Lindsell Train Regulatory News (LTI)

LINDSELL TRAIN INVESTMENT TRUST PLC

Annual Report & Accounts for the full year to 31 March 2014

A copy of the Company's Annual Report for the year ended 31 March 2014 will shortly be available to view and download from the dedicated page on Lindsell Train's website www.lindselltrain.com. Neither the contents of this website nor the contents of any website accessible from hyperlinks on this website (or any other website) is incorporated into or forms part of this announcement.

Printed copies of the Annual Report will be sent to shareholders shortly. Additional copies may be obtained from the Corporate Secretary - Phoenix Administration services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW.

The Annual General Meeting of the Company will be held on Tuesday 2 September 2014 at 2.30pm. The Directors have proposed the payment of a final dividend of 676p (625p in 2013) per Ordinary share which, if approved by shareholders at the forthcoming Annual General Meeting, will be payable on 12 September 2014 to shareholders whose names appear on the register at the close of business on 22 August 2014 (ex-dividend 20 August 2014).

The following text is copied from the Annual Report & Accounts

Strategic Report 

Highlights for the Year

* The net asset value at 31 March 2014 has been adjusted to include the dividend of £6.25 per Ordinary Share paid on 2 August 2013.

† The index of the annual average yield on the UK 2.5% Consolidated Loan Stock between the relevant dates.

Objective of the Company

The objective of the Company is to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital as measured by the annual average yield on the UK 2.5% Consolidated Loan Stock.

Investment Policy

The Investment Policy of the Company is to invest:

Diversification

The Company expects to invest in a concentrated portfolio of securities with the number of equity investments averaging fifteen companies. The Company will not make investments for the purpose of exercising control or management and will not invest in securities of or lend to any one company (or other members of its group) more than 15% by value of its gross assets. The Company will not invest more than 15% of gross assets in other closed-ended investment funds.

Gearing

The Directors' policy is to permit borrowings up to 50% of the net asset value of the Company in order to enhance returns where and to the extent that this is considered appropriate.

Dividends

The Directors' policy is to pay annual dividends consistent with retaining the maximum permitted earnings in accordance with investment trust regulations.

The current composition of the portfolio, which may be changed at any time at the discretion of the Investment Manager within the confines of the policy stated above, is shown on pages 6 and 7.

Performance

http://www.rns-pdf.londonstockexchange.com/rns/3195K_-2014-6-23.pdf

Strategic Report 

Chairman's Statement

I am pleased to report that the Company's net asset value total return per share ('NAV') increased by 13.1% in the year to March 2014, well ahead of the Company's benchmark (up 4.3%) and better also than the performance of world stock markets as measured by the MSCI World Index total return in Sterling (up 9.0%). Although satisfactory, this performance was not enough to earn the Managers a performance fee as the basis for calculating the fee was changed last year to the lower of the NAV or the share price. This year's rise in the NAV to £321.51 exceeded last year's closing share price but failed to rise above this year's performance fee hurdle of £328.43. Nevertheless, as was also agreed last year, half of the proportion of the performance fee attributable to the expansion of the premium which was held back (£252,169) has now been paid to the Managers as they fulfilled the condition of the NAV ending the year above last year's closing value of £289.80 per share. This represented an extra contractual concession by the Manager to protect shareholders in the event of a poor year succeeding a particularly strong one while a much more shareholder friendly performance fee formula was adopted.

I should explain that there is a 2% difference between the Company's audited NAV of £321.51 per share with the published NAV per share of £315.34, which arose from the audited adjustment to the value of Lindsell Train Limited ("LTL") holdings. Since the inception of the Company the published NAV at the end of March reflected the value of LTL based on a valuation at the end of prior December, as the end March value of LTL usually takes a month to calculate. In this financial year, the difference in the value of LTL at the end March 2014 as compared to December 2013 proved to be £1,232,000, an amount that was considered material to the financial statements and as a consequence, an audit adjustment upwards of £6.17 per share was approved by the Board. In the future, it is the intention of the Board to update the value of LTL based on a valuation cycle on February, May, August and November so as to capture a more up to date fair value measurement at the balance sheet date.

Like last year the overwhelming contributor to performance was the performance of Lindsell Train Limited ('LTL') whose valuation rose 71% and whose dividends contributed 54% of the revenues of the Company. Such is the importance of this investment to the Company, at 24.0% of net assets today as compared to 15.6% at end March last year, that I would like to explain what I see as the associated potential and risks in more detail.

At its core, LTL has a simple and differentiated philosophy and approach to investment that is common to all its investment mandates. This approach has certainly proved successful in generating excess returns for investors over time, with current annualised excess performance (compared to the relevant benchmark) net of fees for the longest standing mandates in each strategy of: UK Equity +4.6%, Japan Equity +2.5% and Global Equity+ 2.9%. For this Company, the excess performance (excluding the contribution of the rise in value of the holding in LTL) versus the MSCI World Index in Sterling has been 4.1% p.a. since its establishment in January 2001. There are three key features of LTL's approach that differentiate it from most competitors. First, LTL only invests in companies that fit their exacting characteristics of durability, something that few quoted companies possess. Next, they run highly concentrated portfolios (as few as 10 but rarely more than 30 companies); and finally they make a strong feature of rarely trading which leads to unusually low levels of portfolio turnover and transaction related costs. We would also attribute their success to the framework they have maintained of a simple company with few moving parts and few distractions. This means that the founders, who are also the portfolio managers, are able to concentrate on the immediate investment challenges that face them, to the benefit of their clients.

Funds under management ('FUM') at the end of March 2014 in LTL's three strategies break down broadly as: UK £2.5bn, Global £1bn and Japan £200m. Each product has at least one LTL badged pooled fund, with these funds making up 37% of the total, a figure the company aspires to grow. Following the retail distribution review investors can access these funds either via platforms or directly, whilst incurring relatively low annual management charges. The limit of the size of assets in each product is governed by the Manager's guideline policy of never wanting to own more than 15% of the voting shares of any investment. But perhaps more importantly at this stage, LTL aims to limit the number of client portfolios it manages to preserve the simplicity of its business. Currently it manages 17 (defining a pooled fund as a single client) and has recently stated that it is unlikely to increase the number of segregated UK Equity accounts, although it is still keen to grow the UK pooled fund. Overall, the company is confident that it still has significant opportunity to grow each product area (for example, it is increasing its marketing efforts in North America).

Last year (the year to January 2014 - LTL's year end) LTL generated £17m in revenues of which 20% was accounted for by performance fees. Performance fees have on average made up 15% of revenues over the last five years. Pre-tax profit margins were 60% with staff costs representing 38% of revenues. Net new FUM raised last year amounted to £426m and the year before to January 2013 £296m. Shareholder's funds amounted to £7.6m with cash representing £6.6m. LTL has no debt.

The Directors' primary concern is that this idiosyncratic if highly successful approach to investment, which has been developed and executed by Nick Train and Michael Lindsell alone over the 24 years they have worked together may not be transferable and in any event is subject to material key man risk. As for the former, in the last few years LTL have recruited new investment staff (James Bullock and Madeline Wright), who have been moulded around the same core philosophy. Yet there is no certainty that when Nick and Mike retire their skills will be perpetuated. Given the commitment of the founders to the business and their current ages, this concern should not arise over the next ten or possibly more years during which time further progress in increasing the sustainability of the business should be implemented. Set against this concern current business prospects look promising with a strong record of performance and an approach that clients understand and support. Here lies the Directors' dilemma in valuing LTL.

The current formula values LTL at the end of March 2014 on 7.7x its earnings and a 7.3% historic dividend yield. To some the multiple of earnings may look low and the dividend yield high especially for an asset which has exhibited such strong growth and high margins but the Directors believe that this valuation balances the prospects with the risks as they appear today including the elevated levels of key man risk in what is a 24.42% minority investment.

The rest of the portfolio, other than the sale of Marston's, remained largely unchanged, although weightings have been influenced by market movements, especially the greater proportion of the assets accounted for by LTL. Pearson experienced a second year of disappointing share price performance which inspired further purchases to take advantage of its weak share price.

The Directors propose an unchanged ordinary dividend of £5.63, continuing the practice of maintaining the ordinary dividend when there is a temporary fall in profits. This year the combination of unchanged income (due partly to the timing of dividends receivable) and rising costs has resulted in what we judge to be just such a circumstance. In addition the Directors propose an increase in the special dividend to £1.13 resulting from a the higher proportion of the Company's income earned from LTL performance fees compared to the previous year. This results in a rise in the overall dividend to £6.76 per share, up 8.2%

I reiterate the cautionary comments I made to shareholders in last year's annual report, first about the risk to the NAV from a sharp fall in markets given the size of holding in LTL and second to caution potential new shareholders to think carefully before buying the Company's shares at a premium to NAV, which as I write is at 6%. This has fallen from higher levels late in 2013 but it is worth pointing out that if the investment in LTL continues to grow in importance above 25% of the NAV the share price of the Company will increasingly be determined by investors views on the value of that asset and less by conventional reference to the NAV.

