NEW STAR INVESTMENT TRUST PLC
NEW STAR INVESTMENT TRUST PLC
This announcement constitutes regulated information.
UNAUDITED RESULTS
FOR THE YEAR ENDED 30TH JUNE 2017
New Star Investment Trust plc (the 'Company'), whose objective is to achieve
long-term capital growth, announces its consolidated results for the year ended
30th June 2017.
FINANCIAL HIGHLIGHTS
30th June 30th June %
2017 2016 Change
PERFORMANCE
Net assets (£ '000) 105,056 89,274 17.7
Net asset value per Ordinary share 147.92p 125.70p 17.7
Mid-market price per Ordinary share 105.00p 76.00p 38.2
Discount of price to net asset value 29.0% 39.5% n/a
Total Return* 17.9% 12.1% n/a
IA Mixed Investment 40% - 85% Shares (total 16.5% 2.2% n/a
return)
MSCI AC World Index (total return, sterling 22.9% 13.9% n/a
adjusted)
MSCI UK Index (total return) 16.7% 3.4% n/a
1st July 2016 to 1st July 2015 to
30th June 2017 30th June 2016
REVENUE RETURN
Return per Ordinary share 1.14p 0.27p
Proposed Dividend per Ordinary share 0.80p 0.30p
Dividend paid per Ordinary share 0.30p 0.30p
CAPITAL RETURN
Return per Ordinary share 21.38p 13.29p
TOTAL RETURN* 17.9% 12.1%
* The total return figure for the Group represents the revenue and capital
return shown in the consolidated statement of Comprehensive income before
dividends paid (the Alternative performance measure).
CHAIRMAN'S STATEMENT
PERFORMANCE
Your Company's total return was 17.9% over the year to 30th June 2017. This
took the year-end net asset value ('NAV') per ordinary share to 147.92p. By
comparison, the Investment Association's Mixed Investment 40-85% Shares index
gained 16.5%. Your Directors believe this benchmark is appropriate because your
Company has, since inception, been invested in a broad range of asset classes.
Equity markets generated positive returns, with overseas performance enhanced
in sterling terms as a result of the pound's fall against the dollar and the
euro. The MSCI AC World Total Return and MSCI UK Total Return Indices gained
22.9% and 16.7% respectively while UK government bonds fell 1.0%. Further
information is provided in the investment manager's report.
EARNINGS AND DIVIDEND
The revenue return for the year was 1.14p per share (2016: 0.27p).
Your Company has a revenue surplus in its retained revenue reserve, enabling it
to pay a dividend. Your directors recommend the payment of a final dividend in
respect of the year of 0.8p per share (2016: 0.3p).
OUTLOOK
Inflation rises are likely to be modest over the coming months and, as a
result, the pace of monetary tightening by the world's major central banks is
likely to be slow. Such an environment would benefit equities at the expense of
fixed income securities. In response, your Company began the new financial year
with the majority of its assets in equity funds and with no direct investments
in bond funds. Within the equity holdings, the focus was on Europe excluding
the UK and the Asia-Pacific region because such markets appeared modestly
valued relative to the US.
Should equity market prospects deteriorate as a result of significantly weaker
economic growth, the Company's investments in cash, gold equities and
lower-risk assets should offer some diversification and a measure of
defensiveness during periods of stress in markets. The pattern of steady
economic growth and relatively low inflation is, however, likely to be
sustained over the coming months.
CASH AND BORROWINGS
Your Company has no borrowings and ended its financial year with cash
representing 12.8% of its net asset value. Your Company is likely to maintain a
significant cash position.
The Company is a small registered Alternative Investment Fund Manager under the
European Union directive. The Company's assets now exceed the threshold of 100
million euros. As a result, should it wish to borrow it would require a change
in regulatory permissions.
DISCOUNT
Your Company's shares continued to trade at a significant albeit narrowing
discount to their NAV during the year under review. Your directors have
discussed various options with a view to reducing this discount but no
satisfactory solution has yet been found. This position is, however, kept under
continual review by the board.
BOARD CHANGES
Marcus Gregson will be retiring from the board of your Company at the annual
meeting after serving for more than 10 years as a director and eight years as
chairman of our audit committee. We would like to thank Marcus for his
contribution and counsel during his tenure as a director.
Following Marcus's retirement, we intend to ask shareholders to elect David
Gamble as a director of your Company. David was chief executive of British
Airways Pension Investment Management from 1993 to 2004. He has also served as
a director of numerous financial services companies including a number of
investment companies.
ANNUAL MEETING
The Annual General Meeting will be held on Thursday, 16th November 2017 at
11am.
NET ASSET VALUE
Your Company's unaudited net asset value per share at 31st August 2017 was
151.72p.
INVESTMENT MANAGER'S REPORT
MARKET REVIEW
The US, the UK and the eurozone experienced modest rises in retail prices
during the Company's financial year to 30th June 2017. In July 2017, US and
eurozone core inflation was 1.7% and 1.2% respectively, significantly above the
rate in June 2016 although below the central bank target rates of 2%. In the
UK, core inflation was 2.6%, which was above the Bank of England's 2% target.
Inflation has been fuelled by price increases in 2016 for commodities such as
oil feeding through into year-on-year comparisons. In the UK, the situation has
been exacerbated by the pound's fall and the resultant increase in the cost of
imported goods.
Prices have risen but wage growth remains subdued despite US and UK
unemployment falling to historically low levels. There has been much debate on
the reason for workers' apparent lack of bargaining power. Commentators have
attributed the absence of wage pressure to factors such as greater
self-employment and less unionisation and technological advances. In the UK,
higher inflation may lead to a consumer spending squeeze. UK consumers have not
as yet significantly reined in their spending, leading to a fall in the savings
ratio.
