Keystone Investment Trust plc
Half-Yearly Financial Report for the Six Months to 31 March 2019
Keystone Investment Trust plc is a public listed investment
company whose shares are traded on the London Stock Exchange. The
Company is managed by Invesco Fund Managers Limited.
Objective of the Company
The objective of Keystone Investment Trust plc is to provide
shareholders with long-term growth of capital, mainly from UK
investments.
Full details of the Company’s investment policy, risk and limits
can be found in the annual financial report for the year ended
30 September 2018.
Performance Statistics
SIX MONTHS ENDED 31 MARCH |
2019 |
2018 |
Total Return(1)(3)
(dividends reinvested) |
|
|
Net asset value
(NAV)(2)(3) |
–4.2% |
–4.2% |
Share price |
–4.7% |
–0.8% |
FTSE All-Share
Index(4) |
–1.8% |
–2.3% |
|
|
|
Capital Statistics |
|
|
NAV(2)(3) per share |
–6.3% |
–6.3% |
Share price(1) |
–7.1% |
–3.2% |
FTSE All-Share
Index(4) |
–3.6% |
–3.8% |
|
|
|
Revenue Statistics |
|
|
Revenue return per ordinary
share |
22.5p |
19.4p |
Interim dividend per ordinary
share |
24p |
18.0p |
At Period End |
31 MARCH
2019 |
30 SEPTEMBER
2018 |
NAV(2) per share |
1,800.6p |
1,921.7p |
Share price |
1,565.0p |
1,685.0p |
|
|
|
Discount of share price to
NAV(2) per share |
13.1% |
12.3% |
|
|
|
Gearing from
borrowings(3): |
|
|
– gross |
12.8% |
12.0% |
– net |
9.9% |
11.6% |
(1) Source: Refinitiv.
(2) Figures with debt at market value.
(3) Defined in the Glossary of Terms and Alternative
Performance Measures in the 2018 annual financial report.
(4) The benchmark index of the Company.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S
STATEMENT
Chairman’s Statement
Performance
For the six months ended 31 March
2019, the Company delivered a net asset value per ordinary
share (with debt at market value) (NAV) total return of – 4.2%
compared with a return of –1.8% for the Company’s benchmark index,
the FTSE All-Share Index. The share price total return was
–4.7% for the period reflecting a widening of the discount at which
the shares traded relative to the NAV from 12.3% to 13.1%. The
Company’s underperformance is disappointing and the factors
contributing to the portfolio’s performance over the period are
explained in the portfolio manager’s report, which follows. The
Board is supportive of James Goldstone’s contrarian and
unconstrained investment approach in seeking companies which are
truly undervalued and have the potential to generate significant
gains in the medium term.
The Board, with support from Invesco, is committed to broadening
the investor base through a variety of means.
Gearing and Investment Guidelines
The Board takes responsibility for the Company’s gearing
strategy and sets parameters within which the Manager operates. The
Board requires that no net purchases be made which would take the
level of net gearing above 15% of net assets, and that sales be
made if, as a result of market movements, net gearing goes higher
than 15% of net assets. Gearing parameters and levels are reviewed
on a regular basis and were not changed in the period. In light of
the recent strength in equities, the Manager took the opportunity
to reduce gearing slightly so that net gearing stood at 9.9% at
31 March 2019 compared with 11.6% at
30 September 2018.
Dividend
As announced on 9 May 2019, the
Board is pleased to confirm it has made the decision to change the
frequency and relative proportions of the Company’s dividend
payments. The Board believes that paying quarterly dividends will
provide shareholders with a more attractive flow of income. The
Board has declared a first interim dividend of 24p per ordinary
share, which will be paid on 14 June
2019 to shareholders on the register on 17 May 2019.
The shares will be marked ex-dividend on 16
May 2019. This first interim dividend reflects payment of
two quarters under the new quarterly model. In the absence of
unexpected circumstances, it is expected that the total ordinary
dividend for the financial year to 30
September 2019, excluding any special dividend, will be
similar to, but not less than, last year’s ordinary dividend.
The Board
Following the AGM in January 2019,
I succeeded Beatrice Hollond as
Chairman of the Company. Mrs Hollond served on the Board as a
non-executive Director from 2003 and Chairman from 2010. The Board
extends its gratitude for her long and dedicated service.
Karen Brade
Chairman
9 May 2019
Portfolio Manager’s Report
Market Review
This six month period was one of extreme volatility in equity
markets. The final quarter of 2018 saw the FTSE All-Share Index
fall 11%. Half the fall occurred in the first ten days of October
and the other half in an unusually frenetic December in which
global equity indices suffered steep losses – it was the weakest
December for the S&P500 since 1931. Markets then rallied very
sharply after the turn of the year and recovered two thirds of
those losses in the first quarter of 2019.
