Interim Results
Investors Capital Trust PLC
08 November 2007
To: RNS
From: Investors Capital Trust plc
Date: 8 November 2007
Highlights
• Net asset value per share total return of 6.0%
• Distribution yield of 5.6%
• Distributions paid quarterly
Interim Results
The Board of Investors Capital Trust plc announces the unaudited interim results
of the Company for the period from incorporation on 15 January 2007 to 30
September 2007. The Company commenced operations on 1 March 2007.
Chairman's Statement Extract
Introduction
This is my first report to shareholders following the launch of the Company on 1
March 2007 as the successor vehicle to the original Investors Capital Trust plc.
I would like to thank shareholders for their continued support, which resulted
in a successful rollover. Approximately 62 per cent of shareholders' funds
rolled over into the new Company, which is significantly above recent rollovers
of similar type investment trusts; the gross proceeds of the issue were £136.6m.
There are presently over 7,000 shareholders in the Company, including those held
in the F&C investment plans.
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 distributions 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 comprises investments in fixed interest and other
higher yielding stocks and securities (the Higher Yield Portfolio). At the
outset, approximately 80 per cent. of the investment portfolio was allocated to
the Equities Portfolio with the balance allocated to the Higher Yield Portfolio.
This allocation will vary as a result of market movements and circumstances.
At 30 September 2007, 70.2 per cent of total assets was allocated to the
Equities Portfolio, 17.4 per cent to the Higher Yield Portfolio and the
remaining 12.4 per cent was held as cash.
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. B shares do not receive dividends but instead receive a capital
distribution at the same time as, and in an equal amount to, each dividend. For
certain shareholders there will be tax and other advantages in receiving a
capital distribution rather than a dividend. Shares may be held and traded as
units, each unit comprises three A shares and one B share.
The B shares are innovative securities that provide returns in the form of
quarterly capital distributions rather than dividends. These capital
distributions fall to be taxed in accordance with rules relating to the taxation
of chargeable gains. The attractions of the B shares appear to have been
enhanced by the changes to the capital gains tax regime announced by the
Chancellor of the Exchequer in his Pre-Budget Statement last month. A fact sheet
is available from the Company's website (www.investorscapital.co.uk) that
provides more details on the B shares.
The Company has the ability to borrow in pursuit of its investment objectives.
On 1 March 2007, the Company drew down an amount of £33.5m on its loan facility
with Lloyds TSB Scotland plc for a term to 28 September 2012. The Company
entered into an interest rate swap to fix the all-in rate of interest on the
loan at 5.86 per cent. per annum.
Investment Performance
The Company's net asset value per A share and per B share at 30 September 2007
was 100.7p and per unit was 402.8p. This capital performance, together with
dividends and capital distributions added back, resulted in a total return of
6.0 per cent. for share and unit holders over the period since launch. This
compares to returns from the FTSE All-Share Capped 5% Index which returned 6.0
per cent. on a comparable basis. Over the period the Company was the best
performer within the AIC UK High Income Sector.
The Company was launched against a broadly supportive background for both equity
and fixed interest markets. However, the strong corporate reporting season
through March and April soon gave way to heightened concerns over the nature and
extent of the problems stemming from the sub-prime mortgage lending crisis in
the United States. The combination of rising interest rates, lax lending
standards and falling house prices led to many home owners being unable to meet
their financial commitments and lenders being unable to recoup their losses.
These risks were widely spread through the global financial system as a result
of the proliferation of mortgage-backed securities. The ensuing credit crunch
shook financial markets across the globe resulting in a sharp correction in both
credit and equity markets during the summer. In response to the worsening
liquidity situation the US Federal Reserve first cut the discount rate at which
it lends to banks and then the main Fed Funds lending rate, the first such move
since 2003. Reassured that the Federal Reserve would take whatever actions were
necessary to restore order to financial markets, both equity and credit markets
recovered sharply towards the end of the reporting period. During the period the
Company's Equities Portfolio produced a total return of 8.5 per cent. which was
ahead of the 6.0 per cent. rise in the FTSE All-Share Capped 5% Index. The
Higher Yield Portfolio returned 2.0 per cent.
Earnings
The Company achieved total revenue income of £4.9m for the period from the 1
March 2007 to 30 September 2007. The yield on the Equities Portfolio was 3.3
per cent. at 30 September 2007, equivalent to a yield relative to the FTSE
All-Share Index of 113 per cent.