In response to steady economic growth and resurgent inflation, the Federal
Reserve has slowly tightened monetary policy, increasing interest rates three
times during the year under review. In addition, Federal Open Markets Committee
members have discussed plans to reduce the size of the Fed balance sheet
progressively from late 2017 onwards. The European Central Bank is committed to
its asset-purchase programme until 2018 and to maintaining current interest
rates until some time thereafter. An interest rate rise is, however, expected
from mid-2018 onwards. Brexit uncertainty has stayed the Bank of England's hand
so far but it did not deter a minority of Monetary Policy Committee members
from voting to raise rates in their meetings in June and August. UK government
bond investors may begin to anticipate tighter monetary policy as the weak
pound lifts the prices of imported goods, leading to falls for longer-dated
gilts.
The position of the eurozone countries improved during the year under review,
both in political terms following the election of centrist candidates in
Holland and France and from an economic standpoint. Eurozone gross domestic
product (GDP) increased by 0.6% in the second quarter of 2017, outperforming
the UK's 0.3% rise. The eurozone economic recovery has lagged the US and the UK
since the credit crisis. This is partly because the eurozone's federal
structure made it difficult for the European Central Bank (ECB) to achieve a
consensus in favour of quantitative easing until several years after the US and
UK central banks adopted such policies. Eurozone unemployment has fallen,
however, and the region has a current account surplus and, encouragingly, would
do so even if the German contribution were excluded from the numbers. This has
supported the euro, which rose against both the dollar and sterling during the
year under review.
In the UK, Theresa May's miscalculation in calling a general election was laid
bare by the loss of the Conservatives' House of Commons majority as voters'
austerity-fatigue took precedence over the issues of Brexit and the economy.
Political expediency dictated the terms of the subsequent "confidence and
supply" agreement with the Democratic Unionist Party (DUP),which includes a
commitment to increase Northern Irish public spending by £1 billion in return
for the support of the DUP's 10 MPs on matters relating to the budget, defence
and Brexit. The deal extends until May 2019 when the government may be forced
to accede to further DUP demands to avoid a general election. With Brexit
negotiations underway, the UK's stance has been more conciliatory than expected
but the likely terms of any agreement remain unclear.
In the US, investor optimism following Donald Trump's election as president has
reduced. His policies of tax cuts, increased infrastructure spending and
business deregulation should prove expansionary at a time when the economy is
already growing steadily. In August 2017, Trump's failure to repeal Obamacare
to fund his planned fiscal stimulus cast doubt, however, on his ability to
deliver on his election pledges. Rising tensions with North Korea created
further political uncertainty.
PORTFOLIO REVIEW
Your Company's total return for the year under review was 17.92%. By
comparison, the Investment Association's Mixed Investment 40-85% Shares Index,
which measures a peer group of funds with a multi-asset approach to investing
and a typical investment in global equities in the 40-85% range, rose 16.53%.
The MSCI AC World Total Return Index gained 22.90% in sterling terms while the
MSCI United Kingdom Total Return Index rose 16.73%.
The gentle rise in inflation from low levels proved a benign environment for
global equities and the Company's majority allocation to equity funds benefited
returns. In particular, the significant investment in income-orientated funds
throughout the year has enabled your Company to pay an increased dividend to
shareholders for the 2016-17 financial year. Global bonds returned only 0.67%
in sterling. During the year, the Company had no direct investments in global
bonds, which may fall if inflation and interest rates rise further.
Diversification was achieved through a significant allocation to cash held in
dollars and investments in gold equities and the EF Brompton Global
Conservative Fund. The dollar gained 2.91% against sterling during the year.
The Company's investment in BlackRock Gold & General, however, fell 13.78%.
Gold equities provide a geared exposure to the bullion price, which fell 4.23%
during the year because the opportunity cost to investors of holding a
nil-yielding investment increases when interest rates rise. The gold price had,
however, recovered between the Company's year end and 31st August 2017 because
of its safe-haven attractions in the face of North Korean sabre-rattling.
Amongst your Company's global equity funds, Fundsmith Equity and Artemis Global
Income outperformed, gaining 25.01% and 24.80% respectively. The more
defensively-positioned Newton Global Income holding lagged, rising 16.34%, but
Polar Capital Global Technology gained 42.18% as technology shares
outperformed.
The eurozone's improved economic performance contributed to a 28.99% gain for
equities in Europe excluding the UK in sterling. The euro gained 5.66% against
the pound, buoying returns for sterling investors. Your Company benefited from
its significant holdings in Europe ex-UK markets including the FP Crux European
Special Situations and Standard Life European Equity Income. The change in
equity market leadership during the first half of the Company's financial year
in favour of more cyclical "value" stocks proved a headwind for FP Crux
European Special Situations, your Company's largest holding. The
euro-denominated Aquilus Inflection fund, which takes both positive and
negative positions in European equities, gained 11.38%.
UK equities gained 16.73%, with smaller companies, up 29.11%, outperforming
larger peers as the economy grew more strongly than anticipated after the
European Union referendum. The Aberforth Geared Income investment trust, which
has a small company focus, was the Company's best performer, rising 47.00% as
the underlying portfolio rose strongly and the trust's discount to net asset
value narrowed ahead of the planned wind-up on 30 June. The Company's
investment has been rolled over into the successor vehicle, Aberforth Split
Level Income. Man GLG UK Income also did well, rising 35.74% thanks to its
mid-cap "value" focus. By contrast, Trojan Income gained only 11.36%, held back
by its bias towards large companies, which lagged the market.
Asian emerging markets outperformed as fears of US protectionism subsided and
the pace of monetary policy tightening proved to be gradual. Equities in Asia
excluding Japan and emerging markets gained 30.76% and 27.79% respectively in
sterling. Emerging markets appeared attractive to investors on valuation
grounds compared to developed markets. Within the portfolio, Wells Fargo China
and Neptune Russia & Greater Russia did best, rising 29.72% and 29.07%
respectively although Wells Fargo China underperformed the Chinese stockmarket.
