Final Results
POLAR CAPITAL GLOBAL FINANCIALS TRUST PLC
ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 NOVEMBER 2015
THIS ANNOUNCEMENT CONTAINS REGULATED INFORMATION
2 February 2016
Financial Highlights - For the year ended 30 November 2015
|
Performance (Total return) |
|
||
|
Net asset value per ordinary share (undiluted) (note 1) |
5.3% |
||
|
Benchmark index (MSCI World Financials Index (total return in Sterling with dividends reinvested)) |
0.9% |
||
|
|
|
||
|
|
|
|
|
|
Financials |
As at 2015 |
As at 2014 |
% Change |
|
Net asset value per ordinary share |
111.49p |
109.06p |
2.2% |
|
Ordinary share price |
104.0p |
101.0p |
3.0% |
|
Subscription share price (note 3) |
5.0p% |
9.38p |
(46.7)% |
|
Expenses |
|
|
|
|
Ongoing charges (note 4) |
1.06% |
1.09% |
n/a |
Dividends
The Company has paid/declared the following dividends relating to the financial year ended 30 November 2015:
|
Pay date |
Amount per |
Record date |
Ex-date |
Declared date |
|
27 August 2015 |
1.85p |
7 August 2015 |
6 August 2015 |
28 July 2015 |
|
29 February 2016 |
1.375p |
12 February 2016 |
11 February 2016 |
2 February 2016 |
|
Total (2014: 3.1p) |
3.225p |
|
|
|
All data sourced from Polar Capital LLP
Note 1-The total return NAV performance per ordinary share for the year is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date.
Note 2-There is no difference between the diluted and undiluted net asset value as the conversion price for the subscription shares is higher than the NAV per share.
Note 3 - Subscription shares were issued free to investors on 1 July 2013 on the basis of one subscription share for every five ordinary shares
Note 4-Ongoing charges represents the total expenses of the Company, excluding finance costs, expressed as a percentage of the average daily net asset value, in accordance with AIC guidance issued in May 2012.
Chairman's Statement
Dear Shareholders
On behalf of the Board I submit the Company's Annual Report for the year to 30 November 2015, the Company's second full financial year. I am pleased to report strong investment performance relative to benchmark, a stabilisation and narrowing of the Company's share price discount over the course of the year, and a growth in income that will allow the Company to raise its total dividend for the year in accordance with the Company's objectives as laid out in the Prospectus.
Performance
The year under review has been one of higher than usual volatility for financial markets faced with new political risks and fresh economic and policy uncertainties. In the US the debate over the imminent timing of the first Federal Reserve rate hike in nearly 10 years became a key focus for markets; in Europe the Eurozone found itself thrown into fresh turmoil by the election of the Syriza party in Greece; in Asia concern grew over the pace of the economic slowdown in China and the authorities' ability to deal with this successfully; this cast a deep shadow over oil and commodity markets and the emerging economies dependent on natural resource investment and exports. Overall, global equity markets faced strong headwinds, with major markets experiencing a roller coaster ride while many emerging markets and their currencies experienced significant losses.
In these turbulent waters our investment manager navigated the portfolio with skill, protecting the portfolio's assets while growing the Company's NAV and its income. In the year under review the Company's NAV total return was 5.3%. This compares favourably over the same period with a Sterling total return of 0.9% for the benchmark MSCI World Financials Index, and the Sterling total return of 3.8% delivered by the broad MSCI World Index. The Company's share price total return during the year was 6.2% reflecting a small narrowing of the share price's discount to the Company's NAV.
The strong relative performance was largely attributed to good stock picking. Investment in young and start-up companies in Europe, including some potential disruptors in the banking sector, further supported performance. Our managers also prudently reduced their exposure to emerging markets, concentrating exposure in this sector on better performing markets such as India. More detail on investment performance is provided in the Investment Manager's report.
Share Capital
The Company started the year with 174,600,000 ordinary shares in issue. Following a deterioration in sentiment towards the sector during the preceding financial year, the Company's share price had moved to a discount to its NAV. In the interests of shareholders the Board at that time gave authority to the Investment manager to buy back shares where appropriate. This resulted in the purchase of 2,600,000 shares in the preceding financial year.
In the early part of the current financial year under review, a further 900,000 shares were bought by the Company, taking the ordinary shares in issue to 173,700,000. These were purchased at an average discount of 10.9% to the Company's prevailing NAV. These purchases have been accretive to existing shareholders as all shares purchased have been cancelled.
Since the latest purchases in April 2015, sentiment towards the sector has improved somewhat which, together with the Manager's good investment performance, has helped to narrow the discount in the Company's share price. At the end of the financial year the Company's ordinary share price was 104.0 pence, up 3% on the year, representing a discount of 6.6% compared to the Company's net assets per ordinary share of 111.4p.
The Company does not pursue a formal discount control mechanism. The Board monitors the discount and market conditions and determines any appropriate action. The Board has reconfirmed to the Manager its authority to use its discretion to purchase further shares if necessary in order to maintain a stable market in the Company's shares in the best interests of shareholders.
The number of Subscription shares has remained unchanged over the year at 30,600,000.
Costs
The Board places a high priority on controlling the Company's expenses. At launch we had estimated an Ongoing Charges ratio of 1.27% of net assets. In our initial, partial financial year we achieved a ratio of 1.16%, falling further to 1.09% in our first full financial year. I am pleased to report that, despite the fall in the number of ordinary shares outstanding following share buy backs last year, the Ongoing Charges ratio fell further to 1.06%..
The Board will continue to monitor costs closely to ensure value for money and an appropriate quality of services. How the Ongoing Charges ratio develops from here will in part depend on the overall asset value of the Company.
Dividends
In its first full financial year the Company paid a total dividend of 3.1p per ordinary share as targeted at the time of the Company's launch. The Company aims to pursue a policy of dividend growth, although there is no guarantee that this can be achieved. The Board monitors, with the help of the Manager, the prospects for dividends from its equity holdings, interest income from cash and fixed income securities, and the potential to earn additional revenue from writing options.
In August 2015, the Company paid an interim dividend of 1.85p per ordinary share for the current financial year. I am pleased to announce that the Board has authorised a dividend of 1.375p per ordinary share payable to shareholders on the register as at 12 February 2016. This will bring the total dividend paid for the financial year under review to 3.225p per ordinary share. This is an increase of 4.0% on the previous financial year. Although earnings per share have increased from 3.31p per share to 3.77p per share, an increase of almost 14.0%, 0.33p of income in the financial year has been due to the receipt of special dividends, the quantum of which is unpredictable. The Directors have been mindful of this when determining the dividend.
Outlook
The beginning of the Company's new financial year has witnessed further volatility from some of the factors that concerned financial markets in 2015. In the US the Federal Reserve finally pulled the trigger in December and raised the Fed Funds rate for the first time in nearly 10 years. The significance of this goes far beyond the impact of a 25bp rate rise on the economy. It marked the end of a long cycle of ever easier money and signalled the start of a new cycle of higher rates. If the US economy is strong enough to withstand the impact on growth and loan demand, the rise in US rates should be beneficial for US banks through an increase in net interest margins.
In China concerns over the economy and policy responses came to a head at the start of the new calendar year which precipitated sharp falls in Asian and global equity markets. China growth concerns and fresh tensions in the Middle East sent oil prices to fresh lows at the start the year. This is not a promising inauguration to the new year for natural resource based emerging economies where further distress in local financial markets and currencies may be in prospect before a floor is found. The Company's direct exposure to these emerging economies is relatively small.
Elsewhere in the developed world investors are faced with understanding the implications of the divergence in monetary policies between major economies following the Federal Reserve's rate rise. In Euroland the ECB is likely to be focused for some time yet on preventing the local economy slipping into deflation, while in Japan the central bank is likely to need to implement further monetary stimulus as part of the 'first arrow' of measures designed to re-ignite growth. Finally in the UK, a major uncertainty overhangs the market, in the form of a referendum on its membership of the European Union which is likely to take place in the current financial year. As the year starts, the outcome looks too close to call. In the meantime, the recently elected Conservative government seems set on using the recovery in growth to restore public finances to good order. This fiscal stance coupled with uncertainties in global growth is likely to complicate the stance of monetary policy in the UK well into the year.
This backdrop of policy diversion, growth uncertainties, commodity market dislocation and geopolitical tensions provides a set of factors that complicate the outlook for global equities for the year ahead. The year has begun with major equity market corrections around the world. Within this, the financials sector has been the most adversely impacted. The Board agrees with the investment manager that this represents a significant opportunity for the Company as valuations have, in many places, fallen to previous crisis levels which, in the banking sector in particular, are not merited by the broad improvements in fundamentals since the 2008 financial crisis. Our investment manager has responded by designing a portfolio with defensive qualities while positioned to exploit opportunities in specific sectors and markets. The portfolio is well diversified across the various sectors that comprise the global financials universe.
The important banking sector in Europe and the US continues to be characterised by improving underlying fundamentals as balance sheets are repaired, cost control feeds into bottom lines and fresh capital is raised. The rehabilitation of this sector in general is not only improving sentiment towards it but also offers the prospect of capital being returned to shareholders through share buybacks and growing dividends.
The portfolio is well positioned in the US to benefit from the prospect of further loan growth and higher net interest margins with its exposure to regional and other financial institutions with few legacy issues from the financial crisis. In Europe the general improvement in bank balance sheets and the emergence of new players capturing market share from the constrained established players continue to offer value opportunities. In emerging markets the highly focused approach on companies and markets less susceptible to general emerging market woes should bring additional value to the portfolio.
Overall, the Board believes that the value opportunities in global financial stocks remain very attractive. Our Investment Manager has done an excellent job in guiding the portfolio through recent market turmoil demonstrating stock picking capabilities which will be important in navigating the portfolio through the uncertainties and opportunities presented by the current environment in order to meet the Company's investment objectives.
Annual General Meeting
The Company's third Annual General Meeting will be held at noon on Tuesday 26 April 2016 at the offices of our investment manager, Polar Capital at 16 Palace Street, London, SW1E 5JD. This will give shareholders an opportunity to hear directly from our Manager and to meet the Board. My fellow Directors and I look forward to meeting you there and discussing the performance of your Company. We very much value your support and feedback.
Robert Kyprianou
2 February 2016
Investment Manager's Report - For the year to 30 November 2015
Performance
While the twelve month period covered by this report was a positive one for equity markets, it was also a very volatile one. The MSCI World Index rose by 3.8%* over the period with US and Japanese equity markets performing well, the latter particularly, so rising by 14.4%. Conversely emerging markets were very weak, falling by 13.4% as illustrated by the MSCI Emerging Markets Index. Against this background financials lagged the underlying rise in equity markets with our benchmark index, the MSCI World Financials Index rising by 0.9%.
Despite this headwind the Company's net asset value rose by 5.3%, outperforming our benchmark index and the MSCI World Index . This strong performance was largely driven by stock selection versus geographic and sector positioning of the portfolio, albeit having no exposure to Australian or Spanish banks and limited exposure to Canadian banks did help performance. Conversely our higher exposure to the euro and lower exposure to the US dollar versus the benchmark index and overweight position in Norway and underweight position in Japan impacted negatively on our relative performance.
Investment Review
While equity markets rose over the last year it was quite an extraordinary period for financial markets. There was a sharp fall in the oil price, US high yield bond markets and emerging markets. Fears of deflation in Europe and anticipation that the European Central Bank would undertake quantitative easing resulted in a fall in Eurozone government bond yields resulting in many trading on negative yields. There was also significant volatility in some currencies and the election of Syriza in Greece and subsequent impasse in talks with its international creditors, until resolved, led to concerns that Greece would default or leave the Eurozone.
The fall in the oil price resulted in the share prices of banks in oil dependent economies falling. In Texas where we have no exposure and Norway where our largest holding is DNB, Norway's largest bank, share prices briefly recovered from initial share price weakness then fell again as a recovery in the oil price petered out. History would suggest that any loan losses from the fall in the oil price should be very manageable. Texas, for example, suffered a surge in bank failures in the 1980s following the collapse in oil prices in the early 1980s but this was almost entirely due to their exposure to commercial real estate and construction loans as opposed to the oil industry.
Sterling was stronger against a number of currencies. Outside the weakness in some emerging market currencies, the euro was very weak as was the Canadian dollar, the Norwegian krone and the Swedish krone albeit to a smaller extent. Conversely the surprise decision in January 2015 by the Swiss National Bank to remove the cap on the Swiss franc versus the euro resulted in it rallying sharply on the day of the announcement although it did give up a significant portion of its initial gains in the following weeks. Despite the initial sharp move, it was unchanged against sterling over the period.
Whereas European banks performed well in the first half of the year, following a correction mid-year they did not recover in-line with underlying equity markets, despite improving economic data and the ECB announcing the purchase €60bn of government bonds per month as part of a quantitative easing programme. Some of this poor performance can be put down to the performance of a small number of large banks with significant emerging market exposure. In particular, the share prices of Banco Santander and Standard Chartered, where we have no exposure, fell sharply over the year, with both banks raising capital to strengthen their balance sheets. Otherwise the underperformance was surprising.
In the last year the Company purchased holdings in a number of small banks that floated, including Banca Sistema in Italy, Skandiabanken in Norway, and so-called 'UK challenger' banks, Aldermore and Shawbrook. Along with One Savings Bank, another UK challenger bank that the Company already had a holding in, the three UK banks performed extremely well in the first six months of the financial year reflecting their high profitability relative to peers and from strong loan growth. All three focus primarily on small business and property lending such as buy-to-let. However, changes announced by the UK government regarding taxation of buy-to-let properties and concerns on capital requirements saw share prices come under pressure in the second-half.
US banks, post an initial sell-off at the beginning of the year on weaker economic data and therefore an expectation that the Federal Reserve would be slower to raise interest rates, performed well. As the US economy has recovered and loan growth has picked up then higher interest rates are seen as the key catalyst to driving stronger share price performance. US banks are seen as beneficiaries of rising interest rates as they should result in wider net interest margins (the difference between what they pay for funding and charge for loans to customers). JP Morgan and PNC both performed well against this background but Citigroup lagged, in part, reflecting its exposure to emerging markets.
US regional banks, such as First Republic and Pacific Premier in which the Company has holdings, performed even better as they are seen as more interest rate sensitive while also benefiting from stronger loan growth. In a similar vein to smaller banks in Europe, when comparing them to their larger peers, US regional banks are generally more focused on commercial banking, have little or no legacy issues and tend to be seen in a more favourable light by politicians and customers. As a result they are expected to continue to see stronger earnings growth than their larger peers.
There was a wide dispersion of returns from emerging markets during the year exacerbated by a further depreciation in the currencies of some versus sterling. Despite the headline fall in emerging market indices the Company had a couple of holdings that performed well, although others holdings did not perform at all well. The Company's exposure to emerging markets fell from approximately 22% when the Company was launched in 2013 to around 5% currently. The Company's largest exposure is to India, with holdings in Indiabulls Housing, Jammu & Kashmir Bank and Yes Bank with other holdings invested in banks in the Czech Republic, Taiwan and Georgia.
In other sub-sectors, insurance stocks performed strongly benefiting from 2015 being a record year for M&A activity, the sector being perceived as defensive and a lack of significant catastrophe losses. The year just passed was the tenth consecutive year with no hurricanes making landfall in the US, the longest streak since records began in 1851. Real-estate investment companies or REITs made positive returns albeit varying in performance across geography and focus. Asset managers saw a significant dispersion in returns with those focusing on US or emerging markets performing poorly while those in Europe, such as Azimut Holdings an Italian asset manager in which we have a holding, performed well.
