TIDMINV
THE INVESTMENT COMPANY PLC
HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHSED 31 DECEMBER 2016
The Investment Company plc presents its Half-Yearly Report for the six-month
period ended 31 December 2016. It is referred to as TIC, the Company or the
Group in the text of this report.
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 equities 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 companies, 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 does not intend to invest in unquoted equity securities. The
Company may invest in unquoted fixed income securities from time to time
subject to prior Board approval.
Borrowing and gearing policy
The Company may use gearing, including bank borrowings and the use of
derivative instruments such as contracts for differences. The Company may
borrow (through bank facilities and derivative instruments) up to 15% of net
asset value ("NAV") (calculated at the time of borrowing).
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 grow it gradually 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 31 December 2016, and the date of this report, the Company has in issue
4,772,049 ordinary shares of 50p each. 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.
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.
Fixed rate preference shares are non-voting.
Total Assets and Net Asset Value
The Group had total net assets of GBP17.1 million and a NAV of 359.22p per
ordinary share at 31 December 2016.
SUMMARY OF RESULTS
At At
31 December 2016 30 June 2016
(unaudited) (audited) Change
Equity shareholders' funds 17,142,015 16,991,639 +0.9%
Number of ordinary shares in 4,772,049 4,772,049 -
issue
NAV per ordinary share 359.22p 356.07p +0.9%
Ordinary share price (mid) 345.00p 365.50p -5.6%
(Discount)/premium to NAV (3.96)% 2.65%
6 months to 12 months to
31 December 2016 30 June 2016
(unaudited) (audited)
Total return per ordinary share* 13.85p (11.21)p
Return after taxation per 7.40p (4.03)p
ordinary share
Dividends paid per ordinary 10.70p 20.70p
share
* The total return per ordinary share is based on total comprehensive income as
detailed in the Condensed Consolidated Statement of Comprehensive Income.
FINANCIAL CALAR
February Payment of second interim dividend for the year ending 30
June 2017.
February/March Announcement of Half-Yearly Financial Report.
May Payment of third interim dividend for the year ending 30
June 2017.
August Payment of fourth interim dividend for the year ending 30
June 2017.
September/October Announcement of Annual Results.
November Payment of first interim dividend for the year ending 30
June 2018.
December Annual General Meeting.
CHAIRMAN'S STATEMENT
Half Year to 31 December 2016
This statement covers the half year ended 31 December 2016.
After the UK's decision to leave the European Union, the stock market recovery
was led by a limited number of companies with large index weightings that rose
strongly. The share prices of those out of the limelight have generally not
enjoyed such good returns. Therefore, over the half year to 31 December 2016,
the NAV of the Company rose only slightly from 356.07p to 359.22p, which is an
increase of 0.9%. The total return including the two interim dividends of 10.7p
paid in the current year, was 3.9%.
In comparison, the FTSE All-Share Index enjoyed a total return of 12.0% over
the six months to 31 December 2016. Smaller quoted indices, which were also
dominated by the moves of a few of their largest weightings, recorded a total
return of 18.0% on the FTSE Small Capitalisation Index (excluding Investment
Companies) and 20.3% on the FTSE AIM All-Share Index. In contrast, the FTSE
Actuaries UK Conventional Gilts All Stocks Index declined 1.2% over the same
period.
The strategy of the Company is distinctive from many others in its potential
participation in high-yield fixed income loan stocks and preference shares that
sometimes carry scope for capital appreciation through equity conversion
rights. Overall the aim is to deliver an attractive yield to investors, with a
net asset value that is not too correlated with the movements of mainstream
indices.
The capital structure of the Company was simplified in June 2013 and it was
intended that an increasing portion of the additional capital raised at the
time would be invested in these types of instruments. However, in the last
three years the risk/reward ratio on most of these issues has not been
compelling; therefore just under half of the portfolio has been held in
ordinary shares that generally offer reasonable yields.
Recently, the issuance trend appears to have changed with a series of
attractive convertible loan stocks being issued. If this trend persists, then
the weighting of the portfolio in higher yielding convertibles will increase,
enhancing the Company's underlying revenue, yet still leaving the Company with
scope to generate longer-term capital gains as well.
