Final Results

CAPITAL GEARING TRUST P.l.c.

LEI: 213800T2PJTPVF1UGW53

31 May 2018

Annual Financial Results for the year ended 5 April 2018

The directors of Capital Gearing Trust P.l.c. announce the results for the year ended 5 April 2018.

Performance Summary	5 April 2018	5 April 2017	% Change
Share price	3,910.0p	3,870.5p	+1.0
Net asset value per ordinary share	3,809.8p	3,805.0p	+0.1
Premium	2.6%	1.7%	+0.9
Shareholders’ funds	£219.6m	£169.5m	+29.6
Market capitalisation	£225.3m	£172.4m	+30.7
Shares in issue	5,762,919	4,453,174	+29.4
Ongoing charges percentage*	0.77%	0.89%	-13.5
Dividend per Ordinary share	21.00p	20.00p	+5.0
Special dividend per Ordinary share	6.00p	-

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

CHAIRMAN’S STATEMENT

Overview

As at 5 April 2018, the net asset value (NAV) per share was 3,809.8p, as compared to 3,805.0p a year earlier. The past year has been one of marking time for the Trust, which is disappointing, even when taken against rather lack-lustre markets. The MSCI UK Index rose by 1.8% over the same period, whilst the UK Retail Price Index was 3.3% higher. For only the second year since 1982 the growth in the Company’s NAV per share failed to match inflation. In the short-term we did not manage to preserve shareholders’ wealth.

The weakness in the sterling / dollar exchange rate which had benefitted results in 2016/2017 reversed markedly in the past financial year as the dollar fell back before recovering in the latter weeks of the period. This provided a significant headwind to achieving any capital growth in the portfolio. The sterling value of our US inflation linked holdings was most notably impacted. Amongst our risk assets, the performance in real estate holdings was the stand-out positive feature. Finding any significant discount opportunities in the mainstream investment trust market was a challenge.

Dividend and Earnings

The revenue return per share in the year ended 5 April 2018 was 37.04p, as against 18.26p in the previous year. This is in part due to the replacement of maturing zero coupon preference shares, once a key part of the overall portfolio, by income producing short-dated corporate bonds. As has been stated before, the objective of the Trust is to seek an absolute positive total return. Securing a particular income target is not an investment objective. Therefore in some years (such as 2016/2017 and 2015/2016) net income per share might well be insufficient to cover the declared dividend. This year the reverse is true. Net income after expenses is abnormally high.

In a normal year, the Board would be recommending a modest increase in the annual dividend from 20p to 21p per Ordinary share in part reflecting the further fall in the ongoing charges ratio to 0.77%. However, under the retention test to qualify for investment trust status the Company can only retain 15% of revenue. To preserve this status, the Board is therefore recommending an additional special dividend of 6p per share, making a total payout of 27p per share (20p last year).  Investors should note that, as when in the past a special dividend has been similarly declared, this does not imply a repeat of any such extra payment in succeeding years.

Annual General Meeting

This year, the AGM will be held in London at the Moorgate offices of Smith & Williamson on Friday, 6 July at 11:00 a.m. The notice convening the fifty-fifth AGM of the Company is set out in the Annual Report. I and the other members of the Board look forward to meeting shareholders then. After the formal business of the meeting has been concluded, our Investment Managers will be making a short presentation on the outlook for markets and the Company’s investments. There will be the opportunity for shareholders to ask questions.

Share Issuance and Buybacks

The Company’s discount control policy (“DCP”) has now been in operation for nearly three years.

The Board believes that the continued implementation of the DCP remains in the best interests of shareholders. Since its inception in August 2015, the DCP has seen almost unbroken issuance of new shares at a small premium to NAV, allowing the shares to trade at par or a small premium to NAV throughout this period. This has enhanced liquidity in the Company’s shares, enabled new groups of investors to become shareholders, and has had a significant beneficial effect on reducing the ongoing charges ratio, which has fallen from 0.96% in the last full financial year before the DCP was introduced to 0.77% now.  By issuing at a modest premium (or buying back at a modest discount), the DCP not only covers the costs of its operation but contributes incrementally to the asset value performance of the Company, as it has done this year to the extent of £0.75 million or 13.25p per share (based on the shares in issue at 5 April 2018).

Some years before the introduction of the DCP, when the Company was significantly smaller, the shares were quoted from time to time at substantial premia to the net asset value.  Whilst this potentially benefited sellers, if they could have sold into these premia in any size, it created the risk of substantial pricing volatility, as well as potentially discouraging new investors.  Accordingly, the Board remains of the view that the DCP is in the best interests of all shareholders, removing uncertainty of pricing around net asset value for buyers and sellers alike. 

The Board believes that should shareholders seek to realise their investment in the Company that the DCP will operate as smoothly in buying back shares at a price close to NAV as it has in share issuance over the past three years. The structure of the portfolio must recognise the need for a degree of underlying ready liquidity to facilitate net buybacks, if and when these appear. The operation of the DCP does impose some constraints on asset allocation. For example, to have a portfolio consisting entirely of investment trust assets would be imprudent, given the underlying illiquidity in many trust shares but there is sufficient liquidity in the bond part of the portfolio to manage this with confidence, should it arise.

During the past year the shares in issue have increased by 29.4% to 5.763m, almost double the issued share capital prior to the introduction of the DCP.

The Board continues to monitor the operation of the DCP closely, as well as the growth in the Company’s size to try and ensure that the Company can continue to fulfil its objective and investment policies to the benefit of the Company’s shareholders.