Our fixed-income securities holdings provided good returns despite the volatility in some underlying government bond markets. Conversely business development companies (BDCs), which provide largely senior secured financing to US small and mid-sized corporate, suffered from the volatility emanating from the US high yield market on the back of the sell-off in energy related bonds. This resulted in some significant falls in some BDCs but those held by the Company, including Ares Capital and Main Street Capital, provided good returns over the year.
Technology is having a big impact on the sector. One of the key trends is the switch customers are making to bank via their mobile phones or on-line versus via a branch. This is leading to lower costs as banks need fewer and smaller bank branches to service. To take advantage of this trend we added to the Company's holding in Atom Bank, a new start-up bank. Atom is a digital-only bank and plans to launch savings and current accounts products in the first half of this year. It received its banking licence in 2015 and at the end of the year it announced that BBVA, the second largest Spanish bank with a market capitalisation of €42.0 billion, would be taking a significant stake.
Litigation, which has been a headwind for the banking sector, materially reduced in the second half of 2015 and outside a very small number of banks we do not expect it to be a material issue going forward. In May a number of banks settled with regulators with respect to outstanding foreign exchange (FX) market manipulation investigations. JPMorgan, Citigroup, Barclays and Royal Bank of Scotland, agreed to pay over $5bn in fines adding to fines that were paid towards the end of 2014 to other regulators. UBS paid a much smaller amount, having previously received conditional immunity for its cooperation.
Regulation has had a significant impact on the sector, in particular on the amount of equity capital that banks need to operate. Outside expected small adjustments to capital requirements, for example with respect to harmonising the way it is calculated, there is much better visibility and therefore increasing confidence on the amount of capital that banks can return to shareholders in dividends and buybacks. Recent pronouncements from regulators have suggested much greater scrutiny on lending by banks to certain borrowers, such as buy-to-let in the UK and commercial real estate lending in the US and this could impact capital requirements going forward.
Outlook
2016 has started with a sharp correction in equity markets on the back of steep falls in the Chinese stock market and a further fall in the oil price. Financials, however, have been the worst performing sector year-to-date and have significantly underperformed underlying equity markets. Although their weakness is understandable, the level of underperformance is surprising and we believe unwarranted. Balance sheets are significantly stronger and outstanding legacy issues are largely resolved for the very small number of banks where they remain an issue.
Arguably the sector is discounting a significantly worse deterioration in the underlying macro environment than suggested by forecasters. Valuations have fallen in some instances to levels not seen since previous financial crises. Against this background the Trust's net asset value has fallen sharply, albeit less than our benchmark index, the MSCI World Financials Index. This reflects the positioning of the portfolio towards better capitalised banks, insurers and other financials which should continue to prove more defensive if equity markets fall further.
Our exposure to emerging markets, where some of the biggest risk lies, has been reduced significantly over the last year with our largest exposure being to the US and Europe. In the latter region, the capital return from banks is expected to increase via increased buybacks and dividends, whereas for some other large dividend yielding sectors, such as energy and mining, the reverse is expected. This should improve sentiment towards the sector and relative share price performance albeit shorter term performance will continue to be driven by economic data and the oil price.
Nick Brind & John Yakas
2 February 2016
*All performance figures are total return in Sterling
Note: We would like to draw shareholders' attention to http://www.polarcapitalglobalfinancialstrust.co.uk/ for regular monthly portfolio updates and commentary.
Portfolio - As at 30 November 2015
|
|
|
|
|
Sector |
Geographical Exposure |
Market Value |
% of total net assets |
|||||||||||||||
|
|
2015 £'000 |
2014 £'000 |
2015 |
2014 |
||||||||||||||||||
|
|
1 |
(2) |
JP Morgan Chase |
Banks |
North America |
6,435 |
5,572 |
3.3% |
2.9% |
|||||||||||||
|
|
2 |
(3) |
Wells Fargo |
Banks |
North America |
5,769 |
5,482 |
3.0% |
2.9% |
|||||||||||||
|
|
3 |
(29) |
ING Groep |
Banks |
Europe |
5,448 |
3,046 |
2.8% |
1.6% |
|||||||||||||
|
|
4 |
(4) |
ACE |
Insurance |
Europe |
5,341 |
5,112 |
2.8% |
2.7% |
|||||||||||||
|
|
5 |
(6) |
Societe Generale |
Banks |
Europe |
5,056 |
4,597 |
2.6% |
2.4% |
|||||||||||||
|
|
6 |
(24) |
Sumitomo Mitsui Financial |
Banks |
Japan |
4,682 |
3,273 |
2.4% |
1.7% |
|||||||||||||
|
|
7 |
(36) |
OneSavings Bank |
Banks |
United Kingdom |
4,451 |
2,761 |
2.3% |
1.4% |
|||||||||||||
|
|
8 |
(7) |
Sampo |
Insurance |
Europe |
4,402 |
4,437 |
2.3% |
2.3% |
|||||||||||||
|
|
9 |
(12) |
BNP Paribas |
Banks |
Europe |
4,340 |
4,032 |
2.2% |
2.1% |
|||||||||||||
|
|
10 |
(10) |
Citigroup |
Banks |
North America |
4,312 |
4,136 |
2.2% |
2.2% |
|||||||||||||
|
|
Top 10 investments |
|
|
50,236 |
|
25.9% |
|
|||||||||||||||
|
|
11 |
|
Bank Of America |
Banks |
North America |
4,229 |
- |
2.2% |
- |
|||||||||||||
|
|
12 |
(1) |
PNC Financial Services |
Banks |
North America |
4,047 |
5,585 |
2.1% |
2.9% |
|||||||||||||
|
|
13 |
(23) |
Direct Line Insurance |
Insurance |
United Kingdom |
4,047 |
3,313 |
2.1% |
1.7% |
|||||||||||||
|
|
14 |
(20) |
Azimut |
Diversified Financials |
Europe |
3,723 |
3,409 |
1.9% |
1.8% |
|||||||||||||
|
|
15 |
(8) |
UBS |
Banks |
Europe |
3,510 |
4,392 |
1.8% |
2.3% |
|||||||||||||
|
|
16 |
(13) |
US Bancorp |
Banks |
North America |
3,498 |
3,882 |
1.8% |
2.0% |
|||||||||||||
|
|
17 |
(5) |
Discover Financial Services |
Diversified Financials |
North America |
3,488 |
4,814 |
1.8% |
2.5% |
|||||||||||||
|
|
18 |
(33) |
First Republic Bank |
Banks |
North America |
3,431 |
2,877 |
1.8% |
1.5% |
|||||||||||||
|
|
19 |
(9) |
Toronto-Dominion Bank |
Banks |
North America |
3,397 |
4,299 |
1.8% |
2.3% |
|||||||||||||
|
|
20 |
(22) |
AXA |
Insurance |
Europe |
3,370 |
3,373 |
1.7% |
1.8% |
|||||||||||||
|
|
Top 20 investments |
|
|
86,976 |
|
44.9% |
|
|||||||||||||||
|
|
21 |
(18) |
Fortune REIT |
Real Estate |
Asia (ex-Japan) |
3,343 |
3,528 |
1.7% |
1.9% |
|||||||||||||
|
|
22 |
(14) |
Intesa San Paolo |
Banks |
Europe |
3,323 |
3,869 |
1.7% |
2.0% |
|||||||||||||
|
|
23 |
(17) |
Marsh & McLennan |
Insurance |
North America |
3,306 |
3,614 |
1.7% |
1.9% |
|||||||||||||
|
|
24 |
(21) |
Credit Suisse |
Banks |
Europe |
3,215 |
3,405 |
1.7% |
1.8% |
|||||||||||||
|
|
25 |
|
ABN Amro |
Banks |
Europe |
3,158 |
- |
1.6% |
- |
|||||||||||||
|
|
26 |
|
Oversea-Chinese Banking Corp |
Banks |
Asia (ex-Japan) |
3,123 |
- |
1.6% |
- |
|||||||||||||
|
|
27 |
(47) |
Novae |
Insurance |
United Kingdom |
3,116 |
2,216 |
1.6% |
1.2% |
|||||||||||||
|
|
28 |
(19) |
Swedbank |
Banks |
Europe |
3,031 |
3,439 |
1.6% |
1.8% |
|||||||||||||
|
|
29 |
|
Shawbrook |
Banks |
United Kingdom |
3,025 |
- |
1.6% |
- |
|||||||||||||
|
|
30 |
(43) |
Solar Capital |
Diversified Financials |
North America |
2,987 |
2,463 |
1.5% |
1.3% |
|||||||||||||
|
|
Top 30 investments |
|
|
118,603 |
|
61.2% |
|
|||||||||||||||
|
|
31 |
(38) |
Ares Capital* |
Diversified Financials |
North America |
2,868 |
2,865 |
1.5% |
1.6% |
|||||||||||||
|
|
32 |
(32) |
Blackstone |
Diversified Financials |
North America |
2,819 |
2,910 |
1.5% |
1.5% |
|||||||||||||
|
|
33 |
|
Banca Sistema |
Banks |
Europe |
2,813 |
- |
1.5% |
- |
|||||||||||||
|
|
34 |
(31) |
Main Street Capital |
Diversified Financials |
North America |
2,793 |
2,945 |
1.4% |
1.5% |
|||||||||||||
|
|
35 |
(15) |
KBC |
Banks |
Europe |
2,718 |
3,808 |
1.4% |
2.0% |
|||||||||||||
|
|
36 |
(35) |
Frasers Centrepoint Trust |
Real Estate |
Asia (ex-Japan) |
2,700 |
2,785 |
1.4% |
1.5% |
|||||||||||||
|
|
37 |
(25) |
Allianz |
Insurance |
Europe |
2,671 |
3,272 |
1.4% |
1.7% |
|||||||||||||
|
|
38 |
(39) |
P2P Global Investments |
Fixed Income |
Fixed Income |
2,650 |
2,607 |
1.4% |
1.4% |
|||||||||||||
|
|
39 |
|
Pacific Premier Bancorp |
Banks |
North America |
2,643 |
- |
1.4% |
- |
|||||||||||||
|
|
40 |
(27) |
HSBC Holdings |
Banks |
Asia (ex-Japan) |
2,569 |
3,075 |
1.3% |
1.6% |
|||||||||||||
|
|
Top 40 investments |
|
|
145,847 |
|
75.4% |
|
|||||||||||||||
|
41 |
(69) |
Atom Bank (unquoted) |
Banks |
United Kingdom |
2,454 |
500 |
1.3% |
0.3% |
|
|||||||||||||
|
42 |
(45) |
E Sun Financial |
Banks |
Asia (ex-Japan) |
2,434 |
2,259 |
1.3% |
1.2% |
|
|||||||||||||
|
43 |
|
VPC Specialty |
Fixed Income |
Fixed Income |
2,387 |
- |
1.2% |
- |
|
|||||||||||||
|
44 |
(54) |
Arrow Global |
Diversified Financials |
United Kingdom |
2,364 |
1,931 |
1.2% |
1.0% |
|
|||||||||||||
|
45 |
(50) |
East West Bancorp |
Banks |
North America |
2,333 |
2,054 |
1.2% |
1.1% |
|
|||||||||||||
|
46 |
(11) |
DNB |
Banks |
Europe |
2,270 |
4,065 |
1.2% |
2.1% |
|
|||||||||||||
|
47 |
|
Aldermore |
Banks |
United Kingdom |
2,136 |
- |
1.1% |
- |
|
|||||||||||||
|
48 |
|
Banca IFIS |
Banks |
Europe |
2,123 |
- |
1.1% |
- |
|
|||||||||||||
|
49 |
(48) |
JZ Capital Partners |
Fixed Income |
Fixed Income |
2,083 |
2,103 |
1.1% |
1.1% |
|
|||||||||||||
|
50 |
(51) |
Lloyds Bank 13% Bond |
Fixed Income |
Fixed Income |
2,080 |
2,006 |
1.1% |
1.1% |
|
|||||||||||||
|
Top 50 investments |
|
|
168,511 |
|
87.2% |
|
|
|||||||||||||||
|
51 |
(52) |
Nationwide Building |
Fixed Income |
Fixed Income |
2,057 |
1,970 |
1.1% |
1.0% |
|
|||||||||||||
|
52 |
(26) |
Jammu & Kashmir |
Banks |
Asia (ex-Japan) |
1,952 |
3,266 |
1.0% |
1.7% |
|
|||||||||||||
|
53 |
(59) |
Oaktree Capital |
Diversified Financials |
North America |
1,947 |
1,774 |
1.0% |
0.9% |
|
|||||||||||||
|
54 |
|
Lloyds Banking |
Banks |
United Kingdom |
1,918 |
- |
1.0% |
- |
|
|||||||||||||
|
55 |
(55) |
City of London |
Diversified Financials |
United Kingdom |
1,869 |
1,886 |
1.0% |
1.0% |
|
|||||||||||||
|
56 |
(49) |
Mapletree Comercial |
Real Estate |
Asia (ex-Japan) |
1,832 |
2,080 |
0.9% |
1.1% |
|
|||||||||||||
|
57 |
(37) |
Komercni Banka |
Banks |
Eastern Europe |
1,801 |
2,627 |
0.9% |
1.4% |
|
|||||||||||||
|
58 |
(58) |
Phoenix Life 7.25% Bond |
Fixed Income |
Fixed Income |
1,784 |
1,789 |
0.9% |
0.9% |
|
|||||||||||||
|
59 |
(60) |
Barclays Bank 14% Bond |
Fixed Income |
Fixed Income |
1,717 |
1,753 |
0.8% |
0.9% |
|
|||||||||||||
|
60 |
(28) |
Frasers Commercial Trust |
Real Estate |
Asia (ex-Japan) |
1,636 |
3,050 |
0.8% |
1.6% |
|
|||||||||||||
|
Top 60 investments |
|
|
187,024 |
|
96.6% |
|
|
|||||||||||||||
|
61 |
|
Synchrony Financial |
Diversified Financials |
North America |
1,545 |
- |
0.8% |
- |
|
|||||||||||||
|
62 |
|
Skandiabanken |
Banks |
Europe |
1,525 |
- |
0.8% |
- |
|
|||||||||||||
|
63 |
|
Indiabulls Housing Finance |
Banks |
Asia (ex-Japan) |
1,454 |
- |
0.8% |
- |
|
|||||||||||||
|
64 |
|
International Personal |
Fixed Income |
Fixed Income |
1,288 |
- |
0.7% |
- |
|
|||||||||||||
|
65 |
(41) |
TBC Bank |
Banks |
Eastern Europe |
1,164 |
2,539 |
0.6% |
1.3% |
|
|||||||||||||
|
66 |
(46) |
Cielo |
Diversified Financials |
Latin America |
1,142 |
2,223 |
0.6% |
1.2% |
|
|||||||||||||
|
67 |
(61) |
Old Mutual 8% Bond |
Fixed Income |
Fixed Income |
1,093 |
1,648 |
0.6% |
0.9% |
|
|||||||||||||
|
68 |
(63) |
Sparebank SMN |
Banks |
Europe |
1,054 |
1,421 |
0.5% |
0.7% |
|
|||||||||||||
|
69 |
(65) |
Friends Life 8.25% Bond |
Fixed Income |
Fixed Income |
1,033 |
1,323 |
0.5% |
0.7% |
|
|||||||||||||
|
70 |
|
Yes Bank |
Banks |
Asia (ex-Japan) |
919 |
- |
0.4% |
- |
|
|||||||||||||
|
Top 70 investments |
|
|
199,241 |
|
102.9% |
|
|
|||||||||||||||
|
71 |
|
Sun Hung Kai Properties |
Real Estate |
Asia (ex-Japan) |
738 |
- |
0.4% |
- |
|
|||||||||||||
|
72 |
(57) |
Investec Bank 9.625% Bond |
Fixed Income |
Fixed Income |
488 |
1,812 |
0.3% |
1.0% |
|
|||||||||||||
|
73 |
|
Old Mutual 7.875% Bond |
Fixed Income |
Fixed Income |
260 |
- |
0.1% |
- |
|
|||||||||||||
|
74 |
|
Indiabulls Housing Finance Warrants 30/01/2020 |
Banks |
Asia (ex-Japan) |
233 |
- |
0.1% |
- |
|
|||||||||||||
|
75 |
|
Credit Suisse rights |
Banks |
Europe |
92 |
- |
- |
- |
|
|||||||||||||
|
Total investments |
|
|
201,052 |
|
103.8% |
|
|
|||||||||||||||
|
Other net liabilities |
|
|
(7,393) |
|
(3.8%) |
|
|
|||||||||||||||
|
Total net assets |
|
|
193,659 |
|
100.0% |
|
|
|||||||||||||||
|
* The investment in Ares Capital is a combination of shares with a value of £242,000 and a contract for difference with a value of £2,626,000. See note 14(b) for further details.
