Preliminary Statement of Annual Results
CAPITAL GEARING TRUST P.L.C (the `Company')
PRELIMINARY STATEMENT OF ANNUAL RESULTS FOR THE YEAR ENDED 5 APRIL 2010
FINANCIAL HIGHLIGHTS
5 April 2010 5 April 2009 % Change
Share Price 2,630.0p 2,370.0p +11.0
Net Asset Value per Share 2,467.4p 2,125.4p +16.1
Premium 6.6% 11.5% -
Shareholders' Funds £69.0m £59.4m +16.1
Market Capitalisation £73.5m £66.2m +11.0
Total Expense Ratio* 1.4% 1.6% -12.5
Dividend per Share# 22.5p 22.0p +2.3
* Operating expenses (excluding the VAT refund received during 2009) divided by
total assets less current liabilities
# If approved at the AGM, the following timetable will be followed: payment
date: 12 July 2010, record date: 4 June 2010, ex-dividend date: 2 June 2010
CHAIRMAN'S STATEMENT
Overview
In the year to 5 April 2010 the net asset value per share increased by 16.1% to
an all time high of 2,467.4p. I am therefore pleased to report that the stated
investment objective of achieving capital growth in absolute terms has again
been met, albeit during a period when world equity markets rebounded strongly
from the depressed levels of last year. Over the year, the FTSE Equity
Investment Instruments Index was up by 46.2% and the FTSE All-Share Index by
43.5%. However, even after such a strong performance, the UK equity market, as
measured by the FTSE All-Share Index, remains 15% below its June 2007 peak.
Conversely, as confidence and investors' appetite for risk increased, defensive
investments such as high quality bond markets performed poorly, with the FTSE
Government All Stock Index falling by 1.9% over the year.
Earnings per share for the period amounted to 23.8p compared to 28.5p last
year; the difference largely a consequence of the VAT refund on management fees
received during 2009.
Reflecting the policy of capital preservation as well as absolute growth, as at
the year end, fixed interest, index linked securities and cash represented
67.7% of total assets with a further 12.2% held in zero dividend preference
shares. Adjusting for the relative performance of bond and equity markets there
was no significant movement in the collective weighting of these broad asset
classes over the year, although as at the reporting date the cash content had
increased to 7.1%.
Dividend
Last year, a total distribution of 22.0p was paid. This was made up of 14.0p
plus a special dividend of 8.0p. At this year's Annual General Meeting (`AGM'),
and subject to shareholder approval, the Board will recommend a total
distribution of 22.5p made up of 15.0p plus a special dividend of 7.5p. The
special dividend continues to reflect the relatively high exposure to bonds
that might at some stage be switched into lower yielding growth investments.
Continuation of the Company
As stated in previous reports, the Board remains committed to offering
shareholders the periodic opportunity to realise their investment in the
Company. This commitment was last honoured in November 2008 by way of a sale
and purchase facility and it is the Board's current intention to next offer
shareholders a similar opportunity to realise their investment in 2015.
Annual General Meeting
This year, the AGM will be held in London at the offices of Smith & Williamson
Investment Management Limited on Wednesday 7 July 2010 at 11.00 a.m. The Notice
convening the forty seventh AGM of the Company is set out in the Annual Report
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.
Issuance and Repurchase of Shares
The Board continues to operate an informal discount/premium control mechanism
whereby major market supply and demand imbalances are satisfied by either the
issuance of shares at a premium to net asset value or buying back shares at a
discount. At the last AGM shareholders approved the necessary resolutions to
enable these policies to be renewed and although no change in the issued
capital took place during our last financial year, similar resolutions will
again be put forward at this year's AGM.
The Board
This year Mr R P A Spiller and I will retire at the AGM and offer ourselves for
re-election in accordance with the guidelines for good practice set out in the
AIC Code of Corporate Governance and the Combined Code. Mr G A Prescott will
also be seeking re-election, following his appointment by the Board on 5
February 2010. As announced earlier in the year, it is intended that Mr
Prescott will take over the responsibilities of Mr Morton who, after 12 years
on the Board, will retire at this year's AGM. On behalf of the Board and the
Company I would like to express my thanks to Campbell for his service to the
Company and we wish him a happy retirement. Further details in respect of each
Director's retirement, evaluation and re-election can be found in the Annual
Report.
