TIDMGIR
GARTMORE IRISH GROWTH FUND PLC
ANNUAL FINANCIAL REPORT
The Directors present the results of the Company for the year ended 31 March
2010.
Investment Objective
The Company seeks to provide shareholders with long-term capital growth through
investment in quoted companies which are either incorporated in the Republic of
Ireland or Northern Ireland or, if elsewhere, derive the majority of their
turnover or profits from the Republic of Ireland or Northern Ireland or are
listed on the ISEQ Index.
It is considered that the Company, through the securities in which it invests,
offers an attractive and relatively direct means of investing in Ireland,
thereby giving exposure to:
? its attractive demographics;
? low corporation tax;
? an attractive English-speaking base for international investors, particularly
from the USA, to service the EU market;
? an attractive base from which Irish companies can develop international
business; and
? a pro-business Government and culture.
Investment Policy
Asset Allocation:
The Company invests in quoted companies which are either incorporated in the
Republic of Ireland or Northern Ireland or, if elsewhere, derive the majority
of their turnover or profits from the Republic of Ireland or Northern Ireland
or are listed on the ISEQ Index. The majority of investments will be in
equities, although other forms of equity-related securities, including warrants
and convertibles, may be held. Cash and derivative instruments (such as futures
and options) may be used for efficient portfolio management and as part of
investment strategy, subject to the prior consent of the Board.
The Company's investments are not limited by reference to market
capitalisation, sector or weightings within the Republic of Ireland or
elsewhere. However, a sizeable part of the portfolio is usually held in stocks
of companies incorporated in the Republic of Ireland, since they represent a
majority of the Company's eligible investment universe.
Risk Diversification:
Portfolio risk is managed by investing in a diversified spread of investments.
There are generally approximately 40 holdings at any one time, and no single
holding will represent more than 15% of the net assets of the Company or more
than 15% of the investee company's issued share capital at the time of
acquisition.
The Company will not invest more than 15% of its gross assets in other listed
investment companies (including investment trusts).
Gearing:
The Manager is authorised to gear the portfolio to make additional investments.
Gearing can fluctuate between zero and 25% of shareholders' funds, with timing
determined on the basis of market circumstances and investment opportunities.
The level of gearing is regularly monitored by the Board. Alternatively, cash
is held when the Manager has negative views on share prices.
Previously, gearing has been achieved through the use of flexible borrowing
facilities. In the recent turbulence in banking markets in Ireland and in other
countries, the Company did not renew its borrowing facilities because the terms
offered were unacceptable. The Board has accordingly authorised the Manager to
use contracts for difference ("CFDs") for gearing purposes. The use of CFDs is
subject to the limits which applied when bank loan facilities were used, and
total gearing remains subject to a maximum of 25% of shareholders' funds.
Performance
Performance is compared with the ISEQ Index, the Hoare Govett Smaller Companies
Index (ex Investment Companies), the FTSE All-Share Index and the FTSE Europe
ex UK Index.
Shareholders' Funds
GBP57,050,000 at 31 March 2010.
Market Capitalisation
GBP49,656,000 at 31 March 2010.
Capital Structure
The Company is an investment trust whose issued share capital comprised
7,249,120 Ordinary shares of 25p each at 31 March 2010. No Ordinary shares were
held in Treasury as at 31 March 2010.
Voting Rights
All shares rank equally and each shareholder is entitled on a poll at a general
meeting to one vote in respect of each Ordinary share held. Shares held in
Treasury do not carry voting rights.
Winding-up
A resolution was passed at the Annual General Meeting held on 4 September 2008
to continue the Company as an investment trust for a further three years. In
accordance with the Articles of Association, the Directors shall propose a
similar resolution at every third subsequent Annual General meeting.
Management Company
The Company's investments are managed by Gartmore Investment Limited under an
agreement that provides for twelve months' notice of termination to be given by
either party.
Management Fee
1.0% per annum on the value of the Company's total assets, less current
liabilities, payable at the end of each calendar month.
ISA Status
The Company's shares are eligible investments for inclusion in Individual
Savings Accounts.
AIC
The Company is a member of the Association of Investment Companies.
Registered Office
Beaufort House, 51 New North Road, Exeter, EX4 4EP.
Registered Number
3031629 - England and Wales.
OVERVIEW
? Over the year to 31 March 2010, the NAV increased by 76.9% to 786.99p,
compared with an increase (in sterling terms) of 39.5% in the ISEQ Index
? Share price increased by 96.3% over the year
? Proposed dividend of 1.52p, an increase of 20% on the previous year
Chairman's Statement
It has been an eventful and a very successful year for the Company, with the
net asset value ("NAV") rising by 76.9% and the share price increasing by 96.3%
over the year.
Irish equities performed very strongly, supported by improving economic
conditions around the world and the rally in global equity markets. Although
the second half of the Company's financial year saw weakness, driven by the
very poor performance of banks, over the full year the Irish market delivered
robust gains. Financials dominated, although they were coming off a very low
base, and oil & gas companies were also very strong.
In sterling terms, the NAV of the Company's Ordinary shares amounted to 786.99p
per share at 31 March 2010, representing, as stated above, an increase of
76.9%. The Irish market has been very volatile and, despite the NAV ending a
little lower than at the half year, this represents a strong performance and
compares favourably with a rise in sterling terms of 39.5% in the ISEQ Index.
The UK main market was less volatile and, although it lagged Ireland for the
first half of the year, the FTSE All-Share Index finished up 46.7%. UK
small-caps produced stronger returns throughout the year, with the Hoare Govett
Smaller Companies (excluding Investment Companies) Index up 63.9%.
The outperformance relative to the ISEQ Index was stock-driven rather than
thematic, with good results from positions across a variety of sectors. Some
examples are provided in the Manager's Review.
The share price at 31 March 2010 was 685p, an increase of 96.3% from a year
ago, with the underlying NAV performance augmented by a narrowing of the
discount to 13.0% at the year-end compared with 21.6% at the end of the
previous year.
The revenue return in the year was 4.2p per share. Last year's return of 12.8p
per share benefited from the one-off recovery of past VAT on management fees
and related interest. Excluding this, the comparative revenue return last year
was 3.9p. The Directors are recommending a dividend of 1.52p, a 20% increase on
last year, which will be paid on 21 September 2010 to shareholders on the
register on 20 August 2010.
As I have previously reported, a tender for up to 30% of the Company's issued
share capital was approved by shareholders in October 2009. This resulted in
25.15% of the shares in issue on the record date being tendered at 725.16p per
share and provided an uplift of approximately 21.9p per share for continuing
shareholders. In addition, a further 960,733 shares were repurchased in the
year at attractive prices, providing a further uplift for continuing
shareholders and helping to keep the discount within a reasonable range. We are
seeking shareholder approval at the forthcoming AGM for a renewal of the
authority to buy back up to 14.99% of shares in issue in order for us to
continue this buy-back strategy.
We have acted on our intention as outlined in last year's annual report to use
contracts for difference ("CFDs") to provide portfolio gearing. At the
year-end, CFDs were held in five stocks. These contracts were valued at GBP0.7
million at the year-end, representing net gains in respect of exposure to
underlying stocks valued at GBP9.1 million. The geared exposure to the market
from CFDs, net of cash balances, amounted to 1.0% of shareholders' funds at the
year-end. The Directors have set a limit of 25% of shareholders funds for
gearing in this way, which is the same as was previously set for gearing using
bank facilities.
We remain cautiously positive about the prospects for selected Irish equities
despite the fact that global market sentiment has shifted dramatically and
uncertainty has taken hold. Companies based in Ireland enjoy a favourable tax
regime and, despite the challenges, a supportive business environment, even
though the domestic recovery is likely to be protracted. We are focusing on
sound businesses with share prices which we see with scope for worthwhile
recovery. We believe that companies of this kind have suffered unduly from
negative perception due to their Irish incorporation, rather than because of
underlying business realities.
Harry Sheridan
Chairman
21 June 2010
Manager's Review
Manager
The portfolio has been managed by Gervais Williams since the Company's
inception in 1995. The portfolio has a strong track record of outperformance of
comparative indices, through a range of macro-economic environments, while at
the same time maintaining a risk profile that is closely managed.
The activities and performance of the Company are reviewed and discussed at
regular meetings between the Directors and the Manager. Investment strategy is
determined, inter alia, in the light of prevailing equity market conditions.
Investment Philosophy
The Company typically invests in a limited number of stocks quoted on the Irish
Stock Exchange or included in the ISEQ Index. However, investment is also
permitted in companies which are incorporated or operate substantial businesses
in Ireland, but which are quoted elsewhere such as on NASDAQ, the London Stock
Exchange and AIM.
Investment Strategy
The Manager's investment strategy is to maximise NAV, but keeping in mind the
absolute risk within the portfolio. In this regard, it is noteworthy that the
Company has no formal benchmarks. The Manager seeks to outperform comparative
indices, such as the ISEQ, the FTSE All-Share, the Hoare Govett Smaller
Companies (ex Investment Companies) and the FTSE Europe ex UK. Investors should
note that the weighting of individual stocks in an index is not a measure of
their absolute risk. Therefore, the investment process tends to give the index
weightings no more than interested consideration.
The Manager makes the maximum use of fundamental research from internal and
external sources, (including brokerage contacts), and places particular
emphasis on the value of regular and frequent meetings with the management of
listed companies. These visits form an important part of his assessment of
factors such as the rigour of a company's business plan, the quality of its
management and the strength of companies' franchises. They also afford the
Manager the opportunity to question companies' senior management on other key
investment issues, such as how they plan to deal with competitive industry
pressures, or their plans to capitalise on new opportunities. Investments have
been made across the broad spectrum of the Irish equity market, although
generally it is only the modest holdings in the banking stocks that are geared
to the domestic economy. Some of the most attractive opportunities are found in
smaller businesses where the prospects are seen to be improving after periods
of indifferent performance.
The Manager is willing to take significant risk, but only where the scope for
high absolute return is considered relatively good. We rarely find an
opportunity that justifies an investment that exceeds 10% of the total value of
the portfolio.