The sell-off had numerous causes. Trade tensions between the US
and China had been escalating for
some months but around the start of the period under review these
tensions started to be seen as a threat to global economic growth
as global Purchasing Managers Indices (PMIs) declined. As the
outlook for global growth worsened, hawkish comments from the US
Federal Reserve gave the impression it was determined to continue
to raise interest rates and reverse QE (via quantitative
tightening) regardless of this weaker data. Additionally, a sharp
fall in the oil price from US$85 in
October to just above US$50 in
December added to the narrative that growth was slowing.
Just as the global picture deteriorated, the UK and EU’s Brexit
negotiations reached a critical stage. The strength of sterling
versus the US dollar and Euro continued to act as a barometer for
the perceived success of those negotiations and when the UK
Government secured a withdrawal agreement with the European Union,
later ratified by all EU nation states, sterling rallied. These
gains were short lived, however, as the Prime Minister suffered a
wave of high profile resignations from her cabinet and public calls
for her to step down from office due to the terms of the deal and
specifically the terms of the Irish back-stop. In December the
Prime Minister delayed Parliament’s vote on the deal, fuelling
fears of a no-deal Brexit scenario. That news saw sterling fall to
a twenty-month low versus the US dollar.
In December, the Bank of England (BoE) cut its growth forecast for Q4
and highlighted the risks to the economy in 2019 of a no-deal exit
from the EU. Industrial production data missed forecasts and
weakened into the year-end. Nevertheless, employment data released
during the quarter was supportive as UK wage growth reached 3.3% in
the three months to the end of October
2018, the fastest pace in a decade and unemployment fell to
just 4%. Meanwhile retail sales for November were ahead of
expectations.
The international rally that began at the turn of the year was a
result of optimism surrounding the US-China trade talks, as well as
signals from the Federal Reserve that monetary policy may not be on
“autopilot” after all. This saw expectations for interest rate
increases moderate significantly. The price of Brent crude oil
recovered to US$68 per barrel by the
end of March.
Despite the optimism creeping into headline index levels,
political uncertainty persisted at home. The question of the UK’s
departure from the European Union continued to dominate the agenda
during the first quarter, as the deadline for Britain’s exit from
the European Union drew closer. As Parliament prepared to take
control of the process, the Prime Minister’s stance softened and
the chances of leaving without a deal were seen to recede. Sterling
duly strengthened against international currencies over the
quarter, peaking at US$1.33 and €1.17
in March as an extension to Article 50 was secured, avoiding a
no-deal exit from the European Union.
Amid this sustained political uncertainty, the BoE cut its
UK growth forecast from 1.7% to 1.2% for the year, stating
that “the economic outlook [for the UK] will continue to depend
significantly on the nature and timing of EU withdrawal, in
particular: the new trading arrangements between the European Union
and the United Kingdom.” The BoE’s Monetary Policy Committee voted
twice during the quarter to hold interest rates at 0.75%.
Nevertheless, the economic data released during the quarter was
strong. Retail sales strengthened significantly from a
disappointing read for December and wage growth and employment
continued to build ahead of expectations. Meanwhile, in his Spring
Statement, the Chancellor of the Exchequer highlighted that the UK
economy has been “remarkably robust” since the EU Referendum
result. As the FTSE All-Share Index joined in the global equity
rally it was led by certain domestic cyclical sectors such as
Housebuilding and Retail.
Portfolio Review
The Healthcare sector was the portfolio’s weakest performer over
the six month period where the holding in Motif Bio provided a
negative return. The company’s novel antibiotic iclaprim did not
receive the widely anticipated approval from the US Food & Drug
Administration (FDA). Discussions between the company and the FDA
remain ongoing with a meeting scheduled for early May to discuss
concerns over the risk of liver toxicity in patients. The holding
was reduced prior to the announcement regarding this approval and
further reduced afterwards.
Babcock International also provided a negative return. The
shares had traded well earlier in 2018, as management appeared to
convince the market that concerns around margins and outlook for
revenues were unfounded. The company then reduced its full year
revenue guidance in July 2018 and the
share price once again came under pressure. This negative momentum
persisted into the fourth quarter before the release of an
anonymous piece of research in November
2018 saw a sharp fall in the share price, reigniting the
debate on the sustainability of margins and recommending that
investors sell the shares. The company robustly refuted the
analyst’s statements, which they have called “false and malicious”.
The report remains anonymous and we remain sceptical of its
validity as it contradicts information provided by the company and
information publicly available via the Ministry of Defence. Babcock
International’s business is very complex and the number of
contracts that they operate means that there is significant scope
for misunderstanding. The way Babcock International communicates
its operations with the market is a key issue which has been raised
at company meetings and most recently with the Chairman in
December. Given conviction in the investment case more shares were
purchased at lower levels.
Elsewhere in the Financials sector, a recently initiated
position in the financial trading platform Plus500 proved volatile.
