THE INVESTMENT COMPANY PLC
THE INVESTMENT COMPANY PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017
The full Annual Report and Accounts for the year ended 30 June 2017 can be
found on the Company's website: http://www.mitongroup.com/tic.
DIRECTORS (all non-executive)
Sir David Thomson Bt. (Chairman)
S. J. Cockburn
P. S. Allen
M. H. W. Perrin (Audit Committee Chairman and Senior Independent Director)
STRATEGIC REPORT
SUMMARY OF RESULTS
At 30 June 2017 At 30 June 2016 Change
Equity shareholders' funds 17,736,777 16,991,639 +4.4%
Number of ordinary shares in issue 4,772,049 4,772,049 -%
Net asset value ("NAV") per
ordinary share 371.68p 356.07p +4.4%
Ordinary share price (mid) 325.00p 365.50p -11.1%
Premium/(discount) to NAV (12.56)% 2.65%
At 30 June 2017 At 30 June 2016
Total return per ordinary share* 36.31p (11.21)p
Return after taxation per ordinary
share 24.64p (4.03)p
Dividends paid/declared per
ordinary share 20.70p 20.70p
* The total return per ordinary share is based on total comprehensive income
after taxation as detailed in the Consolidated Statement of Comprehensive
Income and in note 6 and is shown to enable comparison with other investment
trust companies.
FINANCIAL CALENDAR
November Payment of first interim dividend for the year ending
30 June 2018.
December Annual General Meeting.
February Payment of second interim dividend for the year
ending 30 June 2018.
February/March Announcement of Half-Yearly Financial Report.
May Payment of third interim dividend for the year ending
30 June 2018.
August Payment of fourth interim dividend for the year
ending 30 June 2018.
September/October Announcement of Annual Results.
CHAIRMAN'S STATEMENT
This statement covers the year ending 30 June 2017.
Following the initial market setback on the UK's decision to leave the EU, the
subsequent period was marked with a strong equity recovery. The FTSE All Share
Index rose 13.9% over the year. In contrast, the FTSE Actuaries UK
Conventional Gilts All Stocks Index fell 3.6% over the year, as the decades of
bond yield reductions came to an end. The net asset value ("NAV") of the
Company, which has a portfolio invested in both fixed income and equities, rose
4.4% over the twelve-month period. In addition, three interim dividends of 5p
and a fourth interim of 5.7p were declared over the year. Dividends for the
year 2017 totalled 20.7p (2015/16: 20.7p). Following the Company's
reorganisation in June 2013, its aim was to pay a premium, and in time grow the
dividend to shareholders. It had sought to do this through investing in
high-yielding loan stocks issued by quoted companies, which frequently carry a
degree of participation in the issuer's share price growth if they perform
strongly. A second aspect of this strategy was that the Company's return was
not expected to be closely correlated with the movements of mainstream markets.
The Company has continued to hold a number of fixed interest stocks, which the
Company has held for many years and the Board is well satisfied with the total
return on these holdings. However, since June 2013, there have been few
convertible loan notes issued that offer attractive risk/reward ratios,
therefore the market opportunity for the strategy has not developed as had been
expected. Those funds have been invested in smaller company equities where the
returns have proved somewhat disappointing.
Overall, the increase in our NAV in the year was only 4.4% compared with gains
of 24.8% and 36.5% respectively in the FTSE Smaller Companies and FTSE AIM
Indices.
The Board is exploring initiatives to improve the total return to shareholders.
The Board is also reviewing the administrative arrangements and has identified
changes that can lower the cost of overheads, which includes the change of
Secretary, Administrator and Registrar. Further details are included in the
Director's Report. In addition, pursuant to discussion with significant
shareholders, the Board will review its composition.
Whilst markets may continue to appreciate from here for some time, the absence
of global productivity growth could become a constraint. It may therefore
become all the more important to invest across a wider range of opportunities
in the coming period. In the meantime, our fixed interest portfolio is expected
to generate a steady flow of relatively high income.
At the forthcoming Annual General Meeting there shall be, as with last year, a
continuation resolution put to shareholders. The Directors believe the Company
is well placed to deliver on its objectives in relation to returns to
shareholders. Certain significant shareholders have expressed a strong
preference to continue. Accordingly, your Directors recommend that members vote
in favour of the continuation resolution.
Sir David Thomson
Chairman
27 October 2017
MANAGER'S REPORT
Market returns in the year to June 2017
Market returns have been good over the last three decades. In our view, this
has been driven by the extra growth derived from the globalisation of trade,
combined with the fall of bond yields as the growth in imported low cost goods
has moderated inflationary pressures. Going forward there are indications that
globalisation may have peaked, which may lead to a series of changes in market
trends. If this is the case, then it will become more important than ever for
investment strategies to be less correlated with equity markets in future,
along with a greater attention to downside resilience.
Performance
Following the equity market setback post the UK's decision to leave the EU, the
year between June 2016 and June 2017 was marked with a strong rise in the FTSE
All Share Index; this index rose 13.9% over the year.
However, if anything the near absence of world growth has led to an escalation
in the valuations of many of the largest growth stocks.
In NASDAQ, the US exchange, the rise in the share prices of Facebook, Apple,
Amazon, Netflix and Google (collectively known as the FANGs) has attracted
plenty of media comment. Interestingly, there has been a similar trend in the
UK, with the best returns coming from many of the largest growth stocks listed
on the AIM exchange. These could be linked together in the acronym FHAB -
comprising Fevertree, Hutchinson China, ASOS and Boohoo. These four stocks
alone added some 9% of the return on the FTSE AIM All Share Index that
appreciated 36.5% over the year. Smaller companies generally appreciated, with
the FTSE Smaller Companies (excluding Investment Companies) Index up 24.8% over
the year.
In contrast, the FTSE Actuaries UK Conventional Gilts All Stocks Index fell
3.6% over the year. UK bond yields have been falling over recent decades as the
surge in low cost imports have led to progressively lower interest rates.
The NAV of the Company, with a portfolio invested in both fixed income
securities and equities, rose 4.4% over the twelve-month period. This reflected
a period in which several of the equity holdings performed strongly, along with
some others that disappointed.
For example, Bilby, a business that helps install gas fittings for social
housing, lost a major contract and then went on to restate its past
profitability. The share price of this company fell back 41.8% over the period.
Alongside this Coral Products, a manufacturer of injected moulded products,
fell back 21.6% over the year because it took some time to pass on the extra
costs of its raw materials after the devaluation of Sterling. Subsequent to the
end of June both of these companies have announced much improved trading, and
therefore we look forward to the recovery of their share prices. The worst
performing individual stock was Fairpoint, a business that acquired two legal
practices that were automating to improve their efficiency. The share price
fell back 91.0% to 9.5 pence before suspension of trading on AIM on 28 June
2017, as the business suffered a sharp rise in their working capital.
Subsequent to June 2017, the company has announced that it has appointed
administrators. Consequently, it has been decided to write down the carrying
market value to £nil for this year end. In contrast, the portfolio also held
holdings in Stobart Group, Randall & Quilter, Anglo Pacific and Aviva, all of
which performed very strongly in the period.
Despite a reduction in the prices of UK government debt over the year, some of
the fixed income holdings have nevertheless appreciated. The Phoenix 7.25%
Perpetual Notes rose by 7.5% and the RBS 9% Perpetual Notes rose by 16.1% over
the year. Alongside this, a few of the convertible loan stocks issued by quoted
companies have shown some early performance.
Portfolio
Approximately half of the portfolio remains invested in a range of preference
shares, loan stocks, debentures and notes. Although the largest corporate
exposure in the portfolio is to Phoenix Life through a 7.25% perpetual note
along with some ordinary shares as well, there are over 40 issuers from
different corporates in the portfolio.
Despite a slight pick-up in the issuance of convertible loan notes during the
year under review, there have still been too few with sufficiently attractive
risk/reward ratios, so the second portion of the portfolio has largely remained
invested in ordinary equities - including many smaller quoted companies - that
often pay premium dividend yields. Generally smaller quoted companies tend to
have greater growth potential, which will be more important if world growth
remains tepid.
A number of holdings that were suffering adverse trading conditions were sold
over the year. In the case of the Royal Mail and Safestyle, these were sold
ahead of their downturn. However, in the case of DX Group and Entu, these were
sold after adverse trading statements since the prospect of recovery seemed too
distant. In the case of Serpura, a holding purchased through underwriting by a
lowly priced fundraising, the CEO was unfortunately involved in an accident,
which affected its prospects, therefore we accepted a takeover towards the end
of the period. Alongside these, significant profits were taken on Esure given
the valuation had moved up to an elevated level.
New holdings were established in Yu, a young and vibrant energy supplier to
businesses, Eddie Stobart Logistics, which was relisted after finding
operational improvements that helped them increase market share, and K3
Capital, an efficient corporate finance business that helps the very smallest
businesses find a new owner. All three are well placed to pay good and growing
dividend yields in our view. In addition, a new holding in the Sirius Minerals
convertible loan stock was purchased at issue, but was subsequently sold when
it moved to a significant premium some months after purchase.
Finally, the Company continues to hold a FTSE100 Put option that was purchased
for the portfolio following the market appreciation ahead of the US election.
This covers around one third of the portfolio, with an exercise price of 6000
and the cover extends to March 2018. As with all insurance, the value of this
holding has diminished as its term has reduced.
Prospects
The principal aim of the Company has been to pay a premium yield, and
ultimately grow the dividend for shareholders. The Intention was to generate a
larger stream of revenue through investing in Loan Stocks issued by quoted
companies since they typically pay yields in excess of 6%. In addition, these
instruments can also generate an additional return through participating in a
degree of the share price rise thereafter. Overall the returns on the Company
have not been closely correlated with the movements of mainstream markets.
