TIDMICTA
RNS Number : 7907Y
Investors Capital Trust PLC
20 May 2016
To: RNS
From: Investors Capital Trust plc
Date: 20 May 2016
Results for the year ended 31 March 2016
-- Total distributions for the year to 31 March 2016 of 4.60p
per share, an increase of 2.7 per cent compared to the prior
year
-- Distribution yield of 5.1 per cent on A shares and 5.0 per
cent on B shares at 31 March 2016, compared to the yield on the
FTSE All-Share Capped 5% Index of 3.7 per cent
-- Net asset value total return per share for the year was -2.8
per cent, compared to the FTSE All-Share Capped 5% Index total
return of -3.8 per cent
-- Net asset value total return per share since launch on 1
March 2007 was 60.4 per cent, compared to the FTSE All-Share Capped
5% Index total return of 51.3 per cent
Chairman's Statement as follows:
Introduction
The Company's investment objective is to provide an attractive
return to shareholders in the form of dividends and/or capital
repayments, together with prospects for capital growth.
The Company's investment portfolio is managed in two parts. The
first part comprises investments in UK equities and equity related
securities (the Equities Portfolio) and the second part investments
in fixed interest and other higher yielding securities (the Higher
Yield Portfolio). At 31 March 2016, 85.2 per cent. of total assets
was allocated to the Equities Portfolio and 9.7 per cent. to the
Higher Yield Portfolio. The remaining 5.1 per cent. was held as
cash and cash equivalents.
Investment Performance
The pace of global economic recovery over the past year has
remained lacklustre, uneven and lacking in momentum. Despite a
slower start to 2016, the US and UK economies have remained amongst
the faster growing developed economies. Indeed, the improvement in
economic conditions in the US during the year was such that, in
December, the Federal Reserve announced a small, but significant
increase in interest rates. This was the first move since the
benchmark Federal Funds rate had been reduced to close to zero in
2008 at the height of the worst financial crisis of the post war
era, signalling the beginning of the end of an extraordinary period
of monetary support from the US Central Bank.
In contrast, economic recovery in the Eurozone has remained
elusive with that region beset by economic, structural and
political challenges. In recent months, in a further effort to
increase inflation and stimulate growth, the European Central Bank
(ECB) reduced interest rates to an all-time low, expanded the size
and the scope of its quantitative easing programme and lowered a
key bank deposit rate further into negative territory. By setting
negative deposit rates on commercial banks excess funds, a policy
also recently adopted in Japan, the ECB hopes that banks will be
more inclined to lend and thereby stimulate growth.
Concerns over the slowdown in emerging market economies, most
notably China, Brazil and Russia, together with slumping commodity
prices and rising geopolitical risks have weighed on investor
sentiment over the past year and contributed to a rise in market
volatility. Against that background, financial markets have proven
to be quite resilient, supported by reasonable corporate sector
fundamentals and plentiful global liquidity.
The Company's Equities Portfolio produced a total return of -2.4
per cent. during the year to 31 March 2016, while the Higher Yield
Portfolio returned 1.1 per cent. Returns from the Equities
Portfolio and the Higher Yield Portfolio, combined with the effect
of gearing and expenses, resulted in a net asset value total return
for the A shares and B shares of -2.8 per cent. for the year. This
return was ahead of the -3.8 per cent. total return for the FTSE
All-Share Capped 5% Index, the Company's benchmark. Performance is
covered in more detail in the Manager's Review in the Annual
Report.
Since the Company's launch on 1 March 2007 to 31 March 2016, the
net asset value per share total return performance has been 60.4
per cent. which compares favourably with the 51.3 per cent. total
return from the benchmark FTSE All-Share Capped 5% Index.
Earnings
The Company achieved total revenue income of GBP5.4m for the
year. The yield on the Equities Portfolio was 4.0 per cent. as at
31 March 2016, compared to the yield on the FTSE All-Share Capped
5% Index of 3.7 per cent.
The Company's revenue decreased by 5.2 per cent compared with
the previous year which is primarily due to the lower level of
one-off special dividends in the Equities Portfolio. Special
dividends totaled GBP74,000 during the year (2015: GBP405,000). The
level of income from the Higher Yield Portfolio, also decreased as
the level of assets allocated to fixed interest securities further
reduced during the year.
