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NEW STAR INVESTMENT TRUST PLC
STATEMENT OF FINAL RESULTS
FOR THE YEAR ENDED 30th JUNE 2008
The Directors announce the unaudited statement of consolidated results for the
year ended 30th June 2008 as follows:
INVESTMENT OBJECTIVE
The Company's objective is to achieve long-term capital growth.
FINANCIAL HIGHLIGHTS
30th June 30th June %
2008 2007 change
PERFORMANCE
Net assets (£'000) 96,405 123,689 (22.1)
Net asset value per Ordinary share 135.74p 174.15p (22.1)
Mid-market price per Ordinary share 105.50p 156.25p (32.5)
Discount of price to net asset 22.3% 10.3% -
value
FTSE World Index 116.42 129.72 (10.3)
FTSE All-Share Index 2,855.69 3,404.14 (16.1)
1st July 2007 to 1st July 2006 to
30th June 2008 30th June 2007
REVENUE
Return per Ordinary share 0.94p 1.22p
Dividend per Ordinary share 0.73p 1.00p
TOTAL RETURN
Net assets total return (22.1%) 18.8%
FTSE All-Share Index return (13.0%) 18.4%
CHAIRMAN'S STATEMENT
Results
The year to 30 June 2008 was a disappointing one for your Company, with net
assets falling 22.1% to £96.4 million. This compares with a 16.1% decline in
the FTSE All-Share Index. From its inception in May 2000 to 30 June 2008, your
Company has delivered a 41.3% total NAV return against a return of 22.8% for
the FTSE All-Share.
Net revenue for the year under review was £671,000, which compares with £
865,000 the previous year. Your Directors recommend the payment of a final
dividend of 0.73p net per Ordinary share. This compares with a dividend of
1.00p in 2007. This should not be taken as an indication of future dividends,
however, because the policy of your Company is to achieve capital growth and
earnings per Ordinary share may fluctuate.
Your Company's unaudited net asset value per share at 31 August 2008 was
133.51p.
Market background
Global equities were weak and volatile during the year, with the MSCI World
Total Return Index declining 9.4% in sterling terms. The main reason for the
equity market weakness was the increase in investors' risk aversion in response
to the US sub-prime mortgage crisis and fears that the US economy would go into
recession. The leading central banks responded by pumping liquidity into the
system, fearing that increased nervousness among banks could cause economic
conditions to deteriorate significantly. The Federal Reserve initiated a
significant programme of monetary loosening, cutting its Fed funds target rate
by 3.25 percentage points to 2% while the Bank of England, having initially
raised its bank rate by a quarter point to 5.75%, proceeded to cut by three
quarters of a point to 5% by the year end. The European Central Bank left its
repo rate unchanged at 4% but it joined other central banks in supplying
liquidity to the money markets.
A low point came in early March 2008 as counterparties began to withdraw funds
from Bear Stearns, the US investment bank, on fears that it was facing
bankruptcy. The Federal Reserve responded by financing a takeover by JP Morgan
Chase, helping to restore confidence in the markets.
Sentiment deteriorated, however, in the closing weeks of the Company's year in
response to rising commodity prices and heightened inflationary pressures,
leading to fears that the central banks would tighten policy, putting further
pressure on already lacklustre economic growth trends. In response, cash was
switched again from riskier, more volatile securities, such as higher-yielding
corporate bonds and the shares of small and medium-sized companies, into "safe
haven" assets such as government bonds and large defensive companies. Over the
year as a whole, Group of Seven (G7) government bonds returned 17.3% in
sterling terms while high-yield corporate bonds fell 2.2%.
Within the Group of Seven (G7) major industrial countries, Italy was the
weakest country during the year under review, falling 15.0% in sterling terms,
followed by France, down 13.3%, the UK, down 12.7%, Japan, down 11.1%, and the
US, down 10.5%. The resources-heavy Canadian market gained 11.6%, however,
while Germany proved relatively resilient as a result of the strength of its
exports to industrialising emerging markets and fell only 3.0%. Outside the G7,
the weakest countries included Ireland, down 31.4%, the Philippines, down
30.6%, and New Zealand, down 23.5%. By contrast, resources-heavy emerging
markets were strong, with Brazil up 53.2% and Russia up 27.2% while currency
strength lifted Czech shares 50.5% in sterling terms.
Among the global sectors, financial stocks were the weakest, falling 23.6%.
Other weak sectors included consumer services, down 17.8%, and industrials,
down 12.0%. By contrast, basic materials gained 27.5%, energy gained 25.8% and
utilities returned 5.1%.
Over the summer of 2008, Western economic conditions were deteriorating, with
the trade-off between economic growth and inflation worsening significantly.
This was reflected in a de-rating of global equities, which were trading at 30
June 2008 on a trailing earnings multiple of 14.0 against 31.0 in April 2000.
The market's dividend yield, meanwhile, rose to a 15-year high of 2.74%.
Momentum in the emerging markets and positive money supply trends may still yet
result in a soft landing but the credit crunch has increased the risk of more
serious dislocation, partly because the scope for further monetary loosening
may be constrained by increased inflationary pressures. In such an environment,
stock selection will be crucial in generating outperformance.
Investment policy
Pursuant to changes in the UK Listing Rules, listed investment companies are
now subject to additional requirements in respect of their published investment
policies. To comply with the new standards and to address certain additional
proposed amendments to the investment policy, the Board are proposing a revised
investment policy to be formally adopted, subject to the approval of resolution
11, at the Annual General Meeting.
The Company's investment objective is to achieve long-term capital growth. New
Star Asset Management Limited (the Manager) implements this objective through a
policy of investing a significant proportion of the Company's assets in pooled
investment vehicles, with a significant proportion represented by shares or
units in other investment companies managed by associates of New Star Asset
Management Group PLC (New Star), the parent company of the Manager.
With effect from July 2008, the Company's assets have been managed by Mark
Harris, head of investment for the Manager's fund of funds range, which had
funds under management of £1.1 billion at 2nd September 2008. Mark Harris has
worked in the investment industry for more than 20 years and joined New Star in
2003. New Star's fund of funds team is currently rated A by Citywire and its
achievements resulted in New Star being named "Best Multi-Manager Group" in the
2007 and 2008 Professional Adviser awards.
Mark Harris is manager of New Star Tactical Portfolio, an open-ended
unconstrained global investment fund. For the five-year period to 31 August
2008, this fund generated a total return of 64.35% (source: Lipper) compared to
63.94% for the FTSE All-Share Total Return Index.
As set out in the circular that accompanies this annual report and accounts, a
shareholder resolution is proposed at the Company's annual general meeting to
amend the Company's investment policy. Until the appropriate resolution has
been passed the Company's portfolio will be managed in accordance with the
current investment policy.
The revised investment policy will be to asset allocate its assets actively,
seeking out global investment opportunities while spreading investment risk
through investment in equity, bond, commodity, real estate, currency and other
asset classes. The complete investment policy is set out in the Business Review
below.
Your Directors recommend that shareholders vote in favour of the resolutions at
the annual general meeting.