The absence of world growth remains a headwind going forward. If anything, the
fact that productivity has not fully recovered since the Global Financial
Crisis, is maybe even more troubling. Both of these factors imply that the
market trends that have been with us over recent decades may be at the point of
change. However, there will be individual stocks that continue to thrive and
prosper in spite of the challenges. As an example, the Trust holds a number of
convertible loan notes paying very attractive yields, where the underlying
quoted companies continue to have promising prospects.
G. Williams and M. Turner
Miton Asset Management Limited
27 October 2017
TWENTY LARGEST INVESTMENTS
At 30 June 2017
Stock Number Issue Book cost Market or % of total
Directors' portfolio
valuation
% £ £
1 Lloyds Banking Group
7.625% Perpetual notes (LBG
Capital) 478,000 0.03 204,360 528,182 3.24
7.281% Perpetual notes (Bank of
Scotland) 400,000 0.27 315,331 499,440 3.07
7.875% Perpetual notes (LBG
Capital) 362,000 0.05 245,997 423,195 2.60
765,688 1,450,817 8.91
2 Phoenix Group Holdings
7.25% perpetual notes 1,060,000 0.53 811,923 1,130,170 6.94
Ordinary €0.0001§ 35,758 0.01 266,195 276,767 1.70
1,078,118 1,406,937 8.64
3 Royal Bank of Scotland Group
9% series 'A' non-cum pref
(NatWest) 500,000 0.36 362,920 740,000 4.54
Sponsored ADR each rep pref C
(NatWest) 20,000 0.20 55,473 404,019 2.48
418,393 1,144,019 7.02
4 Stobart Group
Ordinary 1p§ 315,146 0.09 499,491 933,462 5.73
5 Aggregated Micro Power
8% conv loan notes 30/03/21 500,000 2.50 500,000 714,286 4.39
6 Randall & Quilter Investment
Holdings
Ordinary 2p§ 387,000 0.44 417,591 561,150 3.44
7 Newcastle Building Society
Subordinated 6.625% step-up
note 23/12/19 (variable) 600,000 2.40 405,438 528,000 3.24
8 The Fishguard & Rosslare
Railways and Harbours Company
3.5% guaranteed preference 790,999 63.91 441,810 522,059 3.20
stock
9 600 Group
8% conv loan notes 14/02/20 500,000 5.88 500,000 500,000 3.07
10 Charles Taylor
Ordinary 1p§ 192,198 0.28 334,592 461,275 2.83
11 Intercede Group
8% conv loan notes 29/12/21 450,000 10.01 450,000 450,000 2.76
12 Investec Investment Trust
3.5% cum pref £1 461,508 35.50 271,938 304,595 1.87
5% cum pref £1 104,043 30.12 92,858 95,720 0.59
364,796 400,315 2.46
13 Aviva
Ordinary 25p§ 75,774 - 334,545 398,571 2.45
14 Amalgamated Metal Corporation
5.4% cum pref £1 256,065 18.21 144,049 204,852 1.26
6% cum pref £1 213,510 23.72 103,844 185,754 1.14
247,893 390,606 2.40
15 Direct Line Insurance Group
Ordinary 10.909p§ 105,621 0.01 354,049 375,377 2.30
16 KCOM Group
Ordinary 10p§ 413,519 0.08 407,699 368,032 2.26
17 Coral Products
Ordinary 1p§ 2,500,000 3.03 500,000 362,500 2.23
18 Liberty
9.5% cum pref £1 199,708 34.58 146,996 205,699 1.26
6% cum non redeemable pref £1 250,225 64.99 118,071 122,610 0.75
265,067 328,309 2.01
19 Renold Group
6% cum pref £1 422,109 72.72 330,490 316,582 1.94
20 Manx Telecom
Ordinary 0.2p§ 158,562 0.14 236,585 299,682 1.84
8,852,245 11,911,979 73.12
§ Issues with unrestricted voting
rights.
The Group has a total of 73 portfolio investment holdings in 58
companies.
CORPORATE SUMMARY
Investment Objective
The Company's investment objective is to provide shareholders with an
attractive level of dividends coupled with capital growth over the long-term,
through investment in a portfolio of equities, preference shares, loan stocks,
debentures and convertibles.
Investment Policy
The Company invests in equity and fixed income securities. It is expected the
fixed income securities would include preference shares, loan stocks,
debentures, notes, convertibles and related instruments and be issued by UK
quoted companies with a wide range of market capitalisations. The conversion
rights or equity warrants would normally convert into the underlying equity of
the quoted company. The equity portion of the portfolio would principally
invest in UK quoted companies, with a wide range of market capitalisations,
which are anticipated to pay a growing stream of dividends.
Any use of derivatives for investment purposes will be made on the basis of the
same principles of risk spreading and diversification that apply to the
Company's direct investments, as described below. The Company will not enter
into uncovered short positions.
Risk diversification
Portfolio risk is mitigated by investing in a diversified spread of
investments. Investments in any one company shall not, at the time of
acquisition, exceed 15% of the value of the Company's investment portfolio. In
the long term, it is expected that the Company's investments will generally be
a portfolio of around 75 or more different securities, most of which will
represent individually no more than 5% of the value of the Company's total
investment portfolio, as at the time of acquisition.
The Company will not invest more than 10% of its gross assets, at the time of
acquisition, in other listed closed-ended investment funds, whether managed by
the Manager or not, except that this restriction shall not apply to investments
in listed closed-ended investment funds which themselves have stated investment
policies to invest no more than 15% of their gross assets in other listed
closed-ended investment funds.
Unquoted investments
The Company may invest in unquoted fixed income securities from time to time
subject to prior Board approval.
Investment strategy
The Manager uses a bottom-up investment approach to selecting a diversified
portfolio of equity and fixed income securities.
The investment approach can be described as active and universal, as the
Company will not seek to replicate any benchmark and will target a significant
proportion of issues from smaller quoted companies within an overall
diversified portfolio. Potential investments are assessed against the key
criteria, including yield, along with an assessment of the prospects of
underlying corporate growth prospects, market positions, calibre of management
and risk and financial resilience.
Dividend Policy
The dividend policy has been adjusted to make it more sustainable, taking the
dividend in the first year after reorganisation, being the year ended 30 June
2014, which amounted to 20.7p and seeking to gradually grow it going forward.
Any growth in the dividend beyond 20.7p will be reflected in the quantum of the
fourth interim dividend.
Capital Structure
As at 30 June 2017 and the date of this Annual Report, the Company's share
capital consists of 4,772,049 ordinary shares of 50p each. The Company holds no
shares in Treasury. At general meetings of the Company, holders of ordinary
shares are entitled to one vote on a show of hands and on a poll, to one vote
for every share held.
In addition, there are 1,717,565 fixed rate preference shares of 50p in issue,
all of which are held by a wholly owned subsidiary of the Company. The fixed
rate preference shares are non-voting, are entitled to receive a cumulative
dividend of 0.01p per share per annum, and are entitled to receive their
nominal value, 50p, on a distribution of assets or winding up. Preference
shares are disclosed as equity in accordance with IAS 32.
Total Assets and Net Asset Value
The Group had total net assets of £17,736,777 and a NAV of 371.68p per ordinary
share at 30 June 2017.
Business Model
The principal activity of the Company is investment in equity securities of
quoted UK companies with a wide range of market capitalisations, preference
shares and prior charge securities with a view to achieving a high rate of
income and capital growth over the medium term. The Company has been granted
approval from HM Revenue & Customs ("HMRC") as an investment trust under s1158/
1159 of the Corporation Tax Act 2010 ("s1158/1159") and will continue to be
treated as an investment trust company, subject to there being no serious
breaches of the conditions for approval.
The principal conditions that must be met for approval by HMRC as an investment
trust for any given accounting period are that the Company's business should
consist of "investing in shares, land or other assets with the aim of spreading
investment risk and giving members of the company the benefit of the results"
and the Company must distribute a minimum of 85% of all its income as dividend
payments. The Company must also not be a close company. The Directors are of
the opinion that the Company has conducted its affairs for the year ended 30
June 2017 so as to be able to continue to qualify as an investment trust.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the profits made from the sale of its investments and all
other net capital gains. Investment trusts offer a number of advantages for
investors, including access to investment opportunities that might not be open
to private investors and to professional stock selection skills at lower cost.
The Company owns Abport Limited, an investment dealing company, and New
Centurion Trust Limited, an inactive investment company (the "subsidiaries").
The Company and its wholly owned Subsidiaries together compromise a group (the
"Group").
Principal Risks and Uncertainties
The management of the business and the execution of the Group's strategy are
subject to a number of risks. A robust assessment of the principal risks to
the Company has been carried out, including those that would threaten its
business model, future performance, solvency and liquidity. A summary of the
risk management and internal control processes can be found in the Corporate
Governance Statement in the full Annual Report. The key business risks
affecting the Group are:
i. Investment decisions: the performance of the Group's portfolio is dependent
on a number of factors including, but not limited to the quality of initial
investment decisions and the strategy and timing of sales;
ii. Investment valuations: the valuation of the Group's portfolio and
opportunities for realisations depend to some extent on stock market
conditions and interest rates; and
iii. Macroeconomic environment for preference shares and prior charge
securities: the environment for issuing of new preference shares and prior
charge securities determines whether new issues become available, thus
affecting the choice and scope of investment opportunities for the Group.
