Half-year Report

RNS Number : 8123V
Securities Trust of Scotland PLC
05 December 2019
 

Securities Trust of Scotland plc

Legal Entity Identifier: 549300UZ1Y7PPQYJGE19

 

 

Half-year financial report

Six months to 30 September 2019

 

A copy of the half-year financial report ended 30 September 2019 has been submitted to the National Storage Mechanism and will shortly be available for viewing at: http://www.morningstar.co.uk/uk/NSM.

 

A copy of the half-year report can shortly be downloaded at www.securitiestrust.com.

 

FINANCIAL HIGHLIGHTS

 

Total return‡^

(including reinvested dividends)

Six months ended

30 September 2019

%

Six months ended

30 September 2018

%

Net asset value per share*

12.3

11.1

Peer group†

8.7

10.7

Share price

17.0

8.9

 

 

Income

Six months ended

30 September 2019

Six months ended

30 September 2018

Revenue per share

4.30p

3.91p

Dividend per share

2.90p

2.90p

 

                                                                                                                                         

Ongoing charges^

(as a percentage of shareholders' funds)

Six months ended

30 September 2019

%

Six months ended

30 September 2018

%

Ongoing charges                                   

0.9

0.9

 

‡ The combined effect of any dividend paid, together with the rise or fall in the share price, net asset or peer group.

* The net asset value ('NAV') per share total return is calculated using cum-income NAV with dividends reinvested.

† Please see below for details on the company's peer group.

^ Please see below for definitions of Alternative Performance Measures.

 

 

INTERIM MANAGEMENT REPORT

 

Chairman's Statement

 

I am pleased to present the half yearly financial report following my appointment as Chairman of the company at the Annual General Meeting on 17 September 2019. The six-month period under review has seen strong returns from equity markets around the world despite some considerable uncertainty and apparent threats to economic growth. On the global stage the intensification of the trade war between the USA and China has been a major concern for future growth. In Europe the ongoing saga of Brexit and in particular the possibility of a no deal exit and its potential impact on economic growth has been a constant concern.

 

Set against these threats has been the accommodative stance adopted by central banks, particularly the ECB providing some source of optimism amid the macro uncertainty. 

 

 

Performance

I am delighted to report that your company has performed strongly on a number of measures over the period under review. The net asset value (NAV) total return was 12.3% which compares very favourably with the open and closed ended peer group median return of 8.7%.

 

Your board is particularly encouraged to see that the discount at which the company's shares trade has narrowed in the period under review. As a result the share price total return was 17.0%. I will comment further on the share rating below.

 

These returns are most satisfactory and the board is particularly encouraged that the longer-term performance of the company is now equally strong. Over three years the NAV total return is 36.9% against the peer group median return of 28.2%.

 

Revenue return and dividend

As an investment trust with a global equity income mandate, the board and shareholders give equal importance to revenue and dividend growth as they do to capital return. The revenue return per share was 4.30p (six months to 30 September 2018: 3.91p) representing an increase of 10.0%. Revenue returns in the short term can, and are most likely to be, variable. Your investment manager makes use of the options market to generate income, and does so in a risk controlled manner. Generally, higher levels of volatility in equity markets create opportunities for the investment manager to participate in the use of options. In periods of lower volatility shareholders should expect a lower level of contribution to total revenue from options income.

 

In the six months under review options income was £344,000, 6.3% of total income (2018: 8.6%).

 

The board is pleased to declare a second interim dividend of 1.45p per share which will be paid on 24 January 2020 to shareholders on the register on 27 December 2019. The ex- dividend date will be 24 December 2019. 

 

Discount and share buy backs

The share price discount to net asset value narrowed from 7.48% to 3.62% at 30 September 2019 and during the period under review your company's share price has on occasion traded at a premium to NAV. Over the six months 210,625 shares were bought back to be held in treasury at an  average discount of 7.39%. This is a significant reduction in activity. By comparison, over the same period in 2018 4.39 million shares (4.0% of the then shares in issue) were bought back. 

 

The discount has narrowed further since the period end and it is pleasing to see the shares are now trading around net asset value on a consistent basis.

 

As shareholders will be aware, and as discussed in last year's Chairman's statement the board has significantly increased marketing activity in conjunction with the investment manager - Martin Currie. Shareholders may well have seen some of the marketing initiatives in the financial press and on line, and there is evidence that the activity is producing good results. Increased demand for your company's shares is one of the reasons for the narrowing of the discount.

