TIDMNST
RNS Number : 6806N
New Star Financial Opp Fd Ltd
20 February 2009
Announcement of Final Results for the year ended 30 November 2008
Company information
New Star Financial Opportunities Fund Limited's (the "Company") investment
objective and policy were restated following an Extraordinary General Meeting
held on 11 December 2007 and are:
Investment objective
The investment objective of the Company is to provide shareholders with a high
level of income and the potential for capital and income growth.
Investment policy
The Company will seek to achieve its investment objective by investing
predominantly in the equity, debt or other securities of listed European and UK
financial companies. The Company may invest up to 25 per cent of its total
assets (at the time of purchase) in financial companies listed outside Europe
and the UK.
The Company also may invest up to 10 per cent of its total assets (at the time
of purchase) in unquoted financial securities and limited partnerships which
themselves invest in financial companies.
Individual holdings will be limited to 7.5 per cent of total assets at the time
of purchase. The Company will not invest more than 10 per cent of total assets
(at the time of purchase) in other listed investment companies.
The Company may enter into short sale transactions which shall be limited to 20
per cent of total assets in aggregate with a limit on short sales of individual
stocks limited to 5 per cent of total assets.
The Company will maintain gearing in most market conditions, with borrowings
limited to 50 per cent of total assets at the time of draw-down, other than for
short-term settlement or cash flow purposes.
Benchmark
The benchmark index for measuring the Company's investment performance is the
Dow Jones STOXX 600 Financials Index.
Capital structure
Following the reconstruction in December 2007 the Company has only Ordinary
Shares in issue. The Ordinary Shares are geared by a credit facility, being a
prior charge on capital. Prior to 11 December 2007, the Ordinary Shares were
geared by Zero Dividend Preference Shares.
Financial highlights
+--------------------------------------------+----------------------------------+
| | % |
+--------------------------------------------+----------------------------------+
| | change |
+--------------------------------------------+----------------------------------+
| Performance - Total Return | |
+--------------------------------------------+----------------------------------+
| Net asset value | (47.7) |
+--------------------------------------------+----------------------------------+
| Ordinary share price | (49.2) |
+--------------------------------------------+----------------------------------+
| Dow Jones STOXX 600 Financials Index* | (49.0) |
+--------------------------------------------+----------------------------------+
| FTSE Financials Index | (46.9) |
+--------------------------------------------+----------------------------------+
*Sterling equivalent
+-----------------------------+----------------+---------------------+------------+
| | As at | As at | |
+-----------------------------+----------------+---------------------+------------+
| | 30 November | 30 November | % |
+-----------------------------+----------------+---------------------+------------+
| | 2008 | 2007 | change |
+-----------------------------+----------------+---------------------+------------+
| Ordinary shares | | | |
+-----------------------------+----------------+---------------------+------------+
| Net asset value | 34.28p | 71.63p | (52.1) |
+-----------------------------+----------------+---------------------+------------+
| Mid-market price | 31.00p | 66.25p | (53.2) |
+-----------------------------+----------------+---------------------+------------+
| Discount | 9.6% | 7.5% | - |
+-----------------------------+----------------+---------------------+------------+
+-----------------------------+-----------------+---------------------+------------+
| | 1 December 2007 | 1 December 2006 | |
+-----------------------------+-----------------+---------------------+------------+
| | to | to | % |
+-----------------------------+-----------------+---------------------+------------+
| | 30 November | 30 November 2007 | change |
| | 2008 | | |
+-----------------------------+-----------------+---------------------+------------+
| Revenue | | | |
+-----------------------------+-----------------+---------------------+------------+
| Earnings per Ordinary | 5.73p | 5.03p | 13.9 |
| Share** | | | |
+-----------------------------+-----------------+---------------------+------------+
| Dividends paid per Ordinary | 4.55p | 4.55p | - |
| Share | | | |
+-----------------------------+-----------------+---------------------+------------+
**Excluding own shares held in Treasury
Chairman's statement
Chairmen of investment trust companies often introduce their annual reports with
words such as, "I am pleased to present the Report and Accounts of ......".
Presenting this report to you, as the first that I do as Chairman of your
Company, gives me no pleasure, and also will give readers who are shareholders
no pleasure. Indeed, 2008 will long be remembered as one of the unhappiest in
the financial sector, and I have no doubt that the origins of this global
financial crisis, and the subsequent collapses of many institutions believed to
be of sound repute and essential to the world's markets, will keep future
under-graduates of the world's business schools busy for many decades.
Just after the year-end, one of the failures in the sector was the group that
manages the assets of your Company: New Star Asset Management Group PLC had to
be rescued by its banks, a consortium that has taken a 75% stake in the group.
Given the deterioration in New Star's trading position, your Directors have
spent much time considering the future management of your Company. They,
therefore, were encouraged to read the statement of the 30 January when the
boards of directors of Henderson Group PLC and New Star Asset Management Group
PLC announced the terms of Henderson's recommended acquisition of New Star.
Shareholders will understand that, at the date of this Report, it is too early
to gauge the impact on your Company. In the meantime the Board remains in
frequent communication with its Investment Manager, Nick Brind, who continues to
have the interests of the Company very much at heart.
Looking at the performance of the net asset value of the Ordinary Shares since
he took over as Investment Manager in March 2003, your Directors believe that he
has done a sound job, not withstanding the ravages of 2008. Below are two
tables, the first showing the performance in each discrete year ending 30
November, and the second the cumulative performances over the periods to 30
November 2008.
Discrete Performances
+--------------------------+----------+----------+----------+----------+----------+----------+
| Financial years ended 30 | 2003* | 2004 | 2005 | 2006 | 2007 | 2008 |
| November | | | | | | |
+--------------------------+----------+----------+----------+----------+----------+----------+
| NAV total return (%) | 62.2 | 17.8 | 38.0 | 32.9 | (3.4) | (47.7) |
+--------------------------+----------+----------+----------+----------+----------+----------+
| Benchmark Index total | 32.8 | 9.8 | 18.2 | 20.4 | (7.4) | (49.4) |
| return** (%) | | | | | | |
+--------------------------+----------+----------+----------+----------+----------+----------+
* From 31 March 2003
** Prior to 14 December 2007 the index used for comparing performance was the
FTSE Financials Index. Since that date the Dow Jones STOXX 600 Financials Index
has been used as the comparator.
Cumulative Performances
+-------------------+------------+------------+------------+------------+------------+------------+
| From | to | to | to | to | to | to |
+-------------------+------------+------------+------------+------------+------------+------------+
| 31 March 2003 | 30 | 30 | 30 | 30 | 30 | 30 |
| | November | November | November | November | November | November |
+-------------------+------------+------------+------------+------------+------------+------------+
| | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
+-------------------+------------+------------+------------+------------+------------+------------+
| NAV total return | 62.2 | 91.0 | 163.5 | 250.3 | 238.3 | 77.0 |
| (%) | | | | | | |
+-------------------+------------+------------+------------+------------+------------+------------+
| Benchmark Index | | | | | | |
+-------------------+------------+------------+------------+------------+------------+------------+
| total return (%) | 32.8 | 45.8 | 72.3 | 107.4 | 92.0 | (2.9) |
+-------------------+------------+------------+------------+------------+------------+------------+
With our still being in the grip of the most significant global financial crisis
for seven decades, and now with a fast-deteriorating economic background in both
the UK and continental Europe, looking ahead from the date of this report for
signs of optimism is not easy. It, however, is to be hoped that most of the
issues in the financial sector are now known, even if not fully understood, and
certainly not fully played out. And, of course, it must be acknowledged that, if
stock markets were to make further marked downturns during the year to 30
November 2009, your Company's portfolio would not be immune from such falls.
Albeit many of the factors were different, one cannot forget the long bear
market of late 1972/75 when the UK's FT 30 Share Index fell by 73% over 962 days
to the 6 January 1975. The Index then increased by 120% over the next two
months, but was was only 50 odd points higher some four years later. Since
2007's high of the FTSE 100 Share Index on the 15 June the market has fallen by
38.4% to the end of January and the fall was over 595 days. The Company's
benchmark index peaked on 18 May 2007, and had fallen 62% by the end of January.
If history were any guide, I fear that this bear market still might have legs.
We all, however, need to hope that the measures taken by western governments and
central banks to lubricate the wholesale money markets and kick-start their
economies begin to work during the coming twelve months. Only then can one
believe that stock markets will not break 1972/75's 'record', regain some poise
and begin to show gains again. Since the Second World War there have been twelve
recessions and twelve recoveries. Surely the thirteenth cannot be the unlucky
one?
With interest rates being cut dramatically and UK rates being at their lowest
official rate, 1% since the Bank of England was founded in 1694, and with
expectations of a lower return equity environment, your Directors understand the
importance of dividends to shareholders, and, fortunately, the Company is
structured in such a way as to maximise the ability to pay out a high level of
income. Whilst the general consensus is that dividends from UK companies will be
cut only marginally in 2009, we believe that dividends from financial companies
taken as a whole will be cut materially or omitted, as has already been
demonstrated by the omissions of dividends from three of the UK's major banks.
The Company's move into fixed interest stocks should give it some protection
from the severity of the expected cuts, and the Company also has a brought
forward revenue reserve of GBP1.769 million, after taking into account the
fourth interim dividend of 1.1p per share announced on 8 December.
Given the view of both the Investment Manager and your Directors that a recovery
in the financial sector may take time, especially as many companies need to
repair their balance sheets, we believe that the risk of maintaining the
quarterly dividends at 1.1p per share is not appropriate in the current, extreme
conditions. The Directors are mindful that maintaining a very high dividend -
the current yield is some 16 to 17% - could hobble the Investment Manager when a
recovery in financials starts, and leave him either chasing income or
maintaining a very high exposure to fixed-interest, and thus not being able to
benefit from any uplift in equity prices.
We are fortunate to have a significant revenue reserve, and we hope that, by
using that reserve prudently, we could pay dividends totalling no less than 3p
per share per year for the foreseeable future, although I am sure that
shareholders will appreciate that we would be foolish today to make a prediction
beyond the next twelve months. Being conscious of the importance of dividends to
many shareholders, your Board will continue to review the level of dividends
that the Company pays, and review the level if subsequent events were to show
that the Board had been too cautious in its present decision about future
dividends.
I hope that when I next report to shareholders there may be a little light at
the end of the proverbial tunnel, and my report may be against a more favourable
background for financial companies. In the meantime your Directors' attention is
focused on the maintenance of the Company's dividend, keeping the Company's
gearing as low-risk as possible, maintaining frequent contact with New Star
Asset Management - and Henderson, should the acquisition close - and keeping
expenses under a tight control. The next year will be a critical one for the
financial sector and your Company, and your Board is very focused on maximising
the opportunity for shareholders to recover as much as possible of the capital
that has been lost over the last year.
Before closing this report, I must mention three other matters. First, the
4,236,992 Ordinary Shares that were held in Treasury were cancelled on 12
December 2008.
Secondly, the Board discussed the option of an annual tender offer, as detailed
in the Circular dated 19 November 2007. Given the current, small size of the
Company' s assets, the Board decided against taking such action in January,
preferring instead to retain cash resources in the current climate, for working
capital purposes and for dividend payments as noted above.
Thirdly, my predecessor retired from the Board on the 12 September 2008, having
served shareholders since the Company's inception in 2000. Whilst your Directors
can only admire the timing of Martyn Chambers' retirement, they wish to record
their thanks to him for his wise counsel and steady Chairmanship over the last
eight years, and they wish him a healthy and long retirement.
Julian G Tregoning
Chairman
18 February 2009
Investment manager's report
As highlighted in the Chairman's Statement the year covered by this report was
an awful one for financial stocks despite the extraordinary efforts by Central
Banks and Governments to stabilise credit markets and the banking system.
Volatility rocketed to levels not seen since the crash of October 1987 as
investors fled equities and other risky assets to the safe-haven of short-term
government bonds and cash following the collapse of Lehman Brothers on 15
September 2008.
Against the background described above the investment portfolio suffered
significant losses. Financial stocks with the exception of a number in the
non-life insurance sector fell sharply over the course of the year. Bank shares
suffered the sharpest fall in share prices reflecting their highly leveraged
balance sheets, which had become increasingly reliant in recent years on
wholesale funding, and the belief that most were insufficiently capitalised to
weather a sharp economic downturn.
The share prices of life assurance companies fell reflecting their reliance on
financial markets to generate their profits and concern over their capital
position and exposure to corporate bonds. Real estate companies fell as demand
for property collapsed as the availability and terms of financing tightened
considerably, making valuations unattractive for leveraged investors, while most
open-ended funds investing in the sector had to freeze redemptions after
suffering large outflows.
Asset managers and exchanges also suffered sharp falls in their share prices
reflecting their operational gearing to equity markets. The share prices of
exchanges had initially held up well, on the huge volatility and increased
turnover in equity markets on which they depend to generate their revenue. They,
however, fell as investors questioned their high valuations, and the
sustainability of the high levels of turnover in equity markets plus investors'
perceived impact of increased competition as a result of a change in
legislation.