While the majority of investee companies continued to
demonstrate good dividend growth during the year, the outlook for
dividends from the UK market as a whole has deteriorated. Over the
coming year, dividends from the UK market may come under pressure
as dividend cuts from some of the UK's largest companies are likely
to overshadow good progress elsewhere. In my interim report, I
suggested that if the weakness in commodity prices persisted, the
high level of dividend yields offered by the shares of the
integrated oil and mining companies would prove unsustainable.
During the second half of the Company's financial year, the rout in
commodity prices continued. In February, both Rio Tinto and BHP
Billiton, two of the largest players in the mining industry, both
confirmed substantial dividend cuts with their full year's results.
Despite the weakness in crude oil prices, both Royal Dutch Shell
and BP have thus far chosen to maintain their dividend payments,
however at prevailing crude oil prices these dividends remain very
much at risk.
Over one third of the income from the Equities Portfolio comes
from UK-listed companies that declare dividends in US dollars. Over
the course of the financial year, the US dollar appreciated
slightly relative to sterling to the modest benefit of the level of
dividend income from the Equities Portfolio as a whole.
After deducting the fourth quarter dividend, the Company had
revenue reserves of GBP4.3m at 31 March 2016. This is now
equivalent to approximately 105% of the current annual dividend
cost, which affords the Company the ability to sustain dividend
payments, if a more difficult environment develops.
Dividends and Capital Repayments
Dividends to A shareholders and capital repayments to B
shareholders are paid quarterly in August, November, February and
May each year.
For each of the Company's first three quarters, the dividends
paid on the A shares and capital repayments on the B shares were
1.14p per share. A fourth quarter dividend of 1.18p per share was
paid to A shareholders, and a capital repayment of the same amount
paid to B shareholders, on 6 May 2016. This gives a total
dividend/capital repayment of 4.60p per share in respect of the
year to 31 March 2016, which represents an increase of 2.7 per
cent. compared to the previous year.
Based on the share prices for both share classes at 31 March
2016 this represents a distribution yield for the A shareholders
and B shareholders of 5.1 per cent. and 5.0 per cent respectively.
These yields compare favourably with the yield on the FTSE
All-Share Capped 5% Index of 3.7 per cent at that date. For
shareholders that hold units, the distribution yield was 5.2 per
cent. based on a unit price of 354.0 pence as at 31 March 2016.
Capital Structure
The Company has two classes of shares: A shares and B shares.
The net asset value attributable to the A shares and to the B
shares is the same. The rights of each class are identical, save
that only the A shares are entitled to receive dividends, while the
B shares instead receive a capital repayment at the same time as,
and in an equal amount to, each dividend. The 'Capital Structure'
section of the Annual Report provides further information on the A
shares and B shares.
The Company has a GBP18 million loan facility for a term to 28
September 2017 at a fixed rate of interest of 3.15 per cent. per
annum.
Discount and buy backs
The price of the Company's A shares and B shares were at a
discount to net asset value of 6.7 per cent. and 5.0 per cent.
respectively, at 31 March 2016. Over the year, the price of the
Company's A shares traded at an average discount to net asset value
per share of 8.0 per cent. and the Company's B shares traded at an
average discount of 6.5 per cent.
During the year, the Company bought back 850,000 A shares and
650,000 B shares, representing 0.9 per cent and 2.0 per cent of the
A shares and B shares, respectively in issue at the previous year
end. The shares were bought back in line with the Company's stated
policy, which is to repurchase shares of either class, at the
Directors' discretion, when there are net sellers and the market
price stands at a discount to net asset value of 5 per cent or
more. The price paid for these A shares and B shares represented
discounts of approximately 7.6 per cent and 8.1 per cent
respectively, to the prevailing net asset value at the time of
purchase.
Outlook
Looking to the year ahead, headwinds from the slowdown in
emerging market economies, the collapse of commodity prices and
elevated geopolitical tensions are likely to dampen economic growth
prospects. This suggests the modest, below-trend and divergent
economic recovery of recent years may well continue. In the UK,
uncertainty over the outcome of the forthcoming EU referendum is
likely to weigh on investor sentiment in the near term.