D L Adamson Chairman

23 June 2014

Strategic Report 

Portfolio Holdings at 31 March 2014

(All Ordinary Shares unless otherwise stated)

† Look-through basis: This adjusts the percentages held in each security upwards by the amount held by Lindsell Train managed funds and adjusts the fund's holdings downwards to account for the overlap. It provides shareholders with a measure of stock specific risk by amalgamating the direct holdings of the Company with the indirect holdings held within the Lindsell Train funds.

++ Adjusted for the Nikkei Futures hedge against Japanese Equity Fund.

Leverage

As well as the direct borrowings of the Company, funds managed by Lindsell Train Limited also have powers to borrow. We detail below the balance sheet positions of these funds at 31 March 2014:

Net Equity Exposure

Fund

Lindsell Train Global Equity Fund 98.10%

Lindsell Train Japanese Equity Fund 96.32%

Finsbury Growth & Income Trust 104.50%

Analysis of Investment Portfolio at 31 March 2014

Breakdown by geography (look-through basis)^

^ Look-through basis: This adjusts the percentages held in each asset class, country or currency by the amount held by Lindsell Train managed funds. It provides shareholders with a more accurate measure of country and currency exposure by aggregating the direct holdings of the Company with the indirect holdings held by the Lindsell Train funds.

+ Adjusted for the underlying exposure of the Nikkei 225 Futures position.

Look-Through Sector Exposure

Strategic Report

Investment Manager's Report year ended 31 March 2014

Investment markets always give one something to think about and in no particular order here are some of the issues relating to the quoted part of your portfolio that give us pause for thought at the moment.

First, looking back at the performance of your Company and, indeed, Lindsell Train's other mandates since 2008 we have no doubt that it benefited from a "flight to quality". The aftermath of the Lehman implosion evidently increased investor aversion to risk and speculative assets and encouraged a corresponding preference for predictable, dependable ones. Given that our investment approach is based on a strategic commitment to own only "quality" this has meant we have enjoyed a 5-year plus tailwind relative to more diversified portfolios.

Although we stick to the proposition that owning the equity of great companies will work for us in the long run, we know that there are periods when even great companies tread water, or when investor appetite for "concept" or "value" or "cyclical" stocks predominates. For example, the last really nasty period of underperformance for us was through 2007 and into early 2008, when we chose to sit out the big move in commodity company shares - cyclicals. We have no doubt that there will be other such episodes and note just over the last year that some of our "quality" names have stagnated or subsided, notably Diageo, down 10%, Heineken down 6% and Unilever down 8%. A. G. Barr was a welcome exception, gaining another 12% over the year, but we can't readily refute the arguments that say this sort of company is due a hiatus. This might hurt, in relative terms at least, but it is important shareholders understand that we have no intention of taking any mitigating action. We will stick with our "dependables" - unless their businesses cease to be so.

In addition to "quality" another structural tilt in your portfolio is toward mid and small-cap stocks. The biggest company in the portfolio, as measured by its weighting in the MSCI World Equity Index is Diageo, at $80bn. Unilever comes next, at c.$40bn (although this is because MSCI splits the Dutch and UK listings). Of course these are not small companies - but they are well-down the size rankings; Diageo at number 74 for example. Meanwhile we have important holdings in what some investors would regard as small companies - certainly compared to an Apple at $552bn or HSBC at $432bn. A.G. Barr, our smallest, is "only" capitalised at $1.2bn, but even Pearson at $15bn and Nintendo at $16bn are not big companies by global standards. There's nothing wrong with this, of course, but it reminds us how differently your portfolio can perform relative to the mainstream indices. And if one or more of the mega-cap sectors were to have a big rerating - say Oil or Pharmaceutical (this especially after the Pfizer move on fellow behemoth Astra Zeneca) - your Company could lag.

Another risk for the Company lies in its exposure to technology. We are invested in a number of companies chosen for the participation they promise to the growth of Internet and digital media. We've also judged these same companies to offer durable brand or franchise characteristics, similar to those of our holdings in the consumer sectors. It has to be admitted, though, that our record has been far from perfect in this endeavour. eBay and Reed have done well, albeit the former had a dull last year in share price terms. Elsewhere, over time we have made money out of the investment in Pearson, but this share dropped 10% over our financial year, as other investors worry that the Internet, or strictly, the digitisation of education, is more of a threat than opportunity for it. As for Nintendo, although the shares gained 22% in local currency over the reporting period, there remains scepticism that it can engage a new generation of gamers.

Rather than debate the pros and cons for these holdings - and we think there are compelling reasons to hold and add to them all - we reiterate our opinion that identifying winners from the digital revolution and avoiding its losers is the most important challenge stock pickers face today. If you are not worried about the impact of technology change on all your investments: you should be.

A final perspective on the portfolio relates to India, which has become an increasingly important geography for us. Diageo is in the process of adding a further £1.3bn to its controlling interest in India's United Spirits (itself the second largest spirits company in the world by volume), while Heineken, Mondelez (via Cadbury) and Unilever all offer substantive exposure to the sub-continent. We are no geopolitical experts, but note the Indian stock market has recently made convincing new highs, up c.20% in 2014 alone - this on the election victory of Modi's BJP party. Emerging Markets as a class are out of favour with investors currently, but this country specific move is a reminder that the theme remains an economic and stock market opportunity that will come again.

N Train

Investment Manager Lindsell Train Limited

23 June 2014

Strategic Report

Company Profile

Business Review

The Company's business model is detailed in the Investment Objective and Policy set out on page 1. Reviews of the year and commentary on the future outlook are presented in the Chairman's Statement on pages 3 to 5 and the Investment Manager's Report on pages 8 and 9.

Key Performance Indicators

Total return and net asset value are measured against the benchmark and provide the key performance indicators for assessing the development and performance of the business. The Company does not envisage changing its objective or investment policy, which constitute its Business Model, or its management for the foreseeable future.

* The index of the annual average yield on the UK 2.5% Consolidated Loan Stock between the relevant dates.

Five Year Historical Record

Ongoing Charges

The ongoing charges for the year ended 31 March 2014 amounted to £697,000 (2013: £561,000) equivalent to 1.15% (2013: 1.11%), based on undiluted net assets of £60,619,000 (2013: £50,578,000).

Principal Risks

The principal financial risks and how these are managed are discussed in note 18 to the financial statements on pages 53 to 58. Non-financial risks to which the Company is exposed include market, economic and regulatory factors, and loss of services provided by third party suppliers. These risks are considered at each Board meeting and the Investment Manager also closely monitors them. In the event that any factor poses a potential risk to the Company the Board will be alerted immediately so that it can consider what action (if any) should be taken.

The Company is an investment trust and to generate returns for shareholders it may invest in a range of different companies and sectors. Investors should be aware of certain factors which apply to the Company:

Economic Conditions

Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and trends and tax legislation, can substantially and adversely or favourably affect the Company's prospects and the value of the Company's portfolio.

Employees, Social, Human Rights and Environmental Matters

The principal activity of the Company is to invest in a broad range of investments in line with the Investment Policy set out on page 1. The Company has no employees and accordingly it has no direct social, human rights or environmental impact from its operations. It does not hold sufficiently large proportions of investee companies to be able to influence their social or environmental footprints.

Approval Statement

The Strategic Report of the Company, comprising pages 1 to 12 of this Report and Financial Statements, has been approved by the Board and signed on its behalf by:

For and on behalf of the Board

Donald Adamson Chairman

23 June 2014

Governance

Directors

Donald Adamson*^†, Chairman, has over 25 years' experience of fund management, corporate finance and private equity in Edinburgh, London and Jersey. He serves as director or chairman of a number of listed and privately-held investment companies. He was awarded an M.A. in economics and history from Oxford University and carried out post-graduate research at Nuffield College, Oxford.

Dominic Caldecott*^†, worked at Morgan Stanley Investment Management Limited, London, from 1986 to 2006, specialising in the management of overseas equity portfolios for U.S. institutions. He was a managing director of Morgan Stanley from 1992 until 2006. Prior to Morgan Stanley he worked for GT Management in Hong Kong and Tokyo as an analyst and portfolio manager of Japanese equities. He has an M.A. in law from Oxford University.