 

Another is the relatively good NAV performance versus the peer group and a third is the value proposition that the shares represent. As at 30 September 2019 and based on the dividend of 6.25p paid in the year to 31 March 2019 the dividend yield of the shares is 3.2%. This yield level compares very favourably with a number of the companies in our peer group.

 

Your board intends to sustain the marketing initiatives and is particularly encouraged by the reaction in the share price rating.

 

ESG

Environmental, Social and Corporate Governance (ESG) issues are consistently raised by shareholders at meetings with the directors and also with the investment manager. Your investment managers are A+ A+ A+ rated by the PRI in respect of their ESG scrutiny and capabilities and as Mark Whitehead points out in his review, ESG is a key component of the manager's investment process. It is a topic that is discussed at each board meeting and we believe the intensity of focus and scrutiny on this area is set to increase.

 

This is not a 'box-ticking' exercise, both your board and investment manager believe that high standards of ESG in the investment process lead to better investments being made and ultimately this may well generate higher long-term returns for shareholders. I shall continue to provide detailed updates in future reports.

 

Board changes

Rachel Beagles retired as Chairman of Securities Trust of Scotland at the AGM on 17 September after 9 years as a director, the last two of which were as Chairman. The board would like to thank Rachel for her hard work and commitment over her tenure and wish her well with her current commitments.

 

The board is committed to maintaining the highest standards of corporate governance in terms of its structure and independence and future changes will reflect that commitment.

 

Outlook

I started this statement by referring to the uncertainty caused by tariff wars and Brexit. There are always causes of uncertainty in equity markets - they just vary in nature from period to period.

 

Securities Trust of Scotland benefits from a global mandate and therefore the widest possible opportunity set in which to seek value and opportunity. The inherent diversification advantage also helps to reduce exposure to single nation risks, domestic market issues and political surprises.

 

Your board believes that a high conviction portfolio of 35-55 quality companies, identified following a strict selection process based on fundamental analysis and independent research, offers shareholders the best chance of achieving sustainable returns over the long-term.

 

Consequently, and despite the widely debated issues ahead of investors, the board feels that your company is well placed to continue to achieve its objectives.

 

Don't miss our updates

The company's award-winning website at securitiestrust.com is a rich source of information and resources. It includes regular video updates, interactive blogs, articles and comment on market events as well as monthly performance factsheets, announcements and independent research reports. I encourage you to subscribe to our monthly email updates that will keep you abreast of key information.

 

Please do as always get in touch if you have any questions or feedback on any of the company's activities. I can be contacted by email at STSChairman@martincurrie.com or through the Company Secretary at CompanySecretarialTeam@martincurrie.com.

 

John Evans

Chairman

5 December 2019

 

 

Manager's review

 

The six months to the end of September 2019 have been strong for the company, with its NAV rising by 12.3% (Total Return) in sterling terms. This return was comfortably ahead of the composite peer group median which includes all open-ended and closed-ended Global Equity Income Funds, which returned 8.7% in sterling terms over the same period.

 

Underlying the company's strong headline return over the period has been some equity market volatility to contend with, driven by a continued slowdown in global macroeconomic activity and corporate profitability.  This has been exacerbated by the re-intensification of the US and China  trade war which has seen both sides  raise tariffs on imports into their  respective countries. This tit-for-tat display has very serious ramifications for future global growth, business and market sentiment. Although estimates vary, real growth is at risk of falling over the coming quarters pushing many countries into recession territory.  

 

Trade tensions are a key drag on corporate confidence, capex and trade volumes. Global economic growth as measured by Purchasing Managers' Indexes (PMIs) has been weakening, and is now languishing at a three-year low. Global trade volumes are also weak, now at to their lowest levels since January 2012.

 

 

Corporate earnings growth expectations have also fallen and although we are not yet in an earnings recession, the threat of one is rising. Earnings per share (EPS) revisions have been in negative territory for most of the year, but encouragingly they appear to be showing some signs of improvement in the short term. First-half corporate results were better than consensus expectations and better than what the global PMI downtrend has been implying.

