Half-year Report

RNS Number : 3389Q

Investors Capital Trust PLC

28 November 2016

 

To:                   RNS

From:              Investors Capital Trust plc

Date:               28 November 2016

 

Interim Results

The Board of Investors Capital Trust plc announces the unaudited interim results of the Company for the six month period to 30 September 2016.

 

Highlights

·     Net asset value total return per share for the six months of 13.4 per cent, compared to the FTSE All-Share Capped 5% Index total return of 12.7 per cent.

·     Expected distribution yield of 4.8 per cent on A shares and 4.9 per cent on B shares at 30 September 2016, based on expected dividends for the year ended 31 March 2017. This compares with the yield on the FTSE All-Share Capped Index of 3.4 per cent.

·     Distributions paid quarterly. Interim dividends in respect of the period increased by 2.6 per cent compared to the prior year.

Chairman's Statement

Introduction

The decision of the UK to vote in favour of leaving the European Union, was contrary to investor expectations and as a consequence, resulted in sharp falls in both the UK equity market and Sterling. In contrast, gilts rallied as investors sought-out safe haven assets. This initial market weakness proved to be short-lived as investors began to consider the beneficial impact of the devaluation of Sterling on the predominantly overseas earnings base of the UK market. The majority of UK equity market revenues come from overseas, making the UK one of the most internationally diversified of the developed stock markets. Markets were also reassured by comments from Mark Carney, Governor of the Bank of England that the central bank would consider additional monetary stimulus in the event of any near-term impact on the UK economy. Indeed, in early August, the Bank of England reduced interest rates for the first time in seven years to a record low level of 0.25% and at the same time announced it would restart its asset purchasing, quantitative easing programme. Against this background the UK equity market quickly regained its composure and went on to end the period under review at close to record high levels, with the more internationally diversified large cap stocks outpacing their more domestically orientated mid and small cap counterparts.

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.

As at 30 September 2016, 85.3 per cent. of total assets was allocated to the Equities Portfolio and 8.1 per cent. to the Higher Yield Portfolio. The remaining 6.6 per cent. was held as cash and cash equivalents.

Investment Performance

Returns from the Equities Portfolio and the Higher Yield Portfolio, combined with the effect of borrowings, resulted in the net asset value total return for the A shares and B shares of 13.4 per cent. over the six months to 30 September 2016.  This return was ahead of the 12.7 per cent. total return for the benchmark FTSE All-Share Capped 5% Index. Since the Company's launch in March 2007, the net asset value total return for the A shares and B shares has been 82.0 per cent. which exceeds the 70.5 per cent. return from the benchmark index and reflects strong outperformance from the Equities Portfolio.

During the six months to 30 September 2016, the Company's Equities Portfolio produced a total return of 12.5 per cent. The Higher Yield Portfolio is invested in predominantly investment grade corporate bonds and returned 3.6 per cent. in total return terms for the six months to 30 September 2016.

Earnings, Dividends and Capital Distributions

The Company earned total revenue income of £2.9m for the six months. The yield on the Equities Portfolio was 3.8 per cent. as at 30 September 2016, compared to the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent.

Income from the Equities Portfolio rose by 4.6% compared with the same six month period last year which was in part due to the weakening of sterling relative to the US dollar. In total, special dividends added £76,000 to the revenue account during the period compared with £57,000 during the same period in the prior year.

Movements in the Sterling exchange rate, most notably against the US dollar, have an important influence on the Company's revenue as over a third of the Company's equity income comes from UK-listed companies that declare dividends in US dollars. Over the past year, the US dollar has risen in value by over 15% against Sterling, which benefits the Company's revenue when such receipts are translated back to Sterling. This welcome boost to the Company's revenue comes at a time when the outlook for UK dividends as a whole had deteriorated. As a result of the anaemic global economic growth backdrop and weak commodity prices many of the UK's larger, more mature businesses had seen profitability come under pressure and dividend cover erode. The mining sector has perhaps seen the highest profile dividend cuts with both Rio Tinto and BHP Billiton abandoning their progressive dividend policies earlier this year. The integrated oil companies, Royal Dutch Shell and BP, two of the largest dividend payers in the UK have so far chosen to maintain their dividends, however notwithstanding the modest recovery in the oil price since January, these payments remain under pressure.  The majority of investee companies have continued to generate reasonable growth in both earnings and dividends.