Manager's fee arrangements
The Company currently pays the Manager an investment management fee of 0.1875%
per quarter (plus VAT) i.e. 0.75% per annum, of total assets of the Company,
payable quarterly in arrears. To the extent that any fees are payable to the
Manager or its associates from any pooled vehicles in the Company's portfolio,
the fees payable to the Manager by the Company are waived on that portion of
the assets.
With effect from 1 September 2008, in addition to the investment management
fee, the Company will pay the Manager a performance fee of 15% of the growth in
net assets over a hurdle of three-month sterling LIBOR plus 1% per annum,
payable six monthly in arrears, subject to a high water mark. The aggregate of
the Company's management fee and performance fee are subject to a cap of 4.99%
of net assets in any financial year (with any performance fee in excess of this
cap capable of being earned in subsequent periods). The performance fee will be
charged 100% to capital, in accordance with the Board's long term expectation
of how any outperformance will be generated..
James Roe
Chairman
5th September 2008
INVESTMENT MANAGER'S REPORT
The year under review was a difficult one for the majority of the funds within
the portfolio, with global equity and bond markets suffering in the wake of the
credit crunch amid fears among investors of a significant slowdown in economic
growth.
There were, however, some bright spots particularly among funds invested in
asset classes with only weak or negligible correlation to mainstream equity
markets. The Investec Africa Fund gained 28.64%, the New Star Heart of Africa,
which was launched part way through the year, gained 10.6% and the New Star
International Property Fund gained 4.92%.
Other positive contributors within this difficult environment included the New
Star Euro High Yield Fund, which gained 8.97% as a result of the euro's
strength against sterling, and the Skandia UK Strategic Best Ideas Fund, a
long-short equity fund whose fund managers include New Star, which gained
2.00%.
Within the mainstream long-only funds, the New Star UK Alpha Fund was
relatively resilient, falling 9.01% against a 13.03% fall in the FTSE All-Share
Total Return Index. It was, however, a disappointing year for a number of the
long-only funds in the portfolio, with below-benchmark performance being
delivered by funds such as New Star European Growth and New Star UK Growth.
The year under review was also a disappointing one for the holding in the New
Star Asset Management Group, whose shares fell 77.43%. Following the group's
capital repayment to shareholders in June 2007, New Star entered the recent
equity market downturn with significant debt in its balance sheet. This had the
effect of magnifying the negative impact of financial market dislocation on New
Star's equity valuation.
There were various changes to the portfolio during the year. Your Company sold
its holdings in Arena Leisure, the New Star Apollo Hedge Fund, the New Star
Firefly Hedge Fund and the New Star Select Opportunities Fund and reduced its
holdings in the New Star European Growth Fund, the New Star European Hedge
Fund, the New Star Pan-European Equity Fund, and the New Star UK Growth Fund.
The proceeds were invested in the New Star Euro High Yield Fund, the New Star
Financial Opportunities Fund, the New Star Heart of Africa Fund, the New Star
Private Equity Trust, the Skandia UK Strategic Best Ideas Fund and Midas
Capital.
As a result of these changes and market movements, your Company ended the year
under review with 63.7% of its invested assets in retail funds, 16.6% in hedge
funds, 4.7% in its holding in New Star Asset Management Group and 15.0% in
other equities and investment trust shares. Geographically, 65.9% of the
portfolio was exposed to the UK, 16.4% was exposed to Europe excluding the UK
and the balance was invested elsewhere.
At the year end of the year under review, global equity markets were 12.64% off
their October 2007 peak in sterling terms, with some markets having suffered
more severe setbacks. The weakest emerging markets included Turkey, down 38.29%
between October and the year-end, the Philippines, down 34.48%, and India, down
33.23%; among the smaller developed markets Sweden was down 25.55% and Ireland
was down 23.89% while Italy and the UK were the weakest Group of Seven markets,
down 16.65% and 14.94% respectively.
June 2008 was a particularly weak month and was followed by further selling in
July as investors became increasingly concerned about the threats posed by the
rising prices of oil and other commodities. Corporate profit margins appeared
vulnerable while the increase in inflationary pressures limited the freedom of
central banks to respond to weaker economic growth with monetary easing. This
suggests that over the coming months there will be further shifts by investors
into more defensive areas of the financial markets and into asset classes that
offer some diversification away from mainstream equities.
New Star Asset Management Limited
5th September 2008
SCHEDULE OF TWENTY LARGEST INVESTMENTS
at 30th June 2008
30th June 2008
Bid-market Percentage of
Holding of Investments Activity value portfolio
£'000
New Star UK Alpha Fund Investment Fund 8,463 9.89
Investec Africa Fund Investment Fund 4,556 5.32
New Star Global Financials Investment Fund 4,514 5.28
Fund
New Star Accelerator Hedge Investment Fund 4,450 5.20
Fund
New Star Hidden Value Investment Fund 4,107 4.80
Portfolio
New Star European Hedge Fund Investment Fund 4,098 4.79
New Star Asset Management Asset Management 4,040 4.72
Group Company
Global Property Fund Investment Fund 3,995 4.67
New Star European Growth Investment Fund 3,719 4.35
Fund
New Star Euro High Yield Investment Fund 3,640 4.25
Fund
New Star Financials Hedge Investment Fund 3,417 3.99
Fund
Skandia Global Best Ideas Investment Fund 3,292 3.85
Fund
Skandia UK Strategic Best Investment Fund 3,041 3.55
Ideas Fund
New Star International Investment Fund 2,976 3.48
Property Fund
New Star Private Equity Investment Company 2,896 3.38
Investment Trust
New Star UK Growth Fund Investment Fund 2,715 3.17
New Star Global Fund - Investment Fund 2,652 3.10
British Lion Portfolio
New Star Heart of Africa Investment Fund 2,211 2.58
Fund
New Star Global Strategic Investment Fund 2,031 2.37
Capital Fund
Midas Capital Equity 1,955 2.29
l 72,768
85.03
Balance held in 17 12,800
investments 14.97
Total investments 85,568 100.00
All of the Company's investments are unlisted with the exception of New Star
Asset Management Group, New Star Private Equity Investment Trust, Midas
Capital, New Star Financial Opportunities Fund, Lindsell Train Investment Trust
and Immedia Broadcasting.
BUSINESS REVIEW
The Business Review is designed to give shareholders an insight into the
operations of the Company. Further information on the Company's activities and
prospects may be found in the Chairman's Statement and the Investment Manager's
Report.
Investment Objective
The Company's investment objective is to achieve long-term capital growth.
Investment Policy
Current investment policy
The investment objective is implemented through a policy of investing a
significant proportion of the Company's assets in pooled investment vehicles,
with a significant proportion represented by shares or units in other
investment companies managed by associates of New Star Asset Management Group
PLC , the parent company of the Manager.
The Company takes a global view of investment opportunities and invests in
sectors or geographic areas which are considered by the Manager to offer good
prospects for growth, taking into account economic trends and business
developments.
The Company seeks to enhance returns from each asset class, sector or market by
active stock selection and by a continuous review of the portfolio's asset
allocation between equities, bonds and money market instruments as well as
between industries, countries and regions.