Schedule of NAV Since Launch
Date NAV Since NAV Since
Basic pps Launch % Diluted pps Launch %
07/06/95 96.79 - 97.32 -
31/03/96 116.05 19.90 113.38 16.50
31/03/97 154.11 59.22 145.09 49.09
31/03/98 246.07 154.23 221.73 127.84
31/03/99 207.60 114.48 190.75 96.00
31/03/00 291.86 201.54 273.83 181.37
31/03/01 272.28 181.31 260.68 167.86
31/03/02 253.62 162.03 253.62 160.60
31/03/03 233.26 141.00 233.26 139.68
31/03/04 441.96 356.62 441.96 354.13
31/03/05* 550.24 468.49 550.24 465.39
31/03/06 792.58 718.87 792.58 714.41
31/03/07 1,012.46 946.04 1,012.46 940.34
31/03/08 875.75 804.79 875.75 799.87
31/03/09 444.91 359.67 444.91 357.16
31/03/10 786.99 713.09 786.99 708.66
* Restated for the adoption of International Financial Reporting Standards
("IFRS").
Manager's Review
After tracking global markets to deliver strong gains over much of 2009,
October brought a steep decline in Irish equities driven by severe weakness in
the banking sector. Results since then have been relatively mixed, and a firm
rise in March this year was insufficient to return the market to the levels
seen at the time of the half-yearly statement in September.
After reporting that the Irish economy had emerged from recession in the third
quarter of 2009, the Central Statistics Office revised the result downwards to
a decline of 0.1%. Combined with a further drop over the fourth quarter, this
meant 2009 saw the largest recorded output decline in a single year.
Unemployment also reached its highest rate in more than 15 years during
January.
Our greatest contribution relative to the ISEQ Index derived from our
underweight exposure to CRH, a producer and distributor of construction
materials and by far the largest stock in the Index. Although it delivered a
positive return over the year, its price change in the period fell short of the
return on the Index. Most recently, its share price dropped sharply in January
and February following a trading update which, although in line with prior
guidance, appeared to lack the optimism the market had hoped for.
We made an excellent return from Irish Life & Permanent, which we purchased at
deeply discounted prices in April and May last year, with the share price more
than trebling over the subsequent months. We sold at prices close to the peaks
between mid-September and early November when the share price dropped back
quite substantially. The timing of our transactions benefited the portfolio
handsomely and generated significant profits.
Another positive was Northern Ireland-based Andor Technology. The AIM-listed
company sells specialist, high-performance digital cameras to research
departments in universities and scientific institutions, where budgets have
been largely immune to the economic downturn. With over 90% of total production
exported, weaker sterling has boosted sales. We have taken profits since the
beginning of 2010, but continue to hold it as one of our larger positions.
Among the detractors, our lack of exposure to several strong performers weighed
most heavily on returns. These included names such as Aryzta AG, a
Swiss-registered (but Irish-listed) speciality bakery business. It improved
profitability despite declining revenues, and also benefited from strength in
agri-nutrition business Origin Enterprises where it owns over 70%. We hold a
position in Origin, which contributed to returns over the year.
We had underweight exposure to C&C Group, a beverages company which
manufactures, produces and distributes cider as well as distributing a number
of beer and speciality spirit and liqueur brands. Although we had held C&C
during the year, and had sold it profitably, we missed out on the two periods
of sharp returns that led to its share price rising nearly 150% over the year.
The most recent rise stemmed from the news that the increase in cider duty
announced in March's UK budget was lower than expected by the market, and, with
this risk factor removed, the uncertainty faced by the company was reduced.
Investor Relations
During the Company's year, Gartmore continued its vigorous programme of
promoting the Company. The Manager presented updates on the Company and market
outlook to over 250 current and potential investors at a series of lunches,
seminars and one-to-one meetings in Dublin, Belfast, Edinburgh, Glasgow,
Birmingham and London, focusing on stockbrokers, wealth managers and IFAs.
Prospects
Although the Irish economy faces many obstacles, there are still opportunities
to invest in strong, growing businesses that have an ability to generate
profits regardless of the domestic economic environment. Greater recent
interest in Irish financials suggests opportunities for the equity market to
recover from an oversold level.
It seems unlikely that Ireland's economy will enjoy significant growth in the
near term, but in spite of this there are reasons for optimism over a longer
horizon. The fundamentals that have worked for its economy in the past persist.
It has an attractive demographic profile and a large number of international
businesses, thanks to its low corporate tax rate. December's budget, with vast
cuts in public spending, has shown that Ireland is serious about rebalancing
the books and recovering its status as a model economy. And, very positively,
Ireland retains the corporate tax rate of 12.5%, even though there is pressure
to reduce the Government deficit by raising it.
Despite these positive economic influences, markets have begun to factor in the
effects of a global economic slowdown stemming from Europe's sovereign debt
problems and looming fiscal tightening measures. Nonetheless, we remain
cautiously positive on Irish equities and believe that there are opportunities
at a stock specific level. Some businesses quoted in Ireland appear to have
been neglected by portfolio managers, in part because of their Irish
incorporation. This is particularly true of some of the internationally-focused
companies which have prospects that are more closely linked to other regions.
Gervais Williams
Gartmore Investment Limited
21 June 2010
Financial Statistics
At 31 March At 31 March
2010 2009
Net assets attributable to Ordinary shares GBP57.050m GBP48.799m
Contracts for difference ("CFDs") market GBP9.06m -
exposure
Net asset value per Ordinary share 786.99p 444.91p
Capital return per Ordinary share 385.71p (463.43)p
Revenue return per Ordinary share 4.21p 12.84p
Total return per Ordinary share 389.92p (450.59)p
Dividend per Ordinary share 1.52p 1.27p
Special dividend per Ordinary share - 10.88p*
* Relates primarily to VAT refunded on investment management fees.
Record Since Launch
Net
Net Asset Share (Discount)/ Revenue Expense Gearing
Date Assets Value* Price Premium Earnings Ratio ** Ratio
GBP'000 pps pps % pps % %
07/06/95 20,835 97.32 - - - - -
31/03/96 24,982 113.38 95.5 (15.8) 1.35 1.4 12.4
31/03/97 33,173 145.09 132.5 (8.7) 0.41 1.5 20.9
31/03/98 52,970 221.73 197.0 (11.2) 0.03 1.2 10.8
31/03/99 44,688 190.75 155.0 (18.7) 1.08 1.7 -
31/03/00 62,826 273.83 220.5 (19.5) 0.18 1.2 14.0
31/03/01 58,695 260.68 223.5 (14.3) 0.59 1.5 3.8
31/03/02 58,621 253.62 223.5 (11.9) 0.97 1.7 -
31/03/03 45,485 233.26 197.5 (15.3) 1.30 1.9 1.5
31/03/04 59,718 441.96 393.0 (11.1) 1.75 1.7 17.9
31/03/05*** 78,476 550.24 609.5 10.8 1.00 1.4 8.9
31/03/06 113,038 792.58 740.0 (6.6) 1.98 1.3 3.4
31/03/07 144,296 1,012.46 996.5 (1.6) (2.74) 1.2 -
31/03/08 113,739 875.75 775.0 (11.5) 1.05 1.5 -
31/03/09 48,799 444.91 349.0 (21.6) 12.84 1.5# -
31/03/10 57,050 786.99 685.0 (13.0) 4.21 1.6 14.7
* Diluted.
** Operating expenses (excluding interest) before tax based on average monthly
equity shareholders' funds.
*** Adjusted following the adoption of IFRS.
# Excluding VAT refunded on investment management fees.
Sector Spread of Portfolio (including cash and CFDs) as at 31 March 2010
Republic
of Exposure UK Exposure Total Exposure
Ireland
GBP'000 % GBP'000 % GBP'000 %
Food Producers & 14,818 22.5 - - 14,818 22.5
Processors
Travel & Leisure 12,187 18.5 - - 12,187 18.5
General Financial 4,661 7.1 - - 4,661 7.1
Software & Computer 4,545 6.9 - - 4,545 6.9
Services
Banks 4,318 6.5 - - 4,318 6.5
Food & Drug Retailers 4,053 6.1 - - 4,053 6.1
Electronic & Electrical - - 3,400 5.1 3,400 5.1
Equipment
Construction & Building 3,026 4.6 - - 3,026 4.6
Materials
Non Life Insurance 2,308 3.5 - - 2,308 3.5
Media & Photography 44 0.1 1,620 2.4 1,664 2.5
Health Care, Equipment & 1,152 1.8 - - 1,152 1.8
Services
Oil & Gas 1,033 1.6 17 - 1,050 1.6
Mining 493 0.7 - - 493 0.7
Telecommunication 342 0.5 - - 342 0.5
Services
Support Services 182 0.3 - - 182 0.3
Total equity exposure 53,162 80.7 5,037 7.5 58,199 88.2
Cash - - 7,781 11.8 7,781 11.8
Total exposure and cash¹ 53,162 80.7 12,818 19.3 65,980 100.0
CFD notional cash (8,372)
exposure
Other net current (588)
liabilities
Net assets 57,050
¹ Percentage based on total exposure which comprises fixed asset investments of
GBP49,137,000 plus exposure to the underlying securities represented by CFDs of GBP
9,062,000 and cash balances of GBP7,781,000.
Portfolio Sector Distribution
% of Portfolio (including cash and CFDs) as at 31 March 2010
%
Non-Cyclical Consumer Goods 30.4
Cyclical Services 21.3
Financials 17.1
Cash 11.8
General Industrials 9.7
Information Technology 6.9
Resources 2.3
Non-Cyclical Services 0.5
Total 100.0
Portfolio (including cash and CFDs) as at 31 March 2010
Market
Total Exposure Class of Value
Company % Share GBP'000
1 (12) Greencore 7.9 (2.6) Ord 5,204
2 (16) Irish Continental 7.1 (1.8) Ord 4,681
3 (3) Total Produce 6.1 (7.2) Ord 4,053
4 (15) Norkom 5.8 (2.1) Ord 3,804
5 (13) Glanbia 5.6 (2.4) Ord 3,722
6 (9) Andor Technology 5.1 (3.7) Ord 3,400
7 (8) Origin Enterprises 5.1 (3.8) Ord 3,347
8 (-) Paddy Power 4.8 (-) Ord 3,177
9 (-) Smurfit Kappa 4.6 (-) Ord 3,026
10 (7) Fyffes 3.9 (4.8) Ord 2,545
11 (20) Bank of Ireland 3.8 (1.5) Ord 2,490
12 (5) Ryanair Holdings 3.7 (6.4) Ord 2,462
13 (11) Worldspreads 3.5 (3.2) Ord 2,324
14 (6) FBD Holdings 3.5 (5.0) Ord 2,308
15 (23) Aer Lingus 2.8 (1.2) Ord 1,867
16 (-) Allied Irish Banks 2.8 (-) Ord 1,828
17 (14) UTV Media 2.5 (1.9) Ord 1,620
18 (17) TVC Holdings 2.0 (1.7) Ord 1,315
19 (24) IFG 1.5 (0.9) Ord 1,022
20 (14) Datalex 1.1 (2.3) Ord 741
21 (-) Icon 1.1 (-) Adr 702
22 (30) Providence Resources 0.9 (0.3) Ord 565
23 (22) Island Oil & Gas 0.7 (1.3) Ord 468
24 (26) Clearstream Technology 0.7 (0.8) Ord 450
25 (31) Kenmare Resources 0.6 (0.2) Ord 406
26 (28) Zamano 0.5 (0.6) Ord 342
27 (-) Veris² 0.3 (-) Ord 182
28 (29) Galantas Gold 0.1 (0.3) Ord 87
29 (33) Prime Active Capital 0.1 (0.1) Ord 44
30 (34) Lansdowne Oil & Gas - (0.1) Ord 17
31 (32) Newcourt² - (01) Ord -
32 (35) Fortfield Investments² - (-) Ord -
Total equity exposure 88.2 58,199
Cash 11.8 7,781
Total exposure and cash¹ 100.0 65,980
CFD notional cash exposure (8,372)
Other net current liabilities (558)
Net assets 57,050
¹ Percentage based on total exposure which comprises fixed asset investments of
GBP49,137,000 plus exposure to the underlying securities represented by CFDs of
GBP9,062,000 and cash balances of GBP7,781,000.