The non-life insurance sector was the only area of the financial sector to show
any resilience in share price performance. In part this was due to the
significantly lower exposure that many of the companies in the sector have to
equity markets to generate their investment returns. But also, the sharp fall in
financial markets has resulted in a significant reduction in the amount of
capital available to underwrite insurance risk in the industry as a whole. This
is expected to lead to an improvement in pricing and profitability.
The performance of the investment portfolio as a result was very disappointing.
Not surprisingly, with the exception of a small number of holdings in the
non-life insurance sector, the majority of equity holdings suffered sharp falls
in their share prices. Furthermore, there were a number of holdings in mostly
smaller companies that suffered close to a total collapse in their market
capitalisations reflecting the extraordinarily difficult conditions for
financial companies.
The Company's holdings in fixed-income securities also performed
disappointingly, though still performed considerably better than the significant
majority of the equity holdings. Though it was not unexpected that corporate
bonds would suffer against the background described above, the ferocity of the
crisis in the financial system led to prices falling much further than expected
with some significant losses in a small number of individual holdings.
Hedging through the use of index swaps, futures, contracts for difference and
put options on various sector indices, equity indices and individual stocks were
used to provide a degree of protection against falls in equity markets. The
gains from these positions proved beneficial in offsetting some of the losses
resulting from the sharp falls in equity markets. The Company also benefited
from gains in foreign currencies reflecting the significant fall in sterling in
the second half of 2008.
During the year, investment activity was driven in part by the need to reduce
the outstanding level of borrowings to provide some further protection against
the falls in financial markets having a more significant impact on net assets
than otherwise would have been the case due to the leveraged nature of the
Company. This was largely achieved by reducing holdings in primarily the
Company's equity portfolio.
Other investment activity included reducing, where possible, some of the
holdings in smaller companies or other less liquid securities, though with stock
market liquidity being very poor, as investment banks reduced the level of
capital backing market-making operations and the impact of the unwinding of
certain hedge funds, this was extremely difficult. Nevertheless, the unquoted
holding in Dartmoor Investment Trust preference shares was sold in April at a
price higher than it was being valued at the time.
More recently, following the sharp fall in the prices of many corporate bonds
issued by financial companies, the opportunity has been taken to add to the
Company's fixed-income holdings. Following the collapse in Lehman Brothers the
prices of corporate bonds have fallen to levels not seen since the 1930's. As a
result they offer potentially extremely attractive returns when compared with
the very low levels of interest rates and yields on government bonds now
prevailing.
Prior to the collapse in Lehman Brothers the steps taken by Central Banks to
provide liquidity to banks, to offset the collapse in securitisation and
reduction in wholesale funding, had enabled them to continue to function though
arguably in a febrile way, and in one where they significantly tightened the
availability and terms of credit to customers. However, the decision to allow
Lehman Brothers to collapse had significant unintended consequences.
The effect of a number of US money market funds 'breaking the buck' due to their
exposure to Lehman Brothers resulted in significant amounts of money being
withdrawn from these funds that entailed funding being withdrawn from banks and
a near complete collapse of the banking system. As a result Central Banks were
forced to cut interest rates sharply and significantly increase the amount of
liquidity they were providing to the financial system.
Governments were galvanised to provide assistance to prevent the collapse of a
number of large financial companies. In the UK, The Royal Bank of Scotland,
Lloyds TSB and HBOS announced rights issues with the government taking
significant stakes in all three, while Barclays took the decision to raise
further capital privately. A number of other European governments also injected
capital into banks.
Furthermore many European governments have taken steps to increase deposit
protection schemes, while for the foreseeable future guaranteeing wholesale
funding and the issue of medium-term funding through bond issues. As a function
of this turmoil there has been some limited merger and acquisition activity
including Banco Santander's purchase of the savings business of Bradford &
Bingley, BNP Paribas's agreement to buy certain assets of Fortis from the
Belgian government and the merger of Lloyds TSB and HBOS.
Looking forward, however, there remains little visibility for the bank sector as
a whole. The share prices of most trade below their tangible book values largely
due to the belief that they still remain undercapitalised or will make
uneconomic returns for a number of years. Taking into account the potential loan
losses that they could suffer and the pro-cyclicality effects of Basel II,
coupled together, capital ratios could fall to, or below, minimum regulatory
thresholds.
Elsewhere in the financial sector, companies do not face anywhere near these
same headwinds. Life assurance companies have considerably less funding issues
than the bank sector and are significantly less exposed to falling equity
markets than they were in 2001-2. Although demand for savings products probably
will fall, this is arguably already more than factored into share prices and the
sector should benefit from any rise in the savings ratio, which in the UK
remains very low.
Commercial property has fallen sharply in value resulting in yields rising to
more sensible levels than they were previously. As real estate investment trusts
have seen their share prices fall faster than their net asset values, they are
discounting further falls in property values and rents. Asset managers have seen
their valuations fall to very low levels though they remain very sensitive to
moves in financial markets in either direction.
Valuations for the financial sector remain very depressed on almost all metrics
though for good reason. Added to the concerns about balance sheets there is also
the further unknown impact of any likely increased regulation and political
interference that will diminish returns going forward. There also remains the
risk if conditions worsen that more banks are nationalised in an attempt to
improve confidence in the system.
Outside the financial sector as a result of the fall in share prices, valuations
of many equity markets discount significant bad news. The outlook though for the
global economy is probably at its worst for over 60 years, but with equity
markets now looking cheap on even conservative measures such as the cyclically
adjusted price-earnings ratio and the ratio of replacement cost of capital to
market capitalisation, it could be argued that this is priced in.
But even low valuations cannot prevent equity markets falling further in the
short-term, and the portfolio, therefore, will continue to be managed relatively
cautiously until the outlook is more certain. In the short-term this is likely
to lead to increased exposure to fixed-income securities, where the risk reward
characteristics look more favourable and the income stream more secure.
The roots of this financial crisis started in the credit markets, and it,
therefore is likely that, until they start to function more normally, there will
be no sustainable rally in equity markets. With the prices of many corporate
bonds and equities offering significant upside and extremely attractive yields
investors are arguably being more than paid for the risk of further weakness in
the short-term.
Nick Brind
New Star Asset Management Limited
18 February 2009
Company portfolio
at 30 November 2008
+----------------------+------------------------+--------------------+--------------+----------+
| | | | | Fair |
+----------------------+------------------------+--------------------+--------------+----------+
| | | | | Value |
+----------------------+------------------------+--------------------+--------------+----------+
| Holding | Company | Sector | Security | GBP'000 |
+----------------------+------------------------+--------------------+--------------+----------+
| | | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 120,000 | HSBC Holdings | Banks | Ordinary | 858 |
+----------------------+------------------------+--------------------+--------------+----------+
| 1,000,000 | Santander 3.375% | Fixed income | Bond | 812 |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | Personal Group | Non-Life Insurance | Ordinary | 735 |
| | Holdings | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 750,000 | Brit Insurance | Fixed income | ULS | 716 |
| | Holdings 8.5% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 8,000 | Muenchener Rueckve | Non-Life Insurance | Ordinary | 708 |
+----------------------+------------------------+--------------------+--------------+----------+
| 750,000 | Provident Financial | Fixed income | Bond | 677 |
| | 7.125% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 750,000 | Investec 7.75% | Fixed income | Bond | 643 |
+----------------------+------------------------+--------------------+--------------+----------+
| 150,000 | Aviva | Life Insurance | Ordinary | 600 |
+----------------------+------------------------+--------------------+--------------+----------+
| 300,000 | RSA Insurance Group | Non-Life Insurance | Ordinary | 459 |
+----------------------+------------------------+--------------------+--------------+----------+
| 12,750 | BNP Paribas | Banks | Ordinary | 457 |
+----------------------+------------------------+--------------------+--------------+----------+
| 180,000 | DnB NOR | Banks | Ordinary | 440 |
+----------------------+------------------------+--------------------+--------------+----------+
| 550,000 | SVG Capital 8.25% | Fixed income | Convertible | 436 |
| | | | Bond | |
+----------------------+------------------------+--------------------+--------------+----------+
| 300,000 | Randall & Quilter | Non-Life Insurance | Ordinary | 390 |
+----------------------+------------------------+--------------------+--------------+----------+
| 3,000 | Zurich Financial | Non-Life Insurance | Ordinary | 380 |
| | Services Group | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 70,000 | Banco Santander | Banks | Ordinary | 372 |
+----------------------+------------------------+--------------------+--------------+----------+
| 550,000 | F&C Asset Management | Fixed income | Bond | 350 |
| | 6.75% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 500,000 | Intesa Sanpaolo 6.625% | Fixed income | Bond | 348 |
| | | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 600,000 | Argon Capital 8.162% | Fixed income | Bond | 341 |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | PSource Structured | General financial | Ordinary | 329 |
+----------------------+------------------------+--------------------+--------------+----------+
| 25,000 | AXA | Non-Life Insurance | Ordinary | 309 |
+----------------------+------------------------+--------------------+--------------+----------+
| 450,000 | Legal & General Group | Life Insurance | Ordinary | 303 |
+----------------------+------------------------+--------------------+--------------+----------+
| 300,000 | Barclays Bank 14% | Fixed income | Bond | 303 |
+----------------------+------------------------+--------------------+--------------+----------+
| 250,000 | Liontrust Asset | General financial | Ordinary | 299 |
| | Management | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | HBOS Capital Funding | Fixed income | Bond | 284 |
| | 9.54% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 300,000 | RSA Insurance Group | Fixed income | Preference | 283 |
| | 7.375% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | Nordea Bank Finland | Fixed income | Bond | 282 |
| | 6.25% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 200,000 | International Personal | General financial | Ordinary | 280 |
| | Finance | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 250,000 | Alliance & Leicester | Fixed income | Bond | 280 |
| | 9.625% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | Standard Chartered | Fixed income | Bond | 277 |
| | 8.103% | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 400,000 | Credit Agricole 5.136% | Fixed income | Bond | 274 |
+----------------------+------------------------+--------------------+--------------+----------+
| 350,000 | 3i Group 3.625% | Fixed income | Convertible | 272 |
| | | | Bond | |
+----------------------+------------------------+--------------------+--------------+----------+
| 40,000 | Banco Bilbao Vizcaya | Banks | Ordinary | 269 |
| | Argentaria | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 750,000 | Wogen | General financial | Ordinary | 263 |
+----------------------+------------------------+--------------------+--------------+----------+
| 90,000 | Primary Health | Real Estate | Ordinary | 261 |
| | Properties | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| 250,000 | Hansard Global | Life Insurance | Ordinary | 258 |
+----------------------+------------------------+--------------------+--------------+----------+
| 500,000 | BNP Paribas 4.875% | Fixed income | Bond | 247 |
+----------------------+------------------------+--------------------+--------------+----------+
| 125,000 | Intesa Sanpaolo | General financial | Ordinary | 244 |
+----------------------+------------------------+--------------------+--------------+----------+
| 19,500 | Sampo Oyj | Non-Life Insurance | Ordinary | 235 |
+----------------------+------------------------+--------------------+--------------+----------+
| 50,000 | Nordea Bank | Banks | Ordinary | 234 |
+----------------------+------------------------+--------------------+--------------+----------+
| 150,000 | Unicredit | Banks | Ordinary | 221 |
+----------------------+------------------------+--------------------+--------------+----------+
| TOTAL FOR FORTY | | | | 15,729 |
| LARGEST HOLDINGS BY | | | | |
| MARKET VALUE | | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| OTHER HOLDINGS | | | | 3,957 |
+----------------------+------------------------+--------------------+--------------+----------+
| | | | | |
+----------------------+------------------------+--------------------+--------------+----------+
| TOTAL FAIR VALUE OF | | | | 19,686 |
| INVESTMENTS | | | | |
+----------------------+------------------------+--------------------+--------------+----------+
The Company holds the following short positions or unexpired derivatives:
The Company has three swaps based on the DOW Jones Europe STOXX Bank Index with
a total notional value of GBP2,998,000. The unrealised gain on these contracts
at 30 November 2008 is GBP1,599,000.
The Company has two futures contracts with a total unrealised loss at 30
November 2008 of GBP30,000.
The Company also has three contracts for difference with a total notional value
of GBP423,000. The unrealised gain on these contracts at 30 November 2008 is
GBP139,000.
Report of the directors
Report of the Directors
The Directors present their report and the financial statements for the year
ended 30 November 2008.
Status and activities
New Star Financial Opportunities Fund Limited ("the Company") is a closed-ended
investment company registered under the provisions of The Companies (Guernsey)
Law, 2008.
The principal objective of the Company is to provide Ordinary Shareholders with
a high level of income and the potential for capital and income growth. This is
to be achieved by investing predominantly in the equity, debt or other
securities of listed European and UK financial companies.
The Ordinary Shares (and ZDP Shares up until 11 December 2007, being the date of
redemption of the ZDP Shares) are listed on the Official List of the United
Kingdom Listing Authority and are traded on the London Stock Exchange. Also, the
Shares are listed on the Official List of The Channel Islands Stock Exchange by
way of a secondary listing and are traded on The Channel Islands Stock Exchange.
Results and dividends
The Company made a revenue return for the year of 5.73p (2007: 5.03p) per
Ordinary Share.