Rory Landman*^†, is the Senior Bursar of Trinity College, Cambridge, and was previously a senior director and the head of global emerging markets at Baring Asset Management. He was a founding partner of the Nevsky emerging market equities team at Thames River Capital. He has an M.A. in Law from Cambridge University.

Michael Lindsell, joined the investment department of Lazard Brothers in 1982 after obtaining a BSc (Hons) degree in zoology from Bristol University. In 1985 he moved to Scimitar Asset Management in Hong Kong where he ran Pacific and Japanese mandates before specialising in Japan, then Warburg Asset Management in London in 1989 where he was a director and head of Mercury Asset Management's Japanese fund management division. In 1992 he joined GT Management's Tokyo office where he held the post of chief investment officer with responsibility for GT's Japanese funds, and global funds sourced out of Japan. He returned to the UK in 1997 and following the acquisition of GT by INVESCO in 1998, he was appointed head of the combined global product team. He left INVESCO to set up Lindsell Train Limited in 1999.

Michael Mackenzie*^†, is a specialist in private equity investments focusing primarily on the wine industry. His career in financial services started in 1978 with Kleinwort Benson Limited in London and then in Hong Kong. In 1986 he joined James Capel (Far East) Limited as a director before becoming executive director of Wardley James Capel (Far East) Limited in 1991. In 1994 he was appointed a director of Jefferies Pacific Limited, a position that he held for three years. He has an M.A. in Modern Languages from Oxford University.

All Directors are non-executive.

* Independent

^ Audit Committee member

† Management Engagement Committee member

D Adamson and M Mackenzie were appointed on 29 November 2000. D Caldecott was appointed on 23 May 2006. M Lindsell was appointed on 13 July 2006 and R Landman was appointed on 20 July 2011.

Investment Manager

Lindsell Train Limited acts as discretionary Investment Manager of the Company's assets.

Administrator and Secretary

Phoenix Administration Services Limited is the Administrator and Corporate Secretary of the Company.

Governance

Report of the Directors

The Directors present their report together with the audited financial statements of the Company for the year ended 31 March 2014.

A number of disclosures previously incorporated in the Directors' Report are now included in the Strategic Report. These include: Objective of the Company; Investment Policies and Risk Management; Investment Restrictions and Guidelines; Performance; Total Return; Principal Risks; Gender Representation; Employee, Social, Community and Human Rights Issues; and Future Developments.

Status

The Company is an investment company as defined in Section 833 of the Companies Act 2006.

HM Revenue & Customs' approval as an investment trust has been received for all financial years to 31 March 2012, but this does not preclude a subsequent enquiry into a tax return from being opened.

The Company has been confirmed by HM Revenue & Customs as having approved investment trust status under the Investment Trusts (Approved Company) (Tax) Regulations 2011 for financial periods commencing from 1 April 2012, subject to it continuing to comply with the Regulations. The Directors conduct the affairs of the Company with a view to maintaining this approved investment trust status in order to preserve the Company's exemption from UK capital gains tax.

Results and Dividend

The revenue return for the financial year ended 31 March 2014 after taxation amounted to £1,351,000 (2013: £1,483,000). A final dividend of 676p per Ordinary Share (2013: 625p) is proposed for the year ended 31 March 2014 and if approved by Shareholders at the forthcoming Annual General Meeting will be paid on 12 September 2014 to Shareholders on the register at close of business on 22 August 2014 (ex-dividend 20 August 2014).

Directors

Details of the Directors of the Company who served during the year are set out on page 13. Particulars of their remuneration are given on pages 28 to 33.

Powers of the Directors

The powers of the Directors are contained in the Company's Articles of Association, which are publicly available at Companies House. Subject to the provisions of the Companies Acts and the Company's Articles, the Directors may exercise all powers within their scope to manage the business of the Company and may delegate any of those powers to a Director, Committee or Agent.

The Directors may exercise the Company's authority to borrow, to pay fees, expenses and additional remuneration or salary for special duties undertaken by any Director, and vote the shares of portfolio companies.

Directors' Indemnification and Insurance

Articles 165 and 166 of the Company's Articles of Association provide that, insofar as permitted by law, every Director shall be indemnified by the Company against all costs, charges, expenses, losses or liabilities incurred in the execution and discharge of the Directors' duties, powers or office. The Company has arranged appropriate insurance cover in respect of legal action against its Directors.

Directors' Interests

The interests of the Directors, and connected persons, in the Ordinary Shares of the Company are shown on page 33.

Disclosure of Interests

Save as disclosed below and in note 6 to the financial statements, no Director was a party to, or had an interest in, any contract or arrangement with the Company.

Michael Lindsell is a director of the Investment Manager, Lindsell Train Limited, and the beneficial holder of 36.5% of the issued share capital of that Company. He is actively involved in the management of the Lindsell Train Global Equity Fund and the Lindsell Train Japanese Equity Fund, in which he, the Company, Mr Adamson and Mr Landman have investments. He is also actively involved in the management of Finsbury Growth & Income Trust PLC in which he and the Company have an investment. Details of the Company's investments in these funds can be found on page 6.

All of the Directors are non-executive and no Director had a contract of service with the Company at any time during the year.

Waiver of Emoluments

Because of his connection with the Investment Manager, Michael Lindsell has waived his entitlement to fees as a Director of the Company.

Investment Manager

The Investment Manager, Lindsell Train Limited, is engaged under the terms of a contract dated 1 September 2009, details of which are given in note 6 to the financial statements, terminable on twelve months' notice by either party. During the year the Directors reviewed the performance of the Investment Manager and consider that the continued engagement of Lindsell Train Limited under the existing terms is in the best interests of the Company and Shareholders.

Being an employee and shareholder of the Investment Manager, Michael Lindsell did not participate in the review.

In addition to the day to day management of investments, the Investment Manager advises the Board on liquidity and borrowings, and liaises with major Shareholders. The Investment Manager has a stated policy on stewardship and engagement with investee companies, which the Board has reviewed and endorses, and provides verbal reports to the Board where any concerns or issues have been raised.

Governance

Report of the Directors continued

Administration and Secretarial Agreement

Accounting, company secretarial and administrative services are provided by Phoenix Administration Services Limited ("Phoenix") pursuant to an agreement dated 21 December 2000. The agreement is terminable by either party on not less than three months' notice. Details of the fees paid to Phoenix are given in note 4 to the financial statements. The services provided by Phoenix were also reviewed during the year and the Board considered it to be in the best interests of the Company to continue Phoenix's appointment under the existing terms.

Other third party service providers

In addition to the Investment Manager and Administrator the Company has engaged Capita Registrars to maintain the share register of the Company and Northern Trust Company London Office ("Northern Trust") as the Company's custodian. Northern Trust also provide a £5m short-term borrowing facility to the Company. The agreements for these services were only entered into after careful consideration of their terms, and their cost-effectiveness for the Company.

Substantial Shareholdings

At the below dates the Company had been notified and/or become aware of the following holdings representing 3% or greater of the Ordinary Share capital of the Company:

Share Capital 

At 31 March 2014 and 31 March 2013, and up to the date of this report, the Company had an authorised and issued share capital comprising 200,000 Ordinary Shares of 75p nominal each. At 31 March 2014 the Ordinary Share price was £350.50 (31 March 2013: £307.50).

Income entitlement

The Company's revenue earnings are distributed to holders of Ordinary Shares by way of dividends (if any) as may from time to time be declared by the Directors and approved by the Shareholders.

Capital entitlement

On a winding up of the Company, after settling all liabilities of the Company, holders of Ordinary Shares are entitled to a distribution of any surplus assets in proportion to the respective amounts paid up or credited as paid up on their shares.

Voting entitlement

Holders of Ordinary Shares are entitled to one vote on a show of hands, and on a poll to one vote for each Ordinary Share held. Notices of Meetings and Proxy Forms set out the deadlines for the valid exercise of voting rights and, other than with regard to Directors not being permitted to vote on matters upon which they have an interest, there are no restrictions on the voting rights of Ordinary Shareholders.

Transfers

There are no restrictions on transfers of Ordinary Shares except: a) dealings by Directors, Persons Discharging Managerial Responsibilities and their connected persons which may constitute insider dealing or are otherwise prohibited by the rules of the UKLA; b) transfers to more than four joint holders; c) transfers to US persons other than as specifically permitted by the Directors; d) if, in the Directors' opinion, the assets of the Company might become "plan assets" for the purposes of US ERISA 1974; and e) transfers which in the opinion of the Directors would cause material legal, regulatory, financial or tax disadvantage to the Company.

