009 2008
GBP000 GBP000
(Loses)/gains on (3,001) 2,151
investments sold in year
Gains/(losses) on 6,692 (17,979)
investments held at year
end
Total gains/(losses) on 3,691 (15,828)
investments
A list of the Company's investments is shown on page 7, a sector breakdown and
a geographical allocation is shown on page 5.
9. DEBTORS
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Accrued income and 144 279
prepayments
Overseas tax recoverable 100 49
244 328
10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Purchases for future 3,116 -
settlement
Other creditors 229 121
3,345 121
11. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
31 December 31 December
2009 2008
GBP000 GBP000
16,336,396 Zero Dividend 163 191
Preference shares of GBP0.01
Capital reserve 9,889 8,013
Allocation of special 14,735 18,952
reserve
24,787 27,156
The allotted, issued and fully paid number of Zero Dividend Preference shares
of GBP0.01 as at 31 December 2009 is 16,336,396 (31 December 2008: 19,143,433).
On 18 December 2009 the Company repurchased 2,807,037 Zero Dividend Preference
shares at 156.00p per share. The accrued capital entitlement at that date was
151.39p per share.
12. SHARE CAPITAL
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2009 2009 2008 2008
Number of GBP000 Number of GBP000
shares shares
Allotted,
issued and
fully paid:
Ordinary shares 13,103,065 131 18,143,433 181
of GBP0.01
13,103,065 131 18,143,433 181
Under the tender offer (see pages 14 and 15) 5,040,368 Ordinary shares were
bought back for cancellation for GBP9,992,000 in the year to 31 December 2009 (31
December 2008: nil).
13. CAPITAL RESERVE
Year ended Year ended
31 December 31 December
GBP000 GBP000
Opening balance 14,137 31,607
Gains/(losses) on 3,691 (15,828)
investments - held at fair
value through profit or
loss
Provision for premium on (2,005) (1,777)
redemption of Zero
Dividend Preference shares
Tax relief on expenses - 150
charged to capital
Performance fee - (15)
VAT received from HMRC in 284 -
respect of performance
fees
Closing balance 16,107 14,137
14. FINANCIAL COMMITMENTS
At 31 December 2009 there were no commitments in respect of unpaid calls and
underwritings (31 December 2008: nil).
15. RETURN PER SHARE- BASIC
Ordinary shares
Total return per Ordinary share is based on the net total return on ordinary
activities after taxation of GBP3,799,000 (31 December 2008: GBP(15,935,000)).
These calculations are based on the weighted number of 17,950,104 Ordinary
shares in issue during the year to 31 December 2009 (2008: 18,143,433 Ordinary
shares).
The return per Ordinary share can be further analysed between revenue and
capital as below:
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Net revenue return 1,829 1,535
Net capital return/(loss) 1,970 (17,470)
Net total return/(loss) 3,799 (15,935)
Year ended Year ended
31 December 31 December
2009 2008
Weighted average number of 17,950,104 18,143,433
Ordinary shares in issue
during the year
Revenue return per 10.19p 8.46p
Ordinary share
Capital return/(loss) per 10.97p (96.29)p
Ordinary share
Total return/(loss) per 21.16p (87.83)p
Ordinary share
Zero Dividend Preference shares
The return per Zero Dividend Preference share is based on the annualised gross
redemption yield of 6.35% (2008: 7.0%). This calculation is based on the
weighted average number of 19,035,765 Zero Dividend Preference shares in issue
during the year to 31 December 2009 (2008: 19,143,433 Zero Dividend Preference
shares).
The Company does not have any dilutive securities.
16. NET ASSET VALUE PER SHARE
The net asset value per share and the net assets available to each class of
share, are as follows:
Net Net
asset value Net assets asset value Net assets
per share available per share available
31 December 31 December 31 December 31 December
2009 2009 2008 2008
Pence GBP000 Pence GBP000
13,103,065 192.87 25,272 180.78 32,799
Ordinary shares
(2008:
18,143,433) in
issue
16,336,396 Zero 151.73 24,787 141.86 27,156
Dividend
Preference
shares* (2008:
19,143,433) in
issue
*aEUR%Classified as a liability.
