Half-yearly Report
THE INVESTMENT COMPANY PLC
HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2013
The Investment Company plc presents its Half-Yearly Report for the six month
period ended 31 December 2013. It is referred to as TIC, the Company or the
Group in the text of this report.
Investment Objective
The Company's investment objective is to provide Shareholders with an
attractive level of dividends coupled with capital growth over the long term,
through investment in a portfolio of equities, preference shares, loan stocks,
debentures and convertibles.
Summary of Investment Policy
In June 2013, the Company amended its investment policy, appointed an external
investment manager, reorganised the Company's share capital and raised
additional capital through a placing.
The Company will invest primarily in the equity securities of quoted UK
companies with a wide range of market capitalisations, many of which are, or
are expected to be, dividend paying, with anticipated dividend growth in the
long term. The Company may also invest in large capitalisation companies,
including FTSE 100 constituents, where this may increase the yield of the
portfolio and where it is believed that this may increase shareholder value.
The Company will also make investments in preference shares, loan stocks,
debentures, convertibles and related instruments of quoted UK companies. Any
use of derivatives for investment purposes will be made on the basis of the
same principles of risk spreading and diversification that apply to the
Company's direct investments, as described below. The Company will not enter
into uncovered short positions.
Risk diversification
Portfolio risk will be mitigated by investing in a diversified spread of
investments. Investments in any one company shall not, at the time of
acquisition, exceed 15% of the value of the Company's investment portfolio.
In the long term, it is expected that the Company's investments will be a
portfolio of between 40 and 60 securities, most of which will represent
individually no more than 3% of the value of the Company's total investment
portfolio, as at the time of acquisition.
The Company will not invest more than 10% of its gross assets, at the time of
acquisition, in other listed closed-ended investment funds, whether managed by
the Manager or not, except that this restriction shall not apply to investments
in listed closed-ended investment funds which themselves have stated investment
policies to invest no more than 15% of their gross assets in other listed
closed-ended investment funds.
Unlisted investments
The Company may invest in unlisted securities from time to time subject to
prior Board approval.
Investments in unlisted securities in aggregate will not exceed 5% of the value
of the Company's investment portfolio as at the time of investment.
Borrowing and gearing policy
The Company may use gearing, including bank borrowings and the use of
derivative instruments such as contracts for differences. The Company may
borrow (through bank facilities and derivative instruments) up to 15% of net
asset value ("NAV") (calculated at the time of borrowing).
Investment Strategy
The Manager intends to use a bottom-up investment approach for the portfolio,
with a diversified portfolio of securities of various market capitalisation
sizes. There will be a bias towards dividend paying smaller companies, but the
portfolio will also include preference shares, loan stocks, debentures and
convertibles with attractive yields.
The investment approach can be described as active and universal, as the
Company will not seek to replicate any benchmark and will target a significant
proportion of smaller company equities within an overall diversified portfolio.
Potential investments are assessed against the key criteria including, inter
alia, their yield, growth prospects, market positions, calibre of management
and risk and cash resources.
A copy of the complete Investment Policy can be found in the Company's Annual
Report and Accounts for the period ended 30 June 2013.
Dividend Policy
The Company will seek to maintain an annualised dividend yield of 6% of NAV
(based on the opening NAV at the start of each financial year). It is intended
that dividends of roughly equal size will be paid quarterly. This income will
be paid out of revenue and/or capital as appropriate.
Investment Manager
During the period to 31 December 2013, the Company was managed by Miton Capital
Partners Limited. On 1 January 2014, the Investment Management Agreement was
novated from Miton Capital Partners Limited to Miton Asset Management Limited
("Miton"), a subsidiary of Miton Group plc, an AIM quoted firm.
Miton is a leading multi-asset and equity fund management specialist. The group
manages £3.1bn of assets (as at 31 December 2013) including eleven open-ended
investment companies, four investment trusts and segregated client accounts.
Capital Structure
As at 31 December 2013 and the date of this report, the Group's share capital
consisted of 4,772,049 ordinary shares of 50p each, of which 32,500 shares were
held in Treasury and 4,739,549 shares were in circulation.
Total Assets and Net Asset Value
The Group had net assets of £18.8 million and a NAV of 395.7p per ordinary
share at 31 December 2013.
