Annual Financial Report

RNS Number : 8604C

Investors Capital Trust PLC

08 May 2012

 



To:                    RNS

From:                Investors Capital Trust plc

Date:                8 May 2012

Results for the year ended 31 March 2012

·      Total distributions for the year to 31 March 2012 of 4.28p per share

·      Distribution yield of 5.2 and 4.9 per cent on A and B shares respectively at 31 March 2012, compared to the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent

·      Net asset value total return per share for the year was 5.7 per cent, compared to the FTSE All-Share Capped 5% Index total return of 1.8 per cent

·      Net asset value total return per share since launch on 1 March 2007 was 19.5 per cent, compared to the FTSE All-Share Capped 5% Index total return of 15.0 per cent

Chairman's Statement as follows:

Investment Objective and Policy

The Company's investment objective is to provide an attractive return to shareholders in the form of dividends and/or capital distributions, together with prospects for capital growth.

The Company's investment portfolio is managed in two parts. The first part comprises investments in UK equities and equity related securities (the Equities Portfolio) and the second part investments in fixed interest and other higher yielding securities (the Higher Yield Portfolio). At 31 March 2012, 75.9 per cent. of total assets was allocated to the Equities Portfolio and 15.5 per cent. to the Higher Yield Portfolio. The remaining 8.6 per cent. was held as cash and cash equivalents.

Investment Performance - year to 31 March 2012

In my interim report to shareholders, I suggested that the unwinding of high levels of personal and national debt in developed economies was likely to take many years and constrain the rate of economic growth in the future. This has certainly been the case during the past year. The Eurozone sovereign debt crisis overshadowed financial markets throughout the year and despite the enormous policy response from the European Central Bank, in the form of the Long Term Refinancing Operation, appears no closer to resolution. It is encouraging, that against this uncertain background, both equity and credit markets managed modest progress during the year. The Company's investment approach favours companies which have robust balance sheets, above average visibility of earnings, strong cash flow and good dividend cover. This "defensive" positioning contributed to the out-performance of our Equities Portfolio. The Company's Equities Portfolio produced a total return of 6.6 per cent. during the year to 31 March 2012, while the Higher Yield Portfolio returned 3.9 per cent.

Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of gearing, resulted in a net asset value total return for the A and B shares of 5.7 per cent.  This return is ahead of the 1.8 per cent. total return for the FTSE All-Share Capped 5% Index, the Company's benchmark.

Investment Performance - from launch on 1 March 2007 to 31 March 2012

Since the launch of the Company on 1 March 2007 to 31 March 2012, the Company has outperformed its benchmark index. The net asset value per share total return performance of the Company has been 19.5 per cent which compares favourably with the 15.0 per cent return from the benchmark FTSE All-Share Capped 5% Index. Under the Company's constitution, this performance means that there will not be a vote at the 2012 annual general meeting on whether the Company should continue. The next such performance period will run for the five years from 1 April 2012 to 31 March 2017.

The Company's Equities Portfolio produced a total return of 22.4 per cent. from launch on 1 March 2007 to 31 March 2012, while the Higher Yield Portfolio returned 32.0 per cent. The net asset value per share total return performance of 19.5 per cent. reflects the cost of the Company's borrowings and other expenses.

Earnings

The Company achieved total revenue income of £6.1m for the year. The yield on the Equities Portfolio was 4.1 per cent. as at 31 March 2012, compared to the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent.

The Company's revenue was below that earned during the previous financial year as increased income from the Equities Portfolio was offset by a lower level of income from the Higher Yield Portfolio and a reduced level of one-off special dividends. The modest level of deposit interest reflects continued low rates of interest throughout the year.

The ongoing recovery in corporate profits and cash flows during the year was reflected in strong dividend growth from the UK equity market. In contrast to the excessive levels of public and private debt in most developed economies, UK corporate balance sheets, financial sector aside, are robust and profit margins are close to record levels. The Company has also benefited from the earnings diversity offered by the UK market. The majority of UK corporate earnings come from international markets which in some cases offer improved growth opportunities. Vodafone provides a good example. Despite challenging trading conditions in its Southern European operations, Vodafone announced a special dividend as a result of a strong trading performance from the US business Verizon Wireless, in which it holds a major stake.       

The US dollar exchange rate remains an important influence on the Company's revenue. The Equities Portfolio derives approximately one third of its income from UK-listed companies that declare dividends in US dollars. A weaker US dollar reduces the Company's Sterling receipts from dividends declared in US dollars. The US dollar exchange rate, measured using an average rate, recorded a modest weakening against Sterling over the year although the impact on the Company's revenue was not material. The Company also invests in corporate bonds which are US dollar and Euro denominated. 