17. RECONCILIATION OF TOTAL RETURN BEFORE FINANCE COSTS AND TAXATION TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
Year ended Year ended
31 December 31 December
2009 2008
GBP000 GBP000
Total return on ordinary 6,043 (13,977)
activities before finance
costs and taxation
Capital return before (3,975) 15,843
finance costs and taxation
Other debtors 5 (2)
Accrued income and 130 122
prepayments
Other creditors 108 (1,801)
Performance fee - (15)
capitalised
VAT recovered from HMRC in 284 -
respect of performance
fees capitalised
Net cash inflow from 2,595 170
operating activities
18. ANALYSIS OF CHANGES IN NET DEBT
Year ended Year ended
31 December Non-cash 31 December
2008 Cashflow movements 2009
GBP000 GBP000 GBP000 GBP000
Cash at bank 5,880 121 - 6,001
Debt due after (27,156) 4,374 (2,005) (24,787)
more than one
year
(21,276) 4,495 (2,005) (18,786)
19. TRANSACTIONS WITH THE INVESTMENT MANAGER
Details of the investment management fee charged by Premier Fund Managers
Limited is set out in note 3. In addition, Premier Asset Management Limited
acts as Company Secretary and the fee for secretarial services is set out in
note 4. At 31 December 2009 GBP48,688 (31 December 2008: GBP56,358) of these fees
remained outstanding.
20. RISK MANAGEMENT POLICIES AND PROCEDURES
As an investment trust the Company invests in equities and other investments
for the long-term so as to secure its investment objectives stated on page 15.
In pursuing its investment objectives, the Company is exposed to a variety of
risks that could result in either a reduction in the Company's net assets or a
reduction of the profits available for dividends.
These risks, include market risk (comprising currency risk, interest rate risk,
and other price risk), liquidity risk, and credit risk, and the Directors'
approach to the management of them are set out below.
The objectives, policies and processes for managing the risks, and the methods
used to measure the risks, that are set out below, have not changed from the
previous accounting period.
(a) MARKET RISK
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - currency risk (see (b) below), interest rate risk
(see (c) below) and other price risk (see (d) below). The Board of Directors
reviews and agrees policies for managing these risks, which have remained
substantially unchanged from those applying in the year ended 31 December 2008.
The Company's Investment Manager assesses the exposure to market risk when
making each investment decision, and monitors the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
(b) CURRENCY RISK
Certain of the Company's assets, liabilities, and income, are denominated in
currencies other than sterling (the Company's functional currency, and in which
it reports its results). As a result, movements in exchange rates may affect
the sterling value of those items.
Management of the risk
The Investment Manager monitors the Company's exposure and reports to the Board
on a regular basis.
The Investment Manager does not intend to deploy active hedging against
exchange rate fluctuations.
Income denominated in foreign currencies is converted to sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that income is included in the
financial statements and its receipt.
Foreign currency exposures
There were no monetary items that have foreign currency exposure at 31 December
2009 (31 December 2008: nil). An analysis of the Company's equity investments
that are priced in a foreign currency is:
As at As at
31 December 31 December
2009 2008
Investments Investments
GBP000 GBP000
Canadian Dollar 1,220 -
Euro 14,261 17,096
Hong Kong Dollar 5,107 3,538
Japanese Yen - 1,281
Malaysian Ringgit 538 1,561
Singapore Dollar 1,920 977
Thailand Bhats 2,687 3,639
US Dollar 15,253 9,150
40,986 37,242
Foreign currency sensitivity
The following table illustrates the sensitivity of the return on ordinary
activities after taxation for the year and the equity in regard to the
Company's monetary financial assets to changes in the exchange rates for the
portfolio's significant currency exposures, these being Sterling/US Dollar and
Sterling/Euro.
It assumes the following changes in exchange rates:
Sterling/US Dollar +/- 9% (2008: 8%)
Sterling/Euro +/- 9% (2008: 8%)
These percentages have been determined based on the average market volatility
in exchange rates, in the previous 12 months.