Costs

One of the Board’s key responsibilities is to monitor and control the costs of running your Company. As already noted, the ongoing charges ratio continues to decline, from 0.89% to 0.77% in the past twelve months. The tapering of the investment management fee from 0.6% to 0.45% on incremental net assets above £120m and below £500m is largely responsible for this. The “fixed” costs of running the Company have grown modestly from £0.395m to £0.419m. Included in this increase was a revision to directors’ remuneration, the first increase since 2012.

Outlook

Twelve months ago we cautioned of a difficult year ahead for securing positive investment returns. “For the twelve months ahead it may be that merely preserving the gains of previous years will be viewed as success”. It is hard to be any more upbeat at present. 10 year interest rates are edging higher in the USA and monetary accommodation seems poised to give way to retrenchment - rarely good for equity or fixed interest markets. The erratic progress of the Brexit negotiations and a stuttering domestic economy overshadow London financial markets.

The Board believes that shareholders look to the Company to preserve the real value of their wealth in the medium term. Wealth preservation remains both the aim and the challenge in the year ahead. Nonetheless there remains the medium to longer term potential for higher returns when the valuation of risk assets returns to more attractive levels.

Graham Meek

Chairman

31 May 2018

INVESTMENT OBJECTIVES AND INVESTMENT POLICY

INVESTMENT OBJECTIVES

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

INVESTMENT POLICY

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.

STRATEGIC REPORT

Investment strategy and business model

Capital Gearing Trust P.l.c. seeks to deliver absolute 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 1.7% compared with 2.6% 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 and help in meeting the dividend payment objective. This percentage was 0.77% for the year to 5 April 2018 (2017: 0.89%).

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.

Premium/Discount level

The Company operates a zero discount/premium management policy to assist in reducing premium volatility.  Under this policy the Company will purchase or issue shares to ensure, in normal market conditions, that the shares trade close to their underlying Net Asset Value per share.

Stock price

Uncertainty of future stock prices presents a risk in relation to potential losses on market positions held. The Board, with the investment manager, consider asset allocation on a regular basis to minimise potential risks where possible.

Other risks

Risks associated with the Company's financial instruments include market price, interest rate, foreign currency and credit; information relating to such risks is given in note 15 to the financial statements. The Board also recognises a number of risks associated with operating in a regulatory environment and monitors operations closely in conjunction with their advisors in relation to sections 1158 to 1162 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Act 2006. Other risks are identified and managed by the Company's internal control and risk management system.

Employee, human rights, social and environmental matters

The Board recognises the requirement under section 414C 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 Company 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. Our Company is specialised and our 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.

INVESTMENT MANAGER'S REPORT

Review

In share price terms, 2018 was a year of treading water for the Company, after the surprisingly strong gains achieved in 2017. With developed market equities broadly flat (in sterling terms), bond yields rising, and sterling bouncing back strongly from the post Brexit lows, there were few opportunities to make exciting gains. At least the Company delivered a small positive NAV total return during a year when the portfolio experienced a number of headwinds and no strong tailwinds.

The Company’s risk assets (equity, property and alternatives) performed strongly, ahead of both the MSCI UK All Share and MSCI All World index in sterling terms. The real estate holdings were particularly strong, with the fund’s substantial holdings of German residential property funds delivering in excess of 25% returns. Some of the specialist UK property holdings, including Segro plc and Unite Group plc, were extremely strong during the year returning around 30% in each case. There was one notable disappointment in our property portfolio in the Ground Rents Income Fund plc (“GRIO”), which fell around 15% due to the announcement of a government investigation into the ground rents market. In our assessment there is no overlap in GRIO’s portfolio and the parts of the market under scrutiny, as a result we increased our holding at lower levels.

The conventional investment trusts and other collective funds also performed well, helped by the concentration in funds holding UK small capitalisation stocks and good exposure to the Japanese equity market. Sadly, with many conventional investment trusts standing on extremely narrow discounts, the value opportunities within this market remain very limited. Discounts are a double edged sword, capable of widening sharply in equity bear markets as well as narrowing in bull markets. We remain mindful of these risks and of the illiquidity of investment trusts in general. In the short term, where we have had maturing equity investments, we have tended to reinvest the proceeds into liquid low fee collectives such as ETFs. We are confident that value opportunities will re-emerge in the future and are seeking to minimise exposure to discount risk until that time.

Unfortunately the strong performance of the equity portfolio was offset by weakness in the US inflation linked bond portfolio (TIPS). Real yields rose modestly during the period, however it was the dollar weakness relative to sterling that really impacted returns. This partly reflected a rebound in sterling post the Brexit vote, which was unsurprising given the depressed level a year ago. However the extent of the movement has confounded many observers, and we would count ourselves amongst them. Whilst short term currency returns are volatile, this volatility plays an important role in overall portfolio diversification and risk reduction. TIPS remain by far the most attractive investment in the global government bond market, in our opinion. In the long term all that matters in investing is value, and the value available in TIPS looks attractive.

Outlook

2018 marked the 150^th anniversary of the first investment trust launch.  In 1868 the idea of establishing a company, whose sole objective was to purchase a diversified pool of financial assets, was a cutting edge development. It pioneered an industry that has served investors well; performance of closed-ended funds has been notably better than that of open-ended funds, over almost any meaningful time period. 

Interestingly, investment trusts in the nineteenth century seem to have held plenty of bonds as well as equities, much like multi-asset funds today.  In the twentieth century, exchange controls, high inflation and high rates of tax put paid to such an asset allocation; equities were the only game in town, that flexibility perhaps suggesting that active management worked effectively.  It was also good news for investors because in the twentieth century, equities produced excellent returns, around 6% above inflation.