Website
www.mitongroup.com/tic
SUMMARY OF RESULTS
At 31 December 2013 At 30 June 2013
(unaudited) (audited) Change
Equity shareholders' funds 18,754,012 16,237,484 15.5%
Number of ordinary shares 4,772,049 4,772,049
in issue
Net asset value per 395.69p 342.60p 15.5%
ordinary share
Ordinary share price (mid) 380.00p 327.50p 16.0%
Discount to net asset value 3.97% 4.41%
6 months 15 month period
to 31 December 2013 to 30 June 2013*
(unaudited) (audited)
Total return per ordinary 58.59p 71.41p
share
Dividend declared per 10p 6p
ordinary share
* The Company extended its accounting period from 31 March 2013 to 30 June
2013.
FINANCIAL CALENDAR
February Payment of second interim dividend for the year ending
30 June 2014.
Announcement of Half-Yearly Financial Report.
May Payment of third interim dividend for the year ending
30 June 2014.
August Payment of fourth interim dividend for the year ending
30 June 2014.
September Announcement of Annual Results.
November Payment of first interim dividend for the year ending
30 June 2015.
December Annual General Meeting.
CHAIRMAN'S STATEMENT
Half-year to 31 December 2013
This is my first interim statement for TIC since the reorganisation of the
capital structure on 24 June 2013.
On the announcement of the reorganisation, the ordinary share price of the
Company rose more closely to reflect the underlying NAV. Over the last six
months, TIC's share price has appreciated further, reflecting the Company's NAV
appreciation of 15.5%, to 395.7p. In addition, the Board has now initiated
quarterly dividends that are planned to amount to a 6% yield, or 20.6p on the
342.6p NAV as at 30 June 2013. So far, two dividends of 5p per share, amounting
to 10p in total, have been declared and paid for the quarters ended
30 September 2013 and 31 December 2013.
The £4.3m of new capital raised at the time of the reconstruction has been
invested mainly in a range of smaller company equities that have appreciated in
the period. The majority of the dividend income comes from premium yielding
preference shares, loan stocks, debentures and enhanced capital notes ("ECN")
where the scope for capital appreciation is often less pronounced.
Going forward it is anticipated that there will be greater issuance of
convertible loan stocks and convertible preference shares by smaller quoted
companies. In time, it is expected that a large portion of the Company's
portfolio will be invested in convertibles such as these, as they have the
advantage of not only paying a good running yield, but also come with the
option of conversion, which can generate good capital gains if the relevant
ordinary shares perform well.
Worldwide growth expectations moderated significantly during 2013. The Board
believes the Company is well placed as this environment looks to favour smaller
and microcap stocks because as a group they are better able to grow, even at
times of economic stagnation. Historically, prior to the credit boom, smaller
UK quoted companies outperformed for decades.
The Company has been granted approval from HM Revenue & Customs as an
investment trust in accordance with UK Corporation Tax legislation. Further
details can be found below.
Sir David Thomson
Chairman
26 February 2014
MANAGER'S REPORT
Markets
Over the six month period to 31 December 2013 prospects for the UK economy have
improved. This has been reflected in a further rise of UK equities, with the
FTSE All-Share Index rising 9.7% in the period. However, the economic
improvement has also led the US Federal Reserve to conclude that the time is
now right for them to start reducing their policy of buying bonds, known as
Quantitative Easing ("QE"). So, in contrast to equities, bond markets have
fallen back over the period.
During the credit boom, midcap stocks generally have tended to outperform. The
last two years have been marked by the outperformance of smaller stocks, and
over the six month period the FTSE Smaller Companies Index (excluding
investment companies) rose 23.8% and the FTSE AIM All-Share Index rose 23.0%.
Portfolio
The portfolio is principally invested in a range of preference shares, loan
stocks, debentures and notes. Although the largest corporate exposure in the
portfolio is to Lloyds Banking Group through a number of different ECNs, there
are over 50 issuers from different companies in the portfolio. It is difficult
to increase many of the holdings because they have obvious attractions and tend
to be tightly held. On occasion, we find that they are redeemed, sometimes at a
premium to their market prices, as happened during the period, in the case of
the Skipton Building Society Floating Rate Notes.