Sir David Thomson
Chairman
20 February 2017
MANAGER'S REPORT
There are indications that the long period of globalisation may be coming to an
end. If this is the case then it will become more important than ever for
investment strategies to be less correlated with equity markets generally,
along with greater attention to their resilience. We believe that the Company's
strategy has these advantages.
Markets
Equity indices rose considerably during the half year to 31 December 2016.
However, index gains were often driven by a relatively limited number of stocks
with large index weightings. By way of example HSBC, which had an average
weighting of 6% of the FTSE 100 Index, rose 41.0% in the six month period. This
stock alone contributed 2.2% to the overall return of the FTSE 100. There were
similar examples in the FTSE Small Capitalisation Index (excluding Investment
Companies) with Melrose Industries adding 1.4% to the overall return of that
index. Within the FTSE AIM All-Share Index ASOS, Boohoo.com, GW Pharmaceuticals
and Fevertree collectively added 4.3% to the index's return in the period.
In spite of the announcement of renewed Quantitative Easing by the Bank of
England, UK Government bond prices generally fell back over the half year
period in line with those of other developed markets, as investors became
concerned about the risk of rising inflationary pressures. Over the half year,
the FTSE Actuaries UK Conventional Gilts All Stocks Index fell 1.2%.
Portfolio
Approximately half of the portfolio is invested in a range of preference
shares, loan stocks, debentures and notes. Although the largest corporate
exposure in the portfolio is to Lloyds Banking Group through a series of
perpetual notes, there are over 40 issuers from different corporates in the
portfolio. It is difficult to purchase more of these issues because there are
almost no significant sellers in the market given that, at current market
prices, many of these continue to offer premium yields.
The other half of the portfolio is invested in ordinary equities - mainly
smaller quoted companies - that are often paying premium dividend yields. Small
companies tend to have greater growth potential, and, as world growth has
moderated, we believe this factor will become more important to investors.
Early in the period, the Company underwrote what we believed to be a low priced
fundraising by Sepura, a phone supplier for use by the emergency services in
Europe and the US. However, the CEO was subsequently injured in a motorbike
accident, and the company reported a disappointing period of trading. The
setback attracted speculative interest and the company received a takeover
approach towards the end of the period.
A new holding was also purchased in Yu, a young and vibrant energy supplier to
businesses. A new FTSE 100 Put option was purchased for the portfolio following
the index rise ahead of the US election. This covers around one-third of the
portfolio, with an exercise price of 6,000, and the cover extends to March
2018.
Towards the end of the period, a larger number of companies started considering
issuing new, high-yielding convertible loan stocks. This is an encouraging
trend, as it has the potential to expand the investment universe of the Company
if it continues. Only one of these transactions was completed in the half-year
period. Sirius Minerals raised additional finance to build a new Polyhalite
mine in the UK, and in part funded this via a new convertible loan stock with
an annual yield of 8.5%, and an option to convert into their equity if their
share price rises over 25p.
During the half year, Esure, Hostelworld and Royal Mail were sold to fund these
new purchases.
Criteria for selecting new investments for the portfolio
There are five criteria that the managers use to determine the scope for the
business to deliver good and growing dividends in the longer term:
The prospect of turnover growth - If a business is to sustain and grow its
dividend, then the portfolio needs to invest in companies that will generate
more cash in the coming years. Without decent turnover growth this is
near-impossible to achieve over time.
Sustained or improving margins - A business needs to deliver significant value
to its customer base if it is to sustain decent margins. Unexpected cost
increases cannot be charged on to customers if they are anything less than
delighted with their suppliers. Turnover growth will not lead to improved cash
generation if declining margins offset it.
A forward-looking management team - Businesses often need to make commercial
decisions on incomplete information. A thoughtful and forward-looking team has
a better chance of making better decisions.
Robust balance sheet - There are disproportionate advantages to having the
independence of a strong balance sheet in a period of elevated economic and
political risks. Conversely, corporates with imprudent borrowings can risk the
total loss of shareholders' capital.
Low expectation valuation - Many of the most exciting stocks enjoy higher stock
market valuations but almost none can consistently beat the high expectations
baked into their share prices. Those with low expectations tend to be less
vulnerable to disappointment, but conversely can enjoy excellent share price
rises if they surprise on the upside.