Notwithstanding the rise in US interest rates, with inflation in
developed economies well below Central Banks' targets, global
monetary conditions are likely to remain supportive for financial
markets while at the same time corporate sector fundamentals remain
reasonable.
Iain McLaren
Chairman
19 May 2016
For further information, please contact:
Rodger McNair Tel: 0131 718 1000
Fund Manager to Investors Capital Trust plc
Ian Ridge
For F&C Investment Business Limited
Company Secretary to Investors Capital Trust plc Tel: 0131 718 1000
Consolidated Statement of Comprehensive Income (audited)
Year to 31 March
2016
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------- ----- -------- ---------- ----------
Capital losses on investments
Losses on investments
held at fair value through
profit or loss - (6,640) (6,640)
Exchange differences - (325) (325)
Revenue
Investment income 5,424 - 5,424
Total income 5,424 (6,965) (1,541)
------------------------------- ----- -------- ---------- ----------
Expenditure
Investment management
fee (267) (623) (890)
Other expenses (408) - (408)
Total expenditure (675) (623) (1,298)
------------------------------- ----- -------- ---------- ----------
Profit/(loss) before finance
costs and tax 4,749 (7,588) (2,839)
Finance costs
Interest on bank loan (178) (416) (594)
Total finance costs (178) (416) (594)
------------------------------- ----- -------- ---------- ----------
Profit/(loss) before tax 4,571 (8,004) (3,433)
Tax - - -
------------------------------- ----- -------- ---------- ----------
Profit/(loss) for the
year 4,571 (8,004) (3,433)
------------------------------- ----- -------- ---------- ----------
Total comprehensive income
for the year 4,571 (8,004) (3,433)
------------------------------- ----- -------- ---------- ----------
Earnings per share 2 3.74p (6.55)p (2.81)p
------------------------------- ----- -------- ---------- ----------
Consolidated Statement of Comprehensive Income (audited)
Year to 31 March
2015
Note Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------ ----- -------- -------- --------
Capital gains on investments
Gains on investments held
at fair value through
profit or loss - 2,597 2,597
Exchange differences - 342 342
Revenue
Investment income 5,721 - 5,721
Total income 5,721 2,939 8,660
------------------------------ ----- -------- -------- --------
Expenditure
Investment management
fee (283) (660) (943)
Other expenses (391) - (391)
Total expenditure (674) (660) (1,334)
------------------------------ ----- -------- -------- --------
Profit before finance
costs and tax 5,047 2,279 7,326
Finance costs
Interest on bank loan (177) (414) (591)
Total finance costs (177) (414) (591)
------------------------------ ----- -------- -------- --------
Profit before tax 4,870 1,865 6,735
Tax (22) 22 -
------------------------------ ----- -------- -------- --------
Profit for the year 4,848 1,887 6,735
------------------------------ ----- -------- -------- --------
Total comprehensive income
for the year 4,848 1,887 6,735
------------------------------ ----- -------- -------- --------
Earnings per share 2 3.95p 1.54p 5.49p
------------------------------ ----- -------- -------- --------
Balance Sheets (audited)
as at 31 March 2016
2016 2015
Company Group Company Group
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- ---------- ---------- ---------- ----------
Non-current assets
Investments held
at fair value through
profit or loss 127,855 127,605 137,071 136,821
--------------------------- ----- ---------- ---------- ---------- ----------
Current assets
Receivables 1,690 1,690 1,517 1,517
Cash and cash equivalents 7,264 7,264 7,309 7,309
--------------------------- ----- ---------- ---------- ---------- ----------
8,954 8,954 8,826 8,826
--------------------------- ----- ---------- ---------- ---------- ----------
Total assets 136,809 136,559 145,897 145,647
--------------------------- ----- ---------- ---------- ---------- ----------
Current liabilities
Payables (2,281) (2,031) (1,011) (761)
--------------------------- ----- ---------- ---------- ---------- ----------
(2,281) (2,031) (1,011) (761)
--------------------------- ----- ---------- ---------- ---------- ----------
Non-current liabilities
Bank loan (18,000) (18,000) (18,000) (18,000)
(18,000) (18,000) (18,000) (18,000)
--------------------------- ----- ---------- ---------- ---------- ----------
Total liabilities (20,281) (20,031) (19,011) (18,761)
--------------------------- ----- ---------- ---------- ---------- ----------
Net assets 116,528 116,528 126,886 126,886
--------------------------- ----- ---------- ---------- ---------- ----------
Share capital 6 134 134 134 134
Share premium 6 153 153 153 153
Capital redemption
reserve 5 5 5 5
Buy back reserve 6 85,092 85,092 86,425 86,425
