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8 Sep 2008 07:00
NEW STAR INVESTMENT TRUST PLC STATEMENT OF FINAL RESULTS FOR THE YEAR ENDED 30th JUNE 2008
The Directors announce the unaudited statement of consolidated results for the year ended 30th June 2008 as follows:
INVESTMENT OBJECTIVE
The Company's objective is to achieve long-term capital growth.
FINANCIAL HIGHLIGHTS 30th June 30th June % 2008 2007 change PERFORMANCE Net assets (‚£'000) 96,405 123,689 (22.1) Net asset value per Ordinary share 135.74p 174.15p
(22.1)
Mid-market price per Ordinary share 105.50p 156.25p (32.5)
Discount of price to net asset 22.3% 10.3%
-value FTSE World Index 116.42 129.72 (10.3) FTSE All-Share Index 2,855.69 3,404.14 (16.1) 1st July 2007 to 1st July 2006 to 30th June 2008 30th June 2007 REVENUE Return per Ordinary share 0.94p 1.22p Dividend per Ordinary share 0.73p 1.00p TOTAL RETURN Net assets total return (22.1%) 18.8% FTSE All-Share Index return (13.0%) 18.4% CHAIRMAN'S STATEMENT Results
The year to 30 June 2008 was a disappointing one for your Company, with netassets falling 22.1% to ‚£96.4 million. This compares with a 16.1% decline inthe FTSE All-Share Index. From its inception in May 2000 to 30 June 2008, yourCompany has delivered a 41.3% total NAV return against a return of 22.8% forthe FTSE All-Share.Net revenue for the year under review was ‚£671,000, which compares with ‚£865,000 the previous year. Your Directors recommend the payment of a finaldividend of 0.73p net per Ordinary share. This compares with a dividend of1.00p in 2007. This should not be taken as an indication of future dividends,however, because the policy of your Company is to achieve capital growth andearnings per Ordinary share may fluctuate.
Your Company's unaudited net asset value per share at 31 August 2008 was 133.51p.
Market background
Global equities were weak and volatile during the year, with the MSCI WorldTotal Return Index declining 9.4% in sterling terms. The main reason for theequity market weakness was the increase in investors' risk aversion in responseto the US sub-prime mortgage crisis and fears that the US economy would go intorecession. The leading central banks responded by pumping liquidity into thesystem, fearing that increased nervousness among banks could cause economicconditions to deteriorate significantly. The Federal Reserve initiated asignificant programme of monetary loosening, cutting its Fed funds target rateby 3.25 percentage points to 2% while the Bank of England, having initiallyraised its bank rate by a quarter point to 5.75%, proceeded to cut by threequarters of a point to 5% by the year end. The European Central Bank left itsrepo rate unchanged at 4% but it joined other central banks in supplyingliquidity to the money markets.A low point came in early March 2008 as counterparties began to withdraw fundsfrom Bear Stearns, the US investment bank, on fears that it was facingbankruptcy. The Federal Reserve responded by financing a takeover by JP MorganChase, helping to restore confidence in the markets.Sentiment deteriorated, however, in the closing weeks of the Company's year inresponse to rising commodity prices and heightened inflationary pressures,leading to fears that the central banks would tighten policy, putting furtherpressure on already lacklustre economic growth trends. In response, cash wasswitched again from riskier, more volatile securities, such as higher-yieldingcorporate bonds and the shares of small and medium-sized companies, into "safehaven" assets such as government bonds and large defensive companies. Over theyear as a whole, Group of Seven (G7) government bonds returned 17.3% insterling terms while high-yield corporate bonds fell 2.2%.Within the Group of Seven (G7) major industrial countries, Italy was theweakest country during the year under review, falling 15.0% in sterling terms,followed by France, down 13.3%, the UK, down 12.7%, Japan, down 11.1%, and theUS, down 10.5%. The resources-heavy Canadian market gained 11.6%, however,while Germany proved relatively resilient as a result of the strength of itsexports to industrialising emerging markets and fell only 3.0%. Outside the G7,the weakest countries included Ireland, down 31.4%, the Philippines, down30.6%, and New Zealand, down 23.5%. By contrast, resources-heavy emergingmarkets were strong, with Brazil up 53.2% and Russia up 27.2% while currencystrength lifted Czech shares 50.5% in sterling terms.
Among the global sectors, financial stocks were the weakest, falling 23.6%. Other weak sectors included consumer services, down 17.8%, and industrials, down 12.0%. By contrast, basic materials gained 27.5%, energy gained 25.8% and utilities returned 5.1%.
Over the summer of 2008, Western economic conditions were deteriorating, withthe trade-off between economic growth and inflation worsening significantly.This was reflected in a de-rating of global equities, which were trading at 30June 2008 on a trailing earnings multiple of 14.0 against 31.0 in April 2000.The market's dividend yield, meanwhile, rose to a 15-year high of 2.74%.Momentum in the emerging markets and positive money supply trends may still yetresult in a soft landing but the credit crunch has increased the risk of moreserious dislocation, partly because the scope for further monetary looseningmay be constrained by increased inflationary pressures. In such an environment,stock selection will be crucial in generating outperformance.
Investment policy
Pursuant to changes in the UK Listing Rules, listed investment companies arenow subject to additional requirements in respect of their published investmentpolicies. To comply with the new standards and to address certain additionalproposed amendments to the investment policy, the Board are proposing a revisedinvestment policy to be formally adopted, subject to the approval of resolution11, at the Annual General Meeting.The Company's investment objective is to achieve long-term capital growth. NewStar Asset Management Limited (the Manager) implements this objective through apolicy of investing a significant proportion of the Company's assets in pooledinvestment vehicles, with a significant proportion represented by shares orunits in other investment companies managed by associates of New Star AssetManagement Group PLC (New Star), the parent company of the Manager.With effect from July 2008, the Company's assets have been managed by MarkHarris, head of investment for the Manager's fund of funds range, which hadfunds under management of ‚£1.1 billion at 2nd September 2008. Mark Harris hasworked in the investment industry for more than 20 years and joined New Star in2003. New Star's fund of funds team is currently rated A by Citywire and itsachievements resulted in New Star being named "Best Multi-Manager Group" in the2007 and 2008 Professional Adviser awards.
Mark Harris is manager of New Star Tactical Portfolio, an open-ended unconstrained global investment fund. For the five-year period to 31 August 2008, this fund generated a total return of 64.35% (source: Lipper) compared to 63.94% for the FTSE All-Share Total Return Index.
As set out in the circular that accompanies this annual report and accounts, ashareholder resolution is proposed at the Company's annual general meeting toamend the Company's investment policy. Until the appropriate resolution hasbeen passed the Company's portfolio will be managed in accordance with thecurrent investment policy.The revised investment policy will be to asset allocate its assets actively,seeking out global investment opportunities while spreading investment riskthrough investment in equity, bond, commodity, real estate, currency and otherasset classes. The complete investment policy is set out in the Business Reviewbelow.
Your Directors recommend that shareholders vote in favour of the resolutions at the annual general meeting.
