EP GLOBAL OPPORTUNITIES TRUST PLC – Annual Financial Report

EP GLOBAL OPPORTUNITIES TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2015

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

HIGHLIGHTS

• At 31 December 2015, our net asset value per share (“NAV”) was 239.8p, an increase of 1.6 per cent in the year. With dividends re-invested, this resulted in a total return of 2.9 per cent for the year.

• Our revenue return was 3.1p per share. The Board has declared an interim dividend of 3.1p per share, which is payable on 31 March 2016.

• The share price closed the year at 234.5p, which was a discount of 2.2 per cent to the NAV.

• During the year, we both sold 2,035,000 shares from treasury and bought back 215,000 shares into treasury, the latter with a view to maintaining the share price at close to the NAV.  The net impact has been to increase assets by £4,533,000.

• The ongoing charges ratio was 1.0 per cent in 2015 (2014: 1.1 per cent).

FINANCIAL SUMMARY

Results for year	31 December 2015	31 December 2014	Change
Shareholders’ funds	£118,357,000	£112,143,000	5.5%
Net asset value per ordinary share (“NAV”)	239.8p	236.0p	1.6%
NAV Total Return*	2.9%	2.2%
Share price	234.5p	234.6p	0.0%
Share price discount to NAV	2.2%	0.6%
Revenue return per ordinary share**	3.1p	3.7p	(16.2)%
Dividend per ordinary share	3.1p***	3.3p	(6.1)%

   

*	The NAV Total Returns are sourced from Edinburgh Partners and include dividends reinvested.
**	Based on the weighted average number of shares in issue during the year excluding own shares held in treasury.
***	Declared dividend for the year.

   

		Year to      31 December 2015      Ordinary share	Year to     31 December 2014     Ordinary share
Year’s high/low
Share price	- high	261.8p	236.0p
	- low	214.3p	208.0p
NAV	- high	268.7p	244.1p
	- low	216.5p	222.3p
Share price premium/(discount) to NAV
	- high	3.2%	2.0%
	- low	(6.4)%	(7.6)%
Cost of running the Company
Ongoing charges*		1.0%	1.1%

   

*	Based on total expenses, excluding finance costs and certain non-recurring items for the year and average monthly net assets.

Past performance is not a guide to future performance.


PORTFOLIO OF INVESTMENTS
as at 31 December 2015

Company	Sector	Country	Valuation £’000	% of Net Assets
Equity investments
20 largest equity investments
Sumitomo Mitsui Trust	Financials	Japan	3,580	3.0
Novartis	Health Care	Switzerland	3,544	3.0
Japan Tobacco	Consumer Goods	Japan	3,452	2.9
Sumitomo Mitsui Financial	Financials	Japan	3,359	2.8
Nokia	Technology	Finland	3,327	2.8
AstraZeneca	Health Care	United Kingdom	3,305	2.8
East Japan Railway	Consumer Services	Japan	3,182	2.7
PerkinElmer	Industrials	United States	3,134	2.6
KDDI	Telecommunications	Japan	3,121	2.6
Nomura	Financials	Japan	3,113	2.6
CK Hutchinson	Industrials	Hong Kong	3,098	2.6
NTT	Telecommunications	Japan	3,074	2.6
Galaxy Entertainment	Consumer Services	Hong Kong	3,065	2.6
PostNL	Industrials	Netherlands	3,034	2.6
Swire Pacific A	Industrials	Hong Kong	3,029	2.6
HSBC	Financials	United Kingdom	3,008	2.5
Roche*	Health Care	Switzerland	2,978	2.5
BP	Oil & Gas	United Kingdom	2,926	2.5
Panasonic	Consumer Goods	Japan	2,921	2.5
Bayer	Basic Materials	Germany	2,835	2.4
Total – 20 largest equity investments			63,085	53.2
Other equity investments
BG	Oil & Gas	United Kingdom	2,825	2.4
Apache	Oil & Gas	United States	2,823	2.4
BNP Paribas	Financials	France	2,802	2.4
Mitsubishi	Industrials	Japan	2,786	2.4
Commerzbank	Financials	Germany	2,761	2.3
Bank Mandiri	Financials	Indonesia	2,687	2.3
Qualcomm	Technology	United States	2,501	2.1
Toyota	Consumer Goods	Japan	2,437	2.1
Bangkok Bank**	Financials	Thailand	2,436	2.1
Alphabet A&C***	Technology	United States	2,433	2.1
SK Hynix	Technology	South Korea	2,405	2.0
Vodafone	Telecommunications	United Kingdom	2,397	2.0
Harman	Consumer Goods	United States	2,397	2.0
Edinburgh Partners Emerging Opportunities Fund	Financials	Other	2,323	2.0
Whirlpool	Consumer Goods	United States	2,251	1.9
Royal Dutch Shell A	Oil & Gas	Netherlands	2,138	1.8
DBS	Financials	Singapore	1,952	1.6
Edinburgh Partners	Financials – unlisted	United Kingdom	1,450	1.2
Total – 38 equity investments			106,889	90.3
Cash and other net assets			11,468	9.7
Net assets			118,357	100.0

   

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

The geographical distribution is based on each investment’s principal stock exchange listing, except in instances where this would not give a proper indication of where its activities predominate.

Of the ten largest portfolio investments as at 31 December 2015, the valuations at the previous year end, 31 December 2014, were Sumitomo Mitsui Trust £3,272,000, Novartis £3,588,000, Japan Tobacco £2,780,000, Sumitomo Mitsui Financial £2,277,000, AstraZeneca £3,261,000, East Japan Railway £3,132,000 and KDDI £2,880,000. Nokia, PerkinElmer and Nomura were new purchases in the year ended 31 December 2015.

DISTRIBUTION OF INVESTMENTS  as at 31 December 2015 (% of net assets)
Sector distribution	% of investments
Financials	24.8
Industrials	12.8
Consumer Goods	11.4
Oil & Gas	9.1
Technology	9.0
Health Care	8.3
Telecommunications	7.2
Consumer services	5.3
Basic Materials	2.4
Cash and other net assets	9.7
	100.0
Geographical distribution	% of investments
Japan	26.2
Europe	19.8
Asia Pacific	15.8
United Kingdom	13.4
United States	13.1
Other	2.0
Cash and other net assets	9.7
	100.0

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

The geographical distribution is based on each investment’s principal stock exchange listing, except in instances where this would not give a proper indication of where its activities predominate.


STRATEGIC REPORT

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

CHAIRMAN’S STATEMENT

Results
At 31 December 2015, our net asset value per ordinary share (“NAV”) was 239.8p, an increase of 1.6% in the year. With dividends re-invested, this resulted in a total return of 2.9 per cent for the year. Although the Company has no official benchmark, this was ahead of the total return for the FTSE All-Share Index of 1.0 per cent, but slightly behind the total return from the FTSE All-World Index of 4.0 per cent.

The share price at the end of the year was 234.5p, a marginal decrease of 0.1p over the share price at the end of 2014. At 31 December 2015, the share price stood at a discount of 2.2 per cent to the NAV.

The main reason for the positive NAV total return was our emphasis on Japanese equities, as the Japanese equity market was the best performing major equity market during the year. We started 2015 with a third of our net assets invested in Japan. The yen had fallen significantly in 2014 and this proved to be a considerable help to the competitive position of Japanese companies last year and to strong growth in corporate profits. The US shares held also made a positive contribution to performance. The European holdings provided a marginally positive return, while gains and losses in our UK shares largely balanced out. The Asia Pacific ex Japan region was the worst performing major region over the year as concerns about the slowdown in the growth rate of the Chinese economy affected the outlook for the region. Our holdings in this area had a negative effect on the overall result.

