THE INVESTMENT COMPANY PLC
HALF-YEARLY FINANCIAL REPORT FOR THE
SIX MONTHS ENDED 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 £17.1 million and a NAV of
359.22p per ordinary share at 31 December
2016.
SUMMARY OF RESULTS
|
At
31 December 2016
(unaudited) |
At
30 June 2016
(audited) |
Change |
Equity shareholders’
funds |
17,142,015 |
16,991,639 |
+0.9% |
Number of ordinary
shares in issue |
4,772,049 |
4,772,049 |
- |
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
31 December 2016
(unaudited) |
12
months to
30 June 2016
(audited) |
|
Total return per
ordinary share* |
13.85p |
(11.21)p |
|
Return after taxation
per ordinary share |
7.40p |
(4.03)p |
|
Dividends paid per
ordinary share |
10.70p |
20.70p |
|
|
|
|
|
* The total return per ordinary share is based on total
comprehensive income as detailed in the Condensed Consolidated
Statement of Comprehensive Income.
FINANCIAL CALENDAR
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 £1,000 or less to £5,000 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
Directors’
valuation |
% of
total
portfolio |
|
|
|
% |
£ |
£ |
|
1 |
Lloyds Banking
Group |
|
|
|
|
|
|
7.625% perpetual notes
(LBG Capital) |
478,000 |
0.03 |
204,360 |
499,046 |
3.06 |
|
7.281% perpetual notes
(Bank of Scotland) |
400,000 |
0.27 |
315,331 |
473,200 |
2.90 |
|
7.875% perpetual notes
(LBG Capital) |
362,000 |
0.05 |
245,997 |
382,459 |
2.35 |
|
|
|
|
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 €0.0001§ |
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 (NatWest) |
500,000 |
0.36 |
362,920 |
667,500 |
4.10 |
|
Sponsored ADR each rep
pref C (NatWest) |
20,000 |
0.20 |
55,473 |
415,004 |
2.55 |
|
|
|
|
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 £1 |
461,508 |
35.50 |
271,938 |
286,135 |
1.76 |
|
5% cum pref £1 |
104,043 |
30.12 |
92,858 |
91,558 |
0.56 |
|
|
|
|
364,796 |
377,693 |
2.32 |
|
|
|
|
|
|
|
17 |
Amalgamated Metal
Corporation |
|
|
|
|
|
|
5.4% cum pref £1 |
256,065 |
18.21 |
144,049 |
194,609 |
1.19 |
|
6% cum pref £1 |
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 £1 |
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:
- 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
- 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
(unaudited) |
6 months to 31 December 2015
(unaudited) |
Year ended 30 June 2016
(audited) |
|
Notes |
Revenue
£ |
Capital
£ |
Total
£ |
Revenue
£ |
Capital
£ |
Total
£ |
Revenue
£ |
Capital
£ |
Total
£ |
Realised
(losses)/gains on investments |
|
- |
(390,907) |
(390,907) |
- |
129,097 |
129,097 |
- |
528,892 |
528,892 |
Unrealised
gains/(losses) on investments held at fair value through profit or
loss |
|
- |
38,010 |
38,010 |
- |
(362,029) |
(362,029) |
- |
(1,278,227) |
(1,278,227) |
Movement in impairment
provision on investments held as available for sale |
|
- |
286,177 |
286,177 |
- |
(45,585) |
(45,585) |
- |
(72,680) |
(72,680) |
Exchange
(losses)/gains on capital items |
|
- |
(1,387) |
(1,387) |
- |
388 |
388 |
- |
1,845 |
1,845 |
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 and taxation |
|
421,941 |
(68,107) |
353,834 |
241,851 |
(278,129) |
(36,278) |
629,988 |
(820,170) |
(190,182) |
|
|
|
|
|
|
|
|
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
- |
307,824 |
307,824 |
- |
64,267 |
64,267 |
- |
(151,492) |
(151,492) |
Recognised in return
after taxation |
|
- |
- |
- |
- |
- |
- |
- |
(188,607) |
(188,607) |
Other comprehensive
income after taxation |
|
- |
307,824 |
307,824 |
- |
64,267 |
64,267 |
- |
(340,099) |
(340,099) |
Total comprehensive
income after taxation |
|
421,268 |
239,717 |
660,985 |
241,300 |
(213,862) |
27,438 |
628,993 |
(1,160,269) |
(531,276) |
|
|
|
|
|
|
|
|
|
|
|
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
£ |
Share
premium
£ |
Capital
redemption
reserve
£ |
Revaluation
reserve
£ |
Capital
reserve
£ |
Revenue
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 |
- |
- |
- |
- |
(68,107) |
421,268 |
353,161 |
Movement in unrealised
appreciation on investments held as available for sale: |
|
|
|
|
|
|
|
|
- |
- |
- |
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 |
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 |
- |
- |
- |
- |
(278,129) |
241,300 |
(36,829) |
Movement in unrealised
appreciation on investments held as available for sale: |
|
|
|
|
|
|
|
|
- |
- |
- |
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: |
|
|
|
|
|
|
|
|
- |
- |
- |
(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.