Risk Management
Specific policies for managing risks are summarised below and have been applied
throughout the period:
1. Market price risk
The Manager monitors the prices of financial instruments held by the Group on a
regular basis. In addition, it is the Board's policy to hold an appropriate
spread of investments in the portfolio in order to reduce risks arising from
investment decisions and investment valuations. The Manager actively monitors
market prices throughout the year and reports to the Board, which meets
regularly in order to review investment strategy. Most of the equity
investments held by the Group are listed on the London Stock Exchange.
2. Interest rate risk
In addition to the impact of the general investment climate, interest rate
movements may specifically affect the fair value of investments in fixed
interest securities. The Manager monitors the applicable interest rates and
yields associated with the securities.
3. Liquidity risk
The Group's assets mainly comprise readily realisable quoted securities that
can be sold to meet funding commitments if necessary. Short term flexibility is
achieved through the use of overdraft facilities.
Additional Risks and Uncertainties Include:
Credit risk: The failure of a counterparty to a transaction to discharge its
obligations under that transaction that could result in the Company suffering a
loss. Normal delivery versus payment practice and review of counterparties and
custodians by the Manager mean that this is not a significant risk.
Discount volatility: The Company's shares may trade at a price which represents
a discount to its underlying NAV.
Regulatory risk: The Company operates in an evolving regulatory environment and
faces a number of regulatory risks. A breach of s1158/1159 would result in the
Company being subject to capital gains tax on portfolio investments. Breaches
of other regulations, including the Companies Act 2006, the UKLA Listing Rules,
the UKLA Disclosure Guidance and Transparency Rules, or the Alternative
Investment Fund Managers' Directive, could lead to a detrimental outcome.
Breaches of controls by service providers to the Company could also lead to
reputational damage or loss. The Board monitors compliance with regulations,
with reports from the Manager and the Administrator.
Protection of assets: The Company's assets are protected by the use of an
independent custodian, BNY Mellon. In addition, the Company operates clear
internal controls to safeguard all assets.
These and other risks facing the Group are reviewed regularly by the Audit
Committee.
Key Performance Indicators ("KPIs")
The Board reviews performance by reference to a number of KPIs and considers
that the most relevant KPIs are those that communicate the financial
performance and strength of the Company as a whole. The Board and Manager
monitor the following KPIs:
* NAV performance relative to the FTSE All-Share Index (total return)
The NAV per ordinary share at 30 June 2017 was 371.68p per share (2016:
356.07p). The total return of the NAV after adding back dividends paid was
10.2%. This compares with a total return on the FTSE All-Share Index of
18.1%.
* (Discount)/premium of share price in relation to NAV
Over the year to 30 June 2017, the Company's share price moved from trading
at a premium of 2.65% to a discount of 12.56%.
* Ongoing Charges Ratio
The Ongoing Charges Ratio for the year to 30 June 2017 amounted to 2.5%.
The management fee for the year was reduced by £11,128 in order to achieve
the maximum Ongoing Charges Ratio permitted under the Management Agreement,
as explained below.
Management
During the year, the Company's investments were managed by Miton.
* Miton is an independent fund management company quoted on AIM with an
extensive shareholder base of major institutions and a particularly robust
balance sheet.
* Miton is distinctive from most other fund managers in that many of its
funds do not use traditional benchmarks since they can bring unintentional
risks that can impede the day-to-day managers' ability to maximise absolute
return in unsettled markets.
* Through anticipating post credit boom trends, Miton proposes investment
strategies that are set up with forthcoming trends in mind, rather than
slavishly following the consensus.
* Many of Miton's funds have greater scope to manage volatility more closely
than others, with an aim better to sustain its clients' assets through
market cycles.
Details of the Manager
Miton has a team of fund managers researching the full universe of quoted UK
stocks. The day-to-day management of the portfolio is carried out by Gervais
Williams and Martin Turner, who research all quoted companies, and are
particularly known for successfully investing in many of the smaller quoted
stocks.
Gervais Williams
Gervais joined Miton in March 2011 and is a Senior Executive director of the
Miton Group. He has been an equity portfolio manager since 1985, including 17
years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won
the Grant Thornton Investor of the Year Award in 2009 and 2010, and was awarded
Fund Manager of the Year 2014 by What Investment? He is also non-executive
chairman of the Quoted Companies Alliance.
Martin Turner
Martin joined Miton in May 2011. Martin and Gervais have had a close working
relationship since 2004 and their complementary expertise and skills led to a
series of successful companies being backed. Martin qualified as a Chartered
Accountant with Arthur Andersen, and also has extensive experience at
Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap
Equities his role covered their research, sales and trading activities.
Management Arrangements
The Company appointed Miton Trust Managers Limited ("MTM" or "Manager") as its
Alternative Investment Fund Manager ("AIFM") under an agreement dated 22 July
2014 (the "Management Agreement"). MTM has been approved as an AIFM by the UK's
Financial Conduct Authority. Miton Asset Management Limited has been appointed
by MTM as Investment Manager to the Company pursuant to a delegation agreement.
Under the terms of the Management Agreement, the Manager has discretion to buy,
sell, retain, exchange or otherwise deal in investment assets for the account
of the Company.
The Manager is entitled to receive from the Company or any member of its
subsidiaries in respect of its services provided under the Management
Agreement, a management fee payable monthly in arrears calculated at the rate
of one-twelfth of 1% per calendar month of the NAV for its services under the
Management Agreement, save that its management fee will be reduced by such
amount (being not more than the fees payable to the Manager in respect of any
year (exclusive of VAT)) so as to seek to ensure that the Ongoing Charges Ratio
of the Company does not exceed 2.5% per annum.
The Management Agreement is terminable by either the Manager or the Company
giving to the other not less than six months' written notice, such notice not
to expire earlier than the second anniversary of commencement. The Management
Agreement may be terminated earlier by the Company with immediate effect on the
occurrence of certain events, including the liquidation of the Manager or
appointment of a receiver or administrative receiver over the whole or any
substantial part of the assets or undertaking of the Manager or a material
breach by the Manager of the Management Agreement which is not remedied. The
Company may also terminate the Management Agreement should Gervais Williams
cease to be an employee of the Manager's group and, within three months of his
departure, is not replaced by a person whom the Company considers to be of
equal or satisfactory standing. The Company may also terminate the Management
Agreement if a continuation vote is not passed.
Environmental, Human Rights, Employee, Social and Community Issues
The Board consists entirely of non-executive Directors and no one individual
has unfettered powers of decision. Day-to-day management of the business is
delegated to the Manager. As an investment trust, the Company has no direct
impact on the community or the environment, and as such has no environmental,
human rights, social or community policies. In carrying out its investment
activities and in relationships with suppliers, the Company aims to conduct
itself responsibly, ethically and fairly.
Environmental, Social and Governance factors are considered as part of the
investment process as misjudgements on these matters can incur additional costs
to the portfolio holdings, as well as undermining their equity return through
reputational damage. The Manager questions the corporate management on a
variety of topics to ensure that company are adhering to best practice. These
questions can be wide ranging.
The Board comprises four male Directors. In relation to gender diversity
considerations, whilst there are currently no female Directors of the Company,
members of the Board are appointed on merit, against an objective criteria set
by the Board acting as the Nomination Committee.
The Strategic Report has been approved by the Board of Directors.
On behalf of the Board
Sir David Thomson
Chairman
27 October 2017
EXTRACTS FROM THE DIRECTORS' REPORT
Going Concern
At the forthcoming Annual General Meeting, shareholders will be asked to vote
on the continuation of the Company as a closed-ended investment company. Should
shareholders agree that the Company should continue to operate as an investment
company, a similar ordinary resolution will be proposed at every Annual General
Meeting thereafter.
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the financial statements as the assets of the Group consist mainly
of securities which are readily realisable. The Directors are of the opinion
that the Group has adequate resources to continue in operational existence for
the foreseeable future. In arriving at this conclusion, the Directors have
considered the liquidity of the portfolio and the Company's ability to meet
obligations as they fall due for a period of at least 12 months from the date
that these financial statements were approved.
Viability Statement
The Directors have assessed the viability of the Company over a two year
period, taking account of the Company's position and the risks as set out in
the Strategic Report.
The period assessed balances the long-term aims of the Company, the Board's
view that the success of the Company is best assessed over longer time period
and the inherent uncertainty of looking too far ahead. During this period, the
Company will put forward an ordinary resolution for the Continuation of the
Company, with the vote taking place at the Annual General Meeting to be held on
7 December 2017, and every year thereafter.
As part of its assessment of the viability of the Company, the Board has
considered the principal risks and uncertainties and the impact on the Company
of a significant fall in the value of its portfolio.
To provide this assessment, the Board has considered the Company's financial
position and its ability to liquidate its portfolio to meet its expenses or
other liabilities as they fall due.
* The Company invests largely in debt, preference shares and equity
instruments issued by companies listed and traded on regulated stock
exchanges. These are traded, and whilst some may be less liquid than larger
quoted companies, the portfolio is well diversified by both number of
holdings and industry sector.
* The expenses of the Company are predictable and modest in comparison with
the assets in the portfolio. There are no commitments that would change
that position.
* The Ongoing Charges Ratio of the Company is presently capped at 2.5%.
In addition to considering the principal risks above and the financial position
of the Company as described above, the Board has also considered the following
further factors:
* the Board will ensure that the investment manager continues to adopt a
long-term view when making investments;
* regulation will not increase to a level that makes the running of the
Company uneconomical; and
* the performance of the Company will be satisfactory and should performance
be less than the Board deem acceptable it has powers to take appropriate
action.