The £4.3m of new capital raised by the Company, has therefore been invested in
a range of individual equities that, together, offer the prospect of good and
growing dividend income. Many smaller companies have already enjoyed a period
of outperformance, but we continue to identify plenty of holdings where
valuations appear far too low.
However, market trends are changing and we believe that smaller companies are
well placed to enjoy a long period of outperformance. The change in attitudes
to smaller quoted stocks is still nascent. Institutions tend to have little
capital invested in smaller companies which are, by their nature, naturally
diminutive in scale and under-researched. Yet, prior to the credit boom,
institutional portfolios were fully weighted in smaller companies, given that
their key advantage is that as a group they can grow even at time of economic
austerity. We believe that institutional weightings in the smallest stocks will
therefore be gradually rebuilt over the coming years.
As a corollary, we believe the growing interest in funding smaller companies
will also lead to an increase in the issuance of convertible loan stocks and
convertible preference shares. These instruments offer the new investor a
regular income at a premium yield, along with the right to convert into the
quoted shares if the relevant share price appreciates significantly. In
December 2013, the portfolio invested approximately £0.6m in the first such
issue: William Sinclair plc issued a Loan Note that pays an 11% yield
initially, that is expected to fall back to 8% when the corporate debt ratios
reduce. Along with the Loan Notes, came some detachable Warrants into William
Sinclair plc at 80p. The additional debt has facilitated the company's move
into a new single operation, and the business is anticipated to prosper going
forward, and therefore their share price has already appreciated. Whilst such
issues are currently relatively rare, they were more popular prior to the
credit boom, and we anticipate they will be again.
Criteria for selecting new investments for the portfolio
There are five criteria that the managers use to determine the scope for the
business to deliver good and growing dividends.
The prospect of turnover growth If a business is to sustain and grow its
dividend, then the portfolio needs to invest in companies that will generate
more cash in the coming years. Without decent turnover growth this is
near-impossible to achieve over time.
Sustained or improving margins A business needs to deliver significant value to
its customer base if it is to sustain decent margins. Unexpected cost increases
cannot be charged on to customers if they are anything less than delighted with
their suppliers. Turnover growth will not lead to improved cash generation if
declining margins offset it.
A forward-looking management team Businesses often need to make commercial
decisions on incomplete information. A thoughtful and forward-looking team has
a better chance of making better decisions.
Robust balance sheet There are disproportionate advantages to having the
independence of a strong balance sheet in a period of elevated economic and
political risks. Conversely, corporates with imprudent borrowings can risk the
total loss of shareholders' capital.
Low expectation valuation Many of the most exciting stocks enjoy higher stock
market valuations but almost none can consistently beat the high expectations
baked into their share prices. Those with low expectations tend to be less
vulnerable to disappointment, but conversely can enjoy excellent share price
rises if they surprise on the upside.
Companies that best meet these criteria on a prospective basis are believed to
be best positioned to deliver attractive returns to shareholders, as well as
offering moderated risk.
These criteria, used in reverse, can also be useful in determining the timing
of portfolio stocks that should be considered for divestment. So, a business in
danger of suffering a period of turnover declines, for example, would naturally
be expected to generate less cash flow in future years and thereby struggle to
sustain their current dividend over time, let alone grow it.
Performance
Prior to the reconstruction, the ordinary share price stood at 235p, well below
the NAV given that the capital structure was dominated by the rights of the
participating preference shares. The conversion of the preference shares and
the raising of the new capital diluted the NAV for ordinary shares, but with
just one class of equity the ordinary share price is now close to the
underlying NAV. During the six month period to 31 December 2013, the NAV of the
Company has appreciated by 15.5% and dividends of 10p have been paid/declared.
Most of that capital appreciation was delivered by the new holdings in the smaller
companies. However, in contrast, the 6% dividend yield anticipated over the
first year has been principally funded from the portfolio of preference share,
loan stocks, debentures and notes.
Prospects
It is reassuring that the UK is enjoying a period of economic recovery.