 

Over the six months, in terms of regions, North America made the strongest absolute contribution to the company's performance. Meanwhile Emerging Markets - perhaps the world's biggest potential victims of the trade war - lagged, although were still positive for returns. By sector, technology, utilities and materials fared the best for the company, while energy and - to a lesser extent - consumer discretionary, suffered. It is somewhat unusual to have utilities, a defensive sector by nature, at the top of the leaderboard alongside technology, a growth sector.

 

Defensive sectors have performed better as lower bond yields have reduced funding costs for debt-laden business models and allowed analysts to find more intrinsic value in them. Investors have also sought shelter in companies that provide less earnings variability. WEC Energy, the US utility was one of the best performing stocks for the company over the period for these very reasons.

 

Microsoft, the largest portfolio position, was the driver behind the strong showing from technology. The company has a strong positioning in public cloud adoption, combined with large distribution channels and a massive installed customer base that is helping to improve profit margins. Strong second-quarter results took the stock above the US$1 trillion market-cap level on the back of some positive operational trends: Azure, Microsoft's emerging public cloud storage proposition is growing exceptionally strongly; share gains and positive pricing trends in data centers; Office 365 user growth; and the integration of LinkedIn, all helped to drive durable double-digit revenue and dividend growth which we believe will continue over the medium term.

 

Occidental was the biggest laggard for the company during the period. We held the oil & gas exploration and production company, due to its strong balance sheet and relative dividend certainty. However, the company announced a deal to buy Anadarko in May, which the market took a dim view of. The acquisition necessitates a higher level of balance-sheet leverage to finance it, in our view, just at the wrong time in the cycle. With the deal also comes greater sensitivity to changes in the oil price. A splurge of capital ill-discipline, when it could be argued we are entering a period of macroeconomic contraction and therefore lower demand for oil and gas (resulting in lower commodity prices), heightens shareholder risk in our view. We therefore sold the stock over the period.

 

We continue to focus our research effort on identifying financially robust and sustainable business models that can generate strong cash flows to support dividend growth, even in a more difficult operating environment. One such example is the purchase of Verizon. The company is a best-in-class wireless operator in a market with a good competitive and regulatory backdrop. We expect the firm to grow revenue faster than inflation and earnings even faster. The 5G broadband market which it is commercially rolling out is an exciting option for growth.

 

Another recent addition has been Bunzl, which is dominant in the sourcing and supplying of goods-not-for-resale, allowing the company to consistently grow volumes roughly in line with GDP. Furthermore, Bunzl is an active consolidator of a heavily fragmented market and as an advantaged buyer it can complete this roll up while continuing to deliver attractive return metrics. Bunzl has delivered 26 years of increasing dividends and there are currently no reasons to believe this will be discontinued.

 

We believe threats of disruption leading to sustained margin erosion are overplayed and that consequently we are seeing an attractive entry point into a good long-term story. Bunzl is particularly appealing when compared with its defensive peer set, most of which trade at or near peak valuations.

 

These purchases were funded from sales where we see less upside potential, such as the aforementioned Occidental.  We also sold Kingfisher which has been battling against the macroeconomic backdrop in both the UK and France.  Its French business, Castorama, has been struggling due to having the wrong pricing dynamic - which is leading to falling volumes. In the UK, B&Q has been through the first half of a restructuring plan, but consumer spending has been  lacklustre and may not turn around any time soon. Screwfix, Kingfisher's 'jewel in the crown', has also not been rolled out to other European countries, which we believed would be a meaningful driver of future growth. An overhaul of Kingfisher's management team has seen the CEO and CFO leave their posts and the restructuring strategy to be all but abandoned, leaving us to question what will drive the share price to outperform. 

 

Throughout the last year, we have focused a material proportion of our research on governance and sustainability, as part of our bottom-up research process. We find this approach to be an important competitive advantage, given that it further increases our understanding of the companies we invest in, while ensuring we engage with companies on the most important issues that could have a material impact on their future performance. During the last year we have engaged with all the companies in the portfolio and we actively voted against management resolutions at 23% of the voteable meetings. These were on issues such as egregious executive compensation plans, over-boarding and director elections that we disagreed with.

