Final Results

CAPITAL GEARING TRUST P.l.c.

LEI: 213800T2PJTPVF1UGW53

29 May 2019

Annual Financial Results for the year ended 5 April 2019

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

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

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

CHAIRMANâ€™S STATEMENT

Overview

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

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

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

Dividend and Earnings

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

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

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

Annual General Meeting

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

Share Issuance and Buybacks

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

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

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

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

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

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

Costs

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

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

Directorsâ€™ fees were revised upwards on 6 April 2019 to reflect increased time, workload and comparisons with other trusts, along with the need to attract new directors. Further detail is provided in the Directorsâ€™ Remuneration Report in the Annual Report.

A new agreement between the Company and PATAC, which provides secretarial and various administration services will result in an increase of some Â£38,000 per annum in the fees paid to PATAC which were set at and unchanged since their appointment in 2015. Further details are provided in the Directorsâ€™ report in the Annual Report.

The investment management agreement with CG Asset Management has an annual fee of 0.60% of net assets up to Â£120m, 0.45% of net assets above Â£120m and up to Â£500m, and 0.30% thereafter. It is possible, if inflows to the Company continue at recent rates, that this third lower tier of charges will be triggered, perhaps even in the current year. This would over time have a significant positive impact on the OCR of the Company, which is already very competitive for what the Company aims to achieve for shareholders.

AIFM Status

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

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

Board Succession

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

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

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

Outlook

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

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

Graham Meek

Chairman

28 May 2019

INVESTMENT OBJECTIVES AND INVESTMENT POLICY

INVESTMENT OBJECTIVES

The Companyâ€™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 (â€œRPIâ€) 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 shareholdersâ€™ 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 (â€œAIFâ€) as defined by the AIFMD and CG Asset Management is the Companyâ€™s Alternative Investment Fund Manager (â€œAIFMâ€). 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 preserve shareholdersâ€™ real wealth and deliver absolute total returns through the construction of multi asset portfolios with a specialist focus on investment trust equities and related securities. Portfolio construction is the key tool to mitigate capital loss in any given year. The fund manager allocates across asset classes based on an assessment of capital markets and macro-economic risks, with the aim of avoiding capital loss. In addition a portion of the portfolio is invested into the investment trust market with the aim of exploiting inefficiencies to generate risk adjusted returns that are superior to those available in more liquid equity markets.

Key performance indicators ("KPIs")

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

In addition, the Board monitors the following KPIs:

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

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

Principal risks and uncertainties

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

Risk	Mitigation
Investment Strategy and Performance The Board is responsible for setting the investment strategy of the Company and monitoring investment performance. Inappropriate strategy and/or poor investment performance may have an adverse effect on Shareholder returns.	The Companyâ€™s strategy is formally reviewed by the Board at least annually, considering investment performance, shareholder views, developments in the marketplace and the structure of the Company. Investment performance is reviewed by the Board on a regular basis against RPI and the MSCI UK Index. The composition of the portfolio is provided at each Board meeting to allow monitoring of the spread of investments. Stock selection, portfolio composition and liquidity are explained in detail by the investment manager at each meeting. The investment manager is formally appraised at least annually by the Management Engagement Committee.
Premium/Discount Level The Companyâ€™s share price could be impacted by a range of factors causing it to be higher than (at a premium to) or lower than (at a discount to) the underlying NAV per share. Excessive demand for, or supply of, share can create liquidity issues, restricting the ability of investors to buy and sell shares in the secondary market. Fluctuations in the share price can cause volatility which may not be reflective of the underlying investment portfolio.	The Company operates a discount/premium control policy (â€œDCPâ€), under which it will purchase or issue shares to ensure, in normal market conditions, that the shares trade close to their underlying NAV per share. The DCP increases liquidity and reduces volatility by preventing the build up of excessive demand for the Companyâ€™s shares which, the Board believes, is in the best interests of shareholders. The levels of issuance/buyback of shares are reported to the Board on an ongoing basis and at each Board meeting the Board considers the Managerâ€™s ability to invest new proceeds (in the case of issuance) and maintain sufficient liquidity (in the case of buybacks) to meet the demands of the DCP. The Company Secretary monitors the relevant authority levels, which are regularly reported to the Board, to maintain, as far as possible, uninterrupted operation of the DCP.
Operational The Company is reliant on third-party service providers including CGAM as investment manager, PATAC as company secretary and administrator and Northern Trust as custodian. Failure of the internal control systems of these third-parties could result in inaccurate information being reported or risk to the Companyâ€™s assets.	The Audit Committee formally reviews each service provider at least annually, considering their reports on internal controls. Further details of the Companyâ€™s internal control and risk management system is provided in the Corporate Governance Statement in the Annual Report.
Regulatory The Company operates in a regulatory environment. Failure to comply with s1158 of the Corporation Tax Act 2010 could result in the Company losing investment trust status and being subject to tax on capital gains. Failure to comply with other regulations could result in financial penalties or the suspension of the Companyâ€™s listing on the London Stock Exchange.	Compliance with relevant regulations is monitored on an ongoing basis by the Company Secretary and Manager who report regularly to the Board. The Board monitors changes in the regulatory environment and receives regulatory updates from the investment manager, company secretary, lawyers and auditors as relevant.
Financial and Economic The Companyâ€™s investments are impacted by financial and economic factors including market prices, interest rates, foreign exchange rates and credit which could cause losses to the investment portfolio.	The Board regularly reviews and monitors the management of market risk, interest rate risk, foreign currency risk and credit risk. These are explained in detail in Note 15 to the financial statements in the Annual Report. Brexit, and other political situations, are considered a component of market risk.