Income from the Higher Yield Portfolio, was below the level earned in the previous year. The decline was a result of the decision to allocate money out of the Higher Yield Portfolio and also a function of lower gross redemption yields on the reinvestment of proceeds from maturing bonds. The portfolio comprises predominately investment grade corporate bonds and has a relatively short maturity profile.

After deducting the fourth quarter dividend, the Company had revenue reserves of £2.1m at 31 March 2012. 

Dividends and Capital Returns

Dividends to A shareholders and capital distributions to B shareholders are paid quarterly in August, November, February and May each year. In respect of the distributions for the Company's first three quarters, the dividends paid on the A shares and capital distributions on the B shares were 1.06p per share for each quarter. A fourth quarter dividend of 1.1p per share was paid to A shareholders and a capital distribution of the same amount to B shareholders on 4 May 2012. This results in a dividend/capital distribution of 4.28p per share in respect of the year to 31 March 2012 and is an unchanged distribution over the previous year.  This represents a distribution yield for A shareholders of 5.2 per cent. and for B shareholders of 4.9 per cent., based on the A share price of 82.0 pence and the B share price of 86.5 pence as at 31 March 2012. These yields compare favourably with the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent. at that date.  For shareholders that hold units, the estimated distribution yield was 5.3 per cent. based on a unit price of 322.5 pence as at 31 March 2012.

The Company operates a distribution reinvestment scheme, details of which are available from the Company's Registrars, to enable B shareholders to reinvest their capital distributions in further B shares if they wish.

Capital Structure

The Company has two classes of shares: A shares and B shares. The net asset value attributable to the A shares and to the B shares is the same. The rights of each class are identical, save that only the A shares are entitled to receive dividends, while the B shares instead receive a capital distribution at the same time as, and in an equal amount to, each dividend. For certain shareholders there will be tax and other advantages in receiving a capital distribution rather than a dividend. Shares may be held and traded within units, each unit comprising three A shares and one B share.  The 'Capital Structure' section of the Annual Report provides further information on the A and B shares. 

The Company has a £33.5m loan facility for a term to 28 September 2012 at an effective rate of interest of 5.86 per cent. per annum. The Directors are currently considering the options available to the Company regarding the refinancing of this loan facility.

Discount and buy backs

The Company's A share price was at a discount to net asset value of 4.6 per cent. at 31 March 2012. The Company's B shares were at a premium to net asset value of 0.7 per cent at the same date. Over the year, the price of the Company's A shares traded at an average discount to net asset value per share of 5.5 per cent. and the Company's B shares traded at an average premium of 2.8 per cent. The Company has a stated buy back policy and, in accordance with this policy, the Company bought back 500,000 A shares during the year at an average discount of 5 per cent. to net asset value, thereby adding value for existing shareholders.  Since the financial year end, the Company has bought back a further 750,000 A shares.

Outlook

The outlook for the global economy in the coming year remains uncertain. Policy makers around the world are still struggling to restore stability and confidence in the aftermath of the worst economic and financial crisis of the modern era. The enduring nature of the Eurozone debt crisis remains the most significant challenge to financial markets in the year ahead. Against this uncertain backdrop, it is encouraging that UK corporate sector fundamentals remain strong and equity market valuation metrics reasonable.

Iain McLaren

Chairman

For further information, please contact:

Rodger McNair                                                                           Tel:        [phone]

Fund Manager to Investors Capital Trust plc

Michael Campbell

Company Secretary to Investors Capital Trust plc             Tel:        [phone]

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2012
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	1,406	1,406
Exchange differences		-	364	364
Revenue
Investment income		6,097	203	6,300
Total income		6,097	1,973	8,070
Expenditure
Investment management fee		(240)	(560)	(800)
Other expenses		(441)	-	(441)
Total expenditure		(681)	(560)	(1,241)
Profit before finance costs and tax		5,416	1,413	6,829
Net finance costs
Interest on bank loan and interest rate swap		(590)	(1,378)	(1,968)
Total finance costs		(590)	(1,378)	(1,968)
Profit before tax		4,826	35	4,861
Tax		(122)	(113)	(235)
Profit/(loss) for the year		4,704	(78)	4,626
Other comprehensive income
Gain on cashflow hedge		-	1,270	1,270
Total comprehensive income for the year		4,704	1,192	5,896
Earnings per share	2	3.70p	(0.06p)	3.64p

Consolidated Statement of Comprehensive Income (audited)

