Preliminary Announcement of Results
CAPITAL GEARING TRUST P.L.C.
28 May 2015
Annual Financial Results for the year ended 5 April 2015
The directors of Capital Gearing Trust P.l.c. announce the results for the year
ended 5 April 2015.
Performance Summary 5 April 2015 5 April % Change
2014
Share price 3,316.5p 3,339.5p -0.7
Net asset value per share 3,297.6p 3,119.7p 5.7
Premium 0.6% 7.0% -
Shareholders' funds £96.5m £91.3m 5.7
Market capitalisation £97.1m £97.7m -0.6
Ongoing charges percentage* 0.96% 1.24% -
Dividend per Ordinary share:
Ordinary 20.00p 16.00p 25.0
* Ongoing charges calculation prepared in accordance with the recommended
methodology of the Association of Investment Companies
CHAIRMAN'S STATEMENT
Overview
As at 5 April 2015, the net asset value (NAV) per share was 3,297p compared to
3,119p, on 5 April 2014. As it is the Company's stated policy to achieve growth
in absolute terms, it is pleasing to be able to report that the NAV stood at an
all-time high at the financial year-end. In a period when most asset classes
produced both actual and real positive returns this might have been expected
but as ever, a conscious effort to protect capital values is also a feature of
the Company's investment objective. As a result, during periods of market
exuberance this often means sacrificing potential short term returns for the
sake of protecting current values. Over the longer term, the cumulative effect
of positive compound returns leads to outperformance as demonstrated in the
Company's performance record.
Dividend
Last year, a total distribution of 16p per Ordinary share was made. At this
year's annual general meeting (the "AGM"), the Board will be recommending a
distribution of 20p per Ordinary share.
Annual general meeting
This year, the AGM will be held in London at the Embankment Place offices of
PricewaterhouseCoopers LLP on Wednesday 8 July 2015 at 11.00 a.m. The notice
convening the fifty-second AGM of the Company is set out at the end of this
document and I and the rest of the Board look forward to meeting you then. As
in previous years, after the formal business of the meeting has concluded, our
investment manager will be making a short presentation on the outlook for
markets and the Company's investments, including a shareholders' question and
answer session.
Proposed zero discount/premium management policy
The Board is committed to offering shareholders the periodic opportunity to
realise their investment in the Company. Historically this has been honoured by
a sale and purchase facility that operated every seven years. The Company has
also been committed to buying back its shares if a material discount ever
emerged and issuing new shares if the share price reached a 15% premium to NAV
per share.
The Board is proposing an evolution of its existing policies by adopting a new
zero discount/premium management policy. Under this new policy the Company will
purchase or issue shares to ensure, in normal market conditions, that the
shares trade as close as possible to their underlying NAV per share. If
approved by shareholders, the zero discount/premium policy would replace the
existing offer of a periodic opportunity for shareholders to realise their
investment in the Company with immediate effect. The resolution to approve the
adoption of the new policy will be set out in the notice of the AGM and will be
proposed as an ordinary resolution.
The Board believes the adoption of the proposed new zero discount/premium
management policy will have the following benefits and impacts:
Improved liquidity in the Company's shares
Secondary market trading in the Company's shares is limited, resulting in wide
bid offer spreads and high transaction costs for shareholders. By making the
liquidity of the Company's portfolio available symmetrically around NAV per
share it is anticipated market makers will be prepared to transact larger
orders with tighter spreads.
Potential reduction of ongoing costs
If the proposed new policy is approved by shareholders the Company could meet
excess demand for shares by issuing at a small premium. This would have the
impact of spreading the fixed costs of the Company over a broader shareholder
base, reducing ongoing costs of ownership per share. In addition, if the
Company's NAV increases the manager proposes a lower fee on incremental assets
managed above certain bands. The current investment management fee of 0.6%
would reduce to 0.45% on incremental NAV above £120m and below £500m. The fee
level would further reduce to 0.3% on any incremental net asset value above £
500m. The Board does not anticipate material issuance of shares in the short
term, however even modest share issuance would ameliorate the ever growing
costs associated with the regulatory compliance of the Company.
Reduced premium volatility
The Company has achieved low volatility NAV accretion over a long period of
time, however due to the changes of the premium at which shares trade relative
to underlying NAV per share, the Company's share price has been more volatile
than the underlying portfolio. The proposal would materially reduce the
volatility associated with the variation in the level of the premium.
Portfolio liquidity requirements
The proposed adoption of the new policy will require a sufficient proportion of
liquid securities within the Company's portfolio to fund share repurchases. In
practice this liquidity requirement already exists as the Board has committed
to buy shares to manage any discount, so there are no short term implications
for investment management. However, if the manager was to adopt a greater
equity weighting it is likely that a portion of the holdings would need to be
held in liquid securities including ETFs and open-ended funds.
The zero discount/premium policy can be expected to operate in normal market
conditions. However the operation of the policy is dependent on the directors
having requisite shareholder authority to buy-back and issue new shares and
being satisfied that any offer or purchase of shares is in the best interest of
shareholders of the Company as a whole. If market discontinuity made it
difficult to ascertain the true NAV the mechanism would cease to operate for
such time that a true NAV could be identified.
If passed at the AGM, certain resolutions will authorise the directors to issue
new shares on a non pre-emptive basis representing up to 10% of the Company's
issued share capital as at the date of the AGM and another proposed resolution
will authorise the directors to buy-back shares representing up to 14.99% of
the Company's issued share capital as at the same date. These authorities will
be used to implement the new policy and the Board intends to seek renewal of
these authorities from shareholders at each subsequent annual general meeting.
In the event that the directors exhaust any of the authorities required to
implement the new zero discount/premium management policy before the next AGM,
the Board will consider seeking shareholder approval to renew the relevant
authorities at an earlier general meeting.
Nothing in the proposed new policy would require the directors to pursue
actions that would cause the Company to contravene any applicable law or rule
or regulation of any government, regulatory body or stock market authority nor
require it to publish a prospectus in connection with any share issuance
pursuant to the new policy.
In the event that the resolution to approve the new policy is not approved by
shareholders, the Board intends to offer shareholders the opportunity to
realise their investment in the Company, at a price that fairly reflects the
underlying net asset value of their investment, in September 2015, in
accordance with the Board's previous public statements.
The Board
As mentioned in last year's report, it is the Board's intention to
progressively refresh its membership and to ensure that the individuals serving
as directors have the appropriate mix of complementary skills to ensure
effective corporate governance. To this end and as announced previously, I am
delighted to report that Jean Matterson and Robin Archibald have joined the
Board of the Company since the year end. In accordance with the Company's
articles of association they will offer themselves for election at the AGM in
July.
Having been a serving director since 1985, and Chairman since 2005, I have
decided not to stand for re-election at the AGM. Mr Meek has agreed to take
over the Chairmanship. I would like to take this opportunity to pay tribute to
my fellow directors, both past and present for their support and assistance
over the years. I would also like to thank our service providers and the
directors and staff at the Association of Investment Companies for their
invaluable input and advice.
Meanwhile, Mr Meek will retire at the AGM and offer himself for re-election.
Alternative Investment Fund Managers Directive
As highlighted previously, the Company is an 'Alternative Investment Fund'
("AIF"), as defined by the Alternative Investment Fund Managers Directive
("AIFMD"). The Company is registered under the Directive as a 'small internally
managed AIF'. The Company's position in relation to the AIFMD is being
continually monitored. The Board is in the process of undertaking a wider due
diligence process in respect of its third party suppliers, including
investigating the possibility of applying for full scope authorisation.
Outlook
For the reasons alluded to in the investment manager's report, most asset
classes look overvalued at present and after a period of pronounced strength, a
global market correction appears to be overdue. In what is my final report to
shareholders I am however pleased to report that the Company is in a very
strong position to take advantage of any pronounced weakness in markets that
may occur and in the meanwhile will endeavour to enhance and preserve
shareholder value.