However, in time this might not only lead to a reduction of QE, but also
potentially an increase in UK interest rates. Whilst it is anticipated that
these headwinds might inhibit the appreciation of markets, we are hopeful that
the potential premium growth of well managed smaller businesses during a period
of austerity will become more appreciated. This is a trend that should be
favourable for the Company.
Gervais Williams and Martin Turner
Miton Asset Management Limited
26 February 2014
TWENTY LARGEST INVESTMENTS
At 31 December 2013
Stock Number % of Book Market or % of
issue cost Directors' total
valuation portfolio
£ £
1. Lloyds Banking Group
7.5884% ECN 12/05/20 (LBG 1,750,000 0.24 795,219 1,852,200
Capital)
7.975% ECN 15/09/24 (LBG 920,000 0.90 548,906 968,300
Capital)
7.8673% ECN 17/12/19 (LBG 500,000 0.15 167,613 530,400
Capital)
14.5% ECN 30/01/22 (LBG 300,000 0.38 246,247 389,940
Capital)
9.125% ECN 15/07/10 (LBG 100,000 0.03 89,224 105,560
Capital)
7.281% Perpetual (Bank of 400,000 0.27 315,331 413,240
Scotland)
2,162,540 4,259,640 22.55
2. Phoenix Life
7.25% perpetual notes 1,060,000 0.53 811,923 1,010,286 5.35
3. Royal Bank of Scotland
Group
9% series `A' non-cum pref 500,000 0.36 362,920 616,250
(NatWest)
Sponsored ADR rep pref C 20,000 1.67 55,473 304,181
(NatWest)
418,393 920,431 4.87
4. Plus500
Ordinary ILS 0.01 ‡ 263,445 0.23 318,350 811,411 4.29
5. Anpario
Ordinary 23p ‡ 241,000 1.64 339,124 795,300 4.21
6. Seeing Machines
Ordinary NPV ‡ 9,000,000 1.12 450,000 765,000 4.05
7. Safestyle UK
Ordinary 1p ‡ 469,000 0.60 469,000 698,810 3.70
8. Randall & Quilter
Investment Holdings
Ordinary 2p ‡ 387,000 0.54 502,731 684,990 3.63
9. Conygar Investment Co.
Ordinary 5p ‡ 420,478 0.47 533,332 674,765 3.56
10. Charles Taylor
Ordinary 1p ‡ 230,000 0.55 419,215 579,600 3.07
11. William Sinclair Holdings
8% convertible loan notes †550,000 6.67 550,000 550,000 2.91
12. Lancashire Holdings
Common stock ‡ 65,000 0.04 494,090 527,150 2.79
13. Fishguard & Rosslare
3.5% GTD preference stock 790,999 63.91 441,810 474,599 2.51
14. Gable Holdings
Ordinary 2.5p ‡ 617,063 0.46 339,385 442,743 2.34
15. Newcastle Building
Society
6.25% sub notes 23/12/19 600,00 2.40 405,438 403,901 2.14
16. REA Holdings
9.5% GTD Notes 31/12/17 300,000 2.00 298,254 312,000 2.13
7.5% Dollar Notes 30/06/17 150,000 0.44 76,740 90,568
374,994 402,568
17. Fairpoint Group
Ordinary 1p ‡ 300,000 0.71 307,992 390,000 2.06
18. Juridica Investments
Ordinary NPV ‡ 295,000 0.27 384,596 380,550 2.01
19. Arbuthnot Banking Group
Ordinary 1p ‡ 25,000 0.17 88,228 357,500 1.89
20. Investec Investment Trust
3.5% cum pref £1 461,508 35.50 271,938 272,290
5% cum pref £1 104,043 30.12 92,858 79,333
364,796 351,623 1.86
10,175,937 15,480,867 81.92
‡ Issues with unrestricted voting rights.
†Unlisted investments at Directors' valuation.
