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Capital Gearing Tst (CGT)

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Wednesday 29 May, 2019

Capital Gearing Tst

Final Results



29 May 2019

Annual Financial Results for the year ended 5 April 2019

The directors of Capital Gearing Trust P.l.c. announce the results for the year ended 5 April 2019.

Performance Summary 5 April 2019 5 April 2018 % Change
Share price 4,170.0p 3,910.0p +6.6
Net asset value per ordinary share 4,082.0p 3,809.8p +7.1
Premium 2.2% 2.6% -0.4
Shareholders’ funds £321.9m £219.6m +46.6
Market capitalisation £328.9m £225.3m +46.0
Shares in issue 7,886,589 5,762,919 +36.9
Ongoing charges percentage* 0.70% 0.77% -9.1
Ordinary dividend per Ordinary share 23.00p 21.00p +9.5
Special dividend per Ordinary share 12.00p 6.00p +100.0

*Ongoing charges calculation prepared in accordance with the recommended methodology of the Association of Investment Companies



As at 5 April 2019, the net asset value (“NAV”) per share was 4,082.0p, a total return of 7.9% for the year. The share price rose by 7.4% in total return terms, ending the year at 4,170.0p. After a disappointing outcome in 2017/2018, when the growth in NAV per share had failed to match inflation for only the second time since 2000, performance in this most recent year was more encouraging, with growth in NAV per share matching the MSCI UK Index (+7.9%) and outstripping the UK Retail Price Index (+2.4%).

The portfolio has remained defensively positioned with some 20% of the portfolio at the end of the year being held in either cash or short-term government bonds. Despite this, overall performance measured up well against equity markets. Several risk asset classes contributed to this, as noted in the Investment Manager’s Report, as did the sizeable holdings in US inflation linked bonds. Further weakness in sterling, after a period of sterling / dollar strength in the previous year, also helped performance.

A very important feature of the performance of the Company’s net asset value in recent years has been to offset excessive market movements, notably on the downside, as a result of portfolio positioning.  In conjunction with the successful application of the discount control policy, which has limited share price volatility, the absence of significant setbacks in portfolio value has been an important element in preserving shareholder value.

Dividend and Earnings

The revenue return per share after tax and expenses for the financial year was 51.12p, a sharp increase for the second year in a row. Although the trust does not set a specific income target per se, rather using total return as its yardstick, two principal factors have bolstered the revenue account - one possibly temporary, the other more sustainable. The switch in asset allocation from zero dividend preference shares towards short-dated corporate bonds has boosted gross revenues. Meanwhile, strict control of fixed costs and a lower average percentage charge for the investment management fee have also improved the net revenue return.

As in the recent past, the Board is recommending an underlying dividend, which is viewed as at least sustainable in normal circumstances, and a special dividend, which could be subject to fluctuation in future, largely in order meet the requirements of investment trust status. A repeat of any such special dividend in succeeding years is not implied.

This year the Board is recommending a total dividend of 35.0p per share comprising an underlying dividend of 23.0p per share and a special dividend of 12.0p per share. The total payment of 35.0p per share compares with 27.0p per share last year (comprised of an underlying dividend of 21.0p per share and a special dividend of 6.0p per share). The Board believes that the Company’s dividend policy, which is not a material part of the Company’s total return, is consistent with former years and so recommends this for shareholder approval.

Annual General Meeting

This year, the AGM will be held in London at the Moorgate offices of Smith & Williamson on Tuesday, 9 July 2019 at 11:00 a.m. The notice convening the fifty-sixth AGM of the Company is set out in the Annual Report. We are revising the format this year and our investment managers will be making a short presentation on the outlook for capital markets and the Company’s investments, before we proceed to the formal business of the meeting. There will be an opportunity for shareholders to ask questions after the investment manager’s presentation, and during the formal business of the AGM.

Share Issuance and Buybacks

In terms of issuance we issued 2,123,670 shares (all at a premium to NAV per share) for net proceeds of £86,185,000 during the last financial year.

The Company’s discount control policy (“DCP”) has now been in operation for almost four years. It is instructive to look back at the progress since then. At the instigation of the policy in August 2015, the Company had 2,926,906 shares in issue, net assets of £94.56m whilst the daily trading volume was typically less than 1,000 shares.

With the exception of one short period in late 2015 when the Company bought back a small amount of shares at a very modest discount to NAV, the DCP has operated exclusively in one direction, issuing shares at a premium to NAV. At the latest financial year end, there were 7,886,589 shares in issue (nearly 2.7 times the August 2015 level), net assets were £321.93m and in the latest quarter average daily trading volumes have been in excess of 12,000 shares.

Although the Company incurs modest costs for operating the DCP and when renewing shareholder authority from time to time, issuance at a premium under the DCP more than compensates and is consistently accretive to NAV. The Board estimates that since inception NAV has gained by some £2.56m after all costs, with £1.39m of this gain being generated in the latest financial year.

The expansion in assets under management has had no impact on our investment strategy nor adversely affected our NAV per share performance. When measured against its twin, the hard closed Capital Gearing Portfolio Fund, the Company shows a small positive differential gain in performance. Over the year to 31 March 2019, the Company delivered a NAV total return of 7.8% compared to the Capital Gearing Portfolio Fund total return of 6.9%. This is a consequence of the accretion to NAV from issuance at a small premium and the reduction in the ongoing cost ratio, examined in greater detail below.

The Board is firmly of the view that the continued implementation of the DCP remains in the best interest of shareholders. Trading in the Company’s shares is much more liquid (for buyers and, potentially, for sellers), the costs per share of running the Company are significantly reduced and issuance at a premium has augmented underlying growth in NAV per share to a modest, but measurable, extent.


The Board continues to monitor and exact close control on the costs of running your Company. The key measure of overall costs is the ongoing charges ratio (“OCR”). This has declined yet again from 0.77% in the year to 5 April 2018 to 0.70% this year. This is largely due to our fixed costs being spread over a larger asset base, but total fixed costs (i.e. excluding the investment management fee which is linked to the size of the portfolio) at £0.42m remained at the same level as the previous year. Before the Company commenced its DCP in 2015, the OCR for the much smaller company was 0.96%.

Looking ahead at potential factors that will influence the OCR in future years, there are three worthy of mention (and only the potential reduction in the investment management fee linked to the amount of assets under management of any significant materiality):

  • Directors’ fees were revised upwards on 6 April 2019 to reflect increased time, workload and comparisons with other trusts, along with the need to attract new directors. Further detail is provided in the Directors’ Remuneration Report in the Annual Report.
  • A new agreement between the Company and PATAC, which provides secretarial and various administration services will result in an increase of some £38,000 per annum in the fees paid to PATAC which were set at and unchanged since their appointment in 2015. Further details are provided in the Directors’ report in the Annual Report.
  • The investment management agreement with CG Asset Management has an annual fee of 0.60% of net assets up to £120m, 0.45% of net assets above £120m and up to £500m, and 0.30% thereafter. It is possible, if inflows to the Company continue at recent rates, that this third lower tier of charges will be triggered, perhaps even in the current year. This would over time have a significant positive impact on the OCR of the Company, which is already very competitive for what the Company aims to achieve for shareholders.

AIFM Status

Currently, the Company’s Alternative Investment Fund Manager, CG Asset Management, is registered as a “small authorised UK AIFM”. However, as it now seems possible that the Company’s assets under management could exceed the upper threshold under the AIFM regime of €500 million within the current financial year, if the present rate of share issuance persists, the Board has requested CG Asset Management to seek permission from the FCA to become a “full scope AIFM”. This move will require the Company to appoint a depositary and thereby incur some additional costs. Full scope authorisation will also allow the Company to gear its balance sheet and to trade in certain instruments (e.g. writing options or buying warrants), activities from which the Company has been hitherto prohibited.

