Annual Financial Report

RNS Number : 4319E

Investors Capital Trust PLC

10 May 2013

 



To:                    RNS

From:                Investors Capital Trust plc

Date:                10 May 2013

Results for the year ended 31 March 2013

·      Total distributions for the year to 31 March 2013 of 4.28p per share

·      Distribution yield of 4.6 and 4.5 per cent on A and B shares respectively at 31 March 2013, compared to the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent

·      Net asset value total return per share for the year was 19.6 per cent, compared to the FTSE All-Share Capped 5% Index total return of 17.1 per cent

·      Net asset value total return per share since launch on 1 March 2007 was 42.9 per cent, compared to the FTSE All-Share Capped 5% Index total return of 34.7 per cent

Chairman's Statement as follows:

Investment Objective and Policy

The Company's investment objective is to provide an attractive return to shareholders in the form of dividends and/or capital repayments, together with prospects for capital growth.

The Company's investment portfolio is managed in two parts. The first part comprises investments in UK equities and equity related securities (the Equities Portfolio) and the second part investments in fixed interest and other higher yielding securities (the Higher Yield Portfolio). At 31 March 2013, 83.4 per cent. of total assets was allocated to the Equities Portfolio and 12.4 per cent. to the Higher Yield Portfolio. The remaining 4.2 per cent. was held as cash and cash equivalents.

Investment Performance

In my interim report to shareholders I suggested that high levels of indebtedness together with ongoing fiscal retrenchment in developed economies would continue to constrain the pace of global economic recovery for some time to come. This has indeed been the case. Since the trough in global activity during 2009 the pace of economic recovery in developed markets has been lacklustre, well below the pace of post-recession recovery experienced during previous economic cycles. However, the extent of the ongoing policy support from both Central Banks and politicians throughout the year, particularly in the United States and Europe, allayed investors' worst fears over the macro economic risks to financial markets most notably from the ongoing Eurozone debt crisis. Consequently both equity and bond markets made good progress over the course of the year.

The Company's Equities Portfolio produced a total return of 19.0 per cent. during the year to 31 March 2013, while the Higher Yield Portfolio returned 10.0 per cent.

Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of gearing, resulted in a net asset value total return for the A and B shares of 19.6 per cent for the year.  This return is ahead of the 17.1 per cent. total return for the FTSE All-Share Capped 5% Index, the Company's benchmark.

Since the launch of the Company on 1 March 2007 to 31 March 2013, the Company has outperformed its benchmark index. The net asset value per share total return performance of the Company has been 42.9 per cent which compares favourably with the 34.7 per cent return from the benchmark FTSE All-Share Capped 5% Index. The Company is ahead of its benchmark index over one, three and five years on a net asset value total return basis.

Earnings

The Company achieved total revenue income of £5.5m for the year. The yield on the Equities Portfolio was 3.6 per cent. as at 31 March 2013, compared to the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent.

The Company's revenue was below that earned during the previous financial year. The income from the Equities Portfolio, excluding dividends of a capital nature, remained broadly unchanged despite a reduction in the yield relative to the FTSE All-Share Capped 5% Index. However, a lower level of income was earned from the Higher Yield Portfolio as the size of this portfolio was reduced in order to finance a reduction in the Company's borrowings mid-way through the year. The low level of deposit interest reflects the continued low rates of interest together with lower average cash balances.

The majority of investee companies continued to deliver good dividend growth during the year reflecting the ongoing improvement in corporate profits and cash flow. Against a background of continued economic uncertainty the UK corporate sector has favoured returning cash to shareholders through increased dividend payments over additional capital expenditure or mergers and acquisitions. It should be noted that the rate of dividend growth moderated throughout the year and, in the absence of an improvement in the pace of global economic recovery, growth in dividends will likely slow further in the year ahead.

The Equities Portfolio derives over a third of its revenue from UK-listed companies that declare dividends in US dollars. The US dollar exchange rate therefore has an important influence on the Company's revenue. Despite a marked strengthening in the dollar against sterling during the final months of the Company's year, the average rate against sterling was similar to the previous year and therefore the overall impact on the Company's revenue was minimal.

After deducting the fourth quarter dividend, the Company had revenue reserves of £2.5m at 31 March 2013. 