The Company has paid or declared interim dividends for the period as follows:
+-------------------------------+----------------------+--------------------+
| | Pay date | Rate |
+-------------------------------+----------------------+--------------------+
| First interim (paid) | 30 April 2008 | 1.10p |
+-------------------------------+----------------------+--------------------+
| Second interim (paid) | 31 July 2008 | 1.10p |
+-------------------------------+----------------------+--------------------+
| Third interim (paid) | 31 October 2008 | 1.10p |
+-------------------------------+----------------------+--------------------+
| Fourth interim (declared 8 | 30 January 2009 | 1.10p |
| December 2008) | | |
+-------------------------------+----------------------+--------------------+
The Directors are not recommending the payment of a final dividend.
At 30 November 2008, the net assets of the Group were GBP 13,070,000 (2007:
GBP44,045,000) and the net asset value per Ordinary Share was 34.28p before
deducting the fourth interim dividend of 1.10p (2007: 71.63p before deduction of
the fourth interim dividend of 1.25p), which was declared on 8 December 2008 and
therefore is not provided for in these financial statements.
The Manager
The Directors believe that, given the very difficult market conditions, New Star
Asset Management Limited ("the Manager") managed the Company's assets well
during the year ended 30 November 2008. As noted in the Chairman's Statement,
the Manager's parent is currently subject to a bid from Henderson Group plc
that, subject to shareholders' consent, is expected to close in April 2009.
Given this bid, it is the opinion of the Directors at the date of this Report
that it is in the interest of shareholders as a whole to retain the services of
the Manager on the terms agreed. It, however, should be noted that in December
2008 the Directors gave protective notice to the Manager, and this will be
reviewed once the Directors know the outcome of the bid.
The Administrator
The Directors believe that Elysium Fund Management Limited ("the Administrator")
has performed creditably during the year to 30 November 2008. In the opinion of
the Directors, at the date of this report, it is in the interests of the
shareholders as a whole to retain the services of Elysium Fund Management
Limited on the terms agreed.
Directors and their interests
The Directors' interests in the share capital of the Group as at 30 November
2008 were as follows:
+------------------------------------------+------------------------+
| | Number of |
+------------------------------------------+------------------------+
| | Ordinary 0.1p |
+------------------------------------------+------------------------+
| | Shares |
+------------------------------------------+------------------------+
| Julian Tregoning | 20,000 |
+------------------------------------------+------------------------+
| George Baird | - |
+------------------------------------------+------------------------+
| Christopher Fish | - |
+------------------------------------------+------------------------+
| Nigel Taylor | 1,000 |
+------------------------------------------+------------------------+
| Martyn Chambers (resigned 12 September | 50,000 |
| 2008) | |
+------------------------------------------+------------------------+
There are no service contracts in place between the Company and the Directors.
The Directors were not party to nor had any interest in any contract or
arrangement with the Company at any time during the year.
Substantial interests
At the date of this report, the following interests in 3% or more of the issued
Ordinary Share capital had been notified to the Company:
+--------------------------------------+------------------+------------+
| | Number of | % of |
+--------------------------------------+------------------+------------+
| | Ordinary Shares | share |
| | | capital |
+--------------------------------------+------------------+------------+
| New Star Asset Management | 8,150,242 | 21.37% |
+--------------------------------------+------------------+------------+
| Midas Capital Partners | 3,790,000 | 9.94% |
+--------------------------------------+------------------+------------+
| Consistent Unit Trust Management | 3,250,000 | 8.52% |
+--------------------------------------+------------------+------------+
| Rathbone | 2,982,600 | 7.82% |
+--------------------------------------+------------------+------------+
| Jupiter Asset Management | 2,500,878 | 6.56% |
+--------------------------------------+------------------+------------+
| Charles Stanley | 2,232,476 | 5.85% |
+--------------------------------------+------------------+------------+
| Church House | 2,057,800 | 5.40% |
+--------------------------------------+------------------+------------+
| Way Fund Managers | 1,862,383 | 4.88% |
+--------------------------------------+------------------+------------+
| Brewin Dolphin | 1,300,933 | 3.41% |
+--------------------------------------+------------------+------------+
| Northern Trust Global Investments | 1,225,000 | 3.21% |
+--------------------------------------+------------------+------------+
| Philip J Milton & Company | 1,184,944 | 3.11% |
+--------------------------------------+------------------+------------+
Payment to Creditors
Amounts due to suppliers and service providers are settled promptly within the
payment terms, except in cases of dispute.
Litigation
The Group is not engaged in any litigation or claim of material importance, nor,
so far as the Directors are aware, is any litigation or claim of material
importance pending or threatened against the Group.
Corporate Governance
As the Company is not incorporated within the United Kingdom it is not required
to comply with the Combined Code published by the Financial Reporting Council
(the "2006 FRC Code"). The Directors, however, place a high degree of importance
on ensuring that high standards of Corporate Governance are maintained, and the
Company complies with the Guidance on Corporate Governance in the Finance Sector
in Guernsey issued by the Guernsey Financial Services Commission. As a result,
many of the principles set out in the 2006 FRC Code have been adopted and these
are summarised below, together with some areas of non-compliance.
The Company complied throughout the year with the provisions of the Combined
Code Principles of Good Governance and Code of Best Practice, except in the
following aspects:
A.1.3
The non-executive Directors have not met separately, without the
Chairman present to appraise the Chairman's performance. The Board decided that
this was not appropriate given the nature of the Company.
A.3.3
The Chairman, Mr Tregoning, is the senior non-executive Director. This
is not in accordance with provision A.3.3 of the 2006 FRC Code but is felt to be
appropriate for the size and nature of the Company.
A.4.4
The terms and conditions of appointment of the Directors are not
available for inspection, as the Board did not deem it necessary to formalise
the terms and conditions of appointment or to sign letters of appointment.
Since the Directors did not formalise letters of appointment and as the
schedule of Board and committee meetings is subject to change according to the
exigencies of the business, the Directors do not have fixed time commitments.
All Directors are expected to demonstrate their commitment to the work of the
Board on an ongoing basis. This is reviewed by the nomination committee in
recommending candidates for annual re-election.
A.6.1
The Board did not undertake a formal performance evaluation of the
Board, its committees or the individual Directors during the period. The Board
decided that this was not appropriate given the nature of the Company.
A.7.2
The Directors are not appointed for specific terms as this was not
felt to be appropriate for the size and nature of the Company.
B.2.1
The Board has not established a remuneration committee as it does not
have any executive directors and does not consider it to be appropriate for the
size and composition of the Board.
D.1.1
During the year the Chairman did not discuss governance or strategy
with the major shareholders as no meetings were requested. Subsequent to the
year end, the new Chairman has met some of the larger shareholders in order to
hear their views on the state of the Company in the present, very difficult
market conditions. No points relating to corporate governance, however, were
raised. He and the other Directors are always willing to talk to shareholders.
Board responsibilities and remuneration
The Board comprises four independent non-executive Directors. This is not in
accordance with provision A.2.1 of the 2006 FRC Code but is felt to be
appropriate for the size and nature of the Company. The Company has no executive
Directors and no employees. The Board, however, has engaged external companies
to undertake the investment management, administrative and custodial activities
of the Company. Clear documented contractual arrangements are in place between
the Company and these firms which define the areas where the Board has delegated
responsibility to them. The Company holds at least four Board meetings per year,
at which the Directors review the Company's investments and all other important
issues in order to ensure control is maintained over the Company's affairs. A
schedule of matters specifically reserved to the Board for its decision has been
adopted. Since all Directors are non-executive the Company is not required to
state how it has applied B.1 to B.3 of the 2006 FRC Code on Directors'
remuneration, but the fee that was paid to each Director in the year to 30
November 2008 is shown in note 6 to the financial statements.
The table below details the number of Board and Committee meetings attended by
each Director. During the year ended 30 November 2008 there were 6 Board
meetings and 2 Audit Committee meetings.
+-----------------------+---------------+---------------+----------------+------------------+
| | | | | Management |
+-----------------------+---------------+---------------+----------------+------------------+
| | | | Nomination | Engagement |
+-----------------------+---------------+---------------+----------------+------------------+
| | Board | Audit | Committee | Committee |
| | meetings | Committee | | |
+-----------------------+---------------+---------------+----------------+------------------+
| | attended | meetings | meetings | meetings |
| | | attended | attended | attended |
+-----------------------+---------------+---------------+----------------+------------------+
| Julian Tregoning | 5/6 | 1/2 | 2/2 | 1/1 |
+-----------------------+---------------+---------------+----------------+------------------+
| George Baird | 6/6 | 2/2 | 2/2 | 1/1 |
+-----------------------+---------------+---------------+----------------+------------------+
| Christopher Fish | 4/6 | 1/2 | 1/2 | 0/1 |
+-----------------------+---------------+---------------+----------------+------------------+
| Nigel Taylor | 6/6 | 2/2 | 2/2 | 1/1 |
+-----------------------+---------------+---------------+----------------+------------------+
| Martyn Chambers | 6/6 | n/a | 2/2 | 1/1 |
| (resigned 12 | | | | |
| September 2008 | | | | |
+-----------------------+---------------+---------------+----------------+------------------+
Board committees
The Company also uses a number of Committees to control its operations.
The Audit Committee comprises the full Board of the Company but excludes the
Chairman of the Company, due to the application of best practice of Corporate
Governance. The function of the Committee is to ensure that the Company
maintains high standards of integrity, financial reporting and internal
controls. The Committee meets at least twice a year and provides a forum through
which the Company's Auditors report to the Board.
The Nomination Committee deals with the appointment and re-appointment of
Directors. It meets at least once a year and comprises the whole Board except
where a Director's re-appointment is being considered when that Director is
excluded. The Committee ensures that the Board has an appropriate balance of
skills to carry out its fiduciary duties and to select and propose suitable
candidates, when necessary, for appointment. The Board believes that Mr
Tregoning and Mr Taylor have demonstrated commitment to the role and that their
performance continues to be effective and recommends that shareholders vote in
favour of their re-election at the forthcoming Annual General Meeting.
The Management Engagement Committee comprises the full Board of the Company. It
meets at least once a year and monitors the performance of the Company's Manager
and Administrator in the management of the Company's affairs. It also monitors
the contractual arrangements in place with each party.
Each Committee has formal written terms of reference which define clearly their
respective responsibilities.
Dialogue with shareholders
The Directors are available to enter into dialogue with shareholders. All
ordinary shareholders will have the opportunity, and indeed are encouraged, to
attend and vote at the Annual General Meeting during which the Board and the
Investment Manager will be available to discuss issues affecting the Company.
The Board stays abreast of shareholders' views via regular updates from the
Investment Manager as to meetings it has held with shareholders.
Going concern
The Directors believe it is appropriate to adopt the going concern basis in
preparing the financial statements as, after due consideration, the Directors
consider that the Company has adequate resources to continue in operational
existence for the foreseeable future.
As set out in the Prospectus dated 23 August 2001, the Company does not have a
fixed life but the Board considers it desirable that shareholders should have
the opportunity to review the future of the Company at appropriate intervals.
Accordingly, at the Annual General Meeting of the Company to be held in March
2018 and every 10 years thereafter, an ordinary resolution will be proposed that
the Company continues as an investment company. If the resolution is not passed
the Directors will be required to formulate proposals to be put to shareholders
to reorganise, unitise or reconstruct the Company or for the Company to be wound
up, with the aim of enabling shareholders to realise their holdings in the
Company.
Internal control and financial reporting
The Board is responsible for establishing and maintaining the Company's system
of internal control. Internal control systems are designed to meet the
particular needs of the Company and the risks to which it is exposed, and by
their very nature provide reasonable but not absolute assurance against material
mis-statement or loss. The Board has procedures in place to review on a regular
basis the effectiveness of internal controls. The key procedures, which have
been established to provide effective internal controls, are as follows:
-Investment management is provided by the Investment Manager, New Star Asset
Management Limited. The Board is responsible for setting the overall investment
policy and monitors the activity of the Manager at regular Board meetings.
-Elysium Fund Management Limited is responsible for the provision of
administration and company secretarial duties.
-Credit Suisse Securities (Europe) Limited is responsible for the custody of the
Company's assets.
-The duties of investment management, accounting and the custody of assets are
segregated. The procedures of the individual parties are designed to complement
one another.
-The Directors of the Company clearly define the duties and responsibilities of
their agents and advisers in the terms of their contracts. The appointment of
agents and advisers is conducted by the Board after consideration of the quality
of the parties' ongoing performance and contractual arrangements.
-The Board reviews financial information produced by the Investment Manager and
the Administrator on a regular basis.
-The Company does not have an internal audit department. All the Company's
management functions are delegated to independent third parties and it,
therefore, is felt that there is no need for the Company to have an internal
audit facility. This need, however, is reviewed periodically.
Financial risk profile
The Company's financial instruments comprise investments, cash and various items
such as receivables and payables that arise directly from the Company's
operations. The main purpose of these instruments is the investment of
shareholders' funds.
The main risks are market price risk, liquidity risk, interest rate risk and
currency risk. Further details are given in note 22 to the financial statements.