Employee, human rights, social and environmental matters

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

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

Gender and diversity

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

Bribery and Corruption

The Companyâ€™s policy in relation to bribery and corruption can be found in the Directorsâ€™ Report in the Annual Report.

INVESTMENT MANAGER'S REPORT

Review

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

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

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

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

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

Outlook

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

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

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

Peter Spiller

Alastair Laing

Christopher Clothier

28 May 2019

DIRECTORSâ€™ REPORT EXTRACTS

Going concern

The Companyâ€™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 Boardâ€™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 Companyâ€™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 Companyâ€™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 Companyâ€™s viability over a three year period in recognition of our investment managerâ€™s long-term horizon and also what we believe to be investorsâ€™ horizons, taking account of the Companyâ€™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 Companyâ€™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 assets of Â£323,306,000 as at 5 April 2019

	Currency Exposure
	Sterling	US Dollar	Euro	Swedish Krona	Japanese Yen	Other	2019 Total
	%	%	%	%	%	%	%
Index-Linked Government Bonds	8.5	24.3	-	0.2	-	-	33.0
Conventional Government Bonds	10.3	-	-	-	-	-	10.3
Preference Shares/Corporate Debt	14.3	1.5	0.9	-	-	0.9	17.6
Funds/Equities	13.8	3.2	7.5	3.9	2.2	4.6	35.2
Cash	2.7	0.1	-	0.1	-	-	2.9
Gold	1.0	-	-	-	-	-	1.0
Total	50.6	29.1	8.4	4.2	2.2	5.5	100.0

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

	Currency Exposure
	Sterling	US Dollar	Euro	Swedish Krona	Japanese Yen	Other	2018 Total
	%	%	%	%	%	%	%
Index-Linked Government Bonds	11.3	24.3	-	2.3	-	-	37.9
Conventional Government Bonds	1.1	-	-	-	-	-	1.1
Preference Shares/Corporate Debt	16.4	0.7	-	-	-	0.2	17.3
Funds/Equities	16.6	2.9	7.8	2.4	2.6	4.6	36.9
Cash	5.2	0.5	-	0.1	-	-	5.8
Gold	1.0	-	-	-	-	-	1.0
Total	51.6	28.4	7.8	4.8	2.6	4.8	100.0

Investments of the Company

	2019	2018
	Â£'000	Â£'000

Index-Linked Government Bonds
Sweden	475	5,112
United Kingdom	27,387	24,710
United States of America	78,711	53,174
	106,573	82,996