The variation of share price performance by industrial sector last year was much greater than that by geographical region. There was strong performance from our technology holdings, in particular from two US shares: Alphabet, the holding company for Google, and Microsoft.  Our investment in the telecommunications sector also provided good returns, with the share prices of KDDI and NTT, both Japanese companies, being particularly firm. Health care was also a strong area for us. We reduced our exposure to the sector during the year with the sale of Fresenius Medical Care in Germany and Sanofi in France after their shares had made useful gains. Sectors that were negative contributors to performance included financials and oil and gas. The dramatic fall in the oil price during the year had a negative impact on our oil investments, including BP and Royal Dutch Shell, with the Brent Crude oil price falling by 36 per cent from $56 to $36, having declined from over $100 in 2014.

The latter half of the year witnessed a return to a market focus on risk-aversion as concerns resurfaced about the overall outlook for economic growth and consequently doubts about the potential for corporate profit growth. Companies with the lowest perceived earnings risk, such as those with consistent steady growth in profits, for example consumer staples, performed well during this period. Their outperformance was primarily fuelled by an increase in the level of their valuations, which looked stretched even before further gains were made in their share prices. We believe that such elevated valuation levels are not sustainable indefinitely and the portfolio is therefore underinvested in such shares. 

Once again, fluctuations in exchange rates had a significant effect on the overall result. During the year under review, sterling weakened by 5 per cent against both the Japanese yen and the US dollar, which enhanced returns when measured in sterling. In contrast, sterling strengthened by 5 per cent against the euro during the year, reducing the performance of our European holdings.  

Given the increased caution of our Investment Manager on equity market valuations, cash balances were increased during the year. At the year end, we held 9.7 per cent of our net assets in cash.

Stock market performance
There was a high degree of volatility in equity markets during 2015. As was highlighted in the Half-Yearly Report, equity markets started off strongly and by April 2015, the Japanese, Continental European and Asia Pacific ex Japan indices had all achieved rises of over 10 per cent. Equity markets then levelled off. However, the possibility of Greece defaulting on its debts and even potentially leaving the euro, as well as concerns about the outlook for corporate profits resulting from slower economic growth in emerging markets, particularly China, negatively impacted investor sentiment. 

The uncertainty caused by these developments led to a setback in global equity markets which, in the final eight months of the year, largely eroded the returns achieved in the first four months. The latter part of the year, in particular, witnessed a return to a market focus on companies considered to be low risk.

The other major feature during the year was the dramatic fall in energy and commodity prices and the impact on share prices within these sectors. So rapid has been the decline in the oil price that it has created significant economic and financial disruption. Energy companies have reduced capital expenditure sharply and employee numbers have been reduced, both by energy companies themselves and by those that supply the energy industry. In addition, countries dependent on oil exports have had their finances thrown into disarray. Some have needed to ask for financial help from the International Monetary Fund, while those with Sovereign Wealth Funds have been selling assets to fund their expenditures. These negative pressures on economic activity have occurred very quickly. However, the fall in energy prices is a major benefit for countries that import energy and for consumers in general whose saving on energy costs will leave them with an increase in discretionary income, which should boost economic growth.

Despite the strong returns achieved by the Japanese equity market in 2015, there still appears to be better value in Japanese shares than elsewhere. While the level of investment in Japan had been reduced to 26.2 per cent of Shareholders’ Funds by the year end, it is still our largest geographical region of investment. The general decline in the regional Asian markets has begun to create the potential of some more realistic investment opportunities.

Revenue account and dividend
The revenue per share for the year ended 31 December 2015 was 3.1p. This compares with 3.7p per share in the previous year. The decrease in our income is largely a result of changes made to the portfolio, as well as holding a higher level of cash. The interest received on the cash is extremely low. 

We have highlighted in previous annual reports that Shareholders should be aware that the level of dividend we declare will fluctuate. The selection of shares held is based on where our Investment Manager finds the best value, rather than based on achieving a particular level of dividend. The Board continues to believe that a better long-term total return performance will be achieved by enabling our Investment Manager to fully implement its value-based investment philosophy, unrestricted by income considerations.

Last year, a final dividend of 3.3p per ordinary share was approved by Shareholders at the Annual General Meeting (“AGM”) and paid in May 2015. This year, your Board has decided to pay an interim dividend of 3.1p per ordinary share and to bring the payment date forward into the 2015/2016 tax year, ahead of the tax changes that come into force on 6 April 2016. While a final dividend has to be approved by Shareholders, this is not the case for an interim dividend. As usual, there will only be one dividend for the year, so the interim dividend will effectively replace the final one. The 3.1p dividend will be paid on 31 March 2016 and the ex-dividend date will be 10 March 2016.

Shares held in treasury
At the AGM held in April 2015, Shareholders passed a resolution permitting the Company to sell shares held in treasury at a weighted average discount of not more than 2.0 per cent to the prevailing NAV. In addition, the resolution provided that any sale of treasury shares would not result in a dilution greater than 0.2 per cent in aggregate in the period between AGMs.

The Board continues to believe that this should help improve the liquidity in the Company's shares and that the potential effect of dilution on existing Shareholders' interests will be minimal. During the year ended 31 December 2015, the Company sold 2,035,000 treasury shares for a total value of £5,029,000.

The Company also continued with its policy of buying in shares with a view to maintaining the share price at close to the NAV. During the year, we purchased 215,000 shares for treasury, at a total cost of £496,000. Shares that have been bought back under the Company's buy back policy are retained by the Company as treasury shares rather than cancelled.

The net impact of the sale and purchase of treasury shares has been to increase the assets of the Company by £4,533,000.

Auditor
The current Auditor of the Company is Ernst & Young LLP, who has been the Auditor since the launch of the Company in 2003. In accordance with the forthcoming reforms to legislation in respect of mandatory rotation of audit firms, the Company will be required to rotate auditors following the audit of the 2023 financial statements.

Under the UK Government’s proposed transitional arrangements for audit tendering, the Company will need to undertake a tender process in respect of the year ending 31 December 2017. The Company therefore intends to carry out a formal tender process for the audit during 2016.

Outlook
There is no shortage of issues to worry about and such concerns are always enhanced by unnerving declines in share prices, as occurred at the start of 2016. The horrific conflict in Syria continues to worsen and is becoming even more complicated, as is the spread of ISIS, while the influx of refugees into Europe has put further strains on the European Union. Overall, high levels of debt and a slower rate of growth in China point to more moderate global growth than has been achieved historically. However, we still expect a respectable, if more subdued, pace of growth, enhanced by lower energy prices, which should boost domestic consumption worldwide. This should more than offset the initial negative effects of reduced expenditure by oil companies and oil-producing countries. 

Interest rates worldwide continue to be at very low levels and, while interest rate normalisation has begun in the US, we anticipate that the process will be slow, given the absence of inflationary pressures. Indeed, in the early part of 2016, there appear to be more concerns about the risk of deflation, with forecasts for the rate of economic growth being reduced. Short-term interest rates have been reduced below zero in a number of countries and long-term government bond yields have once again fallen back. The Japanese and European Central Banks continue their large programmes of quantitative easing, buying in government bonds to try and create monetary growth and hence stimulate more economic activity.

Our Investment Manager has pointed out for a considerable period of time that share valuations, while not extreme, are uncomfortably high, relative to long-term levels. So it is not surprising that stock markets have tended to struggle since early 2015 as the outlook for corporate profits has been scaled back. Valuations have looked particularly stretched in the US. In contrast, lower share valuations are evident in Japan. Although we reduced our level of investment in Japan, it remains our largest geographic area of investment. As prices fall back, valuations become more attractive and we will be increasingly looking for opportunities to become more fully invested.
 

Teddy Tulloch
Chairman
8 March 2016

Past performance is not a guide to future performance.


INVESTMENT MANAGER’S REPORT

The Company produced a modest net asset value total return of 2.9 per cent in the year ended 31 December 2015. This masked some sizeable swings, with most major equity markets rising from the beginning of the year and then giving back most of the gains, before showing some recovery through to the year end.