The Group has a total of 73 portfolio investment holdings in 56 companies.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 December 2013
6 months to 6 months to 15 months to
31 December 2013 30 September 2012 30 June 2013
(unaudited) (unaudited)restated* (audited)restated*
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £ £ £ £
Gain on investments - 2,573,511 2,573,511 - 791,074 791,074 - 1,466,811 1,466,811
held at fair value
thorugh profit or
loss
Investment income 517,101 - 517,101 475,809 - 475,809 1,134,994 - 1,134,994
Investment 3 (100,703) - (100,703) (55,500) - (55,500) (138,750) - (138,750)
management fee
Other administrative (194,512) - (194,512) (156,489) - (156,489) (568,601) - (568,601)
expenses
Return before 221,886 2,573,511 2,795,397 263,820 791,074 1,054,894 427,643 1,466,811 1,894,454
finance costs and
taxation
Finance costs
Loan note interest (18,436) - (18,436) (27,503) - (27,503) (62,700) - (62,700)
Other finance costs - - - (174,818) - (174,818) (432,550) - (432,550)
Other interest - - - (2,195) - (2,195) (2,195) - (2,195)
payable
Participating - - - - - - (49,948) - (49,948)
element of preference
dividends paid
Return before 203,450 2,573,511 2,776,961 59,304 791,074 850,378 (119,750) 1,466,811 1,347,061
taxation
Taxation - - - - - - - - -
Return after 203,450 2,573,511 2,776,961 59,304 791,074 850,378 (119,750) 1,466,811 1,347,061
taxation
Return per 50p
ordinary share
Basic and diluted 5 4.29p 54.30p 58.59p 3.18p 42.36p 45.54p (6.35)p 77.76p 71.41p
The Group does not have any income or expense that is not included in the
`return for the period'. Accordingly, the `return for the period' is also the
Total Comprehensive Income for the period as defined in International
Accounting Standard 1 (revised), and consequently no separate Statement of
Comprehensive Income has been presented.
The total column of this statement is the Income Statement of the Group
prepared in accordance with International Financial Reporting Standards, as
adopted by the European Union. The supplementary revenue and capital columns
are presented in accordance with the Statement of Recommended Practice issued
by the Association of Investment Companies ("AIC SORP").
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period.
During the period the Company was granted approval as an investment trust under
s1158/1159 of the Corporation Tax Act 2010 for the year ending 30 June 2014.
The Company will be treated as an investment trust company for each subsequent
accounting period, subject to there being no serious breaches. As such, and in
accordance with the AIC SORP, movements in unrealised appreciation of
investments recognised in equity and in profit and loss, that were previously
recorded as "Other Comprehensive Income", are now included as "Gains on
investments held at fair value through profit and loss" and therefore shown
within the return for the period.
* The comparative figures have been restated to enable users of the accounts to
compare the current period's results with those of the previous periods and now
include all revaluation movements on investments held at fair value through
profit or loss, which were previously shown as items within `Other
Comprehensive Income'. This restatement is unaudited.
The comparative figures for the 15 month period to 30 June 2013 have also been
restated to include the participating element of preference
dividends paid as a finance cost. This restatement has resulted in net reported
revenue return and total return for that period decreasing by £49,948.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 December 2013
Own Capital
Issued Share shares redemption Revaluation Capital Revenue
capital premium held reserve reserve reserve account Total
£ £ £ £ £ £ £ £
Balance at 1 July 2013 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484
Total comprehensive
income
Net return for the - - - - - 2,573,511 203,450 2,776,961
period
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - - (236,977) (236,977)
paid
Transfer between - - - - (3,511,569) 3,511,569 - -
reserves*
Costs of issue - (23,456) - - - - - (23,456)
Balance at 31 December 2,386,025 4,440,987 - 2,408,820 - 9,099,052 419,128 18,754,012
2013
Balance at 1 April 1,808,728 1,019,246 (2,919,861) 685,250 2,313,745 4,806,064 684,449 8,397,621
2012
Total comprehensive
income
Net return for the - - - - 513,561 277,513 59,304 850,378
period
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - - (74,693) (74,693)
paid
Balance at 1,808,728 1,019,246 (2,919,861) 685,250 2,827,306 5,083,577 669,060 9,173,306
30 September 2012
Balance at 1 April 1,808,728 1,019,246 (2,919,861) 685,250 2,313,745 4,806,064 684,449 8,397,621
2012
Total comprehensive
income
Net return for the - - - - 1,197,824 268,987 (119,750) 1,347,061
period
Transactions with
shareholders recorded
directly to equity
Ordinary dividends - - - - - (112,044) (112,044)
paid
Conversion of (858,782) - 2,919,861 - - (2,061,079) - -
non-voting ordinary
shares into fixed rate
preference shares
Conversion of 773,833 - - 1,723,570 - - - 2,497,403
preference shares into
ordinary shares
Issue of new ordinary 662,246 3,682,753 - - - - - 4,344,999
shares
Costs of issue - (237,556) - - - - - (237,556)
Balance at 30 June 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484
2013
* The transfer between reserves arises from the re-allocation of unrealised
profits on the Group's investments held at fair value through profit or loss,
following the Company attaining formal approval as an investment trust company
and in accordance with the AIC SORP.