Conventional Government Bonds
United Kingdom	33,438	2,497

Preference Shares / Corporate Debt
*Zero Dividend Preference shares*
NB Private Equity 2022	3,409	3,379
JZ Capital Partners 2022	2,431	2,431
Utilico Investments 2020	2,147	1,001
Acorn Income Fund 2022	1,553	1,523
GLI Finance 2019	1,538	1,431
Ranger Direct Lending 2021	1,371	935
Polar Capital 2024	901	728
Premier Energy & Water Trust 2020	894	879
NB Private Equity Partners 2024	636	-
RM Secured Direct Lending 2021	561	555
Taliesin Property Fund 2018	-	816
Utilico Investments 2018	-	1,531
Investments with a market value below Â£500,000	855	837
	16,296	16,046
*Corporate debt*
Pershing Square 5.5% 2022	4,810	1,495
Tesco Personal Finance 1.0% 2019	1,933	1,097
JZ Capital Partners 6.0% Convertible Unsecured Loan Stock 2021	1,898	1,862
Burford Capital 6.5% 2022	1,809	528
Landmark Mortgages 6.375% 2019	1,751	-
Unite Group 6.125% 2020	1,675	870
Primary Healthcare Properties 5.375% 2019	1,658	1,031
Helical 4.0% 2019	1,603	907
National Grid 1.25% 2021	1,498	923
Aberdeen Asian Smaller Companies 2.25% 2025	1,491	-
Burford Capital 6.125% 2024	1,401	374
Places for People Capital Markets 1% 2022	1,234	800
E.ON 6.0% 2019	1,026	-
Northern Gas Networks 5.875% 2019	1,011	-
Severn Trent 1.3% 2022	988	749
Southern Water Services 5.0% 2021	961	-
Bruntwood Investments 6.0% 2020	891	801
A2D Fund 4.75% 2022	889	217
Home Group Zero Coupon Loan Stock 2027	825	-
Koninklijke KPN 6.0% 2019	805	-
Tate & Lyle 6.75% 2019	800	244
Sydney Airport Finance Company 3.76% 2020	798	393
GE Capital UK Funding Unlimited Company 4.375% 2019	750	-
Yorkshire Water Finance 6.0% 2019	712	-
Birmingham Airport (Finance) 6.25% 2021	702	-
TP ICAP 5.25% 2019	692	155
Northern Powergrid (Yorkshire) 9.25% 2020	635	-
Export Development Canada 1.375% 2019	602	-
REA Finance B.V. 8.75% 2020	600	500
Bupa Finance 3.375% 2021	519	-
Retenbank 1.5% 2019	502	-
City Natural Resources 3.5% Convertible Unsecured Loan Stock 2018	-	1,220
CLS Holdings 5.5% 2019	-	1,179
Grainger 5.0% 2020	-	587
Intermediate Capital Group 7.0% 2018	-	84
National Grid 2.983% 2018	-	141
National Grid North America 1.875% 2018	-	501
NEX Group 5.5% 2018	-	904
Workspace Group 6.0% 2019	-	1,477
Investments with a market value below Â£500,000	3,559	2,745
	41,029	21,784
	57,325	37,829