Regulatory Changes
As reported last year, a revised version of the Articles of Association will be
proposed for approval at this year's AGM to take account of the final phase of
implementation of the Companies Act 2006, which took effect on 1 October 2009,
as well as the provisions of the Companies (Shareholders' Rights) Regulations
2009, which came into force on 3 August 2009. Details of the main changes
proposed to be made to the Articles can be found in the Annual Report.
Shareholders will also be aware that the Company, together with other
interested parties, have joined the AIC in lobbying EU policymakers to reduce
the compliance burden and associated costs of the proposed Alternative
Investment Fund Managers (AIFM) Directive. The final legislation is likely to
come into force in 2012 or 2013 and the Board will keep shareholders informed
of further progress in this regard through the regular reports that we publish.
Other upcoming regulatory changes of interest to shareholders include the
improvement of the tax regime for investment trusts, with the `Streaming'
regime to exempt interest income now being used, possible reforms of Chapter 4
of Part 24 of the Corporation Tax Act 2010 (formerly section 842 of the Income
and Corporation Taxes Act 1988), which the Government is committed to reviewing
this summer with a view to implementing changes in 2011 and, finally, the FSA's
recent announcement of the Retail Distribution Review which should signal the
end of commission bias against closed-ended funds by 2012.
Outlook
In my report last year, I suggested that equity markets could well respond
positively to both an upturn in the inventory cycle and the fiscal and monetary
stimulus being provided by the authorities. At the same time, the structural
imbalances brought about by burgeoning government and household debt in the UK
and US would lead eventually to a rather unappetising combination of sub-trend
economic growth and the possibility of rising rates of inflation. In the event,
the recovery in equities has been greater than expected but the longer term
uncertainties flagged last year are still prevalent. These risks continue to be
reflected in the defensive asset mix of the investment portfolio.
Mr T R Pattison
25 May 2010
INVESTMENT MANAGER'S REPORT
Review
As reported by the Chairman, the NAV increased by 16.1%; this was satisfactory
for an absolute return fund, but well behind the FTSE All-Share increase of
43.5%. At least, the NAV is at an all time high, unlike the equity markets. As
that number suggests, confidence improved dramatically over the period and
equity earnings were indeed markedly higher than had been expected 12 months
before. As discussed below, this may be something of a honeymoon period, but
for the moment optimism has replaced fear as the predominant emotion. Some high
quality bond markets, a haven in times of fear, were adversely affected by the
recovery, with gilts falling in capital value. However, German and Swiss bonds
improved. Index linked bonds did much better and the duration of the portfolio
of TIPS in the US was increased. In addition, more UK index linked gilts were
bought; the RPI alone contributed 4% to the 10% increase in value. Currencies,
that had been so helpful the previous year, saw modest falls for the US Dollar
and the Euro against Sterling, though the Canadian Dollar, Swiss Franc and
Swedish Krona did well.
The endowment funds are coming to an end, and this year saw the end of Allied
Dresdner Endowment 2009, Barclays Global Endowment and Life Offices
Opportunity, all having been steady contributors.
The allocation to equities was too low, but at least the return on the
investment trusts, at over 60%, was better than the 46% return on the FTSE
Equity Investment Instruments Index (the old Investment Trust Index). Profits
were taken on the funds of hedge funds that were bought on large discounts in
the winter of 2008/09. Advance UK, Third Advance Valuation Realisation, Active
Capital and Principle Capital went into liquidation, having been purchased at
useful discounts; the holding in Directors Dealing Trust was tendered at a low
discount. New additions included Vision Opportunity of China and Advance
Developing Markets Subscription Shares. The latter provides excellent exposure
to developing economies with limited downside.
In the property sector, Henderson Global Property saw its discount narrow from
a trough of 35% to less than 10% and most of the holding was sold. Less
happily, TR Sigma languished at a mid 20's discount with no response from its
directors. In private equity, we were fortunate to acquire additional shares in
Mithras at a better than 50% discount; this fund is in run-off.
Overall, the portfolio has remained defensive in the belief that the economy of
the world and especially the UK is fragile, with inflation a significant threat
to the maintenance of the real value of the portfolio; the preservation of real
values remains the first objective of the trust.