If sterling had strengthened against the currencies shown, this would have had
the following effect:
2009 2009 2008 2008
US Dollar Euro US Dollar Euro
GBP000 GBP000 GBP000 GBP000
Projected 9% 9% 8% 8%
change
Impact on 54 23 23 77
revenue return
Impact on 1,373 1,283 732 1,368
capital return
Total return 1,427 1,306 755 1,445
after taxation
for the year
Equity 1,427 1,306 755 1,445
If sterling had weakened against the currencies shown, this would have had the
following effect:
2009 2009 2008 2008
US Dollar Euro US Dollar Euro
GBP000 GBP000 GBP000 GBP000
Projected 9% 9% 8% 8%
change
Impact on (54) (23) (23) (77)
revenue return
Impact on (1,373) (1,283) (732) (1,368)
capital return
Total return (1,427) (1,306) (755) (1,445)
after taxation
for the year
Equity (1,427) (1,306) (755) (1,445)
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole, since the level of exposure changes
frequently as part of the currency risk management process used to meet the
Company's objectives.
(c) INTEREST RATE RISK
Interest rate movements may affect the level of income receivable on cash
deposits. The Company, generally, does not hold significant cash balances, but
when it does it seeks to limit exposure to any one bank to 10% of net assets.
Cash at bank at 31 December 2009 (and 31 December 2008) was held at floating
interest rates, linked to current short-term market rates.
(d) OTHER PRICE RISK
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk or currency risk) may affect the value of the quoted and
unquoted equity investments.
Management of the risk
The Board of Directors manages the market price risks inherent in the
investment portfolios by ensuring full and timely access to relevant
information from the Investment Manager. The Board meets regularly and at each
meeting reviews investment performance. The Board monitors the Manager's
compliance with the Company's objectives.
When appropriate, the Company manages its exposure to risk by using futures
contracts or by buying put options on indices and on quoted equity investments
in its portfolio.
Concentration of exposure to other price risks
A sector breakdown and geographical allocation of the portfolio is contained in
the Investment Manager's Report on page 5.
Other price risk sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and the equity to an increase or decrease of 10% in the fair
values of the Company's equities (including equity through options). This level
of change is considered to be reasonably possible based on observation of
current market conditions. The sensitivity analysis is based on the Company's
equities and equity exposure through options at each balance sheet date, with
all other variables held constant.
Increase in Decrease in Increase in Decrease in
fair value fair value fair value fair value
2009 2009 2008 2008
GBP000 GBP000 GBP000 GBP000
Income statement - return
after taxation:
Capital return - increase 4,716 (4,716) 5,387 (5,387)
/(decrease)
Total return after 4,716 (4,716) 5,387 (5,387)
taxation - increase/
(decrease)
Equity 4,716 (4,716) 5,387 (5,387)
(e) LIQUIDITY RISK
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company's assets are
investments in quoted equities that are readily realisable. The Company does
not have any borrowing facilities.
The investments in unquoted securities may have limited liquidity and be
difficult to realise. At 31 December 2009 unquoted securities represented 2.0%
of the total investment portfolio (31 December 2008: 4.6%).
The Board gives guidance to the Investment Manager as to the maximum amount of
the Company's resources that should be invested in any one holding. The policy
is that the Company should remain fully invested in normal market conditions
and that short-term borrowing be used to manage short-term cash requirements.
(f) CREDIT RISK
The failure of the counterparty to a transaction to discharge its obligations
under that transaction could result in the Company suffering a loss.
Management of the risk
This risk is not significant, and is managed as follows:
aEURc investment transactions are carried out with a large number of brokers, whose
credit-standing is reviewed periodically by the Investment Manager, and limits
are set on the amount that may be due from any one broker; and
aEURc cash at bank is held only with reputable banks with high quality external
credit ratings.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
(g) FAIR VALUE MEASUREMENTS OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The fair values of the financial assets and liabilities are either carried in
the balance sheet at their fair value (investments and derivatives), or the
balance sheet amount is a reasonable approximation of fair value (due from
brokers, dividends receivable, accrued income, due to brokers, accruals and
cash balances).
The table below sets out fair value measurements using the FRS29 fair value
hierarchy.
Financial assets at fair value through profit or loss at 31 December 2009
Level 1 Level 3 Total
GBP000 GBP000 GBP000
Equity investments 46,235 924 47,159
Total 46,235 924 47,159
Categorisation within the hierachy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows:
Level 1 - valued using quoted prices in active markets for identical assets
Level 2 - valued by reference to valuation techniques using observable inputs
other than quoted prices included within Level 1 (there are no Level 2
investments at 31 December 2009)
Level 3 - valued by reference to valuation techniques using inputs that are not
based on observable market data
The valuation techniques used by the Company are explained in the accounting
policies note on page 40.