² Unquoted investments.
Previous year ranking and percentages of portfolio in brackets.
Extracts from the Report of the Directors
Business Review
The Business Review has been prepared in accordance with the Companies Act 2006
and should be read in conjunction with the Chairman's Statement, the Manager's
Review and the portfolio analyses.
Nature and Status
The Group comprises Gartmore Irish Growth Fund PLC ("the Company") and its
trading Subsidiary, Gartmore Irish Smaller Companies Investment Limited. The
Company is an investment trust company and was incorporated and registered in
England and Wales on 6 March 1995 with registration number 3031629. It is a
public limited company and is an investment company as defined by Section 833
of the Companies Act 2006. It is a member of The Association of Investment
Companies ("AIC"). Its shares are listed on the London and Irish Stock
Exchanges. The Subsidiary engages in investment dealing.
The Company was approved by HM Revenue & Customs as an investment trust under
Section 842 of the Income and Corporation Taxes Act 1988 ("ICTA") in respect of
the year ended 31 March 2009. This approval is subject to there being no
subsequent enquiry under corporation tax self-assessment. The Company has been
approved as an investment trust for all previous years. Since 31 March 2009,
the Company has directed its affairs so as to be able to continue to qualify
for approval by HM Revenue & Customs as an investment trust, ensuring, inter
alia, that not more than 15% of the Company's eligible investment income (after
expenses) arising in an accounting period is retained by the Company.
Qualifying as an investment trust company confers certain advantages, including
an exemption from the payment of capital gains taxes on profits on investments.
The Company's shares are eligible investments for inclusion in Individual
Savings Accounts and it is the intention of the Directors to manage the affairs
of the Company so that this eligibility will be maintained.
Investment Objective and Policy
The Company's investment objective and policy and further details on the
Manager's investment strategy are set out above. Information regarding the
Company's risk management is shown below and in note 25 to the financial
statements.
Performance
The results for the year and the net revenue are set out in the Consolidated
Statement of Comprehensive Income.
The net asset value ("NAV") per Ordinary share at 31 March 2010 was 786.99p
compared to 444.91p at 31 March 2009.
The Board reviews performance by reference, inter alia, to a number of key
performance indicators, including:
- asset performance;
- peer group performance;
- discount management;
- financial position;
- total expense ratio; and
- dividend policy.
However, the key measure of success for shareholders is the growth in the NAV
and the share price of the Company. The Directors consider that there is no
single appropriate benchmark of the Company's performance, since none is
closely connected with the makeup of the portfolio. However, the movement of
the NAV is reviewed against the movement of the ISEQ Index, the FTSE All-Share
Index, the Hoare Govett Smaller Companies Index (ex Investment Companies) and
the FTSE Europe ex UK Index to provide a comprehensive review of the Company's
performance against competitors, as the Board is conscious that shareholders
have alternative markets in which to invest. Comparison against the Davy
Mid-Cap Index has become less appropriate than in the past, as bank stocks keep
moving in and out of this Index, thereby distorting the returns.
The NAV per share increased by 76.9% in the year under review (2009: a decrease
of 49.2%) compared with a sterling adjusted increase in the ISEQ Index of 39.5%
(2009: a decrease of 58.7%). The mid-market price of the Company's Ordinary
shares increased by 96.3% (2009: a fall of 55.0%). Investments in Bank of
Ireland and Irish Life & Permanent made particularly noteworthy contributions
to the year's result. Bank of Ireland was held throughout the year, but
judicious buying at the beginning of the year, when the price was low, and
well-timed sales of part of the holding in September and October, when its
price peaked, locked in significant gains. Similarly, a position was taken in
Irish Life & Permanent at the start of the year which realised strong gains
when it was sold later in the year near its peak price. Other strong
contributors included Andor Technology, Dragon Oil, Fyffes and Allied Irish
Banks.
It is also relevant to consider performance over a longer period. The Company's
investment policy was varied in 2002 to allow the inclusion in the portfolio of
the largest quoted companies in the investment universe; previously they had
been excluded. In the period since 31 March 2002, the NAV per share has
increased by 210.3% compared with a decrease in the ISEQ Index of 10.8%. Over
the same period, the FTSE All-Share Index increased by 13.8%, with the Hoare
Govett Smaller Companies Index up 58.2% and the FTSE Europe ex UK Index up
35.6%. The mid-market price of the Company's Ordinary shares increased by
206.5% over this period.
For more information regarding the Company's performance, please refer to the
Chairman's Statement, the Manager's Review and the financial statistics above.
Financial Position
The Company's net assets at 31 March 2010 amounted to GBP57.1 million, after
payment of GBP20.4 million for the shares bought back under the Tender Offer in
October 2009, compared with GBP48.8 million at 31 March 2009. Excluding three
unquoted investments which amount to just 0.3% of the portfolio, all of the
Company's investments are listed on recognised exchanges and are realisable in
normal market conditions.
There were no bank borrowings at 31 March 2010 and cash balances amounted to
GBP7.8 million. As at 31 March 2010 the Company held five CFDs representing
exposure to equities valued of GBP9.1 million and with accrued holding gains of
GBP0.7 million.
Future Trends
The Irish economy is likely to take quite some time to recover, however we
believe that the outlook for certain Irish equities remains attractive. We are
confident of identifying such opportunities and of the prospects for gains as
more investors discover underlying value.
Dividends
The net revenue return for the year, after expenses and taxation, amounted to
GBP389,000, compared with a net revenue return of GBP1,541,000 (inclusive of VAT
refund and related interest of GBP1,074,000) for the previous year. The Directors
are recommending a dividend for the year of 1.52p per share (2009: final
dividend of 1.27p, and special dividend of 10.88p primarily relating to the VAT
recovery). This dividend will be paid, if approved, on 21 September 2010 to
shareholders on the register on 20 August 2010.
Total Expense Ratio
The Company's total expense ratio to average monthly shareholders' funds
("TER") for the year was 1.6% (2009: 1.5%, excluding the VAT recovery and
related interest).
Share Capital
At the year end the Company's issued share capital comprised 7,249,120 Ordinary
shares, none of which were held in Treasury (2009: 10,968,342 and zero
respectively). At general meetings of the Company, the holders of the Ordinary
shares are entitled to one vote for every share held.
During the year 960,733 shares with a nominal value of GBP240,183 were bought
back for cancellation for an aggregate amount of GBP6,032,000 (including
expenses), at discounts to NAV (including current period revenue) of between
7.39% and 15.33% and representing 8.76% of the shares in issue on 1 April 2009.
In addition, 2,758,489 shares with a nominal value of GBP689,622 were acquired
under a Tender Offer at a price of 725.16p per share for an aggregate amount of
GBP20,417,000 (including expenses) and representing 25.15% of the shares in issue
on the record date for the Tender Offer.
Since 31 March 2010, 535,685 shares have been bought back for cancellation for
an aggregate amount of GBP3,433,000 and representing 4.88% of the shares in issue
on 1 April 2009.
No shares were issued during the year, but the Directors favour increasing the
number of shares in issue if this can be achieved at prices which will not
dilute the interests of existing shareholders. Increasing the size of the
Company could improve the liquidity of its shares in the market and would
dilute the impact of fixed costs.
Discount Management
At the year end, the Company's share price stood at a discount of 13.0% to NAV
compared with a discount of 21.6% a year ago. During the year, the discount
ranged from 3.91% to 25.34% (using the NAV including current period revenue).
The Board has been willing to buy stock for cancellation, or to be held in
Treasury, and during the year shares purchased have been cancelled. The
buying-back of shares had the benefit of increasing short-term demand for the
Company's shares, resulting in a modest uplift in the NAV. However, the
turbulent stock markets adversely affected liquidity in the shares and the
discount, and, following a review of the Company's position, a Tender Offer for
up to 30% of the shares then in issue was made in October 2009.
The Company will continue, as and when appropriate, to exercise its powers to
buy back shares, and will be seeking to renew its authority to buy back shares
at the forthcoming Annual General Meeting.
Corporate Social Responsibility and Socially Responsible Investment
The Company has no employees and the Board is comprised entirely of
non-executive Directors. As an investment trust, the Company has no direct
impact on the environment. In carrying out its activities and in relationships
with suppliers and the community, the Company aims to conduct itself
responsibly, ethically and fairly.
The Company has delegated responsibility for making and holding investments to
the Manager. The Company's policy is that, subject to an overriding requirement
to pursue the best financial interests of the Company and its shareholders, the
Manager should take account of social, environmental and ethical factors.
Principal Risks and Uncertainties
The principal financial risks and the Company's policies for managing these
risks and the policy and practice with regard to financial instruments are
summarised in note 25 to the financial statements. The following additional
risks and uncertainties have been identified and are discussed below, with an
outline of how the Board recognises and seeks to control these risks.
Poor Company and Market Performance
Since the Company is an investment company, returns to shareholders depend upon
the performance of the companies and the stock markets in which it invests. The
trend had been positive for some time, but, as experienced in recent unsettled
markets, this can change over time. Consequently, there is potential for the
Company to suffer periods of low or negative returns. Investment risk is spread
by holding a diversified portfolio of approximately 40 holdings. In accordance
with the Listing Rules, the Board, acting in its capacity as the Management
Engagement Committee, reviews performance and the continuing engagement of the
Manager on an ongoing basis. The basis of the Board's reappointment of the
Manager is explained below.