Accordingly, the Directors have formed the reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next two years.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing this Annual Report and the
financial statements in accordance with applicable United Kingdom law and
regulations and those International Financial Reporting Standards ("IFRS")
adopted by the European Union and Article 4 of the International Accounting
Standards. Company law requires the Directors to prepare financial statements
for each financial period which present fairly the financial position of the
Group and the financial performance and cash flows of the Group for that
period.
In preparing those financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* state whether applicable IFRS have been followed, subject to any material
departures disclosed and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group will continue in business; and
* provide additional disclosures when compliance with the specific
requirements in IFRS's are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity's financial position and financial performance.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and enable
them to ensure that the Group financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with that law and those
regulations, and for ensuring that the Annual Report includes information
required by the Listing Rules of the Financial Conduct Authority.
The financial statements are published on the Company's website,
www.mitongroup.com/tic, which is maintained on behalf of the Company by the
Manager. Under the Management Agreement, the Manager has agreed to maintain,
host, manage and operate the Company's website and to ensure that it is
accurate and up-to-date and operate in accordance with applicable law. The work
carried out by the Auditor does not involve consideration of the maintenance
and integrity of this website and accordingly, the Auditor accepts no
responsibility for any changes that have occurred to the financial statements
since they were initially presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom covering the
preparation and dissemination of the financial statements may differ from
legislation in their jurisdiction.
We confirm that to the best of our knowledge:
* the Group and Company financial statements, prepared in accordance with
IFRS as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and loss of the Group;
* this Annual Report includes a fair review of the development and
performance of the business and the position of the Group together with a
description of the principal risks and uncertainties that it faces; and
* the Annual Report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business
model and strategy.
On behalf of the Board
Sir David Thomson
Chairman
27 October 2017
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 30 June 2017 or 30 June 2016 but is
derived from those accounts. Statutory accounts for the year ended 30 June 2016
have been delivered to the Registrar of Companies and statutory accounts for
the year ended 30 June 2017 will be delivered to the Registrar of Companies in
due course. The Auditor has reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the Company's full
Annual Report and Accounts at www.mitongroup.com/tic.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
Year to 30 June 2017 Year to 30 June 2016
Revenue Capital Total Revenue Capital Total
Notes £ £ £ £ £ £
Realised (losses)/gains on
investments 11 - (659,326) (659,326) - 528,892 528,892
Unrealised gains/(losses) on
investments held at fair value
through profit or loss
11 - 1,018,729 1,018,729 - (1,278,227) (1,278,227)
Movement in impairment provision
on investments held as available
for sale
- 339,395 339,395 - (72,680) (72,680)
Exchange gains on capital items
- (8,892) (8,892) - 1,845 1,845
Losses on derivative contracts
12 - (276,213) (276,213) - - -
Investment income 2 1,199,285 - 1,199,285 1,085,970 - 1,085,970
Investment management fee
3 (160,723) - (160,723) (113,705) - (113,705)
Other expenses 4 (279,629) - (279,629) (342,277) - (342,277)
Return before finance costs and
taxation 758,933 413,693 1,172,626 629,988 (820,170) (190,182)
Finance costs
Bank debit interest (9) - (9) - - -
Return before taxation 758,924 413,693 1,172,617 629,988 (820,170) (190,182)
Taxation 5 3,241 - 3,241 (995) - (995)
Return after taxation 762,165 413,693 1,175,858 628,993 (820,170) (191,177)
Other comprehensive income
Movement in unrealised
appreciation on investments held
as available for sale
Recognised in equity - 575,730 575,730 - (151,492) (151,492)
Recognised in return after - - (188,607) (188,607)
taxation (18,637) (18,637)
Other comprehensive income after
taxation - 557,093 557,093 - (340,099) (340,099)
Total comprehensive income after
taxation 762,165 970,786 1,732,951 628,993 (1,160,269) (531,276)
Return after taxation per 50p
ordinary share
Basic and diluted 6 15.97p 8.67p 24.64p 13.27p (17.30)p (4.03)p
Return on total comprehensive
income after taxation per 50p
ordinary share
Basic and diluted 6 15.97p 20.34p 36.31p 13.27p (24.48)p (11.21)p
The total column of this statement is the Consolidated Statement of
Comprehensive Income of the Group prepared in accordance with IFRS, The
supplementary revenue and capital columns are prepared in accordance with the
Statement of Recommended Practice issued 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 period.
The notes below form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Issued
ordinary Capital
share Share redemption Revaluation reserve Capital Revenue
capital premium reserve £ reserve account Total
£ £ £ £ £ £
Balance at 1 July 2016
2,386,025 4,453,903 2,408,820 2,000,848 6,155,368 (413,325) 16,991,639
Total comprehensive income
Net return for the period
- - - - 413,693 762,165 1,175,858
Movement in unrealised appreciation
on investments held as available for
sale:
- Recognised in equity
- - - 575,730 - - 575,730
- Recognised in return after taxation
- - - (18,637) - - (18,637)
Transactions with shareholders
recorded directly to equity
Ordinary dividends paid
- - - - - (987,813) (987,813)
Balance at 30 June 2017
2,386,025 4,453,903 2,408,820 2,557,941 6,569,061 (638,973) 17,736,777
Balance at 1 July 2015
2,386,025 4,453,903 2,408,820 2,340,947 6,858,154 5,121 18,452,970
Total comprehensive income
Net return for the period
- - - - (820,170) 628,993 (191,177)
Movement in unrealised appreciation
on investments held as available for
sale:
- Recognised in equity
- - - (151,492) - - (151,492)
- Recognised in return after taxation
- - - (188,607) - - (188,607)
Transactions with shareholders
recorded directly to equity
Sale of Treasury shares
- - - - 117,384 - 117,384
Ordinary dividends paid
- - - - - (1,047,439) (1,047,439)
Balance at 30 June 2016
2,386,025 4,453,903 2,408,820 2,000,848 6,155,368 (413,325) 16,991,639
The notes below form part of these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Issued Issued
ordinary preference Capital
share share Share redemption Revaluation Capital Revenue
capital capital premium reserve reserve reserve account Total
£ £ £ £ £ £ £ £
Balance at 1 July 2016
2,386,025 858,783 4,453,903 2,408,820 1,989,576 3,621,223 2,064,612 17,782,942
Total comprehensive income
Net return for the period
- - - - - 404,039 751,113 1,155,152
Movement in unrealised
appreciation on investments
held as available for sale:
- Recognised in equity
- - - - 585,384 - - 585,384
- Recognised in return
after taxation
- - - - (18,637) - - (18,637)
Transactions with
shareholders recorded
directly to equity
Ordinary dividends paid
- - - - - - (987,813) (987,813)
Preference share dividends
paid
- - - - - - (172) (172)
Balance at 30 June 2017 1
2,386,025 858,783 4,453,903 2,408,820 2,556,323 4,025,262 1,827,740 8,516,856
Balance at 1 July 2015
2,386,025 858,783 4,453,903 2,408,820 2,337,024 4,316,659 2,525,031 19,286,245
Total comprehensive income
Net return for the period
- - - - - (812,820) 587,194 (225,626)
Movement in unrealised
appreciation on investments
held as available for sale:
- Recognised in equity
- - - - (159,771) - - (159,771)
- Recognised in return
after taxation
- - - - (187,677) - - (187,677)
Transactions with
shareholders recorded
directly to equity
Sale of Treasury shares
- - - - - 117,384 - 117,384
Ordinary dividends paid
- - - - - - (1,047,439) (1,047,439)
Preference share dividends
paid
- - - - - - (174) (174)
Balance at 30 June 2016
2,386,025 858,783 4,453,903 2,408,820 1,989,576 3,621,223 2,064,612 17,782,942
The notes below form part of these financial statements.
CONSOLIDATED BALANCE SHEET
As at 30 June 2017
Group Group
2017 2016
Note £ £
Non-current assets
Investments 11 16,289,129 16,410,045
Current assets
Derivative financial statements 12 63,640 -
Trade and other receivables 15 211,300 425,351
Investments available for sale 2,265 1,952
Cash and bank balances 1,267,244 664,859
1,544,449 1,092,162
Current liabilities
Trade and other payables 16 96,801 510,568
96,801 510,568
Net current assets 1,447,648 581,594
Net assets 17,736,777 16,991,639
Capital and reserves
Issued ordinary share capital 8 2,386,025 2,386,025
Share premium 4,453,903 4,453,903
Capital redemption reserve 2,408,820 2,408,820
Revaluation reserve 2,557,941 2,000,848
Capital reserve 6,569,061 6,155,368
Revenue reserve (638,973) (413,325)
Shareholders' funds 10 17,736,777 16,991,639
NAV per 50p ordinary share 371.68p 356.07p
These financial statements were approved by the Board on 27 October 2017 and
were signed on its behalf by:
Sir David Thomson
Chairman
Company Number: 4205
The notes below form part of these financial statements
COMPANY BALANCE SHEET
As at 30 June 2017
Company Company
2017 2016
Note £ £
Non-current assets
Investments 11 16,289,129 16,410,045
Investments in subsidiaries 13 862,656 862,656
17,151,785 17,272,701
Current assets
Derivative financial 12 63,640 -
instruments
Trade and other receivables 15 227,059 494,662
Cash and bank balances 1,265,397 521,960
1,556,096 1,016,622
Current liabilities
Trade and other payables 16 191,025 506,381
191,025 506,381
Net current assets 1,365,071 510,241
Net assets 18,516,856 17,782,942
Capital and reserves
Issued ordinary share capital 8 2,386,025 2,386,025
Issued preference share 9 858,783 858,783
capital
Share premium 4,453,903 4,453,903
Capital redemption reserve 2,408,820 2,408,820
Revaluation reserve 2,556,323 1,989,576
Capital reserve 4,025,262 3,621,223
Revenue reserve 1,827,740 2,064,612
Shareholders' funds 18,516,856 17,782,942
As permitted by Section 408 of the Companies Act 2006, the Company has not
presented its own Income Statement. The amount of the Company's return for the
financial year dealt with in the financial statements of the Group is a profit
after tax of £1,1555,152 (2016: loss after tax of £225,626).