In some ways, it appeared like a return to the environment that has been christened ‘risk on, risk off’. This phrase was intended by commentators to capture the perceived swings in investor sentiment over the general economic outlook and how they were reflected in investor preferences and movements in asset prices. The August setback was ascribed to growing fear over the condition of the Chinese economy. In our view, this was not the main cause of the setback. Chinese growth is important because it reflects and contributes to the aggregate growth of the global economy and continued global growth is critical to providing an underpinning for elevated equity prices. We see elevated valuations as the proximate cause of the volatility in markets. When valuations are high, any threats to the growth rates which underpin them tend to have an exaggerated effect.

Rising interest rates might be seen as such a threat. With low energy prices, subdued wage growth and little economic overheating, there are few plausible reasons for monetary tightening. Certainly, a normalisation of interest rates will happen, but not on an accelerated timetable. This does not mean that there are no dangers. In reaction to the global financial crisis, the cost of money has tended to zero. This will have led to poor credit decisions, which at some point will come back to haunt those who have borrowed short and lent long. On this occasion, they are less likely to be the banks and more likely to be those investors who sought higher yields through buying financial instruments.

We are not believers in the financial crash scenario, although we recognise the dangers of some failures in various credit instruments. Our view is more prosaic. We see the global economy continuing to expand at around current rates, but anticipate further retrenchment in the more extended segments of asset markets. For this reason, we have allowed cash to build in the portfolio to give us a reserve with which to take advantage of volatility as it occurs. The aggregate valuation of the portfolio has fallen substantially and we anticipate that, as this continues, opportunities will present themselves.

The exposure to Japan remains substantial, but somewhat lower than it was twelve months ago. The market performed strongly over the year, leading us to trim a number of positions, including East Japan Railway and KDDI. Screen Holdings, Bridgestone and Yamaha were sold on reaching their price targets, while Toshiba and Misawa Homes were sold reflecting a change in investment view. These sales are not a signal that we can no longer find value in Japan and this is evidenced by the purchases of Nomura and NTT during the year. Nevertheless, despite the new acquisitions, the level of exposure had dropped by around 7 per cent by the end of the year. Exposure to other geographies changed slightly, but there were no meaningful shifts worthy of comment. Such was the difficulty in finding new stocks in which to invest that we allowed the cash balance to rise to around 10 per cent of the portfolio.

On a sector view, the largest exposure is to banks, with a skew towards those operating in Asia. During the year, we invested in Commerzbank because of the strength of its position in commercial lending to mid-sized corporates in Germany and its improved capital position following a rights issue.

In general, banks did not perform particularly well in 2015 and in the early part of 2016 in a world beset by worries over growth and the interest rate cycle. Sitting on top of this was concern over the impact on profitability of ever-increasing regulatory burdens and capital requirements. Our view is that traditional retail and commercial banking will be a profitable business and that the banks which are focused on these areas already discount many investor concerns. Such banks sit at discounts to their tangible book values. A return to reasonable profit margins, attractive and sustainable dividend yields and moderate growth in profits should lead to attractive returns. At the moment, such returns appear a distant prospect, but eventually commercial/retail-focused banks will reflect the condition of their client base. Since our expectation is for continued, subdued global growth, this should eventually translate into improved bank earnings. In other words, we expect a return to more utility-like characteristics for these banks. While we do not anticipate increasing the exposure to this area, it remains one of the cheapest segments of the portfolio, albeit one where sentiment continues to be extremely negative.

We have also increased the exposure to emerging markets, believing the concerns over China to be overstated. China is in a state of both political and economic transition, which is not unfolding smoothly. The anti-corruption drive in China is both political and economic in its goals, but it has unfortunate side effects for areas such as Macau. We have invested in the casino company Galaxy Entertainment and, while its share price declined through 2015, the prospects for earnings growth remain robust and the valuation is compelling.

Our concerns over valuations grew over the year and this manifested itself in a rising cash position. We do not see the recessionary conditions which would precipitate a financial crash, but nevertheless caution is called for given the extended nature of valuations across all asset classes. As a consequence, our expectations on near-term returns are subdued. We do not anticipate wholescale changes in the portfolio unless market volatility continues to increase, creating opportunities of which we can take advantage.
 

Dr Sandy Nairn
Edinburgh Partners
8 March 2016

Past performance is not a guide to future performance.

 

OTHER STATUTORY INFORMATION

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

Strategy and business model
Investment policy
The Company invests in a focused portfolio of approximately 30 to 40 securities of issuers throughout the world, predominantly in quoted equities. The Company may also invest in unquoted securities, which are not anticipated to exceed 10 per cent of the Company’s total assets at the time of investment (excluding shares held in Edinburgh Partners). No investment in the Company’s portfolio may exceed 15 per cent of the Company’s total assets at the time of investment.

The Company has the ability to invest in other investment companies or funds but will invest no more than 15 per cent of its gross assets in other listed investment companies (including investment trusts).

The Company may also invest a substantial portion of its assets in debt instruments, cash or cash equivalents when the Investment Manager believes market or economic conditions make equity investment unattractive or while seeking appropriate investment opportunities for the portfolio or to maintain liquidity. In addition, the Company may purchase derivatives for the purposes of efficient portfolio management.

It is intended that, from time to time, when deemed appropriate, the Company will borrow for investment purposes up to the equivalent of 25 per cent of its total assets. By contrast, the Company’s portfolio may from time to time have substantial holdings of debt instruments, cash or short-term deposits.

The investment objective and policy are intended to distinguish the Company from other investment vehicles which have relatively narrow investment objectives and which are thus constrained in their decision making and asset allocation. The objective and policy allow the Company to be constrained in its investment selection only by valuation and to be pragmatic in portfolio construction by only investing in securities which the Investment Manager considers to be undervalued on an absolute basis.

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

Investment strategy
The Company’s portfolio is managed without reference to any stock market index. Investments are selected for the portfolio only after extensive research by the Investment Manager. The process through which an equity must pass in order to be included in the portfolio is rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The key to successful stock selection is to identify the long-term value of a company’s shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company’s earning prospects over a five-year time horizon. Further details of the investment strategy can be found in the Chairman’s Statement and the Investment Manager’s Report above.

Business and status of the Company
The Company is registered as a public limited company and is an investment company within the terms of section 833 of the Act. The Company has been approved by HM Revenue & Customs (“HMRC”) as an authorised investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010 (the “CTA”) for each accounting period, subject to there being no subsequent serious breaches of the regulations.

The Company has been approved as an investment trust for all years since its inception in 2003. In the opinion of the Directors, the Company is directing its affairs so as to enable it to continue to qualify for such approval.

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

Portfolio analysis
A detailed review of how the Company’s assets have been invested is contained in the Investment Manager’s Report above. A list of all the Company’s investments is contained in the Portfolio of Investments above. At 31 December 2015, the Company held 38 investments, excluding cash and other net assets, with the largest representing 3.0 per cent of net assets, thus ensuring that the Company has a suitable spread of investment risk. A sector and geographical distribution of investments is shown above.

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

For the year ended 31 December 2015, the net revenue return attributable to Shareholders was £1.5 million (2014: £1.8 million) and the net capital return attributable to Shareholders was £1.7 million (2014: £0.6 million). Total Shareholders’ funds increased by 5.5 per cent to £118.4 million (2014: £112.1 million).

An interim dividend for the year ended 31 December 2015 of 3.1p per ordinary share (2014: final dividend of 3.3p) was declared by the Board on 2 March 2016. This dividend is payable on 31 March 2016 to Shareholders on the register at the close of business on 11 March 2016. The ex-dividend date will be 10 March 2016.

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

Net asset value
In the year to 31 December 2015, the NAV increased by 1.6 per cent from 236.0p to 239.8p. After taking account of the dividend paid in the year of 3.3p relating to the year ended 31 December 2014, the net asset value total return was 2.9 per cent. This compares with the total return of 4.0 per cent from the FTSE All-World Index, adjusted to sterling.