It should be stressed that the Board has no present intention of borrowing capital or gearing the balance sheet.

Board Succession

George Prescott and I, both having served more than nine years on the Board, are standing for re-election at the AGM this year. However, mindful of the need to refresh the Board on a periodic basis, neither of us will stand for re-election at the AGM in July 2020. George is relinquishing the chair of the audit committee at this year’s AGM, to be succeeded in this role by Robin Archibald. After George’s planned retirement from the Board early in 2020, Robin will succeed him as Senior Independent Director. Robin has served as audit chair on other listed investment companies and is a chartered accountant.

In just over 12 months, at the AGM in July 2020, I will step down from the Chair and will be succeeded by Jean Matterson. As well as having more than four years service on our Board, Jean has two directorships with other investment trusts, including eight years experience as Chair of Pacific Horizon Investment Trust plc. She is well-qualified and has the full support of the Board to take over the leadership of your Company.

In parallel with these changes to the roles of current Board members, a search has commenced for a suitable candidate to join the Board later this year. We are taking outside advice in compiling a list of suitable applicants and expect to be well advanced in making an appointment before the end of this year.


Despite the recent rebound in equity and fixed interest markets from a sharp sell-off at the end of calendar year 2018, confidence in financial markets appears narrowly based. Central banks have recently blinked when confronted by investor reaction to the possibility of higher short-term rates. This has provided some temporary relief, but major unresolved issues such as Brexit, the rise and impact of populist politics, the Sino-US trade negotiations and conflicting signs of a slowdown in global growth, could at any time lead to an evaporation of this market rally.

Whilst a case can be made that, in certain equity markets, valuations are discounting some of these worries, we believe that the market volatility of the past 12 months looks set to continue. Pockets of value do occur from time to time in the markets we survey, though in the investment trust field discounts are very tight and liquidity often non-existent. It will come as no surprise to our shareholders that in this climate it is the preservation of capital value which remains our priority.

Graham Meek


28 May 2019



The Company’s dual objectives are to preserve shareholders' real wealth and to achieve absolute total return over the medium to longer term.


The Company aims to achieve its investment objectives through long only investment in quoted closed-ended funds and other collective investment vehicles, bonds, commodities and cash, as considered appropriate.

Given the diverse attributes of closed-ended funds and other collective investment vehicles, as well as the lower-risk characteristics attached to the other asset classes in which the Company invests, a flexible approach to asset allocation is adopted. It is anticipated that under most market conditions, a broad mix of assets will be maintained and a maximum 80% exposure to either equity or fixed-interest securities (including index-linked securities and cash) may be held at any time.

The investment manager has the authority to invest in any geographical region and has no set limits on industry sector or country exposure. The Company will not invest more than 15% of its investment portfolio in any single investment.

The Company does not have a formal benchmark but uses the UK Retail Price Index (“RPI”) as the minimum target for returns to be achieved over the medium to longer term, thereby aiming to at least preserve the real value of shareholders’ investments.

The Company, in pursuing total return, does not aim to invest for income to support any target dividend payment, since capital return is likely to be the largest component of the absolute return objective.

The maximum proportion of the Company's gross assets that can be held in other UK-listed investment companies (which do not have a stated investment policy to invest no more than 15% of their gross assets in other UK investment companies) is 10% in accordance with Listing Rule 15.2.5. It is, however, the aim of the Company to maintain a maximum 6% investment level in such companies in order to avoid any potential breach of this rule and to maintain investment flexibility.

The Company may invest in derivatives such as warrants, options, swaps and forward contracts for the purpose of efficient portfolio management, subject to prior Board approval. Investments in other funds managed by CG Asset Management, or by associates of CG Asset Management, will be considered by the Board on a case by case basis and are subject to Board approval.

Borrowing powers

The Company has the authority to borrow up to 20% of net assets, subject to prior Board approval.

AIFMD Status

The Company is an Alternative Investment Fund (“AIF”) as defined by the AIFMD and CG Asset Management is the Company’s Alternative Investment Fund Manager (“AIFM”). CG Asset Management is authorised as a Small Authorised UK AIFM.

Although the investment policy of the Company permits gearing, including the use of derivatives, the Company is not permitted to employ gearing whilst the AIFM continues to be registered under its present AIFM status.


Investment strategy and business model

Capital Gearing Trust P.l.c. seeks to preserve shareholders’ real wealth and deliver absolute total returns through the construction of multi asset portfolios with a specialist focus on investment trust equities and related securities. Portfolio construction is the key tool to mitigate capital loss in any given year. The fund manager allocates across asset classes based on an assessment of capital markets and macro-economic risks, with the aim of avoiding capital loss. In addition a portion of the portfolio is invested into the investment trust market with the aim of exploiting inefficiencies to generate risk adjusted returns that are superior to those available in more liquid equity markets.

Key performance indicators ("KPIs")

The Board monitors numerous KPI indices and ratios for the purpose of assessing and reporting investment performance. The Company seeks to achieve capital growth in real terms over both short-term and long-term periods. The Board monitors the performance of the investment manager against RPI over the short-term (3 years) and the MSCI UK over the longer-term (10 years).

In addition, the Board monitors the following KPIs:

  * Share price premium/discount to NAV, an important measure of demand for the Company's shares and a key indicator of the need for shares to be bought back or issued. At the start of the year under review the premium to NAV was 2.6% compared with 2.2% at the year end; and

  * Ongoing charges percentage, calculated using the methodology recommended by the Association of Investment Companies which enables the Board to measure the control of costs. This percentage was 0.70% for the year to 5 April 2019 (2018: 0.77%).

Principal risks and uncertainties

The directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks facing the Company are set out in the table below.

Risk Mitigation
Investment Strategy and Performance
The Board is responsible for setting the investment strategy of the Company and monitoring investment performance. Inappropriate strategy and/or poor investment performance may have an adverse effect on Shareholder returns.
The Company’s strategy is formally reviewed by the Board at least annually, considering investment performance, shareholder views, developments in the marketplace and the structure of the Company.

Investment performance is reviewed by the Board on a regular basis against RPI and the MSCI UK Index. The composition of the portfolio is provided at each Board meeting to allow monitoring of the spread of investments. Stock selection, portfolio composition and liquidity are explained in detail by the investment manager at each meeting.

The investment manager is formally appraised at least annually by the Management Engagement Committee.
Premium/Discount Level
The Company’s share price could be impacted by a range of factors causing it to be higher than (at a premium to) or lower than (at a discount to) the underlying NAV per share.

Excessive demand for, or supply of, share can create liquidity issues, restricting the ability of investors to buy and sell shares in the secondary market.

Fluctuations in the share price can cause volatility which may not be reflective of the underlying investment portfolio.
The Company operates a discount/premium control policy (“DCP”), under which it will purchase or issue shares to ensure, in normal market conditions, that the shares trade close to their underlying NAV per share. The DCP increases liquidity and reduces volatility by preventing the build up of excessive demand for the Company’s shares which, the Board believes, is in the best interests of shareholders.

The levels of issuance/buyback of shares are reported to the Board on an ongoing basis and at each Board meeting the Board considers the Manager’s ability to invest new proceeds (in the case of issuance) and maintain sufficient liquidity (in the case of buybacks) to meet the demands of the DCP.

