Annual Results

From:                  Capital Gearing Trust P.l.c

LEI:                     213800T2PJTPVF1UGW53

Date:                  24 May 2023

Annual Results for the year ended 31 March 2023

The Directors of Capital Gearing Trust P.l.c (“the Company”) announce the Company's results for the year ended 31 March 2023.

The following is an extract from the Company's Annual Report and Financial Statements for the year to 31 March 2023. The Annual Report is expected to be posted to shareholders later this month.  Members of the public may obtain copies from the registered office, Murray House, Murray Street, Belfast BT1 6DN or from its website: www.capitalgearingtrust.com. A copy will also shortly be available for inspection at the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Annual General Meeting (“AGM”) of the Company will be held at 11.30 a.m. on Wednesday 5 July 2023. The AGM will be held at the Numis Auditorium, 45 Gresham Street, London, EC2V 7BF.

Performance Summary

Total Return Performance (to 31 March 2023)

	1 Year	3 Years	5 Years	10 Years
Share Price	-7.1%	15.8%	26.9%	45.9%
NAV per Share	-3.6%	20.1%	31.6%	60.6%
MSCI UK Index	5.6%	51.0%	31.6%	72.8%
Retail Price Index	13.4%	25.5%	31.9%	47.6%
Consumer Price Index	10.1%	18.7%	22.8%	31.4%

Chairman’s Statement

The past year

This has been a difficult year for traded markets generally and for Capital Gearing Trust. It is only the second year in the last 41 years, when the Company has failed to achieve a positive return. At 31 March 2023, the net asset value (NAV) per share was 4,797.3p, representing a NAV total return over the year of -3.6%. The share price total return over the period was -7.1%, as the shares moved from a modest premium to a small discount to the NAV, ending the year at 4,730p.

Inflation, as measured by the UK Retail Price index (RPI), increased quickly after the start of the Ukraine conflict as rising energy prices and then labour costs took their toll. Central Bank base rates, which have been low for a long period, rose sharply to a current level of 4.50% in the UK and 5.25% in US and this unsettled markets accustomed to a low interest rate environment for more than a decade. RPI rose by 13.4% over the last year, and by comparison equity markets, as represented by the MSCI UK index, rose by 5.6%. Other measures, affecting parts of the portfolio, include the Sterling Bond index which fell over 15% and the FTSE Investment Trust index which fell by 10%. Against the US Dollar, sterling was extraordinarily volatile, initially falling from $1.31 at 31 March 2022 to $1.04 in September before rising steadily to end the year at $1.23. In essence, the Company has not been immune from extraordinary uncertainty affecting all corners of the market.

One of the key objectives of the Company is to preserve shareholders’ wealth by limiting the downside from the portfolio. In a year with a synchronised bond and equity bear market, the portfolio loss was restricted to 3.6%.

The Company’s secondary objective is to grow shareholders’ real wealth over time, and even after a disappointing year, the compound portfolio return over the last five years has been 5.7%, which is in line with inflation.

The Investment Managers have been proved right in their cautious approach over the last year, and have held a low percentage in risk assets, whilst retaining a high proportion in index-linked gilts and corporate bonds, as well as UK short-dated Treasuries. The corporate bond portion was successfully reduced before the latest banking crisis in the US and Europe.

Risk assets accounted for just 26% of the portfolio at 31 March 2023. Property investments were reduced as the year progressed, but rising interest rates and substantial discounts emerging across the property sector midway through the year, resulted in negative returns, which did little to help the Company’s performance. By contrast, the corporate bond portfolio made a positive contribution, which far exceeded bond market returns. Index-linked gilts also performed well. As the year progressed, the Investment Managers reduced US TIPS in favour of UK index-linked (I/L) gilts. At 31 March 2023, 21% of the portfolio was invested in UK I/L gilts with an average duration of 4 years, and 20% in US TIPS with a duration of 9½ years, reflecting the value that each represents.

Earnings and dividends

With increased bond exposure and higher interest rates, the income account has been strong this year. The revenue return per share, after tax and expenses, for the financial year was 70.67p, an increase of 24.4% on last year. The Company currently pays out one dividend per year, which is proposed as 60p per share. It will be payable on 10 July 2023 for those on the share register as at 2 June 2023, subject to approval at the forthcoming AGM.