The Company is not aware of any agreements with or between Shareholders which restrict the transfer of Ordinary shares, or which would take effect or alter or terminate in the event of a change of control of the Company.

Corporate Governance, Employment, Social, Human Rights and Environmental Statements

The Corporate Governance Statement, which forms part of this Report of the Directors, is set out on pages 20 to 24. The Strategic Report on pages 1 to 12 includes statements on social, economic, human rights and environmental issues.

Disclosure Concerning Greenhouse Gas Emissions

The Company itself has no greenhouse gas emissions to report on from its activities.

Annual General Meeting

The Annual General Meeting of the Company will be held on Tuesday 2 September 2014 at 2.30pm and all Shareholders are encouraged to attend. In accordance with the Code, the Notice of Meeting is circulated more than twenty working days before the meeting. The Meeting will be held at Cayzer House, 30 Buckingham Gate, London SW1E 6NN.

Special Business at the Annual General Meeting Directors' Remuneration Policy

Resolution 10 is proposed as an Ordinary Resolution to receive and adopt the Directors' Remuneration Policy.

Share buyback authority

Resolution 11 is proposed as a Special Resolution and would, if passed, renew the authority to permit the Company to buy back through the stock market up to a maximum of 29,999 Ordinary Shares of 75p each (equivalent to 14.99% of the Ordinary Shares in issue at the date of this report). Purchases will only be made through the market for cash at prices below the prevailing Net Asset Value per Ordinary Share, thereby resulting in an increased Net Asset Value per share.

Shares bought back may be held in treasury, which are then eligible for subsequent resale or cancellation. No voting rights or entitlement to distribution (either dividend or on a winding up) applies to shares held in treasury.

Governance

Report of the Directors continued

Authority to allot/sell treasury shares

Resolution 12 authorises the Directors to sell or transfer back into the market shares held in treasury. Treasury shares would not be resold at a price below that at which they had been bought back.

The Directors recommend that Shareholders vote in favour of all Resolutions being put to the Annual General Meeting, as they themselves intend to do in respect of their own holdings representing 9.3% of total voting rights.

Statement of Directors' Responsibilities for the Annual Report

The Directors are responsible for preparing the annual report, the Directors' Remuneration Report, and financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit and loss for that period.

In preparing these financial statements the Directors are required to:

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company, and to enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the annual report and financial statements are made available on a dedicated page on Lindsell Train Limited's website and the National Storage Mechanism. Financial statements are published on the website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.

Audit information

Each of the persons who were Directors at the date of approval of this annual report confirm, in accordance with the provisions of Section 418 of the Companies Act 2006 that:

Auditor

Grant Thornton UK LLP has expressed its willingness to continue to act as the Company's auditor. A resolution to re-appoint Grant Thornton UK LLP as Auditor to the Company and to authorise the Directors to determine the Auditor's remuneration will be proposed at the forthcoming Annual General Meeting.

Going Concern

After considering a schedule of the Company's current financial resources and liabilities for the next twelve months, and as the majority of the net assets of the Company are securities which are traded on recognised stock exchanges, the Directors have determined that its resources are adequate for continuing in business for the foreseeable future and that it is appropriate to prepare the financial statements on a going concern basis. The Company does not have a fixed life.

Directors' Confirmation Statement

The Directors listed on page 13, as the persons responsible within the Company, hereby confirm to the best of their knowledge:

a) that the financial statements within the annual report of which this statement forms part have been prepared in accordance with applicable UK Accounting Standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

b) that in the opinion of the Board, the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

c) the Strategic Report includes a fair review of the development and performance of the business and position of the Company, together with the principal risks and uncertainties which the Company faces.

By order of the Board

Phoenix Administration Services Limited Secretary

23 June 2014

Governance

Corporate Governance Statement

The Corporate Governance Statement forms part of the Report of the Directors.

The Board supports the high standards of corporate governance contained within the UK Corporate Governance Code ("Code") issued by the Financial Reporting Council ("FRC") effective from October 2012, and the principles published in February 2013 by the Association of Investment Companies ("the AIC Principles") and their predecessors issued in 2010. The Codes referred to above can be found on the following websites: www.frc.org.uk and www.theaic.co.uk.

The Board confirms that it complies with the AIC principles subject to those aspects explained in the table below where the Company has either not complied, or does not feel it appropriate to do so.

AIC Code Principle Additional Information

Corporate Governance Framework Board Structure

The Board recognises that its prime purpose is to direct the business so as to maximise shareholder value within a framework of proper controls. The Board comprises five members, all of whom are male and non-executive and four of whom are independent of the Investment Manager.

The Directors normally meet as a Board on a quarterly basis. The Board lays down guidelines within which the Investment Manager implements investment policy and has a schedule of matters reserved exclusively for resolution by the Directors. All Board members have access to the advice and services of the Corporate Secretary, the removal or replacement of whom is a matter for the Board as a whole. The Directors are also able to take independent professional advice at the Company's expense.

The Investment Manager, Company Secretary and Administrator all operate in a supportive and cooperative manner, and representatives of each attend Board meetings.

Governance

Corporate Governance Statement continued

The number of meetings of the Board and Committees for the year under review is given below, together with individual Director's attendance at those meetings:

The Board evaluates the performance of the Board, Committees, individual Directors and third party service providers using a structured questionnaire and without recourse to an external facilitator. The Board is satisfied from the results of these that the Board, its Committees and its third party providers function effectively, both collectively and individually, and contain an appropriate balance of skills and experience for the effective management of the Company.

Board Responsibilities

There is a clear division of responsibility between the Board, led by the Chairman to ensure effectiveness, the Manager and third party service providers. The Board receives accurate, timely and clear information to assist it in its decision making, and no one Director has unfettered powers of decision.

Matters Reserved for the Board

The Board is responsible for setting the Company's investment objectives, strategy and benchmark. It also decides on the appointment and replacement of key suppliers including the Investment Manager, external Auditor (subject to shareholder approval), Registrar, Custodian and Administrator.

The Board determines what items will be put to shareholders at general meetings, approves financial results and any communications/announcements relating to the Company. Within the authority granted by shareholders the Board approves allotments and buy-backs of shares/loan stock and increases/reductions of shares/loan stock in issue and in treasury.

The Board monitors key risks and ensures that there is a structure of internal controls in place to mitigate the likelihood of risks occurring these are explained in greater detail below. Authority has been delegated to the Investment Manager to take decisions on the purchase and sale of individual investments. The Board has also delegated authority to the following Committees and has established Terms of Reference which are available from the Registered Office of the Company.

A schedule of Matters Reserved for the Board is available from the Registered Office of the Company.

Internal Control

The Board confirms that there is an ongoing process for identifying, evaluating and managing those risks which are significant for the Company (particularly operational risks) and that this process reflects the guidance provided by the FRC. This process has been in place for the year ended 31 March 2014 and up to the date of the annual report and financial statements, and is regularly reviewed by the Board. The review covers all material financial, operational and compliance controls, and risk management systems.

The Board has ultimate responsibility for the system of internal control and for reviewing its effectiveness. The key elements of the system are the appointment of an independent custodian with responsibility for safeguarding the Company's assets, and clearly defined responsibilities between the Board, the Custodian and the Investment Manager, all of whom have detailed operating procedures in place. The controls operated by the Board include the authorisation of the investment strategy and regular reviews of the investment performance and financial results. The system is designed to manage rather than eliminate the risk of being unable to meet business objectives and can provide reasonable but not absolute assurance against material misstatement or loss. The Board reviews the operation and effectiveness of the Company's internal controls regularly through identification and assessment of key risks, and an annual review of how these are managed.

The Board has contractually delegated the management of the investment portfolio to the Investment Manager, Lindsell Train Limited, the day to day administration and the Company Secretarial requirements to Phoenix Administration Services Limited, and the custodial services including the safeguarding of assets to Northern Trust Company (see note 18). These contracts have been entered into after full consideration by the Board of the services undertaken and are reviewed annually. The Investment Manager, Administrator and Custodian all maintain their own systems of internal and financial controls.

The Investment Manager has established a framework to provide reasonable assurance on the effectiveness of internal controls operated on behalf of its clients. The Investment Manager's compliance officer assesses and reports to the Board on that effectiveness and on the business risk exposure of the Investment Manager.

The Corporate Secretary and Administrator also has established internal controls and procedures in place.

The Audit Committee reviews, at least annually, a detailed analysis of the activities and potential risks which the Company might be exposed to, and the key controls in place to minimise risk and confirm the status of each activity.