These financial statements were approved by the Board of on 27 October 2017 and
were signed on its behalf by:
Sir David Thomson
Chairman
Company Number: 4205
The notes below form part of these financial statements
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
For the year ended 30 June 2017
Group Company
Year to Year to Year to Year to
30 June 30 June 30 June 30 June
2017 2016 2017 2016
£ £ £ £
Cash flows from operating
activities
Cash received from investments 1,179,839 1,087,015 1,158,373 1,034,428
Interest received 312 - 312 -
Sundry income 2,520 627 2,520 627
Investment management fees paid (160,694) (121,053) (160,694) (121,053)
Cash paid to and on behalf of
employees (26,939) (36,111) (26,939) (36,111)
Other cash payments (328,439) (319,804) (317,701) (309,433)
Withholding tax paid - (995) - (995)
Net cash inflow from operating
activities 666,599 609,679 655,871 567,463
Cash flows from financing
activities
Sale of Treasury shares 117,384 - 117,384 -
Dividends paid on ordinary (987,813) (1,047,439) (987,813) (1,047,439)
shares
Net cash outflow from financing
activities (870,429) (1,047,439) (870,429) (1,047,439)
Cash flows from investing
activities
Purchase of investments (2,216,355) (2,252,996) (2,216,355) (2,252,996)
Sale of investments 3,361,689 2,840,914 3,361,689 2,840,914
Purchase of derivative contracts (339,853) (339,853) -
-
Loans from subsidiaries - - 151,780 -
Loans to subsidiaries - - - (95,200)
Net cash inflow from investing
activities 805,481 587,918 957,261 492,718
Net increase in cash and cash
equivalents 601,651 150,158 742,703 12,742
Reconciliation of net cash flow
to movement in net cash
Increase in cash 601,651 150,158 742,703 12,742
Exchange rate movements 734 1,845 734 1,845
Increase in net cash 602,385 152,003 743,437 14,587
Net cash at start of period 664,859 512,856 521,960 507,373
Net cash at end of period 1,267,244 664,859 1,265,397 521,960
Analysis of net cash
Cash and bank balances 1,267,244 664,859 1,265,397 521,960
1,267,244 664,859 1,265,397 521,960
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
At 30 June 2017
1. Accounting Policies
Basis of Preparation
The Company is a public limited company incorporated and registered in England
and Wales. The Company has been approved as an investment trust within the
meaning of sections 1158/1159 of the Corporation Tax Act 2010.
The Group's consolidated financial statements for the year ended 30 June 2017,
which comprise the audited results of the Company and its wholly owned
subsidiaries, Abport Limited and New Centurion Trust Limited (together referred
to as the ''Group''), have been prepared in conformity with IFRS as adopted by
the European Union, which comprise standards and interpretations approved by
the International Accounting Standards Board ("IASB"), and as applied in
accordance with the provision of the Companies Act 2006. The annual financial
statements have also been prepared in accordance with the AIC Statement of
Recommended Practice 2016 ("AIC SORP"), except to any extent where it is not
consistent with the requirements of IFRS.
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 Income Statement between items of a revenue and capital nature
have been prepared alongside the Income Statement.
The financial statements are presented in Sterling, which is the Group's
functional currency as the UK is the primary environment in which it operates.
Going Concern
The financial statements have been prepared on a going concern basis, being a
period of at least 12 months from the date that these financial statements were
approved, and on the basis that approval as an investment trust company will
continue to be met.
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has the resources to continue in
business for the foreseeable future. Furthermore the Directors are not aware of
any material uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern, having taken into account the liquidity
of the Group's investment portfolio and the Group's financial position in
respect of its cash flows, borrowing facilities and investment commitments (of
which there are none of significance). Therefore, the financial statements have
been prepared on the going concern basis.
Basis of Consolidation
The subsidiaries are consolidated from the date of their acquisition, being the
date on which control is obtained, and will continue to be consolidated until
the date that such control ceases. Control comprises being exposed, or having
rights, to variable returns through its power over the investee. The financial
statements of the subsidiaries are prepared for the same reporting year as the
parent Company, using consistent accounting policies. All inter-company
balances and transactions, including unrealised profits arising from them are
eliminated.
Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment business. The Group primarily invests in
companies listed in the UK.
Accounting Developments
The accounting policies adopted are consistent with those of the previous
financial year. The following accounting standards and their amendments were in
issue at the period end but will not be in effect until after this financial
year.
International Financial Reporting Standards Effective date
*
IFRS 7 Financial Instruments (IFRS Disclosures) 1 January 2018
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 16 Leases 1 January 2018
*Years beginning on or after
The Directors are considering the impact of the standards upon the financial
statements. The impact of IRFS 9 in future periods will change the presentation
of investments and the related allocation of income within the financial
statements of the Group. This should not impact the returns of the Group.
The Directors do not expect that the adoption of other standards listed above
will have a material impact on the financial statements of the Group in future
periods.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts in the Balance Sheet, the
Income Statement and the disclosure of contingent assets and liabilities at the
date of the financial statements. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis of
making judgements about carrying values of assets and liabilities that are not
readily apparent from other sources.
The estimates and underlying assumptions are based on historical experience and
other factors that are considered to be relevant. These are reviewed on an
ongoing basis. Actual results may differ from these estimates. Revisions to
accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period or in the period of the
revision and future period if the revision affects both current and future
periods.
Investments
The Group's business is investing in financial assets with a view to profiting
from their total return in the form of income and capital growth. The portfolio
of financial assets is managed and its performance evaluated on a fair value
basis, in accordance with a documented investment strategy, and information
about the portfolio is provided internally on that basis to the Group's Board
of Directors.
Investments are measured initially, and at subsequent reporting dates, at fair
value, and derecognised at trade date where a purchase or sale is under a
contract whose terms require delivery within the time-frame of the relevant
market. For listed investments this is deemed to be bid market prices or
closing prices for Stock Exchange Electronic Trading Service - quotes and
crosses ('SETSqx').
Changes in fair value of investments, realised gains and losses on disposal are
also recognised in the Income Statement as capital items.
* All investments held that have been purchased by the Group since obtaining
approval as an investment trust from 1 July 2013 are classified as at "fair
value through profit or loss". Changes in fair value of investments are
recognised in the Consolidated Income Statement as a capital item. On
disposal, realised gains and losses are also recognised in the Consolidated
Income Statement as capital items.
* Investments held at 30 June 2017 which were purchased prior to 1 July 2013
are classified as ''assets available for sale". These investments have not
been reclassified as at "fair value through profit or loss" in accordance
with IAS 39 Financial Instruments: Recognition and Measurement. Realised
gains and losses and movement in impairment provision on investments
classified as "assets available for sale" are recognised in the
Consolidated Income Statement and allocated to the Capital reserve.
Movement in unrealised appreciation on investments classified as "assets
available for sale" is recognised in the Revaluation reserve.
* Investments held as current assets by the subsidiary undertaking are
classified as 'held for trading', and are at fair value. rofits or losses
on investments held for trading are taken to revenue in the Income
Statement.
* The holdings of the investment in subsidiaries are stated at cost less
diminution in value.
All investments for which fair value is measured or disclosed in the
financial statements are categorised within the fair value hierarchy in
note 11.
Derivative Financial Instruments
Derivatives, including Index Put options, which are listed investments are
classified as financial instruments being assets or liabilities held for
trading. They are initially recorded at cost (being the premium paid to
purchase the option) and are subsequently valued at fair value at the close
of business at the year-end and included in fixed assets or current assets/
liabilities depending on their maturity date.
Changes in the fair value of derivative instruments are recognised as they
arise in the capital column of the Income Statement.
Foreign Currency
Transactions denominated in foreign currencies are converted to Sterling at
the actual exchange rate as at the date of the transaction. Items that are
denominated in foreign currencies at the year-end are reported at the rate
of exchange at the Balance Sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of the transaction is
included as an exchange gain or loss in the capital reserve or the revenue
account depending on whether the gain or loss is of a capital or revenue
nature.
Cash and Cash Equivalents
Cash comprises cash in hand, overdrafts and demand deposits. Cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant
risk of changes in value.
For the purpose of the Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of outstanding
bank overdrafts when applicable.
Trade Receivables, Trade Payables and Short-term Borrowings
Trade receivables, trade payables and short-term borrowings are measured at
amortised cost.
Income
Dividends receivable on quoted equity shares are taken to revenue on an
ex-dividend basis. Dividends receivable on equity shares where no
ex-dividend date is quoted are brought into account when the Company's
right to receive payment is established. Fixed returns on non-equity shares
are recognised on a time-apportioned basis.
Dividends from overseas companies are shown gross of any non-recoverable
withholding taxes which are described separately in the Income Statement.
Special dividends are taken to revenue or capital account depending on
their nature. In deciding whether a dividend should be regarded as a
capital or revenue receipt, the Board reviews all relevant information as
to the reasons for the sources of the dividend on a case-by-case basis.
When the Company has elected to receive scrip dividends in the form of
additional shares rather than in cash, the amount of the cash dividend
forgone is recognised as income. Any excess in the value of the cash
dividend is recognised in the capital column.