CONSOLIDATED BALANCE SHEET
As at 31 December 2013
31 December 30 September 30 June
2013 2012 2013
(unaudited) (unaudited) (audited)
Note £ £ £
Investments
Investments at cost 16,462,515 12,465,789 12,408,510
Investment holding gains/ 2,431,366 (141,451) 390,084
(losses)
Portfolio investments at 18,893,881 12,324,338 12,798,594
fair value through profit
or loss
Current assets
Trade and other 262,720 275,835 1,393,916
receivables
Investments held for 35,897 249,770 122,860
trading
Cash and bank balances 648,928 280,068 3,138,062
947,545 805,673 4,654,838
Current liabilities
Preference dividends - 174,818 82,914
payable
Trade and other payables 356,014 187,384 401,634
5% loan notes maturing 365,700 365,700 365,700
2014
721,714 727,902 850,248
Net current assets 225,831 77,771 3,804,590
Non-current liabilities
5% loan notes maturing (365,700) (731,400) (365,700)
2014/2015
Participating preference - (2,497,403) -
shares
Net assets 18,754,012 9,173,306 16,237,484
Capital and reserves
Issued capital 2,386,025 1,808,728 2,386,025
Share premium 4,440,987 1,019,246 4,464,443
Own shares held - (2,919,861) -
Capital redemption 2,408,820 685,250 2,408,820
reserve
Revaluation reserve - 2,827,306 3,511,569
Capital reserve 9,099,052 5,083,577 3,013,972
Revenue reserves 419,128 669,060 452,655
Shareholders' funds 18,754,012 9,173,306 16,237,484
Net Asset Value per 50p 6 395.69p 357.50p 342.60p
ordinary share
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 December 2013
Notes 6 months to 6 months to 15 months to
31 December 30 September 30 June
2013 2012 2013
(unaudited) (unaudited) (audited)
£ £ £
Cash flows from operating
activities
Cash received from investments 290,573 146,137 406,454
Interest received 252,388 254,742 722,332
Sundry income - - 468
Cash paid to and on behalf of (17,307) (125,069) (250,687)
employees
Other cash payments (433,521) (128,153) (377,647)
Net cash inflow from operating 92,133 147,657 500,920
activities
Cash flows from financing
activities
Bank interest paid - (2,195) (2,195)
Loan note interest paid (17,859) (27,503) (53,583)
Loan notes redeemed - - (365,700)
Fixed element of dividends paid on - (174,818) (524,455)
preference shares
Participating element of dividends - - (49,948)
paid on preference shares
Dividends paid on ordinary shares (236,977) (70,954) (104,195)
Share capital subscriptions 1,195,345 - 2,998,176
received
Net cash inflow/(outflow) from 940,509 (275,470) 1,898,100
financing activities
Cash flows from investing
activities
Purchase of investments (6,126,454) (241,186) (274,005)
Sale of investments 2,604,678 864,550 1,228,530
Net cash (outflow)/inflow from (3,521,776) 623,364 954,525
investing activities
Net (decrease)/increase in cash (2,489,134) 495,551 3,353,545
and cash equivalents
Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash (2,489,134) 495,551 3,353,545
Loan notes redeemed - - 365,700
(Decrease)/increase in net cash (2,489,134) 495,551 3,719,245
Net cash/(debt) at start of period 2,406,662 (1,312,583) (1,312,583)
Net (debt)/cash at end of period (82,472) (817,032) 2,406,662
Analysis of (net debt)/net cash
Cash and bank balances 648,928 280,068 3,138,062
5% loan notes due within one year (365,700) (365,700) (365,700)
5% loan notes due in more than one (365,700) (731,400) (365,700)
year
(82,472) (817,032) 2,406,662
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Financial information
The Investment Company plc is a public limited company incorporated and registered in
England and Wales. The address of its registered office and principal place of
business is Beaufort House, 51 New North Road, Exeter EX4 4EP.