In July 2016, the Company invested in the unquoted Embark Group, a leading
personal pension and small self-administered pension scheme administrator
through its Hornbuckle and Rowanmoor brands. Additional shares in Embark were
acquired through a placing of new shares in April to fund an acquisition.
The Company's US equity allocation increased through purchases of the SPDR S&P
500 and iShares S&P 500 Financials exchange-traded funds (ETFs) in November
following Trump's election with a mandate for fiscal expansion. The iShares S&P
500 Financials ETF should benefit from the improving profitability of US
financial companies as interest rates rise. Their prospects may be further
enhanced if Trump's plans for financial deregulation come to fruition.
OUTLOOK
Inflation trends will have a significant influence on financial markets over
the coming months. Equities and other real assets should benefit if inflation
continues to rise slowly from subdued levels and the pace of monetary
tightening is gradual. Conversely, longer-duration assets such as longer-dated
bonds could post losses if inflation continues to rise. The Company ended the
year under review positioned for this environment, with a majority allocation
to equity funds and no direct investments in bonds or bond funds.
Some equity markets such as the US were trading at the start of the current
financial year on high valuations compared to historical standards. The
strongest potential for further gains may, therefore, exist in lowly-valued
markets where central bank monetary policy is accommodative such as in Europe
ex-UK, emerging markets and Japan. The Company began the current financial year
with significant holdings in Europe excluding the UK and the Asia-Pacific
region.
It is possible that deflationary forces such as the growth in self-employment
and technological change may hold inflationary pressures at bay. The lack of
wage inflation despite historically low unemployment in the US and UK supports
this view for now. The Company's investments in cash, gold equities and EF
Brompton Global Conservative should provide diversification and may prove
defensive should the rise in inflation falter. The recent environment of high
equity valuations, moderate economic growth and low inflation may, however,
persist for some time.
SCHEDULE OF TWENTY LARGEST INVESTMENTS AT 30TH JUNE 2017
30th June
2017
Holding Activity Bid-market Percentage of
value invested
£ '000 portfolio
FP Crux European Special Situations Investment Fund 10,918 11.90
Fund
Fundsmith Equity Fund Investment Fund 9,014 9.83
Newton Global Income Fund Investment Fund 5,524 6.02
Aberforth Split Level Income Trust Investment Company 4,898 5.34
Polar Capital - Global Technology Investment Fund 4,208 4.59
Fund
EF Brompton Global Conservative Fund Investment Fund 4,014 4.38
Artemis Global Income Fund Investment Fund 3,930 4.28
Aquilus Inflection Fund Investment Fund 3,364 3.67
BlackRock Gold & General Fund Investment Fund 3,223 3.51
Embark Group Unquoted Investment 3,130 3.41
Liontrust Asia Income Fund Investment Fund 2,777 3.03
Man GLG UK Income Fund Investment Fund 2,732 2.98
Lindsell Train Japanese Equity Fund Investment Fund 2,694 2.94
EF Brompton Global Opportunities Fund Investment Fund 2,652 2.89
EF Brompton Global Growth Fund Investment Fund 2,515 2.74
EF Brompton Global Equity Fund Investment Fund 2,508 2.73
MI Brompton UK Recovery Trust Investment Fund 2,496 2.72
Trojan Income Fund Investment Fund 2,449 2.67
Stewart Investors Indian Subcontinent Investment Fund 2,436 2.66
Fund
EF Brompton Global Income Fund Investment Fund 2,215 2.41
77,697 84.70
Balance held in 20 investments 14,033 15.30
Total investments 91,730 100.00
The investment portfolio can be further analysed as
follows:
£ '000
Investment funds 78,326
Investment companies and exchange traded 7,920
funds
Other quoted investments 674
Unquoted investments, including loans of 4,810
£250,000
91,730
SCHEDULE OF TWENTY LARGEST INVESTMENTS AT 30TH JUNE 2016
30th June
2016
Holding Activity Bid-market Percentage of
value invested
£ '000 portfolio
EF Crux European Special Situations Investment Fund 9,803 12.34
Fund
Fundsmith Equity Fund Investment Fund 8,106 10.20
Newton Global Income Fund Investment Fund 6,417 8.07
BlackRock Gold & General Fund Investment Fund 4,796 6.04
EF Brompton Global Conservative Fund Investment Fund 3,669 4.62
Aberforth Geared Income Trust Investment Company 3,361 4.23
Artemis Global Income Fund Investment Fund 3,254 4.09
First State Indian Subcontinent Fund Investment Fund 2,904 3.65
Polar Capital Global Technology Fund Investment Fund 2,868 3.61
Aquilus Inflection Fund Investment Fund 2,779 3.50
Liontrust Asia Income Fund Investment Fund 2,338 2.94
Trojan Income Fund Investment Fund 2,286 2.88
EF Brompton Global Opportunities Fund Investment Fund 2,259 2.84
Lindsell Train Japanese Equity Fund Investment Fund 2,170 2.73
Man GLG UK Income Fund Investment Fund 2,163 2.72
Neptune Russia & Greater Russia Fund Investment Fund 2,162 2.72
EF Brompton Global Growth Fund Investment Fund 2,158 2.72
EF Brompton Global Equity Fund Investment Fund 2,044 2.57
EF Brompton Global Income Fund Investment Fund 2,015 2.54
MI Brompton UK Recovery Trust Investment Fund 1,958 2.46
69,510 87.47
Balance held in 16 investments 9,957 12.53
Total investments 79,467 100.00
The investment portfolio can be further analysed as
follows:
£ '000
Investment funds 74,085
Investment companies and exchange traded 3,361
funds
Other quoted investments 441
Unquoted investments 1,580
79,467
STRATEGIC REVIEW
The Strategic Review is designed to provide information primarily about the
Company's business and results for the year ended 30th June 2017. The Strategic
Review should be read in conjunction with the Chairman's Statement and the
Investment Manager's Report, which provide a review of the year's investment
activities of the Company and the outlook for the future.