Manager's fee arrangementsThe Company currently pays the Manager an investment management fee of 0.1875%per quarter (plus VAT) i.e. 0.75% per annum, of total assets of the Company,payable quarterly in arrears. To the extent that any fees are payable to theManager or its associates from any pooled vehicles in the Company's portfolio,the fees payable to the Manager by the Company are waived on that portion ofthe assets.With effect from 1 September 2008, in addition to the investment managementfee, the Company will pay the Manager a performance fee of 15% of the growth innet assets over a hurdle of three-month sterling LIBOR plus 1% per annum,payable six monthly in arrears, subject to a high water mark. The aggregate ofthe Company's management fee and performance fee are subject to a cap of 4.99%of net assets in any financial year (with any performance fee in excess of thiscap capable of being earned in subsequent periods). The performance fee will becharged 100% to capital, in accordance with the Board's long term expectationof how any outperformance will be generated..James RoeChairman5th September 2008 INVESTMENT MANAGER'S REPORT The year under review was a difficult one for the majority of the funds withinthe portfolio, with global equity and bond markets suffering in the wake of thecredit crunch amid fears among investors of a significant slowdown in economicgrowth.
There were, however, some bright spots particularly among funds invested in asset classes with only weak or negligible correlation to mainstream equity markets. The Investec Africa Fund gained 28.64%, the New Star Heart of Africa, which was launched part way through the year, gained 10.6% and the New Star International Property Fund gained 4.92%.
Other positive contributors within this difficult environment included the New Star Euro High Yield Fund, which gained 8.97% as a result of the euro's strength against sterling, and the Skandia UK Strategic Best Ideas Fund, a long-short equity fund whose fund managers include New Star, which gained 2.00%.
Within the mainstream long-only funds, the New Star UK Alpha Fund wasrelatively resilient, falling 9.01% against a 13.03% fall in the FTSE All-ShareTotal Return Index. It was, however, a disappointing year for a number of thelong-only funds in the portfolio, with below-benchmark performance beingdelivered by funds such as New Star European Growth and New Star UK Growth.The year under review was also a disappointing one for the holding in the NewStar Asset Management Group, whose shares fell 77.43%. Following the group'scapital repayment to shareholders in June 2007, New Star entered the recentequity market downturn with significant debt in its balance sheet. This had theeffect of magnifying the negative impact of financial market dislocation on NewStar's equity valuation.There were various changes to the portfolio during the year. Your Company soldits holdings in Arena Leisure, the New Star Apollo Hedge Fund, the New StarFirefly Hedge Fund and the New Star Select Opportunities Fund and reduced itsholdings in the New Star European Growth Fund, the New Star European HedgeFund, the New Star Pan-European Equity Fund, and the New Star UK Growth Fund.The proceeds were invested in the New Star Euro High Yield Fund, the New StarFinancial Opportunities Fund, the New Star Heart of Africa Fund, the New StarPrivate Equity Trust, the Skandia UK Strategic Best Ideas Fund and MidasCapital.As a result of these changes and market movements, your Company ended the yearunder review with 63.7% of its invested assets in retail funds, 16.6% in hedgefunds, 4.7% in its holding in New Star Asset Management Group and 15.0% inother equities and investment trust shares. Geographically, 65.9% of theportfolio was exposed to the UK, 16.4% was exposed to Europe excluding the UKand the balance was invested elsewhere.At the year end of the year under review, global equity markets were 12.64% offtheir October 2007 peak in sterling terms, with some markets having sufferedmore severe setbacks. The weakest emerging markets included Turkey, down 38.29%between October and the year-end, the Philippines, down 34.48%, and India, down33.23%; among the smaller developed markets Sweden was down 25.55% and Irelandwas down 23.89% while Italy and the UK were the weakest Group of Seven markets,down 16.65% and 14.94% respectively.June 2008 was a particularly weak month and was followed by further selling inJuly as investors became increasingly concerned about the threats posed by therising prices of oil and other commodities. Corporate profit margins appearedvulnerable while the increase in inflationary pressures limited the freedom ofcentral banks to respond to weaker economic growth with monetary easing. Thissuggests that over the coming months there will be further shifts by investorsinto more defensive areas of the financial markets and into asset classes thatoffer some diversification away from mainstream equities.
New Star Asset Management Limited
5th September 2008 SCHEDULE OF TWENTY LARGEST INVESTMENTS at 30th June 2008 30th June 2008 Bid-market Percentage ofHolding of Investments Activity value portfolio ‚£'000 New Star UK Alpha Fund Investment Fund 8,463 9.89 Investec Africa Fund Investment Fund 4,556 5.32 New Star Global Financials Investment Fund 4,514 5.28Fund New Star Accelerator Hedge Investment Fund 4,450 5.20Fund New Star Hidden Value Investment Fund 4,107 4.80Portfolio
New Star European Hedge Fund Investment Fund 4,098
4.79 New Star Asset Management Asset Management 4,040 4.72Group Company Global Property Fund Investment Fund 3,995 4.67 New Star European Growth Investment Fund 3,719 4.35Fund New Star Euro High Yield Investment Fund 3,640 4.25Fund New Star Financials Hedge Investment Fund 3,417 3.99Fund Skandia Global Best Ideas Investment Fund 3,292 3.85Fund Skandia UK Strategic Best Investment Fund 3,041 3.55Ideas Fund New Star International Investment Fund 2,976 3.48Property Fund New Star Private Equity Investment Company 2,896 3.38Investment Trust New Star UK Growth Fund Investment Fund 2,715 3.17 New Star Global Fund - Investment Fund 2,652 3.10British Lion Portfolio New Star Heart of Africa Investment Fund 2,211 2.58Fund New Star Global Strategic Investment Fund 2,031 2.37Capital Fund Midas Capital Equity 1,955 2.29 l 72,768 85.03 Balance held in 17 12,800 investments 14.97 Total investments 85,568 100.00All of the Company's investments are unlisted with the exception of New StarAsset Management Group, New Star Private Equity Investment Trust, MidasCapital, New Star Financial Opportunities Fund, Lindsell Train Investment Trustand Immedia Broadcasting. BUSINESS REVIEW The Business Review is designed to give shareholders an insight into theoperations of the Company. Further information on the Company's activities andprospects may be found in the Chairman's Statement and the Investment Manager'sReport.Investment Objective
The Company's investment objective is to achieve long-term capital growth.
Investment Policy
Current investment policy
The investment objective is implemented through a policy of investing asignificant proportion of the Company's assets in pooled investment vehicles,with a significant proportion represented by shares or units in otherinvestment companies managed by associates of New Star Asset Management GroupPLC , the parent company of the Manager.
The Company takes a global view of investment opportunities and invests in sectors or geographic areas which are considered by the Manager to offer good prospects for growth, taking into account economic trends and business developments.
The Company seeks to enhance returns from each asset class, sector or market by active stock selection and by a continuous review of the portfolio's asset allocation between equities, bonds and money market instruments as well as between industries, countries and regions.
Information on how the Company has invested its assets with a view to spreading investment risk in accordance with its investment policy is set out in the schedule of twenty largest investments.