The net asset value total return since the launch of the Company on 15 December 2003 to 31 December 2015 was 178.3 per cent. This was an outperformance against the total return of 172.9 per cent from the FTSE All-World Index, adjusted to sterling.

Share price
In the year to 31 December 2015, the Company’s share price decreased by 0.1p from 234.6p to 234.5p. The share price total return, taking account of the 3.3p dividend paid in the year relating to the year ended 31 December 2014, was 1.2 per cent.

Share price premium/discount to NAV
The share price discount to NAV widened from 0.6 per cent to 2.2 per cent in the year to 31 December 2015.

Revenue return per ordinary share
There was a decrease in the revenue per share in the year to 31 December 2015 of 16.2 per cent from 3.7p to 3.1p.

Dividend per ordinary share
The Directors have declared an interim dividend of 3.1p per ordinary share. This represents a 6.1 per cent decrease on the prior year dividend of 3.3p. As detailed in the Chairman’s Statement above, the Board has always taken the view that the investments to be held in the portfolio should be determined entirely on where the Investment Manager finds the best value rather than on achieving a particular level of dividend.

Ongoing charges
The ongoing charges ratio was 1.0 per cent (2014: 1.1 per cent) in the year to 31 December 2015.

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

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

The AIFM receives a management fee of 0.75 per cent per annum (payable monthly in arrears) of the month-end market capitalisation of the issued ordinary shares (excluding treasury shares) up to £100 million and 0.65 per cent above £100 million. No performance fee will be paid. The AIFM receives an administration fee of £125,000 per annum (payable monthly in arrears), which is adjusted annually in line with changes in the Retail Price Index. The Company also pays the Investment Manager £25,000 per annum in respect of marketing-related services.

On 25 November 2015, the Company acquired a stake in the Edinburgh Partners Emerging Opportunities Fund, which is managed by Edinburgh Partners, and subsequently added to this holding on 1 December 2015, as detailed in note 9 and note 10 of the Financial Statements below. No management fee was charged by the AIFM to the Company in relation to its investment in the Edinburgh Partners Emerging Opportunities Fund during the year ended 31 December 2015.

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

The AIFM is required to make disclosures relating to the total remuneration paid by the AIFM in respect of the AIFM’s first relevant reporting period, the year ending 29 February 2016, and these will be made available in the Company’s Annual Report and Financial Statements for the year ending 31 December 2016. The remuneration policy of the AIFM is available on request.

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

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

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

The AIFM reviews risk limit reports at regular meetings of its Risk Committee.

Principal risks and uncertainties
The Board considers that the following are the principal risks associated with investing in the Company: investment and strategy risk, key manager risk, discount volatility risk, market risk, foreign currency risk and regulatory risk. Other risks associated with investing in the Company are liquidity risk, credit risk, interest rate risk, gearing risk, market abuse risk, operational risk and financial risk. An explanation of these risks and how they are managed and the policy and practice with regards to financial instruments are contained in note 18 of the Financial Statements below.

The Board, through delegation to the Committee, undertakes a robust annual assessment and review of all the risks stated above and in note 18 of the Financial Statements below, together with a review of any new risks which may have arisen during the year, including those that would threaten its business model, future performance, solvency or liquidity. These risks are formalised within the Company’s risk assessment matrix.

Internal control
In accordance with guidance issued to directors of listed companies by the Financial Reporting Council (“FRC”) on Risk Management, Internal Control and Related Finance and Business Reporting, the Directors confirm that they have carried out a review of the effectiveness of the systems of internal control during the year ended 31 December 2015, as set out in the Corporate Governance Statement in the full Annual Report. There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.

Leverage
Leverage is defined in the AIFMD as any method by which the Company increases its exposure, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. The Company did not have any borrowings or use any derivative instruments during the year ended 31 December 2015.

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

The AIFMD introduced a requirement for the AIFM to set maximum levels of leverage for the Company. The Company’s AIFM has set a maximum limit of 1.25 for both the Gross and Commitment Methods of calculating leverage. However, the AIFM anticipates that the figures are likely to be lower than this under normal market conditions. At 31 December 2015, the Company’s Gross ratio was 1.00 and its Commitment ratio was 1.00. In accordance with the AIFMD, any changes to the maximum level of leverage set by the Company will be communicated to Shareholders.

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

Main trends and future development
A review of the main features of the year ended 31 December 2015 and the outlook for the coming year can be found in the Chairman’s Statement and the Investment Manager’s Report above. The Board’s main focus is on the investment return and approach, with attention paid to the integrity and success of the investment approach and on factors which may have an impact on this approach.

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

Gender diversity
As at 31 December 2015, the Board of Directors of the Company comprised four male Directors. The appointment of any new Director is made on the basis of merit.

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

In pursuit of the above objective, the Board believes that proxy voting is an important part of the corporate governance process and considers seriously its obligation to manage the voting rights of companies in which it is invested. It is the policy of the Company to vote, as far as is practicable, at all shareholder meetings of investee companies. The Company follows the relevant applicable regulatory and legislative requirements in the UK, with the guiding principles being to make proxy voting decisions which favour proposals that will lead to maximising Shareholder value while avoiding any conflicts of interest. To this end, voting decisions are taken on a case-by-case basis, with the key issues on which the AIFM focuses being corporate governance, including disclosure and transparency, board composition and independence, control structures, remuneration and social and environmental issues.

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

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

On behalf of the Board
Teddy Tulloch
Chairman
8 March 2016

Past performance is not a guide to future performance.

 

EXTRACTS FROM THE DIRECTORS’ REPORT

Share capital
At 31 December 2015, the Company’s issued share capital comprised 64,509,642 ordinary shares, of which 15,161,917 ordinary shares were held in treasury.

At general meetings of the Company, one vote is attached to each ordinary share in issue. Own shares held in treasury do not carry voting rights. The total voting rights of the Company at 31 December 2015 were 49,347,725.

Issue of shares
On 11 October 2005, the Company applied for a block listing of 1,300,000 ordinary shares. As at 31 December 2015, and at the date of signing this report, a balance of 745,830 shares may be issued under this block listing.

No shares were issued during the year.

Purchase of shares
During the year ended 31 December 2015, the Company purchased in the stock market 215,000 ordinary shares (with a nominal value of £2,150) for treasury, at a total cost of £496,000. This represented 0.33 per cent of the issued share capital at 31 December 2014. During the year ended 31 December 2015, no shares were purchased for cancellation.

Subsequent to the year end of 31 December 2015 and up to 8 March 2016, the date of signing this report, the Company purchased in the stock market 175,000 ordinary shares (with a nominal value of £1,750) for treasury, at a total cost of £377,000, representing 0.27 per cent of the issued share capital as at 31 December 2015.

Sale of shares from treasury
During the year ended 31 December 2015, the Company sold in the stock market 2,035,000 ordinary shares (with a nominal value of £20,350) from treasury, representing 3.15 per cent of the issued share capital as at 31 December 2014, for a total consideration of £5,029,000.

Shares held in treasury
Holding shares in treasury enables a company to issue shares cost effectively that might otherwise have been cancelled. The total number of own shares held in treasury as at 31 December 2015, including those shares bought back in prior accounting periods, totalled 15,161,917 ordinary shares. The Board has not set a limit on the number of shares that can be held in treasury at any one time. The maximum number of own shares held in treasury during the year was 16,981,917 ordinary shares (with a nominal value of £169,819) representing 26.32 per cent of the issued share capital at the time they were held in treasury.

Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report above. In addition, notes 18 and 19 of the Financial Statements include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its risk exposure. The Company’s principal risks are investment and strategy risk, key manager risk, discount volatility risk, market risk, foreign currency risk and regulatory risk. The Company’s assets consist principally of a diversified portfolio of listed equity shares, which in most circumstances are realisable within a short period of time and exceed its liabilities by a significant amount.