The company has met with challenges in clearly explaining to the
market the short-term revenue volatility that can arise in trading
contracts-for-difference (derivative instruments). The company
raised expectations during the final quarter of 2018, which was
followed by a warning in February
2019 that profits would in fact be lower, in line with
original guidance. The holding was sold in February and so the
weakness that followed a second, more recent warning did not
further impact the portfolio.
The share price of floorings manufacturer Victoria fell very sharply at the end of
October 2018 following the release of
an unexpected trading update. The company had sought to simplify
and extend its debt finance arrangements, and in so doing was
obliged to release commentary on trading and near-term strategy.
The guidance for lower margins, but higher revenues, with the
launch of some cheaper ranges in pursuit of market share gains, was
taken badly by the market and the logic of the proposed bond issue
was misunderstood. This left the shares exposed to heavy
short-selling. Having met with the company’s management in the days
following the share price fall, conviction in the investment case
was reaffirmed and the opportunity was taken to increase the
position.
The notable outperformer within the portfolio was AJ Bell, which
provided a positive return over the six month period. The
investment platform has continued to trade extremely well following
its initial public offering in December
2018.
The portfolio’s holding in media business Future also delivered
a strong return over the period. The company released a trading
update in February and announced a small acquisition which prompted
some material analyst upgrades. During March, the company’s share
price was further boosted by the buying activity of index tracking
funds following its move to a premium listing on the London Stock
Exchange.
Dairy Crest provided a notable contribution over the period. The
company’s share price rose sharply on the announcement that
management had backed a £975 million takeover bid from
Canadian milk processor Saputo. In the absence of a counter-bid,
that transaction is expected to conclude in April.
The portfolio’s holdings in the mining sector also supported
performance. Rising gold prices over the period supported the share
prices of Acacia Mining, Agnico Eagle Mines and Randgold Resources.
Shares in the latter were further supported by news of a merger
between Randgold Resources and Barrick
Gold, which completed prior to the period end.
Outlook
For the first time since the referendum in June 2016, the clouds are lifting from many of
the domestically oriented stocks and sectors that this portfolio
has favoured. With a delay granted by the EU, the risk of the UK
leaving without a deal has all but evaporated for the time being,
providing the certainty the market has craved that the much feared
accompanying economic disruption can be avoided.
The relief already felt in certain domestic cyclical sectors
(housebuilding and well positioned retailers) should persist and,
even after the rally year-to-date, there is plenty of room in
valuations, absolute and certainly relative to other parts of the
market, for that re-rating to continue. I am further encouraged by
the fact that the domestic rally has occurred without any recovery
in sterling. This suggests that whilst some domestic UK investors
may have rebalanced towards UK-focused stocks, international
investors are yet to follow suit. This is borne out by the latest
Merrill Lynch Global Fund Manager survey which shows UK equities as
a significant underweight and the least favoured of all asset
classes globally. Should that change there will be significant
further capital chasing valuations back towards (and quite possibly
above) normal levels and this is encouraging for large parts of the
portfolio.
The one domestic sector that has been left behind so far is the
Banks sector, caught between two conflicting forces. On one hand is
the supportive domestic picture and the idea that in theory UK
banks should follow their domestic cyclical peers and re-rate. On
the other hand is a global economy that over the last
six months has shown signs of deceleration and US and European
central banks that have signalled that interest rates have peaked.
At this juncture, lower global interest rates and the fear of
rising impairments from unsustainable lows have weighed on bank
shares internationally, and at the time of writing these concerns
are overshadowing relief at the avoidance of the Brexit cliff-edge.
It seems most likely that extremely depressed valuations can at
least recover some lost ground vs the broader UK market and vs
global peers but the risk that the re-rating is delayed until the
next cycle cannot be discounted.
So in the near-term I am hopeful that the portfolio should
deliver strong absolute and relative performance but as ever I am
conscious of the risks that lie ahead. Whilst the economic impact
of a hard Brexit may have been avoided, the domestic political
consequences could be severe. After walking a tightrope for two and
a half years to hold the Conservative party together, the Prime
Minister eventually blinked in the face of an intransigent EU and a
Remain dominated Parliament, ruling out a ‘No Deal’ exit,
requesting a delay to Brexit and appealing to the Labour leadership
to find cross-party consensus. Collectively these actions have
badly alienated the Conservative right and allowed Nigel Farage to re-emerge under the new banner
of the Brexit party. This risks splitting the Conservative vote and
even the Conservative party itself and so raises once again the
spectre of a hard left Labour government at some stage.
Global growth also looks more fragile and monetary policy
dependent. So I expect to see some further upside to domestics in
the short-term but I have an eye on certain internationally exposed
and more defensive businesses. Assuming prevailing valuations of
these companies are attractive there ought to be the potential to
rotate some capital their way once domestic valuations have
normalised.
In the meantime, the portfolio’s 5% allocation to international
gold mining companies, and the modest valuation of the portfolio’s
holdings ought to prove defensive to a range of potential negative
outcomes at the same time as offering upside in a more normal
environment.