The growth in dividends from the Company's Equities Portfolio, whilst
moderating, remained encouraging throughout the period under review. As a result
of a more challenging economic backdrop we expect the rate of growth in
dividends to continue to slow during the second half of the Company's year.
Against an increasingly uncertain market backdrop the Company held a higher than
anticipated level of liquidity throughout the period. Consequently deposit
income was higher than will ordinarily be the case. Income from the Higher Yield
Portfolio, which comprised predominantly investment grade corporate bonds, was
at the level anticipated.
After providing for the second quarter dividend, the Company had revenue
reserves of £1m at 30 September 2007.
Dividends and Capital Returns
Dividends to A shareholders and capital distributions to B shareholders are paid
quarterly in August, November, February and May each year. In respect of the
Company's first and second quarters, the dividends declared on the A shares and
capital distributions on the B shares were 1.325p per share for each quarter.
The Directors estimated that, based on the assumptions contained in the
Company's prospectus and in the absence of unforeseen circumstances, the Company
would pay dividends to A shareholders and capital distributions to B
shareholders of 1.325p per share for the first three quarters and 1.375p per
share in respect of the fourth quarter (payable in May). This would represent a
dividend/capital distribution of 5.35p per share in respect of the period to 31
March 2008. This would produce an estimated distribution yield for A and B
shareholders of 5.6 per cent. based on the share price of 96p as at 30 September
2007 and compares favourably with the yield on the FTSE All-Share Index of 2.9
per cent. at that date. For shareholders that hold units, the estimated
distribution yield was 5.7 per cent. based on a unit price of 376.5p as at 30
September 2007.
The Company operates a distribution reinvestment scheme to enable B shareholders
to reinvest their capital distributions in further B shares if they wish;
details are available from the Company's Registrars.
Discount and buy backs
The share price of the Company's A shares and B shares traded over the period at
an average discount to net asset value per share of 2.8 per cent. and 3.2 per
cent. respectively. This compares favourably with the average discount for all
conventional investment trusts of 8.1 per cent. The Company has a stated
buyback policy and, in accordance with this policy, the Company bought back 3.6m
A shares and 1.2m B shares during the period at an average discount of 5 per
cent. to net asset value, thereby adding value for remaining shareholders.
Shares bought back are held in treasury.
In order to fund the repurchase of shares and the capital distributions paid to
B shareholders, the Company's share premium account was cancelled and a Buy Back
reserve and Special Capital reserve were created on approval by the Court of
Session.
VAT
The European Court of Justice ruled in June in favour of specific questions
referred to it concerning UK investment trusts. This decision has been accepted
in principle by the UK Authorities although a number of procedural matters
remain to be resolved. The decision could result in the Company being exempt
from paying VAT on its management fees. No account has been taken of any
repayment of VAT in the financial statements.
Outlook
At the time of writing, market volatility has increased markedly, reflecting
investor unease about the wider implications of credit market issues on the
global economy. It will only be over coming months that the impact of the
liquidity crisis and subsequent Central Bank actions will become clear. While
the background of tighter credit conditions and high oil prices suggests that
the balance of risks to global economic growth appears to have shifted to the
downside, we view any near term market weakness as an opportunity to invest our
available cash balances.
J Martin Haldane
Chairman
Unaudited Consolidated Income Statement
For the period from incorporation on 15 January 2007 to 30 September 2007
Period from incorporation on
15 January 2007 to 30 September 2007
Revenue Capital Total
£'000 £'000 £'000
Gains on investments held at fair value - 3,301 3,301
Exchange differences - 60 60
Investment income 4,860 186 5,046
Investment management fee
Basic (210) (632) (842)
Performance related - (7) (7)
Other expenses (227) - (227)
Profit before finance costs and taxation 4,423 2,908 7,331
Net finance costs
Interest on bank loan and interest rate swap (347) (809) (1,156)
(347) (809) (1,156)
Return on ordinary activities before taxation 4,076 2,099 6,175
Tax on ordinary activities (352) 352 -
Return attributable to shareholders 3,724 2,451 6,175
Return per share 2.7p 1.8p 4.5p
The Company was incorporated on 15 January 2007 and commenced operations on 1
March 2007.