Proposed investment policy
The Board considers that it would be beneficial to shareholders for theinvestment policy to be broadened. Accordingly, a resolution will be put to theAnnual General Meeting amending the Company's investment policy. Until theappropriate resolution has been passed the Company's portfolio will be managedin accordance with the current investment policy.The revised investment policy will be to allocate its assets actively to globalinvestment opportunities while spreading investment risk through investment inequity, bond, commodity, real estate, currency and other asset classes. TheCompany's assets may have significant weightings to any one asset class orgeographic market, including cash.The Company will invest in pooled investment vehicles, exchange traded funds,futures, options and limited partnerships. The Company may also invest up to15% of its net assets in direct investments in relevant markets.The Company will not follow any index with reference to asset classes,countries, sectors or stocks. Aggregate asset class exposure to any one of theUnited States, United Kingdom, Europe ex UK, Asia ex Japan, Japan or EmergingMarkets and to any individual industry sector will be limited to 50% of theCompany's net assets, such values being assessed at the time of investment andfor funds by reference to their published investment policy or, whereappropriate, the underlying investment exposure.
The Company may invest up to 20% of its net assets in unlisted securities (excluding unquoted pooled investment vehicles), such values being assessed at the time of investment.
The Company will not invest more than 15% of its net assets in any single investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used forthe purposes of efficient portfolio management and currency hedging.Derivatives may also be used outside of efficient portfolio management to meetthe Company's investment objective. The Company may take outright shortpositions in relation to up to 30% of its net assets, with a limit on shortsales of individual stocks of up to 5% of its net assets, such values beingassessed at the time of investment.
The Company may borrow up to 30% of its net assets for short term funding or long term investment purposes.
No more than 10%, in aggregate, of the value of the Company's total assets maybe invested in other closed-ended investment funds except where such funds havethemselves published investment policies to invest no more than 15% of theirtotal assets in other listed closed-ended investment funds.
Performance
A review of the Company's activities and performance may be found in the Chairman's Statement and in the Investment Manager's Report.
The following Key Performance Indicators are used by the Board to monitor theprogress of the Company: 30 June 2008 30 June 2007 % Change Net assets (‚£000) 96,405 123,689 (22.1) Net asset value per share 135.74p 174.15p (22.1) Share price 105.50p 156.25p (32.5) Discount 22.3% 10.3% - Earnings per share (37.42)p 27.66p -Regulatory environmentThe Company is an investment trust and is subject to the rules governinginvestment trust status laid down in the Income and Corporation Taxes Act 1988.The Company has been approved by HM Revenue & Customs as an investment trustfor the year ended 30 June 2007. Approval for the year ended 30 June 2007 issubject to review should there be any subsequent enquiry under Corporation TaxSelf Assessment.
The Company is listed on the London Stock Exchange. It must therefore conduct its activities in accordance with the Listing Rules and Disclosure and Transparency Rules published by the Financial Services Authority.
Risk Management
The principal risks associated with the Company include the following:
Investment strategy
Inappropriate long-term strategy, asset allocation and manager selection mightlead to the underperformance of the Company. The Company's strategy is keptunder regular review by the Board and the accompanying Notice of AGM includes aproposal to adopt a new investment policy. The Board considers that the newinvestment policy will enhance the ability of the company to achieve itsobjective of achieving long-term capital growth. Investment performance isdiscussed at every Board meeting and the Directors receive a monthly reportwhich details the Company's asset allocation, investment selection andperformance.
Regulatory risk
Failure to comply with applicable legal and regulatory requirements could leadto the suspension or loss of the Company's Stock Exchange listing or result infinancial penalties. Breach of Section 842 of the Income and Corporation TaxesAct 1988 could lead to the loss of the Company's investment trust status,leading to the Company being subject to tax on its capital gains. The Boardemploys New Star Asset Management Limited as Investment Manager and Secretaryto help manage the Company's legal and regulatory obligations.
Manager
The quality of the management team employed by the Manager is an important factor in delivering good performance and the loss by New Star of key staff could adversely affect investment returns. In addition, the failure of the Manager's core fund management systems might lead the loss of data or inaccurate reporting. The performance of the Manager is reviewed by the Board on an ongoing basis. In addition, the Board undertakes a formal review each year.
Business conditions and general economy
The Company's investment returns are influenced by general economic conditions in the UK and globally. Factors such as interest rates, inflation, investor sentiment, the availability and cost of credit could adversely affect the performance of both the Company and its underlying investments. The Board regularly considers the economic environment in which the Company operates.
The portfolio is listed above. Further information on how the Company manages risk may be found in note 18.
Results and Dividends
Results and reserve movements for the year are set out in the Consolidated Income Statement and in the Notes to the Accounts.
Dividends do not form a central part of the Company's investment policy, however the Directors have declared a final dividend of 0.73p net per share (2007: final dividend of 1.00p) payable to shareholders on 10th October to shareholders on the register on 19th September 2008.
Share capital
At 30 June 2008 there were 71,023,695 1p ordinary shares in issue (30 June 2007: 71,023,695).
Management
In common with most investment trusts, the Company does not have any executive directors or employees. The day-to-day management and administration of the Company, including investment management, is delegated to New Star Asset Management Limited.
Under the terms of the investment management agreement, New Star receives afee, payable quarterly in arrears, equivalent to 3/16% of total assets of theCompany and its subsidiaries after the deduction of the value of any Jupitermanaged investments and any New Star managed investments (as defined in themanagement agreement). The investment management agreement may be terminated byeither party giving three months written notice to expire on the last calendarday of any month. The Board monitors the performance of the Manager andconsiders that the continuing appointment of New Star is in the interests ofshareholders as a whole. With effect from 1st September 2008, the Manager willalso be entitled to a performance fee of 15% of the growth in net assets over ahurdle of 3 month sterling LIBOR plus 1 per cent. per annum, payable sixmonthly in arrears, subject to a high water mark. The aggregate of theCompany's management fee and performance fee are subject to a cap of 4.99% ofnet assets in any financial year (with any performance fee in excess of thiscap capable of being earned in subsequent periods). The performance fee will becharged 100% to capital, in accordance with the Board's long term expectationof how any outperformance will be generated.Secretarial services and general administration of the Company is undertaken byNew Star Asset Management Limited for an annual fee of ‚£70,000 (exclusive ofVAT) payable in equal monthly instalments in arrears and reviewed annually byreference to the UK Index of Retail Prices. The agreement is terminable by notless than six months' notice by either party.
Subsidiary undertaking
The Company owns the whole issued share capital (‚£1) of JIT Securities Limited, an investment company, which is registered in England and Wales.
Employee, environmental and community issues
The Company does not have any employees, with the day-to-day management andadministration of the Company being delegated to the Manager. New Star AssetManagement Limited manages the Company's portfolio in accordance with theinvestment objective and policy; environmental, social and community mattersare considered to the extent that they impact on the Company's investmentreturns. Responsibility statements
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the financialstatements in accordance with applicable United Kingdom law and thoseInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion.The Directors are required to prepare financial statements for each financialyear which present fairly the financial position of the Company and of thegroup and the financial performance and cash flows of the Company and of thegroup for that period. In preparing the financial statements, the Directors arerequired to:
¢â‚¬¢ Select suitable accounting policies and then apply them consistently.