The Company’s portfolio is not managed with any income criteria, or distribution level, in mind. What the Company receives in dividends and interest is the outcome of the application of the investment policy, and the distribution to shareholders is in line with meeting the income distribution test to maintain investment trust status. However, given the bond component of the portfolio and the significant increase in bond income being projected, the income may be higher again next year.

Performance comparison review

The Company does not have a formal benchmark, but over the years it has compared its performance over the medium to longer term against two principal measures, RPI and the MSCI UK index. Following some helpful comments from shareholders, the Board has commenced a review of these performance comparators. For example, RPI is increasingly being replaced by the Consumer Price Index (CPI) as a measure of inflation. Dependent on the outcome of that review, changes to the current performance comparators may be made during the coming year.

Costs

As the Company has grown, the Board is pleased to report that the running costs have reduced substantially as a percentage of the Company’s net asset value. The key measure of the overall costs is the ongoing charges ratio (OCR). This is reported in two ways. The OCR measured solely on the costs of running the Company has reduced from 0.52% last year to 0.46% this year. As disclosed in the Key Information Document (KID), when the management costs of the underlying funds into which the Company invests are also taken into account, the OCR has fallen from 0.78% last year to 0.64% this year.

Share issuance and buybacks

The discount control policy (DCP) continues to operate satisfactorily, and provides liquidity to both buyers and sellers in the market at around NAV. Issuing at a premium and buying back at a discount under the DCP more than compensates for its operational costs and is modestly accretive to NAV. Activity under the DCP added 0.5% to shareholder total returns over the last financial year.

Up to December 2022, the Company issued 5,688,288 shares raising some £288 million, but more recently the Company has bought back around 321,500 shares at a cost of £15 million, resulting in net issuance of 5,366,788, with a net value of £272 million for the year, after costs.

Board matters

We operate with a relatively small board with each experienced member closely engaged in oversight of the Company’s activities. In September 2022, we engaged an external advisory firm, Lintstock, to undertake an independent review of Board performance. The result of the review was very satisfactory but, as was already in train, the report drew attention to the need to plan for Board succession.

Robin Archibald, the current Audit Chairman and SID, will have served nine years on the Board in mid 2024. The Board have therefore sought to identify a candidate who would assume the role of Audit Chairman on Robin’s retirement and aims to manage this transition over the forthcoming year. Following a thorough recruitment search the Directors are pleased to announce that Ravi Anand has accepted the Board’s invitation to join the Board with effect from 1 August 2023.

We are fortunate to have identified Ravi who is a highly experienced corporate financier and qualified as a chartered accountant and has been involved in financial services and with investment companies for much of his career.

Following Ravi’s proposed appointment, the Board will have a complement of five Directors and will be in compliance with the recommendations of the Listing Rules and the Parker Review on diversity in the UK boardroom. It will also continue to be compliant with the FTSE Women Leaders Review.

Although I only stepped up to acting as Chairman in July 2020, I will also have completed nine years on the Board in 2024. Following discussion with my Board colleagues, and to avoid two long standing Directors departing at the same time, as well as achieving better board rotation, it has been agreed that I should remain on the Board for a further period of one or two years beyond 2024 to enable a further Board member to be recruited and an orderly handover to a new Chairman.

Annual General Meeting

The AGM will be held on Wednesday 5 July 2023 at 11.30am. The Managers will give a presentation at the AGM and we welcome all shareholders to attend in person. The AGM will be held at the Numis Auditorium, 45 Gresham Street, London EC2V 7BF. Further details on the arrangements for the AGM are provided in the Annual Report.

The Board firmly believes that all the resolutions being proposed are in the best interests of the Company and its shareholders and encourages shareholders to vote by proxy in favour of the resolutions, as the Board intends to do in respect of their own shareholdings. We would encourage shareholders to return their votes by electronic proxy, including by instructing their platform providers to vote on their behalf if their shares as held through platform nominees.

Outlook

There is a sense that the interest rate cycle is returning to normal, after more than a decade of virtually zero rates. The recent rise in rates has failed to quell inflation, which has led to large wage rise demands as people struggle to offset the increase in the cost of living. Our Investment Manager believes that the headline inflation rate will subside in the near term, assisted by anniversary effects. They believe however, that inflation will remain persistent as wage demands continue to build until the unemployment level rises materially.