The Board is satisfied that its approach to managing internal control and risk conforms to the recommendations of the FRC's Internal Control Revised Guidance for Directors.

As the Company's investment management, administration and custodial activities are carried out by third party service providers, the Board does not consider it necessary to have an internal audit function or whistleblowing procedures. The Audit Committee reviews annually the whistleblowing procedures of the Investment Manager and the Administrator.

Governance

Corporate Governance Statement continued

The Nomination Committee

The Board as a whole fulfils the function of a Nomination Committee. The Directors have many years' experience within the industry between them and a broad knowledge of individuals who would have the necessary skills to promote and develop the Company. Accordingly the Nomination Committee does not consider it necessary to engage the services of third party search consultants unless the Directors are unable to identify suitably skilled individuals.

The Company will ensure that any Board vacancies will be filled by the most qualified candidates and recognises the value of diversity in the composition of the Board. When Board positions become available, the Company will consider a diverse group of candidates.

Remuneration Committee

The Company has no executive Directors and the Board as a whole fulfils the function of a Remuneration Committee.

Audit Committee

The Company's Audit Committee comprises Michael Mackenzie (Chairman), Donald Adamson, Dominic Caldecott and Rory Landman. Although Mr Adamson is Chairman of the Board, the Board considers it desirable that he continues as a member of the Committee. The Audit Committee has set out a formal Report on pages 25 to 27 of the Annual Report.

Management Engagement Committee

Donald Adamson (Chairman), Dominic Caldecott, Rory Landman and Michael Mackenzie comprise the Management Engagement Committee. Terms, fees and other remuneration payable to Lindsell Train Limited and Phoenix Administration Services Limited (set out in notes 3, 4 and 6 to the financial statements), are kept under review by the Committee. It also reviews the performance of the Investment Manager at least annually.

Shareholder Relations

The Company, through the Investment Manager (in accordance with its stated policy on stewardship), has regular contact with its institutional Shareholders. The Board supports the principle that the Annual General Meeting should be used to communicate with private investors. It has implemented the provisions of the Code in this report for the forthcoming Annual General Meeting and recommends that Shareholders attend the meeting, where the Directors present will be able to answer any questions they may have in relation to the Company and its activities.

Rather than read out proxy voting figures at General Meetings of the Company, the Board has instead elected to provide attending Shareholders with a printed summary of proxy voting. The proxy voting figures are also made available on the web pages of the Company after the meeting.

Shareholders may contact the Board through either the Investment Manager or the office of the Corporate Secretary, contact details for whom are given on page 63.

Governance

Report of the Audit Committee

This report to Shareholders for the year ended 31 March 2014 has been prepared in accordance with guidance issued by the Financial Reporting Council and the UK Corporate Governance Code issued by it in September 2012.

Composition of the Committee

The Audit Committee comprises four Directors all of whom are members of the Board. All of the members of the Committee are independent and considered to have sufficient recent and relevant experience to enable the Committee to function effectively. Rory Landman has current experience in relation to accounting and financial matters. The Corporate Secretary is Secretary to the Committee.

Role of the Committee

The principal activities undertaken by the Audit Committee are:

Meetings

The Audit Committee normally meets two times each year. Meetings are held to consider the full-year and half-year results, and shortly before each year end to review the external auditor's proposed plans, scope of work and costs for the ensuing full-year audit. Representatives of the Investment Manager and the Administrator attend meetings to provide input and respond to questions. The Committee also holds meetings with the external auditor without any of the Company's third party service providers present at which any aspect of the auditor's work may be discussed.

Governance

Report of the Audit Committee continued

The Audit Committee operates under written Terms of Reference, copies of which are available from the Registered Office of the Company.

Internal Controls

The Committee is responsible for ensuring that suitable controls are in place to prevent and detect fraud, error and misstatement of financial information. As the Company outsources all of its functions to third parties, neither the Committee nor the Company has any internal control structure in place but instead requires its third party service providers to report against a checklist of requirements. These reports are received at least annually, including reports which have been independently verified by the relevant service provider's independent auditors.

Audit process

The Committee reviews at least annually whether the Company should have an internal audit function. It has recommended to the Board that given the size, structure and nature of the Company's activities, and that all operations are carried out by third party service providers, an internal audit function is not appropriate. The Board has endorsed the recommendation of the Committee.

Grant Thornton UK LLP is the Company's independent external auditor and has held office since July 2007, when it subsumed RSM Robson Rhodes LLP who had been the Company's external auditor since inception in December 2000. The Committee is not aware of any contractual or other restrictions which would impinge on the Committee's ability to select the external auditor.

The Partner responsible for the audit affairs of the Company is subject to change at least every 5 years. Julian Bartlett notified the Company that he was stepping down as Partner after serving for a period of 4 years, and the Partner now responsible for audit matters is Christopher Smith.

The Committee satisfies itself as to the independence of the Company's external independent auditor, and in particular takes into account any non-audit work undertaken by the auditor. The auditor is currently engaged to assist with the Company's tax matters and to give accounting advice as required. When considering whether to appoint the Company's external auditor to undertake non-audit work the Committee takes into account any potential impairment of independence or impartiality, knowledge of the Company, and their proposed fee. The Committee may also put non-audit work out to tender.

Significant issues in relation to Financial Statements

When planning the statutory audit, the independent auditor and the Committee identified the following areas of particular significance which might require particular audit emphasis:

· ownership of investments and assets included in the portfolio;

· valuation of positions in the portfolio, especially any which are illiquid or un-quoted; and

· accuracy and completeness of the recognition of revenue.

Ownership of investments

The Audit Committee reviewed the external auditor's approach to determining the existence and completeness of investments. The results of the audit highlighted no issues and confirmed that all additions, disposals and corporate actions were agreed to contract notes or other supporting documentation. In addition, a list of holdings was checked against an independent statement provided by the Company's custodian.

Valuation of investments

The Audit Committee considered the valuation methodology of the unquoted investment in Lindsell Train Limited ('LTL') representing 24.42% of net assets. It was considered that no change was required to the valuation methodology and hence the valuation approach remains consistent with prior years.

The other 75.58% of the Company's net assets are quoted investments. The valuation of these investments is a material matter in the production of the Financial Statements. The Audit Committee reviewed the procedures in place for ensuring the accuracy of the values and is content that these procedures remain robust. The results of the audit in this area were discussed with the external auditor and there were no issues arising.

Revenue and Expenditure

The Audit Committee reviewed the external auditor's approach to the audit prior to the commencement of the audit. The results of the audit in this area were discussed with the external auditor and there were no significant issues arising in relation to the recognition of revenue and expenditure.

Reappointment of Auditor

The Committee is satisfied that the independence, objectivity and impartiality of the Company's external independent auditor has not been compromised by the non-audit work it provides to the Company. Accordingly the Committee has recommended that a Resolution to reappoint Grant Thornton UK LLP as independent auditor to the Company be proposed at the forthcoming Annual General Meeting.

The Committee has not put the Company's audit work out to tender as it has been satisfied with the services it has been provided with and does not consider the audit fees paid to be materially out of line with expectations. The Committee is aware that proposals are being considered which might make audit tendering compulsory, but will await the introduction of regulations on this before considering what action to take.

Michael Mackenzie

Chairman - Audit Committee

23 June 2014

Governance

Directors' Remuneration Report

This Remuneration Report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). It describes the Company's Directors' Remuneration Policy ("Policy"), and how the Policy was implemented for the year to 31 March 2014.

The Board does not consider it necessary or appropriate to establish a separate Remuneration Committee as the Company has no employees, the Board is small, and there are no executive Directors. Non-executive Directors' remuneration is determined by the Board in line with the Directors' Remuneration Policy (below), subject to an aggregate ceiling of £220,000 per annum under the Company's Articles of Association ("Articles"). No change to this ceiling is currently envisaged. Each Director abstains from voting on the specific remuneration to be paid to them.

REMUNERATION POLICY

This Directors' Remuneration Policy ("Policy") sets out details of the Company's policy on the remuneration of Directors of the Company. All Directors are non-executive and are appointed under the terms of Letters of Appointment. None of the Directors has a service contract. The Company has no employees. The Company does not have a nominated Senior Independent Director.

A Resolution to approve the Policy will be proposed at the forthcoming Annual General Meeting of the Company to be held on 2 September 2014, and the vote is binding on the Company. Thereafter, renewal of the approved Policy will be sought at intervals of three years or less, and earlier if a change to the Policy is proposed. Any changes to the approved Policy can only become effective after shareholder approval has been obtained in General Meeting.