 

 

Outlook

 

With weakening macroeconomic data worldwide, investors continue to concern themselves with the increasing probability that we are slipping into a global recession. Bond markets are certainly offering the investor cause for anxiety as an early signal that a recession is imminent. The yield curve offers a good indicator for the combined impact of central bank policy action and growth. Of late, the US 2year/10year curve has flattened, even though expectations that the Federal Reserve (Fed) will cut interest rates further have risen sharply. This is concerning as a steeper yield curve would indicate that the bond market was becoming more confident that near-term monetary easing will lead to better long-term outcomes. This would give equities a platform to move higher from.

 

The best signal for a potential recovery in earnings growth would be an indication that global industrial activity has bottomed. An improved trade war outcome would also be supportive. Here, a de-escalation is possible, and equities have responded positively when there have been better news headlines in recent months. It remains to be seen though, how much long-term damage has already been done to globalisation.

 

If economic data deteriorates from here, we can also expect a more aggressive central bank policy response. In Europe - particularly in Germany, where growth has completely collapsed due to its high reliance on the manufacturing industry - we could expect a fiscal package to help stimulate activity. The Fed is likely to become more aggressive with its easing monetary response too.

 

However, this may not necessarily stimulate equities to move higher. The last five inter-meeting Fed interest rate cuts all saw equities trade lower over the following six months. So, we need growth to improve rather than stimulus.

 

One positive is that valuations are looking more supportive. The S&P 500 index is trading back at long-term p/e averages (20-year averages). The S&P 500 dividend yield has moved higher than both the 10-Year Treasury yield and now the 30-Year Treasury Yield. The last time this happened was in March 2009 (the low point of the financial crisis) so, this could be a sign that investors have become far too pessimistic and that equities can find a base to move higher from here.

 

The UK is now looking very likely to exit the EU at the end of January with a withdrawal deal in place.  However, there is the wrinkle of a general election hurdle first which could still cause some volatility in UK and European stocks.  But, as we edge closer to the end of January and an orderly withdrawal looks the most likely outcome, sterling should strengthen and with it those stocks that have a high correlation to the currency.  Sectors such as autos, insurance and industrials could do well for the portfolio as a result.

 

All these points lead us to remain cautious; we are happy to be positioned fairly conservatively, with an overweight to more defensive sectors, as opposed to lower-quality cyclicals that currently look optically cheap. Lower interest rates do not bode well for banks, an important component of the equity market offering 'value' - so we would like to see higher long-term bond yields as a signal to add capital to high-quality cyclicals.

 

 

Careful assessment of risk-reward in choosing stocks, considered portfolio construction and constant risk monitoring are all integral components of the investment process for the company. We believe that favouring attractively priced, high-quality companies that exhibit financial strength, combined with the ability to pay sustainable dividends through the business cycle, is the best way to position the Securities Trust of Scotland in the current uncertain market environment.

 

Mark Whitehead

5 December 2019

 

 

Risk and mitigation

The company's business model is longstanding and resilient to most of the short term uncertainties that it faces, which the board believes are effectively mitigated by its internal controls and the oversight of the investment manager, as described in the latest annual report. The principal risks and uncertainties are therefore largely longer term and driven by the inherent uncertainties of investing in global equity markets. The board believes that it is able to respond to these longer term risks and uncertainties with effective mitigation so that both the potential impact and the likelihood of these seriously affecting shareholders' interests are materially reduced.

 

Risks are regularly monitored at board meetings and the board's planned mitigation measures are described in the latest annual report. The board maintains a risk register and also carries out a risk workshop annually. The board has identified the following principal risks to the company:

 

·      Loss of s1158-9 status

·      Long-term investment underperformance

·      Market, financial and interest rate risk

·      Operational Risk

 

Further details of these risks and how the board manages them can be found in the 2019 annual report and on the company's website www.securitiestrust.com.

 

Directors' responsibility

In accordance with Chapter 4 of the Disclosure and Transparency Rules, and to the best of their knowledge, each director of the company confirms that the financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in February 2018. The directors are satisfied that the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the company. Furthermore, each director certifies that the interim management statement includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial statements, together with a description of the principal risks and

uncertainties that the company faces. In addition, each director of the company confirms with the exception of management, secretarial fees, directors' fees and directors' shareholdings, that there have been no related party transactions during the six months to 30 September 2019.

 

 

Going concern status

The company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's statement and Manager's review.

 

The financial position of the company as at 30 September 2019 is shown on the unaudited condensed statement of financial position. The unaudited condensed statement of cash flow of the company is below. 