|
|
|||||||||||||||||||||
|
Geographical Exposure* |
Company |
Benchmark |
||||||||||||||||||||
|
30 November 2015 |
30 November 2014 |
30 November 2015 |
30 November 2014 |
|||||||||||||||||||
|
North America |
32.0% |
29.0% |
52.5% |
51.1% |
||||||||||||||||||
|
Europe |
32.6% |
32.1% |
19.1% |
19.8% |
||||||||||||||||||
|
Asia (ex-Japan) |
11.7% |
14.5% |
11.2% |
12.4% |
||||||||||||||||||
|
United Kingdom |
13.2% |
10.0% |
8.9% |
9.4% |
||||||||||||||||||
|
Fixed Income |
9.8% |
9.2% |
- |
- |
||||||||||||||||||
|
Eastern Europe |
1.5% |
5.4% |
- |
- |
||||||||||||||||||
|
Latin America |
0.6% |
2.4% |
- |
- |
||||||||||||||||||
|
Japan |
2.4% |
1.7% |
8.1% |
7.3% |
||||||||||||||||||
|
Middle East and Africa |
- |
- |
0.2% |
- |
||||||||||||||||||
|
Other net liabilities |
(3.8%) |
(4.3%) |
- |
- |
||||||||||||||||||
|
Total |
100.0% |
100.0% |
100.0% |
100.0% |
||||||||||||||||||
|
Sector Exposure* |
Company |
Benchmark |
||
|
30 November 2015 |
30 November 2014 |
30 November 2015 |
30 November 2014 |
|
|
Banks |
61.0% |
53.6% |
46.0% |
47.1% |
|
Diversified Financials |
14.2% |
22.1% |
17.6% |
18.2% |
|
Insurance |
13.6% |
13.3% |
20.7% |
19.7% |
|
Fixed Income |
9.8% |
9.2% |
- |
- |
|
Real Estate |
5.2% |
6.1% |
15.7% |
15.0% |
|
Other net liabilities |
(3.8%) |
(4.3%) |
- |
- |
|
Total |
100.0% |
100.0% |
100.0% |
100.0% |
|
Market Cap* |
30 November 2015 |
30 November 2014 |
|
Large (>US$5bn) |
67.3% |
68.6% |
|
Medium (US$0.5bn - US$5bn) |
28.2% |
27.9% |
|
Small (<US$0.5bn) |
4.5% |
3.5% |
|
Total |
100.0% |
100.0% |
· Based on net assets as at 30 November 2015 of £193.7m (2014: £190.4m)
Note: figures in brackets denote the comparative ranking as at 30 November 2014
Strategic Report
The Company is required by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to set out a report to shareholders outlining a fair review of the strategy and performance of the Company during the year ended 30 November 2015, the position of the Company at the year end and a description of the principal risks and uncertainties.
Full details of the Investment Manager's activities and its views are given in the Investment Manager's Report. The Board considers that, in order for shareholders to gain a full understanding of the prospects and business of the Company, the Chairman's Statement and the Investment Manager's Report should be read in conjunction with this Strategic Report and the Report of the Directors which follows.
The Strategic Report Section of this annual report, which comprises the Chairman's Statement, the Investment Manager's Report and this Strategic Report, has been prepared solely to provide additional information to shareholders on the Company's strategies and potential for those strategies to succeed. The Strategic Report Section contains certain forward-looking statements. These statements are made by the Directors in good faith, based on the information available to them at the time of their approval of this report and such statements should be treated with caution due to inherent uncertainties, including both economic and business risk factors underlying any such forward-looking information.
Regulatory Arrangements
The Company is designated an Alternative Investment Fund ('AIF') under the Alternative Investment Fund Managers Directive ('AIFMD') and as required by the Directive, has contracted Polar Capital LLP to act as the Alternative Investment Fund Manager ('AIFM') and HSBC Bank plc to act as the Depositary. Both the AIFM and the Depositary have responsibilities to ensure that the assets of the Company are managed in accordance with investment policy and are held in safe custody. The Board remains responsible for setting the investment strategy and operational guidelines as well as meeting the requirements of the FCA Listing Rules and the Companies Act.
Statements from the AIFM and the Depositary can be found on pages 77 and 80.
The Company seeks to manage its portfolio in such a way as to meet the tests set down in Sections 1158 and 1159 of the Companies Tax Act 2010 (as amended by section 492(2) of the Finance Act 2011) and continue to qualify as an investment trust. This qualification permits the accumulation of capital within the portfolio without any liability to UK Capital Gains Tax. Further information is provided in the Directors' Report.
The Company has no employees or premises and the Board is comprised of Non-executive Directors. The day to day operations and functions have all been delegated to third parties.
Future Developments
The Board remains positive on the longer-term outlook for the global financials sector and the Company will continue to pursue its investment objective in accordance with the stated investment policy and strategy. The outlook for future performance is dependent to a significant degree on the world's financial markets and their reactions to economic events and other geo-political forces as well as the regulatory environment. The Chairman's Statement and the Investment Manager's Report comment on the business and the outlook.
Service Providers
Polar Capital LLP has been appointed to act as Investment Manager and AIFM as well as to provide or procure company secretarial and administrative services, including accounting, portfolio valuation and trade settlement, which it has arranged to deliver through HSBC Securities Services (UK) Limited.
The Company also contracts directly with a number of third parties for the provision of specialist services:
- Panmure Gordon & Co as corporate broker;
- Equiniti Limited as share registrars;
- Pricewaterhouse Coopers LLP as independent auditors;
- Accrue Fulton as designers and printers for shareholder communications; and
- Huguenot Limited as website designers and internet hosting services.
Investment Objective and Policy Objective
The Company's investment objective is to generate a growing dividend income together with capital appreciation by investing in a global portfolio of financials stocks.
Policy
The Company seeks to achieve its objective by investing primarily in a global portfolio consisting of listed or quoted securities issued by companies in the financials sector operating in banking, insurance, property and other sub-sectors.
The portfolio is diversified by geography, industry sub-sector and stock market capitalisation.
The Company may have a small exposure to unlisted and unquoted companies, but in the aggregate, this is not expected to exceed 10% of total assets at the time of investment.
The Company will not invest more than 10% of total assets, at the time of investment, in other listed closed-ended investment companies and no single investment will normally account for more than 10% of the portfolio at the time of investment.
The Company may employ levels of borrowing from time to time with the aim of enhancing returns, subject to an overall maximum of 15% of net assets at the time the relevant borrowing is taken out. Actual levels of borrowing may change from time to time based on the Investment Manager's assessment of risk and reward.
The Company may invest through equities, index-linked and other debt securities, cash deposits, money market instruments, foreign currency exchange transactions, forward transactions, index options and other instruments including derivatives. Forward transactions, derivatives (including put and call options on individual positions or indices) and participation notes may be used to gain exposure to the securities of companies falling within the Company's investment policy or to seek to generate income from the Company's position in such securities, as well as for efficient portfolio management. Any use of derivatives for investment purposes is made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments. The Company may hedge exposure to foreign currencies if considered appropriate for efficient portfolio management.
Benchmark
The Company compares the Investment Manager's performance against the MSCI World Financials Index, total return, in Sterling with dividends reinvested. This Index is used to measure the performance of the Company, which does not seek to replicate the index in constructing its portfolio. The portfolio may, therefore, diverge substantially from the constituents of this Index. Although the Company has a benchmark, this is neither a target nor an ideal investment strategy. The purpose of the Benchmark is to set a reasonable return for shareholders above which the Investment Manager is entitled to a share of the extra performance it has delivered.
Performance and Key Performance Objectives
The Board appraises the performance of the Company and the Investment Manager as the key supplier of services to the Company against key performance indicators (KPIs). The objectives comprise both specific financial and shareholder related measures.
|
KPI |
Control process |
Outcome |
|
The provision of investment returns to shareholders measured by long-term NAV total return relative to the Benchmark Index. |
The Board reviews at each meeting the performance of the portfolio and considers the views of the Investment Manager. The Board also receives monthly reports |
The Company's undiluted NAV total return, over the year ended 30 November 2015, was 5.3% while the Benchmark Index over the same period returned |
|
The achievement of the dividend policy. |
Financial forecasts are reviewed to track income and distributions. |
A total of two interim dividends amounting to 3.225p per ordinary share will be paid in respect of the financial year ended 30 November 2015. |
|
Monitoring and reacting to issues created by the discount or premium of the ordinary share price to the NAV per ordinary share with the aim of reducing volatility for shareholders. |
The Board receives regular information on the composition of the share register including trading patterns and discount/premium levels of the Company's ordinary shares. The Board discusses and authorises the issue or buy back A daily NAV per share, diluted when appropriate, calculated in accordance with the AIC guidelines is issued to the London Stock Exchange. |
The discount/premium of the ordinary share price to the NAV per ordinary share over the year ended 30 November 2015 traded at a maximum discount of 12.5%, reached on 2 February 2015. In the year ended 30 November 2015, the Company bought back 900,000 ordinary shares. All the shares bought back were cancelled.
|
|
Meeting the requirements of Sections 1158 and 1159 of the Corporation Tax |
The Board receives regular financial information which discloses the current and projected financial position of the Company against each of the tests set out in Sections 1158 and 1159. |
Investment trust status has been granted to the Company subject to the Company continuing to satisfy the conditions of Sections 1158 and 1159 of the Corporation Tax Act 2010. The Directors believe that the conditions have been met in respect of the year ended 30 November 2015 and they believe that the Company will continue |
|
Monitoring and managing Ongoing Charges. |
The Board receives regular financial information which discloses expenses against budget. |
Ongoing Charges for the year ended |
Principal Risks and Uncertainties
The Board is responsible for the management of risks faced by the Company in delivering long-term returns to shareholders. The identification, monitoring and appraisal of the risks, any mitigating factors and control systems is crucial.
The Board maintains a Risk Map which seeks to identify and allocate risks to four main risk categories, Business, Portfolio Management, Infrastructure and External. The Risk Map details each identified risk and any factors, both internal and external, which could provide mitigation, as well as outlining the reporting structure which monitors and mitigates, as far as practicable, such risks.
|
Principal Business Risks and Uncertainties |
Management of risks through Mitigation & Controls |
|
Business |
|
|
Failure to achieve investment objective, investment performance below agreed benchmark objective or market/industry average. Loss of portfolio manager or other key staff. Persistent excessive share price discount to NAV. |
The Board seeks to mitigate the impact of such risks through regular reporting and monitoring of the investment performance against its peer group, benchmark and other agreed indicators of relative performance. For months when the Board is not scheduled to meet, it receives a monthly report containing financial information Performance and strategy are reviewed throughout the year at regular Board meetings where the Board can challenge the Investment Manager. The Board also receives a monthly commentary from the Investment Manager in the form of factsheets for all the financials funds managed by Polar Capital. The Management Engagement Committee considers Key personnel are incentivised by equity participation in the investment management company. n consultation with its advisors, including the corporate stock broker, the Board regularly considers the level of premium and discount of the share price to the NAV and the Board reviews ways to enhance shareholder value including share issuance and buy backs. Having a fixed life with a wind-up date in 2020 should help to limit discount volatility. The Board is committed to a clear communication programme to ensure shareholders understand the investment strategy. This is maintained through the use of monthly factsheets which have a market commentary from the Investment Manager as well portfolio data, an informative and relevant website as well as annual and half year reports.
|
|
Principal Business Risks and Uncertainties |
Management of risks through Mitigation & Controls |
|
Portfolio Management |
|
|
While the portfolio is diversified across a number of stock markets worldwide, the investment mandate is focused on financials and thus the portfolio is more sensitive to investor sentiment and the commercial acceptance of the sector than a general investment portfolio. As the Company's assets comprise mainly listed equities the portfolio is exposed to risks such as market price, credit, liquidity, foreign currency The portfolio is actively managed. The Investment Managers' style focuses primarily on the investment opportunity of individual stocks and, accordingly, may not follow the makeup of the benchmark. This may result in returns which are not in line with the benchmark. The degree of risk which the Investment Manager incurs in order to generate the investment returns and the effect of gearing on the portfolio by borrowed funds can magnify the portfolio returns per share positively or negatively. |
The Board has set appropriate investment guidelines and monitors the position of the portfolio against such guidelines which includes guidelines on exposures to certain investment markets and sectors. The Board discusses with the Investment Manager at each Board meeting its views on the sector. At each Board meeting the composition and diversification of the portfolio by geographies, sectors and capitalisations are considered along with sales and purchases of investments. Individual investments are discussed with the Investment Manager as well as the Investment Manager's general views on the various investment markets and the financials sector in particular. Analytical performance data and attribution analysis is presented by the Investment Manager. The policies for managing the risks posed by exposure to market prices, interest rates, foreign currency exchange rates, credit and liquidity are set out in note 27 to the financial statements. Investors have sight of the entire portfolio and geographic exposure of its investments.
|
|
Gearing, either through bank debt or the use of derivatives may be utilised from time to time. Whilst the use of gearing is intended to enhance the NAV total return, it will have the opposite effect when the return on the Company's investment portfolio is negative. |
The arrangement of bank facilities and drawing of funds under such arrangements are controlled by the Board. Derivatives are considered as being a form of gearing and their use has been agreed by the Board. The deployment of borrowed funds (if any) is based on the Investment Manager's assessment of risk and reward. |
|
Ability to fund the dividend asincome is less than expected as a result of the currency exposure underlying the portfolio. Level of dividend lower than intended or previously paid. |
The Board monitors exposure through monthly management accounts and discussion. The Manager has ability to hedge if thought appropriate.
|
|
Principal Business Risks and Uncertainties |
Management of risks through Mitigation & Controls |
|
Infrastructure |
|
|
There are risks from the failure of, or disruption The mis-valuation of investments or the loss There is taxation risk that the Company may fail to continue as an investment trust and suffer Capital Gains tax or fail to recover as fully as possible withholding taxes on overseas investments. The legal and regulatory risks include failure to comply with the FCA's Prospectus Rules, Listing Rules and Transparency and Disclosure Rules; not meeting the provisions of the Companies Act 2006 and other UK, European and overseas legislation affecting UK companies and not complying with accounting standards. Further risks arise from not keeping abreast of changes in legislation and regulations which have in recent years been substantial. |
At each Board meeting there is an administration report which provides details on general corporate matters including legislative and regulatory developments.. There is an annual review of suppliers and their internal control reports which includes the disaster recovery procedures of the Investment Manager. Regular reporting from the Depositary on the safe custody of the Companies' assets and the operation of control systems related to the portfolio reconciliation are monitored. Specialist advice is sought on taxation issues as and when required. The Audit Committee has oversight of such work. Information and guidance on legal and regulatory risks is managed by using the Investment Manager or professional advisers where necessary and the submission of reports to the Board for discussion and, if required, any remedial action or changes considered necessary. As an investment company, the Company is dependent on a framework of tax laws, regulation (both UK and EU) and Company law. The Board monitors new developments and changes in the regulatory environment and seeks to ensure that their impact on the Company is understood and complied with although the Board has no control over such legislative changes and such changes may be intended to affect the Company, or we may suffer unintended consequences from changes designed to affect others. |
|
External |
|
|
There is significant exposure to the economic cycles of the markets in which the underlying investments conduct their business operations as well as the economic impact on investment markets where such investments are listed. The fluctuations of exchange rates can also have a material impact on Shareholder returns. |
The Board regularly discusses general economic conditions and developments. Note 27 describes the impact of changes in foreign exchange rates. |
Management Company and Management of the Portfolio
As the Company is an investment vehicle for shareholders, the Directors have sought to ensure that the business of the Company is managed by a leading specialist investment management team and that the investment strategy is attractive to shareholders. The Directors believe that a strong working relationship with the Investment Manager will achieve the optimum return for shareholders.