Special capital
reserve 21,058 21,058 22,524 22,524
Capital reserves 4,719 4,719 12,723 12,723
Revenue reserve 5,367 5,367 4,922 4,922
--------------------------- ----- ---------- ---------- ---------- ----------
Equity shareholders'
funds 116,528 116,528 126,886 126,886
--------------------------- ----- ---------- ---------- ---------- ----------
Net asset value
per A share 7 96.42p 96.42p 103.70p 103.70p
Net asset value
per B share 7 96.42p 96.42p 103.70p 103.70p
Consolidated and Company Cash Flow Statement (audited)
for the year to 31 March 2016
Year to Year to
31 March 31 March
2016 2015
GBP'000 GBP'000
--------------------------------- ---------- ----------
Cash flows from operating
activities
(Loss)/profit before tax (3,433) 6,735
Adjustments for:
Losses/(gains) on investments
held at fair value through
profit or loss 6,640 (2,597)
Exchange differences 325 (342)
Interest income (29) (15)
Interest received 29 15
Investment interest (761) (938)
Investment interest received 806 968
Dividend income (4,626) (4,766)
Dividend income received 4,565 4,667
Increase in receivables (2) (3)
Increase/(decrease) in payables 1 (436)
Purchases of investments (17,540) (13,501)
Sales of investments 20,510 17,553
Finance costs 594 591
--------------------------------- ---------- ----------
Net cash inflow from operating
activities 7,079 7,931
--------------------------------- ---------- ----------
Cash flows from financing
activities
Dividends paid on A shares (4,126) (4,042)
Capital returns paid on B
shares (1,466) (1,428)
Interest on bank loan (594) (591)
Shares purchased for treasury (658) (931)
Shares issued from treasury - 133
--------------------------------- ---------- ----------
Net cash outflow from financing
activities (6,844) (6,859)
--------------------------------- ---------- ----------
Net increase in cash and
cash equivalents 235 1,072
Currency (losses)/gains (280) 333
Opening net cash and cash
equivalents 7,309 5,904
--------------------------------- ---------- ----------
Closing net cash and cash
equivalents 7,264 7,309
--------------------------------- ---------- ----------
Consolidated and Company Statement of Changes in Equity
(audited)
for the year to 31 March 2016
Capital Capital
Capital Buy Special Reserve Reserve
Share Share Redemption Back Capital - - Revenue
Capital Premium Reserve Reserve Reserve Investments Investments Reserve Total
sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Balance as at
1
April 2015 134 153 5 86,425 22,524 (15,844) 28,567 4,922 126,886
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Total
comprehensive
income for the
year
Profit/(loss)
for
the year - - - - - 1,067 (9,071) 4,571 (3,433)
Total
comprehensive
income for
the year - - - - - 1,067 (9,071) 4,571 (3,433)
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Transactions
with
owners of the
Company
recognised
directly
in equity
Shares bought
back
for treasury - - - (1,333) - - - - (1,333)
Dividends paid
on
A shares - - - - - - - (4,126) (4,126)
Capital
returns
paid on B
shares - - - - (1,466) - - - (1,466)
Balance as at
31
March 2016 134 153 5 85,092 21,058 (14,777) 19,496 5,367 116,528
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- ----------
Consolidated and Company Statement of Changes in Equity
(audited)
for the year to 31 March 2015
Capital Capital
Capital Buy Special Reserve Reserve
Share Share Redemption Back Capital - - Revenue
Capital Premium Reserve Reserve Reserve Investments Investments Reserve Total
sold held
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Balance as at
1
April 2014 134 153 5 87,356 23,952 (16,187) 27,023 4,116 126,552
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Total
comprehensive
income for the
year
Profit for the
year - - - - - 343 1,544 4,848 6,735
Total
comprehensive
income for
the year - - - - - 343 1,544 4,848 6,735
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Transactions
with
owners of the
Company
recognised
directly
in equity
Shares bought
back
for treasury - - - (931) - - - - (931)
Dividends paid
on
A shares - - - - - - - (4,042) (4,042)
Capital
returns
paid on B
shares - - - - (1,428) - - - (1,428)
Balance as at
31
March 2015 134 153 5 86,425 22,524 (15,844) 28,567 4,922 126,886
--------------- --------- --------- ------------ --------- --------- ------------ ------------ --------- --------
Investors Capital Trust plc
Principal Risks
In accordance with the Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, issued by the
Financial Reporting Council, the Board has established an ongoing
process for identifying, evaluating and managing the significant
risks faced by the Company. It has also regularly reviewed the
effectiveness of the Company's risk management and internal control
systems for the period.