A reconciliation of fair value measurements in Level 3 is set out below:
Level 3 financial assets at fair value through profit or loss at 31 December
2009
Equity investments Total
GBP000 GBP000
Opening balance 2,452 2,452
Transfers out of Level 3 (1,375) (1,375)
Total gains or losses (153) (153)
included in profit or loss
for assets held at the end
of year
Closing balance 924 924
Transfers out of Level 3 relate to investments which have obtained a stock
exchange listing during the year, having previously been unquoted.
Financial liabilities
The listed bid price has been used to determine the fair value of the Zero
Dividend Preference shares:
As at 31 As at 31 As at 31 As at 31
December 2009 December 2009 December 2008 December 2008
Book value Level 1 Book value Level 1
GBPm GBPm GBPm GBPm
Zero Dividend 24.8 25.5 27.1 27.2
Preference
shares
(h) CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Company's capital management objectives are:
aEURc to ensure that the Company will be able to continue as a going concern; and
aEURc to maximise the income and capital return to its equity shareholders through
an appropriate balance of equity capital and debt.
The Company's capital at 31 December comprises:
2009 2008
GBP000 GBP000
Debt:
Zero Dividend Preference (24,787) (27,156)
shares
Equity:
Equity share capital 131 181
Retained earnings and 25,141 32,618
other reserves
25,272 32,799
Total Capital 50,059 59,955
Debt as a pecentage of 49.5% 45.3%
total capital
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company is subject to several externally imposed capital requirements:
aEURc As a public company, the Company has to have a minimum share capital of GBP
50,000.
aEURc In order to be able to pay dividends out of profits available for
distribution by way of dividends, the Company has to be able to meet one of the
two capital restriction tests imposed on investment companies by company law.
These requirements are unchanged since last year and the Company has complied
with them.
GLOSSARY OF TERMS
DISCOUNT/PREMIUM
If the share price of an investment trust is lower than the NAV per share, the
shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is usually
expressed as a percentage of the NAV per share. If the share price is higher
than the NAV per share, the shares are said to be trading at a premium.
GEARING
Also known as leverage, particularly in the USA. Gearing is introduced when a
company borrows money to buy additional investments. The objective is to
enhance returns to shareholders but there is the risk of the opposite effect if
the additional investments fall in value.
GROSS REDEMPTION YIELD
The return on a fixed-interest security, or any investment with a known life,
expressed as an annual percentage and without any deduction for tax. Redemption
yield measures the capital as well as income return on investments with a fixed
life.
HURDLE RATE
The compound rate of growth of the total assets required each year until the
wind-up date for shareholders to receive either a predetermined redemption
price or, in some cases, a return of the amount originally invested. Any class
of share ranking for prior payment should be taken into account in this
calculation.
NET ASSET VALUE ("NAV")
The NAV is the assets attributable to shareholders expressed as an amount per
individual share. The assets attributable to shareholders is the total value of
all a companies assets, at current market value, having deducted all prior
charges at their par value (or at their asset value).
SPLIT CAPITAL INVESTMENT TRUST
An investment trust with two or more classes of share in issue, each class
having specified entitlements to income or capital. Typical classes of share
include ordinary shares, capital shares, zero dividend preference shares and
income and residual capital (or geared ordinary) shares.
TOTAL RETURN
The combined effect of any dividends paid, together with the rise or fall in
the share price or NAV. Total return statistics enable the investor to make
performance comparisons between companies with different dividend policies. Any
dividends (after tax) received by a shareholder are assumed to have been
reinvested in either additional shares of the company at the time the shares go
ex-dividend (the share price total return) or in the assets of the company at
its NAV per share (the NAV total return).
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
Company's year-end 31 December
Annual results announced early March
Annual General Meeting 21 April 2010
Company's half-year end 30 June
Half-year results announced early August
Dividend payments quarterly at the end of March, June,
September and December
SHARE PRICE AND PERFORMANCE INFORMATION
The Ordinary shares and Zero Dividend Preference shares are listed on the
London Stock Exchange. The mid-market prices are quoted daily in the Financial
Times and The Daily Telegraph.