Directors' responsibilities
The Directors are responsible for preparing the Report of the Directors and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards and
applicable law.
The Financial Statements are required by law to give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for
that period.
In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the Financial Statements; and
- prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
the Companies (Guernsey) Law, 2008. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets of the Company
and to prevent and detect fraud and other irregularities.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Report of the
Directors confirm that, so far as they are aware, there is no relevant audit
information of which the Company's auditors are unaware and each Director has
taken all the steps that he ought to have taken as a Director to make himself
aware of any relevant audit information and to establish that the Company's
auditors are aware of that information.
Auditors
A resolution for the re-appointment of KPMG Channel Islands Limited will be
proposed at the forthcoming Annual General Meeting.
Julian Tregoning
Nigel Taylor
Signed on behalf of the
Board of
Directors
18 February 2009
Consolidated income statement
for the year ended 30 November 2008
All items in the above statement are derived from continuing operations except
for items relating to ZDP shares.
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | | | 2008 | | | 2007 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | Note | Revenue | Capital | Total | Revenue | Capital | Total |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| NET INVESTMENT | | | | | | | |
| (LOSSES)/GAINS | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Losses on investments at | 10 | - | (14,721) | (14,721) | - | (755) | (755) |
| fair value | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Exchange gains on | | - | 1,084 | 1,084 | - | 168 | 168 |
| capital items | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | - | (13,637) | (13,637) | - | (587) | (587) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| INCOME | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Income from investments | 3 | 2,062 | - | 2,062 | 3,642 | - | 3,642 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Other income | 3 | 289 | - | 289 | 278 | - | 278 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | 2,351 | - | 2,351 | 3,920 | - | 3,920 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| EXPENSES | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Management fee | 4 | - | (170) | (170) | (364) | (364) | (728) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Administration fees | 5 | - | (172) | (172) | (165) | - | (165) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Audit fee | | - | (21) | (21) | (25) | - | (25) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Directors' fees | 6 | - | (90) | (90) | (100) | - | (100) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Miscellaneous expenses | | - | (71) | (71) | (81) | - | (81) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | - | (524) | (524) | (735) | (364) | (1,099) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| NET RETURN BEFORE | | 2,351 | (14,161) | (11,810) | 3,185 | (951) | 2,234 |
| FINANCE COSTS AND | | | | | | | |
| TAXATION | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| FINANCE COSTS | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Interest payable | 7 | - | (1,006) | (1,006) | - | - | - |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Finance charge | 15 | - | (94) | (94) | - | (3,007) | (3,007) |
| attributable to ZDP | | | | | | | |
| Shares | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Ordinary and ZDP Share | | - | (308) | (308) | - | (128) | (128) |
| repayment costs | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | - | (1,408) | (1,408) | - | (3,135) | (3,135) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| NET RETURN BEFORE | | 2,351 | (15,569) | (13,218) | 3,185 | (4,086) | (901) |
| TAXATION | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| TAXATION | 2j | (114) | - | (114) | (93) | - | (93) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| TOTAL RETURN | | | | | | | |
| ATTRIBUTABLE TO | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| ORDINARY SHAREHOLDERS | | 2,237 | (15,569) | (13,332) | 3,092 | (4,086) | (994) |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| | | pence | pence | pence | pence | pence | pence |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Basic return per | 9 | 5.73 | (39.89) | (34.16) | 5.03 | (6.64) | (1.61) |
| Ordinary Share | | | | | | | |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
| Return per ZDP Share | 9 | - | 0.38 | 0.38 | - | 12.19 | 12.19 |
+--------------------------+------+---------+----------+----------+---------+---------+---------+
Consolidated statement
of changes in net equity
for the year ended 30 November 2008
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | | Distributable | Distributable | Non- | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | Share | reserves | reserves | distributable | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | capital | - revenue | - other | reserves | Total |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| YEAR ENDED 30 NOVEMBER 2008 | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| At 1 December 2007 | 15,375 | 1,686 | 20,961 | 6,023 | 44,045 |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Net increase/(decrease) in | - | 2,237 | - | (15,569) | (13,332) |
| net assets from operations | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Reduction in nominal value | | | | | |
| of Ordinary | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Shares (note 17) | (15,314) | - | 15,314 | - | - |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Shares bought back for | | | | | |
| cancellation | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| (note 17) | (19) | - | (13,005) | - | (13,024) |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Shares bought back to be | - | - | (2,884) | - | (2,884) |
| held in treasury (note 17) | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Dividends paid (note 8) | - | (1,735) | - | - | (1,735) |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| At 30 November 2008 (notes | 42 | 2,188 | 20,386 | (9,546) | 13,070 |
| 17 and 18) | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| YEAR ENDED 30 NOVEMBER 2007 | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| At 1 December 2006 | 15,375 | 1,392 | 20,961 | 10,109 | 47,837 |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Net increase/(decrease) in | - | 3,092 | - | (4,086) | (994) |
| net assets from operations | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| Dividends paid (note 8) | - | (2,798) | - | - | (2,798) |
+-----------------------------+------------+---------------+---------------+---------------+------------+
| At 30 November 2007 (notes | 15,375 | 1,686 | 20,961 | 6,023 | 44,045 |
| 17 and 18) | | | | | |
+-----------------------------+------------+---------------+---------------+---------------+------------+
Consolidated statement of net assets
as at 30 November 2008
+--------------------------------+---------+------------+------------+------------+------------+
| | | | 2008 | | 2007 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | Group | Company | Group | Company |
+--------------------------------+---------+------------+------------+------------+------------+
| | Note | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+--------------------------------+---------+------------+------------+------------+------------+
| NON-CURRENT ASSETS | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Investments at fair value | 10 | 19,686 | 19,686 | 73,987 | 73,987 |
+--------------------------------+---------+------------+------------+------------+------------+
| CURRENT ASSETS | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Amounts due on derivative | | | | | |
| financial | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| instruments | 11 | 1,738 | 1,738 | - | - |
+--------------------------------+---------+------------+------------+------------+------------+
| Trade and other receivables | 13 | 447 | 447 | 1,773 | 1,773 |
+--------------------------------+---------+------------+------------+------------+------------+
| Cash and cash equivalents | | 3,602 | 3,602 | 10,680 | 10,680 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | 5,787 | 5,787 | 12,453 | 12,453 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| TOTAL ASSETS | | 25,473 | 25,473 | 86,440 | 86,440 |
+--------------------------------+---------+------------+------------+------------+------------+
| CURRENT LIABILITIES | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Investments at fair value | | 206 | 206 | - | - |
+--------------------------------+---------+------------+------------+------------+------------+
| Amounts due on derivative | | | | | |
| financial | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| instruments | 11 | 30 | 30 | - | - |
+--------------------------------+---------+------------+------------+------------+------------+
| Trade and other payables | 14 | 106 | 106 | 765 | 765 |
+--------------------------------+---------+------------+------------+------------+------------+
| Prime broker facility | 20 | 12,061 | 12,061 | - | - |
+--------------------------------+---------+------------+------------+------------+------------+
| Amounts due to the Subsidiary | 15 | - | - | - | 41,478 |
+--------------------------------+---------+------------+------------+------------+------------+
| ZDP Shares | 16 | - | - | 41,478 | - |
+--------------------------------+---------+------------+------------+------------+------------+
| | | 12,403 | 12,403 | 42,243 | 42,243 |
+--------------------------------+---------+------------+------------+------------+------------+
| NON-CURRENT LIABILITIES | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Amounts due on derivative | 11 | - | - | 152 | 152 |
| instruments | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| TOTAL LIABILITIES | | 12,403 | 12,403 | 42,395 | 42,395 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| NET ASSETS | | 13,070 | 13,070 | 44,045 | 44,045 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| CAPITAL AND RESERVES | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Called-up share capital | 17 | 42 | 42 | 15,375 | 15,375 |
+--------------------------------+---------+------------+------------+------------+------------+
| Distributable reserves - | | 2,188 | 2,188 | 1,686 | 1,686 |
| revenue | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| Distributable reserves - other | 18 | 20,386 | 20,386 | 20,961 | 20,961 |
+--------------------------------+---------+------------+------------+------------+------------+
| Non-distributable reserves | 18 | (9,546) | (9,546) | 6,023 | 6,023 |
+--------------------------------+---------+------------+------------+------------+------------+
| | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| TOTAL EQUITY SHAREHOLDERS' | | 13,070 | 13,070 | 44,045 | 44,045 |
| FUNDS | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| | | pence | | pence | |
+--------------------------------+---------+------------+------------+------------+------------+
| NET ASSET VALUE PER ORDINARY | 19 | 34.28 | | 71.63 | |
| SHARE | | | | | |
+--------------------------------+---------+------------+------------+------------+------------+
| NET ASSET VALUE PER ZDP SHARE | 19 | - | | 168.06 | |
+--------------------------------+---------+------------+------------+------------+------------+
The Financial Statements were approved by the Board of Directors on 18 February
2009 and were signed on its behalf by:
Julian Tregoning
Chairman
Nigel Taylor
Director
Consolidated statement of cash flows
for the year ended 30 November 2008
+-------------------------------------------+----------------------+------------------------+
| | 2008 | 2007 |
+-------------------------------------------+----------------------+------------------------+
| | GBP'000 | GBP'000 |
+-------------------------------------------+----------------------+------------------------+
| OPERATING ACTIVITIES | | |
+-------------------------------------------+----------------------+------------------------+
| Net return before finance costs and tax | (11,810) | 2,234 |
+-------------------------------------------+----------------------+------------------------+
| Adjustments to reconcile net return | | |
| before finance costs | | |
+-------------------------------------------+----------------------+------------------------+
| and tax to net cash flows from operating | | |
| activities: | | |
+-------------------------------------------+----------------------+------------------------+
| Adjustment for losses on investments | 14,721 | 755 |
+-------------------------------------------+----------------------+------------------------+
| Adjustment for exchange gains | (1,084) | (168) |
+-------------------------------------------+----------------------+------------------------+
| Decrease/(increase) in receivables | 296 | (255) |
+-------------------------------------------+----------------------+------------------------+
| Decrease in payables | (131) | (56) |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| CASH GENERATED FROM OPERATIONS | 1,992 | 2,510 |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| TAXATION | | |
+-------------------------------------------+----------------------+------------------------+
| Tax paid | (20) | (96) |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| INVESTING ACTIVITIES | | |
+-------------------------------------------+----------------------+------------------------+
| Purchase of financial investments | (17,372) | (44,285) |
+-------------------------------------------+----------------------+------------------------+
| Sale of investments | 54,656 | 50,767 |
+-------------------------------------------+----------------------+------------------------+
| Realised exchange gains on settlement | 184 | - |
+-------------------------------------------+----------------------+------------------------+
| Realised exchange gains on currency | 900 | - |
+-------------------------------------------+----------------------+------------------------+
| Short investments | 251 | - |
+-------------------------------------------+----------------------+------------------------+
| Realised gains on derivative instruments | 882 | 223 |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| CASH GENERATED FROM INVESTING ACTIVITIES | 39,501 | 6,705 |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| DIVIDENDS | | |
+-------------------------------------------+----------------------+------------------------+
| Equity dividends paid | (1,735) | (2,798) |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| FINANCING ACTIVITIES | | |
+-------------------------------------------+----------------------+------------------------+
| Interest payable | (966) | - |
+-------------------------------------------+----------------------+------------------------+
| Share repurchases | (13,024) | - |
+-------------------------------------------+----------------------+------------------------+
| Share purchases to be held in Treasury | (2,884) | - |
+-------------------------------------------+----------------------+------------------------+
| ZDP Share repayment costs paid | (431) | (5) |
+-------------------------------------------+----------------------+------------------------+
| Repayment to ZDP shareholders | (41,572) | - |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| CASH USED IN FINANCING ACTIVITIES | (58,877) | (5) |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| (DECREASE)/INCREASE IN CASH AND CASH | (19,139) | 6,316 |
| EQUIVALENTS | | |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| CASH AND CASH EQUIVALENTS AT 1 DECEMBER | 10,680 | 4,364 |
| 2007 | | |
+-------------------------------------------+----------------------+------------------------+
| | | |
+-------------------------------------------+----------------------+------------------------+
| CASH AND CASH EQUIVALENTS AT 30 NOVEMBER | (8,459) | 10,680 |
| 2008 | | |
+-------------------------------------------+----------------------+------------------------+
Notes to the financial statements
for the year ended 30 November 2008
1 General information
New Star Financial Opportunities Fund Limited (the "Company") is a Company
domiciled in Guernsey. The consolidated Financial Statements of the Company for
the year ended 30 November 2008 comprise the Company and its subsidiary up to
the date of its winding up on 4 February 2008 (together referred to as the
"Group").
On 11 December 2007 the subordinated loans totalling GBP41,572,440 were repaid
to NSF Securities Limited and ZDP Shareholders received their final capital
entitlement of 168.48p per ZDP Share either by way of cash or accumulation units
in New Star Diversified Absolute Return Fund, an authorised open-ended unit
trust. NFS Securities Limited was voluntarily wound up on 4 February 2008.
