Half-yearly Report
CAPITAL GEARING TRUST P.L.C
Announcement of the Half-Year Financial Report for the six months ended 5
October 2010
Interim Management Report
Chairman's Overview
Over the six months to 5 October 2010, the net asset value per share increased
by 6.7% to an all time high of 2,631.8p and the principal objective of
producing an absolute return has once again been met. This positive return has
been achieved against a background of strong bond markets, a weak US Dollar and
a flat UK equity market. The strategy being implemented by our Investment
Manager continues to reflect the stated aim to preserve as well as grow the
assets for shareholders.
Investment Review
The rise in the net asset value of the shares in the first half of the
Company's fiscal year, may be viewed as satisfactory in the context of a fall
in the FTSE All-Share Index of 1.1% and of 3.8% in the US Dollar. Both
conventional and index linked bond markets were notably strong, especially
German bonds. Indeed from the end of June 2010, all asset classes rose in
tandem in the expectation of a further round of quantitative easing.
Within the portfolio, activity in equity markets was muted. Capital was
distributed by Active Capital, Aberdeen All Asia, Advance UK, Ceres Agriculture
and Tapestry. Some of that was reinvested in equities, like Invesco Perpetual
UK Smaller Companies, Hansa and Jupiter Green on around 20% discounts, but some
was diverted into gold where the weighting was raised to 2%. That increase may
seem trivial, but index linked bonds still seem to be more secure than gold and
yet have many of the same characteristics in defending against inflation, and
with less volatility.
In bond markets, some profits were taken in Switzerland to take advantage of a
dramatically strong currency and switched into German bonds and Swedish index
linked, where the currency looked attractive. The portfolio has a complementary
balance of investments which are beneficiaries of deflation and inflation.
Investment Outlook
The economic background in the Western world remains the same. Excessive debt
has initiated a balance sheet recession that is likely to lead to an extended
period of below trend growth or, from time to time, worse. That down cycle,
though, is moderated by inventory cycles, capex cycles and stimulus cycles. All
these lesser cycles were positive in the spring of 2010, but look less reliable
in the second half. In particular, fiscal stimulus will be negative in the UK,
the Eurozone and the US. By contrast, continued monetary accommodation is in
prospect in the US and the UK; in the latter, seemingly explicitly to reward
fiscal discipline and to counterbalance its contractionary effects.
Nevertheless, with a fiscal consolidation of 1.4% of GDP in each of the four
years from 2011, the outlook for UK growth must be constrained. Multipliers
(i.e. the relationship between fiscal changes and consequent changes in GDP)
are quite controversial now among economists, but 1.5 times was thought to be a
reasonable estimate; implying that growth will be 2% less than would otherwise
have occurred. With many countries in a similar position, the attractions of a
devalued currency, allowing exports to support employment and growth, are
clear. However, if final demand is moderate, the outlook for corporate profits
is less rosy than consensus estimates imply.
The response by central banks is crucial. In the UK and the US, another
generous bout of printing can boost asset prices in the short term and the
general price level in the long term. For that reason, the portfolio emphasises
inflation protected bonds in both countries. In Europe, there is less
enthusiasm for monetary debasement and conventional bonds should do well. The
Euro itself looks vulnerable to fracturing, but, in this event, the currency of
Germany should rise and that is another attraction of Bunds.
Sterling has been boosted by the promise of fiscal discipline and may stay firm
as long as that programme looks sustainable, the political coalition can hang
together and printing is restrained. All these propositions look doubtful over
the longer term.
Investment trusts continue to be attractive and selectively can continue to
outperform their underlying markets.
Issue of Shares
As stated in our Annual Report, the Board operates an informal discount/premium
control mechanism in order to help satisfy market supply and demand imbalances.
As announced on 6 August 2010 and in accordance with the authority given to
Directors at the 2010 Annual General Meeting, 40,000 Ordinary Shares were
issued at a price of £28.25, representing a 14.7% premium to the prevailing net
asset value.
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Company were explained in
detail within the Annual Report issued in May 2010. The Directors are not aware
of any new risks or uncertainties and those stated within the Annual Report
continue to be the same for the Company and its investors for the period under
review and moving forward.
Related Party Transactions
Details of related party transactions are contained in the Annual Report issued
in May 2010. There have been no further related party transactions and there
have been no material changes in the nature and type of the related party
transactions as stated within the Annual Report.