Mr T R Pattison
Chairman
28 May 2015
INVESTMENT OBJECTIVE AND INVESTMENT POLICY
The Company's objective is to achieve capital growth in absolute terms rather
than relative to a particular stock market index. The preservation of
shareholders' wealth is an important consideration in fulfilling this objective
and has a strong underlying influence on the Company's investment policy.
The Company uses the Retail Price Index ("RPI") as a comparator. However, such
a comparator is not used as a reason to suspend the exercise of investment
judgement by CG Asset Management Limited ("CGAM") as investment manager, or by
the Board.
INVESTMENT POLICY
Policy and risk
To meet its objective, the Company's long-term investment policy is to invest
primarily in quoted closed-ended and other collective investment vehicles with
a willingness to hold cash, bonds, index-linked securities and commodities when
appropriate.
Recognising the diverse attributes of most closed-ended investment companies
and collective investment instruments, as well as the lower-risk
characteristics attached to the other principal asset classes in which the
Company invests, a flexible approach to asset allocation is adopted. CGAM and
the Board monitor the investment portfolio regularly and amend investments and
asset allocation as necessary to maximise shareholder returns.
The Board recognises a number of risks associated with operating in a
regulatory environment and monitors operations closely in conjunction with
their advisors in relation to sections 1158 to 1162 of Corporation Tax Act
2010, the UKLA Listing Rules and the Companies Act 2006. CGAM reports to the
board regularly in this respect and the Board monitors compliance with these
regulations.
Asset allocation
Subject to Listing Rule 15.2.5, a maximum (100%) exposure to each of the asset
categories mentioned above is allowable, provided that such exposure is deemed
to be in the best interests of shareholders in achieving the Company's
objective. Such extreme positions are however unlikely and are subject to Board
approval. It is anticipated that under most market conditions, a broad mix of
assets is likely to continue to be maintained and a maximum 80% exposure to
either equity or fixed-interest securities, including index-linked securities
and cash, may be held before requiring Board consideration and approval.
The maximum proportion of the Company's gross assets that can be held in other
UK-listed investment companies (which do not have a stated investment policy to
invest no more than 15% of their gross assets in other UK investment companies)
is 10% in accordance with Listing Rule 15.2.5. It is however the aim of the
Company to maintain a maximum 6% investment level in such companies in order to
avoid any potential breach of this rule and to maintain investment flexibility.
The investment manager has the authority to invest in any geographical region
and has no set limits on industry sector or country exposure. However, the
Company will not invest more than 15% of its investment portfolio in any single
investment or acquisition without prior Board approval.
Gearing
The gearing range of the Company at any one time shall be between 0% and 20% of
NAV at the time of acquisition and shall be subject to prior Board approval.
Gearing in excess of the maximum range is subject to prior Board approval.
Additional elements
The Board will from time to time consider investments in derivatives such as
guarantees, options and currency. Such investments may only be made for the
purpose of efficient portfolio management and are subject to prior Board
approval, which may only be granted following an in-depth review of the
investment, the potential return for shareholders and the regulatory impact on
the Company. Additionally, investments in other funds managed by CGAM or by
associates of CGAM will be considered by the Board on a case by case basis and
are subject to Board approval.
Voting policy
It is the Company's voting policy in respect of its investee companies that the
custodian should vote all the Company's shares through its delegated authority
from the Board. The exercise of voting rights attached to the Company's
portfolio has been delegated to CGAM, and includes on its website a disclosure
about the nature of its commitment to the FRC's Stewardship Code; details may
be found at www.cgasset.com. Corporations are playing an increasingly important
role in global economic activity, and the adoption of good corporate governance
enhances a company's economic prospects by reducing the risk of government and
regulatory intervention and any ensuing damage to its business or reputation.
The investment manager engages actively, where appropriate, with the underlying
investee companies to encourage good governance practices.
INVESTMENT STRATEGY AND BUSINESS MODEL
Capital Gearing Trust seeks to deliver absolute returns through the
construction of multi asset portfolios with a specialist focus on investment
trust equities and related securities. Portfolio construction is the key tool
to mitigate capital loss in any given year. The fund manager allocates across
asset classes based on an assessment of capital markets and macro-economic
risks, with the aim of avoiding capital loss. In addition a portion of the
portfolio is invested into the investment trust market with the aim of
exploiting inefficiencies to generate risk adjusted returns that are superior
to those available in more liquid equity markets.
KEY PERFORMANCE INDICATORS ("KPIs")
The Board monitors numerous KPI indices and ratios for the purpose of assessing
and reporting investment performance. The Company seeks to achieve capital
growth in real terms over both short-term and long-term periods. The Board
monitors the performance of the investment manager against RPI over the short
term (3 years) and the FTSE All Share over the longer term (10 years).
In addition, the Board monitors the following KPIs:
* Share price premium/discount to NAV, an important measure of demand for the
Company's shares and a key indicator of the need for shares to be bought
back or issued. At the start of the year under review the premium to NAV
was 7.0% compared with 0.6% at the year end.
* Ongoing charges percentage, calculated using the methodology recommended by
the Association of Investment Companies which enables the Board to measure
the control of costs and help in meeting the dividend payment objective.
This percentage was 0.96% for the year to 5 April 2015 (2014: 1.24%).
* Peer group comparison, using a selected group of investment trusts of
similar size and strategy.
PRINCIPAL RISKS AND UNCERTAINTIES
The directors 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.
Premium/Discount level
The Board operates a discount control mechanism and will buy in shares as and
when necessary to manage the discount at an appropriate level close to NAV.
Currently the Company issues new shares at a 15% premium to NAV. One of the
special business resolutions being put to shareholders at this year's AGM would
mean that shares would be issued at a smaller premium to NAV, reducing premium
volatility.
Stock price
Uncertainty of future stock prices presents a risk in relation to potential
losses on market positions held. The Board, with the investment manager,
consider asset allocation on a regular basis to minimise potential risks where
possible.
Register of members
The Board reviews all large transactions and periodically considers a full
shareholder analysis. In the event of activist shareholders being attracted
onto the register, the Board would be able to consider quickly whether any
action was required.
Other risks
Risks associated with the Company's financial instruments include market price,
interest rate, foreign currency and credit; information relating to such risks
is given in note 19 to the financial statements. Other risks are identified and
managed by the Company's internal control and risk management system.
EMPLOYEE, HUMAN RIGHTS, SOCIAL AND ENVIRONMENTAL MATTERS
The Board recognises the requirement under section 414C Companies Act 2006 to
provide information about employees, human rights and community issues,
including information in respect of any policies it has in relation to these
matters and their effectiveness. These requirements do not apply to the Company
as it has no employees, all directors are non-executive and it has outsourced
all its functions to third-party providers. The Company has therefore not
reported further in respect of these provisions.
The Company has limited direct impact on the environment. It invests primarily
in closed-ended and other collective investment vehicles or government bonds.
The sectors chosen do not generally raise ethical issues. The Board monitors
and is satisfied with the underlying investee companies' policies to act with
due regard to community, welfare and environmental factors. The Company aims to
conduct itself responsibly, ethically and fairly and has sought to ensure that
CGAM's management of the portfolio of investments takes account of social,
environmental and ethical factors where appropriate.
GENDER AND DIVERSITY
At the end of the year under review, the Board comprised four male directors.
The Board supports the principle of boardroom diversity in its broadest sense,
in terms of gender, expertise, geographic background, age and race. Our Company
is specialised and our priority to shareholders is to have a board with the
specialist abilities to look after the Company's investments. In addition, the
Board should be able to demonstrate with conviction that any new appointee
would make a meaningful contribution. It is the Board's policy to review its
composition regularly and, when appropriate, to refresh the Board through
recruitment, with the aim of having the blend of skills and attributes that
will best serve shareholders in the future.