Companies that best meet these criteria on a prospective basis are believed to
be best positioned to deliver attractive returns to shareholders, as well as
offering moderated risk.
These criteria, used in reverse, can also be useful in determining the timing
of portfolio holdings that should be considered for divestment. For example, a
business in danger of suffering turnover declines would naturally be expected
to generate less cash flow in future years and thereby struggle to sustain a
good dividend payment over time, let alone grow it. Clearly these decisions
need to be taken in conjunction with consideration of their market prices at
the time.
Performance
As noted above, many of the market indices recorded strong returns over the
period, as some of their largest holdings performed strongly. The FTSE
All-Share Index rose 12.0% in the half year, with the FTSE Small Capitalisation
Index (excluding Investment Companies) up 18.0% and the FTSE AIM All-Share
Index up 20.3%. All these figures represent a total return including dividend
payments.
In comparison, the total return of the Company at 3.9% looks very pedestrian.
Unfortunately, a number of our holdings were caught out with unexpected
setbacks in trading. The most notable was Fairpoint, a legal services company
that offers low cost legal services at competitive prices. The company suffered
a combination of slightly lower conveyancing volumes after Brexit, and then was
impacted by a Government decision to move the remit of the Small Claims Court
up from actions from GBP1,000 or less to GBP5,000 or less. We have retained our
holding given the potential for its share price to recover.
Bilby, an installation and servicer of gas appliances for social housing around
London, also suffered a setback. Generally, Bilby works to a high standard of
care, but it announced one of its largest customers had decided to take their
work in-house. Its share price was further affected by a statement where the
loss of the contract had raised concerns over how well it matched corporate
costs with its revenues. Bilby finished the period announcing a number of new
contracts and, again, has been retained for its recovery potential.
A third detractor to performance was the FTSE 100 Put option, as the general
market rose towards the end of December 2016. The value of the Put has fallen
since purchase, but has been retained to mitigate the impact on the net assets
of the Company if markets were to fall.
The best performer in the portfolio was Anglo Pacific as energy prices
recovered. It also pays a generous dividend. The share price of Randall &
Quilter, an insurance service business which acquired some run-off assets
cheaply, also increased strongly. Finally, in spite of the general reduction in
bond yields in the UK, some of the fixed income securities also rose in price
given their substantial yields. For example, the Lloyds Bank 7.625% and 7.875%
perpetual notes rose 11.0% and 12.1% respectively.
However, we were disappointed with the overall performance of the portfolio in
the half year.
Prospects
Over recent years, one of the principal drivers of equity market return has
been the rise in valuations as Government bond yields have moved to ultra-low
levels. Overall, this reflects the slowdown in world growth and interest rates
being sustained for years at remarkably low levels. Productivity improvement,
which is the long-term driver of wealth generation, has actually declined in
the four years to the end of 2015. The figures are not yet known for 2016.
We believe the Company's portfolio will be able to generate attractive returns
in spite of these challenges. Specifically, the holdings in the portfolio have
been selected as they are investing to generate an attractive cash payback for
their shareholders. The new loan stocks tend to be issued with generous yields,
but can still work out as inexpensive equity if their share prices rise as
their businesses grow.
Whilst it is anticipated that any material increase in government bond yields
away from their ultra-low yields could inhibit the appreciation of markets
generally, we are confident that the Company is in a good position to generate
an attractive return for shareholders in the future.
The rationale for holding the FTSE 100 Put option
During September 2016, the Company invested around 1.8% of the portfolio to
purchase a FTSE 100 Put option. This offers our investors some downside
protection on markets, covering approximately one-third of the portfolio. Our
view is that an option like this should only be purchased when its cost appears
modest by historical standards. This tends to occur after markets have
appreciated for some years, and at times when confidence in further
appreciation is at a cyclical high.
The key advantage for shareholders of holding a Put option is that, should
markets suffer a significant setback before the exercise date, which in this
case is March 2018, then the market value of the Put option tends to rise. In
part this is proportional to the scale of the market setback, and in part it is
related to the duration of the remaining term of the option. It is possible
that the market value of the option might be a multiple of its initial cost at
such a time. The advantage for shareholders is that the option could then be
sold to bring in additional capital in the Company at a time when share prices
were depressed. The capital released could then be used to buy additional
income stocks, at a time when their prices were abnormally low, on hopefully
more attractive dividend yields. The effect would be to boost the dividend
income generated by the Company, as well as increasing the portfolio's ability
to participate in any subsequent market recovery.