Limited Investment Universe
The scale of the Irish and Northern Irish economies is relatively modest when
compared to those of the Eurozone or the UK. The Company has a limited universe
of stocks within which it can invest, with the largest holdings tending to be
between 3% and 15% of the value of the portfolio. The Company is therefore
subject to the uncertainties relating to a relatively small number of holdings,
including the risks of volatility. Additionally, since the portfolio has no
precise correlation with the various comparator indices, performance can be
expected to deviate significantly from those indices. The focused nature of the
portfolio offers shareholders the prospect of significant capital gain if the
positive trends anticipated deliver good investment returns.
Gearing
The Manager is authorised to gear the portfolio to up to 25% of shareholders'
funds. The use of debt magnifies movements in the asset value of the Company,
be they positive or negative. The level of gearing is regularly monitored by
the Board.
Previously, gearing has been achieved through the use of flexible borrowing
facilities. In the turbulence in banking markets in Ireland and in other
countries, the Company did not renew its borrowing facilities because the terms
offered were unacceptable. The Board has authorised the Manager to use CFDs for
gearing purposes. The use of CFDs is subject to the limits which applied when
bank loan facilities were used, and total gearing remains subject to a maximum
of 25% of shareholders' funds.
Third Party Advisers
The Company relies on services provided by third parties, including, in
particular, the Manager, Gartmore Investment Limited, Capita Sinclair Henderson
Limited, which provides company secretarial and accounting services, and The
Northern Trust Company, which acts as custodian. The Company reviews the
internal control reports of its service providers on a regular basis.
Regulatory Breaches
Relevant legislation and regulations which apply to the Company include the
Companies Act 2006, the ICTA and the Listing Rules of the Financial Services
Authority ("FSA"). The Company has noted the recommendations of the Combined
Code on Corporate Governance and the AIC Code of Corporate Governance and the
relevant AIC Guide for investment companies. Its statement of compliance
appears in the full Annual Report. A breach of ICTA could result in the Company
losing its status as an investment trust company and becoming subject to
capital gains tax, whilst a breach of the Listing Rules might result in censure
by the FSA. At each Board meeting the status of the Company is considered and
discussed, so as to check that all regulations are being adhered to by the
Company and its service providers.
The Board is not aware of any breaches of laws or regulation during the period
under review and up to the date of this report.
Life of the Company
The Company's Articles of Association contain a requirement for shareholders to
vote on the continuation of the Company every three years. Under this
provision, if that resolution is not passed the Directors will, within three
months, convene a General Meeting at which a special resolution for winding up
will be proposed. Shareholders voted for the Company to continue as an
investment trust at the Annual General Meeting in 2008. The next continuation
vote will accordingly be put to shareholders at the Annual General Meeting to
be held in 2011.
Management and Administration
The Company's investments are managed by Gartmore Investment Limited under an
Investment Management Agreement dated 8 July 2002. The notice period to be
given by either party is twelve months. The management fee is calculated
monthly in arrears at the rate of 1.0% per annum on the value of total assets
less current liabilities. No compensation is payable in the event of
termination of the agreement with the requisite notice. However, in the event
that the Company terminates the agreement, the Manager will be entitled to any
fees due up to the date of termination, and compensation would be payable to
the Manager in the event that the Company terminated the agreement without
notice. The Agreement is reviewed by the Board annually.
Under an agreement dated 24 May 1995, company secretarial services and the
general administration of the Group are undertaken by Capita Sinclair Henderson
Limited for an annual fee, which, in respect of the year ended 31 March 2010,
was GBP51,000. This fee is adjusted annually by reference to increases in the
Retail Price Index and is payable monthly in arrears. The Secretarial and
Administration Services Agreement may be terminated by either party at twelve
months' notice.
Computershare Investor Services plc acts as Registrar to the Company.
The Northern Trust Company provides custody services to the Group.
Continuing Appointment of the Manager and Secretary
In accordance with the Listing Rules published by the FSA, the Board, acting in
its capacity as a Management Engagement Committee, has reviewed the performance
of the Manager in managing the Company's portfolio. The review considered the
Company's investment performance over the financial year, as well as the
longer-term performance. The Committee also reviewed the appropriateness of the
terms of the Investment Management Agreement, in particular, the length of
notice period, the management fee structure and the Manager's internal control
environment. The quality and adequacy of services provided by Capita Sinclair
Henderson Limited, including company secretarial and accounting, were reviewed
at the same time.
Following review, it is the Directors' opinion that the continuing appointment
of the Manager and the Secretary on the terms agreed is in the best interests
of the Company and its shareholders as a whole.
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") adopted by the European
Union.
Under company law the Directors must not approve the Group financial statements
unless they are satisfied that they present fairly the financial position,
financial performance and cash flows of the Group for that period. In preparing
the Group financial statements, the Directors are required to:
* select suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors, and then apply them
consistently;
* present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
* state that the Group has complied with IFRS, subject to any material
departures disclosed and explained in the financial statements;
* provide additional disclosures when compliance with the specific requirements
of IFRS is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group's financial position and
financial performance; and
* make judgments and estimates that are reasonable and prudent.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy, at any time, the financial position of the Group and to
enable them to ensure that the Group's financial statements comply with the
Companies Act 2006 and Article 4 of the IAS Regulations. The Directors are also
responsible for ensuring that the Report of the Directors is prepared in
accordance with Company law in the United Kingdom and that the Annual Report
includes information required by the Listing Rules of the Financial Services
Authority. They are also responsible for safeguarding the assets of the Company
and the Group and for taking such steps as are reasonably open to them for the
prevention and detection of fraud and other irregularities.
The Directors, to the best of their knowledge, state that:
* the financial statements, prepared in accordance with IFRS as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial
position and profit/(loss) of the Company and the Group; and
* this Annual Report includes a fair review of the development and performance
of the business and the position of the Company and the Group, together with a
description of the principal risks and uncertainties that it faces.
The Directors confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditor is unaware; and each Director
has taken all the steps that ought to have been taken as a Director to make
himself aware of any relevant audit information and to establish that the
Company's Auditor is aware of that information.
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 the maintenance
and integrity of the website and accordingly the Auditor accepts no
responsibility for any changes that have occurred to the financial statements
when they are presented on the website. Visitors to the website need to be
aware that legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
On behalf of the Board
Harry Sheridan
Chairman
21 June 2010
Independent Auditors' Report
The Company's financial statements for the year ended 31 March 2010 have been
audited by Ernst & Young LLP. The text of the Auditors' report can be found in
the Company's Annual Report and Accounts at www.gartmoreirishgrowthfund.com or
www.gartmore.co.uk.
Consolidated Statement of Comprehensive Income for the year ended 31 March 2010
2010 2009
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) 11 - 35,955 35,955 - (55,133) (55,133)
on investments
at fair value
through profit
or loss
Net returns on 12 - 328 328 - - -
contracts for
difference
Exchange gains - 67 67 - 607 607
Dividends and 2 1,244 - 1,244 2,148 - 2,148
other income
Total income 1,244 36,350 37,594 2,148 (54,526) (52,378)
Expenses
Investment 3 (619) - (619) (732) - (732)
management fee
Recovery of - - - 933 - 933
VAT on
management
fees
Cost of 11 - (686) (686) - (1,052) (1,052)
investment
transactions
Other expenses 4 (336) - (336) (376) - (376)
Total expenses (955) (686) (1,641) (175) (1,052) (1,227)
Net profit/ 289 35,664 35,953 1,973 (55,578) (53,605)
(loss) before
finance costs
and taxation
Finance costs 6 (6) - (6) (23) - (23)
Net profit/ 283 35,664 35,947 1,950 (55,578) (53,628)
(loss) before
taxation
Tax credit/ 7 106 (37) 69 (409) (31) (440)
(charged)
Profit/(loss) 389 35,627 36,016 1,541 (55,609) (54,068)
for the year
and total
comprehensive
income
pence pence pence pence pence pence
Basic & 10 4.21 385.71 389.92 12.84 (463.43) (450.59)
diluted return
per Ordinary
share
The Total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards ("IFRS"), as adopted by the European Union. The
supplementary Revenue and Capital columns are both prepared under guidance
published by the Association of Investment Companies.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the year.
The Notes form an integral part of these financial statements.
Consolidated Balance Sheet as at 31 March 2010
As at 31 As at 31
March March
2010 2009
Note GBP'000 GBP'000
Non-current assets
Investments at fair value through 11 49,137 46,469
profit or loss
Current assets
Trade and other receivables 15 557 406
Amounts receivable in respect of 12 943 -
contracts for difference
Cash and cash equivalents 7,781 4,588
9,281 4,994
Total assets 58,418 51,463
Current liabilities
Trade and other payables 16 (1,115) (2,594)
Amounts payable in respect of contracts 12 (253) -
for difference
(1,368) (2,594)
Total assets less current liabilities 57,050 48,869
Non-current liabilities
Deferred tax liabilities 17 - (70)
Total liabilities (1,368) (2,664)
Net assets 57,050 48,799
Capital and reserves
Share capital 18 1,812 2,742
Share premium account 19 1,101 1,101
Special reserve 19 - 16,645
Capital redemption reserve 19 3,966 3,036
Capital reserve 19 48,692 22,869
Retained earnings 19 1,479 2,406
Total equity 57,050 48,799
Net asset value per Ordinary share 20 786.99p 444.91p
These financial statements were approved by the Board of Directors and were
authorised for issue on 21 June 2010 and were signed on its behalf by:
Harry Sheridan
Chairman
The Notes form an integral part of these financial statements.
Company Balance Sheet as at 31 March 2010
As at 31 As at 31
March March
2010 2009
Note GBP'000 GBP'000
Non-current assets
Investments at fair value through 11 49,137 46,469
profit or loss
Investment in Subsidiary 14 - -
Current assets
Trade and other receivables 15 557 406
Amounts receivable in respect of 12 943 -
contracts for difference
Cash and cash equivalents 7,781 4,588
9,281 4,994
Total assets 58,418 51,463
Current liabilities
Trade and other payables 16 (1,115) (2,594)
Amounts payable in respect of 12 (253) -
contracts for difference
Amount due to Subsidiary 14 (690) (567)
(2,058) (3,161)
Total assets less current liabilities 56,360 48,302
Non-current liabilities
Deferred tax liabilities 17 - (70)
Total liabilities (2,058) (3,231)
Net assets 56,360 48,232
Capital and reserves
Share capital 18 1,812 2,742
Share premium account 19 1,101 1,101
Special reserve 19 - 16,645
Capital redemption reserve 19 3,966 3,036
Capital reserve 19 48,692 22,869
Retained earnings 19 789 1,839
Total equity 56,360 48,232
These financial statements were approved by the Board of Directors and were
authorised for issue on 21 June 2010 and were signed on its behalf by:
Harry Sheridan
Chairman
The Notes form an integral part of these financial statements.