In our judgement, the most successful investment funds going forward will be those that take advantage of the new opportunities that have opened up over the last 35 years; thus having an asset allocation that looks more like those that prevailed in the 19th century than the later part of the 20th.  Obviously, investment funds are once again free from exchange controls and there are numerous opportunities to invest in either specific overseas markets or to use the expertise of fund managers to analyse where the best opportunities lie through a global fund.

More recently entire new asset classes have sprung up in the closed-ended sector.  Hedge funds and private equity were not available 35 years ago, although investors should be aware of complexity and high fees of both classes.  Infrastructure funds in PPI, solar & wind power assets; loan funds; and property, both traditional and niche, all provide opportunities for diversification of equity risk and of income.

In our opinion the most significant newcomer to the universe of potential investments is the index-linked government bond market.  This market offers some protection from what looks like the main threat to savings over the next few years, namely resurgent inflation.  And with the absence of exchange controls, the TIPS market is easily accessible and is far better value than UK inflation linked bonds.

So generalist funds, which can pick and choose from all these choices look an attractive home for long term savers.  Forecasting short term movements in the price of any asset class, especially equities, is a fool’s game.  However, in the long run, values do revert powerfully towards the mean and therefore an asset allocation that is overweight good value assets, and underweight poor value, should produce higher returns with modest volatility. During the year the Daily Telegraph reported that £100 invested in Capital Gearing Trust in 1982, with the (modest) dividends reinvested was at the time of the article worth £22,676. Conditions for making substantial capital gains are now far less propitious than 36 years ago. Equities and bonds currently trade at such high valuations that medium term returns are likely to be lower than those enjoyed historically, and in a number of cases negative after adjusting for inflation. Capital preservation is the key objective of current portfolio allocation, until valuations return to more ‘normal’ levels. An objective of merely preserving value sounds modest. However if it is achieved whilst asset prices are normalising it will represent a significant achievement and lay the foundation for potentially more exciting returns in the future.

Peter Spiller

Alastair Laing

Christopher Clothier

31 May 2018

DIRECTORS’ REPORT EXTRACTS

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.

PORTFOLIO ANALYSIS

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

		North			2018
	UK	America	Europe	Elsewhere	Total
	%	%	%	%	%
Investment Trust Assets:
Ordinary Shares	14.7	2.9	0.5	4.2	22.3
Zero dividend preference shares	7.3	-	-	-	7.3
Other Assets:
Index-Linked	13.2	24.3	2.3	0.2	40.0
Fixed Interest	8.3	0.7	-	-	9.0
Other Funds	2.9	-	1.2	3.0	7.1
Overseas Property shares	-	-	8.5	-	8.5
Cash	5.2	0.5	0.1	-	5.8
	51.6	28.4	12.6	7.4	100.0

Distribution of investment funds of £169,758,000 as at 5 April 2017

		North			2017
	UK	America	Europe	Elsewhere	Total
	%	%	%	%	%
Investment Trust Assets:
Ordinary Shares	15.7	3.6	2.8	7.1	29.2
Zero dividend preference shares	12.5	-	-	-	12.2
Other Assets:
Index-Linked	15.6	18.0	2.6	0.3	36.5
Fixed Interest	11.0	0.7	-	-	11.7
Other Funds	0.6	0.9	-	1.4	2.9
Overseas Property shares	-	-	2.1	-	2.1
Cash	3.7	1.2	0.5	-	5.4
	58.8	24.4	8.0	8.8	100.0