¢â‚¬¢ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.
¢â‚¬¢ provide additional disclosures when compliance with the specific requirementsin IFRS is insufficient to enable users to understand the impact of particulartransactions, other events and conditions on the entities financial positionand financial performance; and
¢â‚¬¢ state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and of the group and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that, to the best of their knowledge, that:
¢â‚¬¢ the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
¢â‚¬¢ the Director's Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
New Star Asset Management Limited, Secretary
5th September 2008 UNAUDITED CONSOLIDATED INCOME STATEMENT for the year ended 30th June 2008 Year ended Year ended 30th June 2008 30th June 2007 Revenue Capital Total Revenue Capital Total return return return return ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Investment Income 2 1,029 - 1,029 1,224 - 1,224 Other operating income 376 - 376 93 - 93 Total income 1,405 - 1,405 1,317 - 1,317 Gains and losses on investments (Losses) / gains on - (27,203) (27,203) - 18,432 18,432investments at fair value through profit or loss (Losses) / gains on - (24) (24) - 708 708forward currency contracts Other exchange losses/ - 191 191 - (27) (27)(gains) 1,405 (27,036) (25,631) 1,317 19,113 20,430 Expenses Management fees (263) - (263) (265) - (265) Other expenses (241) (1) (242) (222) - (222) Profit before finance 901 (27,037) (26,136) 830 19,113 19,943costs and tax Finance costs (60) - (60) (39) - (39) Profit before tax 841 (27,037) (26,196) 791 19,113 19,904 Tax (170) (208) (378) 74 (331) (257) Profit for the year 671 (27,245) (26,574) 865 18,782 19,647 Earnings per share
Ordinary shares (pence) 7 0.94 (38.36) (37.42) 1.22 26.44 27.66
The total column of this statement represents the Group's Income Statement,prepared in accordance with IFRS. The supplementary revenue return and capitalreturn columns are both prepared under guidance published by the Association ofInvestment Trust Companies. All items in the above statement derive fromcontinuing operations.
All income is attributable to the equity holders of the parent company. There are no minority interests.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30th June 2008 Share Share Special Retained Total capital premium reserve earnings ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 30th June 710 21,573 56,908 44,498 123,6892007 Loss for the - - - (26,574) (26,574)year Dividend paid - - - (710) (710) At 30th June 710 21,573 56,908 17,214 96,4052008 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30th June 2007 Share Share Special Retained Total capital premium reserve earnings ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 30th June 710 21,573 56,908 24,922 104,1132006 Profit for the - - - 19,647 19,647year Dividend paid - - - (71) (71) At 30th June 710 21,573 56,908 44,498 123,6892007 UNAUDITED CONSOLIDATED BALANCE SHEET as at 30th June 2008 30th June 30th June 2008 2007 ‚£'000 ‚£'000
Non-current assets Investments at fair value through profit or 85,568 118,168loss Current assets Other receivables 118 1,392 Cash and cash equivalents 11,834 4,883 11,952 6,275 Total assets 97,5203 124,443 Current liabilities Other payables (1,115) (754) Net assets 96,4059 123,689 Capital and reserves Called up share capital 710 710 Share premium 21,573 21,573 Special reserve 56,908 56,908 Retained earnings 17,214 44,498 Total equity 96,405 123,689 Pence pence Net Asset Value per ordinary share (pence) 16 135.74
174.15
Approved by the Board of Directors and authorised for issue on 5th September2008 UNAUDITED CASH FLOW STATEMENTS for the year ended 30th June 2008 Year ended Year ended Year ended Year ended 30th June 30th June 30th June 30th June 2008 2008 2007 2007 Group Company Group Company ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash flows from operating activities Profit before finance (26,136) (26,136) 19,943 19,202costs and tax Adjustments for: Losses / (gains) on 32,600 32,600 (14,804) (14,804)investments Operating cash flows before 6,464 6,417 5,139 4,398movements in working capital Decrease / (Increase) 1,324 1,106 (685) (1,163)in receivables (Decrease) / Increase 514 175 207 54in payables Net cash from operating activities before finance costs and 8,302 7,698 4,661 3,289income taxes Taxation (221) (67) (257) (104) Net cash from operating activities 8,081 7,631 4,404 3,185 Cash flows from financing activities Dividend paid (710) (710) (71) (71) Interest paid (60) (60) (39) (39) Net cash used in financing activities (770) (770) (110) (110) Net increase in cash 7,311 6,861 4,294 3,075and cash equivalents Cash and cash 4,523 3,295 229 220equivalents at beginning of year Cash and cash 4,523 3,295equivalents at end of 11,834 10,156 year NOTES TO THE ACCOUNTS for the year ended 30th June 2008
1. ACCOUNTING POLICIES
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates, rounded to the nearest thousand.
The financial statements of the Group have been prepared in accordance withInternational Financial Reporting Standards (`IFRS'). These comprise standardsand interpretations approved by the International Accounting Standards Board(`IASB'), together with interpretations of the International AccountingStandards and Standing Interpretations Committee (`IASC') that remain ineffect, and to the extent that they have been adopted by the European Union.(a) Basis of preparation: The financial statements have been prepared on agoing concern basis. The principal accounting policies adopted are set outbelow. Where presentational guidance set out in the Statement of RecommendedPractice (`SORP') for investment trusts issued by the Association of InvestmentCompanies (`AIC') in January 2003 (revised December 2005) is consistent withthe requirements of IFRS, the directors have sought to prepare the financialstatements on a basis compliant with the recommendations of the SORP.(b) Basis of consolidation: The Consolidated Income Statement and Balance Sheetinclude the Accounts of the Company and its subsidiary made up to 30th June2008. No Income Statement is presented for the parent company as permitted bySection 230 of the Companies Act 1985.(c) Presentation of income statement: In order to better reflect the activitiesof an investment trust company and in accordance with guidance issued by theAIC, supplementary information which analyses the income statement betweenitems of a revenue and capital nature has been presented alongside the incomestatement.In accordance with the Company's status as a UK investment company undersection 833 of the Companies Act 2006, net capital returns may not bedistributed by way of a dividend. Additionally, the net revenue is the measurethe Directors believe appropriate in assessing the Group's compliance withcertain requirements set out in Section 842 Income and Corporation Taxes Act1988.(d) Revenue: Dividends on investments are credited to the revenue column of theIncome Statement on the day in which they are quoted ex-dividend. Interest onfixed interest securities and deposits is accounted for on a time apportionmentbasis. Where the Company has elected to receive its dividends in the form ofadditional shares rather than in cash, the amount of the cash dividend isrecognised as income. Any excess in the value of the shares received over theamount of cash dividend is credited to the capital reserve.(e) Expenses: Expenses are accounted for on an accruals basis. Management fees,administration and other expenses, with exception of the transaction chargesare charged to the revenue column of the Income Statement. Transaction chargesare charged to the capital column of the Income Statement.(f) Investments held at fair value: All "regular way" purchases and sales ofinvestments are recognised and derecognised on the trade date where a purchaseor sale is under a contract whose terms require delivery within the timeframeestablished by the market concerned, and are initially measured at fair value.All investments are classified as held at fair value through profit or loss oninitial recognition and are measured at subsequent reporting dates at fairvalue, which is either the bid price or the last traded price, depending on theconvention of the exchange on which the investment is quoted. Investments inunits of unit trusts or shares in OEICs are valued at the closing bid pricereleased by the relevant investment manager. The fair value of unquotedinvestments is based on the market price at the close of business on thebalance sheet date where an organised market exists. Otherwise, unquotedinvestments are valued by the Directors at the balance sheet date based onrecognised valuation methodologies, in accordance with International PrivateEquity and Venture Capital (`IPEVC') Valuation Guidelines such as dealingprices or third party valuations where available, net asset values and otherinformation as appropriate.(g) Taxation: The charge for taxation is based on taxable income for the year.Withholding tax deducted from income received is treated as part of thetaxation charge against income. Taxation deferred or accelerated can arise dueto temporary differences between treatment of certain items for accounting andtaxation purposes. Full provision is made for deferred taxation under theliability method on all temporary differences not reversed by the Balance Sheetdate.