The Company Secretary monitors the relevant authority levels, which are regularly reported to the Board, to maintain, as far as possible, uninterrupted operation of the DCP.
The Company is reliant on third-party service providers including CGAM as investment manager, PATAC as company secretary and administrator and Northern Trust as custodian. Failure of the internal control systems of these third-parties could result in inaccurate information being reported or risk to the Company’s assets.
The Audit Committee formally reviews each service provider at least annually, considering their reports on internal controls.
Further details of the Company’s internal control and risk management system is provided in the Corporate Governance Statement in the Annual Report.
The Company operates in a regulatory environment. Failure to comply with s1158 of the Corporation Tax Act 2010 could result in the Company losing investment trust status and being subject to tax on capital gains.  Failure to comply with other regulations could result in financial penalties or the suspension of the Company’s listing on the London Stock Exchange. 
Compliance with relevant regulations is monitored on an ongoing basis by the Company Secretary and Manager who report regularly to the Board.

The Board monitors changes in the regulatory environment and receives regulatory updates from the investment manager, company secretary, lawyers and auditors as relevant.
Financial and Economic
The Company’s investments are impacted by financial and economic factors including market prices, interest rates, foreign exchange rates and credit which could cause losses to the investment portfolio.
The Board regularly reviews and monitors the management of market risk, interest rate risk, foreign currency risk and credit risk. These are explained in detail in Note 15 to the financial statements in the Annual Report. Brexit, and other political situations, are considered a component of market risk.

Employee, human rights, social and environmental matters

The Board recognises the requirement under section 414C of the Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any policies it has in relation to these matters and their effectiveness. These requirements do not apply to the Company as it has no employees, all directors are non-executive and it has outsourced all its functions to third-party providers. The Company has therefore not reported further in respect of these provisions.

The Company has limited direct impact on the environment. It invests primarily in closed-ended and other collective investment vehicles or government bonds. The sectors chosen do not generally raise ethical issues. The Board monitors and is satisfied with the underlying investee companies' policies to act with due regard to community, welfare and environmental factors. The Board aims to conduct itself responsibly, ethically and fairly and has sought to ensure that CGAM's management of the portfolio of investments takes account of social, environmental and ethical factors where appropriate.

Gender and diversity

The Board supports the principle of boardroom diversity in its broadest sense, in terms of gender, expertise, geographic background, age and race. The Company is specialised and the Board’s priority to shareholders is to have a board with the requisite abilities to look after the Company's investments. In addition, the Board should be able to conclude that any new appointee would make an appropriate contribution. It is the Board's policy to review its composition regularly and, when appropriate, to refresh the Board through recruitment, with the aim of having the blend of skills and attributes that will best serve shareholders in the future. At the end of the year under review, the Board comprised four male and one female director.

Bribery and Corruption

The Company’s policy in relation to bribery and corruption can be found in the Directors’ Report in the Annual Report.



For a portfolio as defensive as Capital Gearing Trust’s to deliver high single digit returns, almost everything had to go our way in the year. Many assets that were selected primarily for their defensive characteristics delivered double digit returns in sterling terms. These notably included material holdings in Swedish and German property companies, renewable and PFI infrastructure funds and the near 25% holding in US inflation linked government bonds. The strong performance of these assets allowed the Company to deliver acceptable returns whilst holding in excess of 35% of the portfolio in cash or short-dated high quality sterling bonds and preference shares. These defensive cash and cash like holdings were important in minimising NAV declines during the equity market weakness of late 2018. Stock selection and asset allocation worked together to protect the downside. In short it was a fortunate year.

In the conventional equity portfolio we initiated one large new position, Investor AB, which is now the core of our conventional European equity exposure. Investor AB is a liquid Swedish holding company which itself holds a range of high quality listed and unlisted European businesses. In the summer of 2018 Investor AB was trading at unusually wide discounts, at a time that the Swedish krona had weakened markedly against the euro. This combination offered an attractive entry point. Whilst it is early days for our holding, it has outperformed the broader European equity market by more than 10% since we bought into the company.

The property and alternative portfolios delivered exceptional returns, given their relatively low risk profile. The fund participated in new stock placings in John Laing Environmental Assets, The Renewables Infrastructure Group, Greencoat UK Wind, Foresight Solar Fund and Greencoat Renewables. This renewable infrastructure portfolio delivered in excess of 20% returns due to strong demand for stable investments with environmental credentials. After a weak year in 2017/2018, the PFI infrastructure funds also delivered strong returns, boosted by the move to take John Laing Infrastructure Fund private, and out of the public market. The most outstanding returns came from the Company’s circa 2% holding in Swedish commercial property. The principle holding, Castellum AB, returned in excess of 25% as demand for commercial office space in Sweden dramatically outstripped new supply. Even the circa 2% position in loan funds delivered double digit returns, helped by discount narrowing in a new position, P2P Global Investments.

As always we had some notable underperformers, although they were limited in number over the last 12 months. For a second year running Ground Rents Income Fund delivered double digit declines as political scrutiny of the ground rents market continues. Whilst this was a setback, we continue to believe that long-term return prospects are strong. More disappointing was the, fortunately small, investment in CATCo Reinsurance Opportunities Fund (“CATCo”) purchased in early 2018. Our timing was poor as a catastrophe prone year followed and furthermore CATCo was subject to a probe regarding its historic reserve policies. CATCo is now in managed wind down that will certainly result in a small permanent capital loss. The episode demonstrates that “discounted” opportunities in the investment trust market are a flag of risk as well as an opportunity. Generally, with investment trust discounts at historically narrow levels, we remain wary of the risk of discount widening in a bear market.

The steady inflow of funds into the Company from the DCP has had no impact on the asset allocation, which has stayed largely unchanged over the last 12 months. Within the risk asset portfolio new investments have primarily focused on property and infrastructure, given these areas offered the more exciting opportunities. Within the bond portfolios the new inflows have allowed the lengthening of the US inflation linked portfolio to circa 9 years duration in a cost efficient manner.


The long experiment of persistently stimulative monetary policy conducted by the Federal Reserve looked last autumn as though it might be ending. However, in December Chairman Powell capitulated as even modestly rising interest rates proved problematic for the over-indebted US economy. The market now anticipates that the next move will be a cut. Accommodative monetary policy, combined with large deficit funded tax cuts, has kept the US economy moving forward. Even supporters of these stimulative policies recognise their possible toxic effects, including asset price bubbles, over-leveraging, misallocation of capital, socially undesirable distributional effects and difficulties in funding insurance and pension obligations. Implicitly, these costs are acceptable because the alternative, a recession with elevated debt levels, could spiral into something significantly worse.

In Europe, the bold experiment of the ECB doing “whatever it takes” to protect the integrity of the Eurozone is still a work in progress. Trend growth is so slow that the threat of recession is ever present. Growth rates anticipated for Italy in 2019 are close to zero, which will require fiscal tightening if deficit targets are to be met. More likely, another political row between the European Commission and the Italian government looms. This highlights that the structural reforms that are required to provide stability to the currency union are nowhere in sight and a redenomination crisis cannot be excluded. Arguing against that outcome is the almost religious belief that the euro is critical to the future of the European project and the fear of the huge losses that any restructuring would crystallise. So the euro will likely muddle through but at a huge cost. The ECB looks likely to enter the next downturn, whenever that will be, with a weak banking system, inflation below target and negative nominal interest rates. To resist a deflationary spiral from that starting place will require heroic monetary policies combined with a significant fiscal stimulus. Under current constitutional and treaty constraints neither of these policy paths are available. One thing seems certain, real interest rates will be negative for a long time to come.

With real rates set to remain at historically low levels, it is not easy to identify a short-term catalyst that will bring an end to the current business cycle and the associated powerful equity bull market. The fragile macro-economic backdrop, combined with elevated equity and bond valuations, suggest that portfolio returns will be modest over the medium term and could be negative if there is a period of recession. As with the past year, capital preservation remains the key objective of portfolio allocation, until valuations return to more attractive levels. An objective of merely preserving capital sounds modest. But, if it can be delivered over a period of normalising asset prices it will represent a significant achievement and lay the foundation for potentially more exciting returns in the future.