2 Significant accounting policies
a)Statement of compliance
The financial statements have been prepared under the historical cost
convention, as modified for the revaluation of investments, they give a true and
fair view, have been prepared in accordance with International Financial
Reporting Standards and are in compliance with the Companies (Guernsey) Law,
2008.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) for investment trusts issued by the Association of Investment Companies
(AIC) in January 2003 (revised December 2005) is consistent with the
requirements of IFRS, the Directors have sought to prepare the accounts on a
basis compliant with the recommendations of the SORP.
The Financial Statements were authorised for issue on 18 February 2009.
b) Basis of preparation and consolidation
The consolidated Financial Statements have been prepared on a fair value basis
for financial assets and financial liabilities at fair value through profit or
loss and derivative financial instruments.
The Financial Statements are presented in Sterling rounded to the nearest
thousand. The functional currency of the Group is Sterling as this is the
currency within the primary economic environment within which the Company
operates.
The Group Financial Statements consolidate the Financial Statements of the
Company and its subsidiary undertaking until its liquidation on 4 February 2008.
There are no material differences between the Group and Company Income
Statement, Statement of Changes in Net Equity and the Statement of Cash Flows.
The Group and Company's position are disclosed separately on the face of the
Consolidated Statement of Net Assets.
The accounting policies have been consistently applied by the Group and are
consistent with those used in the previous year except for the allocation of
expenses between capital and revenue.
c) New standards and interpretations not applied
IASB and IFRIC have issued a number of standards and interpretations which are
not effective for the year ended 30 November 2008 and are not relevant for the
Group's operations:
The Directors have, therefore, chosen not to early adopt these standards and
interpretations as they do not anticipate that they would have a material impact
on the Group's Financial Statements.
The following standard will be adopted for the year ended 30 November 2010:
+------------------------+------------------------------+------------------+
| International Accounting Standards (IAS/IFRS) | Effective date |
+-------------------------------------------------------+------------------+
| IFRS 8 | Operating Segments | 1 January 2009 |
+------------------------+------------------------------+------------------+
Upon adoption of IFRS 8, the Group will have to disclose additional information
about its operating segments, including how the Group identifies its operating
segments, and the type of products and services from which each operating
segment derives its revenue. There will be no effect on reported income or net
assets.
d) Financial instruments
Designation
In accordance with IAS 39, all investments are designated as "fair value through
profit or loss".
Financial assets designated as fair value through profit or loss assets are not
held for trading purposes but may be sold in response to needs for liquidity or
changes in interest rates, exchange rates or market prices. These include
investments in open-ended funds and certain debt and equity investments.
The Group makes short sales in which a borrowed security is sold in anticipation
of a decline in the market value of that security. Short sales are classified as
financial liabilities at fair value through profit or loss.
Derivative financial assets and liabilities are deemed always to be held for
trading.
Recognition
The Group recognises financial assets or liabilities held as fair value through
profit or loss on the date it commits to purchase or sell short the instruments.
From this date, any gains and losses arising from changes in fair value of the
assets or liabilities are recognised. Other financial assets and liabilities
including derivatives are recognised on a trade date basis.
Derecognition
A financial asset is derecognised when the Group loses control over the
contractual rights that comprise that asset. This occurs when rights are
realised, expire or are surrendered. A financial liability is derecognised when
it is extinguished.
Fair value through profit or loss assets that are sold are derecognised and
corresponding receivables from the buyer for the payment are recognised as of
the date the Group commits to sell the assets. The Group uses the specific
identification method to determine the gain or loss on derecognition.
A financial liability is derecognised when the obligation specified in the
contract is discharged, cancelled or expired.
Assets and liabilities
All financial assets and liabilities of the Group are held at fair value. All
changes in fair value are reflected in the Consolidated Income Statement.
Measurement
Fair value through profit or loss assets are initially measured at cost, being
the fair value of the consideration given. Subsequent to initial recognition,
all fair value through profit or loss assets are measured at fair value with
changes in their fair value recognised in the Consolidated Income Statement.
Fair value measurement principles
The fair value of financial instruments is based on either their last traded
price or their quoted market bid prices at the balance sheet date excluding
transaction costs.
Unlisted investments are valued at valuations determined by the Directors that
take into account third party valuations, latest dealing prices, and other
information as appropriate.
Unrealised gains and losses arising as a result of investment revaluation are
recorded in the Consolidated Income Statement.
e) Derivatives
During the accounting year the Group used derivative financial instruments in
the form of index swaps, index futures and contracts for differences to hedge
its risk associated with market price fluctuations. These contracts are
accounted for as trading instruments.
They are initially recognised at fair value and are subsequently stated at fair
value being their closing price at the balance sheet date. The gain or loss on
remeasurement to fair value is recognised in the Consolidated Income Statement
and allocated to capital.
Derivative financial instruments are derecognised on maturity or early
redemption.
f) Cash and cash equivalents
Cash and cash equivalents comprise cash deposited with banks, cash balances at
brokers and short-term highly liquid investments with maturities of three months
or less from the date of acquisition.
g)Income recognition
Dividends receivable on quoted equity shares are taken into account on the
ex-dividend date. Income arising on fixed-interest securities is recognised on
an effective interest rate basis. Other investment income and interest
receivable are included in the accounts on an accruals basis. Dividends received
from UK-registered companies are accounted for net of imputed tax credits. No
withholding tax is payable on income received from companies registered in the
Channel Islands.
h)Expenses
All expenses are accounted for on an accruals basis. The Group's investment
management and administration fees, finance costs (including interest on the
Bank Facility) and all other expenses are charged through the Consolidated
Income Statement. Transaction costs incurred on the acquisition and sale of
investments are expensed through the Consolidated Income Statement and allocated
to capital.
i)Changes in allocation of expenses between revenue and capital
As detailed in the circular dated 19 November 2007 recommending the
implementation of a Tender Offer to purchase up to 50 per cent of the Company's
issued share capital and reconstruct the Company, the Board also recommended
altering the Company's accounting treatment with respect to expenses.
Following approval of the latter recommendation, expenses are now charged 100
per cent against the capital account as shown in these financial statements.
Prior to 1 December 2007, investment management fees were allocated equally
between revenue and capital. All other expenses were allocated to revenue.
Comparatives figures have not been restated.
j)Taxation
The Company and the Subsidiary (up to the date of its winding up on 4 February
2008) are both domiciled in Guernsey and are exempt from paying tax on income or
capital gains tax of that jurisdiction under the terms of the Income Tax (Exempt
Bodies) (Guernsey) Ordinances 1989. Each Company is liable to an exemption fee
of GBP600 per annum.
The Group currently incurs withholding tax imposed by certain countries on
investment income. This income is recorded gross of withholding tax in the
Consolidated Income Statement.
k)Foreign currency translation
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
Sterling at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Consolidated Income
Statement.
l)Dividends paid
Dividends paid before the balance sheet date have been charged through the
Consolidated Statement of Changes in Net Equity.
3Income
+------------------------------+------------------------------+----------------+
| | 2008 | 2007 |
+------------------------------+------------------------------+----------------+
| | GBP'000 | GBP'000 |
+------------------------------+------------------------------+----------------+
| Income from investments | | |
+------------------------------+------------------------------+----------------+
| UK net dividend income | 675 | 1,246 |
+------------------------------+------------------------------+----------------+
| Unfranked investment income | 680 | 1,412 |
+------------------------------+------------------------------+----------------+
| Fixed interest income | 663 | 910 |
+------------------------------+------------------------------+----------------+
| Swap financing | 44 | 74 |
+------------------------------+------------------------------+----------------+
| | 2,062 | 3,642 |
+------------------------------+------------------------------+----------------+
| Other income | | |
+------------------------------+------------------------------+----------------+
| Bank interest receivable | 281 | 278 |
+------------------------------+------------------------------+----------------+
| Underwriting commission | 8 | - |
+------------------------------+------------------------------+----------------+
| | 289 | 278 |
+------------------------------+------------------------------+----------------+
| Total income | 2,351 | 3,920 |
+------------------------------+------------------------------+----------------+
4Management fee
New Star Asset Management Limited acts as Manager and with effect from 11
December 2007 under a new management agreement, is entitled to an annual fee,
paid monthly in arrears, at a rate of 0.8 per cent of net assets. The total
charge for the year was GBP170,000 (2007: GBP728,000) and at the year end
GBP18,000 (2007: GBP118,000) payable to the Manager is included in trade and
other payables.
In addition a performance fee is payable at a rate of 15 per cent of the amount
by which the net asset value total return of the Ordinary Shares out-performs
the total return of the Dow Jones STOXX 600 Financials Index (expressed in
Sterling) plus a hurdle of 2 per cent per annum. The fee is payable twice yearly
with a cap of 2 per cent of net assets in respect of any particular financial
year, subject to meeting a high watermark. The total charge for the year was GBP
nil (2007: GBP nil).
5Administration fees
+------------------------------+------------------------------+----------------+
| | 2008 | 2007 |
+------------------------------+------------------------------+----------------+
| | GBP'000 | GBP'000 |
+------------------------------+------------------------------+----------------+
| Annual fee | 172 | 165 |
+------------------------------+------------------------------+----------------+
Elysium Fund Management Limited act as Administrators and receives fees at
a rate of GBP174,000 per annum from 1 March 2008 (previously GBP166,000),
payable monthly in arrears. The Administrator is responsible for the fees of the
Custodian and the Registrar.
6Directors' fees
+-----------------------------------------+------------------+----------------+
| | 2008 | 2007 |
+-----------------------------------------+------------------+----------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------+------------------+----------------+
| Julian Tregoning (Chairman) | 19 | 20 |
+-----------------------------------------+------------------+----------------+
| George Baird | 18 | 19 |
+-----------------------------------------+------------------+----------------+
| Christopher Fish | 18 | 19 |
+-----------------------------------------+------------------+----------------+
| Nigel Taylor | 19 | 20 |
+-----------------------------------------+------------------+----------------+
| Martyn Chambers (resigned 12 September | 16 | 22 |
| 2008) | | |
+-----------------------------------------+------------------+----------------+
| | 90 | 100 |
+-----------------------------------------+------------------+----------------+
No bonuses or pension contributions were paid, or are payable, on behalf of
the Directors.
Details of the Directors' interests are set out in the Report of the Directors.
7Finance costs
+------------------------------+------------------------------+----------------+
| | 2008 | 2007 |
+------------------------------+------------------------------+----------------+
| | GBP'000 | GBP'000 |
+------------------------------+------------------------------+----------------+
| Interest on prime broker | 1,006 | - |
| facility | | |
+------------------------------+------------------------------+----------------+
To facilitate investment in companies as opportunities arise the Company has
agreed an overdraft facility with Credit Suisse Securities (Europe) Limited
("Credit Suisse").
Under this facility interest is payable at a rate of 1 week LIBOR plus a margin
of 0.40%. The overdraft is secured against investments held with Credit Suisse.
8Dividends paid
+-----------------------------------------+------------------+----------------+
| | 2008 | 2007 |
+-----------------------------------------+------------------+----------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------+------------------+----------------+
| Dividends on Ordinary Shares: | | |
+-----------------------------------------+------------------+----------------+
| Fourth interim paid of 1.25p (2007: | | |
| 1.10p) per share | | |
+-----------------------------------------+------------------+----------------+
| - relates to year ended 30 November | 478 | 676 |
| 2007 | | |
+-----------------------------------------+------------------+----------------+
| First interim paid of 1.10p (2007: | 419 | 676 |
| 1.10p) per share | | |
+-----------------------------------------+------------------+----------------+
| Second interim paid of 1.10p (2007: | 419 | 677 |
| 1.10p) per share | | |
+-----------------------------------------+------------------+----------------+
| Third interim paid of 1.10p (2007: | 419 | 769 |
| 1.25p) per share | | |
+-----------------------------------------+------------------+----------------+
| | 1,735 | 2,798 |
+-----------------------------------------+------------------+----------------+
Under the terms of the Company's Articles of Association, distributions can
be made up to the total of accumulated gross income received less the running
costs (all of the ongoing costs and expenses of the Company, other than the
management fees and financing costs). For the year ended 30 November 2008, the
amount available for distribution is GBP2,237,000 (5.87p per Ordinary Share
based on the number of Ordinary Shares in issue of 38,132,932) (2007:
GBP3,092,000; 5.03p per Ordinary Share based on the number of Ordinary Shares in
issue of 61,500,000). Distributions of GBP1,735,000 (4.55p per Ordinary Share)
(2007: GBP2,798,000; 4.55p per Ordinary Share) have been made during the year.
The retained surplus of GBP502,000 (2007: GBP294,000) is included in reserves.
On 8 December 2008 a fourth interim dividend of 1.10p per Ordinary Share was
announced. This is payable to shareholders on 30 January 2009. In accordance
with IFRS this dividend will be reflected in the 2009 financial statements of
the Company.