The principal risks and uncertainties faced by the Company, and
the Board's mitigation approach are described below.
Financial Risk. The Company's assets consist mainly of listed
equity and fixed interest securities and its principal risks are
therefore market-related and include market risk (comprising
currency risk, interest rate risk and other price risk), liquidity
risk and credit risk.
Mitigation: An explanation of these risks and the way in which
they are managed are contained in the notes to the accounts. The
Board regularly considers the composition and diversification of
the Equity and Higher Yield portfolios together with purchases and
sales of investments. Investments and markets are discussed with
the Manager and a Strategy meeting is held annually.
Investment and strategic risk. Incorrect strategy, asset
allocation, stock selection, inappropriate capital structure,
insufficient monitoring of costs, failure to maintain an
appropriate level of discount/premium and the use of gearing could
all lead to poor returns for shareholders.
Mitigation: The Equity and Higher Yield portfolios are
diversified and comprise listed securities and their composition
are reviewed regularly with the Board. The investment policy and
performance against peers and benchmark are considered by the Board
at each meeting. A separate meeting is also held each year to
consider strategic issues. Marketing intelligence is maintained via
the Company's Broker and the Manager meets with major shareholders.
The Board regularly considers ongoing charges and underlying
dividends from portfolio companies, and consequent dividend paying
capacity of the Company.
Regulatory. Breach of regulatory rules could lead to the
suspension of the Company's Stock Exchange listing, financial
penalties, or a qualified audit report. Breach of section 1158 of
the Corporation Tax Act 2010 could lead to the Company being
subject to tax on capital gains. Changes to tax regulations could
alter the market competitiveness of the Company's B Shares.
Mitigation: F&C's Business Risk department provide regular
reports to the Board and Audit Committee on their monitoring and
oversight. The Board has access to F&C's Head of Business Risk
and requires any significant issues directly relevant to the
Company to be reported immediately.
Operational. Failure of the Manager's systems or disruption to
its business, or that of an outsourced or third party service
provider, could lead to an inability to provide accurate reporting
and monitoring or a misappropriation of assets leading to a
potential breach of the Company's investment mandate or loss of
shareholders' confidence. External cyber attacks could cause such
failure or could lead to the loss or sabotage of data.
Mitigation: The Board meets regularly with the management of
F&C and receives regular internal control and risk reports from
the Manager which includes oversight of third party service
providers. The Manager's appointment is reviewed annually. The
contract can be terminated with six months' notice. The Manager now
benefits from the long-term financial strength and policies of its
new owner, the BMO Group, and through its stated commitment to the
future of F&C's investment trust management business. The
Manager continues to strengthen its Risk, Compliance and Internal
Control functions as part of the integration of its operations
following the acquisition of F&C by Bank of Montreal and
continues to invest in IT security.
Custody Risk. Safe custody of the Company's assets may be
compromised through control failures by the custodian.
Mitigation: The Board receives quarterly reports from the
Depositary confirming safe custody of the Company's assets and cash
and holdings are reconciled to the Custodian's records. The
Custodian's internal controls reports are also reviewed by the
Manager and key points reported to the Audit Committee. The
Depositary is specifically liable for loss of any of the Company's
securities and cash held in custody.
