Ruffer Investment Company
Limited
LEI:21380068AHZKY7MKNO47
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
ANNUAL REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Annual Report for the year ended 30 June 2018. The
Report will shortly be available via the Company's Investment
Manager’s website www.ruffer.co.uk and will shortly be
available for inspection online at
www.hemscott.com/nsm.do website.
Key Performance Indicators*
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30.06.18 |
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30.06.17 |
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Share
price total return over 12 months1 |
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(1.0%) |
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12.90% |
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NAV total
return per share over 12 months1 |
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0.8% |
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8.75% |
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Premium of
share price to NAV |
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0.89% |
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3.04% |
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Dividends
per share over 12 months2 |
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1.8p |
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2.6p |
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Annual dividend
yield3 |
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0.78% |
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1.10% |
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Annualised
total return per share since launch1 |
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7.80% |
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8.35% |
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Ongoing charges
ratio |
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1.18% |
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1.18% |
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Financial Highlights
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30.06.18 |
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30.06.17 |
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Share price |
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231.00p |
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236.00p |
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NAV4 |
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£405,711,462 |
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£376,116,913 |
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Market
capitalisation |
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£409,305,241 |
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£387,543,662 |
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Number of shares in
issue |
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177,188,416 |
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164,213,416 |
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NAV per
share at year end as reported to the LSE5 |
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228.97p |
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229.04p |
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NAV per
share at year end as calculated on an IFRS basis |
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229.30p |
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228.73p |
Company Information
Incorporation Date |
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01.06.04 |
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Launch
Date |
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08.07.04 |
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Launch
Price |
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100p per
share |
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Initial
Net Asset Value |
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98p per
share |
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Accounting
dates |
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Interim |
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Final |
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31 December |
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30 June |
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(Unaudited) |
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(Audited) |
* Figures use Net Asset Value (“NAV”) per share as
reported to the London Stock Exchange (“LSE”).
1 Assumes reinvestment of dividends.
2 Dividends per share over 12 months relates to
declared during the year.
3 Annual dividend yield is calculated using share
price at the year end and dividends declared during the year.
4 This is the NAV as released on the LSE for 30 June
each year.
5 This is the NAV per share as released on the LSE.
The NAV is calculated weekly and at month end. Refer to note 14 for
the reconciliation to the NAV as per the Financial Statements.
Chairman’s
Review
Performance
If you are experiencing a sense of déjà vu it is because, for the
second year running, your Directors elected to publish an unaudited
set of Annual Financial Accounts in order to give our shareholders
a more timely report. This year the unaudited Accounts were
published on 23 July.
The Company’s objective is to achieve a positive total annual
return, after all expenses, of at least twice the Bank of
England base rate. The Bank of
England doubled rates to 0.5% on
2 November 2017 and there they stayed
until 2 August 2018 when they were
raised to 0.75%. The blended average rate for the 12-month period
ended 30 June was therefore 0.4%, which gave the Company a target
return of 0.8%. In the twelve months from 1
July 2017 to 30 June 2018, the
net asset value (NAV) per share of the Company fell from 229.04p to
228.97p. Adding dividends of 1.8p paid during the period, this
equates to a total return of 0.8%. This return, whilst in line with
the target, is pedestrian against last year’s 8.8% return and falls
below the annualised return generated since the Company was
launched in 2004 of 7.8%. By way of context, the FTSE All-Share
Total Return index rose by 9% over the year. However, it is worth
pointing out that our objective is to preserve capital and not to
try and shoot the lights out, especially when those lights are so
elevated and burning brightly. Since launch, the NAV of the
Company has risen by 185.7% including dividends, compared with a
rise of 69.4% in the target return and 216.3% in the FTSE All-Share
Total Return index.
As our Manager explains later in this report the drag on our
performance was largely down to the cost of option protection and
the illiquid strategy funds. We regard this portfolio protection as
essential for without it we believe that we would be exposed when
the tide goes out. The near 10% fall in equity markets in early
February 2018 was instructive. Some
were disappointed that the Company did not manage to produce a
positive return over that month, even if the level of volatility
was lower than the market and the return 2% higher. Our protection
is designed to shield us from a storm (15%+ falls) rather than a
heavy shower. Naturally, our manager wanted to keep the portfolio
protected, and consequently quite a lot of the options subsequently
expired worthless as markets rebounded.
Earnings And Dividends
Earnings for the year were 1.83p per share on the revenue account
and 0.35p per share on the capital account. Earnings from the
revenue account remain depressed owing to the heavy weighting in
index-linked securities, illiquid strategy funds, options, gold and
gold equities, most of which yield next to nothing. As you will be
aware the Directors cut the interim dividend from 1.7p to 0.9p per
share on 28 February 2017. At present
it looks as if a total annual dividend of 1.8p will be sustainable,
but the Directors will not hesitate to reduce the dividend again
should this prove necessary. As far as setting the dividend is
concerned the Directors are determined to give the Investment
Manager maximum flexibility to follow whichever course will lead to
the best total return for our shareholders. Your directors regard
income as a by-product of the investment process and we will not
draw on capital to maintain the dividend.
Share Issuance
I often remark, when people ask me about how the market feels about
Ruffer’s performance, that I regard the best indicator to be the
premium or discount at which your Company’s shares trade relative
to our NAV per share. There has scarcely been a week when your
Company has not traded at a premium during the reporting period and
indeed shares were issued to meet demand in 34 weeks during the
calendar year. The fact that the market is prepared to pay a 1 - 2%
premium to acquire your Company’s shares indicates that investors
are happy with the Ruffer approach. Incidentally, it helps that we
are Guernsey domiciled since buyers do not have to pay the 0.5%
stamp duty, on purchases of the Company’s shares in the secondary
market, which would otherwise pertain were we to be domiciled
onshore. Over the period under review we issued 12.98m shares, which raised £30.2m for the
Company, and enhanced the NAV per share by 0.34p. Your Directors
are committed to never issuing shares which will dilute existing
shareholders.
I mentioned last year that it was our medium-term ambition to
raise the market capitalisation of the Company to £500m through
performance and tapping out shares. This would help marketability
through improved liquidity as well as spreading the fixed costs
over a larger number of shares thus reducing the Ongoing Charges
figure. On the flip side of issuance, we have the authority to buy
back shares if the NAV was to fall to a persistent discount – we do
not think it wise to have a rigid formula in place, but rest
assured that we would act, as we have before, if the Company’s
share price fell to a meaningful discount to net asset value.
Better Communications
Over the year we have sought to improve our communications with
shareholders. We have engaged Kepler Partners to augment our
marketing activities and we have piggy backed, at no cost to the
shareholders, on Ruffer LLP’s long standing relationship with their
retained PR firm, Four Broadgate. I am confident that these two
excellent organisations, coupled with the very capable team at
Ruffer, will improve shareholder communications and help maintain
liquidity in the shares.
We know that we have some way still to go but we have, through
search engine optimisation, improved access to the Company’s
webpage. It previously took as many as six clicks through Google,
whereas it is now possible in two. There is a wholesale improvement
in Ruffer’s online presence due to ‘go live’ in the autumn. You may
have noticed a few improvements in the layout of this report and we
are committed to making it more reader friendly in the future.
There was nothing wrong with our old broker, but the same team
had been with this Company since its foundation, and in January,
following a thorough review and beauty parade, we appointed
Cannacord Genuity in their place. They have made an excellent
start. Your Directors occasionally accompany the managers to
meetings with institutional investors and these opportunities give
us invaluable insights and enable us to keep abreast of the ongoing
strategy. All the Directors spend a day each June ‘kicking the
tyres’ at Ruffer in their London
offices; each of our top twenty shareholders are invited to have
lunch with us and the Manager. The feedback from those attending
was that they appreciated meeting and hearing from the Board and,
very importantly, from the Manager.
On a more mundane note, your Directors are attempting to reduce
our printing costs and hope to save a few trees by asking our
shareholders to ‘opt in’ for receiving hard copies of the Annual
and Interim Reports and Accounts. If we do not hear from you we
will assume that you will be happy to receive the paperwork through
our improved website and we will take you off the distribution list
for physical copies.
Board Changes
Having presided over a three-year transition period, when the last
four Directors present at the inception of the Company retired, I
was looking forward to finding my own successor, when at the
beginning of this year, Sarah Evans,
our charismatic and very capable Chair of the Audit and Risk
Committee decided to step down for health reasons. After an
exhaustive search and some interesting interviews, we decided to
appoint David Staples, a Guernsey
resident, committed investment trust non-executive Director and
audit committee chairman and an experienced former PwC UK partner,
who impressed us all. We nearly lost the services of Jill May, appointed to your Board in
March 2017, when she was asked
recently to join the Prudential Regulatory Committee, but happily
there is no conflict.
Regulatory Developments
It seems to me that an increasing amount of time during our Board
meetings is being taken up with preparing for and reacting to
regulatory changes. Most of these are helpful but some are not. I
am certainly not the first company Director to complain about the
wholly misleading Key Information Documents (KIDs) which were part
of the Markets in Financial Instruments Directive II (MiFID II)
regime. These came into force on 3 January
2018. The way in which the KID is required to be prepared is
for historic information to be used to extrapolate likely future
returns. This creates a projection for future returns which is
almost certain to be wrong, especially after a bull market in bonds
which has lasted for rather more than thirty years and at a time
when interest rates are at multi-generational lows. I was
always taught not to drive through the rear-view mirror, but to
look to the road ahead.
Happily, our industry body, the Association of Investment
Companies (AIC), of which your Company is a member, has been vocal
in its condemnation of the performance and risk elements KIDs and
they have refused to publish them on their website. A study carried
out by the AIC showed that 42 out of 384 KIDs produced for
investment companies indicated possible future returns of more than
20% per year in the ‘moderate’ performance scenario. Meanwhile, 45
investment company KIDs suggested possible future returns of more
than 10% in an ‘unfavourable’ performance scenario.
Considerable thought and paperwork went into preparing for the
introduction of the General Data Protection Regulations (GDPR),
which was implemented on 25 May 2018.
We are now beginning to work on the Senior Managers &
Certification Regime (SMCR), which will replace the current
Approved Persons Regime on 9 December
2019.
Annual General Meeting
The AGM of the Company will be held at 12 noon on 4 December 2018 at the Company’s registered
offices at Trafalgar Court, Les Banques, St Peter Port,
Guernsey.
Share Buyback Authority
I have already touched upon this power, which has not been invoked
over the period of this report. Nevertheless, the Board has
resolved to seek, at the AGM on 4 December
2018, a renewal of its authority to buy back shares at a
discount to NAV under the terms to be stated in a Special
Resolution.
Share Redemption Facility
The Company has a Redemption Facility operable in November each
year. Given the fact that the Company traded above or close to its
NAV for most of the year under report, and the fact that it is
currently trading at a 1-2% premium to NAV the Board is unlikely to
offer this facility in November
2018.
Directors and Related Party Share Purchases
I acquired 10,000 shares on 22 January at 238.39p, whilst my wife
acquired 5,000 shares at the same price on the same day.
David Staples acquired 20,000 shares
on 10 April at 227.34p and a further 20,000 shares in the Company
on 1 May at 229.48p. Jill May
acquired 11,000 shares on 11 June at a price of 232.86p.
Ruffer LLP
I devoted some time last year to describing the unique culture at
Ruffer and I am happy to report that it continues to thrive. As at
30 June 2018 assets managed by Ruffer
exceeded £22bn, up from £21.3bn 12 months earlier; the firm’s
defensive posture is still attracting asset inflows. Jonathan Ruffer remains involved in both the
strategic direction of Ruffer LLP and the research process.
I am as confident as I can be in these deeply uncertain times
that the Company’s strategy is sound. We should prepare for
troubled times ahead whilst looking for undervalued equities to
generate a return for shareholders should the denouement be further
off than envisaged. If our Manager is right, and the next crisis is
a generational event in terms of wealth distribution, then it will
be a hard task to keep shareholders’ capital safe. Yet that
is the job we are charged with. We believe there will be sunny
uplands on the other side for a buyer whose capital has not been
eroded.
Ashe Windham
11 September 2018
Business Model and
Strategy
Ruffer Investment Company Limited (the “Company”) carries on
business as a closed-ended investment company. Its shares are
traded on the Main Market of the London Stock Exchange (the “LSE”).
The Company is externally managed by Ruffer AIFM Limited, a UK
investment manager authorised and regulated in the conduct of
Investment business in the United
Kingdom by the Financial Conduct authority (“FCA”). Ruffer
AIFM Limited is also the Alternative Investment Fund Manager
(“AIFM”) of the Company.
Board
The Board of Directors is responsible for the overall stewardship
of the Company, including general management, structure, finance,
corporate governance, marketing, risk management, compliance,
gearing, contracts and performance. Biographical details of the
Directors, all of whom are non-executive, are listed in the
Directors section and on the Management and Administration. The
Company has no executive directors or employees.
The Board has contractually delegated to external parties
various functions as disclosed in the Corporate Governance
Statement.
Investment Objective
The principal objective of the Company is to achieve a positive
total annual return, after all expenses, of at least twice the Bank
of England base rate.
The Bank of England raised
rates from 0.25% to 0.5% on 2 November
2017, and raised them to 0.75% on 2
August 2018. The blended average rate for the year ended 30
June was therefore 0.4%.
The Company predominantly invests in internationally listed or
quoted equities or equity related securities (including
convertibles) or bonds which are issued by corporate issuers,
supra-nationals or government organisations.
Investment Strategy
The Company’s strategy is to create a balanced portfolio of
offsetting assets which in aggregate are intended to enable the
Company to meet its Investment Objective. Over the long term the
aspiration is to produce a positive return across the market cycle.
Over shorter periods this is likely to result in the Company
lagging sharply rising equity markets, but outperforming falling
equity markets. This strategy will be implemented predominantly
through investments in listed securities, collective investment
schemes and currencies but the Manager has the flexibility to use
other asset classes should it be necessary to do so.
At present the Manager is concerned about the outlook for global
markets and has adopted a cautious stance using index-linked bonds
and gold to protect against rising inflation, while options and
illiquid strategies investments protect against falling equity and
bond markets. Cognisant of the fact that timing such events if
difficult to achieve, equity investments, selected both on a stock
specific and thematic basis, are held alongside the protective
investments in order to generate a return should the Manager’s
caution be misplaced or prove to be too early. A significant
proportion of these positions are held in Japan, which the Manager sees as offering
cheap exposure to global economic growth and the domestic reflation
story in Japan. There are also
holdings in a variety of stock specific opportunities predominantly
in the US, UK and Europe but the
Manager is not restricted to these regions.
Investment Policies
In selecting investments, the Company adopts a stock picking
approach and does not adopt any investment weightings by reference
to any benchmark. Both the Board and the Investment Manager believe
that the adoption of any index related investment style would
inhibit the ability of the Company to deliver its objective.
The Company invests across a broad range of assets, geographies
and sectors in order to achieve its objective. This allocation will
change over time to reflect the risks and opportunities identified
by the Investment Manager across global financial markets, with an
underlying focus on capital preservation. The allocation of the
portfolio between different asset classes will vary from time to
time so as to enable the Company to achieve its objective. There
are no restrictions on the geographical or sectoral exposure of the
portfolio (except those restrictions noted below).
The universe of equity, equity related securities or bonds in
which the Company may invest is wide and may include companies
domiciled in, and bonds issued by entities based in, non-European
countries, including countries that are classed as emerging or
developing. This may result in a significant exposure to currencies
other than Pound Sterling. Where appropriate, the Manager will also
use in-house funds to gain exposure to certain asset classes.
The Company may use derivatives, including (but not limited to)
futures, options, swap agreements, structured products, warrants
and forward currency contracts, for efficient portfolio management
purposes only.
Investment Restrictions and Guidelines
It is not intended for the Company to have any structural gearing.
The Company has the ability to borrow up to 30 per cent. of the NAV
at any time for short term or temporary purposes, as may be
necessary for settlement of transactions, to facilitate share
redemption or to meet ongoing expenses.
The proportion of the portfolio invested into companies based in
emerging or developing countries will be limited, at the time of
any investment, to below 15 per cent. of the Company’s gross
assets.
The Directors have determined that the Company will not engage
in currency hedging except where the Investment Manager considers
such hedging to be in the interests of efficient portfolio
management.
The Directors have determined that not more than 10 per cent, in
aggregate, of the value of the gross assets of the Company at the
time of the acquisition may be invested in other UK listed
investment companies (including UK listed investment trusts) except
that this restriction does not apply to investments in such
entities which themselves have stated investment policies to invest
no more than 15 per cent. of their gross assets in other UK listed
investment companies (including listed investment trusts).
Regardless of the above restriction, the Directors have further
determined that no more than 15 per cent. in aggregate of the
Company’s gross assets will be invested in listed investment
companies (including listed investment trusts).
General
In accordance with the requirements of the United Kingdom Financial
Conduct Authority (the “FCA”), any material changes in the
Investment Policies and Objectives of the Company may only be made
with the approval of shareholders.
Investment of Assets
At each quarterly Board meeting, the Board receives a detailed
presentation from the Company’s Investment Manager which includes a
review of investment performance, recent portfolio activity and a
market outlook. It also considers compliance with the Investment
Policies and other investment restrictions during the reporting
year. The Company’s Top Ten holdings and Portfolio Statement are
presented after Investment Manager's Report and Notes to the
Financial Statements, respectively.
Environmental Policy
LSE listing rules require most companies to disclose their
Environmental Policy. However, due to the nature of its operations,
the Company is exempt from this obligation. Ruffer AIFM Limited’s
Environmental, Social and Governance Policy is available upon
request from the Investment Manager.
Shareholder Value
The Board reviews on an ongoing basis the performance of the
Investment Manager and considers whether the investment strategy
utilised is likely to achieve the Company’s investment objective of
realising a positive total annual return, after all expenses, of at
least twice the return of the Bank of England base rate. Having considered the
portfolio performance and investment strategy, the Board has
unanimously agreed that the interests of the shareholders as a
whole are best served by the continuing appointment of the
Investment Manager on the terms agreed.
Principal Risks and Uncertainties and their
Management
The Board has undertaken a robust assessment of the principal risks
facing the Company and has undertaken a detailed review of the
effectiveness of the risk management and internal control
systems. As stated within the Report of the Audit and Risk
Committee, the Board, with the assistance of the Administrator and
the Investment Manager, has drawn up a risk assessment matrix,
which identifies the key risks to the Company. The principal risks
and uncertainties faced by the Company, which are unchanged from
the previous year, and the mitigating factors adopted by the
Company are summarised below.
- Investment Risks: The Company is exposed to the risk
that its portfolio fails to perform in line with the Company's
objectives. The Board reviews reports from the Investment Manager
at each quarterly Board meeting, paying particular attention to the
diversification of the portfolio and to the performance and
volatility of underlying investments;
- Operational Risks: The Company is exposed to the risks
arising from any failure of systems and controls in the operations
of the Investment Manager or the Administrator. The Board receives
reports annually from the Investment Manager and Administrator on
their internal controls and reviews pricing reports covering the
valuations of underlying investments at each quarterly Board
meeting;
- Accounting, Legal and Regulatory Risks: The Company is
exposed to risk if it fails to comply with the regulations of the
UK Listing Authority or the Guernsey Financial Services Commission
or if it fails to maintain accurate accounting records. The
Administrator provides the Board with regular reports on changes in
regulations and accounting requirements; and
- Financial Risks: The financial risks faced by the
Company include market, credit and liquidity risk. These risks and
the controls in place to mitigate them are reviewed at each
quarterly Board meeting. Further details on financial risks are
discussed in note 19 of the Financial Statements.