Consolidated Statement of Changes in Equity for the year ended 31 March 2010
Share Capital
Share premium Special redemption Capital Retained
capital account reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31 March 2009 2,742 1,101 16,645 3,036 22,869 2,406 48,799
Total
comprehensive
income:
Net profit for - - - - 35,627 389 36,016
the year to 31
March 2010
Transactions
with
shareholders,
recorded
directly to
equity:
Shares (240) - (2,852) 240 (3,180) - (6,032)
purchased for
cancellation
Tender offer (690) - (13,793) 690 (6,624) - (20,417)
Equity - - - - - (1,316) (1,316)
dividends paid
31 March 2010 1,812 1,101 - 3,966 48,692 1,479 57,050
31 March 2008 3,247 1,101 16,645 2,531 89,220 995 113,739
Total
comprehensive
income:
Net (loss)/ - - - - (55,609) 1,541 (54,068)
profit for the
year to 31
March 2009
Transactions
with
shareholders,
recorded
directly to
equity:
Shares (505) - - 505 (10,742) - (10,742)
purchased for
cancellation
Equity - - - - - (130) (130)
dividends paid
31 March 2009 2,742 1,101 16,645 3,036 22,869 2,406 48,799
The Notes form an integral part of these financial statements.
Company Statement of Changes in Equity for the year ended 31 March 2010
Share Capital
Share premium Special redemption Capital Retained
capital account reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31 March 2009 2,742 1,101 16,645 3,036 22,869 1,839 48,232
Total
comprehensive
income:
Net profit for - - - - 35,627 266 35,893
the year to 31
March 2010
Transactions
with
shareholders,
recorded
directly to
equity:
Shares (240) - (2,852) 240 (3,180) - (6,032)
purchased for
cancellation
Tender offer (690) - (13,793) 690 (6,624) - (20,417)
Equity - - - - - (1,316) (1,316)
dividends paid
31 March 2010 1,812 1,101 - 3,966 48,692 789 56,360
31 March 2008 3,247 1,101 16,645 2,531 89,220 438 113,182
Total
comprehensive
income:
Net (loss)/ - - - - (55,609) 1,531 (54,078)
profit for the
year to 31
March 2009
Transactions
with
shareholders,
recorded
directly to
equity:
Shares (505) - - 505 (10,742) - (10,742)
purchased for
cancellation
Equity - - - - - (130) (130)
dividends paid
31 March 2009 2,742 1,101 16,645 3,036 22,869 1,839 48,232
The Notes form an integral part of these financial statements.
Consolidated Cash Flow Statement for the year ended 31 March 2010
Year to 31 Year to 31
March March
2010 2009
Note GBP'000 GBP'000
Cash flows from operating activities
Consolidated net profit/(loss) before 35,947 (53,628)
tax
Adjustments to reconcile net profit/
(loss) before tax to net cash flows from
operating activities:
(Less)/add: (Gains)/losses on (35,269) 56,185
investments*
(Less): Gains on derivative investments (328) -
(Less): Exchange gains (67) (607)
Add back: Finance costs 6 23
Decrease in trade and other payables (98) (219)
Decrease in trade and other receivables 161 267
Purchases of investments (47,171) (74,437)
Sales of investments 78,194 80,629
Payments made under contracts for (168) -
difference
Revaluation of foreign currency balances 13 505
Net cash flows generated from operating 31,220 8,718
activities
Taxation
Taxation paid (416) (6)
Cash flows from financing activities
Equity dividends paid (1,316) (130)
Share purchases for cancellation (26,289) (11,279)
Interest on contracts for difference, (6) (8)
bank loans and overdrafts
Net cash flows used in financing (27,611) (11,417)
activities
Increase/(decrease) in cash and cash 21 3,193 (2,705)
equivalents
Cash and cash equivalents at 1 April 2009 4,588 7,293
Cash and cash equivalents at 31 March 2010 7,781 4,588
* Includes cost of investment transactions
The Notes form an integral part of these financial statements.
Company Cash Flow Statement for the year ended 31 March 2010
Year to 31 Year to 31
March March
2010 2009
Note GBP'000 GBP'000
Cash flows from operating activities
Company net profit/(loss) before tax 35,823 (53,628)
Adjustments to reconcile net profit/
(loss) before tax to net cash flows from
operating activities:
(Less)/add: (Gains)/losses on investments (35,269) 56,185
*
(Less): Gains on derivative investments (328) -
(Less): Exchange gains (67) (607)
Add back: Finance costs 6 23
Decrease in trade and other payables (98) (219)
Decrease in trade and other receivables 161 267
Purchases of investments (47,171) (74,437)
Sales of investments 78,194 80,629
Payments made under contracts for (168) -
difference
Revaluation of foreign currency balances 13 505
Net cash flows generated from operating 31,096 8,718
activities
Taxation
Taxation paid (415) (6)
Cash flows from financing activities
Equity dividends paid (1,316) (130)
Share purchases for cancellation (26,289) (11,279)
Loan to Subsidiary undertaking 123 -
Interest on contracts for difference, (6) (8)
bank loans and overdrafts
Net cash flows used in financing (27,488) (11,417)
activities
Increase/(decrease) in cash and cash 21 3,193 (2,705)
equivalents
Cash and cash equivalents at 1 April 2009 4,588 7,293
Cash and cash equivalents at 31 March 7,781 4,588
2010
* Includes cost of investment transactions
The Notes form an integral part of these financial statements.
Notes to the Financial Statements
1. Accounting Policies
Gartmore Irish Growth Fund PLC is a company incorporated and registered in
England and Wales. The consolidated Annual Report for the Group for the year
ended 31 March 2010 comprises the results of the Company and its Subsidiary,
Gartmore Irish Smaller Companies Investment Limited (together referred to as
the "Group"). The Company is registered as a public limited company and is an
investment company as defined by Section 833 of the Companies Act 2006. The
Subsidiary also engages in investment activity and underwriting.
Basis of preparation/statement of compliance
The consolidated annual financial statements of the Group have been prepared
under International Financial Reporting Standards as adopted by the European
Union ("IFRS"), which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"). The annual financial
statements of the Company have been prepared in accordance with IFRS as adopted
by the European Union, and as applied in accordance with provisions of the
Companies Act 2006. The financial statements have also been prepared in
accordance with the Statement of Recommended Practice ("SORP") (as amended in
January 2009) for the financial statements of investment trust companies and
venture capital trusts, except to any extent where it conflicts with IFRS.
The accounting policies which follow set out those policies which apply in
preparing the financial statements for the year ended 31 March 2010. There are
no differences between the accounting policies applied to the Group or the
Company.
Convention
The financial statements are presented in sterling, which is the Group's
functional currency as it is the currency of the primary environment in which
the Group operates, rounded to the nearest thousand pounds (GBP'000), except
where otherwise indicated.
The financial statements have been prepared on a going concern basis.
Investments have been measured at fair value and are classified as fair value
through profit or loss.
Use of estimates
The preparation of financial statements requires the Group to make estimates
and assumptions that affect items reported in the Balance Sheets and Statement
of Comprehensive Income and the disclosure of contingent assets and liabilities
at the date of the financial statements. Although these estimates are based on
management's best knowledge of current facts, circumstances and, to some
extent, future events and actions, actual results ultimately may differ from
those estimates, possibly significantly.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its wholly-owned Subsidiary, Gartmore Irish Smaller Companies
Investment Limited, drawn up to 31 March 2010.
The Subsidiary is consolidated from the date of its acquisition, being the date
on which the Group obtained control, and will continue to be consolidated until
the date that such control ceases. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain benefit from
its activities and is achieved through direct or indirect ownership of voting
rights. The financial statements of the Subsidiary are prepared for the same
reporting year as the Parent Company, using consistent accounting policies. All
inter-company balances and transactions, including unrealised profits arising
from them, are eliminated.
As permitted by Section 408 of the Companies Act 2006, the Company has not
presented its own Statement of Comprehensive Income. The amount of the
Company's return for the financial year dealt with in the financial statements
of the Group is a profit of GBP35,893,000 (2009 deficit: GBP54,078,000).
Presentation of Statement of Comprehensive Income
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 Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income.
Investment in Subsidiary
The Subsidiary has been stated at cost in the Company Balance Sheet.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment business.
Income recognition
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date is quoted are
brought into account when the Group's right to receive payment is established.
All other income is credited to the Consolidated Statement of Comprehensive
Income on an accruals basis.
Underwriting commission
Underwriting commission is recognised as income in so far as it relates to
shares the Company is not required to take up. Where the Company is required to
take up a proportion of the shares underwritten, the same proportion of the
commission received is treated as a deduction from the cost of the shares taken
up, with the balance taken to income.
Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue costs except as follows:
* expenses which are incidental to the acquisition or disposal of an investment
are treated as capital costs and separately identified and disclosed (see note
11); and
* expenses are treated as capital costs where a connection with the maintenance
or enhancement of the value of the investments can be demonstrated.
Foreign currency transactions
Transactions involving currencies other than sterling are recorded at the
exchange rate ruling on the transaction date.
Investments and foreign currency balances are converted to sterling at the rate
of exchange ruling at the Balance Sheet date. Exchange gains and losses are
taken to the Consolidated Statement of Comprehensive Income in the period in
which they arise.
Investments at fair value through profit or loss
All investments are classified as held at fair value through profit or loss.
They are further categorised into the following fair value hierarchy:
- Level 1:
Unadjusted prices quoted in active markets for identical assets or liabilities.
- Level 2:
Having inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from prices).
- Level 3:
Having inputs for the asset or liability that are not based on observable
market data.
All investments are recognised on a trade date basis and are measured at fair
value with gains and losses arising from changes in their fair value being
included in net profit or loss for the year as a capital item. Transaction
costs on acquisition or disposal of the investment are expensed through the
capital column of the Statement of Comprehensive Income.
The fair value of listed investments is based on their quoted bid-market price
at the close of business on the Balance Sheet date without any deduction for
estimated future selling costs.
Where no bid price is available, the investment is valued at last traded price.
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 dealing prices or stockbrokers' valuations where available,
net asset values, or other relevant information.