STATUS
The Company is an investment company under section 833 of the Companies Act
2006. It is an Approved Company under the Investment Trust (Approved Company)
(Tax) Regulations 2011 (the 'Regulations') and conducts its affairs in
accordance with those Regulations so as to retain its status as an investment
trust and maintain exemption from liability to United Kingdom capital gains
tax.
The Company is a small registered Alternative Investment Fund Manager under the
European Union Directive.
INVESTMENT OBJECTIVE AND POLICY
Investment Objective
The Company's investment objective is to achieve long-term capital growth.
Investment Policy
The Company's investment policy is to allocate assets to global investment
opportunities through investment in equity, bond, commodity, real estate,
currency and other markets. The Company's assets may have significant
weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds,
futures, options, limited partnerships and direct investments in relevant
markets. The Company may invest up to 15% of its net assets in direct
investments in relevant markets.
The Company will not follow any index with reference to asset classes,
countries, sectors or stocks. Aggregate asset class exposure to any one of the
United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or
Emerging Markets and to any individual industry sector will be limited to 50%
of the Company's net assets, such values being assessed at the time of
investment and for funds by reference to their published investment policy or,
where appropriate, the underlying investment exposure.
The Company may invest up to 20% of its net assets in unlisted securities
(excluding unquoted pooled investment vehicles) such values being assessed at
the time of investment.
The Company will not invest more than 15% of its net assets in any single
investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for
the purposes of efficient portfolio management and currency hedging.
Derivatives may also be used outside of efficient portfolio management to meet
the Company's investment objective. The Company may take outright short
positions in relation to up to 30% of its net assets, with a limit on short
sales of individual stocks of up to 5% of its net assets, such values being
assessed at the time of investment.
The Company may borrow up to 30% of net assets for short-term funding or
long-term investment purposes.
No more than 10%, in aggregate, of the value of the Company's total assets may
be invested in other closed-ended investment funds except where such funds have
themselves published investment policies to invest no more than 15% of their
total assets in other listed closed-ended investment funds.
Information on the Company's portfolio of assets with a view to spreading
investment risk in accordance with its investment policy is given above.
FINANCIAL REVIEW
Net assets at 30th June 2017 amounted to £105,056,000 compared with £89,274,000
at 30th June 2016. In the year under review, the NAV per Ordinary share
increased by 17.7% from 125.70p to 147.92p.
The Group's gross revenue rose to £1,715,000 (2016: £944,000). Last year the
Company decided to increase its investment in income focused funds resulting in
a significant increase in gross income during the year under review (2016: £
nil). After deducting expenses and taxation the revenue profit for the year was
£810,000 (2016: £193,000).
Total expenses for the year amounted to £898,000 (2016: £751,000). In the year
under review the investment management fee amounted to £622,000 (2016: £
509,000). No performance fee was payable in respect of the year under review as
the Company has not outperformed the cumulative hurdle rate.
Dividends have not formed a central part of the Company's investment
objective. The increased investment in income focused funds has enabled the
Directors to declare an increased dividend. The Directors propose a final
dividend of 0.8p per Ordinary share in respect of the year ended 30th June 2017
(2016: 0.3p). If approved at the Annual General Meeting, the dividend will be
paid on 22nd November 2017 to shareholders on the register at the close of
business on 15th November 2017 (ex-dividend 14th November 2017).
The primary source of the Company's funding is shareholder funds.
While the future performance of the Company is dependent, to a large degree, on
the performance of international financial markets, which in turn are subject
to many external factors, the Board's intention is that the Company will
continue to pursue its stated investment objective in accordance with the
strategy outlined above. Further comments on the short-term outlook for the
Company are set out in the Chairman's Statement and the Investment Manager's
report.
Throughout the year the Group's investments included seven funds managed by the
Investment Manager (2016: seven). No investment management fees were payable
directly by the Company in respect of these investments.
PERFORMANCE MEASUREMENT AND KEY PERFORMANCE INDICATORS
In order to measure the success of the Company in meeting its objectives, and
to evaluate the performance of the Investment Manager, the Directors review at
each meeting: net asset value, income and expenditure, asset allocation and
attribution, share price of the Company and the discount. The Directors take
into account a number of different indicators as the Company does not have a
formal benchmark.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks identified by the Board, and the steps the Board takes to
mitigate them, are as follows:
Investment strategy
Inappropriate long-term strategy, asset allocation and manager selection could
lead to underperformance. The Board discusses investment performance at each
of its meetings and the Directors receive reports detailing asset allocation,
investment selection and performance.
Business conditions and general economy
The Company's future performance is heavily dependent on the performance of
different equity and currency markets. The Board cannot mitigate the risks
arising from adverse market movements. However, diversification within the
portfolio will reduce the impact. Further information is given in portfolio
risks below.
Portfolio risks - market price, foreign currency and interest rate risks
Investment returns will be influenced by interest rates, inflation, investor
sentiment, availability/cost of credit and general economic conditions in the
UK and globally. A proportion of the portfolio is in investments denominated
in foreign currencies and movements in exchange rates could significantly
affect their sterling value. The Investment Manager takes all these factors
into account when making investment decisions but the Company does not normally
hedge against foreign currency movements. The Board's policy is to hold a
spread of investments in order to reduce the impact of the risks arising from
the above factors by investing in a spread of asset classes and geographic
regions.
Net asset value discount
The discount in the price at which the Company's shares trade to net asset
value means that shareholders cannot realise the real underlying value of their
investment. Over the last few years the Company's share price has been at a
significant discount to the Company's net asset value. The Directors review
regularly the level of discount, however given the investor base of the
Company, the Board is very restricted in its ability to control the discount to
net asset value.