The Board seeks to mitigate and manage these risks through
continual review, policy-setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company’s portfolio.
Long Term Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance
Code, (the “Code”), the Directors have assessed the prospects of
the Company over a longer period than the 12 months minimum
required by the ‘Going Concern’ provision. For the purposes of this
statement having regard to the economic planning cycle and the
Company’s strategy review period, the Board has adopted a three
year viability period.
In its assessment of the Company’s viability over the three year
period the Board has considered each of the Company’s principal
risks detailed in note 19 and in particular the impact of a
significant fall in the value of the Company’s investment
portfolio.
The Directors consider that a 30% fall in the value in the
Company’s portfolio would be significant but would have little
impact on the Company’s ability to continue in operation over the
next three years. In reaching this conclusion, the Directors
considered the Company’s expenditure projections, the fact that the
Company currently has no borrowing, but has the ability to borrow
up to 30% of its NAV and that the Company’s investments comprise
predominantly readily realisable securities which can be expected
to be sold to meet funding requirements if necessary, assuming
market liquidity continues.
Also, the Board has assumed that the regulatory and fiscal
regimes under which the Company operates will continue in broadly
the same form during the viability period. The Board speaks with
its broker and legal advisers on a regular basis to understand
issues impacting on the Company's regulatory and fiscal structure.
The Administrator also monitors changes to regulations and advises
the Board as necessary. The Board also has access to the
Administrator’s compliance resources as well as visiting the
compliance department of the AIFM regularly.
Based on the Company’s processes for monitoring operating costs,
share discount, internal controls, the Investment Manager’s
performance in relation to the investment objective, the portfolio
risk profile, liquidity risk and the robust assessment of the
principal risks and uncertainties facing the Company, the Board has
concluded that there is a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the three year period.
Key Performance Indicators
The Board uses a number of performance measures to assess the
Company’s success in meeting its objectives. The key performance
indicators are disclosed in detail in the Key Performance
Indicators section.
Investment
Manager’s Report
Performance Review
The Chairman’s Review has already provided the headline numbers. At
the date of the last Annual Report the Company was showing a
healthy 12 month return of 8.8% from a defensively positioned
portfolio. This year with a similarly defensive portfolio we have
virtually flat-lined. While this is in line with the target return
and achieves the primary objective of capital preservation we would
like to be compounding at a higher rate over the long term - closer
to the annualised return since inception in 2004 of 7.8%. When we
compare the breakdown of returns in the last two years there was a
similar cost to the Company’s protective investments, but the
difference is in the returns made in the equity book. In the last
12 months our contrarian stance on UK equities was a bright spot
contributing 238 basis points per share (“bps”), but our focus on
cyclical and value stocks elsewhere was not rewarded; US equities
contributed 76 bps and Japan and
Europe 45 bps each. Index-linked
bonds and gold made small positive contributions (44 bps and 17 bps
respectively). That left the dragging anchors of option protection
(-213 bps) and the illiquid strategies vehicles (-56 bps). We do
not bemoan the cost of these insurance policies (indeed in a world
where the rising tide of low interest rates and stimulative
monetary policy has floated all boats, such negatively correlated
assets are invaluable).
Current Asset Allocation
Shareholders often ask how we put the Company’s portfolio together
given that we are benchmark agnostic and therefore genuinely start
with a blank canvas rather than having to look over our shoulder at
the composition of a comparator. We choose to start with our
primary objective – namely to protect shareholders’ capital come
what may. However, we will place their capital at risk in order to
achieve a rate of return ahead of the riskless alternative of cash.
As such, we consider the risks and the likelihood of each risk
materialising. It is not desirable to try to protect against all
possible eventualities or we would end up making no excess return
over cash. For example, if we were to try to protect against a
deflationary slump at present it would mean buying expensive
conventional bonds where the potential downside exceeds the likely
upside in a scenario which we think has a low probability of
actually occurring. Some risks will be to the upside – if
protection is held against a sharp fall in equity markets and the
market keeps rising then clearly our protection will be a cost to
shareholders. This means that we will hold equities to capture some
of that upside. Many investment houses think that equities are the
only place to be whereas we see them as one weapon in a multi-asset
armoury. Our underweight position compared to others can make us
appear to be permanently bearish on equities but this is not the
case; the 41% position we hold in equities has ability to make or
lose a lot of money. It is an asset class to be used judiciously.
Typically we will look for undervalued companies where there is a
catalyst for change or the stock fits in with our macro view. For
example, Japanese life assurers are much cheaper than their western
counterparts, will participate in rising global equity markets and
will be beneficiaries of Abe and Kuroda’s reflationary
policies.
Given that every investment contains an element of risk, the key
to being a successful absolute return investor is either to ensure
that one is always right (I am afraid that we have yet to master
this trick) or find assets that will genuinely move in different
directions. A lot of investors claim to hold diversified
portfolios, but we fear that in an environment of rising bond
yields and falling equity markets (yes, this can happen) that those
alternative income stocks, overvalued defensive equities and
infrastructure products will prove to be positively correlated. If
you are keeping pace with a rising market on the way up then it is
highly likely that you will do so on the way down as
well.
So to return to the blank canvas, rather than saying ‘Should we
have x% or y% in a certain sector?’ or ‘How can we afford not to
hold x and y?’ we ask the questions ‘Do we have to hold these
positions at all?’, ‘What do they contribute to the portfolio as a
whole?’ and ‘Under what circumstances could such an investment hurt
us?’
The final spoke in the wheel is market timing and we do not
profess to have any advantage over others in this respect. It is
the hardest part of investing, but if the above logic is
successfully applied then it should become less relevant; we are
not concerned about eking out every last cent of a bull market – it
is better to have our positions in place ahead of time and lag on
the way up than have a beta of one on the way down. It is a
philosophy that has served us well over the last 24 years.
Current Portfolio Construction
How does this logic translate into today’s asset allocation in the
Company? Index-linked bonds (31% split between UK linkers and US
Treasury Inflation Index Bonds or “TIPS”) are a key part of the
armoury in protecting shareholders from what we consider to be the
inevitable denouement for an over-indebted western society –
inflation well above the level of nominal interest rates. Gold (5%)
also has a role to play here if currency debasement forms part of
that inflationary ‘solution’. Japanese equities (16%) benefit from
both global economic growth, a domestic recovery story being
trumpeted by Prime Minister Abe and it is also one of the only
economies which would truly benefit from rising inflation.
Importantly, these opportunities can also be captured at reasonable
valuations in Japan as it remains
out of favour with western investors. The Company’s UK, US and
European equities (24%) are a blend of special situations (stocks
which we think offer an interesting risk/reward trade-off
regardless of wider economic conditions) and beneficiaries of
rising bond yields – something that would hurt other parts of the
portfolio. These positions effectively buy us time – if we are
right about our outlook for the global economy but too early, then
they will generate a return for us in the meantime. Currencies have
an important role to play. The default position is to maintain a
large weighting to the Company’s base currency (sterling) but we
currently hold 17% in the dollar and 5% in the yen which should
offer protection against a UK specific event or a wider economic
crisis. Finally, there are the straight protective investments in
the option book (1%), which protects against rising bond yields and
falling equity markets and the illiquid strategies investments (5%)
protecting against a dislocation in credit markets or rising
volatility.
Investment Outlook
It is safe to say that we are worried about the outlook for
markets. The 10% fall in global equities at the start of February
gave investors a peek under the curtain at some of the worrying
technical dynamics in global markets. High valuations in many areas
are justified only by the cheap cost of money and so any news which
will lead to bond yields rising faster than expected (for example
wage growth, inflation or widening credit spreads) undermines this
position. At the same time liquidity in financial markets has been
greatly reduced by structural changes brought about by regulation
since the financial crisis. This need not be the catalyst for a
crisis, but it means that markets are more crash prone - limited
liquidity will amplify market moves. This is not helped by the
exponential growth of unthinking passive vehicles (aka Exchange
Traded Funds), which create virtuous circles on the way up, but
vicious ones on the way down. Huge debt issuance by low grade
corporates and sovereigns and a general hunger for yield at any
price has created products where there is a mismatch between the
liquidity of the vehicles in which the credit instruments are held
(they typically promise daily or weekly dealing opportunities) and
the underlying assets, which may not trade at all on a weekly
basis. Finally, there are perversities in the trading of
volatility. For the last 10 years investors have been encouraged to
sell volatility because at the first sign of trouble the world’s
central banks have moved swiftly to calm investors’ nerves. On top
of this volatility has become both an output and an input of the
investment process. Most risk models have volatility at their core
and so low volatility acts as a signal to leverage up and buy.
February briefly showed how this can create distortions, which
unwind very quickly when the wind changes. We took some profits in
our volatility call options in early February, but we maintain the
view that these events were likely a tremor before the
earthquake.
This all makes for chastening reading, but we feel that these
risks are immediate enough to warrant taking positive action now
and we would be doing our investors a disservice to ignore them in
the hope of capturing the final hoorah in a long-in-the-tooth bull
market. Our belief is that the protective investments in the
Company will carry us through the next crisis but, given that we do
not know its timing, the equity book has an important role to play
to allow us to generate a return for shareholders if these events
prove to be some way off.
Ruffer AIFM Limited
11 September 2018
Top Ten
Holdings
|
|
|
Fair |
%
of |
|
|
Holding at |
Value |
Total
Net |
Investments |
Currency |
30.06.18 |
£ |
Assets |
|
|
|
|
|
UK Index-Linked Gilt
0.375% 22/03/2062 |
GBP |
8,700,000 |
22,815,776 |
5.63 |
UK Index-Linked Gilt
0.125% 22/03/2068 |
GBP |
8,200,000 |
21,179,739 |
5.21 |
Ruffer Illiquid Multi
Strategies Fund 2015* |
GBP |
31,639,824 |
20,989,004 |
5.16 |
LF Ruffer Gold
Fund** |
GBP |
13,054,495 |
20,649,601 |
5.08 |
US Treasury Inflation
Indexed Bond 0.625% 15/07/2021 |
USD |
19,350,000 |
16,355,534 |
4.03 |
UK Index-Linked Gilt
1.875% 22/11/2022 |
GBP |
9,710,000 |
15,619,933 |
3.84 |
UK Treasury Bill 0.00%
24/09/2018 |
GBP |
15,000,000 |
14,980,110 |
3.69 |
US Treasury Inflation
Indexed Bond 0.125% 15/01/2023 |
USD |
17,500,000 |
14,066,804 |
3.46 |
US Treasury Inflation
Indexed Bond 0.375% 15/07/2023 |
USD |
17,000,000 |
13,738,314 |
3.38 |
US Treasury Inflation
Indexed Bond 1.125% 15/01/2021 |
USD |
13,500,000 |
11,864,883 |
2.92 |
* Ruffer Illiquid Multi Strategies Fund 2015
Ltd is classed as a related party as it shares the same Investment
Manager as the Company.
**
LF Ruffer Gold Fund is classed as a related party because its
investment manager, Ruffer LLP, is the parent company of the
Company’s Investment Manager.
Directors
At the date of this report, the Company has five non-executive
Directors, all of whom are independent.
Ashe Windham, CVO, aged 61 and a resident of the
United Kingdom. He joined Barclays
de Zoete Wedd (‘‘BZW’’) in 1987 as an institutional equities
salesman and was appointed a Director of BZW’s Equities Division in
1991. He joined Credit Suisse First Boston in 1997 when they
acquired BZW’s equities business. In 2004 he joined Man Investments
as Head of Internal Communications and in 2007 became Man Group’s
Global Head of Internal Communications. In June 2009 he resigned from Man Group plc to set
up a private family office. He is a non-executive Director of EFG
Asset Management (UK) Ltd and a non-executive Director of Miton UK
MicroCap Trust Plc. Mr Windham was appointed to the Board on
24 February 2009.
John V Baldwin, aged 68 and a resident of
Italy. After taking a Master's
Degree in Asian Studies at Yale
University, he joined Robert
Fleming & Co. in 1983 as an investment analyst trainee.
In 1984 he was seconded to the Tokyo Branch of Jardine Fleming as an investment analyst, where
he continued in various roles for 16 years, the final five as a
Director of Jardine Fleming Securities (Asia) and Tokyo Branch Manager. The first foreigner
appointed Member Governor of the Tokyo Stock Exchange, he also
served on various committees of the Japan Securities Dealers
Association. In 2001 he retired from successor firm JPMorgan Chase
after serving as Head of Japanese Cash Equities. Mr Baldwin was
appointed to the Board on 24 February
2011.
Christopher
Russell, aged 69 and a resident of Guernsey, is a
non-executive director of investment and financial companies in the
UK, Hong Kong and Guernsey. These
include being chairman of London
main board listed companies such as F&C Commercial Property
Trust Limited and Macau Property Opportunities Fund Limited and a
director of HICL Infrastructure Company Ltd. Chris was formerly a
director of Gartmore Investment Management plc, where he was Head
of Gartmore’s businesses in the US and Japan. Before that he was a holding board
director of the Jardine Fleming Group in Asia (Hong
Kong and Japan). Prior to
joining Flemings in London, he was
with Phillips & Drew Asset Management. He is a Fellow of the UK
Society of Investment Professionals and a Fellow of the Institute
of Chartered Accountants in England and Wales. He was commissioned by John Wiley to
publish in 2006 ‘Trustee Investment Strategy for Endowments and
Foundations’. Mr. Russell was appointed to the Board on
1 December 2016.
Jill May, aged 57
and a resident of the United
Kingdom, has 25 years’ experience in investment banking, 13
years in M&A with S.G. Warburg & Co. Ltd. and 12 years as a
Managing Director at UBS, focused on group strategy and
organisational change. She sits on the board of the Institute of
Chartered Accountants in England
and Wales (“ICAEW”). She has broad
knowledge of investment banking, asset management and private
banking in the UK and EMEA. She was a Non-Executive Director of the
CMA from its inception in 2013 until October
2016. She is a Non-Executive Director of JP Morgan
Claverhouse, a UK listed investment trust, and of Sirius Real
Estate. As of 23 July 2018, she
became an External Member of the Prudential Regulation Committee of
the Bank of England. Ms. May was
appointed to the Board on 17 March
2017.
David Staples, aged
61 and a resident of Guernsey, is a fellow of the Institute of
Chartered Accountants in England
and Wales and an associate of the
Chartered Institute of Taxation. He also holds the Institute of
Directors Diploma in Company Direction and has been granted a
personal fiduciary license by the Guernsey Financial Services
Commission. For thirteen years until 2003, Mr Staples was a partner
with PricewaterhouseCoopers (“PwC”) and led the tax practice in the
South East of England advising
several large family and owner-managed businesses. He was also a
member of the management board of the firm’s London and South East Middle Markets Tax
Practice. Since leaving PwC, Mr Staples has joined the boards of
several listed companies as a non-executive director. He was, until
recently chairman of MedicX Fund Limited and is currently a
director of NB Global Floating Rate Income Fund Limited and
Henderson Far East Income Limited, both of which are listed on the
London Stock Exchange, and of Global Fixed Income Realisation
Limited which is listed on the Irish Stock Exchange. His other
appointments include directorships of the general partners of five
private equity funds advised by Apax Partners. Mr Staples was
appointed to the Board on 2 March 2018.
Report of the
Directors
The Directors of the Company present the audited Financial
Statements and their report for the year ended 30 June 2018 which have been prepared in
accordance with the Companies (Guernsey) Law, 2008 (the “Company
Law”).
Registration
The Company was incorporated with limited liability in Guernsey on
1 June 2004 as a company limited by
shares and as an authorised closed-ended investment company. As an
existing closed-ended fund the Company is deemed to be granted an
authorised declaration in accordance with section 8 of the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended and rule 6.02 of the Authorised Closed-ended Investment
Schemes Rules 2008.
Principal Activity and Investment Objective
The Company is a Guernsey authorised closed-ended investment
company with a premium listing on the London Stock Exchange. The
principal objective of the Company is detailed in the Business
Model and Strategy section of the Financial Statements.
Going Concern
The Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the Financial Statements since
the assets of the Company consist mainly of securities which are
readily realisable and, accordingly, the Company has adequate
financial resources to continue in operational existence for the
foreseeable future. Factors regarding the going concern basis are
also discussed in the Long Term Viability Statement and note
2(c).
Blocklisting Facility
The blocklisting facility is set out in note 13.
Purchase of Own Shares by the Company
The Company may purchase, subject to various terms as set out in
its Articles and in accordance with the Companies (Guernsey) Law,
2008, up to 14.99 per cent. of the Company’s shares in issue
following the admission of shares trading on the LSE’s market for
listed securities. For additional information refer to note 21.
The Company did not buy back any shares during the year
(30 June 2017: Nil).
The Board also has the discretion to operate the Redemption
Facility, offering shareholders the possibility of redeeming all or
part of their shareholding for cash at NAV, if it appears
appropriate to do so.
Results and Dividends
The results for the year are set out in the Statement of
Comprehensive Income. Details of dividends paid and proposed are
set out in note 5.
Subsequent Events
Events occurring after the balance sheet date are disclosed in note
21 in the Financial Statements.
Shareholder Information
The Company announces its unaudited NAV on a weekly basis and at
the month end. A monthly report on investment performance is
published by the Company’s Investment Manager, on the Investment
Manager’s website, www.ruffer.co.uk.
Investment Management
The key terms of the Investment Management Agreement and
specifically the fee charged by the Investment Manager are set out
in notes 8 and 17 of the Financial Statements. The Board believes
that the investment management fee is competitive with other
investment companies with similar investment mandates.
The Board reviews on an ongoing basis the performance of the
Investment Manager and considers whether the investment strategy
utilised is likely to achieve the Company’s investment objective of
realising a positive total annual return, after all expenses, of at
least twice the return of the Bank of England base rate.
In accordance with Listing Rule 15.6.2 (2) R and having formally
appraised the performance, investment strategy and resources of the
Investment Manager, the Board has unanimously agreed that the
interests of the shareholders as a whole are best served by the
continuing appointment of the Investment Manager on the terms
agreed.
The Investment Management Agreement will continue in force until
terminated by the Investment Manager or the Company giving to the
other party thereto not less than 12 months’ notice in writing.
Directors
The details of the Directors of the Company during the year and at
the date of this Report are set out in the Directors section and on
the Management and Administration summary.
Directors’ Interests
The details of the number of redeemable participating preference
shares held beneficially by the Directors who held office at
30 June 2018 and up to the date of this Report are set out on
in note 16.
Substantial Share Interests
As at 7 June 2018*, the Company has received notifications in
accordance with the FCA’s Disclosure and Transparency Rule 5.1.2 R
of the following interests in 3% or more of the voting rights
attaching to the Company’s issued shares.