Investments are de-recognised at the trade date of the disposal. Any gains and
losses realised will be recognised in the capital column of the Statement of
Comprehensive Income in accordance with the Articles of Association of the
Company, and are not distributable by way of dividend.
No provision for taxation is required in respect of any realised or unrealised
appreciation of the Company's investments which arises, as the Company expects
to continue to qualify as an investment trust for tax purposes.
Taxation
Deferred tax is recognised in respect of all temporary differences at the
Balance Sheet date where transactions or events have occurred that result in an
obligation to pay more, or the right to pay less tax in the future. This is
subject to deferred tax assets being recognised only if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the marginal method.
Capital reserve
The following are accounted for in this reserve:
* gains and losses on the disposal of investments including derivative assets
and liabilities;
* transaction costs;
* dividends receivable of a capital nature;
* changes in the fair value of investments held, including derivative assets
and liabilities, at the year-end;
* foreign exchange gains and losses of a capital nature; and
* cost of repurchasing Ordinary shares.
Dividends payable to shareholders
No equity dividend is accrued unless the shareholders' right to receive payment
is established in the period. Dividends proposed after the Balance Sheet date
are disclosed in note 8.
Cash and cash equivalents
Cash in hand and at banks and short-term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments readily convertible
to known amounts of cash and subject to insignificant risk of changes in value.
Bank overdrafts repayable on demand, if any, which form an integral part of the
Group's cash management, are included as a component of cash and cash
equivalents for the purpose of the Cash Flow Statements.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being the fair
value of the consideration received, less direct issue costs where applicable.
After initial recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost. Any differences between cost and
redemption value are recognised in the Consolidated Statement of Comprehensive
Income over the period of the borrowings on an effective interest rate basis.
Any costs of long-term borrowings are capitalised and amortised over the term of
the borrowings. Any costs of short-term borrowings are expensed as incurred.
Derivative instruments
The Company maintains a geared exposure to Irish and UK equities through the
use of long contracts for difference ("CFDs"). The gearing level is monitored
and reviewed by the Board on an ongoing basis.
CFDs are measured at fair value, which is the difference between the settlement
price and the value of the underlying shares in the contract.
All gains and losses in the fair value of the CFDs are disclosed in the `Net
returns on contracts for difference' via the capital column of the Consolidated
Statement of Comprehensive Income. The dividends received and the interest paid
on these contracts are allocated to the revenue column of the Consolidated
Statement of Comprehensive Income in alignment with the underlying source of
income or expense.
New standards and interpretations not applied
IASB and IFRIC have issued the following standards and interpretations which
are not effective for the year ended 31 March 2010 and have not been applied in
preparing these financial statements.
International Accounting Standards (IAS/IFRS) Effective date
IFRS 1 First Time Adoption of International 1 July 2009
Reporting Standards
IFRS 1 Amendments to IFRS 1 - Additional 1 January 2010
Exemptions for First-time Adopters
IFRS 1 Amendments to IFRS 1 - Limited Exemption 1 July 2010
from Comparative IFRS 7 disclosures
IFRS 2 Amendments to IFRS 2 - Group Cash-settled 1 January 2010
Share-based Payment Transactions
IFRS 3 Business Combinations (revised January 1 July 2009
2008)
IFRS 9 Financial Instruments: Classification & 1 January 2013
Measurement
IAS 24 Related Party Disclosures (revised) 1 January 2011
IAS 27 Consolidated and Separate Financial 1 July 2009
Statements (revised January 2008)
IAS 32 Amendment to IAS 32: Classification of 1 February 2010
Rights Issues
IAS 39 Eligible Hedged Items 1 July 2009
Improvements to IFRS (issued April 2009) Various dates
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 14 Amendment: Prepayments of Minimum Funding 1 January 2011
Requirement
IFRIC 17 Distributions of Non-Cash Assets to Owners 1 July 2009
IFRIC 18 Transfer of Assets from Customers 1 July 2009
IFRIC 19 Extinguishing Financial Liabilities with 1 July 2010
Equity Instruments
The Directors do not anticipate that the initial adoption of the above
standards, amendments and interpretations will have a material impact on the
Group's financial statements in the period of initial application.
2. Income
2010 2009
GBP'000 GBP'000
Income from investments:
UK net dividend income 23 51
Unfranked investment income 942 1,785
Dividends on long contracts for difference 44 -
Stock dividends 88 -
1,097 1,836
Other income:
Bank interest receivable 6 171
Interest received on VAT refunded by HMRC - 129
Interest received on VAT refunded by Manager - 12
Net dealing profit of Subsidiary 124 -
Underwriting commission 17 -
147 312
Total income 1,244 2,148
Total income comprises:
Dividends 1,097 1,836
Interest 6 312
Other income 141 -
1,244 2,148
Income from investments:
Listed UK 23 51
Listed overseas 1,074 1,785
1,097 1,836
3. Investment Management Fee
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management 619 - 619 732 - 732
fee
619 - 619 732 - 732
The investment management fee, payable to Gartmore Investment Limited, has been
calculated at 1.0% per annum of the total assets less current liabilities of
the Group held at each month end. At 31 March 2010, an amount of GBP48,000 was
outstanding for payment when due (2009: GBP168,000).
4. Other Expenses
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Administration and 51 - 51 51 - 51
Secretarial services
Directors' 102 - 102 108 - 108
remuneration
Auditor's
remuneration for:
- Audit 19 - 19 19 - 19
- Taxation services 9 - 9 6 - 6
Other 155 - 155 192 - 192
336 - 336 376 - 376
5. Directors' Remuneration
2010 2009
GBP'000 GBP'000
Total fees 102 108
H P Sheridan (Chairman) 26 26
R A M Baillie 17 17
G R Caldwell 17 17
W R Cotter 17 17
P K Cunneen* 6 -
S P Fitzpatrick** - 12
R A Milliken 19 19
* Appointed 19 November 2009
**Resigned 18 December 2008
6. Finance Costs
2010 2009
GBP'000 GBP'000
Interest on long contracts for difference 6 -
Interest on bank loan repayable within one year - 19
Interest on bank overdraft - 4
6 23
7. Taxation
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
a) Analysis of charge
in year:
Corporation tax (36) 37* 1 390 31 421
(credit)/charge
Total current tax (36) 37 1 390 31 421
(credit)/charge for
year
Deferred tax (note (70) - (70)** 19 - 19
17)
Total deferred tax (70) - (70) 19 - 19
for year
Total tax (credit)/ (106) 37 (69) 409 31 440
charge for year (see
note 7b)
* The corporation tax charge in the capital account of GBP37,000 (2009: GBP31,000)
(see note 19) arises on redemption proceeds taxable as overseas dividends.
** The deferred tax credit for the period of GBP70,000 is the reversal of the
charge at 31 March 2009 in respect of outstanding overseas dividends. No charge
is required at 31 March 2010 as all overseas dividends outstanding at that date
are now non-taxable.
b) Factors affecting current taxation charge:
The tax assessed on the net return for the year is lower than the rate of
corporation tax of 28% (2009: 28%). The differences are explained below:
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit/(loss) before 283 35,664 35,947 1,950 (55,578) (53,628)
taxation
Corporation tax 28% 79 9,986 10,065 546 (15,562) (15,016)
(2009: 28%)
Effects of:
Non-taxable UK (6) - (6) (14) - (14)
dividends
Non-taxable overseas (219) - (219) - - -
dividends
Expenses not 3 - 3 4 - 4
deductible for tax
purposes
Movement in deferred - - - (3) - (3)
tax rate
Utilisation of - - - (130) - (130)
brought forward
losses
Excess management 36 - 36 - - -
expenses carried
forward
Proceeds from sale of - 37 37 - 31 31
redeemable shares
Prior year adjustment 1 - 1 6 - 6
Non-taxable items in - (9,986) (9,986) - 15,562 15,562
capital
Total tax (credit)/ (106) 37 (69) 409 31 440
charge for the year
(see note 7a)
Due to the Company's status as an investment trust, and the intention to
continue meeting the conditions required to obtain approval to retain that
status 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.
2010 2009
GBP'000 GBP'000
c) Provision for deferred tax:
Accrued income taxable on receipt (see note 17) - 70
8. Dividends
2010 2009
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders within the period
Ordinary dividend for the year ended 31 March 138 130
2009 of 1.27p (2008: 1.06p) per share
Special dividend for the year ended 31 March 2009 1,178 -
of 10.88p (2008: nil) per share
1,316 130
The proposed distribution for the year ended 31 March 2010 is 1.52p per share,
amounting to GBP110,000.
2010 2009
GBP'000 GBP'000
Net profit after taxation per Company accounts 266 1,531
Final dividend proposed of 1.52p (2009: 1.27p) (110) (139)
per share
Special dividend proposed of nil (2009: 10.88p) - (1,193)
per share
Revenue retained for s842 purposes 156 199
9. Profit of Parent Company
As permitted by Section 408 of the Companies Act 2006, the Statement of
Comprehensive Income of the Company is not presented as part of these financial
statements. The consolidated net return after taxation for the financial year
includes a profit of GBP35,893,000 (2009 deficit: GBP54,078,000) which is dealt
with in the financial statements of the Company.
10. Group return per Ordinary share
2010 2009
Weighted Weighted
average average
Net Ordinary Per Net Ordinary Per
return shares share return shares share
GBP'000 Number pence GBP'000 Number pence
Revenue
Basic and diluted 389 9,236,716 4.21 1,541 11,999,305 12.84
return per share
Capital
Basic and diluted 35,627 9,236,716 385.71 (55,609) 11,999,305 (463.43)
return per share
Total
Basic and diluted 36,016 9,236,716 389.92 (54,068) 11,999,305 (450.59)
return per share
11. Investments
2010 2009
GBP'000 GBP'000
(i) Movement of investments:
Group and Company
Investments listed on a recognised investment 48,955 46,469
exchange
Unlisted investments 182 -
Total investments 49,137 46,469
2010 2009
GBP'000 GBP'000
Group and Company
Opening book cost 81,778 115,746
Investment holding losses (35,309) (5,672)
Opening valuation 46,469 110,074
Movements in the year:
Purchases at cost 45,839 72,618
Sales
- proceeds (78,440) (80,038)
- gains/(losses) on sales 13,326 (26,548)
Investment holding gains/(losses) 21,943 (29,637)
Closing valuation 49,137 46,469
2010 2009
GBP'000 GBP'000
Group and Company
Closing book cost 62,503 81,778
Investment holding losses (13,366) (35,309)
49,137 46,469
2010 2009
GBP'000 GBP'000
Gains/(losses) on sales 13,326 (26,548)
Investment holding gains/(losses) 21,943 (29,637)
Gains/(losses) on investments (after deduction of 35,269 (56,185)
transaction costs)*
* Gains/(losses) on investments are shown net of costs of investment
transactions as summarised below:
2010 2009
GBP'000 GBP'000
Purchase expenses 501 868
Sales expenses 185 184
686 1,052
Total Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
(ii) Classification under fair
value hierarchy:
Group and Company
Equity investments 49,137 48,955 - 182
Contracts for difference (included 690 - 690 -
within debtors and creditors)
Categorisation within the hierarchy has been determined on the basis of the
lowest level of input that is significant to the fair value measurement of the
relevant asset as follows:
Level 1 - valued using quoted prices in active markets for identical assets.