The policy response from governments and central banks has been somewhat confused, with tighter policy affecting real incomes, but fiscal policy remaining stimulative. This makes economic growth difficult to predict and it is considered likely that there will be a recession at some point. As the stock of government debt continues to grow, public debt to GDP has fallen slightly, aided by the elevated levels of inflation that the economy has experienced over the past year.

Markets remain fragile and unpredictable. History suggests that, in times of low interest rates, the misallocation of capital becomes prevalent. It may take a while before this becomes apparent, but we welcome the return to a more rational interest rate environment. The recent demise of Silicon Valley Bank (SVB) has exposed bank’s tier one capital as being less robust after their assets are marked to market on the back of higher interest rates.

There is some value emerging in markets, but it is someway off a really attractive entry level. This being so, our Investment Manager remains cautious and is keen to steward shareholders’ funds wisely by retaining a defensive stance until the outlook becomes clearer, and value is noticeably more attractive. They have navigated their way through difficult markets before now and the Board has confidence that they can do so again. The Board is also keen to see the Company revert to achieving positive returns for shareholders, even if these are unlikely to offset the higher levels of inflation in the near term. There will be a time, hopefully in the not too distant future, when we can send a more optimistic message.

Jean Matterson

Chairman

Investment Manager’s Report

Review

Your Company delivered a NAV total return of -3.6% for the year, the worst result in the 41 years since we began managing it and only the second time that the Company has had a negative return. Clearly it has been a disappointing period.

The year was characterised by surging inflation and surging interest rates. The inflation was the all too predictable result of monetary and fiscal authorities’ response to the Covid pandemic: huge expansion of the monetary supply and large scale fiscal support (in particular, direct transfers to consumers). These actions to stimulate demand were set against constrained supply of goods and services, due to disrupted supply chains and a service economy that had been put into suspended animation for the duration of the pandemic. This inflationary dynamic was made very much worse by Russia’s invasion of Ukraine.

It is hard to overstate the significance of the change in interest rates. No part of our portfolio was untouched. At the start of the year the Company’s UK treasury bill portfolio yielded 0.5%, at the end it was 4.2%. Similarly, the credit portfolio rose in yield from 2.3% to 6.2% and the US TIPS portfolio from -0.9% to 1.4%. Rising yields means falling prices and this created a headwind for the portfolio. In that context it was satisfying that the bond portfolio delivered positive returns during the year especially when compared, as the Chairman notes in her report, to the returns from the sterling aggregate bond index of -15%. We believe that central banks are close to the end of the rate hiking cycle and so what has been a headwind to performance will become, at a minimum, neutral and perhaps an outright tailwind. In the meantime, the portfolio enjoys much higher running yields.

The repricing of government bonds was most dramatic in the UK, culminating in the debacle of the brief Truss/ Kwarteng administration. As better values emerged we doubled the exposure to UK index-linked gilts, increasing the overall exposure to index-linked bonds from 35% at the start of the year to 46% at the end.

Ironically, it has been outside our bond holdings that the effect of the change in interest rates has been most acute. In recent years, confronted with a sterling government bond market which we judged uninvestable, we replaced it with a modest allocation to alternatives (property, infrastructure, etc.) judging that their high spreads to government bonds, combined with the index-linked nature of their cashflows, would deliver satisfactory returns even in a rising rate environment. We got this wrong. Indeed losses from our property holdings were responsible for the entire loss the Company experienced in the year. In response, the Company’s weighting to property was reduced from 16.5% to 4% by year end. We judge the prospective returns from the remaining holdings to be excellent, if volatile.

Outside of alternatives, our equities performed well returning 6% over the year with particularly strong performances from our overweights to the UK (15% return), Japan (6%) and Energy stocks (10%). Our allocation to renewable infrastructure was helpful, returning 7% over the year, and would have been higher were it not for the UK government’s capricious and misguided windfall tax.

Currency movements in the year were generally favourable with Sterling depreciating against the Euro and US Dollar. During the brief Truss administration, Sterling fell precipitously and we took the opportunity to sell Dollars. With hindsight we should have sold more. Over the course of the year, we increased the Company’s exposure to the Japanese Yen to around 9% across equities, Japanese index-linked bonds and treasury bills. The Yen is extraordinarily cheap compared to the US Dollar and could prove to be a valuable safe haven. In light of Sterling’s depreciation the overall exposure to overseas currencies reduced slightly during the year to around 48%.