INVESTMENT MANAGER'S REPORT
Review
Over the last year we have looked on with concern as every asset class held in
the fund increased in value, at the same time. In a portfolio carefully
designed to contain negatively correlated assets this universal progress is the
result of successive waves of liquidity driving asset prices further away from
their fundamental anchors. The most distinctive feature of the current
portfolio is the 45% allocation to a combination of cash and short duration
assets. These defensive assets include cash (9% of portfolio), nominal bonds
holdings (11% of portfolio), zero dividend preference shares (20% of portfolio)
and convertible debt securities (6% of portfolio). Collectively these assets
can be considered a store of dry powder waiting to be deployed into riskier
assets when value and fundamentals are more closely aligned. As waves of
quantitative easing have pushed investors into risky assets, the Company has
been consciously moving in the opposite direction; increasing its holding in
low yielding but low risk assets.
To state the obvious there is significant opportunity cost associated with such
an elevated holding of low yielding assets. Fortunately where the Company was
exposed to risk assets they performed well in the period. The investment trust
ordinary share holdings (28% of the portfolio) performed ahead of broader
indices e.g the FTSE All-Share. Notwithstanding the strong performance the
allocation remains limited as investment trust discounts are unusually narrow
and liquidity is exceptionally poor. All investors in this market should have a
very firm eye on the significant risk of discount widening should the stock
market suffer a setback. With this in mind the fund fully exited its holding in
Strategic Equity Capital plc after an exceptionally strong run. Having
established a position shortly after the financial crisis when discounts were
c.25%, the position has been amongst the most profitable in the portfolio with
very strong underlying asset value progression and a complete elimination of
the discount. The proceeds from large maturing positions like these have been
reinvested into a range of smaller positions with structural protection against
discount risk and/or defined liquidity events.
As always, not all our positions were helpful. A large holding in Renewable
Energy Generation plc ("REG") which operates and develops renewable energy
projects had a very poor year, falling 20%. REG's net asset value is
underpinned by significant holdings of highly cash generative and realisable
assets, an obvious attraction for a value hunter. However, as a good example of
the liquidity risks lurking in these markets, one large shareholder exiting was
sufficient to cause a torrid year in share price terms.
The star performer in the year was last year's Achilles' heel, the US index
linked bond position (15% of the portfolio). The twin benefits of Dollar
appreciation relative to Sterling and a reduction in real interest rates
delivered double digit returns in Sterling terms. The duration of the index
linked portfolio continues to fall and is now less than 6 years, the shortest
in the Company's history. This reduction in duration is consistent with an
overall trend of de-risking across the portfolio.
Outlook
The phrase 'new normal' is bandied around to describe a world where growth is
subdued for a prolonged period, interest rates will stay low and inflation is
modest or absent. There is, however, nothing remotely normal about current
asset prices that have arisen from the distortions caused by QE. At the time of
writing, about $2.5 trillion worth of bonds carry a negative nominal yield;
that is not optimism, it is a sign of distress. Furthermore, these low rates
are priced to continue, the one year real rate of interest in the US in four
years' time is expected by the market to be less than 0.4%. This is around a
quarter of the rate that would be expected in a normalised economy.
In fact, this implicit forecast may prove to be correct, at least
directionally. The consensus among economic policy makers is very doveish. A
long shadow has been cast from 1937, when policy is believed to have been
tightened too soon, plunging the US economy back into depression. As a result,
short interest rates, which on any historical criteria should already be higher
in both the US and the UK look set to remain accommodative until very late in
the cycle. Early signs of inflation or wage pressure will be tolerated.
Against this background of distorted short and long term interest rates,
equities have been able to grind higher. In fact, the connection has been quite
direct as companies borrow to buy in their own stock - by far the largest
source of demand for equities in the US. That points to the likely catalyst to
correct the elevated levels of equities. Either disappointing earnings,
reducing the earnings yield, or increasing yields on debt would put pressure on
the validity of the exercise. Certainly, any 'normal' level of interest rates
would wholly undermine it. In the meantime, companies are distributing through
dividends and buybacks all the returns that they make; an unprecedented
situation that is not sustainable over time, though clearly can continue in the
short term. Importantly, the maintenance of record profit margins in the US
seems inconsistent with the economic growth rates implied by current bond
rates; the same general comment is true of the UK and Europe, though in the
latter case it is more a matter of the recovery in profits discounted in
current prices.
Valuations of all financial assets, equities as well as bonds, would require
discount rates of zero percent in real terms to justify current levels. In such
circumstances, the key driver of asset allocation is to ensure that such an
appalling return is not locked in for a long time. In other words, duration
needs to be short. Equities, particularly growth equities, have long duration.
The portfolio weighting to equities is therefore low. Bonds, both conventional
and index-linked, are as short in duration as they have ever been. The stance
of the portfolio is defensive with the emphasis on the preservation of the real
value of capital.
In the UK, a Conservative election victory may yield better growth in the short
term as confidence is boosted. Indeed, domestic demand is growing strongly, but
the weakness of our neighbours and the strength of Sterling are holding back
exports and industrial production. With more austerity to come in 2016, the
economy may moderate and that combined with fears of an EU referendum, and an
alarming current account deficit, may put pressure on the pound.
The reason the portfolio contains such high levels of cash and short duration
assets is to ensure dry powder for deployment when values are better. That
opportunity may not be far away.
Mr A R Laing
Mr R P A Spiller
28 May
2015 28
May 2015
Portfolio Analysis
Distribution of investment funds of UK North Europe Elsewhere 2015 2014
£96,465,000 (2014: £91,324,000) America Total Total
% % % % % %
Investment Trust Assets:
Ordinary shares 15.7 3.6 1.4 7.2 27.9 28.9
Zero dividend preference shares 19.9 - - - 19.9 19.0
Other Assets:
Index-linked 8.0 15.8 3.0 - 26.8 29.8
Fixed interest 10.5 3.4 2.4 - 16.3 12.5
Cash 5.0 2.7 1.4 - 9.1 9.8
59.1 25.5 8.2 7.2 100 100
Investments of the Company
2015£ 2014£
'000 '000
Investment Trust Ordinary Shares:
North Atlantic Smaller Companies 4,111 3,634
Prospect Japan Fund 1,510 1,435
Invesco Perpetual UK Smaller 1,372 1,167
Companies Investment Trust
Renewable Energy Generation 1,199 1,486
ETFS Metal Securities (physical 1,190 1,309
gold)
Mithras Investment Trust 962 1,145
Rights & Issues 952 254
Bluefield Solar 893 609
Foresight Solar Fund 865 880
Oryx International Growth Fund 838 756
Henderson Global Trust 724 695
JP Morgan Private Equity USD 715 461
Private Equity Investor 684 820
North American Income Trust 616 -
JP Morgan Overseas Investment Trust 548 -
Greencoat UK Wind 546 399
Aurora Investment Trust 522 572
Better Capital PCC 519 -
Japan Residential Investment Company 503 516
Castle Private Equity 480 428
Witan Pacific Investment Trust 473 108