The non-executive Directors of the Company are entitled to such rates of annual fees as the Board at its discretion determines, subject to aggregate annual fees not exceeding £220,000. In addition to fees, Directors are entitled to reimbursement of reasonable expenses incurred by them in the performance of their duties. In line with the majority of investment trusts, no component of any Director's remuneration is subject to performance factors. There are no provisions in Directors' Letters of Appointment for recovery or withholding of fees or expenses. Annual fees are pro-rated where a change takes place during a financial year.

The Board last reviewed the Directors' Remuneration Components on 10 June 2014. This review considered the remuneration paid by other similar investment trusts and sought to determine whether the Company pays a median level of compensation. The Board considers it important to pay sufficient compensation in order to ensure that directors of a sufficient calibre can be attracted and retained by the Company. After consideration, the Board recommends to shareholders the following remuneration components with effect from 2 September 2014.

Table of Directors' Remuneration Components (effective 2 September 2014 and all components subject to periodic review)

Notes:

1. The Board only exercises its discretion in setting rates of fees after an analysis of fees paid to directors of other companies of a similar size to that of the Company;

2. As the Company has no employees, there are no differences in policy between the remuneration of Directors and the remuneration of employees;

3. None of the Directors are entitled to receive any remuneration which is performance-related. As a result there are no performance scenarios in respect of any elements of Directors' remuneration can be set out in this Remuneration Policy;

The table below shows the rates of annual fees payable to the highest paid Director and all other non-executive Directors for the year to 31 March 2014 and the year to 31 March 2013:

1. The remuneration package for any new Chairman or non-executive Director will be the same as the prevailing rates determined on the bases set out above. The fees and entitlement to reclaim reasonable expenses will be set out in Directors' Letters of Appointment;

2. The Board will not pay any introductory fee or incentive to any person to encourage them to become a Director. However, it may engage the services of search & selection specialists in connection with the process of appointing new non-executive Directors;

3. The Company does not intend appointing any executive Directors in the foreseeable future; and

4. The aggregate maximum fees currently payable to all directors is £220,000 per annum.

Governance

Directors' Remuneration Report continued

Service Contracts

None of the Directors has a service contract with the Company. Non-executive Directors are engaged under Letters of Appointment.

Loss of Office

Directors' Letters of Appointment expressly prohibit any entitlement to payment or compensation on loss of office.

Scenarios

As all remuneration of the Chairman and non-executives Directors' is fixed at annual rates, and there are no scenarios where remuneration will vary. It is accordingly not considered appropriate to provide different remuneration scenarios for each Director.

Statement of consideration of conditions elsewhere in the Company

The Company has no employees, nor does it have any subsidiaries or associated companies which have employees, and accordingly a process of consulting with employees on the setting of the Company's Remuneration Policy is not applicable.

Other Items

None of the Directors has any entitlement to pensions or pension related benefits, medical or life insurance schemes, share options, long-term incentive plans, or any form of performance related payments. No Director is entitled to any other monetary payment or any assets of the Company except in their capacity (where applicable) as shareholders of the Company.

Directors and Officers liability insurance cover is maintained by the Company, at the Company's expense, on behalf of all Directors.

The Company has also provided indemnities to the Directors in respect of costs or other liabilities which they may incur in connection with any claims relating to their performance or the performance of the Company whilst they are Directors.

The Directors' interests in contractual arrangements with the Company are as shown in the Annual Report on Remuneration below. No Director had any interest in any contracts with the Company during the year to 31 March 2014 or subsequently, other than as stated in the Directors' Report.

ANNUAL REPORT ON REMUNERATION

A Resolution to adopt this Annual Report on Remuneration will be put to the forthcoming Annual General Meeting. The vote however is advisory only and not binding on the Company, but does give shareholders a chance to inform the Board of their views on Directors' remuneration.

The rates of fees paid to Directors were not changed during the year and were payable at the following rates: Donald Adamson (Chairman of the Board) £22,500; Mr Michael Mackenzie (Chairman of the Audit Committee) £20,000; Mr Dominic Caldecott £18,000; and Mr Rory Landman £18,000. Mr Michael Lindsell, because of his connection with the Investment Manager, waived his entitlement to fees.

Directors' emoluments (audited information)

Directors are only entitled to fees at rates set out in the Directors' Remuneration Policy from time to time approved by shareholders. The rates applicable for the financial year to 31 March 2014 were set out in the Directors' Remuneration Report in the Company's Report & Financial Statements for the year to 31 March 2013. An Ordinary Resolution proposing adoption of that Directors' Remuneration Report was put to shareholders at the Annual General Meeting of the Company held on 24 July 2013, and was passed by 100% of shareholders voting on the Resolution.

None of the Directors has any entitlement to pensions or pension related benefits, medical or life insurance, share options, long-term incentive plans, or any form of performance related pay. Also, no Director has any right to any payment by way of monetary equivalent to an entitlement, or any assets of the Company except in their capacity as shareholders. The Single Total Figure table below therefore does not include columns for any of these items or their monetary equivalents.

As the Company does not have a Chief Executive Officer or any executive Directors, there are no percentage increases to disclose in respect of their Single Total Figure.

The Directors who served during the year received the following emoluments in respect of their positions as Directors of the Company:

Single Total Figure Table (audited information)

Sums paid to Third Parties (audited information)*

Of the fees referred to in the above table £22,500 was paid for the year ended 31 March 2014 to Research & Consulting Associates Limited in respect of the services provided by Donald Adamson.

Directors' & Officers' insurance is maintained by the Company, at the Company's expense, on behalf of all Directors, in accordance with Article 173 of the Articles.

Other Benefits

Taxable Benefits - Articles 106 and 107 of the Company's Articles of Association provide that Directors are entitled to be reimbursed for reasonable expenses incurred by them in connection with attendance at Board and General Meetings, the performance of their duties, and any additional work or duties they undertake on behalf of the Company.

Pensions related benefits - Although Article 109 of the Company's Articles permits the Company to provide pensions and/or similar benefits for Directors and employees of the Company, no schemes or arrangements have been established and no Director is entitled to any pension or similar benefits.

Governance

Directors' Remuneration Report continued

Loss of office

Directors do not have service contracts with the Company but are engaged under Letters of Appointment. These expressly exclude any entitlement to compensation upon leaving office for whatever reason.

Share Price Total Return

The chart below illustrates the total shareholder return for a holding in the Company's shares as compared to the benchmark between the relevant dates. The Board has adopted this as the measure for both the Company's performance and that of the Investment Manager for the year.

Share price performance relative to the net asset value and benchmark for five years to31 March 2014 (based on total return performance with net dividends reinvested)

http://www.rns-pdf.londonstockexchange.com/rns/3195K_1-2014-6-23.pdf

Relative Importance of Spend on Pay

The below table shows the proportion of the Company's income spent on Directors' remuneration in comparison with investment management fees paid, and dividends paid to shareholders.

Statement of Directors' shareholding and share interests (audited information)

Neither the Articles nor the Directors' Letters of Appointment require any Director to own shares in the Company. The interests of the Directors and their connected persons in the equity securities of the Company at 31 March 2014 and 31 March 2013 are shown in the table below:

Michael Mackenzie's non-beneficial interest was reduced by 750 shares in April 2014. No other changes in the above interests occurred between 31 March 2014 and the date of this report. None of the Directors has been granted, or exercised, any options or rights to subscribe for Ordinary Shares of the Company.

Statement by the Chairman of the Board

The Directors confirm that the Remuneration Policy and Annual Report on Remuneration set out above provide a fair and reasonable summary for the financial year ended 31 March 2014 of:

a) the major decisions on Directors' remuneration;

b) any substantial changes relating to Directors' remuneration made during the year; and

c) the context in which those changes occurred and the decisions which have been taken.

By order of the Board

Donald Adamson Chairman

23 June 2014

Governance

Independent auditor's report to the members of The Lindsell Train Investment Trust plc

We have audited the financial statements of The Lindsell Train Investment Trust plc for the year ended 31 March 2014 which comprise the Income Statement, the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities for the Annual Report set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/apb/scope/private.cfm.

Auditor commentary

An overview of the scope of our audit

Our audit approach was based on a thorough understanding of the Company's business and is risk-based. The day-to-day management of the Company's investment portfolio, the custody of its investments and the maintenance of the Company's accounting records is outsourced to third-party service providers. Accordingly, our audit work is focussed on obtaining an understanding of, and evaluating, internal controls at the Company and relevant third-party service providers. This included a review of reports on the description, design and operating effectiveness of internal controls at relevant third-party service providers. We undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the design effectiveness of controls over individual systems and the management of specific risks.