9Return per share
+-----------------------+----------+---------+---------+----------+---------+--------+
| | | 2008 | | | 2007 | |
+-----------------------+----------+---------+---------+----------+---------+--------+
| | Revenue | Capital | Total | Revenue | Capital | Total |
+-----------------------+----------+---------+---------+----------+---------+--------+
| | pence | pence | pence | pence | pence | pence |
+-----------------------+----------+---------+---------+----------+---------+--------+
| Basic return per | | | | | | |
+-----------------------+----------+---------+---------+----------+---------+--------+
| Ordinary Share | 5.73 | (39.89) | (34.16) | 5.03 | (6.64) | (1.61) |
+-----------------------+----------+---------+---------+----------+---------+--------+
| Return per Zero | | | | | | |
| Dividend | | | | | | |
+-----------------------+----------+---------+---------+----------+---------+--------+
| Preference Share | - | 0.38 | 0.38 | - | 12.19 | 12.19 |
+-----------------------+----------+---------+---------+----------+---------+--------+
The basic return per Ordinary Share is based on the total return for Ordinary
Shares, as shown in the Consolidated Income Statement, and on 39,026,754 (2007:
61,500,000) being the weighted average Ordinary Shares in issue (excluding own
shares held in Treasury) throughout the year. The return per ZDP Share is based
on an annualised redemption yield of 8.65% until the redemption date of 11
December 2007. There are no potential Ordinary Shares and therefore no diluted
returns per Ordinary Share have been shown.
10Investments at fair value
+-----------------------------------------------+----------------+---------------+
| | 2008 | 2007 |
+-----------------------------------------------+----------------+---------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------------+----------------+---------------+
| Opening book cost | 68,626 | 68,188 |
+-----------------------------------------------+----------------+---------------+
| Opening unrealised gains | 5,361 | 14,233 |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Opening valuation | 73,987 | 82,421 |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Purchases at cost | 16,986 | 42,805 |
+-----------------------------------------------+----------------+---------------+
| Sales - proceeds | (54,108) | (50,107) |
+-----------------------------------------------+----------------+---------------+
| Sales - realised gains | 49 | 7,740 |
+-----------------------------------------------+----------------+---------------+
| Movement in unrealised losses | (17,228) | (8,872) |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Closing valuation | 19,686 | 73,987 |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Closing book cost | 31,553 | 68,626 |
+-----------------------------------------------+----------------+---------------+
| Closing unrealised (losses)/gains | (11,867) | 5,361 |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Closing valuation | 19,686 | 73,987 |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Realised gains on investments | 49 | 7,740 |
+-----------------------------------------------+----------------+---------------+
| Movement in unrealised losses on investments | (17,228) | (8,872) |
+-----------------------------------------------+----------------+---------------+
| Realised losses on short investments | (20) | - |
+-----------------------------------------------+----------------+---------------+
| Unrealised gains on short investments | 65 | - |
+-----------------------------------------------+----------------+---------------+
| Realised gains on derivative instruments | 705 | 529 |
+-----------------------------------------------+----------------+---------------+
| Unrealised gains/(losses) on derivative | 1,708 | (152) |
| instruments | | |
+-----------------------------------------------+----------------+---------------+
| | | |
+-----------------------------------------------+----------------+---------------+
| Net investment losses | (14,721) | (755) |
+-----------------------------------------------+----------------+---------------+
At 30 November 2008, the Company owned investments in one unquoted company, TSI.
As at 30 November 2008 the fair value of TSI was GBP180,000. Unquoted
investments are valued at Directors' valuations in accordance with the
accounting policy in note 2d.
During the year, the Company incurred transaction costs of GBP26,000 (2007:
GBP129,000) on purchases of investments and GBP88,000 (2007: GBP75,000) on sales
of investments. These amounts are expenses in the Consolidated Income Statement.
11Derivative financial instruments
+--------------------------------------+---------------------+--------------------+
| | 2,008 | 2,007 |
+--------------------------------------+---------------------+--------------------+
| | Fair | Fair |
+--------------------------------------+---------------------+--------------------+
| | value | value |
+--------------------------------------+---------------------+--------------------+
| | GBP'000 | GBP'000 |
+--------------------------------------+---------------------+--------------------+
| Index swaps | 1,599 | - |
+--------------------------------------+---------------------+--------------------+
| Contracts for difference | 139 | - |
+--------------------------------------+---------------------+--------------------+
| | | |
+--------------------------------------+---------------------+--------------------+
| | 1,738 | - |
+--------------------------------------+---------------------+--------------------+
| | | |
+--------------------------------------+---------------------+--------------------+
| Futures contracts | (30) | (152) |
+--------------------------------------+---------------------+--------------------+
| | 1,708 | (152) |
+--------------------------------------+---------------------+--------------------+
12Investment in subsidiary Company
Until 11 December 2007 the Company owned the whole of the issued ordinary share
capital of NSF Securities Limited. NSF Securities Limited was incorporated and
registered in Guernsey with an issued ordinary share capital of GBP2. The
Subsidiary was formed specifically for the issuing of ZDP Shares (see notes 15
and 16) and was liquidated on 4 February 2008.
13Trade and other receivables
+------------------------------+------------------------------+--------------------+
| | 2008 | 2007 |
+------------------------------+------------------------------+--------------------+
| | GBP'000 | GBP'000 |
+------------------------------+------------------------------+--------------------+
| Amounts due from brokers | - | 936 |
+------------------------------+------------------------------+--------------------+
| Withholding tax recoverable | - | 94 |
+------------------------------+------------------------------+--------------------+
| Accrued income | 430 | 735 |
+------------------------------+------------------------------+--------------------+
| Other receivables | 17 | 8 |
+------------------------------+------------------------------+--------------------+
| | 447 | 1,773 |
+------------------------------+------------------------------+--------------------+
14Trade and other payables
+------------------------------+------------------------------+--------------------+
| | 2008 | 2007 |
+------------------------------+------------------------------+--------------------+
| | GBP'000 | GBP'000 |
+------------------------------+------------------------------+--------------------+
| Amounts due to brokers | - | 445 |
+------------------------------+------------------------------+--------------------+
| Management fee due (note 4) | 18 | 118 |
+------------------------------+------------------------------+--------------------+
| ZDP Share repayment costs | - | 123 |
+------------------------------+------------------------------+--------------------+
| Interest payable | 40 | - |
+------------------------------+------------------------------+--------------------+
| Other payables | 48 | 79 |
+------------------------------+------------------------------+--------------------+
| | 106 | 765 |
+------------------------------+------------------------------+--------------------+
15Amounts due to the subsidiary, NSF Securities Limited
+--------------------------------------+-------------------------+---------------+
| | 2008 | 2007 |
+--------------------------------------+-------------------------+---------------+
| | Company | Company |
+--------------------------------------+-------------------------+---------------+
| | GBP'000 | GBP'000 |
+--------------------------------------+-------------------------+---------------+
| Balance at 1 December | 41,478 | 38,471 |
+--------------------------------------+-------------------------+---------------+
| Appropriation in respect of Zero | | |
| Dividend Preference | | |
+--------------------------------------+-------------------------+---------------+
| Shares entitlement | 94 | 3,007 |
+--------------------------------------+-------------------------+---------------+
| Redemption of Zero Dividend | (41,572) | - |
| Preference Shares | | |
+--------------------------------------+-------------------------+---------------+
| Balance at 30 November | - | 41,478 |
+--------------------------------------+-------------------------+---------------+
On 29 August 2001, an unsecured subordinated loan note with a nominal value
of GBP10,500,000 was issued by the Company to NSF Securities Limited being the
proceeds of the issue of 10,500,000 ZDP Shares at 100p per share. The loan note
was interest free and was repaid at par on 11 December 2007.
On 18 November 2005, a further unsecured subordinated loan note was issued. The
net proceeds of the issue of 14,175,000 ZDP Shares at 148.50p per share
(GBP20,679,115) being loaned by the Subsidiary to the Company. This loan note
was also interest free and was repaid at par on 11 December 2007.
The total amount repaid on 11 December 2007 was GBP41,572,000. The premium was
accrued on an amortised cost/effective yield basis in accordance with IAS 39. At
30 November 2008, the amount repayable was nil (2007: GBP41,478,000).
16Zero Dividend Preference Shares ("ZDP Shares")
+----------------------------------------------+------------------+---------------+
| | 2008 | 2007 |
+----------------------------------------------+------------------+---------------+
| | Group | Group |
+----------------------------------------------+------------------+---------------+
| | GBP'000 | GBP'000 |
+----------------------------------------------+------------------+---------------+
| At 1 December | 41,478 | 38,471 |
+----------------------------------------------+------------------+---------------+
| Finance charge attributable to ZDP Shares | 94 | 3,007 |
+----------------------------------------------+------------------+---------------+
| Repayment of entitlement to Zero Dividend | (41,572) | - |
| Preference Shares | | |
+----------------------------------------------+------------------+---------------+
| Balance at 30 November | - | 41,478 |
+----------------------------------------------+------------------+---------------+
In accordance with the Articles of Association of NSF Securities Limited,
the holders of the 24,675,000 ZDP Shares were paid an amount equal to 100p per
ZDP Share on 29 August 2001 increased daily at the compound rate to give a final
capital entitlement of 168.48p per ZDP Share on 11 December 2007.
At 11 December 2007, the redemption value calculated in accordance with the
above formula was GBP41,572,000 (2007: GBP41,469,000), which was redeemed in
full.
17Called-up share capital
+-------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+-------------------------------------------------+---------------+---------------+
| | GBP'000 | GBP'000 |
+-------------------------------------------------+---------------+---------------+
| Authorised 20,000,000,000 Ordinary Shares of | | |
| 0.1p each | | |
+-------------------------------------------------+---------------+---------------+
| (2007: 80,000,000 Ordinary Shares of 25p | 20,000 | 20,000 |
| each) | | |
+-------------------------------------------------+---------------+---------------+
| Allotted, issued and fully paid 61,500,000 | | |
| Ordinary | | |
+-------------------------------------------------+---------------+---------------+
| Shares of 25p each | 15,375 | 15,375 |
+-------------------------------------------------+---------------+---------------+
| Reduction in nominal value of Ordinary Shares | (15,314) | - |
+-------------------------------------------------+---------------+---------------+
| | | |
+-------------------------------------------------+---------------+---------------+
| 61,500,000 Ordinary Shares of 0.1p each | | |
+-------------------------------------------------+---------------+---------------+
| (2007: 61,500,000 Ordinary Shares of 25p | 61 | 15,375 |
| each) | | |
+-------------------------------------------------+---------------+---------------+
| 19,130,076 shares bought back for cancellation | (19) | - |
+-------------------------------------------------+---------------+---------------+
| | 42 | 15,375 |
+-------------------------------------------------+---------------+---------------+
| Consisting of: 38,132,932 Ordinary Shares of | | |
| 0.1p each | | |
+-------------------------------------------------+---------------+---------------+
| (2007: 61,500,000 Ordinary Shares of 25p | 38 | 15,375 |
| each) | | |
+-------------------------------------------------+---------------+---------------+
| 4,236,992 Treasury Shares of 0.1p each | | |
+-------------------------------------------------+---------------+---------------+
| (2007: nil Treasury Shares of 25p each) | 4 | - |
+-------------------------------------------------+---------------+---------------+
| | 42 | 15,375 |
+-------------------------------------------------+---------------+---------------+
On 12 December 2007 the Company applied to the Royal Court of Guernsey to
reduce the nominal value of Ordinary Shares from 25p each to 0.1p each. On 14
December 2007, approval to reduce the nominal value of Ordinary Shares was
received.
Rights of Ordinary Shares - As to dividends each year:
The Ordinary Shares carry the right to receive the revenue profits of the
Company (including accumulated revenue reserves) available for distribution and
determined to be distributed by way of interim and/or final dividends and at
such times as the Directors may determine.
Rights of Ordinary Shares - As to capital on a winding-up:
There shall be paid to the holders of the Ordinary Shares an amount equal to the
amount standing to the credit of the Company's revenue reserves including the
amount of the undistributed revenue profit for the current year as at the date
of the commencement of a winding-up (or on the date of payment if not in the
course of a winding-up) and any balance outstanding in the capital account, less
all other liabilities.
Rights of Ordinary Shares - As to voting rights:
The holders of Ordinary Shares have the right to receive notice of, to attend
and to vote at, all general meetings of the Company.
Shares bought back to be held in Treasury:
The Company has taken advantage of the regulations which came into force to
allow companies, including investment trusts, to buy shares and hold them in
Treasury for re-issue at a later date. In accordance with Abstract 37: 'Purchase
and sale of own shares', the consideration paid for shares held in Treasury is
presented as a deduction from shareholders' funds.
During the year ended 30 November 2008 the Company purchased 4,236,992 shares at
a cost of GBP2,884,000, to be held in Treasury. On 12 December 2008, these
Treasury Shares were cancelled in accordance with the Company's Treasury Share
policy.
During the year ended 30 November 2008 the Company bought back and cancelled
19,130,076 Ordinary Shares at a cost of GBP13,024,000.
18Distributable reserves - other
On 12 December 2007 the Company applied to the Royal Court of Guernsey to cancel
the share premium account. On 14 December 2007, approval to cancel the share
premium account was received and the balance of GBP18,937,000 was transferred to
the distributable reserve - other.
In accordance with the Companies (Guernsey) Law, 2008, which became effective
from 1 July 2008, all reserves can be designated as distributable, including
amounts previously designated as non-distributable, such as share premium.