(h) Foreign currency: Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign currency transactions are translated at the rates of exchange applicable at the transaction date. Foreign currency differences including exchange gains and losses are dealt with in the capital reserve.
(i) Capital reserve: The following are accounted for in this reserve:
- gains and losses on the realisation of investments together with the related taxation effect;
- foreign exchange gains and losses, including those on settlement, together with related taxation effect;
- unrealised gains and losses on investments.
The capital reserve is not available for payment of dividends.
(j) Cash and cash equivalents: Cash and cash equivalents comprises current deposits, overdrafts with banks and bank loans. These are subject to an insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purpose.
(k) Dividends payable: Dividends are recognised from the date on which they are irrevocably committed to payment.
(l) Segmental Reporting: The Directors consider that the Group is engaged in a single segment of business with the primary objective of investing in securities to generate long term capital growth for its shareholders. Consequently no business segmental analysis is provided.
(m) Accounting developments: The following standards, amendments and interpretations have been published by IASB and are effective for the year ended 30th June 2008:
- IFRS 7, Financial instruments: Disclosures. The additional disclosures in accordance with the standard are set out in note 18 to the Accounts.
The following standards, amendments and interpretations have been published byIASB and are effective for the year ended 30th June 2008 but do not apply tothe Group or Company:
- IFRS 4, Insurance contracts.
- IFRIC 7, Applying the restatement approach under IAS29, Financial reporting in hyper-inflationary economies.
- IFRIC 9, Reassessment of embedded derivatives.
The following standards, amendments and interpretations to existing standards will become effective in future accounting periods:
* IAS 23 (amendment), Borrowing costs.
* IAS 32 (amendment), Financial instruments
- IFRS 8, Operating segments.
They have not been adopted early by the Group or Company.
2. INVESTMENT INCOME Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000
INCOME FROM LISTED INVESTMENTS
UK net dividend income 460 721
UK unfranked investment income 569
503 1,029 1,224 OTHER OPERATING INCOME
Interest on convertible loan 2
-stock Bank interest receivable 374 93 376 93 TOTAL INCOME COMPRISES Dividend 1,029 1,224 Other income 376 93 1,405 1,317
3. INVESTMENT MANAGEMENT FEES
Year ended Year ended 30th June 2008 30th June 2007 Revenue Capital Total Revenue Capital Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Investment 263 - 263 226 - 226management fee Irrecoverable VAT - - - 39 - -thereon 263 - - 39 - -
At 30th June 2008 there were amounts outstanding of ‚£147,000 (2007: ‚£70,000). Details of the investment management agreement are given in Note 20.
Following a decision made by HM Revenue and Customs (HMRC) in November 2007, management fees invoiced after this date have not incurred a VAT charge.
4. OTHER EXPENSES Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000
Administrative and secretarial 82
82fee Auditors' remuneration: - Audit 26 24 - Fee for review of interim 2 2report Directors' remuneration 65 52 Legal fees 3 5 Other 64 64 242 222 Allocated to: - Revenue 241 222 - Capital 1 - 242 2225. TAXATION
(a) Analysis of tax charge for the year:
Year ended Year ended 30th June 2008 30th June 2007 Revenue Capital Total Revenue Capital Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 UK corporation tax 6 - 6 - 153 153 Adjustments in respect of prior periods - (27) (27) - - - Irrecoverable income tax 39 - 39 38 - 38 Total current tax for the 45 (33) 18 38 153 191year Deferred tax 119 241 360 (112) 178 66 Total tax for the year 164 214 378 (74) 331 257(note 5b)
(b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the profit per the incomestatement as follows: Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000
(Loss)/profit before tax (26,196) 19,904 Tax at the UK corporation tax rate of 30% (5,894) 5,971(2007: 30%) Tax at the UK corporation tax rate of 28% (1,834) -(2007: 30%) Effects of Tax effect of non-taxable UK dividends (136) (216) Gains and losses on investments that are 7,969 (5,521)not taxable Unrealised gains on non-qualifying offshore 241 178funds Irrecoverable income tax 39 38 Utilisation of excess expenses from prior - (187)periods Deferred tax prior year movement 27 - Adjustments in respect of prior periods (27) - Small companies' rate on investment trust (6) - Marginal small companies relief on (1) (6)subsidiary Total tax for the year 378 257Due to the Company's tax status as an investment trust and the intention tocontinue meeting the conditions required to obtain approval of such status inthe foreseeable future, the Company has not provided tax on any capital gainsarising on the revaluation or disposal of investments.
(c) Provision for deferred tax:
Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000 Provision at start of year 66 -
Deferred tax charge for the year 360 66 Provision at end of year 426 66The deferred tax charge in the capital account of ‚£241,000 (2007: ‚£178,000) ofthe investment trust relates to an unrealised gain on a non-distributingoffshore fund. The deferred tax charge of ‚£119,000 in the revenue account(2007: ‚£(112,000)) relates to the reversal of the prior year tax credit forutilisation of revenue expenses on this unrealised offshore gain and ‚£7,000(2007: nil) arising on income taxable in the subsequent accounting period.
There is no unrecognised deferred tax asset (2007: nil) as a result of excess expenses.
6. REVENUE RETURN FOR THE YEAR
The revenue return for the year dealt with in the accounts of the parent company was ‚£598,000 (2007: ‚£832,000).
7. RETURN PER ORDINARY SHARE
Total return per Ordinary share is based on the Group total return on ordinary activities after taxation of ‚£(26,574,000) (2007: ‚£19,647,000) and on 71,023,695 (2007: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Revenue return per ordinary share is based on the Group revenue return on ordinary activities after taxation of ‚£671,000 (2007: ‚£865,000) and on 71,023,695 (2007: 71,023,695) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on net capital losses for the yearof ‚£27,245,000 (2007: capital gains of ‚£18,782,000) and on 71,023,695 (2007:71,023,695) Ordinary shares, being the weighted average number of Ordinaryshares in issue during the year.