 

In accordance with the Financial Reporting Council's guidance on Risk Management, Internal Control and Related  Financial and Business Reporting issued in September 2014  and the UK Corporate Governance Code, the directors have  undertaken a rigorous review of the company's ability to  continue as a going concern. The company's assets consist primarily of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal risks disclosed above and have reviewed revenue forecasts. They believe that the company has adequate financial resources to continue its operational existence for the foreseeable future and for at least one year from the date of signing of these financial statements. Accordingly, the directors continue to adopt the going concern basis in preparing these financial statements. 

 

By order of the board

John Evans, Chairman

 

5 December 2019

 

 

 

Portfolio Summary

 

Portfolio distribution as at 30 September 2019

 

By region (excluding cash)

  As at 30 September 2019

As at 31 March 2019

 

%

%

North America

43.5

46.7

Developed Europe

42.1

41.5

Developed Asia Pacific ex Japan

14.4

11.8

 

100.0

100.0

 

 

By sector (excluding cash)

 As at 30 September 2019

As at 31 March 2019

 

%

%

Consumer goods

21.3

19.9

Industrials

20.9

16.8

Financials  

18.0

19.2

Technology

13.1

9.6

Basic materials

8.0

9.0

Telecommunications

6.2

2.7

Healthcare

5.1

8.3

Utilities

2.6

6.4

Oli & gas

2.4

6.6

Consumer services

2.4

1.5

100.0

100.0

 

 

 

 

 

By asset class

(including cash and borrowings)

 

As at 30 September 2019

 

As at 31 March 2019

 

%

%

Equities

109.6

110.4

Cash

2.6

2.6

Less borrowings

(12.2)

(13.0)

 

100.0

100.0

 

 

Largest 10 holdings

30 September 2019

30 September 2019

31 March 2019

31 March 2019

 

Market value

% of total

Market value

% of total

 

£000

portfolio

£000

portfolio

Microsoft

13,242

5.7

10,625

5.0

Verizon Communications

8,286

3.6

-

-

Lockheed Martin

8,036

3.4

4,907

2.3

Danone

7,864

3.4

5,333

2.5

Koninklijke DSM

7,561

3.2

6,479

3.1

Crown Castle International

7,495

3.2

6,527

3.1

Airbus

7,344

3.2

5,974

2.8

Taiwan Semiconductor

7,171

3.1

5,979

2.8

Samsung Electronics

6,378

2.7

3,410

1.6

Zurich Insurance Group

6,377

2.4

6,585

3.1

 

Unaudited Condensed Statement of Comprehensive Income

 

 

 

(Unaudited) Six months to

30 September 2019

(Unaudited) Six months to

30 September 2018

 

Note

Revenue

£000

Capital

£000

Total

£000

Revenue

£000

Capital

£000

Total

£000

Net gains on investments

5

-

20,336

20,336

-

17,061

17,061

Net currency gains/ (losses)

 

119

(722)

(603)

55

(719)

(664)

Income

3

5,459

-

5,459

5,214

-

5,214

Investment management fee

 

(211)

(391)

(602)

(204)

(378)

(582)

Other expenses

 

(294)

-

(294)

(301)

-

(301)

Net return before finance costs and taxation

 

5,073

19,223

24,296

4,764

15,964

20,728

Finance costs

 

(104)

(184)

(288)

(100)

(173)

(273)

Net return on ordinary activities before taxation

 

4,969

19,039

24,008

4,664

15,791

20,455

Taxation on ordinary activities

4

(485)

-

(485)

(429)

-

(429)

Net returns attributable to ordinary redeemable shareholders

 

      4,484

19,039

23,523

4,235

15,791

20,026

Net returns per ordinary redeemable share

(basic and diluted)

2

4.30p

18.25p

22.55p

3.91p

14.58

18.49p

 

 

 

 

(Audited)

 

 

Year to 31 March 2019

 

 

Revenue

Capital

Total

 

Note

£000

£000

£000

Net gains on investments

5

-

15,195

15,195

Net currency gains/ (losses)

 

(14)

(565)

(579)

Income

3

8,539

-

8,539

Investment management fee

 

(397)

(737)

(1,134)

Other expenses

 

(614)

-

(614)

Net return before finance costs and taxation

 

7,514

13,893

21,407

Finance costs

 

(196)

(355)

(551)

Net return on ordinary activities before taxation

 

7,318

13,538

(20,856)

Taxation on ordinary activities

4

(671)

-

(671)

Net return attributable to ordinary redeemable shareholders

 

6,647

13,538

20,185

Net returns per ordinary redeemable share

(basic and diluted)

2

6.23p

12.70p

    18.93p

 

The total columns of this statement are the profit and loss accounts of the company.