James Goldstone
9 May 2019
Related Party Transactions and Transactions with the Manager
Under United Kingdom Generally Accepted Accounting Practice
(UK Accounting Standards and applicable law), the Company has
identified the Directors as related parties. No other related
parties have been identified. No transactions with related parties
have taken place which have materially affected the financial
position or the performance of the Company.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be
summarised as:
– Investment Objective – the Company may not achieve its
published objective.
– Market Risk – a fall in the stock market as a whole will
affect the performance of the portfolio and individual
investments.
– Investment Risk – the active fund management approach
employed can result in a portfolio that looks and behaves
differently from the benchmark index.
– Shares – the share price is affected by market
sentiment, supply and demand, and dividends declared as well as
portfolio performance.
– Gearing – borrowing will amplify the effect on
shareholders’ funds of portfolio gains and losses.
– Reliance on the Manager and Other Service Providers –
failure by any service provider to carry out its obligations to the
Company could have a materially detrimental impact on the
operations of the Company and affect the ability of the Company to
pursue its investment policy successfully.
– Regulatory – whilst compliance with rules and
regulations is closely monitored, breaches could affect returns to
shareholders.
A detailed explanation of these principal risks and
uncertainties can be found on pages 8 to 10 of the 2018 annual
financial report, which is available on the Company’s section of
the Manager’s website.
In the view of the Board, these principal risks and
uncertainties are equally applicable to the remaining six months of
the financial year as they were to the six months under review.
Going Concern
This half-yearly financial report has been prepared on a going
concern basis. The Directors consider this is the appropriate basis
as they have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future, being taken as 12 months after the date of approval of this
half-yearly financial report. In considering this, the Directors
took into account the diversified portfolio of readily realisable
securities which can be used to meet short-term funding
commitments, and the ability of the Company to meet all of its
liabilities, including the debentures, and ongoing expenses. The
Directors also considered the revenue forecasts for the year and
future dividend payments in concluding on the going concern
basis.
Statement of Directors’ Responsibilities
in respect of the preparation of the half-yearly financial
report.
The Directors are responsible for preparing the half-yearly
financial report using accounting policies consistent with
applicable law and UK Accounting Standards.
The Directors confirm that to the best of their knowledge:
– the condensed financial statements contained within this
half-yearly financial report have been prepared in accordance with
the FRC’s FRS 104 Interim Financial Reporting;
– the interim management report includes a fair review of
the information required by DTR 4.2.7R and DTR 4.2.8R of the FCA’s
Disclosure Guidance and Transparency Rules; and
– the interim management report includes a fair review of
the information required on related party transactions.
The half-yearly financial report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Karen Brade
Chairman
9 May 2019
Investments IN ORDER OF VALUATION at 31
MARCH 2019
UK listed ordinary shares unless
otherwise stated
ISSUER |
SECTOR |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
BP |
Oil & Gas Producers |
14,729 |
5.4 |
Barclays |
Banks |
11,848 |
4.3 |
AJ Bell |
Financial Services |
10,650 |
3.9 |
Tesco |
Food & Drug Retailers |
9,289 |
3.4 |
Next |
General Retailers |
9,089 |
3.3 |
Coats |
General Industrials |
8,782 |
3.2 |
Royal Dutch Shell – B
shares |
Oil & Gas Producers |
8,097 |
2.9 |
Royal Bank of Scotland |
Banks |
7,515 |
2.7 |
British American Tobacco |
Tobacco |
7,138 |
2.6 |
Babcock International |
Aerospace & Defence |
5,661 |
2.1 |
Top Ten Investments |
|
92,798 |
33.8 |