Outlook
The world economy is recovering at a faster rate than expected, sustained by
inventory cycles and the stimulus provided by governments. Even private capital
expenditure is well off its lows. Nowhere has the stimulus been greater than in
China; the elimination of the substantial trade surplus has been a boon to its
trading partners, particularly the commodity producers. Unfortunately, the fall
in net exports from some 8% of GDP in 2008 to nil now has been replaced, not by
consumer expenditure - which might be sustainable - but by a splurge in capital
expenditure, especially property and infrastructure. There is concern that much
of the latter is subject to large misallocations of capital, but in any case
growth may slow from here as the level of stimulus is not repeated. In
addition, inflationary threats are developing in the coastal economies that
supply the rest of the world; China may be a source of inflation after two
decades of being a source of deflation.
China is but one example of countries where fiscal stimulus has offset the
demand shortages caused by shrinking production. Greece is important not so
much for its financing difficulties - though these may result in large losses
for banks - but for the signal it sends that the limit of fiscal deficits has
been reached. Throughout Europe and the US, the pressure on governments is to
rein in expenditure and this, combined with the maturing of the inventory
cycle, runs the risk of growth being lower than expected by the authorities or
the markets; in fact growth may be as persistently weak as has characterised
recoveries from financial crises in the past rather than the more rapid
recovery from normal recessions, as demonstrated by Professors Reinhardt and
Rogoff. For some countries net exports might help, but clearly not in
aggregate.
If growth does disappoint, then the fiscal position for the UK would look dire.
Reinhardt and Rogoff estimate that public debt impacts growth rates once it
reaches 90% of GDP. That is the Treasury's planned level for 5 years time. If
the economy is weaker than assumed, that level would be exceeded and require
further tightening in an already fragile situation. In any case, the Debt
Management Office will struggle to finance the current fiscal year without
inducing higher interest rates; printing may have to fill the gap.
So the world as a whole faces the danger of slow growth against a background of
major imbalances. Savings rates are still too low in the US and the UK. Debt
levels have soared for governments and barely diminished for consumers. Banks
are still fragile - the IMF is expecting a further $800 billion of loan losses
- and are not providing finance for small companies, the engine of growth. Only
the current account deficits look better (partly reflecting Chinese
deterioration) and the housing bubbles outside China are now less of a threat.
Against that background, the aim for portfolios must primarily be the
preservation of capital in real terms. Inflation will be moderate in most
countries in the short term, but with further currency printing likely in the
US and the UK and the appetite for inflation as a solution to excessive debt
within those two central banks, inflation is a real threat to long term
capital. Fortunately, inflation protected bonds, the modern version of gold,
still look attractive outside the UK, and provide a solid anchor to the
portfolio. In Europe, deflationary forces may last much longer as fiscal
retrenchment continues with monetary restraint, so the outcome may be low
growth and little inflation; a repeat of post 1990 Japan. That makes German
Bunds attractive, with large potential capital gains as long term interest
rates fall.
For equities, liquidity will be much less helpful than in the last year; in the
UK the government was a net redeemer of gilts; this year it is trying to borrow
£160 billion. The US story is similar. There is even talk of central banks
unwinding their purchases, though further printing actually looks more likely.
Equity valuations are poor; both long term cyclically adjusted p/e and `q', the
ratio of market capitalisation to book value, suggest an over valuation of
about 40% for the S&P 500 and the yield is lower than long TIPS. That looks
stretched given the prospect of little real growth in dividends.
In the short term, profit margins have held up surprisingly well and if that
continues may provide some underpinning of markets, but the level of risk
inherent in a richly valued market in an uncertain economic environment makes a
low exposure appropriate. In a sense that is a pity, because investment trusts
will offer good prospects for outperforming the market.
Mr R P A Spiller
25 May 2010
BUSINESS REVIEW AND PRINCIPAL RISKS
The Business Review has been prepared in accordance with the requirements of
Section 417 of the Companies Act 2006. A review of the year's activities and an
indication of future policy are given in the Chairman's Statement and
Investment Manager's Report. The principal risks and uncertainties facing the
Company are detailed below and in the Notes to the Financial Statements. The
very nature of forward looking statements involves uncertainty as events beyond
the control of the Company may affect actual results. Performance and results
may therefore differ from the plans and objectives of the Company; neither the
Directors, nor the Company take responsibility for matters outside of its
control.