Funds / Equities
Vonovia	8,699	5,937
iShares Core FTSE 100 ETF	7,218	3,570
Deutsche Wohnen	6,329	4,278
Vanguard FTSE Japan UCITS ETF	6,312	5,686
North Atlantic Smaller Companies	6,053	5,491
Investor AB	5,772	-
Vanguard S&P 500 UCITS ETF	4,379	-
Grainger	4,098	2,031
Castellum	4,086	3,381
Residential Secure Income	3,466	3,268
Tritax Big Box REIT	3,227	-
Empiric Student Property	2,808	1,023
PRS REIT	2,638	1,195
The Renewables Infrastructure Group	2,554	-
Greencoat Renewables	2,534	-
Ground Rents Income Fund	2,392	2,342
John Laing Environmental Assets	2,254	-
Leg Immobilien	2,000	1,737
P2P Global Investments	1,978	-
Vanguard FTSE Emerging Markets UCITS ETF	1,912	454
Kungsleden	1,803	1,456
Witan Pacific Investment Trust	1,504	524
Grand City Properties	1,498	686
ADO Properties	1,468	779
Oryx International Growth Fund	1,424	1,442
Target Healthcare REIT	1,296	410
The Establishment Investment Trust	1,292	-
RM Secured Direct Lending	1,290	1,560
Vanguard FTSE Developed Asia Pacific ex-Japan UCITS ETF	1,215	-
JPEL Private Equity USD	1,077	1,179
Pershing Square	1,052	85
SQN Asset Finance C Shares	999	-
Ecofin Global Utilities and Infrastructure Trust	981	791
Triple Point Social Housing REIT	932	1,788
Civitas Social Housing	915	1,437
SME Loan Fund	914	914
Gulf Investment Fund	845	326
Vanguard FTSE Developed Europe ex-UK UCITS ETF	799	2,697
Secure Income REIT	796	221
Better Capital PCC	736	1,026
SDCL Energy Efficiency Income Trust	727	-
Phoenix Spree Deutschland	718	-
Baillie Gifford Japanese Smaller Companies Fund	711	-
International Public Partnerships	701	597
CLS Holdings	694	427
Eurovestech	675	675
EPE Special Opportunities	628	1,017
Atrium Ljungberg AB	570	350
Vanguard FTSE 250 UCITS ETF	511	513
Artemis Alpha Trust	472	1,199
LXI REIT	346	1,435
CATCo Reinsurance Opportunities Fund	180	659
GCP Asset Backed Income Fund	2	618
Candover Investments	-	646
Civitas Social Housing C Shares	-	1,143
DW Catalyst Fund	-	513
Edinburgh Dragon Trust	-	1,184
Foresight Solar Fund	-	884
GCP Infrastructure Investments	-	1,559
HICL Infrastructure	-	811
iShares JP Morgan Emerging Market Local Govement Bond UCITS ETF	-	534
North American Income Trust	-	804
Rights & Issues Investment Trust	-	528
Schroder UK Growth Fund	-	1,174
SQN Asset Finance Income Fund	-	1,005
Unite Group	-	1,492
Investments with a market value below Â£500,000	2,845	3,425
	113,325	80,907

Gold
iShares Physical Gold ETC	3,210	2,167

Total investments	313,871	206,397
Cash	9,435	12,767
Total investment funds	323,306	219,164

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

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

Graham Meek

Chairman

28 May 2019

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 â€œThe Financial Reporting Standards applicable in the UK and the Republic of Irelandâ€ (United Kingdom Generally Accepted Accounting Practice) and applicable law, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

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

Income Statement for the year ended 5 April 2019

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

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

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

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

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

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

	Note	Called-up share capital Â£â€™000	Share premium account Â£â€™000	Capital redemption reserve Â£â€™000	Capital reserve* Â£â€™000	Revenue reserve Â£â€™000	Total equity shareholdersâ€™ funds Â£â€™000
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

Balance at 6 April 2018		1,441	117,389	16	98,034	2,674	219,554
Net return attributable to equity shareholders and total comprehensive income for the year		-	-	-	14,416	3,392	17,808
New shares issued		531	85,654	-	-	-	86,185
Dividends paid	7	-	-	-	-	(1,619)	(1,619)
Total transactions with owners recognised directly in equity		531	85,654	-	-	(1,619)	84,566
Balance at 5 April 2019		1,972	203,043	16	112,450	4,447	321,928

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

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

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

Statement of Financial Position as at 5 April 2019

	Note	2019 Â£â€™000	2018 Â£â€™000
Fixed assets
Investments held at fair value through profit or loss	9	313,871	206,397
Current assets
Debtors	10	2,901	1,036
Cash at bank and in hand		9,435	12,767
		12,336	13,803
Creditors: amounts falling due within one year	11	(4,279)	(646)
Net current assets		8,057	13,157
Total assets less current liabilities		321,928	219,554
Capital and reserves
Called-up share capital	12	1,972	1,441
Share premium account		203,043	117,389
Capital redemption reserve		16	16
Capital reserve		112,450	98,034
Revenue reserve		4,447	2,674
Total equity shareholdersâ€™ funds		321,928	219,554
Net asset value per Ordinary Share	13	4,082.0p	3,809.8p