Captain OWJ (Bill) Henderson
Finally, many long standing shareholders will be sorry to learn of the recent
death of Captain Bill Henderson. Bill was one of the founding Directors of the
Company. He served as a Board member from 1963 until his retirement in 1998 and
undoubtedly made a valuable contribution to its early success.
Statement of Directors' Responsibilities
Each of the Directors confirm that, to the best of their knowledge:
(a) The condensed set of financial statements has been prepared in accordance
with the Accounting Standards Board's statement 'Half-Yearly Financial
Reports';
(b) The Interim Management Report includes a fair review of the information
required by Disclosure and Transparency Rule 4.2.7R (indication of important
events during the first six months of the financial year and description of
principal risks and uncertainties for the remaining six months of the financial
year); and
(c) The Interim Management Report includes a fair review of the information
required by Disclosure and Transparency Rule 4.2.8R (disclosure of related
party transactions and changes therein).
The condensed set of financial statements are published on the Company's
website, www.capitalgearingtrust.com, which is a website maintained by TMF
Corporate Secretarial Services Limited. The Directors are responsible for the
maintenance and integrity of the Company's corporate website and financial
information included within the website. The work carried out by the Auditors
does not involve consideration of the maintenance and integrity of the website
or any other website upon which the financial statements may be published and
accordingly, the Auditors accept no responsibility for any changes that may
occur following presentation on a website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
For and on behalf of the Board
Mr T R Pattison
Chairman
4 November 2010
Distribution of Investment Funds
at 5 October 2010
Distribution of Investment Funds of £74,317,000 (5 April 2010: £68,309,000)
5 October 5 April
North 2010 2010
UK America Europe Elsewhere Total Total
% % % % % %
----------------------------------------------------------------------------------------
Investment Trust Assets:
Ordinary shares 10.6 3.6 4.3 7.1 25.6 19.8
Endowment funds 0.3 - - - 0.3 0.3
Zero dividend preference
shares 12.3 - - - 12.3 12.2
Other Assets:
Index linked 9.6 20.3 3.1 - 33.0 33.4
Fixed interest 2.3 - 25.2 - 27.5 26.5
Floating interest 0.6 - - - 0.6 0.7
Cash held by the custodian
awaiting investment 0.7 - - - 0.7 7.1
----------------------------------------------------------------------------------------
36.4 23.9 32.6 7.1 100.0 100.0
========================================================================================
Major Investments of the Company
at 5 October 2010
Market value greater than £500,000
5 October
2010
£'000
-----------------------------------------------------------------
Investment Trust Ordinary Shares and Endowment Funds:
North Atlantic Smaller Companies 2,088
ETFS Metal Securities Ltd (physical gold) 1,500
Mithras Investment Trust 1,165
TR Property Investment Trust Sigma 975
London & St Lawrence Investment Company 857
Close European Accelerated Fund 692
SR European Investment Trust 692
Oryx International Growth Fund 688
Hansa Trust A Non-Voting 596
Henderson Global Property Companies Ltd 590
Renewable Energy Generation 559
Advance Developing Markets Subscription Shares 525
Other (47 investments) 8,345
-----------------------------------------------------------------
19,272
=================================================================
Investment Trust Zero Dividend Preference Shares:
Utilico Finance Ltd 2012 1,728
EW&PO Finance plc 1,309
EPIC Securities 1,037
M&G High Income Investment Trust 768
M&G Equity Investment 649
Utilico Finance Ltd 2016 596
Jupiter Second Split Trust 576
Edinburgh New Income Trust 511
Other (9 investments) 1,972
-----------------------------------------------------------------
9,146
=================================================================
Index Linked Securities:
Treasury 1.25% Index Linked 2017 4,416
USA Treasury 1.75% Index Linked Bonds 2028 4,025
USA Treasury 1.375% Index Linked Bonds 2018 2,994
USA Treasury 2% Index Linked Bonds 2016 2,965
USA Treasury 2% Index Linked Bonds 2026 2,281
Treasury 1.25% Index Linked 2027 1,759
Sweden (Kingdom of) 3.5% Index Linked Bonds 2028 1,567
Canada (Govt of) 4% Index Linked 2031 1,212
USA Treasury 3.625% Index Linked Bonds 2028 1,141
Treasury 2.5% Index Linked 2016 942
Sweden (Kingdom of) 4% Index Linked Bonds 2020 766
Other (2 investments) 469
-----------------------------------------------------------------
24,537
=================================================================
Fixed Interest Securities:
Germany (Federal Republic) 4% Bonds 2037 3,902
Switzerland (Govt of) 3% Bonds 2018 3,664
France (Govt of) 5.5% OAT 2029 3,421
Germany (Federal Republic) 4.75% Bonds 2028 3,297
Switzerland (Govt of) 2% Bonds 2014 2,401
Germany (Federal Republic) 4.75% Bonds 2034 1,252
The Cayenne Trust 3.25% Convertible Unsecured Loan
Stock 2011 798