There has been a further reduction in assets allocated to the Higher Yield Portfolio in light of the low level of yields available on corporate bonds, particularly on higher quality, investment grade corporate bonds. Income from the Higher Yield Portfolio has consequently decreased, compared to the same period in the prior year. At the time of writing, the Higher Yield Portfolio accounts for 2.4% of the Company's total assets.

The Company's dividend for the year ending 31 March 2017 is estimated, barring unforeseen circumstances, to be 4.72p per share which represents an increase of 2.6 per cent compared to the prior year (2016: 4.60p per share).  The first three quarterly dividends will be paid in equal instalments of 1.17p per share and a fourth quarterly dividend of approximately 1.21p is expected to be paid to A shareholders. B Shareholders will receive capital repayments of the same amount per share at the same time as dividends are received by A shareholders.

The expected annual distribution level represents a yield for A shareholders of 4.8 per cent and B shareholders of 4.9 per cent. based on share prices as at 30 September 2016. For those shareholders that hold units (each comprising three A shares and one B share) the distribution yield on this unit holding would be 4.8 per cent. These yields compare favourably with the yield on the FTSE All-Share Capped 5% Index of 3.4 per cent. at that date. Dividends to A shareholders and capital repayments to B shareholders are paid quarterly in August, November, February and May each year.

After providing for the second quarter dividend, the Company had revenue reserves of £4.7m (approximately 5.37p per A share) at 30 September 2016.

Discount and buy backs

The Company's A share price and B share price stood at a discount of 8.1 per cent. and 9.1 per cent respectively at 30 September 2016. Over the six month period, the price of the Company's A shares traded at an average discount to net asset value per share of 7.8 per cent. and the Company's B shares traded at an average discount of 7.4 per cent.

During the six month period, the Company bought back 750,000 A shares and 200,000 B shares at average discounts of 8.3 per cent and 8.9 per cent respectively to be held in treasury.

Outlook

The pace of global economic recovery has improved little over recent years with the pattern of growth remaining fragile and uneven. Against a background of elevated geopolitical tensions and a rising tide of populism and protectionism, as evidenced by the outcome of the EU Referendum in the UK and the United States Presidential election, it is difficult to see a marked improvement in economic prospects for the year ahead. While global monetary conditions remain supportive for financial markets there is evidence that in the absence of broader structural reforms, monetary policy alone may not be sufficient to address the challenges of weak economic growth and low inflation. When viewed in the context of exceptionally low bond yields, equity valuations are not unreasonable and corporate sector fundamentals remain sound. The recent weakness in Sterling aside, the more challenging outlook for corporate earnings and dividends suggests stock selection will remain especially important in the year ahead.

Iain McLaren

Chairman

28 November 2016

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2016

	Six months to 30 September 2016
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value	-	13,674	13,674
Exchange differences	-	(377)	(377)
Investment income	2,911	-	2,911
Investment management fee	(140)	(328)	(468)
Other expenses	(153)	-	(153)
Profit before finance costs and taxation	2,618	12,969	15,587
Net finance costs
Interest on bank loan	(89)	(208)	(297)
Total finance costs	(89)	(208)	(297)
Profit before tax	2,529	12,761	15,290
Tax on ordinary activities	-	-	-
Profit for the period	2,529	12,761	15,290
Total comprehensive income for the period	2,529	12,761	15,290
Earnings per share	2.10p	10.59p	12.69p

All of the profit and comprehensive income for the period is attributable to the owners of the Company.

All items in the above statement derive from continuing operations.