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

Graham Meek

Chairman

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

Cash Flow Statement for the year ended 5 April 2019

	Note	2019 Â£â€™000	2018 Â£â€™000
Net cash outflow from operations before dividends and interest	14	(1,652)	(1,649)
Dividends received Interest received		2,683 1,905	1,472 1,381
Net cash inflow from operating activities		2,936	1,204
Payments to acquire investments Receipts from sale of investments		(204,843) 114,338	(139,925) 92,457
Net cash outflow from investing activities		(90,505)	(47,468)
Equity dividends paid	7	(1,619)	(927)
Issue of Ordinary shares		85,856	50,837
Net cash inflow from financing activities		84,237	49,910
(Decrease)/increase in cash and cash equivalents		(3,332)	3,646
Cash and cash equivalents at start of year Cash and cash equivalents at end of year		12,767 9,435	9,121 12,767
(Decrease)/increase in cash and cash equivalents		(3,332)	3,646
Cash and cash equivalents consist of cash at bank and in hand		9,435	12,767

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

Notes to the Financial Statements

1 Accounting policies

a)Basis of accounting

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

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards â€œUK GAAPâ€) including Financial Reporting Standard (FRS) 102 â€œThe Financial Reporting Standard applicable in the UK and Republic of Irelandâ€ and the Statement of Recommended Practice â€œFinancial Statements of Investment Trust Companies and Venture Capital Trustsâ€ (the â€œSORPâ€) issued by the Association of Investment Companies in November 2014 and updated in February 2018. All of the Companyâ€™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 Companyâ€™s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with a documented investment strategy and information is provided internally on that basis to the Board. Accordingly, upon initial recognition the investments are designated by the Company as â€œheld at fair value through profit or lossâ€. 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 Boardâ€™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 Companyâ€™s own shares for cancellation including the related stamp duty and transaction costs is charged to the distributable element of the capital reserve. The costs relating to the issue of new Ordinary shares are charged to the share premium account.

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.

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 Companyâ€™s right to receive payment is established.

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

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

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

f)Expenses

All expenses include, where applicable, value added tax (â€œVATâ€). Expenses are charged through the revenue account except when expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The investment management fees have been allocated 60% (2018: 60%) to capital and 40% (2018: 40%) to revenue, in line with the Boardâ€™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 Statement of Financial Position date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the Statement of Financial Position date.

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

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

The tax effect of the allocation of expenditure between capital and revenue is reflected in the financial statements using the Companyâ€™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 Companyâ€™s share capital and the predominant currency in which the Company operates, have determined the functional currency to be sterling.

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

j)Capital reserve

The following are accounted for in this reserve:

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

k)Repurchases of shares into Treasury and subsequent reissues

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

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 â€œshare premiumâ€.

2	Investment income	2019 Â£â€™000	2018 Â£â€™000
	Income from investments:
	Interest from UK bonds	892	662
	Income from UK equity and non-equity investments	1,846	1,281
	Interest from overseas bonds	1,050	650
	Income from overseas equity and non-equity investments	883	283
	Total income	4,671	2,876
		2019 Â£â€™000	2018 Â£â€™000
	Total income comprises:
	Dividends	2,729	1,564
	Interest	1,942	1,312
		4,671	2,876
		2019 Â£â€™000	2018 Â£â€™000
	Income from investments comprises:
	Listed in the UK	2,738	1,943
	Listed overseas	1,933	933
		4,671	2,876

3	Investment management fee
		Revenue	Capital	2019 Total	Revenue	Capital	2018 Total
		Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
	Investment management fee	568	852	1,420	434	652	1,086

The Companyâ€™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 Â£120m, 0.45% on net assets above Â£120m, to Â£500m and 0.30% thereafter (2018: 0.60%, 0.45% and 0.30% respectively). At 5 April 2019 Â£407,000 (2018: Â£292,000) was payable. The percentage allocation of the investment management fee charged to capital and revenue is 60:40 as explained further in note 1(f).