Investor |
Shares
held |
% of
issued share capital |
Brewin Dolphin,
stockbrokers |
14,204,244 |
8.02 |
Alliance Trust
Savings |
10,670,397 |
6.03 |
Tilney |
8,448,731 |
4.77 |
Hargreaves Lansdown,
stockbrokers (EO) |
7,996,894 |
4.52 |
Charles Stanley |
7,050,237 |
3.98 |
Ruffer |
6,781,199 |
3.83 |
Rathbones |
6,657,914 |
3.76 |
Cazenove Capital
Management |
6,159,910 |
3.48 |
Rossie House
Investment Management |
5,522,309 |
3.12 |
*Data is taken from the latest available Share Register Analysis
produced by Richard Davies Investor
Relations Limited.
International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the
Company registered with the US Internal
evenue Service (“IRS”) as a Guernsey reporting Foreign Financial
Institution (“FFI”) in June 2014,
received a Global Intermediary Identification Number
(99DLPF.99999.SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a standard developed by
the Organisation for Economic Co-operation and Development
(“OECD”) and is a global approach to the automatic exchange of tax
information. Guernsey has now adopted the CRS which came into
effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve
tax compliance that had previously applied in respect of 2014 and
2015.
The Board will take the necessary actions to ensure that the
Company is compliant with Guernsey regulations and guidance in this
regard.
The Company is committed to zero tolerance towards the
facilitation of tax evasion.
Disclosure of Information to the Independent Auditor
Each of the persons who is a Director at the date of approval of
the Financial Statements confirms that:
(1) so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
(2) each Director has taken all steps he ought to have taken as
a Director to make himself aware of any relevant audit information
and to establish that the Company's auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of the Companies
(Guernsey) Law, 2008.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and
Financial Statements in accordance with applicable Guernsey law and
regulations.
Guernsey company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union and applicable law.
Under Company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these Financial Statements, International
Accounting Standard 1 requires that directors:
- properly select and apply accounting policies;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
- make an assessment of the Company's ability to continue as a
going concern.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with Company Law. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the oversight of the
maintenance and integrity of the corporate and financial
information included on the Company’s webpage. Legislation in
Guernsey governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
Responsibility Statement
We confirm that to the best of our knowledge:
- the Financial Statements have been prepared in conformity with
IFRS as adopted by the European Union, give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company as required by DTR 4.1.12;
- the Annual Financial Report, taken as a whole, is fair,
balanced and understandable and provide the information necessary
for the shareholders to assess the Company’s performance, business
model and strategy; and
- the Annual Financial Report including information detailed in
the Chairman's Review, the Report of the Directors, the Investment
Manager's Review, the Depositary Statement and the notes to the
Financial Statements, includes a fair review of the development and
performance of the business and the position of the Company
together with a description of the principal risks and
uncertainties that it faces, as required by:
(a) DTR 4.1.8 of the Disclosure and Transparency Rules, being a
fair review of the Company business and a description of the
principal risks and uncertainties facing the Company; and
(b) DTR 4.1.11 of the Disclosure
and Transparency Rules, being an indication of important events
that have occurred since the end of the financial year and the
likely future development of the Company.
On behalf of the Board
Ashe Windham
Chairman
David Staples
Director
11 September 2018
Corporate
Governance Statement
Corporate Governance
On 1 January 2016, the Company became a member of the
Association of Investment Companies (the “AIC”) and complies with
the AIC Code of Corporate Governance (the “AIC Code”). By complying
with the AIC Code, the Company is deemed to comply with both the UK
and GFSC corporate governance codes.
To ensure ongoing compliance with these principles the Board
receives a report from the Company Secretary, at each quarterly
meeting, identifying how the Company is in compliance and
identifying any changes that might be necessary.
The AIC Code is available in the AIC’s website,
www.theaic.co.uk.
The Board, having reviewed the AIC Code, considers that it has
maintained procedures during the year ended 30 June 2018 and
up to the date of this report to ensure that it complies with the
AIC Code except as explained elsewhere in the Corporate Governance
Statement.
Guernsey Regulatory Environment
The Guernsey Financial Services Commission’s (the “Commission”)
Finance Sector GFSC Code comprises Principles and Guidance, and
provides a formal expression of good corporate practice against
which Shareholders, boards and the Commission can better assess the
governance exercised over companies in Guernsey’s finance sector.
The Commission recognises that the different nature, scale and
complexity of business will lead to differing approaches to meeting
the GFSC Code.
Role of the Board
The Board is the Company’s governing body and has overall
responsibility for maximising the Company’s success by directing
and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders,
while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board’s responsibilities
is as follows:
- statutory obligations and public disclosure;
- strategic matters and financial reporting;
- risk assessment and management including reporting compliance,
governance, monitoring and control; and
- other matters having a material effect on the Company.
The Board’s responsibilities for the Annual Report are set out
in the Statement of Directors’ Responsibilities.
The Board has contractually delegated responsibility for the
management of its investment portfolio, the arrangement of
custodial and depositary services and the provision of accounting
and company secretarial services.
The Board needs to ensure that the Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company’s
performance, business model and strategy.
In seeking to achieve this, the Directors have set out the
Company’s investment objective and policy and have explained how
the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Company
operates and set appropriate risk controls. Furthermore, throughout
the Financial Statements the Board has sought to provide further
information to enable Shareholders to have a fair, balanced and
understandable view.
Composition and Independence of the Board
The Board currently comprises five non-executive Directors. The
Directors of the Company are listed in the Directors section and on
the Management and Administration summary.
None of the Directors has a contract of service with the
Company.
The Chairman is Ashe Windham. The Chairman of the Board must be
independent for the purposes of Chapter 15 of the Listing Rules.
Ashe Windham is considered independent because he:
- has no current or historical employment with the Investment
Manager; and
- has no current directorships in any other investment funds
managed by the Investment Manager.
The Board does not consider it appropriate to appoint a Senior
Independent Director because the Board is deemed to be independent
of the Company. The Company has no employees and therefore there is
no requirement for a chief executive. The Board believes it has a
good balance of skills and experience to ensure it operates
effectively. The Chairman, Ashe Windham, is responsible for
leadership of the Board and ensuring its effectiveness.
David Staples was appointed as
Director on 2 March 2018.
The Board has engaged external companies to undertake the
investment management, administrative and custodial activities of
the Company. Documented contractual arrangements are in place with
these companies which define the areas where the Board has
delegated responsibility to them. For additional information refer
to the Corporate Governance Statement.
The Company holds a minimum of four Board meetings per year to
discuss strategy, general management, structure, finance, corporate
governance, marketing, risk management, compliance and gearing,
contracts and performance. The quarterly Board meetings are the
principal source of regular information for the Board, enabling it
to determine policy and to monitor performance, compliance and
controls but these meetings are supplemented by communication and
discussions throughout the year.
A representative of the Investment Manager, Administrator and
Company Secretary attends each Board meeting either in person or by
telephone thus enabling the Board to fully discuss and review the
Company’s operations and performance. In addition, representatives
from the Company’s Broker attend at least two Board meetings a
year. Each Director has direct access to the Investment Manager and
Company Secretary and may at the expense of the Company seek
independent professional advice on any matter.
Attendance at the Board and other meetings during the year was
as follows:
|
Board Meetings |
Audit Committee Meetings |
Management Engagement Committee Meetings |
|
Scheduled* |
Attended |
Scheduled* |
Attended |
Scheduled* |
Attended |
Ashe
Windham |
5 |
5 |
5 |
5 |
1 |
1 |
John V
Baldwin |
5 |
5 |
5 |
5 |
1 |
1 |
Sarah Evans
(resigned 31.01.18) |
3 |
3 |
3 |
3 |
N/A |
N/A |
Christopher
Russell |
5 |
5 |
5 |
5 |
1 |
1 |
Jill May |
5 |
5 |
5 |
5 |
1 |
1 |
David Staples
(appointed 02.03.18) |
1 |
1 |
1 |
1 |
1 |
1 |
*Relates to all meetings scheduled during each Director’s term
of office.
In addition to the above meetings, a number of ad-hoc meetings
were held throughout the year.
Directors’ Indemnity
Directors' and Officers’ liability insurance cover is maintained by
the Company on behalf of the Directors.
Re-election
At each AGM, all of the Directors shall retire from office and may
offer themselves for re-election.
On 1 December 2017 at the 12th AGM
of the Company, Ashe Windham, John V Baldwin and Sarah Evans retired as Directors of the Company
and being eligible had offered themselves for re-election and were
re-elected as Directors of the Company by the Shareholders.
Jill May who was appointed on
17 March 2017, and Christopher Russell who was appointed on
1 December 2016, stood for election
and were elected as Directors of the Company by the Shareholders.
Sarah Evans retired as a director in
January 2018.
The Directors may at any time appoint any person to be a
Director either to fill a casual vacancy or as an addition to the
existing Directors. Any Director so appointed shall hold office
only until, and shall be eligible for re-election at, the next
general meeting following their appointment but shall not be taken
into account in determining the Directors or the number of
Directors who are to retire by rotation at that meeting if it is an
AGM.
Board Evaluation and Succession Planning
The Directors consider how the Board functions as a whole taking
balance of skills, experience and length of service into
consideration and also reviews the individual performance of its
members on an annual basis.
To enable this evaluation to take place, the Company Secretary
circulates a detailed questionnaire plus a separate questionnaire
for the evaluation of the Chairman. The questionnaires, once
completed, are returned to the Company Secretary who collates
responses, prepares a summary and discusses the Board evaluation
with the Chairman prior to circulation to the remaining Board
members. The performance of the Chairman is evaluated by the other
Directors. On occasions, the Board may seek to employ an
independent third party to conduct a review of the Board.
The Board considers it has a breadth of experience relevant to
the Company, and the Directors believe that any changes to the
Board’s composition can be managed without undue disruption. An
induction programme is in place for all Director appointments and
was attended by David Staples on
25 April 2018. Furthermore, all the
Directors visited Ruffer LLP’s offices to meet with senior people
in the firm on 27 June 2018.
The Board is continually considering succession planning as
evidenced by the changes to the Board over the last 18 months.
The Board has also given careful consideration to the
recommendations of the Davies Report on women on boards and as
recommended in that report has reviewed its composition and
believes that it has available an appropriate range of skills and
experience. In order to extend its diversity, the Board is
committed to implementing the recommendations of the Davies Report,
if possible within the timescales proposed in the Davies Report,
and to that end will ensure that women candidates are considered
when appointments to the Board are under consideration – as indeed
has always been its practice.
Committees of the Board
The Board has established Audit and Risk and Management Engagement
Committees and approved their terms of reference, copies of which
can be obtained from the Company Secretary upon request and on the
Company’s website.
Audit and Risk Committee
The Company has established an Audit and Risk Committee, with
formally delegated duties and responsibilities within written terms
of reference. The Committee is comprised of the entire Board. The
Committee was chaired by Sarah Evans
until her resignation on 31 January
2018. Christopher Russell was
appointed as Chairman on 31 January
2018 and resigned from the position on 30 June 2018. David
Staples was appointed as Chairman on 1 July 2018. The Committee meets formally at
least three times a year and each meeting is attended by the
independent external auditor and Administrator.
The table above sets out the number of Audit Committee Meetings
held during the year ended 30 June 2018 and the number of
such meetings attended by each Audit Committee member.
A report of the Committee detailing responsibilities and
activities is presented in the Audit Committee Report.
Management Engagement Committee
The Company has established a Management Engagement Committee, with
formally delegated duties and responsibilities within written terms
of reference. The Committee is comprised of the entire Board, with
John V Baldwin appointed as Chairman. The Committee meets formally
once a year.
The principal duties of the Committee are to review the
performance of and contractual arrangements with the Investment
Manager and all other service providers to the Company (other than
the external auditor).
During the year the Committee has reviewed the services provided
by the Investment Manager as well as the other service providers
and have recommended to the Board that their continuing
appointments is in the best interests of the shareholders. The last
meeting was held on 28 June 2018.
Nomination Committee
The Board does not have a separate Nomination Committee. The Board
as a whole fulfils the function of a Nomination Committee. Any
proposals for a new Director are discussed and approved by the
Board. The Board will determine whether in future an external
search consultancy or open advertising is used in the appointments
of non-executive Directors.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate to have a Remuneration
Committee as anticipated by the UK Code because this function is
carried out as part of the regular Board business. A Remuneration
Report prepared by the Board is in the Directors’ Remuneration
Report.
Internal Control
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
and Risk Committee at its meetings and annually by the Board.
The Board is responsible for establishing and maintaining the
Company’s system of internal controls and for maintaining and
reviewing its effectiveness. The system of internal controls is
designed to manage rather than to eliminate the risk of failure to
achieve business objectives and as such can only provide
reasonable, but not absolute, assurance against material
misstatement or loss. These controls aim to ensure that assets of
the Company are safeguarded, proper accounting records are
maintained and the financial information for publication is
reliable. The Board uses a formal risk assessment matrix to
identify and monitor business risks.
The Board has contractually delegated to external parties
various functions as listed below. The duties of investment
management, administration and custody are segregated. Each of the
contracts entered into with the parties was entered into after full
and proper consideration by the Board of the quality and cost of
services offered, including the control systems in operation as far
as they relate to the affairs of the Company.
The Board considers on an ongoing basis the process for
identifying, evaluating and managing any significant risks faced by
the Company. The process includes reviewing reports from the
Company Secretary on risk control and compliance, in conjunction
with the Investment Manager’s regular reports which cover
investment performance.
- Investment and portfolio risk management is provided by Ruffer
AIFM Limited, a company authorised by the FCA.
- Administration, accounting, registrar, and company secretarial
duties are performed by Northern Trust International Fund
Administration Services (Guernsey) Limited, a company licensed and
regulated by the Guernsey Financial Services Commission.
- CREST agency functions are performed by Computershare Investor
Services (Jersey) Limited, a company licensed and regulated by the
Jersey Financial Services Commission.
- Depositary services performed by Northern Trust (Guernsey)
Limited, a company licensed and regulated by the Guernsey Financial
Services Commission.
- Custodial services are provided by Northern Trust (Guernsey)
Limited, a company licensed and regulated by the Guernsey Financial
Services Commission.
- Advisory and brokering services are provided by Canaccord
Genuity, a firm which is authorised and regulated by the FCA.
The Board reviews regularly the performance of the services
provided by these companies. The Board reviews the performance of
the Investment Manager annually by assessing the performance of the
investments, and the Investment Manager’s position against its
peers. The Board also conducts an annual visit to the offices of
the Investment Manager to review its internal control
procedures. The Board also receives and reviews quarterly
reports from the Investment Manager, Alternative Investment Manager
and Administrator. The Board also receives confirmation from the
Administrator of its capability under its Service Organisation
Controls 1 report.
In common with most investment companies, the Company does not
have an internal audit function. All of the Company’s management
functions are delegated to the Investment Manager and Administrator
which has their own internal audit and risk assessment functions.
As such, an internal audit function specific to the Company is
therefore considered unnecessary, as explained in the Audit
Committee Report.
Principal Risks and Uncertainties
Principal risks and uncertainties are disclosed in the Business
Model and Strategy section above. There have been no changes to
principal risks during the year ended 30
June 2018.
Relations with Shareholders
The Board welcomes shareholders’ views and places great importance
on communication with its shareholders. The Board receives regular
reports on the views of its shareholders from the Company’s
Corporate Broker and Investment Manager.
The Chairman and other Directors are available to meet
shareholders if required and the AGM of the Company provides a
forum for shareholders to meet and discuss issues with the
Directors of the Company.
In recent years the Board has also held a meeting in
London with major investors to
discuss any issues they may have.
In addition, the Investment Manager maintains a website which
contains comprehensive information, including financial reports,
prospectus and monthly reports on investment performance which
contains share price information, investment objectives, investment
reports and investor contacts.
Going Concern
The going concern assumption is disclosed in the Report of the
Directors.
Directors’
Remuneration Report
Introduction
An ordinary resolution for the approval of the annual remuneration
report was put to the shareholders at the AGM held on 1 December 2017.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors’ remuneration. No advice or services were
provided by any external person in respect of its consideration of
the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairs of the Board
and the Audit and Risk Committee are paid a higher fee in
recognition of their additional responsibilities. The policy is to
review fee rates periodically, although such a review will not
necessarily result in any changes to the rates, and account is
taken of fees paid to directors of comparable companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. Directors hold office
until they retire by rotation or cease to be a director in
accordance with the Articles of Incorporation, by operation of law
or until they resign.
Remuneration
The Directors of the Company are remunerated for their services at
such a rate as the Directors determine provided that the aggregate
amount of such fees does not exceed £200,000 (30 June 2017: £200,000) per annum.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. No Directors have been paid
additional remuneration outside their normal Directors’ fees and
expenses. The annual fees payable to each director are shown
below:
|
|
|
30.06.18 |
30.06.17 |
|
|
|
£ |
£ |
Ashe Windham |
|
|
39,500 |
38,000 |
Sarah
Evans (resigned 31 January 2018) |
- |
31,000 |
John Baldwin |
|
|
28,000 |
27,000 |
Christopher
Russell |
|
|
28,000 |
27,000 |
Jill May |
|
|
28,000 |
27,000 |
David
Staples (appointed 2 March 2018) |
32,000 |
- |
|
|
|
155,500 |
150,000 |
During the year ended 30 June 2018, Directors’ fees of
£149,417 (30 June 2017: £140,677)
were charged to the Company of which £nil remained payable at the
year end (30 June 2017: £38,482).
Audit and Risk
Committee Report
We present the Audit and Risk Committee’s Report for the year
ended 30 June 2018, setting out the
responsibilities of the Committee and its key activities for the
year from 1 July 2017 to 30 June 2018. As in previous years, the Committee
has reviewed the Company's financial reporting, the independence
and effectiveness of the external auditor and the internal control
and risk management systems of service providers. In order to
assist the Committee in discharging these responsibilities, regular
reports are received from the Investment Manager, Administrator and
external auditor.
Members of the Committee will continue to be available at each
AGM to respond to any shareholder questions on its activities of
the and reports.
Responsibilities
The Committee reviews and recommends to the Board the Financial
Statements of the Company and is the forum through which the
external auditor reports to the Board of Directors.
The role of the Committee includes:
- monitoring and reporting to the Board on such matters as the
integrity of the Financial Statements of the Company and any formal
announcements relating to the Company’s financial performance, and
any significant financial reporting judgements;
- considering the appropriateness of accounting policies and
practices including critical estimates and judgement areas;
- reviewing and considering the UK Code and FRC Guidance on Audit
Committees;
- monitoring and reviewing the quality, effectiveness and
independence of the external auditor and the effectiveness of the
audit process considering and making recommendations to the Board
on the appointment, re-appointment, replacement and remuneration of
the Company's external auditor;
- reviewing the Company's procedures for prevention, detection
and reporting of fraud, bribery and corruption;
- monitoring and reviewing the internal control and risk
management systems of the service providers; and
- considering the need for an internal audit function.
The Committee’s full terms of reference are available in the
Investment Manager’s website, www.ruffer.co.uk.