8. DIVIDENDS ON EQUITY SHARES
Amounts recognised as distributions in the year:
Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000
Dividends paid for the year ended 30th June 2007 of 1.00p (2006: 0.10p) per share) 710
71 710 71The total dividend payable in respect of the financial year, which is the basison which the requirement of Section 842 Income and Corporation Taxes Act 1988are considered, is set out below. Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000
Proposed Final dividend for the year ended 30th June 2008 of 0.73p (2007: 1.00p) per share) 518
710 518 710
Revenue available for distribution by way of 671
865
dividend
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000 GROUP AND COMPANY 85,568 118,167 Listed* Unlisted Total ‚£'000 ‚£'000 ‚£'000 ANALYSIS OF INVESTMENTS PORTFOLIO - GROUP AND COMPANY Opening book cost 68,249 3,098 71,347 Opening unrealised appreciation/ 47,724 (903) 46,821(depreciation) Opening valuation 115,973 2,195 118,168 Movement in period Purchases at cost 17,054 - 17,054 Sales - Proceeds (22,451) - (22,451) - Realised gains on sales 7,275 - 7,275 Increase in unrealised (34,575) 97 appreciation (34,478) Closing valuation 83,276 2,292 85,568 Closing book cost 70,127 3,098 73,225 Closing unrealised appreciation/ 13,149 (806) 12,343(depreciation) Closing valuation 83,276 2,292 85,568
* A schedule of the twenty largest investments is shown above.
Year ended Year ended 30th June 30th June 2008 2007 ‚£'000 ‚£'000 ANALYSIS OF CAPITAL PROFITS Realised gains on sales 7,275 7,461
(Decrease)/increase in unrealised appreciation 10,971
(34,478) 18,432 (27,203)
The purchases and sales proceeds figures above included transaction costs of ‚£nil (2007: ‚£nil).
10. INVESTMENT IN SUBSIDIARY
The Company owns the whole of the issued share capital (‚£1) of JIT Securities Limited, an investment company registered in England and Wales.
11. OTHER RECEIVABLES 30th June 30th June 30th June 30th June 2008 2008 2007 2007 Group Company Group Company ‚£'000 ‚£'000 ‚£'000 ‚£'000 Prepayments and accrued 68 63 14 9income Due from brokers - - 1,160 1,160 Taxation 50 16 - - Forward currency purchases - - 218 - Amounts owed by subsidiary - 914 - 914undertakings 118 993 1,392 2,083
12. CASH AND CASH EQUIVALENTS
30th June 30th June 30th June 30th June 2008 2008 2007 2007 Group Company Group Company ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash at bank 11,834 10,156 4,883 3,655 11,834 10,156 4,883 3,65513. OTHER PAYABLES 30th June 30th June 30th June 30th June 2008 2008 2007 2007 Group Company Group Company ‚£'000 ‚£'000 ‚£'000 ‚£'000 Bank overdraft - - 360 360 Accruals 350 350 175 175 Forward currency purchases 339 - - - Corporation tax payable - - 153 - Deferred tax payable 426 426 66 66 1,115 776 754 60114. CALLED UP SHARE CAPITAL 30th June 30th June 2008 2007 ‚£'000 ‚£'000 Authorised 305,000,000 (2007: 305,000,000) Ordinary 3,050 3,050shares of ‚£0.01 each Issued and fully paid
71,023,695 (2007: 71,023,695) Ordinary shares 710
710of ‚£0.01 each 15. RESERVES Share premium Special Retained account reserve Earnings ‚£'000 ‚£'000 ‚£'000GROUP At 30th June 2007 21,573 56,908 44,498 Decrease in unrealised - - (34,478)appreciation Net gains on realisation of - - 7,275investments
Unrealised gains on revaluations - -
204of bank accounts Realised losses on foreign - - (13)currency Losses on forward currency - - (24)purchases Expenses charged to capital - - (1) Corporation tax charge in - - 33capital
Deferred tax charge in capital - -
(353) Relief on taxable income in - - 112capital Final dividend - - (710) Retained profit for year - - 671 At 30th June 2008 21,573 56,908 17,214 Share premium Special Retained account reserve Earnings ‚£'000 ‚£'000 ‚£'000COMPANY At 30th June 2007 21,573 56,908 44,114 Decrease in unrealised - - (34,478) appreciation Net gains on realisation of - - 7,275 investments
Unrealised gains on revaluations - -
159 of bank accounts Realised gains on foreign - - 34 currency Expenses charged to capital - - (1)
Deferred tax charge in capital - -
112 Relief on taxable income in - - (353) capital Final dividend - - (710) Retained profit for year - - 598 At 30th June 2008 21,573 56,908 16,750
The components of retained earnings are set out below:
30th June 30th June 2008 2007 ‚£'000 ‚£'000 GROUP Capital reserve-realised 4,269 (3,318) Capital reserve-unrealised 11,913 46,745 Revenue reserve 1,032 1,071 17,214 44,498 COMPANY Capital reserve-realised 3,623 (3,444) Capital reserve-unrealised 12,207 46,526 Revenue reserve 920 1,032 16,750 44,114
16. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per Ordinary share is calculated on net assets of ‚£ 96,405,000 (2007: ‚£123,689,000) and 71,023,695 (2007: 71,023,695) Ordinary shares in issue at the year end.
17. NOTES TO THE CASH FLOW STATEMENT
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
Purchases and sales of investments are considered to be operating activities ofthe Group, given its purpose, rather than investing activities. However, thecash flows associated with these activities are presented below: 30th June 30th June 2008 2007 ‚£'000 ‚£'000 Proceeds on disposal of fair value through 23,611 16,454profit and loss investments Purchases of fair value through profit and loss (17,054) (13,986)investments 6,557 2,468
Analysis of changes in net cash balances
30th June Cash 30th June 2008 flow 2007 ‚£'000 ‚£'000 ‚£'000 Cash at bank 4,883 6,951 11,834 Bank overdraft 360 - (360) 4,523 7,311 11,83418. FINANCIAL INSTRUMENTS
The Group's investment objective is to achieve long term capital growth. Itinvests in funds managed by New Star Asset Management, both long-only andhedge, in New Star Asset Management Group shares and in other retail funds andspecial situations. In addition, the Group holds cash and short-term depositsand provides for debtors and creditors that arise directly from its operations.The Group's assets are stated at fair value.For listed securities, these represent bid prices, or for unit trusts andOEICs, the closing price released by the relevant investment manager. The fairvalue of unquoted investments is based on the market price at the close ofbusiness on the balance sheet date where an organised market exists. Otherwise,unquoted investments are valued by the Directors at the balance sheet datebased on recognised valuation methodologies, in accordance with InternationalPrivate Equity and Venture Capital (`IPEVC') Valuation Guidelines such asdealing prices or third party valuations where available, net asset values andother information as appropriate.The holding of securities, investing activities and associated financingundertaken pursuant to this objective involve certain inherent risks. Eventsmay occur that would result in either a reduction in the Group's net assets ora reduction of potential revenue profits available for dividend. As aninvestment trust, the Group invests in securities for the long term.Accordingly it is, and has been throughout the year under review, the Group'spolicy that no short-term trading in investments or other financial instrumentsshall be undertaken.The main financial instrument risks arising from the Group's pursuit of itsinvestment objective are market risk (comprising price risk, currency risk, andinterest rate risk), liquidity risk and credit risk. The Board has reviewed andagreed policies for managing each of these risks, which are unchanged from theprevious year, and which are summarised below.