Peter Spiller

Alastair Laing

Christopher Clothier

28 May 2019


Going concern

The Company’s investment objectives and business activities, together with the main trends and factors likely to affect its future development and performance, are described in the Board’s Strategic Report. The financial position of the Company, including its cash flows and liquidity positions, is also described in the Strategic Report and financial statements. Note 15 to the financial statements describes the Company’s processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to market price, interest rates, foreign currency, credit and liquidity risk. The directors believe that the Company is well placed to manage its business risks successfully and consider that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence. For this reason, they continue to adopt the going concern basis in preparing the annual report and financial statements. The directors do not consider that there are any material uncertainties to the Company’s ability to continue to adopt this approach over a period of at least twelve months from the date of approval of these financial statements.

Viability statement

The Board has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. The Board has drawn up a risk map of the risks facing the Company and has put in place appropriate processes and controls in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to manage these, are detailed above.

The Company is a long-term investor and the Board believes it is appropriate to assess the Company’s viability over a three year period in recognition of our investment manager’s long-term horizon and also what we believe to be investors’ horizons, taking account of the Company’s current position and the potential impact of the principal risks and uncertainties as shown above.

The Directors also took into account the liquidity of the portfolio when considering the viability of the Company over the next three years and its ability to meet liabilities as they fall due.

The Directors do not expect there to be any significant change in the principal risks that have been identified and the adequacy of the controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company’s assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. The directors believe that only a substantial financial crisis affecting the global economy could have an impact on this assessment.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.


Distribution of investment assets of £323,306,000 as at 5 April 2019

Currency Exposure
Sterling US Dollar Euro Swedish Krona Japanese

% % % % % % %
Index-Linked Government Bonds 8.5 24.3 - 0.2 - - 33.0
Conventional Government Bonds 10.3 - - - - - 10.3
Preference Shares/Corporate Debt 14.3 1.5 0.9 - - 0.9 17.6
Funds/Equities 13.8 3.2 7.5 3.9 2.2 4.6 35.2
Cash 2.7 0.1 - 0.1 - - 2.9
Gold 1.0 - - - - - 1.0
Total 50.6 29.1 8.4 4.2 2.2 5.5 100.0

Distribution of investment assets of £219,164,000 as at 5 April 2018

Currency Exposure
Sterling US Dollar Euro Swedish Krona Japanese

% % % % % % %
Index-Linked Government Bonds 11.3 24.3 - 2.3 - - 37.9
Conventional Government Bonds 1.1 - - - - - 1.1
Preference Shares/Corporate Debt 16.4 0.7 - - - 0.2 17.3
Funds/Equities 16.6 2.9 7.8 2.4 2.6 4.6 36.9
Cash 5.2 0.5 - 0.1 - - 5.8
Gold 1.0 - - - - - 1.0
Total 51.6 28.4 7.8 4.8 2.6 4.8 100.0

Investments of the Company

2019 2018
£'000 £'000
Index-Linked Government Bonds
Sweden                             475                          5,112
United Kingdom                       27,387                        24,710
United States of America                       78,711                        53,174
                         106,573                        82,996
Conventional Government Bonds
United Kingdom                            33,438                          2,497
Preference Shares / Corporate Debt
Zero Dividend Preference shares  
NB Private Equity  2022                          3,409                          3,379
JZ Capital Partners 2022                              2,431                          2,431
Utilico Investments 2020                              2,147                          1,001
Acorn Income Fund 2022                              1,553                          1,523
GLI Finance 2019                              1,538                          1,431
Ranger Direct Lending 2021                              1,371                             935
Polar Capital 2024                                 901                             728
Premier Energy & Water Trust 2020                                 894                             879
NB Private Equity Partners 2024                                 636                               -  
RM Secured Direct Lending 2021                                 561                             555
Taliesin Property Fund 2018                                   -                               816
Utilico Investments 2018                                  -                            1,531
Investments with a market value below £500,000                                 855                             837
                           16,296                        16,046
Corporate debt
Pershing Square 5.5% 2022                              4,810                          1,495
Tesco Personal Finance 1.0% 2019                              1,933                          1,097
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021                              1,898                          1,862
Burford Capital 6.5% 2022                              1,809                             528
Landmark Mortgages 6.375% 2019                              1,751           -  
Unite Group 6.125% 2020                              1,675                             870
Primary Healthcare Properties 5.375% 2019                              1,658                          1,031
Helical 4.0% 2019                              1,603                             907
National Grid 1.25% 2021                              1,498                             923
Aberdeen Asian Smaller Companies 2.25% 2025                              1,491                               -  
Burford Capital 6.125% 2024                              1,401                             374
Places for People Capital Markets 1% 2022                              1,234                             800
E.ON 6.0% 2019                              1,026       -  
Northern Gas Networks 5.875% 2019                              1,011                               -  
Severn Trent 1.3% 2022                                 988                             749
Southern Water Services 5.0% 2021                                 961                               -  
Bruntwood Investments 6.0% 2020                                 891                            801
A2D Fund 4.75% 2022                                 889                            217
Home Group Zero Coupon Loan Stock 2027                                 825                               -  
Koninklijke KPN 6.0% 2019                                 805                               -  
Tate & Lyle 6.75% 2019                                 800                             244
Sydney Airport Finance Company 3.76% 2020                                 798                             393
GE Capital UK Funding Unlimited Company 4.375% 2019                                 750                               -  
Yorkshire Water Finance 6.0% 2019                                 712                               -  
Birmingham Airport (Finance) 6.25% 2021                                 702                               -  
TP ICAP 5.25%  2019                                 692                            155
Northern Powergrid (Yorkshire) 9.25% 2020                                 635                               -  
Export Development Canada 1.375% 2019                                 602                               -  
REA Finance B.V. 8.75% 2020                                 600                            500
Bupa Finance 3.375% 2021                                 519                               -  
Retenbank 1.5% 2019                                 502                               -  
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018                                  -                           1,220
CLS Holdings 5.5% 2019                                   -                            1,179
Grainger 5.0% 2020                                   -                               587
Intermediate Capital Group 7.0% 2018                                  -                                 84
National Grid 2.983% 2018                                   -                               141
National Grid North America 1.875% 2018                                  -                               501
NEX Group 5.5% 2018                                   -                               904
Workspace Group 6.0% 2019                                   -                            1,477
Investments with a market value below £500,000                              3,559                          2,745
                           41,029                        21,784
                           57,325                        37,829
Funds / Equities
Vonovia                              8,699                          5,937
iShares Core FTSE 100 ETF                              7,218                          3,570
Deutsche Wohnen                              6,329                          4,278
Vanguard FTSE Japan UCITS ETF                              6,312                          5,686
North Atlantic Smaller Companies                              6,053                          5,491
Investor AB                              5,772                               -  
Vanguard S&P 500 UCITS ETF                              4,379                               -  
Grainger                              4,098                          2,031
Castellum                              4,086                          3,381
Residential Secure Income                              3,466                          3,268
Tritax Big Box REIT                              3,227                               -  
Empiric Student Property                              2,808                          1,023
PRS REIT                             2,638                          1,195
The Renewables Infrastructure Group                              2,554                               -  
Greencoat Renewables                              2,534                               -  
Ground Rents Income Fund                              2,392                          2,342
John Laing Environmental Assets                              2,254                               -  
Leg Immobilien                              2,000                         1,737
P2P Global Investments                              1,978                               -  
Vanguard FTSE Emerging Markets UCITS ETF                              1,912                             454
Kungsleden                              1,803                          1,456
Witan Pacific Investment Trust                              1,504                             524
Grand City Properties                              1,498                             686
ADO Properties                              1,468                             779
Oryx International Growth Fund                              1,424                          1,442
Target Healthcare REIT                              1,296                             410
The Establishment Investment Trust                              1,292                               -  
RM Secured Direct Lending                              1,290                          1,560
Vanguard FTSE Developed Asia Pacific ex-Japan UCITS ETF                              1,215                               -  
JPEL Private Equity USD                              1,077                          1,179
Pershing Square                              1,052                               85
SQN Asset Finance C Shares                                 999                               -  
Ecofin Global Utilities and Infrastructure Trust                                 981                             791
Triple Point Social Housing REIT                                 932                          1,788
Civitas Social Housing                                 915                         1,437
SME Loan Fund                                 914                            914
Gulf Investment Fund                                 845                            326
Vanguard FTSE Developed Europe ex-UK UCITS ETF                                 799                         2,697
Secure Income REIT                                 796                            221
Better Capital PCC                                 736                          1,026
SDCL Energy Efficiency Income Trust                                 727                               -  
Phoenix Spree Deutschland                                 718                                -  
Baillie Gifford Japanese Smaller Companies Fund                                   711                                  -  
International Public Partnerships                                 701                             597
CLS Holdings                                  694                             427
Eurovestech                                 675                             675
EPE Special Opportunities                                 628                          1,017
Atrium Ljungberg AB                                 570                             350
Vanguard FTSE 250 UCITS ETF                                 511                             513
Artemis Alpha Trust                                 472                          1,199
LXI REIT                                 346                          1,435
CATCo Reinsurance Opportunities Fund                                  180                              659
GCP Asset Backed Income Fund                                        2                              618
Candover Investments                                   -                               646
Civitas Social Housing C Shares                                   -                            1,143
DW Catalyst Fund                                   -                               513
Edinburgh Dragon Trust                                   -                            1,184
Foresight Solar Fund                                   -                               884
GCP Infrastructure Investments                                   -                            1,559
HICL Infrastructure                                   -                               811
iShares JP Morgan Emerging Market Local Govement Bond UCITS ETF                                   -                               534
North American Income Trust                                   -                              804
Rights & Issues Investment Trust                                   -                               528
Schroder UK Growth Fund                                   -                            1,174
SQN Asset Finance Income Fund                                   -                            1,005
Unite Group                                   -                            1,492
Investments with a market value below £500,000                              2,845                          3,425
                         113,325                        80,907
iShares Physical Gold ETC                              3,210                          2,167
Total investments                          313,871                      206,397
Cash                              9,435                        12,767
Total investment funds                          323,306                      219,164