Outlook

The last 15 years have been characterised by low inflation and weak aggregate demand. This environment favoured speculation over investment and financial engineering over productivity improvements. The result has been depressingly familiar: a gross misallocation of capital, economic sclerosis, rising inequality and rising economic fragility. The central bank response – ever more extreme monetary policy – was iatrogenic. It didn’t fix the demand problem and contributed to the speculation and misallocation of capital.

The future is unknowable and any forecast we make can only be one of a wide possibility of outcomes. But, it seems that this era is ending and a new era is upon us. Of course, it is possible that – after a recession – inflation and growth will fall back to their post-GFC trends and central banks revert to their recent playbooks. The balance of probability suggests otherwise. The economic forces that defined the last 15 years are waning and new forces are rising.

The deflationary impulse from China is receding as wages begin to approach Western levels and, for the first time, Chinese consumption growth exceeds fixed capital formation. Globalisation is in retreat and protectionism on the rise.

War¹ is the ultimate inflationary force. Defence spending is an economic potlatch. In peace it is merely economically unproductive, in war it brings about destruction of capital, to say nothing of death and human misery. Further resources must be diverted to replace the capital that war destroys. Trade is disrupted, sanctions imposed and, when trade resumes, it flows along political not economic lines – by definition at greater cost.

Tackling climate change is inflationary. The explicit aim of divestment is to drive up the cost of fossil fuels by increasing the cost of capital of producers and reducing exploration expenditure. Carbon taxes will add further to their cost. The switch from an energy system based predominantly on hydrocarbons to electricity will be hugely expensive requiring investment not just in renewable energy sources, but upgrades to grid infrastructure and technologies to mitigate intermittency.

Finally it appears that the relationship between capital and labour, and governments and labour, is shifting. In recent years it was commonly held that wage spirals could not occur because of the lack of unionisation. The relationship is probably the other way round: unionisation is a response to inflation, not its primary cause.

Monetary policy is grappling with these macrotrends as well as central banks’ own mis-steps during the pandemic: money creation on a truly unprecedented scale. In addition, rising rates have led to, or brought into focus, financial fragility: mark to market losses on bank balance sheets; consumers refinancing large mortgages and highly leveraged businesses rolling their debts at much higher rates.

What makes central banks’ jobs even harder is the largess of fiscal authorities even as monetary authorities attempt austerity. The US is the most extreme example: unemployment is at generational lows, inflation is proving persistent and yet the forecast budget deficit this year is 5.3% of GDP. Monetary policy works best when fiscal policy is working with, not against, it. To compensate, monetary policy has to work harder than would otherwise be the case. This increases the likelihood that it will be the financial system that breaks before the economy does. We have already seen several examples in the financial sphere: LDI Pensions, FTX, Silicon Valley Bank and Credit Suisse. It seems unlikely that these will be the last shoes to drop.

Even if we are wrong, and a financial crisis is averted, it seems likely that a recession is on the horizon. One consequence of ructions in the banking market is that credit standards have tightened dramatically, consistent with levels that historically have presaged recession and, with inflation remaining sticky, inflation hawks in central banks on both sides of the Atlantic are in the ascendancy. Global equity markets do not share our analysis and have rallied 8.5% year to date. We are taking the opportunity to reduce our exposure to risk assets and take shelter in treasury bills. Our exposure to index-linked bonds is at record levels. While we sit on the side-lines of equity markets, we take great comfort from the fact that, for the first time in 15 years, we are being paid to wait.

Peter Spiller    Alastair Laing    Christopher Clothier

¹ What follows is a purely economic description of war. It is not intended in anyway to trivialize the horror and suffering arising from Russia’s invasion of Ukraine.

Principal Risks and Risk Management

The world has been subject to the most extraordinary challenges since 2020. It is impossible to quantify the extent of damage that may be wrought over the longer term and the emerging risks that will be faced for the Company, not least the economic impact. Ever since the emergence of covid in early 2020, the Company has been subject to significant headwinds, such as substantial market movements, inflationary pressures and increasing interest rates. All of which make preserving shareholders’ real wealth, far less growing it, challenging.   The central aims remain to preserve value in the Company’s portfolio and liquidity in the Company’s shares.