CONDENSED CONSOLIDATED BALANCE SHEET
As at 31 December 2016
|
|
31
December
2016
(unaudited) |
31
December
2015
(unaudited) |
30
June
2016
(audited) |
|
Note |
£ |
£ |
£ |
Non-current assets |
|
|
|
|
Investments |
|
16,290,888 |
17,288,218 |
16,410,045 |
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
|
172,147 |
172,304 |
425,351 |
Investments held for
trading |
|
2,193 |
1,933 |
1,952 |
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 |
Net current assets |
|
851,127 |
618,705 |
581,594 |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
17,142,015 |
17,906,923 |
16,991,639 |
Capital and reserves |
|
|
|
|
Issued ordinary share capital |
5 |
2,386,025 |
2,386,025 |
2,386,025 |
Share premium |
|
4,453,903 |
4,453,903 |
4,453,903 |
Capital redemption reserve |
|
2,408,820 |
2,408,820 |
2,408,820 |
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
share |
7 |
359.22p |
377.82p |
356.07p |
The notes below form part of these financial statements.
CONDENSED CONSOLIDATED CASH FLOW
STATEMENT
For the six months ended 31 December
2016
|
Notes |
6
months to
31 December
2016
(unaudited)
£ |
6 months
to
31 December
2015
(unaudited)
£ |
Year
ended
30 June
2016
(audited)
£ |
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
employees |
|
(18,543) |
(17,934) |
(36,111) |
Other cash payments |
|
(177,638) |
(165,224) |
(319,804) |
Withholding tax paid |
|
(673) |
(551) |
(995) |
Net cash inflow
from operating activities |
|
392,539 |
231,764 |
609,679 |
|
|
|
|
|
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
activities |
|
(393,225) |
(573,485) |
(1,047,439) |
|
|
|
|
|
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 activities |
|
137,301 |
435,761 |
587,918 |
|
|
|
|
|
Net increase in cash and cash
equivalents |
|
136,615 |
94,040 |
150,158 |
|
|
|
|
|
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
31 December
2016
(unaudited)
£ |
6 months
to
31 December
2015
(unaudited)
£ |
Year
ended
30 June
2016
(audited)
£ |
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
31 December 2016
(unaudited) |
6 months to
31 December 2015
(unaudited) |
Year ended
30 June 2016
(audited) |
|
Net
return
£ |
Per
share
pence |
Net
return
£ |
Per
share
pence |
Net
return
£ |
Per
share
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 comprehensive
income |
660,985 |
13.85 |
27,438 |
0.58 |
(531,276) |
(11.21) |
|
|
|
|
|
|
|
Weighted average
number of ordinary shares |
4,772,049 |
4,739,549 |
4,739,727 |
4. Dividends per ordinary share
Amounts recognised as distributions to equity holders in the
period.
|
6
months to
31 December
2016
(unaudited)
£ |
6 months
to
31 December
2015
(unaudited)
£ |
Year
ended
30 June
2016
(audited)
£ |
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
20 May 2016 |
- |
- |
236,977 |
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
31 December
2016
(unaudited) |
6 months to
31 December
2015
(unaudited) |
Year ended
30 June
2016
(audited) |
|
Number |
£ |
Number |
£ |
Number |
£ |
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
£ |
Fixed asset investments held by the
Company |
11,200,999 |
406,586 |
4,683,303 |
16,290,888 |
Current asset investments held by a
trading subsidiary |
2,105 |
88 |
- |
2,193 |
|
11,203,104 |
406,674 |
4,683,303 |
16,293,081 |
At 31 December
2015 |
Level
1
£ |
Level
2
£ |
Level
3
£ |
Total
£ |
Fixed asset investments held by the
Company |
12,409,715 |
398,883 |
4,479,620 |
17,288,218 |
Current asset investments held by a
trading subsidiary |
1,933 |
- |
- |
1,933 |
|
12,411,648 |
398,883 |
4,479,620 |
17,290,151 |
|
|
|
|
|
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 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
ended
31 December 2016
£
(unaudited) |
6
months
ended
31 December 2015
£
(unaudited) |
Year
ended
30 June 2016
£
(audited) |
Opening balance |
4,705,125 |
4,772,648 |
4,772,648 |
Movement in impairment
provision on investments available for sale |
321,392 |
(5,193) |
(47,788) |
Movement in unrealised
appreciation on investments available for sale recognised in
equity |
95,184 |
44,457 |
4,340 |
Movement in unrealised
appreciation on investments available for sale recognised in return
after taxation |
- |
- |
930 |
Purchase at cost |
- |
104,305 |
604,305 |
Movement in unrealised
gains/(losses) on investments at fair value through profit or
loss |
129,278 |
(71,229) |
2,808 |
Realised
(loss)/gain |
(266,693) |
56 |
(50,578) |
Sale proceeds |
(300,983) |
(365,424) |
(581,540) |
Closing balance |
4,683,303 |
4,479,620 |
4,705,125 |
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
Limited |
Capita Sinclair Henderson
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.