Switzerland (Govt of) 2.5% Bonds 2036 766
Other (5 investments) 929
-----------------------------------------------------------------
20,430
=================================================================
Floating Interest:
Smith & Williamson Investment Funds (cash) 451
=================================================================
Total investments 73,836
Cash held by the custodian awaiting investment 481
-----------------------------------------------------------------
Total investment funds 74,317
=================================================================
Independent Review Report to Capital Gearing Trust p.l.c
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the Half-Year Financial Report for the six months ended 5 October
2010, which comprises the Income Statement, Statement of Total Recognised Gains
and Losses, Reconciliation of Movements in Shareholders' Funds, Balance Sheet,
Cash Flow Statement and related notes. We have read the other information
contained in the Half-Year Financial Report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The Half-Year Financial Report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the Half-Year
Financial Report in accordance with the Disclosure and Transparency Rules of
the UK's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Company are
prepared in accordance with applicable law and UK Accounting Standards (UK
Generally Accepted Accounting Practice). The condensed set of financial
statements included in this Half-Year Financial Report has been prepared in
accordance with pronouncements on half-yearly financial reports issued by the
UK Accounting Standards Board.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Half-Year Financial Report based on our
review. This report, including the conclusion, has been prepared for and only
for the Company for the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Half-Year
Financial Report for the six months ended 5 October 2010 is not prepared, in
all material respects, in accordance with the Statement 'Half-Yearly Financial
Reports' issued by the UK Accounting Standards Board and the Disclosure and
Transparency Rules of the UK's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
Belfast
4 November 2010
Income Statement (unaudited)
for the six months ended 5 October 2010
(unaudited) (unaudited) (audited)
6 months 6 months Year
ended ended ended
5 October 5 October 5 April
2010 2009 2010
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
----------------------------------------------------------------------------------------------------
Net gains on
investments - 5,312 5,312 - 7,349 7,349 - 9,566 9,566
Exchange
(losses)/gains - (234) (234) - (530) (530) - 299 299
Investment
income (note 2) 599 - 599 713 - 713 1,317 - 1,317
----------------------------------------------------------------------------------------------------
Gross return 599 5,078 5,677 713 6,819 7,532 1,317 9,865 11,182
Investment
management fee (91) (212) (303) (79) (185) (264) (165) (384) (549)
Transaction
costs - (34) (34) - (33) (33) - (70) (70)
Other expenses (187) - (187) (154) - (154) (315) - (315)
----------------------------------------------------------------------------------------------------
Net return
on ordinary
activities
before tax 321 4,832 5,153 480 6,601 7,081 837 9,411 10,248
Tax (charge)
/credit on
ordinary
activities (51) 44 (7) (66) 39 (27) (171) 96 (75)
----------------------------------------------------------------------------------------------------
Net return
attributable
to equity
shareholders 270 4,876 5,146 414 6,640 7,054 666 9,507 10,173
====================================================================================================
Return per
Ordinary
Share (note 3) 9.62p 173.63p 183.25p 14.81p 237.58p 252.39p 23.83p 340.15p 363.98p
====================================================================================================
The total column of this statement is the Income Statement of the Company. The
revenue return and capital return columns are supplementary to this and are
prepared under guidance issued by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
Statement of Total Recognised Gains and Losses (unaudited)
for the six months ended 5 October 2010
(unaudited) (unaudited) (audited)
6 months 6 months Year
ended ended to
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
-----------------------------------------------------------------------------------------
Net return attributable to equity shareholders 5,146 7,054 10,173
-----------------------------------------------------------------------------------------
Total gains and losses recognised for the period 5,146 7,054 10,173
=========================================================================================
Reconciliation of Movements in Shareholders' Funds(unaudited)
for the six months ended 5 October 2010
Capital Capital
Called reserve reserve
up Share Capital arising on arising on
share premium redemption investments investments Revenue
capital account reserve held sold reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