Condensed Unaudited Consolidated Balance Sheet
As at 30
September 2007
£'000
Non-current assets
Investments held at fair value through profit or loss 147,675
Interest rate swap on bank loan 70
147,745
Current assets
Other receivables 2,860
Cash and cash equivalents 19,831
22,691
Total assets 170,436
Current liabilities
Other payables (1,918)
(1,918)
Non-current liabilities
Bank loan (33,466)
Total liabilities (35,384)
Net asset value attributable to shareholders 135,052
Capital and reserves
Called-up share capital 139
Share premium 22
Buy back reserve 100,951
Treasury share reserve (4,619)
Special capital reserve 33,663
Capital reserve - realised 281
Capital reserve - unrealised 2,240
Revenue reserve 2,375
Shareholders' funds 135,052
Net asset value per A share 100.7p
Net asset value per B share 100.7p
Net asset value per unit 402.8p
Condensed Unaudited Consolidated
Statement of Changes in Equity
Period from incorporation
on
15 January 2007 to
30 September 2007
£'000
Opening equity shareholders' funds -
Net profit for the period 6,175
Unrealised gain on revaluation of interest rate swap 70
Issue of share capital, net of costs 135,225
Share buy backs for treasury (4,619)
Distributions paid (1,799)
Closing equity shareholders' funds 135,052
Condensed Unaudited Consolidated
Cash Flow Statement
Period from
incorporation on
15 January 2007 to
30 September 2007
£'000
Net cash flow from operating activities (142,215)
Net cash flow used in financing activities 161,909
Net increase in cash and cash equivalents 19,694
Currency gains/losses 137
Cash and cash equivalents at beginning of period -
Cash and cash equivalents at end of period 19,831
Notes (unaudited)
1. Accounting Policies
Basis of Preparation
The financial statements of the Company which cover the period from
incorporation on 15 January 2007 to 30 September 2007 have been prepared in
compliance with IAS 34: Interim Financial Reporting and adopting the
accounting policies which will be set out in the statutory accounts of the
Company for the period ending 31 March 2008. A summary of the main
accounting policies is set out below.
Where presentational guidance set out in the Statement of Recommended
Practice (''SORP'') for investment trusts issued by the Association of
Investment Companies (''AIC'') in December 2005 is consistent with the
requirements of International Financial Reporting Standards ('IFRS'), the
Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP.
The notes and financial statements are presented in pounds sterling
(functional and presentational currency) and are rounded to the nearest
thousand except where otherwise indicated.
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported for assets and
liabilities as at the balance sheet date and the amounts reported for
revenue and expenses during the period. The nature of the estimation means
that actual outcomes could differ from those estimates.
Investments
Investments are recognised and derecognised on the trade date where a
purchase or sale is under a contract whose terms require delivery within
the timeframe established by the market concerned, and are initially
measured at fair value.
Investments are classified as fair value through profit or loss. As the
Company's business is investing in financial assets with a view to
profiting from their total return in the form of interest, dividends or
increases in fair value, listed equities and fixed income securities are
designated as fair value through profit or loss on initial recognition.
Financial assets designated as fair value through profit or loss are
measured at subsequent reporting dates at fair value, which is either the
bid price or the last traded price, depending on the convention of the
exchange on which the investment is quoted. Unlisted investments, including
the Company's dealing subsidiary, Investors Securities Company Limited, are
valued at fair value by the Directors on the basis of all information
available to them at the time of valuation. Any investments held by
Investors Securities Company Limited at the balance sheet date are valued
at fair value.
Where securities are designated upon initial recognition as fair value
through profit or loss, gains and losses arising from changes in fair value
are included in net profit or loss for the period as a capital item.
Derivative Financial Instruments
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised
directly in equity. Changes in the fair value of derivative financial
instruments that do not qualify for hedge accounting are recognised in the
income statement as they arise. In line with guidance published by the AIC
changes in the fair value of derivative financial instruments recognised in
the income statement will generally be recognised through the revenue
column, except where there is a clear connection between the derivative and
the maintenance or enhancement of the Company's investments.
Capital and reserves
(a) Capital reserve realised - gains and losses on realisation of
investments are dealt with in this
reserve.
(b) Capital reserve unrealised - increases and decreases in the
valuation of investments held are
dealt with in this reserve.
(c) Buy back reserve - created from the Court cancellation
of the share premium account which
had arisen from premiums paid on
the A shares. Available as
distributable profits to be used
for the buy back of shares. The
cost of any shares bought back for
cancellation is deducted from this
reserve.