The revenue and capital items are presented in accordance with the Association of Investment Companies ('AIC') Statement of Recommended Practice ('SORP 2014').

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the six months.

The notes below form part of these condensed financial statements.

 

 

 

Unaudited Condensed Statement of Financial Position

 

 

 

 (Unaudited)

As at

30 September 2019

(Unaudited)

As at

30 September 2018

(Audited)

year to

31 March 2019

 

Note

£000

£000

£000

£000

£000

£000

Fixed assets

 

 

 

 

 

 

 

Investments and derivatives at fair value through profit or loss*

5

 

232,901

 

218,780

 

212,678

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Trade and other receivables

6

489

 

416

 

880

 

Cash and cash equivalents

 

5,486

 

5,379

 

5,084

 

 

 

 

5,975

 

5,795

 

5,964

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade payables - amounts falling due within one year

7

(10,424)

 

(10,841)

 

(10,521)

 

Dividend payable

 

-

 

-

 

(1,515)

 

Total current liabilities

 

(10,429)

 

(10,841)

 

(12,036)

 

Net current liabilities

 

 

(4,454)

 

(5,046)

 

(6,072)

Total assets less current liabilities

 

 

228,447

 

213,734

 

206,606

Trade payables - amounts falling due after more than one year

8

 

(15,827)

 

(15,285)

 

(15,162)

Total net assets

 

 

212,620

 

198,449

 

191,444

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

 

Called up ordinary share capital

 

1,223

 

1,223

 

1,223

 

Capital redemption reserve

 

78

 

78

 

78

 

Share premium reserve

 

30,040

 

30,040

 

30,040

 

Special distributable reserve*

 

82,345

 

85,307

 

82,709

 

Capital reserve*

 

94,325

 

77,832

 

75,286

 

Revenue reserve*

 

4,609

 

3,969

 

2,108

 

Total shareholders' funds

 

 

212,620

 

198,449

 

191,444

Net asset value per ordinary redeemable share

2

 

203.88p

 

187.11p

 

183.21p

 

* These reserves are distributable.

The company is registered in Scotland no.SC283272.

The notes below form part of these condensed financial statements.

 

 

The financial statements were approved by the board of directors on 5 December 2019 signed on its behalf by John Evans, Chairman.

 

 

Unaudited Condensed Statement of Changes in Equity

 

For the period to 30 September 2019 (Unaudited)

Called up ordinary share capital

£000

Capital redemption reserve

£000

Share

premium

account

£000

Special distributable capital

reserve*

£000

 

 

Capital

reserve*

£000

 

 

Revenue

 reserve*

£000

 

 

 

Total

£000

As at 31 March 2019

1,223

78

30,040

82,709

75,286

2,108

191,444

Net return attributable to shareholders**

-

-

-

-

19,039

4,484

23,523

Ordinary shares bought back during the period

-

-

-

(364)

-

-

(364)

Dividends paid from revenue

-

-

-

-

-

(1,983)

(1,983)

 

 

 

 

 

 

 

 

As at 30 September 2019

1,223

78

30,040

82,345

94,325

4,609

212,620

 

For the period to 30 September 2018 (Unaudited)

Called up ordinary share capital

£000

Capital redemption reserve

£000

Share

premium

account

£000

Special distributable capital reserve*

£000

Capital

reserve*

£000

Revenue

 reserve*

£000

 

 

 

Total

£000

As at 31 March 2018

1,223

78

30,040

92,772

62,041

1,630

187,784

Net return attributable to shareholders**

-

-

-

-

15,791

4,235

20,026

Ordinary shares bought back during the period

-

-

-

(7,465)

-

-

(7,465)

Dividends paid from revenue

-

-

-

-

-

(1,896)

(1,896)

As at 30 September 2018

1,223

78

30,040

85,307

77,832

3,969

198,449

 

For the year to 31 March 2019

(Audited)