Investment Objective
The investment objective and policy are monitored to ensure continued investor
interest and for consideration of continuation of the Company in its present
form. Investment performance is monitored and the Investment Manager presents a
report to each Board meeting for consideration and discussion.
Premium/Discount Level
The Board regularly reviews the level of premium/discount and, in the event of
prolonged trading at a discount, consideration is given to enhancement
strategies for the share price. The Board operates an informal discount control
mechanism and will buy in shares as and when necessary to manage the discount
at an appropriate level.
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,
considers asset allocation on a regular basis to minimise potential risks where
possible.
Shareholder Register
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, Credit and Foreign Currency; information relating to such risks
is given in note 9. Other risks are identified and managed by the Company's
internal control system, which is summarised in the Annual Report.
Social, Community and Environmental Matters
The Company does not have any employees. The Company invests primarily in
closed ended and other collective investment vehicles with the objective of
achieving capital growth. The Board is of the opinion that the underlying
investee companies have policies to act with due regard to community, welfare
and environmental factors and do not therefore intervene in these areas.
Political and Charitable Contributions
No contributions were made during the year for political or charitable purposes
(2009: nil).
Key Performance Indicators ('KPIs')
The Board monitors numerous KPI indices and ratios for the purpose of assessing
and reporting investment performance. The Chairman, in his statement, has
summarised performance of the Company's net asset value (`NAV') per share for
the year to 5 April 2010 and has compared this year's capital growth (in
absolute terms) against the FTSE Equity Investment Instruments Index, the FTSE
All-Share Index and the FTSE Government All Stock Index. He also describes the
earnings per share and dividends paid for the year.
A graph showing the Company's NAV per share compared with the FTSE Equity
Investment Instruments Index over the period from 1982 is shown in the Annual
Report. A comparison of the Company's share price total return over the last
five years, compared with the FTSE Equity Investment Instruments Index which
reflects the performance of similar companies, is also shown in the Annual
Report.
In addition, the Board monitors the following additional 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 (if discount to NAV is high) or issued (if share price is at a premium
to NAV). At the start of the year under review the premium to NAV was 11.5%
compared with 6.6% at the year end.
* Expense ratios, which enable the Board to measure the control of costs and
help in meeting the dividend payment objective. The ratio of operating
expenses to net assets was 1.4% for the year to 5 April 2010 (2009: 1.6%,
excluding the VAT refund received during the year).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
Financial Statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under Company Law, the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the net return of the Company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements; and
* prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The 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 these matters and, accordingly, the Auditors accept no
responsibility for changes that may have occurred to the Financial Statements
since they were initially presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Annual
Report confirm 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 Report of the Directors 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.
For and on Behalf of the Board
Mr T R Pattison
Chairman
25 May 2010
PORTFOLIO ANALYSIS
Distribution of Investment Funds of £68,309,000 (2009: £58,617,000)
2010 2009
UK North Europe Elsewhere Total Total
America
% % % % % %
Investment Trust Assets:
Ordinary shares 8.5 2.6 4.1 4.6 19.8 16.0
Endowment funds 0.3 - - - 0.3 3.6
Zero dividend preference 12.2 - - - 12.2 10.7
shares
Other Assets:
Index linked 11.4 21.0 1.0 - 33.4 33.8
Fixed interest 2.5 - 24.0 - 26.5 32.3
Floating interest 0.7 - - - 0.7 1.8
Cash 7.1 - - - 7.1 1.8
--------------------------------------------------------------------------------
42.7 23.6 29.1 4.6 100.0 100.0
================================================================================
INCOME STATEMENT
for the year ended 5 April 2010
2010 2009
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net gains/(losses) on - 9,566 9,566 - (4,566) (4,566)
investments
Exchange gains - 299 299 - 4,293 4,293
Investment income 2 1,317 - 1,317 1,417 - 1,417
----------------------------------------------------------------------------------
Gross return/(loss) 1,317 9,865 11,182 1,417 (273) 1,144
Investment management fee 3 (165) (384) (549) (147) (344) (491)
VAT refund on investment 3 - - - 101 237 338
management fee
Transaction costs - (70) (70) - (75) (75)
Other expenses (315) - (315) (357) - (357)
----------------------------------------------------------------------------------
Net return/(loss) on 837 9,411 10,248 1,014 (455) 559
ordinary activities before
tax
Tax on ordinary activities 5 (171) 96 (75) (218) 92 (126)
----------------------------------------------------------------------------------
Net return/(loss) 666 9,507 10,173 796 (363) 433
attributable to equity
shareholders