The consolidated financial statements, which comprise the unaudited results of
the Company and its wholly owned subsidiaries, Abport Limited and New Centurion
Trust Limited, together referred to as the "Group", for the half year to 31
December 2013, have been prepared under the historical cost basis, except for
the measurement at fair value of investments, and in accordance with
International Financial Reporting Standards, as adopted by the European Union.
Where guidance set out in the AIC SORP is consistent with the requirements of
IFRS, the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP.
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement.
The financial information contained in this half-yearly financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. The financial information for the half years ended 31 December 2013
and 30 September 2012 has been neither audited nor reviewed by the auditors.
The figures and financial information for the 15 months to 30 June 2013 are
extracted from the latest published audited financial statements of the Company
and do not constitute the statutory accounts for that year. The audited
financial statements for the 15 months to 30 June 2013 have been filed with the
Registrar of Companies. The report of the independent auditors on those
accounts contained no qualification or statement under section 498(2) or
section 498(3) of the Companies Act 2006.
Except as described below, the Group has applied consistent accounting policies
in preparing the half-yearly financial statements for the six months ended 31
December 2013, the comparative information for the six months ended 30
September 2012, and the financial statements for the 15 months to 30 June 2013.
The Company changed its accounting reference date to 30 June, extending the
accounting period that was due to end on 31 March 2013 so as to end on 30 June
2013.
2. Changes in accounting policies
During the period, the Company applied for, and was granted, approval from HM
Revenue & Customs as an investment trust under s1158/1159 of the Corporation
Tax Act 2010 for the year ending 30 June 2014.
As a consequence of the adoption of the AIC SORP and in order better to reflect
the activities of an investment trust company, the Company has changed its
accounting policies for its valuation of portfolio investments and treatment of
certain reserves. These proposed changes are largely concerned with the
presentation of certain items only and do not materially impact on the results
or net assets of the Company.
The Company's policies set out in note 1 of the Annual Report and Financial
Statements for the period ended 30 June 2013 have remained substantially
unchanged except for the following:
a) Valuation of investments
Investments are recognised and derecognised on the trade date where a purchase
or sale is under a contract whose terms require delivery within the timeframe
established by the market concerned, and are initially measured at fair value.
All investments held by the Company are classified as at "fair value through
profit or loss". Investments are initially recognised at cost, being the fair
value of the consideration given. After initial recognition, investments are
measured at fair value, with unrealised gains and losses on investments and
impairment of investments recognised in the Income Statement and allocated to
capital.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid prices or closing prices
for SETS (London Stock Exchange's electronic trading service) stocks sourced
from the London Stock Exchange on the Balance Sheet date, without adjustment
for transaction costs necessary to realise the asset.
After initial recognition, unlisted stocks are reviewed and valued by the Board
on a regular basis.
b) Reserves
Capital reserve
The following are accounted for in this reserve:
• gains and losses on the realisation of investments;
• net movement arising from changes in the fair value of investments that can
be readily converted to cash without accepting adverse terms;
• net movement from changes in the fair value of derivative financial
instruments; and
• expenses, together with related taxation effect, charged to this account in
accordance with the above policies.
Revaluation reserve
The revaluation reserve represents the accumulated unrealised gains on the
Company's available-for-sale investments. Following investment trust status
being granted to the Company, and in order to better reflect the requirements
of investment companies in accordance with the AIC SORP, all such movements in
unrealised gains and losses will be accounted for in the capital reserve as
described above.
3. Management fee
Under the terms of the Management Agreement, the Manager is entitled to receive
from the Company or any member of the Group in respect of its services provided
under this Agreement, a management fee payable monthly in arrears equal to
one-twelfth of 1% per calendar month of the NAV of the Company. For these
purposes, the NAV shall be calculated as at the last Business Day of each month
and is subject to the ongoing charges ratio of the Company not exceeding 2.5%
per annum in respect of any completed financial year.