Information on how the Company has invested its assets with a view to spreading
investment risk in accordance with its investment policy is set out in the
schedule of twenty largest investments.
Proposed investment policy
The Board considers that it would be beneficial to shareholders for the
investment policy to be broadened. Accordingly, a resolution will be put to the
Annual General Meeting amending the Company's investment policy. Until the
appropriate resolution has been passed the Company's portfolio will be managed
in accordance with the current investment policy.
The revised investment policy will be to allocate its assets actively to global
investment opportunities while spreading investment risk through investment in
equity, bond, commodity, real estate, currency and other asset classes. The
Company's assets may have significant weightings to any one asset class or
geographic market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds,
futures, options and limited partnerships. The Company may also invest up to
15% of its net assets in direct investments in relevant markets.
The Company will not follow any index with reference to asset classes,
countries, sectors or stocks. Aggregate asset class exposure to any one of the
United States, United Kingdom, Europe ex UK, Asia ex Japan, Japan or Emerging
Markets and to any individual industry sector will be limited to 50% of the
Company's net assets, such values being assessed at the time of investment and
for funds by reference to their published investment policy or, where
appropriate, the underlying investment exposure.
The Company may invest up to 20% of its net assets in unlisted securities
(excluding unquoted pooled investment vehicles), such values being assessed at
the time of investment.
The Company will not invest more than 15% of its net assets in any single
investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for
the purposes of efficient portfolio management and currency hedging.
Derivatives may also be used outside of efficient portfolio management to meet
the Company's investment objective. The Company may take outright short
positions in relation to up to 30% of its net assets, with a limit on short
sales of individual stocks of up to 5% of its net assets, such values being
assessed at the time of investment.
The Company may borrow up to 30% of its net assets for short term funding or
long term investment purposes.
No more than 10%, in aggregate, of the value of the Company's total assets may
be invested in other closed-ended investment funds except where such funds have
themselves published investment policies to invest no more than 15% of their
total assets in other listed closed-ended investment funds.
Performance
A review of the Company's activities and performance may be found in the
Chairman's Statement and in the Investment Manager's Report.
The following Key Performance Indicators are used by the Board to monitor the
progress of the Company:
30 June 2008 30 June 2007 % Change
Net assets (£000) 96,405 123,689 (22.1)
Net asset value per share 135.74p 174.15p (22.1)
Share price 105.50p 156.25p (32.5)
Discount 22.3% 10.3% -
Earnings per share (37.42)p 27.66p -
Regulatory environment
The Company is an investment trust and is subject to the rules governing
investment trust status laid down in the Income and Corporation Taxes Act 1988.
The Company has been approved by HM Revenue & Customs as an investment trust
for the year ended 30 June 2007. Approval for the year ended 30 June 2007 is
subject to review should there be any subsequent enquiry under Corporation Tax
Self Assessment.
The Company is listed on the London Stock Exchange. It must therefore conduct
its activities in accordance with the Listing Rules and Disclosure and
Transparency Rules published by the Financial Services Authority.
Risk Management
The principal risks associated with the Company include the following:
Investment strategy
Inappropriate long-term strategy, asset allocation and manager selection might
lead to the underperformance of the Company. The Company's strategy is kept
under regular review by the Board and the accompanying Notice of AGM includes a
proposal to adopt a new investment policy. The Board considers that the new
investment policy will enhance the ability of the company to achieve its
objective of achieving long-term capital growth. Investment performance is
discussed at every Board meeting and the Directors receive a monthly report
which details the Company's asset allocation, investment selection and
performance.
Regulatory risk
Failure to comply with applicable legal and regulatory requirements could lead
to the suspension or loss of the Company's Stock Exchange listing or result in
financial penalties. Breach of Section 842 of the Income and Corporation Taxes
Act 1988 could lead to the loss of the Company's investment trust status,
leading to the Company being subject to tax on its capital gains. The Board
employs New Star Asset Management Limited as Investment Manager and Secretary
to help manage the Company's legal and regulatory obligations.
Manager
The quality of the management team employed by the Manager is an important
factor in delivering good performance and the loss by New Star of key staff
could adversely affect investment returns. In addition, the failure of the
Manager's core fund management systems might lead the loss of data or
inaccurate reporting. The performance of the Manager is reviewed by the Board
on an ongoing basis. In addition, the Board undertakes a formal review each
year.
Business conditions and general economy
The Company's investment returns are influenced by general economic conditions
in the UK and globally. Factors such as interest rates, inflation, investor
sentiment, the availability and cost of credit could adversely affect the
performance of both the Company and its underlying investments. The Board
regularly considers the economic environment in which the Company operates.
The portfolio is listed above. Further information on how the Company manages
risk may be found in note 18.
Results and Dividends
Results and reserve movements for the year are set out in the Consolidated
Income Statement and in the Notes to the Accounts.
Dividends do not form a central part of the Company's investment policy,
however the Directors have declared a final dividend of 0.73p net per share
(2007: final dividend of 1.00p) payable to shareholders on 10th October to
shareholders on the register on 19th September 2008.
Share capital
At 30 June 2008 there were 71,023,695 1p ordinary shares in issue (30 June
2007: 71,023,695).
Management
In common with most investment trusts, the Company does not have any executive
directors or employees. The day-to-day management and administration of the
Company, including investment management, is delegated to New Star Asset
Management Limited.
Under the terms of the investment management agreement, New Star receives a
fee, payable quarterly in arrears, equivalent to 3/16% of total assets of the
Company and its subsidiaries after the deduction of the value of any Jupiter
managed investments and any New Star managed investments (as defined in the
management agreement). The investment management agreement may be terminated by
either party giving three months written notice to expire on the last calendar
day of any month. The Board monitors the performance of the Manager and
considers that the continuing appointment of New Star is in the interests of
shareholders as a whole. With effect from 1st September 2008, the Manager will
also be entitled to a performance fee of 15% of the growth in net assets over a
hurdle of 3 month sterling LIBOR plus 1 per cent. per annum, payable six
monthly in arrears, subject to a high water mark. The aggregate of the
Company's management fee and performance fee are subject to a cap of 4.99% of
net assets in any financial year (with any performance fee in excess of this
cap capable of being earned in subsequent periods). The performance fee will be
charged 100% to capital, in accordance with the Board's long term expectation
of how any outperformance will be generated.
Secretarial services and general administration of the Company is undertaken by
New Star Asset Management Limited for an annual fee of £70,000 (exclusive of
VAT) payable in equal monthly instalments in arrears and reviewed annually by
reference to the UK Index of Retail Prices. The agreement is terminable by not
less than six months' notice by either party.
Subsidiary undertaking
The Company owns the whole issued share capital (£1) of JIT Securities Limited,
an investment company, which is registered in England and Wales.
Employee, environmental and community issues
The Company does not have any employees, with the day-to-day management and
administration of the Company being delegated to the Manager. New Star Asset
Management Limited manages the Company's portfolio in accordance with the
investment objective and policy; environmental, social and community matters
are considered to the extent that they impact on the Company's investment
returns.