Legal & General |
Life Insurance |
5,518 |
2.0 |
RELX |
Media |
5,502 |
2.0 |
JD Sports Fashion |
General Retailers |
5,353 |
2.0 |
Melrose Industries |
Construction & Materials |
5,145 |
1.9 |
Rolls-Royce |
Aerospace & Defence |
4,918 |
1.8 |
VictoriaAIM |
Household Goods & Home
Construction |
4,484 |
1.6 |
Bushveld MineralsAIM |
Mining |
4,449 |
1.6 |
Future |
Media |
4,343 |
1.6 |
Phoenix Spree Deutschland |
Real Estate Investment &
Services |
4,313 |
1.6 |
Derwent London |
Real Estate Investment Trusts |
4,193 |
1.5 |
Top Twenty Investments |
|
141,016 |
51.4 |
Johnson ServiceAIM |
Support Services |
4,013 |
1.5 |
MJ Gleeson |
Household Goods & Home
Construction |
3,823 |
1.4 |
PRS REIT |
Real Estate Investment Trusts |
3,785 |
1.4 |
Oxford Sciences
InnovationUQ |
Financial Services |
3,746 |
1.4 |
Imperial Brands |
Tobacco |
3,689 |
1.3 |
XPS Pensions |
Financial Services |
3,667 |
1.3 |
Summit PropertiesAIM |
Real Estate Investment &
Services |
3,612 |
1.3 |
Barrick Gold |
Mining |
3,606 |
1.3 |
BCA Marketplace |
Support Services |
3,606 |
1.3 |
McBride |
Household Goods & Home
Construction |
3,586 |
1.3 |
Top Thirty Investments |
|
178,149 |
64.9 |
Sigma CapitalAIM |
Financial Services |
3,568 |
1.3 |
Chesnara |
Life Insurance |
3,501 |
1.3 |
Aviva |
Life Insurance |
3,474 |
1.3 |
Amigo |
Financial Services |
3,457 |
1.3 |
Hollywood Bowl |
Travel & Leisure |
3,431 |
1.3 |
Dairy Crest |
Food Producers |
3,396 |
1.2 |
Agnico Eagle Mines – Canadian
common stock |
Mining |
3,179 |
1.2 |
BT |
Fixed Line Telecommunications |
3,178 |
1.2 |
Harworth |
Real Estate Investment &
Services |
3,172 |
1.2 |
Ultra Electronics |
Aerospace & Defence |
3,164 |
1.1 |
Top Forty Investments |
|
211,669 |
77.3 |
Endeavour Mining |
Mining |
3,095 |
1.1 |
PureTech Health |
Pharmaceuticals &
Biotechnology |
2,942 |
1.1 |
Newmont Mining – US common
stock |
Mining |
2,891 |
1.1 |
P2P Global Investments |
Equity Investment Instruments |
2,884 |
1.1 |
Acacia Mining |
Mining |
2,860 |
1.0 |
HomeServe |
Support Services |
2,781 |
1.0 |
On the Beach |
Travel & Leisure |
2,631 |
1.0 |
DS Smith |
General Industrials |
2,551 |
0.9 |
easyJet |
Travel & Leisure |
2,530 |
0.9 |
Capita |
Support Services |
2,526 |
0.9 |
Top Fifty Investments |
|
239,360 |
87.4 |
Balfour Beatty |
Construction & Materials |
2,429 |
0.9 |
Secure Trust Bank |
Banks |
2,390 |
0.9 |
Cairn Homes |
Household Goods & Home
Construction |
2,339 |
0.9 |
CVSAIM |
General Retailers |
2,336 |
0.8 |
Whitbread |
Travel & Leisure |
2,317 |
0.8 |
Hadrian’s Wall Secured
Investments |
Equity Investment Instruments |
2,105 |
0.8 |
N Brown |
General Retailers |
2,085 |
0.8 |
Alfa Financial Software |
Software & Computer
Services |
1,909 |
0.7 |
Horizon DiscoveryAIM |
Pharmaceuticals &
Biotechnology |
1,659 |
0.6 |
TruFinAIM |
Financial Services |
1,652 |
0.6 |
Top Sixty Investments |
|
260,581 |
95.2 |
Standard Life Aberdeen |
Financial Services |
1,611 |
0.6 |
Ashtead |
Support Services |
1,602 |
0.6 |
Sherborne Investors Guernsey – C
shares |
Financial Services |
1,525 |
0.6 |
Safestyle UKAIM |
General Retailers |
1,486 |
0.5 |
Mears |
Support Services |
1,384 |
0.5 |
Marwyn Value Investors |
Equity Investment Instruments |
1,228 |
0.4 |
Hibernia REIT |
Real Estate Investment Trusts |
1,182 |
0.4 |
TungstenAIM |
Financial Services |
1,090 |
0.4 |
TP ICAP |
Financial Services |
791 |
0.3 |
IP Group |
Financial Services |
670 |
0.2 |
Top Seventy Investments |
|
273,150 |
99.7 |
Motif BioAIM |
Pharmaceuticals &
Biotechnology |
125 |
|
0.1 |
– ADR |
|
248 |
– ADR Warrants 9 Nov
2021 |
|
14 |
Silence
TherapeuticsAIM |
Pharmaceuticals &
Biotechnology |
322 |
0.1 |
DiurnalAIM |
Pharmaceuticals &
Biotechnology |
273 |
0.1 |
Provident Financial |
Financial Services |
109 |
— |
NexeonUQ |
Electronic & Electrical
Equipment |
83 |
— |
EurovestechUQ |
Financial Services |
39 |
— |
XTL Biopharmaceuticals –
ADR |
Pharmaceuticals &
Biotechnology |
9 |
— |
HaloSourceUQ |
Chemicals |
3 |
|
— |
– Regulation S |
|
2 |
Jaguar Health – US indemnity
sharesUQ |
Pharmaceuticals &
Biotechnology |
3 |
— |
Lombard Medical – US common
stock |
Health Care Equipment &
Services |
1 |
— |
Total Investments (80) |
|
274,381 |
100.0 |
UQ: unquoted.
AIM: Investments quoted on AIM.