The advantage of a FTSE 100 Put option is that it is regularly traded, so the
weekly NAV fully reflects the market value of the option. In addition, being a
popular instrument, the cost of a FTSE 100 Put option is much lower than a
specialist instrument covering other indices such as the FTSE All-Share or the
FTSE Small Capitalisation Indices. Furthermore, at times of market distress
when the option might want to be sold, market volume in the FTSE 100 Put option
tends to be better than other more obscure instruments.
However, despite the unsettled market conditions, we need to appreciate that it
not usual for the FTSE 100 Index to fall back precipitously. That explains why
Put options should only be purchased when the cost is relatively modest. In our
case, the monthly running cost is only 0.07% over the period to March 2018
should the markets remain resilient and the Put option expired worthless.
Gervais Williams and Martin Turner
Miton Asset Management Limited
20 February 2017
TWENTY LARGEST INVESTMENTS
At 31 December 2016
Stock Number Issue Book cost Market or % of total
Directors' portfolio
valuation
% GBP GBP
1 Lloyds Banking Group
7.625% perpetual notes (LBG 478,000 0.03 204,360 499,046 3.06
Capital)
7.281% perpetual notes (Bank of 400,000 0.27 315,331 473,200 2.90
Scotland)
7.875% perpetual notes (LBG 362,000 0.05 245,997 382,459 2.35
Capital)
765,688 1,354,705 8.31
2 Phoenix Group Holdings
7.25% perpetual notes 1,060,000 0.53 811,923 1,072,056 6.58
Ordinary EUR0.0001§ 35,758 0.01 266,195 262,821 1.61
1,078,118 1,334,877 8.19
3 Royal Bank of Scotland Group
9% series 'A' non-cum pref 500,000 0.36 362,920 667,500 4.10
(NatWest)
Sponsored ADR each rep pref C 20,000 0.20 55,473 415,004 2.55
(NatWest)
418,393 1,082,504 6.65
4 Stobart Group
Ordinary 10p§ 315,146 0.09 499,491 561,748 3.45
5 Anglo Pacific Group
Ordinary 2p§ 432,903 0.25 346,322 560,609 3.44
6 The Fishguard & Rosslare Railways
and Harbours Company
3.5% guaranteed preferred stock 790,999 63.91 441,810 522,059 3.20
7 Newcastle Building Society
6.625% sub notes 23/12/19 600,000 2.40 405,438 510,000 3.13
8 Aggregated Micro Power
8% conv loan notes 30/03/21 500,000 2.50 500,000 500,000 3.07
9 Randall & Quilter Investment
Holdings
Ordinary 2p§ 387,000 0.54 437,715 495,360 3.04
10 Coral Products
Ordinary 1p§ 2,500,000 3.03 500,000 475,000 2.92
11 600 Group
8% conv loan notes 14/02/20 500,000 5.88 500,000 470,000 2.89
12 Charles Taylor
Ordinary 1p§ 192,198 0.29 334,592 466,320 2.86
13 REA Holdings
9.5% loan notes 31/12/17 300,000 2.00 298,254 297,000 1.82
7.5% US Dollar loan notes 30/06/17 150,000 0.44 76,740 112,896 0.69
374,994 409,896 2.51
14 KCOM Group
Ordinary 10p§ 413,519 0.08 407,699 391,809 2.41
15 Direct Line Insurance Group
Ordinary 10.909p§ 105,261 0.01 354,049 390,164 2.39
16 Investec Investment Trust
3.5% cum pref GBP1 461,508 35.50 271,938 286,135 1.76
5% cum pref GBP1 104,043 30.12 92,858 91,558 0.56
364,796 377,693 2.32
17 Amalgamated Metal Corporation
5.4% cum pref GBP1 256,065 18.21 144,049 194,609 1.19
6% cum pref GBP1 213,510 23.72 103,844 177,213 1.09
247,893 371,822 2.28
18 Aviva
Ordinary 25p§ 75,774 0.00 334,545 368,565 2.26
19 Sirius Minerals Finance
8.5% USD conv loan notes 28/11/23 400,000 0.10 321,156 330,191 2.03
20 Liberty
9.5% cum pref 199,708 34.58 146,996 201,705 1.24
6% cum non redeemable pref GBP1 250,225 64.99 118,071 115,104 0.71
265,067 316,809 1.95
8,897,766 11,290,131 69.30
§ Issues with unrestricted voting
rights.