Investments of the Company

	2018	2017
	£'000	£'000
Investment Trust Ordinary shares:
North Atlantic Smaller Companies	5,491	5,252
Residential Secure Income	3,268	-
Ground Rents Income Fund Ordinary	2,342	1,853
Grainger	2,031	-
Triple Point Social Housing REIT	1,788	-
RM Secured Direct Lending	1,560	1,576
GCP Infrastructure Investments	1,559	537
Unite Group	1,492	2,220
Oryx International Growth Fund	1,442	1,037
Civitas Social Housing	1,437	2,441
LXI REIT	1,435	-
Artemis Alpha Trust	1,199	374
PRS REIT	1,195	-
Edinburgh Dragon Trust	1,184	-
JPEL Private Equity USD	1,179	1,906
Schroder UK Growth Fund	1,174	1,579
Civitas Social Housing C Shares	1,143	-
Better Capital PCC	1,026	2,503
Empiric Student Property	1,023	-
EPE Special Opportunities	1,017	881
SQN Asset Finance Income Fund	1,005	919
SME Loan Fund	914	701
Foresight Solar Fund	884	1,276
HICL Infrastructure	811	930
North American Income Trust	804	824
Ecofin Global Utilities and Infrastructure Trust	791	1,002
Eurovestech	675	313
CATCo Reinsurance Opportunities Fund	659	-
Candover Investments	646	725
GCP Asset Backed Income Fund	618	390
International Public Partnerships	597	-
Rights & Issues Investment Trust	528	1,969
Witan Pacific Investment Trust	524	503
DW Catalyst Fund	513	866
CLS Holdings	427	43
Target Healthcare REIT	410	-
Mithras Investment Trust	367	826
Aberdeen Asian Smaller Companies	358	-
Aberdeen Private Equity Fund	353	-
Gulf Investment Fund	326	-
Value & Income Trust	318	307
Aberdeen Latin American Income	285	173
Bluefield Solar Income Fund	237	986
BH Global	232	280
Witan Investment Trust	82	270
Foreign & Colonial Investment Trust	66	1,346
Aberforth Geared Income Trust	-	1,108
Advance Frontier Markets Fund	-	555
BH Macro	-	559
BH Macro USD	-	483
GCP Asset Backed Income Fund C Shares	-	973
Invesco Perpetual UK Smaller Companies Investment Trust	-	991
John Laing Environmental Assets Group	-	1,134
Phoenix Spree Deutschland	-	626
Prospect Japan Fund	-	1,292
Real Estate Credit Investments	-	344
Segro	-	863
SVG Capital	-	627
The Renewables Infrastructure Group	-	1,303
Investments with a market value below £250,000	1,434	1,848
	48,849	49,514
	2018	2017
Investment Trust Zero Dividend Preference Shares:	£'000	£'000
NB Private Equity 2022	3,379	3,198
JZ Capital Partners 2022	2,431	2,323
Utilico Investments 2018	1,531	1,499
Acorn Income Fund 2022	1,523	1,457
GLI Finance 2019	1,431	323
Utilico Investments 2020	1,001	944
Ranger Direct Lending 2021	935	438
Premier Energy & Water Trust 2020	879	873
Taliesin Property Fund 2018	816	355
Polar Capital 2024	728	-
RM Secured Direct Lending 2021	555	-
Chelverton Smaller Companies 2025	431	-
Aberforth Split Level Income 2024	406	-
Aberforth Geared Income Trust 2017	-	2,997
JP Morgan Income & Capital Trust 2018	-	1,716
JP Morgan Private Equity 2017	-	2,687
Jupiter Dividend & Growth Trust 2017	-	1,509
Small Companies Dividend Trust 2018	-	408
	16,046	20,727
	2018	2017
Index-Linked Securities:	£'000	£'000
UK Treasury 0.125% 2019	19,945	8,429
USA Treasury 2.0% 2026	8,506	7,677
USA Treasury 0.125% 2025	7,597	4,040
USA Treasury 2.375% 2025	4,923	-
Sweden (Kingdom of) 0.25% 2022	3,957	2,073
UK Treasury 2.5% 2020	3,888	2,148
USA Treasury 0.625% 2023	3,487	2,348
USA Treasury 0.125% 2023	3,274	2,538
USA Treasury 0.625% 2021	2,937	3,323
USA Treasury 0.625% 2024	2,547	-
USA Treasury 1.75% 2028	2,541	2,903
USA Treasury 0.125% 2026	2,473	-
USA Treasury 0.125% 2024	2,467	816
USA Treasury 0.125% 2020	2,408	2,702
USA Treasury 3.875% 2029	2,030	823
USA Treasury 2.375% 2027	1,452	-
USA Treasury 0.75% 2042	1,428	418
Sweden (Kingdom of) 4.0% 2020	1,155	713
Tesco Personal Finance 1.0% 2019	1,097	767
USA Treasury 3.375% 2032	1,066	-
USA Treasury 1.125% 2021	1,034	1,173
National Grid 1.25% 2021	923	448
UK Treasury 1.875% 2022	877	913
USA Treasury 1.375% 2020	836	949
Places for People Capital Markets 1.0% 2022	800	141
USA Treasury 0.125% 2022	761	-
Severn Trent 1.3% 2022	749	392
USA Treasury 0.375% 2025	734	-
USA Treasury 0.125% 2019	604	674
Sydney Airport Finance Company 3.76% 2020	393	429
Sweden (Kingdom of) 0.5% 2017	-	1,554
UK Treasury 0.125% 2024	-	4,149
UK Treasury 0.125% 2026	-	1,514
UK Treasury 1.25% 2017	-	6,893
Investments with a market value below £250,000	739	928
	87,628	61,875
	2018	2017
Fixed-Interest Securities:	£'000	£'000
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021	1,862	1,629
UK Treasury 23/04/18	1,500	-
Pershing Square 5.5% 2022	1,495	1,225
Workspace Group 6.0% 2019	1,477	391
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018	1,220	1,208
CLS Holdings 5.5% 2019	1,179	415
Primary Healthcare Properties 5.375% 2019	1,031	442
Helical 4.0% 2019	907	99
NEX Group 5.5% 2018	904	-
Unite Group 6.125% 2020	870	108
Bruntwood Investments 6.0% 2020	801	537
Grainger 5.0% 2020	587	-
Burford Capital 6.5% 2022	528	-
National Grid North America 1.875% 2018	501	506
REA Finance B.V. 8.75% 2020	500	-
UK Treasury 03/09/18	499	-
UK Treasury 24/09/18	499	-
Burford Capital 6.125% 2024	374	-
Ecclesiastical Insurance Office 8.625% Non-Cumulative Irredeemable Preference Shares	368	348
Bayer AG 5.625% 2018	351	-
Tesco Personal Finance 5.0% 2020	303	-
National Grid 0.9% 2020	293	-
St Mowden 6.25% 2019	275	-
BG Energy Capital 5.125% 2017	-	1,183
BMW Finance 1.75% 2017	-	543
BT 6.625% 2017	-	607
Edinburgh Dragon Trust 3.5% 2018	-	498
F&C Global Smaller Companies 3.5% Convertible Unsecured Loan Stock 2019	-	410
LVMH 1.625% 2017	-	483
Northumbrian Water 6.0% 2017	-	400
Severn Trent 6.0% 2018	-	651
Sky Group 5.75% 2017	-	462
UK Treasury 07/08/2017	-	1,998
UK Treasury 10/04/2017	-	2,000
UK Treasury 31/07/2017	-	2,998
Vodafone Group 5.375% 2017	-	463
Investments with a market value below £250,000	1,325	341
	19,649	19,945
	2018	2017
Other Funds:	£'000	£'000
Vanguard FTSE Japan UCITS ETF	5,686	-
iShares Core FTSE 100 ETF	3,570	508
Vanguard FTSE Developed Europe Ex UK UCITS ETF	2,697	-
iShares Physical Gold ETC	2,167	-
ishares JP Morgan Emerging Market Local Government Bond UCITS ETF	534	-
Vanguard FTSE 250 UCITS ETF	513	505
Vanguard FTSE Emerging Markets UCITS ETF	454	-
ETFS Metal Securities (physical gold)	-	1,463
iShares MSCI Japan GBP Hedged UCITS ETF	-	2,503
	15,621	4,979
	2018	2017
Overseas Property shares:	£'000	£'000
Vonovia	5,937	1,044
Deutsche Wohnen	4,278	1,694
Castellum	3,381	-
Leg Immobilien	1,737	859
Kungsleden	1,456	-
ADO Properties	779	-
Grand City Properties	686	-
Atrium Ljungberg AB	350	-
	18,604	3,597
Total investments	206,397	106,637
Cash and cash equivalents	12,767	9,121
Total investment funds	219,164	169,758