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

Long-term Viability Statement
In accordance with the February 2015 revision to the AIC Code, the Directors have assessed the prospects of the Company over a longer period than the one year required by the ‘Going Concern’ provision of the Code. The Board considers that, for a company with an investment objective to provide Shareholders with an attractive real long-term return by investing globally in undervalued securities, a period of five years is an appropriate period to consider for the purpose of the Long-term Viability Statement. Furthermore, five years is the time period used for identifying long-term value, as detailed in the investment strategy section above.

The Board has undertaken an assessment of its future prospects in order that the Directors may state that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

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

• the Company’s current financial position;

• the principal risks the Company faces, as detailed in note 18 of the Financial Statements;

• that the portfolio comprises principally of investments traded on major global stock markets and that there is a satisfactory spread of investments. There is no expectation that the nature of the investments held within the portfolio will be materially different in the future;

• that the expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments foreseen which would alter that position;

• that the Company has no employees. All of the Directors are non-executive and consequently do not have any employment-related liabilities or responsibilities; and

• that, should performance be less than the Board considers to be acceptable, it has appropriate powers to replace the AIFM.

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

• that investors will still wish to have an exposure to global equity portfolios;

• that there will continue to be a demand for closed-ended investment trusts from investors;

• that regulation will not increase to a level that makes the running of the Company uneconomical in comparison to other competitive products; and

• that the performance of the Company will continue to be satisfactory.

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

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

Management report
Listed companies are required by the FCA’s Disclosure and Transparency Rules (the “Rules”) to include a management report within their annual report and financial statements.

The information required to be included in the management report for the purpose of these Rules is detailed in the Strategic Report, including the Chairman’s Statement and the Investment Manager’s Report, above. Therefore no separate management report has been included.

Statement of Directors’ responsibilities in relation to the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial period. Under that law, they have elected to prepare the Financial Statements in accordance with UK Accounting Standards. Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these Financial Statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Act and include the information required by the Listing Rules of the FCA. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

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

• the Financial Statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• the Strategic Report and the Directors’ Report include 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.

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

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

On behalf of the Board
Teddy Tulloch
Chairman
8 March 2016
 

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 December 2014 and 31 December 2015 but is derived from those accounts. Statutory accounts for the year ended 31 December 2014 have been delivered to the Registrar of Companies, and those for the year ended 31 December 2015 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Act. The text of the Auditor’s report can be found in the Company’s full Annual Report and Financial Statements at www.epgot.com.
 

INCOME STATEMENT
for the year ended 31 December 2015

	Note	Revenue  £’000	2015 Capital £’000	Total  £’000	Revenue £’000	2014 Capital £’000	Total  £’000
Gains on investments at fair value	9	-	978	978	-	429	429
Foreign exchange gains on capital items		-	767	767	-	176	176
Income	2	2,960	-	2,960	3,227	-	3,227
Management fee	3	(867)	-	(867)	(803)	-	(803)
Other expenses	4	(366)	-	(366)	(393)	-	(393)
Net return before finance costs and taxation		1,727	1,745	3,472	2,031	605	2,636
Finance costs
Interest payable and related charges	5	-	-	-	(35)	-	(35)
Net return before taxation		1,727	1,745	3,472	1,996	605	2,601
Taxation	6	(199)	-	(199)	(222)	-	(222)
Net return after taxation		1,528	1,745	3,273	1,774	605	2,379
		pence	pence	pence	pence	pence	pence
Return per ordinary share	8	3.1	3.6	6.7	3.7	1.3	5.0

All revenue and capital items in the above statement derive from continuing operations.

The total column of this statement is the profit and loss account of the Company. The revenue and capital columns are prepared under guidance published by the AIC.

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

Dividend information
An interim dividend, in lieu of a final dividend, for the year ended 31 December 2015 of 3.1p per ordinary share (2014: final dividend of 3.3p) has been declared by the Board. This dividend is payable on 31 March 2016 to Shareholders on the register at the close of business on 11 March 2016. The ex-dividend date will be 10 March 2016. Based on 49,172,725 ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) on 8 March 2016, the date of signing this report, the total dividend payment will amount to £1,524,000. Dividends are accounted for in the period in which they are paid. Further information on dividend distributions can be found in note 7 of these Financial Statements below.

The notes form part of these Financial Statements.
 

BALANCE SHEET
as at 31 December 2015

	Note	2015 £’000	2014  £’000
Fixed asset investments
Investments at fair value through profit or loss	9	106,889	104,368
Current assets
Debtors	11	181	200
Cash at bank and short-term deposits		11,947	7,820
		12,128	8,020
Creditors – amounts falling due within one year
Creditors	12	660	245
		660	245
Net current assets		11,468	7,775
Net assets		118,357	112,143
Capital and reserves
Called-up share capital	13	645	645
Share premium		1,597	-
Capital redemption reserve		14	14
Special reserve		70,245	67,309
Capital reserve		42,726	40,981
Revenue reserve		3,130	3,194
Total Shareholders’ funds		118,357	112,143
		pence	pence
Net asset value per ordinary share	15	239.8	236.0

These Financial Statements were approved and authorised for issue by the Board of Directors of EP Global Opportunities Trust plc on 8 March 2016 and were signed on its behalf by:

Teddy Tulloch
Chairman

Registered in Scotland No. 259207

The notes form part of these Financial Statements.
 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 December 2015

	Note	Share capital £’000	Share premium £’000	Capital redemption reserve £’000	Special  reserve  £’000	Capital reserve £’000	Revenue  reserve  £’000	Total  £’000
Year to 31 December 2015
At 31 December 2014		645	-	14	67,309	40,981	3,194	112,143
Net return after taxation		-	-	-	-	1,745	1,528	3,273
Dividends paid	7	-	-	-	-	-	(1,592)	(1,592)
Share purchases for treasury	14	-	-	-	(496)	-	-	(496)
Share sales from treasury	14	-	1,597	-	3,432	-	-	5,029
At 31 December 2015		645	1,597	14	70,245	42,726	3,130	118,357
Year ended 31 December 2014
At 31 December 2013		645	-	14	68,829	40,376	2,716	112,580
Net return after taxation		-	-	-	-	605	1,774	2,379
Dividends paid	7	-	-	-	-	-	(1,296)	(1,296)
Share purchases for treasury	14	-	-	-	(1,520)	-	-	(1,520)
Share sales from treasury	14	-	-	-	-	-	-	-
At 31 December 2014		645	-	14	67,309	40,981	3,194	112,143

The notes form part of these Financial Statements.
 

CASH FLOW STATEMENT
for the year ended 31 December 2015

	Note	2015  £’000	2014  £’000
Operating activities
Investment income received		3,004	3,167
Management fees paid		(860)	(868)
Administration fees paid		(125)	(133)
Other expenses paid		(241)	(271)
Taxation paid		(220)	(250)
Net cash inflow from operating activities	16	1,558	1,645
Capital expenditure and financial investment
Purchases of investments		(45,684)	(32,275)
Sales of investments		44,140	43,747
Exchange gains/(losses) on settlement		14	(42)
Net cash (outflow)/inflow from investing activities		(1,530)	11,430
Net cash inflow before equity dividend and financing		28	13,075
Financing
Ordinary shares purchased for treasury		(91)	(1,520)
Ordinary shares sold from treasury		5,029	-
Repayment of loan		-	(3,694)
Interest paid		-	(45)
Equity dividend paid		(1,592)	(1,296)
Net cash inflow/(outflow) from financing		3,346	(6,555)
Increase in cash		3,374	6,520

   

	At  1 January  2015  £’000	Cash  flows  £’000	Exchange   gains/  (losses)  £’000	At  31 December  2015  £’000
Cash at bank	7,820	3,374	753	11,947

   

	At  1 January  2014  £’000	Cash  flows  £’000	Exchange   gains/  (losses)  £’000	At  31 December  2014  £’000
Cash at bank	1,079	6,520	221	7,820

The notes form part of these Financial Statements.
 

NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2015

1. Accounting policies

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

The Company’s Financial Statements have been prepared in compliance with Financial Reporting Standard (“FRS”) 102 as it applies to the Financial Statements of the Company for the year ended 31 December 2015. The Company early adopted FRS 102 as at 1 January 2013.

The Financial Statements are prepared on a going concern basis and in accordance with the Act and with the AIC SORP. Where presentational guidance set out in the SORP is consistent with FRS 102, the Directors have sought to prepare the Financial Statements on a consistent basis compliant with the recommendations of the SORP. All of the Company’s activities are continuing.

The comparative figures for the Financial Statements are for the year ended 31 December 2014.

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

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

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

Expenses and finance costs
All management expenses and finance costs are accounted for on an accruals basis. All operating expenses and finance costs are charged through the revenue account in the Income Statement except costs that are incidental to the acquisition or disposal of investments, which are charged to the capital account in the Income Statement. Finance costs are debited using the effective interest rate method. Transaction costs are included within the gains and losses on investments, as disclosed in the Income Statement.

Investments
All investments held by the Company are designated as held at fair value upon initial recognition, and are measured at fair value through profit or loss in subsequent accounting periods. Investments are initially recognised at cost, being the fair value of the consideration given.  

After initial recognition, investments are measured at fair value, with changes in the fair value of investments and impairment of investments recognised in the Income Statement and allocated to capital. Realised gains and losses on investments sold are calculated as the difference between sales proceeds and cost.

For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset. Unlisted investments will be valued by the Directors at fair value, using the guidelines on valuation published by the International Private Equity and Venture Capital Association (“IPEVC Valuation Guidelines”). This represents the Directors’ view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction.

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

Transactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature.

Taxation
The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences between taxable profits and total comprehensive income that have arisen but not been reversed by the Balance Sheet date, unless such provision is not permitted by FRS 102. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences be deducted. Timing differences are differences arising between the Company’s taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

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

For the purpose of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above. Cash flows related to borrowings and the repayment of loans are classified as financing cash flows and are presented in the Cash Flow Statement. The presentation of the relevant comparative figure has been adjusted in the Cash Flow Statement to conform with the current year presentation.

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

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

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

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

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

Judgements and key sources of estimation uncertainty
The preparation of the financial statements requires the Company to make judgements, estimates and assumptions that affect amounts reported for assets and liabilities as at the Balance Sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that the actual outcomes could differ from those estimates, possibly significantly. The judgements relate to the unlisted investment where there is no appropriate market price, as detailed in note 9.

Reserves

Capital reserve
The following are accounted for in this reserve:

• gains and losses on the realisation of investments;

• realised exchange differences of a capital nature;

• net movement arising from changes in the fair value of investments; and

• expenses, together with related taxation effect, charged to this account in accordance with the above policies.

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

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

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

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

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

2. Income

	2015 £’000	2014 £’000
Income from investments
UK net dividend income*	840	859
Overseas dividend income	2,120	2,368
	2,960	3,227
Total income comprises
Dividends	2,960	3,227
	2,960	3,227

* Includes income of £214,000 (2014: £428,000) from the unlisted investment in Edinburgh Partners.

3. Management fee

	2015 £’000	2014  £’000
Management fee – AIFM	867	373
Management fee – Investment Manager	-	430
	867	803

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

No management fee is payable in relation to the Company’s investment in Edinburgh Partners Emerging Opportunities Fund, which is also managed by Edinburgh Partners. Details relating to this investment are found in the Strategic Report above and in notes 9 and 10.

During the year ended 31 December 2015, the management fees payable to the AIFM totalled £867,000 (2014: £373,000). At 31 December 2015, there was £144,000 outstanding payable to the AIFM (2014: £137,000) in relation to management fees.

During the year ended 31 December 2015, the administration fees payable to the AIFM, as detailed in note 4, totalled £125,000 (2014: £56,000). At 31 December 2015, there was £21,000 outstanding payable to the AIFM (2014: £21,000) in relation to administration fees.

During the year ended 31 December 2015, the Company paid Edinburgh Partners £25,000 (2014: £25,000) for marketing-related services. At 31 December 2015, there was £6,000 outstanding to Edinburgh Partners (2014: £6,000) in relation to marketing-related services. The fees for marketing-related services are included within other expenses as detailed in note 4.


4. Other expenses

	2015 £’000	2014  £’000
Administration fee – AIFM	125	56
Administration fee – Investment Manager	-	67
Auditor’s remuneration (excluding VAT) for:
Audit	19	19
Taxation services – Advisory	8	3
Directors’ remuneration	73	71
Other	141	177
	366	393

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


5. Finance costs

	2015 £’000	2014 £’000
Loan interest paid	-	19
Loan non-utilisation fee	-	12
Loan arrangement fee	-	4
	-	35

6. Taxation

a) Analysis of charge in year	Revenue £’000	2015 Capital £’000	Total £’000	Revenue £’000	2014 Capital £’000	Total £’000
Current tax
Overseas tax suffered	199	-	199	222	-	222
	199	-	199	222	-	222

b) The current taxation charge for the year ended 31 December 2015 is lower than the theoretical rate of corporation tax in the UK of 20.25 per cent (2014: 21.5 per cent) (NB The standard rate of corporation tax was 21.0 per cent from 1 April 2014 and 20 per cent from 1 April 2015. Previously it had been 23.0 per cent from 1 April 2013). The differences are explained below:

	Revenue  £’000	2015  Capital  £’000	Total  £’000	Revenue  £’000	2014  Capital  £’000	Total  £’000
Net return before taxation	1,727	1,745	3,472	1,996	605	2,601
Theoretical tax at UK corporation tax rate of 20.25 per cent (2014: 21.5 per cent)	350	353	703	429	130	559
Effects of:
- UK dividends that are not taxable	(170)	-	(170)	(185)	-	(185)
- Foreign dividends that are not taxable	(429)	-	(429)	(489)	-	(489)
- Non-taxable investment gains	-	(353)	(353)	-	(130)	(130)
- Unrelieved excess expenses	249	-	249	243	-	243
- Double tax relief	-	-	-	2	-	2
- Overseas tax suffered	199	-	199	222	-	222
Total tax	199	-	199	222	-	222

At 31 December 2015, the Company had unrelieved losses of £4,808,000 (31 December 2014: £3,575,000). It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses to reduce future tax charges and therefore no deferred tax asset has been recognised.

In addition, due to the Company’s status as an investment trust and the intention to continue meeting the conditions required to obtain approval as an investment trust in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.


7. Dividends

	2015 £’000	2014 £’000
Declared and paid
2014 final dividend of 3.3p per ordinary share paid in May 2015 (2013: final dividend of 2.7p paid in May 2014)	1,592	1,296
Net revenue return after taxation	1,526	1,774
Declared
2015 interim dividend of 3.1p (2014: final dividend of 3.3p) per ordinary share	1,524	1,592

An interim dividend, in lieu of a final dividend, for the year of 3.1p per ordinary share (2014: final dividend of 3.3p) was declared on 2 March 2016. This dividend is payable on 31 March 2016 to Shareholders on the register at the close of business on 11 March 2016. The ex-dividend date will be 10 March 2016. Based on 49,172,725 ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) at 8 March 2016, the date of signing this report, the total dividend payment will amount to £1,524,000.