The Group has a total of 78 portfolio investment holdings in 62 companies.
Interim Management Report and Directors' Responsibility Statement
Interim Management Report
The important events that have occurred during the period under review, the key
factors influencing the financial statements and the principal risks and
uncertainties for the remaining six months of the financial year are set out
above.
The principal risks facing the Group are substantially unchanged since the date
of the Report and Accounts for the year ended 30 June 2016 and continue to be
as set out in that report.
Risks faced by the Group include, but are not limited to, market risk (which
comprises market price risk, interest rate risk, liquidity risk and credit and
counterparty risk). Details of the Company's management of these risks and
exposure to them is set out in the Company's Report and Accounts for the year
ended 30 June 2016.
There have been no significant changes to the related party disclosures set out
in the Annual Report.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
* the condensed set of financial statements has been prepared in accordance
with International Accounting Standard 34, Interim Financial Reporting, as
adopted by the European Union; and gives a true and fair view of the
assets, liabilities, financial position and profit or loss of the Group;
and
* this Half-Yearly Financial Report includes a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the Group during that period; and any changes in
the related party transactions that could do so.
This Half-Yearly Financial Report was approved by the Board of Directors on 20
February 2017 and the above responsibility statement was signed on its behalf
by Sir David Thomson, Chairman.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 December 2016
6 months to 31 December 2016 6 months to 31 December 2015 Year ended 30 June 2016
(unaudited) (unaudited) (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
Realised (losses)/gains on - (390,907) (390,907) - 129,097 129,097 - 528,892 528,892
investments
Unrealised gains/(losses) on - 38,010 38,010 - (362,029) (362,029) - (1,278,227) (1,278,227)
investments held at fair
value through profit or loss
Movement in impairment - 286,177 286,177 - (45,585) (45,585) - (72,680) (72,680)
provision on investments held
as available for sale
Exchange (losses)/gains on - (1,387) (1,387) - 388 388 - 1,845 1,845
capital items
Investment income 2 621,024 - 621,024 473,739 - 473,739 1,085,970 - 1,085,970
Investment management fee (86,710) - (86,710) (70,499) - (70,499) (113,705) - (113,705)
Other administrative expenses (112,373) - (112,373) (161,389) - (161,389) (342,277) - (342,277)
Return before finance costs 421,941 (68,107) 353,834 241,851 (278,129) (36,278) 629,988 (820,170) (190,182)
and taxation
Return before taxation 421,941 (68,107) 353,834 241,851 (278,129) (36,278) 629,988 (820,170) (190,182)
Taxation (673) - (673) (551) - (551) (995) - (995)
Return after taxation 421,268 (68,107) 353,161 241,300 (278,129) (36,829) 628,993 (820,170) (191,177)
Other comprehensive income
Movement in unrealised
appreciation on investments
held as available for sale:
* Recognised in equity - 307,824 307,824 - 64,267 64,267 - (151,492) (151,492)
Recognised in return after - - - - - - - (188,607) (188,607)
taxation
Other comprehensive income - 307,824 307,824 - 64,267 64,267 - (340,099) (340,099)
after taxation
Total comprehensive income 421,268 239,717 660,985 241,300 (213,862) 27,438 628,993 (1,160,269) (531,276)
after taxation
Statutory return after
taxation per 50p ordinary
share
Basic and diluted 3 8.83p (1.43)p 7.40p 5.09p (5.87)p (0.78)p 13.27p (17.30)p (4.03)p
Total comprehensive income
return per 50p ordinary share
Basic and diluted 3 8.83p 5.02p 13.85p 5.09p (4.51)p 0.58p 13.27p (24.48)p (11.21)p
The total column of this statement is the Condensed Consolidated Statement of
Total Comprehensive Income of the Group prepared in accordance with
International Financial Reporting Standards ("IFRS"). The supplementary revenue
and capital columns are prepared in accordance with the Statement of
Recommended Practice issued by the Association of Investment Companies ("AIC
SORP").