The Company has an Investment Management Agreement with Polar Capital LLP (the Investment Manager), which is authorised and regulated by the Financial Conduct Authority, to act as Investment Manager and AIFM of the Company with sole responsibility for the discretionary management of the Company's assets (including uninvested cash) in accordance with the investment policy of the Company, all subject to the overall control and supervision of the Board.
The Investment Manager also procures or provides the day-to-day administration of the Company and general secretarial functions. The Investment Manager has, with the consent of the Directors, delegated the provision of certain of these administrative functions to HSBC Securities Services and to Polar Capital Secretarial Services Limited.
The fees of HSBC Securities Services (UK) Limited and Polar Capital Secretarial Services Limited are for the account of the Company.
Investment Team
The Investment Manager provides a team of financials specialists and the portfolio is managed jointly by Mr Nick Brind and Mr John Yakas. The Investment Manager also has other specialist and geographically focused investment teams which may contribute to idea generation, supported by five sector specialists.
Termination Arrangements
The Investment Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The Investment Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including: (i) if an order has been made or an effective resolution passed for the liquidation of the Investment Manager; (ii) if the Investment Manager ceases or threatens to cease to carry on its business; (iii) where the Company is required to do so by a relevant regulatory authority; (iv) on the liquidation of the Company; or (v) subject to certain conditions, where the Investment Manager commits a material breach of the Investment Management Agreement.
In the event the Investment Management Agreement is terminated before the expiry of the Company's fixed life then, except in the event of termination by the Company for certain specified causes, the management fee and the performance fee will be calculated pro rata for the period up to and including the date of termination.
Fee Arrangements
Management Fee
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to a management fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The management fee is payable monthly in arrears at the rate of 0.85% per annum of the lower of the Company's market capitalisation and the Company's Net Asset Value on the relevant day.
In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 80% of the management fee payable is charged to capital and the remaining 20% to income.
Performance Fee
The Investment Manager may be entitled to a performance fee. Any performance fee will be paid at the end of the Company's expected life (except in the case of an earlier termination of the Investment Management Agreement) and will be an amount equal to 10% of the excess return (based on the Adjusted Net Asset Value per ordinary share at that time) over the performance fee hurdle.
The performance fee hurdle is 100 pence, increased or decreased by reference to the return on the Benchmark Index plus 1.25 pence per annum (reduced pro rata for periods of less than one full year) over the period from the day following Admission to the date on which it is resolved to wind up the affairs of the Company.
For the purposes of calculating the performance fee, the Company's Adjusted Net Asset Value will be based on the Net Asset Value adjusted as follows:
(A)
the amount of any dividends paid by the Company shall be deemed to have been reinvested on the date of payment in ordinary shares at their Net Asset Value (on such date) and the resulting amount added to the Company's Net Asset Value;
(B)
any dilutive effect caused by the exercise by shareholders of subscription rights in relation to subscription shares shall be deemed to have been added back to the Company's Net Asset Value at the time of issue of the ordinary shares resulting from such exercise, so as to negate the effect of the dilution;
(C)
any enhancement to the Terminal NAV arising from any issue of ordinary shares at a premium to the Net Asset Value per ordinary share prevailing at the time of such issue since Admission shall be deducted; and
(D)
any enhancement to the Terminal NAV arising from the repurchase of ordinary shares pursuant to a tender offer at a discount to Net Asset Value per ordinary share prevailing at the time of such repurchase since Admission shall be deducted.
If, at the end of the Company's expected life, the amount available for distribution to shareholders is less than 100 pence per ordinary share, no performance fee will be payable. If the amount is more than 100 pence per ordinary share but payment of the performance fee in full would reduce it below that level, then the performance fee will be reduced (but to not less than nil) such that shareholders receive exactly 100 pence per share.
No performance fee has been accrued as at 30 November 2015.
Corporate Responsibility
Socially responsible investing and exercise of voting powers
The Board has instructed the Investment Manager to take into account the published corporate governance of the companies in which it invests.
The Company has also considered the Investment Manager's Stewardship Code and Proxy Voting Policy. The Voting Policy is for the Investment Manager to vote at all general meetings of companies in favour of resolutions proposed by the management where it believes that the proposals are in the interests of shareholders. However, in exceptional cases, where it believes that a resolution could be detrimental to the interests of shareholders or the financial performance of the Company, appropriate notification will be given and abstentions or a vote against will be lodged.
During the year under review, the Investment Manager voted at 69 company meetings, in each case following the recommendations of the management of that company on the casting of votes.
The Investment Manager reports to the Board, when requested, on the application of the Stewardship Code and Voting Policy. The Investment Manager's Stewardship Code and Voting Policy can be found on the Investment Manager's website in the Document Library (www.polarcapital.co.uk).
Environment
The Company's core activities are undertaken by its Investment Manager which seeks to limit the use of non-renewable resources and reduce waste where possible.
Diversity, Gender Reporting and Human Rights Policy
The Company has no employees and a Board comprised of two female and one male Non-executive Directors.
Given the relatively short life expectancy of the Company, it is possible that no new appointments will be made to the Board but, in the event that any new appointments are made, the Board will continue to have regard to the benefits of diversity, including gender, when seeking to make any such appointment(s).
The Company has not adopted a policy on human rights as it has no employees or operational control of its assets.
Greenhouse Gas Emissions
The Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 require companies listed on the Main Market of the London Stock Exchange to report on the greenhouse gas ('GHG') emissions for which they are responsible. The Company is an investment trust, with neither employees nor premises, nor has it any financial or operational control of the assets which it owns, Consequently, it has no GHG emissions to report from its operations nor does it has responsibility for any other emissions
Approved by the Board on 2 February 2016.
By order of the Board
Sue Allen FCIS
Polar Capital Secretarial Services Limited
Company Secretary
2 February 2016
Report of the Directors
The Directors present their Report including the Report on Corporate Governance, together with the Audited Financial Statements for the Company prepared under International Financial Reporting Standards as adopted by the European Union (IFRSs) for the year ended 30 November 2015.
Introduction and Status
The Strategic Report Section sets out the Regulatory arrangements, Future Development, Service Providers, Investment Objectives, Benchmark and Key Performance Objectives, Principle Risks and Uncertainties, Management Company, and Corporate Responsibilities of the Company.
The Company is incorporated in England and Wales as a public limited company and is domiciled in the United Kingdom. It is an investment company as defined in section 833 of the Companies Act 2006 and its ordinary shares and subscription shares are listed and traded on the London Stock Exchange.
The close company provisions do not apply.
The business of the Company is to generate for shareholders a growing dividend income and capital appreciation through access to a discretionary managed diversified global portfolio consisting primarily of listed or quoted equities issued by companies in the financials sector operating in the banking, insurance, property and other sub-sectors. The portfolio is diversified by geographic location and size of investee companies.
The portfolio is managed within a framework of investment limits, restrictions and guidelines determined by the Board which strives to meet the investment objective while seeking to spread and mitigate risk.
The Company has no employees or premises and the Board is comprised of Non-executive Directors. The day to day operations and functions of the Company have been delegated to third parties.
The Company is registered under the United States FATCA legislation and its GIIN is shown on page x.
The Company seeks to operate as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010. Confirmation has been received from HM Revenue and Customs that, on the basis of the information provided, the Company has been accepted as an approved investment trust for accounting periods commencing on or after 1 July 2013, subject to the Company continuing to meet the eligibility conditions of and the ongoing requirements for approved companies in Chapter 3 of Part 2 Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instrument 2011/2999).
The Directors are of the opinion that the Company has conducted its affairs in respect of the year ended 30 November 2015, and will continue to conduct its affairs so as to maintain its status as an investment trust.
Life of the Company
The Articles of Association require the Directors to put forward, at the seventh Annual General Meeting, a resolution to place the Company into liquidation. The voting on that resolution will be enhanced such that, provided any single vote is cast in favour, the resolution will be passed. The seventh AGM is expected to be held in April 2020, but no later than 31 May 2020.
Annual General Meeting
The Annual General Meeting will be held at 12 noon on 26 April 2016 at the offices of Polar Capital, 16 Palace Street, London SW1E 5JD. The separate Notice of Annual General Meeting accompanies this Annual Report and contains the full text of the resolutions and an explanation of each of them.
Dividends
The Company aims to increase the dividend (on an annual basis) progressively, but there is no guarantee that this will be achieved. Shareholders should recognise that circumstances may arise when it is necessary to reduce the level of dividend payment or equally there may be instances when the level of dividend must be increased in order to comply with Sections 1158 and 1159 of the Corporation Tax Act 2010. Where this would result in paying a dividend beyond the Board's aim a 'special dividend' will be declared and paid.
The Company aims to pay two interim dividends each year, in February and August. These interim dividends will not necessarily be of equal amounts. Details of the dividends paid and declared are set out on page 1.
Listing Rule 9.8.4
Listing rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out. The only disclosure to be made is with regard to the amount of interest capitalised and can be found in note 10 on page 59.
Share Capital History, Structure and Voting Interests
Issued share capital
The Company's share capital is divided into ordinary shares of 5p each and subscription shares of 1p each. The Company was incorporated on 17 May 2013. On 1 July 2013, it issued 153,000,000 ordinary shares plus one subscription share for every five ordinary shares which were admitted to trading on the Main Market of the London Stock Exchange. The original subscription price of each ordinary shares was £1 and the Net Asset Value (NAV) per share on 1 July 2013 was 98p, after launch costs.
At 30 November 2015, there were 173,700,000 ordinary shares in issue and 30,600,000 subscription shares. During the year under review, 900,000 ordinary shares were bought back for cancellation. There were no changes to the number of subscription shares in issue during the year.
Since the year end, there have been no changes to the issued ordinary share capital which, as at the date of this report, stands at 173,700,000.
Voting Rights
Ordinary shares carry voting rights which are exercised on a show of hands at a meeting, or on a poll, where each share has one vote.
Subscription shares do not carry any rights to attend or vote at meetings of shareholders of the Company but the rights attached to the subscription shares may only be altered or abrogated with the sanction of the subscription shareholders.
Details for the lodging of proxy votes are given when a notice of meeting is issued.
Transferability
Any shares in the Company may be held in uncertificated form and, subject to the Articles of Association ('Articles'), title to uncertificated shares may be transferred by means of a relevant system.
The Articles can be changed by an ordinary shareholder resolution passed at a general meeting of the Company. Where the change would affect the rights of the subscription shareholders, their consent is also required.
Subject to the Articles, any member may transfer all or any of his certificated shares by an instrument of transfer in any usual form or in any other form which the Board may approve. The instrument of transfer must be executed by or on behalf of the transferor and (in the case of a partly-paid share) the transferee.
The Board may, in its absolute discretion and without giving any reason, decline to register any transfer of any share which is not a fully paid share. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer: (i) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may reasonably require; (ii) is in respect of only one class of share; and (iii) if joint transferees, is in favour of not more than four such transferees.
The Board may decline to register a transfer of any of the Company's certificated shares by a person with a 0.25% interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act 2006, unless the transfer is shown to the Board to be pursuant to an arm's length sale (as defined in the Articles).
Powers to issue shares and make market purchases of ordinary and subscription shares
At the AGM in 2015, the Board was granted by shareholders the power to allot equity securities up to a nominal value of £870,750, being 10% of the Company's issued ordinary share capital at that date, and to issue those shares for cash without first offering those shares to shareholders in accordance with their statutory pre-emption rights. These powers will expire at the 2016 AGM. The powers granted at the 2015 AGM have not been used but renewal of these authorities will be sought at the AGM in 2016. New ordinary shares will not be allotted and issued at below the fully diluted Net Asset Value per share after taking into account the costs of issue.
The Board also obtained shareholder authorities at the AGM in 2015 to make market purchases of up to 26,105,085 ordinary shares of the Company (14.99% of the issued share capital) in accordance with the terms and conditions set out in the shareholder resolution. This authority expires at the AGM in 2015 and its renewal will be sought. The powers granted at the 2015 AGM have been used as detailed above.
Details of the resolutions and the Directors' policies for the issue and purchase of shares are set out in the separate Notice of Meeting.
Capital Structure and Voting Interests
Major interests in ordinary shares
The Company has received notifications from the following shareholders in respect of their interests in the voting rights of the Company at 30 November 2015.
Ordinary Shares
|
Investor |
Type of |
Number of |
% of |
|
Investec Wealth & Investment Ltd |
Direct |
29,708,881 |
17.10% |
|
Brewin Dolphin Ltd |
Indirect |
17,329,826 |
9.98% |
|
Rathbone Brothers plc |
Indirect |
14,405,587 |
8.29% |
|
Quilter Cheviot Limited |
Direct |
14,085,527 |
8.11% |
|
JM Finn & Company Ltd |
Direct |
8,673,050 |
4.99% |
|
1607 Capital Partners LLC |
Indirect |
8,639,456 |
4.97% |
*Based on issued ordinary share capital as at 30 November 2015, not necessarily in agreement with shareholder's TR1 notification.
Since the year end, there have been no TR-1 notifications received from shareholders in respect of their holdings
Independent Auditors
PricewaterhouseCoopers LLP have expressed their willingness to continue in office as the Company's independent auditors. A resolution to appoint PricewaterhouseCoopers LLP as independent auditors to the Company will be proposed at the forthcoming AGM.
The fee in respect of the audit of the 2015 annual financial statements has been agreed at £24,000.
Report on Corporate Governance
The Directors are accountable to shareholders for the governance of the Company's affairs. The UK Listing Rules require all listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code (the 'UK Code') which was effective during the financial year, issued by the Financial Reporting Council. The UK Code can be viewed at www.frc.org.uk.
The Association of Investment Companies ('AIC') publishes a Code of Corporate Governance ('AIC Code') and a Corporate Governance Guide for Investment Companies ('AIC Guide'). In March 2015, the AIC published a revised AIC Code and Guide to reflect changes made to the UK Code in September 2014. In line with the UK Code, the revised AIC Code and Guide apply to accounting periods beginning on or after 1 October 2014, so accordingly the Company has adopted the new AIC Code.
The AIC Code and the AIC Guide address the principles set out in the UK Code as well as additional principles and recommendations on issues that are specific to investment trusts. The AIC Code can be viewed at www.theaic.co.uk.
The Financial Reporting Council has confirmed that by following the AIC Code and the AIC Guide, boards of investment companies will meet their obligations in relation to the UK Code and paragraph 9.8.6 of the Listing Rules.
As an investment company most of the day to day responsibilities are delegated to third parties as the Company has no employees and all the Directors are Non-executive. Many of the provisions of the UK Code are not directly applicable to the Company and the Board has determined that reporting against the AIC Code of Corporate Governance ('AIC Code'), which incorporates the UK Code, provides the most appropriate information to shareholders.