==================================================================================
Return/(loss) per Ordinary 7 23.83p 340.15p 363.98p 28.48p (12.99)p 15.49p
Share
==================================================================================
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
for the year ended 5 April 2010
2010 2009
£'000 £'000
Net return attributable to equity 10,173 433
shareholders
----------------------------------------------------------------
Total gains and losses recognised for the 10,173 433
year
================================================================
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 5 April 2010
Note Called Share Capital Capital Capital Revenue Total
up premium redemption reserve reserve reserve
share account reserve arising on arising on
capital investments investments
held sold
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 6 699 8,114 16 8,009 41,215 1,379 59,432
April 2008
Exchange - - - 3,627 666 - 4,293
gains on
investments
Net gains on - - - - 2,527 - 2,527
realisation
of
investments
Net decrease - - - (7,093) - - (7,093)
in
unrealised
appreciation
Transfer on - - - (1,232) 1,232 - -
disposal of
investments
Transaction - - - (64) (11) - (75)
costs
Costs 3 - - - - (344) - (344)
charged to
capital
VAT refund 3 - - - - 237 - 237
Tax on costs 5 - - - - 92 - 92
charged to
capital
Net revenue - - - - - 796 796
for the year
-------------------------------------------------------------------------------------
Total 699 8,114 16 3,247 45,614 2,175 59,865
-------------------------------------------------------------------------------------
Dividends 6 - - - - - (461) (461)
-------------------------------------------------------------------------------------
Balance at 5 699 8,114 16 3,247 45,614 1,714 59,404
April 2009
=====================================================================================
Balance at 6 699 8,114 16 3,247 45,614 1,714 59,404
April 2009
Exchange - - - 214 85 - 299
gains on
investments
Net gains on - - - - 6,063 - 6,063
realisation
of
investments
Net increase - - - 3,503 - - 3,503
in
unrealised
appreciation
Transfer on - - - 3,044 (3,044) - -
disposal of
investments
Transaction - - - (57) (13) - (70)
costs
Costs 3 - - - - (384) - (384)
charged to
capital
Tax on costs 5 - - - - 96 - 96
charged to
capital
Net revenue - - - - - 666 666
for the year
-------------------------------------------------------------------------------------
Total 699 8,114 16 9,951 48,417 2,380 69,577
-------------------------------------------------------------------------------------
Dividends 6 - - - - - (615) (615)
-------------------------------------------------------------------------------------
Balance at 5 699 8,114 16 9,951 48,417 1,765 68,962
April 2010
=====================================================================================
BALANCE SHEET
at 5 April 2010
Note 2010 2009
£'000 £'000
Fixed assets
Investments:
Listed investments 63,462 57,550
-------------------------------------------------------------------------------
Current assets
Debtors 5,322 1,525
Cash at bank 402 634
-------------------------------------------------------------------------------
5,724 2,159
Creditors: amounts falling due within one (224) (305)
year
-------------------------------------------------------------------------------
Net current assets 5,500 1,854
-------------------------------------------------------------------------------
Net assets 68,962 59,404
===============================================================================
Capital and reserves
Called up share capital 699 699
Share premium account 8,114 8,114
Capital redemption reserve 16 16
Capital reserve arising on investments held 9,951 3,247
Capital reserve arising on investments sold 48,417 45,614
Revenue reserve 1,765 1,714
-------------------------------------------------------------------------------
Total equity shareholders' funds 68,962 59,404
===============================================================================
Net asset value per Ordinary Share 8 2,467.4p 2,125.4p
===============================================================================
Approved by the Board on 25 May 2010
Mr T R Pattison
Chairman
CASH FLOW STATEMENT
for the year ended 5 April 2010
Note 2010 2009
£'000 £'000
Net cash inflow from operating activities 422 942
--------------------------------------------------------------------------------
Foreign tax paid on investment income (64) (60)
--------------------------------------------------------------------------------
Corporation tax paid (78) -
--------------------------------------------------------------------------------
Capital expenditure and financial investment
Payments to acquire investments (15,093) (24,013)
Receipts from sale of investments 18,976 20,966
--------------------------------------------------------------------------------
3,883 (3,047)
--------------------------------------------------------------------------------
Equity dividends paid 6 (615) (461)
--------------------------------------------------------------------------------
Management of liquid resources
Change in cash held by custodians awaiting (3,780) 3,021
investment
--------------------------------------------------------------------------------
(Decrease)/increase in cash (232) 395
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
5 April 2010
1 Accounting Policies
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 and with the Statement of Recommended Practice (`SORP')
for investment trusts issued by the Association of Investment Companies in
January 2009. All of the Company's operations are of a continuing nature.