Responsibility statements
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable United Kingdom law and those
International Financial Reporting Standards ("IFRS") as adopted by the European
Union.
The Directors are required to prepare financial statements for each financial
year which present fairly the financial position of the Company and of the
group and the financial performance and cash flows of the Company and of the
group for that period. In preparing the financial statements, the Directors are
required to:
• Select suitable accounting policies and then apply them consistently.
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information.
• provide additional disclosures when compliance with the specific requirements
in IFRS is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entities financial position
and financial performance; and
• state that the Company has complied with IFRS, subject to any material
departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and of the group and enable them to ensure that the financial
statements comply with the Companies Act 1985. They are also responsible for
the safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that, to the best of their knowledge, that:
• the financial statements, prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
• the Director's Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that the Company faces.
New Star Asset Management Limited, Secretary
5th September 2008
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the year ended 30th June 2008
Year ended Year ended
30th June 2008 30th June 2007
Revenue Capital Total Revenue Capital Total
return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Investment Income 2 1,029 - 1,029 1,224 - 1,224
Other operating income 376 - 376 93 - 93
Total income 1,405 - 1,405 1,317 - 1,317
Gains and losses on
investments
(Losses) / gains on - (27,203) (27,203) - 18,432 18,432
investments at fair
value through profit or
loss
(Losses) / gains on - (24) (24) - 708 708
forward
currency contracts
Other exchange losses/ - 191 191 - (27) (27)
(gains)
1,405 (27,036) (25,631) 1,317 19,113 20,430
Expenses
Management fees (263) - (263) (265) - (265)
Other expenses (241) (1) (242) (222) - (222)
Profit before finance 901 (27,037) (26,136) 830 19,113 19,943
costs and tax
Finance costs (60) - (60) (39) - (39)
Profit before tax 841 (27,037) (26,196) 791 19,113 19,904
Tax (170) (208) (378) 74 (331) (257)
Profit for the year 671 (27,245) (26,574) 865 18,782 19,647
Earnings per share
Ordinary shares (pence) 7 0.94 (38.36) (37.42) 1.22 26.44 27.66
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association of
Investment Trust Companies. All items in the above statement derive from
continuing operations.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30th June 2008
Share Share Special Retained Total
capital premium reserve earnings
£'000 £'000 £'000 £'000 £'000
At 30th June 710 21,573 56,908 44,498 123,689
2007
Loss for the - - - (26,574) (26,574)
year
Dividend paid - - - (710) (710)
At 30th June 710 21,573 56,908 17,214 96,405
2008
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30th June 2007
Share Share Special Retained Total
capital premium reserve earnings
£'000 £'000 £'000 £'000 £'000
At 30th June 710 21,573 56,908 24,922 104,113
2006
Profit for the - - - 19,647 19,647
year
Dividend paid - - - (71) (71)
At 30th June 710 21,573 56,908 44,498 123,689
2007
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30th June 2008
30th June 30th June
2008 2007
£'000 £'000
Non-current assets
Investments at fair value through profit or 85,568 118,168
loss
Current assets
Other receivables 118 1,392
Cash and cash equivalents 11,834 4,883
11,952 6,275
Total assets 97,5203 124,443
Current liabilities
Other payables (1,115) (754)
Net assets 96,4059 123,689
Capital and reserves
Called up share capital 710 710
Share premium 21,573 21,573
Special reserve 56,908 56,908
Retained earnings 17,214 44,498
Total equity 96,405 123,689
Pence pence
Net Asset Value per ordinary share (pence) 16 135.74 174.15
Approved by the Board of Directors and authorised for issue on 5th September
2008
UNAUDITED CASH FLOW STATEMENTS
for the year ended 30th June 2008
Year ended Year ended Year ended Year ended
30th June 30th June 30th June 30th June
2008 2008 2007 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Cash flows from
operating activities
Profit before finance (26,136) (26,136) 19,943 19,202
costs and tax
Adjustments for:
Losses / (gains) on 32,600 32,600 (14,804) (14,804)
investments
Operating cash flows
before 6,464 6,417 5,139 4,398
movements in working
capital
Decrease / (Increase) 1,324 1,106 (685) (1,163)
in receivables
(Decrease) / Increase 514 175 207 54
in payables
Net cash from operating
activities before
finance costs and 8,302 7,698 4,661 3,289
income taxes
Taxation (221) (67) (257) (104)
Net cash from operating
activities 8,081 7,631 4,404 3,185
Cash flows from
financing activities
Dividend paid (710) (710) (71) (71)
Interest paid (60) (60) (39) (39)
Net cash used in
financing activities (770) (770) (110) (110)
Net increase in cash 7,311 6,861 4,294 3,075
and cash equivalents
Cash and cash 4,523 3,295 229 220
equivalents at
beginning of year
Cash and cash 4,523 3,295
equivalents at end of 11,834 10,156
year
NOTES TO THE ACCOUNTS
for the year ended 30th June 2008
1. ACCOUNTING POLICIES
These financial statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Group operates,
rounded to the nearest thousand.
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (`IFRS'). These comprise standards
and interpretations approved by the International Accounting Standards Board
(`IASB'), together with interpretations of the International Accounting
Standards and Standing Interpretations Committee (`IASC') that remain in
effect, and to the extent that they have been adopted by the European Union.
(a) Basis of preparation: The financial statements have been prepared on a
going concern basis. The principal accounting policies adopted are set out
below. Where presentational guidance set out in the Statement of Recommended
Practice (`SORP') for investment trusts issued by the Association of Investment
Companies (`AIC') in January 2003 (revised December 2005) is consistent with
the requirements of IFRS, the directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
(b) Basis of consolidation: The Consolidated Income Statement and Balance Sheet
include the Accounts of the Company and its subsidiary made up to 30th June
2008. No Income Statement is presented for the parent company as permitted by
Section 230 of the Companies Act 1985.
(c) Presentation of income statement: In order to better reflect the activities
of an investment trust company and in accordance with guidance issued by the
AIC, supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement.
In accordance with the Company's status as a UK investment company under
section 833 of the Companies Act 2006, net capital returns may not be
distributed by way of a dividend. Additionally, the net revenue is the measure
the Directors believe appropriate in assessing the Group's compliance with
certain requirements set out in Section 842 Income and Corporation Taxes Act
1988.
(d) Revenue: Dividends on investments are credited to the revenue column of the
Income Statement on the day in which they are quoted ex-dividend. Interest on
fixed interest securities and deposits is accounted for on a time apportionment
basis. Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the amount of the cash dividend is
recognised as income. Any excess in the value of the shares received over the
amount of cash dividend is credited to the capital reserve.
(e) Expenses: Expenses are accounted for on an accruals basis. Management fees,
administration and other expenses, with exception of the transaction charges
are charged to the revenue column of the Income Statement. Transaction charges
are charged to the capital column of the Income Statement.
(f) Investments held at fair value: All "regular way" purchases and sales of
investments are recognised and derecognised on the trade date where a purchase
or sale is under a contract whose terms require delivery within the timeframe
established by the market concerned, and are initially measured at fair value.