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

Graham Meek

Chairman

31 May 2018

DECLARATION

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 2018

	Note	Revenue	Capital	2018 Total	Revenue	Capital	2017 Total
		£’000	£’000	£’000	£’000	£’000	£’000
Net (losses)/gains on investments	9	-	(1,243)	(1,243)	-	15,978	15,978
Exchange (losses)/gains		-	(187)	(187)	-	20	20
Investment income	2	2,876	-	2,876	1,448	-	1,448
Gross return		2,876	(1,430)	1,446	1,448	15,998	17,446
Investment management fee	3	(434)	(652)	(1,086)	(333)	(500)	(833)
Other expenses	4	(419)	-	(419)	(395)	-	(395)
Net return before tax		2,023	(2,082)	(59)	720	15,498	16,218
Tax (charge)/credit on net return	6	(152)	140	(12)	(23)	22	(1)
Net return attributable to equity shareholders		1,871	(1,942)	(71)	697	15,520	16,217
Net return per Ordinary Share	8	37.04p	(38.45p)	(1.41p)	18.26p	406.59p	424.85p

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 2018

	Note	Called-up share capital £’000	Share premium account £’000	Capital redemption reserve £’000	Capital reserve* £’000	Revenue reserve £’000	Total equity shareholders’ funds £’000
Balance at 6 April 2016		798	20,934	16	84,453	1,719	107,920
Net return attributable to equity shareholders and total comprehensive income for the year					15,520	697	16,217
Shares issued from treasury
New shares issued		315	45,676	-	-	-	45,991
Dividends paid	7	-	-	-	-	(686)	(686)
Total transactions with owners recognised directly in equity		315	45,676			(686)	45,308
Balance at 5 April 2017		1,113	66,610	16	99,976	1,730	169,445
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		-	-	-	(1,942)	1,871	(71)
New shares issued		328	50,779	-	-	-	51,107
Dividends paid	7	-	-	-	-	(927)	(927)
Total transactions with owners recognised directly in equity		328	50,779	-	-	(927)	50,180
Balance at 5 April 2018		1,441	117,389	16	98,034	2,674	219,554

*The capital reserve balance at 5 April 2018 includes unrealised gains on fixed asset investment of £10,819,000 (5 April 2017 – gains of £21,805,000).

As at 5 April 2018 £87,215,000 (2017: £78,171,000) 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 2018

	Note	2018 £’000	2017 £’000
Fixed assets
Investments held at fair value through profit or loss	9	206,397	160,637
Current assets
Debtors	10	1,036	595
Cash at bank and in hand		12,767	9,121
		13,803	9,716
Creditors: amounts falling due within one year	11	(646)	(908)
Net current assets		13,157	8,808
Total assets less current liabilities		219,554	169,445
Capital and reserves
Called-up share capital	12	1,441	1,113
Share premium account		117,389	66,610
Capital redemption reserve		16	16
Capital reserve		98,034	99,976
Revenue reserve		2,674	1,730
Total equity shareholders’ funds		219,554	169,445
Net asset value per Ordinary Share	13	3,809.8p	3,805.0p

The financial statements were approved by the Board on the 31 May 2018 and signed on its behalf by:

Graham Meek Chairman

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

Cash Flow Statement for the year ended 5 April 2018

	Note	2018 £’000	2017 £’000
Net cash outflow from operations before dividends and interest	14	(1,649)	(1,058)
Dividends received  Interest received		1,472 1,381	644 616
Net cash inflow from operating activities		1,204	202
Payments to acquire investments Receipts from sale of investments		(139,925) 92,457	(117,112) 69,913
Net cash outflow from investing activities		(47,468)	(47,199)
Equity dividends paid	7	(927)	(686)
Issue of ordinary shares		50,837	46,048
Net cash inflow from financing activities		49,910	45,362
Increase/(decrease) in cash and cash equivalents		3,646	(1,635)
Cash and cash equivalents at start of year Cash and cash equivalents at end of year		9,121 12,767	10,756 9,121
Increase/(decrease) in cash and cash equivalents		3,646	(1,635)
Cash and cash equivalents consist of cash at bank and in hand		12,767	9,121
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. 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 Company’s Board of Directors. 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.

d)  Dividends

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

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

e)  Income

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.