Where, before recognition of dividend income is due, there is any
reasonable doubt that a return will actually be received, for example as a
consequence of the investee company lacking distributable reserves, the
recognition of the return is deferred until the doubt is removed.
All other income is accounted for on a time-apportioned accruals basis
using the effective interest rate method and is recognised in the Income
Statement
Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals basis.
Taxation
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes at the reporting date.
Deferred tax assets are only recognised if it is considered more likely
than not that there will be suitable profits from which the future reversal
of timing differences can be deducted. In line with the recommendations of
the AIC SORP, the allocation method used to calculate the tax relief on
expenses charged to capital is the "marginal" basis. Under this basis, if
taxable income is capable of being offset entirely by expenses charged
through the revenue account, then no tax relief is transferred to the
capital account.
No taxation liability arises on gains from sales of fixed asset investments
by the Group by virtue of its investment trust status. However, the net
revenue (excluding UK dividend income) accruing to the Group is liable to
corporation tax at the prevailing rates.
Dividends Payable to Shareholders
Dividends to shareholders are recognised as a liability in the period in
which they are paid or approved in general meetings and are taken to the
Statement of Changes in Equity. Dividends declared and approved by the
Company after the Balance Sheet date have not been recognised as a
liability of the Company at the Balance Sheet date.
Share Capital
Issued share capital consists of Ordinary shares with voting rights and
Issued preference shares which are non-voting. The Issued preference shares
are entitled to receive a cumulative dividend of 0.01p per share per annum,
and are entitled to receive their nominal value, 50p, on a distribution of
assets or a winding up.
Share Premium
The share premium account represents the accumulated premium paid for
shares issued in previous periods above their normal value less issue
expenses. This is a reserve forming part of non-distributable reserves. The
following items are taken to this reserve:
* Costs associated with the issue of equity
* Premium on the issue of shares
Capital Redemption Reserve
The reserve represents the shares bought back and cancelled. This reserve
is not distributable.
Revaluation Reserve
Movement in unrealised appreciation on investments classified as "assets
available for sale" is recognised in the Revaluation reserve and is not
distributable.
Capital Reserve
The following are taken to this reserve:
* Gains and losses on derivatives;
* Gains and losses on the disposal of investments;
* Net movement arising from changes in the fair value of investments held and
classified as at "fair value through profit or loss";
* Exchange difference of a capital nature; and
* Expenses together with the related taxation effect, allocated to this
reserve in accordance with the above policies.
Realised gains on investments less expenses, provisions and unrealised
gains may be considered by the Board for distribution. This reserve is not
distributable.
Revenue Reserves
The revenue reserve represents the surplus accumulated profits and is
distributable.
2. Income
Year ended Year ended
30 June 2017 30 June 2016
£ £
Income from investments:
UK dividends 536,956 547,381
Un-franked dividend income 230,447 171,642
UK fixed interest 407,272 313,733
1,174,675 1,032,756
Other income:
Bank deposit interest 312 -
Underwriting commission 2,520 627
Net dealing gains of subsidiaries 21,778 52,587
Total income 1,199,285 1,085,970
3. Investment Management Fee
Year ended Year ended
30 June 2017 30 June 2016
£ £
Investment Management Fee 160,723 113,705
The management fee payable monthly in arrears by the Company to the Alternative
Investment Fund Manager ("AIFM") Miton Trust Managers Limited is calculated at
the rate of one-twelfth of 1% per calendar month of the NAV of the Company. For
these purposes, the NAV shall be calculated as at the last business day of each
month and is subject to the ongoing charges ratio of the Company not exceeding
2.5% per annum in respect of any completed financial year.
At 30 June 2017 an amount of £7,284 (2016: £7,255) was outstanding and due to
the AIFM.
4. Other Expenses
Year ended Year ended
30 June 2017 30 June 2016
£ £
Administration and secretarial services 126,849 112,041
Auditors' remuneration for:
- audit of the Group's financial 28,450 26,750
statements
Directors' remuneration (see the
Directors' Remuneration Report in the 60,000 58,000
full Annual Report)
Staff costs 14,000 14,000
Pension costs (57,546) 12,107
Other expenses 107,876 119,379
279,629 342,277
The audit of the Group's financial statements includes the cost of the audit of
Abport Limited of £1,950 (2016: £1,950) and New Centurion Trust Limited £1,950
(2016: £1,950), which are charged to the subsidiaries.
The Directors Remuneration is set out in the Directors Report.
The average number of employees as at 30 June 2017 was one (2016: one) with the
aggregate remuneration consisting of:
2017 2016
£ £
Staff costs
Wages and salaries 14,000 14,000
Social security costs - -
Total 14,000 14,000
Pension costs
Pension payments 11,274 22,107
Pension provision release (70,000) (10,000)
Workplace pension costs 1,180 -
Total (57,546) 12,107
The Company does not have a provision (2016: £70,485) in respect of future
pension payments. There are no pension liabilities due to past employees.
5. Taxation
Year ended Year ended
30 June 2017 30 June 2016
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Overseas taxation
suffered - - - 995 - 995
Overseas taxation -
reversal of prior
year's tax (3,241) - (3,241) - - -
(3,241) - (3,241) 995 - 995
Year ended Year ended
30 June 2017 30 June 2016
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Return on ordinary
activities 758,924 413,693 1,172,617 629,988 (820,170) (190,182)
Theoretical tax at UK
corporation tax rate
of 19.75% (2015: 149,887 81,704 231,591 125,998 (164,034) (38,036)
20.75%)
Effects of:
UK dividends that are
not taxable (106,049) - (106,049) (109,033) - (109,033)
Overseas dividends
that are not taxable (45,513) - (45,513) (34,772) - (34,772)
Non-taxable
investment gains - (81,704) (81,704) - 164,034 164,034
Overseas taxation
suffered - - - 995 - 995
Reversal prior year's
tax (3,241) - (3,241) - - -
Unrelieved expenses 1,675 - 1,675 17,807 - 17,807
(3,241) - (3,241) 995 - 995
Factors that may affect future tax charges
The Company has excess management expenses of £1,484,651 (2016: £1,423,322). It
is unlikely that the Company will generate sufficient taxable income in the
future to use these expenses to reduce future tax charges and therefore no
deferred tax asset has been recognised.
Deferred tax is not provided on capital gains and losses arising on the
revaluation or disposal of investments because the Company meets (and intends
to continue for the foreseeable future to meet) the conditions for approval as
an investment trust company under HMRC rules.
6. Return per Ordinary Share
Year ended Year ended
30 June 2017 30 June 2016
Revenue Capital Total Revenue Capital Total
Return after taxation
Return attributable
to ordinary
shareholders (£) 762,165 413,693 1,175,858 628,993 (820,170) (191,177)
Weighted average
number of ordinary
shares in issue
(excluding shares
held in Treasury) 4,772,049 4,739,727*
Return per ordinary
share (pence) 15.97p 8.67p 24.64p 13.27p (17.30)p (4.03)p
The return on total comprehensive income per ordinary share has been calculated
to enable comparison of the returns per share shown in the annual reports of
other investment trust companies. A reconciliation is shown below:
Year ended Year ended
30 June 2017 30 June 2016
Revenue Capital Total Revenue Capital Total
Return on total
comprehensive income
Return attributable
to ordinary
shareholders (£) 762,165 413,693 1,175,858 628,993 (820,170) (191,177)
Add other
comprehensive income
recognised in equity - 575,730 575,730 - (151,492) (151,492)
(£)
Add other
comprehensive income
recognised in profit
and loss (£) - (18,637) (18,637) - (188,607) (188,607)
Return attributable
to ordinary
shareholders (£) 762,165 970,786 1,732,951 628,993 (1,160,269) (531,276)
Weighted average 4,739,727*
number of ordinary
shares in issue 4,772,049
Return per ordinary
share (pence) 15.97p 20.34p 36.31p 13.27p (24.48)p (11.21)p
*excluding shares held in Treasury
7. Dividends per Ordinary Share
Year ended Year ended
30 June 2017 30 June 2016
£ £
In respect of the prior period:
Fourth interim dividend 5.70p (2016: 7.10p) 272,007 336,508
In respect of the year under review:
First interim 5.00p (2016 5.00p) 238,602 236,977
Second interim dividend 5.00p (2016: 5.00p) 238,602 236,977
Third interim dividend 5.00p (2016: 5.00p) 238,602 236,977
987,813 1,047,439
Dividend declared in respect of the year under
review:
Fourth interim dividend 5.70p (2016: 5.70p) 272,007 272,007
The Directors have declared a first interim dividend in respect of the year
ending 30 June 2018 of 5.00p per ordinary share payable on 17 November 2017 to
all shareholders on the register at close of business on 27 October 2017. The
ex-dividend date was 26 October 2017.
8. Issued Ordinary Share Capital
Group and Company Group and Company
2017 2016
Number £ Number £
Ordinary shares of 50p each 4,772,049 2,386,025 4,772,049 2,386,025
The ordinary shares entitle the holders to receive all ordinary dividends and
all remaining assets on a winding up, after the fixed rate preference shares
have been satisfied in full.
The Company does not hold any ordinary shares in Treasury (2016: none).
9. Issued Preference Share Capital
Group Company
2017 2016 2017 2016
£ £ £ £
Issued preference share - - 858,783 858,783
capital
- - 858,783 858,783
The 1,717,565 fixed rate preference shares of 50p each are non-voting, entitled
to receive a cumulative dividend of 0.01p per share per annum, and are entitled
to receive their nominal value, 50p, on a distribution of assets or a winding
up. The whole of the issue is held by New Centurion Trust Limited, a wholly
owned subsidiary of the Company.