Dividends and Capital Returns

Dividends to A shareholders and capital repayments to B shareholders are paid quarterly in August, November, February and May each year. In respect of the distributions for the Company's first three quarters, the dividends paid on the A shares and capital repayments on the B shares were 1.06p per share for each quarter. A fourth quarter dividend of 1.1p per share was paid to A shareholders, and a capital repayment of the same amount to B shareholders, on 3 May 2013. This results in a dividend/capital repayment of 4.28p per share in respect of the year to 31 March 2013. This represents an unchanged distribution over the previous year and a distribution yield for A shareholders of 4.6 per cent. and for B shareholders of 4.5 per cent., based on the A share price of 93.5 pence and the B share price of  94.5 pence as at 31 March 2013. These yields compare favourably with the yield on the FTSE All-Share Capped 5% Index of 3.3 per cent at that date.  For shareholders that hold units, the distribution yield was 4.6 per cent. based on a unit price of 369.0 pence as at 31 March 2013.

The Company has operated a reinvestment scheme for B shareholders to reinvest their capital repayments in further B shares if they wish. However, the scheme has now been terminated, due to the low level of shareholder participation and relatively high cost to the Company of providing the scheme. Shareholders affected have already been informed separately. 

Capital Structure

The Company has two classes of shares: A shares and B shares. The net asset value attributable to the A shares and to the B shares is the same. The rights of each class are identical, save that only the A shares are entitled to receive dividends, while the B shares instead receive a capital repayment at the same time as, and in an equal amount to, each dividend. The 'Capital Structure' section of the Annual Report provides further information on the A and B shares. 

The Company refinanced its term borrowings during the year and now has a reduced level of borrowings of £18m (previously £33.5m) with a significantly lower fixed rate of annual interest of 3.15 per cent (previously 5.86 per cent). The new borrowings have a five year term to September 2017.

Discount and buy backs

The Company's A share price was at a discount to net asset value of 4.5 per cent. at 31 March 2013. The Company's B shares were at a discount to net asset value of 3.4 per cent at the same date. Over the year, the price of the Company's A shares traded at an average discount to net asset value per share of 6.6 per cent. and the Company's B shares traded at an average discount of 4.7 per cent. The Company has a stated buy back policy and, in accordance with this policy, the Company bought back 2,150,000 A shares and 630,000 B shares during the year at an average discount of over 5 per cent. to net asset value, thereby adding value for existing shareholders. Since the financial year end, the Company has bought back a further 500,000 A shares.

Board Changes

Mr Herschel Post is retiring as a Director of the Company following the conclusion of the Annual General Meeting on 21 June 2013. He has served as a Director since the Company's launch in 2007 and was a Director of the predecessor company. I would like to thank Herschel for the wise counsel he has provided as a Director over many years and wish him well in his retirement.

The Board is pleased to announce the appointment of Mr John Evans as a non executive Director of the Company with immediate effect. Mr Evans, who is 55 years old, has worked in the investment management industry for over 30 years.  He retired from Aberforth Partners, a specialist investment management firm, in 2011 having been one of its founding partners in 1990. He has managed a range of investment funds and has considerable experience of the investment trust industry.

Following the retirement of Herschel Post, Kenneth Shand will become Senior Independent Director and chairman of the Remuneration Committee.

Outlook

Global economic growth over the past year has been uneven and anaemic and is likely to remain so for some time as developed economies continue to bear the ongoing burden of deleveraging and austerity. The United States economy appears to be the furthest down the path to recovery whilst recessionary conditions prevail across much of the Eurozone. With its largest trading partner facing a prolonged downturn and with structural headwinds of its own, the prospects for the UK economy remain challenging. Against this uncertain background it is encouraging that UK equity market valuations remain reasonable.

Iain McLaren

Chairman

For further information, please contact:

Rodger McNair                                                                           Tel:        [phone]

Fund Manager to Investors Capital Trust plc

Michael Campbell

Company Secretary to Investors Capital Trust plc             Tel:        [phone]

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2013
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	16,309	16,309
Exchange differences		-	(28)	(28)
Revenue
Investment income		5,478	-	5,478
Total income		5,478	16,281	21,759
Expenditure
Investment management fee		(250)	(583)	(833)
Other expenses		(445)	-	(445)
Total expenditure		(695)	(583)	(1,278)
Profit before finance costs and tax		4,783	15,698	20,481
Net finance costs
Interest on bank loan and interest rate swap		(384)	(897)	(1,281)
Total finance costs		(384)	(897)	(1,281)
Profit before tax		4,399	14,801	19,200
Tax		(8)	244	236
Profit for the year		4,391	15,045	19,436
Other comprehensive income
Movement in fair value of interest rate swap		-	749	749
Total comprehensive income for the year		4,391	15,794	20,185
Earnings per share	2	3.52p	12.06p	15.58p