4. Dividends
6 months to 6 months to 15 months to
31 December 30 September 30 June
2013 2012 2013
(unaudited) (unaudited) (audited)
£ £ £
Participating preference shares
Participating preference element - - 49,948
Ordinary shares
Prior year final dividend of 4p paid - 74,693 74,696
on 1 September 2012
Prior year interim dividend of 2p - - 37,348
paid on 7 January 2013
Current year first interim dividend 236,977 - -
of 5p paid on 22 November 2013
Total dividends 236,977 74,693 161,992
The Board declared a second interim dividend of 5p per ordinary share,
which was paid on 21 February 2014 to shareholders registered at the close of
business on 31 January 2014. In accordance with IFRS, this dividend has not
been included as a liability in these financial statements.
5. Return per ordinary share
6 months to 15 months to
6 months to 30 September 2012 30 June 2013
31 December 2013 (unaudited) (audited)
(unaudited) *restated *restated
£ £ £
Weighted average 4,739,549 1,867,391 1,886,328
ordinary shares in
issue
£ Per £ Per £ Per
share share share
pence pence pence
Revenue return
Net return after
taxation
attributable to 203,450 4.29 59,304 3.18 (119,750) (6.35)
ordinary shareholders
Capital return
Net investments gains 2,573,511 54.30 791,074 42.36 1,466,811 77.76
after tax
Total return 2,776,961 58.59 850,378 45.54 1,347,061 71.41
* In order better to reflect the activities of an investment company and to
ensure consistency with reporting of performance, figures for both the
comparative periods have been restated to now include all valuation gains and
losses on the Company's investments held at fair value through profit or loss,
that were previously recorded within `Other Comprehensive Income' as items
within capital return after tax for those periods. The effect of this on total
return after tax as a result of the restatement for the six month period to
30 September 2012 is an increase of 27.50p from 18.04p to 45.54p; and for the
15 month period to 30 June 2013 it is an increase of 63.50p from 7.91p originally
stated to 71.41p as shown in the above table.
6. Net asset value per ordinary share
Net asset value per ordinary share is based on net assets at the period end and
4,739,549 (30 September 2012: 1,867,391 and 30 June 2013: 4,739,549) ordinary
shares, being in each case the number of ordinary shares in issue at the period
end less 32,500 shares held in Treasury.
7. Principal risks and uncertainties
The principal risks facing the Group are substantially unchanged since the date
of the Annual Report for the period ended 30 June 2013 and continue to be as
set out in that report. Risks faced by the Group include, but are not limited
to, investment decisions, investment valuations and macro-economic environment
for preference shares and prior charge securities, market price risk, interest
rate risk and liquidity risk.
8. Responsibility statement
The Directors confirm that to the best of their knowledge:
• the condensed set of financial statements has been prepared in accordance
with International Accounting Standard 34, Interim Financial Reporting, as
adopted by the European Union; and gives a true and fair view of the assets,
liabilities and financial position of the Group; and
• this Half-Yearly Financial Report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R.
This Half-Yearly Financial Report was approved by the Board of Directors on 26
February 2014 and the above responsibility statement was signed on its behalf
by Sir David Thomson, Chairman.
DIRECTORS AND ADVISERS
Directors (all non-executive) Independent Auditors
Sir Frederick Douglas David Thomson Bt. Saffrey Champness
(Chairman) Lion House
Peter Stanley Allen Red Lion Street
Stephen John Cockburn London WC1R 4GB
Martin Henry Withers Perrin
Registrar
Secretary and Registered Office Capita Asset Services
Capita Company Secretarial Services Shareholder Services Department
Limited The Registry
Beaufort House 34 Beckenham Road
51 New North Road Beckenham
Exeter EX4 4EP Kent BR3 4TU
Telephone: 01392 412122 Telephone: 0871 664 0300
Investment Manager Fax: 020 639 2342
Miton Asset Management Limited Email:shareholderenquiries@capita.co.uk
51 Moorgate Website: www.capitaassetservices.com
London EC2R 6BH
Telephone: 0118 338 4033
Website: www.mitongroup.com
An investment company as defined under Section 833 of the Companies Act 2006.
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