Key Activities of the Committee
The following sections discuss the assessments made by the
Committee during the year:
Financial Reporting - The Committee's review of the Unaudited
Half Yearly Financial Report, Unaudited Results Announcement and
Annual Report and audited Financial Statements focused on the
significant risk relating to the valuation and ownership of
investments. The investments comprise the majority of the Company’s
NAV and hence form part of the Key Performance Indicator (“KPI”)
NAV per share. Hence any significant error in valuation or
overstatement of holdings could significantly impact the NAV and
hence the reported NAV per share of the Company.
Valuation of Investments - The Company’s investments had a fair
value of £358,668,270 as at 30 June
2018 (30 June 2017:
£346,628,281) and represented the majority of the net assets of the
Company. The investments are predominantly listed except for
investments in unlisted investment funds.
The valuation of investments is in accordance with the
requirements of IFRS. The Committee considered the fair value of
the investments held by the Company as at 30
June 2018 to be reasonable based on information
provided by the Investment Manager and Administrator. All prices
are confirmed to independent pricing sources as at 30 June 2018 by the Administrator and are subject
to review process at the Administrator and oversight at the
Investment Manager. The external auditor also performed extensive
testing of the valuations and did not report any differences in the
valuations used by the Company and those used by the auditor in
testing.
Ownership of Investments - The Company’s investment holdings are
reconciled to independent reports from the Custodian by the
Administrator with any discrepancies being fully investigated and
reconciled by the Administrator. The Committee satisfied itself,
based on reviews of information provided by the Custodian,
Depositary, Administrator, and independent auditor that the
holdings of investments are correctly recorded.
Dividend Income and Realised and Unrealised Gains and Losses on
investments - The Committee discussed with the independent auditor
the risk that these items may be materially mis-stated and which
may therefore impact the reporting of the performance of the
Company in any accounting period. The Committee is satisfied that
the controls around the recording and calculations for these items
are sufficiently robust to satisfactorily mitigate this risk. The
independent auditor performed certain tests around the calculations
and controls (refer to Independent Auditor’s Report) and had no
exceptions to report.
Risk Management - The Committee considered the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk assessment matrix, were reviewed and approved by the
Committee. Regular reports are received from the Investment Manager
and Administrator on the Company’s risk evaluation process and
reviews. Refer to the Business Model and Strategy section for
details on principal risks and uncertainties and their
management. Financial risks faced by the Company are
discussed in note 19 of the Financial Statements.
The Company’s AIFM, Ruffer AIFM Limited has responsibilities in
law in relation to risk management under the AIFMD.
Fraud, Bribery and Corruption - The Committee continues to
monitor the fraud, bribery and corruption policies of the Company.
The Board receives a confirmation from all service providers that
there have been no instances of fraud, bribery or corruption.
The External Auditor - In March
2015 the Board entered into a competitive audit tender
process and Deloitte LLP was appointed as the Company’s new
auditor, replacing Moore Stephens, who had been the external
auditor from the date of the initial listing on the LSE.
Independence, Objectivity and Fees - The independence and
objectivity of the external auditor is reviewed by the Committee
which also reviews the terms under which the external auditor is
appointed to perform non-audit services. The Committee has
established pre-approval policies and procedures for the engagement
of Deloitte LLP to provide audit, assurance and tax services. These
are that the external auditor may not provide a service which:
- places them in a position to audit their own work;
- creates a mutuality of interest;
- results in the external auditor developing close relationships
with service providers of the Company;
- results in the external auditor functioning as a manager or
employee of the Company; or
- puts the external auditor in the role of advocate of the
Company.
As a general rule, the Company does not utilise the external
auditor for internal audit purposes, secondments or valuation
advice. Services which are in the nature of audit, such as tax
compliance, tax structuring, private letter rulings, accounting
advice, quarterly reviews and disclosure advice are normally
permitted but must be pre-approved where individual fees are likely
to be above the audit fees.
The following table summarises the remuneration paid to the
auditor for audit and non-audit services during the years ended
30 June 2018 and 2017:
|
|
30.06.18 |
|
30.06.17 |
|
|
£ |
|
£ |
Statutory Audit |
|
32,500 |
|
31,500 |
Total Audit fees |
|
32,500 |
|
31,500 |
|
|
|
|
|
Interim Review |
|
8,400 |
|
8,400 |
Total non-audit related
fees |
|
8,400 |
|
8,400 |
No tax services were provided during the year.
In line with the policies and procedures above, the Committee
does not consider that the provision of these non-audit services to
be a threat to the objectivity and independence of the independent
auditor.
Deloitte LLP also has safeguards in place to ensure objectivity
and independence.
When considering the effectiveness and independence of the
external auditor, and the effectiveness of the audit process, the
Committee meets regularly with the external auditors to discuss the
audit plan and the scope of the audit. The Committee also
takes account of factors such as:
- The audit plan presented to them before each audit;
- The post audit report including variations from the original
plan;
- Changes in audit personnel;
- The external auditor’s own internal procedures to identify
threats to independence; and
- Feedback from both the Investment Manager and Administrator
evaluating the performance of the team.
The Committee has examined the scope and results of the audit,
its cost effectiveness and the independence and objectivity of the
external auditor, with particular regard to non-audit fees, and is
satisfied that an effective audit has been completed with diligence
and professional scepticism, that the scope of the audit was
appropriate and significant judgements have been challenged
robustly. It also considers Deloitte LLP, as external auditor, to
be independent of the Company.
Re-appointment of the external auditor - At the AGM held on
1 December 2017, Deloitte LLP was re-appointed as the
Company’s external auditor.
Internal Control and Risk Management Systems
The Committee discussed with the external auditor the risk of
misstatement in the Financial Statements arising from the potential
for the Company’s key service providers, the Investment Manager and
Administrator, to override controls.
At each quarterly Board meeting, compliance reports are provided
by the Administrator, Company Secretary and Investment Manager. The
Board also receives confirmation from the Administrator of its
capability under its Service Organisation Controls 1 report. No
significant failings or weaknesses were identified in these reports
and the independent auditor also reported that their testing
revealed no instances where management had overridden controls.
The Committee has also reviewed the need for an internal audit
function. The Committee is satisfied that the systems and
procedures employed by the Investment Manager and the
Administrator, including their internal audit functions, provide
sufficient assurance that a sound system of internal control, which
safeguards the Company’s assets, is maintained. An internal audit
function specific to the Company is therefore considered
unnecessary.
For any questions on the activities of the Committee not
addressed in the foregoing, members of the Committee will attend
each AGM to respond to such questions.
In finalising the Financial Statements for recommendation to the
Board for approval, the Committee has satisfied itself that the
Financial Statements taken as a whole are fair, balanced and
understandable, and provide the information necessary for
shareholders to assess the Company’s performance, business model
and strategy.
David Staples
Chairman, Audit and Risk Committee
11 September 2018
Report of the Depositary to the
Shareholders of Ruffer Investment Company Limited
Northern Trust (Guernsey) Limited has been appointed as
Depositary to Ruffer Investment Company Limited (the “Company”) in
accordance with the requirements of Article 36 and Articles 21(7),
(8) and (9) of the Directive 2011/61/EU of the European Parliament
and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives
2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and
(EU) No 1095/2010 (the “AIFM Directive”).
We have enquired into the conduct of Ruffer AIFM Limited (the
“AIFM”) and the Company for the year ended 30 June 2018, in our capacity as Depositary to
the Company.
This report including the review provided below has been
prepared for and solely for the Shareholders in the Company. We do
not, in giving this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is
shown.
Our obligations as Depositary are stipulated in the relevant
provisions of the AIFM Directive and the relevant sections of
Commission Delegated Regulation (EU) No 231/2013 (collectively the
“AIFMD legislation”) and the Authorised Closed-ended Investment
Schemes Rules 2008.
Amongst these obligations is the requirement to enquire into the
conduct of the AIFM and the Company and their delegates in each
annual accounting period.
Our report shall state whether, in our view, the Company has
been managed in that period in accordance with the AIFMD
legislation. It is the overall responsibility of the AIFM and the
Company to comply with these provisions. If the AIFM, the Company
or their delegates have not so complied, we as the Depositary will
state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates are or may be involved in
other financial and professional activities which may on occasion
cause a conflict of interest with its roles with respect to the
Company. The Depositary will take reasonable care to ensure
that the performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved
fairly and any transactions between the Depositary and its
affiliates and the Company shall be carried out as if effected on
normal commercial terms negotiated at arm's length and in the best
interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable
discretion, considers necessary in order to comply with its
obligations and to ensure that, in all material respects, the
Company has been managed (i) in accordance with the limitations
imposed on its investment and borrowing powers by the provisions of
its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional
documentation and the appropriate regulations. Such reviews
vary based on the type of Fund, the assets in which a Fund invests
and the processes used, or experts required, in order to value such
assets.
Review
In our view, the Company has been managed during the period, in
all material respects:
(i) in
accordance with the limitations imposed on the investment and
borrowing powers of the Company by the constitutional documents;
and by the AIFMD legislation; and
(ii) otherwise in
accordance with the provisions of the constitutional documents; and
the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
11 September 2018
Independent
Auditor’s Report
To the Shareholders of Ruffer Investment Company Limited
Report on the audit
of the financial statements
Opinion |
In our opinion the
financial statements of Ruffer Investment Company Limited
(‘the Company’):
·
give a true and fair view of the state of the Company’s affairs
as at 30 June 2018 and of its profit for the year then
ended;
·
have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
·
have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
· the
Statement of Financial Position;
· the
Statement of Comprehensive Income;
· the
Statement of Changes in Equity;
· the
Statement of Cash Flows; and
· the
related notes 1 to 21.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union. |
Basis for opinion |
We conducted our audit
in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor’s responsibilities
for the audit of the financial statements section of our
report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s
(the ‘FRC’s’) Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion. |
Summary of our audit
approach |
Key Audit
Matters |
The key audit matters
that we identified in the current year were:
· Valuation and ownership of investments; and
· Recognition of dividend income and realised and
unrealised gains/losses on investments.
The key audit matters are similar to the prior year. |
Materiality |
The materiality we
used in the current year was £8.126 million which was determined on
the basis of Net Asset Value (NAV). This is consistent with the
prior year. |
Scoping |
The Company was audited as a single
component. Balances were scoped in for testing based on our
assessment of risk of material misstatement. As part of our risk
assessment process, we considered the impact of controls
implemented at service organisations. |
Significant changes
in our approach |
There have been no
significant changes in our approach from prior year. |
Conclusions relating
to going concern, principal risks and viability statement |
Going
concern
We have reviewed the Directors’ statement in note 2(c) to the
financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them
and their identification of any material uncertainties to the
Company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial
statements.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering
whether they were consistent with the knowledge we obtained in the
course of the audit, including the knowledge obtained in the
evaluation of the directors’ assessment of the Company’s ability to
continue as a going concern, we are required to state whether we
have anything material to add or draw attention to in relation
to:
• the
disclosures that describe the principal risks and explain how they
are being managed or mitigated;
• the
Directors’ confirmation that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity; or
• the
Directors’ explanation as to how they have assessed the prospects
of the Company, over what period they have done so and why they
consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions. |
We confirm that we have nothing material to report, add or draw
attention to in respect of these matters.
We confirm that we have nothing material to report, add or draw
attention to in respect of these matters. |
Key audit
matters |
Key audit
matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks
of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters. |
Valuation and
ownership of investments |
Key audit matter
description |
Included on the
Company’s statement of financial position as at 30 June 2018 are
investments with a fair value of £359 million (30 June 2017: £347
million) as disclosed in Note 10 to the Financial Statements. The
Company’s portfolio is made up of listed equity investments, index
linked bonds and investments in other funds. Investments are the
most quantitatively significant balance as they constitute 88% (30
June 2017: 92%) of total assets and are an area of focus because
they are the main driver of the Company’s performance and net asset
value (NAV). As explained in Note 2(e), the Company’s accounting
policy is to measure its investments at fair value. Refer to
considerations made by the audit and risk committee on valuation of
investments as discussed in the Audit and Risk Committee
Report.
The risk exists that:
· there might be errors or fraudulent
manipulation of valuations in order to report favourable key
performance indicators;
· inappropriate exchange rates are
used to convert foreign currency valuations to the Company’s
reporting currency;
· trades made immediately before the
year-end may be excluded from the valuation or conversely, trades
made immediately after the year-end may be included in the
valuation in error; and
· the Company may not have proper
legal title to the investments held. |
How the scope of our
audit responded to the key audit matter |
To test the valuation
and ownership of investments as at 30 June 2018, we performed the
following procedures:
· evaluated the design,
implementation and operating effectiveness of controls around the
valuation and ownership of investments through the review of
internal controls reports for the investment manager and
administrator;
· agreed investments held as at year
end to independently obtained custodian confirmation;
· tested the reasonableness of
exchange rates used in converting investments denominated in
currencies other than the Pound Sterling (GBP) by comparing rates
used to independent sources;
· performed detailed testing on
purchases and sales made during the year to assess the accuracy of
investment purchases and sales recorded;
· traced the unit prices of all
listed equity investments and indexed linked government bonds to
independent pricing sources; and
· traced unit prices of other
investment funds to most recently published net asset value per
share (NAV per share) and assessed the reliability of published NAV
per share by comparing the most recent audited NAV to NAV published
as at the audited year end date. |
Key
observations |
Having carried out the
procedures, we conclude that investments are appropriately valued
based on appropriate unit prices.
Investments denominated in currencies other that Pound Sterling
(GBP) have been converted to GBP at appropriate exchange rates.
We also conclude that the Company had proper legal title to
investments recorded and that investment transactions have been
accounted for in the correct accounting period. |
Recognition of
dividend income and realised and unrealised gains/losses on
investments |
Key audit matter
description
|
The significant portion
of the Company’s income emanates from:
· realised and unrealised
gains/losses on financial assets held at fair value through profit
and loss of £2.5 million (2017: £31 million);
· dividend income earned on listed
equity investments and other investment funds, amounting to £3.9
million (2017: £4 million).
As explained in Notes 6 and 2e(ii) to the financial statements,
realised and unrealised gains/losses are recognised in the
statement of comprehensive income at the point of valuation or
disposal.
Also explained in Note 2(f) to the financial statements is the
accounting policy of recognising dividend income when the Company’s
right to dividends has been established.
Inaccurate recognition of dividend income and realised and
unrealised gains/(losses) would have a material impact on income
recognition. The risk exists that inaccurate income recognition
could result in manipulation of the Company’s revenue to support
the Company’s performance.
An additional risk exists in that dividend income receivable from
investee entities might be materially understated owing to the
Company’s investment in listed equity investments from multiple
jurisdictions, and owing to the material nature of listed equity
investments relative to the entire investment portfolio. |
How the scope of
our audit responded to the key audit matter |
To test
recognition of revenue and other income earned during the financial
year, we performed the following procedures:
· evaluated the design,
implementation and operating effectiveness of controls around
revenue recognition through the review of internal controls report
for the administrator;
· testing the accuracy of costs
capitalised to investments by tracing a sample of purchases to
contract notes, custodian statements and bank statements;
· for unrealised gains/losses, we
obtained an understanding of, and then tested the valuation process
as set out in the ‘valuation and ownership of investments’ risk
above. We recalculated the valuation movements to test that these
had been appropriately recorded and classified;
· for realised gains/losses, we
tested a sample of disposals made during the year by agreeing the
proceeds to bank statements and custodian confirmations and
recalculated the realised gains/losses to test that these were
appropriately recorded and classified; and
· traced dividend income relevant to
the Company’s investment portfolio from the independent sources of
listed company dividend history to the dividend income listing
provided by the administrator. |
Key
observations
|
Having
performed the above stated procedures, we conclude that realised
and unrealised gains on investments have appropriately been
recognised.
We also conclude that dividend income recorded is complete and
accurate. |
Our application of materiality |
We define materiality as the
magnitude of misstatement in the financial statements that makes it
probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results
of our work. |
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality |
£8.126 million (30 June 2017: £7.5
million) |
Basis for determining
materiality |
2% of Net Asset Value (30 June 2017:
2%) |
Rationale for the benchmark
applied |
Our materiality is based on the net
asset value of the Company. The net asset value is the most
appropriate benchmark for determining materiality as it is the base
upon which investment related income is earned, thus it is a
significant driver of comprehensive income for the Company.
In addition, we consider the net asset value to be the most
important balance on which the shareholders would judge the
performance of the Company. |
We agreed with the Audit and Risk Committee that we would report
to the Committee all audit differences in excess of £406,300 (30
June 2017: £150,000), as well as differences below the threshold
that, in our view, warranted reporting on qualitative grounds. The
change in the reporting threshold has been made following our
reassessment of what requires communication. We also report to the
Audit and Risk Committee on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
|
An overview of the scope
of our audit |
Our audit was scoped by
obtaining an understanding of the Company and its environment,
including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material
misstatement was performed directly by the audit engagement
team.
The Company is administered by a third party Guernsey regulated
service provider. As part of our audit, we assessed the design and
implementation of relevant controls established at the service
provider. The service provider is responsible for processing of the
Company’s financial records and for company secretarial activities,
hence why we have considered the impact of design and
implementation of key controls implemented at the service
provider. |
Other
information |
The Directors are
responsible for the other information. The other information
comprises the information included in the annual report other than
the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the other
information include where we conclude that:
· Fair, balanced and
understandable – the statement given by the directors that they
consider the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the audit;
or
· Audit and risk committee
reporting – the section describing the work of the audit and
risk committee does not appropriately address matters communicated
by us to the audit and risk committee. |
We have nothing to report in
respect of these matters. |
Responsibilities of
directors |
As explained more fully
in the directors’ responsibilities statement, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company’s ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so. |
Auditor’s responsibilities for
the audit of the financial statements |
Our objectives are to
obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report. |
|
Report
on other legal and regulatory requirements
Matters on which we are required to report by exception |
Adequacy of
explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report
to you if, in our opinion:
· we have not received all the
information and explanations we require for our audit; or
· proper accounting records have not
been kept; or
· the financial statements are not in
agreement with the accounting records. |
We have nothing to report in respect of these
matters. |
Use of our report |
This report is made solely to the
Company’s members, as a body, in accordance with Section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed. |
John Clacy FCA
for and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
11 September 2018
Statement of
Financial Position
As at 30 June 2018
|
|
|
30.06.18 |
|
30.06.17 |
|
Notes |
|
£ |
|
£ |
ASSETS |
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
10 |
|
358,668,270 |
|
346,628,281 |
Current
assets |
|
|
|
|
|
Cash and cash
equivalents |
|
|
47,636,234 |
|
27,950,946 |
Derivative financial
assets |
18,
19 |
|
5,516 |
|
5,593 |
Receivables |
11 |
|
3,306,598 |
|
3,147,556 |
|
|
|
50,948,348 |
|
31,104,095 |
Total
assets |
|
|
409,616,618 |
|
377,732,376 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Capital and
reserves attributable to the |
|
|
|
|
|
Company's
shareholders |
|
|
|
|
|
Net assets
attributable to holders of redeemable |
|
|
|
|
|
participating
preference shares |
|
|
406,308,003 |
|
375,601,706 |
Total
equity |
|
|
406,308,003 |
|
375,601,706 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Payables |
12 |
|
1,545,700 |
|
1,216,265 |
Derivative financial
liabilities |
18,
19 |
|
1,762,915 |
|
914,405 |
Total
liabilities |
|
|
3,308,615 |
|
2,130,670 |
|
|
|
|
|
|
Total equity and
liabilities |
|
|
409,616,618 |
|
377,732,376 |
|
|
|
|
|
|
Net assets attributable
to holders of redeemable |
|
|
|
|
|
participating
preference shares (per share) |
14,
15 |
|
2.293 |
|
2.287 |
The Financial Statements were approved on 11 September 2018 and signed on behalf of the
Board of Directors by:
Ashe Windham
Chairman
David Staples
Director
The notes form an integral part of these Financial
Statements.