Investment Manager
The quality of the team employed by the Investment Manager is an important
factor in delivering good performance and the loss of key staff could adversely
affect returns. A representative of the Investment Manager attends each Board
meeting and the Board is informed if any changes to the investment team
employed by the Investment Manager are proposed.
Tax and regulatory risks
A breach of The Investment Trusts (Approved Companies) (Tax) Regulations 2011
(the 'Regulations') could lead to capital gains realised within the portfolio
becoming subject to UK capital gains tax. A breach of the UKLA Listing Rules
could result in suspension of the Company's shares, while a breach of company
law could lead to criminal proceedings, financial and/or reputational damage.
The Board employs Brompton Asset Management LLP as Investment Manager, and
Maitland Administration Services Limited as Secretary & Administrator, to help
manage the Company's legal and regulatory obligations.
Operational
Disruption to, or failure of, the Investment Manager's or Administrator's
accounting, dealing or payment systems, or the Custodian's records, could
prevent the accurate reporting and monitoring of the Company's financial
position. The Company is also exposed to the operational risk that one or more
of its suppliers may not provide the required level of service.
The Directors confirm that they have carried out an assessment of the risks
facing the Company, including those that would threaten its business model,
future performance, solvency and liquidity.
VIABILITY STATEMENT
The assets of the Company consist mainly of securities that are readily
realisable or cash and it has no significant liabilities. Investment income
exceeds annual expenditure and current liquid net assets cover current annual
expenses for many years. Accordingly, the Company is of the opinion that it
has adequate financial resources to continue in operational existence for the
long term which is considered to be in excess of five years. Five years is
considered a reasonable period for investors when making their investment
decisions. In reaching this view the Directors reviewed the anticipated level
of annual expenditure against the cash and liquid assets within the portfolio.
The Directors have also considered the risks the Company faces.
ENVIRONMENTAL, SOCIAL AND COMMUNITY ISSUES
The Company has no employees, with day-to-day management and administration of
the Company being delegated to the Investment Manager and the Administrator.
The Company's portfolio is managed in accordance with the investment objective
and policy; environmental, social and community matters are considered to the
extent that they potentially impact on the Company's investment returns.
Additionally, as the Company has no premises, properties or equipment, it has
no carbon emissions to report on.
The Company has sought, wherever possible, and been provided with assurance
from each of its main suppliers, that no slaves, forced labour, child labour,
or labour employed at rates of pay below statutory minimums for the country of
their operations, are being employed in the provision of services to the
Company.
GENDER DIVERSITY
The Board of Directors comprises three male directors. The Board recognises
the benefits of diversity, however, the Board's primary consideration when
appointing new directors is their knowledge, experience and ability to make a
positive contribution to the Board's decision making regardless of gender.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AT 30TH JUNE 2017
Year ended Year ended
30th June 2017 30th June 2016
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Notes £ '000 £ '000 £ '000 £ '000 £ '000 £ '000
INVESTMENT INCOME 2 1,686 - 1,686 934 - 934
Other operating income 2 29 - 29 10 - 10
1,715 - 1,715 944 - 944
GAINS AND LOSSES ON
INVESTMENTS
Gains on investments at
fair value through profit 9 - 14,814 14,814 - 7,921 7,921
or loss
Other exchange gains - 367 367 - 1,510 1,510
Trail rebates - 4 4 - 9 9
1,715 15,185 16,900 944 9,440 10,384
EXPENSES
Management fees 3 (622) - (622) (509) - (509)
Other expenses 4 (276) - (276) (242) - (242)
(898) - (898) (751) - (751)
PROFIT BEFORE FINANCE 817 15,185 16,002 193 9,440 9,633
COSTS AND TAX
Finance costs - - - - - -
PROFIT BEFORE TAX 817 15,185 16,002 193 9,440 9,633
Tax 5 (7) - (7) - - -
PROFIT FOR THE YEAR 810 15,185 15,995 193 9,440 9,633
EARNINGS PER SHARE
Ordinary shares (pence) 7 1.14p 21.38p 22.52p 0.27p 13.29p 13.56p
The total column of this statement represents the Group's profit and loss
account, prepared in accordance with IFRS, as adopted by the European Union.
The supplementary Revenue Return and Capital Return columns are both prepared
under guidance published by the Association of Investment Companies. All
revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the year.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30TH JUNE 2017
Note Share Share Special Retained
capital premium reserve earnings Total
£ '000 £ '000 £ '000 £ '000 £ '000
AT 30TH JUNE 2016 710 21,573 56,908 10,083 89,274
Total comprehensive income for the - - - 15,995 15,995
year
Dividend paid 8 - - - (213) (213)
AT 30TH JUNE 2017 710 21,573 56,908 25,865 105,056
Included within Retained earnings were £851,000 of Company reserves available
for distribution.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30TH JUNE 2016
Share Share Special Retained
capital premium reserve earnings Total
£ '000 £ '000 £ '000 £ '000 £ '000
AT 30TH JUNE 2015 710 21,573 56,908 663 79,854
Total comprehensive income for the - - - 9,633 9,633
year
Dividend paid - - - (213) (213)
AT 30TH JUNE 2016 710 21,573 56,908 10,083 89,274
Included within Retained earnings were £255,000 of Company reserves available
for distribution.