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.

f)  Expenses

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% (2017: 60%) to capital and 40% (2017: 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.

h)  Taxation

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 balance sheet 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 balance sheet 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 balance sheet 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;
• 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;
• increases and decreases in the valuation of investments held at the year end; 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	2018 £’000	2017 £’000
	Income from investments:
	Interest from UK bonds	662	427
	Income from UK equity and non-equity investments	1,281	656
	Interest from overseas bonds	650	351
	Income from overseas equity and non-equity investments	283	14
	Total income	2,876	1,448
		2018    £’000	2017 £’000
	Total income comprises:
	Dividends	1,564	670
	Interest	1,312	778
		2,876	1,448
		2018    £’000	2017 £’000
	Income from investments comprises:
	Listed in the UK	1,943	1,083
	Listed overseas	933	365
		2,876	1,448

3	Investment management fee
		Revenue	Capital	2018 Total	Revenue	Capital	2017 Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Investment management fee	434	652	1,086	333	500	833

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 and 0.45% thereafter (2017: 0.60% and 0.45% respectively). At 5 April 2018 £292,000 (2017: £236,000) 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	2018 £’000	2017 £’000
	Administrative expenses:
	Portfolio administration and custody services	39	26
	Fees payable to Company auditors for the audit of Company financial statements Fees payable to Company auditor for other services: Services relating to taxation - compliance	20	21
	Fees payable to Company auditors for other services:
	Services relating to taxation compliance	-	9
	Other taxation services	-	4
	Directors’ remuneration (note 5)	121	99
	Company secretarial and accountancy services	138	135
	General expenses	101	101
		419	395
	The above expenses include irrecoverable VAT where appropriate.

5	Directors’ remuneration	2018 £’000	2017 £’000
	The fees payable to the directors were as follows:
	Mr E G Meek	30	25
	Mr G A Prescott	25	20
	Mr R A Archibald	22	18
	Mr A R Laing	22	18
	Miss J G K Matterson	22	18
		121	99
	Mr A R Laing’s fee is paid directly to his employer. The Company made no pension contributions (2017: £nil) in respect of directors and no pension benefits are accruing to any director (2017: £nil). Mr A R Laing received remuneration totalling £58,020 (2017: £37,909) 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 notes 3 and 16. There were no other transactions with directors during the year.

6	Tax (charge)/credit on net return
				2018			2017
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Current tax:
	Corporation tax	(152)	140	(12)	(23)	22	(1)
	Total current tax (charge)/credit for the year	(152)	140	(12)	(23)	22	(1)

The tax assessed for the year is higher (2017: lower) than the standard rate of corporation tax in the UK of 19% (2017: 20%). The differences are explained below:

				2018			2017
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
	Return before taxation	2,023	(2,082)	(59)	720	15,498	16,218
	Return at the standard rate of UK corporation tax	384	(396)	(12)	144	3,099	3,243
	UK franked dividends*	(244)	-	(244)	(122)	-	(122)
	Capital returns*	-	272	272	-	(3,199)	(3,199)
	Unrelieved loss for the year	-	-	-	-	78	78
	Utilisation of prior year management charges	-	(16)	(16)	-	78	78
	Overseas withholding tax	12	-	12	1	-	1
	Current tax charge/(credit) for the year	152	(140)	12	23	(22)	1

*The Company is an Investment Trust Company as defined by section 833 of the Companies Act 2006 and these items are not subject to corporation tax within an Investment Trust Company.

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 £286,000 at 5 April 2018 (£326,000 at 5 April 2017) have not been recognised as the prospect for their recovery against future taxation liabilities is uncertain.

7	Dividends Paid	2018 £’000	2017 £’000
	Ordinary Shares
	2017 dividend paid 17 July 2017 (20.0p per share)	927	-
	2016 dividend paid 22 July 2016 (20.0p per share)	-	686

The directors have recommended to shareholders a final dividend of 27 p per share for the year ended 5 April 2018. If approved, this dividend will be paid to shareholders on 20 July 2018. 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 £1,556,000 (based on the number of shares in issue at 5 April 2018).

		2018 £’000	2017 £’000
	Revenue available for distribution by way of dividend for the year	1,871	697
	Proposed final dividend of 27 p for the year ended 5 April 2018	(1,556)	(927)
	Revenue surplus/(deficit) for purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010*	315	(230)

* Undistributed revenue comprises approximately 11.0% (2017: 0.0%) of income from investments of £2,876,000 (2017: £1,448,000).

8 Net return per Ordinary share

The net return per Ordinary share of (1.41)p (2017: 424.85p) is based on the total net return after taxation for the financial year of £(71,000) (2017: £16,217,000) and on 5,050,988 (2017: 3,817,149) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Revenue return per Ordinary share of 37.04p (2017: 18.26p) is based on the net revenue return after taxation of £1,871,000 (2017: £697,000) and on 5,050,988 (2017: 3,817,149) Ordinary shares, being the weighted average number of Ordinary shares in issue in each year.