2 Investment income
2010 2009
£'000 £'000
Income from investments:
Income from UK bonds 271 265
Income from UK equity and non-equity 275 241
investments
Overseas interest 767 836
---------------------------------------------------------------------
1,313 1,342
Deposit interest 4 75
---------------------------------------------------------------------
Total income 1,317 1,417
=====================================================================
2010 2009
£'000 £'000
Total income comprises:
Dividends 275 241
Interest 1,042 1,176
---------------------------------------------------------------------
1,317 1,417
=====================================================================
2010 2009
£'000 £'000
Income from investments comprises:
Listed in the UK 546 506
Listed overseas 767 836
---------------------------------------------------------------------
1,313 1,342
=====================================================================
3 Investment management fee
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 165 384 549 147 344 491
VAT refund on investment - - - (101) (237) (338)
management fee
---------------------------------------------------------------------------------
Net investment management fee 165 384 549 46 107 153
=================================================================================
The Company's Investment Manager CG Asset Management Limited received an annual
management fee equal to 0.85% of the gross assets of the Company. At 5 April
2010 £144,195 (2009: £123,678) was payable.
70% of the total investment management fee and connected costs are allocated to
the capital reserve arising on investments sold.
4 Directors' fees
2010 2009
Total Total
£'000 £'000
The fees payable to the Directors were as
follows:
Mr T R Pattison 20 20
Mr J C Morton 15 15
Mr R P A Spiller 13 13
Mr E G Meek 13 13
Mr G A Prescott 3 -
----------------------------------------------------------------
64 61
================================================================
Mr R P A Spiller's fees are paid directly to his employer and VAT is an
additional cost thereon. The Company made no pension contributions (2009: £nil)
in respect of Directors and no pension benefits are accruing to any Director
(2009: £nil).
Mr R P A Spiller received remuneration totalling £55,000 (2009: £55,000) from
CG Asset Management Limited in respect of services provided by that company to
Capital Gearing Trust p.l.c.
Details of transactions with CG Asset Management Limited, of which Mr R P A
Spiller is a director, are disclosed in note 3. There were no other
transactions with Directors during the year.
5 Tax on ordinary activities
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current tax:
Corporation tax (141) 96 (45) (203) 92 (111)
Foreign tax (18) - (18) (15) - (15)
Adjustment in respect of (12) - (12) - - -
prior year
--------------------------------------------------------------------------------
Total current tax (171) 96 (75) (218) 92 (126)
================================================================================
The current tax charge is reconciled to the standard rate of Corporation Tax of
28% (2009: 28%) by the following factors:
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return on ordinary activities 837 9,411 10,248 1,014 (455) 559
before taxation
Return on ordinary activities at 234 2,635 2,869 284 (127) 157
the standard rate of UK
Corporation Tax
UK franked dividends* (77) - (77) (68) - (68)
Capital returns* - (2,742) (2,742) - 97 97
Adjustment for reduced rate of (16) 11 (5) (13) 6 (7)
tax
Losses brought forward - - - - (68) (68)
Irrecoverable foreign tax 18 - 18 15 - 15
Under provision in prior year 12 - 12 - - -
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Current tax charge for the year 171 (96) 75 218 (92) 126
=================================================================================
* these items are not subject to Corporation Tax within an investment trust
company.
No Provision for deferred tax was required at 5 April 2010 (2009: nil).