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.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 December 2016
Ordinary Share Capital Revaluation Revenue Total
share premium redemption reserve Capital account GBP
capital GBP reserve GBP reserve GBP
GBP GBP GBP
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 - - - - (68,107) 421,268 353,161
Movement in unrealised
appreciation on investments
held as available for sale:
* Recognised in equity - - - 307,824 - - 307,824
Transactions with
shareholders recorded
directly to equity
Ordinary dividends paid - - - - - (510,609) (510,609)
Balance at 31 December 2016 2,386,025 4,453,903 2,408,820 2,308,672 6,087,261 (502,666) 17,142,015
2,386,025 4,453,903 2,408,820 2,340,947 6,858,154 5,121 18,452,970
Balance at 1 July 2015
Total comprehensive income
Net return for the period - - - - (278,129) 241,300 (36,829)
Movement in unrealised
appreciation on investments
held as available for sale:
* Recognised in equity - - - 64,267 - - 64,267
Transactions with
shareholders recorded
directly to equity
Ordinary dividends paid - - - - - (573,485) (573,485)
Balance at 31 December 2015 2,386,025 4,453,903 2,408,820 2,405,214 6,580,025 (327,064) 17,906,923
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 - - - (188,607) - - (188,607)
after taxation
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.
CONDENSED CONSOLIDATED BALANCE SHEET
As at 31 December 2016
31 December 31 December 30 June
2016 2015 2016
(unaudited) (unaudited) (audited)
Note GBP GBP GBP
Non-current assets
Investments 16,290,888 17,288,218 16,410,045
Current assets
Trade and other 172,147 172,304 425,351
receivables
Investments held for 2,193 1,933 1,952
trading
Cash and bank balances 801,200 607,284 664,859
975,540 781,521 1,092,162
Current liabilities
Trade and other payables 124,413 162,816 510,568
851,127 618,705 581,594
Net current assets
Net assets 17,142,015 17,906,923 16,991,639
Capital and reserves
Issued ordinary share 5 2,386,025 2,386,025 2,386,025
capital
Share premium 4,453,903 4,453,903 4,453,903
Capital redemption 2,408,820 2,408,820 2,408,820
reserve
Revaluation reserve 2,308,672 2,405,214 2,000,848
Capital reserve 6,087,261 6,580,025 6,155,368
Revenue reserve (502,666) (327,064) (413,325)
Shareholders' funds 17,142,015 17,906,923 16,991,639
NAV per 50p ordinary 7 359.22p 377.82p 356.07p
share
The notes below form part of these financial statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 December 2016
6 months to 6 months to Year ended
31 December 31 December 30 June
2016 2015 2016
(unaudited) (unaudited) (audited)
Notes GBP GBP GBP
Cash flows from operating activities
Cash received from investments 636,736 491,850 1,087,015
Sundry income 2,520 - 627
Investment management fees paid (49,863) (76,377) (121,053)
Cash paid to and on behalf of (18,543) (17,934) (36,111)
employees
Other cash payments (177,638) (165,224) (319,804)
Withholding tax paid (673) (551) (995)
Net cash inflow from operating 392,539 231,764 609,679
activities
Cash flows from financing activities
Sale of Treasury shares 117,384 - -
Dividends paid on ordinary shares (510,609) (573,485) (1,047,439)
Net cash outflow from financing (393,225) (573,485) (1,047,439)
activities
Cash flows from investing activities
Purchase of investments (1,636,401) (852,977) (2,252,996)
Sale of investments 1,773,702 1,288,738 2,840,914
Net cash inflow from investing 137,301 435,761 587,918
activities
Net increase in cash and cash 136,615 94,040 150,158
equivalents
Reconciliation of net cash flow to
movement in net cash
Increase in cash 136,615 94,040 150,158
Exchange rate movements (274) 388 1,845
Increase in net cash 136,341 94,428 152,003
Net cash at start of period 664,859 512,856 512,856
Net cash at end of period 801,200 607,284 664,859
The notes below form part of these financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant accounting policies
Basis of preparation
The condensed consolidated financial statements, which comprise the unaudited
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 accordance with IFRS, as adopted by the European Union, and as
applied in accordance with the provisions of the Companies Act 2006. The
financial statements have been prepared in accordance with the AIC SORP, except
to any extent where it is not consistent with the requirements of IFRS. The
accounting policies are as set out in the Report and Accounts for the year
ended 30 June 2016.