		Year to 31 March 2011
		£'000	£'000
	Note	Revenue	Capital	£'000
		Return	Return	Total
Capital gains on investments
Gains on investments held at fair value through profit or loss		-	4,195	4,195
Exchange differences		-	358	358
Revenue
Investment income		6,498	-	6,498
Total income		6,498	4,553	11,051
Expenditure
Investment management fee		(234)	(545)	(779)
Other expenses		(461)	-	(461)
Total expenditure		(695)	(545)	(1,240)
Profit before finance costs and tax		5,803	4,008	9,811
Net finance costs
Interest on bank loan and interest rate swap		(592)	(1,380)	(1,972)
Total finance costs		(592)	(1,380)	(1,972)
Profit before tax		5,211	2,628	7,839
Tax		(305)	284	(21)
Profit for the year		4,906	2,912	7,818
Other comprehensive income
Gain on cashflow hedge		-	1,141	1,141
Total comprehensive income for the year		4,906	4,053	8,959
Earnings per share	2	3.85p	2.28p	6.13p

Balance Sheets (audited)

as at 31 March 2012

		2012		2011
		Company	Group	Company	Group
	Note	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		131,090	130,840	136,774	136,524
Current assets
Other receivables		1,424	1,424	1,422	1,422
Cash and cash equivalents		11,452	11,452	8,306	8,306
		12,876	12,876	9,728	9,728
Total assets		143,966	143,716	146,502	146,252
Current liabilities
Bank loan		(33,496)	(33,496)	-	-
Interest rate swap		(749)	(749)	-	-
Bank overdraft		(123)	(123)	-	-
Other payables		(685)	(435)	(2,133)	(1,883)
		(35,053)	(34,803)	(2,133)	(1,883)
Non-current liabilities
Bank loan		-	-	(33,490)	(33,490)
Interest rate swap		-	-	(2,019)	(2,019)
		-	-	(35,509)	(35,509)
Total liabilities		(35,053)	(34,803)	(37,642)	(37,392)
Net assets		108,913	108,913	108,860	108,860
Share capital	5	134	134	134	134
Share premium		22	22	22	22
Capital redemption reserve		5	5	5	5
Buy back reserve	5	90,265	90,265	90,662	90,662
Special capital reserve		26,682	26,682	28,054	28,054
Capital reserves		(11,305)	(11,305)	(12,497)	(12,497)
Revenue reserve		3,110	3,110	2,480	2,480
Equity shareholders' funds		108,913	108,913	108,860	108,860
Net asset value per A share	6	85.94p	85.94p	85.56p	85.56p
Net asset value per B share	6	85.94p	85.94p	85.56p	85.56p

Consolidated and Company Cash Flow Statement (audited)

for the year to 31 March 2012

	Year to 31 March 2012	Year to 31 March 2011
	£'000	£'000
Cash flows from operating activities
Profit before tax	4,861	7,839
Adjustments for:
Gains on investments held at fair value through profit or loss	(1,406)	(4,195)
Exchange differences	(364)	(358)
Decrease in receivables	66	169
Increase/(decrease) in payables	17	(7)
Purchases of investments	(23,221)	(18,640)
Sales of investments	28,870	19,550
Net finance costs	1,968	1,972
	10,791	6,330
Tax (paid)/recovered	(7)	13
Net cash inflow from operating activities	10,784	6,343
Cash flows from financing activities
Dividends paid on A shares	(4,074)	(4,354)
Capital returns paid on B shares	(1,372)	(1,460)
Interest on bank loan and interest rate swap	(1,962)	(1,964)
Shares purchased for treasury	(397)	(328)
Net cash outflow from financing activities	(7,805)	(8,106)
Net increase/(decrease) in cash and cash equivalents	2,979	(1,763)
Currency gains	44	791
Opening net cash and cash equivalents	8,306	9,278
Closing net cash and cash equivalents	11,329	8,306

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2012

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 April 2011	134	22	5	90,662	28,054	(18,352)	5,855	2,480	108,860
Total comprehensive income for the year
(Loss)/profit for the year	-	-	-	-	-	(2,014)	1,936	4,704	4,626
Movement in fair value of interest rate swap	-	-	-	-	-	-	1,270	-	1,270
Total comprehensive income for the year	-	-	-	-	-	(2,014)	3,206	4,704	5,896
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(397)	-	-	-	-	(397)
Dividends paid on A shares	-	-	-	-	-	-	-	(4,074)	(4,074)
Capital returns paid on B shares	-	-	-	-	(1,372)	-	-	-	(1,372)
Balance as at 31 March 2012	134	22	5	90,265	26,682	(20,366)	9,061	3,110	108,913