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2012
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	1,609	1,609
Exchange differences		-	364	364
Revenue
Investment income		6,097	-	6,097
Total income		6,097	1,973	8,070
Expenditure
Investment management fee		(240)	(560)	(800)
Other expenses		(441)	-	(441)
Total expenditure		(681)	(560)	(1,241)
Profit before finance costs and tax		5,416	1,413	6,829
Net finance costs
Interest on bank loan and interest rate swap		(590)	(1,378)	(1,968)
Total finance costs		(590)	(1,378)	(1,968)
Profit before tax		4,826	35	4,861
Tax		(122)	(113)	(235)
Profit/(loss) for the year		4,704	(78)	4,626
Other comprehensive income
Movement in fair value of interest rate swap		-	1,270	1,270
Total comprehensive income for the year		4,704	1,192	5,896
Earnings per share	2	3.70p	(0.06p)	3.64p

Balance Sheets (audited)

as at 31 March 2013

		2013		2012
		Company	Group	Company	Group
	Note	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		133,861	133,611	131,090	130,840
Current assets
Other receivables		1,045	1,045	1,424	1,424
Cash and cash equivalents		5,146	5,146	11,452	11,452
		6,191	6,191	12,876	12,876
Total assets		140,052	139,802	143,966	143,716
Current liabilities
Bank loan		-	-	(33,496)	(33,496)
Interest rate swap		-	-	(749)	(749)
Bank overdraft		-	-	(123)	(123)
Other payables		(554)	(304)	(685)	(435)
		(554)	(304)	(35,053)	(34,803)
Non-current liabilities
Bank loan		(18,000)	(18,000)	-	-
		(18,000)	(18,000)	-	-
Total liabilities		(18,554)	(18,304)	(35,053)	(34,803)
Net assets		121,498	121,498	108,913	108,913
Share capital	6	134	134	134	134
Share premium		22	22	22	22
Capital redemption reserve		5	5	5	5
Buy back reserve	6	88,010	88,010	90,265	90,265
Special capital reserve		25,328	25,328	26,682	26,682
Capital reserves		4,489	4,489	(11,305)	(11,305)
Revenue reserve		3,510	3,510	3,110	3,110
Equity shareholders' funds		121,498	121,498	108,913	108,913
Net asset value per A share	7	98.02p	98.02p	85.94p	85.94p
Net asset value per B share	7	98.02p	98.02p	85.94p	85.94p

Consolidated and Company Cash Flow Statement (audited)

for the year to 31 March 2013

	Year to 31 March 2013	Year to 31 March 2012
	£'000	£'000
Cash flows from operating activities
Profit before tax	19,200	4,861
Adjustments for:
Gains on investments held at fair value through profit or loss	(16,309)	(1,609)
Exchange differences	28	(364)
Decrease in receivables	242	66
Increase in payables	100	17
Purchases of investments	(15,006)	(23,221)
Sales of investments	28,651	29,073
Net finance costs	1,281	1,968
	18,187	10,791
Tax paid	-	(7)
Net cash inflow from operating activities	18,187	10,784
Cash flows from financing activities
Bank loan drawn down	18,000	-
Bank loan repaid	(33,500)	-
Dividends paid on A shares	(3,991)	(4,074)
Capital returns paid on B shares	(1,354)	(1,372)
Interest on bank loan and interest rate swap	(1,272)	(1,962)
Shares purchased for treasury	(2,255)	(397)
Net cash outflow from financing activities	(24,372)	(7,805)
Net (decrease)/increase in cash and cash equivalents	(6,185)	2,979
Currency gains	2	44
Opening net cash and cash equivalents	11,329	8,306
Closing net cash and cash equivalents	5,146	11,329

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2013

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 April 2012	134	22	5	90,265	26,682	(20,366)	9,061	3,110	108,913
Total comprehensive income for the year
Profit for the year	-	-	-	-	-	3,032	12,013	4,391	19,436
Movement in fair value of interest rate swap	-	-	-	-	-	-	749	-	749
Total comprehensive income for the year	-	-	-	-	-	3,032	12,762	4,391	20,185
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(2,255)	-	-	-	-	(2,255)
Dividends paid on A shares	-	-	-	-	-	-	-	(3,991)	(3,991)
Capital returns paid on B shares	-	-	-	-	(1,354)	-	-	-	(1,354)
Balance as at 31 March 2013	134	22	5	88,010	25,328	(17,334)	21,823	3,510	121,498