Investors Capital Trust plc
Statement of Directors' Responsibilities in Respect of the
Financial Statements
In accordance with Chapter 4 of the Disclosure and Transparency
Rules, the Directors confirm, in respect of the Annual Report and
accounts for the year ended 31 March 2016 of which this statement
of results is an extract, that to the best of their knowledge:
-- the financial statements contained within the Annual Report
have been prepared in accordance with applicable International
Financial Reporting Standards as adopted by the European Union, and
give a true and fair view of the assets, liabilities, financial
position and return of the Group and the undertakings included in
the consolidation taken as a whole;
-- the Strategic Report (comprising the Chairman's Statement,
Business Model and Strategy, Key Performance Indicators, Manager's
Review, Classification of Investments, Equities Portfolio, Higher
Yield Portfolio and Principal Risks) and the Report of the
Directors include a fair review of the development and performance
of the business and the position of the Group and the undertakings
included in the consolidation taken as a whole together with a
description of the principal risks that they face;
-- taken as a whole, the Annual Report and accounts are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the performance, business model and
strategy of the Group;
-- the financial statements include details on related party transactions; and
-- having assessed the principal risks and other matters
discussed in connection with the Viability Statement, it is
appropriate to adopt the going concern basis in preparing the
financial statements.
On behalf of the Board
Iain McLaren
Chairman
19 May 2016
Notes (audited)
1. The financial statements of the Group which are the
responsibility of, and were approved by, the Board on 19 May 2016,
have been prepared in accordance with the Companies Act 2006,
International Financial Reporting Standards ("IFRS"), which
comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"), and
International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting
Standards Committee ("IASC") that remain in effect, and to the
extent that they have been adopted by the European Union.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts issued by the
Association of Investment Companies ("AIC") in November 2014 is
consistent with the requirements of IFRS, the Directors have sought
to prepare the financial statements on a basis compliant with the
recommendations of the SORP.
2. The Company's earnings per share are based on the loss for
the year of GBP3,443,000 (year to 31 March 2015 profit:
GBP6,735,000) and on 90,263,253 A shares (2015: 90,716,500) and
31,887,076 B shares (2015: 32,076,703), being the weighted average
number of shares in issue of each share class during the year.
The Company's revenue earnings per share are based on the
revenue profit for the year of GBP4,571,000 (year to 31 March 2015:
GBP4,848,000) and on the weighted average number of shares in issue
as above.
The Company's capital earnings per share are based on the
capital loss for the year of GBP8,004,000 (year to 31 March 2015:
GBP1,887,000) and on the weighted average number of shares in issue
as above.
3. The Group results comprise those of the Company and those of
Investors Securities Company Limited, a wholly owned subsidiary
which deals in securities.
4. The fourth interim dividend of 1.18p per A share, was paid on
6 May 2016 to A shareholders on the register at close of business
on 8 April 2016, having an ex-dividend date of 7 April 2016. The
fourth capital repayment of 1.18p per B share was paid on 6 May
2016 to B shareholders on the register on 8 April 2016.
5. The Company has drawn down an GBP18 million term loan
facility with a five year term to 28 September 2017. The term loan
with JPMorgan Chase Bank is currently secured on investments and
cash held by JPMorgan Chase Bank as custodian which constitutes the
majority of the assets of the Company. The term loan carries
interest at a fixed rate of 3.15 per cent per annum payable
quarterly in arrears. An administration fee of GBP18,000 is payable
annually in addition.
The term loan contains certain financial covenants with which
the Company must comply. These include a financial covenant to the
effect that the percentage of the total amounts drawn down under
the term loan (together with any other borrowings) should not
exceed 45 per cent of the Company's Eligible Total Secured Assets.
The Company complied with the required financial covenants
throughout the period since drawdown.
The fair value of the fixed rate GBP18 million term loan, on a
marked to market basis, was GBP18,156,000 at 31 March 2016 (2015:
GBP18,103,000).