Consolidated and Company Statement of Changes in Equity (audited)

for the year to 31 March 2011

	Share Capital	Share Premium	Capital Redemption Reserve	Buy Back Reserve	Special Capital Reserve	Capital Reserve - Investments sold	Capital Reserve - Investments held	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 April 2010	134	22	5	90,990	29,514	(18,096)	1,546	1,928	106,043
Total comprehensive income for the year
(Loss)/profit for the year	-	-	-	-	-	(256)	3,168	4,906	7,818
Movement in fair value of interest rate swap	-	-	-	-	-	-	1,141	-	1,141
Total comprehensive income for the year	-	-	-	-	-	(256)	4,309	4,906	8,959
Transactions with owners of the Company recognised directly in equity
Shares bought back for treasury	-	-	-	(328)	-	-	-	-	(328)
Dividends paid on A shares	-	-	-	-	-	-	-	(4,354)	(4,354)
Capital returns paid on B shares	-	-	-	-	(1,460)	-	-	-	(1,460)
Balance as at 31 March 2011	134	22	5	90,662	28,054	(18,352)	5,855	2,480	108,860

Investors Capital Trust plc

Principal Risks and Risk Management

The Company's assets consist mainly of listed equity and fixed interest securities and its principal risks are therefore market-related. More detailed explanations of these risks and the way in which they are managed are contained in the notes to the accounts.

Other risks faced by the Company include the following:

·      External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.

·      Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.

·      Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

·      Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

·      Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. Breaching loan covenants could lead to a loss of shareholders' confidence and financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting and reliance upon contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Investors Capital Trust plc

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

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year ended 31 March 2012, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions, if any, that have taken place during the financial year.

On behalf of the Board

Iain McLaren

Chairman                                                           

Notes (audited)

1.            The financial statements of the Group which are the responsibility of, and were approved by, the Board on 3 May 2012, have been prepared in accordance with the Companies Act 2006, International Financial Reporting Standards (''IFRS''), which comprise standards and interpretations approved by the International Accounting Standards Board (''IASB''), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (''IASC'') that remain in effect, and to the extent that they have been adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (''SORP'') for investment trusts issued by the Association of Investment Companies (''AIC'') in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the results on a basis compliant with the recommendations of the SORP.

2.            The Company's earnings per share are based on the profit for the year of £4,626,000 (year to 31 March 2011: £7,818,000) and on 95,107,106 A shares (2011: 95,543,076) and 32,051,703 B shares (2011: 32,051,703), being the weighted average number of shares in issue of each share class during the year. 

The Company's revenue earnings per share are based on the revenue profit for the year of £4,704,000 (year to 31 March 2011: £4,906,000) and on the weighted average number of shares in issue as above.

The Company's capital earnings per share are based on the capital loss for the year of £78,000 (year to 31 March 2011: profit of £2,912,000) and on the weighted average number of shares in issue as above.

3.            The Group results comprise those of the Company and those of Investors Securities Company Limited, a wholly owned subsidiary which deals in securities.

4.            The fourth interim dividend of 1.1p per A share, was paid on 4 May 2012 to A shareholders on the register at close of business on 10 April 2012, having an ex-dividend date of 4 April 2012. The fourth capital distribution of 1.1p per B share was paid on 4 May 2012 to B shareholders on the register on 10 April 2012.

5.            During the year the Company bought back 500,000 (2011: 400,000) A Shares to hold in treasury at a cost of £397,000 (2011: £328,000) and nil (2011: nil) B Shares to hold in treasury. The Company did not buy back any shares for cancellation nor resell any shares from treasury during the year (2011: nil).

At 31 March 2012 the Company held 7,389,000 (2011: 6,889,000) A Shares and 25,000 (2011: 25,000) B Shares in treasury.

Since the year end the Company has bought back a further 750,000 A Shares to hold in treasury at a cost of £624,000.

6.            The Company's basic net asset value per share of 85.94p (2011: 85.56p) is based on the equity shareholders' funds of £108,913,000 (2011: £108,860,000) and on 126,729,847 equity shares, consisting of 94,678,144 A Shares and 32,051,703 B Shares (2011: 127,229,847 equity shares, consisting of 95,178,144 A Shares and 32,051,703 B Shares), being the number of shares in issue at the year end.

The Company's shares may also be traded as units, each unit consisting of three A Shares and one B Share. The basic net asset value per unit as at 31 March 2012 was therefore 343.76p (2011: 342.24p).