Miton Worldwide Growth Investment 449 414
Trust
Renewable Energy Infrastructure 445 529
BlackRock Income Strategies Trust 418 -
VPC Speciality Lending Investments 412 -
BlackRock Absolute Return Strategies 411 411
LMS Capital 389 -
Rights & Issues Investment Trust 362 448
Candover Investments 328 268
NextEnergy Solar Fund 278 -
Ground Rents Income Fund Ordinary 256 134
Shape Capital 252 435
Schroder Global Real Estate 234 -
Securities
Atlantis Japan Growth Fund 219 214
Schroder UK Growth Fund 204 -
Marwyn Value Investors 191 258
Aberdeen Latin American Income 183 225
Dexion Absolute EUR 174 -
JP Morgan Income & Growth 161 110
EPE Special Opportunities 159 151
Dexion Absolute USD 148 51
Polar Capital Global Healthcare 143 -
Growth & Income
JP Morgan Income & Growth Income 130 65
Hansa Trust 'A' Shares 112 165
BlueCrest BlueTrend 93 317
GCP Infrastructure Investments 90 130
Investments of the Company (continued) 2015 2014
£'000 £'000
Investment Trust Ordinary Shares (continued):
Signet Global Fixed Income Strategies 67 164
BACIT 66 66
Alternative Liquidity Solutions 62 99
Sequoia Economic Infrastructure Income 53 -
Thames River Multi Hedge 50 50
Alternative Investment Trust 47 76
Foreign & Colonial Investment Trust 42 682
Cambium Global Timberland 19 34
North American Banks Fund 18 37
RENN Universal Growth Investment Trust 16 20
Close European Accelerated Fund 16 16
Active Capital Trust 8 82
Thompson Clive Investments 3 3
Prospect Epicure J-REIT Value Fund 2 2
Strategic Equity Capital - 1,010
Jupiter Green Investment Trust - 782
BH Global - 611
Acencia Debt Strategies - 385
John Laing Environmental Assets Group - 319
Ground Rents Income Fund Preference - 126
Jupiter Primadona Growth Trust - 121
SVM Global Fund - 121
Value & Income Trust - 107
International Biotechnology Trust - 99
Dexion Absolute GBP Redemption - 97
Goldman Sachs Dynamic Opportunities - 90
Dexion Trading - 87
Dexion Absolute USD Redemption - 46
Dexion Absolute GBP - 33
Absolute Return Trust - 31
Equity Partnership - 9
Henderson Global Property - 8
Henderson Private Equity Investment Trust - 6
26,932 26,418
2015£ 2014£
'000 '000
Investment Trust Zero Dividend Preference Shares:
M&G High Income Investment Trust 2,874 2,781
Ecofin Water & Power Opportunities Finance 2,624 2,241
Aberforth Geared Income Trust 2,048 1,960
Electra Private Equity 1,574 1,184
JZ Capital Partners 2016 1,571 538
JP Morgan Income & Capital Trust 1,533 1,456
JP Morgan Private Equity 2015 1,140 161
Premier Energy & Water Trust 1,108 1,058
Utilico Investments 2018 1,073 1,180
NB Private Equity Partners 956 752
Utilico Finance 2016 894 843
Acorn Income Fund 2017 741 690
Jupiter Dividend & Growth Trust 638 431
JP Morgan Private Equity 2017 235 221
Utilico Investments 2020 227 -
F&C Private Equity - 977
Jupiter Second Split Trust - 849
19,236 17,322
Investments of the Company (continued) 2015 2014
£'000 £'000
Index-Linked Securities:
UK Treasury 1.25% 2017 3,483 3,540
USA Treasury 1.375% 2018 3,448 3,122
USA Treasury 2.0% 2026 3,281 3,132
UK Treasury 0.125% 2024 2,829 3,661
USA Treasury 0.625% 2021 2,723 2,385
Sweden (Kingdom of) 0.5% 2017 2,227 2,573
USA Treasury 0.125% 2023 2,067 1,774
USA Treasury 1.125% 2021 970 856
UK Treasury 1.875% 2022 849 821
USA Treasury 1.375% 2020 790 705
Sweden (Kingdom of) 4.0% 2020 656 729
Canada (Govt of) 4.0% 2031 618 567
UK Treasury 0.125% 2019 550 -
USA Treasury 0.125% 2019 550 -
USA Treasury 0.125% 2018 488 -
USA Treasury 0.125% 2022 176 153
USA Treasury 1.625% 2018 118 107
Sweden (Kingdom of) 3.5% 2028 - 2,154
Japan (Govt of) 1.4% 2018 - 913
25,823 27,192
2015£ 2014£
'000 '000
Fixed-Interest Securities:
UK Treasury 2.0% 2016 5,570 2,969
Switzerland (Govt of) 3.0% 2018 2,335 3,748
USA Treasury 0.5% 2017 2,225 -
Ecofin Water & Power Opportunities plc 6.0% Convertible Unsecured Loan 991 104
Stock 2016
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018 968 917
The Cayenne Trust 3.25% Convertible Unsecured Loan Stock 2016 771 832
SVG Capital 8.25% Convertible 2016 638 662
F&C Global Smaller Companies plc 3.5% Convertible Unsecured Loan Stock 520 -
2019
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021 517 -
EPE Special Opportunities Convertible Loan Notes 442 349
Edinburgh Dragon Trust 3.5% 2018 391 194
Scottish American 8.0% 2022 198 175
The Mercantile Investment Trust plc 6.125% 2030 191 161
Enterprise Inns 6.5% 2018 - 565
Switzerland (Govt of) 2.5% 2036 - 403
Switzerland (Govt of) 2.0% 2014 - 341
15,757 11,420
Total investments 87,748 82,352
Cash held by the custodian awaiting investment 8,717 8,972
Total investment funds 96,465 91,324
The Strategic Report has been approved by the Board and signed on its behalf
by:
Tony Pattison
Chairman
28 May 2015
DECLARATION
Each of the directors, whose names and functions are listed in the Annual
Report, confirms that, to the best of their knowledge:
* the financial statements, which have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), give a true and fair view of the
assets, liabilities, financial position and net return of the Company; and
* the Directors' Report, contained in the Annual Report, 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.
Income Statement
for the year ended 5 April 2015
Note Revenue Capital 2015 Revenue Capital 2014
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Net gains on investments 9 - 3,305 3,305 - 1,390 1,390
Exchange gains/(losses) 9 - 1,945 1,945 - (3,059) (3,059)
Investment income 2 1,355 - 1,355 999 - 999
Gross return 1,355 5,250 6,605 999 (1,669) (670)
Investment management fee 3 (224) (337) (561) (307) (461) (768)
Transaction costs - (60) (60) - (55) (55)
Other expenses 4 (345) - (345) (374) - (374)
Net return on ordinary activities 786 4,853 5,639 318 (2,185) (1,867)
before tax
Tax (charge)/credit on net return on 6 (1) 37 36 (3) 3 -
ordinary activities
Net return attributable to equity 15 785 4,890 5,675 315 (2,182) (1,867)
shareholders
Return per Ordinary Share 8 26.82p 167.07p 193.89p 10.77p (74.59) (63.82)
p p
The total column of this statement represents 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.
There are no gains or losses other than those recognized in the income
statement.
There is no material difference between the net return on ordinary activities
before tax and the net return attributable to equity shareholders stated above
and their historical cost equivalents.
The following notes form an integral part of these financial statements.
Reconciliation of Movements in Shareholders' Funds
for the year ended 5 April 2015
Called-up Share Capital Capital Capital Revenue Total
share premium redemption reserve reserve reserve
capital account reserve arising on arising on
investments investments
held sold
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 6 April 2013 730 11,930 16 11,474 67,682 1,637 93,469
Share issues during the 12 1 177 - - - - 178
year
Exchange losses on 9 - - - (2,509) (550) - (3,059)
investments
Net gains on realisation 9 - - - - 3,442 - 3,442
of investments
Net decrease in unrealised 9 - - - (2,052) - - (2,052)
appreciation
Transfer on disposal of - - - (2,014) 2,014 - -
investments
Transaction costs 9 - - - (42) (13) - (55)
Costs charged to capital 3 - - - - (461) - (461)
Tax on costs charged to 6 - - - - 3 - 3
capital
Net revenue for the year - - - - - - 315 315
Total 731 12,107 16 4,857 72,117 1,952 91,780
Dividends paid 7 - - - - - (468) (468)
Balance at 5 April 2014 731 12,107 16 4,857 72,117 1,484 91,312
Balance at 6 April 2014 731 12,107 16 4,857 72,117 1,484 91,312
Exchange gains on 9 - - - 1,491 454 - 1,945
investments
Net gains on realisation 9 - - - - 5,634 - 5,634
of investments
Net decrease in unrealised 9 - - - (2,329) - - (2,329)
appreciation
Transfer on disposal of - - - 2,633 (2,633) - -
investments
Transaction costs 9 - - - (45) (15) - (60)
Costs charged to capital 3 - - - - (337) - (337)
Tax on costs charged to 6 - - - - 37 - 37
capital
Net revenue for the year - - - - - 785 785
Total 731 12,107 16 6,607 75,257 2,269 96,987
Dividends paid 7 - - - - - (468) (468)
Balance at 5 April 2015 731 12,107 16 6,607 75,257 1,801 96,519
The following notes form an integral part of these financial statements.