The half year financial statements have been prepared in accordance with IAS 34
"Interim Financial Reporting".
The financial information contained in this half year financial report does not
constitute statutory accounts as defined by the Companies Act 2006. The
financial information for the periods ended 31 December 2016 and 31 December
2015 have not been audited or reviewed by the Company's Auditors. The figures
and financial information for the year ended 30 June 2016 are an extract from
the latest published audited statements and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and include a report of the Auditor, which was unqualified and did
not contain a statement under either Section 498(2) or 498(3) of the Companies
Act 2006.
Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has adequate resources to
continue in operational existence for the foreseeable future (being a period of
12 months from the date these financial statements were approved). 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 and on the basis that approval as an investment trust will
continue to be met.
2. Income
6 months to 6 months to Year ended
31 December 31 December 30 June
2016 2015 2016
(unaudited) (unaudited) (audited)
GBP GBP GBP
Income from investments
UK dividends 240,166 244,862 547,381
Unfranked dividend income 185,351 64,101 171,642
Fixed interest 173,146 151,485 313,733
598,663 460,448 1,032,756
Other income
Underwriting commission 2,520 - 627
Net dealing gains of subsidiaries 19,841 13,291 52,587
Total income 621,024 473,739 1,085,970
3. Return per ordinary share
Returns per share are based on the weighted average number of shares in issue
during the period. Normal and diluted return per share are the same as there
are no dilutive elements on share capital.
6 months to 6 months to Year ended
31 December 2016 31 December 2015 30 June 2016
(unaudited) (unaudited) (audited)
Net Per Net Per Net Per
return share return share return share
GBP pence GBP pence GBP pence
Return on total
comprehensive
income
Revenue 421,268 8.83 241,300 5.09 628,993 13.27
Capital 239,717 5.02 (213,862) (4.51) (1,160,269) (24.48)
Total 660,985 13.85 27,438 0.58 (531,276) (11.21)
comprehensive
income
Weighted average 4,772,049 4,739,549 4,739,727
number of
ordinary shares
4. Dividends per ordinary share
Amounts recognised as distributions to equity holders in the period.
6 months to 6 months to Year ended
31 December 31 December 30 June
2016 2015 2016
(unaudited) (unaudited) (audited)
GBP GBP GBP
Ordinary shares
Prior year fourth interim dividend of
7.10p paid on 21 August 2015 - 336,508 336,508
Prior year first interim dividend of
5.00p paid on 20 November 2015 - 236,977 236,977
Prior year second interim dividend of
5.00p paid on 19 February 2016 - - 236,977
Prior year third interim dividend of
5.00p paid on - - 236,977
20 May 2016
Prior year fourth interim dividend of
5.70p paid on 19 August 2016 272,007 - -
Current year first interim dividend of
5.00p paid on 18 November 2016 238,602 - -
Total dividends 510,609 573,485 1,047,439
The Board declared a second interim dividend of 5.00p per ordinary share, which
was paid on 17 February 2017 to shareholders registered at the close of
business on 27 January 2017. This dividend has not been included as a liability
in these financial statements.
5. Issued ordinary share capital
6 months to 6 months to Year ended
31 December 31 December 30 June
2016 2015 2016
(unaudited) (unaudited) (audited)
Number GBP Number GBP Number GBP
Ordinary shares of 50p
each 4,772,049 2,386,025 4,772,049 2,386,025 4,772,049 2,386,025
The Company does not hold any shares in Treasury as at 31 December 2016 (31
December 2015: 32,500 and 30 June 2016: Nil).
6. Issued preference share capital
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. These are a component of the equity of the Company. The whole of the issue
is held by New Centurion Trust Limited, a wholly-owned subsidiary of the
Company, which has no impact on the consolidated accounts, the Group NAV or the
return per ordinary share.