4	Other expenses	2019 Â£â€™000	2018 Â£â€™000
	Fees payable to Company auditors for the audit of Company financial statements	20	20
	Directorsâ€™ remuneration (note 5)	99	121
	Company secretarial, administration and accountancy services	142	138
	Custody services	46	39
	General expenses	112	101
		419	419
	The above expenses include irrecoverable VAT where appropriate.

5	Directorsâ€™ remuneration	2019 Â£â€™000	2018 Â£â€™000
	The fees payable to the directors were as follows:

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

6	Tax (charge)/credit on net return
				2019			2018
		Revenue	Capital	Total	Revenue	Capital	Total
		Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000

	Current tax:
	Corporation tax	(292)	267	(25)	(152)	140	(12)
	Total current tax (charge)/credit for the year	(292)	267	(25)	(152)	140	(12)

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

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

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

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

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

7	Dividends Paid	2019 Â£â€™000	2018 Â£â€™000
	Ordinary shares
	2018 dividend paid 20 July 2018 (27.0p per share (21.0p ordinary dividend and 6.0p special dividend))	1,619	-
	2017 dividend paid 21 July 2017 (20.0p per share)	-	927

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

	2019 Â£â€™000	2018 Â£â€™000
Revenue available for distribution by way of dividend for the year	3,392	1,871
Proposed final dividend of 35.0p for the year ended 5 April 2019	(2,760)	(1,619)
Revenue surplus/(deficit) for purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010*	632	252

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

8 Net return per Ordinary share

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

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

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

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


9	Investments held at fair value through profit or loss	2019 Â£â€™000	2018 Â£â€™000
	Investments comprise â€“
	Listed investment companies:
	Ordinary shares UK	36,384	32,199
	Ordinary shares Overseas	54,597	35,254
	Zero Dividend Preference Shares UK	16,296	16,046
	Listed UK government bonds	60,825	27,207
	Listed UK non-government bonds	31,770	19,896
	Listed overseas government bonds	79,186	58,286
	Listed overseas non-government bonds	9,259	1,888
	Exchange traded funds	25,554	15,621
		313,871	206,397
	Cost of investments held at 6 April	195,578	138,832
	Unrealised appreciation at 6 April	10,819	21,805
	Fair value of investments held at 6 April	206,397	160,637
	Additions at cost	208,300	139,591
	Effective yield adjustment*	(346)	(238)
	Sales â€“ proceeds	(115,471)	(92,350)
	â€“ net gains on sales	6,450	9,743
	Movement in unrealised appreciation in the year	8,541	(10,986)
	Fair value of investments held at 5 April	313,871	206,397
	Book cost at 5 April	294,511	195,578
	Unrealised appreciation at 5 April	19,360	10,819
		313,871	206,397
	Disposals â€“ realised gains	6,450	9,743
	Increase/(decrease) in unrealised appreciation	8,541	(10,986)
	Net gains/(losses) on investments	14,991	(1,243)

The geographical spread of investment and the Companyâ€™s investment policy is shown above.

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

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

10	Debtors	2019 Â£â€™000	2018 Â£â€™000
	Other debtors	1,921	386
	Prepayments and accrued income	963	623
	Taxation	17	27
		2,901	1,036

11	Creditors: amounts falling due within one year	2019 Â£â€™000	2018 Â£â€™000
	Other creditors	3,739	280
	Accruals and deferred income	540	366
		4,279	646

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

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

Net asset value attributable to
	2019 Â£â€™000	2018 Â£â€™000
Ordinary shares (basic)	321,928	219,554

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

14	Reconciliation of net return before finance costs and taxation to net cash outflow from operations before dividends and interest
		2019 Â£â€™000	2018 Â£â€™000
	Net return before taxation	17,833	(59)
	Less capital return before taxation	(14,149)	2,082
	Decrease/(increase) in prepayments	5	(3)
	Increase in accruals and deferred income	176	72
	Management fees charged to capital	(852)	(652)
	Increase in overseas withholding tax	(1)	(12)
	Increase in recoverable UK taxation	(3)	(14)
	Dividends received	(2,729)	(1,564)
	Interest received	(1,942)	(1,312)
	Realised gains/(losses) on foreign currency transactions	10	(187)
	Net cash outflow from operations before dividends and interest	(1,652)	(1,649)