Balance Sheet
at 5 April 2015
Note 2015 2014
£'000 £'000
Fixed assets
Investments held at fair value through profit or 87,748 82,352
loss 9
Current assets
Debtors 465 9,301
10
Cash at bank and in hand 8,737
21
9,202 9,322
Creditors: amounts falling due within one year (431)
11 (362)
Net current assets 8,771 8,960
Total assets less current liabilities 96,519 91,312
Capital and reserves
Called-up share 731
capital 731
12
Share premium 12,107 12,107
account 13
Capital redemption 16 16
reserve 13
Capital reserve arising on investments 6,607 4,857
held 13
Capital reserve arising on investments 75,257 72,117
sold 13
Revenue 1,801 1,484
reserve
13
Total equity shareholders' funds 96,519 91,312
15
Net asset value per Ordinary Share 3,297.6p 3,119.7p
14
The financial statements were approved by the Board on 28 May 2015 and signed
on its behalf by:
Mr T R Pattison
Chairman
The following notes form an integral part of these financial statements.
Cash Flow Statement
for the year ended 5 April 2015
Note 2015 2014
£'000 £'000
Net cash inflow/(outflow) from operating activities 404
16 (102)
Taxation (22) (41)
Foreign tax paid on investment income 36 -
Foreign tax refund received
14 (41)
Capital expenditure and financial investment
Payments to acquire investments (22,661) (24,054)
Receipts from sale of investments 22,455 30,529
(206)
6,475
Equity dividends paid (468)
7 (468)
Management of liquid resources 8,972
Change in cash held by the custodian awaiting investment (6,042)
Financing -
Issue of Ordinary share 178
capital 12
Increase in cash* 8,716
18 -
*Included within the increase in cash is an amount of £8,717,000 arising on the
reclassification of funds held by the custodian from debtors to cash.
Notes to the Financial Statements
1 Accounting policies
a) Accounting convention
The financial statements have been prepared on a going concern basis in
accordance with the Companies Act 2006 and under the historical cost basis of
accounting, modified to include revaluation of investments at fair value.
The financial statements have been prepared in accordance with applicable
accounting standards in the UK and with the Statement of Recommended Practice
("SORP") issued by the Association of Investment Companies in January 2009. All
of the Company's operations are of a continuing nature.
The principal accounting policies have been applied consistently throughout the
year.
b) Valuation of investments
Listed investments, which in accordance with FRS 26 are classified as fair
value through profit or loss, are initially recognised at fair value. After
initial recognition these continue to be measured at fair value, which for
listed investments is at bid price. Where trading in the securities of an
investee company is suspended, the investment is valued at the Board's estimate
of its net realisable value.
Transaction costs are recognised as capital and are included in the capital
column of the Income Statement. Transaction costs on purchases of investments
are included in capital reserve arising on investments held and transaction
costs on disposals of investments are included in capital reserve arising on
investments sold. On disposal of investments denominated in foreign currencies,
the exchange differences previously taken to capital reserve arising on
investments held are transferred to capital reserve arising on investments
sold.
Realised surpluses or deficits on the disposal of investments and permanent
impairments in the value of investments are taken to capital reserve arising on
investments sold, and unrealised surpluses and deficits on the revaluation of
investments are taken to capital reserve arising on investments held, as
explained in note 1 h) below.
Year end exchange rates are used to translate the value of investments which
are denominated in foreign currencies. Exchange differences arising from
re-translation of the opening net investments are taken to capital reserve.
c) Dividends
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Interim dividends are recognised only when paid. Dividends payable to equity
shareholders are recognised in the Reconciliation of Movements in Shareholders'
Funds when they have been approved by shareholders in the case of a final
dividend, or paid in the case of an interim dividend, and become a liability of
the Company.
Special dividends receivable have been taken to capital where relevant
circumstances indicate that the dividends are capital in nature.
d) Income
Dividends receivable on listed equity shares are recognised on the ex-dividend
date as a revenue return, and the return on zero dividend preference shares is
recognised as a capital return.
Dividends receivable on equity shares where no ex-dividend date is quoted are
recognised when the Company's right to receive payment is established.
Income from fixed-interest securities is recognised as revenue on a time
apportionment basis so as to reflect their effective yield.
Income from securities where the return is linked to an inflation index is
recognised on a time apportionment basis so as to reflect their effective
yield, including the anticipated inflationary increase in their redemption
value. The element of the total effective yield that relates to the
inflationary increase in their redemption value is considered to represent a
capital return, and is included in the Income Statement as such in accordance
with the SORP. The amount recognised as a capital return on index-linked
securities in the year was £279,000 (2014: £324,000).
e) Expenses
All expenses include, where applicable, value added tax ("VAT"). Expenses are
charged through the revenue account except when expenses are charged to capital
reserve arising on investments sold where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated. The investment
management fees have been allocated 60% (2014: 60%) to capital reserve arising
on investments sold and 40% (2014: 40%) to revenue, in line with the Board's
expected long-term split of returns, in the form of capital gains and income
respectively, from the investment portfolio of the Company.
f) Taxation
The charge for taxation is based on the net return for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date.
A net deferred tax asset is recognised as recoverable and therefore recognised
only when, on the basis of all available evidence, it can be regarded as more
likely than not that there will be suitable taxable profits against which to
recover carried forward tax losses and from which the future reversal of
underlying timing differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. Deferred tax is measured on an undiscounted basis.
The tax effect of the allocation of expenditure between capital and revenue is
reflected in the financial statements using the Company's effective rate of tax
for the year.
g) Foreign currency
Transactions denominated in foreign currencies are recorded in the local
currency at actual exchange rates as at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the year end are
reported at the rates of exchange prevailing at the year end.
The results and financial position of the Company are expressed in pounds
sterling, which is the functional and presentational currency of the Company.
The directors, having regard to the currency of the Company's share capital and
the predominant currency in which the Company operates, have determined the
functional currency to be GBP Sterling.
h) Capital reserves
Capital reserve arising on investments sold
The following are accounted for in this reserve:
* gains and losses on the realisation of investments;
* realised exchange differences of a capital nature; and
* expenses (transaction and investment) and finance costs, together with the
related taxation effect, charged to this reserve in accordance with the
above policies.
Capital reserve arising on investments held
The following are accounted for in this reserve:
* increases and decreases in the valuation of investments held at the year
end;
* unrealised exchange differences of a capital nature; and
* transaction expenses.
2 Investment income 2015 2014
£'000 £'000
Income from investments:
Income from UK bonds 420 253
Income from UK equity and non-equity investments 411 303
Interest from overseas bonds 297 443
Interest from overseas equity and non-equity investments 227 -
Total income 1,355 999
2015£ 2014£
'000 '000
Total income comprises:
Dividends 638 303
Interest 717 696
1,355 999
2015£ 2014£
'000 '000
Income from investments comprises:
Listed in the UK 831 556
Listed overseas 524 443
1,355 999
3 Investment management fee
Revenue Capital 2015 Revenue Capital 2014
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 224 337 561 307 461 768
The Company's investment manager CG Asset Management Limited received an annual
management fee equal to 0.60% (2014: 0.85%) of the gross assets of the Company.