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the six month period to 30 September 2015

	Six months to 30 September 2015
	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(9,361)	(9,361)
Exchange differences	-	(3)	(3)
Investment income	2,851	-	2,851
Investment management fee	(134)	(312)	(446)
Other expenses	(193)	-	(193)
Profit/(loss) before finance costs and taxation	2,524	(9,676)	(7,152)
Net finance costs
Interest on bank loan	(89)	(208)	(297)
Total finance costs	(89)	(208)	(297)
Profit/(loss) before tax	2,435	(9,884)	(7,449)
Tax on ordinary activities	-	-	-
Profit/(loss) for the period	2,435	(9,884)	(7,449)
Total comprehensive income for the period	2,435	(9,884)	(7,449)
Earnings per share	1.99p	(8.08)p	(6.09)p

Condensed Unaudited Consolidated Statement of Comprehensive Income

For the year to 31 March 2016

	Year to 31 March 2016*
	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments held at fair value	-	(6,640)	(6,640)
Exchange differences	-	(325)	(325)
Investment income	5,424	-	5,424
Investment management fee	(267)	(623)	(890)
Other expenses	(408)	-	(408)
Profit/(loss) before finance costs and taxation	4,749	(7,588)	(2,839)
Net finance costs
Interest on bank loan	(178)	(416)	(594)
Total finance costs	(178)	(416)	(594)
Profit/(loss) before tax	4,571	(8,004)	(3,433)
Tax on ordinary activities	-	-	-
Profit/(loss) for the period	4,571	(8,004)	(3,433)
Total comprehensive income for the period	4,571	(8,004)	(3,433)
Earnings per share	3.74p	(6.55)p	(2.81)p

*These figures are audited

Condensed Unaudited Consolidated Balance Sheet

	As at 30 Sept 2016	As at 30 Sept 2015	As at 31 March 2016*
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	136,460	125,346	127,605
	136,460	125,346	127,605
Current assets
Receivables	640	627	1,690
Cash and cash equivalents	9,289	8,994	7,264
	9,929	9,621	8,954
Total assets	146,389	134,967	136,559
Current liabilities
Bank loan	(18,000)	-	-
Payables	(310)	(332)	(2,031)
	(18,310)	(332)	(2,031)
Non-current liabilities
Bank loan	-	(18,000)	(18,000)
	-	(18,000)	(18,000)
Total liabilities	(18,310)	(18,332)	(20,031)
Net assets	128,079	116,635	116,528
Capital and reserves
Share capital	134	134	134
Share premium	153	153	153
Capital redemption reserve	5	5	5
Buy back reserve	84,204	86,425	85,092
Special capital reserve	20,319	21,789	21,058
Capital reserves	17,480	2,839	4,719
Revenue reserve	5,784	5,290	5,367
Shareholders' funds	128,079	116,635	116,528
Net asset value per A share	106.82p	95.33p	96.42p
Net asset value per B share	106.82p	95.33p	96.42p

*These figures are audited 

Condensed Unaudited Consolidated Statement of Changes in Equity

	Notes	Six months to 30 Sept 2016	Six months to 30 Sept 2015	Year to 31 March 2016*
		£'000	£'000	£'000
Opening equity shareholders' funds		116,528	126,886	126,886
Net profit/(loss) for the period		15,290	(7,449)	(3,433)
Shares bought back for treasury	10	(888)	-	(1,333)
Dividends paid on A shares	7	(2,112)	(2,068)	(4,126)
Capital repayments paid on B shares	7	(739)	(734)	(1,466)
Closing equity shareholders' funds		128,079	116,635	116,528

*These figures are audited

Condensed Unaudited Consolidated Cash Flow Statement

	Six months to 30 Sept 2016	Six months to 30 Sept 2015	Year to 31 March 2016*
	£'000	£'000	£'000
Net cash flow from operating activities	7,124	4,753	7,079
Net cash flow from financing activities	(4,711)	(3,099)	(6,844)
Net increase in cash and cash equivalents	2,413	1,654	235
Currency (losses)/gains	(388)	31	(280)
Net cash and cash equivalents at beginning of period	7,264	7,309	7,309
Net cash and cash equivalents at end of period	9,289	8,994	7,264

*These figures are audited

 Notes to the Condensed Accounts (unaudited)

1.    The condensed unaudited consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and the accounting policies set out in the statutory accounts of the Group for the year ended 31 March 2016. The condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2016, which were prepared under full IFRS requirements to the extent that they have been adopted by the European Union.