CONSOLIDATED BALANCE SHEET AT 30TH JUNE 2017
Notes 30th June 30th June
2017 2016
£ '000 £ '000
NON-CURRENT ASSETS
Investments at fair value through profit or loss 9 91,730 79,467
CURRENT ASSETS
Other receivables 11 85 55
Cash and cash equivalents 12 13,451 9,938
13,536 9,993
TOTAL ASSETS 105,266 89,460
CURRENT LIABILITIES
Other payables 13 (210) (186)
TOTAL ASSETS LESS CURRENT LIABILITIES 105,056 89,274
NET ASSETS 105,056 89,274
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
Called-up share capital 14 710 710
Share premium 15 21,573 21,573
Special reserve 15 56,908 56,908
Retained earnings 15 25,865 10,083
TOTAL EQUITY 105,056 89,274
NET ASSET VALUE PER ORDINARY SHARE (Pence) 16 147.92p 125.70p
CONSOLIDATED CASH FLOW STATEMENTS AT 30TH JUNE 2017
Notes Year ended Year ended
30th June 30th June
2017 2016
Group Group
£ '000 £ '000
NET CASH INFLOW FROM OPERATING
ACTIVITIES 808 212
INVESTING ACTIVITIES
Purchase of investments (6,500) (14,613)
Sale of investments 9,051 11,153
NET CASH INFLOW/(OUTFLOW) FROM
INVESTING ACTIVITIES 2,551 (3,460)
FINANCING
Equity dividends paid 8 (213) (213)
NET CASH INFLOW/(OUTFLOW) AFTER 3,146 (3,461)
FINANCING
INCREASE/( DECREASE) IN CASH 3,146 (3,461)
RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN CASH & CASH
EQUIVALENTS
Increase/( decrease) in cash 3,146 (3,461)
resulting from cash flows
Exchange movements 367 1,510
Movement in net funds 3,513 (1,951)
Net funds at start of the year 9,938 11,889
CASH & CASH EQUIVALENTS AT END 17 13,451 9,938
OF YEAR
RECONCILIATION OF PROFIT BEFORE
FINANCE COSTS AND TAXATION TO
NET CASH FLOW FROM OPERATING
ACTIVITIES
Profit before finance costs and 2 16,002 9,633
taxation
Gains on investments (14,814) (7,921)
Exchange differences (367) (1,510)
Capital trail rebates (4) (9)
Net revenue gains before
finance costs and taxation 817 193
Increase in debtors (18) (7)
Increase in creditors 24 19
Taxation (19) (2)
Capital trail rebates 4 9
NET CASH INFLOW FROM OPERATING
ACTIVITIES 808 212
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30TH JUNE 2017
1. ACCOUNTING POLICIES
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards ('IFRS'). These comprise standards
and interpretations approved by the International Accounting Standards Board
('IASB'), together with interpretations of the International Accounting
Standards and Standing Interpretations Committee ('IASC') that remain in
effect, and to the extent that they have been adopted by the European Union.
These financial statements are presented in pounds sterling, the Group's
functional currency, being the currency of the primary economic environment in
which the Group operates, rounded to the nearest thousand.
(a) Basis of preparation: The financial statements have been prepared on a
going concern basis. The principal accounting policies adopted are set out
below.
Where presentational guidance set out in the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture Capital Trusts'
('SORP') issued by the Association of Investment Companies ('AIC') in November
2014 and updated in January 2017 with consequential amendments 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.
(b) Basis of consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiary made up to 30th June 2017.
The parent company is an investment entity as defined by IFRS 10 and assets are
held at their fair value. The consolidated accounts include subsidiaries which
are an integral part of the Group and not investee companies.
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of the
subsidiary used in the preparation of the consolidated financial statements are
based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
Subsidiaries are valued at their NAV in the accounts of the Company.
(c) Presentation of Statement of Comprehensive Income: In order to better
reflect the activities of an investment trust company and in accordance with
guidance issued by the AIC, supplementary information which analyses the
consolidated statement of comprehensive income between items of a revenue and
capital nature has been presented alongside the consolidated statement of
comprehensive income.
In accordance with the Company's Articles of Association, net capital returns
may not be distributed by way of a dividend. Additionally, the net revenue
profit is the measure the Directors believe is appropriate in assessing the
Group's compliance with certain requirements set out in the Investment Trust
(Approved Company) (Tax) Regulations 2011.
(d) Use of estimates: The preparation of financial statements requires the
Group to make estimates and assumptions that affect items reported in the
consolidated and company balance sheets and consolidated statement of
comprehensive income and the disclosure of contingent assets and liabilities at
the date of the financial instruments. Although these estimates are based on
the Directors' best knowledge of current facts, circumstances and, to some
extent, future events and actions, the Group's actual results may ultimately
differ from those estimates, possibly significantly. The most significant
estimate relates to the valuation of unquoted investments.
(e) Revenue: Dividends and other such distributions from investments are
credited to the revenue column of the consolidated statement of comprehensive
income on the day in which they are quoted ex-dividend. Where the Company has
elected to receive its dividends in the form of additional shares rather than
in cash and the amount of the cash dividend is recognised as income, any excess
in the value of the shares received over the amount recognised is credited to
the capital reserve. Deemed revenue from non-reporting funds is credited to
the revenue account. Interest on fixed interest securities and deposits is
accounted for on an effective yield basis.
(f) Expenses: Expenses are accounted for on an accruals basis. Management
fees, administration and other expenses, with the exception of transaction
charges, are charged to the revenue column of the consolidated statement of
comprehensive income. Transaction charges are charged to the capital column of
the consolidated statement of comprehensive income.
(g) Investments held at fair value: Purchases and sales of investments are
recognised and derecognised on the trade date where a purchase or sale is under
a contract whose terms require delivery within the timeframe established by the
market concerned, and are initially measured at fair value.
All investments are classified as held at fair value through profit or loss on
initial recognition and are measured at subsequent reporting dates at fair
value, which is either the bid price or the last traded price, depending on the
convention of the exchange on which the investment is quoted. Investments in
units of unit trusts or shares in OEICs are valued at the bid price for dual
priced funds, or single price for non-dual priced funds, released by the
relevant investment manager. Unquoted investments are valued by the Directors
at the balance sheet date based on recognised valuation methodologies, in
accordance with International Private Equity and Venture Capital ('IPEVC')
Valuation Guidelines such as dealing prices or third party valuations where
available, net asset values and other information as appropriate.