Called up ordinary share capital

Capital redemption reserve

Share

premium

account

Special distributable capital reserve*

Capital

reserve*

Revenue

 reserve*

Total

 

£000

£000

£000

£000

£000

£000

£000

As at 31 March 2018

1,223

78

30,040

92,772

62,041

1,630

187,784

Net return attributable to shareholders**

-

-

-

-

13,538

6,647

20,185

Ordinary shares bought back during the year

-

-

-

(10,063)

-

-

(10,063)

Dividends paid from revenue

 

-

-

-

-

-

(6,169)

(6,169)

Dividends paid from capital

-

-

-

-

(293)

-

(293)

 

 

 

 

 

 

 

 

As at 31 March 2019

1,223

78

30,040

82,709

75,286

2,108

191,444

 

*These reserves are distributable.

**The company does not have any other income or expenses that are not included in the 'Net return attributable to ordinary redeemable shareholders' as disclosed in the Condensed Statement of Comprehensive Income above, and therefore this is also the 'Total comprehensive income' for the period.

The notes below form part of these condensed financial statements.

 

 

 

 

 

 

 

(Unaudited)

Six months to

 

(Unaudited)

Six months to

(Audited)

Year to 

 

 

30 September 2019

30 September 2018

31 March 2019

 

Note

£000

£000

£000

£000

£000

£000

Cashflows from operating activities

 

 

 

 

 

 

 

Profit before tax

 

 

24,008

 

20,455

 

20,856

Adjustments for:

 

 

 

 

 

 

 

Gains on investments

5

(20,336)

 

(17,061)

 

(15,195)

 

Finance costs

 

288

 

273

 

551

 

Exchange movement on bank borrowings

9

665

 

751

 

628

 

Purchases of investments*

5

(54,051)

 

(41,522)

 

(78,397)

 

Sales of investments**

5

54,164

 

46,476

 

87,587

 

Dividend income

3

(5,115)

 

(4,740)

 

(7,836)

 

Other income

3

-

 

(1)

 

(3)

 

Stock lending income

3

-

 

(26)

 

(31)

 

Premium income - written options

3

(344)

 

(447)

 

(669)

 

Dividend received

 

5,601

 

5,002

 

7,608

 

Other income received

 

-

 

1

 

3

 

Stock lending income received

 

-

 

27

 

33

 

Premium income received - written

options

 

344

 

447

 

669

 

(Increase)/decrease in receivables

 

(95)

 

1,558

 

1,583

 

Decreases in payables

 

(73)

 

(14)

 

33

 

Overseas withholding tax suffered

4

(485)

 

(429)

 

(671)

 

 

 

 

(19,437)

 

(9,705)

 

(4,107)

Net cash flows from operating activities**

 

 

4,571

 

10,750

 

16,749

Cash flows from financing activities

 

 

 

 

 

 

 

Repurchase of ordinary share capital

 

(382)

 

(7,129)

 

(10,094)

 

Equity dividends paid from revenue

 

(3,498)

 

(3,498)

 

(6,256)

 

Equity dividends paid from capital

 

-

 

-

 

(293)

 

Interest paid on borrowings

 

(289)

 

(273)

 

(551)

 

Net cash flows from financing activities**

 

 

(4,169)

 

(10,900)

 

(17,194)

Net increase/(decrease) in cash and cash equivalents**

 

 

402

 

(150)

 

(445)

Cash and cash equivalents at the start of the year**

 

 

5,084

 

5,529

 

5,529

Cash and cash equivalents at the end of the period/year**

9

 

5,486

 

5,379

 

5,084

 

 

Notes to the Condensed Financial Statements

 

Note 1:  Accounting policies

For the period ending 30 September 2019 (and the year ending 31 March 2019), the company is applying Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102)', which forms part of the Generally Accepted Accounting Practice ('UK GAAP') issued by the Financial Reporting Council ('FRC') in 2015.

 

These condensed financial statements have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS 102 issued by the FRC in September 2015, FRS 104 Interim Financial Reporting issued by the FRC in March 2015 and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued by the AIC in November 2014 and updated in January 2017 and February 2018.

 

The accounting policies applied for the condensed set of financial statements are set out in the company's annual report for the year to 31 March 2019.