The Directors do not consider the fair values of the issued preference share
capital to be significantly different from the carrying values.
10. Net Asset Value per Ordinary Share
The NAV per ordinary share is calculated as follows:
2017 2016
£ £
Net assets 17,736,777 16,991,639
Ordinary shares in issue, excluding own
shares held in Treasury 4,772,049 4,772,049
NAV per ordinary share 371.68p 356.07p
The underlying investments of the wholly owned subsidiary New Centurion Trust
Limited comprise issued preference share capital, as discussed in note 9, in
the Company and, being effectively eliminated on consolidation, the valuation
thereof does not impact the NAV attributable to ordinary shareholders.
11. Investments
Group Company
2017 2016 2017 2016
£ £ £ £
Available for sale 8,588,507 8,056,096 8,588,507 8,056,096
At fair value through profit 7,700,622 8,353,949 7,700,622 8,353,949
and loss
Total investments designated
at fair value 16,289,129 16,410,045 16,289,129 16,410,045
Investments available for Group Company
sale
2017 2016 2017 2016
£ £ £ £
Opening book cost 6,926,993 7,117,829 6,982,611 7,175,542
Opening net investment 1,129,103 1,541,882 1,073,485 1,484,169
holding gains
Total investments designated
as available for sale 8,056,096 8,659,711 8,056,096 8,659,711
Movements in the period:
Purchases at cost - - - -
Sales - proceeds (136,055) (374,663) (136,055) (374,663)
- (losses)/gains (228,022) 183,827 (228,022) 181,732
on sales
Increase/(decrease) in
investment holding gains 896,488 (412,779) 896,488 (410,684)
Closing valuation 8,588,507 8,056,096 8,588,507 8,056,096
Closing book cost 6,562,916 6,926,993 6,618,534 6,982,611
Closing net investment 2,025,591 1,129,103 1,969,973 1,073,485
holding gains
8,588,507 8,056,096 8,588,507 8,056,096
Analysis of changes in investment holding gains
Movement in impairment 339,395 (72,680) 329,741 (72,680)
provision
Recognised in equity 575,730 (151,492) 585,384 (151,492)
Recognised in return after (18,637) (188,607) (18,637) (188,607)
taxation
Movement in sales to parent - - - 2,095
company
Closing valuation 896,488 (412,779) 896,488 (410,684)
Investments held at fair value through profit or loss
Group Company
2017 2016 2017 2016
£ £ £ £
Opening book cost 9,973,717 9,502,059 9,973,717 9,502,059
Opening net investment (1,619,768) (341,541) (1,619,768) (341,541)
holding losses
Total investments designated 8,353,949 9,160,518 8,353,949 9,160,518
at fair value
Movements in the period:
Purchases at cost 1,877,185 2,592,167 1,877,185 2,592,167
Sales - proceeds (3,117,937) (2,465,574) (3,117,937) (2,465,574)
- (losses)/gains (431,304) 345,065 (431,304) 345,065
on sales
Decrease/(Increase) in net 1,018,729 (1,278,227) 1,018,729 (1,278,227)
investment holding losses
Closing valuation 7,700,622 8,353,949 7,700,622 8,353,949
Closing book cost 8,301,661 9,973,717 8,301,661 9,973,717
Closing net investment (601,039) (1,619,768) (601,039) (1,619,768)
holding losses
7,700,622 8,353,949 7,700,622 8,353,949
Group Company
Year ended Year ended
30 June 2017 30 June 2016 30 June 2017 30 June 2016
£ £ £ £
Transaction costs
Costs on acquisitions 1,880 1,336 1,880 1,336
Costs on disposals 4,543 4,231 4,543 3,694
6,423 5,567 6,423 5,030
Group Company
Year ended Year ended
30 June 2017 30 June 2016 30 June 2017 30 June 2016
£ £ £ £
Analysis of capital
gains
(Losses)/gains on sale (659,326) 528,892 (659,326) 526,797
of investments
Movement in investment 1,915,217 (1,691,006) 1,915,217 (1,688,911)
holding gains/(losses)
1,255,891 (1,162,114) 1,255,891 (1,162,114)
Fair Value Hierarchy
The Group is required to classify fair value measurements using a fair value
hierarchy that reflects the subjectivity of the inputs used in measuring the
fair value of each asset. The fair value as the amount at which the asset could
be sold or the liability transferred in an orderly transaction between market
participants, at the measurement date, other than a forced or liquidation sale.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows:
Level 1 - valued using quoted prices, unadjusted in active markets for
identical assets or liabilities.
Level 2 - valued by reference to valuation techniques using observable inputs
for the asset or liability other than quoted prices included in level 1.
Level 3 - valued by reference to valuation techniques using inputs that are not
based on observable market data or the asset or liability.
The table below sets out fair value measurements of financial instruments as at
30 June 2017, by the level in the fair value hierarchy into which the fair
value measurement is categorised.
At 30 June 2017 Level 1 Level 2 Level 3 Total
£ £ £ £
Fixed asset investments held
by the Company 10,392,613 415,248 5,481,268 16,289,129
Current asset investments -
held by a trading subsidiary 2,176 89 2,265
Derivative financial 63,640 - - 63,640
instruments
10,458,429 415,337 5,481,268 16,355,034
At 30 June 2016 Level 1 Level 2 Level 3 Total
£ £ £ £
Fixed asset investments held
by the Company 11,309,018 395,902 4,705,125 16,410,045
Current asset investments
held by a trading subsidiary 1,868 84 - 1,952
11,310,886 395,986 4,705,125 16,411,997
The valuation techniques used by the Group are set out in the Accounting
Policies in Note 1.
Valuation process for Level 2 investments
The valuations are provided by an independent third party broker. The values
are determined using observable inputs including prevailing interest rates, the
maturity and redemption dates of the investment. The equity securities of the
issuing company of the investments held are or have been publicly listed. The
information includes reported results, commentary on current trading and third
party research.
Valuation process for Level 3 investments
Investments classified within level 3 have significant unobservable inputs.
Level 3 investments can typically include unlisted equity and corporate debt
securities. As observable prices are not available for these securities, the
Group has used valuation techniques to derive the fair value using recognised
valuation methodologies, in accordance with International Private Equity and
Venture Capital ("IPEVC") valuation Guidelines including discounted cash flow
modelling where relevant.
The level 3 investments held by the Company currently consist of fixed interest
bearing securities and certain equity securities. These are valued by the
Manager with valuation confirmations provided to the Board on a regular basis.
The equity securities of the issuing company of the Level 3 investments held
have been publicly listed and, therefore, detailed public information is
available to substantiate the future prospects of the issuing company. The
fixed interest bearing securities anticipated future cash returns and
cash-flows. This information includes reported results, commentary on current
trading, and third party research.
The Group uses a variety of methods and makes assumptions that are based on
market conditions existing at each reporting date. Valuation techniques used
include the use of comparable recent arm's length transactions, reference to
other instruments that are substantially the same, discounted cash flow
analysis, option pricing models and other valuation techniques commonly used by
market participants making the maximum use of market inputs and relying as
little as possible on entity specific inputs.
The table below presents the movement in Level 3 investments that were
accounted for at fair value for the year ending 30 June 2017.
Year ended 30 June 2017
Group Company
£ £
Opening balance 4,705,125 4,705,125
Movement in impairment provision on investments 379,611 365,057
available for sale
Movement in unrealised appreciation on investments
available for sale recognised in equity 140,645 155,199
Movement in unrealised appreciation on investments - -
available for sale recognised in return after
taxation
Purchases at cost 450,000 450,000
Movement in unrealised gains/(losses) on investments 402,989 402,989
at fair value through profit or loss
Realised loss (266,693) (266,693)
Sales proceeds (330,409) (330,409)
Closing balance 5,481,268 5,481,268
12. Derivative Contracts
The derivative contracts serve as components of the Company's investment
strategy and are utilised primarily to structure and hedge investments, to
enhance performance and reduce risk to the Group (the Company does not
designate any derivative as a hedging instrument for hedge accounting
purposes). The derivative contracts that the Company may hold from time to time
or issue include: index-linked notes, contracts for differences, covered
options and other equity-related derivative instruments.
These instruments can involve a high degree of leverage and are very volatile.
A relatively small movement in the underlying value of a derivative contract
may have a significant impact on the profit and loss and net assets of the
Group. The Company's investment objective sets limits on investments in
derivatives with a high risk profile. The Manager is instructed to closely
monitor the Company's exposure under derivative contracts and any use of the
derivatives for investment purposes will be made on the basis of the same
principles of risk spreading and diversification that apply to the Company's
direct investments. The Company will not enter into uncovered short positions.
As at 30 June 2017, the Group has positions in the following type of
derivative:
Options
Options are contractual agreements that convey the right, but not the
obligation, for the purchaser either to buy or sell a specific amount of a
financial instrument at a fixed price, either at a fixed future date or at any
time within a specified period.
The Company purchases either Put or Call options through regulated exchanges
and OTC markets. Options purchased by the Company provide the Company with the
opportunity to purchase (Call options) or sell (Put options) the underlying
asset at an agreed-upon value either on or before the expiration of the option.
The Company is exposed to credit risk on purchased options only to the extent
of their carrying value, which is their fair value.
During the year, the Company purchased a FTSE 100 March 2018 6,000 Put option.
At the Balance Sheet date, the Put option had a fair value of £63,640 and a
notional portfolio exposure of £6,289,000. Unrealised holding losses of £
276,213 are detailed in the table below.