ADR: American Depositary Receipt.
CONDENSED STATEMENT OF CHANGES IN EQUITY
|
CALLED
UP
SHARE
CAPITAL
£’000 |
SHARE
PREMIUM
£’000 |
CAPITAL
REDEMPTION
RESERVE
£’000 |
CAPITAL
RESERVE
£’000 |
REVENUE
RESERVE
£’000 |
TOTAL
£’000 |
For the six months ended 31 March
2019 |
|
|
|
|
|
|
At 30 September 2018 |
6,760 |
3,449 |
466 |
244,888 |
10,583 |
266,146 |
Dividends paid – note 9 |
— |
— |
— |
— |
(5,374) |
(5,374) |
Return on ordinary activities |
— |
— |
— |
(14,200) |
3,042 |
(11,158) |
At 31 March 2019 |
6,760 |
3,449 |
466 |
230,688 |
8,251 |
249,614 |
For the six months ended 31 March
2018 |
|
|
|
|
|
|
At 30 September 2017 |
6,760 |
3,449 |
466 |
253,648 |
11,064 |
275,387 |
Dividends paid – note 9 |
— |
— |
— |
— |
(5,637) |
(5,637) |
Return on ordinary activities |
— |
— |
— |
(14,731) |
2,616 |
(12,115) |
At 31 March 2018 |
6,760 |
3,449 |
466 |
238,917 |
8,043 |
257,635 |
The accompanying notes are an integral part of these financial
statements.
CONDENSED BALANCE SHEET
|
|
AT
31 MARCH
2019
£’000 |
AT
30 SEPTEMBER
2018
£’000 |
|
|
|
|
|
NOTE |
|
|
Fixed assets |
|
|
|
Investments held at fair value
through profit or loss |
6 |
274,381 |
296,692 |
Current assets |
|
|
|
Amounts due from brokers |
|
233 |
988 |
Unrealised profit on forward
currency contracts |
|
— |
70 |
Prepayments and accrued income |
|
831 |
293 |
Unclaimed dividends from previous
years recoverable |
|
— |
37 |
Tax recoverable |
|
271 |
275 |
Cash and cash equivalents |
|
7,414 |
1,078 |
|
|
8,749 |
2,741 |
Creditors: amounts falling due
within one year |
|
|
|
Amounts due to brokers |
|
(423) |
(195) |
Unrealised loss on forward currency
contracts |
|
(32) |
— |
Accruals |
|
(1,008) |
(1,055) |
|
|
(1,463) |
(1,250) |
Net current assets |
|
7,286 |
1,491 |
Total assets less current
Liabilities |
|
281,667 |
298,183 |
Creditors: Amounts falling due after
more than one year |
|
|
|
Debenture stock |
7 |
(31,803) |
(31,787) |
5% cumulative preference shares |
|
(250) |
(250) |
Net assets |
|
249,614 |
266,146 |
Capital and reserves |
|
|
|
Called up share capital |
|
6,760 |
6,760 |
Share premium |
|
3,449 |
3,449 |
Capital redemption reserve |
|
466 |
466 |
Capital reserve |
|
230,688 |
244,888 |
Revenue reserve |
|
8,251 |
10,583 |
Shareholders’ funds |
|
249,614 |
266,146 |
Net asset value per ordinary share –
basic |
|
|
|
– debt at par
value |
8 |
1,846.4p |
1,968.7p |
– debt at fair
value |
8 |
1,800.6p |
1,921.7p |
Number of 50p ordinary shares in
issue at the period end |
|
13,518,799 |
13,518,799 |
CONDENSSED STATEMENT OF CASH FLOWS
|
SIX
MONTHS
TO 31 MARCH
2019
£’000 |
SIX
MONTHS
TO 31 MARCH
2018
£’000 |
Cash flow from operating
activities |
|
|
Net return before finance costs and
taxation |
(10,038) |
(11,003) |
Adjustments for: |
|
|
Purchases of
investments |
|
(20,989) |
|
(66,068) |
Sales of
investments |
|
31,095 |
|
50,315 |
|
10,106 |
(15,753) |
Scrip dividends |
(118) |
(70) |
Losses on investments |
13,306 |
16,117 |
Net cash movement from derivative
instruments – currency hedges |
102 |
(42) |
Increase in debtors |
(538) |
(162) |
Decrease in creditors |
(43) |
(36) |
Tax on overseas income |
(8) |
(6) |
Net cash inflow/(outflow) from
operating activities |
12,769 |
(10,955) |
Cash flow from financing
activities |
|
|
Interest paid on overdraft |
(7) |
(1) |
Interest paid on debenture
stocks |
(1,083) |
(1,083) |
Preference dividends paid |
(6) |
(6) |
Equity dividends paid – note 9 |
(5,374) |
(5,637) |
Return of unclaimed dividends from
previous years |
37 |
— |
Net cash outflow from financing
activities |
(6,433) |
(6,727) |
Net increase/(decrease) in cash and
cash equivalents |
6,336 |
(17,682) |
Cash and cash equivalents at start
of the period |
1,078 |
13,755 |
Cash and cash equivalents at the end
of the period |
7,414 |
(3,927) |
Reconciliation of cash and cash
equivalents to the Balance Sheet is as follows: |
|
|
Cash/(overdraft) held at
custodian |
504 |
(3,927) |
Short-Term Investment Company
(Global Series) plc, money market fund |