2.    Income for the period is derived from:

	30 Sept 2016	30 Sept 2015	31 March 2016
	£'000	£'000	£'000
Equity investments	2,581	2,468	4,626
Fixed interest investments	319	372	761
Deposit interest	10	11	29
Underwriting commission and other income	1	-	8
	2,911	2,851	5,424

3.    The Company's investment manager is F&C Investment Business Limited. F&C Investment Business Limited receives an investment management fee of 0.75 per cent per annum of the net asset value of the Company payable quarterly in arrears. 

4.    The earnings per share are based on the net profit for the period and on 120,454,847 shares (period to 30 September 2015 - 122,354,847; year to 31 March 2016 - 122,150,329), being the weighted average number of shares in issue during the period.

5.    Earnings for the six months to 30 September 2016 should not be taken as a guide to the results of the full year.

6.    The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, of investing in equity and higher yielding securities, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value measuring debt at fair value. The reconciliation between the measure of profit or loss used by the Board and that contained in the financial statements is as follows:

	30 September 2016		30 September 2015		31 March 2016
	£'000	Pence per share	£'000	Pence per share	£'000	Pence per share
Shareholders' funds per financial statements	128,079	106.82	116,635	95.33	116,528	96.42
Closing fair value adjustment on fixed-rate term loan	(171)	(0.14)	(123)	(0.10)	(156)	(0.13)
Shareholders' funds with debt at fair value	127,908	106.68	116,512	95.23	116,372	96.29
Profit/(loss) for the period per financial statements	15,290	12.69	(7,449)	(6.09)	(3,433)	(2.81)
Movement in fair value on fixed-rate term loan	(15)	(0.01)	(20)	(0.02)	(53)	(0.04)
Profit/(loss) for the period with debt at fair value	15,275	(12.68)	(7,469)	(6.11)	(3,486)	(2.85)

7.    Dividends and Capital Repayments

	Six months to 30 Sept 2016	Six months to 30 Sept 2015	Year to 31 March 2016
	£'000	£'000	£'000
In respect of the previous period:
Fourth interim dividend paid at 1.18p (2015: 1.15p) per A share	1,055	1,039	1,039
Fourth capital repayment paid at 1.18p (2015: 1.15p) per B share	371	368	368
In respect of the period under review:
First interim dividend paid at 1.17p (2015: 1.14p) per A share	1,057	1,029	1,029
First capital repayment paid at 1.17p (2015: 1.14p) per B share	368	366	366
Second interim dividend paid at 1.14p per A share	-	-	1,029
Second capital repayment paid at 1.14p per B share	-	-	366
Third interim dividend paid at 1.14p per A share	-	-	1,029
Third capital repayment paid at 1.14p per B share	-	-	366
	2,851	2,802	5,592

A second interim dividend for the year to 31 March 2017, of 1.17p per A share, was paid on 4 November 2016 to A shareholders on the register on 7 October 2016. A second quarter capital repayment of 1.17p per B share was paid on 4 November 2016 to B shareholders on the register on 7 October 2016. Although these payments relate to the period ended 30 September 2016, under IFRS they will be accounted for in the six months to 31 March 2017, being the period during which they are paid. 

8.    Investments held at fair value through profit or loss

	Group (Level 1) £'000
Opening book cost	108,112
Opening fair value adjustment	19,493
Opening valuation	127,605
Movement in the period:
Purchases at cost	7,530
Sales - proceeds	(12,349)
- gains on sales	2,628
Increase in fair value adjustment	11,046
Closing valuation at 30 September 2016	136,460
Closing book cost at 30 September 2016	105,921
Closing fair value adjustment at 30 September 2016	30,539
Closing valuation at 30 September 2016	136,460

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

·     Level 1 - quoted (unadjusted) prices in active markets for identical assets or liabilities.