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2012

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 April 2011	134	22	5	90,662	28,054	(18,352)	5,855	2,480	108,860
Total comprehensive income for the year
(Loss)/profit for the year	-	-	-	-	-	(2,014)	1,936	4,704	4,626
Movement in fair value of interest rate swap	-	-	-	-	-	-	1,270	-	1,270
Total comprehensive income for the year	-	-	-	-	-	(2,014)	3,206	4,704	5,896
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(397)	-	-	-	-	(397)
Dividends paid on A shares	-	-	-	-	-	-	-	(4,074)	(4,074)
Capital returns paid on B shares	-	-	-	-	(1,372)	-	-	-	(1,372)
Balance as at 31 March 2012	134	22	5	90,265	26,682	(20,366)	9,061	3,110	108,913

Investors Capital Trust plc

Principal Risks and Risk Management

The Company's assets consist mainly of listed equity and fixed interest securities and its principal risks are therefore market-related. More detailed explanations of these risks and the way in which they are managed are contained in the notes to the accounts.

Other risks faced by the Company include the following:

·      External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.

·      Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.

·      Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

·      Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

·      Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. Breaching loan covenants could lead to a loss of shareholders' confidence and financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting and reliance upon contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Investors Capital Trust plc

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year ended 31 March 2013, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions, if any, that have taken place during the financial year.

On behalf of the Board

Iain McLaren

Chairman                                                           

Notes (audited)

1.            The financial statements of the Group which are the responsibility of, and were approved by, the Board on 8 May 2013, have been prepared in accordance with the Companies Act 2006, International Financial Reporting Standards (''IFRS''), which comprise standards and interpretations approved by the International Accounting Standards Board (''IASB''), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (''IASC'') that remain in effect, and to the extent that they have been adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (''SORP'') for investment trusts issued by the Association of Investment Companies (''AIC'') in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the results on a basis compliant with the recommendations of the SORP.

2.            The Company's earnings per share are based on the profit for the year of £19,436,000 (year to 31 March 2012: £4,626,000) and on 93,157,459 A shares (2012: 95,107,106) and 31,610,525 B shares (2012: 32,051,703), being the weighted average number of shares in issue of each share class during the year. 

The Company's revenue earnings per share are based on the revenue profit for the year of £4,391,000 (year to 31 March 2012: £4,704,000) and on the weighted average number of shares in issue as above.

The Company's capital earnings per share are based on the capital profit for the year of £15,045,000 (year to 31 March 2012: loss of £78,000) and on the weighted average number of shares in issue as above.

3.            The Group results comprise those of the Company and those of Investors Securities Company Limited, a wholly owned subsidiary which deals in securities.

4.            The fourth interim dividend of 1.1p per A share, was paid on 3 May 2013 to A shareholders on the register at close of business on 5 April 2013, having an ex-dividend date of 3 April 2013. The fourth capital repayment of 1.1p per B share was paid on 3 May 2012 to B shareholders on the register on 5 April 2013.

5.            On 28 September 2012 the Company repaid its existing £33.5m term loan and drew down a new facility with a five year term to 28 September 2017. The term loan with JPMorgan Chase Bank is secured on the majority of the assets of the Company and carries interest at a fixed rate of 3.15 per cent per annum. Interest on the term loan is payable quarterly. An administration fee of £18,000 is payable annually in addition.

The term loan contains certain financial covenants with which the Company must comply. These include a financial covenant to the effect that the percentage of the total amounts drawn down under the term loan (together with any other borrowings) should not exceed 45 per cent of the Company's Eligible Total Secured Assets. The Company complied with the required financial covenants throughout the period since drawdown.

The fair value of the fixed rate £18m term loan, on a market to market basis, was £18,186,000 at 31 March 2013.

6.            During the year the Company bought back 2,150,000 (2012: 500,000) A Shares to hold in treasury at a cost of £1,754,000 (2012: £397,000) and 630,000 (2012: nil) B Shares to hold in treasury at a cost of £501,000 (2012: £nil). The Company did not buy back any shares for cancellation nor resell any shares from treasury during the year (2012: nil).

At 31 March 2013 the Company held 9,539,000 (2012: 7,389,000) A Shares and 655,000 (2012: 25,000) B Shares in treasury.

Since the year end the Company has bought back a further 500,000 A Shares to hold in treasury at a cost of £463,000.