Level 2 - valued by reference to valuation techniques using observable inputs
other than quoted prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are not
based on observable market data.
The valuation techniques used by the Company are explained in note 1,
accounting policies.
The following table sets out the transfer between levels for the year ended 31
March 2010:
Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000
(iii) Transfers between Levels 1 and
3:
Equity securities (182) - 182
A reconciliation of fair value measurements in Level 3 is set out below.
Total
GBP'000
iv) Level 3 investments at fair value through profit or loss:
Opening balance -
Acquisitions -
Disposal proceeds -
Transfers from Level 1 182
Total gains/(losses) included in the Statement of Comprehensive -
Income:
- on assets sold -
- on assets held at the year-end -
Closing balance 182
Level 3 investments comprise 3 holdings: Veris, Fortfield Investments and
Newcourt. All are in receivership or liquidation and have been valued to
reflect the proceeds expected to be realised in due course.
An analysis of the investment portfolio by broad industrial or commercial
sector and a list of the investments by market value are set out above.
12. Derivative Instruments
Whilst the Group and Company may use a variety of derivative contracts, the
only derivatives entered into during the year were CFDs under a master
agreement with HSBC to enable the Company to gain long exposure on individual
securities through CFDs. CFDs are synthetic equities and are valued by
reference to the investments' underlying market values.
2010 2009
GBP'000 GBP'000
Net gains on derivative instruments in the year
Payments made under contracts for difference (362) -
Holding gains under contracts for difference 690 -
328 -
At the year end the Company had exposure to the following derivative
instruments:
2010 2009
Fair value Fair value
GBP'000 GBP'000
Contracts for difference - assets 943 -
Contracts for difference - (253) -
liabilities
690 -
At the year-end the Company's market exposure through its CFD portfolio was
GBP9,062,000 (2009: GBPnil).
13. Significant Interests
The Group and Company have a holding of 3% or more of the voting rights in the
following investments that are material in the context of the financial
statements:
Percentage
Name of Undertaking Class of Share of class held
Datalex Ordinary US$0.10 8.9
Worldspreads Ordinary EUR0.01 7.5
Andor Technology Ordinary GBP0.02 6.4
Island Oil & Gas Ordinary EUR0.01 4.9
Clearstream Technology Ordinary EUR0.125 3.6
Total Produce Ordinary EUR0.01 3.4
Norkom Ordinary EUR0.01 3.1
14. Investment in Subsidiary
The Company owns the whole of the issued ordinary share capital (GBP1) of
Gartmore Irish Smaller Companies Investment Limited, a dealing company
registered in England and Wales. The Subsidiary is held at a value of GBP1 and
has made loans to the Company amounting to GBP690,000 (2009: GBP567,000).
Details of the Subsidiary are as follows:
Percentage of
ordinary Country of
share
Principal capital held incorporation
activity
Gartmore Irish Smaller Companies Investment 100% England
Investment Limited dealing
15. Trade and Other Receivables
2010 2009
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Amounts falling due within one
year:
Prepayments and accrued income 23 23 137 137
Sales for future settlement 310 310 13 13
Dividends receivable 224 224 256 256
557 557 406 406
Following recent European tax discrimination case law, the Company is able to
reclaim EU withholding tax deducted from dividends received not already
recovered under treaty claims. The Company is in the process of preparing
claims for submission to tax authorities in several EU member states. However,
it is not possible at this stage to quantify with any degree of accuracy the
amount receivable or the timing of such recoveries. Consequently, no asset has
been recognised in these financial statements.
16. Trade and Other Payables
2010 2009
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Amounts falling due within one
year:
Purchases for future settlement 406 406 1,738 1,738
Payments in respect of share 318 318 148 148
buy-backs
Corporation tax payable - - 415 415
Interest payable 38 38 38 38
Other payables 353 353 255 255
1,115 1,115 2,594 2,594
17. Deferred Tax
2010 2009
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Deferred taxation comprises:
Taxation on accrued income - - 70 70
The movement on the provision for deferred taxation is as follows:
Beginning of year 70 70 51 51
Movement in provision for the year (70) (70) 19 19
End of year - - 70 70
18. Share Capital
Ordinary shares of 25p each
Number GBP'000
Allotted, called up and fully paid:
Shares at beginning of year 10,968,342 2,742
Shares cancelled under tender offer (2,758,489) (690)
Shares purchased for cancellation (960,733) (240)
End of year 7,249,120 1,812
Of the shareholder authority granted at the Annual General Meeting held on 3
September 2009, there remained an unused authority to buy back a further
672,786 shares at the year-end.
The Company purchased 960,733 Ordinary shares for cancellation during the year
at a cost of GBP6,032,000. The Company also purchased 2,758,489 Ordinary shares
for cancellation during October 2009 under a tender offer, at a cost of GBP
20,417,000.
Since the year end the Company has purchased a further 535,685 Ordinary shares
at a total cost of GBP3,433,000.
Duration
The Company had a seven-year life through to the Annual General Meeting in 2002
at which an ordinary resolution was passed that the Company should continue as
an investment trust. Under the Articles of Association a similar resolution
will be proposed at every third subsequent Annual General Meeting. Accordingly,
a resolution that the Company should continue as an investment trust will be
proposed at the Annual General Meeting to be held in 2011.
Capital management
The Company does not have any externally imposed capital requirements. The
capital of the Company is managed in accordance with its investment policy in
pursuit of its investment objective detailed above.
19. Reserves
Capital
reserve
Capital Capital investment
Share Special redemption reserve holding Retained
premium reserve reserve realised losses earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Group
Beginning of year 1,101 16,645 3,036 57,128 (34,259) 2,406
Net gains on - - - 13,326 - -
sales of
investments
Investment - - - - 21,943 -
holding gains
Net (losses)/ - - - (362) 690 -
gains on
contracts for
difference
Exchange gains/ - - - 68 (1) -
(losses)
Tax charge on - - - (37) - -
redemption
proceeds taxable
as overseas
dividends
Shares purchased - (2,852) 240 (3,180) - -
for cancellation
Tender offer - (13,793) 690 (6,624) - -
Dividends paid - - - - - (1,316)
Net surplus for - - - - - 389
the year
End of year 1,101 - 3,966 60,319 (11,627) 1,479
Capital
reserve
Capital Capital investment
Share Special redemption reserve holding Retained
premium reserve reserve realised losses earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Company
Beginning of year 1,101 16,645 3,036 57,128 (34,259) 1,839
Net gains on - - - 13,326 - -
sales of
investments
Investment - - - - 21,943 -
holding gains
Net (losses)/ - - - (362) 690 -
gains on
contracts for
difference
Exchange gains/ - - - 68 (1) -
(losses)
Tax charge on - - - (37) - -
redemption
proceeds taxable
as overseas
dividends
Shares purchased - (2,852) 240 (3,180) - -
for cancellation
Tender offer - (13,793) 690 (6,624) - -
Dividends paid - - - - - (1,316)
Net surplus for - - - - - 266
the year
End of year 1,101 - 3,966 60,319 (11,627) 789
20. Group Net Asset Value per Ordinary Share
The net asset value per share and the net assets attributable at the year end
calculated in accordance with the Articles of Association were as follows:
Net asset value per
share attributable Net assets attributable
2010 2009 2010 2009
pence pence GBP'000 GBP'000
Ordinary shares
- basic and diluted 786.99 444.91 57,050 48,799
Net asset value per Ordinary share is based on net assets and on 7,249,120
(2009: 10,968,342) Ordinary shares being the number of Ordinary shares in issue
at the year-end.
21. Group and Company Reconciliation of Net Cash Flow to Movement in Cash and
Cash Equivalents
2010 2009
GBP'000 GBP'000
Increase/(decrease) in cash in year 3,126 (3,312)
Exchange movement 67 607
3,193 (2,705)
Cash and cash equivalents at beginning of year 4,588 7,293
Cash and cash equivalents at end of year 7,781 4,588
22. Group and Company Analysis of Changes in Cash and Cash Equivalents
At 1 Cash Exchange At 31 March
April
2009 flow movement 2010
GBP'000 GBP'000 GBP'000 GBP'000
Cash in hand, at bank 4,588 3,126 67 7,781
23. Group and Company Capital Commitments and Contingent Liabilities
At 31 March 2010 there were no contingent liabilities or capital commitments
(2009: GBPnil).
24. Group and Company Analysis of Net Assets by Location of Incorporation
Valuation at Net Appreciation Valuation at
31 March 2009 transactions 31 March 2010
GBP'000 % GBP'000 GBP'000 GBP'000 %
Equities
United Kingdom 2,613 5.3 (786) 3,297 5,124 9.0
Republic of 43,856 89.9 (18,489) 18,646 44,013 77.1
Ireland
Total 46,469 95.2 (19,275) 21,943 49,137 86.1
investments
Net current 2,400 4.9 5,513 - 7,913 13.9
assets
Deferred tax (70) (0.1) 70 - - -
Net assets 48,799 100.0 (13,692) 21,943 57,050 100.0
25. Analysis of Financial Assets and Liabilities
Background
The investment objective of the Company is to provide shareholders with
long-term capital growth through investment in quoted companies which are
either incorporated in the Republic of Ireland or Northern Ireland or, if
elsewhere, derive the majority of their turnover or profits from the Republic
of Ireland or Northern Ireland or are listed on the ISEQ Index. This is to be
achieved through an appropriate balance of equity capital and gearing. Any
leverage arising through the Company's CFD portfolio and net cash borrowings
should not exceed 25% of shareholders' funds.
The Group's assets, excluding short-term debtors, are comprised of financial
instruments, which are largely investments in equity securities and cash
balances, as well as derivative instruments which comprise CFDs.
The Group has little exposure to cash flow risk.