Statement of Comprehensive
Income
For the year ended 30 June
2018
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
Notes |
|
Revenue |
|
Capital |
|
Total |
|
Total |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
Fixed interest
income |
|
|
700,373 |
|
- |
|
700,373 |
|
837,590 |
Dividend income |
|
|
3,906,070 |
|
- |
|
3,906,070 |
|
3,961,697 |
Net changes in fair
value of financial assets at fair value |
|
|
|
|
|
|
|
|
|
through profit or
loss |
6 |
|
- |
|
2,541,037 |
|
2,541,037 |
|
31,261,914 |
Other
gains/(losses) |
7 |
|
- |
|
1,832,367 |
|
1,832,367 |
|
(2,418,460) |
Total
income |
|
|
4,606,443 |
|
4,373,404 |
|
8,979,847 |
|
33,642,741 |
|
|
|
|
|
|
|
|
|
|
Management fees |
8 |
|
- |
|
(3,623,672) |
|
(3,623,672) |
|
(3,368,232) |
Expenses |
9 |
|
(1,012,370) |
|
(144,199) |
|
(1,156,569) |
|
(1,080,228) |
Total
expenses |
|
|
(1,012,370) |
|
(3,767,871) |
|
(4,780,241) |
|
(4,448,460) |
|
|
|
|
|
|
|
|
|
|
Profit for the year
before tax |
|
|
3,594,073 |
|
605,533 |
|
4,199,606 |
|
29,194,281 |
Withholding tax |
|
|
(467,868) |
|
- |
|
(467,868) |
|
(423,504) |
Profit for the year
after tax |
|
|
3,126,205 |
|
605,533 |
|
3,731,738 |
|
28,770,777 |
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
for the
year |
|
|
3,126,205 |
|
605,533 |
|
3,731,738 |
|
28,770,777 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per share* |
|
|
1.83p |
|
0.35p |
|
2.18p |
|
18.14p |
* Basic and diluted earnings per share are
calculated by dividing the profit after taxation by the weighted
average number of redeemable participating preference shares. The
weighted average number of shares for the year was 171,004,924
(30 June 2017: 158,637,322).
The notes form an integral part of these Financial
Statements.
Statement of
Changes in Equity
For the year ended 30 June 2018
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Share |
Other |
01.07.17 to |
|
Notes |
|
capital |
reserves |
30.06.18 |
|
|
|
£ |
£ |
£ |
Balance at
30 June 2017 |
|
148,250,891 |
227,350,815 |
375,601,706 |
Total
comprehensive income for the year |
- |
3,731,738 |
3,731,738 |
Transactions with Shareholders: |
|
|
|
Share
capital issued |
13 |
|
30,195,000 |
- |
30,195,000 |
Share
issue costs |
13 |
|
(150,975) |
- |
(150,975) |
Distribution for the year |
5 |
|
- |
(3,069,466) |
(3,069,466) |
Balance at
30 June 2018 |
|
|
178,294,916 |
228,013,087 |
406,308,003 |
|
|
|
|
|
|
Net
Assets attributable to holders of redeemable participating
preference shares |
at the end
of the year |
|
|
|
406,308,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Share |
Other |
01.07.16 to |
|
Notes |
|
capital |
reserves |
30.06.17 |
|
|
|
£ |
£ |
£ |
Balance
at 30 June 2016 |
|
128,816,232 |
202,668,512 |
331,484,744 |
Total
comprehensive loss for the year |
- |
28,770,777 |
28,770,777 |
Transactions with Shareholders: |
|
|
|
Share capital
issued |
13 |
|
19,617,358 |
- |
19,617,358 |
Share issue
costs |
13 |
|
(182,699) |
- |
(182,699) |
Distribution for
the year |
5 |
|
- |
(4,088,474) |
(4,088,474) |
Balance at 30 June
2017 |
|
|
148,250,891 |
227,350,815 |
375,601,706 |
|
|
|
|
|
|
Net
Assets attributable to holders of redeemable participating
preference shares |
at the
end of the year |
|
|
|
375,601,706 |
Under The Companies (Guernsey) Law, 2008, the Company can
distribute dividends from capital and reserves, subject to
satisfying a solvency test.
The notes form an integral part of these Financial
Statements.
Statement of Cash Flows
For the year ended 30 June
2018
|
|
|
|
Notes |
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
£ |
|
£ |
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
Profit for the year
after tax |
|
|
|
|
|
3,731,738 |
|
28,770,777 |
Adjustments for: |
|
|
|
|
|
|
|
|
Net changes in fair
value of financial assets at fair value through profit or loss |
|
|
|
6 |
|
(2,541,037) |
|
(31,261,914) |
Decrease in investment
income, derivative financial assets and other receivables |
|
|
|
11, 19 |
|
54,678 |
|
4,117,766 |
Increase/(decrease) in
payables and derivative financial liabilities |
|
|
|
12, 19 |
|
861,380 |
|
(11,759,693) |
Exchange
losses/(gains) on cash and cash equivalents |
|
|
|
|
|
221,781 |
|
(63,590) |
Purchase of
investments |
|
|
|
|
|
(148,415,907) |
|
(146,776,819) |
Sale of
investments |
|
|
|
|
|
138,432,975 |
|
155,819,980 |
Net cash used in
operating activities |
|
|
|
|
|
(7,654,392) |
|
(1,153,493) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
|
5 |
|
(3,069,466) |
|
(4,088,474) |
Proceeds
from issue of redeemable participating preference shares |
12, 13 |
|
30,784,850 |
|
18,794,509 |
Share issue costs |
|
|
|
12,
13 |
|
(153,923) |
|
(178,585) |
Net cash generated
from financing activities |
|
|
|
|
|
27,561,461 |
|
14,527,450 |
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents |
|
|
|
|
|
19,907,069 |
|
13,373,957 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of the year |
|
|
|
|
|
27,950,946 |
|
14,513,399 |
|
|
|
|
|
|
|
|
|
Exchange (losses)/gains
on cash and cash equivalents |
|
|
|
|
|
(221,781) |
|
63,590 |
Cash and cash
equivalents at end of the year |
|
|
|
|
|
47,636,234 |
|
27,950,946 |
The notes form an integral part of these Financial
Statements.
Notes to the Financial
Statements
For the year ended 30 June
2018
1. The Company
The Company was incorporated with limited liability in Guernsey on
1 June 2004 as a company limited by
shares and as an authorised closed-ended investment company. As an
existing closed-ended fund the Company is deemed to be granted an
authorised declaration in accordance with section 8 of the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended and rule 6.02 of the Authorised Closed-ended Investment
Schemes Rules 2008. The Company is listed on the Main Market of the
London Stock Exchange (“LSE”).
2. Significant accounting policies
a) Statement
of compliance
The Financial Statements of the Company for the year ended
30 June 2018 have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union and the Listing Rules of
the London Stock Exchange in compliance with the Companies
(Guernsey) Law, 2008.
b) Basis of preparation
The Financial Statements are prepared in Pound Sterling (£), which
is the Company’s functional and presentation currency. The
Financial Statements have been prepared on a going concern basis
under the historical cost convention, as modified by the
revaluation of financial assets and financial liabilities at fair
value through profit or loss.
c) Going concern
The Directors believe that, having considered the Company’s
investment objective (see Business Model and Strategy), financial
risk management and associated risks (see note 19 to the Financial
Statements) and in view of the liquidity of investments, the income
deriving from those investments and its holding in cash and cash
equivalents, the Company has adequate financial resources and
suitable management arrangements in place to continue as a going
concern for at least twelve months from the date of approval of
these Financial Statements.
d) Standards, amendments and
interpretations that are not yet effective
The following standards and interpretations, which have not been
applied in these Financial Statements, were in issue at the
reporting date but were not yet effective:
IFRS 9 – Financial instruments: Classification and measurement
(effective date – 1 January 2018)
IFRS 15 – Revenue from Contracts with Customers (effective date
– 1 January 2018)
IFRS 16 – Leases (effective date – 1
January 2019)
The Board anticipates that the adoption of these standards
effective in a future period will not have a material impact on the
financial statements of the Company.
IFRS 9 ‘Financial Instruments’ amends IAS 39. IFRS 9 specifies
how an entity should classify and measure financial assets,
including some hybrid contracts. The standard requires all
financial assets to be classified on the basis of the entity’s
business model for managing the financial assets and the
contractual cash flow characteristics of the financial asset. There
are three principal classification categories for financial assets
which are (i) measured at amortised cost, (ii) fair value through
other comprehensive income and (iii) fair value through profit or
loss. These requirements improve and simplify the approach for
classification and measurement of financial assets compared with
the requirements of IAS 39. The standard applies a consistent
approach to classifying financial assets and replaces the numerous
categories of financial assets in IAS 39, each of which had its own
classification criteria.
Based on the Company’s initial assessment, this standard is not
expected to have a material impact on the classification and
measurement of financial assets and financial liabilities. This is
because financial instruments currently measured at fair value
through profit or loss will continue to be measured as such.
Financial assets currently measured at amortised cost are: cash
and cash equivalents, securities sold receivable and other
receivables. These instruments are solely payments of principal and
interest and will continue to be held at amortised cost under IFRS
9.
Financial liabilities currently valued at amortised cost are
accrued expenses and other payables and will continue to be
measured at amortised cost.
The standard also results in one impairment method, replacing
the numerous impairment methods in IAS 39 that arise from the
different classification.
Based on the Company’s initial assessment, changes to the
impairment model are not expected to have an impact on the
financial statements of the Company as the financial assets are
measured at fair value through profit or loss and the impairment
requirements to not apply to such instruments.
The Standard is effective 1 January
2018 and will be adopted for the year ending 30 June 2019.
IFRS 15 ‘Revenue from Contracts with Customers’ was published in
May 2016 and specifies how and when
to recognise revenue as well as requiring entities to provide users
of financial statements with more informative, relevant
disclosures. The standard provides a single, principles based
five-step model to be applied to all contracts with customers. IFRS
15 is effective for annual reporting periods beginning on or after
1 January 2018. Material revenue
streams have been reviewed and it is not anticipated that there
will be a material impact on timing of recognition or gross up for
principal/agent considerations. There will be no material impact on
the Company's financial statements as the Company does not have any
revenue from customer contracts.
IFRS 16 ‘Leases’ was published in January
2016 and specifies how to report information that faithfully
represents lease transactions and provides a basis for users of
financial statements to assess the amount, timing and uncertainty
of cash flows arising from leases. IFRS 16 is effective for annual
reporting periods beginning on or after 1
January 2019. There will be no material impact on the
Company's financial statements as the Company does not have any
leases.
e) Financial
instruments
i) Classification
Financial assets are classified into the following categories:
financial assets at fair value through profit or loss and loans and
receivables.
The classification depends on the nature and purpose of the
financial assets and is determined at the time of initial
recognition.
Financial liabilities are classified as either financial
liabilities at fair value through profit or loss or other financial
liabilities.
ii) Recognition
Investment assets at fair value
through profit or loss (“investments”)
Financial assets and derivatives are recognised in the Company’s
Statement of Financial Position when the Company becomes a party to
the contractual provisions of the instrument.
Purchases and sales of investments are recognised on the trade
date (the date on which the Company commits to purchase or sell the
investment). Investments purchased are initially recorded at fair
value, being the consideration given and excluding transaction or
other dealing costs associated with the investment.
Subsequent to initial recognition, investments are measured at
fair value. Gains and losses arising from changes in the fair value
of investments and gains and losses on investments that are sold
are recognised through profit or loss in the Statement of
Comprehensive Income within net changes in fair value of financial
assets at fair value through profit or loss.
Derivatives
Forward foreign currency contracts are treated as derivative
contracts and as such are recognised at fair value on the date on
which they are entered into and subsequently remeasured at their
fair value. Fair value is determined by rates in active currency
markets. All derivatives are carried as assets when fair value is
positive and as liabilities when fair value is negative. The gain
or loss on remeasurement to fair value is recognised immediately
through profit or loss in the Statement of Comprehensive Income
within other gains in the period in which they arise.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net
amount reported in the Statement of Financial Position if, and only
if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise assets and settle the liabilities
simultaneously.
iii) Measurement
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Investments traded in
active markets are valued at the latest available bid prices ruling
at midnight on the reporting date. The Directors are of the opinion
that the bid-market prices are the best estimate of fair value.
Gains and losses arising from changes in the fair value of
financial assets/(liabilities) are shown as net gains or losses on
financial assets through profit or loss in note 10 and recognised
in the Statement of Comprehensive Income in the period in which
they arise.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive
cash flows from the asset have expired, (b) the Company retains the
right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third
party under a “pass through arrangement”; or (c) the Company has
transferred substantially all the risks and rewards of the asset,
or has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the
asset.
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expired.
Realised and unrealised gains and losses
Realised gains and losses arising on disposal of investments are
calculated by reference to the proceeds received on disposal and
the average cost attributable to those investments, and are
recognised in the Statement of Comprehensive Income. Unrealised
gains and losses on investments are recognised in the Statement of
Comprehensive Income.
Fair value
Investments consist of listed or quoted equities or equity related
securities, options and bonds which are issued by corporate
issuers, supra-nationals or government organisations and investment
in funds.
Investments traded in active markets are valued at the latest
available bid prices ruling at midnight on the reporting date.
Shares in some investment funds are not listed on an actively
traded exchange and these are valued at the latest estimate of NAV
from the administrator of the respective investment funds as the
most recent price is the best estimate of the amount for which
holdings could have been disposed of at the reporting date.
f) Income
Dividend income from equity investments is recognised through
profit or loss in the Statement of Comprehensive Income when the
relevant investment is quoted ex-dividend. Investment income is
included gross of withholding tax. Interest income is recognised
through profit or loss in the Statement of Comprehensive Income for
all debt instruments using the effective interest rate method.
g) Expenses
Expenses are accounted for on an accruals basis. Expenses incurred
on the acquisition of financial assets at fair value through profit
or loss and management fees are charged to the Statement of
Comprehensive Income in capital. All other expenses are recognised
through profit or loss in the Statement of Comprehensive Income in
revenue.
The Company’s management fees are allocated between the capital
and revenue accounts of the Company in a ratio as decided by the
Board at its sole discretion. All other administrative expenses of
the Company are charged wholly to the revenue account. Currently
100% of the management fees are charged to capital.
h) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents
are short-term, highly liquid investments with original maturities
of three months or less and bank overdrafts.
i) Translation of foreign
currency
Functional and presentation
currency
The Financial Statements of the Company are presented in the
currency of the primary economic environment in which the Company
operates (its ‘functional currency’). The Directors have considered
the currency in which the original capital was raised,
distributions will be made and ultimately the currency in which
capital would be returned in a liquidation. On balance, the
Directors believe that Pound Sterling best represents the
functional currency of the Company. For the purpose of the
Financial Statements, the results and financial position of the
Company are expressed in Pound Sterling, which is the presentation
currency of the Company.
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the transaction
date. Foreign exchange gains and losses resulting from the
settlement of such transactions and those from the translation at
period end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
Translation differences on non-monetary items such as financial
assets held at fair value through profit or loss are reported as
part of net changes in fair value on financial assets through
profit or loss in the Statement of Comprehensive Income.
j) Share issue costs
Share issue costs are fully written off against the share capital
account in the period of the share issue.
k) Redeemable participating preference
shares
As the Company’s redeemable participating preference shares are
redeemable at the sole option of the Directors, they are required
to be classified as equity instruments.
l) Receivables
Receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as
current assets. If not, they are presented as non-current assets.
Receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method,
less provision for impairment.
m) Payables
Payables are obligations to pay for services that have been
acquired in the ordinary course of business. Payables are
classified as current liabilities if payment is due within one year
or less. If not, they are presented as non-current liabilities.
Payables are recognised initially at fair value plus any directly
attributable incremental costs of acquisition or issue and
subsequently measured at amortised cost using the effective
interest rate method.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the Financial Statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expense and the accompanying
disclosures. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future
periods.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
Judgements
In the process of applying the Company’s accounting policies,
management has made the following judgement, which has the most
significant effect on the amounts recognised in the Financial
Statements:
Functional currency
As disclosed in note 2(i), the Company’s functional currency is
Pound Sterling. Pound Sterling is the currency in which the
original capital was raised, distributions are made and ultimately
the currency in which capital would be returned in a
liquidation.
4. Taxation
The Company has been granted Exempt Status under the terms of The
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax
in Guernsey. Its liability is an annual fee of £1,200
(30 June 2017: £1,200).
The amounts disclosed as taxation in the Statement of
Comprehensive Income relates solely to withholding tax suffered at
source on income.
5. Dividends to shareholders
Dividends, if any, are declared semi-annually, usually in September
and March each year. The Company paid and declared the following
dividends during the year:
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
2017
Second interim dividend of 0.9p (2016: 1.7p) |
|
1,511,671 |
|
2,649,253 |
2018 First
interim dividend of 0.9p (2017: 0.9p) |
|
1,557,795 |
|
1,439,221 |
|
|
|
|
|
|
|
|
3,069,466 |
|
4,088,474 |
6. Net changes in financial assets at
fair value through profit or loss
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Net
changes in financial assets at fair value through profit or
loss |
|
|
during the
year comprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
realised on investments sold during the year |
|
17,651,605 |
|
43,074,315 |
Losses
realised on investments sold during the year |
|
(6,998,347) |
|
(5,640,793) |
Movement
in unrealised gains arising from changes in fair value |
19,114,854 |
|
33,740,317 |
Movement
in unrealised losses arising from changes in fair value |
(27,227,075) |
|
(39,911,925) |
Net
changes in fair value on financial assets at fair value |
|
|
through profit or
loss |
|
|
|
|
|
|
|
2,541,037 |
|
31,261,914 |
7. Other gains/(losses)
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Movement
in unrealised (losses)/gains on spot and forward foreign currency
contracts |
(848,588) |
|
7,753,101 |
Realised
gains/(losses) on spot and forward foreign currency contracts |
2,867,141 |
|
(10,185,257) |
Net
gains/(losses) on spot and forward foreign currency contracts |
2,018,553 |
|
(2,432,156) |
Other
realised and unrealised foreign exchange (losses)/gains |
(186,186) |
|
13,696 |
|
|
|
|
|
|
|
|
1,832,367 |
|
(2,418,460) |
8. Management fees
The management fees were charged to the capital reserves of the
Company.