The Directors try to ensure that the Company maintains its investment strategy, has operational resilience, meets its regulatory requirements as an investment trust and navigates the financial and economic circumstances in these uncertain times.

The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties facing the Company, together with the mitigating actions the Board take, are set out in the table below.

The Company faces heightened risks of rising inflation and geopolitical risks of events such as the invasion of Ukraine.  It is difficult to assess how these exogenous risks will impact on the Company, but they do introduce caution on returns that might be achieved in the future with inflationary impact on equity and bond returns and the risk of market shocks caused by geopolitical risk.  The Investment Manager continues to apply protective measures in constructing the portfolio but is also aware that an ‘oversold market’ can present opportunities as well and it retains liquidity in the portfolio to exploit this if it can.

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. There is increasing awareness of the challenges and emerging risks posed by climate change. The investment process considers ESG factors, as set out in the Strategic Review. Overall the specific potential effects of climate change are difficult, if not impossible, to predict and the Board and Investment Manager will continue to monitor developments in this area. Geopolitical risks have always been part of the investment process. The risk has heightened as a result of the Russian invasion of Ukraine, with the resultant effects on global trade posed by supply issues, higher levels of inflation, rising interest rates, and volatility in stockmarkets. Inflation and rising interest rates have had and will continue to have a significant impact on the Company and its investment portfolio.	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 and allows the monitoring of the spread of investments and associated investment risks. The Investment Manager’s approach to ESG is set out in the Annual Report. The Company has limited direct impact on the environment as it invests primarily in government bonds and closed ended and other collective investment vehicles. 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, shares 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 aim to 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 and/or supply for the Company’s shares which, the Board believes, is in the best interests of shareholders. The DCP continues to be reviewed to ensure liquidity for issuance and buyback. 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 Investment 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. During the past year, there has been significant share issuance, however in the latter part of the year the Company has bought back shares. 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.

Operational The Company is reliant on third-party service providers including CGAM as Investment Manager, Juniper Partners as Company Secretary and administrator and Northern Trust as custodian and key teams at such service providers. 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 and Risk Committee formally reviews each service provider at least annually, considering their reports on internal controls, information security, and the resources available to them. The Management Engagement Committee reviews the service levels and how the service providers have performed. The operational requirements of the Company from its service providers are subject to rigorous testing including the use of office/home working and online communication. Additionally, the Investment Manager’s and Administrator’s technology environments are continually maintained and subject to regular testing, vulnerability scans and patch management. To date the operational arrangements have proven robust. Further details of the Company’s internal control and risk management system is provided in the Annual Report.
Regulatory and governance The Company operates in a regulatory environment. Failure to comply with section 1158 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 Investment Manager who report regularly to the Board. The Board also takes into account increasing governance requirements and complies with them wherever practical or explains why there is any divergence. The Board monitors changes in the regulatory environment and receives regulatory updates from the Investment Manager, Company Secretary, lawyers and auditors as relevant. The Board is appraised of corporate governance issues and changes and as far as practical the Company complies with governance guidance or explains where it does not and meets the guidance of the AIC Code.
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 14 to the financial statements in the Annual Report. Inflation, and geopolitical risks, are considered a component of market risk, with the impact of inflation and interest rates and events in Ukraine taken into account. The Company has sufficient cash resources and liquidity in its portfolio to meet its operating requirements, including the operation of DCP. In common with most commercial operations, there are always exogenous risks and consequences, which are difficult to predict and plan for in advance. The Company does what it can to address these risks when they emerge, not least operationally and in trying to meet its investment objective.

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

Each of the Directors, whose names and functions are listed in the Governance Report, confirms that, to the best of his or her knowledge:

• the Company’s Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102, and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

• the Board’s Strategic 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; and

• the Annual Report, taken as a whole, is fair, balanced and understandable and provides information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Going Concern

The Company’s investment objective and business activities, together with the main 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 contained in the Annual Report. The Board works closely with the Investment Manager and the Company Secretary to ensure that the Company’s operations are resilient, and its portfolio robust enough to meet challenges and opportunities. The Directors believe that the Company is well placed to manage its business risks successfully and consider that the Company currently has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence, including meeting the provisions of the DCP. 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 twelve months from the date of approval of these financial statements.