Statement of Compliance
The AIC Code comprises 21 principles. The Board considers that for the year under review the Directors, Board and Company have complied with the recommendations of the AIC Code in so far as they apply to the Company's business. For the reasons set out in the AIC Guide the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company:
As all Directors are Non-executive and day to day management has been contracted to third parties, the Company does not have a Chief Executive. The Chairman of the Board is non-executive.
As there are no executive Directors, the Company does not comply with the UK Code in respect of executive directors' remuneration.
The Company does not have an internal audit function as it relies on the systems of control operated by third party suppliers, in particular those of the Investment Manager. The Board monitors these systems of internal control to provide assurance that they operate as intended insofar as they relate to the affairs of the Company; and
Due to the structure of the Board, it is considered unnecessary to identify a senior independent Non-executive Director. The Board considers that all Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns may be conveyed.
Application of the AIC Code's Principles
The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for Investment Companies ('AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Board believes that the Company's current practices are consistent in all material respects with the principles of the AIC Code and where non-compliance occurs, an explanation has been provided. The Board will continue to observe the principles and recommendations set out in the AIC Code in future.
It should be noted that, as an investment Company where the Directors are Non-executive, most of the Company's day to day duties are delegated to third parties. The Company has agreed policies and operating procedures with the suppliers of these services.
Directors and Board; Independence and Composition
The Board is responsible to shareholders for the overall management of the Company's affairs and currently consists of three Non-executive Directors. Each Director has different qualities and areas of expertise on which they may lead where issues arise.
The Directors' biographies, set out on page 20, demonstrate the breadth of investment, commercial and professional experience relevant to their positions as Directors of the Company. The Directors' Remuneration Report is set out on pages 33 to 36.
The Board has considered the contribution and performance of each Director as part of the performance evaluation process. It has determined that each Director has relevant experience, effectively contributed to the operation of the Board and demonstrated independent views on a range of subjects. All the Directors were considered independent of the Investment Manager and had no relationship or conflicts which were likely to affect their judgment.
Succession
The Board believes that retaining Directors with sufficient experience of the Company, industry and the markets is of benefit to shareholders. While the Board recognises the value of progressive refreshing of and succession planning for Company boards, given the expected seven year life of the Company, the Board believes that there is no need for a policy on the length of service for Directors.
Election of Directors
The Articles of Association govern the appointment, re-election and removal of a Director and require each Director to be re-elected every three years. As all the Directors were elected by shareholders at the AGM in 2014, no directors will be standing for re-election at the 2016 AGM. Each of the Directors was in office throughout the year under review. The appointment date for each director is given on page 20.
Directors' Interests and Conflicts of Interests
The Chairman of the Company is a Non-executive Director and has no conflicting relationships.
The share interests of the Directors in the ordinary and subscription shares of the Company are set out in the table on page 35.
Directors have a duty to avoid a situation in which they have or could have a conflict of interest or possible conflict with the interests of the Company. Under the Companies Act 2006 public companies may authorise conflicts or potential conflicts if the Articles of Association contain provisions to this effect and the Company's Articles of Association contain such provisions.
Each Director has provided the Company with a statement of all conflicts of interest and potential conflicts of interest. These have been approved by the Board and recorded in a register. The Board may impose conditions on authorising any conflict or potential conflict situation. Each Director has agreed to notify the Chairman and the Company Secretary of any changes to his or her circumstances which would impact on the notified conflicts or potential conflict with the interests of the Company. No Director has declared receipt of any benefits other than his or her emoluments in his or her capacity as a Director of the Company.
Only Directors not involved in the conflict or potential conflict may participate in the authorisation process. Directors, in deciding whether to authorise a situation or not, will take into account their duty to promote the Company's success.
The Board, as part of its year end review, considered the register of conflicts, any conditions imposed on such conflicts or potential conflicts and the operation of the notification and authorisation process. It concluded that the process had operated effectively since its introduction.
No Director has any links with the Investment Manager and there were no contracts during or at the end of the year in which a Director of the Company is, or was materially interested and which is or was significant in relation to the Company's business or to the Director.
Role and Responsibilities
The Board
The Board meets regularly and as required. In the year to 30 November 2015, there were five scheduled Board meetings dealing with the ongoing stewardship of the Company and other matters, including the setting and monitoring of investment strategy and performance, review of financial statements, and shareholder issues including investor relations. The level of share price discount or premium to the Net Asset Value together with policies for re-purchase or issuance of new shares are kept under review along with matters affecting the industry and the evaluation of third party service providers.
A formal schedule of matters specifically reserved for decision by the full Board has been defined and a procedure has been adopted for Directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company. No such advice was sought during the year.
The number of formal meetings of the Board and its Committees held during the year and the attendance of individual Directors are shown below:
Year ended 30 November 2015
|
|
Board |
Audit Committee |
Management Engagement Committee |
|
Number of scheduled meetings |
5 |
3 |
1 |
|
|
|
|
|
|
Robert Kyprianou |
5 |
3 |
1 |
|
Katrina Hart |
5 |
3 |
1 |
|
Joanne Elliott |
5 |
3 |
1 |
All the Directors attended the Annual General Meeting.
Senior Independent Director
Due to the structure of the Board it is considered unnecessary to identify a senior Non-executive. The Board considers that each Director has different qualities and areas of expertise on which they may lead where issues arise and to whom concerns may be conveyed. Members of the Board may be contacted through the Registered Office of the Company.
Board Committees
The Board has delegated to the Audit Committee and the Management Engagement Committee specific remits for consideration and recommendation but the final responsibility in these areas remains with the Board. The Board has determined that due to its size, and the fact that all the Directors are Non-executive and independent, the functions of the Nomination Committee and Remuneration Committee are carried out by the full Board.
The Board acting as the Nomination Committee will, when considering new or further appointment of Directors, consider the balance of skills, knowledge and experience as well as gender diversity of the whole Board and will also consider the use of external consultants when drawing up a list of candidates.
The Board also creates ad hoc committees from time to time to enact policies or actions agreed in principle by the whole Board. Copies of the terms of reference for each of the Audit and Management Engagement Committees are available on the Company's website.
Audit Committee
The Audit Committee comprises all the independent Non-executive Directors under the chairmanship of Joanne Elliott. The Board is satisfied that at least one of the Committee's members has recent and relevant financial experience. The experience and qualifications of the Committee members are set out in the biographical details on page 20.
None of the members of the Committee has any involvement in the preparation of the financial statements of the Company, as this has been contracted to the Investment Manager. The Chairman of the Committee will be present at the AGM to answer questions relating to the financial statements.
The Audit Committee has direct access to the auditors and to the key senior staff of the Investment Manager and it reports its findings and recommendations to the Board which retains the ultimate responsibility for the financial statements of the Company.
A separate report of the work of the Audit Committee over the year is set out on pages 37 to 40.
Management Engagement Committee
The Management Engagement Committee comprises all the independent Non-executive Directors under the chairmanship of Katrina Hart and will usually meet once a year and at such other times as may be necessary.
The Management Engagement Committee is responsible for the review of the relationship with the Investment Manager including the annual review of the Investment Management and other services and resources supplied by the Investment Manager, prior to making its recommendation to the Board, as to whether the retention of the Investment Manager is in the interests of shareholders.
Work of the Management Engagement Committee
During the year ended 30 November 2015, the Management Engagement Committee met to carry out a review of the Investment Manager and consider its continued appointment. It also considered the quality of the other services provided by the Investment Manager. It concluded that it is in the best interests of shareholders as a whole that the appointment of Polar Capital LLP as Investment Manager is continued on the existing terms.
Directors' Professional Development
If a new Director is appointed, he or she is offered an induction course provided by the Investment Manager. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory obligations and internal controls. Changes affecting Directors' responsibilities are advised to the Board as they arise. Directors may also participate in the Investment Manager's online training, as well as participating in professional and industry seminars.
Performance Evaluation
The Board
The evaluation of the Board, its Committees and individual Directors is carried out annually and involves the use of a written questionnaire, and the Chairman seeking the views of each Director. The responses to the questionnaire are reviewed by the full Board. The Directors are assessed on their relevant experience, their strengths and weaknesses in relation to the requirements of the Board and their commitment to the Company in terms of time spent on attending regular and ad hoc meetings of the Board.
The review of the Chairman's performance was conducted by the full Board led by the Chairman of the Audit Committee.
The Board has considered the size and structure of the Board, as well as succession planning, bearing in mind the balance of skills, knowledge and experience existing on the Board and the Company's expected seven year life.
Reappointment as a Director will not be automatic but will follow a formal evaluation process. The Company does not have a policy on length of service for Directors due to the expected seven year life. All Directors are appointed for an initial term of three years, subject to reappointment in accordance with the Articles of Association and Companies Act provisions.
The Investment Manager
The Board has contractually delegated the management of the portfolio to the Investment Manager, Polar Capital LLP ('the Investment Manager'). It is the Investment Manager's sole responsibility to take decisions regarding the purchase and sale of individual investments. The Investment Manager has responsibility for asset allocation and stock selection within the limits established and regularly reviewed by the Board.
The investment team provided by the Investment Manager, led by Mr Nick Brind and Mr John Yakas, has experience of investing in the financials sector. In addition, the Investment Manager has other resources which support the investment team and has experience in managing and administering other investment trust companies.
The Investment Manager also provides accountancy services, company secretarial and administrative services including the monitoring of third party suppliers which are directly appointed by the Company. The Investment Manager provides, in a timely manner, all relevant management, regulatory and financial information to the Directors. Representatives of the Investment Manager attend Board meetings, enabling the Directors to probe further on matters of concern or seek clarification on certain issues.
The Directors have access to the advice and services of the corporate company secretary, through its appointed representative who is responsible to the Board for ensuring Board procedures are followed and that applicable rules and regulations are complied with. The Board and Investment Manager operate in a supportive, co-operative and open environment.
The Board reviews the performance of the Investment Manager and the Company's performance against the Benchmark at each Board meeting.
The Management Engagement Committee reviews the terms of the contract with the Investment
Accountability and Audit
The Statement of Directors' Responsibilities in respect of the financial statements is set out on pages 41 and 42 and the Independent Auditors' Report is on pages 43 to 47.
Internal Controls
The Board has overall responsibility for the Company's system of internal control and for reviewing its effectiveness. The Company has no employees as its operational functions are carried out by third parties.
The Audit Committee does not consider it necessary for the Company to establish its own internal audit function as the Investment Manager, overseen by the Board, is responsible for monitoring all accounting and internal control operations. The Investment Manager has an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The Investment Manager is authorised and regulated by the Financial Conduct Authority and its compliance department monitors compliance with the FCA rules.
The Board, through the Audit Committee, has established an ongoing process for identifying, evaluating and managing any major risks faced by the Company. The process is documented through the use of a Risk Map which is subject to regular review by the Audit Committee and accords with the Revised Guidance for Directors on the Combined Code published by the Financial Reporting Council.
The controls are embedded within the business and aim to ensure that identified risks are managed and systems are in place to report on such risks. The internal controls seek to ensure the assets of the Company are safeguarded, proper accounting records are maintained and the financial information used in the Company and for publication is reliable. Controls covering the risks identified, including financial, operational, compliance and risk management are monitored by a series of regular reports covering investment performance, attribution analysis, reports from various third parties and from the Investment Manager including risks not directly the responsibility of the Investment Manager.
Internal Controls Operation
The internal controls process was active throughout the year and up to the date of approval of this annual report. However, such an internal controls system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board will continue to monitor the system of internal controls in order to provide assurance that they operate as intended.
The Board has received a formal report from the Investment Manager, with details of any known internal control failures and has also considered reports on the Investment Manager's internal controls and systems operated by other third party suppliers. The Board considers ad hoc reports from the Investment Manager and information is supplied to the Board as required.
The Investment Manager has delegated the provision of accounting, portfolio valuation and trade processing to HSBC Securities Services (UK) Limited but remains responsible to the Company for these functions and provides the Board with information on these services.
The Board monitors the Company's system of internal control through the Risk Map and various reports, and regularly reviews the control process. The Board, assisted by the Investment Manager, reviews the Risk Map and the effectiveness of the system of internal controls taking into account any issues, none of which were considered significant, which arose during the year ended 30 November 2015 and up to the date of this Annual Report.
The Board has adopted a zero tolerance approach to bribery and corruption in its business activities and uses the anti-bribery policy formulated and implemented by Polar Capital LLP which has been sent to all suppliers of both Polar Capital LLP and the Company.
Relations with Shareholders
The Board and the Investment Manager consider maintaining good communications with shareholders and engaging with larger shareholders through meetings and presentations a key priority. Shareholders are kept informed by the publication of annual and interim reports which include financial statements. These reports are supplemented by the daily release of the net asset value per share to the London Stock Exchange and the publication by the Investment Manager of a monthly factsheet.
All this information together with the Investment Manager's presentations is available from the Company's website at www.polarcapitalglobalfinancialstrust.com.
The Board is keen that the AGM be a participative event for all shareholders who attend. The Investment Manager will make a presentation and shareholders are encouraged to attend. The Chairmen of the Board and of the Committees will attend the AGM and are available to respond to queries and concerns from shareholders. In the event of any material dissent, the Board will engage directly with shareholders.
At least twenty working days' notice of the AGM will be given to shareholders and separate resolutions are proposed in relation to each substantive issue.
Where the vote is decided on a show of hands, the proxy votes received will be relayed to the meeting and subsequently published on the Company's website. Proxy forms have a 'vote withheld' option. The Notice of Annual General Meeting sets out the business of the AGM together with the full text of any special resolutions.
Shareholders may submit questions for the AGM in advance of the meeting or make general enquiries of the Company via the company secretary at the Registered Office of the Company.
The Board monitors the share register of the Company; it also reviews all correspondence from shareholders and maintains regular contact with major shareholders. Shareholders who wish to raise matters with a Director may do so by writing to them at the Registered Office of the Company.
By order of the Board
Sue Allen FCIS
Polar Capital Secretarial Services Limited
Company Secretary
2 February 2016
Statement of Directors' Responsibilities - In respect of the Annual Report, Directors' Remuneration Report and 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 prepared the Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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 profit or loss 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 accounting estimates that are reasonable and prudent;
· state whether applicable IFRSs as adopted by the European Union 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 and, as regards the Financial Statements, Article 4 of the IAS Regulations. 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 Directors are responsible for the maintenance and integrity of the Company's website although day to day maintenance has been delegated to Polar Capital LLP. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. The work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.
The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Disclosure of Information to the Auditors
As far as the Directors are aware and to the best of their knowledge, having made enquiries, there is no relevant audit information of which the Auditors are unaware and the Directors have taken steps to make themselves aware of any relevant audit information and to establish that the Auditors are aware of such information.
Longer-Term Viability
The Board through the Audit Committee considered and addressed the ability of the Company to continue to operate over a longer period. The work of the Audit Committee in looking at the longer-term viability is described on page 40.
As an investment company with a liquid portfolio, the majority of which can be sold within seven working days, limited expenses which are modest in relation to the asset base of the company, and no employee, the Directors are of the opinion that the Company can continue in operation up to its wind up date, expected to be in April 2020.
Going Concern
In the assessment of the Company's longer-term viability,the Audit Committee also considered the adoption of the Going Concern basis in preparing the annual report and financial statements.
The Directors are of the opinion that the Company can continue in operation up to its wind up date and accordingly the Directors continue to adopt the going concern basis.
Responsibility Statement Under the Disclosure and Transparency Rules
Each of the Directors of Polar Capital Global Financials Trust plc confirm that, to the best of their knowledge:
· the Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
· the Chairman's Statement, Investment Manager's Report, Strategic Review and Report of the Directors (together constituting the Management Report) include 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.