The management fees for the year, including outstanding balances
at end of the year, are detailed below.
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Management
fees for the year |
|
|
|
3,623,672 |
|
3,368,232 |
|
|
|
|
|
|
|
|
|
|
|
Payable at
end of the year |
|
|
|
|
|
298,185 |
|
288,681 |
The basis for calculating the management fees is set out in the
General Information section.
9. Expenses
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Administration
fee* |
|
|
|
|
|
|
|
439,031 |
|
410,931 |
Directors’ fees |
|
|
|
|
|
|
|
149,417 |
|
140,677 |
Transaction costs |
|
|
|
|
|
|
|
144,199 |
|
241,609 |
General expenses |
|
|
|
|
|
|
|
100,305 |
|
88,150 |
Custodian
and Depositary fees* |
|
|
|
75,129 |
|
66,803 |
LSE listing fees |
|
|
|
|
|
|
|
72,622 |
|
12,264 |
Printing costs |
|
|
|
|
|
|
|
57,857 |
|
10,633 |
Broker fees |
|
|
|
|
|
|
|
50,051 |
|
49,298 |
Audit fee |
|
|
|
|
|
|
|
32,500 |
|
23,100 |
Registrar fees |
|
|
|
|
|
|
|
27,058 |
|
28,363 |
Auditor’s
remuneration for interim review |
|
8,400 |
|
8,400 |
|
|
|
|
|
|
|
|
1,156,569 |
|
1,080,228 |
*The basis for calculating the Administration fees as well as
the Custodian and Depositary fees are set out in the General
Information section.
All expenses were charged to revenue apart from transaction
costs of £144,199 (30 June 2017:
£241,609) which were charged to the capital reserves of the
Company.
10. Investment assets at fair value
through profit or loss
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Cost of
investments held at start of the year |
|
|
|
314,371,066 |
|
287,068,071 |
Acquisitions at cost during the year |
|
|
|
|
148,733,129 |
|
147,526,819 |
Disposals
at cost during the year |
|
|
|
|
|
(128,580,917) |
|
(120,223,824) |
Cost of
investments held at end of the year |
|
|
|
334,523,278 |
|
314,371,066 |
Fair value above
cost |
|
|
|
|
|
|
|
24,144,992 |
|
32,257,215 |
Investments
designated at fair value through profit or loss |
|
358,668,270 |
|
346,628,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Receivables
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Amounts
receivable within one year: |
|
|
|
|
|
|
Investment
income receivable |
|
|
|
196,881 |
|
233,752 |
Fixed
interest income receivable |
|
|
|
182,079 |
|
197,512 |
Amounts
due on issue of redeemable participating preference shares |
233,000 |
|
822,850 |
Securities
sold receivable |
|
|
|
|
|
2,692,562 |
|
1,891,362 |
Other receivables |
|
|
|
|
|
|
|
2,076 |
|
2,080 |
|
|
|
|
|
|
|
|
3,306,598 |
|
3,147,556 |
The Directors consider that the carrying amount of receivables
approximate to their fair value.
12. Payables
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Amounts
falling due within one year: |
|
|
|
|
|
|
Purchases
of investments awaiting settlement |
|
1,067,221 |
|
750,000 |
Share
issue costs payable |
|
|
|
|
|
1,165 |
|
4,114 |
Management
fees payable |
|
|
|
|
|
298,185 |
|
288,681 |
Withholding taxes payable |
|
|
|
|
|
8,685 |
|
6,392 |
Directors'
fees payable |
|
|
|
|
|
|
- |
|
38,482 |
Other payables |
|
|
|
|
|
|
|
170,444 |
|
128,596 |
|
|
|
|
|
|
|
|
1,545,700 |
|
1,216,265 |
The Directors consider that the carrying amount of payables
approximate to their fair value.
13. Share capital
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
Authorised Share Capital |
|
|
|
|
|
£ |
|
£ |
100
Management Shares of £1.00 each |
|
|
|
100 |
|
100 |
200,000,000 Unclassified Shares of 0.01p each |
|
20,000 |
|
20,000 |
75,000,000
C Shares of 0.10p each |
|
|
|
75,000 |
|
75,000 |
|
|
|
|
|
|
|
|
95,100 |
|
95,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
Share Capital |
|
|
|
|
01.07.17 to |
01.07.16 to |
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
30.06.18 |
|
30.06.17 |
|
30.06.18 |
|
30.06.17 |
Issued Share
Capital |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
Equity
Shares |
|
|
|
|
|
|
|
|
|
|
Redeemable
Participating Preference |
|
|
|
|
|
|
Shares of 0.01p
each: |
|
|
|
|
|
|
|
|
|
|
Balance at
start of year |
|
|
164,213,416 |
|
155,838,416 |
|
148,250,891 |
|
128,816,232 |
Issued and
fully paid during the year |
12,875,000 |
|
8,025,000 |
|
29,962,000 |
|
18,794,508 |
Issued and
awaiting settlement |
100,000 |
|
350,000 |
|
233,000 |
|
822,850 |
Share issue costs |
|
|
|
- |
|
- |
|
(150,975) |
|
(182,699) |
Balance as
at end of year |
|
177,188,416 |
|
164,213,416 |
|
178,294,916 |
|
148,250,891 |
Unclassified shares
Unclassified shares can be issued as nominal shares or redeemable
participating preference shares. Nominal shares can only be issued
at par to the Administrator. The Administrator is obliged to
subscribe for nominal shares for cash at par when redeemable
participating preference shares are redeemed to ensure that funds
are available to redeem the nominal amount paid up on redeemable
participating preference shares. The holder or holders of nominal
shares shall have the right to receive notice of and to attend
general meetings of the Company but shall not be entitled to vote
thereat. Nominal shares shall carry no right to dividends. In a
winding-up, holders of nominal shares shall be entitled to be
repaid an amount equal to their nominal value out of the assets of
the Company.
The holders of fully paid redeemable participating preference
shares carry a preferential right to a return of capital in
priority to the management shares but have no pre-emptive right and
are entitled to one vote at all meetings of the relevant class of
shareholders.
Management Shares
There were no Management Shares in issue at year end (30 June 2017: Nil).
C Shares
There were no C Shares in issue at year end (30 June 2017: Nil).
Blocklisting and additional shares issued
At the start of the year, the Company had the ability to issue
7,781,342 redeemable participating shares under a blocklisting
facility. On 20 July 2017, an
application was made to the UK Listing Authority and the London
Stock Exchange for the blocklisting of 5,902,499 redeemable
preference shares of 0.01 pence each
pursuant to the General Corporate Purposes Scheme with an admission
date of 21 July 2017, and on
2 February 2018, an application was
made to the UK Listing Authority and the London Stock Exchange for
the blocklisting of 13,112,500 redeemable preference shares of
0.01 pence each pursuant to the
General Corporate Purposes Scheme with an admission date of
7 February 2018. The shares have been
issued and rank pari passu with the existing shares of the Company.
Under the blocklisting facility, 12,975,000 (30 June 2017: 8,375,000) new redeemable
participating preference shares of 0.01
pence each were allotted and issued during the year for a
total consideration of £30,195,000 (30 June 2017:
£19,617,358). These new redeemable participating preference shares
rank pari passu with the existing shares in issue.
As at 30 June 2018, the Company
had the ability to issue a further 13,821,341 (30 June 2017: 7,781,342) redeemable participating
preference shares under the blocklisting facility.
On 1 December 2017, a special
resolution was passed that enables the Board to allot 16,796,341
equity securities, being 10% of the equity securities in issue at
the latest practicable date prior to the 2017 AGM notice, excluding
shares held in treasury for cash and pursuant to Article 7(2)(G) of
the Articles. The rights under Article 7 (2) (B) were thereby
excluded.
Redeemable participating preference shares in issue
As at 30 June 2018, the Company had
177,188,416 (30 June 2017:
164,213,416) redeemable participating preference shares of 0.01
(30 June 2017: 0.01) pence each in
issue. Therefore, the total voting rights in the Company at
30 June 2018 were 177,188,416
(30 June 2017: 164,213,416).
Purchase of Own Shares by the Company
A special resolution was passed on 1
December 2017 which authorised the Company in accordance
with The Companies (Guernsey) Law, 2008 to make purchases of its
own shares as defined in that Ordinance of its Participating Shares
of 0.0l pence each, provided that:
(i)
the maximum number of shares the Company can purchase is no more
than 14.99% of the Company’s issued share capital;
(ii)
the minimum price (exclusive of expenses) which may be paid for a
share is 0.01 pence, being the
nominal value per share;
(iii) the
maximum price (exclusive of expenses) which may be paid for the
share is an amount equal to the higher of (i) 105% of the average
of the middle market quotations for a share taken from the LSE
Daily Official List for the 5 business days immediately preceding
the day on which the Share is purchased and (ii) the price
stipulated in Article 5(i) of the Buy-back and Stabilisation
Regulation (No 2237 of 2003);
(iv)
purchases may only be made pursuant to this authority if the shares
are (at the date of the proposed purchase) trading on the LSE at a
discount to the lower of the undiluted or diluted NAV;
(v)
the authority conferred shall expire at the conclusion of the
Annual General Meeting of the Company in 2018 or, if earlier, on
the expiry of 15 months from the passing of this resolution, unless
such authority is renewed prior to such time; and
(vi) the
Company may make a contract to purchase shares under the authority
hereby conferred prior to the expiry of such authority which will
or may be executed wholly or partly after the expiration of such
authority and may make an acquisition of shares pursuant to any
such contract.
14. NAV reconciliation
The Company announces its NAV, based on bid value, to the LSE after
each weekly and month end valuation point. At the time of releasing
the NAV to the LSE, not all 30 June prices may be available.
Adjustments are made to the NAV in the Financial Statements once
these prices become available. The following is a reconciliation of
the NAV per share attributable to redeemable participating
preference shareholders as presented in these Financial Statements
to the NAV per share reported to the LSE:
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
£ |
|
£ |
NAV per
share published on the LSE as at the year end |
|
2.289 |
|
2.290 |
IAS 39
valuations (MID to BID) |
|
|
|
- |
|
(0.002) |
Adjustment to
valuation |
|
|
|
|
|
0.004 |
|
(0.001) |
Net assets
attributable to holders of redeemable |
|
|
|
|
participating preference shares (per share) |
|
2.293 |
|
2.287 |
15. Contingent liabilities
There were no contingent liabilities as at 30 June 2018 (30 June
2017: £Nil).
16. Related party transactions
The Directors are responsible for the determination of the
investment policy of the Company and have overall responsibility
for the Company's activities.
Investment Management Agreement
The Company is managed by Ruffer AIFM Ltd, a subsidiary of Ruffer
LLP, a privately owned business registered in England and Wales as a limited liability partnership. The
Company and the Investment Manager have entered into an Investment
Management Agreement under which the Investment Manager has been
given responsibility for the day-to-day discretionary management of
the Company’s assets (including uninvested cash) in accordance with
the Company’s investment objective and policy, subject to the
overall supervision of the Directors and in accordance with the
investment restrictions in the Investment Management Agreement and
the Company’s Articles of Incorporation.
The market value of LF Ruffer Japanese Fund and LF Ruffer Gold
are deducted from the NAV of the Company before the calculation of
management fees on a monthly basis. For additional information,
refer to the Portfolio Statement. Management fees for the year and
payable at the end of the year are disclosed in note 8.
Shares held in the Company as Managing Member of Ruffer
LLP
As at 30 June 2018, an immediate
family member of the Chairman Ashe Windham owned 100 (30 June 2017: 100) Shares in the Managing Member
of the Ruffer LLP. This amounts to less than 5% (30 June 2017: less than 5%) of the Company’s
issued share capital.
Directors’ remuneration
Directors’ remuneration is set out in the Directors’ Remuneration
Report of the Financial Statements.
Shares held by related parties
As at 30 June 2018, Directors of the
Company held the following numbers of shares beneficially:
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
Directors |
|
|
|
|
|
Shares |
|
Shares |
Ashe Windham* |
|
|
|
|
|
100,000 |
|
90,000 |
Christopher
Russell |
|
|
|
|
|
50,000 |
|
50,000 |
David Staples |
|
|
|
|
|
40,000 |
|
- |
Jill May |
|
|
|
|
|
11,000 |
|
- |
John V Baldwin |
|
|
|
|
|
- |
|
- |
* Ashe Windham holds 80,000 shares whilst his wife holds 20,000
shares.
As at 30 June 2018, Hamish Baillie, Investment Director of the
Investment Manager owned 205,000 (30 June 2017: 205,000)
shares in the Company.
As at 30 June 2018, Steve Russell, Investment Director of the
Investment Manager owned 6,450 (30 June
2017: 6,450) shares in the Company.
As at 30 June 2018, Duncan MacInnes, Investment Manager of the
Investment Manager owned 21,800 (30 June
2017: 21,800) shares in the Company.
As at 30 June 2018, Jonathan Ruffer, chairman of Ruffer LLP, owned
1,039,335 (30 June 2017: 1,039,335)
shares in the Company.
As at 30 June 2018, the Ruffer LLP
(the parent company of the Company’s Investment Manager) and other
entities within the Ruffer Group held 6,775,074 (30 June 2017: 8,176,042) shares in the Company on
behalf of its discretionary clients.
Investments in related funds
As at 30 June 2018, the Company held
investments in five (30 June 2017:
five) related investment funds valued at £63,259,707 (30 June 2017: £38,448,294). Refer to the
Portfolio Statement for details.
17. Operating segment reporting
The Board of Directors makes the strategic decisions on behalf of
the Company. The Company has determined the operating segments
based on the reports reviewed by the Board, which are used to make
strategic decisions.
The Board is responsible for monitoring the Investment Manager’s
positioning of the Company’s portfolio and considers the business
to have a single operating segment.
There were no changes in the reportable segments during the
year.
Revenue earned is reported separately in the Statement of
Comprehensive Income as dividend income received from equities, and
interest income received from fixed interest securities and bank
deposits.
The Statement of Cash Flows separately reports cash flows from
operating and financing activities.
18. Financial instruments
In accordance with its investment objectives and policies, the
Company holds financial instruments which at any one time may
comprise the following:
- securities held in accordance with the investment objectives
and policies;
- cash and short-term receivables and payables arising directly
from operations;
- derivative transactions including investment in forward foreign
currency contracts; and
- borrowing up to a maximum of 30% of the NAV of the
Company.
Terms, conditions and accounting policies
The financial instruments held by the Company comprise principally
internationally listed or quoted equities or equity related
securities (including convertibles), and/or bonds which are issued
by corporate issuers, supra-nationals or government
organisations.
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of its financial assets and liabilities are
disclosed in note 2. The following table analyses the carrying
amounts of the financial assets and liabilities by category as
defined in IAS 39.
The following are the categories of financial instruments held
by the Company at the reporting date:
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
Fair
Value |
|
Fair Value |
|
|
|
|
|
|
£ |
|
£ |
Financial
assets |
|
|
|
|
|
|
|
|
Listed securities |
|
|
|
|
|
324,931,097 |
|
314,653,908 |
Delisted
securities |
|
|
|
|
|
1,593,750 |
|
893,512 |
UCITS funds |
|
|
|
|
|
32,143,423 |
|
31,080,861 |
Derivative financial
assets |
|
|
|
|
|
5,516 |
|
5,593 |
Total
financial assets at fair value through profit and loss |
|
358,673,786 |
|
346,633,874 |
Other financial
assets* |
|
|
|
|
|
50,942,832 |
|
31,098,502 |
*Other financial assets include cash and cash equivalents and
receivables.
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
Fair
Value |
|
Fair Value |
|
|
|
|
|
|
£ |
|
£ |
Financial
liabilities |
|
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
1,545,700 |
|
1,216,265 |
Derivative
financial liabilities |
|
|
|
|
|
1,762,915 |
|
914,405 |
|
|
|
|
|
|
3,308,615 |
|
2,130,670 |
|
|
|
|
|
|
|
|
|
|
|
19. Financial risk management and associated risks
The Company is exposed to a variety of financial risks as a result
of its activities. These risks include market risk (including price
risk, foreign currency risk and interest rate risk), credit risk
and liquidity risk. These risks, which have applied throughout the
year and the Investment Manager’s policies for managing them are
summarised as follows:
Market risk
Market risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
prices. The Company’s activities expose it primarily to the market
risks of changes in market prices, interest rates and foreign
currency exchange rates.
Market price risk
Market price risk arises mainly from the uncertainty about future
prices of the financial instruments held by the Company. It
represents the potential loss the Company may suffer through
holding market positions in the face of price movements.
The Company’s investment portfolio is exposed to market price
fluctuations which are monitored by the Investment Manager in
pursuance of the investment objectives and policies. Adherence to
investment guidelines and to investment and borrowing powers set
out in the Placing and Offer for Subscription document mitigates
the risk of excessive exposure to any particular type of security
or issuer.
Market price sensitivity analysis
The sensitivity analysis below has been determined based on the
exposure to equity, investment funds and bond price risks at the
reporting date. The 10% reasonably possible price movement for
equity related securities and investment funds and a 100 basis
point increase or a 25 basis point reduction for the interest rate
used by the Company is based on the Investment Manager’s best
estimates.
A 10% (30 June 2017: 10%) increase
in the market prices of equity related investments as at
30 June 2018 would have increased the net assets attributable
to holders of redeemable participating preference shares by
£23,208,626 (30 June 2017:
£20,004,458) and a 10% change in the opposite direction would have
decreased the net assets attributable to holders of redeemable
participating preference shares by an equal opposite amount.
A sensitivity analysis based on the interest rates of bond
related investments as at 30 June 2018 has been considered
under Interest rate risk in note 19.
Actual trading results may differ from the above sensitivity
analysis and these differences could be material.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a
foreign currency. It represents the potential loss the Company may
suffer though holding foreign currency assets in the face of
foreign exchange movements.
As a portion of the Company’s investment portfolio is invested
in securities denominated in currencies other than Pound Sterling
(the functional and presentation currency of the Company), the
Statement of Financial Position may be significantly affected by
movements in the exchange rates of such currencies against Pound
Sterling. The Investment Manager has the power to manage exposure
to currency movements by using options, warrants and/or forward
foreign currency contracts and details of the holdings of such
instruments at the date of these Financial Statements is set out
below. In the event of a weak base currency these contracts will
expire at a loss that will be offset by a corresponding gain in the
underlying assets. The opposite would be true when the base
currency is strong.
As at 30 June 2018, the Company had six (30 June 2017: five) open forward foreign currency
contracts.