8. Return per ordinary share

	Net return £’000	2015  Ordinary  shares*	Per share pence	Net return £’000	2014  Ordinary  shares*	Per share pence
Revenue return after taxation	1,528	49,008,643	3.1	1,774	47,889,423	3.7
Capital return after taxation	1,745	49,008,643	3.6	605	47,899,423	1.3
Total return	3,273	49,008,643	6.7	2,379	47,899,423	5.0

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


9. Investment

			2015 £’000	2014  £’000
Listed investments			105,439	102,918
Unlisted investments			1,450	1,450
			106,889	104,368
	Unlisted £’000	Listed  £’000	2015  Total  £’000	2014  Total  £’000
Analysis of investment portfolio movements
Opening bookcost	214	97,287	97,501	101,850
Opening investment holding gains	1,236	5,631	6,867	13,593
Opening valuation	1,450	102,918	104,368	115,443
Movements in the year:
Purchases at cost	-	45,683	45,683	32,243
Sales - proceeds	-	(44,140)	(44,140)	(43,747)
- realised gains on sales	-	3,274	3,274	7,155
Decrease in investment holding gains	-	(2,296)	(2,296)	(6,726)
Closing valuation	1,450	105,439	106,889	104,368
Closing book cost	214	102,104	102,318	97,501
Closing investment holding gains	1,236	3,335	4,571	6,867
Closing valuation	1,450	105,439	106,889	104,368

Within the listed investments detailed above, there is included the Company’s investment in the Edinburgh Partners Emerging Opportunities Fund, a sub-fund of an Irish domiciled open-ended investment company listed on the Dublin Stock Exchange as detailed in note 10, which was valued at £2,323,000 at 31 December 2015. As at 30 September 2015, the most recent year end of the Edinburgh Partners Emerging Opportunities Fund, the aggregate amount of capital and reserves was US$3,107,000. For the year to 30 September 2015 the loss for the year after tax and distributions was US$907,000.

The unlisted investment detailed above is 71,294 (2014: 71,294) shares in Edinburgh Partners.

	Unlisted £’000	Listed  £’000	2015  Total  £’000	2014  Total  £’000
Analysis of capital gains and losses
Realised gains on sales	-	3,274	3,274	7,155
Changes in fair value of investments	-	(2,296)	(2,296)	(6,726)
	-	978	978	429

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

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

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

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

Transaction costs
During the year, the Company incurred transaction costs of £80,000 (2014: £70,000) and £51,000 (2014: £48,000) on purchases and sales of investments respectively. These amounts are included in gains on investments at fair value, as disclosed above in the Income Statement of these Financial Statements.


10. Significant holdings
As at 31 December 2015, the Company owned 52.03% (2014:0%) of the net assets of the Edinburgh Partners Emerging Opportunities Fund, a sub-fund of an Irish domiciled open-ended investment company listed on the Dublin Stock Exchange as detailed in note 9. The Company had no other holdings of 3.0 per cent or more of the share capital of any portfolio companies.


11. Debtors

	2015 £’000	2014  £’000
Dividends receivable	103	146
Prepayments and accrued income	20	17
Taxation recoverable	58	37
	181	200

12. Creditors: amounts falling due within one year

	2015 £’000	2014  £’000
Due to brokers on shares purchased for treasury	404	-
Other creditors and accruals	256	245
	660	245

13. Share capital

	Number of shares Ordinary 1p	2015 £’000	Number  of shares  Ordinary 1p	2014 £’000
Allotted, called-up and fully paid:
At 1 January	64,509,642	645	64,509,642	645
At 31 December	64,509,642	645	64,509,642	645

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


14. Own shares held in treasury
Details of own shares purchased for and sold from treasury are shown below:

	2015  Number of  shares	2014 Number of shares
At 1 January	16,981,917	16,306,917
Shares purchased for treasury	215,000	675,000
Shares sold from treasury	(2,035,000)	-
At 31 December	15,161,917	16,981,917

During the year ended 31 December 2015, 215,000 shares (2014: 675,000) were purchased for treasury at a cost of £496,000 (2014: £1,520,000) and 2,035,000 shares (2014: nil) were sold from treasury at a cost of £3,432,000 (2014: nil) for a gross consideration of £5,029,000 (2014: nil), the premium of £1,597,000 being recognised in the share premium account. Please see the Chairman’s Statement above for details of share buy backs and sales.


15. Net asset value per ordinary share
The NAV, calculated in accordance with the Articles of Association, is as follows:

	2015 pence	2014  pence
Ordinary share	239.8	236.0

The NAV is based on net assets of £118,357,000 (2014: £112,143,000) and on 49,347,725 (2014: 47,527,725) ordinary shares, being the number of ordinary shares, excluding shares held in treasury, in issue at the year end.


16. Reconciliation of net return before finance costs to net cash inflow from operating activities

	2015  £’000	2014  £’000
Net return before finance costs and taxation	3,472	2,636
Net gains on capital items	(1,745)	(605)
Increase/(decrease) in creditors	11	(85)
Decrease/(increase) in debtors and accrued income	19	(79)
Taxation	(199)	(222)
Net cash inflow from operating activities	1,558	1,645

17. Analysis of financial assets and liabilities

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

	No  interest  rate  exposure  £’000	2015 Cash flow interest rate risk exposure £’000	Total  £’000	No  interest  rate  exposure  £’000	2014 Cash flow interest rate risk exposure £’000	Total  £’000
Equity shares
Japanese yen	31,025	-	31,025	37,449	-	37,449
US dollar	17,862	-	17,862	12,830	-	12,830
Euro	16,897	-	16,897	15,752	-	15,752
Sterling	15,911	-	15,911	12,835	-	12,835
Hong Kong dollar	9,192	-	9,192	6,185	-	6,185
Swiss franc	6,522	-	6,522	8,558	-	8,558
Indonesian rupee	2,687	-	2,687	2,323	-	2,323
Thailand baht	2,436	-	2,436	2,800	-	2,800
South Korean won	2,405	-	2,405	2,397	-	2,397
Singapore dollar	1,952	-	1,952	3,239	-	3,239
Cash at bank and short–term deposits
US dollar	-	11,839	11,839	-	7,665	7,665
Sterling	-	108	108	-	155	155
Debtors
Japanese yen	44	-	44	79	-	79
Sterling	61	-	61	65	-	65
Euro	20	-	20	18	-	18
Swiss franc	38	-	38	19	-	19
South Korean won	18	-	18	19	-	19
Short-term creditors
Sterling	(660)	-	(660)	(245)	-	(245)
	106,410	11,947	118,357	104,323	7,820	112,143

At 31 December 2015, the Company had no financial liabilities other than the short-term creditors as stated above (2014: £nil). The carrying amount on the Balance Sheet approximates the fair value of all financial assets and liabilities.

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

Foreign Exchange rates against sterling	2015	2014	Change
Japanese yen	177.30	186.95	(5)%
US dollar	1.47	1.56	(6)%
Euro	1.36	1.29	5%
Hong Kong dollar	11.42	12.09	(6)%
Swiss franc	1.48	1.55	(5)%
Indonesian rupee	2,0317.71	19,311.31	5%
Thailand baht	53.04	51.30	3%
South Korean won	1,728.22	1,713.85	1%
Singapore dollar	2.09	2.07	1%

18. Risk analysis

Principal risks
The principal risks the Company faces are:

• Investment and strategy risk

• Key manager risk

• Discount volatility risk

• Market risk

• Foreign currency risk

• Regulatory risk

The Investment Manager monitors the financial risks affecting the Company on an ongoing basis within the policies and guidelines determined by the Board. The Directors receive financial information, which is used to identify and monitor risk, quarterly. The Company may enter into derivative contracts to manage risk but has not done so to date. A description of the principal risks the Company faces is set out below.

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

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

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

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

Discount volatility risk
The Board recognises that it is in the long-term interests of Shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is investment performance. The Company is permitted to employ gearing, a process whereby funds are borrowed principally for the purpose of purchasing securities should the Board feel that it is appropriate to do so. The use of gearing can magnify discount volatility.

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

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

During the year ended 31 December 2015, the Company bought back 215,000 (2014: 675,000) ordinary shares into treasury. Subsequent to the year end and up to 8 March 2016, the date of signing this report, the Company bought back 175,000 ordinary shares into treasury.