At 5 April 2015 £144,680 (2014: £194,104) was payable. The percentage
allocation of the investment management fee charged to capital and revenue is
60:40 as explained further in note 1(e). The terms of the investment manager
are detailed in the annual report.
4 Other expenses 2015 2014
£'000 £'000
Administrative expenses:
Portfolio administration 56 55
Fees payable to Company auditor for the audit of Company accounts 22 22
Fees payable to Company auditor for other services:
Services relating to taxation compliance 12 12
Services relating to taxation advisory - 4
Other taxation services 4 4
Directors' remuneration (note 5) 86 89
Company secretarial and accountancy services 106 104
General expenses 59 84
345 374
The above expenses include irrecoverable VAT where appropriate.
5 Directors' remuneration
2015 2014
Total Total
£'000 £'000
The fees payable to the directors were as follows:
Mr T R Pattison 25 25
Mr G A Prescott 20 20
Mr R P A Spiller (retired 11 July 2014) 5 18
Mr A R Laing 18 8
Mr E G Meek 18 18
86 89
Mr R P A Spiller's and Mr A R Laing's fees are paid directly to their employer.
The Company made no pension contributions (2014: £nil) in respect of directors
and no pension benefits are accruing to any director (2014: £nil).
Mr R P A Spiller received remuneration totalling £102,753 (2014: £165,128) from
CG Asset Management Limited in respect of its services to the Company.
Mr A R Laing received remuneration totalling £32,233 (2014: £47,527) from CG
Asset Management Limited in respect of its services to the Company. CG Asset
Management Limited does not recharge this remuneration to the Company.
Details of transactions with CG Asset Management Limited, of which Mr R P A
Spiller and Mr A R Laing are directors, are disclosed in notes 3 and 20. There
were no other transactions with directors during the year.
6 Tax (charge)/credit on ordinary activities Revenue Capital 2015 Revenue Capital 2014
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
Current tax:
Corporation tax (37) 37 - (3) 3 -
Adjustment in respect of prior year:
Foreign tax 36 - 36 - - -
Total current tax (1) 37 36 (3) 3 -
The tax assessed for the year is lower (2014: higher) than the standard rate of
corporation tax in the UK of 20% (2014: 20%). The differences are explained
below:
Revenue Capital 2015 Revenue Capital 2014
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Return on ordinary activities before taxation 786 4,853 5,639 (2,185) (1,867)
318
Return on ordinary activities at the standard 157 971 1,128 (437) (373)
rate of UK corporation tax 64
UK franked dividends* (120) - (120) (61) - (61)
Capital returns* - (1,038) (1,038) - 345 345
Unrelieved loss for the year - 30 30 - 89 89
Foreign tax (36) - (36) - - -
Current tax charge/(credit) for the year 1 (37) (36) 3 (3) -
*The Company is an Investment Trust Company as defined by section 833 of the
Companies Act 2006 and these items are not subject to corporation tax within an
Investment Trust Company.
No deferred tax liability has been recognised on unrealised gains on
investments as it is anticipated that the Company will retain investment
company status in the foreseeable future.
Potential deferred tax assets in respect of unrelieved management charges of £
182,000 at 5 April 2015 (£152,000 at 5 April 2014) have not been recognised as
the prospect for their recovery against future taxation liabilities is
uncertain.
During the year withholding tax refunds of £39,000 (2014: £nil) in relation to
prior periods were received from the Swiss tax authorities. Of these refunds £
36,000 (2014: £nil) have been credited to the income statement and £3,000
(2014: £nil) have been offset against the existing corporation tax debtor.
7 Dividends paid
2015£ 2014£
'000 '000
Ordinary Shares
2014 dividend paid 11 July 2014 (16.0p per share) 468 -
2013 dividend paid 25 July 2013 (16.0p per share) - 468
The directors have recommended to shareholders a final dividend of 20.0p per
share for the year ended 5 April 2015. If approved, this dividend will be paid
to shareholders on 17 July 2015. This dividend is subject to approval by
shareholders at the AGM and, therefore, in accordance with FRS 21, it has not
been included as a liability in these financial statements. The total estimated
dividend to be paid is £585,000.
2015£ 2014 £
'000 '000
Revenue available for distribution by way of dividend for 785 315
the year
Proposed final dividend of 20.0p for the year ended 5 (585) (468)
April 2015
Undistributed revenue for purposes of Chapter 4 of Part 24 200 (153)
of the Corporation Tax Act 2010*
* Undistributed revenue comprises approximately 14.8% (2014: 0.0%) of income
from investments of £1,355,000 (2014: £999,000).
8 Return per Ordinary share
The return per Ordinary share of 193.89p (2014: (63.82)p) is based on the total
net return after taxation for the financial year of £5,675,000 (2014: £
(1,867,000)) and on 2,926,906 (2014: 2,925,331) Ordinary shares, being the
weighted average number of Ordinary shares in issue in each year.
Revenue return per Ordinary share of 26.82p (2014: 10.77p) is based on the net
revenue return on ordinary activities after taxation of £785,000 (2014: £
315,000) and on 2,926,906 (2014: 2,925,331) Ordinary shares, being the weighted
average number of Ordinary shares in issue in each year.
Capital return per Ordinary share of 167.07p (2014: (74.59)p) is based on the
net capital return for the financial year of £4,890,000 (2014: £(2,182,000))
and on 2,926,906 (2014: 2,925,331) Ordinary shares, being the weighted average
number of Ordinary shares in issue in each year.
The Company does not have dilutive securities. Therefore the basic and diluted
returns per share are the same.
9 Investments held at fair value through profit or loss
2015 2014
£'000 £'000
Investments comprise -
Listed investment companies:
Incorporated in the United Kingdom 34,333 31,472
Incorporated overseas 4,875 5,366
Listed United Kingdom government bonds 13,281 10,992
Listed United Kingdom non-government bonds 4,590 3,959
Listed overseas government bonds 22,672 23,661
Listed overseas non-government bonds 1,037 -
Miscellaneous international equities 6,960 6,902
87,748 82,352
Cost of investments held at 6 April 77,495 79,077
Unrealised appreciation at 6 April 4,857 11,474
Fair value of investments held at 6 April 82,352 90,551
Additions at cost 22,661 24,054
Disposals proceeds (22,455) (30,529)
Transaction costs (60) (55)
Exchange (losses) 1,945 (3,059)
Disposals - realised gains 5,634 3,442
(Decrease) in unrealised appreciation (2,329) (2,052)
Fair value of investments held at 5 April 87,748 82,352
Book cost at 5 April 81,143 77,495
Unrealised appreciation at 5 April 6,605 4,857
87,748 82,352
Exchange (losses) 1,945 (3,059)
Disposals - realised gains 5,634 3,442
(Decrease) in unrealised appreciation (2,329) (2,052)
Gains on investments 3,305 1,390
10 Debtors
2015 2014
£'000 £'000
Cash held by the custodian awaiting investment - 8,972
Other debtors 173 -
Prepayments and accrued income 187 246
Corporation tax 105
83
465 9,301
The directors have determined that it is more relevant to readers of the
financial statements if Cash held by the custodian awaiting investment is
included as part of Cash at bank and in hand on the balance sheet. The value
of Cash held by the custodian awaiting investment at 5 April 2015 was £
8,717,000 (2014: £8,972,000).
11 Creditors: amounts falling due within one year 2015 2014
£'000 £'000
Other creditors 151 -
Accruals and deferred income 280 362
431 362
12 Called-up share capital
2015£'000 2014£
'000
Allotted and fully paid
At the beginning of the year: 2,926,906 Ordinary shares (2014: 2,921,906) 731 730
Allotted during the year: no Ordinary shares (2014: 5,000) - 1
At the end of the year: 2,926,906 Ordinary shares (2014: 2,926,906) 731 731
The Company did not allot any Ordinary shares of 25p each in the year (2014:
5,000 for a consideration of £178,000).