6. During the year the Company bought back 850,000 (2015:
1,000,000) A Shares to hold in treasury at a cost of GBP758,000
(2015: GBP931,000) and 650,000 (2015: nil) B Shares to hold in
treasury at a cost of GBP575,000 (2015: nil). The Company did not
buy back any shares for cancellation during the year (2015:
nil).
At 31 March 2016 the Company held 12,639,000 (2015: 11,789,000)
A Shares and 650,000 (2015: nil) B Shares in treasury.
7. The Company's basic net asset value per share of 96.42p
(2015: 103.70p) is based on the equity shareholders' funds of
GBP116,528,000 (2015: GBP126,886,000) and on 120,854,847 equity
shares, consisting of 89,428,144 A Shares and 31,426,703 B Shares
(2015: 122,354,847 equity shares, consisting of 90,278,144 A Shares
and 32,076,703 B Shares), being the number of shares in issue at
the year end.
The Company's shares may also be traded as units, each unit
consisting of three A Shares and one B Share. The basic net asset
value per unit as at 31 March 2016 was therefore 385.68p (2015:
414.80p).
The Company's treasury net asset value per share, incorporating
the 12,639,000 A Shares and 650,000 B shares held in treasury at
the year end, was 95.95p (2015: 103.44p). The Company's treasury
net asset value per unit at the end of the year was 383.80p (2015:
413.76p). The Company's policy is to only re-sell shares held in
treasury at a price representing a discount of not more than 5 per
cent to net asset value at the time of sale, together with other
conditions. Accordingly, for the purpose of the calculation, such
treasury shares are valued at the higher of net asset value less 5
per cent and the mid market share price at each year end.
8. Financial Instruments
The Company's financial instruments comprise equity and fixed
interest investments, cash balances, receivables and payables that
arise directly from its operations and borrowings. As an investment
trust the Company holds a portfolio of financial assets in pursuit
of its investment objective. The Company makes use of borrowings to
achieve enhanced returns. The downside risk of borrowings can be
mitigated by raising the level of cash balances held.
The Company may use derivatives for efficient portfolio
management from time to time. The only derivatives used in the year
were forward foreign exchange currency contracts to hedge currency
movements. These were also used in the prior year. The Company may
also write call options over some investments held in the Equities
Portfolio. There were no call options written during the current
year or prior year.
Apart from the fair value of the fixed-rate term loan as
disclosed in note 5, the fair value of the financial assets and
liabilities of the Company at 31 March 2016 is not materially
different from their carrying value in the financial
statements.
The Company is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, market price risk, liquidity risk, interest rate risk
and foreign currency risk.
The Board reviews and agrees policies for managing its risk
exposure. These policies are summarised below and have remained
unchanged for the year under review.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
The Company's principal financial assets are bank balances and
cash, other receivables and fixed interest investments, whose
carrying amounts in the balance sheet represent the Company's
maximum exposure to credit risk in relation to financial assets.
The Company did not have any exposure to any financial assets which
were past due or impaired at the current or prior year end.
The Company is exposed to potential failure by counterparties to
deliver securities for which the Company has paid, or to pay for
securities which the Company has delivered. A list of pre-approved
counterparties used in such transactions is maintained and
regularly reviewed by the Manager, and transactions must be settled
on a basis of delivery against payment. Broker counterparties are
selected based on a combination of criteria, including credit
rating, balance sheet strength and membership of a relevant
regulatory body. Risk relating to unsettled transactions is
considered to be small due to the short settlement period involved
and the acceptable quality of the brokers used. The rate of default
in the past has been insignificant.
All of the assets of the Company, other than the dealing
subsidiary, are held by JPMorgan Chase Bank, the Company's
custodian. Bankruptcy or insolvency of the custodian may cause the
Company's rights with respect to the securities held by the
custodian to be delayed or limited. The Board monitors the
Company's risk by reviewing the custodian's internal control
reports.
The credit risk on liquid funds and derivative financial
instruments is limited because the counterparties are banks with
high credit ratings, normally rated A or higher, assigned by
international credit rating agencies. Bankruptcy or insolvency of
such financial institutions may cause the Company's ability to
access cash placed on deposit to be delayed, limited or lost. The
Company has no significant concentration of credit risk with
exposure spread over a number of counterparties and financial
institutions.