Capital return per Ordinary share of (38.45)p (2017: 406.59p) is based on the net capital return for the financial year of £(1,942,000) (2017: £15,520,000) and on 5,050,988 (2017: 3,817,149) 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	2018 £’000	2017 £’000
	Investments comprise –
	Listed investment companies:
	Ordinary shares UK	32,199	26,632
	Ordinary shares Overseas	35,254	26,479
	Zero Dividend Preference Shares UK	16,046	20,727
	Listed UK Government Bonds	27,207	31,042
	Listed UK Non-Government Bonds	19,896	14,182
	Listed Overseas Government Bonds	58,286	34,942
	Listed Overseas Non-Government Bonds	1,888	1,654
	Other Funds	15,621	4,979
		206,397	160,637
	Cost of investments held at 6 April	138,832	83,655
	Unrealised appreciation at 6 April	21,805	13,410
	Fair value of investments held at 6 April	160,637	97,065
	Additions at cost	139,591	117,614
	Effective yield adjustment*	(238)	-
	Sales – proceeds	(92,350)	(70,020)
	– net gains on sales	9,743	7,583
	Movement in unrealised appreciation in the year	(10,986)	8,395
	Fair value of investments held at 5 April	206,397	160,637
	Book cost at 5 April	195,578	138,832
	Unrealised appreciation at 5 April	10,819	21,805
		206,397	160,637
	Disposals – realised gains	9,743	7,583
	(Decrease)/ increase in unrealised appreciation	(10,986)	8,395
	(Losses)/gains on investments	(1,243)	15,978

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

The total transaction costs on additions were £88,000 (2017: £126,000) and on sales £28,000 (2017: £31,000). 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	2018 £’000	2017 £’000
	Other debtors	386	224
	Prepayments and accrued income	623	358
	Taxation	27	13
		1,036	595

11	Creditors: amounts falling due within one year	2018 £’000	2017 £’000
	Other creditors	280	610
	Accruals and deferred income	366	298
		646	908

12	Called-up share capital	2018 £’000	2017 £’000
	Allotted and fully paid
	At the beginning of the year: 4,453,174 Ordinary shares (2017: 3,191,062)	1,113	798
	Allotted during the year: 1,309,745 Ordinary shares (2017: 1,262,112)	328	315
	At the end of the year: 5,762,919 Ordinary shares (2017: 4,453,174)	1,441	1,113
	During the year to 5 April 2018 there were no Ordinary shares of 25p each repurchased by the Company (2017: nil). During the year to 5 April 2018 there were no Ordinary shares of 25p each re-issued by the Company. During the year to 5 April 2017 the Company re-issued 81 Ordinary shares of 25p each from treasury for proceeds totalling £3,000. During the year to 5 April 2018 there were 1,309,745 (2017: 1,262,112) new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £51,107,000 (2017: £45,991,000). No shares were purchased for cancellation during the year (2017: nil) and at the year end no shares were held in treasury (2017: nil).

13	Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset value attributable to each class of Ordinary share at the year end, calculated in accordance with the articles of association, were as follows:
	Net asset value per Ordinary share attributable to	2018	2017
	Ordinary shares (basic)	3,809.8p	3,805.0p

	Net asset value attributable to
		2018 £’000	2017 £’000
	Ordinary shares (basic)	219,554	169,445

Net asset value per Ordinary share is based on the net assets, as shown above, and on 5,762,919 (2017: 4,453,174) Ordinary shares, being the number of Ordinary shares in issue at the year end (excluding treasury shares).

14	Reconciliation of net return before finance costs and taxation to net cash outflow from operations before dividends and interest
		2018 £’000	2017 £’000
	Net return before taxation	(59)	16,218
	Less capital return before taxation	2,082	(15,498)
	(Increase) in prepayments and accrued income	(3)	(5)
	Increase in accruals and deferred income	72	42
	Management fees charged to capital	(652)	(500)
	(Increase)/decrease in overseas withholding tax	(12)	113
	Increase in recoverable UK taxation	(14)	-
	Dividends receivable	(1,564)	(670)
	Interest receivable	(1,312)	(778)
	Realised (losses)/gains on foreign currency transactions	(187)	20
	Net cash outflow from operations before dividends and interest	(1,649)	(1,058)

15	Financial instruments The Company has the following financial instruments:	2018 £’000	2017 £’000
	Financial assets at fair value through profit or loss
	-Investments held at fair value through profit or loss	206,397	160,637
	Financial assets that are debt instruments measured at amortised cost
	-Cash at bank and at hand	12,767	9,121
	-Other debtors	386	224
	-Accrued income	603	343
		220,153	170,325
		2018	2017
		£’000	£’000
	Financial liabilities measured at amortised cost
	-Other creditors	268	601
	-Accruals	366	298
		634	899

The Company’s financial instruments comprise:

• investment trust ordinary shares, investment trust capital shares, investment trust zero dividend preference shares, commodity funds and real estate, 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 price risk, interest rate risk, foreign currency risk and credit risk. The Board regularly reviews and agrees policies for managing each 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 price risk

Market price 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 balance sheet date with all other variables held constant.

		2018	2018	2017	2017
		5% increase in market prices £’000	5% decrease in market prices £’000	5% increase in market prices £’000	5% decrease in market prices £’000
	Income statement – net return after taxation Revenue return	(18)	18	(14)	14
	Capital return	10,291	(10,291)	8,010	(8,010)
	Total return after taxation	10,273	(10,273)	7,996	(7,996)
	Net assets	10,273	(10,273)	7,996	(7,996)
	Net asset value per Ordinary share	178.26p	(178.26)p	179.56p	(179.56)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 balance sheet date with all other variables held constant.