Our application of materiality

We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified misstatements and in forming our opinion. For the purpose of determining whether the financial statements are free from material misstatement we define materiality as the magnitude of a misstatement or an omission from the financial statements or related disclosures that would make it probable that the judgement of a reasonable person, relying on the information would have been changed or influenced by the misstatement or omission. We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

We established materiality for the financial statements as a whole to be £640,000, which is 1% of the Company's net assets. For the income statement we determined that misstatements for a lesser amount than materiality for the financial statements as a whole would make it probable that the judgement of a reasonable person, relying on the information, would have been changed or influenced by the misstatement or omission. Accordingly, we established materiality for the revenue column of the income statement to be £160,000.

Our assessment of risk

Without modifying our opinion, we highlight the following matters that are, in our judgement, likely to be most important to users' understanding of our audit. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual transactions, account balances or disclosures.

Investments

The Company's business is investing in financial assets with a view to profit from a balanced return, in the form of revenue and capital gains. Accordingly, the investment portfolio is a significant, material item in the financial statements. The investment portfolio includes an unquoted investment, which includes significant assumptions and judgements in its measurement. The recognition and measurement of the investment portfolio is therefore a risk that requires particular audit attention.

Our audit work included, but was not restricted to, understanding management's process to recognise and measure investments including ownership of those investments, obtaining a confirmation of investments held at the year-end directly from the independent custodian, testing all investment additions and disposals shown in the Company's records to supporting documentation, recalculating the realised gains made on a selection of disposals and agreeing the valuation of quoted to an independent source of market prices and relevant source documentation.

In addition to the above for the unquoted investment, we considered whether the investment has been valued in accordance with the published guidance, discussing the valuation basis with the investment manager, and reviewed and challenged the basis and reasonableness of the assumptions and judgements made through a review of supporting documentation.

Governance

Independent auditor's report to the members of The Lindsell Train Investment Trust plc continued

Investment income

Investment income is the Company's major source of revenue and a significant, material item in the Income Statement. Accordingly, the recognition of investment income is therefore a risk that requires particular audit attention.

Our audit work included, but was not restricted to, assessing whether the Company's accounting policy for revenue recognition is in accordance with the Statement of Recommended Practice, "Financial Statements of Investment Trust Companies and Venture Capital Trusts"; a sample of dividend income was checked from the independent custodian assessing whether it been correctly recorded in the Financial Statements and for a sample of investments held in the period confirming that income that should have been received has been received and recorded and assessing whether any of the revenue should have been treated as capital receipts. For Lindsell Train Limited, the unquoted investment, we have reviewed the financial information available and checked that the income has been correctly recorded in the Financial Statements.

The Company's accounting policy on the recognition of income is shown in note 1 and the components of that revenue are included in 2.

Opinion on financial statements

In our opinion the financial statements:

· give a true and fair view of the state of the Company's affairs as at 31 March 2014 and of its profit for the year then ended;

· have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

· have been prepared in accordance with the requirements of the Companies Act 2006.

Other reporting responsibilities

Opinion on other matters prescribed by the Companies Act 2006 In our opinion:

· the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

· the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

· materially inconsistent with the information in the audited financial statements; or

· apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable, and whether the annual report appropriately discloses those matters that were communicated to the audit committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

· adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

· the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

· the directors' statement, set out on page 19, in relation to going concern; and

· the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review.

Christopher Smith

(Senior Statutory Auditor)

for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London

23 June 2014

Financial Statements

Income Statement for the year ended 31 March 2014

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

The total columns of this statement represent the profit and loss accounts of the Company. The revenue and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

No operations were acquired or discontinued during the year.

The notes on pages 42 to 59 form part of these financial statements.

Reconciliation of Movements in Shareholders' Funds

The notes on pages 42 to 59 form part of these financial statements.

Financial Statements continued

Balance Sheet at 31 March 2014

The financial statements on pages 38 to 59 were approved by the Board on 23 June 2014 and were signed on its behalf by:

D L Adamson

Chairman

The Lindsell Train Investment Trust Plc

Registered in England, No: 4119429

The notes on pages 42 to 59 form part of these financial statements.

Cash Flow Statement for the year ended 31 March 2014

The notes on pages 42 to 59 form part of these financial statements.

Financial Statements

Notes to the Financial Statements

1 Accounting policies

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below:

(a) Basis of accounting

The financial statements are prepared on the historical cost basis of accounting, except for the measurement at fair value of investments and derivatives. The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and with the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" dated January 2009. All of the Company's operations are of a continuing nature.

As the majority of the Company's assets are readily realisable securities and its projected revenue exceeds its projected expenses, the financial statements are prepared on a going concern basis.

(b) Reporting currency

The financial statements are presented in Sterling which is the functional currency of the Company, because it is the currency of the primary economic environment in which the Company operates.

(c) Dividends

Dividends paid by the Company are recognised in the financial statements for the period in which they are paid.

(d) Valuation of fixed asset investments

When a purchase or sale is made under a contract, the terms of which require delivery within the time frame of the relevant market, the investments concerned are recognised or derecognised on the trade date.

Investments have been designated by the Board as held at fair value through profit or loss and accordingly are valued at fair value, deemed to be bid or last market prices depending on the convention of the exchange on which they are listed. As the entity's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, investments are designated as fair value through profit or loss on initial recognition. The entity manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the Company is provided internally on this basis to the Board.

Where performance fees earned by the Manager in respect of the Company's investment in a Lindsell Train fund product are reinvested in shares of the relevant fund, those additional shares are recorded at nil cost in the Company's records and then restated on the basis as disclosed above.

Lindsell Train fund products are valued monthly using prices supplied by the administrator of these funds.

Unquoted investments are valued by the Directors at fair value using market valuation techniques.

Investments are held as part of the investment portfolio, even those over which the Company has significant influence because their value to the Company is through their marketable value as part of a basket of investments rather than as a vehicle through which the Company carries out its business.

The investment in Lindsell Train Limited (representing 24.42% of the Manager) is held as part of the investment portfolio. Accordingly, the shares are accounted for and disclosed in the same way as other investments in the portfolio. The valuation of the investment (see note 18) is calculated at the end of each quarter on the basis of fair value as determined by the Directors of the Company. The valuation process is based upon a formula that takes into account, inter alia, the value of the funds under Lindsell Train Limited's management and the moving average of its monthly earnings.

(e) Income

Dividends are credited to the revenue column of the Income Statement on an ex-dividend basis. Where an ex-dividend date is not available, dividends received on or before the year end are treated as revenue for the year. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the debt security.

Bank and deposit interest is accounted for on an accruals basis.

(f) Expenses

All expenses are accounted for on an accruals basis. Finance costs are accounted for on an accruals basis using the effective interest rate method. Expenses are charged through the revenue column of the Income Statement except as follows:

- expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of the Income Statement;

- expenses are charged to the realised capital reserve, via the capital column of the Income Statement, where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and

- performance fees payable to the Investment Manager are charged 100% to capital.

(g) Taxation

Deferred taxation is provided on all differences which have originated but not reversed by the balance sheet date, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. Deferred tax assets and liabilities are not discounted to reflect the time value of money.

(h) Foreign currency

Transactions denominated in foreign currencies are recorded in the local currency, at the actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.

(i) Capital reserve

The following are taken to this reserve:

- Gains and losses on the disposal of investments;

- Exchange differences of a capital nature;

- Expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies; and

- Investment holding gains being the increase and decrease in the valuation of investments held at the year end.

(j) Futures contracts

Futures contracts are classified at fair value through profit or loss and fall within the classification of "held for trading" under FRS 26. The fair value is the applicable closing price of the underlying contract.

Financial Statements

Notes to the Financial Statements continued

(k) Forward currency contracts

Forward currency contracts are classified as held for trading and are held at fair value through profit or loss. The forward currency contracts are revalued to the relevant forward rates of exchange at the balance sheet date.

For the avoidance of double charging management fees, the Investment Manager has agreed to rebate any periodic management fee that it receives from the Company by the amount of fees receivable by it from Lindsell Train fund products and other fund products where Lindsell Train Limited is the investment manager in respect of the Company's investments in those funds. The amounts rebated on the Investment Management fee are shown above, of which £26,208 (2013: £22,873) relates to the Company's investment in the Lindsell Train Japanese Equity Fund, £25,257 (2013: £28,117) relates to the Company's investment in the Lindsell Train Global Equity Fund and £9,253 (2013: £7,204) relates to the Company's investment in the Finsbury Growth & Income Trust PLC.