The financial statements were approved by the Board on 2 February 2016 and the responsibility statements were signed on its behalf by Robert Kyprianou, Chairman of the Board.
Robert Kyprianou
Chairman
2 February 2016
Statement of Comprehensive Income
For the year ended 30 November 2015
|
|
Notes |
Year ended |
Year ended |
||||
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
||
|
Investment income |
3 |
8,074 |
- |
8,074 |
7,002 |
- |
7,002 |
|
Other operating income |
4 |
3 |
- |
3 |
321 |
- |
321 |
|
Gains on investments held at fair value |
5 |
- |
4,471 |
4,471 |
- |
12,436 |
12,436 |
|
Losses on derivatives |
|
- |
(16) |
(16) |
- |
(102) |
(102) |
|
Other movements on written options |
6 |
- |
- |
- |
- |
(8) |
(8) |
|
Other currency losses |
7 |
- |
(181) |
(181) |
- |
(230) |
(230) |
|
Total income |
|
8,077 |
4,274 |
12,351 |
7,323 |
12,096 |
19,419 |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fee |
8 |
(310) |
(1,242) |
(1,552) |
(301) |
(1,206) |
(1,507) |
|
Other administrative expenses |
9 |
(500) |
(2) |
(502) |
(455) |
- |
(455) |
|
Total expenses |
|
(810) |
(1,244) |
(2,054) |
(756) |
(1,206) |
(1,962) |
|
Profit before finance costs and tax |
|
7,267 |
3,030 |
10,297 |
6,567 |
10,890 |
17,457 |
|
Finance costs |
10 |
(46) |
(183) |
(229) |
(17) |
(65) |
(82) |
|
Profit before tax |
|
7,221 |
2,847 |
10,068 |
6,550 |
10,825 |
17,375 |
|
Tax |
11 |
(673) |
290 |
(383) |
(780) |
277 |
(503) |
|
Net profit for the year and |
|
6,548 |
3,137 |
9,685 |
5,770 |
11,102 |
16,872 |
|
Earnings per ordinary |
12 |
3.77 |
1.81 |
5.58 |
3.31 |
6.36 |
9.67 |
|
Earnings per ordinary |
12 |
3.77 |
1.81 |
5.58 |
3.31 |
6.36 |
9.67 |
The total return column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
The notes on pages 52 to 76 form part of these financial statements.
Statement of Changes in Equity
For the year ended 30 November 2015
|
|
Notes |
Year ended 30 November 2015 |
||||||
|
Called up share capital £'000 |
Capital redemption reserve £'000 |
Share premium reserve £'000 |
Special distributable reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at |
9,036 |
130 |
21,946 |
141,567 |
14,921 |
2,815 |
190,415 |
|
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
Profit for the year ended |
- |
- |
- |
- |
3,137 |
6,548 |
9,685 |
|
|
Transactions with |
|
|
|
|
|
|
|
|
|
Shares repurchased |
19, 20, 22 |
(45) |
45 |
- |
(879) |
- |
- |
(879) |
|
Equity |
13 |
- |
- |
- |
- |
- |
(5,562) |
(5,562) |
|
Total equity at |
8,991 |
175 |
21,946 |
140,688 |
18,058 |
3,801 |
193,659 |
|
|
|
Notes |
Year ended 30 November 2014 |
||||||
|
Called up share capital £'000 |
Capital redemption reserve £'000 |
Share premium reserve £'000 |
Special distributable reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at |
8,644 |
- |
11,630 |
144,094 |
3,819 |
1,334 |
169,521 |
|
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
Profit for the year ended |
- |
- |
- |
- |
11,102 |
5,770 |
16,872 |
|
|
Transactions with |
|
|
|
|
|
|
|
|
|
Issue of |
19, 21 |
522 |
- |
10,316 |
- |
- |
- |
10,838 |
|
Shares repurchased |
19, 20,22 |
(130) |
130 |
- |
(2,527) |
- |
- |
(2,527) |
|
Equity |
13 |
- |
- |
- |
- |
- |
(4,289) |
(4,289) |
|
Total equity |
9,036 |
130 |
21,946 |
141,567 |
14,921 |
2,815 |
190,415 |
|
The notes on pages 52 to 76 form part of these financial statements.
Balance Sheet
As at 30 November 2015
|
|
Notes |
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Non-current assets |
|
|
|
|
Investments held at fair value |
14 |
198,426 |
195,991 |
|
Current assets |
|
|
|
|
Receivables |
15 |
2,361 |
1,320 |
|
Overseas tax recoverable |
|
46 |
37 |
|
Cash and cash equivalents |
16 |
5,030 |
3,702 |
|
|
|
7,437 |
5,059 |
|
|
|
|
|
|
Total assets |
|
205,863 |
201,050 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Payables |
17 |
(1,855) |
(400) |
|
Bank loan |
18 |
(10,000) |
(10,000) |
|
Fair value of open derivative contracts |
14 |
(349) |
(235) |
|
|
|
(12,204) |
(10,635) |
|
Net assets |
|
193,659 |
190,415 |
|
|
|
|
|
|
Equity attributable to equity shareholders |
|
|
|
|
Called up share capital |
19 |
8,991 |
9,036 |
|
Capital redemption reserve |
20 |
175 |
130 |
|
Share premium reserve |
21 |
21,946 |
21,946 |
|
Special distributable reserve |
22 |
140,688 |
141,567 |
|
Capital reserves |
23 |
18,058 |
14,921 |
|
Revenue reserve |
24 |
3,801 |
2,815 |
|
Total equity |
|
193,659 |
190,415 |
|
|
|
|
|
|
Net asset value per ordinary share (pence) |
25 |
111.49 |
109.06 |
|
Net asset value per ordinary share (diluted) (pence) |
25 |
111.49 |
109.06 |
The financial statements on pages 48 to 76 were approved and authorised for issue by the Board of Directors on 2 February 2016 and signed on its behalf by:
Robert Kyprianou
Chairman
The notes on pages 52 to 76 form part of these financial statements.
Registered number: 8534332
Cash Flow Statement
For the year ended 30 November 2015
|
|
Notes |
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Cash flows from operating activities |
|
|
|
|
Profit before tax |
|
10,068 |
17,375 |
|
Adjustment for non-cash items: |
|
|
|
|
Gain on investments held at fair value through profit or loss |
|
(4,471) |
(12,436) |
|
Scrip dividends received |
|
(99) |
(89) |
|
Amortisation on fixed interest securities |
|
43 |
28 |
|
Adjusted profit before tax |
|
5,541 |
4,878 |
|
Adjustments for: |
|
|
|
|
Purchases of investments, including transaction costs |
|
(49,351) |
(63,345) |
|
Sales of investments, including transaction costs |
|
51,910 |
42,156 |
|
Decrease in receivables |
|
35 |
80 |
|
Decrease/(increase) in payables |
|
105 |
(117) |
|
Overseas taxation deducted at source |
|
(471) |
(446) |
|
Net cash generated/(used) in operating activities |
|
7,769 |
(16,794) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of shares (net of issue costs) |
|
- |
11,853 |
|
Cost of shares repurchased |
|
(879) |
(2,527) |
|
Loan drawn |
|
- |
10,000 |
|
Equity dividends paid |
13 |
(5,562) |
(4,289) |
|
Net cash (used)/generated from financing activities |
|
(6,441) |
15,037 |
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
1,328 |
(1,757) |
|
Cash and cash equivalents at the beginning of the year |
3,702 |
5,459 |
|
|
Cash and cash equivalents at the end of the year |
16 |
5,030 |
3,702 |
The notes on pages 52 to 76 form part of these financial statements.
Notes to the Financial Statements - For the year ended 30 November 2015
1. General Information
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies under IFRS.
The Board has determined that sterling is the Company's functional currency and the presentational currency of the financial statements because it is the currency which is most relevant to the majority of the Company's shareholders and creditors and is the currency in which the majority of the Company's operating expenses are paid.
2. Accounting Policies
The principal accounting policies, which have been applied consistently for all periods presented, are set out below:
(a) Basis of Preparation
The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments at fair value through profit or loss.
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, in so far as those requirements are applicable to the financial statements, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with the guidance set out by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The result presented in the revenue return column is the measure the Directors believe appropriate in assessing the Company's compliance
(c) Income
Dividends receivable from equity shares are taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis.
Special dividends are recognised on an ex-dividend basis and may be considered to be either revenue or capital items. The facts and circumstances are considered on a case by case basis before a conclusion on appropriate allocation is reached.
Where the Company has received dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the revenue return column of the Statement of Comprehensive Income. Any excess in value of shares received over the amount of cash dividend foregone is recognised in the capital return column of the Statement of Comprehensive Income.
The fixed returns on debt securities and non-equity shares are recognised under the effective interest rate method.
Bank interest is accounted for on an accruals basis. Interest outstanding at the year end is calculated on a time apportionment basis using market rates of interest.
(d) Written Options
The Company may write exchange-traded options with a view to generating income. This involves writing short-dated covered-call options and put options. The use of financial derivatives is governed by the Company's policies, as approved by the Board.
These options are recorded initially at fair value, based on the premium income received, and are then measured at subsequent reporting dates at fair value. Changes in the fair value of the options are recognised in the capital return for the year.
The option premiums are recognised evenly over the life of the option and shown in the revenue return, with an appropriate amount shown in the capital return to ensure the total return reflects the overall change in the fair value of the options.
Where an option is exercised, any balance of the premium is recognised immediately in the revenue return with a corresponding adjustment in the capital return based on the amount of the loss arising on exercise of the option.
(e) Expenses and Finance Costs
All expenses, including the management fee, are accounted for on an accruals basis and are recognised when they fall due.
Expenses are allocated wholly to the revenue column of the Statement of Comprehensive Income except as follows:
Expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect the investment management fees have been charged to the Statement of Comprehensive Income in line with the Board's expected long-term split of returns, in the form of capital gains and income from the Company's portfolio. As a result, 20% of the investment management fees are charged to the revenue account and 80% charged to the capital account of the Statement of Comprehensive Income.
Finance costs are calculated using the effective interest rate method and are accounted for on an accruals basis and, in line with the management fee expense, are charged 20% to the revenue account and 80% to the capital account of the Statement of Comprehensive Income.
The performance fee (when payable) is charged entirely to capital as the fee is based on the out-performance of the Benchmark and is expected to be attributable largely, if not wholly, to capital performance. A provision will be recognised when out-performance has been achieved in accordance with the calculations detailed on page xx.
(f) Taxation
The tax expense represents the sum of the overseas withholding tax deducted from investment income, tax currently payable and deferred tax.
The tax currently payable is based on the taxable profits for the year ended 30 November 2015. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income 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 at the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
(g) Investments Held at Fair Value Through Profit or Loss
When a purchase or sale is made under contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date and are initially measured at fair value.
On initial recognition the Company has designated all of its investments as held at fair value through profit or loss as defined by IFRS. All investments 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.
Written options are valued at fair value using quoted bid prices.
Contracts for Difference held in the portfolio are valued based on the price of the underlying security or index which they are purchased to reflect.
All investments, classified as fair value through profit or loss, are further categorised into the fair value hierarchy detailed on page 64.
Changes in fair value of all investments and derivatives held at fair value and realised gains and losses on disposal are recognised in the capital return column of the Statement of Comprehensive Income.
In respect of unquoted investments, or where the market for a financial instrument is not active, fair value is established by using various valuation techniques in accordance with the International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines (December 2012). These may include using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to recent rounds of re-financing undertaken by investee companies involving knowledgeable parties, reference to the current fair value of an other instrument that is substantially the same, or an earnings multipl.e
(h) Receivables
Receivables are initially recognised at fair value and subsequently measured at amortised cost. Receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value (amortised cost) as reduced by appropriate allowances for estimated irrecoverable amounts.
(i) Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash.
(j) Dividends Payable
Dividends payable to shareholders are recognised in the financial statements when they are paid or, in the case of final dividends, when they are approved by the shareholders.
(k) Payables
Payables are not interest-bearing and are initially valued at fair value and subsequently stated at their nominal value (amortised cost).
(l) Foreign Currency Translation
Transactions in foreign currencies are translated into sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, monetary liabilities and equity investments in foreign currencies at the balance sheet date are translated into sterling at the rates of exchange ruling on that date.
Realised profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Statement of Comprehensive Income.
Foreign exchange gains and losses arising on investments held at fair value are included within changes in fair value.
(m) Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity, as a deduction, net of tax, from the proceeds.
(n) Capital Reserves
Capital reserve arising on investments sold includes:
- gains/losses on disposal of investments;
- exchange differences on currency balances; and
- other capital charges and credits charged to this account in accordance with the accounting policies above.
Capital reserve arising on investments held includes:
- increases and decreases in the valuation of investments held at the balance sheet date.
All of the above are accounted for in the Statement of Comprehensive Income.
(o) Repurchase of Ordinary Shares
The costs of repurchasing Ordinary shares including related stamp duty and transaction costs are taken directly to equity and reported through the Statement of Changes in Equity as a charge on the special distributable reserve. Share repurchase transactions are accounted for on a trade date basis.
The nominal value of Ordinary share capital repurchased and cancelled is transferred out of called up share capital and into the capital redemption reserve.
(p) New and revised accounting Standards
There were no new IFRSs or amendments to IFRSs applicable to the year under review which had any significant impact on the Company's accounts.
At the date of authorisation of these financial statements, the following new and amended IFRSs are in issue but are not yet effective and have not been applied in these accounts.
IFRS 9 (2014) Financial Instruments
IFRS 10 (amended) Consolidated Financial Instruments
IFRS 12 (amended) Disclosures of Interests in Other Entities
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
IAS 1 (amended) Presentation of Financial Statements
IAS 12 (amended) Recognition of Deferred Tax Assets for Unrealised Losses
IAS 28 (amended) Investments in Associates and Joint Ventures
The Directors do not expect that the adoption of the Standards listed above will have a significant impact on the Company's accounts in future periods.
(q) Segmental Reporting
Under IFRS 8, 'Operating Segments', operating segments are considered to be the components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker has been identified as the Investment Manager (with oversight from the board).
The Directors are of the opinion that the Company has only one operating segment and as such no distinct segmental reporting is required.
(r) Critical Accounting Estimates and Judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions used in preparing the financial statements are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of these estimates and assumptions form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. There are not considered to be any critical estimates and assumptions likely to cause material adjustment to the carrying values of assets and liabilities.
3 Investment Income
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
UK dividends |
1,388 |
1,067 |
|
Overseas dividends |
5,224 |
4,410 |
|
Scrip dividends |
99 |
89 |
|
Interest on debt securities |
1,106 |
1,269 |
|
Dividends on contracts for difference |
257 |
167 |
|
Total investment income |
8,074 |
7,002 |
4 Other Operating Income
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Option premium income |
- |
317 |
|
Bank interest |
3 |
4 |
|
Total other operating income |
3 |
321 |
Option premium income arises from writing short-dated covered-call options and put options in the expectation that the options will not be exercised or, in overall terms, any losses that may arise following exercise will be outweighed by the premiums received. As shown in note 6 £nil (2014: loss of £8,000) has been recognised in the capital return for the year in respect of these options.
5 Gains on Investments Held at Fair Value
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Net gains on disposal of investments at historic cost |
1,622 |
1,619 |
|
Less fair value adjustments in earlier years |
(2,382) |
(1,219) |
|
(Losses)/gains based on carrying value at previous balance sheet date |
(760) |
400 |
|
Valuation gains on investments held during the year |
5,231 |
12,036 |
|
|
4,471 |
12,436 |
6 Other Movements on Written Options
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Other movements on written options |
- |
(8) |
This movement arises from differences between the change in fair value of written options and the amount of premium income recognised in the revenue return, in accordance with the policy explained in note 2(d).