7. Net asset value per ordinary share
Net asset value per ordinary share is based on net assets at the period end and
4,772,049 (31 December 2015: 4,739,549 and 30 June 2016: 4,772,049) ordinary
shares in issue at the period end excluding shares held in Treasury.
8. Management fee
Under the terms of the Management Agreement, the Manager is entitled to receive
from the Company or any member of the Group in respect of its services provided
under this Agreement, a management fee payable monthly in arrears equal to
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.
9. Fair value hierarchy
The fair value is the amount at which an asset could be sold in an ordinary
transaction between market participants, at the measurement date, other than a
forced or liquidation sale. The Group measures fair values using the following
hierarchy that reflects the significance of the inputs used in making the
measurements.
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 and 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 for the asset or liability.
The table below sets out fair value measurement of financial instruments as at
31 December 2016, by the level in the fair value hierarchy into which the fair
value measurement is categorised.
At 31 December 2016 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Fixed asset investments held by 11,200,999 406,586 4,683,303 16,290,888
the Company
Current asset investments held by 88
a trading subsidiary 2,105 - 2,193
11,203,104 406,674 4,683,303 16,293,081
At 31 December 2015 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Fixed asset investments held by
the Company 12,409,715 398,883 4,479,620 17,288,218
Current asset investments held by - - 1,933
a trading subsidiary 1,933
12,411,648 398,883 4,479,620 17,290,151
At 30 June 2016 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
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 Company's subsidiary, Abport Limited, completes trading transactions. The
value of the current asset investments held for trading is the expected price
of realisation. The difference between the sale and purchase of assets is
recognised as trading income in the Condensed Consolidated Statement of
Comprehensive Income.
Reconciliation of Level 3 investments
The following table summarises Level 3 investments that were accounted for at
fair value.
6 months 6 months Year
ended ended ended
31 December 31 30
2016 December June
GBP 2015 2016
(unaudited) GBP GBP
(unaudited) (audited)
Opening balance 4,705,125 4,772,648 4,772,648
Movement in impairment provision on 321,392 (5,193) (47,788)
investments available for sale
Movement in unrealised appreciation on 95,184 44,457 4,340
investments available for sale
recognised in equity
Movement in unrealised appreciation on - - 930
investments available for sale
recognised in return after taxation
Purchase at cost - 104,305 604,305
Movement in unrealised gains/(losses) on 129,278 (71,229) 2,808
investments at fair value through profit
or loss
Realised (loss)/gain (266,693) 56 (50,578)
Sale proceeds (300,983) (365,424) (581,540)
4,683,303 4,479,620 4,705,125
Closing balance
10. Transactions with the Manager and related parties
As disclosed in note 8 a fee is paid to the Manager in respect of its service
provided to the Company. There were no other identifiable related parties at
the half year.
DIRECTORS AND ADVISERS
DIRECTORS (all non-executive)
Sir David Thomson Bt. (Chairman)
M. H. W. Perrin (Audit Committee Chairman & Senior Independent Director)
S. J. Cockburn
P. S. Allen
ADVISERS
Secretary and Registered Office Administrator
Capita Company Secretarial Services Capita Sinclair Henderson Limited
Limited
Beaufort House Beaufort House
51 New North Road 51 New North Road
Exeter EX4 4EP Exeter EX4 4EP
Telephone: 01392 477500 Independent Auditors
Saffery Champness
Manager 71 Queen Victoria Street
Miton Asset Management Limited London EC4V 4BE
Paternoster House
65 St Paul's Churchyard Registrar
London EC4M 8AB Capita Asset Services
The Registry
Telephone: 020 3714 1525 34 Beckenham Road
Website: www.mitongroup.com Beckenham
Kent BR3 4TU
Alternative Investment Fund Manager
Miton Trust Managers Limited Company Website
Paternoster House www.mitongroup.com/tic
65 St Paul's Churchyard
London EC4M 8AB
An investment company as defined under Section 833 of the Companies Act 2006.
A copy of the Half-Yearly Financial Report 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.
The Half-Yearly Financial Report will be posted to shareholders shortly. The
Report will also be available for download from the following website:
www.mitongroup.com/tic or on request from the Company Secretary.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of this announcement.
END
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