The full portfolio listing of the Company as at 5 April 2019 is published on its website at

The Board’s Strategic Report has been approved by the Board and signed on its behalf by:

Graham Meek


28 May 2019


Each of the directors, whose names and functions are listed in the Annual Report, confirms that, to the best of their knowledge:

  * the financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standards applicable in the UK and the Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice) and applicable law, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

  * the Directors' Report, contained in the Annual Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Income Statement for the year ended 5 April 2019

Note Revenue Capital 2019
Revenue Capital 2018
£’000 £’000 £’000 £’000 £’000 £’000
Net gains/(losses) on investments 9 - 14,991 14,991 - (1,243) (1,243)
Exchange gains/(losses) - 10 10 - (187) (187)
Investment income 2 4,671 - 4,671 2,876 - 2,876
Gross return 4,671 15,001 19,672 2,876 (1,430) 1,446
Investment management fee 3 (568) (852) (1,420) (434) (652) (1,086)
Other expenses 4 (419) - (419) (419) - (419)
Net return before tax 3,684 14,149 17,833 2,023 (2,082) (59)
Tax (charge)/credit on net return 6 (292) 267 (25) (152) 140 (12)
Net return attributable to equity shareholders 3,392 14,416 17,808 1,871 (1,942) (71)
Net return per Ordinary Share 8 51.12p 217.28p 268.40p 37.04p (38.45p) (1.41p)

The total column of this statement represents the income statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance issued by the Association of Investment Companies.

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

There are no gains or losses other than those recognised in the income statement and therefore no statement of comprehensive income has been presented.

The following notes form an integral part of these financial statements.

Statement of Changes in Equity for the year ended 5 April 2019


Called-up share capital

Share premium account

Capital redemption reserve

Capital reserve*

Revenue reserve

Total equity shareholders’ funds
Balance at 6 April 2017 1,113 66,610 16 99,976 1,730 169,445
Net return attributable to equity shareholders and total comprehensive income for the year



New shares issued 328 50,779 - - - 51,107
Dividends paid 7 - - - - (927) (927)
Total transactions with owners recognised directly in equity




Balance at 5 April 2018 1,441 117,389 16 98,034 2,674 219,554
Balance at 6 April 2018 1,441 117,389 16 98,034 2,674 219,554
Net return attributable to equity shareholders and total comprehensive income for the year






New shares issued 531 85,654 - - - 86,185
Dividends paid 7 - - - - (1,619) (1,619)
Total transactions with owners recognised directly in equity






Balance at 5 April 2019 1,972 203,043 16 112,450 4,447 321,928

*The capital reserve balance at 5 April 2019 includes unrealised gains on fixed asset investment of £19,360,000 (5 April 2018 – gains of £10,819,000).

As at 5 April 2019 £93,090,000 (2018: £87,215,000) of the capital reserve is regarded as being available for distribution.

The following notes form an integral part of these financial statements.

Statement of Financial Position as at 5 April 2019




Fixed assets
 Investments held at fair value through profit or loss 9 313,871 206,397
 Current assets
Debtors                                                                                                                          10 2,901 1,036
Cash at bank and in hand 9,435 12,767
12,336 13,803
 Creditors: amounts falling due within one year                                                            11 (4,279) (646)
Net current assets 8,057 13,157
Total assets less current liabilities 321,928 219,554
Capital and reserves
Called-up share capital                                                                                                    12 1,972 1,441
Share premium account                                                                                                   203,043 117,389
Capital redemption reserve                                                                                              16 16
Capital reserve                                                                                                                112,450 98,034
Revenue reserve                                                                                                             4,447 2,674
Total equity shareholders’ funds                                                                                   321,928 219,554
Net asset value per Ordinary Share                                                                               13 4,082.0p 3,809.8p

The financial statements were approved by the Board on the 28 May 2019 and signed on its behalf by:

Graham Meek


The following notes form an integral part of these financial statements.

Cash Flow Statement for the year ended 5 April 2019

Net cash outflow from operations before dividends and interest          14 (1,652) (1,649)
 Dividends received
 Interest received
Net cash inflow from operating activities 2,936 1,204
 Payments to acquire investments
Receipts from sale of investments
Net cash outflow from investing activities (90,505) (47,468)
Equity dividends paid                          7 (1,619) (927)
Issue of Ordinary shares 85,856 50,837
Net cash inflow from financing activities 84,237 49,910
(Decrease)/increase in cash and cash equivalents (3,332) 3,646
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
(Decrease)/increase in cash and cash equivalents                                  (3,332) 3,646
Cash and cash equivalents consist of cash at bank and in hand 9,435 12,767
The following notes form an integral part of these financial statements.

Notes to the Financial Statements

1 Accounting policies

a)Basis of accounting

Capital Gearing Trust P.l.c. is a public company limited by shares, is incorporated and domiciled in Northern Ireland and carries on business as an investment trust.  Details of the registered office and company status can be found in the annual report and financial statements.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards “UK GAAP”) including Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (the “SORP”) issued by the Association of Investment Companies in November 2014 and updated in February 2018. All of the Company’s operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of Investments held at fair value through profit or loss.