All investments are classified as held at fair value through profit or loss on
initial recognition and are measured at subsequent reporting dates at fair
value, which is either the bid price or the last traded price, depending on the
convention of the exchange on which the investment is quoted. Investments in
units of unit trusts or shares in OEICs are valued at the closing bid price
released by the relevant investment manager. The fair value of unquoted
investments is based on the market price at the close of business on the
balance sheet date where an organised market exists. Otherwise, unquoted
investments are valued by the Directors at the balance sheet date based on
recognised valuation methodologies, in accordance with International Private
Equity and Venture Capital (`IPEVC') Valuation Guidelines such as dealing
prices or third party valuations where available, net asset values and other
information as appropriate.
(g) Taxation: The charge for taxation is based on taxable income for the year.
Withholding tax deducted from income received is treated as part of the
taxation charge against income. Taxation deferred or accelerated can arise due
to temporary differences between treatment of certain items for accounting and
taxation purposes. Full provision is made for deferred taxation under the
liability method on all temporary differences not reversed by the Balance Sheet
date.
(h) Foreign currency: Assets and liabilities denominated in foreign currencies
are translated at the rates of exchange ruling at the Balance Sheet date.
Foreign currency transactions are translated at the rates of exchange
applicable at the transaction date. Foreign currency differences including
exchange gains and losses are dealt with in the capital reserve.
(i) Capital reserve: The following are accounted for in this reserve:
- gains and losses on the realisation of investments together with the related
taxation effect;
- foreign exchange gains and losses, including those on settlement, together
with related taxation effect;
- unrealised gains and losses on investments.
The capital reserve is not available for payment of dividends.
(j) Cash and cash equivalents: Cash and cash equivalents comprises current
deposits, overdrafts with banks and bank loans. These are subject to an
insignificant risk of changes in value and are held for the purpose of meeting
short-term cash commitments rather than for investment or other purpose.
(k) Dividends payable: Dividends are recognised from the date on which they are
irrevocably committed to payment.
(l) Segmental Reporting: The Directors consider that the Group is engaged in a
single segment of business with the primary objective of investing in
securities to generate long term capital growth for its shareholders.
Consequently no business segmental analysis is provided.
(m) Accounting developments: The following standards, amendments and
interpretations have been published by IASB and are effective for the year
ended 30th June 2008:
- IFRS 7, Financial instruments: Disclosures. The additional disclosures in
accordance with the standard are set out in note 18 to the Accounts.
The following standards, amendments and interpretations have been published by
IASB and are effective for the year ended 30th June 2008 but do not apply to
the Group or Company:
- IFRS 4, Insurance contracts.
- IFRIC 7, Applying the restatement approach under IAS29, Financial reporting
in hyper-inflationary economies.
- IFRIC 9, Reassessment of embedded derivatives.
The following standards, amendments and interpretations to existing standards
will become effective in future accounting periods:
* IAS 23 (amendment), Borrowing costs.
* IAS 32 (amendment), Financial instruments
- IFRS 8, Operating segments.
They have not been adopted early by the Group or Company.
2. INVESTMENT INCOME
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
INCOME FROM LISTED INVESTMENTS
UK net dividend income 460 721
UK unfranked investment income 569 503
1,029 1,224
OTHER OPERATING INCOME
Interest on convertible loan 2 -
stock
Bank interest receivable 374 93
376 93
TOTAL INCOME COMPRISES
Dividend 1,029 1,224
Other income 376 93
1,405 1,317
3. INVESTMENT MANAGEMENT FEES
Year ended Year ended
30th June 2008 30th June 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment 263 - 263 226 - 226
management fee
Irrecoverable VAT - - - 39 - -
thereon
263 - - 39 - -
At 30th June 2008 there were amounts outstanding of £147,000 (2007: £70,000).
Details of the investment management agreement are given in Note 20.
Following a decision made by HM Revenue and Customs (HMRC) in November 2007,
management fees invoiced after this date have not incurred a VAT charge.
4. OTHER EXPENSES
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
Administrative and secretarial 82 82
fee
Auditors' remuneration:
- Audit 26 24
- Fee for review of interim 2 2
report
Directors' remuneration 65 52
Legal fees 3 5
Other 64 64
242 222
Allocated to:
- Revenue 241 222
- Capital 1 -
242 222
5. TAXATION
(a) Analysis of tax charge for the year:
Year ended Year ended
30th June 2008 30th June 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax 6 - 6 - 153 153
Adjustments in respect of
prior periods - (27) (27) - - -
Irrecoverable income tax 39 - 39 38 - 38
Total current tax for the 45 (33) 18 38 153 191
year
Deferred tax 119 241 360 (112) 178 66
Total tax for the year 164 214 378 (74) 331 257
(note 5b)
(b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the profit per the income
statement as follows:
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
(Loss)/profit before tax (26,196) 19,904
Tax at the UK corporation tax rate of 30% (5,894) 5,971
(2007: 30%)
Tax at the UK corporation tax rate of 28% (1,834) -
(2007: 30%)
Effects of
Tax effect of non-taxable UK dividends (136) (216)
Gains and losses on investments that are 7,969 (5,521)
not taxable
Unrealised gains on non-qualifying offshore 241 178
funds
Irrecoverable income tax 39 38
Utilisation of excess expenses from prior - (187)
periods
Deferred tax prior year movement 27 -
Adjustments in respect of prior periods (27) -
Small companies' rate on investment trust (6) -
Marginal small companies relief on (1) (6)
subsidiary
Total tax for the year 378 257
Due to the Company's tax status as an investment trust and the intention to
continue meeting the conditions required to obtain approval of such status in
the foreseeable future, the Company has not provided tax on any capital gains
arising on the revaluation or disposal of investments.
(c) Provision for deferred tax:
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
Provision at start of year 66 -
Deferred tax charge for the year 360 66
Provision at end of year 426 66
The deferred tax charge in the capital account of £241,000 (2007: £178,000) of
the investment trust relates to an unrealised gain on a non-distributing
offshore fund. The deferred tax charge of £119,000 in the revenue account
(2007: £(112,000)) relates to the reversal of the prior year tax credit for
utilisation of revenue expenses on this unrealised offshore gain and £7,000
(2007: nil) arising on income taxable in the subsequent accounting period.
There is no unrecognised deferred tax asset (2007: nil) as a result of excess
expenses.
6. REVENUE RETURN FOR THE YEAR
The revenue return for the year dealt with in the accounts of the parent
company was £598,000 (2007: £832,000).
7. RETURN PER ORDINARY SHARE
Total return per Ordinary share is based on the Group total return on ordinary
activities after taxation of £(26,574,000) (2007: £19,647,000) and on
71,023,695 (2007: 71,023,695) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Revenue return per ordinary share is based on the Group revenue return on
ordinary activities after taxation of £671,000 (2007: £865,000) and on
71,023,695 (2007: 71,023,695) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on net capital losses for the year
of £27,245,000 (2007: capital gains of £18,782,000) and on 71,023,695 (2007:
71,023,695) Ordinary shares, being the weighted average number of Ordinary
shares in issue during the year.