3 Investment management fees continued

The Investment Manager has agreed that any performance fees that it earns from a Lindsell Train fund product in respect of the Company's investment in that fund will be reinvested in the shares of that fund and the shares rebated to the Company. In respect of the Company's investment in Finsbury Growth & Income Trust PLC shares, any performance fee earned by the Investment Manager will be rebated to the Company in cash.

As at 31 March 2014 the Company had investments in the following Lindsell Train managed funds: 6,555,661 shares in Lindsell Train Japanese Equity Fund at a cost of £2,661,165; 2,522,066 shares in Lindsell Train Global Equity Fund at a cost of £1,385,199; 420,000 shares in Finsbury Growth & Income Trust PLC at a total cost of £758,720.

Details of the Investment Management Agreement are disclosed in note 6 on page 46.

In accordance with an administration agreement dated 21 December 2000 between the Company and Phoenix Administration Services Limited ("Phoenix"), Phoenix has been appointed to provide administration and company secretarial services to the Company for which Phoenix receives an annual fee of £80,000.

5 Directors' emoluments

One Director's emoluments are assigned to a consultancy of which he is the principal Director. These total £22,500 (2013: £22,500) and are included in the table below.

2014 2013

£'000 £'000

Directors' fees 79 79

Financial Statements

Notes to the Financial Statements continued

5 Directors' emoluments continued

Since 1 July 2011, the Chairman of the Board, Chairman of the Audit Committee, and other Directors receive fixed fees at rates of £22,500, £20,000 and £18,000 respectively per annum, and have no entitlement to any performance fees. Directors' fees amounting to £18,000 have been waived by Mr Michael Lindsell in view of his connection with the Investment Manager.

There were no pension contributions paid or payable.

6 Disclosure of interests and Manager's fees

In accordance with an Investment Management Agreement dated 21 December 2000 (revised in May 2008) between the Company and Lindsell Train Limited, Lindsell Train Limited has been appointed to provide investment management services to the Company. Lindsell Train Limited receives an annual fee of 0.65% of the Adjusted Market Capitalisation of the Company calculated on the last Business Day of each calendar month and payable in arrears in respect of each calendar month. The amount charged during the year is shown in note 3 and £33,293 (2013: £29,536) of the fee for the year was outstanding as at the balance sheet date.

A performance fee is payable at the rate of 10% of the amount by which the growth in the Adjusted Market Capitalisation per Ordinary Share of the Company in each performance period exceeds a specified performance hurdle calculated with reference to the annual average gross running yield on the 2.5% Consolidated Loan Stock over the period, subject to a high watermark. The Company has twelve month performance periods, ending on 31 March in each year. The performance fee is payable in arrears in respect of each performance period.

The performance fee for the year to 31 March 2014 amounts to £nil (2013: £1,697,980). Under a "claw-back" arrangement agreed with the Manager after the year end 31 March 2013, 50% of the performance fee deemed attributable to expansion of the share price premium over the NAV was withheld by the Company and will only be paid out if the NAV at 31 March 2014 (adjusted for any payment of dividends) exceeds the NAV at 31 March 2013. At the balance sheet date £252,169 relating to the claw-back agreement was outstanding. This change is not an adjusting event under FRS21.

Lindsell Train Limited is also the Investment Manager of Finsbury Growth & Income Trust PLC in which the Company has an investment (see page 6).

Lindsell Train Limited's appointment as Investment Manager is subject to termination by either party on twelve months' notice.

The tax charge on the profit on ordinary activities for the year was as follows:

8 Taxation continued

The current taxation charge for the year is different from the standard rate of corporation tax in the UK of 23% (2013: 24%). The differences are explained below:

As an investment trust the Company, whilst it obtains exemption under Sections 1158/1159 Corporation Tax Act 2010, is not subject to UK taxation on capital gains. In the opinion of the Directors, the Company has complied with the requirements of Section 1159 Corporation Tax Act 2010.

Factors that may affect future tax charges

The Company has not recognised a deferred tax asset of £1,158,000 (2013: £1,076,000) arising from management expenses exceeding taxable income. These expenses could only be utilised if the Company were to generate taxable profits in the future.

9 Dividends paid

The total dividend forming the basis of Sections 1158/1159 Corporation Tax Act 2010 payable in respect of the financial year is set out below:

Final dividend for the year ended 31 March 2014 of 676p per

Ordinary Share 1,352 1,250

Financial Statements

Notes to the Financial Statements continued

10 Return per Ordinary Share

The total return per Ordinary Share detailed above can be further analysed between revenue and capital, as below:

Investment transaction costs on purchases and sales of investments during the year to 31 March 2014 amounted to £5,000 and £4,000 respectively (2013: £5,000 and £2,000 respectively).

During the year the investment holding gain attributable to the Company's holding in Lindsell Train Limited amounted to £6,420,000 (2013: £2,905,000).

Financial Statements

Notes to the Financial Statements continued

11 Investments held at fair value through profit or loss continued Significant holdings

Included in the above are the following investments in which the Company has an interest exceeding 10% of the nominal value of the shares of that class in the investee company as at 31 March 2014.

*As at 31 January 2014, the latest year end for Lindsell Train Limited, the audited aggregate capital and reserves amounted to £7,564,377 (2013: £6,780,468) and the profit for that year ended amounted to £7,822,149 (2013: £4,471,234). The total amount of dividends paid during the year was £7,038,240, equating to a dividend of £2,640 per share. The earnings per share was £2,934.04. The cost of the investment in Lindsell Train Limited was £65,100.

† The unaudited aggregate net assets of Lindsell Train Japanese Equity Class B Redeemable Participating Shares as at 30 March 2014 was ¥2,687,927,434.

These companies have been accounted for as investments in accordance with the accounting policy in note 1 (d).

The Company has arrangements in place with the Investment Manager to avoid double charging of fees and expenses on investments made in other Lindsell Train fund products (see note 3).

There has been no change in the capital structure during the year to 31 March 2014.

15 Capital reserve

The capital reserve includes investment holding gains of £39,189,000 (2013: £33,330,000).

The Institute of Chartered Accountants in England and Wales has issued guidance stating that profits arising out of a change in fair value of assets, recognised in accordance with Accounting Standards, may be distributed provided the relevant assets can be readily convertible into cash. Securities listed on a recognised stock exchange are generally regarded as being readily convertible into cash. In accordance with the Company's Articles of Association, the capital reserve and special reserve may not be distributed by way of dividend but may be utilised for the purposes of share buybacks, and the Company may only distribute by way of dividend accumulated revenue profits.

Financial Statements

Notes to the Financial Statements continued

16 Net asset value per share

The net asset value per Ordinary Share and the net asset value at the year end calculated in accordance with the Articles of Association were as follows:

The movements during the year of the assets attributable to each Ordinary Share were as follows:

Ordinary) Share

£'000

Total net assets attributable at beginning of year 57,960

Total recognised gains for the year 7,592

Dividends paid during the year (1,250)

Total net assets attributable at end of year 64,302

The net asset value per Ordinary Share is based on net assets of £64,302,000 (2013: £57,960,000) and on 200,000 Ordinary Shares (2013: 200,000), being the number of Ordinary Shares in issue at the year end.

17 Cash flow statement

(a) Reconciliation of operating profit to net cash inflow from operating activities

17 Cash flow statement continued

(b) Analysis of cash flows for headings netted in the cash flow statement

Risk management policies and procedures

The investment objective of the Company is to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital as measured by the annual average yield on the 2.5% Consolidated Loan Stock. In pursuit of this objective, the Company may be exposed to various forms of risk, as described below.

When judged appropriate by the Investment Manager, the Company may use the overdraft facility with Northern Trust Company in order to gear the portfolio.

The Investment Manager will use this facility only when investments, or a specific investment opportunities are identified where the Investment Manager judges that the likely returns will exceed the cost of the borrowed capital. In practice, this means that the Investment Manager looks for sustainable high income, dividend yields or special situations, typically takeovers, where it is expects to arbitrage a meaningful annualised return.

The Board sets out its investment policies and its policy on gearing (bank borrowing), diversification and dividends at the front of this report on page 1.

The Board and its Investment Manager consider and review the number of risks inherent with managing the Company's assets which are detailed below.

Market risk

The fair values or future cash flows of the Company's financial instruments may fluctuate due to changes in market risk. Market risk encompasses mainly equity price risk but also foreign exchange risk and interest rate risk which are discussed below.

Market risk is monitored by the Board on a quarterly basis and on a continuous basis by the Investment Manager.

The company transacts futures contracts, which alter the exposure to equity price risk.

18 Financial instruments and capital disclosures continued

Foreign currency exposure as at 31 March 2014