15	Financial instruments The Company has the following financial instruments:	2019 Â£â€™000	2018 Â£â€™000
	Financial assets at fair value through profit or loss
	-Investments held at fair value through profit or loss	313,871	206,397
	Financial assets that are debt instruments measured at amortised cost
	-Cash at bank and at hand	9,435	12,767
	-Other debtors	1,921	386
	-Accrued income	949	603
		326,176	220,153
		2019	2018
		Â£â€™000	Â£â€™000
	Financial liabilities measured at amortised cost
	-Other creditors	3,724	268
	-Accruals	540	366
		4,264	634

The Companyâ€™s financial instruments comprise:

investment company ordinary shares, zero dividend preference shares, exchange traded funds and fixed and index-linked securities that are held in accordance with the Companyâ€™s investment objectives;

cash and liquid resources that arise directly from the Companyâ€™s operations; and

debtors and creditors.

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

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

Market risk

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

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

To mitigate these risks, the Boardâ€™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 directorsâ€™ 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 Companyâ€™s investments at the Statement of Financial Position date with all other variables held constant.

	2019	2019	2018	2018
	5% increase in market prices Â£â€™000	5% decrease in market prices Â£â€™000	5% increase in market prices Â£â€™000	5% decrease in market prices Â£â€™000
Income Statement â€“ net return after tax Revenue return	(23)	23	(18)	18
Capital return	15,656	(15,656)	10,291	(10,291)
Total return after taxation	15,633	(15,633)	10,273	(10,273)
Net assets	15,633	(15,633)	10,273	(10,273)
Net asset value per Ordinary share	198.22p	(198.22)p	178.26p	(178.26)p

Interest rate risk

Bond and preference share yields, and as a consequence their prices, are determined by market perception as to the appropriate level of yields given the economic background. Key determinants include economic growth prospects, inflation, the Governmentâ€™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 Companyâ€™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 Companyâ€™s monetary financial instruments at the Statement of Financial Position date with all other variables held constant.

	2019	2019	2018	2018
	1% increase in market prices Â£â€™000	1% decrease in market prices Â£â€™000	1% increase in market prices Â£â€™000	1% decrease in market prices Â£â€™000
Income Statement â€“ net return after tax Revenue return	76	(76)	102	(102)
Total return after taxation	76	(76)	102	(102)
Net assets	76	(76)	102	(102)
Net asset value per Ordinary share	0.96p	(0.96)p	1.77p	(1.77)p

The interest rate profile of the Companyâ€™s assets at 5 April 2019 was as follows:

	Total (as per Statement of Financial Position)	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
	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	%	(years)
Assets
Investment trusts & other funds	132,831	â€“	â€“	â€“	132,831	â€“	â€“
UK index-linked government bonds	27,387	â€“	27,387	â€“	â€“	0.5	0.8
UK index-linked non-government bonds	7,449	â€“	7,449	â€“	â€“	1.1	2.1
UK government bonds	33,438	â€“	â€“	â€“	33,438	â€“	â€“
UK non-government bonds	24,321	â€“	â€“	24,321	â€“	2.0	2.2
Overseas index-linked government bonds	79,186	â€“	79,186	â€“	â€“	1.0	9.8
Overseas index-linked non-government bonds	798	â€“	798	â€“	â€“	2.7	1.6
Overseas non-government bonds	8,461	â€“	â€“	8,461	â€“	2.6	2.2
Invested funds	313,871	â€“	114,820	32,782	166,269
Cash at bank	9,435	9,435	â€“	â€“	-	â€“	â€“
Other debtors	2,901	â€“	â€“	â€“	2,901	â€“	â€“
Liabilities
Creditors	(4,279)	â€“	â€“	â€“	(4,279)	â€“	â€“
Total net assets	321,928	9,435	114,820	32,782	164,891

The interest rate profile of the Companyâ€™s assets at 5 April 2018 was as follows:

	Total (as per Statement of Financial Position)	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
	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	%	(years)
Assets
Investment trusts & other funds	99,120	â€“	â€“	â€“	99,120	â€“	â€“
UK index-linked government bonds	24,710	â€“	24,710	â€“	â€“	0.5	1.8
UK index-linked non-government bonds	4,239	â€“	4,239	â€“	â€“	1.5	3.2
UK government bonds	2,497	â€“	â€“	â€“	2,497	â€“	â€“
UK non-government bonds	15,657	â€“	â€“	15,657	â€“	5.2	2.1
Overseas index-linked government bonds	58,286	â€“	58,286	â€“	â€“	1.1	6.9
Overseas index-linked non-government bonds	393	â€“	393	â€“	â€“	3.8	2.6
Overseas non-government bonds	1,495	â€“	â€“	1,495	â€“	5.5	4.3
Invested funds	206,397	â€“	87,628	17,152	101,617
Cash at bank	12,767	12,762	â€“	â€“	5	â€“	â€“
Other debtors	1,036	â€“	â€“	â€“	1,036	â€“	â€“
Liabilities
Creditors	(646)	â€“	â€“	â€“	(646)	â€“	â€“
Total net assets	219,554	12,762	87,628	17,152	102,012

Fair value of financial assets and liabilities

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

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

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

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

Level 3: valued using inputs that are unobservable.

The Companyâ€™s assets that are measured at fair value through the Income Statement are investments in listed securities and are fair valued under level 1 of the fair value measurement hierarchy. The fair value of financial instruments traded in active markets is based on quoted market prices at the Statement of Financial Position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an armâ€™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 Companyâ€™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 Companyâ€™s investments denominated in foreign currencies are:

	2019 Investments	2019 Accrued interest	2018 Investments	2018 Accrued interest
	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
Euro	22,528	â€“	13,417	â€“
US Dollar	86,946	390	57,418	201
Swedish Krona	13,062	1	10,300	18
Australian Dollar	839	2	431	1
	123,375	393	81,566	220

Foreign currency sensitivity

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

	2019 10% appreciation of Sterling Â£â€™000	2019 10% depreciation of Sterling Â£â€™000	2018 10% appreciation of Sterling Â£â€™000	2018 10% depreciation of Sterling Â£â€™000
Income statement â€“ net return after taxation	(157)	157	(75)	75
Revenue return	(157)	157	(75)	75
Capital return	(12,338)	12,338	(8,157)	8,157
Total return after taxation	(12,495)	12,495	(8,232)	8,232
Net assets	(12,495)	12,495	(8,232)	8,232
Net asset value per Ordinary share	(158.43)p	158.43p	(142.84)p	142.84p

Liquidity risk

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

Credit risk

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

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

Credit risk exposure

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

	2019 Statement of Financial Position Â£â€™000	2019 Maximum exposure Â£â€™000	2018 Statement of Financial Position Â£â€™000	2018 Maximum exposure Â£â€™000
Fixed assets â€“ listed investments at fair value through profit and loss	313,871	181,040	206,397	107,811
Debtors â€“ amounts due from custodian, dividends and interest receivable	2,870	2,870	989	989
Cash at bank	9,435	9,435	12,767	12,767
	326,176	193,345	220,153	121,567

Capital management policies and procedures

The Companyâ€™s capital management objectives are:

to ensure that it will be able to continue as a going concern; and

to maximise the capital and income return to its equity.

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

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

consideration of future use of gearing, which takes into account the investment managerâ€™s views on the market;

the operation and impact of the discount and premium control policy; and

the extent to which revenue in excess of that which is required to be distributed should be retained.

The Companyâ€™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 Â£50,000; and

in order to pay dividends out of profits available for distribution, the Company must meet the capital restriction test imposed on investment companies by company law.

16 Related party transactions

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

GENERAL

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

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

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

PATAC Limited
21 Walker Street
Edinburgh
EH3 7HX
Telephone: +44 (0)131 538 1400
Email: company.secretary@capitalgearingtrust.com

Annual General Meeting ("AGM")

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

Disclaimer: Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

For queries, please contact:

PATAC Limited
Company Secretary
Tel: 0131 538 1400
Email:company.secretary@capitalgearingtrust.com

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