7 Other Currency Losses
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Exchange losses on currency balances |
(181) |
(230) |
8 Investment Management Fee
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Management fee |
|
|
|
- charged to revenue |
310 |
301 |
|
- charged to capital |
1,242 |
1,206 |
|
Investment management fee payable to Polar Capital LLP |
1,552 |
1,507 |
Management fees are allocated 20% to revenue and 80% to capital. Details of the fee arrangements are given in the Strategic Report on page 18.
9 Other Administrative Expenses (Including VAT Where Appropriate)
|
|
|
Year ended 30 November 2015 £'000 |
Year ended 30 November 2014 £'000 |
|
Directors' fees* |
|
90 |
90 |
|
Directors' NIC |
|
6 |
7 |
|
Auditors' remuneration: |
|
|
|
|
For audit services |
|
24 |
24 |
|
For other services |
|
5 |
1 |
|
Depositary fee |
|
25 |
9 |
|
Registrar fee |
|
25 |
22 |
|
Custody and other bank charges |
|
43 |
45 |
|
UKLA and LSE listing fees |
|
21 |
15 |
|
Legal & professional fees |
|
5 |
25 |
|
AIC fees |
|
19 |
6 |
|
Directors' and officers liability insurance |
|
8 |
- |
|
Corporate brokers fee |
|
48 |
48 |
|
Marketing expenses |
|
19 |
8 |
|
Shareholder communications |
|
32 |
23 |
|
HSBC administration fee |
|
125 |
114 |
|
Other expenses |
|
5 |
18 |
|
|
|
500 |
455 |
|
Transaction charges (allocated to capital) |
|
2 |
- |
|
|
|
502 |
455 |
* Full disclosure is given in the Directors' Remuneration Report on page 35.
10 Finance Costs
|
|
Year ended |
Year ended |
||||
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
|
Interest on loans and overdrafts |
38 |
151 |
189 |
11 |
43 |
54 |
|
Loan arrangement fees |
8 |
32 |
40 |
6 |
22 |
28 |
|
|
46 |
183 |
229 |
17 |
65 |
82 |
Finance costs are allocated 20% to revenue and 80% to capital.
11 Taxation
|
|
Year ended |
Year ended |
||||
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
|
|
a) Analysis of tax charge for the year: |
|
|
|
|
|
|
|
Overseas tax |
462 |
- |
462 |
419 |
- |
419 |
|
Corporation tax |
70 |
- |
70 |
137 |
- |
137 |
|
Adjustment in respect of previous year end |
(79) |
- |
(79) |
- |
- |
- |
|
Tax relief in capital |
290 |
(290) |
- |
277 |
(277) |
- |
|
Double taxation relief |
(70) |
- |
(70) |
(53) |
- |
(53) |
|
Total tax for the year (see note 11b) |
673 |
(290) |
383 |
780 |
(277) |
503 |
|
|
|
|
|
|
|
|
|
b) Factors affecting tax charge for the year: |
|
|
|
|
|
|
|
The charge for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows: |
||||||
|
Profit before tax |
7,221 |
2,847 |
10,068 |
6,550 |
10,825 |
17,375 |
|
Year ended |
Year ended |
190 |
671 |
917 |
1,516 |
2,433 |
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
1,332 |
|
Tax effect of non-taxable dividends |
(1,132) |
- |
(1,132) |
(1,005) |
- |
(1,005) |
|
Gains on investments that are not taxable |
- |
(879) |
(879) |
- |
(2,623) |
(2,623) |
|
Overseas tax suffered |
462 |
- |
462 |
419 |
- |
419 |
|
Adjustment in respect of previous year end |
(79) |
- |
(79) |
- |
- |
- |
|
Tax relief on overseas tax suffered |
(70) |
- |
(70) |
(53) |
- |
(53) |
|
Total tax for the year (see note 11a) |
673 |
(290) |
383 |
780 |
(277) |
503 |
* The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the Company's profits for this accounting year are taxed at an effective rate of 20.3%.
c) Factors that may affect future tax charges:
The Company has no unrecognised deferred tax asset (30 November 2014: £nil) based on a prospective corporation tax rate of 20% (2014: 21%). The reduction in the standard rate of corporation tax was substantively enacted in July 2015 and will be effective from 1 April 2016.
Given the Company's intention to continue to meet the conditions required to retain its status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.
12 Earnings per Ordinary Share
The calculation of basic earnings per share is based on the following data:
|
|
Year ended 30 November 2015 |
Year ended 30 November 2014 |
||||
|
Revenue return |
Capital return |
Total return |
Revenue return |
Capital return |
Total return |
|
|
Net profit for |
6,548 |
3,137 |
9,685 |
5,770 |
11,102 |
16,872 |
|
Weighted average ordinary shares in issue |
173,880,959, |
173,880,959, |
173,880,959 |
174,571,096 |
174,571,096 |
174,571,096 |
|
From continuing operations |
|
|
|
|
|
|
|
Earnings per ordinary share - basic (pence) |
3.77 |
1.81 |
5.58 |
3.31 |
6.36 |
9.67 |
The Company has in issue 30,600,000 subscription shares which are convertible into ordinary shares.
The subscription shares were issued on 1 July 2013. Further details of the conversion price are given in note 19 on page 66.
There was no dilutive effect on the earnings per ordinary share in respect of the conversion rights attending to the subscription shares as the conversion price is higher than the ordinary share price of the Company.
13 Amounts Recognised as Distributions to Ordinary Shareholders in the Year
Dividends paid in the year ended 30 November 2015
|
Payment date |
No of shares |
Pence per share |
Year ended 30 November 2015 £'000 |
|
27 February 2015 |
173,950,000 |
1.35p |
2,348 |
|
27 August 2015 |
173,700,000 |
1.85p |
3,214 |
|
|
|
|
5,562 |
The revenue available for distribution by way of dividend for the year was £6,548,000 (2014: £5,770,000).
The total dividends payable in respect of the financial year ended 30 November 2015 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:
|
Payment date |
No of shares |
Pence per share |
Year ended 30 November 2015 £'000 |
|
27 August 2015 |
173,700,000 |
1.85p |
3,214 |
|
29 February 2016 |
173,700,000 |
1.375p |
2,388 |
|
|
|
|
5,602 |
The total dividends payable in respect of the financial year ended 30 November 2014 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:
|
Payment date |
No of shares |
Pence per share |
Year ended 30 November 2014 £'000 |
|
22 August 2014 |
177,200,000 |
1.75p |
3,101 |
|
27 February 2015 |
174,150,000 |
1.35p |
2,351 |
|
|
|
|
5,452 |
14 Investments and Derivatives
(a) Investments
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Cost brought forward |
178,539 |
156,042 |
|
Valuation gains |
17,452 |
6,635 |
|
Valuation at 30 November |
195,991 |
162,677 |
|
Additions at cost |
50,993 |
62,456 |
|
Proceeds on disposal |
(52,986) |
(41,550) |
|
(Losses)/gains on disposal |
(760) |
400 |
|
Amortisation on fixed interest securities |
(43) |
(28) |
|
Add: Valuation gains |
5,231 |
12,036 |
|
Valuation at 30 November |
198,426 |
195,991 |
|
|
|
|
|
Cost at 30 November |
178,125 |
178,539 |
|
Closing fair value adjustment |
20,301 |
17,452 |
|
|
|
|
|
Valuation at 30 November |
198,426 |
195,991 |
The following transaction costs, including stamp duty and broker commissions were incurred during the year:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
On acquisitions |
130 |
135 |
|
On disposals |
115 |
74 |
|
|
245 |
209 |
(b) Fair value of open derivative contracts
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Ares Capital contract for difference* |
(349) |
(235) |
|
Fair value at 30 November 2015 |
(349) |
(235) |
* The contract for difference is held in order to increase exposure to stock movements without the financial commitment of purchasing the stock. The total market exposure on the Ares Capital contract for difference is £2,626,000 (2014: £2,624,000) and liability attached to this contract for difference is £2,975,000 (2014: £2,859,000). This is an unrealised loss of £349,000 (2014: £235,000).
14 Investments and Derivatives continued
(c) Fair value hierarchy
The Company's financial instruments within the scope of IFRS 7 that are held at fair value comprise its investment portfolio and derivative financial instruments.
They are categorised into a hierarchy consisting of the following three levels:
Level 1 - valued using quoted prices in active markets.
Level 2 - valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
Details of the valuation techniques used by the Company are given in note 2(g) on page XX.
The following table sets out the fair value measurements using the IFRS 7 hierarchy at 30 November 2015:
|
|
As at 30 November 2015 |
|||
|
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Equity Investments |
178,448 |
3,639 |
2,454 |
184,541 |
|
Interest bearing securities |
13,885 |
- |
- |
13,885 |
|
Derivative Financial Instruments |
- |
(349) |
- |
(349) |
|
Total |
192,333 |
3,290 |
2,454 |
198,077 |
|
The level 2 assets are comprised of Jammu & Kashmir warrants, Indiabulls Housing Finance Warrants and the Ares Capital Contract for Difference. |
|
|
|
|
|
|
As at 30 November 2014 |
|||
|
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Equity Investments |
174,882 |
3,266 |
500 |
178,648 |
|
Interest bearing securities |
17,343 |
- |
- |
17,343 |
|
Derivative Financial Instruments |
- |
(235) |
|
(235) |
|
Total |
192,225 |
3,031 |
500 |
195,756 |
There have been no transfers during the year between Levels 1 and 2. A reconciliation of fair value measurements in Level 3 is set out below:
|
Level 3 investments at fair value through profit or loss |
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Opening balance |
500 |
- |
|
Transfers from Level 1 |
- |
- |
|
Additions at cost |
1,509 |
500 |
|
Disposal proceeds |
- |
- |
|
Total gains included in the Statement of Comprehensive Income |
|
|
|
- on assets held at the year end |
445 |
- |
|
Closing balance |
2,454 |
500 |
The only Level 3 investment is the shares in Atom Bank.
d) Unquoted investments
The value of the unquoted investments as at 30 November 2015 was £2,454,000 (2014: £500,000) with a book cost of £2,009,000 (2014: £500,000). The portfolio comprised of the following holding:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Atom Bank |
2,454 |
500 |
|
|
2,454 |
500 |
The investment in Atom Bank is stated in the Company's Financial Statements at £1 per share, being the price at which the company undertook its most recent fund raising.
Atom Bank is a start up business. At 30 November 2015, the Company owned 3.7% (2014: 3.4%) of Atom Bank's issued share capital. The Bank had not commenced operations by 30 November 2015 so had not generated any business or distributed any income to its shareholders at that date.
As at 31 March 2015, Atom Bank announced that the Bank had made pre-tax losses of £6,484,000 and had net assets attributable to shareholders of £9,023,000.
15 Receivables
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Securities sold awaiting settlement |
1,522 |
446 |
|
VAT recoverable |
2 |
5 |
|
Dividends and interest receivable |
791 |
829 |
|
Prepayments |
46 |
40 |
|
|
2,361 |
1,320 |
The Directors consider that the carrying amounts of receivables approximates to their fair value.
16 Cash and Cash Equivalents
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Cash at bank |
3,463 |
2,117 |
|
Cash held at derivative clearing houses |
1,567 |
1,585 |
|
|
5,030 |
3,702 |
17 Payables
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Securities purchased awaiting settlement |
1,543 |
- |
|
Accruals |
307 |
316 |
|
Corporation tax payable |
5 |
84 |
|
|
1,855 |
400 |
18 Bank Loans
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
The Company has the following unsecured Sterling loans: |
|
|
|
£5m at 2.0% repayable 16 July 2015 |
- |
5,000 |
|
£5m at 1.8% repayable 16 July 2015 |
- |
5,000 |
|
£10m at 1.8% repayable 15 July 2016 |
10,000 |
- |
|
|
10,000 |
10,000 |
The loan amount has been drawn on the Company's £20 million (2014: £18 million) facility with ING. The facility is unsecured but is subject to covenants and restrictions which are customary for a facility of this nature, all of which have been complied with during the year. £10m was drawn down from the facility entered into during the year and used to repay the outstanding loan of £10m.
The bank loan is due for settlement on 15 July 2016 and is disclosed at fair value, which equates to amortised cost.
The main covenants relating to the current loan are:
(i) Total borrowings shall not exceed 35%.
(ii) The Company's minimum net asset value shall be £50m.
(iii) The Company shall not change the investment manager without the prior consent of the shareholders.
(iv) The Company shall ensure that the collateral posted with CFD and derivative transaction counterparties shall not exceed an aggregate of 8% of net asset value.
19 Called up Share Capital
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Allotted, Called up and Fully paid: |
|
|
|
Ordinary shares of 5p each: |
|
|
|
Opening balance of 174,600,000 (30 November 2014: 166,750,000) |
8,730 |
8,338 |
|
Issue of nil (2014: 10,450,000) ordinary shares |
- |
522 |
|
Repurchase of 900,000 (2014: 2,600,000) ordinary shares for cancellation |
(45) |
(130) |
|
Allotted, Called up and Fully paid: 173,700,000 |
8,685 |
8,730 |
|
30,600,000 (2014: 30,600,000) subscription shares at 1p each |
306 |
306 |
|
At 30 November 2015 |
8,991 |
9,036 |
The subscription shares were issued as a bonus issue to ordinary shareholders at a rate of one bonus subscription share for every 5 ordinary shares held on 1 July 2013. A subscription share carries the right to subscribe in cash for one ordinary share at a price of 115p on 31 July 2017.
900,000 (2014: 2,600,000) ordinary shares were repurchased and cancelled in the year at a cost of £879,000 (2014: £2,527,000). No shares were issued in the year (2014: 10,450,000 ordinary shares issued for a net consideration of £10,838,000).
20 Capital Redemption Reserve
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
At 1 December 2014 |
130 |
- |
|
Repurchase of 900,000 (2014: 2,600,000) ordinary shares for cancellation |
45 |
130 |
|
At 30 November 2015 |
175 |
130 |
21 Share Premium Reserve
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
At 1 December 2014 |
21,946 |
11,630 |
|
Issue of nil (2014: 10,450,000) ordinary shares |
- |
10,343 |
|
Issue costs |
- |
(27) |
|
At 30 November 2015 |
21,946 |
21,946 |
22 Special Distributable Reserve
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
At 1 December 2014 |
141,567 |
144,094 |
|
Cost of 900,000 ordinary shares repurchased for cancellation |
(879) |
(2,527) |
|
At 30 November 2015 |
140,688 |
141,567 |
Surpluses to the credit of the special distributable reserve can be used to purchase the Company's own shares. In addition, the Company may use this reserve for the payment of dividends.
23 Capital Reserves
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
At 1 December 2014 |
14,921 |
3,819 |
|
Net (losses)/gains on disposal of investments |
(760) |
400 |
|
Valuation gains on investments held during the year |
5,231 |
12,036 |
|
Losses on contracts for difference |
(16) |
(102) |
|
Other movements on written options held during the year |
- |
(8) |
|
Exchange losses on currency balances |
(181) |
(230) |
|
Investment management fee |
(1,242) |
(1,206) |
|
Finance costs |
(183) |
(65) |
|
Tax relief due from revenue |
290 |
277 |
|
Transaction charges |
(2) |
- |
|
At 30 November 2015 |
18,058 |
14,921 |
The balance on the capital reserve represents a profit of £19,953,000 (2014 £17,218,000) on investments held and a loss of £1,895,000 (2014: loss £2,297,000) on investments sold.