(h) Taxation: The charge for taxation is based on taxable income for the year.
Withholding tax deducted from income received is treated as part of the
taxation charge against income. Taxation deferred or accelerated can arise due
to temporary differences between the treatment of certain items for accounting
and taxation purposes. Full provision is made for deferred taxation under the
liability method on all temporary differences not reversed by the Balance Sheet
date. No deferred tax provision is made against deemed reporting offshore
funds. Deferred tax assets are only recognised when there is more likelihood
than not that there will be suitable profits against which they can be applied.
(i) Foreign currency: Assets and liabilities denominated in foreign currencies
are translated at the rates of exchange ruling at the balance sheet date.
Foreign currency transactions are translated at the rates of exchange
applicable at the transaction date. Exchange gains and losses are taken to the
revenue or capital column of the consolidated statement of comprehensive income
depending on the nature of the underlying item.
(j) Capital reserve: The following are accounted for in this reserve:
- gains and losses on the realisation of investments together with the related
taxation effect;
- foreign exchange gains and losses on capital transactions, including those on
settlement, together with the related taxation effect;
- revaluation gains and losses on investments; and
- trail rebates received from the managers of the Company's investments.
The capital reserve is not available for the payment of dividends.
(k) Special reserve: The special reserve can be used to finance the redemption
and/or purchase of shares in issue.
(l) Cash and cash equivalents: Cash and cash equivalents comprise current
deposits and balances with banks. Cash and cash equivalents may be held for the
purpose of either asset allocation or managing liquidity.
(m)Dividends payable: Dividends are recognised from the date on which they are
irrevocably committed to payment.
(n) Segmental Reporting: The Directors consider that the Group is engaged in a
single segment of business with the primary objective of investing in
securities to generate long term capital growth for its shareholders.
Consequently no business segmental analysis is provided.
(o) New standards, amendments to standards and interpretations effective for
annual accounting periods beginning after 1 July 2016:
There have been no new standards, amendment to standards and interpretations
effective for annual accounting periods beginning after 1 July 2016 that impact
these financial statements.
(p) Accounting standards issued but not yet effective: Standards issued but not
yet effective up to the date of issuance of the Group's Report & Accounts are
listed below. This listing of standards and interpretations issued are those
the Group reasonably expects will have an impact on disclosure, financial
position and/or financial performance, when applied at a future date. The Group
intends to adopt those standards (where applicable) when they become effective.
The revised IFRS 9 Financial Instruments replaces IAS 39 and applies to the
classification and measurement and impairment of financial assets and financial
liabilities, and hedge accounting. The adoption of IFRS 9 will have an effect
on the classification but not the measurement of the Group's financial assets,
but will potentially have no impact on the classification and measurement of
financial liabilities. It will also introduce a new expected loss impairment
model requiring more timely recognition of expected credit losses and a
reformed model for hedge accounting with enhanced disclosure of risk management
activity. The standard is effective for annual periods beginning on or after 1
January 2018.
2. INVESTMENT INCOME
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
INCOME FROM INVESTMENTS
UK net dividend income 1,540 877
Unfranked investment income 146 57
1,686 934
OTHER OPERATING INCOME
Bank interest receivable 28 10
Loan interest income 1 -
29 10
TOTAL INCOME COMPRISES
Dividends 1,686 934
Other income 29 10
1,715 944
The above dividend and interest income has been included in the profit before
finance costs and taxation included in the cash flow statement.
3. MANAGEMENT FEES
Year ended Year ended
30th June 2017 30th June 2016
Revenue Capital Total Revenue Capital Total
£ '000 £ '000 £ '000 £ '000 £ '000 £ '000
Investment management fee 622 - 622 509 - 509
Performance fee - - - - - -
622 - 622 509 - 509
At 30th June 2017 there were amounts accrued of £162,000 (2016: £138,000) for
investment management fees.
4. OTHER EXPENSES
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
Directors' remuneration 50 50
Administrative and secretarial fee 94 94
Auditors' remuneration
- Audit 31 27
- Interim review 8 8
-Taxation compliance services† - 12
Other 93 51
276 242
†The 2016 expenses cover two tax periods.
Allocated to:
- Revenue 276 242
- Capital - -
276 242
5. TAXATION
1. Analysis of tax charge for the year:
Year ended Year ended
30th June 2017 30th June 2016
Revenue Capital Revenue Capital
Return Return Total Return Return Total
£ '000 £ '000 £ '000 £ '000 £ '000 £ '000
Overseas tax 18 - 18 - - -
Recoverable income tax (11) - (11) - - -
Total current tax for the 7 - 7 - - -
year
Deferred tax - - - - - -
Total tax for the year 7 - 7 - - -
(note 5b)
(b) Factors affecting tax charge for the year:
The charge for the year of £7,000 (2016: £nil) can be reconciled to the profit
per the consolidated statement of comprehensive income as follows:
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
Total profit before tax 16,002 9,633
Theoretical tax at the UK corporation tax rate of 19.75% 3,162 1,927
(2016: 20.0%)
Effects of:
Non-taxable UK dividend income (304) (176)
Gains and losses on investments that are not taxable (3,000) (1,886)
Excess expenses not utilised 153 144
Overseas dividends which are not taxable (11) (9)
Overseas tax 18 -
Recoverable income tax (11) -
Total tax for the year 7 -
Due to the Company's tax status as an investment trust and the intention to
continue meeting the conditions required to maintain approval of such status in
the foreseeable future, the Company has not provided tax on any capital gains
arising on the revaluation or disposal of investments.
There is no deferred tax (2016: £nil) in the capital account of the Company.
There is no deferred tax charge in the revenue account (2016: £nil).
At the year-end there is an unrecognised deferred tax asset of £386,000 at 17%
(2016: £420,000) as a result of excess expenses.
6. COMPANY RETURN FOR THE YEAR
The Company's total return for the year was £15,995,000 (2016: £9,633,000).