6,910 |
— |
Cash and cash equivalents |
7,414 |
(3,927) |
Cash flow from operating activities
includes: |
|
|
Interest received |
88 |
86 |
Dividends received |
2,915 |
5,260 |
CONDENSED INCOME STATEMENT
|
|
SIX
MONTHS TO 31 MARCH 2019 |
SIX
MONTHS TO 31 MARCH 2018 |
|
NOTE |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Losses on investments at fair
value |
|
— |
(13,306) |
(13,306) |
— |
(16,117) |
(16,117) |
Foreign exchange gains |
2 |
— |
284 |
284 |
— |
236 |
236 |
Income |
3 |
3,647 |
— |
3,647 |
3,230 |
2,372 |
5,602 |
|
|
3,647 |
(13,022) |
(9,375) |
3,230 |
(13,509) |
(10,279) |
Investment management fee |
4 |
(116) |
(349) |
(465) |
(132) |
(398) |
(530) |
Other expenses |
|
(198) |
— |
(198) |
(194) |
— |
(194) |
Net return before finance costs and
taxation |
|
3,333 |
(13,371) |
(10,038) |
2,904 |
(13,907) |
(11,003) |
Finance costs |
|
|
|
|
|
|
|
Interest payable |
4 |
(277) |
(829) |
(1,106) |
(276) |
(824) |
(1,100) |
Distributions in respect
of preference shares |
4 |
(6) |
— |
(6) |
(6) |
— |
(6) |
Return on ordinary activities before
taxation |
|
3,050 |
(14,200) |
(11,150) |
2,622 |
(14,731) |
(12,109) |
Tax on ordinary activities |
5 |
(8) |
— |
(8) |
(6) |
— |
(6) |
Net return on ordinary activities
after taxation |
|
3,042 |
(14,200) |
(11,158) |
2,616 |
(14,731) |
(12,115) |
Return per ordinary share –
basic |
|
22.5p |
(105.0)p |
(82.5)p |
19.4p |
(109.0)p |
(89.6)p |
Number of ordinary shares in
issue |
|
|
13,518,799 |
|
13,518,799 |
The total column of this statement represents the Company’s
profit and loss account, prepared in accordance with UK Accounting
Standards. The return on ordinary activities after taxation is the
total comprehensive income and therefore no additional statement of
comprehensive income is presented. The supplementary revenue and
capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies. All items in the above
statement derive from continuing operations of the Company. No
operations were acquired or discontinued in the period.
Notes to the Condensed Financial Statements
1. Accounting Policies
The condensed financial statements have been prepared in
accordance with applicable United Kingdom Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice),
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of
Ireland, FRS 104 Interim Financial Reporting and
the Statement of Recommended Practice Financial Statements of
Investment Trust Companies and Venture Capital Trusts, issued
by the Association of Investment Companies in November 2014, as updated in February 2018. The financial statements are
issued on a going concern basis.
The accounting policies applied to these condensed financial
statements are consistent with those applied in the financial
statements for the year ended 30 September 2018.
2. Foreign Currency and Forward Currency Contracts
The equity portfolio includes £20,179,000 (30 September 2018: £17,924,000) of equities
denominated in currencies other than pounds sterling. In order to
manage the currency risk, the Manager may hedge part of the
currency exposure into pounds sterling through the use of forward
foreign exchange contracts. Foreign exchange contracts are
designated as fair value hedges through profit or loss.
3. Income
|
|
SIX
MONTHS TO 31 MARCH |
|
|
2019
£’000 |
2018
£’000 |
|
Income from investments |
|
|
|
UK
dividends – ordinary |
2,886 |
2,472 |
|
UK
dividends – special |
299 |
236 |
|
Overseas dividends |
240 |
346 |
|
Income from interest
distribution |
86 |
86 |
|
Scrip dividends |
118 |
70 |
|
|
3,629 |
3,210 |
|
Other Income |
|
|
|
Other |
18 |
20 |
|
|
3,647 |
3,230 |
No special dividends have been recognised in capital
(31 March 2018: £2,372,000).
4. Base Management Fee, Performance-related Fee and
Finance Costs
The base management fee is allocated 75% to capital and 25% to
revenue and is calculated at a rate of 0.1125% of the 10 day
average value of the mid-market capitalisation of the Company at
each quarter end date.