·     Level 2 - other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. The Group held no such instruments during the period under review.

·     Level 3 - techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. The Group held no such instruments during the period under review.

There were no transfers between levels of the fair value hierarchy during the six months ended 30 September 2016.

9.    The Company has an £18 million secured term loan from JPMorgan Chase Bank. The facility has a term to 28 September 2017 and has a fixed interest rate of 3.15 per cent per annum, with an arrangement fee payable in addition of £18,000 per annum.

The fair value of the £18 million term loan, on a marked-to-market basis, was £18,171,000 at 30 September 2016 (30 September 2015 - £18,123,000; 31 March 2016 - £18,156,000).

10.  The Company bought back 750,000 A shares to hold in treasury during the period (period to 30 September 2015 - nil A shares; year to 31 March 2016 - 850,000 A shares) and 200,000 B shares (period to 30 September 2015 - nil B shares; year to 31 March 2016 - 650,000 B shares). The Company did not resell any A shares or B shares from treasury (period to 30 September 2015 - nil A or B shares; year to 31 March 2016 - nil A or B shares).

At 30 September 2016 the Company held 13,389,000 A shares and 850,000 B shares in treasury (30 September 2015 - 11,789,000 A shares and nil B shares; 31 March 2016 - 12,639,000 A shares and 650,000 B shares).

The Company did not issue any new shares during the period (period to 30 September 2015 - nil; year to 31 March 2016 - nil).

11.  The net asset value per share is based on shareholders' funds at the period end and on 88,678,144 A shares and 31,226,703 B shares, being the number of shares in issue at the period end (30 September 2015 - 90,278,144 A shares and 32,076,703 B shares; 31 March 2016 - 89,428,144 A shares and 31,426,703 B shares).

12.  Other than the bank term loan, as disclosed in note 9, the fair values of the Group's financial assets and liabilities are not materially different from their carrying values in the financial statements.

The Group's financial risk management objectives and policies are consistent with those disclosed in the Group's consolidated financial statements for the year ended 31 March 2016.

13.  In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council and have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's objective and policy, which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets held by its custodian and has agreements relating to its borrowing facilities with which it has complied. Cash is held only with banks approved and regularly reviewed by the Manager.

As part of the going concern review, the Directors noted that borrowing facilities of £18 million are committed to the Company until 28 September 2017.

The Directors believe, in the light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the accounts. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

14.  The Group results consolidate those of Investors Securities Company Limited, a wholly owned subsidiary which deals in securities.

15.  The Company's auditor, Ernst & Young LLP, has not audited or reviewed the Interim Report to 30 September 2016 pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information'. These are not full statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 31 March 2016, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after 31 March 2016 have been reported on by the Company's auditor or delivered to the Registrar of Companies.

The Interim Report will be posted to shareholders during December and will be available on the website: www.investorscapital.co.uk 

Statement of Principal Risks and Uncertainties

Most of the Company's principal risks are market related and comparable to those of other investment trusts investing primarily in listed securities. These risks, and the way in which they are managed, are described under the heading 'Principal Risks and Viability Statement' within the Strategic Report in the Group's Annual Report for the year ended 31 March 2016. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Group's financial year. The most important types of risk associated with financial instruments are credit risk, market price risk, liquidity risk, interest rate risk and foreign currency risk. Other risks faced by the Company include investment and strategic, regulatory, operational and custody risks.

Statement of Directors' Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

·     the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

·     the Chairman's Statement (constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and

·     the Chairman's Statement together with the condensed set of consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Iain McLaren

Director

28 November 2016

For further information, please contact:

Rodger McNair, Fund Manager                                   0207 628 8000

Ian Ridge, Company Secretary                                  0207 628 8000

 

END

 

 

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