7.            The Company's basic net asset value per share of 98.02p (2012: 85.94p) is based on the equity shareholders' funds of £121,498,000 (2012: £108,913,000) and on 123,949,847 equity shares, consisting of 92,528,144 A Shares and 31,421,703 B Shares (2012: 126,729,847 equity shares, consisting of 94,678,144 A Shares and 32,051,703 B Shares), being the number of shares in issue at the year end.

The Company's shares may also be traded as units, each unit consisting of three A Shares and one B Share. The basic net asset value per unit as at 31 March 2013 was therefore 392.08p (2012: 343.76p).

The Company's treasury net asset value per share, incorporating the 9,539,000 A shares and 655,000 B shares held in treasury at the year end, was 97.68p (2012: 85.72p). The Company's treasury net asset value per unit at the end of the year was 390.72p (2012: 342.88p). The Company's policy is to only re-sell shares held in treasury at a price representing a discount of not more than 5 per cent to net asset value at the time of sale, together with other conditions. Accordingly, for the purpose of the calculation, such treasury shares are valued at the higher of net asset value less 5 per cent and the mid market share price at each year end.

8.            Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances, receivables and payables that arise directly from its operations and borrowings. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be reduced by raising the level of cash balances held.

The Company may use derivatives for efficient portfolio management from time to time. The only derivatives used in the year and the prior year were the interest rate swap on the bank loan which expired on 28 September 2012 and forward foreign exchange currency contracts to hedge currency movements. The Company may also write call options over some investments held in the Equities Portfolio.

Apart from the fair value of the fixed-rate term loan as disclosed in note 5, the fair value of the financial assets and liabilities of the Company at 31 March 2013 is not materially different from their carrying value in the financial statements.

The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk.

The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the year under review.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

The Company's principal financial assets are bank balances and cash, other receivables and investments, which represent the Company's maximum exposure to credit risk in relation to financial assets. The Company did not have any exposure to any financial assets which were past due or impaired at the year end.

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. A list of pre-approved counterparties used in such transactions is maintained and regularly reviewed by the Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the past has been insignificant.

All of the assets of the Company, other than the dealing subsidiary, are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost. The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.

Market price risk

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The Group's strategy for the management of market price risk is driven by the Company's investment policy. The Board sets policies for managing this risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management of market price risk is part of the fund management process and is typical of equity and fixed interest investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investment and portfolio performance are discussed in more detail in the Manager's Review in the Annual Report.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of the portfolio of investments and the level of cash and cash equivalents ordinarily held. However, where there has been a deterioration in credit quality or an event of default the Company may not be able to liquidate quickly, at fair value, some of its investments in the Higher Yield Portfolio. Cash balances are held with a spread of reputable banks with a credit rating of normally A or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

In certain circumstances, the terms of the Company's bank loan entitle the lender to demand early repayment and, in such circumstances, the Company's ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early repayment may be required in the event of a change of control of the Company or on the occurrence of certain events of default which are customary for facilities of this type. These include events of non payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change in the financial condition of the Company.

Interest rate risk

Some of the Company's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Company's exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

Floating rate

When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate, which was 0.5 per cent at 31 March 2013 (2012: 0.5 per cent).

The Company's Equities Portfolio does not contain any fixed interest or floating rate interest assets.

The £18 million term loan carries a fixed interest rate of 3.15 per cent per annum. In the prior year, the £33.5 million term loan was classified as fixed interest as the variable rate loan has been fixed by an interest rate swap, of the same nominal value and duration as the loan.

Foreign currency risk

In order to achieve a diversified portfolio of higher yielding securities the Company invests partly in overseas securities which gives rise to currency risks. In the year to 31 March 2013, the Company entered into US Dollar and Euro foreign exchange currency contracts with a view to hedging these currency risks.

Given the policy to hedge currency risk on non-sterling denominated assets by entering into forward foreign exchange currency contracts, the weakening or strengthening of Sterling against either the US Dollar or Euro would not have had a significant net impact on the total column of the Consolidated Statement of Comprehensive Income for the year or the net asset value as at 31 March 2013.

9.            In relation to the appointment of Mr J M Evans as a non executive Director of the Company, there is no other information required to be disclosed under section 9.6.13 of the Listing Rules in respect of his appointment.

10.          These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited annual report and accounts for the year ended 31 March 2013 will be sent to shareholders in May 2013 and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.  The full annual report and accounts will be available on the website maintained on behalf of the Company at www.investorscapital.co.uk .

The audited accounts for the year to 31 March 2013 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 21 June 2013.

 

END

 

 

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