Information about the Company can be obtained directly via
www.premierassetmanagement.co.uk. Any enquiries can also be e-mailed to
premier@premierfunds.co.uk.
SHARE DEALING
A share dealing service is available through Premier on 01296 390408, or
alternatively shares can be purchased through your usual stockbroker.
Information on the Premier ISA can be obtained by contacting Premier on 01483
400400.
SHARE REGISTER ENQUIRIES
The register for the Ordinary shares and Zero Dividend Preference shares is
maintained by Capita Registrars. In the event of queries regarding your
holding, please contact the Registrar on 0871 664 0300 (calls cost 10p per
minute plus network extras, lines are open Monday to Friday 8.30 a.m. to 5.30
p.m.); overseas +44 208 639 3399; or e-mail
shareholder.services@capitaregistrars.com. Changes of name and/or address must
be notified in writing to the Registrar.
PREMIER FUND MANAGERS LIMITED
Other investment companies managed by Premier are:
Acorn Income Fund Limited
Premier Renewable Energy Fund Limited
Global Special Opportunities Trust PLC
Further details of these funds can be obtained from Premier on 01483 400400.
E-mail: premier@premierfunds.co.uk
www.premierassetmanagement.co.uk
A member of the Association of Investment Companies.
NOTICE OF ANNUAL GENERAL MEETING
to the members of Premier Energy and Water Trust PLC
Notice is hereby given that the Annual General Meeting of the Company will be
held at the offices of Premier Asset Management Limited, Eastgate Court, High
Street, Guildford, Surrey GU1 3DE on Wednesday, 21 April 2010, at 2.00 p.m. to
consider and, if thought fit, pass the following resolutions, which will be
proposed as to resolutions 1, 2, 3, 4, 5 and 6 as ordinary resolutions and as
to resolutions 7 and 8 as special resolutions:
ORDINARY RESOLUTIONS
1. To approve the Directors' Remuneration Report for the year ended 31 December
2009.
2. To receive the Directors' Report and Financial Statements for the year ended
31 December 2009.
3. To re-elect Mr Michael Wigley as a Director of the Company.
4. To re-appoint Ernst & Young LLP as Auditors of the Company and to authorise
the Board to determine their remuneration.
5. Authority to allot new shares:
THAT, the Directors be and they are hereby generally and unconditionally
authorised, in accordance with section 551 of the Companies Act 2006, to allot
shares in the Company and to grant rights ("relevant rights") to subscribe for
or to convert any security into shares in the Company up to an aggregate
nominal amount of GBP29,439, representing 1,310,300 Ordinary shares of 1p each
and 1,633,600 ZDP shares of 1p each, (being approximately 10% of the issued
Ordinary share capital and 10% of the issued ZDP share capital of the Company
as at 5 March 2010 being the latest practicable date prior to the publication
of this Notice of Meeting) PROVIDED THAT this authority shall expire at the
conclusion of the next Annual General Meeting of the Company after the passing
of this resolution, save that the Company may, at any time prior to the expiry
of such authority, make an offer or agreement which would or might require
shares to be allotted or relevant rights to be granted after the expiry of such
authority and the Directors may allot shares or grant relevant rights in
pursuance of such an offer or agreement as if such authority had not expired.
6. Authority to allot Ordinary shares at a discount:
THAT, subject to and conditional upon the passing of resolution 5 above (the
"Resolution"), the Directors be and they are hereby generally and
unconditionally authorised, in accordance with LR 15.4.11 of the United Kingdom
Listing Rules to allot Ordinary shares for cash pursuant to the Resolution at a
price which represents a discount to the net asset value attributable to the
Ordinary shares as at the date of such issue.