13 Reserves
Share Capital Capital Capital Revenue
premium redemption reserve reserve reserve
account reserve arising on arising on
investments investments
held sold
£'000 £'000 £'000 £'000 £'000
Balance at 6 April 2014 12,107 16 4,857 72,117 1,484
Exchange gains on investments - - 1,491 454 -
Net gains on realisation of - - - 5,634 -
investments
Net decrease in unrealised - - (2,329) - -
appreciation
Transfer on disposal of investments - - 2,633 (2,633) -
Transaction costs - - (45) (15) -
Costs charged to capital - - - (337) -
Tax on costs charged to capital - - - 37 -
Net revenue for the year - - - - 785
Dividends paid (note 7) - - - - (468)
Balance at 5 April 2015 12,107 16 6,607 75,257 1,801
14 Net asset value per share
The net asset value per share and the net asset value attributable to each
class of share at the year end, calculated in accordance with the articles of
association, were as follows:
Net asset value per share attributable to 2015 2014
Ordinary shares (basic) 3,297.6p 3,119.7p
Net asset value attributable to 2015 2014
£'000 £'000
Ordinary shares (basic) 96,519 91,312
The movements during the year in the assets attributable to the Ordinary shares
are detailed in note 15.
Net asset value per Ordinary share is based on the net assets, as shown above,
and on 2,926,906 (2014: 2,926,906) Ordinary shares, being the number of
Ordinary shares in issue at the year end.
15 Reconciliation of movements in shareholders' funds
2015 2014
£'000 £'000
Opening equity shareholders' funds 91,312 93.469
Ordinary shares issued during the year - 178
Net return for the financial year 5,675 (1867)
Dividends paid (note 7) (468) (468)
Closing equity shareholders' funds 96,519 91,312
16 Reconciliation of net revenue before finance costs and taxation to net cash
inflow/(outflow) from operating activities
2015£ 2014
'000 £'000
Net revenue before finance costs and taxation 786 318
Investment management fee charged to capital
Increase in creditors (337) (461)
(Increase)/decrease in other debtors, prepayments 69 34
and accrued income
(114) 7
Net cash inflow/(outflow) from operating 404 (102)
activities
17 Analysis of net funds
2015£ 2014£
'000 '000
Cash at bank and in hand 8,737 21
18 Reconciliation of net cash flow to movement in net funds
2015£ 2014£
'000 '000
Net funds at the beginning of the year 21 21
Decrease in cash for the year (1) -
Reclassification of funds held by custodian from debtors to cash 8,717 -
Net funds at the end of the year 8,737 21
19 Financial instruments
The Company's financial instruments comprise:
* investment trust ordinary shares, investment trust capital shares,
investment trust zero dividend preference shares, commodity funds and real
estate, and fixed and index-linked securities that are held in accordance
with the Company's investment objective;
* cash and liquid resources that arise directly from the Company's
operations; and
* debtors and creditors.
The main risks arising from the Company's financial instruments are market
price risk, interest rate risk, foreign currency risk and credit risk. The
Board regularly reviews and agrees policies for managing each of these risks
and they are summarised below.
Other debtors and creditors do not carry any interest and are short term in
nature and accordingly are stated at their nominal value.
Market price risk
Market price risk arises mainly from uncertainty about the future prices of
financial instruments held. It represents the potential loss the Company might
suffer through holding market positions in the face of price movements.
The Company invests in the shares of other investment companies. These
companies may use borrowings or other means to gear their balance sheets which
may result in returns that are more volatile than the markets in which they
invest, and the market value of investment company shares may not reflect their
underlying assets.
To mitigate these risks, the Board's investment strategy is to select
investments for their fundamental value. Stock selection is therefore based on
disciplined financial, market and sector analysis, with the emphasis on
long-term investments. An appropriate spread of investments is held in the
portfolio in order to reduce both the systemic risk and the risk arising from
factors specific to a country or sector. The investment manager actively
monitors market prices throughout the year and reports to the Board, which
meets regularly to consider investment strategy. A list of the investments held
by the Company is shown above. All investments are stated at bid value, which
in the directors' opinion is equal to fair value.
Price risk sensitivity
The following table illustrates the sensitivity of the net return after
taxation for the year and the net assets and net asset value per share to an
increase or decrease of 5% in market prices. This level of change is considered
to be reasonably possible based on an observation of current market conditions.
The sensitivity analysis is based on the Company's investments at the balance
sheet date with all other variables held constant.
2015 5% 2015 5% 2014 5% 2014 5%
increase decrease increase decrease
in market in in market in market
prices £ market prices prices
'000 prices £'000 £'000
£'000
Income statement - net return after taxation
Revenue return (11) 11 (14) 14
Capital return 4,373 (4,373) 4,100 (4,100)
Total return after taxation 4,362 (4,362) 4,086 (4,086)
Net assets 4,362 (4,362) 4,086 (4,086)
Net asset value per share 149.03p (149.03)p 139.60p (139.60)p
Interest rate risk
Bond and preference share yields, and as a consequence their prices, are
determined by market perception as to the appropriate level of yields given the
economic background. Key determinants include economic growth prospects,
inflation, the Government's fiscal position, short-term interest rates and
international market comparisons. The investment manager takes all these
factors into account when making any investment decisions as well as
considering the financial standing of the potential investee company.
Returns from bonds and preference shares are fixed at the time of purchase, as
the fixed coupon payments are known, as are the final redemption proceeds. This
means that if a bond is held until its redemption date, the total return
achieved is unaltered from its purchase date. However, over the life of a bond
the market price at any given time will depend on the market environment at
that time. Therefore, a bond sold before its redemption date is likely to have
a different price to its purchase level and a profit or loss may be incurred.
Interest rate sensitivity
The following table illustrates the sensitivity of the net return after
taxation for the year and the net assets and net asset value per share to an
increase or decrease of 1% in regard to the Company's monetary financial assets
and financial liabilities. The financial assets affected by interest rates are
funds held by the custodian on deposit. There are no financial liabilities
affected by interest rates. This level of change is considered to be reasonably
possible based on an observation of current market conditions. The sensitivity
analysis is based on the Company's monetary financial instruments at the
balance sheet date with all other variables held constant.
2015 1% 2015 1% 2014 1% 2014 1%
increase decrease increase decrease
in market in in in
rates market market market
rates rates rates
£'000 £'000 £'000 £'000
Income statement - net return after taxation
Revenue return 70 (70) 72 (72)
Capital return - - - -
Total return after taxation 70 (70) 72 (72)
Net assets 70 (70) 72 (72)
Net asset value per share 2.39p (2.39)p 2.46p (2.46)p
The interest rate profile of the Company's assets at 5 April 2015 was as
follows:
Total Floating Index Other Financial Weighted Weighted
(as per rate linked fixed assets/ average average
Balance £'000 £'000 rate £ (liabilities) interest period for
Sheet) '000 on which no rate which rate
£'000 interest is % is fixed
paid £'000 (years)
Assets
Investment trusts 39,208 - - - 39,208 - -
UK index-linked government bonds 7,711 - 7,711 - - 0.7 5.6
UK government bonds 5,570 - - 5,570 - 1.8 0.8
UK non-government bonds 4,590 - - 4,590 - 4.7 2.6
Overseas index-linked government bonds 18,112 - 18,112 - - 1.0 6.3
Overseas government bonds 4,560 - - 4,560 - 0.9 2.3
Overseas non-government bonds 1,037 - - 1,037 - 2.6 5.3
Other equities 6,960 - - - 6,960 - -
Invested Funds 87,748 - 25,823 15,757 46,168
Cash at bank 8,737 8,717 - - 20 - -
Other debtors 465 - - - 465 - -
Liabilities
Creditors (431) - - - (431) - -
Total net assets 96,519 8,717 25,823 15,757 46,222
The interest rate profile of the Company's assets at
5 April 2014 was as follows:
Total (as Floating Index Other Financial weighted Weighted
per Balance rate linked fixed assets/ average average
Shaeet) rate (liabilities) interest period for
on which no rate which rate
interest is is fixed
paid
£'000 £'000 £'000 £'000 £'000 % (years)
Assets
Investment trusts 36,838 - - - 36,838 - -
UK index-linked government bonds 10,992 - 10,992 - - 0.5 5.6
UK non-government bonds 3,959 - - 3,959 - 4.6 4.0
Overseas index-linked government bonds 19,169 - 19,169 - - 1.4 8.0
Overseas government bonds 4,492 - - 4,492 - 1.6 5.1
Other equities 6,902 - - - 6,902 - -
Deposits 8,972 8,972 - - - - -
Invested Funds 91,324 8,972 30,161 8,451 43,740 - -
Cash at bank 21 - - - 21 - -
Other debtors 329 - - - 329 - -
Liabilities
Creditors (362) - - - (362) - -
Total net assets 91,312 8,972 30,161 8,451 43,728
Fair value of financial assets and liabilities
All financial assets and liabilities are either included in the Balance Sheet
at fair value or at a reasonable approximation of fair value.