The Company's treasury net asset value per share, incorporating the 7,389,000 A shares and 25,000 B shares held in treasury at the year end, was 85.72p (2011: 85.38p). The Company's treasury net asset value per unit at the end of the year was 342.88p (2011: 341.52p). The Company's policy is to only re-sell shares held in treasury at a price representing a discount of not more than 5 per cent to net asset value at the time of sale, together with other conditions. Accordingly, for the purpose of the calculation, such treasury shares are valued at the higher of net asset value less 5 per cent and the mid market share price at each year end.

7.            Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances, receivables and payables that arise directly from its operations and borrowings which include an interest rate swap. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve enhanced returns. The downside risk of borrowings can be reduced by raising the level of cash balances held. At 31 March 2012, borrowings were approximately equal in value to cash balances and fixed interest securities resulting in a net ungeared exposure to equities.

The Company may use derivatives for efficient portfolio management from time to time. The only derivatives used in the year and the prior year were the interest rate swap on the bank loan, forward foreign exchange currency contracts to hedge currency movements and the writing of call options over some investments held in the Equities Portfolio.

The fair value of the financial assets and liabilities of the Company at 31 March 2012 is not materially different from their carrying value in the financial statements.

The Company is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk.

The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the year under review.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

The Company's principal financial assets are bank balances and cash, other receivables and investments, which represent the Company's maximum exposure to credit risk in relation to financial assets. The Company did not have any exposure to any financial assets which were past due or impaired at the year end.

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. A list of pre-approved counterparties used in such transactions is maintained and regularly reviewed by the Manager, and transactions must be settled on a basis of delivery against payment. Broker counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the acceptable quality of the brokers used. The rate of default in the past has been insignificant.

All of the assets of the Company, other than the dealing subsidiary, are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to the securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings, normally rated A or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

The Company has no significant concentration of credit risk with exposure spread over a number of counterparties and financial institutions.

Market price risk

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The Group's strategy for the management of market price risk is driven by the Company's investment policy. The Board sets policies for managing this risk and meets regularly to review full, timely and relevant information on investment performance and financial results. The management of market price risk is part of the fund management process and is typical of equity and fixed interest investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investment and portfolio performance are discussed in more detail in the Manager's Review in the Annual Report.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the liquid nature of the portfolio of investments and the level of cash and cash equivalents ordinarily held. However, where there has been a deterioration in credit quality or an event of default the Company may not be able to liquidate quickly, at fair value, some of its investments in the Higher Yield Portfolio. Cash balances are held with reputable banks with a credit rating of normally A or higher, usually on overnight deposit. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

In certain circumstances, the terms of the Company's bank loan entitle the lender to demand early repayment and, in such circumstances, the Company's ability to maintain dividend levels and the net asset value attributable to equity shareholders could be adversely affected. Such early repayment may be required in the event of a change of control of the Company or on the occurrence of certain events of default which are customary for facilities of this type. These include events of non payment, breach of other obligations, misrepresentations, insolvency and insolvency proceedings, illegality and a material adverse change in the financial condition of the Company.

Interest rate risk

Some of the Company's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Company's exposure to floating interest rates gives cashflow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

Floating rate

When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate, which was 0.5 per cent at 31 March 2012 (2011: 0.5 per cent).

The Company's Equities Portfolio does not contain any fixed interest or floating rate interest assets.

The £33.5 million term loan has been classified as fixed interest as the variable rate loan has been fixed by an interest rate swap, of the same nominal value and duration as the loan.

Foreign currency risk

In order to achieve a diversified portfolio of higher yielding securities the Company invests partly in overseas securities which gives rise to currency risks. In the year to 31 March 2012, the Company entered into US Dollar and Euro foreign exchange currency contracts with a view to hedging these currency risks.

Given the policy to hedge currency risk on non-sterling denominated assets by entering into forward foreign exchange currency contracts, the weakening or strengthening of Sterling against either the US Dollar or Euro would not have had a significant net impact on the total column of the Consolidated Statement of Comprehensive Income for the year or the net asset value as at 31 March 2012.

8.            These are not full statutory accounts in terms of Section 434 of the Companies Act 2006. The full audited annual report and accounts for the year ended 31 March 2012 will be sent to shareholders in May 2012 and will be available for inspection at 80 George Street, Edinburgh, the registered office of the Company.  The full annual report and accounts will be available on the website maintained on behalf of the Company at www.investorscapital.co.uk .

The audited accounts for the year to 31 March 2012 will be lodged with the Registrar of Companies following the Annual General Meeting to be held on 14 June 2012.

 

END

 

 

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