During the year ended 31 December 2015, the Company sold 2,035,000 (2014: nil) ordinary shares from treasury.

Market risk
The Company is exposed to market risk due to fluctuations in the market prices of its investments. Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Investment Manager monitors the prices of financial instruments held by the Company on an ongoing basis.

The Investment Manager actively monitors market and economic data and reports to the Board, which considers investment policy on a regular basis. The net asset value per ordinary share of the Company is issued daily to the London Stock Exchange and is also available on the Company’s website at www.epgot.com.

Details of the Company’s investment portfolio as at 31 December 2015 are disclosed above.

If the investment portfolio valuation fell by 1 per cent from the amount detailed in the Financial Statements as at 31 December 2015, it would have the effect, with all other variables held constant, of reducing the total return before taxation and therefore net assets by £1,069,000 (2014: £1,044,000). An increase of 1 per cent in the investment portfolio valuation would have an equal and opposite effect on the total return before taxation and net assets.

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

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

Details of the Company’s foreign currency risk exposure as at 31 December 2015 are disclosed above in note 17.

If sterling had strengthened by 1.0 per cent against all other currencies on 31 December 2015, with all other variables held constant, it would have the effect of reducing the total return before taxation and net assets by £1,029,000 (2014: £993,000). If sterling had weakened by 1.0 per cent against all other currencies, there would have been an equal and opposite effect on the total return before taxation and net assets.

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

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

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

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

Other risks
Other risks the Company faces are:

• Liquidity risk

• Credit risk

• Interest rate risk

• Gearing risk

• Market abuse risk

• Operational risk

• Financial risk

A description of these other risks is set out below.

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

The Company’s assets comprise mainly of readily realisable securities which can be sold freely to meet funding requirements if necessary. Securities listed on a recognised stock exchange have been valued at bid prices and exchange rates ruling at the close of business on 31 December 2015. In certain circumstances, the market prices at which investments are valued may not represent the realisable value of those investments, taking into account both the size of the Company’s holding and the frequency with which such investments are traded.

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

	As at 31 December 2015 £’000	As at 31 December  2014 £’000
In one year or less	660	245
	660	245

Credit risk
Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the Balance Sheet date.

Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company’s custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

Cash is only held at banks and in liquidity funds that have been identified by the Board as reputable and of high credit quality. As at 31 December 2015, The Northern Trust Company London Branch had a long-term rating from Standard and Poors of AA-.

The maximum exposure to credit risk as at 31 December 2015 was £12,128,000 (2014: £8,020,000). The calculation is based on the Company’s credit risk exposure as at 31 December 2015 and this may not be representative of the year as a whole.

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

Interest rate risk
The Company’s assets and liabilities, excluding short-term debtors and creditors, may comprise financial instruments which include investments in fixed interest securities.

Details of the Company’s interest rate exposure as at 31 December 2015 are disclosed in note 17.

The majority of the Company’s assets were non-interest bearing as at 31 December 2015. Surplus cash is invested in liquidity funds.

If interest rates had reduced by 0.25 per cent (2014: 0.25 per cent) from those obtained as at 31 December 2015 it would have the effect, with all other variables held constant, of decreasing the total return before taxation and therefore net assets on an annualised basis by £30,000 (2014: £20,000). If there had been an increase in interest rates of 0.25 per cent (2014: 0.25 per cent) there would have been an equal and opposite effect in the total return before taxation and net assets. The calculations are based on cash at bank and short-term deposits as at 31 December 2015 and these may not be representative of the year as a whole.

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

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

At the year end, the Company had no gearing (2014: nil).

Market abuse risk
If all price sensitive issues are not disclosed in a timely manner, this could create a misleading market in the Company’s shares. The Directors are aware of their responsibilities relating to price sensitive information and would consult with their advisers if any potential issues arose. The AIFM would notify the Board immediately if it became aware of any disclosure issues.

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

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

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

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

The AIFM employs independent administrators to prepare all financial statements and meets with the independent auditor at least once a year to discuss all financial matters including appropriate accounting policies.

The Company is a member of the AIC, a trade body intended to promote investment trusts which also develops best practice for all of its members.

The Board undertakes an annual assessment and review of all the risks stated above together with a review of any new risks which may have arisen during the year. These risks are formalised within the Company’s risk assessment matrix.


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

The Company’s capital comprises:

	2015 £’000	2014 £’000
Called-up share capital	645	645
Share premium	1,597	-
Capital redemption reserve	14	14
Special reserve	70,245	67,309
Capital reserve	42,726	40,981
Revenue reserve	3,130	3,194
Total Shareholders’ funds	118,357	112,143

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


20. Transactions with the AIFM
Information with respect to transactions with the AIFM is provided in note 3 and in the Strategic Report above.


21. Post Balance Sheet events
The Directors declared an interim dividend of 3.1p on 2 March 2016, which is payable on 31 March 2016, further details of which are disclosed in note 7.

As disclosed in note 18, subsequent to the year end and up to 8 March 2016, the date of signing this report, the Company bought back 175,000 ordinary shares into treasury at a cost of £377,000.
 

PERFORMANCE RECORD
	Shareholders’   funds	Net asset  value per  ordinary  share	Share  price per  ordinary  share	Share price    discount to    net asset    value	Revenue   return per   ordinary   share	Dividend     per     ordinary     share	Ongoing        charges        ratio3
Year ended 31 December
20041	£26.1m	116.4p	110.5p	5.1%	0.6p	0.4p	1.7%4
2005	£52.2m	156.2p	154.5p	1.1%	1.1p	0.8p	1.5%4
2006	£58.8m	172.8p	170.0p	1.6%	2.1p	1.8p	1.2%4
2007	£57.7m	177.2p	160.0p	9.7%	2.7p	2.3p	1.1%4
2008	£46.4m	150.4p	132.5p	11.9%	3.9p	3.1p	1.1%4
2009	£50.7m	175.9p	172.0p	2.2%	2.7p	2.4p	1.0%4, 5
2010	£51.6m	188.2p	186.8p	0.7%	3.2p	2.8p	1.3%4
2011	£95.1m	169.9p	167.0p	1.7%	5.0p	4.2p	0.8%6
2012	£91.8m	183.1p	175.5p	4.2%	3.9p	3.9p	1.1%
2013	£112.6m	233.6p	230.0p	1.5%	2.7p	2.7p	1.1%
2014	£112.1m	236.0p	234.6p	0.6%	3.7p	3.3p	1.1%
2015	£118.4m	239.8p	234.5p	2.2%	3.1p	3.1p2	1.0%

¹ Period 13 November 2003 to 31 December 2004. The Company commenced operations on the admission of its shares to trading on the London Stock exchange on 15 December 2003.
² Declared dividend for the year.
³ Ongoing charges ratio based on total expenses, excluding finance costs and certain non-recurring items for the year and average monthly net asset value.
⁴ Total expense ratio based on total expenses for the year and average monthly net asset value.
⁵ Total expense ratio 1.3 per cent excluding VAT refund.
⁶ The total expense ratio would have been 1.0 per cent if investment management fees of £236,000 had not been waived as a consequence of the merger with Anglo & Overseas Plc.

Past performance is not a guide to future performance.

 

ANNUAL GENERAL MEETING

The Company’s Annual General Meeting will be held at The Bonham Hotel, 35 Drumsheugh Gardens, Edinburgh EH3 7RN on Wednesday, 20 April 2016 at 12.00 noon.


DIRECTORS

Teddy Tulloch (Chairman)
David Hough
David Ross
Giles Weaver

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


ALTERNATIVE INVESTMENT FUND MANAGER

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


INVESTMENT MANAGER

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


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


Enquiries:

Dr Sandy Nairn
Kenneth J Greig

Edinburgh Partners AIFM Limited
Tel: 0131 270 3800

The Company’s registered office address is:

27-31 Melville Street
Edinburgh
EH3 7JF

END

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