SPECIAL RESOLUTIONS
7. Authority to disapply pre-emption rights:
THAT, subject to the passing of resolution numbered 5 above ("Section 551
Resolution"), the Directors of the Company be empowered pursuant to section 570
of the Companies Act 2006 (the "Act") to allot equity securities (within the
meaning of section 560 of the Act) for cash pursuant to the Section 551
Resolution as if section 561(1) of the Act did not apply to such allotment,
provided that this power shall be limited to:
(a) the allotment of equity securities (otherwise than pursuant to
sub-paragraph (b) below) up to an aggregate nominal amount of GBP13,103; and
(b) the allotment of equity securities to (a) all holders of ordinary shares of
1p each in the capital of the Company ("Ordinary shares") in proportion (as
nearly as may be) to the respective numbers of such Ordinary Shares held by
them and (b) to holders of other equity securities as required by the rights of
those securities (but subject to such exclusions, limits or restrictions or
other arrangements as the Directors of the Company may consider necessary or
appropriate to deal with fractional entitlements, record dates or legal,
regulatory or practical problems in or under the laws of, or requirements of,
any regulatory body or any stock exchange in any territory or otherwise
howsoever); and
such power shall expire at the conclusion of the next Annual General Meeting of
the Company to be held in 2011, but so that this power shall enable the Company
to make an offer or agreement before such expiry which would or might require
equity securities to be allotted after such expiry and the Directors of the
Company may allot equity securities in pursuance of any such offer or agreement
as if such expiry had not occurred.
8. Authority to repurchase the Company's shares:
THAT, the Company be and is hereby generally and unconditionally authorised in
accordance with Section 701 of the Companies Act 2006 ("the Act") to make
market purchases (within the meaning of Section 693(4) of the Act) of Ordinary
shares of 1p each and of Zero Dividend Preference shares of 1p each in the
capital of the Company (together the "Shares"), provided that:
(a) the maximum number of Shares hereby authorised to be purchased shall be
1,964,149 Ordinary shares and 2,448,826 Zero Dividend Preference shares;
(b) the minimum price which may be paid for a Share is 1 pence;
(c) the maximum price which may be paid for an Ordinary share is an amount
equal to the highest of (i) 105% of the average of the middle market quotation
for an Ordinary share taken from the London Stock Exchange Daily Official List
for the five business days immediately preceding the day on which the Ordinary
share is purchased and (ii) the higher of the price of the last independent
trade and the highest current bid;
(d) the maximum price which may be paid for a Zero Dividend Preference share is
its accrued capital entitlement as at the business day immediately preceding
the day on which the Zero Dividend Preference share is purchased;
(e) the authority hereby conferred shall expire at the earlier of the
conclusion of the Annual General Meeting of the Company in 2011, or 20 October
2011 unless such authority is renewed prior to such time; and
(f) the Company may make a contract to purchase Shares under the authority
hereby conferred prior to expiry of such authority which will be or may be
executed wholly or partly after the expiration of such authority and may make a
purchase of Shares pursuant to any such contract.
Any shares so purchased will be cancelled in accordance with the provisions of
the Act.
By order of the Board
Premier Asset Management Limited
Secretary
8 March 2010
NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING
1. Members are entitled to appoint a proxy to exercise all or any of their
rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise the rights attached
to a different share or shares held by that shareholder. A shareholder may not
appoint more than one proxy to exercise the rights attached to any one share. A
proxy need not be a shareholder of the Company. A proxy form which may be used
to make such appointment and give proxy instructions accompanies this notice.
If you do not have a proxy form and believe that you should have one, or if you
require additional forms, please contact the Company's registrars, Capita
Registrars (contact details can be found on page 63).
2. To be valid any proxy form or other instrument appointing a proxy must be
received by post or (during normal business hours only) by hand at the offices
of the Company's registrars, Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU no later than 2.00 p.m. on Monday, 19 April 2010.
3. The return of a completed proxy form, other such instrument or any CREST
Proxy Instruction (as described in paragraph 9 below) will not prevent a
shareholder attending the Annual General Meeting and voting in person if he/she
wishes to do so.
4. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated
Person") may, under an agreement between him/her and the shareholder by whom he
/she was nominated, have a right to be appointed (or to have someone else
appointed) as a proxy for the Annual General Meeting. If a Nominated Person has
no such proxy appointment right or does not wish to exercise it, he/she may,
under any such agreement, have a right to give instructions to the shareholder
as to the exercise of voting rights.
5. The statement of the rights of shareholders in relation to the appointment
of proxies in paragraphs 1 and 2 above does not apply to Nominated Persons. The
rights described in these paragraphs can only be exercised by shareholders of
the Company.
6. To be entitled to attend and vote at the Annual General Meeting (and for the
purpose of the determination by the Company of the votes they may cast),
Shareholders must be registered in the Register of Members of the Company at
2.00 p.m. on Monday, 19 April 2010 (or, in the event of any adjournment, on the
date which is two days before the time of the adjourned meeting for the
purposes of which no account is to be taken of any part of a day that is not a
working day). Changes to the Register of Members after the relevant deadline
shall be disregarded in determining the rights of any person to attend and vote
at the meeting.