		2018	2018	2017	2017
		1% increase in market prices £’000	1% decrease in market prices £’000	1% increase in market prices £’000	1% decrease in market prices £’000
	Income statement – net return after taxation Revenue return	102	(102)	73	(73)
	Capital return	–	–	–	–
	Total return after taxation	102	(102)	73	(73)
	Net assets	102	(102)	73	(73)
	Net asset value per Ordinary share	1.77p	(1.77)p	1.64p	(1.64)p

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

	Total (as per Balance Sheet)	Floating rate	Index- linked	Other fixed rate	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)
Assets
Investment trusts & other funds	99,120	–	–	–	99,120	–	–
UK index-linked government bonds	24,710	–	24,710	–	–	0.5	1.8
UK index-linked non-government bonds	4,239	–	4,239	–	–	1.5	3.2
UK government bonds	2,497	–	–	–	2,497	–	–
UK non-government bonds	15,657	–	–	15,657	–	5.2	2.1
Overseas index-linked government bonds	58,286	–	58,286	–	–	1.1	6.9
Overseas index-linked non-government bonds	393	–	393	–	–	3.8	2.6
Overseas non-government bonds	1,495	–	–	1,495	–	5.5	4.3
Invested funds	206,397	–	87,628	17,152	101,617
Cash at bank	12,767	12,762	–	–	5	–	–
Other debtors	1,036	–	–	–	1,036	–	–
Liabilities
Creditors	(646)	–	–	–	(646)	–	–
Total net assets	219,554	12,762	87,628	17,152	102,012

The interest rate profile of the Company’s assets at 5 April 2017 was as follows:

	Total (as per Balance Sheet)	Floating rate	Index- linked	Other fixed rate	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)
Assets
Investment trusts & other funds	78,817	–	–	–	78,817	–	–
UK index-linked government bonds	24,045	–	24,045	–	–	0.6	3.4
UK index-linked non-government bonds	2,848	–	2,848	–	–	1.4	4.0
UK government bonds	6,996	–	–	–	6,996	–	–
UK non-government bonds	8,014	–	–	8,014	–	1.7	2.4
Overseas index-linked government bonds	34,942	–	34,942	–	–	0.6	6.8
Overseas index-linked non-government bonds	429	–	429	–	–	2.2	3.6
Overseas non-government bonds	4,546	–	–	4,546	–	2.5	2.4
Invested funds	160,637	–	62,264	12,560	85,813
Cash at bank	9,121	9,116	–	–	5	–	–
Other debtors	595	–	–	–	595	–	–
Liabilities
Creditors	(908)	–	–	–	(908)	–	–
Total net assets	169,445	9,116	62,264	12,560	85,505

Fair value of financial assets and liabilities

All financial assets and liabilities are either included in the Balance Sheet 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 balance sheet 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:

		2018 Investments	2018 Accrued interest	2017 Investments	2017 Accrued interest
		£’000	£’000	£’000	£’000
	Euro	13,417	–	3,611	–
	US Dollar	57,418	201	36,067	98
	Swedish Krona	10,300	18	4,341	16
	Swiss Franc	–	–	14	–
	Australian Dollar	431	1	469	1
		81,566	220	44,502	115

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 balance sheet date with all other variables held constant.

		2018 10% appreciation of Sterling £’000	2018 10% depreciation of Sterling £’000	2017 10% appreciation of Sterling £’000	2017 10% depreciation of Sterling £’000
	Income statement – net return after taxation	(75)	75	(29)	29
	Revenue return
	Capital return	(8,157)	8,157	(4,450)	4,450
	Total return after taxation	(8,232)	8,232	(4,479)	4,479
	Net assets	(8,232)	8,232	(4,479)	4,479
	Net asset value per Ordinary share	(142.84)p	142.84p	(100.58)p	100.58p

Liquidity risk

Liquidity risk is not considered to be significant as the Company has no bank loans or other borrowings. All liabilities are payable within 3 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 Balance Sheet, the maximum credit risk exposure is:

		2018 Balance sheet £’000	2018 Maximum exposure £’000	2017 Balance sheet £’000	2017 Maximum exposure £’000
	Fixed assets – listed investments at fair value through profit and loss	206,397	107,811	160,637	81,820
	Debtors – amounts due from custodian, dividends and interest receivable	989	989	567	567
	Cash at bank	12,767	12,767	9,121	9,121
		220,153	121,567	170,325	91,508

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 income and capital return to its equity.

  The Company’s capital at 5 April 2018 of £219,554,000 (2017: £169,445,000) 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:

• the planned level of gearing, which takes into account the investment manager’s views on the market;

• the need to buy back equity shares;

• the need for new issues of equity shares; 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 2018 are disclosed in notes 3 and 5. There were no other related-party transactions.

GENERAL

The figures and financial information set out above are extracted from the Annual Report and Accounts for the year ended 5 April 2018, and do not constitute the statutory accounts for that year. The Company's Annual Report and Accounts for the year ended 5 April 2018 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2018 annual financial statements is unqualified and does not contain a statement under section 498 of the Companies Act 2006.

The 2017 figures and financial information are extracted from the published statutory accounts for the year ended 5 April 2017 and do not constitute the statutory accounts for that year. The 2017 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 2018 will be posted to shareholders in June 2018. The Annual Report will be also be available on the Company's website www.capitalgearingtrust.com and on request from the company secretary:

Steven Cowie
PATAC Limited
21 Walker Street
Edinburgh
EH3 7HX
Telephone: [phone]
Email: [e-mail]

Annual General Meeting ("AGM")

The Company's AGM will be held on Friday, 6 July 2018 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:

Steven Cowie
Company Secretary
Tel: [phone]
Email:[e-mail]