However, in accordance with the Company's Articles of Incorporation, (the
"Articles"), only revenue reserves can be distributed as dividends to
shareholders. Therefore, in accordance with the Articles, retained earnings are
split between the distributable reserve - revenue (from which dividends are
paid) and the non-distributable reserve.
All other reserves of the Company and Group, being amounts previously designated
as share premium, own shares held in Treasury (note 17) and shares bought back
for cancellation (note 17) are designated as distributable reserves - other.
19Net asset value per share (articles basis)
+---------------------------------------------------+---------------+--------------+
| | 2008 | 2007 |
+---------------------------------------------------+---------------+--------------+
| | pence | pence |
+---------------------------------------------------+---------------+--------------+
| Net asset value per Ordinary Share | 34.28 | 71.63 |
+---------------------------------------------------+---------------+--------------+
| Net asset value per Zero Dividend Preference | - | 168.06 |
| Share | | |
+---------------------------------------------------+---------------+--------------+
The net asset value per Ordinary Share is based on the net assets attributable
to Ordinary Shareholders of GBP13,070,000 ((2007: GBP44,045,000) being
GBP85,523,000 less the net assets due to ZDP Shareholders of
GBP41,478,000
(see note 15)) and on 38,132,932 (2007: 61,500,000) Ordinary Shares in issue at
the end of the year, excluding own shares held in Treasury.
The net asset value per Zero Dividend Preference Share is based on the net
assets attributable to Zero Dividend Preference Shareholders of nil (see note
15) (2007: GBP41,478,000) and on nil (2007: 24,675,000) Zero Dividend Preference
Shares in issue at the end of the year.
20Prime broker facility
+---------------------------------------------------+---------------+--------------+
| | 2008 | 2007 |
+---------------------------------------------------+---------------+--------------+
| | GBP'000 | GBP'000 |
+---------------------------------------------------+---------------+--------------+
| Overdraft | 12,061 | - |
+---------------------------------------------------+---------------+--------------+
To facilitate investment in companies as opportunities arise the Company has
agreed an overdraft facility with Credit Suisse Securities (Europe) Limited
("Credit Suisse").
Under this facility interest is payable at a rate of 1 week LIBOR plus a margin
of 0.40%. The overdraft is secured against investments held with Credit Suisse.
21Related parties
The relationship between the Group and New Star Asset Management Limited is
disclosed in note 4.
Directors interests are disclosed in the Report of the Directors.
The Directors are not aware of any ultimate controlling party.
22Financial instruments and associated risks
Background
The investment objective of the Company is to provide Ordinary Shareholders with
a high level of income and the potential for capital growth and income growth.
Consistent with that objective the majority of the Company's financial
instruments comprise equity investments. In addition the Company holds
fixed-income securities, derivative instruments used for hedging and investment
purposes, contracts for difference, Sterling, borrowings for investment purposes
or for settlement purposes, cash balances and debtors and creditors that arise
directly from its operations.
The principal risks the Company faces in its portfolio management activities
are:
Market risk - arising from fluctuations in the fair value or future cash flows
of a financial instrument used by the Company because of changes in market
prices. Market risk comprises three types of risk: currency risk, interest risk
and other price risk;
Currency risk - arising from fluctuations in the fair value or future cash flows
of a financial instrument because of changes in foreign exchange rates;
Interest rate risk - arising from fluctuations in the fair value or future cash
flows of a financial instrument because of changes in market interest rates;
Liquidity risk - arising from any difficulties in meeting obligations associated
with financial liabilities; and
Credit risk - arising from financial loss for the Company where the other party
to a financial instrument fails to discharge an obligation.
Policy
The Company's investment policy is to invest predominantly in the equity, debt
or other securities of listed European and UK financial companies. The Company
may invest up to 25 per cent of its total assets (at the time of purchase) in
financial companies listed outside Europe and the UK.
The Company may also invest up to 10 per cent of its total assets (at the time
of purchase) in unquoted financial securities and limited partnerships which
themselves invest in financial companies.
Individual holdings will be limited to 7.5 per cent of total assets at the time
of purchase. The Company will not invest more than 10 per cent of total assets
(at the time of purchase) in other listed investment companies.
The Company may enter into short sale transactions which will be limited to 20
per cent of total assets in aggregate with a limit on short sales of individual
stocks limited to 5 per cent of total assets.
The Company will maintain gearing in most market conditions, with borrowings
limited to 50 per cent of total assets at the time of draw-down, other than for
short-term settlement or cash flow purposes.
1. Currency risk
The Company's assets may be invested in securities and other investments that
are denominated in currencies other than the functional currency which is
Sterling. Accordingly, the value of an investment may be affected favourably or
unfavourably by fluctuations in exchange rates. The Company did not hedge its
currency risk during the year. The Investment Manager monitors currency
positions and currency exposure on a regular basis and the risk to the Company
of a movement in exchange rates to which the Company's assets, liabilities,
income and expenses are exposed.
Currency exposure
The functional currency (Sterling) equivalents of the financial assets and
liabilities held in currencies other than Sterling at 30 November 2008 and 2007
were as follows:
+--------------------------------------+-------------+----------+-------------+---------+
| | | 2008 | | 2007 |
+--------------------------------------+-------------+----------+-------------+---------+
| Currency | Investments | Other | Investments | Other |
+--------------------------------------+-------------+----------+-------------+---------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+--------------------------------------+-------------+----------+-------------+---------+
| Euro (EUR) | 5,210 | 3,326 | 22,542 | 8,820 |
+--------------------------------------+-------------+----------+-------------+---------+
| Norwegian Krone (NOK) | 739 | 281 | 3,930 | 712 |
+--------------------------------------+-------------+----------+-------------+---------+
| Swiss Franc (CHF) | 754 | 580 | 2,499 | 1,104 |
+--------------------------------------+-------------+----------+-------------+---------+
| US Dollar (USD) | 144 | 846 | 508 | 890 |
+--------------------------------------+-------------+----------+-------------+---------+
| Swedish Krona (SEK) | 234 | 360 | 816 | 216 |
+--------------------------------------+-------------+----------+-------------+---------+
| South African Rand (ZAR) | - | 1 | - | 1 |
+--------------------------------------+-------------+----------+-------------+---------+
At 30 November 2008, if Sterling had weakened by 10% against all currencies,
with all other variables held constant, net assets attributable to Ordinary
Shareholders and the change in net assets attributable to Ordinary Shareholders
per the Consolidated Income Statement would have increased by the amounts shown
below. The analysis is performed on the same basis for 2007.
+--------------------------------------------+----------------+--------------------+
| | 30 November | 30 November |
+--------------------------------------------+----------------+--------------------+
| Currency | 2008 | 2007 |
+--------------------------------------------+----------------+--------------------+
| | GBP'000 | GBP'000 |
+--------------------------------------------+----------------+--------------------+
| Euro (EUR) | 854 | 3,136 |
+--------------------------------------------+----------------+--------------------+
| Norwegian Krone (NOK) | 102 | 464 |
+--------------------------------------------+----------------+--------------------+
| Swiss Franc (CHF) | 133 | 360 |
+--------------------------------------------+----------------+--------------------+
| US Dollar (USD) | 99 | 140 |
+--------------------------------------------+----------------+--------------------+
| Swedish Krona (SEK) | 59 | 103 |
+--------------------------------------------+----------------+--------------------+
| | | |
+--------------------------------------------+----------------+--------------------+
| | 1,247 | 4,203 |
+--------------------------------------------+----------------+--------------------+
A 10% strengthening of sterling against the above currencies would have resulted
in an equal but opposite effect.
2. Interest rate risk
The Company finances its operations through existing reserves and overdraft
facilities which are reviewed regularly. It also holds interest bearing
securities and cash. Interest rate movements may affect the level of income
receivable on cash deposits and cash equivalents and interest payable on
borrowing as they are subject to fluctuating rates of interest.
Derivative contracts are not used to hedge against the exposure to interest rate
risk.
The following table shows the effect of a change in bank interest rates with all
other variables held constant. The calculations are based on funds invested in
cash deposits, bank overdrafts and bonds held as at 30 November 2008 and are not
representative of the year as a whole.
+--------------------------------------------+------------+-------------+-------------+
| | | | Sensitivity |
| | | | of |
+--------------------------------------------+------------+-------------+-------------+
| | | Sensitivity | changes in |
| | | | |
+--------------------------------------------+------------+-------------+-------------+
| | | of | fair value |
| | | interest | of |
+--------------------------------------------+------------+-------------+-------------+
| | | income | investments |
+--------------------------------------------+------------+-------------+-------------+
| | % | increase/ | increase/ |
+--------------------------------------------+------------+-------------+-------------+
| | Increase | (decrease) | (decrease) |
+--------------------------------------------+------------+-------------+-------------+
| | | GBP'000 | GBP'000 |
+--------------------------------------------+------------+-------------+-------------+
| 30 November 2008 | | | |
+--------------------------------------------+------------+-------------+-------------+
| Sterling (GBP) | 1 | (42) | 60 |
+--------------------------------------------+------------+-------------+-------------+
| Euro (EUR) | 1 | 37 | 16 |
+--------------------------------------------+------------+-------------+-------------+
| Norwegian Krone (NOK) | 1 | 3 | - |
+--------------------------------------------+------------+-------------+-------------+
| Swiss Franc (CHF) | 1 | 6 | - |
+--------------------------------------------+------------+-------------+-------------+
| US Dollar (USD) | 1 | 8 | - |
+--------------------------------------------+------------+-------------+-------------+
| Swedish Krona (SEK) | 1 | 3 | - |
+--------------------------------------------+------------+-------------+-------------+
| | | | |
+--------------------------------------------+------------+-------------+-------------+
| 30 November 2007 | | | |
+--------------------------------------------+------------+-------------+-------------+
| Sterling (GBP) | 1 | 111 | 128 |
+--------------------------------------------+------------+-------------+-------------+
| Euro (EUR) | 1 | 51 | - |
+--------------------------------------------+------------+-------------+-------------+
| Norwegian Krone (NOK) | 1 | 7 | - |
+--------------------------------------------+------------+-------------+-------------+
| Swiss Franc (CHF) | 1 | 11 | - |
+--------------------------------------------+------------+-------------+-------------+
| US Dollar (USD) | 1 | 6 | - |
+--------------------------------------------+------------+-------------+-------------+
| Swedish Krona (SEK) | 1 | 2 | - |
+--------------------------------------------+------------+-------------+-------------+
If interest rates had been lower through out the year by 1 per cent there would
have been an equal and opposite effect in the interest income and in the changes
in fair value of investments.
Interest exposure
An analysis of the Company's interest rate risk at 30 November 2008 and 2007 is
shown below:
The interest rate profile of the Company's financial assets was:
30 November 2008
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| | | No | Less | 1 month | | More | Non |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| | | maturity | than | to | 1-5 | than | interest |
| | | | one | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| | Total | date | month | 1 year | years | 5 years | bearing |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Assets | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Designated at fair | | | | | | | |
| value | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| through profit or | | | | | | | |
| loss upon | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| initial recognition | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Equity shares | 12,005 | - | - | - | - | - | 12,005 |
| including warrants | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Bonds | 7,189 | 2,053 | - | 716 | 4,127 | 293 | - |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Preference shares | 492 | 492 | - | - | - | - | - |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Held for trading | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Derivative financial | 1,738 | - | - | 1,738 | - | - | - |
| instruments | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Loans and receivables | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Cash and cash | 3,602 | - | 3,602 | - | - | - | - |
| equivalents | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Interest, dividends | | | | | | | |
| and | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| other receivables | 447 | - | - | - | - | - | 447 |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
| Total assets | 25,473 | 2,545 | 3,602 | 2,454 | 4,127 | 293 | 12,452 |
+------------------------+---------+----------+---------+---------+---------+---------+----------+
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| | | No | Less | 1 month | | More | Non |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| | | maturity | than | to | 1-5 | than | interest |
| | | | one | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| | Total | date | month | 1 year | years | 5 years | bearing |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Liabilities | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Designated at fair | | | | | | | |
| value | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| through profit or | | | | | | | |
| loss upon | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| initial recognition | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Investment at fair | (206) | - | - | - | - | - | (206) |
| value | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Held for trading | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Derivative financial | (30) | - | - | (30) | - | - | - |
| instruments | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Financial liabilities | | | | | | | |
| measured | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| at amortised cost | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Bank overdraft | (12,061) | - | (12,061) | - | - | - | - |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Accrued expenses | (106) | - | - | - | - | - | (106) |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Total liabilities | (12,403) | - | (12,061) | (30) | - | - | (312) |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
| Total interest | | 2,545 | (8,459) | 2,424 | 4,127 | 293 | |
| sensitivity gap | | | | | | | |
+-------------------------+----------+----------+----------+---------+---------+---------+----------+
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| 30 November 2007 | | No | Less | 1 month | | More | Non |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | | maturity | than | to | 1-5 | than | interest |
| | | | one | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | Total | date | month | 1 year | years | 5 years | bearing |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Assets | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Designated at fair | | | | | | | |
| value | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| through profit or | | | | | | | |
| loss upon | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| initial recognition | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Equity shares including | 61,146 | - | - | - | - | - | 61,146 |
| warrants | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Bonds | 10,781 | 1,027 | - | 3,992 | 2,023 | 3,739 | - |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Preference shares | 2,060 | 960 | - | - | 1,100 | - | - |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Loans and receivables | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Balances due from | 936 | - | - | - | - | - | 936 |
| brokers | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Cash and cash | 10,680 | - | 10,680 | - | - | - | - |
| equivalents | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Interest, dividends and | | | | | | | |
| | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| other receivables | 837 | - | - | - | - | - | 837 |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Total assets | 86,440 | 1,987 | 10,680 | 3,992 | 3,123 | 3,739 | 62,919 |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | | No | Less | 1 month | | More | Non |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | | maturity | than | to | 1-5 | than | interest |
| | | | one | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | Total | date | month | 1 year | years | 5 years | bearing |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Liabilities | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Held for trading | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Derivative financial | (152) | - | - | - | (152) | - | - |
| instruments | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Financial liabilities | | | | | | | |
| measured | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| at amortised cost | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Balances due to brokers | (445) | - | - | - | - | - | (445) |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Amounts due to | (41,478) | - | - | (41,478) | - | - | - |
| subsidiary | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Accrued expenses | (320) | - | - | - | - | - | (320) |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Total liabilities | (42,395) | - | - | (41,478) | (152) | - | (765) |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
| Total interest | | 1,987 | 10,680 | (37,486) | 2,971 | 3,739 | |
| sensitivity gap | | | | | | | |
+-------------------------+----------+----------+---------+----------+---------+---------+----------+
3. Other price risk
All securities investments present a risk of loss of capital. Market price risk
can be moderated in a number of ways by the Investment Manager through:
- Careful selection of securities and other financial instruments and
assessment of the exposure to market risk when making each investment decision;
and
-the use of futures, index swaps and contracts for difference to hedge exposure.