6 Dividends
2010 2009
Total Total
£'000 £'000
Ordinary Shares
2009 dividend paid 13 July 2009 (22.0p per share) 615 -
2008 dividend paid 14 July 2008 (16.5p per share) - 461
The Directors have recommended to shareholders a final dividend of 22.5 pence
per share for the year ended 5 April 2010. If approved, this dividend will be
paid to shareholders on 12 July 2010. This dividend is subject to approval by
shareholders at the Annual General Meeting 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 £629,000.
2010 2009
Total Total
£'000 £'000
Revenue available for distribution by way of dividend for the 666 796
year
Proposed final dividend of 22.5p for the year ended 5 April 2010 (629) (615)
--------------------------------------------------------------------------------
Undistributed revenue for purposes of Chapter 4 of Part 24 of the 37 181
Corporation Tax 2010*
================================================================================
* Undistributed revenue comprises approximately 2.8% (2009:13.5%) of income
from investments of £1,313,000 (2009: £1,342,000).
7 Return/(loss) per Ordinary Share
The return per Ordinary Share of 363.98p (2009: 15.49p) is based on the total
net return after taxation for the financial year of £10,173,000
(2009: £433,000) and on 2,794,906 (2009: 2,794,906) Ordinary Shares, being the weighted
average number of Ordinary Shares in issue in each year.
Revenue return per Ordinary Share of 23.83p (2009: 28.48p) is based on the net
revenue return on ordinary activities after taxation of £666,000
(2009: £796,000) and on 2,794,906 (2009: 2,794,906) Ordinary Shares, being the weighted
average number of Ordinary Shares in issue in each year.
Capital return per Ordinary Share of 340.15p (2009: loss of 12.99p) is based on
the net capital return for the financial year of £9,507,000
(2009: loss of £363,000) and on 2,794,906 (2009: 2,794,906) Ordinary Shares, being the weighted
average number of Ordinary Shares in issue in each year.
8 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
2010 2009
Ordinary Shares (basic) 2,467.4p 2,125.4p
Net asset value attributable to
2010 2009
£'000 £'000
Ordinary Shares (basic) 68,962 59,404
The movements during the year in the assets attributable to the Ordinary Shares
were as follows:
Assets attributable to
Ordinary Shares
£'000
Total net assets attributable at 6 April 2009 59,404
Total recognised gains for the year 10,173
Dividends appropriated in the year (615)
-------------------------------------------------------------------------
Total net assets attributable at 5 April 2010 68,962
=========================================================================
Net asset value per Ordinary Share is based on the net assets, as shown above,
and on 2,794,906 (2009: 2,794,906) Ordinary Shares, being the number of
Ordinary Shares in issue at the year end.
9 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, credit risk and currency 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 as reduced by
appropriate allowances for estimated irrecoverable amounts.
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 in order to consider investment strategy. A list of the main
investments held by the Company is shown in the Annual Report. All investments
are stated at bid value, which in the Directors' opinion is equal to fair
value.
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.
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.
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. 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.
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.
10 Related party transactions
Related party transactions with Mr R P A Spiller, a Director of the Company,
are disclosed in note 4. There were no other related party transactions.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 5 April 2010 or 2009. The financial
information for the year ended 5 April 2009 is derived from the statutory
accounts for that year which have been delivered to the Registrar of Companies.
The Auditors reported on those accounts and their report was unqualified and
did not contain a statement either under Section 498(2) or Section 498(3) of
the Companies Act 2006. The financial information for the year ended 5 April
2010 has been prepared using the same accounting policies as adopted in the
Company's statutory accounts for the year ended 5 April 2009. The statutory
accounts for the year ended 5 April 2010 will be finalised on the basis of the
financial information presented by the Directors in this preliminary
statement and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
Copies of the Company's Annual Report for the year ended 5 April 2010 will be
sent to shareholders in June 2010 and will be available on the Company's
website www.capitalgearingtrust.com and on request from the Company Secretary -
TMF Nominees Limited, 400 Capability Green, Luton LU1 3AE, Telephone: 01582
439276; E-mail: company.secretary@capitalgearingtrust.com.
For queries, please contact:
Campbell Morton, Senior Independent Director
Tel. 02890 763 631
TMF Corporate Secretarial Services Limited
company.secretary@capitalgearingtrust.com
Tel. 01582 439276
Monday, 13th May 2024
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