Market price risk
The fair value of equity and other financial securities held in
the Company's portfolio fluctuates with changes in market prices.
Prices are themselves affected by movements in currencies and
interest rates and by other financial issues, including the market
perception of future risks. Other external events such as
protectionism, inflation or deflation, economic recessions and
terrorism could also affect share prices in particular markets. The
Group's strategy for the management of market price risk is driven
by the Company's investment policy. The Board sets policies for
managing this risk and meets regularly to review full, timely and
relevant information on investment performance and financial
results. The management of market price risk is part of the fund
management process and is typical of equity and fixed interest
investment. The portfolio is managed with an awareness of the
effects of adverse price movements through detailed and continuing
analysis with an objective of maximising overall returns to
shareholders. Investment and portfolio performance are discussed in
more detail in the Manager's Review in the Annual Report.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The risk of the Company not having
sufficient liquidity at any time is not considered by the Board to
be significant, given the liquid nature of the portfolio of
investments and the level of cash and cash equivalents ordinarily
held. However, where there has been a deterioration in credit
quality or an event of default the Company may not be able to
liquidate quickly, at fair value, some of its investments in the
Higher Yield Portfolio. Cash balances are held with a spread of
reputable banks with a credit rating of normally A or higher,
usually on overnight deposit. The Manager reviews liquidity at the
time of making each investment decision. The Board reviews
liquidity exposure at each meeting.
In certain circumstances, the terms of the Company's bank loan
entitle the lender to demand early repayment and, in such
circumstances, the Company's ability to maintain dividend levels
and the net asset value attributable to equity shareholders could
be adversely affected. Such early repayment may be required in the
event of a change of control of the Company or on the occurrence of
certain events of default which are customary for facilities of
this type. These include events of non payment, breach of other
obligations, misrepresentations, insolvency and insolvency
proceedings, illegality and a material adverse change in the
financial condition of the Company.
Interest rate risk
Some of the Company's financial instruments are interest
bearing. They are a mix of both fixed and variable rate instruments
with differing maturities. As a consequence, the Company is exposed
to interest rate risk due to fluctuations in the prevailing market
rate. The Company's exposure to floating interest rates gives
cashflow interest rate risk and its exposure to fixed interest
rates gives fair value interest rate risk.
Floating rate
When the Company retains cash balances the majority of the cash
is held in deposit accounts. The benchmark rate which determines
the interest payments received on cash balances is the bank base
rate, which was 0.5 per cent at 31 March 2016 (2015: 0.5 per
cent).
Fixed rate
Movements in the fair value of investments held in the Higher
Yield Portfolio due to a movement in the market interest rate is
viewed to form part of the market price risk. The Company's
Equities Portfolio does not contain any fixed interest or floating
rate interest assets.
The GBP18 million term loan carries a fixed interest rate of
3.15 per cent per annum.
Foreign currency risk
In order to achieve a diversified portfolio of higher yielding
securities the Company invests partly in overseas securities which
gives rise to currency risks. In the year to 31 March 2016, the
Company entered into US Dollar and Euro foreign exchange currency
contracts with a view to hedging these currency risks.
Given the policy to hedge currency risk on non-sterling
denominated assets by entering into forward foreign exchange
currency contracts, the weakening or strengthening of Sterling
against either the US Dollar or Euro would not have had a
significant net impact on the total column of the Consolidated
Statement of Comprehensive Income for either the year or the prior
year nor the net asset value as at 31 March 2016 or 31 March
2015.
9. These are not full statutory accounts in terms of Section 434
of the Companies Act 2006. The full audited annual report and
accounts for the year ended 31 March 2016 will be sent to
shareholders in May 2016 and will be available for inspection at 80
George Street, Edinburgh, the registered office of the Company. The
full annual report and accounts will be available on the website
maintained on behalf of the Company at www.investorscapital.co.uk
.
The audited accounts for the year to 31 March 2016 will be
lodged with the Registrar of Companies following the Annual General
Meeting to be held on 27 June 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKCDQPBKDAPD
(END) Dow Jones Newswires
May 20, 2016 02:01 ET (06:01 GMT)
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