8. DIVIDENDS ON EQUITY SHARES
Amounts recognised as distributions in the year:
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
Dividends paid for the year ended
30th June 2007 of 1.00p (2006: 0.10p) per share) 710 71
710 71
The total dividend payable in respect of the financial year, which is the basis
on which the requirement of Section 842 Income and Corporation Taxes Act 1988
are considered, is set out below.
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
Proposed Final dividend for the year ended
30th June 2008 of 0.73p (2007: 1.00p) per share) 518 710
518 710
Revenue available for distribution by way of 671 865
dividend
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
GROUP AND COMPANY 85,568 118,167
Listed* Unlisted Total
£'000 £'000 £'000
ANALYSIS OF INVESTMENTS
PORTFOLIO - GROUP AND COMPANY
Opening book cost 68,249 3,098 71,347
Opening unrealised appreciation/ 47,724 (903) 46,821
(depreciation)
Opening valuation 115,973 2,195 118,168
Movement in period
Purchases at cost 17,054 - 17,054
Sales
- Proceeds (22,451) - (22,451)
- Realised gains on sales 7,275 - 7,275
Increase in unrealised (34,575) 97
appreciation (34,478)
Closing valuation 83,276 2,292 85,568
Closing book cost 70,127 3,098 73,225
Closing unrealised appreciation/ 13,149 (806) 12,343
(depreciation)
Closing valuation 83,276 2,292 85,568
* A schedule of the twenty largest investments is shown above.
Year ended Year ended
30th June 30th June
2008 2007
£'000 £'000
ANALYSIS OF CAPITAL PROFITS
Realised gains on sales 7,275 7,461
(Decrease)/increase in unrealised appreciation 10,971
(34,478)
18,432
(27,203)
The purchases and sales proceeds figures above included transaction costs of
£nil (2007: £nil).
10. INVESTMENT IN SUBSIDIARY
The Company owns the whole of the issued share capital (£1) of JIT Securities
Limited, an investment company registered in England and Wales.
11. OTHER RECEIVABLES
30th June 30th June 30th June 30th June
2008 2008 2007 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Prepayments and accrued 68 63 14 9
income
Due from brokers - - 1,160 1,160
Taxation 50 16 - -
Forward currency purchases - - 218 -
Amounts owed by subsidiary - 914 - 914
undertakings
118 993 1,392 2,083
12. CASH AND CASH EQUIVALENTS
30th June 30th June 30th June 30th June
2008 2008 2007 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Cash at bank 11,834 10,156 4,883 3,655
11,834 10,156 4,883 3,655
13. OTHER PAYABLES
30th June 30th June 30th June 30th June
2008 2008 2007 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Bank overdraft - - 360 360
Accruals 350 350 175 175
Forward currency purchases 339 - - -
Corporation tax payable - - 153 -
Deferred tax payable 426 426 66 66
1,115 776 754 601
14. CALLED UP SHARE CAPITAL
30th June 30th June
2008 2007
£'000 £'000
Authorised
305,000,000 (2007: 305,000,000) Ordinary 3,050 3,050
shares of £0.01 each
Issued and fully paid
71,023,695 (2007: 71,023,695) Ordinary shares 710 710
of £0.01 each
15. RESERVES
Share
premium Special Retained
account reserve Earnings
£'000 £'000 £'000
GROUP
At 30th June 2007 21,573 56,908 44,498
Decrease in unrealised - - (34,478)
appreciation
Net gains on realisation of - - 7,275
investments
Unrealised gains on revaluations - - 204
of bank accounts
Realised losses on foreign - - (13)
currency
Losses on forward currency - - (24)
purchases
Expenses charged to capital - - (1)
Corporation tax charge in - - 33
capital
Deferred tax charge in capital - - (353)
Relief on taxable income in - - 112
capital
Final dividend - - (710)
Retained profit for year - - 671
At 30th June 2008 21,573 56,908 17,214
Share
premium Special Retained
account reserve Earnings
£'000 £'000 £'000
COMPANY
At 30th June 2007 21,573 56,908 44,114
Decrease in unrealised - - (34,478)
appreciation
Net gains on realisation of - - 7,275
investments
Unrealised gains on revaluations - - 159
of bank accounts
Realised gains on foreign - - 34
currency
Expenses charged to capital - - (1)
Deferred tax charge in capital - - 112
Relief on taxable income in - - (353)
capital
Final dividend - - (710)
Retained profit for year - - 598
At 30th June 2008 21,573 56,908 16,750
The components of retained earnings are set out below:
30th June 30th June
2008 2007
£'000 £'000
GROUP
Capital reserve-realised 4,269 (3,318)
Capital reserve-unrealised 11,913 46,745
Revenue reserve 1,032 1,071
17,214 44,498
COMPANY
Capital reserve-realised 3,623 (3,444)
Capital reserve-unrealised 12,207 46,526
Revenue reserve 920 1,032
16,750 44,114
16. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per Ordinary share is calculated on net assets of £
96,405,000 (2007: £123,689,000) and 71,023,695 (2007: 71,023,695) Ordinary
shares in issue at the year end.
17. NOTES TO THE CASH FLOW STATEMENT
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less.
Purchases and sales of investments are considered to be operating activities of
the Group, given its purpose, rather than investing activities. However, the
cash flows associated with these activities are presented below:
30th June 30th June
2008 2007
£'000 £'000
Proceeds on disposal of fair value through 23,611 16,454
profit and loss investments
Purchases of fair value through profit and loss (17,054) (13,986)
investments
6,557 2,468
Analysis of changes in net cash balances
30th June Cash 30th June
2008 flow 2007
£'000 £'000 £'000
Cash at bank 4,883 6,951 11,834
Bank overdraft 360 -
(360)
4,523 7,311 11,834
18. FINANCIAL INSTRUMENTS
The Group's investment objective is to achieve long term capital growth. It
invests in funds managed by New Star Asset Management, both long-only and
hedge, in New Star Asset Management Group shares and in other retail funds and
special situations. In addition, the Group holds cash and short-term deposits
and provides for debtors and creditors that arise directly from its operations.
The Group's assets are stated at fair value.
For listed securities, these represent bid prices, or for unit trusts and
OEICs, the closing price released by the relevant investment manager. The fair
value of unquoted investments is based on the market price at the close of
business on the balance sheet date where an organised market exists. Otherwise,
unquoted investments are valued by the Directors at the balance sheet date
based on recognised valuation methodologies, in accordance with International
Private Equity and Venture Capital (`IPEVC') Valuation Guidelines such as
dealing prices or third party valuations where available, net asset values and
other information as appropriate.
The holding of securities, investing activities and associated financing
undertaken pursuant to this objective involve certain inherent risks. Events
may occur that would result in either a reduction in the Group's net assets or
a reduction of potential revenue profits available for dividend. As an
investment trust, the Group invests in securities for the long term.
Accordingly it is, and has been throughout the year under review, the Group's
policy that no short-term trading in investments or other financial instruments
shall be undertaken.