Effective 1 January 2009, the Company adopted the amendment to FRS 29 for
financial instruments that are measured in the Balance Sheet at fair value.
This requires disclosure of fair value measurements by level of the following
fair value measurement hierarchy:
Level 1: Quoted 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 Company's assets that are measured at fair value through the Income
Statement are investments in listed securities and are fair valued under level
1 of the fair value measurement hierarchy. The fair value of financial
instruments traded in active markets is based on quoted market prices at the
balance sheet date. A market is regarded as active if quoted prices are readily
and regularly available from an exchange, dealer, broker, industry group,
pricing service, or regulatory agency, and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The quoted
market price used for financial assets held by the Company is the current bid
price. These instruments are included in level 1 of the fair value measurement
hierarchy.
Foreign currency risk
The Company's investments in foreign currency securities are subject to the
risk of currency fluctuations. The investment manager monitors current and
forward exchange rate movements in order to mitigate this risk. The Company's
investments denominated in foreign currencies are:
2015 2015 2014 2014
Investments Accrued Investments Accrued
interest interest
£'000 £'000 £'000 £'000
Canadian Dollar 618 5 568 5
Euro 174 - 611 -
US Dollar 20,881 32 15,962 29
Swedish Krona 2,883 16 5,456 37
Swiss Franc 2,587 15 4,927 28
Australian Dollar 47 - 76 -
Japanese Yen - - 913 3
27,190 68 28,513 102
Foreign currency sensitivity
The following table illustrates the sensitivity of the net return after
taxation for the year and the net assets and net asset value per share to an
increase or decrease of 10% in the rates of exchange of foreign currencies
relative to Sterling. This level of change is considered to be reasonably
possible based on an observation of current market conditions. The sensitivity
analysis is based on the Company's foreign currency investments at the balance
sheet date with all other variables held constant.
2015 2015 2014 2014
10% 10% 10% 10%
appreciation depreciation appreciation depreciation
of Sterling of Sterling of Sterling of Sterling
£'000 £'000 £'000 £'000
Income statement - net return after
taxation
Revenue return (42) 42 (35) 35
Capital return (2,719) 2,719 (2,851) 2,851
Total return after taxation (2,761) 2,761 (2,886) 2,886
Net assets (2,761) 2,761 (2,886) 2,886
Net asset value per share (94.33)p 94.33p (98.60)p 98.60p
Liquidity risk
Liquidity risk is not considered to be significant as the Company has no bank
loans or other borrowings. All liabilities are payable within 3 months.
Credit risk
In addition to interest rate risk, the Company's investment in bonds, the
majority of which are government bonds, is also exposed to credit risk which
reflects the ability of a borrower to meet its obligations. Generally, the
higher the quality of the issue, the lower the interest rate at which the
issuer can borrow money. Issuers of a lower quality will tend to have to pay
more to borrow money to compensate the lender for the extra risk taken.
Investment transactions are carried out with a number of brokers whose credit
standing is reviewed periodically by the investment manager. The investment
manager assesses the risk associated with these investments by prior financial
analysis of the issuing companies as part of his normal scrutiny of existing
and prospective investments and reports regularly to the Board. Cash is held
with a reputable bank with a high-quality external credit rating.
A further credit risk is the failure of a counterparty to a transaction to
discharge its obligations under that transaction, which could result in a loss
to the Company. The following table shows the maximum credit risk exposure.
Credit risk exposure
Compared to the Balance Sheet, the maximum credit risk exposure is:
2015 2015 2014 2014
Balance Maximum Balance Maximum
sheet £ sheet £ exposure
'000 exposure '000 £'000
£'000
Fixed assets - listed investments at fair value through 87,748 41,580 82,352 38,611
profit and loss
Debtors - amounts due from the custodian, dividends and 348 348 9,207 9,207
interest receivable
Cash at bank 8,737 8,737 21 21
96,833 50.665 91,580 47,839
Capital management policies and procedures
The Company's capital management objectives are:
* to ensure that it will be able to continue as a going concern; and
* to maximise the income and capital return to its equity.
The Company's capital at 5 April 2015 of £96,519,000 (2014: £91,312,000)
comprises its equity share capital and reserves.
The Board, with the assistance of the investment manager, monitors and reviews
the broad structure of the Company's capital on an ongoing basis. This review
includes:
* the planned level of gearing, which takes into account the investment
manager's views on the market;
* the need to buy back equity shares;
* the need for new issues of equity shares; and
* the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period. The Company is subject to
externally imposed capital requirements:
* as a public company, the Company must have a minimum share capital of £
50,000; and
* in order to pay dividends out of profits available for distribution, the
Company must meet the capital restriction test imposed on investment
companies by company law.
20 Related-party transactions
Related-party transactions with Mr A R Laing and Mr R P A Spiller, directors of
the Company for all and part of the year ended 5 April 2015 respectively, are
disclosed in notes 3 and 5 to the financial statements. There were no other
related-party transactions.
GENERAL
The figures and financial information set out above are extracted from the
Annual Report and financial statements for the year ended 5 April 2015, and do
not constitute the statutory accounts for that year. The Company's Annual
Report and financial statements for the year ended 5 April 2015 have been
audited but have not yet been delivered to the Registrar of Companies. The
Independent Auditors' Report on the 2015 annual financial statements is
unqualified and does not contain a statement under section 498 of the Companies
Act 2006.
The 2014 figures and financial information are extracted from the published
statutory accounts for the year ended 5 April 2014 and do not constitute the
statutory accounts for that year. The 2014 annual report and financial
statements have been delivered to the Registrar of Companies and included the
Independent Auditors' Report which was unqualified and did not contain a
statement under section 498 of the Companies Act 2006.
Copies of the Company's Annual Report for the year ended 5 April 2015 will be
posted to shareholders in June 2015. The Annual Report will be also available
on the Company's website www.capitalgearingtrust.com and on request from the
company secretary:
TMF Nominees Limited
5th Floor, 6 St Andrew Street
London
EC4A 3AE
Telephone: +44 (0)20 7832 8922
Email: company.secretary@capitalgearingtrust.com
Annual general meeting ("AGM")
The Company's AGM will be held on Wednesday, 8 July 2015 at 11am at the
Embankment Place offices of PricewaterhouseCoopers LLP, 1 Embankment Place,
London WC2N 6RH
Disclaimer: Neither the contents of the Company's website nor the contents of
any website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into or forms part of this announcement.
For queries, please contact:
Tony Pattison, Chairman
Tel. 020 7776 9888
George Prescott, Chairman of the Audit Committee
Tel. 07802 263038
TMF Nominees Limited
company.secretary@capitalgearingtrust.com
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