-----------------------------------------------------------------------------------------
Balance at
6 April
2010 699 8,114 16 9,951 48,417 1,765 68,962
Issue of
shares 10 1,120 - - - - 1,130
Exchange
(losses)/gains
on investments - - - (290) 56 - (234)
Net losses
on realisation
of investments - - - - (3) - (3)
Net increase
in unrealised
gains - - - 5,315 - - 5,315
Transfer on
disposal of
investments - - - (2,523) 2,523 - -
Transaction
costs - - - (31) (3) - (34)
Costs charged
to capital - - - - (212) - (212)
Tax on costs
charged to
capital - - - - 44 - 44
Net revenue
for the period - - - - - 270 270
-----------------------------------------------------------------------------------------
Total 709 9,234 16 12,422 50,822 2,035 75,238
-----------------------------------------------------------------------------------------
Dividends
(note 4) - - - - - (629) (629)
-----------------------------------------------------------------------------------------
Balance at
5 October 2010 709 9,234 16 12,422 50,822 1,406 74,609
=========================================================================================
for the six months ended 5 October 2009
Capital Capital
reserve reserve
Called up Share Capital arising on arising on
share premium redemption investments investments Revenue
capital account reserve held sold reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
-----------------------------------------------------------------------------------------
Balance at
6 April 2009 699 8,114 16 3,247 45,614 1,714 59,404
Issue of
shares - - - - - - -
Exchange
losses on
investments - - - (530) - - (530)
Net gains
on realisation
of investments - - - - 2,156 - 2,156
Net increase
in unrealised
gains - - - 5,193 - - 5,193
Transfer on
disposal of
investments - - - 1,444 (1,444) - -
Transaction
costs - - - (28) (5) - (33)
Costs charged
to capital - - - - (185) - (185)
Tax on costs
charged to
capital - - - - 39 - 39
Net revenue
for the period - - - - - 414 414
-----------------------------------------------------------------------------------------
Total 699 8,114 16 9,326 46,175 2,128 66,458
-----------------------------------------------------------------------------------------
Dividends
(note 4) - - - - - (615) (615)
-----------------------------------------------------------------------------------------
Balance at
5 October 2009 699 8,114 16 9,326 46,175 1,513 65,843
=========================================================================================
Balance Sheet(unaudited)
at 5 October 2010
(unaudited) (unaudited) (audited)
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
----------------------------------------------------------------------
Fixed assets
Listed investments 73,836 62,723 63,462
----------------------------------------------------------------------
Current assets
Debtors 990 3,051 5,322
Cash at bank 31 401 402
----------------------------------------------------------------------
1,021 3,452 5,724
Creditors: amounts falling due
within one year (248) (332) (224)
----------------------------------------------------------------------
Net current assets 773 3,120 5,500
----------------------------------------------------------------------
Net assets 74,609 65,843 68,962
======================================================================
Capital and reserves
Called up share capital 709 699 699
Share premium account 9,234 8,114 8,114
Capital redemption reserve 16 16 16
Capital reserve arising on
investments held 12,422 9,326 9,951
Capital reserve arising on
investments sold 50,822 46,175 48,417
Revenue reserve 1,406 1,513 1,765
----------------------------------------------------------------------
Total equity shareholders' funds 74,609 65,843 68,962
======================================================================
Net asset value per Ordinary
Share 2,631.8p 2,355.8p 2,467.4p
======================================================================
The Half-Year Financial Report for the six months ended 5 October 2010 was
approved by the Board of Directors on 4 November 2010 and signed on its behalf
by:
Mr T R Pattison
Chairman
4 November 2010
Cash Flow Statement(unaudited)
for the six months ended 5 October 2010
(unaudited) (unaudited) (audited)
6 months 6 months Year
ended ended ended
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
-----------------------------------------------------------------------
Net cash inflow from operating
activities (note 5) 93 296 422
-----------------------------------------------------------------------
Foreign tax paid on investment
income - - (64)
-----------------------------------------------------------------------
Corporation tax paid - - (78)
-----------------------------------------------------------------------
Capital expenditure and financial
investment
Payments to acquire investments (13,638) (5,624) (15,093)
Receipts from sale of investments 8,307 7,238 18,976
-----------------------------------------------------------------------
(5,331) 1,614 3,883
-----------------------------------------------------------------------