7. RETURN PER ORDINARY SHARE
Total return per Ordinary share is based on the Group total return on ordinary
activities after taxation of £15,995,000 (2016: £9,633,000) and on 71,023,695
(2016: 71,023,695) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the year.
Revenue return per Ordinary share is based on the Group revenue profit on
ordinary activities after taxation of £810,000 (2016: £193,000) and on
71,023,695 (2016: 71,023,695) Ordinary shares, being the weighted average
number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on net capital gains for the year of
£15,185,000 (2016: £9,440,000) and on 71,023,695 (2016: 71,023,695) Ordinary
shares, being the weighted average number of Ordinary shares in issue during
the year.
8. DIVIDENDS ON EQUITY SHARES
Amounts recognised as distributions in the year:
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
Dividends paid during the year 213 213
Dividends payable in respect of the year ended:
30th June 2017: 0.8p (2016: 0.3p) per share 568 213
It is proposed that a dividend of 0.8p per share will be paid in respect of the
current financial year.
9. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
GROUP 91,730 79,467
ANALYSIS OF INVESTMENT
PORTFOLIO - GROUP
Listed* Unlisted Total
£ '000 £ '000 £ '000
Opening book cost 58,833 4,325 63,158
Opening investment holding gains/(losses) 19,054 (2,745) 16,309
Opening valuation 77,887 1,580 79,467
Movement in period
Purchases at cost 3,270 3,230 6,500
Sales
- Proceeds (9,051) - (9,051)
- Realised gains on sales 2,739 - 2,739
Movement in investment holding gains for the year 12,075 - 12,075
Closing valuation 86,920 4,810 91,730
Closing book cost 55,791 7,555 63,346
Closing investment holding gains/(losses) 31,129 (2,745) 28,384
Closing valuation 86,920 4,810 91,730
* Listed investments include unit trust and OEIC funds.
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
ANALYSIS OF CAPITAL GAINS AND LOSSES
Realised gains on sales of investments 2,739 1,096
Increase in investment holding gains 12,075 6,825
Net gains on investments attributable to ordinary 14,814 7,921
shareholders
The purchase and sale proceeds figures above include transaction costs on
purchases of £2,282 (2016: £685) and on sales of £nil (2016: £6,373).
10. INVESTMENT IN SUBSIDIARY UNDERTAKING
The Company owns the whole of the issued share capital (£1) of JIT Securities
Limited, an investment company registered in England and Wales.
The financial position of the subsidiary is summarised as follows:
Year ended Year ended
30th June 30th June
2017 2016
£ '000 £ '000
Net assets brought forward 503 502
Profit for year 1 1
Net assets carried forward 504 503
11. OTHER RECEIVABLES
30th June 30th June
2017 2016
Group Group
£ '000 £ '000
Prepayments and accrued income 70 52
Taxation 15 3
Amounts owed by subsidiary undertakings - -
85 55
12. CASH AND CASH EQUIVALENTS
30th June 30th June
2017 2016
Group Group
£ '000 £ '000
Cash at bank and on deposit 13,451 9,938
13. OTHER PAYABLES
30th June 30th June
2017 2016
Group Group
£ '000 £ '000
Accruals 210 186
14. CALLED UP SHARE CAPITAL
30th June 30th June
2017 2016
£ '000 £ '000
Authorised
305,000,000 (2016: 305,000,000) Ordinary shares of £0.01 3,050 3,050
each
Issued and fully paid
71,023,695 (2016: 71,023,695) Ordinary shares of £0.01 710 710
each
15. RESERVES
Share Special Retained
Premium Reserve earnings
account £ '000 £ '000
£ '000
GROUP
At 30th June 2016 21,573 56,908 10,083
Increase in investment holding gains - - 12,075
Net gains on realisation of investments - - 2,739
Gain on foreign currency - - 367
Trail rebates - - 4
Retained revenue profit for year - - 810
Dividend paid (213)
At 30th June 2017 21,573 56,908 25,865
The components of retained earnings are set out below:
30th June 30th June
2017 2016
£ '000 £ '000
GROUP
Capital reserve - realised (3,522) (6,632)
Capital reserve - revaluation 28,384 16,309
Revenue reserve 1,003 406
25,865 10,083
16. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per Ordinary share is calculated on net assets of £
105,056,000 (2016: £89,274,000) and 71,023,695 (2016: 71,023,695) Ordinary
shares in issue at year end.
17. ANALYSIS OF CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
At 1st Cash Exchange At 30th
July 2016 flow movement June 2017
£ '000 £ '000
GROUP
Cash at bank and on deposit 9,938 3,146 367 13,451
18. FINANCIAL INFORMATION
2017 Financial information
The figures and financial information for 2017 are unaudited and do not
constitute the statutory accounts for the year. The preliminary statement has
been agreed with the Company's auditors and the Company is not aware of any
likely modification to the auditor's report required to be included with the
annual report and accounts for the year ended 30th June 2017.
2016 Financial information
The figures and financial information for 2016 are extracted from the published
Annual Report and Accounts for the year ended 30th June 2016 and do not
constitute the statutory accounts for that year. The Annual Report and
Accounts (available on the Company's website www.nsitplc.com) has been
delivered to the Registrar of Companies and includes the Report and Independent
Auditors which was unqualified and did not contain a statement under either
section 498(2) or section 498(3) of the Companies Act 2006.
Annual Report and Accounts
The accounts for the year ended 30th June 2017 will be sent to shareholders in
October 2017 and will be available on the Company's website or in hard copy
format at the Company's registered office, 1 Knightsbridge Green, London SW1X
7QA.
The Annual General Meeting of the Company will be held on 16th November 2017 at
11.00am at 1 Knightsbridge Green, London SW1X 7QA.
15th September 2017
New Star Investment Trust : Annual Financial Report
September 18, 2017 at 02:01 am EDT
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