(d) Treasury share reserve - the cost of shares bought back to
be held in treasury or subsequent
re-sale of shares from treasury is
deducted from or added to this
reserve.
(e) Special capital reserve - created from the Court cancellation
of the share premium account which
had arisen from premiums paid on
the B shares. Available for paying
capital returns on the B shares.
Income
(a) Dividends are recognised as income on the date that the related
investments are marked ex-dividend. Income from fixed interest
securities is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable.
(b) Other investment income and deposit interest are included on an
accruals basis.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the income statement except where incurred in
connection with the maintenance or enhancement of the value of the
Company's investment portfolio and taking account of the expected long term
returns as follows:
• Interest payable on the term bank loan is allocated 30 per cent. to
the revenue column of the income statement and 70 per cent. to capital
• Management fees have been allocated 30 per cent to revenue and 70 per
cent to capital; and
• Performance fees and, where the management fee is chargeable at a rate
higher than 0.75 per cent. per annum, that part of the management fee
above 0.75 per cent, will be charged wholly to capital.
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.
Any gain or loss arising from a change in exchange rates subsequent to the
date of the transaction is included as an exchange gain or loss in either
the capital or revenue column of the income statement depending on whether
the gain or loss is of a capital or revenue nature respectively.
Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit before tax as reported in the
income statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted
by the balance sheet date.
2. Income for the period to 30 September is derived from:
2007
£'000
Equity investments 2,902
Fixed interest investments 1,164
Deposit interest 794
_____
4,860
_____
Further receipts of £186,000 were recognised in capital during the period.
These consisted of additional capital payments received from investments
transferred as consideration for the shares issued on 28 February 2007.
3. The returns per share are based on 136,799,064 shares, being the weighted
average shares in issue during the period.
4. Earnings for the period to 30 September 2007 should not be taken as a
guide to the results of the full year.
5. A distribution of 1.325p per share for the quarter to 30 June 2007 was
paid on both the A and B shares on 3 August 2007.
The distribution for the quarter to 30 September 2007 of 1.325p per share
will be paid on 9 November 2007 to shareholders on the register on
5 October 2007.
6. On 1 March 2007, the Company drew down an amount of £33.5m on its loan
facility with Lloyds TSB Scotland plc for a term to 28 September 2012. The
Company entered into an interest rate swap to fix the all-in rate of
interest on the loan at 5.8635 per cent per annum.
7. On 28 February 2007, the Company issued 35,415,875 A shares (excluding A
shares held within units), 11,805,280 B shares (excluding B shares held
within units) and 22,902,855 units (each comprising three A shares and one
B share). The A and B shares were allotted at 98.386p per share and the
units at 393.544p per unit. The total value of the assets acquired in
relation to the allotment of these shares were investments with a market
value of £131,872,000, cash of £3,661,000 and debtors of £1,058,000. The
opening value of these assets at 1 March 2007 represented a net asset value
of 96.26p per share.
Over the period the Company bought back to hold in treasury 3,567,296 A
shares at a cost of £3,448,000 and 1,188,432 B shares at a cost of
£1,149,000. At 30 September 2007 the Company held 3,567,296 A shares and
1,188,432 B shares in treasury.
8. The net asset value per share is based on 100,557,144 A shares and
33,519,703 B shares being the number of shares in issue at the period end.
9. The Group results consolidate those of Investors Securities Company
Limited, a wholly owned subsidiary which deals in securities.
10. The Court of Session has confirmed the cancellation of the amount standing
to the credit of the share premium account and the creation of two distinct
reserves, the first reserve relating to that part of the cancelled share
premium account arising from premiums paid on the A shares (the ''buy back
reserve'') and the second reserve relating to that part of the cancelled
share premium account arising from premiums paid on the B shares (the
''special capital reserve'').
The Company intends to apply these two reserves as follows:
- the buy back reserve will be available as distributable profits to be
used for the buy back of both A and B shares; and
- the special capital reserve will be used for the purpose of paying
capital returns on the B shares.
11. These are not full statutory accounts in terms of Section 240 of the
Companies Act 1985. The first full audited accounts for the period ending
31 March 2008, will be lodged with the Registrar of Companies following the
Annual General Meeting in 2008.
The Interim Report will be posted to shareholders and will be available
on the website: www.investorscapital.co.uk
For further information, please contact:
Rodger McNair, Fund Manager 0207 628 8000
Michael Campbell, Company Secretary 0207 628 8000
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