The principal accounting policies are set out below. These policies have been applied consistently throughout the current and prior year.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

There are no critical accounting estimates or judgements.

b)Valuation of investments

The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with a documented investment strategy and information is provided internally on that basis to the Board. Accordingly, upon initial recognition the investments are designated by the Company as “held at fair value through profit or loss”. Investments are included initially at fair value which is taken to be their cost, including expenses incidental to purchase. Subsequently the investments are valued at fair value, which are quoted bid prices for investments traded in active markets. Where trading in the securities of an investee company is suspended, the investment is valued at the Board’s estimate of its net realisable value.

All purchases and sales are accounted for on a trade date basis.

c)Accounting for reserves

Gains and losses on sales of investments and management fee and finance costs allocated to capital and any other capital charges are included in the Income Statement and dealt with in the capital reserve. Increases and decreases in the valuation of investments held at the year end and foreign exchange gains and losses on cash balances held at the year end are also included in the Income Statement and dealt with in the capital reserve. The cost of repurchasing the Company’s own shares for cancellation including the related stamp duty and transaction costs is charged to the distributable element of the capital reserve. The costs relating to the issue of new Ordinary shares are charged to the share premium account.


In accordance with FRS 102 the final dividend is included in the financial statements in the year that it is approved by shareholders.


Dividends receivable on listed equity shares are recognised on the ex-dividend date as a revenue return, and the return on zero dividend preference shares is recognised as a capital return.

Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive payment is established.

Special dividends receivable have been taken to capital where relevant circumstances indicate that the dividends are capital in nature.

Income from fixed-interest securities is recognised as revenue on a time apportionment basis so as to reflect their effective yield.

Income from securities where the return is linked to an inflation index is recognised on a time apportionment basis so as to reflect their effective yield, including the anticipated inflationary increase in their redemption value. The element of the total effective yield that relates to the inflationary increase in their redemption value is considered to represent a capital return, and is included in the Income Statement as such in accordance with the SORP.


All expenses include, where applicable, value added tax (“VAT”). Expenses are charged through the revenue account except when expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The investment management fees have been allocated 60% (2018: 60%) to capital and 40% (2018: 40%) to revenue, in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

g)Other financial instruments

Other debtors and creditors do not carry any interest, are short-term in nature and initially recognised at fair value and then held at amortised cost, with debtors reduced by appropriate allowances for estimated irrecoverable amounts.

Cash at bank and in hand may comprise cash and demand deposits which are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value.


The charge for taxation is based on the net return for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the Statement of Financial Position date.

A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the Statement of Financial Position date. Deferred tax is measured on an undiscounted basis.

The tax effect of the allocation of expenditure between capital and revenue is reflected in the financial statements using the Company’s effective rate of tax for the year.

i)Foreign currency

The results and financial position of the Company are expressed in pounds sterling, which is the functional and presentational currency of the Company. The directors, having regard to the currency of the Company’s share capital and the predominant currency in which the Company operates, have determined the functional currency to be sterling.

Transactions denominated in foreign currencies are recorded in the functional currency at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end.

j)Capital reserve

The following are accounted for in this reserve:

  • gains and losses on the realisation of investments;
  • increases and decreases in the valuation of investments held at the year end;
  • realised exchange differences of a capital nature;
  • expenses (transaction and investment) and finance costs, together with the related taxation effect, charged to this reserve in accordance with the above policies; and
  • unrealised exchange differences of a capital nature.

k)Repurchases of shares into Treasury and subsequent reissues

The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis.  Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of “called-up share capital” and into “capital redemption reserve”.

The sales proceeds of Treasury shares reissued are treated as a realised profit up to the amount of the purchase price of those shares and is transferred to capital reserves.  The excess of the sales proceeds over the purchase price is transferred to “share premium”.

2 Investment income

Income from investments:
Interest from UK bonds 892 662
Income from UK equity and non-equity investments 1,846 1,281
Interest from overseas bonds 1,050 650
Income from overseas equity and non-equity investments 883 283
Total income 4,671 2,876


Total income comprises:
Dividends 2,729 1,564
Interest 1,942 1,312
4,671 2,876


Income from investments comprises:
Listed in the UK 2,738 1,943
Listed overseas 1,933 933
4,671 2,876


3 Investment management fee


2019 Total

2018 Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 568 852 1,420 434 652 1,086

The Company’s investment manager CG Asset Management Limited received an annual management fee equal to 0.60% of the net assets of the Company up to £120m, 0.45% on net assets above £120m, to £500m and 0.30% thereafter (2018: 0.60%, 0.45% and 0.30% respectively). At 5 April 2019 £407,000 (2018: £292,000) was payable. The percentage allocation of the investment management fee charged to capital and revenue is 60:40 as explained further in note 1(f).

4 Other expenses

Fees payable to Company auditors for the audit of Company financial statements 20 20
Directors’ remuneration (note 5) 99 121
Company secretarial, administration and accountancy services 142 138
Custody services 46 39
General expenses 112 101
419 419
The above expenses include irrecoverable VAT where appropriate.


5 Directors’ remuneration

The fees payable to the directors were as follows:
Mr E G Meek 30 30
Mr G A Prescott 25 25
Mr R A Archibald 22 22
Mr A R Laing - 22
Miss J G K Matterson 22 22
99 121
The Company made no pension contributions (2018: £nil) in respect of directors and no pension benefits are accruing to any director (2018: £nil).
Mr A R Laing no longer receives a fee from the Company, effective 6 April 2018. He received remuneration totalling £64,600 (2018: £58,020) from CG Asset Management Limited in respect of its services to the Company. CG Asset Management Limited does not recharge this remuneration to the Company.
Details of transactions with CG Asset Management Limited, of which Mr A R Laing is a director, are disclosed in note 3. There were no other transactions with directors during the year.


6 Tax (charge)/credit on net return
2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Current tax:
Corporation tax (292) 267 (25) (152) 140 (12)
Total current tax (charge)/credit for the year (292) 267 (25) (152) 140 (12)



The tax assessed for the year is lower (2018: higher) than the standard rate of corporation tax in the UK of 19% (2018: 19%). The differences are explained below:

2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return before tax 3,684 14,149 17,833 2,023 (2,082) (59)
Return at the standard rate of UK corporation tax 700 2,688 3,388 384 (396) (12)
UK franked dividends (433) - (433) (244) - (244)
Capital returns* - (2,850) (2,850) - 272 272
Utilisation of prior year management charges - (105) (105) - (16) (16)
Overseas withholding tax 25 - 25 12 - 12
Current tax charge/(credit) for the year 292 (267) 25 152 (140) 12

*The Company is an Investment Trust as defined by section 1158 of the Corporation Tax Act 2010 and capital gains are not subject to corporation tax within an Investment Trust.

No deferred tax liability has been recognised on unrealised gains on investments as it is anticipated that the Company will retain investment company status in the foreseeable future.

Potential deferred tax assets in respect of unrelieved management charges of £180,000 at 5 April 2019 (£286,000 at 5 April 2018) have not been recognised as the prospect for their recovery against future taxation liabilities is uncertain.

7 Dividends Paid

Ordinary shares
2018 dividend paid 20 July 2018 (27.0p per share (21.0p ordinary dividend and 6.0p special dividend)) 1,619 -
2017 dividend paid 21 July 2017 (20.0p per share) - 927

The directors have recommended to shareholders a final dividend of 35.0p per share (23.0p ordinary dividend and 12.0p special dividend) for the year ended 5 April 2019. If approved, this dividend will be paid to shareholders on 19 July 2019. This dividend is subject to approval by shareholders at the AGM and, therefore, in accordance with FRS 102, it has not been included as a liability in these financial statements. The total estimated dividend to be paid is £2,760,000 (based on the number of shares in issue at 5 April 2019).


Revenue available for distribution by way of dividend for the year 3,392 1,871
Proposed final dividend of 35.0p for the year ended 5 April 2019    (2,760) (1,619)
Revenue surplus/(deficit) for purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010*        632 252

* Undistributed revenue comprises approximately 13.5% (2018: 8.7%) of income from investments of £4,671,000 (2018: £2,876,000).