Forward contracts as at 30 June 2018
|
|
|
|
|
|
Notional amount |
|
|
|
|
|
|
of
contracts |
|
Fair
value |
Expiry
date |
|
Underlying |
|
|
|
outstanding |
|
(liabilities)/ |
|
|
|
|
|
|
|
|
assets |
|
|
|
|
|
|
|
|
£ |
14 September 2018 |
|
Foreign
currency (Sale of EUR) |
€7,000,000 |
|
(28,362) |
13 July 2018 |
|
Foreign
currency (Sale of USD) |
US$54,000,000 |
|
(990,459) |
17 August 2018 |
|
Foreign
currency (Sale of JPY) |
|
¥5,200,000,000 |
|
(582,682) |
17 August 2018 |
|
Foreign
currency (Sale of JPY) |
|
¥1,000,000,000 |
|
(132,695) |
4 July 2018 |
|
Foreign
currency (Sale of JPY) |
|
¥39,645,164 |
|
2,166 |
|
|
|
|
|
|
|
|
(1,732,032) |
|
|
|
|
|
|
|
|
|
17 August 2018 |
|
Foreign
currency (Purchase of JPY) |
¥600,000,000 |
|
(21,030) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,030) |
Forward contracts as at 30 June 2017
|
|
|
|
|
|
Notional amount |
|
|
|
|
|
|
of
contracts |
|
Fair value |
Expiry
date |
|
Underlying |
|
|
|
outstanding |
|
(liabilities) |
|
|
|
|
|
|
|
|
/assets |
|
|
|
|
|
|
|
|
£ |
15 September
2017 |
|
Foreign
currency (Sale of EUR) |
€6,292,000 |
|
(256,820) |
18 August
2017 |
|
Foreign
currency (Sale of USD) |
US$112,000,000 |
378,616 |
18 August
2017 |
|
Foreign
currency (Sale of JPY) |
¥5,000,000,000 |
(299,719) |
18 August
2017 |
|
Foreign
currency (Sale of JPY) |
¥2,258,000,000 |
(736,482) |
|
|
|
|
|
|
|
|
(914,405) |
|
|
|
|
|
|
|
|
|
15 September
2017 |
|
Foreign
currency (Purchase of EUR) |
¥792,000 |
|
5,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,593 |
Spot Contracts
As at 30 June 2018, the Company had
four (30 June 2017: nil) open spot
foreign currency contracts.
|
|
|
|
|
|
Notional amount |
Fair
value |
|
|
|
|
|
|
of
contracts |
|
(liabilities) |
Expiry
date |
Underlying |
|
|
|
outstanding |
|
/assets |
|
|
|
|
|
|
|
|
£ |
|
|
|
|
|
|
|
|
|
02 July 2018 |
|
Foreign
currency (Purchase of USD) |
US$1,000,493 |
|
(6,495) |
02 July 2018 |
|
Foreign
currency (Purchase of USD) |
US$179,014 |
|
(967) |
02 July 2018 |
|
Foreign
currency (Purchase of USD) |
US$41,522 |
|
(225) |
|
|
|
|
|
|
|
|
(7,687) |
|
|
|
|
|
|
|
|
|
02 July 2018 |
|
Foreign
currency (Sale of USD) |
US$546,948 |
|
3,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,350 |
The Company’s treatment of currency transactions other than in
Pound Sterling is set out in note 2 to the Financial Statements
under “Translation of foreign
currency.”
As at 30 June 2018 and 2017, the
Company held the following assets and liabilities in currencies
other than the functional currency:
|
|
30.06.18 |
|
30.06.18 |
|
30.06.17 |
|
30.06.17 |
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
£ |
|
£ |
|
£ |
|
£ |
Canadian Dollar |
|
1,818,736 |
|
1,969 |
|
5,428,102 |
|
1,707 |
Euro |
|
6,944,281 |
|
28,361 |
|
5,617,076 |
|
- |
Hong Kong Dollar |
|
1,675,752 |
|
4,553 |
|
1,880,981 |
|
3,326 |
Japanese Yen |
|
55,351,206 |
|
736,407 |
|
56,999,414 |
|
1,036,201 |
Norwegian Krone |
|
2,512,136 |
|
- |
|
1,722,641 |
|
- |
Swiss Franc |
|
- |
|
- |
|
2,931,702 |
|
- |
United States
Dollar |
|
98,018,616 |
|
992,622 |
|
88,907,550 |
|
- |
Foreign currency sensitivity
As at 30 June 2018, if the foreign exchange rates had weakened
10% (30 June 2017: 10%) against Pound
Sterling with all other variables held constant, net assets
attributable to holders of redeemable participating preference
shares would be £8,665,319 (30 June
2017: £4,822,977) lower net of open forward foreign currency
contracts and due mainly as a result of foreign currency losses on
translation of these financial assets and liabilities to Pound
Sterling. As at 30 June 2018, a 10% (30 June 2017: 10%) strengthening of the foreign
exchange rates against Pound Sterling would have resulted in an
equal but opposite effect on the net assets attributable to holders
of redeemable participating preference shares. Any changes in the
foreign exchange rate will directly affect the profit and loss,
allocated to the capital column of the Statement of Comprehensive
Income.
Actual trading results may differ from the above sensitivity
analysis and these differences could be material.
As has been seen in previous years currencies can fluctuate by
more or less than this indicative amount. The Investment Manager
will incorporate this variable into risk analysis when managing the
investments.
Interest rate risk
Interest rate risk represents the uncertainty of investment return
due to changes in the market rates of interest.
The Company invests in fixed and floating rate securities. The
income of the Company may be affected by changes to interest rates
relevant to particular securities or as a result of the Investment
Manager being unable to secure similar returns on the expiry of
contracts or sale of securities. Interest receivable on bank
deposits or payable on the bank overdraft positions will be
affected by fluctuations in interest rates.
The Investment Manager actively manages the Company’s exposure
to interest rate risk, paying heed to prevailing interest rates and
economic conditions, market expectations and their own opinions of
likely movements in interest rates. Currently the entire exposure
of the Company to fixed interest securities is in the form of
index-linked bonds. The value of these investments is determined by
current and expected inflation and interest rates.
The value of fixed interest securities will be affected by
general changes in interest rates that will in turn result in
increases or decreases in the market value of those instruments.
When interest rates decline, the value of the Company’s investments
in fixed rate debt obligations can be expected to rise, and when
interest rates rise, the value of those investments may
decline.
The investment portfolio details the security type, issuer,
interest rate, and maturity date of all of the Company’s fixed and
floating rate securities as at 30 June 2018.
The tables below summarise the Company’s exposure to interest
rate risks. It includes the Company’s financial assets and
liabilities at fair values, categorised by underlying interest rate
type.
As at 30 June
2018
|
|
|
Floating |
|
Fixed |
|
Non-Interest |
|
Total |
|
|
|
rate |
|
rate |
|
bearing |
|
30.06.18 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Financial
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
47,636,234 |
|
- |
|
- |
|
47,636,234 |
Investments designated at fair value |
|
|
|
|
|
|
|
|
through profit or
loss |
|
|
- |
|
141,612,417 |
|
217,055,853 |
|
358,668,270 |
Unrealised
gain on open spot and |
|
|
|
|
|
|
|
|
forward
foreign currency contracts |
|
- |
|
- |
|
5,516 |
|
5,516 |
Receivables |
|
|
- |
|
- |
|
3,306,598 |
|
3,306,598 |
|
|
|
47,636,234 |
|
141,612,417 |
|
220,367,967 |
|
409,616,618 |
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
- |
|
- |
|
1,545,700 |
|
1,545,700 |
Unrealised
loss on open spot and |
|
|
|
|
|
|
|
|
forward
foreign currency contracts |
|
- |
|
- |
|
1,762,915 |
|
1,762,915 |
|
|
|
- |
|
- |
|
3,308,615 |
|
3,308,615 |
As at 30 June 2017
|
|
|
Floating |
|
Fixed |
|
Non-Interest |
|
Total |
|
|
|
rate |
|
rate |
|
bearing |
|
30.06.17 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Financial
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
27,950,946 |
|
- |
|
- |
|
27,950,946 |
Investments designated at fair value |
|
|
|
|
|
|
|
|
through profit or
loss |
|
|
- |
|
146,839,335 |
|
199,788,946 |
|
346,628,281 |
Unrealised gain on open forward |
|
|
|
|
|
|
|
|
foreign currency
contracts |
|
|
- |
|
- |
|
5,593 |
|
5,593 |
Receivables |
|
|
- |
|
- |
|
3,147,556 |
|
3,147,556 |
|
|
|
27,950,946 |
|
146,839,335 |
|
202,942,095 |
|
377,732,376 |
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables |
|
|
- |
|
- |
|
1,216,265 |
|
1,216,265 |
Unrealised loss on
open forward |
|
|
|
|
|
|
|
|
|
foreign currency
contracts |
|
|
- |
|
- |
|
914,405 |
|
914,405 |
|
|
|
- |
|
- |
|
2,130,670 |
|
2,130,670 |
The table below summarises weighted average effective interest
rates for fixed rate financial instruments.
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
average period |
|
|
average period |
|
|
|
30.06.18 |
|
for which rate/ |
30.06.17 |
|
for
which rate/ |
|
|
|
%
p.a. |
|
yield is fixed |
%
p.a. |
|
yield is fixed |
|
|
|
|
|
|
|
|
|
|
Canada Government
Bonds |
|
|
- |
|
- |
0.6470% |
|
24.44
years |
United
Kingdom Government Bonds |
|
-1.8513% |
|
32.23 years |
-1.9441% |
|
25.83
years |
United
States Government Bonds |
|
0.2085% |
|
3.81 years |
0.2084% |
|
4.91
years |
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity analysis
An increase of 100 basis points (30 June
2017: 100 basis points) in interest rates as at the
reporting date would have decreased the net assets attributable to
holders of redeemable participating preference shares by
£24,049,421 (30 June 2017:
£25,150,358) and a decrease of 25 basis points (30 June 2017: 25 basis points) in interest rates
would have increased the net assets attributable to holders of
redeemable participating preference shares by £6,012,355
(30 June 2017: £6,287,589).
Key determinants of interest rates include economic growth
prospects, inflation, governments’ fiscal positions and rates on
nominal bonds of similar maturities. This sensitivity analysis
assumes only a 100 basis point increase and a 25 basis point
decrease in interest rates, with all other variables unchanged.
This would be the equivalent of a 100 basis point increase and 25
basis point decreases in ‘real’ interest rates and as such is
likely to overstate the actual impact of such a move in nominal
rates.
As all the Company’s fixed rate securities are index-linked
bonds, their yields, and as a consequence their prices, are
determined by market perception as to the appropriate level of
yields given the economic background.
This analysis does not allow for the impact of investments held
within Ruffer Protection Strategies which may reduce the
sensitivity to changes in interest rates. See derivatives comment
below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. Failure of any relevant counterparty to perform
its obligations in respect of these items may lead to a financial
loss.
The Company is exposed to credit risk in respect of cash and
cash equivalents and receivables. The credit risk associated with
debtors is limited to the unrealised gains on open derivative
contracts such as forward foreign currency contracts, as detailed
above and receivables. It is the opinion of the Board of Directors
that the carrying amounts of these financial assets represent the
maximum credit risk exposure as at the reporting date.
The Company will not invest in the securities of any company
that is not quoted or does not have a listing on a market specified
in the Financial Services and Markets Act 2000 (Financial
Promotions) Order 2001 except for investments in investment funds
and such other financial markets as may be specifically agreed from
time to time between the Board and the Investment Manager.
All transactions in listed securities are settled/paid upon
delivery using approved brokers. The risk of default is considered
minimal, as delivery of securities sold is only made once the
broker has received payment. Payment is made on a purchase once the
securities have been received by the broker. The trade will fail if
either party fails to meet their obligation.
The Placing and Offer for Subscription document allows
investment in a wide universe of equity related securities and
bonds, including countries that may be classed as emerging or
developing. In adhering to investment restrictions set out within
the document, the Company mitigates the risk of any significant
concentration of credit risk.
Credit risk analysis
The Company’s maximum credit exposure is limited to the carrying
amount of financial assets recognised at the reporting date, as
summarised below:
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
£ |
|
£ |
Cash and cash
equivalents |
|
|
|
|
|
|
47,636,234 |
|
27,950,946 |
Unrealised
gain on open spot and forward foreign currency contracts |
|
5,516 |
|
5,593 |
Receivables |
|
|
|
|
|
|
3,306,598 |
|
3,147,556 |
Financial
assets at fair value through profit or loss |
|
|
|
358,668,270 |
|
346,628,281 |
|
|
|
|
|
|
|
409,616,618 |
|
377,732,376 |
The Company is exposed to material credit risk in respect of
cash and cash equivalents. Substantially, all cash is placed with
Northern Trust (Guernsey) Limited (“NTGL”).
NTGL is a wholly owned subsidiary of The Northern Trust
Corporation (“TNTC”). TNTC is publicly traded and a constituent of
the S&P 500. TNTC has a credit rating of A+ (30 June 2017: A+) from Standard & Poor’s and
A2 (30 June 2017: A2) from
Moody’s.
The Moody’s credit ratings of the issuers of Bonds held by the
Company as at 30 June 2018 were as
follows:
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
Moody's |
|
Moody's |
|
|
|
|
|
|
|
|
|
|
UK
Index-Linked Gilt 0.125% 22/11/2019 |
|
|
|
|
|
Aa2 |
|
Aa1 |
UK
Index-Linked Gilt 1.875% 22/11/2022 |
|
|
|
|
|
Aa2 |
|
Aa1 |
UK
Index-Linked Gilt 1.250% 22/11/2055 |
|
|
|
|
|
Aa2 |
|
Aa1 |
UK
Index-Linked Gilt 0.375% 22/03/2062 |
|
|
|
|
|
Aa2 |
|
Aa1 |
UK
Index-Linked Gilt 0.125% 22/03/2068 |
|
|
|
|
|
Aa2 |
|
Aa1 |
US
Treasury Inflation Indexed Bond 1.125% 15/01/2021 |
|
|
|
Aaa |
|
Aaa |
US
Treasury Inflation Indexed Bond 0.625% 15/07/2021 |
|
|
|
Aaa |
|
Aaa |
US
Treasury Inflation Indexed Bond 0.125% 15/01/2023 |
|
|
|
Aaa |
|
Aaa |
US
Treasury Inflation Indexed Bond 0.375% 15/07/2023 |
|
|
|
Aaa |
|
Aaa |
None of the Company’s financial assets are secured by collateral
or other credit enhancements.
Derivatives
The Company has gained exposure to derivative contracts
(predominantly options and forward currency contracts) as a risk
management tool. The intention of using such derivative contracts
has been primarily to minimise the exposure of the Company to the
negative impact of changes to foreign exchange rates, interest
rates, market volatility and to protect the portfolio from a
correlated fall in bonds and equities. At the year end, all such
instruments (except forward foreign exchange contracts) were held
within the Ruffer Protection Strategies vehicle as detailed in the
Portfolio Statement.
Fair value
Financial assets at fair value through profit or loss are carried
at fair value. Other assets and liabilities are carried at cost
which approximates fair value.
IFRS 7 requires the Company to classify fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. IFRS 7 establishes a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value
hierarchy under IFRS 7 are as follows:
Level 1: Quoted prices, based on bid prices, (unadjusted) in
active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from prices);
and
Level 3: Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgment, considering factors
specific to the asset or liability.
The determination of what constitutes ‘observable’ requires
significant judgment by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company’s financial assets and
liabilities by level within the valuation hierarchy at 30 June 2018.
|
|
|
|
|
|
|
|
30.06.18 |
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
Financial assets at fair value |
|
|
|
|
|
|
through profit or
loss: |
|
|
|
|
|
|
|
|
Government
Index-Linked Bonds |
126,632,307 |
|
- |
|
- |
|
126,632,307 |
Short
Dated Conventional Government Bonds |
14,980,110 |
|
- |
|
- |
|
14,980,110 |
Options |
|
- |
|
5,528,259 |
|
- |
|
5,528,259 |
Equities |
|
184,810,160 |
|
- |
|
1,593,750 |
|
186,403,910 |
Investment Funds |
|
- |
|
25,123,684 |
|
- |
|
25,123,684 |
Derivative financial
assets |
|
- |
|
5,516 |
|
- |
|
5,516 |
Total assets |
|
326,422,577 |
|
30,657,459 |
|
1,593,750 |
|
358,673,786 |
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value |
|
|
|
|
|
|
through profit or
loss: |
|
|
|
|
|
|
|
|
Derivative
financial liabilities |
- |
|
1,762,915 |
|
- |
|
1,762,915 |
Total liabilities |
|
- |
|
1,762,915 |
|
- |
|
1,762,915 |
The following table presents the Company’s financial assets and
liabilities by level within the valuation hierarchy at 30 June 2017.
|
|
|
|
|
|
|
|
30.06.17 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
Financial assets at fair value |
|
|
|
|
|
|
through profit
or loss: |
|
|
|
|
|
|
|
|
Government Index-Linked Bonds |
146,839,335 |
|
- |
|
- |
|
146,839,335 |
Preference
Shares |
|
639,069 |
|
- |
|
- |
|
639,069 |
Options |
|
- |
|
6,362,095 |
|
- |
|
6,362,095 |
Equities |
|
139,889,600 |
|
27,377,427 |
|
893,512 |
|
168,160,539 |
Investment
Funds |
|
- |
|
24,627,243 |
|
- |
|
24,627,243 |
Derivative
financial assets |
|
- |
|
5,593 |
|
- |
|
5,593 |
Total
assets |
|
314,745,431 |
|
30,994,931 |
|
893,512 |
|
346,633,874 |
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value |
|
|
|
|
|
|
through profit or
loss: |
|
|
|
|
|
|
|
|
Derivative financial liabilities |
- |
|
914,405 |
|
- |
|
914,405 |
Total
liabilities |
|
- |
|
914,405 |
|
- |
|
914,405 |
The Company recognises transfers between levels of fair value
hierarchy as of the end of the reporting year during which the
transfer has occurred. During the year ended 30 June 2018, no
transfers were made. In the prior year ended 30 June 2017, no transfers were made.
Movements in Level 3 investments
|
|
|
|
|
|
|
|
01.07.17 to |
|
01.07.16 to |
|
|
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
|
|
£ |
|
£ |
Opening valuation |
|
|
|
|
|
|
|
893,512 |
|
3,750,313 |
Disposals
during the year |
|
|
|
|
- |
|
(2,856,801) |
Unrealised
movement on revaluation of investments |
|
|
700,238 |
|
- |
Closing valuation |
|
|
|
|
|
|
|
1,593,750 |
|
893,512 |
Assets classified in Level 1 consist of listed or quoted
equities or equity related securities, options and bonds which are
issued by corporate issuers, supra-nationals or government
organisations.
Assets classified in Level 2 are investments in funds
fair-valued using the official NAV of each fund as reported by each
fund’s independent administrator at the reporting date. Options and
foreign exchange forwards fair valued using publicly available
data. The foreign exchange forwards are shown as derivative
financial assets and liabilities in the above table.
Assets classified in Level 3 consist of liquidated or illiquid
funds and are reported using the latest available official NAV less
dividends declared to date of each fund as reported by each fund’s
independent administrator at the last reporting date.
Liquidity risk
Liquidity risk is the risk that the Company will find it difficult
or impossible to realise assets or otherwise raising funds to meet
financial commitments. The Company’s liquidity risk is managed by
the Investment Manager who monitors the cash positions on a regular
basis. The Company’s overall liquidity risks are monitored on a
regular basis by the Board of Directors and a formal report is made
by the Investment Manager to the Directors at each Board
Meeting.