For further information contact:

CG Asset Management Limited

Investment Manager

Tel:  [phone]

Juniper Partners Limited

Company Secretary

Tel:  [phone]

The Income Statement, Statement of Changes in Equity, Statement of Financial Position, and Cash Flow Statement follow.

Income Statement

for the year ended 31 March 2023

	Year ended 31 March 2023			Period ended 31 March 2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Net (losses)/gains on investments	-	(68,449)	(68,449)	-	57,875	57,875
Net currency (losses)/ gains	-	(547)	(547)	-	530	530
Investment income	24,846	-	24,846	14,677	-	14,677
Other income	93	-	93	-	-	-
Gross return	24,939	(68,996)	(44,057)	14,677	58,405	73,082
Investment management fee	(4,620)	-	(4,620)	(3,627)	-	(3,627)
Other expenses	(974)	-	(974)	(727)	-	(727)
Net return before tax	19,345	(68,996)	(49,651)	10,323	58,405	68,728
Tax charge on net return	(1,739)	-	(1,739)	(510)	-	(510)
Net return attributable to equity shareholders	17,606	(68,996)	(51,390)	9,813	58,405	68,218
Net return per Ordinary share	70.67p	(276.96)p	(206.29)p	56.81p	338.14p	394.95p

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 31 March 2023

	Called-up share capital £’000	Share premium account £’000	Capital redemption reserve £’000	Realised Capital reserve* £’000	Unrealised Capital reserve* £’000	Revenue reserve* £’000	Total equity shareholders’ funds £’000
Opening balance at 6 April 2021	3,453	463,437	16	120,242	38,136	8,762	634,046
Net return attributable to equity shareholders and total comprehensive income for the period	-	-	-	39,319	19,086	9,813	68,218
New shares issued	1,770	352,572	-	-	-	-	354,342
Dividends paid	-	-	-	-	-	(6,771)	(6,771)
Total transactions with owners recognised directly in equity	1,770	352,572	-	-	-	(6,771)	347,571
Closing balance at 31 March 2022	5,223	816,009	16	159,561	57,222	11,804	1,049,835
Opening balance at 1 April 2022	5,223	816,009	16	159,561	57,222	11,804	1,049,835
Net return attributable to equity shareholders and total comprehensive income for the year	-	-	-	(3,801)	(65,195)	17,606	(51,390)
New shares issued	1,422	285,744	-	-	-	-	287,166
Shares bought back	-	-	-	(15,334)	-	-	(15,334)
Dividends paid	-	-	-	-	-	(10,558)	(10,558)
Total transactions with owners recognised directly in equity	1,422	285,744	-	(15,334)	-	(10,558)	261,274
Closing balance at 31 March 2023	6,645	1,101,753	16	140,426	(7,973)	18,852	1,259,719

*These reserves are available for distribution (except for Level 3 investments detailed in Note 4).

Statement of Financial Position

as at 31 March 2023

	31 March 2023 £’000	31 March     2022 £’000
Fixed assets
Investments held at fair value through profit or loss	1,251,801	991,893
Current assets
Debtors	7,892	15,386
Cash at bank and in hand	13,766	50,611
	21,658	65,997
Creditors: amounts falling due within one year	(13,740)	(8,055)
Net current assets	7,918	57,942
Total assets less current liabilities	1,259,719	1,049,835
Capital and reserves
Called-up share capital	6,645	5,223
Share premium account	1,101,753	816,009
Capital redemption reserve	16	16
Capital reserve	132,453	216,783
Revenue reserve	18,852	11,804
Total equity shareholders’ funds	1,259,719	1,049,835
Net asset value per Ordinary share	4,797.3p	5,025.1p

The financial statements were approved by the Board on 23 May 2023 and signed on its behalf by:

Jean Matterson

Chairman

Cash Flow Statement

for the year ended 31 March 2023

	Year ended 31 March 2023 £’000	Period ended 31 March 2022 £’000
Net cash inflow from operating activities	16,499	9,759
Payments to acquire investments Receipts from sale of investments	(1,037,482) 713,875	(833,682) 496,426
Net cash outflow from investing activities	(323,607)	(337,256)
Equity dividends paid	(10,558)	(6,771)
Repurchase of Ordinary shares	(15,315)	-
Proceeds from the issue of Ordinary shares	297,172	348,313
Cost of share issues	(1,036)	(676)
Net cash inflow from financing activities	270,263	340,866
(Decrease)/increase in cash and cash equivalents	(36,845)	13,369
Cash and cash equivalents at start of period	50,611	37,242
Cash and cash equivalents at end of period	13,766	50,611

Notes:

1. Capital Gearing Trust P.l.c. is a public company limited by shares, incorporated and domiciled in Northern Ireland, and carries on business as an investment trust.  Details of the Company’s registered office can be found in the Annual Report.