8 Net return per Ordinary share

The net return per Ordinary share of 268.40p (2018: (1.41)p) is based on the total net return after taxation for the financial year of £17,808,000 (2018: £(71,000)) and on 6,634,778 (2018: 5,050,988) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Revenue return per Ordinary share of 51.12p (2018: 37.04p) is based on the net revenue return after taxation of £3,392,000 (2018: £1,871,000) and on 6,634,778 (2018: 5,050,988) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Capital return per Ordinary share of 217.28p (2018: (38.45)p) is based on the net capital return for the financial year of £14,416,000 (2018: £(1,942,000)) and on 6,634,778 (2018: 5,050,988) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

The Company does not have dilutive securities. Therefore, the basic and diluted returns per share are the same.

 9 Investments held at fair value through profit or loss

Investments comprise –
Listed investment companies:
  Ordinary shares UK 36,384 32,199
  Ordinary shares Overseas 54,597 35,254
  Zero Dividend Preference Shares UK 16,296 16,046
Listed UK government bonds 60,825 27,207
Listed UK non-government bonds 31,770 19,896
Listed overseas government bonds 79,186 58,286
Listed overseas non-government bonds 9,259 1,888
Exchange traded funds 25,554 15,621
313,871 206,397
Cost of investments held at 6 April 195,578 138,832
Unrealised appreciation at 6 April 10,819 21,805
Fair value of investments held at 6 April 206,397 160,637
Additions at cost 208,300 139,591
Effective yield adjustment* (346) (238)
Sales – proceeds (115,471) (92,350)
          – net gains on sales 6,450 9,743
Movement in unrealised appreciation in the year 8,541 (10,986)
Fair value of investments held at 5 April 313,871 206,397
Book cost at 5 April 294,511 195,578
Unrealised appreciation at 5 April 19,360 10,819
313,871 206,397
Disposals – realised gains 6,450 9,743
Increase/(decrease) in unrealised appreciation 8,541 (10,986)
Net gains/(losses) on investments 14,991 (1,243)

The geographical spread of investment and the Company’s investment policy is shown above.

The total transaction costs on additions were £108,000 (2018: £88,000) and on sales £31,000 (2018: £28,000). These costs are included in the book cost of acquisitions and the net proceeds of sales.

*See Income section of Accounting Policies for a fuller description.

10  Debtors

Other debtors 1,921 386
Prepayments and accrued income 963 623
Taxation 17 27
2,901 1,036


11  Creditors: amounts falling due within one year

Other creditors 3,739 280
Accruals and deferred income 540 366
4,279 646


12 Called-up share capital

Allotted and fully paid
At the beginning of the year: 5,762,919 Ordinary shares (2018: 4,453,174) 1,441 1,113
Allotted during the year: 2,123,670 Ordinary shares (2018: 1,309,745) 531 328
At the end of the year: 7,886,589 Ordinary shares (2018: 5,762,919) 1,972 1,441
During the year to 5 April 2019 there were no Ordinary shares of 25p each repurchased by the Company (2018: nil).
No shares were purchased for cancellation during the year (2018: nil) and at the year end no shares were held in Treasury (2018: nil).
During the year to 5 April 2019 there were no Ordinary shares of 25p each re-issued by the Company (2018: nil).
During the year to 5 April 2019 there were 2,123,670 (2018: 1,309,745) new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £86,185,000 (2018: £51,107,000).


13  Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end, calculated in accordance with the articles of association, were as follows:
 Net asset value per Ordinary share attributable to 2019 2018
 Ordinary shares (basic) 4,082.0p 3,809.8p


 Net asset value attributable to


 Ordinary shares (basic) 321,928 219,554

Net asset value per Ordinary share is based on the net assets, as shown above, and on 7,886,589 (2018: 5,762,919) Ordinary shares, being the number of Ordinary shares in issue at the year end (excluding shares held in Treasury).

14 Reconciliation of net return before finance costs and taxation to net cash outflow from operations before dividends and interest


Net return before taxation 17,833 (59)
Less capital return before taxation (14,149) 2,082
Decrease/(increase) in prepayments 5 (3)
Increase in accruals and deferred income 176 72
Management fees charged to capital (852) (652)
Increase in overseas withholding tax (1) (12)
Increase in recoverable UK taxation (3) (14)
Dividends received (2,729) (1,564)
Interest received (1,942) (1,312)
Realised gains/(losses) on foreign currency transactions 10 (187)
Net cash outflow from operations before dividends and interest (1,652) (1,649)


15 Financial instruments
The Company has the following financial instruments:


Financial assets at fair value through profit or loss
-Investments held at fair value through profit or loss 313,871 206,397
Financial assets that are debt instruments measured at amortised cost
-Cash at bank and at hand 9,435 12,767
-Other debtors 1,921 386
-Accrued income 949 603
326,176 220,153


£’000 £’000
Financial liabilities measured at amortised cost
-Other creditors 3,724 268
-Accruals 540 366
4,264 634

The Company’s financial instruments comprise:

  • investment company ordinary shares, zero dividend preference shares, exchange traded funds and fixed and index-linked securities that are held in accordance with the Company’s investment objectives;
  • cash and liquid resources that arise directly from the Company’s operations; and
  • debtors and creditors.

The main risks arising from the Company’s financial instruments are market risk, interest rate risk, foreign currency risk and credit risk. The Board regularly reviews and monitors the management of these risks and they are summarised below.

Other debtors and creditors do not carry any interest and are short-term in nature and accordingly are stated at their nominal value.

Market risk

Market risk arises mainly from uncertainty about the future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

The Company invests in the shares of other investment companies. These companies may use borrowings or other means to gear their balance sheets which may result in returns that are more volatile than the markets in which they invest, and the market value of investment company shares may not reflect their underlying assets.

To mitigate these risks, the Board’s investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined financial, market and sector analysis, with the emphasis on long-term investments. An appropriate spread of investments is held in the portfolio in order to reduce both the systemic risk and the risk arising from factors specific to a country or sector. The investment manager actively monitors market prices throughout the year and reports to the Board, which meets regularly to consider investment strategy. A list of the investments held by the Company is shown above. All investments are stated at bid value, which in the directors’ opinion is equal to fair value.

Price risk sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per Ordinary share to an increase or decrease of 5% in market prices. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s investments at the Statement of Financial Position date with all other variables held constant.

2019 2019 2018 2018
increase in market prices £’000
decrease in market prices £’000
increase in market prices £’000
decrease in market prices £’000
Income Statement – net return after tax
Revenue return




Capital return 15,656 (15,656) 10,291 (10,291)
Total return after taxation 15,633 (15,633) 10,273 (10,273)
Net assets 15,633 (15,633) 10,273 (10,273)
Net asset value per Ordinary share 198.22p (198.22)p 178.26p (178.26)p

Interest rate risk

Bond and preference share yields, and as a consequence their prices, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Government’s fiscal position, short-term interest rates and international market comparisons. The investment manager takes all these factors into account when making any investment decisions as well as considering the financial standing of the potential investee company.

Returns from bonds and preference shares are fixed at the time of purchase, as the fixed coupon payments are known, as are the final redemption proceeds. This means that if a bond is held until its redemption date, the total return achieved is unaltered from its purchase date. However, over the life of a bond the market price at any given time will depend on the market environment at that time. Therefore, a bond sold before its redemption date is likely to have a price different from its purchase level and a profit or loss may be incurred.

Interest rate sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per Ordinary share to an increase or decrease of 1% in regard to the Company’s monetary financial assets and financial liabilities. The financial assets affected by interest rates are funds held by the custodian on deposit. There are no financial liabilities affected by interest rates. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s monetary financial instruments at the Statement of Financial Position date with all other variables held constant.