As at 30 June 2018 and 2017, the
Company had no significant financial liabilities other than
short-term payables arising directly from investing activity.
20. Capital risk management
The fair value of the Company’s financial assets and liabilities
approximate to their carrying amounts at the reporting date. For
the purposes of this disclosure, redeemable participating
preference shares are considered to be capital.
The Company’s objectives when managing capital are to safeguard
the Company’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. There are no externally-imposed capital
requirements on the Company.
The Company has the ability to borrow up to 30% of its NAV at
any time for short-term or temporary purposes as is necessary for
the settlement of transactions, to facilitate redemption (where
applicable) or to meet ongoing expenses. At the year end the
Company had no borrowings. The Company does not have, nor does it
intend to adopt, any structural gearing. The gearing ratio below is
calculated as total liabilities divided by total equity.
|
|
|
|
|
|
30.06.18 |
|
30.06.17 |
|
|
|
|
|
|
£ |
|
£ |
Total assets |
|
|
|
|
|
409,616,618 |
|
377,732,376 |
Less: total
liabilities |
|
|
|
|
|
(3,308,615) |
|
(2,130,670) |
Total equity |
|
|
|
|
|
406,308,003 |
|
375,601,706 |
|
|
|
|
|
|
|
|
|
Gearing ratio |
|
|
|
|
|
0.81% |
|
0.57% |
The Board considers this gearing ratio to be adequate since
total borrowings above refer only to other payables and unrealised
losses on open spot and forward foreign currency contracts.
Redemption Facility
The Company has a Redemption Facility (which takes the form of a
tender offer to all holders of redeemable participating preference
shares) which was made available after 8
July 2007. This facility may operate annually, in November
each year, at the discretion of the Directors. Redemptions on any
Redemption Date may be restricted to a maximum of 25% in aggregate
of the Shares then in issue, with any tender requests from
shareholders in excess of this being scaled back pro rata.
The facility is intended to address any imbalance in the supply
and demand for the shares and to assist in maintaining a narrow
discount to the NAV per Share at which the shares may be trading.
The Company, will at the sole discretion of the Directors:
(i) purchase shares when deemed
appropriate; and
(ii) allow an annual redemption of up to
25% of the issued shares at the prevailing NAV per Share and may
operate annually in November of each year.
Purchase of Own Shares by the Company
A special resolution was passed on 1
December 2017 which authorised the Company in accordance
with The Companies (Guernsey) Law, 2008 to make purchases of its
own shares as defined in that Ordinance of its redeemable
participating preference shares of 0.0lp each, provided that:
(i) the maximum
number of shares the Company can purchase is no more than 14.99% of
the Company’s issued share capital;
(ii) the minimum price
(exclusive of expenses) which may be paid for a share is
0.01 pence, being the nominal value
per share;
(iii) the maximum price
(exclusive of expenses) which may be paid for the share is an
amount equal to the higher of (i) 105% of the average of the middle
market quotations for a share taken from the London Stock Exchange
Daily Official List for the 5 business days immediately preceding
the day on which the Share is purchased and (ii) the price
stipulated in Article 5(i) of the Buy back and Stabilisation
Regulation (No 2237 of 2003);
(iv) acquisitions may only
be made pursuant to this authority if the shares are (at the date
of the proposed purchase) trading on the London Stock Exchange at a
discount to the lower of the undiluted or diluted NAV;
(v) the authority
conferred shall expire at the conclusion of the AGM of the Company
in 2018 or, if earlier, on the expiry of 15 months from the passing
of this resolution, unless such authority is renewed prior to such
time; and
(vi) the Company may make a
contract to purchase shares under the authority hereby conferred
prior to the expiry of such authority which will or may be executed
wholly or partly after the expiration of such authority and may
make a purchase of Shares pursuant to any such contract.
21. Subsequent events
These Financial Statements were approved for issuance by the Board
on 11 September 2018. Subsequent events have been evaluated up
until this date.
As at the date of this report, 450,000 shares have been issued
post year end, therefore the Company had 177,638,416 redeemable
participating preference shares of 0.01p each in issue. The total
voting rights in the Company at the date of this report were
177,638,416.
An interim dividend of 0.9p per share in respect of the year
ended 30 June 2018 was declared on
11 September 2018. The dividend is payable on
5 October 2018 to shareholders on
record at 21 September 2018.
Portfolio Statement as at
30 June 2018
|
|
|
Fair |
|
% |
|
|
Holding at |
Value |
|
of
Total |
|
Currency |
30.06.18 |
£ |
|
Net Assets |
|
|
|
|
|
|
Government
Index-Linked Bonds 31.17% |
|
|
|
|
|
(30.06.17 -
39.09%) |
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom |
|
|
|
|
|
UK Index-Linked Gilt
0.125% 22/11/2019 |
GBP |
6,135,000 |
7,117,637 |
|
1.75 |
UK Index-Linked Gilt
1.875% 22/11/2022 |
GBP |
9,710,000 |
15,619,933 |
|
3.84 |
UK Index-Linked Gilt
1.250% 22/11/2055 |
GBP |
1,100,000 |
3,873,687 |
|
0.95 |
UK Index-Linked Gilt
0.375% 22/03/2062 |
GBP |
8,700,000 |
22,815,776 |
|
5.63 |
UK Index-Linked Gilt
0.125% 22/03/2068 |
GBP |
8,200,000 |
21,179,739 |
|
5.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,606,772 |
|
17.38 |
|
|
|
|
|
|
United
States |
|
|
|
|
|
US Treasury Inflation
Indexed Bond 1.125% 15/01/2021 |
USD |
13,500,000 |
11,864,883 |
|
2.92 |
US Treasury Inflation
Indexed Bond 0.625% 15/07/2021 |
USD |
19,350,000 |
16,355,534 |
|
4.03 |
US Treasury Inflation
Indexed Bond 0.125% 15/01/2023 |
USD |
17,500,000 |
14,066,804 |
|
3.46 |
US Treasury Inflation
Indexed Bond 0.375% 15/07/2023 |
USD |
17,000,000 |
13,738,314 |
|
3.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,025,535 |
|
13.79 |
|
|
|
|
|
|
Total Government
Index-Linked Bonds |
|
|
126,632,307 |
|
31.17 |
|
|
|
|
|
|
|
|
|
|
|
|
Short Dated
Conventional Government Bonds 3.69% |
|
|
|
|
|
(30.06.17 -
0.00%) |
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom |
|
|
|
|
|
UK Treasury Bill 0.00%
24/09/2018 |
GBP |
15,000,000 |
14,980,110 |
|
3.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,980,110 |
|
3.69 |
|
|
|
|
|
|
Total Short Dated
Conventional Government Bonds |
|
|
14,980,110 |
|
3.69 |
|
|
|
|
|
|
|
|
|
|
|
|
Equities
40.80% |
|
|
|
|
|
(30.06.17 -
40.16%) |
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
France |
|
|
|
|
|
Vivendi |
EUR |
375,000 |
6,944,281 |
|
1.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,944,281 |
|
1.71 |
|
|
|
|
|
|
Norway |
|
|
|
|
|
Yara
International |
NOK |
80,000 |
2,512,136 |
|
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,512,136 |
|
0.62 |
United
Kingdom |
|
|
|
|
|
Belvoir Lettings |
GBP |
1,190,295 |
1,226,004 |
|
0.30 |
Better Capital
(2012) |
GBP |
3,088,700 |
803,062 |
|
0.20 |
Better Capital
(2009) |
GBP |
294,641 |
179,731 |
|
0.04 |
Countryside
Properties |
GBP |
700,000 |
2,403,800 |
|
0.59 |
Dixons Carphone |
GBP |
1,010,626 |
1,885,828 |
|
0.46 |
Headlam |
GBP |
200,000 |
976,000 |
|
0.24 |
Lloyds Banking
Group |
GBP |
6,500,000 |
4,096,300 |
|
1.01 |
Ocado Group |
GBP |
507,000 |
5,199,285 |
|
1.28 |
PRS Real Estate
Investment Trust |
GBP |
1,141,100 |
1,186,744 |
|
0.29 |
Royal Bank of Scotland
Group |
GBP |
750,000 |
1,920,000 |
|
0.47 |
Royal Dutch Shell |
GBP |
70,000 |
1,899,450 |
|
0.47 |
Renn Universal Growth
Trust |
GBP |
937,500 |
1,593,750 |
|
0.39 |
Ruffer SICAV UK Mid
& Smaller Companies Fund* |
GBP |
27,940 |
6,030,507 |
|
1.49 |
Secure Trust Bank |
GBP |
58,345 |
1,061,879 |
|
0.26 |
Shire |
GBP |
50,000 |
2,131,500 |
|
0.52 |
Sophos Group |
GBP |
450,000 |
2,871,000 |
|
0.71 |
Supermarket Real
Estate Investment Trust |
GBP |
689,907 |
703,705 |
|
0.17 |
System1 Group |
GBP |
275,000 |
770,000 |
|
0.19 |
Tesco |
GBP |
2,640,660 |
6,775,934 |
|
1.68 |
Tufton Oceanic
Assets |
GBP |
1,643,100 |
1,306,764 |
|
0.32 |
Van Elle |
GBP |
1,525,573 |
1,266,226 |
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,287,469 |
|
11.39 |
|
|
|
|
|
|
Total European
Equities |
|
|
55,743,886 |
|
13.72 |
|
|
|
|
|
|
Canada |
|
|
|
|
|
Imperial Oil |
CAD |
72,000 |
1,810,859 |
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Canadian
Equities |
|
|
1,810,859 |
|
0.45 |
|
|
|
|
|
|
United
States |
|
|
|
|
|
Apergy |
USD |
51,808 |
1,637,529 |
|
0.40 |
Apple |
USD |
30,734 |
4,257,948 |
|
1.06 |
Aptiv |
USD |
13,000 |
902,246 |
|
0.22 |
Check Point Software
Technologies |
USD |
50,000 |
3,698,163 |
|
0.91 |
Cleveland-Cliffs |
USD |
276,800 |
1,767,411 |
|
0.43 |
Delphi
Technologies |
USD |
50,000 |
1,720,886 |
|
0.42 |
DowDuPont |
USD |
78,000 |
3,896,307 |
|
0.96 |
Exxon Mobil |
USD |
57,500 |
3,607,006 |
|
0.89 |
General Motors |
USD |
50,000 |
1,492,899 |
|
0.37 |
Jefferies Financial
Group |
USD |
203,970 |
3,513,181 |
|
0.86 |
McKesson |
USD |
28,000 |
2,831,070 |
|
0.70 |
National Oilwell
Varco |
USD |
77,000 |
2,530,604 |
|
0.62 |
Tenaris |
USD |
65,000 |
1,790,608 |
|
0.44 |
Walt Disney |
USD |
98,000 |
7,786,556 |
|
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
Equities |
|
|
41,432,414 |
|
10.20 |
Asia |
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
|
|
|
China Life
Insurance |
HKD |
459,000 |
895,138 |
|
0.22 |
PICC Property &
Casualty |
HKD |
900,000 |
735,087 |
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,630,225 |
|
0.40 |
|
|
|
|
|
|
Japan |
|
|
|
|
|
Bandai Namco
Holdings |
JPY |
100,000 |
3,121,635 |
|
0.77 |
LF Ruffer Japanese
Fund* |
GBP |
3,840,000 |
10,062,336 |
|
2.48 |
Fujifilm Holdings |
JPY |
100,000 |
2,953,415 |
|
0.73 |
Hazama Ando |
JPY |
339,000 |
2,334,374 |
|
0.57 |
Japan Post
Holdings |
JPY |
525,000 |
4,351,141 |
|
1.07 |
Mitsubishi
Electric |
JPY |
100,000 |
1,006,240 |
|
0.25 |
Mitsubishi UFJ
Financial Group |
JPY |
1,407,400 |
6,064,127 |
|
1.49 |
Mizuho Financial
Group |
JPY |
4,500,000 |
5,738,952 |
|
1.41 |
NTT Urban
Development |
JPY |
419,000 |
3,406,726 |
|
0.84 |
Resona Holdings |
JPY |
1,410,000 |
5,709,904 |
|
1.41 |
Sony |
JPY |
68,000 |
2,632,813 |
|
0.65 |
Sumitomo Mitsui
Financial Group |
JPY |
275,200 |
8,092,042 |
|
1.99 |
T&D Holdings |
JPY |
850,000 |
9,663,220 |
|
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,136,925 |
|
16.03 |
|
|
|
|
|
|
Total Asian
Equities |
|
|
66,767,150 |
|
16.43 |
|
|
|
|
|
|
Total
Equities |
|
|
165,754,309 |
|
40.80 |
|
|
|
|
|
|
|
|
|
|
|
|
Global Investment
Funds 6.18% |
|
|
|
|
|
(30.06.17 -
6.56%) |
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom |
|
|
|
|
|
Herald Worldwide
Fund |
GBP |
44,000 |
2,341,680 |
|
0.58 |
Ruffer Illiquid Multi
Strategies Fund 2015* |
GBP |
31,639,824 |
20,989,004 |
|
5.16 |
Weiss Korea
Opportunity Fund |
GBP |
1,100,000 |
1,793,000 |
|
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,123,684 |
|
6.18 |
|
|
|
|
|
|
Total Global
Investment Funds |
|
|
25,123,684 |
|
6.18 |
|
|
|
|
|
|
Gold & Gold
Mining Equities 5.08% |
|
|
|
|
|
(30.06.17 -
4.59%) |
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom |
|
|
|
|
|
|
|
|
|
|
|
LF Ruffer Gold
Fund* |
GBP |
13,054,495 |
20,649,601 |
|
5.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,649,601 |
|
5.08 |
|
|
|
|
|
|
Total Gold &
Gold Mining Equities |
|
|
20,649,601 |
|
5.08 |
|
|
|
|
|
|
|
|
|
|
|
|
Options
1.36% |
|
|
|
|
|
(30.06.17 -
1.69%) |
|
|
|
|
|
|
|
|
|
|
|
United
Kingdom |
|
|
|
|
|
Ruffer Protection
Strategies International* |
GBP |
19,954,731 |
5,528,259 |
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Options |
|
|
5,528,259 |
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
assets at fair value through profit or loss |
|
|
358,668,270 |
|
88.28 |
|
|
|
|
|
|
Other net current
assets |
|
|
47,639,733 |
|
11.72 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Value of
Company |
|
|
|
|
|
(attributable to redeemable participating preference
shares) |
|
406,308,003 |
|
100.00 |
These fair values are based on information available at the time of
publication and may differ from the fair values shown in the
unaudited results announcement. These fair values comply with
International Financial Reporting Standards (“IFRS”).
* Ruffer Protection Strategies International and Ruffer Illiquid
Multi Strategies Fund 2015 Ltd are classed as related parties as
they share the same Investment Manager (Ruffer AIFM Limited) as the
Company. LF Ruffer Gold Fund, LF Ruffer Japanese Fund and Ruffer
SICAV Global Smaller Companies Fund are also classed as related
parties as their investment manager (Ruffer LLP) is the parent of
the Company’s Investment Manager.
General
Information
Ruffer Investment Company Limited was incorporated in Guernsey
as a company limited by shares and as an authorised closed-ended
investment company on 1 June 2004.
The principal objective of the Company is to achieve a positive
total annual return, after all expenses, of at least twice the Bank
of England base rate. The Company
invests predominantly in internationally listed or quoted equities
or equity related securities (including convertibles) and/or bonds
which are issued by corporate issuers, supra-nationals or
government organisations.
The Company’s redeemable participating preference shares are
listed on the London Stock Exchange.
The accounting date of the Company is 30 June in each year.
These Financial Statements were authorised for issue on
11 September 2018 by the Directors.
The Investment Manager is authorised and regulated by the United
Kingdom Financial Conduct Authority as a full-scope Alternative
Investment Fund Manager (“AIFM”). The Investment Manager is
entitled to an investment management fee payable to the AIFM
monthly in arrears at a rate of 1% of the Net Asset Value per
annum.
The Investment Manager and Board intend to conduct the affairs
of the Company so as to ensure that it will not become resident in
the United Kingdom. Accordingly,
and provided that the Company does not carry on a trade in the
United Kingdom through a branch or
agency situated therein, the Company will not be subject to United
Kingdom Corporation Tax or Income Tax.
The Company intends to be operated in such a manner that its
shares are not categorised as non-mainstream pooled investments.
This means that the Company might pay dividends in respect of any
income that it receives or is deemed to receive for UK tax purposes
so that it would qualify as an investment trust if it were UK
tax-resident.
Northern Trust International Fund Administration Services
(Guernsey) Limited (the “Administrator”) is entitled to receive an
annual fee equal to 0.15 per cent. per annum on the first £100
million and 0.10 per cent. per annum thereafter on the NAV of the
Company on a mid market basis, subject to a minimum fee of £60,000
per annum.
Northern Trust (Guernsey) Limited (the “Custodian”) is entitled
to receive from the Company a fee of £2,000 per annum. The
Custodian is also entitled to charge for certain expenses incurred
by it in connection with its duties.
Northern Trust (Guernsey) Limited (the “Depositary”) is entitled
to an annual Depositary fee payable monthly in arrears at a rate of
0.01% of the Net Asset Value of the Company up to £100 million,
0.008% on the next £100 million and 0.006% thereafter as at the
last business day of the month subject to a minimum fee of £20,000
per annum.
Management and
Administration
Directors |
|
Registered Office |
|
Auditor |
Ashe
Windham
John V Baldwin
Christopher Russell
Jill May
Sarah Evans (resigned 31 January 2018)
David Staples (appointed 2 March 2018) |
|
PO Box
255
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey,
Channel Islands, GY1 3QL |
|
Deloitte
LLP
Regency Court,
Glategny Esplanade,
St. Peter Port,
Guernsey,
Channel Islands, GY1 3HW |
Investment Manager and Alternative Investment Fund
Manager |
|
Sponsor and Broker |
|
Solicitors to the Company
as to UK law |
Ruffer
AIFM Limited,
80 Victoria Street,
London, SW1E 5JL |
|
Until 1
January 2018
Cenkos Securities Plc,
6.7.8 Tokenhouse Yard,
London, EC2R 7AS
From 1 January 2018
Canaccord Genuity Limited,
88 Wood Street,
London, EC2V 7QR |
|
Gowling
WLG,
4 More London Riverside,
London, SE1 2AU |
|
|
|
|
|
Company Secretary and
Administrator |
|
CREST Agent |
|
Advocates to the Company
as to Guernsey law |
Northern
Trust International
Fund Administration Services
(Guernsey) Limited,
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey,
Channel Islands, GY1 3QL |
|
Computershare Investor
Services (Jersey)
Limited,
Queensway House,
Hilgrove Street,
St. Helier,
Jersey, JE1 1ES |
|
Mourant
Ozannes,
Royal Chambers,
St. Julian’s Avenue,
St. Peter Port,
Guernsey,
Channel Islands, GY1 4HP |
Custodian |
|
Depositary |
|
|
Northern
Trust (Guernsey)
Limited,
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey,
Channel Islands, GY1 3DA |
|
Northern
Trust (Guernsey)
Limited,
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey,
Channel Islands, GY1 3DA |
|
|