The performance-related fee is allocated wholly to capital. The
performance-related fee is due when the Company's annualised total
return over the previous three years exceeds the annualised return
of the benchmark over the same period plus the hurdle of 1.25%.
There was no performance-related fee provision for the six months
ended 31 March 2019 (2018: £nil).
The finance costs of debt are allocated 75% to capital and 25%
to revenue. The distributions in respect of preference shares are
charged to revenue in the income statement.
5. Tax
The tax effect of expenditure is allocated between capital and
revenue on the same basis as the particular item to which it
relates, using the Company’s effective rate of tax for the
accounting period.
6. Classification under Fair Value Hierarchy
FRS 102 sets out three fair value levels. These are:
Level 1 –
The unadjusted quoted price in an active market for identical
assets that the entity can access at the measurement date.
Level 2 –
Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or
liability, either directly or indirectly.
Level 3 –
Inputs are unobservable (i.e. for which market data is unavailable)
for the asset or liability.
The fair value hierarchy analysis for investments and related
forward currency contracts held at fair value at the period end is
as follows:
|
|
AT
31 MARCH
2019
£’000 |
AT
30 SEPTEMBER
2018
£’000 |
|
Financial assets designated at fair
value through profit or loss: |
|
|
|
Level 1 |
270,491 |
285,480 |
|
Level 2 |
14 |
244 |
|
Level 3 |
3,876 |
11,038 |
|
Total for financial assets |
274,381 |
296,762 |
At 31 March 2019 financial
liabilities designated at fair value though profit or loss,
consisted of currency hedges totalling £32,000 (30 September
2018: £nil) and are classified as level 2 items.
AJ Bell is included in level 1 as at 31
March 2019 (£10,650,000), following its admission to the
Main Market of the London Stock Exchange on 7 December 2018 (30
September 2018: level 3, £7,068,000).
HaloSource is included in level 3 as at 31 March 2019 (£5,000), following its suspension
from trading on the AIM market (30 September
2018: level 1, £19,000).
7. Debenture Stock
The Company’s structured debt at the period end is as
follows:
|
|
AT
31 MARCH
2019
£’000 |
AT
30 SEPTEMBER
2018
£’000 |
|
7.75% Debenture stock 2020 |
7,000 |
7,000 |
|
6.5% Debenture stock 2023 |
24,968 |
24,968 |
|
Total |
31,968 |
31,968 |
|
Discount and issue expenses on
debenture stock |
(165) |
(181) |
|
|
31,803 |
31,787 |
8. Net Asset Value
The following shows a reconciliation of NAV with debt at par to
NAV with debt at fair value. The difference in the NAVs arises
solely from the valuation of the debenture stocks and preference
shares. The number of shares at both period ends was unchanged at
13,518,799.
|
|
AT
31 MARCH
2019
NAV PER
SHARE
PENCE |
AT
30 SEPTEMBER
2018
NAV PER
SHARE
PENCE |
|
NAV – debt at par |
1,846.4 |
1,968.7 |
|
Debentures and preference
shares: |
|
|
|
– debt at par, after
amortised costs |
237.1 |
237.0 |
|
– debt at fair
value |
(282.9) |
(284.0) |
|
NAV – debt at fair value |
1,800.6 |
1,921.7 |
The fair value of the debentures and preference stock in the
above reconciliation, which is based on the offer value is:
|
|
AT
31 MARCH
2019
£’000 |
AT
30 SEPTEMBER
2018
£’000 |
|
7.75% Debenture Stock 2020 |
7,727 |
7,946 |
|
6.5% Debenture Stock 2023 |
30,272 |
30,200 |
|
5% Cumulative Preference shares |
246 |
246 |
|
|
38,245 |
38,392 |
9. Dividends Paid
|
|
SIX
MONTHS TO 31 MARCH |
|
|
2019
£’000 |
2018
£’000 |
|
Second interim 38p (2018: 37p) |
5,137 |
5,002 |
|
Special dividend 1.75p (2018:
4.7p) |
237 |
635 |
|
Total paid |
5,374 |
5,637 |
The Company has moved to a quarterly dividends model and, as a
consequence of the timing of this decision, will pay three interim
dividends this year: June, September and December, the third
interim being in lieu of a final dividend. The first interim
dividend of 24p, representing two quarterly dividends, will be paid
on 14 June 2019 to shareholders on
the register on 17 May 2019. In
accordance with this new dividend policy, in future years,
dividends will be paid in March, June, September and December.
10.Investment Trust Status
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions for approval as an
investment trust company within the meaning of section 1159 of the
Corporation Tax Act 2010.
11.Status of Half-Yearly Financial Report
The financial information contained in this half-yearly report
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. The financial information for the half
years ended 31 March 2019 and
31 March 2018 has not been audited.
The figures and financial information for the year ended
30 September 2018 are extracted and
abridged from the latest audited accounts and do not constitute the
statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the Report of
the Independent Auditor, which was unqualified and did not include
a statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
9 May 2019