2019 2019 2018 2018
increase in market prices £’000
decrease in market prices £’000
increase in market prices £’000
decrease in market prices £’000
Income Statement – net return after tax
Revenue return




Total return after taxation 76 (76) 102 (102)
Net assets 76 (76) 102 (102)
Net asset value per Ordinary share 0.96p (0.96)p 1.77p (1.77)p

The interest rate profile of the Company’s assets at 5 April 2019 was as follows:

Total (as per Statement of Financial Position)

Floating rate

Index- linked

Other fixed

Assets/ (liabilities) on which no interest is paid

Weighted average interest rate
Weighted average period for which rate is fixed
£’000 £’000 £’000 £’000 £’000 % (years)
Investment trusts & other funds


UK index-linked government bonds




UK index-linked non-government bonds




UK government bonds


UK non-government bonds




Overseas index-linked government bonds




Overseas index-linked non-government bonds




Overseas non-government bonds




Invested funds 313,871 114,820 32,782 166,269
Cash at bank 9,435 9,435 -
Other debtors 2,901 2,901
Creditors (4,279) (4,279)
Total net assets 321,928 9,435 114,820 32,782 164,891

The interest rate profile of the Company’s assets at 5 April 2018 was as follows:

Total (as per Statement of Financial Position)

Floating rate

Index- linked

Other fixed

Assets/ (liabilities) on which no interest is paid

Weighted average interest rate
Weighted average period for which rate is fixed
£’000 £’000 £’000 £’000 £’000 % (years)
Investment trusts & other funds


UK index-linked government bonds




UK index-linked non-government bonds




UK government bonds


UK non-government bonds




Overseas index-linked government bonds




Overseas index-linked non-government bonds




Overseas non-government bonds




Invested funds 206,397 87,628 17,152 101,617
   Cash at bank 12,767 12,762 5
Other debtors 1,036 1,036
Creditors (646) (646)
Total net assets 219,554 12,762 87,628 17,152 102,012

Fair value of financial assets and liabilities

All financial assets and liabilities are either included in the Statement of Financial Position at fair value or at a reasonable approximation of fair value.

FRS 102 requires financial instruments to be categorised into a hierarchy consisting of the three levels below. Note that the criteria used to categorise investments include an amendment to paragraph 34.22 of FRS 102, issued by the Financial Reporting Council in March 2016.

Level 1:  valued using unadjusted quoted prices in active markets for identical assets.

Level 2:  valued using observable inputs other than quoted prices included within Level 1.

Level 3:  valued using inputs that are unobservable.

The Company’s assets that are measured at fair value through the Income Statement are investments in listed securities and are fair valued under level 1 of the fair value measurement hierarchy. The fair value of financial instruments traded in active markets is based on quoted market prices at the Statement of Financial Position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in level 1 of the fair value measurement hierarchy.

Foreign currency risk

The Company’s investments in foreign currency securities are subject to the risk of currency fluctuations. The investment manager monitors current and forward exchange rate movements in order to mitigate this risk. The Company’s investments denominated in foreign currencies are:

Accrued interest

Accrued interest
£’000 £’000 £’000 £’000
Euro 22,528 13,417
US Dollar 86,946 390 57,418 201
Swedish Krona 13,062 1 10,300 18
Australian Dollar 839 2 431 1
123,375 393 81,566 220

Foreign currency sensitivity

The following table illustrates the sensitivity of the net return after taxation for the year and the net assets and net asset value per Ordinary share to an increase or decrease of 10% in the rates of exchange of foreign currencies relative to sterling. This level of change is considered to be reasonably possible based on an observation of current market conditions. The sensitivity analysis is based on the Company’s foreign currency investments at the Statement of Financial Position date with all other variables held constant.

of Sterling
of Sterling
of Sterling
of Sterling
Income statement – net return after taxation



Revenue return
Capital return (12,338) 12,338 (8,157) 8,157
Total return after taxation (12,495) 12,495 (8,232) 8,232
Net assets (12,495) 12,495 (8,232) 8,232
Net asset value per Ordinary share (158.43)p 158.43p (142.84)p 142.84p

Liquidity risk

Liquidity risk is not considered to be significant as the Company has no bank loans or other borrowings and the majority of the Company’s assets are investments in quoted securities which are readily realisable. All liabilities are payable within three months.

Credit risk

In addition to interest rate risk, the Company’s investment in bonds, the majority of which are government bonds, is also exposed to credit risk which reflects the ability of a borrower to meet its obligations. Generally, the higher the quality of the issue, the lower the interest rate at which the issuer can borrow money. Issuers of a lower quality will tend to have to pay more to borrow money to compensate the lender for the extra risk taken. Investment transactions are carried out with a number of brokers whose standing is reviewed periodically by the investment manager. The investment manager assesses the risk associated with these investments by prior financial analysis of the issuing companies as part of his normal scrutiny of existing and prospective investments and reports regularly to the Board. Cash is held with a reputable bank with a high-quality external credit rating.

A further credit risk is the failure of a counterparty to a transaction to discharge its obligations under that transaction, which could result in a loss to the Company. The following table shows the maximum credit risk exposure.

Credit risk exposure

Compared to the Statement of Financial Position, the maximum credit risk exposure is:

Statement of Financial Position £’000
Maximum exposure
Statement of Financial Position £’000
Maximum exposure
Fixed assets – listed investments at fair value through profit and loss 313,871 181,040 206,397 107,811
Debtors – amounts due from custodian, dividends and interest receivable 2,870 2,870 989 989
Cash at bank 9,435 9,435 12,767 12,767
326,176 193,345 220,153 121,567

Capital management policies and procedures

The Company’s capital management objectives are:

  • to ensure that it will be able to continue as a going concern; and
  • to maximise the capital and income return to its equity.

The Company’s capital at 5 April 2019 of £321,928,000 (2018: £219,554,000) comprises its equity share capital and reserves.

The Board, with the assistance of the investment manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:

  • consideration of future use of gearing, which takes into account the investment manager’s views on the market;
  • the operation and impact of the discount and premium control policy; and
  • the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting year. The Company is subject to externally imposed capital requirements:

  • as a public company, the Company must have a minimum share capital of £50,000; and
  • in order to pay dividends out of profits available for distribution, the Company must meet the capital restriction test imposed on investment companies by company law.

16     Related party transactions

Related party transactions with Mr A R Laing, director of the Company, for the year ended 5 April 2019 are disclosed in notes 3 and 5. There were no other related party transactions.


The figures and financial information set out above are extracted from the Annual Report and Accounts for the year ended 5 April 2019, and do not constitute the statutory accounts for that year. The Company's Annual Report and Accounts for the year ended 5 April 2019 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2019 annual financial statements is unqualified and does not contain a statement under section 498 of the Companies Act 2006.

The 2018 figures and financial information are extracted from the published statutory accounts for the year ended 5 April 2018 and do not constitute the statutory accounts for that year. The 2018 Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Independent Auditors' Report which was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

Copies of the Company's Annual Report for the year ended 5 April 2019 will be posted to shareholders in June 2019. The Annual Report will be also be available on the Company's website and on request from the company secretary:

PATAC Limited
21 Walker Street
Telephone: +44 (0)131 538 1400
Email: [email protected]

Annual General Meeting ("AGM")

The Company's AGM will be held on Tuesday, 9 July 2019 at 11am at the offices of Smith & Williamson Investment Management Limited, 25 Moorgate, London EC2R 6AY.

Disclaimer: 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.

For queries, please contact:

PATAC Limited
Company Secretary
Tel: 0131 538 1400
Email:[email protected]

a d v e r t i s e m e n t