Note 18 (h) sets out a summary of the Group's financial assets and liabilities by category.
(a) Market RiskThe fair value or future cash flows of a financial instrument held by the Groupmay fluctuate because of changes in market prices in funds managed by New StarAsset Management, in which the Group invests. This market risk comprises threeelements - currency risk (see note 18 (b)), interest rate risk (see note 18(c)), and other price risk (see note 18 (d)). The Board reviews and agreespolicies for managing these risks. The Group's Investment Manager assesses theexposure to market risk when making each investment decision, and monitors theoverall level of market risk on the whole of the investment portfolio on anongoing basis.
(b) Currency Risk
A proportion of the Group's portfolio is invested in investments denominated in a foreign currency and movements in exchange rates can significantly affect their Sterling value.
Management of the risk
The Investment Manager does not normally hedge against foreign currency movements affecting the value of the investment portfolio, but takes account of this risk when making investment decisions. In addition, the Directors may authorise the Investment Manager to hedge currency risk in appropriate circumstances.
Foreign currency exposure
During the year under review, the Investment Manager entered into a forwardcurrency contract within the subsidiary company, JIT Securities Limited. Inview of the Group's exposure to the US dollar both directly and indirectly byinvesting in funds, many of whose assets and/or revenues are related to thedollar, it was thought appropriate to hedge a part of this exposure. Thereforein November 2007, the Group, through its subsidiary, sold approximately US$20million for sterling for settlement in one year. This contract resulted in theforward sale of US for sterling and is for one year's duration. At 30th June2008 the unrealised loss on this contract was ‚£339,000 (2007: unrealised gainof ‚£218,000).
The fair values of the Group's monetary items that have foreign currency exposure at 30th June 2008 are shown below.
2008 2008 2008 2007 2007 2007 US US Dollars Euros Total Dollars Euros Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Investments at fair value through 12,780 5,349 18,129 12,532 7,401 19,933profit or loss Debtors - - - - - - Cash at bank and - 2,957 2,957 (360) 10 (350)short-term deposits Creditors - - - - - - Total net foreign 12,780 8,306 21,086 12,172 7,411 19,583currency exposure Foreign currency sensitivityDuring the financial year sterling depreciated by 0.8% against the US Dollar(2007: appreciated by 8.5%) and depreciated by 15.0% against the EURO (2007:appreciated by 2.7%).It is not possible to forecast how much exchange rates might move in the nextyear, but based on the movements in currencies above in the last two years, itappears reasonably possible that rates could change by 10%.
Applying a 10% change in rate to the exposures listed above would affect net assets and capital return as follows:
2008 2008 2008 2007 2007 2007 US US Dollars Euros Total Dollars Euros Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 If exchange rates (1,162) (755) (1,917) (1,107) (674) (1,781)appreciated by 10% If exchange rates 1,420 923 2,343 1,353 823 2,176depreciated by 10%
It should be noted that the above illustration is based on exposures at the year end. Exposures may be subject to change during the year as a result of investment decisions.
(c) Interest Rate Risk
The Group will be affected by interest rate changes as it holds convertibleloan stock assets. The majority of the Group's investments are equity based andare not therefore subject to interest rate risk. However interest rate changeswill have an impact on the valuation of equities, although this forms part ofother price risk, which is considered separately below.
Management of the risk
The possible effects on fair value and cash flows that could arise as a resultof changes in interest rates are taken into account when making investmentdecisions. The Group currently has no gearing. The Group, generally, does nothold significant cash balances, with short-term borrowings being used whenrequired. Cash balances are held on call deposit and earn interest at thebank's daily rate.
Derivative contracts are not used to hedge against the exposure to interest rate risk.
Interest rate exposure
The exposure, at 30th June of financial assets and liabilities to interest rate risk is shown by reference to:
- floating interest rates - when the rate is due to be re-set;
- fixed interest rates - when the financial instrument is due for repayment. 2008 2008 2008 2007 2007 2007 Greater Greater In 1 year than In 1 year than or less one year Total or less one year Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Exposure to floating interest rates: Cash at bank 11,834 - 11,834 4,883 - 4,883 Bank overdraft - - - - (360) (360) Total net foreign 11,834 - 11,834 4,523 - 4,523currency exposure 2008 2008 2008 2007 2007 2007 Greater Greater In 1 year than In 1 year than or less one year Total or less one year Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Exposure to fixed interest rates: Investments at fair value through - 458 458 - - -profit and loss Total exposure to 11,834 458 12,292 4,523 - 4,523interest rates The above year end amounts are not representative of the exposure to interestrates during the year, since the level of cash held during the year will beaffected by the strategy being followed in response to the Board and InvestmentManager's perception of the market prospects and the investment opportunitiesavailable at any particular time.
Interest receivable and finance cash are at the following rates:
- Interest received on cash balances, or paid on bank overdrafts is at a margin over LIBOR or its foreign currency equivalent (2007: same).
- The nominal and weighted average interest rate on Cordon Limited 12% Loan Notes is 12% (2007: nil).
Interest rate sensitivity
The following table illustrates the sensitivity of the profit after taxation for the year and equity to an increase or decrease of 50 (2007: 50) basis points in interest rates in regard to the Group's monetary financial assets which are subject to interest rate risk.
This level of change is considered to be reasonably possible based on observations of current market conditions. The sensitivity analysis is based on the Group's monetary financial instruments held at each balance sheet date, with all other variables held constant.
Increase Decrease Increase Decrease in rate in rate in rate in rate 2008 2008 2007 2007 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Effect on revenue return and equity 59 (59) 23 (23)(d) Other price risk
The Group's exposure to other price risk comprises mainly movements in the value of its equity investments.
A schedule of twenty largest investments is shown above. Investments are valuedin accordance with the Group's accounting policies. Uncertainty arises as aresult of future changes in valuations of the Group's investments, the marketprices of the Group's listed equity investments and the effect changes inexchange rates may have on the sterling value of the investments.
Management of the risk
In order to manage this risk the Directors meet regularly with the Manager tocompare the performance of the portfolio against market indices and comparableinvestment trusts. Given the Group's investment objective, the Group does nothedge against the effect of changes in the underlying prices of theinvestments.The Group had no derivative instruments, other than currency contracts, at theyear end, but, in the event that it had, the value of derivative instrumentsheld at the balance sheet date would be determined by reference to their marketvalue at that date.