The Investment Manager monitors and reviews the portfolio on a regular basis
taking into account the size and risk of individual positions, hedging and
balance sheet risk in light of changes in economic data and company
announcements.
The Board reviews the values of the portfolios' holdings and investment
performance at their quarterly meetings. Further information on the portfolio of
investments is set out on in this announcement.
During the year under review, the Company has hedged against movements in the
value of its investments using put and call options and index swaps on the Dow
Jones Euro STOXX Banks Index.
Futures were bought and sold on the Dow Jones Euro STOXX Banks Index and the
FTSE 100 Index as a hedge against further falls in European equity markets and
had the effect of reducing the overall level of market price risk of the
Company. The risk in selling futures is that the Company may incur a loss if the
value of the index increases. Futures are valued using information provided by
independent third party sources. At the year end the Company had open futures
contracts, notional exposures value being approximately GBP610,000, with an
unrealised loss of GBP30,000 being recognised as a liability in the Consolidated
Statement of Net Assets.
The Company also sold index swaps on the Dow Jones Euro STOXX Banks Index as a
hedge against further falls in the share prices of European banks. The risk in
selling index swaps on this index is that if there is a rise in the share prices
of European banks the Company will incur a loss. At the year end the Company was
short 10,000 Dow Jones Euro STOXX Banks Index Swaps, notional exposure being
approximately GBP2,997,000, with an unrealised gain of GBP1,599,000 being
recognised as an asset in the Consolidated Statement of Net Assets.
The portfolio of investments is valued at bid price, which represents fair
value. If the value of investments fell by 10% at 30 November 2008 the impact on
profit or loss and net assets would have been negative GBP1,969,000 (2007:
GBP7,399,000). If the value of investments rose by 10% at 30 November 2008 the
impact on profit or loss and net assets would have been positive GBP1,969,000
(2007: GBP7,399,000).
4. Liquidity risk
Market illiquidity or disruption could result in losses to the Company.
Liquidity risk arises because the Company's investment policy means that a
minority of investments held may be less readily realisable, for example, AIM
listed securities. The Directors believe that the Company, as a closed-ended
fund with no fixed wind-up date, is ideally suited to make long-term investments
in instruments with limited marketability. Short term flexibility is achieved
through the use of overdraft facilities. The liquidity of positions is reviewed
on a regular basis by the Investment Manager and the risk is mitigated by
investing in a diversified portfolio of equity and fixed income securities
issued by European financial companies.
The residual contractual maturities of the Company's financial liabilities was:
+----------------------------------+----------+---------+---------+---------+----------+
| | On | Less | 1-3 | 3 | No |
| | | than | | months | stated |
+----------------------------------+----------+---------+---------+---------+----------+
| | demand | 1 | months | to 1 | maturity |
| | | month | | year | |
+----------------------------------+----------+---------+---------+---------+----------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------------+----------+---------+---------+---------+----------+
| 30 November 2008 | | | | | |
+----------------------------------+----------+---------+---------+---------+----------+
| Financial liabilities including | | | | | |
| derivatives | | | | | |
| settled net | | | | | |
+----------------------------------+----------+---------+---------+---------+----------+
| Investments at fair value | - | - | - | - | (206) |
+----------------------------------+----------+---------+---------+---------+----------+
| Derivative financial instruments | - | - | - | (30) | - |
| | | | | | |
+----------------------------------+----------+---------+---------+---------+----------+
| Prime broker facility | (12,061) | - | - | - | - |
+----------------------------------+----------+---------+---------+---------+----------+
| Trade and other payables | - | - | (106) | - | - |
+----------------------------------+----------+---------+---------+---------+----------+
| | | | | | |
+----------------------------------+----------+---------+---------+---------+----------+
| Total liabilities | (12,061) | - | (106) | (30) | (206) |
+----------------------------------+----------+---------+---------+---------+----------+
+----------------------------------+---------+---------+----------+---------+----------+
| | On | Less | 1-3 | 3 | No |
| | | than | | months | stated |
+----------------------------------+---------+---------+----------+---------+----------+
| | demand | 1 | months | to 1 | maturity |
| | | month | | year | |
+----------------------------------+---------+---------+----------+---------+----------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------------+---------+---------+----------+---------+----------+
| 30 November 2007 | | | | | |
+----------------------------------+---------+---------+----------+---------+----------+
| Financial liabilities including | | | | | |
| derivatives | | | | | |
| settled net | | | | | |
+----------------------------------+---------+---------+----------+---------+----------+
| Derivative financial instruments | - | - | - | (152) | - |
| | | | | | |
+----------------------------------+---------+---------+----------+---------+----------+
| Amounts due to ZDP shareholders | - | - | (41,478) | - | - |
+----------------------------------+---------+---------+----------+---------+----------+
| Trade and other payables | - | - | (765) | - | - |
+----------------------------------+---------+---------+----------+---------+----------+
| | | | | | |
+----------------------------------+---------+---------+----------+---------+----------+
| Total liabilities | - | - | (42,243) | (152) | - |
+----------------------------------+---------+---------+----------+---------+----------+
5. Credit risk
The Company is subject to the risk of the inability of the bankers and custodian
to perform with respect to transactions, whether due to insolvency, bankruptcy,
rehypothecation of the Company's assets or other cause and the credit worthiness
of any counterparties it deals with from time to time.
The Company seeks to manage credit risk by adhering to the limits on position
size in the Prospectus and only undertaking transactions with reputable and
approved counterparties and by ensuring that the majority of transactions are
settled on delivery. The Company mitigates the risk by investing in a
diversified portfolio of investment grade fixed-income securities.
Swap contracts and futures contracts are marked to market and exposure to
counterparties is monitored on a daily basis.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
+--------------------------------------+------------------+-------------+
| | 30 November | 30 November |
+--------------------------------------+------------------+-------------+
| | 2008 | 2007 |
+--------------------------------------+------------------+-------------+
| | GBP'000 | GBP'000 |
+--------------------------------------+------------------+-------------+
| Investments in debt instruments | 7,189 | 10,781 |
+--------------------------------------+------------------+-------------+
| Investments in preference shares | 492 | 2,060 |
+--------------------------------------+------------------+-------------+
| Cash and cash equivalents | 3,602 | 10,680 |
+--------------------------------------+------------------+-------------+
| Balances due from brokers | - | 936 |
+--------------------------------------+------------------+-------------+
| Unsettled derivative financial | 1,738 | - |
| instruments | | |
+--------------------------------------+------------------+-------------+
| Interest, dividends and other | 447 | 837 |
| receivables | | |
+--------------------------------------+------------------+-------------+
| | | |
+--------------------------------------+------------------+-------------+
| | 13,468 | 25,294 |
+--------------------------------------+------------------+-------------+
| | | |
+--------------------------------------+------------------+-------------+
Amounts in the above table are based on the carrying value.
Fair value information
All financial assets and financial liabilities of the Company are carried in the
balance sheet at fair value or the balance sheet amount is a reasonable
approximation of fair value.
Capital management policies
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity shareholders through an appropriate balance of equity capital and
"debt".
As stated in the Investment Policy, the Company has authority to borrow up to 50
per cent of total assets.
The Company's capital at 30 November 2008 comprises:
+-----------------------------------------+--------------+--------------+
| | 2008 | 2007 |
+-----------------------------------------+--------------+--------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------+--------------+--------------+
| Capital and reserves | 42 | 15,375 |
| Called -up share capital | | |
+-----------------------------------------+--------------+--------------+
| Distributable reserves - revenue | 2,188 | 1,686 |
+-----------------------------------------+--------------+--------------+
| Distributable reserves - other | 20,386 | 20,961 |
+-----------------------------------------+--------------+--------------+
| Non distributable reserves | (9,546) | 6,023 |
+-----------------------------------------+--------------+--------------+
| | | |
+-----------------------------------------+--------------+--------------+
| Total Shareholder's funds | 13,070 | 44,045 |
+-----------------------------------------+--------------+--------------+
| | | |
+-----------------------------------------+--------------+--------------+
The Board with the assistance of the Investment Manager monitors and reviews the
broad structure of the Company's capital on an ongoing basis. This review
includes:
-The planned level of gearing, which takes into account the Investment Manager's
view of the market;
- The need to buyback shares for cancellation or Treasury, which takes account
of the difference between the net asset value per share and the share price
(i.e. the level of share price discount or premium);
- The need for new issues of equity shares; and
- The extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
detailed in this announcement.
23Contingent liabilities
At the year end, there were no contingent liabilities (2007: GBPnil).
24Post balance sheet events
On 12 December 2008 the Company announced that, in accordance with its Treasury
Share policy where shares purchased for Treasury can be held only for a period
of twelve months before being cancelled, the Company's Treasury holding of
4,236,992 Ordinary Shares was cancelled with immediate effect.
CHANGES TO THE CAPITAL STRUCTURE
On 11 December 2007, ZDP shareholders received their final capital entitlement
of 168.48p per ZDP Share either by way of cash or accumulation units in New Star
Diversified Absolute Return Fund, an authorised open-ended unit trust. NSF
Securities Limited (the Company's subsidiary) was voluntarily wound up on 4
February 2008.
Following repayment on 11 December 2007 of the ZDP Shares, gearing is provided
through a credit facility under a prime broker agreement with Credit Suisse
Securities (Europe) Limited. As a result the Company has been re-categorised as
a conventional investment company.
On 11 December 2007 at an Extraordinary General Meeting, Ordinary Shareholders
approved a series of special resolutions changing the articles and thus allowing
proposals to implement a reconstruction of the Company and a Tender Offer to
purchase up to 50% of the Company's issued share capital.
The proposals included:
-Restatement of the Company's investment objectives;
-Changing the benchmark for measuring Company performance to the Dow Jones STOXX
600 Financials Index;
-Introducing an annual tender taking powers to buy back Ordinary Shares;
-Introducing a performance fee for the Investment Manager in addition to its
annual management fee;
-Reducing the nominal value of shares from 25p each to 0.1p each;
-Cancelling the share premium account and transferring those funds to a
distributable reserve;
-Implementing a Tender Offer in respect of 50% of the Company's issued share
capital;
-Postponing until the Annual General Meeting in 2018, the obligation for the
Board to propose an ordinary resolution that the Company should continue as an
investment company; and
-Authorising the purchase of up to 10% of the Ordinary Shares in issue and hold
them as Treasury Shares.
Results of the Tender Offer
A Tender Price was calculated as 68.0781p, being 97% of the Tender NAV on the
Calculation Date (the close of business on 14 December 2007).
A total of 27,579,693 Ordinary Shares were tendered under the Tender Offer,
representing 44.8% of the Company's issued share capital. Of the tendered shares
4,212,625 Ordinary Shares were sold in the market under a matching facility and
the balance of 23,367,068 Ordinary Shares were repurchased by the Company. Of
the shares repurchased, 4,236,992 Ordinary Shares are held in Treasury and
19,130,076 Ordinary Shares cancelled.
On 19 December 2007, following the completion of the Tender Offer, the Company
announced it had 42,369,924 Ordinary Shares in issue of which 4,236,992 were
held in Treasury. Accordingly, the total voting rights attaching thereto was
38,132,932 Ordinary Shares.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR CKKKQPBKDCBB
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