The main financial instrument risks arising from the Group's pursuit of its
investment objective are market risk (comprising price risk, currency risk, and
interest rate risk), liquidity risk and credit risk. The Board has reviewed and
agreed policies for managing each of these risks, which are unchanged from the
previous year, and which are summarised below.
Note 18 (h) sets out a summary of the Group's financial assets and liabilities
by category.
(a) Market Risk
The fair value or future cash flows of a financial instrument held by the Group
may fluctuate because of changes in market prices in funds managed by New Star
Asset Management, in which the Group invests. This market risk comprises three
elements - currency risk (see note 18 (b)), interest rate risk (see note 18
(c)), and other price risk (see note 18 (d)). The Board reviews and agrees
policies for managing these risks. The Group's Investment Manager assesses the
exposure to market risk when making each investment decision, and monitors the
overall level of market risk on the whole of the investment portfolio on an
ongoing basis.
(b) Currency Risk
A proportion of the Group's portfolio is invested in investments denominated in
a foreign currency and movements in exchange rates can significantly affect
their Sterling value.
Management of the risk
The Investment Manager does not normally hedge against foreign currency
movements affecting the value of the investment portfolio, but takes account of
this risk when making investment decisions. In addition, the Directors may
authorise the Investment Manager to hedge currency risk in appropriate
circumstances.
Foreign currency exposure
During the year under review, the Investment Manager entered into a forward
currency contract within the subsidiary company, JIT Securities Limited. In
view of the Group's exposure to the US dollar both directly and indirectly by
investing in funds, many of whose assets and/or revenues are related to the
dollar, it was thought appropriate to hedge a part of this exposure. Therefore
in November 2007, the Group, through its subsidiary, sold approximately US$20
million for sterling for settlement in one year. This contract resulted in the
forward sale of US for sterling and is for one year's duration. At 30th June
2008 the unrealised loss on this contract was £339,000 (2007: unrealised gain
of £218,000).
The fair values of the Group's monetary items that have foreign currency
exposure at 30th June 2008 are shown below.
2008 2008 2008 2007 2007 2007
US US
Dollars Euros Total Dollars Euros Total
£'000 £'000 £'000 £'000 £'000 £'000
Investments at fair
value through 12,780 5,349 18,129 12,532 7,401 19,933
profit or loss
Debtors - - - - - -
Cash at bank and - 2,957 2,957 (360) 10 (350)
short-term deposits
Creditors - - - - - -
Total net foreign 12,780 8,306 21,086 12,172 7,411 19,583
currency exposure
Foreign currency sensitivity
During the financial year sterling depreciated by 0.8% against the US Dollar
(2007: appreciated by 8.5%) and depreciated by 15.0% against the EURO (2007:
appreciated by 2.7%).
It is not possible to forecast how much exchange rates might move in the next
year, but based on the movements in currencies above in the last two years, it
appears reasonably possible that rates could change by 10%.
Applying a 10% change in rate to the exposures listed above would affect net
assets and capital return as follows:
2008 2008 2008 2007 2007 2007
US US
Dollars Euros Total Dollars Euros Total
£'000 £'000 £'000 £'000 £'000 £'000
If exchange rates (1,162) (755) (1,917) (1,107) (674) (1,781)
appreciated by 10%
If exchange rates 1,420 923 2,343 1,353 823 2,176
depreciated by 10%
It should be noted that the above illustration is based on exposures at the
year end. Exposures may be subject to change during the year as a result of
investment decisions.
(c) Interest Rate Risk
The Group will be affected by interest rate changes as it holds convertible
loan stock assets. The majority of the Group's investments are equity based and
are not therefore subject to interest rate risk. However interest rate changes
will have an impact on the valuation of equities, although this forms part of
other price risk, which is considered separately below.
Management of the risk
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions. The Group currently has no gearing. The Group, generally, does not
hold significant cash balances, with short-term borrowings being used when
required. Cash balances are held on call deposit and earn interest at the
bank's daily rate.
Derivative contracts are not used to hedge against the exposure to interest
rate risk.
Interest rate exposure
The exposure, at 30th June of financial assets and liabilities to interest rate
risk is shown by reference to:
- floating interest rates - when the rate is due to be re-set;
- fixed interest rates - when the financial instrument is due for repayment.
2008 2008 2008 2007 2007 2007
Greater Greater
In 1 year than In 1 year than
or less one year Total or less one year Total
£'000 £'000 £'000 £'000 £'000 £'000
Exposure to floating
interest rates:
Cash at bank 11,834 - 11,834 4,883 - 4,883
Bank overdraft - - - -
(360) (360)
Total net foreign 11,834 - 11,834 4,523 - 4,523
currency exposure
2008 2008 2008 2007 2007 2007
Greater Greater
In 1 year than In 1 year than
or less one year Total or less one year Total
£'000 £'000 £'000 £'000 £'000 £'000
Exposure to fixed
interest rates:
Investments at fair
value through - 458 458 - - -
profit and loss
Total exposure to 11,834 458 12,292 4,523 - 4,523
interest rates
The above year end amounts are not representative of the exposure to interest
rates during the year, since the level of cash held during the year will be
affected by the strategy being followed in response to the Board and Investment
Manager's perception of the market prospects and the investment opportunities
available at any particular time.
Interest receivable and finance cash are at the following rates:
- Interest received on cash balances, or paid on bank overdrafts is at a margin
over LIBOR or its foreign currency equivalent (2007: same).
- The nominal and weighted average interest rate on Cordon Limited 12% Loan
Notes is 12% (2007: nil).
Interest rate sensitivity
The following table illustrates the sensitivity of the profit after taxation
for the year and equity to an increase or decrease of 50 (2007: 50) basis
points in interest rates in regard to the Group's monetary financial assets
which are subject to interest rate risk.
This level of change is considered to be reasonably possible based on
observations of current market conditions. The sensitivity analysis is based on
the Group's monetary financial instruments held at each balance sheet date,
with all other variables held constant.
Increase Decrease Increase Decrease
in rate in rate in rate in rate
2008 2008 2007 2007
£'000 £'000 £'000 £'000
Effect on revenue
return and equity 59 (59) 23 (23)
(d) Other price risk
The Group's exposure to other price risk comprises mainly movements in the
value of its equity investments.
A schedule of twenty largest investments is shown above. Investments are valued
in accordance with the Group's accounting policies. Uncertainty arises as a
result of future changes in valuations of the Group's investments, the market
prices of the Group's listed equity investments and the effect changes in
exchange rates may have on the sterling value of the investments.
Management of the risk
In order to manage this risk the Directors meet regularly with the Manager to
compare the performance of the portfolio against market indices and comparable
investment trusts. Given the Group's investment objective, the Group does not
hedge against the effect of changes in the underlying prices of the
investments.
The Group had no derivative instruments, other than currency contracts, at the
year end, but, in the event that it had, the value of derivative instruments
held at the balance sheet date would be determined by reference to their market
value at that date.
The unquoted investments are held at Directors' valuations. All valuations are
reviewed by the Investment Manager, the Group's Audit Committee and
subsequently recommended to the Board for acceptance.