Group Company
2017 2016 2017 2016
£ £ £ £
Movements in the period:
Purchase at cost 339,853 - 339,853 -
Movement in unrealised loss (276,213) - (276,213) -
Closing valuation 63,640 - 63,640 -
Closing book cost 339,853 - 339,853 -
Closing unrealised loss (276,213) - (276,213) -
63,640 - 63,640 -
Group Company
2017 2016 2017 2016
£ £ £ £
Analysis of capital gains
Gains on sale of investments - - - -
Movement in investment (276,213) - (276,213) -
holding losses
(276,213) - (276,213) -
13. Investment in Subsidiaries
Company
2017 2016
£ £
At cost 5,410,552 5,410,552
Provision for diminution in value (4,547,896) (4,547,896)
At cost 862,656 862,656
At 30 June 2017, the Company held interests in the following subsidiary
companies:
% share % share
Country of of of voting Nature of
Incorporation capital rights business
held
Abport Limited England 100% 100% Investment dealing
company
New Centurion Trust England 100% 100% Investment holding
Limited company
The registered office for both companies above is:
Beaufort House, 51 New North Road, Exeter, Devon, EX4 4EP
14. Substantial Share Interests
The Company has notified interests in 3% or more of the voting rights of the
following companies:
Company % share of voting rights
Associated British Engineering 4.88
Coral Products 3.03
15. Trade and Other Receivables
Group Company
2017 2016 2017 2016
£ £ £ £
Amount due from subsidiaries - - 15,759 69,311
Accrued income 79,158 71,707 79,158 71,707
Due from brokers - 234,707 - 234,707
Dividends receivable 118,329 109,479 118,329 109,479
Taxation recoverable 6,284 2,371 6,284 2,371
Other receivables 7,529 7,087 7,529 7,087
211,300 425,351 227,059 494,662
The carrying amount of trade receivables approximates to their fair value.
Trade and other receivables are not past due at 30 June 2017.
16. Trade and Other Payables
Group Company
2017 2016 2017 2016
£ £ £ £
Preference dividends payable - - 689 518
to the Company's wholly owned
subsidiary
Amount due to subsidiaries - - 98,228 -
Due to brokers - 339,170 - 339,170
Investment management fees 7,284 7,255 7,284 7,255
Other trade payables and 89,517 164,143 84,824 159,438
accruals
96,801 510,568 191,025 506,381
17. Analysis of Financial Assets and Liabilities
Investment Objective and Policy
The Group's investment objective is to provide shareholders with an attractive
level of dividends coupled with capital growth over the long-term. The
investing activities in pursuit of its investment objective involve certain
inherent risks. The Group's financial instruments can comprise the following
held in accordance with the Company's investment objectives and policies:
* Shares and debt securities;
* Derivative instruments for efficient portfolio management, gearing and
investment purposes;
* Current asset investments held by its subsidiary;
* Cash, liquid resources and short-term debtors and creditors that arise from
its operations; and
* Conversion rights or equity warrants:
Any use of derivatives for investment purposes will be made on the basis of
the same principles of risk spreading and diversification that apply to the
Company's direct investments, as described below.
Risks
The risks identified arising from the Group's financial instruments are
market risk (which comprises market price risk and interest rate risk,
liquidity risk and credit and counterparty risk). The Group may enter into
derivative contracts to manage risk. The Group has held, sold and taken out
listed Put options against the FTSE 100 index during the year. The Board
reviews and agrees policies for managing each of these risks, which are
summarised below.
Market Risk
Market risk arises mainly from uncertainty about future prices of financial
instruments used in the Group's business. It represents the potential loss
the Group might suffer through holding market positions by way of price
movements, interest rate movements and exchange rate movements. The Group
assesses the exposure to market risk when making each investment decision
and these risks are monitored by the Investment Manager on a regular basis
and the Board at quarterly meetings with the Manager.
Market price risk
Market price risk (i.e. changes in market prices other than those arising
from currency risk or interest rate risk) may affect the value of
investments.
The Board manages the risks inherent in the investment portfolio by
ensuring full and timely reporting of relevant information from the
Manager. Investment performance and exposure are reviewed at each Board
meeting.
Analysis of Financial Assets and Liabilities
The Group's exposure to changes in market values was £16,355,034 (2016: £
16,411,997).The direct impact of a 5% movement in the value of the
portfolio investments and current asset investments amounts to £817,752
(2016: £820,599). An equal change in the opposite direction would have
decreased the net assets and net profit available to shareholders by an
equal and opposite amount. The analysis is based on closing balances only
and is not representative of the year as a whole. The market value of the
option may move in a different direction to Securities.
2017 2016
£ £
Securities available for sale 8,590,772 8,058,048
Securities at fair value through profit 7,700,622 8,353,949
and loss
Derivative financial instruments 63,640 -
Total investment 16,355,034 16,411,997
2017 2016
£ £
Securities available for sale 429,539 402,902
Securities at fair value through profit 385,031 417,697
and loss
Derivative financial instruments 3,182 -
Effect on post-tax profit for the year and 817,752 820,599
on equity
Interest Rate Risk
Interest rate movements may affect the level of income receivable on cash
deposits. The Group's financial assets and liabilities, excluding short-term
debtors and creditors, may include investment in fixed interest securities,
such as UK corporate debt stock, whose fair value may be affected by movements
in interest rates. The majority of the Group' financial assets and liabilities,
however, are non-interest bearing. As a result, the Group's financial assets
and liabilities are not subject to significant amounts of risk due to
fluctuations in the prevailing levels of market interest rates.
The possible effects on the fair value and cash flows that could arise as a
result of changes in interest rates are taken into account when making
investment decisions. The Board imposes borrowing limits to ensure gearing
levels are appropriate to market conditions.
Liquidity Risk
The Group's assets mainly comprise readily realisable quoted and unquoted
securities that can be sold to meet funding commitments if necessary.
Short-term flexibility is achieved through the ability to liquidate listed
securities.
The Group's liquidity risk is managed by the Investment Manager in accordance
with established policies and procedures in place. Cash flow forecasting is
performed in the operating entities of the Group and aggregated by the Manager.
The Manager monitors the rolling forecasts of the group's liquidity
requirements to ensure it has sufficient cash to meet obligations as they fall
due.
The maturity profile pf the Group's financial liabilities £96,801 (2016: £
510,568) are all due in one year or less.
Credit and Counterparty Risk
Credit risk is the risk of financial loss to the Group if the contractual party
to a financial instrument fails to meet its contractual obligations.
The maximum exposure to credit risk as at 30 June 2017 was £1,544,449 (2016: £
1,092,162). The calculation is based on the Group's credit risk exposure as at
30 June 2017 and this may not be representative for the whole year.
The Group's quoted investments are held on its behalf by Bank of New York
Mellon acting as the Group's custodian. Bankruptcy or insolvency of the
custodian may cause the Group's rights with respect to securities held by the
custodian to be delayed.
Where the Manager makes an investment in a bond, corporate or otherwise, the
credit rating of the issuer is taken into account so as to minimise the risk to
the Group of default.
Investment transactions are carried out with a number of brokers where
creditworthiness is reviewed by the Investment Manager.
Cash is only held at banks that have been identified by the Board as reputable
and of high credit quality.
Foreign Currency Risk
Although the Company's performance is measured in sterling, a proportion of the
Company's assets may be either denominated in other currencies, investments
with currency exposure or the trading activities of its investee companies.
Derivatives
The Manager may use derivative instruments in order to 'hedge' the market risk
of part of the portfolio. The Manager reviews the risks associated with
individual investments and, where they believe it appropriate, may use
derivatives to mitigate the risk of adverse market (or currency) movements. The
Manager discusses regularly the hedging strategy with the Board.
At the year end, there was one derivative contract open (2016: none).
Capital Management Policies
Capital is managed so as to maximise the return to shareholders while
maintaining a capital base to allow the Group to operate effectively. Capital
is managed on a consolidated basis and to ensure that it will be able to
continue as a going concern.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders, issue
new shares or sell securities to reduce debt.
The Board, with the assistance of the Manager, monitors and reviews the capital
on the basis of the gearing ratio. This ratio is calculated as net debt divided
by total capital. Net debt is calculated as total borrowings (including current
and non-current borrowings' as shown in the consolidated balance sheet) less
cash and cash equivalents. Total capital is calculated as 'equity' as shown in
the consolidated balance sheet plus net debt. The gearing ratios at 30 June
2017 and 2016 were as follows:
2017 2016
£ £
Cash and bank balances 1,267,244 664,859
Net cash 1,267,244 664,859
Ordinary shareholders' funds 17,736,777 16,991,639
Gearing (net debt/ordinary shareholders' nil nil
funds)
18. Transactions with the Manager and Related Parties
The amounts paid to the Manager, together with details of the Management
Agreement, are disclosed in note 3. Management fees for the year amounted to £
160,723 (2016: £113,705).
As at the year-end, the following amounts were outstanding in respect of
management fees: £7,284 (2016: £7,255).
Fees payable to the Group's Directors are disclosed in the Directors'
Remuneration Report. At the year-end, there were no outstanding fees payable to
Directors (2016: £4,000).
There were no other identifiable related parties at the year end.
Expenses outstanding to Directors at the year-end consists of £1,957 (2016:
nil). No interest is charged on the balance and consists of reimbursement of
expenses incurred.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 151st Annual General Meeting of the Company
will be held at the offices of Fiske plc, Salisbury House, London Wall, London
EC2M 5QS on Thursday, 7 December 2017 at 12.30pm.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at: www.morningstar.co.uk/uk/nsm
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
Investment : Annual Financial Report
October 27, 2017 at 10:36 am EDT
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