24 Revenue Reserve
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
At 1 December 2014 |
2,815 |
1,334 |
|
Revenue profit |
6,548 |
5,770 |
|
Interim dividends paid |
(5,562) |
(4,289) |
|
At 30 November 2015 |
3,801 |
2,815 |
25 Net Asset Value Per Ordinary Share
|
|
30 November 2015 |
30 November 2014 |
|
Undiluted: |
|
|
|
Net assets attributable to ordinary shareholders (£'000) |
193,659 |
190,415 |
|
Ordinary shares in issue at end of year |
173,700,000 |
174,600,000 |
|
Net asset value per ordinary share (pence) |
111.49 |
109.06 |
There is no dilutive effect on the net asset value per ordinary share in respect of the conversion rights attaching to the subscription shares as the conversion price is higher than the NAV per share of the Company at the year end.
26 Transactions with the Investment Manager and Related Party Transactions
(a) Transactions with the manager
Under the terms of an agreement dated 11 June 2013 the Company has appointed Polar Capital LLP ('Polar Capital') to provide investment management, accounting, secretarial and administrative services. Details of the fee arrangement for these services are given in the Strategic Report. The total fee, paid under this agreement to Polar Capital in respect of the year ended 30 November 2015 were £1,552,000 (2014: £1,507,000) of which £116,000 (2014: £122,000) was outstanding at the year end.
(b) Related party transactions
The Company has no employees and therefore no key management personnel other than the Directors. The Company paid £90,000 (2014: £90,000) to the Directors of which £25,000 (2014: £55,000) is outstanding at the year end and the Remuneration Report is on pages xx to xx.
27 Derivatives and Other Financial Instruments
Risk management policies and procedures for the Company
The Company invests in equities, debt securities and other financial instruments for the long-term to further the investment objective set out on page xx.
This exposes the Company to a range of financial risks that could impact on the assets or performance of the Company.
The main risks arising from the Company's pursuit of its investment objective are market risk, liquidity risk and credit risk and the Directors' approach to the management of them is set out below.
The Company's exposure to financial instruments can comprise:
- Equity and non-equity shares and fixed interest securities which may be held in the investment
portfolio in accordance with the investment objective.
- Borrowings, the main purpose of which is to enhance returns.
- Cash, liquid resources and short-term debtors and creditors that arise directly from the Company's operations.
- Derivative transactions which the Company enters into may include equity or index options, contracts for difference, index futures contracts, and forward foreign exchange contracts. The purpose of these is to manage the market price risks and foreign exchange risks arising from the Company's investment activities.
The overall management of the risks is determined by the Board and its approach to each risk identified is set out below. The Board and the Investment Manager co-ordinate the risk management and the Investment Manager assesses the exposure to market risk when making each investment decision.
(a) Market Risk
Market risk comprises three types of risk: market price risk (see note 27(a)(i)), currency risk (see note 27(a)(ii)), and interest rate risk (see note 27(a)(iii)).
(i) Market Price Risk
The Company is an investment company and as such its performance is dependent on its valuation of its investments. Consequently market price risk is the most significant risk that the Company faces.
Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.
A detailed breakdown of the investment portfolio is given on pages 8 to 10. Investments are valued in accordance with the accounting policies as stated in note 2(g).
At the year end, the Company's portfolio included one derivative instrument (2014: one), as shown in note 14(b).
Management of the risk
In order to manage this risk, it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a particular financial sub sector. The allocation of assets to international markets, together with stock selection covering small, medium and large companies, and the use of options, are other factors which act to reduce price risk. The Investment Manager actively monitors market prices and reports to the Board, which meets regularly in order to consider investment strategy.
Market price risks exposure
The Company's exposure to changes in market prices at 30 November on its investments was as follows:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Investments held at fair value through profit or loss |
198,426 |
195,991 |
|
Derivative financial instruments held at fair value through profit or loss |
2,626 |
2,624 |
|
|
201,052 |
198,615 |
Market price risk sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and the value of shareholders' funds to an increase or decrease of 10% in the fair values of the Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions and historic trends. The sensitivity analysis is based on the Company's investments at each balance sheet date, adjusting for a change in management fee, with all other variables held constant.
|
|
30 November 2015 |
30 November 2014 |
||
|
Increase in £'000 |
Decrease in £'000 |
Increase in £'000 |
Decrease in £'000 |
|
|
Statement of Comprehensive Income - |
|
|
|
|
|
Revenue return |
(34) |
34 |
(33) |
33 |
|
Capital return |
19,968 |
(19,968) |
19,442 |
(19,442) |
|
Change to the profit after tax for the year |
19,934 |
(19,934) |
19,409 |
(19,409) |
|
|
|
|
|
|
|
Change to equity attributable to shareholders |
19,934 |
(19,934) |
19,409 |
(19,409) |
(ii) Currency Risk
The Company's total return and net assets can be significantly affected by currency translation movements as the majority of the Company's assets and revenue are denominated in currencies other than sterling.
Management of the risk
The Investment Manager mitigates risks through an international spread of investments.
Derivative contracts are not used to hedge against the exposure to currency risk.
(a) Market Risk continued
(ii) Currency Risk continued
Foreign currency exposure
The table below shows, by currency, the split of the Company's monetary assets, liabilities and investments that are priced in currencies other than sterling.
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Monetary Assets: |
|
|
|
Cash and short-term receivables |
|
|
|
US dollars |
1,700 |
337 |
|
Taiwan dollars |
236 |
220 |
|
Euros |
69 |
184 |
|
Japanese yen |
62 |
42 |
|
Singapore dollars |
26 |
87 |
|
Norwegian krona |
25 |
467 |
|
Indonesian rupiah |
19 |
- |
|
Russian rouble |
2 |
- |
|
Brazilian real |
- |
14 |
|
Swiss francs |
- |
11 |
|
Monetary Liabilities: |
|
|
|
Payables |
|
|
|
US dollar |
(1,892) |
(235) |
|
Foreign currency exposure on net monetary items |
247 |
1,127 |
|
Non-Monetary Items: |
|
|
|
Investments held at fair value through profit or loss |
|
|
|
US dollars |
65,968 |
62,321 |
|
Euros |
44,434 |
36,326 |
|
Singapore dollars |
9,291 |
7,915 |
|
Swiss francs |
6,817 |
10,798 |
|
Hong Kong dollars |
6,650 |
6,603 |
|
Norwegian krona |
4,849 |
6,741 |
|
Japanese yen |
4,682 |
3,273 |
|
Canadian dollars |
3,397 |
4,299 |
|
Swedish krone |
3,031 |
3,439 |
|
Taiwan dollars |
2,434 |
2,259 |
|
Czech krone |
1,801 |
2,627 |
|
Brazilian real |
1,142 |
4,485 |
|
Indonesian rupiah |
919 |
2,593 |
|
Thai baht |
- |
2,813 |
|
Turkish lira |
- |
2,506 |
|
Philippine peso |
- |
1,955 |
|
Total net foreign currency exposure |
155,662 |
162,080 |
Foreign currency sensitivity
The following tables illustrate the sensitivity of net profit for the year with regard to the Company's foreign financial assets and liabilities and exchange rates. The sensitivity analysis is based on the Company's monetary currency financial instruments held at the balance sheet date and assumes a 10% appreciation or depreciation in Sterling against the currencies to which the Company is exposed, which is considered to be a reasonable illustration based on the volatility of exchange rates during the year.
If Sterling had weakened by 10% this would have had the following effect:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Statement of Comprehensive Income - profit after tax |
|
|
|
Revenue return |
527 |
482 |
|
Capital return |
25 |
113 |
|
Change to the profit after tax for the year |
552 |
595 |
|
|
|
|
|
Change to equity attributable to shareholders |
552 |
595 |
Conversely if Sterling had strengthened by 10% this would have had the following effect:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Statement of Comprehensive Income - profit after tax |
|
|
|
Revenue return |
(527) |
(482) |
|
Capital return |
(25) |
(113) |
|
Change to the profit after tax for the year |
(552) |
(595) |
|
|
|
|
|
Change to equity attributable to shareholders |
(552) |
(595) |
In the opinion of the Directors, while these are regarded as reasonable estimates, neither of the above sensitivity analyses are representative of the year as a whole since the level of exposure changes frequently as part of the currency risk management process used to meet the Company's objectives.
(iii) Interest Rate Risk
The Company is affected by interest rate changes as it holds interest-bearing financial assets. Interest rate changes also have an impact on the valuation of investments, although this forms part of price risk, which is considered separately above.
Management of the risk
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.
Derivative contracts are not used to hedge against the exposure to interest rate risk.
27 Derivatives and Other Financial Instruments continued
(a) Market Risk continued
(ii) Currency Risk continued
Interest rate exposure
The exposure, at 30 November 2015, of financial assets and liabilities to interest rate risk is shown by reference to:
- Floating interest rates (i.e. giving cash flow interest rate risk) - when the rate is due to be re-set; and
- Fixed interest rates (i.e. giving fair value interest rate risk) - when the financial instrument is due for repayment.
|
|
30 November 2015 |
||
|
Within £'000 |
More than one year £'000 |
Total £'000 |
|
|
Exposure to floating interest rates: |
|
|
|
|
Cash and cash equivalents |
5,030 |
- |
5,030 |
|
Non-current asset investments held |
- |
7,640 |
7,640 |
|
Exposure to fixed interest rates: |
|
|
|
|
Non-current asset investments held |
- |
6,245 |
6,245 |
|
Bank loans |
(10,000) |
- |
(10,000) |
|
Total exposure to interest rates |
(4,970) |
13,885 |
8,915 |
|
|
30 November 2014 |
||
|
Within |
More than one year £'000 |
Total |
|
|
Exposure to floating interest rates: |
|
|
|
|
Cash and cash equivalents |
3,702 |
- |
3,702 |
|
Non-current asset investments held |
- |
10,457 |
10,457 |
|
Exposure to fixed interest rates: |
|
|
|
|
Non-current asset investments held |
- |
6,886 |
6,886 |
|
Bank loans |
(10,000) |
- |
(10,000) |
|
Total exposure to interest rates |
(6,298) |
17,343 |
11,045 |
The weighted average interest rate for the fixed rate financial assets was 5.5% (30 November 2014: 5.5%) and the effective period for which the rate was fixed was 5.8 years (30 November 2014: 6.8 years).
During the year the Company agreed a £20 million (2014: £18 million) loan facility with ING. Interest is payable at a rate of LIBOR as quoted in the market for the relevant currency and period, plus a margin, plus Mandatory Costs, which are the lender's costs of complying with certain regulatory requirements of the Bank of England. Details of the amount drawn on this facility as at 30 November 2015, and the interest rate applying, are given in note 18.
The above amounts are not necessarily representative of the exposure to interest rates in the year ahead, as the level of cash and investment in fixed interest securities varies during the year according to the performance of the stock market, events within the wider economy and the Investment Manager's
decisions on the best use of cash or borrowings over the year.
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decrease of 25 basis points in interest rates in regard to the Company's monetary financial assets, which are subject to interest rate risk. This level of change is considered to be reasonably possible based on observation of current market conditions.
The sensitivity analysis is based on the Company's monetary financial instruments held at each balance sheet date, with all other variables held constant.
|
|
30 November 2015 |
30 November 2014 |
||
|
Increase £'000 |
Decrease £'000 |
Increase £'000 |
Decrease £'000 |
|
|
Effect on revenue return |
13 |
(13) |
9 |
(9) |
|
Effect on capital return |
- |
- |
- |
- |
|
Effect on net profit and on equity attributable to shareholders |
13 |
(13) |
9 |
(9) |
In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure may change.
(b) Liquidity Risk
Liquidity risk is the possibility of failure of the Company to realise sufficient assets to meet its financial liabilities.
Management of the risk
The Company's assets mainly comprise readily realisable securities which may be sold to meet funding requirements as necessary.
Liquidity risk exposure
At 30 November the financial liabilities comprised of:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Due within 1 month: |
|
|
|
Balances due to brokers |
1,543 |
- |
|
Accruals |
307 |
316 |
|
Due after 3 months and within 1 year: |
|
|
|
Bank loan |
10,000 |
10,000 |
|
Corporation tax |
5 |
84 |
|
|
11,855 |
10,400 |
(c) Credit Risk
Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposal of investments or to repay deposits.
Management of the risk
The Company manages credit risk by using brokers from a database of approved brokers and by dealing through Polar Capital. All cash balances are held with approved counterparties.
HSBC Bank plc is the custodian of the Company's assets. The Company's assets are segregated from HSBC's own trading assets and are therefore protected in the event that HSBC were to cease trading.
These arrangements were in place throughout the year under review.
Credit risk exposure
The maximum exposure to credit risk at 30 November 2015 was £7,343,000 (2014: £4,977,000) comprising:
|
|
30 November 2015 £'000 |
30 November 2014 £'000 |
|
Balances due from brokers |
1,522 |
446 |
|
Accrued Income |
791 |
829 |
|
Cash and cash equivalents |
5,030 |
3,702 |
|
|
7,343 |
4,977 |
All of the above financial assets are current, their fair values are considered to be the same as the values shown and the likelihood of a material credit default is considered low. None of the Company's financial assets are past due or impaired. All deposits are placed with banks that have ratings of A or higher.
(d) Gearing Risk
The Company's policy is to increase its exposure to markets through the judicious use of borrowings. When borrowings are invested, the impact is to magnify the impact on Shareholder's funds of changes, both positive and negative, in the value of the portfolio.
Management of the risk
The Company uses short-term loans to manage gearing risk, details of which can be found in note 18.
Gearing risk exposure
The loans are valued at amortised cost, using the effective interest rate method in the financial statements.
(e) Capital Management Policies and Procedures
The Company's capital management objectives are:
The Company's capital, or equity, is represented by its net assets which amounted to £193,659,000 for the year ended 30 November 2015 (£190,415,000) for the year ended 30 November 2014), which are managed to achieve the Company's investment objective set out on page 12.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
(i) the need to issue or buy back equity shares for cancellation, which takes account of the difference between the net asset value per share and the share price (ie the level of share price discount or premium),
(ii) the determination of dividend payments and
(iii) the planned level of gearing through the Company's fixed rate loan facility.
The Company is subject to externally imposed capital requirements through the Companies Act with respect to its status as a public company. In addition in order to pay dividends out of profits available for distribution, the Company must be able to meet one of the two capital restriction tests imposed on investment companies by company law.
28 Capital Commitments, Contingent Assets and Liabilities
Capital Commitments
The Company is committed to further investment in Atom Bank of £320,000 (2014: £500,000)
Status of announcement
The figures and financial information contained in this announcement are extracted from the Audited Annual Report for the year ended 30 November 2015 and do not constitute statutory accounts for the period. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.
The Annual Report and Financial Statements for the year ended 30 November 2015 have not yet been delivered to the Registrar of Companies. The figures and financial information for the year ended 30 November 2014 are extracted from the published Annual Report and Financial Statements for the year ended 30 November 2014 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the year ended 30 November 2014 have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.
The Directors' Remuneration Report and certain other helpful shareholder information has not been included in this announcement but forms part of the Annual Report which will be available on the Company's website and will be sent to shareholders in February 2016.
(www.polarcapitalglobafinancialstrust.co.uk).
AGM
The Annual Report and separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in February 2016 and will be available thereafter from the company secretary at the Registered Office, 16 Palace Street London SW1E 5JD or from the Company's website.
Forward Looking Statements
Certain statements included in the Annual Report and Financial Statements contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks
and uncertainties included in the Strategic Report Section on pages 2 to 19 of the Annual Report and
Financial Statements.
No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Global Financials Trust plc or any other entity, and must not be relied upon in any way in connection with any investment decision.
The Company undertakes no obligation to update any forward-looking statements.
Neither the contents of the company's website nor the contents of any website accessible from hyperlinks on the company's website (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS
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