 

 

 

Note 2:  Returns and net asset value

 

 

Revenue return

 

 

 

Revenue return attributable to ordinary redeemable shareholders

Weighted average number of shares in issue during the period*

Revenue return per ordinary redeemable share (basic and diluted)

Capital return

 

 

 

Capital return attributable to ordinary redeemable shareholders

Weighted average number of shares in issue during the period*

Capital return per ordinary redeemable share

Total return

 

 

 

Capital return per ordinary redeemable share (basic and diluted)

Net asset value per share

 

 

 

Net assets attributable to shareholders

Number of shares in issue at period end

Net asset value per share

 

* Calculated excluding shares held in treasury.

During the six months to 30 September 2019 there were 210,625 shares bought back into treasury at a cost of £364,000. (Six months to 30 September 2018: 4,385,396 shares brought back into treasury at a cost of £7,465,000; twelve months to 31 March 2019: 5,950,544 shares brought back into treasury at a cost of £10,063,000). Between 1 October and 3 December 2019, 196,768 ordinary shares of 1p each were bought back into treasury at a cost of £388,650. There have been no shares issued from treasury during the six months to 30 September 2019. (Six months to 30 September 2018: no shares were issued from treasury; twelve months to 31 March 2019: no shares were issued from treasury.) There have been no shares cancelled from treasury during the six months to 30 September 2019. (Six months to 30 September 2018: no shares were cancelled from treasury; twelve months ended 31 March 2019: no shares were cancelled from treasury). As at 30 September 2019 there were 18,013,525 shares in held in treasury.

 

Total return

The total return per share for the company is the combined effect of the rise and fall in the share price or NAV together with the reinvestment of the quarterly dividends paid.

 

The tables below provide the NAVs and share prices of the company on the dividend reinvestment dates for the six months ended 30 September 2019 and 30 September 2018.

 

2019

31 March 2019

4 July 2019

30 September 2019

Total return

 

 

 

2018

31 March 2018

5 July 2018

30 September 2018

Total return

 

 

 

 

Note 3:  Revenue

 

 

From listed investments

 

 

 

UK - equities

Overseas - equities

 

Other revenue

 

 

 

Premium - written options

Stock lending

Other income

 

 

 

During the six months to 30 September 2019 the company did not receive any capital dividends. (Six months to 30 September 2018: £nil; year to 31 March 2019: £nil).

 

During the six months to 30 September 2019 there were special dividends of £99,000 (30 September 2018: £207,000) which were received and treated as income.

 

 

Note 4: Taxation on ordinary activities

 

 

Foreign tax

 

 

 

 

 

 

                   

 

 

Note 5:  Investments and derivatives at fair value through profit or loss

 

 

UK listed investments held at fair value through profit or loss

Overseas listed investments held at fair value through profit or loss

Total value of financial asset investments

Derivative financial instruments - value of written option contracts

Valuation of investments and derivatives

Opening valuation

Opening unrealised gains

Opening cost

Acquisition at cost

Disposal proceeds

Gains on disposal of investments and derivatives

Disposals at cost

Closing cost

Add: unrealised gains

 

Closing valuation

Gains on investments and derivatives

 

 

 

Net gains on disposal of investments and derivatives

Movement in unrealised gains

 

                     17,061

 

 

 

 

Acquisitions

Disposals

 

 

 

Note 6:  Trade and other receivables

 

 

Dividends receivable

Cash collateral held at broker for derivatives

Tax recoverable

Prepayments and other debtors

Stock lending income receivable

 

 

Note 7:  Trade payables - amounts falling due within one year

 

 

Interest accrued

Sterling bank revolving loan

Amount due for Ordinary shares bought back

Other trade payables

 

 

 

Note 8:  Trade payables - amounts falling due after one year

 

 

Bank loan

 

 

As at 30 September 2019 the company had drawn down the full amount of the loan and the balances as at that date were for Facility A £1,500,000, Facility B £3,981,000 (€4,500,000), Facility C £10,346,000 (US$12,750,000) and Facility D £10,000,000.

 

 

Note 9:  Analysis of net debt

 

 

Cash at bank

 

Bank borrowings

 

 

 

 

Under FRS 102, the company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

 

-     Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

-    Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc); or

-     Level 3: significant unobservable input (including the company's own assumptions in determining the fair value of investments).

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

Quoted equities and derivatives

Net fair value

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

Quoted equities and derivatives

Net fair value

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

Quoted equities and derivatives

Net fair value


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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