Equity dividends paid (629) (615) (615)
-----------------------------------------------------------------------
Management of liquid resources
Change in cash held by the
custodian awaiting investment 4,366 (1,528) (3,780)
-----------------------------------------------------------------------
Financing
Issue of ordinary share capital 1,130 - -
-----------------------------------------------------------------------
Decrease in cash (note 6) (371) (233) (232)
=======================================================================
Notes to the Financial Statements
1 Accounting policies
The financial information for the six months to 5 October 2010 and 5 October
2009, and year ended 5 April 2010 has been prepared under the historical cost
convention, modified to include the revaluation of investments and in
accordance with Accounting Standards applicable in the UK, pronouncements on
interim reporting issued by the UK Accounting Standards Board and the Statement
of Recommended Practice for Investment Trusts issued in January 2009 by the
Association of Investment Companies (the 'AIC'). The half-year financial
statements have been prepared on the basis of the accounting policies set out
in the financial statements for the year ended 5 April 2010.
2 Investment income
6 months to 6 months to Year to
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
----------------------------------------------------------------------------------
Income from investments:
Income from UK bonds 98 158 271
Income from UK equity and non-equity investments 78 171 275
Overseas interest 421 383 767
----------------------------------------------------------------------------------
597 712 1,313
Deposit interest 2 1 4
----------------------------------------------------------------------------------
Total income 599 713 1,317
==================================================================================
3 Return per Ordinary Share
The calculation of return per Ordinary Share is based on results after tax divided
by the weighted average number of shares in issue during the period of
2,808,239 (2009: 2,794,906).
The revenue, capital and total return per Ordinary Share is shown on the Income Statement.
4 Dividends
6 months to 6 months to Year to
5 October 2010 5 October 2009 5 April 2010
--------------------------------------------------------------
Pence per share 22.5p 22.0p 22.0p
Total cost £629,000 £615,000 £615,000
==============================================================
5 Reconciliation of net revenue before finance costs and taxation
to net cash inflow from operating activities
6 months to 6 months to Year to
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
---------------------------------------------------------------------------------
Net revenue before finance costs and taxation 321 480 837
Investment management fee charged to capital (212) (185) (384)
(Increase)/decrease in accrued income (46) 3 1
Increase/(decrease) in creditors 18 - (16)
Decrease/(increase) in debtors 12 (2) (16)
---------------------------------------------------------------------------------
Net cash inflow from operating activities 93 296 422
=================================================================================
6 Reconciliation of net cash flow to movement in net funds
6 months to 6 months to Year to
5 October 5 October 5 April
2010 2009 2010
£'000 £'000 £'000
------------------------------------------------------------------------
Net funds at beginning of the period 402 634 634
Decrease in cash for the period (371) (233) (232)
------------------------------------------------------------------------
Net funds at the end of the period 31 401 402
========================================================================
7 Taxation
Capital returns and dividend income are not subject to corporation tax within
an investment trust company. The provision for corporation tax arises from the
excess of unfranked investment income over management expenses.
8 Issue of Ordinary Shares
During the period the Company issued 40,000 Ordinary Shares for a consideration
of £1,130,000.
9 General information
The financial information contained in this Half-Year Financial Report does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information for the half-years ended 5 October 2009 and 5
October 2010 has been reviewed but not audited by the Company's Auditors. The
abridged financial information for the year ended 5 April 2010 has been
extracted from the Company's statutory accounts for that year, which have been
filed with the Registrar of Companies. The report of the Auditors on those
accounts was unqualified and did not contain a statement under either Section
498(2) or Section 498(3) of the Companies Act 2006.
A copy of this announcement and other documents of the Company are available on
the Company's website at www.capitalgearingtrust.com. A pdf copy of the
printed Half-Year Financial Report, for posting to shareholders, will also be
available shortly on the website.
Monday, 20th May 2024
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