7. As at 5 March 2010 (being the last business day prior to the publication of
this Notice) the Company's issued share capital consisted of 13,103,065
Ordinary shares and 16,336,396 Zero Dividend Preference shares, carrying one
vote each. Therefore, the total voting rights in the Company as at 5 March 2010
are 29,439,461.
8. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
9. In order for a proxy appointment or instruction made using the CREST service
to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must
be properly authenticated in accordance with Euroclear UK & Ireland Limited's
specifications, and must contain the information required for such instruction,
as described in the CREST Manual (available via www.euroclear.com/CREST). The
message, regardless of whether it constitutes the appointment of a proxy or is
an amendment to the instruction given to a previously appointed proxy must, in
order to be valid, be transmitted so as to be received by the issuer's agent
(ID RA10) by 2.00 p.m. on Monday, 19 April 2010. For this purpose, the time of
receipt will be taken to be the time (as determined by the time stamp applied
to the message by the CREST Application Host) from which the issuer's agent is
able to retrieve the message by enquiry to CREST in the manner prescribed by
CREST. After this time any change of instructions to proxies appointed through
CREST should be communicated to the appointee through other means.
10. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular message. Normal system
timings and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member, or
sponsored member, or has appointed a voting service provider, to procure that
his or her CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting system providers are referred,
in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
11. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
12. Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a member
provided that they do not do so in relation to the same shares.
13. Under section 527 of the Companies Act 2006 members meeting the threshold
requirements set out in that section have the right to require the company to
publish on a website a statement setting out any matter relating to: (i) the
audit of the Company's accounts (including the auditor's report and the conduct
of the audit) that are to be laid before the Annual General Meeting; or (ii)
any circumstance connected with an auditor of the Company ceasing to hold
office since the previous meeting at which annual accounts and reports were
laid in accordance with section 437 of the Companies Act 2006. The Company may
not require the shareholders requesting any such website publication to pay its
expenses in complying with sections 527 or 528 of the Companies Act 2006. Where
the Company is required to place a statement on a website under section 527 of
the Companies Act 2006, it must forward the statement to the Company's auditor
not later than the time when it makes the statement available on the website.
The business which may be dealt with at the Annual General Meeting includes any
statement that the Company has been required under section 527 of the Companies
Act 2006 to publish on a website.
14. Any member attending the meeting has the right to ask questions. The
Company must cause to be answered any such question relating to the business
being dealt with at the meeting but no such answer need be given if (a) to do
so would interfere unduly with the preparation for the meeting or involve the
disclosure of confidential information, (b) the answer has already been given
on a website in the form of an answer to a question, or (c) it is undesirable
in the interests of the Company or the good order of the meeting that the
question be answered.
15. A copy of this notice, and other information required by s311A of the
Companies Act 2006, is available at the Investment Manager's website
www.premierassetmanagement.co.uk
DIRECTORS AND ADVISERS
Directors Geoffrey Burns (Chairman)
Adam Cooke
Ian Graham
Michael Wigley
Investment Manager Premier Fund Managers Limited
Eastgate Court
High Street
Guildford
Surrey GU1 3DE
Telephone: 01483 306 090
www.premierassetmanagement.co.uk
Authorised and regulated by the Financial Services
Authority
Secretary and Premier Asset Management Limited
Registered Office
Eastgate Court
High Street
Guildford
Surrey GU1 3DE
Telephone: Mike Nokes 020 7982 1260
Company Number 4897881
Website www.premierassetmanagement.co.uk
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0GA
Telephone: 0871 664 0300
(calls cost 10p per minute plus network extras, lines
are open Monday to Friday 8.30 a.m. to 5.30 p.m.)
Overseas: +44 208 639 3399
E-mail: shareholder.services@capitaregistrars.com
Auditors Ernst & Young LLP
1 More London Place
London SE1 2AF
Stockbroker and J.P. Morgan Cazenove
Financial Adviser
10 Aldermanbury
London EC2V 7RF
Telephone: 020 7325 1000
www.jpmorgan.com/cazenove
END
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