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 2022. 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.

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.

The current reporting year is for the twelve months ended 31 March 2023; the comparative information is for the period 6 April 2021 to 31 March 2022.

2. Investment income

	Year to 31  March 2023 £’000	Period to 31  March 2022 £’000
Income from investments:
Interest from UK bonds	6,049	1,584
Income from UK equity and non-equity investments	11,057	8,163
Interest from overseas bonds	4,973	2,083
Income from overseas equity and non-equity investments	2,767	2,847
Total income	24,846	14,677
	Year to 31 March 2023    £’000	Period to 31 March 2022    £’000
Total income comprises:
Dividends	10,731	7,868
Property Income and Interest Distributions	3,022	3,142
Interest	11,093	3,667
Deposit interest	81	-
Other income	12	-
	24,939	14,677
	Year to 31 March 2023    £’000	Period to 31 March 2022    £’000
Income from investments comprises:
Listed in the UK	17,106	9,747
Listed overseas	7,740	4,930
	24,846	14,677

3. During the year to 31 March 2023, the Company issued 5,688,288 (2022: 7,078,862) new Ordinary shares for cash proceeds totalling £287,166,000 (2022: £354,342,000). No Ordinary shares (2022: nil) were re-issued from treasury by the Company.

During the year to 31 March 2023, 321,500 (2022: nil) Ordinary shares were repurchased by the Company for a total cost of £15,334,000 (2022: nil). No shares were purchased for cancellation during the year (2022: nil) and at the year-end 321,500 shares were held in treasury (2022: nil).

4. The Company’s assets are measured at fair value through profit or loss. 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.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets and liabilities are described below.

The levels are determined by the lowest (that is, the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

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; and

Level 3 - valued using inputs that are unobservable and are valued by the Directors using International Private Equity and Venture Capital Valuation (‘IPEV’) guidelines, such as earnings multiples, recent transactions and net assets, which equate to their fair values.

As at 31 March 2023, £1,251,177,000 (2022: £988,276,000) of the Company’s investments were classified as Level 1, with no investments (2022: £2,842,000) classified as Level 2, and with £624,000 (2022: £775,000) classified as Level 3. During the year to 31 March 2023, two assets (Jupiter Emerging and Frontier Income Trust and Fundsmith Emerging Equities Trust) were moved from Level 1 to Level 3 as they delisted. During the period to 31 March 2022, two assets (Gabelli Value Plus Investment Trust and Weiss Korea Opportunities Fund (Realisation Shares)) were moved from Level 1 to Level 3 as they delisted.

The above provides an analysis of financial assets and financial liabilities based on the fair value hierarchy. Short term balances are excluded as their carrying value at the reporting date approximates to their fair value.

5.Reconciliation of net return on ordinary activities before tax to net cash inflow from operating activities

	Year to 31 March 2023 £’000	Period to 31 March 2022 ’000
Net return on ordinary activities before tax	(49,651)	68,728
Adjustments for:
Capital return before tax	68,996	(58,405)
Increase in prepayments	(5)	(32)
Increase in accruals and deferred income	39	349
Overseas withholding tax paid	(115)	(44)
Increase in recoverable tax	(10)	(3)
UK Corporation tax paid	(874)	(596)
Decrease/(increase) in dividend receivable	186	(228)
Increase in accrued interest	(1,520)	(540)
(Losses)/gains on foreign currency transactions	(547)	530
Net cash inflow from operating activities	16,499	9,759

6. With the exception of the management fee (as disclosed in the Annual Report), and the Directors’ fees and shareholdings (as disclosed in the Directors Remuneration Report contained in the Annual Report), there have been no related party transactions in the year ended 31 March 2023.

7, These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 31 March 2023 will be sent to shareholders shortly.

The audited accounts for the year ended 31 March 2023 will be lodged with the Registrar of Companies.