The principal risks which the Group faces in its portfolio management
activities are:
* market price risk, i.e. movements in the value of investment holdings caused
by factors other than interest rate or currency movements;
* foreign currency risk;
* interest rate risk;
* credit risk; and
* liquidity constraints.
The Board's policies for managing these risks are summarised below and have
been applied by the Manager throughout the year:
Policy
The Directors monitor financial information on a regular basis at each Board
meeting. The Manager monitors the financial risks on a daily basis.
As required by IFRS 7: Financial Instruments: Disclosure and Presentation, an
analysis of financial assets and liabilities, which identifies the risk to the
Group of holding such items, is given below.
The disclosures below include sensitivity analyses of the financial position
and financial return to movements in economic conditions. These analyses are
based on positions at the Balance Sheet date and are not necessarily
representative of the year as a whole or future periods.
(i) Market price risk
Market price risk arises mainly from uncertainty about future prices of
investments held by the Group. It represents the potential loss the Group might
suffer through holding market positions in the face of price movements on the
quoted and unquoted investments. In addition, the Company has exposure to
market price risk relating to the positions within the CFD portfolio.
Adherence to the investment objectives and the limits on investment set by the
Company mitigates the risk of excessive exposure to any one particular type of
security or issuer.
If the investment portfolio valuation fell by 5% from the 31 March 2010
valuation, with all other variables held constant, there would have been a
reduction of GBP2,457,000 (2009: GBP2,323,000) in the return before taxation and
equity. An increase of 5% in the investment portfolio valuation would have had
an equal and opposite effect in the return before taxation and equity. The
theoretical change in the Company's net exposure to these price changes through
its CFD portfolio is GBP418,000 (2009: GBPnil).
(ii) Foreign currency risk
The Group's portfolio is invested largely in euro-denominated securities and
movements in the euro can significantly affect their sterling value. The Group
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. Long contracts for difference are used for gearing rather
than hedging purposes.
The Company's net asset value is published on a daily basis, in sterling, and
currency movements are included in the calculation.
The Company's currency exposure is shown below.
(iii) Interest rate risk
The Group finances its operations principally through its issued share capital
and reserves. It may also finance its operations through investing in CFD
derivatives contracts.
The effect of interest rate changes on the earnings of the companies held
within the portfolio may have a significant impact on the valuation of the
Company's earnings. Movements in interest rates will also have an impact on the
deposits held by the Group and financing arrangements of the CFD derivative
contracts (see below for further details).
If the average bank interest rates as at 31 March 2010 had been 0.5% lower
throughout the year, with all other variables held constant, income before
taxation and equity would have been higher by GBP20,000 (2009: GBP43,000). If
interest rates had been higher throughout the year by 0.5%, income before
taxation and equity would have been lower by GBP20,000 (2009: GBP43,000). The
calculations are based on funds invested in cash deposits and the derivatives
liability exposure as at 31 March 2010 and are not representative of the year
as a whole.
The Company is exposed to interest rate risk on positions within the CFD
portfolio. The Company incurs a charge based on LIBOR plus 30 basis points for
long positions.
The Company's exposure to interest rate risk is shown below.
(iv) Credit risk
Credit risk is the exposure to loss from the failure of a counterparty to
deliver securities or cash for acquisitions or disposals of investments or to
repay deposits. The Company manages credit risk by using brokers from a
database of approved brokers who have undergone rigorous due diligence tests by
the Manager's Risk Management Team and by dealing through Gartmore Investment
Limited with banks approved by the Financial Services Authority. The Board has
set a limit of EUR5 million on the amount that can be placed on deposit with any
one bank. Derivative positions are marked to market and exposure to
counterparties is monitored on a daily basis by the Manager; the Board of
Directors reviews it on a quarterly basis. The maximum exposure to credit risk
at 31 March 2010 was GBP8,781,000 (2009: GBP4,601,000). The calculation is based on
the Company's credit exposure as at 31 March 2010 and may not be representative
of the year as a whole.
(v) Liquidity constraints
The Group's assets are comprised largely of quoted securities which can be sold
to meet funding commitments if necessary.
Financial assets
The majority of the Group's fixed asset investments are listed on the Irish
Stock Exchange and the London Stock Exchange. These assets are discussed in the
Manager's Review
Maturity analysis
The Company does not have any assets or liabilities maturing in more than one
year.
The interest rate risk profile of the Group's and Company's financial assets at
31 March 2010 was:
Total Financial Floating rate
assets on which financial
no interest is assets
paid
Group and Company GBP'000 GBP'000 GBP'000
Sterling
Investments 9,381 9,381 -
Current assets and cash 40 22 18
9,421 9,403 18
Euro
Investments 39,054 39,054 -
Current assets and cash 9,241 1,478 7,763
48,295 40,532 7,763
US Dollar
Investments 702 702 -
702 702 -
58,418 50,637 7,781
The interest rate risk profile of the Group's and Company's financial assets at
31 March 2009 was:
Total Financial Floating rate
assets on which financial
no interest is assets
paid
Group and Company GBP'000 GBP'000 GBP'000
Sterling
Investments 10,381 10,381 -
Current assets and cash 1,809 150 1,659
12,190 10,531 1,659
Euro
Investments 36,088 36,088 -
Current assets and cash 3,185 256 2,929
39,273 36,344 2,929
51,463 46,875 4,588
Financial liabilities
The Group finances its operations principally through its issued share capital
and reserves. There were no bank borrowings at the year-end (2009: nil).
Currency exposure of the Group's and Company's financial liabilities as at 31
March 2010 was as follows:
Total Sterling Euro
GBP'000 GBP'000 GBP'000
Group
CFD derivative contracts - 8,372 - 8,372
notional long positions
Creditors 1,368 883 485
9,740 883 8,857
Total Sterling Euro
GBP'000 GBP'000 GBP'000
Company
CFD derivative contracts - 8,372 - 8,372
notional long positions
Creditors 2,058 1,573 485
10,430 1,573 8,857
Currency exposure of the Group's and Company's financial liabilities as at 31
March 2009 was as follows:
Total Sterling Euro
GBP'000 GBP'000 GBP'000
Group
Creditors 2,594 856 1,738
Total Sterling Euro
GBP'000 GBP'000 GBP'000
Company
Creditors 3,161 1,423 1,738
The interest rate risk profile of the financial liabilities of the Group and
Company at 31 March 2010 was as follows:
Weighted
Non- average
interest Floating interest
Total bearing rate rate
GBP'000 GBP'000 GBP'000 %
Group
Other creditors 1,115 1,115 - -
Contracts for 253 - 253 0.8
difference
1,368 1,115 253 0.8
Weighted
Non- average
interest Floating interest
Total bearing rate rate
GBP'000 GBP'000 GBP'000 %
Company
Other creditors 1,805 1,805 - -
Contracts for 253 - 253 0.8
difference
2,058 1,805 253 0.8
The interest rate risk profile of the financial liabilities of the Group and
Company at 31 March 2009 was as follows:
Weighted
Non- average
interest Floating interest
Total bearing Rate rate
GBP'000 GBP'000 GBP'000 %
Group
Other creditors 2,594 2,594 - -
2,594 2,594 - -
Weighted
Non- average
interest Floating interest
Total bearing rate rate
GBP'000 GBP'000 GBP'000 %
Company
Other creditors 3,161 3,161 - -
3,161 3,161 - -
Fair Values of Financial Assets and Financial Liabilities
All of the financial assets and liabilities of the Group are held at fair
value, through profit or loss.
All current liabilities are held in the Balance Sheet at a reasonable
approximation of fair value.
Risks associated with derivatives
The Company may utilise both exchange traded and over-the-counter derivatives,
including, but not limited to, CFDs, as part of its investment policy. These
instruments can be highly volatile and potentially expose investors to a higher
risk of loss. The low initial margin deposits normally required to establish a
position in such instruments permit a high degree of leverage. As a result,
depending on the type of instrument, a relatively small movement in the price
of a contract may result in a profit or loss which is high in proportion to the
value of the net exposures in the underlying CFD positions. In addition, daily
limits on price fluctuations and speculative position limits on exchanges may
prevent prompt liquidation of positions resulting in potentially greater
losses.
The Company's current investment strategy specifically utilises CFDs. The
Company limits the gross market exposure, and therefore the leverage of this
strategy, to a maximum of 25% of shareholders' funds. The CFDs utilised have a
linear performance to referenced stocks quoted on exchanges and therefore have
a volatility profile similar to the underlying stocks.
Management of the risks and gearing
- Total gearing, which includes economic exposure through derivatives, is
restricted to a maximum of 25% of shareholders' funds.
- Exposures are monitored daily by the Manager and Gartmore's independent risk
management team. The Company's Board also reviews exposures regularly.
- The CFD positions are diversified, comprising 5 positions as at 31 March
2010.
- The economic exposures within the CFD portfolio can be closed out at any time
by the Company with immediate effect.
Gross gearing as at 31 March 2010 was:
2010
Shareholders'
funds
GBP'000 %
Cash borrowings - -
CFDs - gross exposure relating to long positions 8,372 14.7
Total gearing, subject to a 25% restriction (see 8,372 14.7
above)
26. Related Party Transactions
Under the terms of an agreement dated 8 July 2002, the Company has appointed
Gartmore Investment Limited to be the Manager. The fee arrangements for these
services are set out in the Report of the Directors. The total of the fees
payable under the agreement are set out in note 3.
At 31 March 2010 an amount of GBP48,000 (2009: GBP168,000), was outstanding and due
to Gartmore Investment Limited, in respect of management fees.
In addition to the fees paid under the management agreement the Company also
pays Gartmore Investment Limited up to a maximum of GBP20,000 per annum for the
services provided in respect of Gartmore SAVEit and Gartmore Investment ISAit.
The fees included in the financial statements to 31 March 2010 were GBP17,000
(2009: GBP18,000).
The Directors of the Company may be or have been directors of companies held in
the portfolio. The Board has delegated authority for investment selection to
the Manager and the Manager has selected all investments independently in
accordance with the investment strategy set above. The Board as a whole reviews
the investment portfolio on a regular basis and is satisfied that the
investments were selected in an objective manner and that no conflict of
interest has arisen as a result of the selection of these stocks.
ANNUAL REPORT AND ACCOUNTS
The foregoing represents extracts from the full text of the Annual Report and
Accounts for the year ended 31 March 2010. The full Report is available for
download from the following websites:
www.gartmoreirishgrowthfund.com and www.gartmore.co.uk
Copies will be posted to shareholders shortly.
Capita Sinclair Henderson Limited
21 June 2010
END
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