Other price risk exposure
The Group's exposure to other changes in market prices at 30th June on its
quoted investments was as follows:
2008 2007
£'000 £'000
Fixed asset quoted investments at fair value through 83,276 115,973
profit or loss
The Group's exposure to other changes in prices at 30th June on its unquoted
investments was as follows:
2008 2007
£'000 £'000
Fixed asset unquoted investments at fair value 2,292 2,195
through profit or loss
A schedule of the Group's 20 largest investments may be found above.
Other price risk sensitivity
The following table illustrates the sensitivity of the profit after taxation
for the year and the equity to an increase or decrease of 10% in the fair
values of the Group's investments. This level of change is considered to be
reasonably possible based on observation of current market conditions. The
sensitivity analysis is based on the Group's investments at each balance sheet
date, with all other variables held constant.
Increase Decrease Increase Decrease
in fair in fair in fair in fair
value value value value
2008 2008 2007 2007
£'000 £'000 £'000 £'000
Effect on revenue return - - - -
Effect on capital return 8,557 (8,557) 11,817 (11,817)
Effect on total return 8,557 (8,557) 11,817 (11,817)
and on net assets
(e) Liquidity Risk
Liquidity risk is the possibility of failure of the Group to realise sufficient
assets to meet its financial liabilities, including outstanding commitments
associated with financial instruments. The Group's assets mainly comprise
securities which can be readily sold to meet future funding commitments, if
necessary. Unlisted securities, which carry a higher degree of liquidity risk
form only 2.7% (2007: 1.9%) of the investment portfolio.
Management of the risk
The liquidity risk is managed by maintaining some cash or cash equivalent
holdings in order to meet investment requirements as they fall due. At the year
end the Group had liquid resources of £97.4 million.
This was made up of £11.8 million cash and money market instruments and £85.6
million of listed investments.
Liquidity risk exposure
A summary of the Group's financial liabilities is provided in note 18 (h). The
Group has sufficient funds to meet these financial liabilities as they fall
due.
(f) Credit Risk
Credit risk is the exposure to loss from failure of a counterparty to deliver
securities or cash for acquisitions or disposals of investments or to repay
deposits.
Management of the risk
This risk is not considered significant. The Group manages credit risk by
entering into deals only with brokers pre-approved by a committee of New Star
Asset Management Limited.
Credit risk exposure
The maximum exposure to credit risk at 30th June 2008 was £115,000 (2007: £
1,389,000), comprising:
2008 2007
£'000 £'000
Balances due from brokers - 1,160
Accrued income 65 11
Forward currency purchases - 218
Tax recoverable 50 -
115 1,389
All of the above financial assets are current, their fair values are considered
to be the same as the values shown and the likelihood of a material credit
default is considered to be low.
(g) Fair Values of Financial Assets and Financial Liabilities
The Group's financial instruments are stated at their fair values at the year
end. The fair value of listed shares and securities is based on last traded
market prices. The fair value of unlisted shares and securities is based on
Directors' valuations as detailed in note 1(f).
(h) Summary of Financial Assets and Financial Liabilities by Category
The carrying amounts of the Group's financial assets and financial liabilities
as recognised at the balance sheet date of the reporting periods under review
are categorised as follows:
2008 2007
£'000 £'000
Financial Assets
Financial assets at fair value through profit
or loss:
Fixed asset investments - designated as such 85,568 118,168
on initial recognition
Loans and receivables:
Current assets:
Debtors (due from brokers, dividends 68 1,174
receivable,
accrued income and other debtors)
Forward currency purchases - 218
Tax recoverable 50 -
Cash and cash equivalents 11,834 4,883
97,520 124,443
Financial Liabilities
Measured at amortised cost:
Creditors: amounts falling due within one year
Bank overdraft - 360
Creditors (due to brokers and deferred 426 66
consideration)
Forward currency purchases 339 -
Other taxation payable - 153
Accruals 350 175
1,115 754
(i) Capital Management
The Group and the Company's capital is as disclosed in the Balance Sheets and
is managed on a basis consistent with its investment objective and policies, as
disclosed in the Business Review above. The principal risks and their
management are disclosed above.
19. CONTINGENT ASSET
In November 2007 HM Revenue & Customs (`HMRC') declared its acceptance that
fund management services to investment trusts are exempt from VAT. From that
time the Group has ceased to be charged VAT on management fees. The Manager has
confirmed that it has lodged claims with HMRC to recover VAT paid from January
2001.
The processing of claims is likely to be protracted and HMRC has yet to publish
a mechanism for the process. Until this mechanism is published and
uncertainties surrounding the potential repayment are resolved there will be no
recognition of an asset in the Accounts. However, the Group currently estimates
that it may in due course recover approximately £140,000 in respect of claims
submitted by the Manager for the period from 2001.
20. RELATED PARTIES
During the year Mr Duffield was Chairman and shareholder of New Star Asset
Management Group PLC, the holding company of New Star Asset Management Limited,
which received investment management fees pursuant to the agreement detailed
below.
Pursuant to an agreement dated 29th January 2001 the Group's investments are
managed by New Star Asset Management Limited. The management fee is payable
quarterly in arrears and is calculated at the rate of 3/16% per quarter of the
total assets of the Company and its subsidiaries after deduction of the value
of any Jupiter managed investments and any New Star managed investments (as
defined in the Management Agreement). Either party may terminate the
appointment of the Investment Manager by giving not less than three months'
written notice to expire on the last day of any calendar month.
The total management fee payable for the year ended 30th June 2008 amounted to
£263,000 (2007: £265,000) of which £147,000 (2007: £70,000) was outstanding at
the year end.
With effect from 1st September 2008, the Manager will also be entitled to a
performance fee of 15% of the growth in net assets over a hurdle of 3 month
Sterling LIBOR plus 1%. per annum, payable six monthly in arrears, subject to a
high water mark. The aggregate of the Company's management fee and performance
fee are subject to a cap of 4.99%. of net assets in any financial year (with
any performance fee in excess of this cap capable of being earned in subsequent
periods). The performance fee will be charged 100% to capital, in accordance
with the Board's long term expectation of how any outperformance will be
generated.
The Group's investments include funds managed by subsidiaries of New Star Asset
Management Group PLC.
21. FINANCIAL INFORMATION
The above financial information is derived from the statutory accounts for the
years ended 30 June 2008 and 30 June 2007, on both of which the auditors have
issued an unqualified opinion. The information does not constitute statutory
accounts as defined in Section 240(1) of the Companies Act 1985.
The accounts for the year ended 30 June 2007 have been filed with Companies
House and the accounts for the year ended 30 June 2008 will be filed in due
course.
The accounts for the year ended 30 June 2008 will be sent to shareholders in
September and will shortly be available from the investment manager at 1
Knightsbridge Green, London SW1X 7NE or on the Company's webpage:
www.newstaram.com/alternative-investments/closed-end-funds/
The Annual General Meeting of the Company will be held on 1st October 2008 at
11.00am at 1 Knightsbridge Green, London SW1X 7NE.
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2006 MoneyAM© |