The unquoted investments are held at Directors' valuations. All valuations are reviewed by the Investment Manager, the Group's Audit Committee and subsequently recommended to the Board for acceptance.
Other price risk exposure
The Group's exposure to other changes in market prices at 30th June on its quoted investments was as follows:
2008 2007 ‚£'000 ‚£'000
Fixed asset quoted investments at fair value through 83,276 115,973 profit or loss
The Group's exposure to other changes in prices at 30th June on its unquotedinvestments was as follows: 2008 2007 ‚£'000 ‚£'000 Fixed asset unquoted investments at fair value 2,292
2,195
through profit or loss
A schedule of the Group's 20 largest investments may be found above.
Other price risk sensitivity
The following table illustrates the sensitivity of the profit after taxationfor the year and the equity to an increase or decrease of 10% in the fairvalues of the Group's investments. This level of change is considered to bereasonably possible based on observation of current market conditions. Thesensitivity analysis is based on the Group's investments at each balance sheetdate, with all other variables held constant. Increase Decrease Increase Decrease in fair in fair in fair in fair value value value value 2008 2008 2007 2007 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Effect on revenue return - - - - Effect on capital return 8,557 (8,557) 11,817 (11,817) Effect on total return 8,557 (8,557) 11,817 (11,817)and on net assets (e) Liquidity RiskLiquidity risk is the possibility of failure of the Group to realise sufficientassets to meet its financial liabilities, including outstanding commitmentsassociated with financial instruments. The Group's assets mainly comprisesecurities which can be readily sold to meet future funding commitments, ifnecessary. Unlisted securities, which carry a higher degree of liquidity riskform only 2.7% (2007: 1.9%) of the investment portfolio.
Management of the risk
The liquidity risk is managed by maintaining some cash or cash equivalent holdings in order to meet investment requirements as they fall due. At the year end the Group had liquid resources of ‚£97.4 million.
This was made up of ‚£11.8 million cash and money market instruments and ‚£85.6 million of listed investments.
Liquidity risk exposure
A summary of the Group's financial liabilities is provided in note 18 (h). The Group has sufficient funds to meet these financial liabilities as they fall due.
(f) Credit Risk
Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits.
Management of the risk
This risk is not considered significant. The Group manages credit risk by entering into deals only with brokers pre-approved by a committee of New Star Asset Management Limited.
Credit risk exposureThe maximum exposure to credit risk at 30th June 2008 was ‚£115,000 (2007: ‚£1,389,000), comprising: 2008 2007 ‚£'000 ‚£'000 Balances due from brokers - 1,160 Accrued income 65 11 Forward currency purchases - 218 Tax recoverable 50 - 115 1,389
All of the above financial assets are current, their fair values are considered to be the same as the values shown and the likelihood of a material credit default is considered to be low.
(g) Fair Values of Financial Assets and Financial Liabilities
The Group's financial instruments are stated at their fair values at the year end. The fair value of listed shares and securities is based on last traded market prices. The fair value of unlisted shares and securities is based on Directors' valuations as detailed in note 1(f).
(h) Summary of Financial Assets and Financial Liabilities by Category
The carrying amounts of the Group's financial assets and financial liabilitiesas recognised at the balance sheet date of the reporting periods under revieware categorised as follows: 2008 2007 ‚£'000 ‚£'000 Financial Assets Financial assets at fair value through profit or loss: Fixed asset investments - designated as such 85,568 118,168on initial recognition Loans and receivables: Current assets: Debtors (due from brokers, dividends 68 1,174receivable, accrued income and other debtors) Forward currency purchases - 218 Tax recoverable 50 - Cash and cash equivalents 11,834 4,883 97,520 124,443 Financial Liabilities Measured at amortised cost: Creditors: amounts falling due within one year Bank overdraft - 360 Creditors (due to brokers and deferred 426 66consideration) Forward currency purchases 339 - Other taxation payable - 153 Accruals 350 175 1,115 754(i) Capital ManagementThe Group and the Company's capital is as disclosed in the Balance Sheets andis managed on a basis consistent with its investment objective and policies, asdisclosed in the Business Review above. The principal risks and theirmanagement are disclosed above.
19. CONTINGENT ASSET
In November 2007 HM Revenue & Customs (`HMRC') declared its acceptance thatfund management services to investment trusts are exempt from VAT. From thattime the Group has ceased to be charged VAT on management fees. The Manager hasconfirmed that it has lodged claims with HMRC to recover VAT paid from January2001.The processing of claims is likely to be protracted and HMRC has yet to publisha mechanism for the process. Until this mechanism is published anduncertainties surrounding the potential repayment are resolved there will be norecognition of an asset in the Accounts. However, the Group currently estimatesthat it may in due course recover approximately ‚£140,000 in respect of claimssubmitted by the Manager for the period from 2001.
20. RELATED PARTIES
During the year Mr Duffield was Chairman and shareholder of New Star AssetManagement Group PLC, the holding company of New Star Asset Management Limited,which received investment management fees pursuant to the agreement detailedbelow.Pursuant to an agreement dated 29th January 2001 the Group's investments aremanaged by New Star Asset Management Limited. The management fee is payablequarterly in arrears and is calculated at the rate of 3/16% per quarter of thetotal assets of the Company and its subsidiaries after deduction of the valueof any Jupiter managed investments and any New Star managed investments (asdefined in the Management Agreement). Either party may terminate theappointment of the Investment Manager by giving not less than three months'written notice to expire on the last day of any calendar month.The total management fee payable for the year ended 30th June 2008 amounted to‚£263,000 (2007: ‚£265,000) of which ‚£147,000 (2007: ‚£70,000) was outstanding atthe year end.With effect from 1st September 2008, the Manager will also be entitled to aperformance fee of 15% of the growth in net assets over a hurdle of 3 monthSterling LIBOR plus 1%. per annum, payable six monthly in arrears, subject to ahigh water mark. The aggregate of the Company's management fee and performancefee are subject to a cap of 4.99%. of net assets in any financial year (withany performance fee in excess of this cap capable of being earned in subsequentperiods). The performance fee will be charged 100% to capital, in accordancewith the Board's long term expectation of how any outperformance will begenerated.
The Group's investments include funds managed by subsidiaries of New Star Asset Management Group PLC.
21. FINANCIAL INFORMATIONThe above financial information is derived from the statutory accounts for theyears ended 30 June 2008 and 30 June 2007, on both of which the auditors haveissued an unqualified opinion. The information does not constitute statutoryaccounts as defined in Section 240(1) of the Companies Act 1985.
The accounts for the year ended 30 June 2007 have been filed with Companies House and the accounts for the year ended 30 June 2008 will be filed in due course.
The accounts for the year ended 30 June 2008 will be sent to shareholders in September and will shortly be available from the investment manager at 1 Knightsbridge Green, London SW1X 7NE or on the Company's webpage:
www.newstaram.com/alternative-investments/closed-end-funds/
The Annual General Meeting of the Company will be held on 1st October 2008 at 11.00am at 1 Knightsbridge Green, London SW1X 7NE.
vendor